Getting Stimulus Money? Spend This Money Wisely

Getting Stimulus Money? Spend This Money Wisely

The third and possibly final stimulus check from the federal government is on its way. Most people will get their stimulus money via direct deposit to tens of millions of bank accounts. If you and your family qualify for the most extensive distribution, you likely have some immediate or future needs. Whatever you decide to do, strategize to spend this money wisely.

Stimulus Checks And Extended Unemployment Benefits

Did you get your stimulus check yet? The maximum tax-free amount is $1,400 per individual ($2,800 per married couple if jointly filing), and $1,400 per dependent, including those ages 17 and up. The federal government extended unemployment benefits with a $300 additional supplement to state benefits through September 6, 2021.

Typically, unemployment benefits are fully taxable. However, the IRS gave a tax break by allowing taxpayers to exclude up to $10,200 ($20,400 for married couples filing jointly) benefits on their 2020 taxes for those who made less than $150,000 in adjusted gross income (AGI). As stimulus checks were going out to households, the IRS announced tax returns are now due on May 17 this year instead of April 15.

How To Use Your Money Depends On Your Needs

Every household varies as to their need for this money. For instance, lower-income families are more likely to devote much of their spending to living necessities.

In a June 2020  US Census study,  adults in households with income between $75,000 and $99,999 were more likely to use their stimulus money to pay off debt or add to savings compared to households overall. In contrast, 87.6% of adults earning $25,000 or below planned to use their stimulus payments to meet their expenses.

The stimulus money is part of more considerable fiscal support targeted to boost consumer and business spending. As the economy grows, more people will work.

The Fed has accommodated our weak economy with low-interest rates and continued liquidity. These efforts will stimulate our economy and help our financial markets, but they may cause higher inflation. Fears of higher inflation have added volatility in the stock market.

Some believe higher economic growth and inflation may be transient, causing some stock market opportunities ahead. Chair Powell seems to be staying on course of a stimulative monetary policy and will tolerate higher inflation over the 2% target. 

Is This A Financial Windfall?

Merriam Webster  defines windfall as “an unexpected, unearned, or sudden gain or advantage.” A windfall can range from being a sum of $1,000 to something far more significant. This money may result from an inheritance, legal settlement win, salary bonus, or a winning lottery ticket.

A small windfall, newfound money, or stimulus money can serve a similar function by bringing you a step closer to your financial goals. That is a win for you whether you direct the money to help you with your day-to-day expenses or cushion your retirement nest egg.

Strategize What You Need Now And For Your Future

Strategize before spending your additional money by paying what is most urgently needed now.  The funds should improve your financial situation. Most people receiving checks have had a difficult time making ends meet. They may have lost their jobs, had their hours cut, or their job remains in jeopardy.

You may need to shore up your finances now. Are there holes in your budget that need mending that you can take care of first?   Pay your bills, reduce your debt to manageable levels, eliminating high-interest credit card debt. Should you have money left over, save for emergencies.

On the other hand, if you have little to no debt, devote your extra money to where you can catch up on retirement savings and investing.  Allocate where you can boost your financial future–replenish your emergency fund, retirement, investing– by adding to where the money can potentially grow.

Our Recommendations For Spending The Money Wisely  


1. Prioritize Your Everyday Bills

If you have outstanding household bills for your rent, mortgage, or utilities that need attention, consider negotiating with your providers. Ask if lower rates are possible or stretch out due dates. You want to avoid being late paying bills and affecting your credit score. It never hurts to try to do that at a time when people are most understanding.

Staying current on your bills can relieve the angst. And you don’t want to pile on late charges and add to your debt load.

2. Paying Off Your High-Cost Debt First

When you carry a lot of debt–credit cards, car, mortgage, student loans, or personal loans–can be overwhelming. Your stimulus money may not stretch that far. Interest rates are low for mortgages, car, and student loans, so your best bet is to reduce your credit card balances. Card issuers typically charge 15%-16% interest rates, and the compounding effect makes that balance grow faster.

It may be tempting to spread the cash proceeds around to all of your loans but target the most detrimental cost first.

3. Neglecting Any Car Repairs?

During COVID, you may be using your car less. If you are not following through with tune-ups, you can damage your vehicle in the long run. Do you have any car repairs you postponed but now can bring into the shop? Your repair guy will likely welcome you back.

4. Replenish Your Emergency Funds Or Start One

Many people have withdrawn money during the past year. They may have had to close businesses, leave jobs to take care of their family, or lost their jobs. It is time to reassess your emergency savings. Refill this fund so you can cover six months of your basic living needs should something unforeseen happen. A job loss, pet surgery, an unexpected illness, or car accident can mean higher costs beyond your budget.

Replenishing these savings can give you peace of mind. Those unexpected events do happen, as many of us learned the hard way last year.

Make sure to keep this money in liquid assets such as a higher-yielding savings account that is readily accessible. These days there is very little income to earn from low yields. But, economists are expecting higher interest rates as the economy strengthens. Therefore, use short-term securities like CDs so you can roll this money into higher yields when they are available.  

5. Add To Your Retirement Savings

Whenever you have extra money from a bonus, overtime, or raise, consider adding some of this money to your retirement savings. Notably, a 401K employer-sponsored plan or an IRA and Roth IRA makes sense. If you don’t have a retirement account, this is a good time to do so. 

Technically, your tax-free stimulus payment is unearned income. As such, it may be tricky to deposit money into your Roth IRA directly. Therefore, you may want to substitute earned money from other accounts, replacing those dollars with your stimulus money.

It is worth the effort to do so. Putting some money into a Roth IRA makes it a triple tax-free win. You aren’t paying taxes upfront. The contributed amount grows tax-free, and when you withdraw money after your turn 59.5 years.

Be Aware of Contribution Limits

You can have both a 401K and an IRA, but there are IRS contribution and income limits you need to be aware of so you can get the full deduction. Be mindful of those income limits for traditional IRA and Roth IRA for 2020 and 2021. They vary according to whether you are the single or head of the household, married, filing jointly, a retirement plan at work covers one or both spouses.

Contribute generously up to the maximum amount allowed:

The 2020 and 2021 limits are $19,500 for 401K and most 400 plans, and with a catch-up limit, $26,000 for employees aged 50 or over.

Total contributions for 2020 and 2021 are limited for all traditional IRAs and Roth IRAs to $6,000 or $7,000 if you’re age 50 or older.

6. 529 Savings For College

These accounts have federal tax benefits, like retirement accounts. Open a 529 savings account to set aside some money for your children’s college fund. Earnings on investments grow on a tax-deferred basis and tax-free when you withdraw money for educational costs. Generally, there are no contribution limits except for the $15,000 cap to qualify for the annual gift tax exclusion.

Each state has its own plan, and you don’t need to reside in the state to use their program. You may think that they are young and it is too early to think about their future, let alone college, if they are still at the crawling stage. The truth is that time goes by quickly, and before you know it, they are in high school. Don’t let this valuable time slip away without putting money into this fund. It will help your children to avoid borrowing heavily for college tuition.

7. Allocate Your  Savings To Investing

In a perfect world, all of your extra money should go toward investing. If you have a strong financial foundation with manageable debt, you should invest the money. Add to your investments or opening up an investment account for you or your kids.

Any savings you have from stimulus checks to a significant financial windfall should go to your investment accounts. That is if you have taken care of other needs. Invest early and have a plan in mind which considers your risk tolerance, timeframe, and diversification. 

When you are beginning to invest, you may not know where to start. Buying individual stocks can be very rewarding but can be risky. Consider low-cost index mutual funds or exchange-traded funds (ETFs) if you are uneasy purchasing individual stocks. Buying a pool of stocks is a popular way to own securities with diversification, avoiding concentration risk.

Professional portfolio managers actively manage mutual funds. They are constantly evaluating and choosing securities for the fund’s specific investment approach. Mutual funds are available for stocks, bonds, precious metals, other securities, varying risks,  and varying geographic markets. 

Active managers earn annual fees or expense ratios of your investment and are responsible for the fund’s performance. If you invest $1,000 in a mutual fund with a 1% expense ratio, you pay $10 per year towards the fund’s expenses.

Active Versus Passive Investing

Investors who buy actively managed funds pay higher expense ratios than passively managed index mutual funds that track a market-weighted portfolio. The latter index fund replicates the S&P 500 index via computers for a fraction of the fees, averaging 0.20%-0.50% expense ratios, below the typical 1%-2.5% costs of active managers.

You can buy a low-cost index mutual fund or an ETF consisting of a basket of securities, such as money markets, stocks, or bonds depending on your risk appetite. ETFs are similar to mutual funds but tend to be cheaper and more liquid. If both are available, I usually buy the ETF version. There are many funds with terrific choices, such as Vanguard, who pioneered indexed funds.

8. Give To Others

It is always a good time to give charitable donations to others. We always target giving 10% of our income to charitable contributions, but we have done more to offset the time we couldn’t do so. Everyone has their reasons for giving what they can and may stem from religious or ethical sources.

The minimum of one-tenth of one’s income belongs to God per measure handed down from the Patriarchs. As Jacob himself said to God, “Of all that You give, I will set aside a tenth to You” (Genesis 28:22). Giving 10% of your net income every year is a desirable goal—those who can do that.

Giving, like expressing gratitude, is among the most worthwhile healthy emotions to feel. Being grateful can even help us with our finances.

As part of 2021 $1.9 trillion American Rescue Plan, Biden extended the favorable tax deduction treatment in 2021 that was available last year. Taxpayers who take the standard deduction rather than itemize their tax deductions may set aside $300 (or $600 if you are married and filing jointly). The IRS suspended the typical limit of 60% of adjusted gross income for the amount of the charitable deduction made in a year.

