5 Tips for Moving and Changing Insurance

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Wondering what you need to do for moving and changing insurance?

There are so many things to do when you move to a new place that you can easily lose track. Whether you’re moving to a new home in your same town, or moving across the globe, the to do list may seem endless. And that’s when things like changing your insurance can fall through the cracks. 

When it comes to getting everything in order, it is best to sit down and make a solid list. Attention to detail is great for trading, working, and especially getting your move done efficiently. That’s why we have put together five tips for moving and changing insurance just for you. This way nothing falls through the cracks and everything is covered. 

Know Local Requirements Before You Move

Before you move, you need to familiarize yourself with local insurance regulations and requirements. Your insurance coverage in one country may not qualify as coverage in another. For instance, you may have had PLPD insurance in your previous state, but your new state requires all drivers to have full coverage.

If you are wondering about your new local requirements, simply check a government website. Normally they have vehicle coverage requirements on their transportation department websites. If you can’t find it there, call your insurance provider to see what sort of changes need to be made before you move.

New States, New Country, New Insurance

When it comes to moving far away, there are a lot of things you need to think about when it comes to your insurance. Just like knowing your local government requirements for your car, you also need to know what needs to be insured for your new residence.

There are a lot of insurance coverage possibilities. When you move to a new place, you may be shocked to find that you will have to provide insurance coverage for new and strange things. This is determined by the local weather, regulations and laws, as well as HOA’s and more. Just like there are different types of car insurance, there are lots of things that may need to be covered in your new home.

Here are some areas of required coverage based on where you live:

  • Flooding
  • Wildfires
  • Earthquakes
  • Tornados
  • Water line coverage
  • Hurricanes
  • Severe Winter Weather

Depending on where you are moving, you may need to have these potential disasters written in on your insurance for your home and your car. In some areas if you don’t have the specific coverage, any damage won’t be covered by your home owner’s policy, so be certain to double check before your move.

Always Have Your Valuables Covered

One of the main issues with moving is having your valuables damaged in transit. With that being the case, do not cancel your renter’s or homeowner’s insurance before your move. There can be a 30 to 90 day over lap so that all of your valuables are protected during the move.

Not only should you have them covered because of the physical move, but you should also keep them covered until your new insurance takes over. Anything could happen while you get settled into a new place. Don’t let your valuables get damaged or stolen without the proper insurance coverage.

Keep Your Documents in Order

An extremely hard part about moving is that all of your personal belongings are in boxes, scattered all over your home, or simply just out of reach. Keep your insurance papers, important documents, and personal identification in a safe place during the move. This way if anything were to happen in transit, you can easily find your coverage and make a claim.

Don’t Wait

One of the worst things you can do is wait until after you are moved into your new home to get new insurance. The time to make certain you have the right coverage is BEFORE you move. That way there is generous overlap of coverage. You don’t just randomly sign onto a mortgage because there is a time constraint. Don’t wait to make certain you and your family and valuables are covered.

Moving and Changing Insurance Can Be Easy

Moving and changing insurance doesn’t have to be difficult. With these 5 tips you can not only change your insurance with confidence, but you can relax a little bit during the move knowing your things are taken care of. Don’t wait to get your insurance settled after the move, get started today.

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Accessing Credit When You Are In Need – Quick Cash

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There are many steps you can take when you want to access credit quickly. Most people have found themselves in financial tight spots over the years, and money-related problems can strike at any point. In this article, we will look at the various different options for accessing credit to restore financial harmony and discuss their pros and cons.

Borrowing from Friends or Family

This approach can be effective, but you may also run into problems. Even if you don’t feel awkward about asking friends or family members to lend you money, the other person may feel uncomfortable about it. Asking to borrow money can put a strain on your relationship or friendship, and things can feel even more awkward if they decline your request. No matter how great your relationship is, there are no guarantees that your request will be granted.

