Have you found yourself with extra cash? Lucky you! Laura’s 3-step system will help you spend, invest, or save it wisely.
Laura Adams, MBA
October 21, 2020
investing your emergency money unless you have more than a six-month reserve.
The goal for an emergency fund is safety, not growth.
If you don’t have enough saved, aim to bridge the gap over a reasonable period. For instance, you could save one half of your target over two years or one third over three years. You can put your goal on autopilot by creating an automatic monthly transfer from your checking into your savings account.
Megan mentioned using high-yield savings, which can be a good option because it pays a bit more interest for large balances. However, the higher rate typically comes with limitations, such as applying only to a threshold balance, so be sure to understand the account terms.
Insurance protects your finances
Another critical aspect of preparing for the unexpected is having enough of the right kinds of insurance. Here are some policies you may need:
RELATED: How to Create Foolproof Safety Nets
How to invest for your future
Once you get as prepared as possible for the unexpected by building an emergency fund and getting the right kinds of insurance, the next goal I mentioned is investing for retirement. That’s the “I” in PIP, right behind prepare for the unexpected.
Investments can go down in value—you should never invest money you can’t live without.
While many people use the terms saving and investing interchangeably, they’re not the same. Let’s clarify the difference between investing and saving so you can think strategically about them:
Saving is for the money you expect to spend within the next few years and don’t want to risk losing it. In other words, you save money that you want to keep 100% safe because you know you’ll need it or because you could need it. While it won’t earn much interest, you’ll be able to tap it in an instant.
Investing is for the money you expect to spend in the future, such as in five or more years. Purchasing an investment means you’re exposing money to some amount of risk to make it grow. Investments can go down in value; therefore, you should never invest money you can’t live without.
In general, I recommend that you invest through a qualified retirement account, such as a workplace plan or an IRA, which come with tax benefits to boost your growth. My recommendation is to contribute no less than 10% to 15% of your pre-tax income for retirement.
Magen mentioned Roth IRAs, and it may be a good option for her to rebuild her retirement savings. For 2020, you can contribute up to $6,000, or $7,000 if you’re over age 50, to a traditional or a Roth IRA. You typically must have income to qualify for an IRA. However, if you’re married and file taxes jointly, a non-working spouse can max out an IRA based on household income.
For workplace retirement plans, such as a 401(k), you can contribute up to $19,500, or $26,000 if you’re over 50 for 2020. Some employers match a certain percent of contributions, which turbocharges your account. That’s why it’s wise to invest enough to max out any free retirement matching at work. If your employer kicks in matching funds, you can exceed the annual contribution limits that I mentioned.
RELATED: A 5-Point Checklist for How to Invest Money Wisely
How to pay off high-interest debt
Once you’re working on the first two parts of my PIP plan by preparing for the unexpected and investing for the future, you’re in a perfect position also to pay off high-interest debt, the final “P.”
Always tackle your high-interest debts before any other debts because they cost you the most. They usually include credit cards, car loans, personal loans, and payday loans with double-digit interest rates. Remember that when you pay off a credit card that charges 18%, that’s just like earning 18% on an investment after taxes—pretty impressive!
Remember that when you pay off a credit card that charges 18%, that’s just like earning 18% on an investment after taxes—pretty impressive!
Typical low-interest loans include student loans, mortgages, and home equity lines of credit. These types of debt also come with tax breaks for some of the interest you pay, making them cost even less. So, don’t even think about paying them down before implementing your PIP plan.
Getting back to Bianca’s situation, she didn’t mention having emergency savings or regularly investing for retirement. I recommend using her upcoming cash windfall to set these up before paying off a low-rate student loan.
Let’s say Bianca sets aside enough for her emergency fund, purchases any missing insurance, and still has cash left over. She could use some or all of it to pay down her auto loan. Since the auto loan probably has a higher interest rate than her student loan and doesn’t come with any tax advantages, it’s wise to pay it down first.
Once you’ve put your PIP plan into motion, you can work on other goals, such as saving for a house, vacation, college, or any other dream you have.
Questions to ask when you have extra money
Here are five questions to ask yourself when you have a cash windfall or accumulate savings and aren’t sure what to do with it.
1. Do I have emergency savings?
Having some emergency money is critical for a healthy financial life because no one can predict the future. You might have a considerable unexpected expense or lose income.
Without emergency money to fall back on, you’re living on the edge, financially speaking. So never turn down the opportunity to build a cash reserve before spending money on anything else.
2. Do I contribute to a retirement account at work?
Getting a windfall could be the ticket to getting started with a retirement plan or increasing contributions. It’s wise to invest at least 10% to 15% of your gross income for retirement.
Investing in a workplace retirement plan is an excellent way to set aside small amounts of money regularly. You’ll build wealth for the future, cut your taxes, and maybe even get some employer matching.
3. Do I have an IRA?
Don’t have a job with a retirement plan? Not a problem. If you (or a spouse when you file taxes jointly) have some amount of earned income, you can contribute to a traditional or a Roth IRA. Even if you contribute to a retirement plan at work, you can still max out an IRA in the same year—which is a great way to use a cash windfall.
4. Do I have high-interest debt?
If you have expensive debt, such as credit cards or payday loans, paying them down is the next best way to spend extra money. Take the opportunity to use a windfall to get rid of high-interest debt and stay out of debt in the future.
5. Do I have other financial goals?
After you’ve built up your emergency fund, have money flowing into tax-advantaged retirement accounts, and are whittling down high-interest debt, start thinking about other financial goals. Do you want to buy a house? Go to graduate school? Send your kids to college?
How to manage a cash windfall
Review your financial situation at least once a year to make sure you’re still on track.
When it comes to managing extra money, always consider the big picture of your financial life and choose strategies that follow my PIP plan in order: prepare for the unexpected, invest for the future, and pay off high-interest debt.
Review your situation at least once a year to make sure you’re still on track. As your life changes, you may need more or less emergency money or insurance coverage.
When your income increases, take the opportunity to bump up your retirement contribution—even increasing it one percent per year can make a huge difference.
And here’s another important quick and dirty tip: when you make more money, don’t let your cost of living increase as well. If you earn more but maintain or even decrease your expenses, you’ll be able to reach your financial goals faster.
If buying a home is your next financial goal, then you may have heard about mortgage insurance. Mortgage insurance is probably not what you expect it to be. We will cover what you need to know about mortgage insurance before you buy your future home.
What is mortgage insurance?
Mortgage insurance is a way for lenders to protect themselves from high-risk borrowers. The mortgage payments allow lenders to compensate for any losses due to defaulting on a mortgage loan.
When you think of insurance of any kind, you typically think that the insurance would help you in times of need. Instead, this helps mortgage lenders to limit the risk from borrowers, which allows for more lending to happen.
The mortgage insurance payments protect the mortgage lender. It does not protect you in any way if you fall behind on your monthly payments.
Mortgage insurance makes the home buying process more expensive for the borrower. However, it will make it possible for some to buy a home at all. If your down payment is less than 20%, then receiving a loan with mortgage insurance attached may be the best (and only) way to secure a home loan.
How Mortgage Insurance Works
As the borrower, you would need to pay extra money to the lender as a form of insurance. The method of payment can vary by lender.
You may need to pay an upfront fee or a monthly insurance payment that is added to your mortgage payment. Some lenders may even require both an upfront fee and an additional monthly payment.
The payment amount will vary widely based on your own credit, loan amount, and ability to pay the mortgage. Typically, low-risk borrowers will be entitled to lower mortgage insurance costs. High-risk borrowers should expect to pay a higher mortgage insurance premium.
The borrow is basically paying for the privilege of borrowing the money even though the borrower has a high associated risk.
Why would I get mortgage insurance?
Borrowers are required to pay mortgage insurance if they make a down payment of less than 20% of the home purchase price. Many federal programs like the FHA and USDA loans also require mortgage insurance as a part of the loan conditions.
If you are purchasing a home through a loan, your lender may require that you purchase mortgage insurance. You may have no choice in the matter if your lender dictates that you must purchase mortgage insurance to receive the loan.
It is generally not helpful for your financial situation to sign up for mortgage insurance. If you have the option to skip mortgage insurance, then that may be a good choice, depending on your situation. Otherwise, you will be paying for your lender to be protected, but you will not gain anything in the process.
What are the common types loans that require mortgage insurance?
There are many different kinds of home loans. Each type of loan has a slightly different type of mortgage insurance associated with it for some high-risk borrowers. We will cover the most common kinds below.
Conventional loans are typically offered through private companies. Depending on your down payment amount and your credit score, the private lender may require private mortgage insurance (PMI) as a condition of the conventional loan.
The amount of private mortgage insurance will also vary based on the down payment, loan amount, and your credit history. Higher credit scores and down payments will generally lead to lower required mortgage insurance premiums.
With private mortgage insurance, the premiums are usually paid out monthly with no initial upfront fee. You may also have the ability to cancel your private mortgage insurance in certain situations.
Department of Veterans’ Affairs Loans
If you are a service member or a veteran, you have likely heard of the VA loan. The idea is to help these honorable men and women purchase homes.
The VA will back your loan, so there are no monthly mortgage insurance fees required. However, you may need to pay an upfront funding fee that will act as mortgage insurance. The initial funding fee will vary based on your military history, down payment, credit score, and several other factors.
Although the upfront funding fee is not termed as mortgage insurance, the idea is the same.
US Department of Agriculture Loans
USDA loans offer great mortgage rates meant to help low to moderate-income home buyers in rural areas. The hope is that these loans will help to infuse life back into rural areas.
The loans offer zero down payments to home buyers, but mortgage insurance is required. A USDA loan requires that you pay an upfront premium as well as monthly premiums.
Federal Housing Administration Loans
FHA loans are insured by the Federal Housing Administration but are completed through private lending companies.
FHA loans offer another low down payment option for people with lower credit scores. However, there is an enforced maximum loan limit that varies by county.