The IRS has temporarily suspended limits on charitable contributions for those who itemize deductions on Schedule A. Check with your accountant whenever it relates to your taxes. 


Final Thoughts

Use your stimulus payment or windfall by spending the money wisely to improve your financial situation. It’s a personal decision based on your needs now or in your financial future. Strategize before spending this additional money so you can get the most of it. Hopefully, you are turning the corner to better times.










5 Budgeting Methods To Boost Financial Discipline

5 Budgeting Methods To Boost Financial Discipline

I have to admit that  I am hostile to the term, “Budget.” The word signifies limitations as if I will have to change my lifestyle. Before I prepared a budget, I felt anxious about doing one. Only one out of three (32%) people prepare a monthly budget, and those making at least $75,000 a year are likely to do so. Why do people not want to do a detailed budget?

Common Reasons For Not Having A Budget

  • It is too much work, and I don’t know where to start.
  • I don’t know if I need one.
  • Fear of finding out about mistakes I was making.
  • “Don’t want to rock the boat,” as it may involve confrontation and change.


The Mistake Of Not Finding Out

I had a vague idea about preparing a budget but was reluctant to do one. Craig, my husband, paid the bills, went grocery shopping, and we dined out most of the time. Financially, we were in good shape, living more modestly than others we knew earning less.

Changes like these often require a financial review. We never really sat down to discuss our finances through the years though we met several times with a financial advisor to draw up a financial plan. We were enjoying financial flexibility, but we wanted kids and more space. At some point, virtually overnight, we had two babies and needed a bigger apartment.

These changes meant thinking through our finances since I had left my lucrative career, and Craig was building his law practice.

As I was in law school, I relied on Craig to work through some of the numbers as to what we could afford in terms of more space. That was a big mistake on my part and unfair to Craig. I was the numbers person, yet unaware of our finances. Many of our assets–land, arts & antiques–were less liquid than I realized.  Later on, I found many late notices from delayed payments on bills. And it was the beginning of the financial crisis, and it impacted Craig’s practice.

My Epiphany

We had two kids, a dog, a spacious apartment in less than three years, generating lower-income and still spending as when it was just the two of us. I felt lost, realizing Craig’s income was down, and I did not have a good handle on our monthly costs.

Where was our money going? I soon realized that I needed to create a budget to review and analyze our finances better. It sounds like a cliche, but it was an epiphany for us. Yes, I found mistakes I didn’t want to admit to making, and yes, Craig and I had arguments. We worked to resolve them together by making changes, some more drastic than I wanted. We still handle money differently, and I am more firmly in the frugal camp.

Start Budgeting Early

Don’t wait to budget as I did, using excuses of not needing one or not knowing how to start.  It can be easier to create a budget when you are young because you have less money and few assets. Sure, budgeting is tricky when you are just starting in your life. You may be carrying student debt and renting an apartment while your salary is at the beginner’s level. On the other hand, you have fewer costs to monitor, making it an excellent lifelong habit. Use it as a motivational tool to save more and spend less. Be diligent in improving your money management skills. 

Yet, preparing a budget is the cornerstone of a successful financial plan. Budgeting is a lot like dieting. It is hard to start one when there are many choices. Each works differently for each person. Both diets and budgets, may provide lasting benefits and bring you closer to achieving goals.

There are many benefits to having a budget at any income bracket. Even if you were to inherit $100,000 tomorrow, you need to understand how to deploy this money best. A budget can help you.  You just need to find the best budget method that works for you. We discuss five different budget methods below.

Reasons For Having A Budget

  • Having awareness provides essential financial discipline.
  • Make changes to patterns you want to avoid.
  • It helps you to achieve your financial goals.
  • Be more conscious of how you handle money, so you rein in overspending.
  • Improves your ability to pay off credit card debt by allocating saving better.
  • When you have better control, you can allocate more savings to investments.



5 Budgeting Methods To Boost Financial Discipline


1. The 50-20-30 Budget Rule

This budget rule is straightforward. It prioritizes your needs over wants to build your financial future.

Essentially, you are dividing your after-tax income into three buckets:  

50% For Basic Needs

Paying for your basic needs is your priority. About 50% of your earnings go toward your basic living needs. Housing is the proportionally most considerable amount of your basic needs and includes utilities, groceries, car, loan payments, minimum debt payments, and other monthly fixed expenses. 

20% To Savings And Debt Prepayment

This income bucket devotes 20% to savings. This amount is building your financial future. If you have significant debt levels, then a higher percentage should go into this bucket and be reduced from the wants category. Your savings can pay down debt, build an emergency fund, retirement savings, and investing.  When paying off your debt, you are likely saving money by eliminating the interest costs you carry on your balance, especially credit cards. 

30% For Wants 

After the above priorities, allocate 30% for wants or desires. This allocation is for discretionary or flexible spending for entertainment, vacations, and shopping. After your preferences, the remaining amount is for your desires. Overspending here means you will have a debt to pay above. 

The Pros of the 50/20/30 Budget Rule

This method is simple as you are only tracking three categories, needs, wants, and savings. You have the flexibility of allocating the savings into other areas, like debt pay-offs.

The Cons of the 50/20/30 Budget Rule

It is not as structured as other methods, and some people just need that discipline. You may have little to no savings but have more debt in that bucket. Then proportion the buckets to fit your needs. Paying off debt may be more of a priority than spending as much as 30% on your discretionary wants.   

 2. “Pay Yourself First” or Reverse Budget

This budget strategy to pay yourself first aligns well with a lifelong principle of personal finance. It is a reverse budget because, unlike other methods, you are saving before paying your bills. It emphasizes savings as the golden rule to learn early in life.

For some, saving money is hard, let alone putting 5%-10% away, which may be virtually impossible. Instead, set aside even small amounts like $50-$100 for your retirement, emergency fund, and savings accounts first. Automate a savings plan for these accounts. When you can, earmark more money, so you will grow your financial future.

That does not mean you don’t have to pay your monthly bills (you do!) but make savings your mantra. You may need to be more frugal at times to restrain some of your spendings so that you can put some away out of your reach.

The Pros of the “Pay It Yourself” Budget

By prioritizing your savings to a retirement account, you can earn compound interest on interest or pay off your debt if your levels are high.

The Cons of the “Pay It Yourself” Budget

As a standalone budget plan, “pay yourself first” may be too simple. You should understand the trade-offs between paying off high credit card balances, which will grow faster than savings as the card issuers charge far higher interest rates than you will get on savings.  However, saving money is an essential personal finance concept that will lead you to invest more at higher returns.

3. The Envelope (or Cash Diet) System

The envelope system may be a more comfortable budget method to adapt to if you are more cash-oriented. If you are paying for everything via credit card, this could be a rigid way to budget. This system entails placing exact amounts of cash into envelopes for each monthly expenditure you make, including your fixed costs. Putting money in jars or socks can substitute for envelopes, but I don’t think you want to walk with that.

Here’s how it works. You need to go to the bank to get a large amount of cash and allocate amounts into your spending categories. You would label each envelope and its amount for each of the following typical costs:

Groceries $500

Rent/Mortgage $1,000

Utilities $300

Dog Grooming $75

Gas $100

Gifts $100

When an envelope is empty, funds are exhausted for that category, and you can’t take out money from another envelope. This method involves a good understanding of how much you typically spend on each classification. The envelope system provides strict budgetary control and may reduce overspending. You run out of money for dining out, and you may have to change plans.

 This budget is essentially a cash diet, and some categories, such as rent or your mortgage payments, don’t translate that well into cash. You can still pay most things with checks. Studies show that people tend to spend less when they use cash payments.

You can use white envelopes for this system if you are frugal like I am. I have seen beautiful Celine envelope wallets ($700+), binders, and there are envelope apps to use like Mvelopes and GoodBudget.

Pros of The Envelope System

You are using cash, which can teach you to be more financially disciplined. It will require you to know your budget and the key categories well. You will likely spend less when you know you are running low on cash.

Cons of The Envelope System

This method is time-consuming, especially at first. It is inconvenient to have to withdraw money and carry cash around. Carrying cash conjures up that scene from The Wolf of Wall Street when Donnie Azoff (Jonah Hill’s character) was lugging around a suitcase filled with bills to deposit in a Swiss bank.

Paying cash is not always welcome. A cash diet may be challenging for particularly fixed costs, like paying your mortgage. Instead, you can try the envelope method for discretionary spending and then see if you can pay fixed costs by check. Using checks may mean more work or creativity on your part.

4. Zero-Based Budget or Every Dollar Budget

The Zero-Based budget originates from a business concept where every expense needs justification by a project’s need. This method is number-crunching heaven for those who need more structure in their budget. Essentially income minus costs need to be zero.

Households can implement this budget, similar to a traditional budget. The primary difference here is the budgeter proactively allocates remaining money, if not spent, to a financial goal.

Expenses are costs, outlays for savings, debt payoffs, investing, and charity. You assign a role for each dollar of your earnings to your expenses, savings, debt payments. Savings is a line item on your budget.

For a family, you would total the household earnings from multiple sources minus costs and allocate the rest of the money to where best it should go. When you have minimal debt, you can add the remaining cash where you need it. It could go to your emergency fund, retirement, or investment accounts. On the other hand, if you have high debt balances, use your savings to reduce those levels.

Preparing the Zero-based budget is a lot of work, combing through many details by itemizing your bills and overall spending. At the same time, you need to consider your financial goals, matching where the leftover budget money may best go. This budget method requires a good understanding of your household’s needs, wants, and financial future.

Pros of the Zero-Based Budget

It is structured to pay your costs and use the remaining money where it best should go. This method is goal-oriented, relying on a detailed account. If your expenses are high, variable expenses fluctuate; and are the best area to cut spending.

