If you’re overlooking any of these super-easy savings tactics, you’re throwing away money — possibly every month. Vladeep / Shutterstock.com
If you need or want to reduce your everyday expenses, there are simple solutions that won’t require you to make major lifestyle changes. Cutting costs doesn’t need to be painful or complicated. There are many practically effortless ways to keep more money in your bank account. What follows are some surprisingly simple ways to do just that.
A little-known Medicare Advantage benefit is now popping up in one-quarter of plans. Olena Yakobchuk / Shutterstock.com
Advertising Disclosure: When you buy something by clicking links on our site, we may earn a small commission, but it never affects the products or services we recommend. If you are enrolled in a Medicare Advantage plan, you might have noticed that a new perk now is included with your coverage. About one-quarter of Medicare Advantage plans offer financial assistance for food and produce to eligible…
Owe money on your credit cards? Read on to see how paying off your balance could increase your chances of mortgage approval.
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Mortgage lenders look at different factors when determining whether you qualify for a home loan or not. A big one is your credit score. The higher that number is, the more likely you are to get approved.
Your existing debt relative to your income, also known as your debt-to-income ratio, is another big factor that’s accounted for when you apply for a mortgage. Lenders want to see that you’re not already overloaded with debt before loaning you a large sum of money.
If you’re hoping to finance a home in the near term, you may be worried about getting approved for a mortgage. But you should know that paying off your credit cards to at least some degree could increase your chances of approval in a really big way. Here’s why.
One factor that goes into calculating your credit score is your credit utilization ratio. It speaks to how much of your available revolving credit you’re using at once.
Let’s say you owe $4,000 across a bunch of credit cards with a $10,000 spending limit. That puts you at 40% utilization.
Usually, your credit score will start to suffer once your utilization ratio exceeds 30%. But if you’re able to whittle your $4,000 balance down to $2,500, that’ll put you at 25% utilization. That might, in turn, lead to a nice improvement in your credit score. And that could make a lender more comfortable with the idea of extending a mortgage loan to you.
When you apply for a mortgage when you’re already in debt, it can make a lender nervous that you won’t be able to keep up with your payments. So if you can lower your debt-to-income ratio, you can put yourself in a stronger position to get approved for a mortgage. And paying off some credit card debt could shrink your debt-to-income ratio nicely.
Rocket Mortgage says that lenders are generally looking for a debt-to-income ratio of 43% or less. Beyond that point, a lender might think you have too much debt to take on more of it. On the other hand, Rocket says that if your debt-to-income ratio falls below 36%, you might end up in a really strong position to get a mortgage (or another loan or line of credit).
Paying down credit card debt can clearly improve your chances of mortgage approval. It can also save you money on interest.
Take a look at your spending and see if you can cut back on some expenses temporarily to free up money to apply to your credit card balance. And if not, consider taking on a side hustle on a shorter-term basis to knock that debt out.
You can also look at transferring your existing balances to a new card with a 0% introductory APR. That way, you’ll avoid having more interest pile on as you work to whittle down your balance.
Having credit card debt won’t necessarily ruin your chances of getting a mortgage. But it could make it more difficult to get approved. So if you’re able to pay some of that debt down before submitting a mortgage application, you might be able to approach the process with less worry.
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Your emergency fund should reflect your spending. It should also account for how long it might take to find a job when you need to. Read on to learn more.
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It’s important to maintain an emergency fund in case you find yourself needing to fix your car or repair your home at a moment’s notice. It’s also important to have money in your savings account in case you lose your job for a period of time.
In fact, you’ll generally hear that your emergency fund should have enough money to cover three months’ worth of essential expenses at a minimum. The logic is that if you were to lose your job, it might take three months to find a new one. So if your emergency fund can cover your bills during that time, you won’t have to resort to debt.
But what if you’re a higher earner? How much emergency savings do you need at that point?
The formula for figuring out your ideal emergency fund balance is largely the same whether you earn $30,000 a year or $300,000. Calculate your essential monthly expenses and multiply that total by three at a minimum.
So if you spend $4,000 a month on essential expenses, your goal should be to have at least $12,000 in savings. If you spend $8,000 a month on essentials, you’ll need a minimum of $24,000 in savings. However, you may want to aim for more than three months’ worth of expenses if you’re a higher earner for one big reason.
The average U.S. household spends $6,081 a month, according to recent research by The Ascent on Americans’ spending. That’s not necessarily $6,081 a month in essential bills. Some of that may be costs like subscriptions and streaming services that can be canceled in the event of a financial crunch.
But if you’re a higher earner, it may be that your monthly spending is more like $10,000. So a $30,000 emergency fund would be necessary to cover all of your bills in full for three months. If, of that $10,000, only $7,500 represents essential bills, you could get away with an emergency fund of $22,500.
However, you might still want to aim higher. Three months’ worth of living expenses is really the minimum amount of savings you should aim for. But if the reason for your higher income is that you work a high-level job or have a position that’s not so easy to come by, it might take you well more than three months to find a new job if you become unemployed. So you may want to buy yourself extra protection by aiming for six to nine months’ worth of essential bills.