Every loan insured by the FHA requires mortgage insurance. You pay the annual mortgage insurance premium (MIP) monthly for the life of the FHA loan. The upfront and monthly mortgage insurance premium amounts vary by loan, but you can expect to pay it with FHA loans.
See also: FHA Loan Requirements for 2021
Can I avoid paying for mortgage insurance?
The easiest way to avoid mortgage insurance is by making a down payment of 20% or more. Of course, this is not feasible for every situation. Depending on your current financial picture, you may need to pay for mortgage insurance in order to purchase a home.
Alternatively, you can request to have your PMI canceled once the equity in your home reaches 20% of the purchase price or appraised value.
Mortgage insurance is a required expense for many home buyers. If you are unable to make a 20% down payment on your home purchase, you will likely be required to pay for mortgage insurance.
I have partnered with Energy Ogre in this Energy Ogre review. All opinions are 100% my own. You can use Energy Ogre promo code MSOC to receive a free month of Energy Ogre service (the 13th month free).
Do you want to save money on your electricity bill?
If you live in Texas, then this article is for you!
Unfortunately, many households in Texas overpay for their monthly electricity bill.
But, that doesn’t mean you can’t change that.
There are plenty of ways to save money on electricity, and one of them is to use Energy Ogre.
Energy Ogre saves members $800 to $1,200 each year on average, so people are actually excited to get their electricity bill, instead of dreading it.
Energy Ogre shops the market for their members, and analyzes the available electricity plans from hundreds of providers, then selects the best one based on the member’s energy usage.
If you live in Texas, this is a really easy opportunity to save some extra money.
You can use Energy Ogre promo code MSOC to receive a free month of Energy Ogre service (the 13th month free).
What is Energy Ogre?
Energy Ogre is an electricity management company that monitors the market to make sure their members are on the best value electricity plan for their home. This gives their members access to the most affordable electricity plans.
Energy Ogre has helped thousands of homes, and the average Energy Ogre member saves over 40% on their electricity bills.
Energy Ogre saves you time and money, and I think that’s a no brainer!
They also have a free savings calculator that will tell you immediately how much money you will save, which I highly recommend. Just try it out to see if you can save any money.
You can sign up for Energy Ogre here.
How does Energy Ogre work?
Energy Ogre is super simple!
Once you sign up, they handle finding the best electricity provider for you, so that you can save the most money and have the best electricity plan for your household.
Then, they continually monitor your electricity contract to make sure that you have the lowest rate.
Luckily, in Texas you have the freedom and option to choose your electricity provider. However, many people don’t realize this or they think it’s too much of a hassle to switch. And, many times, most people simply don’t realize how much money that they could be saving each month!
How much is Energy Ogre?
Energy Ogre is a membership service that costs $10 a month, or $120 per year. This fee is separate from your electricity bill.
Even though Energy Ogre costs a little bit of money, you’ll most likely see great savings, as statistically most people are overpaying in Texas!
Remember, Energy Ogre saves members on average $800 to $1200 each year.
Is Energy Ogre legit?
Yes, Energy Ogre is paid for by members like you, instead of electricity companies. Since they are completely independent, you know that YOU are their focus.
Some of the tasks that Energy Ogre does include:
Energy Ogre monitors the electricity market to make sure you are always on the most affordable plan.
They receive custom, below-market rates to save you the most money.
They stay ahead of your renewals so that you are always getting the best pricing.
They provide tools to better manage your electricity consumption.
Yes, you could find your own electricity plan, but using Energy Ogre can save you a ton of time, and they know what they are doing. Energy Ogre reads all of the fine print, knows about all of the surprise fees, and they do all of the calculations for you.
So, you’ll be in good hands with Energy Ogre.
How can I cut my electricity bill?
If you want to cut your electricity costs even more, here are many other ideas that can help you save even more money:
Instead of using your air conditioner, use fans. Fans use a lot less electricity than AC.
Regularly change the filter on your AC or furnace.
Unplugging unused electronics. Computers, TVs, chargers, and more all use power even when they’re turned off.
Changing your heat or air conditioner temperature so that they turn on less often and use less power.
Keeping your refrigerator doors closed, as it uses energy to cool it back down after you are done.
Turning off lights around your home.
Using a programmable thermostat. With a programmable thermostat, you can set the temperature at exactly what you want it to be for different times throughout the day. This way you don’t have to constantly change it as it will automatically change on a set schedule.
And of course, sign up for Energy Ogre!
If you live in Texas, Energy Ogre can help you save hundreds of dollars a year.
You can use Energy Ogre promo code MSOC to receive a free month of Energy Ogre service (the 13th month free).
What do you do to save on your electricity bill each month? How much is your monthly bill usually?
When Jeff Neal’s wife told him she wanted to quit her job to stay at home with their kids, he had to think about how to make one income work. With over $21,000 in student loans, there wasn’t much extra money lying around. Losing another income stream would be difficult.
But rather than give up hope, Neal did something no one expected. He launched a side business that helped bring in extra money: selling crickets online.
Yes, you heard that right. Crickets.
Now, Neal makes $600 a month selling bugs online at The Critter Depot, which helps him pay off his debt. Read on to learn more about this odd side hustle and how Neal has turned it into a steady income stream.
Searching for a Side Hustle
Neal graduated from Temple University and got a job as a project manager. While he made a good salary, he had student loan debt and a growing family. When his wife decided she wanted to stay home with the kids, Neal knew he had to make changes.
“My wife wanted to stay home, so I had to take full responsibility as the sole provider,” he says.
Since his full-time job involves e-commerce, he focused his side-hustle search on online jobs. After doing extensive research, he decided to put all of his efforts on one specific niche.
The area that he identified was in the pet industry; reptile and exotic animal owners need live crickets to feed their pets, but getting them can be difficult — and expensive. So, Neal’s site caters to pet owners, selling crickets of various sizes in bulk.
But before you rush out and buy tanks and crickets to replicate Neal’s success, you should know his approach is even more interesting. He actually doesn’t deal with the crickets at all. Instead, his business is a drop shipping company.
What Is Drop Shipping?
Drop shipping is a business model where the store doesn’t stock any of the items it sells. Instead, when a customer purchases a product, the drop shipper works with a manufacturer — or in this case, a cricket supplier — to fulfill the order. The drop shipper never comes into contact with the product, so wrangling crickets isn’t part of Neal’s day.
“I don’t know anything about raising crickets,” he admits. “They have short life spans and unique nutritional and environmental needs. It’s a lot of work that takes a lot of knowledge. When I set up my business, I found someone who breeds crickets. He takes care of them and ships them; I just handle the orders.”
For customers, drop shipping is a seamless process, whether it’s through Amazon or a private site. Most of the time, you don’t know when you’re buying from a drop shipper. Once your order is placed, the drop shipper works with the supplier to place the order, and you receive the item like you normally would.
Drop shipping can be a mutually beneficial relationship between the seller and supplier. In Neal’s case, he has the marketing expertise and skills to build a successful website and business. That gets the cricket farmer more exposure and more orders than he would get on his own. Neal estimates that he generates about $3,000 in sales each month from The Critter Depot and his cut is $600.
Previously, Neal primarily sold crickets on Amazon. But meeting Amazon’s strict standards is hard when you’re shipping live insects. He ended up taking his sales to just his website, which requires more work for him each day to build traffic.
His new income stream allows him to take advantage of other opportunities, too. He recently purchased the site Jason Coupon King, which generates another $700 a month in revenue.
Balancing a Side Gig With Life & Work
While Neal’s side hustle is successful, he has to balance his work with his full-time job and his family. But that’s why he says drop shipping is a great option. It gives him the flexibility he needs while still allowing him to earn extra money.
“I don’t have a television, so when I come home from work, I just spend time playing with the kids and catching up with my wife,” says Neal. “Once they’re in bed, I work on optimizing my websites, contributing to forums and building links to my sites.”
Neal says he spends an hour or two a day after work on his side hustle and that his business is still growing. The extra income is substantial enough to help him pay off his student loans early and give his family more wiggle room in their monthly budget. (You can keep tabs on your own finances by viewing two of your credit scores for free on Credit.com.)
Making Extra Money
While selling crickets might not be for you, Neal’s story is just another example of the many ways you can make money on the side. If you’re struggling to make ends meet, or need more income to pay down debt or boost your emergency fund, launching a side hustle can be the right approach.
Are you at the point where you’re ready to invest more in retirement each month but aren’t quite sure how? Maybe you want to increase your savings rate but the numbers don’t add up. I’ve always said that saving something is better than nothing. If you can’t max out savings like your retirement account, it’s not a big deal and you can always work your way up to this goal year after year. We’ve put together 5 sacrifices to max out your retirement account.
Right now, the maximum contribution limits for a 401(k) is $19,000 and $6,000 a traditional or Roth IRA. This year, I was finally able to max out my retirement account contributions for the first time. I know how it seems like you’d have to fork over a lot of money each year to do the same thing, and that’s because you will. However, you can save enough to max out your retirement for the year and still live a comfortable life.
You may have to make some sacrifices, but they may not produce super drastic changes to your budget or your lifestyle. Here are 5 reasonable sacrifices to help max out your retirement account next year and every year afterward.
One thing that you can sacrifice to help you max out your retirement account is your car. While you can probably save a ton of money by not having a car especially if you live in a big city, you don’t have to give up owning a car completely. My husband and I both drive older paid-off cars and we love it. With the average car payment hovering around $400 to $500 per month, that’s a lot of money to fork over each month just to drive.
In fact, $500 per month is all you need to max out an IRA right now since the annual contribution limit for anyone under 50 is $6,000. Since cars depreciate in value so much, it often doesn’t make financial sense to buy a brand new car. Used cars can be paid off quicker and you may even be able to buy a decent used car in cash. From there, you can use that money that you would save by not having a car loan and put it toward retirement savings.
