Could logging in to your computer from a deluxe treehouse off the coast of Belize be the future of work? Maybe. For many, the word freelance means flexibility, meaningful tasks and better work-life balance. Who doesn’t want to create their own hours, love what they do and work from wherever they want? Freelancing can provide all of thatâbut that freedom can vanish quickly if you don’t handle your expenses correctly.
“A lot of the time, you don’t know about these expenses until you are in the trenches,” says freelance copywriter Alyssa Goulet, “and that can wreak havoc on your financial situation.”
Nearly 57 million people in the U.S. freelanced, or were self-employed, in 2019, according to Upwork, a global freelancing platform. Freelancing is also increasingly becoming a long-term career choice, with the percentage of freelancers who freelance full-time increasing from 17 percent in 2014 to 28 percent in 2019, according to Upwork. But for all its virtues, the cost of being freelance can carry some serious sticker shock.
“There are many hats you have to wear and expenses you have to take on, but for that you’re gaining a lot of opportunity and flexibility in your life.”
Most people who freelance for the first time don’t realize that everythingâfrom taxes to office supplies to setting up retirement plansâis on them. So, before you can sustain yourself through self-employment, you need to answer a very important question: “Are you financially ready to freelance?”
What you’ll find is that budgeting as a freelancer can be entirely manageable if you plan for the following key costs. Let’s start with one of the most perplexingâtaxes:
1. Taxes: New rules when working on your own
First things first: Don’t try to be a hero. When determining how to budget as a freelancer and how to manage your taxes as a freelancer, you’ll want to consult with a financial adviser or tax professional for guidance. A tax expert can help you figure out what makes sense for your personal and business situation.
For instance, just like a regular employee, you will owe federal income taxes, as well as Social Security and Medicare taxes. When you’re employed at a regular job, you and your employer each pay half of these taxes from your income, according to the IRS. But when you’re self-employed (earning more than $400 a year in net income), you’re expected to file and pay these expenses yourself, the IRS says. And if you think you will owe more than $1,000 in taxes for a given year, you may need to file estimated quarterly taxes, the IRS also says.
That can feel like a heavy hit when you’re not used to planning for these costs. “If you’ve been on a salary, you don’t think about taxes really. You think about the take-home pay. With freelance, everything is take-home pay,” says Susan Lee, CFPÂ®, tax preparer and founder of FreelanceTaxation.com.
When you’re starting to budget as a freelancer and determining how often you will need to file, Lee recommends doing a “dummy return,” which is an estimation of your self-employment income and expenses for the year. You can come up with this number by looking at past assignments, industry standards and future projections for your work, which freelancer Goulet finds valuable.
“Since I don’t have a salary or a fixed number of hours worked per month, I determine the tax bracket I’m most likely to fall into by taking my projected monthly income and multiplying it by 12,” Goulet says. “If I experience a big income jump because of a new contract, I redo that calculation.”
After you estimate your income, learning how to budget as a freelancer means working to determine how much to set aside for your tax payments. Lee, for example, recommends saving about 25 percent of your income for paying your income tax and self-employment tax (which funds your Medicare and Social Security). But once you subtract your business expenses from your freelance income, you may not have to pay that entire amount, according to Lee. Deductible expenses can include the mileage you use to get from one appointment to another, office supplies and maintenance and fees for a coworking space, according to Lee. The income left over will be your taxable income.
To set aside the taxes you will need to pay, adjust your estimates often and always round up. “Let’s say in one month a freelancer determines she would owe $1,400 in tax. I’d put away $1,500,” Goulet says.
2. Business expenses: Get a handle on two big areas
The truth is, the cost of being freelance varies from person to person. Some freelancers are happy to work from their kitchen tables, while others need a dedicated workspace. Your freelance costs also change as you add new tools to your business arsenal. Here are two categories you’ll always need to account for when budgeting as a freelancer:
Joining a coworking space gets you out of the house and allows you to establish the camaraderie you may miss when you work alone. When you’re calculating the cost of being freelance, note that coworking spaces may charge membership dues ranging from $20 for a day pass to hundreds of dollars a month for a dedicated desk or private office. While coworking spaces are all the rage, you can still rent a traditional office for several hundred dollars a month or more, but this fee usually doesn’t include community aspects or other membership perks.
If you want to avoid office rent or dues as costs of being freelance but don’t want the kitchen table to pull double-duty as your workspace, you might convert another room in your home into an office. But you’ll still need to outfit the space with all of your work essentials. Freelance copywriter and content strategist Amy Hardison retrofitted part of her house into a simple office. “I got a standing desk, a keyboard, one of those adjustable stands for my computer and a squishy mat to stand on so my feet don’t hurt,” Hardison says.
Start with the absolute necessities. When Hardison first launched her freelance career, she purchased a laptop for $299. She worked out of a coworking space and used its office supplies before creating her own workspace at home.
There are a range of digital tools, including business and accounting software, that can help with the majority of your business functions. A big benefit is the time they can save you that is better spent marketing to clients or producing great work.
The software can also help you avoid financial lapses as you’re managing the costs of being freelance. Hardison’s freelance business had ramped up to a point where a manual process was costing her money, so using an invoicing software became a no-brainer. “I was sending people attached document invoices for a while and keeping track of them in a spreadsheet,” Hardison says. “And then I lost a few of them and I just thought, ‘Oh, my God, I can’t be losing things. This is my income!’”
Digital business and software tools can help manage scheduling, web hosting, accounting, audio/video conference and other functions. When you’re determining how to budget as a freelancer, note that the costs for these services depend largely on your needs. For instance, several invoicing platforms offer options for as low as $9 per month, though the cost increases the more clients you add to your account. Accounting services also scale up based on the features you want and how many clients you’re tracking, but you can find reputable platforms for as little as $5 a month.