Cons of the Zero-Based Budget

It is detailed, time-consuming, and can change monthly. You need a good handle on all your expense items and your goals, understanding trade-offs between saving or paying off debt.

5. Traditional or Line-Item Budget

This budget is a personal income statement for an individual or household. It is similar to the zero-based budget but a bit simpler.  It totals net income from multiple sources minus total estimated expenses equal plus or minus amount. I use this budget on an excel spreadsheet, making changes over the years. For years, I did not use a budget for many reasons. There were only two of us; we were financially comfortable; it seems like a lot of work, and we kept postponing the task.

Monthly income sources include wages, tips, commissions, dividend income, and passive income.

Total monthly expenses are fixed and variable costs. Fixed costs are housing, food, transportation, utilities, and loan payments. Variable costs are less predictable and are associated with entertainment, medical, clothing, personal, and discretion expenses.


Total  Monthly Income                     $___________

Total Fixed & Variable Costs          $___________

Minus- Total monthly expenses      $___________

Total Savings/Deficit   $___________

Pros of The Traditional Budget

The traditional budget is a good starting point for understanding your household finances. It pulls a lot of detail together about income sources and expenses. Unlike a zero-based budget, it doesn’t have to a goal per se. Instead, if there are funds left, you can allocate it as you please. That is easy enough to figure out.

Cons of The Traditional Budget

Like the zero-based budget, it is detailed and time-consuming. It is a tool rather than a mechanism to help you identify areas to reduce your spending.

When Our Budget Became A School Project

Whenever I think of the line-item budget, I remember this story. I set up the template that had primarily been a back-of-the-envelope work of art. A few years ago, my son, Tyler, showed an interest, and we worked on it together. At the time, I didn’t realize he had a PowerPoint project due for his computer class.

After a few days, I was comfortable with doing a simple budget table jointly with Tyler. About a week went by, and Tyler came home, telling me that he used the budget we worked on for his project. I remember gulping, tensing up, and asking Tyler, “With numbers?#!” And he said, “Yeah, Mom, they didn’t care about the numbers, but they liked the colors.”

Hybrid Budgets

All of these budget methods have advantages and disadvantages. They can be used together, breaking envelopes into three bucks of needs, savings, and wants, and dividing into more categories with our needs, and so forth. In any budget you do, consider paying yourself first, that is, saving before overspending on discretionary categories such as entertainment. Be conscious of your spending, so you have money to save and invest.

Irregular Income

About a third of Americans generate irregular or less predictable income. Uneven income can be a problem for many, including us. Craig and I had budgeting challenges for many years, as most of our earnings were irregular and unpredictable. I had a salary with an annual bonus that varied significantly from year-to-year. Craig is a self-employed attorney and receives payment dependent on deal closings or other legal areas. Each area varies.

How do you budget in that case? Depending on your income sources, where there is variability, it is best to look back to the last three years and divide by 36 months to develop a meaningful income figure. The more conservative your estimate is, the better.

Final Thoughts

 The reasons for preparing a budget far outweigh any reasons not to do so. There are at least five different budgeting methods to choose from ranging from simple to more detail-oriented ways to review your finances. Creating and reviewing your budget is the cornerstone of a successful financial plan. It helps you identify your household’s strengths and weaknesses and help you devise a plan to make corrections. Find the best budgeting method for you.

Thank you for reading! If you find value in this article, please visit us at The Cents of Money for more articles of interest. Please consider subscribing to get our weekly newsletter.





Financial Resolutions For The New Year

Financial Resolutions For The New Year

“There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle.”

Albert Einstein

This year has been extraordinary and challenging. The coronavirus has been a cloud over our heads virtually all of 2020. Reshaping our lives has been necessary as we are socially distanced from friends and family, worked remotely, and learned online.

Historically high unemployment has negatively impacted our economy. The Fed has acted aggressively by lowering rates and expanding the money supply to provide liquidity to financial markets.

Early in the crisis, Congress passed The CARES Act with generous financial support for small businesses, hiking unemployment benefits, issuing stimulus checks, enacting pauses in student loan repayments, and other services. President Trump signed the COVID relief bill for $900 billion. However, there is still a significant need to provide more support.

Be Optimistic For The Future

On the positive side, the distribution of approved miracle COVID vaccines is happening. However, as we approach 2021, cases are still rising, so we are not out of the woods. Vigilance remains as the virus is still among us.

Yet there are reasons to be optimistic in 2021. Besides the vaccine rollout, I believe there is a wider consensus that the wealth gap needs to narrow significantly, improved growth as the economy opens up, and the resilient stock market will remain so. The silver lining of the pandemic brought a greater appreciation of science and digital technologies.

Adapt some financial lessons we learned the hard way in 2020 for a better plan in 2021.

Financial  Resolutions For 2021


1. Set Financial Goals

Realizing your financial goals in 2020 may have been impossible to achieve. Vacations shelved, unexpected loss of a job, buying or selling your home. On the other hand, you may feel more determined to revisit your goals for the coming year. Set reasonable financial goals for 2021. The pandemic crisis may impede us in the first few months.

We can learn from our experiences that may have highlighted some of our mistakes, such as not saving enough for unexpected emergencies such as a pandemic. There isn’t a crystal ball to prepare for such events, but you should realize that things can happen to us.

2. Build An Emergency Fund

Having savings on hand for emergencies should be a top financial goal. Establish an ample emergency fund to cover your necessary and urgent living expenses for up to a year. In regular times, 3-6 months may seem plentiful, but in reality, saving for an extended period may have proved necessary in 2020. This money is a cushion for you to feel more financially secure should you lose a job, have a medical emergency for you or your pets, or a flood in your basement.

Invest these funds in liquid investments with easy access. With the low-interest-rate environment, you won’t be earning much income from current yields, but liquidity–the ability to quickly have cash without much loss of value– matters. Think of this as savings, so you don’t have to borrow on your credit card that will make it hard to pay off high-cost debt.

Your fund should be a big enough cushion to pay your monthly bills and costs such as food, rent or mortgage, utility, health care, car, property taxes, and pet care. Ample savings will allow you to sleep better at night. You can read more about the emergency fund and how to invest it here.

3. Have A Budget To Keep You On Plan

To be financially disciplined, you need to understand your monthly budget. Our combined income sources, less total expenses (fixed and variable expenses) equals our bottom line. Many people had significant challenges if they lost a job, had emergency medical costs, or both. When your income, fortunately, exceeds your expenses, you have money to save. This money can be added to your emergency fund, pay down debt, or invest in the future.

On the other hand, if your costs exceed your income, you will need to earn more income, borrow to pay expenses, reduce spending, or a combination of these. Bring down whatever costs you can. Borrowing on your credit cards will put you in a terrible financial bind. The interest costs of credit card debt, averaging 16%, are destructive.

Plan to review the budget monthly.  Some people use spreadsheets; others use apps. Whatever way works for you to plug in your monthly pretax income less fixed costs, mostly your living costs such as rent, utilities, monthly car payments, insurance, typical food/grocery,  and other debt. 

Your variable costs are often discretionary and include dining out, entertainment, travel, and potential costs. Another way to budget is to track your monthly expenses by reviewing your bills regularly. You may be motivated to save once you see how much you spend on things you didn’t need.

4. Spend Less Than You Earn

Manage your spending. Invest your leftover savings. During the pandemic, we had fewer opportunities to spend as we hunkered down in our homes. We didn’t go on vacation, dine out much, and commuted less. On the other hand, we spent more on groceries, subscriptions, and gaming platforms this past year. An October 2020 survey showed that consumers are now paying for seven video streaming services on average. Spending on gaming platforms (e.g., Xbox, PlayStation) rose by 37% in 2020.

One surprise was the amount of saving we were making in the first half of 2020. US personal savings rose to unsustainable rates of 33.7% in April, but remain at reasonably good levels.

People are tired of social distancing and craving to go back to their regular lives. We all want to enjoy living, but we need to be careful about temptations to overspend after a year of deprivation.

There are reasons why we justify spending more than we should. We often prefer instant gratification, living today but not focusing on our future. To be in good financial health, we should be doing both. Our emotional biases impact our purchases, and marketers leverage those tendencies. Our lifestyles and personalities play a significant role in overspending, especially when we want to impress people with our success.

5. How To Spend Less and Save More

When overspending habitually, we need to motivate ourselves to change our ways. When we diet, we often take a break and eat something we know we shouldn’t. If we correct that error, usually no sustainable damage has been done. On the other hand, sometimes falling off a diet means we have given up. The best thing is to dust yourself and get back on to your diet.

If you realize your overspending is harming your finances, you may need some motivation to reduce spending. When your overspending and debt accumulation is severe, you may want to consider therapy or meeting with a financial counselor to help you.

Motivate Yourself To Spend Less:

  • Focus on your financial future.
  • Understand your household budget.
  • Track and review your spending on items you may not need.
  • Be more conscious of how you shop and biases that interfere with your decisions.
  • Negotiate any agreements you have if you are facing challenges.
  • Cancel subscriptions you no longer need.
  • Invest, pay off debt, or add to the emergency cushion with extra savings.


6.  Be Disciplined When Using Credit Cards

Having too much debt will make it difficult for you to achieve financial security and wealth. Make trade-offs that minimize debt accumulation. When credit card issuers charge 15% or higher on your balances, resolve yourself to spending less.

Pay your bills on time each month and aim to pay them in full.  It may mean making trade-offs between buying something you don’t need and may not even want very much. Carrying significant credit card balances is a substantial financial anchor and is a habit hard to break.

Instead, try to reduce your credit card balances to zero, so you never have to pay the issuer any interest owed. I consider credit card debt to be among the most toxic. Use more cash, which often limits your spending, or just buy less until you have more control over this debt.