Here are 5 reasonable sacrifices to help max out your retirement account . Click To Tweet
Live in a Smaller Home
My husband and I are sacrificing our dream home right now and I’m totally fine with that. We bought our first home a few years ago when we were 26 and 29 years old. It’s a nice starter home and it’s small. We don’t even have a basement but our family size is small right now so it’s fine. By having a smaller home and making it work, we save a ton of money on our mortgage, maintenance, repairs, and cleaning.
Now, would I love to have more space, walk-in closets or an extra enclosed room to serve as my office? Sure, but it’s not killing me that we live in a 1,300 sq ft home and instead I’m choosing to focus on what I love and enjoy about our home. I love how we have an extra bathroom and a nice fireplace in the family. We always have a decent-sized yard with a wrap-around deck and garden boxes that were already set up when we moved. Even though we are technically ‘sacrificing’ our dream home right now, I know that we will buy it later down the line and I’m content with where we’re at now.
RELATED: 6+ Easy Ways to Save Thousands on Home Repair
Some people give up traveling to pay off debt and save more. You don’t have to do this even if you’re willing to make sacrifices to max out your retirement next year. Instead of giving up travel altogether, find ways to make it more affordable so you can go on trips, and still invest generously. This is why I love frugality. Being frugal allows you to get creative and use the resources available to spend wisely on your values and save where you can.
Instead of paying for flights full price, you can wait for sales or sign up for a rewards credit card. Instead of spending tons of money on a hotel, see if you can stay with a friend or relative when you travel or book an Airbnb. Usually, when I travel, I’m not super picky about where I stay so long as it’s clean. I also plan to cook some meals if possible if our accommodations allow it.
I’ll usually book an Airbnb or a suite with full kitchen access so I can prepare breakfast and snacks. You don’t have to dine out for all 3 meals when you travel and breakfast is one of the easiest meals to prepare whether you have full access to a kitchen or not.
RELATED: How to Plan for Budget Travel This Year
Delay Your Gratification
We live in a society where people want everything fast and right now. This often leads to getting items and services before you can pay for them in full. If you want to avoid debt and living above your means, practice delayed gratification regularly and budget for larger purchases instead of financing them.
My husband and I used to have a ton of credit card debt, student loans, personal loans, and car loans. This debt really ate into our disposable income. Even after paying it off, I’ve still been tempted to finance things like furniture and other purchases. I choose not to and to delay my gratification. By simply waiting and planning, I save a lot of money and do a better job of committing to live below my means.
When you slow down on financing purchases and making impulse buys regularly, you’ll find that your budget is not so tight. You may even wind up with thousands extra each year that you can invest.
Time is not a renewable asset. Once you use your time, it’s gone. You can never go back or relive a day where you wasted time. Keep this in mind when considering sacrifices to max out your retirement account. However, it should also be motivation to make good use of your time especially when it comes to working and earning extra money. If you’re looking to start maxing out your retirement account, odds are you’re still earning an active income where you’re trading time for money. If you want to earn more or increase your savings rate, you may have to get a second job or a side hustle.
Even if you want to establish a passive stream of income, you’ll need to dedicate time or energy to get that idea off the ground. Of course, sacrificing your time to work is not a waste. You can even make the most of your effort by choosing work that is enjoyable and fulfilling. Or start a side business where you can do things you love and still make good money.
Try to stick to your budget and save your money wisely to make it all worth it in the end. Pay yourself first consistently and remain dedicated to your goal in order to max out your retirement next year and each year afterward.
If you’re looking to make a little extra cash, and help others while you’re at it, you may want to consider donating plasma.
Thousands of Americans across the country are lining up to earn a little extra cash through blood plasma donation. The plasma donation process is similar to giving blood but does take a little longer. Thankfully you can be compensated for your time.
Donating plasma offers the potential to earn $300 to $400 a month. Before you get started, however, you need to be aware of what’s involved to help you make an informed decision.
ABC News that 94% of paid plasma that was used to create medicines around the world, was donated by American donors.
Blood plasma is the part of the blood that’s actually a clear liquid. It consists of water, enzymes, antibodies, and proteins. Plasma donation is different from giving blood at the Red Cross, however.
To obtain the clear plasma, your blood is drawn, then the plasma is separated. The blood is then returned to your body.
There are hundreds of donation centers around the country. However, to donate, you must typically meet some basic requirements.
You must be aged 18 to 69
You must weigh over 110 pounds
You must have proper levels of iron, hemoglobin, and blood
You need to pass a basic physical and be free of infectious diseases
You must have a legal Social Security Card or government ID to prove that you’re a citizen.
The rules can vary according to your home state. Local laws may even override the requirements of the plasma donation center. For example, some states have a higher age requirement than the typical center age of 18.
Some states also have rules prohibiting people with piercings or tattoos from donating. There may also be a minimum number of donations permitted within a specified timeframe.
If you don’t qualify as a plasma donor, you may be given a temporary or permanent deferral. Temporary deferrals occur if you’re sick, your blood, iron or hemoglobin levels are too low, or you’re recovering from a procedure. You’ll be advised on what to do and when you can return to donate plasma for money.
Permanent deferrals typically result from your age, weight, or if you have a medical condition that could negatively affect you or the recipient of your blood plasma. However, if you believe the permanent deferral was given in error, you can obtain a second medical opinion to try to overturn the decision.
How To Prepare To Donate Plasma
In order to donate plasma, you will need to hydrate, avoid alcohol and caffeinated drinks, eat healthily, and prepare the necessary paperwork.
Before you visit a plasma donation center, you will need to drink plenty of fluids and eat heart-healthy meals such as vegetables, fruits, and fish. You should also try to avoid high cholesterol, fatty foods.
Being properly hydrated is crucial, so you should drink plenty of water the day before and the day of donation. Caffeinated drinks and alcohol are diuretics, so it is best to avoid them, as they can dehydrate you.
When you arrive at the center, you will need to present your Social Security card, a photo ID and proof of address. Your name and address should match on all of your documentation.
What’s Involved In Donating Plasma?
If you’re a first time donor, you should plan for your visit to the center to take up to two hours. When you arrive at the center, you’ll be asked to complete a health history and go through a basic physical. This can include a heart check, urine test, and reflex test. They will also prick your finger to test your iron, blood, and hemoglobin levels.
Once they are ready for you to begin donating, you’ll be sat in a semi-reclining chair. The actual process looks similar to standard blood donation. However, as the process is more involved compared to donating blood, the actual donation part takes up to an hour.
When your blood is drawn, the center team separates the plasma using a plasmapheresis machine, and the blood will be returned to your body.
If you choose to donate again, the process will be quicker. Future donations typically take an hour, since you only need to confirm nothing has changed about your medical situation.
If you plan on donating plasma regularly, bear in mind that there are limits. Generally, you can donate no more than twice a week, but you need to leave 24 to 48 hours between donations. This allows your body enough time to replace the lost plasma. However, drinking plenty of water can assist in this process.
One common concern is if it will hurt to donate plasma. However, the discomfort involved is similar to donating blood.
In addition to the finger prick, the technician will use an IV and needle to draw your blood and return the plasma free blood to your body. When the blood is returned, it is mixed with saline. This can make it cold, which can cause a little discomfort. So, it is a good idea to bring a jacket or blanket.
Obviously, if you start to feel very uncomfortable during donation, tell the technician immediately.
How Much Can You Earn Via Your Plasma Donations?
If you choose to donate twice a week, there is the potential to make up to $400 a month or up to $50 per donation. That’s not too shabby, given that it will typically take 60 to 90 minutes per visit.
There are factors that will determine your earning potential for plasma donation, however. In addition to how often you donate, your weight, the quantity of plasma you donate, and which donation center you use will influence your earnings.
Typically, if it is your first time donating plasma, you’ll make more. Many centers have incentives for new donors, and since the process takes longer, you’re compensated accordingly.
Additionally, the FDA requires that plasma donations correspond with body weight. So you’ll get paid more if your body weight is more, since you can donate more plasma. Generally, the weight ranges are split up in ranges similar to this:
110 to 149 pounds
150 to 174 pounds
175 to 400 pounds
Also, you may have a certain type of protein that’s in high demand. If you carry this type of protein in your plasma, the center may offer you more money.
Some centers also offer “frequent flyer” incentives. So, you’ll receive more per donation if you regularly visit the same centers.
Where Can I Donate Plasma?
A great place to start when looking for the highest paying plasma donation center near you is to check out the website DonatingPlasma.org. It has an easy to use search tool where you can plug in your city/zip and it will show you centers near you.
Although the FDA inspects donation centers to ensure compliance with the laws, it does not own or manage them. These centers are operated by third-party for-profit companies, and there is no central organization that receives plasma. You’ll need to either use a site like DonatingPlasma.org or search Google for “plasma donation near me” and ensure you choose an FDA compliant location.
Highest-Paying Plasma Donation Centers
Plasma donation is a competitive business. It is worth comparing the earning potential if you have multiple centers in your local area. You may even find you can obtain higher than typical payouts.
A good starting point is to look for first-time plasma donor bonuses. Many centers promote bonuses on their websites (many of which you’ll find below). This could allow you to earn $500 in your first month rather than $300. Donation centers also run promotions where you can earn more if you return to donate again. Although it can feel strange to see promotions and coupons on a donation site, this is how the industry works, so be sure to take advantage of the best deal.
Here are some of the trusted donation centers in different states and what you can expect to be paid.
B Positive Plasma
B Positive Plasma is one of the highest paying plasma donation centers out there, but they currently only have locations in MD and NJ.
You can earn up to $500 a month, and they sometimes have promos for first-time donors where you can get $50 per donation for your first five donations.
You’ll get paid fast via a Visa Debit card and you can earn even more by referring a friend!