When you sign up for a service, start with the “freemium” version, in which the first tier of service is always free, Hardison says. Once you have enough clients to warrant the expense, upgrade to the paid level with the lowest cost. Gradually adding services will keep your expenses proportionate to your income.
3. Health insurance: Harnessing an inevitable cost
Budgeting for healthcare costs can be one of the biggest hurdles to self-employment and successfully learning how to budget as a freelancer. In the first half of the 2020 open enrollment period, the average monthly premium under the Affordable Care Act (ACA) for those who do not receive federal subsidiesâor a reduced premium based on incomeâwas $456 for individuals and $1,134 for families, according to eHealth, a private online marketplace for health insurance.
“Buying insurance is really protecting against that catastrophic event that is not likely to happen. But if it does, it could throw everything else in your plan into a complete tailspin,” says Stephen Gunter, CFPÂ®, at Bridgeworth Financial.
A good place to start when budgeting as a freelancer is knowing what healthcare costs you should budget for. Your premiumâwhich is how much you pay each month to have your insuranceâis a key cost. Note that the plans with the lowest premiums aren’t always the most affordable. For instance, if you choose a high-deductible policy you may pay less in premiums, but if you have a claim, you may pay more at the time you or your covered family member’s health situation arises.
When you are budgeting as a freelancer, the ACA healthcare marketplace is one place to look for a plan. Here are a few other options:
Spouse or domestic partner’s plan: If your spouse or domestic partner has health insurance through his/her employer, you may be able to get coverage under their plan.
COBRA: If you recently left your full-time job for self-employment, you may be able to convert your employer’s group plan into an individual COBRA plan. Note that this type of plan comes with a high expense and coverage limit of 18 months.
Organizations for freelancers: Search online for organizations that promote the interests of independent workers. Depending on your specific situation, you may find options for health insurance plans that fit your needs.
Speak with an insurance adviser who can help you figure out which plans are best for your health needs and your budget. An adviser may be willing to do a free consultation, allowing you to gather important information before making a financial commitment.
4. Retirement savings: Learn to “set it and forget it”
Part of learning how to budget as a freelancer is thinking long term, which includes saving for retirement. That may seem daunting when you’re wrangling new business expenses, but Gunter says saving for the future is a big part of budgeting as a freelancer.
“It’s kind of the miracle of compound interest. The sooner we can get it invested, the sooner we can get it saving,” Gunter says.
He suggests going into autopilot and setting aside whatever you would have contributed to an employer’s 401(k) plan. One way to do this might be setting up an automatic transfer to your savings or retirement account. “So, if you would have put in 3 percent [of your income] each month, commit to saving that 3 percent on your own,” Gunter says. The Discover IRA Certificate of Deposit (IRA CD) could be a good fit for helping you enjoy guaranteed returns in retirement by contributing after-tax (Roth IRA CD) or pre-tax (traditional IRA CD) dollars from your income now.
Prioritize retirement savings every month, not just when you feel flush. “Saying, ‘I’ll save whatever is left over’ isn’t a savings plan, because whatever is left over at the end of the month is usually zero,” Gunter says.
5. Continually update your rates
One of the best things you can do for yourself in learning how to budget as a freelancer is build your costs into what you charge. “As I’ve discovered more business expenses, I definitely take those into account as I’m determining what my rates are,” Goulet says. She notes that freelancers sometimes feel guilty for building business costs into their rates, especially when they’re worried about the fees they charge to begin with. But working the costs of being freelance into your rates is essential to building a thriving freelance career. You should annually evaluate the rates you charge.
Because your expenses will change over time, it’s wise to do quarterly and yearly check-ins to assess your income and costs and see if there are processes you can automate to save time and money.
“A lot of the time, you don’t know about these expenses until you are in the trenches, and that can wreak havoc on your financial situation.”
Have confidence in your freelance career
Accounting for the various costs of being freelance makes for a more successful and sustainable freelance career. It also helps ensure that those who are self-employed achieve financial stability in their personal lives and their businesses.
“There are many hats you have to wear and expenses you have to take on,” Goulet says. “But for that, you’re gaining a lot of opportunity and flexibility in your life.”
The post Everything You Need to Know About Budgeting As a Freelancer appeared first on Discover Bank – Banking Topics Blog.
A lot of us donât like to think about this, but inevitably there will come a time where we will all need help taking care of ourselves. So how can we start preparing for this financially?
Many people opt to purchase long-term care insurance in advance as a way to prepare for their golden years. Long-term care insurance includes services relating to day-to-day activities such as help with taking baths, getting dressed and getting around the house. Most long-term care insurance policies will front the fees for this type of care if you are suffering from a chronic illness, injury or disability, like Alzheimerâs disease, for example.Â
If this is something you think youâll need later on, itâs crucial that you donât wait until youâre sick to apply. If you apply for long-term care insurance after becoming ill or disabled, you will not qualify. Most people apply around the ages of 50-60 years old.Â
In this article, we will discuss long-term care insurance, how it works and why you might consider getting it.Â Â Â
How long-term care insurance works
The process of applying for long-term care insurance is pretty straight forward. Generally, you will have to fill out an application and then youâll have to answer a series of questions about your health. During this point in the process, you may or may not have to submit medical records or other documents proving the status of your health.Â
With most long-term care policies, you will get to choose between different plans depending on the amount of coverage you want.Â
Many long-term care policies will deem you eligible for benefits once you are unable to do certain activities on your own. These activities are called âactivities of daily livingâ or ADLs:
Getting off and/or on the toilet
Getting in and out of a bed or other furniture
In most cases, you must be incapable of performing at least two of these activities on your own in order to qualify for long-term care. When itâs time for you to start receiving care, you will need to file a claim. Your insurer will review your application, records and make contact with your doctor to find out more about your condition. In some cases, the insurer will send a nurse to evaluate you before your claim gets approved.Â
Itâs very common for insurers to require an âelimination periodâ before they start reimbursing you for your care. What this means is that after you have been approved for benefits and started receiving regular care, you will need to pay out of pocket for your treatments for a period of anywhere from 30-90 days. After this period, you will get reimbursed for your out-of-pocket expenses and from there.
