Money Management

Building wealth is a process for most people. Take a look at three things that can make it a little easier. [[{“value”:”

Recent billion-dollar lottery jackpots have millions of Americans dreaming of a life of wealth and luxury. But the odds of picking the winning ticket are pretty slim.

Most of us will have to build our wealth a little more slowly, but several things can help us on our way. Here are three factors that could help you increase your net worth over time.

1. A high income

A high income opens a lot of doors. It enables you to pay your monthly bills and have extra money left over for long-term goals. When most people think of large incomes, they tend to envision people employed in high-paying careers, but that’s just one way to bring in more money each month.

It’s also possible to grow your wealth by starting one or more side hustles in addition to your regular job. Sometimes, it’s even possible for side hustles to develop into businesses on their own.

If side hustles aren’t your thing, you could consider asking for a raise or looking for a better-paying position elsewhere. Every dollar you’re able to bring into your household, whether through side hustles or traditional employment, helps you get one step closer to your goals.

2. A budget that prioritizes savings

Big-ticket purchases, vacations, and retirement all require substantial personal savings. A high salary can help you get the money you need, but you also need a budget that allocates a portion of your income to your goals. Otherwise, it’s easy to overspend.

First and foremost, you should build an emergency fund if you don’t already have one. This protects you if you encounter unexpected bills, like an emergency room visit or an insurance deductible. Ideally, you’d like to have at least three months of living expenses on hand. Some people prefer to save six or more months of expenses.

Beyond that, a lot depends on your goals. If you hope to leave the workforce someday, you’ll want to earmark some savings for retirement. And you may also hope to buy a home or a car or take a big vacation. Estimate how much each of these things will cost and then decide how much you can put toward each one every month.

If you’re struggling to save enough, you may have to rethink your timeline for some of your purchases. Or you could try to cut back spending. For example, you might try using coupons or a cash back app to reduce your costs while grocery shopping. Then, you can put what you save toward your long-term goals.

3. A decent credit score

Pretty much everyone needs to borrow money at some point in their lives, and a good credit score makes this a lot more affordable. Creditors typically offer borrowers with higher scores lower interest rates because they feel more confident that these borrowers will keep up with their payments.

Every creditor has their own rules regarding what sort of credit score they’ll accept. But generally, a score of 670 or higher is considered good.

Building a good credit score requires you to demonstrate that you can repay borrowed money in a timely fashion. If you don’t have a credit card already, you may want to get one. Making regular payments on a card is one of the best ways to build a good credit history. Limiting your spending to 30% or less of your credit limit is also helpful as long as you are still charging a little to the card each month.

But ultimately, it’s consistency that will make the biggest difference to your credit score. Credit scoring models are designed to change slowly so they provide a long-term look at your credit behavior. So don’t expect your score to change a ton after a month or two of on-time payments.

Even with the above things, it can take some time to amass significant wealth. Don’t let that discourage you, though. Celebrate your progress and reward yourself for small wins, like saving $100 or $1,000 for a long-term goal. Over time, all these small actions can add up to substantial wealth.

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You might think pet insurance will cost less if you have a purebred dog. Read on to see why that’s not necessarily the case. [[{“value”:”

My family and I adopted our dog, Champ, in 2020. And to this day, when people ask us his breed, our response is, “We have no idea.”

Sure, we’ve got some guesses. His body looks like a lab, his face looks like a pitbull, and his ears tend to shoot upward in that unmistakable shepherd style every time he gets startled or curious.

But all told, we’ve never felt compelled to dip into our savings to pay for genetic testing. So to us, he’s just our giant, lovable mutt.

Meanwhile, a friend of mine recently asked how much my family pays for Champ’s pet insurance. And when I told her, she was shocked.

The reason? She actually pays more money for coverage for her purebred golden retriever. And while different insurances offer different levels of coverage, our policies seem pretty similar at first glance.

But while my friend was unpleasantly surprised at that outcome, I actually wasn’t. It’s a big myth that purebred dogs are less expensive to insure. Often, they’re more expensive, and there’s a very good reason for that.

When purebred means more health problems

You might assume that purebred dogs are less likely to encounter health issues because their genetic histories are well-known. But actually, their purebred nature could work against them.

Mixed-breed pets, by nature, have different genes going into them. That often makes them less likely to encounter breed-specific health problems.

In fact, Nationwide found that purebred dogs on a whole have a higher risk for cancer claims than crossbred and mixed-breed dogs, at 1.9 times the relative risk. So that could easily explain why it might cost more to insure a purebred dog.

To put it another way, purebred dogs have the same genetic health issues passed down to them because there aren’t new genes in the mix. Mixed-breed dogs can often avoid some of those issues due to varied gene pools.