Aggressive Budgeting

Making sacrifices can help you raise the cash that you need, but what do you do when you have already tightened your belt as much as you can? If you desperately need the funds to cover an essential purchase and you simply cannot raise the cash, budgeting may not be an option. Most of us find it difficult to raise the cash that we require from time-to-time, even when we have stopped making extravagant purchases and limited ourselves to the bare essentials. Unforeseen events like vehicle breakdowns or health concerns are just two examples of why aggressive budgeting may not work when a large sum of credit is needed.

Selling Something You Own

There are many pros and cons to selling something that you own to get yourself out of a short-term difficulty. If the item that you’re selling doesn’t have much value to you anymore, you might not miss it, but some things are irreplaceable or at least very difficult to replace. You may come to bitterly regret saying goodbye to these goods further down the line, and the process of finding a buyer can be time-consuming. Even if the item that you own is very valuable, there is no guarantee that someone will want to buy it, especially during testing economic times. You may also find yourself accepting an unfairly low price just to raise funds, which is also something you’re likely to regret later.

Online Loans

A faster way to gain access to cash without selling something or asking friends or family members is to take out an online loan. One of the advantages of getting an online loan is that you can normally gain access to funds on the same day, which is ideal for problems that cannot wait.

Just remember, these products aren’t designed for long-term borrowing. When you use short-term loans responsibly and sensibly, you can make them work for you and quickly overcome the financial obstacles you might be facing, but ensure you pay the amount you owe back as quickly as you can. Some lenders actively encourage early repayment of your loan amount without any penalties or additional fees for paying back early. This helps you avoid paying extended interest on your credit.

Credit Cards Or Bank Overdraft

Not everyone can gain access to credit cards or overdrafts. Even if you do have access to these facilities, the terms and interest can be off-putting. Once you start using credit cards and overdrafts, you may find yourself spending excessively and making your financial situation worse, which is why so many people avoid them. In most cases, you will need to pay more back than you borrow when using overdrafts and credit cards. If you don’t currently have access to a credit card or bank overdraft, you may have to wait a while for your application to be approved if you do try and get one. This won’t help you if you need cash today or within the next couple of days.

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Financing Basics for First-Time Rental Property Owners

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Have you been thinking about becoming a landlord, but wondering if now is the right time to purchase a rental property? You are certainly not alone. Real estate is one of Americans’ favorite investments. Plus, with current low-interest rates and the trend of millennials choosing to rent instead of own, you may want to consider taking the plunge sooner rather than later.

Having a rental property in your portfolio has plenty of perks (including a steady, passive income). Still, you need to do your research first and understand options to make sure it makes financial sense for your situation. Rental property financing is not as straightforward as purchasing a primary residence. Therefore, in this article, we will discuss some of the financing basics of investing in real estate to consider, which can be especially helpful if you are a first-time rental property owner.

Make a Large Down Payment

Mortgage insurance will not cover your investment property. So, for a traditional loan, you will need to put down at least 20-25% to get favorable financing according to Quicken Loans. A substantial down payment gives the bank more security, and it also demonstrates your commitment. Additionally, the bank will review your credit and debt-to-income ratio when making their decision on how much down payment is necessary, and if you will even qualify for a traditional loan.    

Evaluate Loan Options

‘Big bank’ traditional loans probably are the type of financing you are most familiar with, but if you can’t qualify, there are other options available to finance your rental property. Smaller, local (or community) banks sometimes have more flexibility in their requirements. They are usually not as conservative as the big banks, and they like to invest locally and value building relationships with their investors. Another idea is investing in a multi-family property that you can live in to take advantage of primary residence financing.   

Rental Property Owners 1

Ask the Seller to Consider Financing

If you can’t get a loan for your rental property from a bank, another option is to ask the seller if they would consider financing the loan themselves. The seller will extend credit to cover the purchase price of the property (minus the down payment), and you’ll sign a promissory note agreeing to make your payments. Interest rates will likely be higher than you’d get from a bank, but the down payment should be more flexible. Plus, you can close your deal quickly since you don’t have to go through the hassle of the traditional banking process to get your loan application approved. Remember, if you chose to explore this option, be sure when you approach the owner that you have a game plan in place. The seller must have confidence in your ability to repay the loan.      