Who should consider long-term care insurance
Unfortunately, the statistics are against our odds when it comes to whether or not we will eventually need some type of long-term care. Approximately half of people in the U.S. at the age of 65 will eventually acquire a disability where they will need to receive long-term care insurance.Â Of course, the problem is, long-term care can be really expensive. Unless you have insurance, youâll be paying for your long-term care completely out-of-pocket should you ever need it.
Your standard health insurance plan, including Medicare, will not cover your long-term care. The benefits of buying long-term care insurance are that:
You can hold on to your savings: Many uninsured seniors have to dip into their savings account in order to pay for their long-term care. Because itâs not cheap, many of them drain their life savings just to be able to pay for it.
Youâll be able to choose from a larger variety of options: Being insured gives you the benefit of being able to choose the quality of care that you prefer. Just like with anything else, you get what you pay for when it comes to healthcare. Medicaid offers some help with long-term care, but youâll end up in a government-funded nursing home.Â
How to buy long-term care insurance
If youâve recently started thinking about shopping for long term-care insurance, youâll want to keep a few things in mind:
Do you mind being insured on a policy with an elimination period?
Can you afford all of the costs including living adjustments?
Are you interested in a policy that covers both you and your spouse, otherwise known as âshared careâ?
There are a few different ways to go about getting long-term care benefits. You can either buy a policy from an insurance broker, an individual insurance company, or in some cases, your employer. Obtaining long-term care insurance through your employer is probably going to be cheaper than getting it as an individual. Ask your employer if itâs included in your benefits.Â
Many people also opt to shop for hybrid benefits insurance policies. This is when a long-term care policy is packaged in with a standard life insurance policy. This is becoming a lot more common in the world of insurance. Keep in mind that the approval process may be slightly different for a hybrid insurance policy than of that of a stand-alone long-term care insurance policy. Make sure to ask about the requirements before you apply.Â
Best long-term care insurance packages
There are not very many long-term care insurance companies that exist as there once was. Itâs hard to wrap our heads around purchasing something that we donât yet need. However, here are a few examples of companies that offer competitive long-term care packages:
Mutual of Omaha: This company offers benefits of anywhere between $1,500 and $10,000. While the main disadvantage of this companyâs packages is that they do not cover doctorâs charges, transportation, personal expense, lab charges, or prescriptions, you CAN choose to receive cash benefits instead of reimbursements. This company also offers discounts for things like good health and marital status. This companyâs insurance policies offer a wide range of options and add-ons so you can make sure that all your bases are covered.
Transamerica: This companyâs long-term policy, TransCare III, is good if you donât want to hassle with an elimination period. If you live in California, this may not be the best choice for you because Californiaâs rates are a lot higher than the rates in other states. Your maximum daily benefit can be up to $500 with this program, with a total of anywhere between $18,250-$1,095,000.Â
MassMutual: Popular for their SignatureCare 500 policy which comes in both base and comprehensive packages, is a long-term care and life insurance hybrid. This is very appealing to many seniors wanting to kill two birds with one stone. This company also has a 6-year period as one of their term options, which is pretty high.
Nationwide: This program sets itself apart from many other programs available because it allows you to have informal caregivers like family, friends, or neighbors. You will receive your entire cash benefit every month and it is up to you to disperse the funds as you would like. Currently, this company does not have their pricing available online, so you will need to speak with an agent to discuss prices.
Understanding Long-Term Care Insurance is a post from Pocket Your Dollars.
Letâs face it: The worst thing about having to go to the hospital to receive medical treatment is being slammed with a huge bill afterwards. Sometimes, these medical bills are so expensive that you simply donât have the means to pull it off right away, especially without health insurance. While we may find it easier in the short term to pretend that our unpaid medical bills donât exist, avoiding the problem could only make it worse. Many medical providers are aware of this, which is why there are ways that you can negotiate your medical debt when you are unable to pay in full. In this article, we will discuss the different ways you can go about taking care of those medical expenses so that they donât stack up later and wreak havoc on your credit.
Negotiate for insurance rates
Without health insurance, youâll most likely be charged a much steeper price. If you want to negotiate your medical bills, one thing you can do is research what the fair market value is for whatever treatments you received. Usually, this is the price that insurance companies have to pay medical providers, and most of the time, itâs a lot cheaper.
Once youâve found the dollar amount youâd like to ask for, you will need to get in touch with the billing department. If the person on the phone turns you down, ask to speak to their supervisor. Itâs important to remain calm and polite while doing this but be persistent. Continue to ask to speak to a higher ranking individual until you reach someone who agrees to make a deal with you.
Pay it in cash
Cash payments are hard to turn down in most cases. if you want to negotiate a lower price on medical bills, you can offer to make a cash payment. Call your medical provider or the billing department and ask them if they would be willing to knock down the price of your bills if you were to pay in cash. Explain to them that if they canât offer you any other sort of financial assistance, then this is another route you can take.
Not only will this save them money on credit card fees and hours worked by office employees, but it will also save time spent on processing paperwork. This is a smart offer to make, as instant cash payments as opposed to electronic payments are a lot harder to say no to for any business or institution.
Ask for a payment plan
Thereâs a good chance that even after youâve asked for a lower price and offered to pay in cash, your medical provider will be unwilling to give you a deal. When this happens, there is still one more thing you can try. Before readily handing over your credit card, ask them if you can make payments on your bill. Most companies will allow you to do this and are used to working with people who are unable to pay their bills in full. Be honest about how much you are able to pay at a time.
Itâs likely that they will try to negotiate a higher payment amount, but politely tell them that itâs not feasible for you. Most of the time, they will be understanding and take whatever payment they can get. If youâre struggling financially, making small payments on your medical bills is the best way to go to keep your credit score in tact. As long as you are making payments on your bills, the companies will not report you to the credit bureaus.