How to get the best deal on pet insurance

The amount you end up spending on pet insurance will vary based on factors such as:

Your dog’s breedYour dog’s ageYour dog’s healthThe amount of coverage you’re looking for

But whether you have a purebred dog or a goofy mutt like we do, your best bet is to shop around with different pet insurers and compare your options. Some of the details you’ll want to look at include:

What deductible you’ll pay before your insurance kicks inWhether there’s a cap on different services, and what that cap entailsWhether your plan includes any wellness benefits

You should also know that no matter what type of dog you own, any pre-existing conditions they have will generally be excluded from coverage. So if they have hip dysplasia, for example, and that’s known at the time of your pet insurance application, your dog won’t be eligible for treatment related to that condition.

If you’re in the process of trying to adopt a dog and you have your heart set on a certain breed, you may want to do some research first and read up about the health issues that tend to be prevalent among that breed. Granted, potential health issues aren’t necessarily a reason to not adopt a dog that’s an otherwise good fit for your family. But it’s definitely helpful to know what you’re potentially getting into.

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It’s critical that potential homeowners don’t devote too large a percentage of income to their mortgage costs. Read on to learn why. [[{“value”:”

When you’re buying a house, there are a lot of numbers you need to know. Obviously, you have to know the price of the home so you can decide if it’s a good value. It’s helpful to know your credit score, since this can help to determine if you can get a mortgage and at what rate. And you want to know your mortgage interest rate, since that affects the cost of borrowing over time.

But while all of those numbers are important to know, there’s an even more critical number that everyone must pay attention to before they move forward with a home purchase.

Do not buy a house without knowing this number

The single most important number that you must consider when buying a house is the ratio of what your housing costs will be relative to your income. This includes the cost of your mortgage loan, homeowners insurance, and other housing-related costs like homeowners association (HOA) fees.

Knowing what your housing costs are as a percentage of income is critical because you do not want to spend more than around 25% to 30% of your monthly income on housing costs. Doing so would leave you continually broke without enough money for other stuff — and also likely continually stressed as a result of coping with having too little money.

Now, banks and mortgage lenders often let you borrow more than this amount. They’ll usually allow you to have debt payments equal to 36% of your income (including housing and other bills you owe) or even up to 43% of your income. But just because you can doesn’t mean you should.

The bank only cares about making as much money as it can — it’s up to you to care about other financial goals besides just buying a house. And if you’ve devoted more than the recommended amount to housing, you could very well be unable to invest for retirement or afford that vacation you want to take.

How much can you really afford?

Keeping your housing payment below 30% of your income is a good rule of thumb, but if you want to be even more certain you can afford your mortgage payments, you should practice making them.

Before you buy, figure out what your home will cost by using a mortgage calculator that takes taxes and insurance costs into account. If that amount is higher than what you’re currently paying for housing, you should test out making that higher payment by putting the difference into a savings account. So, for example, if you’re currently paying $1,800 a month for rent, and your housing costs will go up to $2,100, then pay your rent each month and put the extra $300 into savings.

If you can comfortably do this for several months — ideally around six — then you should be good to go ahead and buy. If not, then you should find ways to cut other living costs, save a larger down payment (so you’ll have a smaller mortgage payment), or buy a cheaper house so your costs won’t be such a burden.

By focusing on your home costs as a percentage of income, you can get a good idea of what is most likely to be affordable for you. This number matters more than anything else, though. It doesn’t matter how good your mortgage rate is or how good of a deal you got on your home if the costs aren’t affordable based on what you earn.

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The idea of a recession can be scary to investors. But here’s why you may not need to stress about one so much. [[{“value”:”

The recession warnings that were rampant in 2022 seem to be slowing down for now. But still, every so often, you’ll read the news and see the dreaded R-word thrown around, and it may be enough to spook you just a little bit.

It’s easy to see why the idea of a recession might scare you as an investor. But these three points about recessions might make you feel less worried about the idea.

1. They’re not always lengthy

Some recessions in U.S. history have lasted over a year, like the Great Recession that spanned December 2007 to June 2009. But not every economic recession is a prolonged event. In fact, the recession spurred by the pandemic in 2020 only lasted two months, from February through April, technically speaking.

You should know that the U.S. has experienced 34 recessions since 1857, with an average length of 17 months. But many of those recessions were over in less than a year. So the next time a recession starts, don’t panic. The economy isn’t guaranteed to be in a slump for years.

2. They’re not always extreme

When we think of recessions, we tend to imagine extended periods of extreme economic distress. That’s not always the case, though.