Biolife operates in 28 states in the USA, including AZ, AR, CO, FL, GA, IA, ID, IL, IN, MI, MN, MO, MT, NC, ND, NE, OH, OK, PA, SC, TN, TX, UT, VA, WA, WV, WI, WY.
New donors at certain centers can earn bonuses, which offers the potential to earn up to $600 in your first month. Centers also run local promotions. The typical rate is up to $50 per donation. Payments are made with a Biolife prepaid debit card.
Biotest Plasma Center
Biotest Plasma Center has locations in AR, FL, GA, IA, NC, NE, NM, OH, PA, SC, SD, TX. You can earn up to $50 for the first five donations, and subsequent donations will earn you $35 to $45. There are also sweepstakes and bonuses when you refer a friend, which can boost your earnings. Payment is made via a Mastercard prepaid debit card.
BPL Plasma has centers in AR, AZ, CO, FL, IL, KY, ME, MN, MO, NC, NM, OH, OK, TX. They offer up to $50 for your first five donations, but there are seasonal promotions to boost your earnings.
However, BPL Plasma requires donors to be 18 to 65, rather than 69 and not to have had any tattoos or piercings in the last 12 months.
CSL Plasma has locations in AL, AZ, CO, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, MD, MI, MN, MS, MO, NE, NC, NJ, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, WA, WV, WI. There are also multiple locations within the same state. For example, in Alabama, there are Birmingham, Auburn, and two Montgomery centers.
You can earn up to $50 per donation, with a potential for up to $400 a month. There are also monthly promotions. You’ll receive points that you can redeem for prepaid debit cards or merchandise.
GCAM Plasma has locations in CA, ID, IN, TX, WA, and you can earn up to $25-$40 for each donation. Payment methods vary, so you would need to contact your local center.
Grifols has more than a hundred locations across the U.S including AL, AR, AZ, CA, CO, FL, GA, IA, ID, IL, IN, KS, KY, LA, MD, MI, MN, MS, NC, NV, OH, OK, OR, PA, SD, TN, TX, UT, VA, WA, WI. This company owns a variety of centers, including Biomat USA, Talecris, Plasma Biological Resources, and Interstate Blood Bank.
You can expect to receive up to $25 per donation via a prepaid debit card. However, Grifols also operates a refer a friend program for additional bonuses.
Immunotek has locations in 8 states including AL, FL, MS, NC, PA, SC, TN, TX.
The amount you can earn isn’t listed on their website, and pay rates for donations vary from location to location.
They do offer a $20 referral bonus when you refer a a friend who donates.
The Interstate Companies has locations in 14 states including FL, IL, IN, KY, MD, MO, MI, MS, NC, OH, PA, TN, TX, WI.
While they don’t list how much you can earn on their website, users online have stated they pay $50 each for the first 5 donations, and anywhere from $25-35 per donation after that.
KEDPlasma has centers in 11 states, including AL, FL, GA, LA, NC, NY, SC.
You can earn up to $50 for your first five donations. However, returning donors may qualify for a $20 lapse bonus coupon”. You would need to leave at least 14 days between donations.
This company also operates Kedrewards, a loyalty rewards program, which creates an opportunity to earn additional bonuses. The payment methods can vary according to location, but typically you’ll be offered a prepaid debit card.
Octapharma has more than 100 locations across the USA including AL, AR, CA, FL, GA, IA, IL, IN, KS, LA, MD, MI, MN, MO, MS, NC, NE, NV, OH, OK, SC, TX, UT, VA, WA, WI.
You can earn up to $50 each for your first five donations. There are also frequency bonuses and a New Donor bonus. For example, you may earn extra if you donate more frequently in certain months. This is usually when there is a high demand for plasma but few donors.
You’ll be paid via prepaid debit card, but you can also accumulate reward points that can offer sweepstake entries and other discounts.
The Tax Implications Of Donating Plasma For Money
Most plasma donation centers will load your payment onto a prepaid debit card. You’re unlikely to be provided a tax form that reports your taxable income as you would with a day job.
However, not getting a 1099-MISC IRS form will not let you off the hook. You’re required by the IRS to file a return if you make more than $400 from “gig work”. Donating plasma does count as gig work, so keep a track of your earnings.
You will be responsible for reporting the income made from donating plasma when you file your taxes. So, it is a good idea to set aside a few dollars of each payment to avoid a nasty tax surprise.
The Side Effects And Potential Risks Of Plasma Donation
Of course, you should not try anything without being aware of the possible side effects and potential risks. Fortunately, plasma donations are considered relatively safe. It is a well-understood process, but there is a possibility of side effects.
Many of the possible side effects are similar to donating blood. Since needles are involved in the process, you may experience tenderness or bruising around the injection site. There could be discoloration, pain, or swelling, but these should subside relatively quickly. You may also have a reaction to the disinfectant used. This is often iodine, so if you know you have an iodine sensitivity, mention it to the center.
Some donors can also feel faint or experience dizziness. This is due to fluid being removed from the body, which causes a reaction to this stress. You can minimize your risk of this by drinking plenty of fluids the day before and the day of donation.
In less common cases, you may experience a citrate reaction. This is an anticoagulant that they use, so the blood doesn’t clot during collection. You may experience a reaction to the citrate, which often presents as a tingling in the fingers or around the mouth and nose. In severe cases, it can cause shortness of breath, shivering, twitching, or a rapid or slowing pulse.
If you experience any symptoms during the donation process, it is important to let the center staff know. You should also follow instructions following the donation. For example, you may be told to remain seated and have a drink after donation. This will help your body to recover from the stress of donation.
Donating Plasma After COVID-19
The COVID-19 pandemic has had a serious impact on the economy and it may be the reason why you’re considering donating plasma to make extra money. Fortunately, it is possible to donate plasma even if you’re recovering from COVID-19.
In fact, the FDA is encouraging people to begin donating after a negative COVID test and “complete resolution of symptoms”.
President Trump came out with statements this week encouraging people to donate plasma after having COVID-19 so that the medical community can get plasma with the antibodies to help patients who are still struggling with the disease. You will need to wait at least 14 days after your symptoms are resolved before you can make a donation, but giving your plasma with antibodies can be very helpful, and life-saving, for those in need.
Donating Plasma Is A Legit Way To Earn Some Extra Cash
Donating plasma is a legit way to earn some extra cash while helping others with life-saving plasma.
You only need two or three hours a week to donate plasma and you could make $300 to $400 a month. Anyone can do it as long as they meet the guidelines, and as long as they have no qualms with being stuck with a needle and sitting in a chair for a few hours a month. If that sounds like you this could be an easy way to earn some extra income.
If you’re not comfortable with the idea of donating plasma for money, you can still donate for free. You can visit your local Red Cross Center to donate blood plasma. The Red Cross allows donations every 28 days, so you can still help people and potentially save lives.
Have you gone through the process to donate plasma for money? Tell us how it went!
Let’s face it. Most of us, at one point or another, have been faced with a financial emergency, or a plain, old-fashioned cash crunch. It’s definitely not a fun spot to be in. While there are steps we can take to avoid such situations (more on that later), that’s often the last thing on our minds when we need to come up with money — quick.
To assist, I’ve compiled the following list of money-making ideas. While some of the items included are more lucrative than others (you’ll never get rich taking surveys, for example), they all share a common theme: making money fast. Ready? Let’s dive in.
And before anyone mentions it, yes we’re aware of the irony of publishing an article about making money fast at a website called Get Rich Slowly.
Sell Your Old Stuff
I’ll kick off the list with an obvious one: selling your old stuff. After all, is there a faster way to make money? If you walked a few steps to your basement right now, or stepped outside to the garage, I’m willing to bet that you’d find some junk lying around that someone else could use:
Old computers and video games.
Sports equipment your kids have grown out of.
That extra bike that’s never ridden.
Your old collectibles. (J.D. sold his comic books. You could sell your baseball cards.)
Once you’ve come to grips with parting with your junk, selling it is as easy as taking a few pictures, and posting an ad on Craigslist, or your local Facebook Buy and Sell. If you need some inspiration, here’s a list of 12 surprisingly valuable things that are lying around your house.
Taking online surveys isn’t going to make you rich, but that’s not your goal here. You need to make money fast, and paid survey sites like Survey Junkie will help you do just that. In fact, you can start earning within a few minutes of signing up, and get paid as soon as you accumulate $10 in rewards.
Survey Junkie will pay you for each survey you complete, in the form of Paypal credits or gift cards to your favorite retail stores. The more surveys you take, the more you’ll make. The best part is that you can take surveys while doing other things, like watching TV, or listening to music, making it an easy way to earn some quick cash.
Swagbucks is similar to Survey Junkie, but they take things a step further, by giving you more ways to earn cash and rewards. In addition to completing surveys, Swagbucks will pay you to browse the internet, play games, and shop online. They’ll even send you a daily survey, and a daily poll, as a way to earn rewards faster.
With Swagbucks, you won’t have to wait before redeeming your rewards. While you’ll need $25 worth of Swagbucks to move cash to your Paypal account, you can redeem points for gift cards worth as little as $1. In fact, when I checked out the Swagbucks rewards page, I noticed $3 Amazon gift cards advertised.
Remember your goal – to make money fast. When you sign up for Acorns using my exclusive link, you’ll receive a $5 credit to kick off your account. Now, I wouldn’t suggest that you go to all that trouble for $5, but with Acorns, you’re getting so much more. Acorns is an investment app that makes saving money easy. You can open an account on your mobile phone in a couple of minutes, collect your $5, and be on your way to building that emergency fund, or saving for your next special purchase.
Open Your Acorns Account and Earn $5
To help you get there, Acorns uses an innovative feature, called round up savings. Acorns syncs to your debit or credit card and then rounds up the “spare change” whenever you spend. For example, let’s say you buy a pack of gum for $1.25. Acorns will round to the nearest dollar, and set aside .75 into your Acorns investment account. Because the amounts are so small, you’ll hardly notice the money leaving your account, but you’ll be surprised how quickly the savings adds up.