Take precautionary measures
A lot of medical providers and medical facilities have programs that offer financial assistance, but you are going to have to ask them for it. Be transparent at the time of or even before your medical treatment occurs. If the treatment you are seeking is not a medical emergency, ask ahead of time if there is a cheaper option or if you can get a discount. If you donât have health insurance, this needs to be explained as early on as possible. Let your doctor know if you are living off of low income or if you are in the midst of some other type of financial hardship that is keeping you from being able to pay for service.
If you are successful in negotiating your medical bills, you might want to get it in writing so that you have proof. In some cases, you may even want to make your request in writing so that you have it on record in case anything goes wrong later. Once a deal has been agreed upon by both you and the medical provider or billing department, type up a summary of the conversation including key details of who you spoke to and the prices that were negotiated.
Other options for paying bills
There is no one-size-fits-all way of clearing your medical bills once and for all.Â Some people have insurance, some can afford to pay in full, and some are going to have to negotiate a lower price. If you have already tried negotiating medical bills and were unsuccessful, there are other options to explore. Here are some other ways you can go about paying your medical bills:
Medical credit cards: Thereâs no guarantee that your medical provider will accept a payment plan. However, most of the time, they will accept payment with the use of a medical credit card. If you have no other choice, ask your doctorâs office about how you can apply for a medical credit card. Usually, you are able to apply at the office right then and there. Most medical credit cards offer zero interest for up to 12 months. If you can manage to pay off the medical debt within that timeframe, then perhaps a medical credit card is a good choice for you. Be wary of this if you already have poor credit.
Personal loan: If youâve already been through all of your other options and were unable to make something work, it might be time to look at taking out a type of unsecured credit, such as a personal loan. If you have a significant amount of medical debt looming over your head, this might be a good idea as you can usually take out anywhere from $1,000 to $100,000. Once again, if you donât have a good history with using credit, seriously consider the pros and cons of doing this.
Interest free credit card: If you donât end up qualifying for a payment plan or a medical credit card, you can use a 0% interest credit card to pay the tab as long as you have good or outstanding credit.
Hire a medical bill advocate: If you feel overwhelmed by the task of reading through your medical bills and looking for errors, you can hire a professional to do it for you. Medical bill advocates are familiar with common procedures and the prices of treatments. If you have been wrongfully charged or overcharged, a medical bill advocate will be able to find this right away. Aside from pinpointing any errors, experts in medical bills will also do the negotiating for you.
If you are feeling overwhelmed by a large medical bill, remember that you have several options for taking care of it. It might be tempting to ignore the bill altogether but doing this could really damage your credit. Being honest with your medical provider from the beginning can prevent you from having to deal with extra costs. However, sometimes medical bills are ineveitable and we have to pay them. Consider payment plans or a medical credit card, but whatever you do, donât let your unpaid medical bills be a show stopper!
How to Negotiate Your Medical Debt is a post from Pocket Your Dollars.
If there was ever a time to get the flu shot, itâs probably amid the COVID-19 pandemic.
Having two potentially deadly viruses that share some of the same symptoms makes getting the flu vaccine important for both protecting yourself from the flu and reducing the strain on healthcare facilities responding to the coronavirus.
The good news: Flu activity in the U.S. is unusually low at this time, according to the Centers for Disease Control and Prevention. It attributes the drop to precautions taken to slow the spread of COVID-19, including a record high number of Americans receiving doses of the flu vaccine.
But getting vaccinated doesnât have to be expensive. Hereâs where to get a flu shot for cheap or free â plus where you could actually snag a little extra spending money by taking your shot.
Where to Get a Free or Low-Cost Flu Shot
The annual flu vaccine can help protect you from getting the flu and reduce the severity if you do contract it.
The CDC recommends an annual flu vaccine for everyone 6 months and older.
Although September and October are the ideal times to get vaccinated, the CDC notes that you can get a vaccine so long as the flu virus is circulating â flu season doesnât officially end until around April or May.
If you have health insurance, youâll likely be able to get a free flu shot. But even if you donât have insurance, you can still find affordable â and sometimes free â options.
Under the Affordable Care Act, all marketplace insurance plans must cover the cost of the vaccine. However, check your plan for details, as some set limitations on where you can get the shot for free.
Ready to protect yourself from the influenza virus? Hereâs where to go for your shot.
1. Local Retailers, Grocery Stores and Pharmacies
Just by showing your insurance card, you can get a free flu shot at many places youâre already visiting, which makes this a convenient option for most people.
Some providers may have limited supplies of the flu vaccine remaining â check with your location before you go.
If you donât have insurance, you can typically get the shot for less than $50 at the following businesses:
Costco. You donât need to be a member of the warehouse club to use a Costco pharmacy. And even if you donât have insurance, you can get a flu vaccine starting at $19.99. Walk-ins are welcome, or you can click here to book an appointment online.
CVS. Get your flu shot at CVS pharmacy or its Minute Clinic. Click here for the details and to schedule an appointment.
Kroger. You can make an appointment to get a flu shot at Kroger Healthâs pharmacies. Click here to book online.
Publix. The grocery chain typically welcomes walk-up flu shot appointments, but this year it is also offering an online service that allows customers to schedule an appointment and sign consent forms ahead of time, which you can do by clicking here.
Rite Aid. Flu shots at the pharmacy chain are available without insurance for $39.99. No appointment is necessary, but click here for the consent form you should bring with you.
Safeway. Although no appointment is necessary, the grocery chain recommends filling out this consent form before you visit. It could really be worth your trouble â you get 10% off your next grocery trip with an immunization.
Target. Stop by a CVS pharmacy at Target â walk in or schedule an appointment.
Walgreens. You can either walk in or schedule an appointment at the pharmacy chain.
