Money Management

It’s a good way to tackle any lingering debt. 

The holiday season isn’t quite over, but at this point, a lot of people are already looking at giant credit card balances as a result of their recent spending. And so if you’ll be closing out the 2022 holidays with a pile of debt to tackle in 2023, you’ll be in good company.

But you may not exactly be thrilled to start the new year off with debt. And who could blame you? Not only can debt be costly (especially these days, with interest rates on the rise), but it can be stressful. And it can impact your mental health, too.

That’s why it’s in your best interest to rid yourself of holiday debt as quickly as possible. And a no-spend January could be a great way to make that happen.

If you’re not familiar with the concept of a no-spend weekend, week, or month, it basically means that for a given period of time, you only spend money on essential bills, like your rent or mortgage payment, car payment, medications, and groceries. You don’t spend any money on extras like non-work apparel, store-bought coffee, takeout, and concert tickets.

Pulling off a no-spend month isn’t an easy thing to do. But it can be a very effective way to tackle debt. So if you’re willing to give it a go in January, here are some tips for being successful.

1. Line up free entertainment ahead of time

Sticking to your no-spend rule could get tricky if you find yourself getting bored after work and on weekends. That’s why it’s a good idea to prepare some entertainment in advance. That could mean loading up on library books so you have plenty of reading material. It could also mean busting out your old DVD player, hooking it up, and watching classic movies you’ve borrowed from your friends’ collections.

2. Get your friends on board

It’s harder to stick to a no-spend policy when you have friends inviting you to dinner or the movies left and right. If you want to uphold your no-spend month, ask friends to join you in curbing all non-essential spending. If you cut back together, you may find it less painful. Plus, that way, your friends won’t look at you strangely if you suggest a Saturday afternoon hike when you’d normally spend those hours running up a credit card tab at the mall.

3. Reward yourself with something special in February

Pulling off a no-spend month is a real challenge. So make it worth your while by promising yourself a fun treat in February if you’re successful. That could involve dinner at your favorite restaurant or the new pair of boots you’ve been eyeing for weeks.

Closing out the holiday season with debt is pretty common, but it can also be pretty upsetting. If that’s the situation you’re in, a no-spend January could really help you chip away at that debt quickly. And who knows? You may find that cutting your non-essential spending isn’t so hard after all. You may even decide to try another no-spend month later on in the year to help you work toward a big financial goal.

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Cutting back on spending isn’t easy — but it can be done. 

The start of a new year is a great time to commit to some financial goals, whether it’s paying off your credit cards or finally opening that IRA you’ve been talking about for years. Cutting back on spending is another good goal to aim for, and if you put it on your list, you’ll be in good company.

In a recent survey by Principal, 46% of respondents pledged to spend less money in 2023. If you have a similar goal, here are some ways to achieve it.

1. Follow a budget

It can be difficult to cut back on spending when you’re not really sure how much you’re spending on different bills in the first place. That’s why following a budget is essential to reducing your spending. Only when you have your various expenses listed in front of you, along with their costs, will you be in the strongest position to make changes that help you preserve more of your paycheck month after month.

If you’re not sure how to get started with budgeting, simply list your expenses in a notebook or on a spreadsheet and comb through previous bank and credit card statements to see what they generally cost you. There are also different apps you can use to make budgeting a snap. And best of all, these apps will commonly link to your checking account and credit card accounts to help categorize your spending.

2. Prioritize your non-essential bills

You most likely pay for expenses that aren’t needs, but rather, wants. That’s perfectly okay. But if you want to cut your spending, you’ll need to order those non-essential items by priority and then spend less on the things that aren’t as important to you. So if, for example, you can’t bear to give up your weekly night out with your friends, you can look at canceling your yoga studio membership if you have the option to take free online yoga classes instead.

3. Cancel services you’re not getting good use out of

Maybe you pay $50 a month to use the gym but hardly go. Or maybe you pay $15 for a streaming service you rarely watch. One of the easiest ways to reduce your spending is to get rid of bills that aren’t adding a lot of value to your life.

4. Employ strategies to avoid impulse buys

Impulse purchases can be a true budget-buster. If you’ve been known to fall victim to them, take steps to try to avoid them.

For one thing, consider shopping with cash only. If you don’t have extra money to pay for unplanned buys, they’ll be off the table.

Next, make a point not to shop online as an evening activity. Instead, read a book, watch something on that streaming service you’re still paying for, or call a friend to catch up.

Finally, employ the 24-hour rule. When you’re tempted to buy something on a whim, force yourself to wait a full 24 hours to complete that transaction. Chances are, in that time frame, you’ll come to the realization more often than not that the item in question is something you can pass on.

Reducing your spending is no easy feat. But these tips could help you meet that goal in 2023 and have something to truly be proud of by the end of the year.