Acorns works so well, in fact, that it’s my top choice for investment app for 2020.
Drive with Uber
If you have a clean driving record, a reliable vehicle, and enjoy being around people, driving for a rideshare service like Uber is a great way to make some extra money, and fast. One perk to this job is the flexibility it offers. You decide when, and how much you want to work.
Once you’ve signed up with Uber, most drivers report that it only takes about 3-5 days to be approved.
Here’s more about the pros and cons of becoming a rideshare driver.
Deliver Food with UberEats
If driving for Uber sounds enticing, but you’d rather not spend your time making small talk with strangers, you could decide to deliver food with UberEats. You use the app to select deliveries that are in your area. The best part is that you decide when you want to work, and how much. Keep in mind, you will make more money during peak periods.
Rent Out Your Ride on Turo
Take advantage of your car’s downtime by renting it out to someone who needs a ride. Turo is a peer-to-peer car-sharing app that makes it easy to rent out your car. I’ve used Turo as a renter multiple times and believe it will continue to catch on, so they’ll need an increased supply of vehicles for rent. Once you’re set up through Turo, list your car on the app, wait for a request, and be ready to accept or decline. Keep in mind, your car will need to meet Turo’s vehicle requirements, and the nicer it is, the more money you can charge.
Rent Out a Room With Airbnb
If you have a spare bedroom in your home, you can rent it out to a short term guest, on Airbnb. Some people will even rent out their entire home, if they have another place where they can stay.
Not only is this a great way to make money quick, but if it’s something you enjoy, you could turn it into a regular income stream. A great perk with Airbnb is having the flexibility to decide when your space will be available, and how much you’ll charge.
Employee Referral Programs
Any recruiter will tell you, it’s tough for companies to find good people these days. As a result, many organizations will pay their own employees a bonus for successfully referring new talent.
Depending on the role, and the demand for the position, you could be eligible to receive hundreds, even thousands of dollars by bringing in a new employee. Not only is this a quick way to make money, but it requires almost no effort on your part. You’re simply connecting to parties.
Babysitting or At-Home Daycare
In today’s society, most families are dual income, with both parents working outside the home. Because of this, there is a constant demand for reliable childcare. If you’re a natural caregiver, and enjoy being around kids, you can make good money by offering to provide childcare within your local community. Whether it’s babysitting or an at-home daycare, it won’t take long to find your first client. Use your friends and family to get the word out, or notify your Facebook community, and you’ll be making money in no time.
Teach English with VIP Kid
If you enjoy teaching, consider putting your English skills to good use by becoming an online tutor. Websites like VIP Kid source clients for you, and the pay is pretty good too. It’s not uncommon to make $20-30/hour teaching online.
Tutoring is something that can be done in person as well. In fact, during the school year, there’s no shortage of students in your community in need of help with their studies. Check with your local high school, or get the word out on your community Facebook page.
J.D.’s note: For eighteen months, I met with a Spanish tutor three times each week. Aly had moved to the U.S. from Peru, and she found that tutoring was a fantastic way for her to make money.
Rent Out Your RV With Outdoorsy
If you own an RV, Outdoorsy will match you with people who are looking to rent a trailer or motorhome, for their next summer adventure. At rates as high as $150/day, or more, this is a great way to make money fast. Head to Outdoorsy, and find out how you can get your RV making money for you.
Collect Rewards With Drop App
Money doesn’t always have to arrive in the form of cash. Drop allows you to earn points when you shop at your favorite retailers, then redeem your rewards for gift cards at places like Starbucks, or Amazon. Drop works by syncing to your debit and/or credit card, and keeping track of your purchases. You don’t need to worry about clipping coupons, or scan receipts to receive discounts, Drop does all the work for you.
Download the free app to start earning with Drop!
Earn $50 per Year With the Nielsen Ratings App
For decades, Nielsen has been tracking TV ratings. But did you know that they will pay you to download their app to your computer or smartphone? Doing so allows them to compile data by tracking your internet usage. No need to worry however, your anonymity is guaranteed, and according to Neilson, the app won’t slow your device’s performance in the least.
Sounds pretty great, doesn’t it? There is a BIG caveat, however. You must be selected by Nielsen. That’s because Nielsen families are chosen using a scientific process. That said, it’s good to know about this easy money-making opportunity, in case you are ever approached by Nielsen.
Take Advantage of Bank Signup Bonuses
This is a great way to make some quick money. Banks everywhere are in a constant battle for new customers. The financial services industry is highly competitive, and companies know that if they can secure your day to day banking business, they’ll have a shot at your mortgage and your investments as well.
While these promotions come and go, it’s not uncommon to be offered a few hundred dollars when you open a new checking account with a bank, providing that you meet the qualifying criteria. This usually includes hooking up your automatic payroll deposit and completing a couple of online bill payments, that kind of thing.
Earn Credit Card Rewards
I’m a big fan of credit card rewards, but I’ll be the first to admit that using credit cards as a way of making money can be dangerous, and definitely isn’t for everyone. If you’re not paying off your credit card balance in full each month, or if using a credit card creates a temptation to overspend, then having a rewards credit card will cost you more money than you will ever make.
That said, a cashback, or travel rewards credit card can be a great way to make extra money. Many premium cards come with a welcome bonus, such as a couple hundred dollars cashback upfront, or enough travel points to get you a free flight somewhere. Have an upcoming trip planned? This could be a great way to subsidize the cost. Head here for more information on the best credit card rewards.
Make Money as a Freelance Writer
If you have interest, or experience in a specific area and love to write, there’s a good chance you can make money online as a freelance writer. What I love about this side hustle, is that it’s something you can do on your own schedule from the comfort of your living room. Not only that, but you can make good money. The website Problogger has an active job board, where you can browse, and apply for, freelance writing gigs across a wide range of niches.
Note: Many former Get Rich Slowly staff writers have gone on to become professional freelance writers with lucrative careers.
Advertise Your Freelance Services on Fiverr
In addition to writing, there are no shortage of services you can offer as a freelancer. Graphic design, bookkeeping, social media management – these are all services that small businesses will pay you to provide. One of the best ways to find clients and start making money is by joining a freelance marketplace like Upwork, or Fiverr.
Teach Music Lessons
Who said that a musician needs to live like a starving artist? If you are skilled on any number of musical instruments, you can make good money teaching private lessons. Ask your local music store if you can post an ad on their bulletin board, or advertise through Craigslist or Facebook. Early September is a great time of year to get started, as students are back to school and looking to start up music lessons after the summer break.
Earn Cash Back With Rakuten (Formerly Ebates)
Rakuten, formerly known as Ebates, makes it easy to earn cashback when you shop online at top retailers, such as Amazon, Kohl’s, and Microsoft. Sign up with Rakuten, and gain access to hundreds of partner retail stores via links directly on their site. Rakuten will keep track of your cash rebates, which can be as high as 40%, when you factor in limited time offers. The best part? Receive an automatic $10 bonus when you sign up for Rakuten, and earn an additional $25 when you refer friends or family.
Deliver Food With DoorDash
DoorDash is one of a number of app-powered food delivery services that have popped up in recent years. If you need to make money quick, becoming a delivery driver for Doordash may be the perfect solution. In fact, the signup box on their website reads, “Get Your First Check This Week”.
Ask for a Raise
Perhaps the fastest way to make extra money is by leveraging the job you already have. Unfortunately, many people don’t think about this, and instead feel like they need to take on something extra. I’ll finish with a few ways to increase your 9-5 income.
You’ve probably heard it said, “If you don’t ask, the answer will always be, no”. To most companies, a valuable employee is worth their weight in gold. Part of this is due to how much time and money it takes to hire and train someone new. Chances are, your employer is willing to pay you more, but you need to ask. If you’re able to effectively communicate your value to your boss, you may be pleasantly surprised at the outcome.
Since the early says of Get Rich Slowly, we’ve advocated learning how to negotiate your salary. It’s one of the best ways to boost your income — now and in the future.
Apply for a Promotion
When was the last time you considered applying for a promotion? Not only is a new job a great way to make more money, challenging yourself to step out of your comfort zone will further develop your skills, and help you grow as a person. If you’re having trouble getting promoted at your current company, you may decide to go to take your skills somewhere else. Here’s an article that gives 10 reasons successful people change jobs more often.
Take Advantage of Any Unused Benefits
If you’re not taking advantage of all of the benefits your employer is offering, you may be leaving cold hard cash on the table. Far too many employees don’t take the time to understand what’s available, and as they say, if you don’t use it, you’ll lose it. Read through your employee benefits package, or speak to an HR representative if you have questions. There’s money to be made, from health spending balances and 401K matches, to affordable insurance coverage and employee discounts.
Ask to Work Overtime
Not every job offers this opportunity, but if yours does, consider volunteering to work overtime, if you’re needing to make more money fast. Overtime work saves you from having to start something extra in your spare time, such as a second job, or a time-consuming side hustle. Remember, the goal is to make money fast. Either way, always strive for a healthy balance between time at work, and time away. The last thing you want is to feel burned out.
Final Thoughts on Making Money Fast
At the outset of this article, I mentioned that there are ways to avoid finding yourself with a shortfall of cash. While we can never be prepared for absolutely every emergency (nor should we try to be), we can make life a little easier with some advanced planning.
My best advice is to build an emergency fund. This can be as little as $500, or enough to cover several months worth of expenses, it’s up to you. Having an emergency fund will not only reduce your stress level, but it will also decrease your odds of having to use a credit card to cover a financial emergency, and that is a good thing.
In the meantime, my hope is that you feel more confident about making money fast, should the need arise.
Personal loans are typically unsecured loans offering up to $50,000 with a term of up to 5 years. They come in several shapes and sizes and interest rates, fees, and terms can differ greatly, but the average personal loan in the United States is between $7,000 and $8,000 and charged at a rate of 11% and 12%.