Walmart. In response to the pandemic, the retailer launched a digital scheduler via the Walmart mobile app. And all Walmart employees will be able to get flu shots at the retailerâs pharmacies for free â regardless of their insurance status. Itâs also offering a special pharmacy hour from 6 a.m. to 7 a.m. on Tuesdays for seniors and those at-risk.
2. Your Doctor and Urgent Care Clinics
If you have health insurance, you can get a free flu shot at a variety of places, including your doctor and urgent care clinics.
While the shot may be free, the office visit may not be â check before you make an appointment or show up at a clinic.
3. Your Workplace
If your office closed due to the pandemic, your employer might not be offering free flu shots this year. However, if youâre still showing up to work, it doesnât hurt to ask your human resources department if your company would sponsor an on-site flu vaccination.
4. Your College Campus
If campus is open, thereâs a good chance your college is still offering free flu shots to college students. Most times, all youâll need is your student ID.
FROM THE SAVE MONEY FORUM
No spend challenge
Looking for a Financial Accountability Partner
Credit Karma Savings Account
See more in Save Money or ask a money question
5. Community Health Centers
Community-based health centers are available in areas with limited access to affordable health care services. They provide services regardless of a patientsâ ability to pay and charge for services on a sliding scale.
Depending on where you live, your local health center may offer free flu shots, regardless of your insurance status. Locate a center near you by clicking here.
6. VA Health Centers
If youâre a veteran enrolled in the VA health care system, you can get a flu shot for free at a VA health care facility or an in-network retail pharmacy or urgent care location near you. Just present a valid, government-issued identification and this flyer.
And if none of these places work for you, check with VaccineFinder.org for vaccination locations near you. Regardless of where you choose to , get your shot as soon as possible.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Paying yourself first is a budgeting strategy that suggests individuals should contribute to a retirement account, emergency fund, savings account, or other savings vehicle before spending their paycheck on anything else.
The pay yourself first method is a pretty simple concept to understand, but actually applying to your own finances can become a little more complex. To help our Minters put this plan into practice, weâre breaking it down step-by-step and revealing some of the advantages and drawbacks of paying yourself first.
If you already have a solid grasp on the topic, use the links below to navigate throughout the post, or read all the way through for the full picture.
What does it mean to pay yourself first?
Advantages of the pay yourself first method
Drawbacks of the pay yourself first method
How to Pay Yourself First
1. Evaluate your monthly income + expenses
2. Identify your savings goals + commit
3. Review + reevaluate
What does it mean to pay yourself first?
Pay yourself first definition: The pay yourself first method, also known as reverse budgeting, is a savings strategy that says individuals should save a portion of their paycheck before spending any other money on bills, groceries, or discretionary items.The amount saved is typically predetermined as part of a larger savings goal, and is often funneled into retirement funds and/or savings accounts.
Many financial experts and individual consumers who subscribe to this method choose to have funds automatically redirected into their elected savings account(s).Â
For example, if you want to put $200 of every paycheck toward your 401k, you could set up an automatic contribution rather than physically transfer funds each pay period. For many savvy savers, this makes it easier to commit to a monthly goal, because the amount never actually reaches your checking account, but is rather allocated directly toward your savings.
Note: There are several options you can employ to make the pay yourself first strategy work for your finances. If you prefer to make the transfers on your own instead of automatically, thatâs totally okay! This budgeting style is really all about consistency â contributing a set amount each month to your retirement plan or savings account can really pay off over time.
Advantages of the pay yourself first method
Like any financial decision youâll make in your lifetime, youâll want to consider the pros and cons of subscribing to the pay yourself first philosophy.
The primary benefit of setting aside savings first, is building the amount you have saved over time. This strategy forces you to live within, or below your means â so long as you donât start swiping your credit card recklessly instead.
Here are a few other potential benefits you could reap if you employ the pay yourself first strategy:
You can save up for big purchases, like a home, car, or dream vacation. Or, put your hard-earned dollars toward an emergency fund, personal savings, or retirement.
Contributing to accounts that earn compound interest allows your money to continue growing the longer you leave it untouched.
Many retirement funds and other savings options are considered âtax-advantaged.â This means that your dollars may be exempted from tax, or in the case of IRAs and 401ks, tax-deferred; so youâll pay taxes later on when you make a withdrawal.
Drawbacks of the pay yourself first method
In addition to the positive aspects a pay yourself first budget may offer, there are some potential drawbacks that could ensue under certain circumstances. Put simply, the strategy simply does not work for everyone. As you learn about the pay yourself first method, consider how it fits into the context of your personal finances.
Here are a few examples where paying yourself first may not work to your benefit:
Without following careful money management advice, you may find yourself scraping for change to make ends meet. Before you commit to a monthly savings goal, use a budgeting calculator to determine how much money you can reasonably afford to save each month.
While prioritizing your savings can help you boost the balance in your savings account, it may be worth paying down debt first. Because interest compounds over time, waiting to pay off a credit card or a student loan, for example, means that youâll pay more interest the longer there is an outstanding balance.
As you consider the various strategies you can use to build your savings, remember to take a close look at the potential pros and cons you may encounter. There are plenty of saving styles you can leverage, so donât count yourself out if this one isnât the best fit for you. For more help creating a budget and savings plan that meets your needs, check out how Mint can help!
How to Pay Yourself First
Now that you know what it means to pay yourself first, and have had a moment to consider the potential benefits and drawbacks, letâs take a look at how this strategy actually plays out, step-by-step.
1. Evaluate your monthly income + expensesÂ
Before you decide on the amount you want to save each month, take a look at both your fixed and variable expenses. Your fixed expenses are those costs that stay consistent month over month, like your rent or mortgage payments, student loan bill, and health insurance, for example.Â
Your variable expenses, on the other hand, arenât always the same amount each time, and sometimes you donât incur them at all. Entertainment costs, vehicle maintenance, and groceries are all examples of variable costs, and so, their price tag may vary from one month to the next â just do your best to estimate these.