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It’s a date you don’t want to gloss over. 

There are many benefits to being self-employed. Under that set-up, you can often do your job from anywhere, set your own hours, and enjoy the freedom of not having to report to a boss all the time.

But there are downsides to being self-employed, too. Not only do you not always get a steady income to look forward to, but you don’t get the benefit of having taxes deducted from your earnings directly. Instead, it’s on you to pay the IRS what you owe on a quarterly basis.

Now at this point, ideally, you’ve already sent the IRS three separate estimated payments to cover your tax liability for 2022. But soon, you’ll need to gear up to send in your fourth payment, so it’s important to keep the deadline for that in mind.

Mark your calendar for mid-January

You might assume that your fourth quarter estimated tax bill is due on Dec. 31. But actually, you get until Jan. 17 to send the IRS that money.

Why is that the deadline? The IRS recognizes that self-employed individuals might get paid for work at the very end of the year. And if you’re only just getting paid on some outstanding invoices on Dec. 31, it’s not really reasonable to expect you to be able to calculate your associated tax bill by that date.

As such, the IRS gives people who are self-employed a couple of weeks to reconcile their books for 2022 and make their final payment. But it’s important to send in that payment by Jan. 17 to avoid being penalized.

What happens if I send in too small a payment?

The tricky thing about estimated quarterly tax payments is that they’re just that — estimates. And even if you work with an accountant, you might still end up owing the IRS some money when you file your 2022 tax return.

Whether that will result in a penalty will depend on the amount you owe. If it’s under $1,000, you’ll still need to pay the IRS that money, but you shouldn’t be penalized. Similarly, you can avoid being charged a penalty for underpaying your taxes by making sure to pay the IRS at least 100% of your previous year’s tax bill.

So, let’s say you pay the IRS a total of $20,000 in estimated taxes this year when you really owe $25,000. If you paid the IRS $18,000 in taxes last year, that $20,000 is more than 100% of what you paid for 2021. So it should be enough to help you avoid being penalized for that $5,000 underpayment.

Keep in mind that the IRS will work with tax-filers who can’t afford their tax bills in full. But if you’re self-employed, it’s really important that you keep extra money in your savings account in case your tax liability ends up being greater than anticipated.

It’s also a good idea to have an accountant help you estimate your tax liability. While doing so doesn’t guarantee that you won’t owe money, you might get closer to hitting the right mark if you use a tax professional.

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The worst part? This is far from the first time something like this has happened.  

Getting a mortgage can be challenging, given that lenders have tightened up their standards significantly in the wake of the 2008 real estate crisis. But there’s a difference between employing strict lending practices and being downright discriminatory. And one major mortgage lender is being accused of the latter.

KeyBank is said to have underserved Black borrowers in the Philadelphia region, according to a new report from the National Community Reinvestment Coalition. Last year, only 2.2% of the more than 1,2000 mortgages it approved in that area went to Black borrowers. By contrast, other top banks in the area reported that more than 8% of their loans went to Black home buyers.

Now clearly, 8% is still a fairly small percentage. But Philadelphia saw a substantial decline in KeyBank loans to Black home buyers between 2018 and 2021.

Not surprisingly, KeyBank has pushed back against this accusation, saying it strongly disagrees with the characterization of its lending practices. But all told, it’s unfortunately not shocking to see an extremely low percentage of mortgages allocated to Black home buyers.

In fact, Black borrowers have long faced challenges when it comes to mortgage approval. And until lawmakers take meaningful action, that struggle is, unfortunately, apt to continue.

A major ongoing problem

Black mortgage applicants in the U.S. are more than twice as likely to be denied a home loan as white applicants, according to the National Association of Real Estate Brokers. These days, 15% of Black mortgage applicants face rejection, compared to only 6% of applicants who are white.

It’s not surprising, then, that only about 45% of Black households own their own homes. By contrast, 74% of white households own homes.

That’s a problem, because homeownership is said to lend to financial stability. Those who own homes can build equity that can serve as a financial safety net. And they’re privy to tax benefits that renters can’t capitalize on.

It’s also upsetting to learn that the gap in homeownership rates between Black and white households has widened over time. In 1970, it was 24%. Now, it’s 30%.

Lawmakers need to get involved

As part of his campaign pledge, President Biden promised to take steps to combat discriminatory practices in the mortgage lending industry. And in October, the Justice Department announced a nationwide initiative to tackle that issue.

Authorities across the country will be partnering with banking and consumer regulatory groups, including the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency, which monitors national banks, to track lending practices. There are several fair lending probes open already, and more are expected to come down the pike.

Thankfully, this initiative is already producing results. It’s already led to an $8.85 million settlement on the part of Tennessee’s TrustMark National Bank, which the government said avoided offering mortgages in predominantly Black and Hispanic neighborhoods.