Gather a Small Group of Investors Together

Although it would be nice to own your rental property outright all on your own, that is not feasible for most people. As an alternative to going it alone, you can gather a small group of investors to buy the property together. This option keeps you all from having to take out a loan, and it allows you to start generating cash flow sooner. Although you will have to share your profits, it does avoid the risk of a foreclosure on your rental property. It can be a great way to get your feet wet as a landlord without shouldering all the risk. To make things even easier, your group can hire a property management company, so you don’t have to deal with tenant issues.    

Making the right choice when it comes to financing your first rental property can help set you up for success. You don’t want to rush into deciding, and you should always consider your short-term and long-term goals to figure out what kind of financing makes the most sense.

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How to make your money work for you

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If you want to hire people to work for you, then you need a business of some sort.  However, even if you don’t yet have a business big enough to hire people, you can have employees work for you.  These employees work 24/7, don’t complain about parking spaces, and don’t leave the office microwave a mess.  They will work hard at any job you tell them to, and will try to get more of them to work for you.  Where do you find such ideal workers without outsourcing to a foreign country?  They are actually currently sitting in your wallet/purse and in your bank account.  These employees are your money that you work so hard to make.

“Make your money work for you” is a phrase that most people have heard but not many people do.  Getting a paycheck and using that money to pay for your expenses and nothing else is just going to keep you on the conveyer belt of consumption.  Putting some money aside in a savings account regularly is a great idea, but even that won’t make you money as the monster known as inflation will make that money less and less valuable over time.  To really make your money, well…make you money, you can put it to work into different types of accounts depending on what your goals are.

If your goal is to increase your retirement savings, there are some accounts that are great for that.  Assuming retirement is a few decades away for you, putting your money to work in a 401k would be a wise move.  If you don’t have one at your workplace or your 401k just isn’t that good, another option is an Individual Retirement Account (IRA).  There are many brokers that offer an IRA (Vanguard is my favorite one because of its low fees and ease of investing), but the important thing is to invest according to when you will need the money.  In general, the farther off retirement is, the more you should be invested in a broad array of stocks because stocks have a good chance of making you money in the long term.  If you need the money soon, then your money would probably be better off invested in “safer” investments such as bonds or money market accounts.  There are of course billions of variations in between, but you’re much better off following these general rules than not doing anything at all for retirement.

If your goal is to have some money for college expenses for your kids, a 529 plan would be a good place to start.  Most states offer their own 529 plans, and some give tax breaks for doing so.  The investments in 529 plans can be geared to the year your kids will be expected to start college.  If you start early on, it is easy to have a nice fund by the time the little guy or girl is going off to school.

Finally, if your goal is just to save up for a vacation or something else which is a year or two down the road, an online savings account is a good place to put your money.  The interest rate can be low for savings accounts, but the money made from interest is just a bonus as the main objective is to have a place to stash money to be used relatively soon.  A Certificate of Deposit (CD) account is also a good choice as they can offer slightly higher interest rates  as long as you don’t withdraw any money for a specified period of time (usually 1,3 or 5 years).

These are just some of the ways to make your money work for you.  If you give your money a job, such as saving for retirement or saving for a vacation, you can usually find a good place to put it to work.  Once you pay money for expenses like car insurance or a cell phone bill, that money is gone and can never work for you ever again.  If you can pry some money away from expenses and re-direct it to work for you, it will do you a world of good.

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Filed Under: Financial know how, Investing

How to fully benefit from your new job- Part 2

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vacation

Don’t forget days like these!

In my previous post, I talked about how to maximize the two main perks associated with most new jobs, health insurance and retirement planning.  Being on top of these two benefits will definitely put you on the right path toward using your work benefits to the fullest.  There are a few other ways to make sure you are getting the most out of your new job.  These may not give you the biggest bang for your buck as optimizing your healthcare and 401k contributions will, but they will help nonetheless.  The most important thing to remember is to get all the information you can from your Human Resources department.  Fellow co-workers mean well when they give you information about the workplace.  But they may be misinformed themselves or giving you outdated information.  Always go straight to the source, and that is your HR department.