Once you can project your monthly expenses, subtract the amount from your monthly income to see whatâs leftover. Depending on your savings and greater financial goals, you can tweak some of your spending to free up more cash.Â Â
2. Identify your savings goals + commit
Now that you have a better understanding of your income and expenses, you can set some savings goals!
If youâre not sure where to start, consider the 50/30/20 rule.
The rule says…
50% of your budget should go toward essential expenses such as housing, food, utilities, an minimum debt payments
30% should be reserved for wants and lifestyle expenses
20% should be funneled into your savings and any extra debt payments
If you donât want to crunch the numbers on your own, try out our 50/30/20 calculator and weâll do the heavy lifting for you!
In addition to setting forth a savings target, youâll also want to think about where you want your reserved cash to live, and hopefully, grow. If you want to save up for retirement, a 401k or an IRA might make sense, whereas traditional savings accounts might work better for those wanting to save up funds for a shorter length of time.
3. Review + reevaluateÂ
Whether youâre using the pay yourself first method or another savings strategy, itâs important to remember that your budget should never be static. As life changes, your finances follow. A better salary or a reduction in your living expenses could present more opportunities to save, while a pay cut or recently incurred expense could have the opposite effect.
To keep your budget optimized and up to date, take the time to review and reevaluate it on a regular basis, and when significant changes arise.Â
The pay yourself first budgeting style can be a favorable way to boost the balance in your savings account,Â retirement fund, or other savings goal. However, budgeters should reflect on their unique financial situation to assess whether this strategy suits them. In most circumstances, it would be in your best interest to pay down debt before you start making monthly contributions to your savings.
If you subscribe to the pay yourself first philosophy, follow these three steps:
Evaluate your monthly income + expensesÂ
Identify your savings goals + commit
Review + reevaluate
Need some extra guidance to find the right budget for your lifestyle? Mint gives you a data-driven perspective, helps you launch and track savings objectives, and empowers you to actualize your greater financial goals.
The post How to Pay Yourself First appeared first on MintLife Blog.
Coronavirus hasnât entirely ended life as we knew it, but itâs certainly caused changes, some of which are likely to be with us for a very long time.
For some the coronavirus is literally a matter of life and death, and it raises an important question: how does coronavirus affect life insurance?
No one likes to think about the possibility of losing their life, or that of a loved one to this virus, but for over 150,000 families here in the US, it has turned out to be a reality.
Letâs examine the impact it may have on your existing policies, and perhaps more importantly, how it may affect applications for new life insurance coverage.
How Does Coronavirus Affect Life Insurance You Already Have?
Thereâs good news if you already have a life insurance policy in place. Generally speaking, the insurance company will pay a death benefit even if you die from the coronavirus. With few exceptions, life insurance policies will pay for any cause of death once the policy is in force. There are very few exceptions to this rule, such as acts of war or terrorism. Pandemics are not a known exception.
If youâre feeling at all uncomfortable about how the coronavirus might impact your existing life insurance policies, contact the company for clarification. Alternatively, review your life insurance policy paying particular attention to the exclusions. If thereâs nothing that looks like death due to a pandemic, you should be good to go.
But once the policy is in place, there are only a few reasons why the insurance company can deny a claim:
Non-payment of premiums â if you exceed the grace period for the payment, which is generally 30 or 31 days, your policy will lapse. But even if it does, you may still be able to apply for reinstatement. However, after a lapse, you wonât be covered until payment is made.
Providing false information on an application â if you fail to disclose certain health conditions that result in your death, the company can deny payment for insurance fraud. For example, if youâre a smoker, but check non-smoker on the application, payment of the death benefit can be denied if smoking is determined to be a contributing cause of death.
Death within the first two years the policy is in force â often referred to as the period of contestability, the insurance company can investigate the specific causes of death for any reason within the first two years. If itâs determined that death was caused by a pre-existing condition, the claim can be denied.
None of these are a serious factor when it comes to the coronavirus, unless you tested positive for the virus prior to application, and didnât disclose it. But since the coronavirus can strike suddenly, it shouldnât interfere with your death benefits if it occurs once your policy is already in force.
How Does Coronavirus Affect Life Insurance Youâre Applying For?
This is just a guess on my part, but I think people may be giving more thought to buying life insurance now they may have at any time in the past. The coronavirus has turned out to be a real threat to both life and health, which makes it natural to consider the worst.
But whatever you do, donât let your fear of the unknown keep you from applying for coverage. Though you may be wishing you bought a policy, or taken additional coverage, before the virus hit, now is still the very best time to apply. And thatâs not a sales pitch!
No matter whatâs going on in the world, the best time to apply for life insurance is always now. Thatâs because youâre younger and likely healthier right now than youâll ever be again. Both conditions are major advantages when it comes to buying life insurance. If you delay applying, youâll pay a higher premium by applying later when youâre a little bit older. But if you develop a serious health condition between now and then, not only will your premium be higher, but you may even be denied for coverage completely.
Donât let fears of the coronavirus get in your way. If you believe you need life insurance, or more of it, apply now.
Ads by Money. We may be compensated if you click this ad.Ad
Find the Best Life Insurance Company for You
Click your state to get matched
That said, the impact of the coronavirus on new applications for life insurance is more significant than it is for existing policies.
The deaths of more than 100,000 people in the US is naturally having an effect on claims being paid by life insurance companies. While thereâs been no significant across-the-board change in how most life insurance companies evaluate new applications, the situation is evolving rapidly. Exactly how that will play out going forward is anyoneâs guess at the moment.
What to Expect When Applying for Life Insurance in the Age of the Coronavirus
If youâre under 60 and in good or excellent health, and not currently showing signs of the virus, the likelihood of being approved for life insurance is as good as itâs ever been. You can make an application, and not concern yourself with the virus.
That said, it may be more difficult to get life insurance if you have any conditions determined to put you at risk for the coronavirus, as determined by the Centers for Disease Control (CDC).