Ideally, more work will be done to help ensure that lenders give out mortgages in an equitable fashion. That could help bridge the homeownership gap and help Black households attain more long-term financial security.

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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.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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How much money can you afford to pump into your home? 

A lot of people are spending more time at home in the wake of the COVID-19 pandemic. While office life is certainly a thing again, many workers are continuing to do their jobs from home at least part of the week. And a lot of people who abandoned cramped city rentals in 2020 and bought suburban homes instead may not be in any rush to give up square footage and return to urban life.

All told, it’s easy to see why it’s so important to people to create a comfortable living space. And it’s also easy to see why homeowners may be willing to borrow money to finance home renovations.

Angi’s most recent State of Home Spending report reveals that U.S. homeowners spent an average of $8,484 this year to fix up their properties. And if you’re thinking of spending a comparable amount of money, it may be more than worthwhile.

At the same time, you’ll need to proceed with caution if you’re going to take out a large loan to renovate your home. Doing so could create a financial crunch you don’t need right now.

Borrowing costs are high

A lot of people don’t have $8,484 sitting in a savings account to cover the cost of home improvements. And so if you’re looking at a big renovation project, you may be thinking about borrowing to cover its cost.

In that regard, you have options. You could borrow against the equity you have in your property, either via a home equity loan or line of credit (HELOC). Or, you could take out a personal loan.

But one thing you should know is that borrowing costs are up across the board right now. So even though home equity loans, HELOCs, and personal loans often come with competitive interest rates, right now, yours might cost extra due to the current borrowing environment.

You’ll need to be especially careful if you’re going to take out a HELOC to finance home improvements. Unlike personal and home equity loans, HELOCs come with variable interest. So bear in mind that the cost of borrowing via a HELOC has the potential to rise over time.

Crunch those numbers

You may be willing to make some sacrifices and cut back on certain types of spending to make a home renovation happen. But one thing you shouldn’t do is borrow more than you’re comfortable with to afford home improvements and get stuck with loan payments that just aren’t manageable.

If you’re nowhere close to being able to afford the type of renovation you want to move forward with, see if there’s a lower-cost compromise. You might want a better kitchen than your currently outdated one. If you can’t swing a complete remodel, start by replacing an appliance or two, as that could instantly make your life easier.

This is just one example. The point, however, is that there may be steps you can take to make modest improvements to your home if the big projects on your list just aren’t attainable right now.

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It pays to find out and get the money you’re entitled to. 

Since the start of 2022, inflation has been surging to the point where many people are loading up on credit card debt and cutting out different expenses to simply stay afloat. And unfortunately, there’s been no federal stimulus aid to help soften that blow.

The last round of stimulus checks to hit recipients’ bank accounts was approved in March of 2021 as part of the American Rescue Plan. Back then, U.S. unemployment levels were very high and COVID-19 vaccines were in short supply. And so it was easier to make the case for widespread financial relief.

But unemployment levels have been low in 2022, and despite inflation, the economy has been strong. In fact, it’s easy to argue that inflation is a sign of a healthy economy, because it signifies that consumers have more money to spend, to the point where supply can’t keep up with demand.

As such, there’s been no federal stimulus aid for almost two years. And we shouldn’t expect any broad stimulus measures to pass in early 2023 at the federal level, either.

But some states have come to residents’ rescue by issuing their own stimulus payments. And several states aren’t done sending stimulus funds out. So if you think you’re entitled to a stimulus but haven’t gotten your money, don’t panic — it may be on the way.

State stimulus checks are still in the works

Although a lot of people who were entitled to a state stimulus check have received their money already, some states are still in the process of sending out those payments. Massachusetts, for example, only began sending out stimulus funds in November, and the state was expected to keep issuing payments through Dec. 15. That means that if you’re a Massachusetts resident, your check might arrive any day now.

Meanwhile, South Carolina plans to continue issuing stimulus payments through the end of the year. It’s sending those out in the form of physical checks, debit cards, and direct deposits.

If you live in California, Colorado, or Hawaii, your stimulus payment might also be in progress. Residents of these states are still receiving payments as they trickle in.

Make sure you get your money

Although inflation has cooled since summertime, living costs are still quite high. And so if you believe you’re entitled to a state stimulus payment and should’ve gotten it already, you shouldn’t hesitate to follow up.

Of course, the process for doing so will hinge on the state you live in. And your best bet may be to start by doing a search along the lines of ” missing stimulus.”

For example, plugging “California missing stimulus” into a search engine takes you to a page called Help with Golden State Stimulus. From there, you can get information about the state’s stimulus program and tips for what to do if you didn’t receive a payment. Each state has its own resources and information on stimulus payments, and you should absolutely reach out to follow up if your money hasn’t yet arrived in the mail or hit your bank account.

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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.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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