So here are some other workplace perks you should definitely be taking advantage of:

Vacation days:  Everyone loves a nice vacation, and we all need to recharge once in a while in order to keep working at a comfortable pace.  But many people don’t know the specific policies there companies have regarding vacation.  Some companies let you roll over unused vacation days into the following year, while some companies have a “use it or lose it” policy.  Others will split vacation days called by different names such as “sick days” or “paid time off”.  These can have their own regulations as well.

Your paid vacation days are part of your total compensation.  Your company already factored them in when determining your salary.  So it is important to get your full vacation benefits explained from your HR department so you can know exactly what’s going on and also track your days off yourself in case there are some discrepancies.  Not taking vacation effectively can cause you to leave money on the table.  How so?  let’s say you have 4 weeks worth of vacation to use for the year.  For whatever reason you forget to use 2 of those weeks.  These are the types of vacation days that are gone at the end of the year.  That means you just worked 50 out of the 52 weeks of the year, but you got paid for 48 weeks of work.  You just gave yourself a pay cut.  This is definitely not a good feeling and shows how important maximizing your vacation days can be.

Discounts:  Many workplaces offer discounts for various products or services, a lot of times unbeknownst to their employees.  I personally experienced this the hard way as it took me two years to find out that my company gives a discount for using Verizon Wireless.  It wasn’t a huge discount by any means, but it did painlessly save me some money every month.  The way I found out about it was an off-hand comment from a co-worker who heard that that the company gives certain discounts.  I just called the HR department and they sent me a list of services that we are eligible to get discounts for.  These included things such as cell phone service, car insurance, gym memberships and amusement park tickets.  These are things most people already pay money for, so it’s nice to save some money without much effort.

Advisers/counselors:  When I was first presented with investment options in my 401k, I have to admit I was a little confused.  I called my HR department and told them as much, and they recommended I call the company’s investment adviser, who was available ti all employees.  The fact that there is one adviser for thousands of employees shows how much he is being used.  In any case, I gave him a call and asked him my list of questions and he answered them all and worked with me to find an appropriate investment plan.  This perk could potentially be worth hundreds of thousands of dollars because that can be the difference between a well constructed investment plan and a poor one. 

Many companies also provide their employees with counselors for issues such as stress in the workplace or grieving for the loss of a loved one.  Companies want their workers to be productive, and that includes providing help in times of need.  Thankfully, I really haven’t had to make use of these services, but it’s nice to know that its there.

These are a few of the “miscellaneous” perks that many workplaces offer.  Though the bang for the buck may not be as great as a strong 401k and healthcare plan, any discount or service which you otherwise wouldn’t have received is a good thing.  Things like vacation days and company discounts are the low hanging fruit of workplace perks.  They are easy to attain and produce immediate benefits.  And it’s always important to remember that if you’re not sure if you have a certain benefit or not, just ask your HR department.  You’ll never know until you do.

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First blog Carnival appearance!

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Hello everyone.  My article about the Debt Snowball vs the Debt Avalanche was recently featured in the Carnival of Personal finance, which is pretty much a round up of the week’s best personal finance articles.  It’s a great resource for solid financial information and hopefully this is the first of many appearances for me.  Check it out:

Carnival of Personal Finance

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Filed Under: Financial know how, Self Building

Snowball vs Avalanche: Is it even a question?

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We have so many ways to get into debt nowadays.  Credit cards, mortgages, student loans, car loans and, God forbid, payday loans.  With so many ways to get into debt it’s important to know the quickest ways out of debt.  And it’s not by calling one of those debt “reconciliation” services.  The first step to pay off debt is to not add to it.  Cut up the credit cards and don’t take any more loans.  In a debt emergency such as large credit card debts, you really have to go into crisis mode and cut out whatever debt that you can and put whatever resources available towards paying off that debt.  The next step is to stay current on all of your debts to avoid paying any late fees.  This is done by simply making the minimum payment on all of your debts.