Get approved fast for a Personal Loan!
Compare multiple loan options from the nation’s top lenders.
Attention: Still Open During the Financial Crisis…
Tip: Apply now to see if you qualify for a personal loan today!
Steps to Getting a Personal Loan
Check Your Credit Report
Compare Rates and Terms
Get a Pre-Qualification
Look at the Fine Print
Look at Alternative Options
Receive Final Approval
1. Check Your Credit Report
The better your credit score is, the lower the interest rate of the loan will be. You can get a free credit check from all three of the main credit bureaus (TransUnion, Experian, Equifax) once a year and use this to see what the lenders will see.
Your credit report will show your credit history in intricate detail, as well as your personal details and all active accounts. If your credit score is below 600, you’ll likely be refused a personal loan; if it’s lower than 700, you may succeed, but won’t necessarily get the best rate.
In any case, it always helps to build your credit score and it’s also very easy to do. If you follow the steps below, you may see a sizeable improvement in a few short months:
Increase Credit Limits: Your credit utilization ratio calculates your debt in relation to your credit limits. Someone with a debt of $100,000 is not necessarily worse off than someone with debt of $10,000 if the former has a credit limit of $2 million and the latter has a credit limit of $20,000. By judging debt in this way, your credit score builds an accurate and relative picture of your financial situation. By increasing your credit limits, you can improve this part of your credit score in one quick move.
Payoff Debt: Debt is the other half of the credit utilization ratio and works just as well as increasing your credit limit. If you have a debt of $5,000 and a credit limit of $10,000, your credit utilization is a high 50%. If you repay just $1,000 and increase your credit limit by $1,000, this ratio drops to a respectable 36%.
Get a Secured Credit Card: A secured credit card uses a security deposit as collateral, allowing you to sign-up even if you have very bad credit or no credit at all. It can build your credit in as little as 6 months as all payments are reported to the credit bureaus. Your deposit will set your credit limit and is completely refundable.
Stop Applying: Every time you apply for a new auto loan, personal loan, credit card or mortgage, you receive a hard credit inquiry, which can reduce your FICO credit score by between 2 and 5 points. What’s more, every new account will reduce your score even more and make it harder to quickly build a strong score. Keep applications to a minimum and only apply when you absolutely need a new account.
Keep Making Payments: Your payment history accounts for 35% of your FICO credit score, which is more than anything else. It takes a long time to build your score this way, but as soon as you miss a payment, your score can drop by over 100 points and undo all your hard work, while making your task considerably harder.
At the same time, however, your credit score is not the only thing that matters. There is a misconception here, one that claims you can get pretty much anything you want as long as you have an excellent credit card. But that’s simply not the case.
If you are self-employed with an inconsistent income that never goes higher than $15,000 a year, it’s still possible to have an excellent credit score. After all, as long as you keep credit applications to a minimum, meet your payment obligations on time and keep a strong credit utilization ratio, you can build a great credit score.
But does that mean you’ll be offered a $200,000 mortgage or a $50,000 personal loan? Of course not. You’re not making enough money to cover those debts. You might be offered a low limit credit card with relative ease, but you’ll struggle to get a sizeable personal loan and may be refused outright.
2. Compare Rates and Terms
An estimated rate is, as the name suggests, just an estimate. It can vary greatly depending on your credit score, income, and a few other factors. However, your eventual rate will always fall into the estimated range and by looking for the best ranges and comparing the most likely rate based on your current credit score, you can avoid wasting your time on high interest loans.
Many borrowers will look for the lender they are most familiar with, including the ones they have a bank account or mortgage with. But your checking account is irrelevant here and by skipping the comparison shopping you could end up with a much higher rate than you can afford.
Look for the cheapest rates and compare these to the best loan amounts. Calculate how much you will need and whether or not you can sacrifice a few dollars here and there to save more on interest.
3. Get a Pre-Qualification
A pre-qualification will give you an idea of what sort of loan you can get based on your credit score and income. You can then use this information to compare and contrast, ensuring you find the best and most suitable loan for you.
You will need to supply all of the following information, and this will be used to determine if you’re a good fit or not:
Your Social Security Number
Your full income and debts (debt-to-income ratio)
Your date of birth, home address, phone number, and email
All your previous addresses dating back a fixed number of years
Details of your education
If your income is too low, your debt-to-income ratio is too high, your credit score is poor or you have made too many credit applications, you may be refused a pre-qualification.
4. Look at the Fine Print
Does the loan have a prepayment penalty? Does it charge high fees and penalty rates? Is there an origination fee? This information may not be included on the main offer page, but it’s essential for determining the worth of a loan, so dig around in the terms and conditions, and make sure you’re getting the best loan possible in terms of the lowest rate as well as the lowest fees.
5. Look at Alternative Options
A personal loan is not the only option at your disposal, and it may not even be the best one. Depending on what you need the money for, there are a host of better alternatives out there, ones that may be more forgiving of your credit score and more willing to give you a large sum and a low rate.
It’s not all about banks. There are online lenders, credit unions, and a host of other financial institutions willing to help you out.
We have outlined some of the best alternative options a little further down this article.
6. Receive Final Approval
Once you have browsed multiple loan offers, checked loan rates, and decided on the best option for you, it’s time to apply and get final approval. You will need to provide some additional info, including W-2 forms and pay stubs, and then the lender will check your credit score and you’ll receive a hit of between 2 and 5 points.
If there are no issues, the loan will be finalized. Some online lenders offer to pay your funds by the next business day and other lenders offer instant payment on acceptance of the loan application. However, many will pay within 1 week.
What are Personal Loans Used For?
You can use a personal loan for a variety of reasons and in most cases, the lender doesn’t care which one you choose. As long as you meet the monthly payments and have a respectable credit score, they don’t care if you’re blowing it on a vacation or launching a business. Here are a few reasons to apply for a personal loan, some of which make more sense than others.
If you have a lot of credit card debt, you can use an unsecured personal loan to clear it. You’ll still have debt, as you’re essentially swapping one debt for another, but you may be charged a lower interest rate or smaller monthly payment.
There are debt consolidation and debt management companies that specialize in this service and can do all the hard work for you. However, these companies focus mainly on reducing your monthly payment and interest rate in exchange for a prolonged-term. You’ll pay less per month and may have an APR that is several points lower, but the increased term means you will pay much more over the length of the loan.
If you have a strong credit score, are in a good financial position and have several high interest credit card debts, you can get a low rate, short-term loan. You’ll pay more per month, but over the term, you could save thousands of dollars in interest payments.
It’s rarely a good idea to accumulate debt just so you can enjoy the vacation of a lifetime. But what if it’s the only chance you have of taking that vacation? What if it would be a life goal realized and you’re confident that you can make the monthly payments and eventually clear the debt?
In such cases, while we would never recommend it, using a personal loan for a vacation is understandable. It’s something that many older married couples do to pay for cruises and trips across Europe. It’s also a method used by young married couples to have the honeymoon they have always dreamed of.
Student loans aren’t always readily available, nor are they the best option. And while they are usually more preferable to personal loans, they may not provide the coverage that you or your grandchildren need.
In the last decade or so, there has been an over 1,000% increase in the number of senior student loan borrowers. This isn’t the result of an influx of mature learners, but rather it’s because they are assuming debts on behalf of their grandchildren and children, co-signing to help them through college.
Pay for a Major Expense
Life can throw several major and unexpected expenses your way, and if you don’t have any money in your savings, a personal loan may be your only option. Many couples live their lives relatively debt and problem-free until one of the following expenses raises its head and they opt for a personal loan.
Marriage: A marriage is not something that happens unexpectedly, unless you’re a parent and your child is the one getting married. In either case, it’s a massive expense that can cripple you financially, with the average wedding costing over $30,000.
Adoption: The average cost of adoption in the United States ranges from between $40,000 and $50,000. Like a wedding, it’s not necessarily something that happens unexpectedly, but also like a wedding, when the time is right and the need is there, it’s something you feel like you have to do.
Funeral: Funerals can cost upwards of $10,000 and often occur out of the blue. If the deceased is insured or has assets, it’s not a problem, but there are countless people who are not insured, don’t have assets, and die unexpectedly. If you’re the closest person to them, you may find yourself assuming responsibility for their funeral.
Medical Services: If you fall ill and need a specific type of treatment or surgery that your insurance won’t cover, a personal loan could be the only option. Medical treatments are very expensive, and many Americans simply can’t afford to cover these costs out of their own pockets.
Launch a Business
Launching a business is another risky way to use a personal loan, but one that many borrowers are submitting to every year. This is the golden age of entrepreneurs, and there has never been a better time to launch a business.
Of course, grants and business loans are also available, but the former often requires you to work in specific niches and abide by specific terms, while the latter will be weighed against your personal finances if your business is small or new. A personal loan, therefore, may be the only option for business owners seeking to launch a new project.
Alternative Options to Personal Loans
A personal loan isn’t your only option when you need a little cash. You can borrow money through several different avenues, and the best option for you will depend on what you’re using the money for:
You need credit to build credit; you need a credit card or a loan before you can get the FICO score you need to get a credit card or a loan. It can feel like a Catch-22 situation, but it’s not as complicated as it might initially appear.
If you have no credit or bad credit, you may be offered a super high interest rate loan or credit card and that can help you to build a respectable score. However, it’s a risky way to do it and there are many better options out there if your only goal is to build credit.
For loans, you can use something known as a credit builder loan. Much like a reverse loan, a credit builder loan requires you to complete many of the same steps as a traditional loan, only the lender keeps the lump sum amount and moves it to a secured account.
That loan payment earns you a small rate of interest and this helps to offset some of the interest you pay the lender. Every month, you make a payment on the loan, paying some of the principal in addition to the monthly interest, and the lender will report your payments to the three major credit bureaus (TransUnion, Experian, Equifax).