Some recessions are mild in nature in that unemployment rises, but not to a super extreme degree. Of course, some recessions are mild by virtue of not lasting very long, too.

As an example, the Gulf War Recession of 1990 to 1991 lasted eight months and was considered relatively mild. That recession was largely fueled by interest rate hikes on the part of the Federal Reserve coupled with Iraq’s invasion of Kuwait that drove oil prices upward.

3. They don’t always affect portfolio values

You might assume that as soon as a recession hits, the value of your investment portfolio is going to tank. But that may not be the case.

Although recessions can coincide with stock market declines, that doesn’t always happen. Since 1928, the stock market has experienced 25 bear markets, which are classified as periods when stock values fall 20% or more from a recent high. But of those 25 stock market downturns, only 14 actually overlapped with recessions.

How to set yourself up to get through a recession

It’s natural to worry about a recession as an investor. But there’s a simple move you can make to protect your portfolio from recession-related upheaval: Build yourself an emergency fund.

If you sock away enough money in a savings account to cover three to six months of essential bills, you’ll have cash to fall back on in the event of a recession-fueled layoff. And that could make it possible to avoid tapping your portfolio and taking losses in your brokerage account due to a need for money.

Remember, the value of your portfolio may decline during a recession. But if you leave it alone, there’s a good chance it’ll come back up as the market and economy recover. By making sure you’re loaded up on emergency cash reserves, you’ll make it less likely that you’re forced to liquidate investments when they’re down and take an actual loss.

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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.
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Discover one writer’s four crucial lessons learned from transitioning to self-employment. Dive in for insights for how to get ready for your journey. [[{“value”:”

In 2015, after six engaging-yet-exhausting years as a gossip reporter fresh out of college, I decided to leave the predictability of a 9-to-5 job behind. The allure of freelance life beckoned with promises of freedom, flexibility, and the opportunity to carve my own path.

While the transition has been rewarding in countless ways, it has also introduced me to the intricate dance of managing my finances and budget without the safety net of traditional employment. Here, I share key insights gleaned from navigating the unpredictable seas of self-employment.

1. Taxes can be complicated

One of the first — and most daunting — challenges I encountered was the complexity of taxes, especially after setting myself up as a business. Unlike the straightforward tax deductions from my days as a W-2 employee, my freelance venture plunged me into the murky waters of quarterly payments and business taxes.

For instance, one year, despite diligently making a quarterly tax payment, the IRS failed to account for it — even though my bank statement clearly showed the withdrawal. What followed was weeks spent in bureaucratic limbo, trying to secure a refund.

2. Flexibility is a double-edged sword

The allure of self-employment often lies in the flexibility to take time off at will. Yet, the reality is that time away from work directly impacts earnings. This flexibility is a double-edged sword: while I have the freedom to take a vacation without requesting permission, it also means that taking time off requires careful financial planning.

The illusion that freelancers have unlimited free time is just that — an illusion. In truth, I’ve found myself working through vacations, often tethered to my laptop, addressing client needs, or catching up on projects. The notion of “working from anywhere” morphs into “working all the time,” highlighting the challenge of striking a work-life balance when the boundaries between personal and professional life blur.

3. Planning for retirement isn’t easy

The absence of employer-sponsored retirement plans like 401(k)s, complete with matching contributions, thrusts retirement planning squarely onto the freelancer’s shoulders. Learning the ins and outs of individual retirement accounts (IRAs) was daunting but necessary. With the annual contribution limit set at $7,000 for 2024 (or $8,000 for those 50 and older), I took it upon myself to max out my contributions each year.

This proactive approach to retirement planning meant familiarizing myself with investment options, understanding the tax benefits of IRAs, and committing to regular contributions. This discipline paid dividends in ensuring my financial future. It also highlighted the importance of viewing self-employment not just as a job but as a business that requires comprehensive financial planning, including for the days when work is no longer on the horizon.

4. An accountant is key

Investing in professional financial advice, specifically from an accountant familiar with freelancing, has been a game-changer. The annual expense of a couple thousand dollars, initially considered a luxury, has become a cornerstone of my financial strategy. Beyond tax preparation, my accountant provides strategic advice on expense tracking, maximizing deductions, and navigating the ever-changing tax laws that impact freelancers.

This partnership has not only ensured compliance with tax regulations. It has also afforded me peace of mind, allowing me to focus on growing my business rather than getting bogged down in financial minutiae. The few thousand dollars spent annually on accounting services is a testament to the adage that sometimes, you must spend money to save (or make) money.

Embarking on the freelance journey transformed my approach to work and life. The lessons I learned through experience (and not without their share of trials) have helped me become a confident, financially savvy self-employed freelancer.

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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.
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