We of course can’t stop with just minimum payments because this will keep you in debt for a long long time due to interest.  The next best step after making minimum payments is to gather up all the money you can and attack the debt with the highest interest rate.  Or is it the debt with the lowest balance?  This is where some financial gurus slightly differ.  Some advocate attacking the debt with the highest interest rate first, known as the Avalanche method.  Others, most notably a “guru” by the name of Dave Ramsey, advocate paying off the debt with the lowest balance first, dubbed the Snowball method.  While everybody’s situation is a little different, the Avalanche method is almost always the way to go.  And the numbers prove it.

Before we go into the numbers, it is worth it to know WHY someone would opt to use the snowball method to pay off their debt.  According to Ramsey’s website, “You need some quick wins in order to stay pumped enough to get out of debt completely. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.”  This is drawing on the idea that some people need to see quick results in their debt reduction in order to gain some momentum and keep attacking their debt.  Continuously attacking the lowest balance debt will produce “wins” that keep you wanting to attack your debt.  If this method is enough to get someone into debt destroying mode, then there is some value in it as it is much better than not paying your debt at all.    However, this should only be a temporary measure because using the Avalanche method instead will result in less interest paid over time.  And there is a handy little calculator to prove just that.

Unbury.me is a great calculator that allows you to enter your loan’s balance, interest rate and minimum payment.  You then enter your desired monthly payment on top of that and you can see the results using the Avalanche or Snowball method.  I used the following hypothetical numbers:

-Credit card:  $8000, $80 minimum, 15% interest

-Car Loan:  $5000, $50 minimum, 8% interest

-Student loan:  $10000, $100 minimum, 7% interest

First off, I was curious to see how long it would take to pay off these loans with just the minimum payment only.  The results said the loans would be paid off by January 2047 with almost $69,000 paid in interest!  This shows the danger of not attacking your debt at all.  In any case, I entered a $200 additional monthly payment on top of the minimum payment.  With the Snowball method, the loans would be paid off by August 2019 with $7546.01 in interest paid.  MUCH better than not paying any extra in principal.  With the Avalanche method, the loans would be paid off in May 2019 with $6273.93 in interest.  That’s almost $1300 less in interest!  I don’t know about you, but that seems like a big enough win to me to keep paying off debt.  The Avalanche method wins in every situation.

Using the unbury.me calculator can be a very enlightening and sometimes eye opening experience.  Seeing exactly what month your debt will be paid off is pretty empowering, especially if you’re saddled with many student loans like most broke professionals.  And seeing how much in interest you will save using the Avalanche method over the Snowball method is very motivating as well.  It can be just the swift kick in the rear you need to start obliterating your debt.

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Filed Under: Financial know how, Student Loans

What makes the ideal checking account?

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moniesThe checking account is the one type of account almost everyone in the country has.  Most savings and investment accounts need to be funded from somewhere, and that somewhere is usually a checking account.  It represents the most liquid form of money you have at your disposal and is in some ways the lifeline to your overall finances.  Almost all of your money will at one point or another enter or leave your checking account.  That’s why we need to make sure that we’re using a quality checking account.  Unfortunately many people have checking accounts that actually COST them money.  This is unacceptable and at least some effort should be made to find the ideal checking account.

I’ve been through a number of checking accounts, so over time I’ve come to realize what are the most important things to me when it comes to a quality checking account.  Here are my thoughts on some of the things that make a great checking account:

Reimbursed ATM fees:   Even though I don’t use cash as much anymore, this is still a great perk to have for the inevitable emergency trip to the ATM.  Most banks offer no ATM fee for withdrawing from their own machines, but you’re not always going to be near their machines.  It’s a great piece of mind to know you can withdraw from any ATM and not worry about a fee.  This used to be the most important feature for me but not as much anymore since most of my payments are online or with a credit card.  It’s still a great feature to have and many online banks offer it.