Every month, your score will improve slightly as your payment history receives a boost and then, at the end of the term, they’ll release the lump sum to you, and you’ll get most of your money back (minus the interest) in addition to the credit score boost.
Paying Off Debt
A personal loan is a great way to clear debt, but it’s not necessarily the best option. If you’re struggling to meet your monthly payment obligations, it’s not the right option at all, as your monthly payments will increase as your term decreases.
Instead, you can look into the following options:
Debt Payoff: Sometimes, simple debt payoff strategies like the Debt Avalanche and the Debt Snowball are enough to clear your debt and can do so in a way that won’t cost you dearly or damage your credit score.
Debt Settlement: One of the best and cheapest ways to clear credit card debts, debt settlement works by agreeing reduced settlement amounts with your creditors.
Debt Management: A form of debt consolidation performed by a specialist credit counselor. You will pay less every month and can receive greatly improved terms.
Launching a Business
Once you’ve cut costs, reduced expenses, and considered all possible ways to reduce your initial outlay for a business launch, then it might be time to consider crowdfunding. Sites like Kickstarter can help you to get the funds you need and if you have a good idea or product, along with perks, it can give you capital.
You can also sell shares in your business to friends and family, or simply ask them for a small loan.
Expanding a Business
One of the best loan options for expanding your business is something known as PayPal Working Capital, a program that we have touched upon and praised several times before. If you accept PayPal for your business and have processed many payments through your PayPal account, you’ll be offered a lump sum to help you grow.
The loan amount you’re offered will depend on how much money you receive every month. As for the repayment term, you need to pay 10% of the total every 90 days, and all payments are taken as a percentage of your income. If you opt for $20,000, you may pay a fee of $2,000, taking the total to $22,000, and be asked to pay $2,200 every 90 days for a 20% cut.
This means that for every $1,000 you earn, you’ll pay $200 back to your PayPal Working Capital loan, in addition to the usual PayPal fees. The application process is quick and easy, and you can have the money in your PayPal account in just a few minutes.
Paying for Education
While a personal loan can be a useful option when paying for your education or a family member’s education, student loans often provide better rates and loan terms. They can also cover most of the costs associated with college, although if you need extra money for living costs, then a personal loan can be considered.
Paying for Vacations or Other Expenses
If you are a homeowner and have built substantial equity in your home, then a home equity loan or home equity line of credit may provide you with better loan terms and a much higher loan amount.
A home equity loan or line of credit is a secured loan, as it uses your home as collateral. If you fail to make the payments every month and eventually default on your loan, the lender can simply take your asset and use it to recover the costs of the loan.
As a result, the annual percentage rate is often much lower. You will still need good credit and a respectable debt-to-income ratio to apply, but the best home equity loan is typically much more favorable and cheaper than the best personal loan.
Hooray, you have some extra money each month to pay down debt! This 6-step process will help you decide how to use that money wisely to reach your financial goals.
Laura Adams, MBA
May 13, 2020
10 Things Student Loan Borrowers Should Know About Coronavirus Relief
6 Steps to Decide Whether to Pay Off Student Loans or a Mortgage First
Let’s take a look at how to prioritize your finances and use your resources wisely during the pandemic. This six-step plan will help you make smart decisions and reach your financial goals as quickly as possible.
1. Check your emergency savings
While many people begin by asking which debt to pay off first, that’s not necessarily the right question. Instead, zoom out and consider your financial life’s big picture. An excellent place to start is to review your emergency savings.
If you’ve suffered the loss of a job or business income during the pandemic, you’re probably very familiar with how much or how little savings you have. But if you haven’t thought about your cash reserve lately, it’s time to reevaluate it.
Having emergency money is so important because it keeps you from going into debt in the first place. It keeps you safe during a rough financial patch or if you have a significant unexpected expense, such as a car repair or a medical bill.
How much emergency savings you need is different for everyone. If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.
If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.
A good rule of thumb is to accumulate at least 10% of your annual gross income as a cash reserve. For instance, if you earn $50,000, make a goal to maintain at least $5,000 in your emergency fund.
You might use another standard formula based on average monthly living expenses: Add up your essential costs, such as food, housing, insurance, and transportation, and multiply the total by a reasonable period, such as three to six months. For example, if your living expenses are $3,000 a month and you want a three-month reserve, you need a cash cushion of $9,000.
If you have zero savings, start with a small goal, such as saving 1 to 2% of your income each year. Or you could start with a tiny target like $500 or $1,000 and increase it each year until you have a healthy amount of emergency money. In other words, it might take years to build up enough savings, and that’s okay—just get started!
Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.
Unless Maya’s brother has enough cash in the bank to sustain him and any dependent family members through a financial crisis that lasts for several months, I wouldn’t recommend paying off student loans or a mortgage early. Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.
If you have enough emergency savings to feel secure for your situation, keep reading. Working through the next four steps will help you decide whether to pay down your student loans or mortgage first.
2. Reach your retirement goals
In addition to saving for potential emergencies, it’s critical to save regularly for your retirement before paying down a student loan or mortgage early. So, if Maya’s brother isn’t contributing regularly to meet a retirement goal, that’s the next priority I’d recommend for him.
Consider this: If you invest $500 a month for 35 years and have an average 8% return, you’ll end up with an impressive retirement nest egg of more than $1.2 million! But if you wait until 10 years before retirement to start saving, you’d have to invest over $5,000 a month to have $1 million in the bank. When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.
When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.
A good rule of thumb is to invest at least 10% to 15% of your gross income for retirement. For instance, if you earn $50,000, make a goal to contribute at least $5,000 per year to a tax-advantaged retirement account, such as an IRA or a retirement plan at work, such as a 401(k) or 403(b).
For 2020, you can contribute up to $19,500, or $26,000 if you’re over age 50, to a workplace retirement account. Anyone with earned income (even the self-employed) can contribute up to $6,000 (or $7,000 if you’re over 50) to an IRA.
The earlier you make retirement savings a habit, the better. Not only does starting sooner give you more time to contribute money, but it leverages the power of compounding, which allows the growth in your account to earn additional interest. That’s when you’ll see your retirement account value mushroom!
3. Have the right insurance
In addition to building an emergency fund and saving for retirement, an essential part of taking control of your finances is having adequate insurance. Many people get into debt in the first place because they don’t have enough of the right kinds of coverage—or they don’t have any insurance at all.
Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.
As your career progresses and your net worth increases, you’ll have more income and assets to protect from unexpected events. Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.
Make sure you have enough health insurance to protect yourself and those you love from an illness or accident jeopardizing your financial security. Also, review your auto and home or renters insurance coverage. And by the way, if you rent and don’t have renters insurance, you need it. It’s a bargain for the protection you get; it only costs $185 per year on average.
And if you have family who would be hurt financially if you died, you need life insurance to protect them. If you’re in relatively good health, a term life insurance policy for $500,000 might only cost a couple of hundred dollars per year. You can get free quotes for many different types of insurance using sites like Bankrate.com or Policygenius.com.
If Maya’s brother is missing critical types of insurance for his lifestyle and family situation, getting it should come before paying off a student loan or mortgage early. It’s always a good idea to review your insurance needs with a reputable agent or a financial advisor who can make sure you aren’t exposed to too much financial risk.
4. Set other financial goals
But what about other goals you might have, such as saving for a child’s education, starting a business, or buying a home? These are wonderful if you can afford them once you’ve accounted for your emergency savings, retirement, and insurance needs.
Make a list of your financial dreams, what they cost, and how much you can afford to spend on them each month. If they’re more important to you than paying off student loans or a mortgage early, then you should fund them. But if you’re more determined to become completely debt-free, go for it!
5. Consider your opportunity costs
Once you’ve hit the financial targets we’ve covered so far, and you have money left over, it’s time to consider the opportunity costs of using it to pay off your student loans or mortgage. Your opportunity cost is the potential gain you’d miss if you used your money for another purpose, such as investing it.
A couple of benefits of both student loans and mortgages is that they come with low interest rates and tax deductions, making them relatively inexpensive. That’s why other high-interest debts, such as credit cards, personal loans, and auto loans, should always be paid off first. Those debts cost more in interest and don’t come with any money-saving tax deductions.
Especially in today’s low interest rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio.
But many people overlook the ability to invest extra money and get a higher return. For instance, if you pay off the mortgage, you’d receive a 4% guaranteed return. But if you can get 6% on an investment portfolio, you may come out ahead.
Especially in today’s low-interest-rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio. The downside of investing extra money, instead of using it to pay down a student loan or mortgage, is that investment returns are not guaranteed.
If you decide an early payoff is right for you, keep reading. We’ll review several factors to help you know which type of loan to focus on first.
6. Compare your student loans and mortgage
Once you have only student loans and a mortgage and you’ve decided to prepay one of them, consider these factors.
The interest rates of your loans. As I mentioned, you may be eligible to claim a mortgage interest tax deduction and a student loan interest deduction. How much savings these deductions give you depends on your income and whether you use Schedule A to itemize deductions on your tax return. If you claim either type of deduction, it could reduce your after-tax interest rate by about 1%. The debt with the highest after-tax interest rate is typically the best one to pay off first.
The amounts you owe. If you owe significantly less on your student loans than your mortgage, eliminating the smaller debt first might feel great. Then you’d only have one debt left to pay off instead of two.
You have an interest-only adjustable-rate mortgage (ARM). With this type of mortgage, you’re only required to pay interest for a period (such as several months or up to several years). Then your monthly payments increase significantly based on market conditions. Even if your ARM interest rate is lower than your student loans, it could go up in the future. You may want to pay it down enough to refinance to a fixed-rate mortgage.
You have a loan cosigner. If you have a family member who cosigned your student loans or a spouse who cosigned your mortgage, they may influence which loan you tackle first. For instance, if eliminating a student loan cosigned by your parents would help improve their credit or overall financial situation, you might prioritize that debt.