7. Manage Your Debt Wisely

Like paying taxes, there is a certainty you will accumulate debt in your lifetime: mortgage, cars, student loans, smartphones, and credit cards. But you need to be prudent when you borrow money so that it doesn’t interfere with your wealth accumulation. Where possible, pay down debt, particularly your credit card balances, which can be financial weapons of destruction.

The trade-off for extra savings should go to your emergency funds, high-cost debt, and investing your money.

Find SavingsTo Pay Down Debt From: 

  • Annual tax refunds.
  • Passive Income.
  • Your annual bonus or a raise.
  • Extra savings can help.

Some debt accumulation is associated with borrowing that is more like investing. Borrowing is not always a bad thing especially for good reasons like your college education, furthering your career, or buying your home. As we mentioned earlier, credit cards are incredibly toxic.

 Refinance Your Mortgage

Consider refinancing your mortgage loan, which is at record low rates.  According to Bankrate’s weekly survey, the average 30 year fixed rate mortgage dipped to 2.95%. It doesn’t necessarily mean you will automatically get the lowest rate as lenders will look at your credit background and the property.

Several factors influence mortgage rates: the Fed’s actions, which brought down interest rates, economic indicators, and inflation. Besides, a higher credit score and a lower loan-to-home-value will contribute to more attractive mortgage rates.

Get The Right Mortgage And Car Loans

Make sure you are getting the right loan. If you handle shorter terms for your cars and home, you will benefit by paying less debt. When buying a home, consider the 15 years fixed mortgage vs. the 30 years fixed mortgage. True, the shorter mortgage term will cost more per month but your total cost, when factoring in the interest payments for your home will be lower.

The same goes for a car loan. According to Credit Karma, the average new car loan was 72 months but more people are opting for longer loan terms. Surprisingly and perhaps ridiculously, exotic car financing is more extended, averaging 144 months (Lending Tree). The longer loans stretch out your interest payments and make them more manageable. However, you are paying more for your car when adding in the higher interest, and unless it is deductible for a business’s car, it is not worth it.

Buy what you can afford in a home and car, not for pleasing or impressing others. Drive your car longer and consider buying with more cash as a down payment or in its entirety.

8. Review And Fix Your Credit Report

As part of this new year’s resolutions, make sure to review your credit reports periodically. You can do so for free through You can rotate among the 3 credit bureaus to examine your report every few months.

Lenders rely on our creditworthiness to see our borrowing rates. The higher the score on a 300-850 score, the lower the annual percentage rate (APR) we are charged on car, mortgage, or private student loans. Check for errors you can fix quickly on your report and follow-up with vendors when you spot those issues. These errors can hurt your credit.

9. Raise Your Credit Score

There are few parties–landlords, employers–  that have stakes in our credit scores besides lenders. Improving your credit score can meaningfully help you reduce the total size of your debt (mortgage, car, and other loans) and provide financial security. Have a better understanding of how your credit scores are determined and how to raise them here.

A Better Score Means Lower Interest Payments

A good credit score ranges between 700 and 750.  The difference in the APR based on credit scores are meaningful. The borrower with a 650 score would pay a 5.40 % APR  on a $250,000 30 year fixed mortgage loan. This score would require a monthly payment of $1,404 or $255,440 in total interest paid over the loan’s lifetime. A borrower with a better credit score of 700 would have a lower APR of 4.58% or $1,279 for the same property and pay far lower in lifetime interest payments of $210,440. 

10. Save For Retirement – Max Out Your 2021 Contribution Limits

Your situation at your job may have been more challenging as a result of the pandemic.  What happens to your 401K employer-sponsored plan? If you lost your job, you probably can leave your 401K with your former company to manage it as is. However, you can’t make new contributions or receive employer matching programs. But it is a good place to keep your plan for the time being.

If you changed jobs, and your new employer offers a 401K plan, you can roll it over. If you are not working, you can rollover this money to your IRA to avoid penalties if you are younger than  59.5 years.

If you remain at your job, be grateful. It has been a demanding environment for many people. You may find that if you are working at home, you have extra savings that can be applied to your retirement or investment accounts. If you started a new job, save as early as possible.

A Company Match Is Valuable

For example, your company offers a 50% match of your contributions up to 6% of your salary. Suppose you contribute 6% of your $55,000 annual salary, or  $3,300. Your employer will match 50% for their contribution of $1,650. The employer’s contribution is like getting free money.

As soon as you start working, you should enroll in your firm’s 401 employer-sponsored plan. Automate a specific amount or percentage of the money you receive from your paycheck to be deposited into your retirement, investment, or any savings account.  It’s an easy way to save consistently for your retirement to build this account through compounding.

Save as early as you can to leverage compounding benefits and for maximum contributions.

2021 Contribution Limits -Some Changes

For 2021, there are some changes in contribution limits for retirement accounts from last year.

The 401K contribution limits are the same at $19,500  and the catch-up contribution for plan participants age 50 or older remains at $6,500. Employers can make matching and nonmatching contributions for their employees even if they have already maxed out the account. As such, the overall contribution limit (i.e., employer and employee deposits) is 100% of contribution or $58,000 (up from $57,000), whichever is less. For plan participants age 50 or older, the overall contribution, including the catch-up portion, is  $64,500( up from $63,500).

The IRA limits remain at $6,000 in 2021, with the catch-up provision remaining at $1,000 for individuals age 50 and older or $7,000 in total. The IRS did increase income ranges for the traditional IRA and Roth IRA contributions.

11. Essential Investing Lessons 

It was an unusual year for investors.  Market volatility in 2020 was unprecedented. At the beginning of 2020, we had low unemployment, economic growth, and low inflation. These favorable conditions supported a long bull market which peaked on February 19th. From its market peak to its bottom, the S&P dropped 33.9% spooked by rising coronavirus cases, and we entered a bear market.

However, aggressive Fed actions and Congress’s moves to provide financial support quickly steadied the financial markets. As a result, the bear market was short-lived as S&P 500 resumed its climb despite continued high unemployment pressuring the economy. With the year virtually over, the S&P 500 rose 14.6% year-to-date.

A Few Lessons Learned In 2020

  • Stay the course, don’t bale when the market becomes volatile, looking at the long term horizon.
  • Use extra savings to invest in a down market opportunistically.
  • New winners–stay-at-home stocks, replaced stocks hurt by social distancing.
  • New retail day traders and investors emerged using apps from Robinhood, Charles Schwab, and TD Ameritrade, spending up 65% on average.

These new investors have only seen an upmarket and may be using riskier strategies (eg. options, margin buying, short selling).

We advocate Buy/Hold strategies, rather than short-term trading. We recognize the excitement of day trading and swing trading long term (which are different schemes) discussed here. On the other hand, ‘boring” long investment strategies take advantage of compounding your returns, lower capital gain tax rates if you hold stocks more than a year, and allow you to ride out market volatility.

There are some investing rules we believe you need to know to achieve success such as diversifying and rebalancing your portfolio. The recent rise in the stock market may have resulted in your portfolio being overweight in stocks. That said, with interest rates at historical lows, it may be difficult to find much income in money markets and bond securities at this time. We believe that you should have a mix of high-quality dividend growth stocks and corporate bonds.

12.  Update Your Designated Beneficiaries

Chances are, if you are working, you have some assets. You likely received forms to complete at work, the bank, or online to designate beneficiaries. Beneficiary designations identify who your intended heirs are for most of your assets. These assets represent the non-probate property.  These assets can be efficiently and effectively transferred outside of your last will,  overriding your estate planning documents.

The mistake many people make when designating their loved ones is that their designations may out-of-date or unreasonable. You thought it was cute that your boyfriend selected you (or so he said), so you reciprocated by naming him.

If you don’t review your appointed beneficiaries periodically and at the same firm, you may still have your parents, siblings, and ex-spouse indicated as recipients. Review these forms regularly. You should review your documents after significant life events such as loved ones’ passing, marriage, divorce, and births. Updating your records can usually be done online. We explain more about designated beneficiaries here.

13. Update Your Estate Plans

The pandemic has been a disaster for so many families who lost loved ones. Earlier in 2020, there was an urgency to do your will for the first time or review estate plans. That would be sound advice if you didn’t do so. As mentioned, the distribution of most assets can be for the average person by designating beneficiaries. However, distributed probate assets need to be through a will or a trust.  Probate assets are real estate, cars, and personal possessions such as jewelry, art, antiques, and collections.

Create your estate plan to have control over your asset distribution to your loved ones during your lifetime. Your plan should be as litigation-free as possible, so your loved ones can avoid the often painful and lengthy probate court procedures.

14. Charitable Giving

“We’re in the same storm but not the same boat.”

Unknown Author

Originating from a tweet, This statement was everywhere this year and should not be forgotten. It may have derived from a Damian Barr tweet but it seemed to have disappeared. This year may prove to be significant for charitable giving. The pandemic and protests highlighted the divide between the wealthy or those less fortunate. Those who are lucky should give more this year and any year.

Whatever the cause, charitable giving is a necessity. Others depend on us. As Winston Churchill said, “We make a living by what we get, but we make a life by what we give.”  

15. Be Grateful

Having a grateful attitude is always healthy, especially this year. We became more sensitized to those essential workers who were in harm’s way and grateful to them. The NYC beating of pots and pans became a habitual sign of giving thanks.

Let’s take time to be grateful for our loved ones, friends, colleagues, and those who would appreciate our recognition.  We made it to another year, not an ordinary year. It has been a time when we all shed tears.