Ages 65 and older.
Obesity, defined as a body mass index of 40 or greater.
Certain health conditions, including asthma, chronic kidney disease and being treated by dialysis, lung disease, diabetes, hemoglobin disorders, immunocompromised, liver disease, and serious heart conditions.
People in nursing homes or long-term care facilities.
Now to be fair, each of the above conditions would require special consideration even apart from the coronavirus. But since theyâre known coronavirus risk factors, the impact of each has become more important in the life insurance application process.
If any of these conditions apply to you, the best strategy is to work with insurance companies that already specialize in those categories.
There are insurance companies that take a more favorable view of people with any of the following conditions:
Certain lung diseases, including Asthma
Certain heart conditions
More Specific Application Factors
But even with insurance companies that specialize in providing coverage for people with certain health conditions, some have introduced new restrictions in light of the coronavirus.
For example, if you have a significant health condition and youâre over 65, you may find fewer companies willing to provide coverage.
The insurance company may also check your records for previous coronavirus episodes or exposures. Expect additional testing to determine if youâre currently infected. Most likely, the application process will be delayed until the condition clears, unless it has resulted in long-term complications.
Travel is another factor being closely examined. The CDC maintains an updated list of travel recommendations by country. If youâve recently traveled to a high-risk country, or you plan to do so in the near future, you may be considered at higher risk for the coronavirus. How each insurance company handles this situation will vary. But your application may be delayed until youâve completed a recommended quarantine period.
Other Financial Areas to Consider that May be Affected
Since the coronavirus is still very much active in the US and around the world, financial considerations are in a constant state of flux. If youâre concerned at all about the impact of the virus on other insurance types, you should contact your providers for more information.
Other insurance policies that my warrant special consideration are:
Employer-sponsored life insurance. Thereâs not much to worry about here, since these are group plans. Your acceptance is guaranteed upon employment. The policy will almost certainly pay the death benefit, even if your cause of death is related to the virus.
Health insurance. Thereâs been no media coverage of health insurance companies refusing to pay medical claims resulting from the coronavirus. But if youâre concerned, contact your health insurance company for clarification.
Action Steps to Take in the Age of the Coronavirus
Many have been gripped by fear in the face of the coronavirus, which is mostly a fear of the unknown. But the best way to overcome fear is through positive action.
I recommend the following:
1. Be proactive about your health.
Since there is a connection between poor health and the virus, commit to improving your health. Maintain a proper diet, get regular exercise, and follow the CDC coronavirus guidelines on how to protect yourself.
2. If you need life insurance, buy it now.
Donât wait for a bout with the virus to take this step. It’s important for a number of reasons and the consequences of not having it can be severe. Compare the best life insurance companies to get started.
3. Consider no medical exam life insurance.
If you donât have the virus, and you want to do a policy as quickly as possible, no medical exam life insurance will be a way to get coverage almost immediately.
4. Look for the lowest cost life insurance providers.
Low cost means you can buy a larger policy. With the uncertainty caused by the coronavirus, having enough life insurance is almost as important as having a policy at all. Look into cheap term life insurance to learn more about what you can afford.
5. Keep a healthy credit score.
Did you know that your credit score is a factor in setting the premium on your life insurance policy? If so, you have one more reason to maintain a healthy credit score. One of the best ways to do it is by regularly monitoring your credit and credit score. There are plenty of services available to help you monitor your credit.
6. Make paying your life insurance premiums a priority
This action step rates a special discussion. When times get tough, and money is in short supply, people often cancel or reduce their insurance coverage. That includes life insurance. But that can be a major mistake in the middle of a pandemic. The coronavirus means that maintaining your current life insurance policies must be a high priority.
The virus and the uncertainty itâs generating in the economy and the job market are making finances less stable than theyâve been in years. Youâll need to be intentional about maintaining financial buffers.
7. Start an emergency fund.
If you donât already have one place, start building one today. If you already have one up and running, make a plan to increase it regularly.
You should also do what you can to maximize the interest youâre earning on your emergency fund. You should park your fund in a high-interest savings account, some of which are paying interest thatâs more than 20 times the national bank average.
8. Get Better Control of Your Debts
In another direction, be purposeful about paying down your debt. Lower debt levels translate into lower monthly payments, and that improves your cash flow.
If you donât have the funds to pay down your debts, there are ways you can make them more manageable.
For example, if you have high-interest credit card debt, there are balance transfer credit cards that provide a 0% introductory APR for up to 21 months. By eliminating the interest for that length of time, youâll be able to dedicate more of each payment toward principal reduction.
Still another strategy for lowering your debts is to do a debt consolidation using a low interest personal loan. Personal loans are unsecured loans that have a fixed interest rate and monthly payment, as well as a specific loan term. You can consolidate several loans and credit cards into a single personal loan for up to $40,000, with interest rates starting as low as 5.99%.
Related: The Best Life Insurance Companies
Weâve covered a lot of ground in this article. But thatâs because the coronavirus comes close to being an all-encompassing crisis. Itâs been said the coronavirus is both a health crisis and an economic crisis at the same time. It requires strategies on multiple fronts, including protecting your health, your finances, and your familyâs finances when youâre no longer around to provide for them.
Thatâs where life insurance comes into the picture. The basic process hasnât changed much from the coronavirus, at least not up to this point. But thatâs why itâs so important to apply for coverage now, before major changes are put into effect.
The post How Does Coronavirus Affect Life Insurance? appeared first on Good Financial CentsÂ®.
While Medicare and Medicaid both help aging adults afford some of their medical expenses, they may not cover the cost of an extended illness or disability. Thatâs where long-term care insurance comes into play. Long-term care insurance helps policyholders pay for their long-term care needs such as nursing home care. Weâll explain what long-term care insurance covers and whether or not such coverage is something you or your loved ones should consider.