As an example, let’s say you’re a tech company employee who works at the help desk making $60,000 a year. Chances are, your job can be found at numerous companies. So if you were to get laid off, you might find a new job in relatively short order.
But what if you’re a specialty IT manager earning $200,000 a year? In that case, you might struggle to find a new job if you’re laid off because that position may not be so easily available with other companies. It’s important to consider not just your monthly spending when calculating your emergency fund needs, but also the difficulty you’re likely to encounter in finding a new job.
A big reason to have an emergency fund is to avoid taking on debt when you’re without a paycheck. So think about what it’ll take to achieve that goal. It may be a lot more than three months’ worth of bills.
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CD rates are up. But read on for some essential questions to run through before opening one.
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One benefit of putting money into a CD versus a regular savings account is that you might get an opportunity to earn more interest on your parked cash. CD rates are often higher than the rate you’ll get in a savings account. Also, when you open a CD, your interest rate is guaranteed throughout its term, whereas with a savings account, you might start with a higher rate only to see it fall weeks or months later.
Now, it just so happens that CDs are paying pretty generously these days. But before you rush to open one, make sure to address these important questions.
When you put money into a CD, you’re making a commitment. You can technically cash out a CD at any time, but if you do so before the end of its term, you’ll face a penalty (the exact amount of which will depend on the length of your CD and your bank). So it’s best to only tie up money in a CD that you’re certain you won’t need for its duration.
To that end, think about your upcoming financial needs. The holidays will be here soon. Are you sure you won’t need the cash you’re thinking of putting into a CD to buy gifts? This is just one example, but the point is to make certain you can really afford to part with your cash for six months, 12 months, or however long your CD term is.
You may not have many larger purchases planned in the near term. But what are your plans for the new year?
If you’re thinking of opening a 6- or 12-month CD at some point this year, it means that money will be restricted for a good part of 2024, too. So if you’re thinking of renovating your home or you have reason to believe that you might need a new car, you may want to hold off.
Right now, CD rates are high thanks to a string of interest rate hikes implemented by the Federal Reserve. On Nov. 1, the Federal Reserve announced it would pause its interest rate hikes — something it did back in September as well.
But the Fed still has one meeting left this year scheduled for mid-December. And if the central bank opts to raise interest rates at that point, it could result in higher interest rates for CDs as well.
Of course, that’s a big “if.” Some economists are confident that the Fed is done raising interest rates. But you may want to wait until December to open a CD in case another rate hike happens.
Putting money into a CD is a good way to earn extra interest on cash you’d like to leave in the bank. Just make sure it’s the right time to open a CD before diving in.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.
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Contributing to an HSA could work to your benefit. Read on to see if you’ll be eligible in 2024.
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Healthcare is one of those expenses that’s pretty much unavoidable. So it’s in your best interest to save for it so it doesn’t drive you into debt. You could pump money into a regular savings account and dip into it as medical bills arise. But if you’re able to contribute to a health savings account, or HSA, then it’s in your best interest to do so.
HSA contributions are tax-free, so putting $1,000 into an HSA shields that much income from taxes. Plus, the money in your HSA that you don’t need to withdraw right away can be invested so it grows into a larger sum over time.
Investment gains in HSAs are not subject to taxes. And withdrawals are tax-free when used to pay for qualified medical expenses.
HSA contribution limits are set to rise in 2024, which means you’ll have even more opportunity to protect some of your earnings from taxes. But the minimum policy deductible needed to qualify for an HSA is also rising in the new year, so you’ll need to make sure you’re eligible to contribute to one of these accounts.
To qualify for an HSA, your health plan must impose a minimum deductible and also have a maximum amount of out-of-pocket spending. In 2024, you’ll be eligible to participate in an HSA if your health plan has:
A minimum self-only deductible of $1,600 or a minimum family deductible of $3,200An out-of-pocket maximum of $8,050 for self-only coverage or $16,100 for family coverage
Keep in mind that if you currently have an HSA but your health plan isn’t compatible in 2024, you don’t lose your existing funds; you simply can’t make new contributions. Also, you can withdraw from an existing HSA balance even if you’re no longer enrolled in a health plan that’s compatible with one.
Medicare enrollees, for example, cannot fund an HSA. But if you’re now in that boat, you can absolutely use your HSA balance to pay for expenses you incur under Medicare, such as co-pays.
HSA contribution limits are rising in 2024 to $4,150 for self-only coverage and $8,300 for family coverage. If you’re 55 or older, you’re allowed to make a $1,000 catch-up HSA contribution, and that gets added to whatever limit you’re eligible for ($4,150 or $8,300).
Keep in mind that as is the case with IRA and 401(k) catch-up contributions, you don’t need to be “behind” on funding your HSA to take advantage. The only thing that matters is your age.
HSAs are a really useful savings tool, but eligibility is not guaranteed. Don’t assume that you’re able to contribute to an HSA in 2024 just because you’re eligible right now. Rather, check to make sure that your health plan conforms.
If you get coverage through work, your benefits coordinator should be able to answer that question. And if you buy insurance yourself, your plan should indicate whether it’s HSA-compatible or not. If you’re still not sure, find out what your deductible is and what your out-of-pocket maximum is, and then use the info above to draw your own conclusion.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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