Final Thoughts

I will not be unhappy to see this year-end. A dark year will make way for light and optimism in 2021. As my mother often urged us, step with the right foot to have a better time. I told my daughter Alex when she was still a baby that her grandma always said that and was always right. Alex even steps with her right foot (sometimes clumsily) now. Start the year off on the right foot, with financial resolutions to achieve your financial goals.

A happy and healthy New Year’s to you and your family! Thank you for reading!  If you find this of value, do you mind sharing with others as we grow The Cents of Money community? Have a healthy 2021!

The 11 Seasonal Jobs To Apply For This Holiday Season

The 11 Seasonal Jobs To Apply For This Holiday Season

Sometimes you need a little more money. When your regular job isn’t covering what you need, you turn to other opportunities. This is especially true if it’s the holiday season and you want to stay out of debt but still spend money.

Today there are a crazy number of ways to make different types of income. Whether you take on a traditional side job, start your own gig, or use one of the many ways to prove that success is the best revenge, we’ve got you covered!

Let’s dive into the best seasonal jobs for anyone below.

What Is a Seasonal Job?

A seasonal job is a short-term position. Companies hire seasonal positions during their ‘busy times,’ such as Christmas for retailers and restaurants and summer for landscaping companies and pools.

You can find seasonal jobs at your local stores, online, or even at larger corporations who need temporary help during busy seasons. Temporary jobs are a great way to increase your disposable income or even create generational wealth.

Benefits of Seasonal Jobs

Most people take on a seasonal job to temporarily boost their income. The holiday season is a great time to make a little extra money for holiday spending, for example. You’ll make money that you can put towards gifts, travel, food, and get-togethers.

Some people enjoy seasonal positions for flexibility. They know when they’ll work more and when they’ll have some much needed time off. It offers more flexibility than a ‘regular’ job while giving you extra income.

Having extra money may come in handy for adding to your emergency cushion. It is always better to be safe than sorry to save for unforeseen events that drive up costs expectedly. Use your fund to pay off those bills.

Seasonal positions are also a great way to try a company out and see if it’s something you’d like to do long-term. Many companies say a position is seasonal but keeps several employees on past the season, hiring them full-time employees.

Finally, seasonal jobs offer the opportunity to learn new skills. If you’ve been thinking of changing industries or trying something new, trying it out at a temporary job while keeping your full-time gig isn’t a bad idea.

Tips for Getting Hired at a Seasonal Job

If you have your heart set on getting hired at a seasonal job, use these tips.

Start Your Search Early

If you’re looking for a job during the holidays or busy summer months, remember so will thousands of others. Start your search early and pick out your favorites. Be one of the early applicants to increase your chances of getting hired.

Be Professional

Even though it’s a seasonal job, you’re still representing the company you may work for. Show up to the interview on time and dressed professionally. Even if your interview is via Zoom, act as if it’s in person.

Know Your Limits

Before you interview, know what you want out of a job. This includes the salary, benefits (if applicable), and what position you want. If you have your eyes set on working for the company full-time after the season, make sure to mention that in your interview.

Show Flexibility

Don’t go into an interview saying you can only work Mondays or only at 5 PM each day. Be as flexible as possible. Remember, the company has a need to fill, and if your availability is too restricted, they won’t choose you.

The 11 Best Seasonal Jobs

1. Retail Associate

Large and small stores increase their staff around the holidays. If you love working with people, apply at your favorite stores around the holidays. Many stores hire cashiers, sales personnel, and stock employees.

2. Customer Service Representative

If you’d rather work from home, consider working as a customer service representative. Large and small companies need people to answer phones and emails or be on the other side of an ‘online chat.’

3. Warehouse Employee

If you’d rather be on the other end of purchases, work as a warehouse employee filling orders. With the increase in e-commerce today, many companies need to order fillers and shippers. If you don’t mind spending time on your feet, this could be a great way to make extra money.

4. Personal Shopper

Do you love to shop only when it’s other people’s money? Apply to be a personal shopper.

Bigger stores like Nordstrom and Bloomingdale’s have personal shoppers who help people find the perfect gifts. You could even start your own gig doing this too.

5. Holiday Driver

Consider applying to be a holiday driver if you don’t mind fighting traffic and hustle packages to doorsteps. If you don’t have your license or don’t want the driving part’s pressure, UPS and other delivery companies also hire holiday helpers (the people who jump out of the truck and get the packages to the doorstep).

6. Summer Camp Counselor

If you love kids and love being outdoors, apply to be a summer camp counselor. You may have to start as a counselor-in-training your first year unless you are a teacher or have a teaching certificate, but it’s a great way to make money doing something you love.

7. Tax Preparer

If you love working with numbers, you can get certified to be a tax preparer and work at one of the large tax firms, such as H&R Block. Even if you can’t be a tax preparer, these firms always need administrative help or even marketers.

8. Social Media Marketer

The holiday season is a great time to pick up a few clients who need social media marketing help. Whether you start your own gig or sign on with a company, most companies ramp up their advertising efforts around the holidays, so it’s a great way to make a little extra cash.

9. Dog Walker

If you love your furry friends, make money walking them for people in your area. Join an app, such as Rover, and get matched with pet owners in your area. You set your rates and hours, and Rover does the administrative work for you.

If pet sitting isn’t your thing, check out the other highest paying apps available today – there’s bound to be something for everyone on this list.

10. Brand Ambassador

If you love social media and have a decent following, brands may pay you to be a brand ambassador.

In other words, they pay you to talk about their product, typically on social media. Sometimes you get paid cash and other times in free product, but it all works out to extra money one way or the other and all for just talking to people you would normally talk to.

11. Freelance Photographer

If you love taking pictures, why not get paid to take them? Whether you work for a photography company or set up your own gig, people will pay you to take pictures.

You can choose your own niche, whether it’s family photos, wedding photos, or even corporate headshots.

Other Ways to Earn Seasonal Cash

If you don’t want to ‘work’ for your increased earnings, consider trying one of the many gigs available to just about anyone. If you have a little free time, you could find ways to increase your income from the comfort of your home.

Earn Rebates for Shopping

Who wouldn’t love to get paid to shop?

The holidays are the perfect time for this too. Sign up for a rebate app, shop through the app, and earn cashback. It’s that simple. Let your earnings add up, and then pay yourself via PayPal or choose gift cards to your favorite stores.

Use an Ibotta referral code to start your cashback shopping journey.

Earn Money for Filling up Your Tank

It doesn’t get any easier than getting paid to fill your tank. Getupside is an app that pays you to get gas, and you can use it to supplement your holiday travel.

If that’s not enough, if you share your Getupside promo code with friends and family, and they sign up, you earn even more money. It’s a win-win for everyone, and you don’t have to do anything that you wouldn’t already do.

Get Free Stocks

Even if you’ve never invested before, you can earn free stocks just for signing up for some of today’s best online stockbrokers. They aren’t as intimidating as you think, and many are great for beginners. You won’t get experience unless you start.

Now’s a great time to jump on board and earn yourself some holiday cash.

Get Paid to Read Books

If your favorite pastime is reading, get paid to do it! Many companies pay people to read. Some require a review of the book; others give free early access to new releases.

Either way, you’re making money because you’ll spend less on books too. Whether you earn cash or free books, curl up by the fire with a book this holiday season.

Are Seasonal Jobs Worth It?

If you’re looking for a way to bring in more income, seasonal jobs are a great way to do it. There’s not a long-term commitment, and who knows, you may find something that you love to do beyond what you already know.

It’s a great way to have some fun, add to your wealth, and even meet new people too. Not to mention, you’ll be able to cover all of your spendings during the holiday season without going into debt.

Final Thoughts

Need a little extra money for spending or for paying off debt? Consider applying for a seasonal job for this holiday season. The benefits are worth it if you have the desire to do so. Happy holidays to you and your family!

Thank you for reading! Please visit The Cents of Money to find other posts that may be of interest to you.

This article originally appeared on Your Money Geek and has been republished with permission.

8 Financial Lessons Learned During The Pandemic

8 Financial Lessons Learned During The Pandemic

“The meaning of intelligence is the ability to change.”

Albert Einstein

According to studies, it takes 21 to 66 days on average to change your habits in regular times. As a result of the pandemic, which continues, we needed to change our lifestyles. To stay healthy, we made significant concessions. Lockdowns required masks, social distancing, and grocery shortages. As a result, it led to an economic downturn with massive unemployment. This became our new norm.

We formed new habits and learned many lessons with financial implications to cope with COVID-19. Optimism is in the air as potential vaccines may provide a path to resuming our lives. Still, the pandemic has left an indelible mark on all of us in a variety of ways.

If we can point to a silver lining from the pandemic, several surveys have consistently pointed to the following trends that show people are:

  • saving more money.
  • spending less.
  • reevaluating their priorities.

If these are permanent changes, they are good financial habits and favorable outcomes for Americans—improved financial literacy yields long-term benefits.

Saving More

The US Personal Savings rate–the percentage of people’s disposal income after taxes and spending–exhibited substantial rises during the pandemic. From 7.2% at the end of 2019, this savings rate peaked at 33.6% in April 2020, before settling down to a still-high 14.3% level in September.

A Harris Poll and CIT Bank reflected a strong disposition towards saving more money during the pandemic. This study showed 53% of consumers (including unemployed) saved more than they typically do in the last 3 months.

As a result of the pandemic, many consumers plan to continue to save more and spend less on nonessential items (egNerdWallet, The Harris Poll). Whether this a permanent shift in priorities or a hopeful aspiration remains to be seen post-pandemic.

Less Spending

According to a recent Bank of America survey, roughly two-thirds of Americans say their spending habits have changed since the start of the pandemic. Respondents pointed to reduced costs from commuting, dining out, paused gym memberships, and vacation travel.