You qualify for student loan forgiveness. If you have a federal loan that can be forgiven after a certain period (such as 10 or 20 years), prepaying it means you’ll have less forgiven. Paying more toward your mortgage would save you more.
Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end.
As you can see, the decision to eliminate debt and in what order, isn’t clear-cut. Mortgages and student loans are some of the best types of debt to have—they allow you to build wealth by accumulating equity in a home, getting higher-paying jobs, and freeing up income you can save and invest.
In other words, if Maya’s brother uses his excess cash to prepay a low-rate mortgage or a student loan, it may do more harm than good. So, before you rush to prepay these types of debts, make sure there isn’t a better use for your money.
Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end. Only you can decide whether paying off a mortgage or student loan is the right financial move for you.
One of the most common questions I receive from readers like you—especially since Grow (Acorns + CNBC) published my story last week—asks me how I invest.
All this theoretical investing information is fine, Jesse. But can you please just tell me what you do with your money.
That’s what I’ll do today. Here’s a complete breakdown of how I invest, how the numbers line up, and why I make the choices I make.
Of course, please take my advice with a grain of salt. Why?
My strategy is based upon my financial situation. It is not intended to be prescriptive of your financial situation.
I’ve hesitated writing this before because it feels one step removed from “How I Vote” and “How I Pray.” It’s personal. I don’t want to lead you down a path that’s wrong for you. And I don’t want to “show off” my own choices.
I’m an engineer and a writer, not a Wall Street professional. And even if I was a Wall Street pro, I hope my prior articles on stock picking and luck vs. skill in the stock market have convinced you that they aren’t as skilled as you might think.
All I can promise you today is transparency. I’ll be clear with you. I’ll answer any follow-up questions you have. And then you can decide for yourself what to do with that information.
Are we clear? Let’s get to the good stuff.
How I Invest, and In What Accounts…?
In this section, I’ll detail how much I save for investing. Then the next two sections will describe why I use the investing accounts I use (e.g. 401(k), Roth IRA) and which investment choices I make (e.g. stocks, bonds).
How much I save, and in what accounts:
401(k)—The U.S. government has placed a limit of $19,500 on employee-deferred contributions in 2020 (for my age group). I aim to hit the full $19,500 limit.
401(k) matching—My employer will match 100% of my 401(k) contributions until they’ve contributed 6% of my total salary. For the sake of round numbers, that equates to about $6,000.
Roth IRA—The U.S. government has placed a limit of $6,000 on Roth IRA contributions (for my earnings range) in 2020. I am aiming to hit the full $6,000 limit.
Health Savings Account—The U.S. government gives tremendous tax benefits for saving in Health Savings Accounts. And if you don’t use that money for medical reasons, you can use it like an investment account later in life. I aim to hit the full $3,500 limit in 2020.
Taxable brokerage account—After I achieved my emergency fund goal (about 6 months’ of living expenses saved in a high-yield savings account), I started putting some extra money towards my taxable brokerage account. My goal is to set aside about $500 per month in that brokerage account.
That’s $41,000 of investing per year. But a lot of that money is actually “free.” I’ll explain that below.
Why Those Accounts?
The 401(k) Account
First, let’s talk about why and how I invest using a 401(k) account. There are three huge reasons.
First, I pay less tax—and so can you. Based on federal tax brackets and state tax brackets, my marginal tax rate is about 30%. For each additional dollar I earn, about 30 cents go directly to various government bodies. But by contributing to my 401(k), I get to save those dollars before taxes are removed. So I save about 30% of $19,500 = $5,850 off my tax bill.
Editor’s Note: The original version of this article incorrectly stated that 401(k) contributions are taken out prior to OASDI (a.k.a. social security) taxes. That claim was incorrect. 401(k) contributions occur only after OASDI taxes are assessed.
Many thanks to regular reader Nick for catching that error.
Second, the 401(k) contributions are removed before I ever see them. I’m never tempted to spend that money because I never see it in my bank account. This simple psychological trick makes saving easy to adhere to.
Third, I get 401(k) matching. This is free money from my employer. As I mentioned above, this equates to about $6,000 of free money for me.
Roth Individual Retirement Account (IRA)
Why do I also use a Roth IRA?
Unlike a 401(k), a Roth IRA is funded using post-tax dollars. I’ve already paid my 30% plus OASDI taxes, and then I put money into my Roth. But the Roth money grows tax-free.
Let’s fast-forward 30 years to when I want to access those Roth IRA savings and profits. I won’t pay any income tax (~30%) on any dividends. I won’t pay capital gains tax (~15%) if I sell the investments at a profit.
I’m hoping my 30-year investment might grow by 8x (that’s based on historical market returns). That would grow this year’s $6000 contribution up to $48000—or about $42000 in profit. And what’s ~15% of $42000? About $6,300 in future tax savings.
Health Savings Account (H.S.A.)
The H.S.A. account has tax-breaks on the front (36.7%, for me) and on the back (15%, for me). I’m netting about $1300 up-front via an H.S.A, and $4,200 in the future (similar logic to the Roth IRA).
Taxable Brokerage Account
And finally, there’s the brokerage account, or taxable account. This is a “normal” investing account (mine is with Fidelity). There are no tax incentives, no matching funds from my employer. I pay normal taxes up front, and I’ll pay taxes on all the profits way out in the future. But I’d rather have money grow and be taxed than not grow at all.
Summary of How I Invest—Money Invested = Money Saved
In summary, I use 401(k) plus employer matching, Roth IRA, and H.S.A. accounts to save:
About $7,100 in tax dollars today
About $6,000 of free money today
And about $10,500 in future tax dollars, using reasonable investment growth assumptions
Don’t forget, I still get to access the investing principal of $41,000 and whatever returns those investments produce! That’s on top of the roughly $25,000 of savings mentioned above.
I choose to invest a lot today because I know it saves me money both today and tomorrow. That’s a high-level thought-process behind how I invest.
How I Invest: Which Investment Choices Do I Make?
We’ve now discussed 401(k) accounts, Roth IRAs, H.S.A. accounts, and taxable brokerage accounts. These accounts differ in their tax rules and withdrawal rules.
But within any of these accounts, one usually has different choices of investment assets. Typical assets include:
Stocks, like shares of Apple or General Electric.
Bonds, which are where someone else borrows your money and you earn interest on their debt. Common bonds give you access to Federal debt, state or municipality debt, or corporate debt.
Real estate, typically via real estate investment trusts (REITs)
Commodities, like gold, beef, oil or orange juice
Here are the asset choices that I have access to in my various accounts:
401(k)—my employer works with Fidelity to provide me with about 20 different mutual funds and index funds to invest in.
Roth IRA—this account is something that I set up. I can invest in just about anything I want to. Individual stocks, index funds, pork belly futures etc.
H.S.A.—this is through my employer, too. As such, I have limited options. But thankfully I have low-cost index fund options.
Taxable brokerage account—I set this account up. As such, I can invest in just about any asset I want to.
How I invest and my personal choices involve two layers of diversification. A diverse investing portfolio aims to decrease risk while maintaining long-term investing profits.
The first level of diversification is that I utilize index funds. Regular readers will be intimately familiar with my feelings for index funds (here 28 unique articles where I’ve mentioned them).
By nature, an index fund reduces the investor’s exposure to “too many eggs in one basket.” For example, my S&P 500 index fund invests in all S&P 500 companies, whether they have been performing well or not. One stellar or terrible company won’t have a drastic impact on my portfolio.
But, investing only in an S&P 500 index fund still carries risk. Namely, it’s the risk that that S&P 500 is full of “large” companies’ stocks—and history has proven that “large” companies tend to rise and fall together. They’re correlated to one another. That’s not diverse!
To battle this anti-diversity, how I invest is to choose a few different index funds. Specifically, my investments are split between:
Large U.S. stock index fund—about 40% of my portfolio
Mid and small U.S. stock index fund—about 20% of my portfolio
Bond index fund—about 20%
International stocks fund—about 20%
This is my “lazy portfolio.” I spread my money around four different asset class index funds, and let the economy take care of the rest.
Each year will likely see some asset classes doing great. Others doing poorly. Overall, the goal is to create a steady net increase.
Twice a year, I “re-balance” my portfolio. I adjust my assets’ percentages back to 40/20/20/20. This negates the potential for one “egg” in my basket growing too large. Re-balancing also acts as a natural mechanism to “sell high” and “buy low,” since I sell some of my “hottest” asset classes in order to purchase some of the “coldest” asset classes.
Any Other Investments?
In June 2019, I wrote a quick piece with some thoughts on cryptocurrency. As I stated then, I hold about $1000 worth of cryptocurrency, as a holdover from some—ahem—experimentation in 2016. I don’t include this in my long-term investing plans.
I am paying off a mortgage on my house. But I don’t consider my house to be an investment. I didn’t buy it to make money and won’t sell it in order to retire.
On the side, I own about $2000 worth of collectible cards. I am not planning my retirement around this. I do not include it in my portfolio. In my opinion, it’s like owning a classic car, old coins, or stamps. It’s fun. I like it. And if I can sell them in the future for profit, that’s just gravy on top.
Summary of How I Invest
Let’s summarize some of the numbers from above.
Each year, I aim to save and invest about $41,000. But of that $41K, about $15K is completely free—that’s due to tax benefits and employer matching. And using reasonable investment growth, I think these investments can save me $15,000 per year in future tax dollars.
Plus, I eventually get access to the $41K itself and any investment profits that accrue.
I take that money and invest in index funds, via the following allocations:
40% into a large-cap U.S. stock index fund
20% into a medium- and small-cap U.S. stock index fund
20% into an international stock index fund
And 20% into a bond index fund
The goal is to achieve long-term growth while spreading my eggs across a few different baskets.
And that’s it! That’s how I invest. If you have any questions, please leave a comment below or drop me an email.
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Tagged 401(k), how i invest, hsa, index fund, roth ira