No account minimum fees:  This is a definite fee to avoid because it can really impact your financial health.  Some banks will levy a fee if your account goes under $1,000 for example.  So essentially you need to have $1,000 just sitting in your account doing nothing.  This money could be used to invest, pay off debt or any other financially positive things.  The fact that a bank would charge you a fee for the privilege of just having money in their account is ridiculous.  Try to avoid this fee at all costs.

No check order fee:  Almost all types of financial transactions nowadays can be done with a credit card or an online withdrawal from your checking account.  Most banks have online bill pay which you can use to pay pretty much any type of bill.  Using an actual check is becoming more and more unnecessary nowadays, so it doesn’t make sense to actually pay for them.  You should definitely be able to order them since you probably will need to write a check at some point, but you shouldn’t be charged a fee for that.  It’s nice to find a bank that doesn’t charge for checks or deposit slips.

Rewards/Interest:  Rewards are usually the domain of credit cards, but it is nice to find a checking account that offers some rewards.  Many online banks give some interest on the money in their checking accounts, but it is not much.  Hardly any of the big banks do any type of checking rewards.  The one exception I’ve seen is Citibank which offers ThankYou Points for doing things such as setting up a direct deposit or having an automatic transfer into their savings account.  This can be nice as they can be redeemed for gift cards or cash.  You won’t really hit the mother lode when it comes to checking account rewards, but it is nice if you can find them.

These are the biggest considerations for me when signing up for a checking account.  Most banks have ATM and even mobile deposit so the days of having to wait in a long line just to deposit your check are pretty much gone, so convenience really takes the forefront when it comes to checking.  The only accounts I have seen (and I’ve personally used one of them) that meet all of these criteria are the Schwab Investor Checking account and the Fidelity Cash Management Account.  You have to open some type of investment account with them in order to open the checking account, but you don’t have to use them.  I would highly recommend both of these accounts.

Checking accounts don’t really give you a big bang for your buck, but they are evolving and it makes sense to keep up with the changes and switch to a more convenient option to make your life just a little easier.

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Filed Under: Banking, Financial know how

What is a Doctor Loan?

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Anyone who has ever looked into securing a mortgage knows there are many different types of loans out there.  Most people know about your typical 30 or 15 year home loan with a fixed interest rate and a 20% down payment.  There are variable interest rate loans which potentially start with a low interest rate but can change after a designated amount of time, usually 3, 5 or 10 years.  There are loans that are longer than 30 years or shorter than 15 years.  You can also get loans for less than the ideal 20% down payment, but you’ll have to pay Private Mortgage Insurance.  There are also loans out there for certain professionals, such as members of the military.  There is also one such loan that is not talked about frequently, and that is the Doctor Loan.

The Doctor Loan, also known as a Physician Loan, is a special loan available to MD’s only.  There are also similar loans available to other professionals such as optometrists, lawyers, dentists and pharmacists.  They are a little harder to find but they have similar characteristics to a Physician Loan.  Not many banks offer Physician Loans.  Some banks like Bank of America offered them at one point and then stopped.  The only bank I’ve seen that has consistently offered Physician Loans is SunTrust.  The main advantages of a Physician Loan over a traditional mortgage are:

-Very low down payment requirement.  Some loans even allow no down payment (This can be an obvious disadvantage if you’re not careful).

-Don’t factor student loans into credit worthiness.  This is huge because doctors can easily come out of school with a student loan balance in the six digits.  This can make it troublesome to get approved for a traditional mortgage even though the doctor would easily be able to afford the house.

-No private mortgage insurance.  Ever.  This is probably the biggest benefit.  Most mortgages require PMI payments until you achieve around 20% equity in the property.  This is money that goes straight from your pocket to the lender.  It is not even tax deductible and it can be hundreds of dollars per month.  Not having to pay PMI is a huge advantage.

The principle behind a bank offering physician loans is to obviously make more money and establish a relationship with individuals who make a high, stable income.  Because physicians usually have steady high paying jobs, the risk of them not making their payments is pretty low compared to the rest of the population.  This is why the bank is willing to offer a no down payment loan with no PMI and overlook student loans.  This sounds like a pretty good deal to a fresh out of residency doctor, but they still need to be careful not to buy more house than they can afford.