While these costs decreased as many people stayed home, working or otherwise, other spending increased. Most notably, we spent more on online shopping, especially for groceries, higher pet expenses as families adopted more pets, and online education courses. Grocery spending was up 54% from panic buying in March compared to February.

People also formed some bad habits–overeating, too much alcohol, and a lot more binge-watching as “too many subscriptions” with new streaming services were readily available.

Reevaluating Priorities

More people participated in the market, putting more of their money into stocks after the sharp decline in March. TD Ameritrade reports that they had more visits to its website by people wanting to learn how to do day trading. Robinhood, a fintech company with an advanced trading platform, has reported that it scaled up to 13 million accounts by early October.

Day trading can be dangerous for new and inexperienced investors in volatile markets. My preference is for people to learn how to invest for the long term.

The need for saving money for emergencies became a far greater priority.

Frugality, an admired trait for some people, became more accepted. Two in three Americans report in a Slickdeals survey that the pandemic has turned them into frugal persons. Being called frugal is a compliment to many. Let’s value our collective experiences and pack them into financial lessons we learned during the pandemic.

Financial Lessons Learned During The Pandemic



1. An Emergency Fund Is Vital

The mantra of having an emergency fund to pay for your living essentials became more apparent during these times. The amount to save for this fund is less obvious. As a rule of thumb, common recommendations start with saving of $1,000 or having a goal of establishing a fund to pay for 3-to-6 months of living expenses.  Dave Ramsey calls for 3-6 months funds. Suze Orman has recommended having 8 months of savings for your living expenses.

I admire these leaders in the money management space but for this event at least that may not be enough. For many, the pandemic caused high medical and other costs AND high unemployment. Savings of 6-8 months may just a starting point and a national average.

Set Aside More Savings If You Are In A High-Cost Area

Remember that there is a significant portion of our country who live in high-cost cities like NYC and San Francisco. Lose your job there and you are still paying high-cost rent. That’s the problem with the rule of thumb. You may get the tip bitten off.

The Lesson

When determining how much to save, consider your economics and family situation.  Many learned this year that a more significant amount of savings is needed when something as unpredictable as coronavirus rolls in, dramatically hurting our economy. To better protect yourself, coverage of a year of your basic living needs will allow you to sleep better at night. Sleeping well is a better rule of thumb.

Aim high, so you don’t feel low. Reduce some of your spendings on non-essentials so you can have an abundance of financial flexibility when times are difficult.

Invest Your Emergency Funds In A Liquid And Accessible Account

Your emergency money should be in a separate account where it is safe and accessible for liquidity purposes. Such a place may be a high yield saving account or a money market deposit account, both of which are FDIC-insured.  Check whether rules limit your ability to withdraw money. While you won’t earn much in the way of income now in our low yield environment, liquidity to cash-equivalents is virtually king. Here are some other places you invest your emergency fund.

2. Investing In Stocks For The Long Term

Triggered by the reality of COVID 19, the S&P 500 index sharply declined 33.9% from February 19 peak to its bottom on March 23. This decline ended the long bull market from the 2009 recovery. Many investors, fearful of this breathtaking decline, sold their stocks into the market weakness. Even the normally optimistic investment guru Warren Buffett, was selling more stocks than actively buying in March, according to his 13F filing.

Sure, it was difficult not to be tempted to sell stocks, especially if you lost a job or lacked liquidity. I felt enormous pressure to stay the course and not sell as stocks went to the bottom.

The market’s bottom is only clear in hindsight.  I held on to my stock positions with some difficulty by having faith in my experience and listening to market experts I respect. Was I worried at all? Only a liar would say no. Having a long-term horizon that is shorter than those in their 20s and 30s means I am closer to retirement now than I was in the Great Recession. However, I sold my stocks closer to the 2009 bottom, a costly lesson I keep close to me now.

The Lesson: Don’t Sell Stocks Out Of Panic

Here’s the lesson: in my newbie years as an investor, many times, I actively sold a lot of my stocks and went over to the sidelines. There, I would watch good stocks recover over time.

Don’t sell stocks out of panic. Markets come back in time. Indeed, the S&P 500 index is up nearly 57% since its bottom, registering an 8.6% gain year-to-date. Few predicted the March collapse or the rapid stock market recovery in 2020. How did it happen? It took a little bit of luck, recovering corporate earnings, stimulus money, and, most of all, aggressive action by the Powell-led Fed all contributed to stimulating the economy and the markets.

Don’t Be Greedy

Keep a long-term perspective while maintaining diversification in your portfolio. Determine whether you have too much or too little risk for your tolerance and lifestyle. I trim stocks that have done well. I do this sell a bit as certain stocks have grown 20-25% or are too large compared to my total stock portfolio.

There is nothing wrong with selling part of your stock position into cash. Instead, it is opportunistic and financially disciplined. It helps you to avoid being greedy.  As the old Wall Street saying goes, “Bulls make money, bears make money, pigs get slaughtered.”

3. Working Remotely Became A Bigger Benefit

Before the pandemic, remote working was trending upwards in many organizations as an extension of telecommuting. However, many companies, indeed, whole industries (eg. investment banks, brokerage firms), that did not believe in the virtues of remote working were forced to consider this as a viable option.

Many companies have successfully switched to long term remote work. For many employees who kept their jobs during the pandemic, this is a meaningful perk in company benefit plans in the future.

This is a grave lesson for employees who were furloughed or laid off because of jobs that weren’t as amenable to remote work or lacked skills to do so.  Remote working jobs will remain in demand. Employees will want to equip themselves for such jobs by learning skills to allow them to do so.

As many employers took this route, allowing their people to work remotely, many credit the impact of COVID-19 for their accomplishments.

Achievement highlights show:

  • 15%-40% in increased productivity;
  • 10%-15% less turnover;
  • 40% reduction in absenteeism; and,
  • 20%+ potential cost reduction in real estate and resource usage.

Sources: Forbes, Global Workplace Analytics; BCG Analytics.

The Downside of Working Remotely

Remote working is not without its downsides. Not everyone liked working remotely, missing the interaction, collaboration, and socialization of the work environment. New employees, in particular,  may find it challenging to learn their way around the company when working remotely.

To counter that feeling of being lost, employees may need to assert themselves with their colleagues and managers with active participation. Take more initiative as you gain more confidence at the new firm. It is also the responsibility of companies and more experienced employees to establish ways to build a virtual bridge and integrate new employees. Mentoring programs may be the best way to do this with frequent check-ins.

When in need of guidance, new and young employees should be encouraged to ask potential mentors who are readily available.  As the new people on the block, frequent zoom communications should allow them to ask what skills they should add, and offer to help others.

Related Post: Remote Working As The New Normal: Advantages And Disadvantages

The Lesson

Remote working is a trend likely to stay. It provides cost benefits to both employers and employees. The opportunity to work from home is increasing. If this is a desirable benefit for you, make it a priority in your training and how you choose your job.

4. Telemedicine Became More Essential

The telemedicine industry was growing before the pandemic. However, as the government called for widespread lockdowns,  telemedicine’s need became essential for the medical field to adapt quickly. Physicians wanted to remain engaged with their patients during COVID though not every medical office was set up to implement the practice.

Big Technology Needs

Many physicians, who may have scorned the movement to provide remote medical care, took steps to implement telemedicine. To a great extent, the complexities–technology, regulatory, legal, and patient acceptance-are greater for physicians to do so.

A certain level of advanced technology is needed to provide real-time audio-video two-way communications.  Physicians want to be able to smoothly connect from their offices with their patients living in diverse locations. Many were in different places than their homes, as COVID may have hampered people’s ability to travel home from vacations or visiting family. Conversations are not enough when there are serious or chronic ailments requiring remote monitoring or MRIs.

For Example

I needed a particular recording device for monitoring my heart after an ablation procedure. To gauge its success, my cardiologist sent a special monitor to record my heart rhythms for about 10 days which I then sent back for his analysis. Fortunately, tracking reflected good results. Was it ideal? No, but it was better than waiting for the pandemic to disappear.

I didn’t need medical images or other care. However, telemedicine is not suitable for patients in need of urgent care requiring in-person attention.


Legal And Regulatory Compliance

Besides technology, the healthcare field requires compliance with a range of strict HIPAA privacy, insurance, and other guidelines while COVID poses threats for in-person diagnosis and treatment.

States granted temporary licensing waivers as emergency needs persisted and telemedicine became widespread during COVID. Existing telemedicine providers, like the publicly traded Teladoc, a major telemedicine provider, has had a jumpstart in treating non-emergency medical problems. It is already in compliance with relevant state, national, and international laws and regulations, including HIPAA.

The Lesson

As patience acceptance grows and there is strict compliance, telemedicine is likely to continue to grow for a garden variety of non-emergency ailments. However, the practice of distance medicine can not fully replace the “hands-on” attention for emergency needs even with the use of robotics and other technologies. Telemedicine is valuable as an interim measure or for regular visits.

5. Online Learning

Back in March, as the spread of the coronavirus caused lockdowns, schools across the country adopted remote learning measures in a hurry. For the most part, people–students, parents, teachers, and administrators–adapted as well as possible. This Fall, schools, colleges, and universities modified classed into an in-person, hybrid, and fully online model. As COVID cases increased in schools, colleges, and universities, there was a greater shift to online teaching.

The jury is out as to the success of remote learning in K-12 grades, colleges, and universities. The younger your child is, the more essential in-person learning is for instruction, emotion, and socialization benefits in order for them to thrive in our society.

Public education is the best way to raise responsible citizens, forge a common culture among our diverse population. That was constitutionally accepted after the Brown vs Board of Education.1954   Until then, public education was unequal for blacks who were discriminated against by having to go out of their neighborhoods to separate schools.

Lack Of Broadband Internet For Some

With hybrid or fully online education in place for most communities in the US since March 2020, we have learned of the disparity of broadband Internet technology. Those who reside in rural or poor neighborhoods do not have the same high-speed Internet facilities as urban areas. There has to be a level playing field for education. We must build the high-speed data transmission facilities needed for teaching.

As a replacement for in-person learning, there is a recognition that remote learning is not an equal replacement. Even Sal Khan, the founder of Khan Academy, admitted that distance learning is a less than perfect substitute for in-person schooling.

The Lesson

Distance learning is not a replacement for the classroom. Improvements should be made so remote learning works as an option for many people who have subscribed to online classes before the pandemic. As an educator myself, I am hyper-sensitive to the challenges of my students who may be sharing laptops with another family member or simply enjoy being in a class with their peers.

6. The Benefits Of Lifelong Learning

My mother always told my brother and me, “So long as you are able to learn something and can read a book, you will never be lost or bored.” It sounds corny, but my mom was right. We were never allowed to say we were bored when we couldn’t find something to do. We didn’t grow up with the Wide World of the Web (www or the  Internet) like the Gen Z digital natives. Somehow, I was able to entertain myself pretty well.

My love of reading and learning came in real handy as we were in lockdown at home. The way we read and learn may be different but once an appreciation, always one now. Sure, I was distracted by the news, little binge-watching, and too many visits to certain apps on my phone (Candy Crush, if you are wondering).

Expand Your Skills

Many people turned to pick up new or expand skills to improve their work profile or pleasure during the pandemic. People learned new languages, AI, machine learning, robotics,  how to excel on DIY projects, do exercises, experiment with cooking, and Zumba dances remotely with streaming classes of all sorts.

In a recent Gartner analysis, only 16% of new hires possess the skills needed for their current and future jobs. They found existing roles may require up to 10 new skills by 2021. That’s a lot of learning to do. Companies can accelerate training for their employees.

The Lesson

Learning skills can make your job more secure, help you earn more, and position you as a more attractive candidate to other organizations.  Take the initiative to look into where you do some of this training on your own. Learn and update your knowledge in your field so you can be a more valuable employee now and in the future.  Expanding your knowledge in areas of interest adds new dimensions to you as an employee and to your life.

Related Post: The Benefits of Lifelong Learning With No Downsides

7. More Family Time To Talk

Family time with two teens at home can be quite emotional. It doesn’t help that we also have a new puppy in our home. Hormones are raging like a “tempest in a teapot.” That said, I have had some of my best conversations with both kids or individually, learning about their interests, academics, and their good friends.

My daughter, Alex is a planner. She is organized, loves criminal forensics, enjoys working, and is very interested in diverse topics. As an avid reader of this blog and others, she is interested in learning how to handle money better and learn how to earn interest. My son, Tyler, is interested in cash usually borrows from Alex without paying her back.

The Lesson

Jokes aside, we have increased our discussions with our finances, stock market, and skill-building during this time. I have learned from their viewpoints. They are both young adults who remind me every day how hard this pandemic has been on them. It is hard not going to school with their friends, playing sports, and socializing like typical teens.

8. We Owe A Debt A Gratitude


Be Thankful For Your Job

Being grateful for what you have and to others provides good feelings all around. You are fortunate if you kept your job unscathed by reduced hours. By May 2020, 20.5 million were unemployed, an increase of 14 million people since February. This is a higher level than in the Great Recession.

Yes, there were higher unemployment checks and stimulus money at the start. That helped many a temporary relief. But it is stressful to be dependent on government aid held up by political maneuvers.

Health Care Workers And Many Others

During the pandemic, it was hard not to be touched by essential and non-essential workers who were in harm’s way when doing their jobs. Those efforts continue while the pandemic is still rising in the number of cases, hospitalizations, and death. So many people are working tirelessly behind the scenes in stressful jobs. Healthcare works became visible but what about security guards, food servers, janitors, transportation workers, and many more?

We may have passed these people in the past without thinking about them. I am grateful for their help and for being there for us. Thank them more often.

Family And Friends

COVID exposed a lot of vulnerabilities in our society. Our elderly population, black communities, and those with pre-existing conditions paid a higher price, many the ultimate and others who are chronically suffering from having the coronavirus.

Cancer patients had difficulties getting the essential treatments they needed. We lost two cousins and a dear friend. They may still be with us, if not for.. Not a typo but I just can’t finish that thought that is in common with so many people.

Related Post: Gratitude Can Help Your Finances


Final Thoughts

The tragic coronavirus pandemic has affected us all. We were forced to change our lives dramatically to cope with the dangers of the virus. Some trends are emerging that have provided some favorable outcomes. We addressed 8 financial lessons learned during the pandemic. Each financial lesson offers benefits that may help us earn and save more, spend less, invest for the long term, and help us enjoy our lives more.

Thank you for reading! Stay healthy! If you found some value in this post, can we ask you to share it with someone? Consider joining by subscribing to The Cents of Money and getting some freebies and our weekly newsletter.




Common Credit Mistakes And How To Avoid Them

Common Credit Mistakes And How To Avoid Them

“No man’s credit is as good as his money.”

E.W. Howe, novelist

What is credit? Credit is defined as the ability to borrow money or something of value now with the understanding you will repay the lender later with interest. Managing credit well is one of the essential disciplines in your financial life. Developing good credit habits can enhance your financial health.

Unfortunately, there are many ways to make common mistakes that can be costly by lowering your credit score. A reduced credit score can make it difficult for you to borrow at a more affordable interest rate, fall behind in paying debt, or turn off landlords from renting to you.

You are not born with good credit, but you can earn it by handling your debt reasonably well. Understanding your FICO credit score may help you to raise it a few points to a better level. By doing so, you may get lower interest rates when you take out loans, shaving your interest costs meaningfully.

Determining What’s Important To Your Credit Score

Calculating the FICO Scores formula involves five different criteria:

Payment History: 35%

Payment history carries the most significant weight in your score. Payment history picks up on patterns of making consistent payments on time for the length of your credit. Having a more extended credit history is a better gauge than someone who has just received their first loan. Having a good track record of not missing payments and being on time works in your favor.

For example, making a late credit card payment, that is, a payment past the due date will hurt your score.

Those who are new to getting credit have to build up a practice of paying what they owe on time. Any occurrences of past-due accounts or delinquencies, especially for current amounts, are red flags. This component looks at different account types such as credit cards, retail or store accounts, installment loans, mortgages, and finance company accounts.

Credit Utilization: 30%

As a significant influence on your credit score, credit utilization is the ratio of your total outstanding revolving credit balances divided by full available credit. Revolving credit refers to your credit cards and credit lines you may have but does not include your car loan (unless on your credit card) or your mortgage.

The utilization ratio is also known as the balance of debt to available credit or debt-to-credit ratio. It measures how much credit you have used for the total amount available to you. You don’t want to “max out” your cards. You should not be above a 30% ratio as it will impact your score. Stay in the mid-20s range to be assured of not hitting the 30% level. Think twice before closing a credit card as it will have a negative impact on this factor.

Credit History: 15%

Lenders look at your credit history and your experience with credit matters. The length of time of your oldest credit account and the average age of all of your accounts determine your credit history. The longer you have an account, the better your credit score. If you are new to obtaining credit, it will take time to benefit from showing up in your score. Don’t close your old credit cards because they count positively in your credit history. 

Credit Mix: 10%

Lenders favor some variety of borrowing in your mix of credit. A borrower handling different kinds of debt products may reflect less risk to lenders. A person without a credit card tends to be seen as a higher risk. That said, don’t go out and get different kinds of loans for the sake of improving your mix.

New Credit: 10%

Your inquiry will be reflected on your credit report for up to two years when you apply for credit. That is called a hard inquiry. As such, it can negatively impact your credit score, particularly if you are making multiple inquiries. However, don’t let it stop you from doing comparison shopping for the same type of loan.

A soft inquiry occurs when you are checking your credit score or report. Someone other than yourself may make a soft inquiry by accessing your credit background for something different than a loan such as an employer. Soft inquiries do not generate negative hits.

11 Common Credit Mistakes To Avoid

Avoid making common credit mistakes. Becoming informed and determined to avoid these mistakes may yield great returns for you and your family. I will refer to the score criteria when relevant to a specific mistake you may be making.


1. Not Paying Your Credit Card On Time

You are required to pay the minimum amount by the due date on your bill as a credit cardholder. If your household is like ours, you probably lead busy lives. You probably are responsible for many monthly bills, not just your credit card bills. If you are late paying a card bill, you will likely incur $25 the first time you are late, but the amount will rise the next time.

Depending on the terms of your credit card agreement, you may face a hike in your APR on any balance you carry along with future charges. Lateness is pretty consequential to your credit score as payment history at 35% of the FICO score calculation is the largest component.

To avoid being late in paying the required minimum, you should automate payments of all your bills, including your credit cards, through your bank account. When it comes to paying your card bills, automate and don’t procrastinate. The penalty charges are punitive for a reason.

2. Carrying A Large Balance On Your Credit Card

Paying the minimum on your credit card bill on time is an easy fix and makes the card issuers happy. They stand to make a tidy sum on interest income at the high APR rate they charge their average customer. Roughly 58% of cardholders carry an average balance of $6,354 per person at the current average APR of 16.03%.

Of course, card issuers are happy because it is highly profitable. The problem for cardholders is those carrying balances result in paying extra costs on their purchases. Instead, pay your credit card balances in full. Otherwise, it takes years to pay off your current payments while piling on more debt as you continue to use your cards.