There are some restrictions on who can qualify for this loan.  Most doctor loans I’ve seen are only for those docs who have graduated in the past 10 years.  This takes most established older docs out of the picture.  Also, these loans just aren’t available in certain states.  There is also obviously more documentation needed than a traditional home loan.

A Doctor Loan is a nice financial tool for those who can qualify.  But just like any tool, it needs to be used for the right reason or you can risk really hurting yourself financially.  It is a good tool for doctors coming out of school who are having trouble qualifying for a mortgage because of high student loan balances.  Not having to pay PMI is a nice perk as well.  It’s good to know that there are special loan programs out there that actually have pretty good terms for those who can qualify.

 

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Filed Under: Financial know how, Student Loans

Financial Commandment #2: Pay yourself first…and automate it!

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Paying yourself first is probably the most powerful and under utilized method to building real wealth.  The idea behind it is very simple.  Instead of paying all of your monthly bills and expenses and then putting the rest into savings, paying yourself first means you put some money into savings first and then pay whatever bills you have after.  This method just plain works because of two main reasons.  First, YOU decide how much money you want to save and then you adjust your expenses after that.  It can be empowering to decide your own savings rate and it is in sharp contrast to the first method where your bills and expenses dictate how much money you set aside.

The second reason paying yourself first works is related to Financial Commandment #1.  It literally forces you to live within your means because setting aside money for yourself as your first step ensures that money is not being used on something you may not need.  This is a surefire way to get out of debt and build real savings and wealth.  People can be very fickle creatures so the best way to make a habit out of spending less than you earn is to make it impossible to spend more in the first place.

Paying yourself first is an amazingly effective financial practice, but again humans can tend to revert back to old habits.  If paying yourself first is a relatively new practice, it can be tempting after the initial excitement to cut back a little bit on your savings rate.  The best way to avoid this is to pay yourself automatically.  This is very easy nowadays and here a a few ways to do just that:

Online savings accounts:  Most big banks will offer you a savings account in addition to their checking account.  You should avoid this because the interest rates on savings accounts from big banks are usually atrociously low and more importantly, it still makes your money easy to access.  Using an online savings account separate from your checking account is a much better idea because their interest rates are usually much higher (though not incredibly high as most online accounts pay around 1%), but also it creates an extra barrier against you from withdrawing that money on a whim.  Some great online savings accounts include Capital One 360, Ally, and American Express.

IRA:  Opening an IRA is easier than ever.  You can open one if you’re employed or self-employed.  I have had my Roth IRA with Vanguard for a few years now and it has been great.  They allow you to automatically contribute as much as you want and as often as you want.  They also have a very good selection of mutual funds which have very low fees.  It takes about 5 minutes to sign up and connect your bank account.  They also offer very good guidance as far as which mutual funds would be best for your situation.  Of course nothing is guaranteed with stocks or mutual funds, and there are key differences between traditional and Roth IRA’s which will be a subject of later posts, but for long term growth, it’s tough to beat a monthly IRA contribution.

401k:  A 401k can be a great way to automatically pay yourself.  Most 401k’s allow employers to take a pre-determined, and pre-tax, amount from your paycheck and put it into your account.  This is a great deal because it lowers your taxable income and since that money is automatically deducted from your paycheck, you’re not going to spend it.  There are some things to watch out for in 401k plans such as higher than normal fees and the fact that you have a limited selection of funds to choose from.  However, many companies offer a match on your contributions.  They vary among companies, but if you contribute 5% of your paycheck and your company matches the full 5%, that’s like getting a 100% return for free.  Not a bad deal at all.

These are the more popular ways to automatically pay yourself.  While you can just go and change your contribution amount even if you are doing monthly contributions, this extra step makes it a little tougher to do.  Automatic contributions are the best way to pay yourself first and grow your wealth.

Leave a comment below and share your favorite way to pay yourself first. 

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Filed Under: Financial Commandments, Financial know how, Investing
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