An Example

Let’s say you have a current balance of $4,000, and your APR is 16%. Typically, your minimum payment as a percentage of your balance, around 2.5%, or $96 that you owe. If you pay the minimum rate going forward, it will take you 18 years and four months, costing you $4,148.86 in extra interest charges to pay that balance. And, that assumes you never make additional purchases with that card in the future.

Carrying high balances is dangerous for your pocket, and it also has implications for your credit score. After payment history, amounts owed (accounting for 30% of your FICO score) is your credit utilization rate. If you are using too much of your available credit on your card, it may signal to the banks that you are overextended or a potential risk.

Stay Well Below The 30% Credit Utilization Rate

Using more than 30% of your credit utilization can negatively impact your credit score and future borrowing ability. Stay well below that 30% threshold. It is essential to tackle your high balances by making a plan to pay off your card debt, usually the most expensive debt you hold at the double-digit APR. Become disciplined about your spending wisely. Credit cards are convenient, too convenient if you tend to overspend. Cut your spending drastically if you want to have a chance to reduce a large balance.

How To Raise Your Score By Lowering Your Utilization Rate

Most of us don’t pay a lot of attention to our credit card bill, but we should. Your due date is when the payment is due on your statement and reflects the previous billing cycle charges. The last day of the billing cycle is your statement’s closing date. The due date is the grace period, typically 21-25 days, and falls between the closing date and payment. The credit card companies are required to give you this period, not because they are friendly folks.

You are required to pay by the due date to avoid penalties. However, you can benefit by paying your bill on or before the statement closing date, the last day of the billing cycle. By doing so, you can improve your credit utilization rate and, therefore, your credit score. For example, if you have a $3,000 credit limit, spend $2,500 but pay off $1,900 before the closing date, it will appear as if you spent only $600, or 20% of your credit available on that card.

Related Post: 6 Ways To Raise Your Credit Scores

3. Don’t Close Any Credit Cards

Even if you don’t use certain credit cards, don’t close these accounts. Often we have several credit cards that were once appealing because of certain features or through a favorite store. However, over time, you have lost interest and decide to close the account to worry about theft or temptation to use it.

Don’t do this—the length of your credit history matters for 15% of your credit score. The longer you hold open cards, the better, even if you aren’t actively using them.

My Mistake

I made this mistake with a Saks Fifth Avenue card I applied for and got 10% off a large purchase I happened to make for a special occasion. While I liked to browse their stores, I realized I didn’t want to have their card. So, I closed the card. Perusing my credit report months later, I got a ding on my report, which translated into a lower score. To avoid this mistake, simply throw unused cards in a drawer and say goodbye.

4. Not Reviewing Your Credit Report Periodically

According to an FTC study, one out of five people has found errors on their credit report. The sooner you find the mistakes, the easier it is to fix them.

Current and future creditors use your credit report and review its potential impact on your credit score. Others that may want or need access to your credit report are landlords, utility companies, insurance companies, prospective employers. Also, legitimate access to your credit report may be required by collection agencies and if you are a party of court orders.

Fixing Errors On A Credit Report

Fixing errors on a credit report is not difficult, but you don’t want to delay doing so. Delaying a review of your credit report may result in you having to pay a higher interest rate than you should when you apply for credit. Don’t wait for those needs to arise. The best way to fix errors, disputes, or possible fraud is to follow these instructions.

Besides looking for errors, you may be dismayed at some notations on your credit report. Your report may shine a light on poor judgment or reflection of your impulse spending habits. Additionally, it may help you to pinpoint potential fraud when someone has made unauthorized inquiries or purchases.

Fear of fraud may motivate you to make essential changes to get the information in good shape before shopping for a home or a car. We once found a tax lien for a small amount that was burdensome in applying for a car loan. Be timely when you encounter these issues. It is easy to forget when something is a small amount but remains a nuisance to do.

5. Not Reading The Fine Print On Your Credit Agreements

Fewer than 1 in 1,000 people take the time to read the fine print online, spelling out the terms and conditions in financial contracts like credit cards, insurance policies, car, or mortgage loans.  Not doing so may have long-term financial implications for you and your family.

Credit card agreements have incredibly complex terms and conditions. You should understand the particulars of the APR, penalty structure, the benefits from cashback, rewards, discounts, and other perks they are providing.

Terms of Your Mortgage

When you are buying a home, it is typically, for most people, your largest asset. True, your attorney plays a significant role in helping you through the home-buying process. However, you should understand the key elements of the mortgage loan and its interest rate, fixed or variable, prepayment penalties, and length of the term. How owed mortgage interest compounds (semi-annually or monthly) can make a difference in the total cost of your home.

To avoid problems later, become familiar with the typical terms and conditions for the respective agreements you are shopping for. Certain laws have been passed in recent years to protect consumers from providers. These laws, like the Credit CARD Act of 2009, recognize the imbalance that often exists between parties. However, you are responsible for understanding what you are signing. Yes, these documents can be boring and hard to understand, so ask questions.

6. Paying A Loan Off Early Can Hurt Your Credit

If you suddenly received an incredible amount like a bonus or an inheritance, you may want to pay off your loan. Be aware that there may be negative consequences. Some loans, if paid ahead of time, incur pre-payment penalties. These are usually relatively small and worth getting rid of the debt burden. While there may be a temporary hit to your credit score, it is probably beneficial in the long term.

You would want to weigh the value of saving interest over the time remaining on the loan. Usually, there is a relatively small ding to your credit score. Unless you seek a bigger loan and need the best rate possible, paying off a loan should not be a big deal.

How It May Hurt Your Score

When you do not have much payment history (35% of score) may not be a good idea to pay off a car loan. An installment loan is a type of contract involving a loan to be repaid through scheduled payments like for cars and homes. As long as they are paid on a responsible basis, these loans are reflected positively on credit score according to Experian. A good credit mix means there are different types of credit being used. Credit mix accounts for 10% of your credit score, so paying off a car loan may negatively impact your score.

7. Don’t Make Excessive Hard Inquiries For A Loan

Creditors get worried about people making too many “hard inquiries” that occur when applied to a lender of some sort. Lenders see this as a sign of risk that you may be overextending your debt. As we mentioned earlier, hard inquiries may hurt your credit score.

On the other hand, “soft inquiries” occur when someone is accessing your credit report for reasons having nothing to do with a loan. Instead, it is someone such as a landlord considering whether to rent their house to you. That inquiry is for reasons better to understand your creditworthiness as a reflection of your character.

Hard inquiries to your debt burden is often a big problem. These kinds of consequential inquiries come from those who apply for loans or have too many credit cards that they max out. If you have too much debt, applying for debt will worsen your situation. Instead, you should consider working with a financial debt counselor that can provide strategies to reduce what you owe.

8. Avoid Cards With Annual Fees Unless They Have Important Features You Will Use

Generally, there are so many credit cards to choose from without an annual fee that paying one seems like a waste of money. That, at least, is the conventional thinking. Some yearly payments of $550 or over are outrageous but appeal to those who enjoy the card less for the numerous benefits than the status symbol they provide.

If you have the time and desire, you likely can find credit cards with annual fees below $100. There is enough competition in the industry for you to find appealing rewards and money-saving perks that pay for the yearly fee. Just make sure that you will use these benefits. For most people, finding a competitive card with good perks and avoiding the annual fee is the better way to go.

9. Overspending For Rewards

Studies show that credit cardholders spend more when they use their card as compared to paying with cash. As such, this has been referred to as “the credit card premium.” Rewards offered by issuers are designed to encourage more spending in order to get more points or some other perk. Ever sit next to another table where the diners are actively comparing the points and rewards they have earned? I have, and often wish I could get a dollar for every time I did!

According to a recent survey from Coupon Chief, one in five consumers say the rewards are the best perk, ahead of 16% who responded that building credit was the most valuable benefit. More concerning, 52% of Americans don’t actively track their credit card points. Holders are attracted to getting something for free; however, they may be more costly to those shoppers who are tempted to impulse buys.

10. Fear Of Getting A Credit Card

You don’t have to get a credit card. A third of Americans don’t have one for a variety of reasons. They could be fearful of temptation to overspend, poor credit, or prefer an alternative to a credit card. I didn’t have a credit card for many years, and then I used it sparingly when I did. My parents never had a credit card and never accepted cards in their retail store.

Credit cards have many benefits, but ONLY if you use it responsibly as we discuss here. Don’t fear getting a credit card. Instead, learn how to pay balances in full and on time. Building credit is important as a means of borrowing money for buying a car or a house.

11. Don’t Get A Retail Store Card

The temptation of getting a store card often comes right at the point of purchase when the store clerk waves an application at you. “If you sign up today, you will get 10% off today’s purchase, Ma’am?” And, you say, “Sure, why not?”

Okay, let’s rewind that conversation so that you understand that retail store cards may be a mistake. A store card has limited use because you can only use it at that specific store or enterprise. That’s great for the specific merchant because they collect a lot of information to market daily offers to you.

Other merchants do not accept retail credit cards. On average, store cards charge higher APRs than credit cards, which are already high enough. The average APR for store-only credit cards was 24.06% in 2Q 2020 versus 16.03% for traditional credit cards, according to WalletHub.

They usually provide low credit limits, so you won’t get a big bang in credit availability to improve your utilization rate to hike your credit score. At the end of the day, retail credit cards have fewer benefits than traditional cards.


Final Thoughts

Creditworthiness is a valuable trait when you need to borrow money, or someone wants a good read of your character. Take steps to avoid common credit mistakes that will put you in good standing and help you raise your score. To be in good financial health, managing credit well is an important discipline. Develop and maintain good credit habits and keep your debt levels from overwhelming your life.

Thank you for reading! Please consider subscribing to The Cents of Money blog and receive our weekly free newsletter. Stay healthy!



























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