Long-Term Care Insurance Explained
Long-term care insurance helps individuals pay for a variety of services. Most of these services do not include medical care. Coverage may include the cost of staying in a nursing home or assisted living facility, adult day care or in-home care. This includes nursing care, physical, occupational or speech therapy and help with day to day activities.
A long-term care insurance policy pays for the cost of care due to a chronic illness, a disability, or injury. It also provides an individual with the assistance they may require as a result of the general effects of aging. Primarily, though, long-term care insurance is designed to help pay for the costs of custodial and personal care, versus strictly medical care.
When You Should Consider Long-Term Care Insurance
During the financial planning process, itâs important to consider long-term care costs. This is important if you are close to retirement age. Unfortunately, if you wait too long to purchase coverage, it may be too late. Many applicants may not qualify if they already have a chronic illness or disability.
According to the U.S. Department of Health and Human Services, an adult turning 65 has a 70% chance of needing some form of long-term care. While only one-third of retirees may never need long-term care coverage, 20% may need it for five years or longer. With a private nursing home room averaging about $7,698 per month, long-term care could end up being a huge financial burden for you and your family.
Most health insurance policies wonât cover long-term care costs. Additionally, if youâre counting on Medicare to assist you with these extra expenses, you may be out of luck. Medicare doesnât cover long-term care or custodial care. Most nursing homes classify under the custodial care category. This classification of care includes the supervision of your daily tasks.
So, if you donât have long-term care insurance, youâre on the hook for these expenses. However, itâs possible to get help through Medicaid for low income families. But keep in mind, you may only receive coverage after you deplete your life savings. Just know that Medicare may cover short-term nursing care or hospice care, but little of the long-term care in between.
What Does Long Term Care Insurance Cover
So what does long term care insurance cover, Well, since the majority of long-term care policies are comprehensive policies, they may cover at-home care, adult day care, assisted living facilities (resident care or alternative care), and nursing home care. At home, long-term care may cover the cost of professional nursing care, occupational therapy, or rehabilitation. This may also include assistance with daily tasks, including bathing or brushing teeth.
Additionally, long-term care coverage can cover short-term hospice care for individuals who are terminally ill. The objective of hospice care is to help with pain management and provide emotional and physical support for all parties involved. Most policies allow beneficiaries to obtain care at a hospice facility, nursing home, or in the comfort of their own home. However, most hospice care is not considered long-term care and may receive coverage through Medicare.
Also, long-term care insurance can help cover the costs of respite care or temporary care. These policy extensions provide time off to those who care for an individual on a regular basis. Usually, respite care provides compensation to caregivers for 14 to 21 days a year. This care can take place at a nursing home, adult daytime care facility, or at home
What Long-Term Care Doesnât Cover
If you have a pre-existing medical condition, you may not be eligible for long-term care during the exclusion period. The exclusion period can last for several months after your initial purchase of the policy. Also, if a family member provides in-home care, your policy may not pay them for their services.
Keep in mind, long-term care coverage wonât cover medical care costs. Many of your medical costs will fall under your coverage plan if youâre eligible for Medicare.
Long-Term Care Insurance Costs
Some of the following factors may affect the cost of your long-term care policy:
The age of the policyholder.
The maximum amount the policy will pay per year.
The maximum number of days the policy will pay.
The lifetime maximum amount that the policy will pay
Any additional options or benefits you choose.
If youâre in poor health or youâre currently receiving long-term care, you may not qualify for a plan. However, itâs possible to qualify for a limited amount of coverage with a higher premium rate. Some group policies donât even require underwriting.
According to the American Association for Long-Term Care Insurance (AALTCI), a couple in their mid-50s can purchase a new long-term care policy for around $3,000 a year. The combined benefit of this plan would be roughly $770,000. Keep in mind, some policies limit your payout period. These payout limitations may be two to five years, while other policies may offer a lifetime benefit. This is an important consideration when finding the right policy.
While itâs highly likely that you may need some form of long-term care, itâs wise to consider how you will pay for this additional cost as you age. While a long-term care policy is a viable option, there are alternatives you can consider.
One viable choice would be to boost your retirement savings to help compensate for long-term care costs. Ultimately, it comes down to what level of risk youâre comfortable with and how well a long-term care policy fits into your bigger financial picture.
If youâre unsure what long-term care might mean to your retirement plans, consider consulting a financial advisor. Finding the right financial advisor that fits your needs doesnât have to be hard. SmartAssetâs free tool matches you with financial advisors in your area in 5 minutes. If youâre ready to be matched with local advisors that will help you achieve your financial goals, get started now.
The looming costs of long-term care may have you thinking about how much money youâll need for retirement. If you arenât sure how much your 401(k) or Social Security will factor into the equation, SmartAssetâs retirement guide can help you sort out the details.
Whether you are acquiring it through your employer or on your own, shopping for health insurance coverage is a task that many adults will be faced with at some point. Health coverage is not a one-size-fits all amenity, and it comes in many forms such as Point of Service (POS), Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) and more.
Buying health insurance is a big commitment, so do the research and look over all your options before making any hasty decisions. Technical information about different health insurance policies can be overwhelming, which is why seeking the help of a licensed insurance agent or a health insurance broker might be your best bet. In the following sections we will discuss ways you can prepare to meet with a health insurance agent as well as what questions to ask.
How to prepare to meet with a health insurance agent
Health insurance exists to protect us financially when we get sick or injured, which is why itâs so important for you to look at plans that fit the unique needs of you and your family. Whether you are an employer shopping for insurance plans for your employees, or just an individual browsing your options, choosing a caring agent who takes their job seriously is key to finding the right plan. To start, you will want to work with an insurance agent who is experienced, knowledgeable and trustworthy.
Finding the right agent to work with isnât the only important piece of the puzzle, youâll also want to do your part as well. Coming prepared to the appointment will help things run more smoothly and will ensure that you to ask the right questions.
Before meeting with the insurance agent, make sure that you:
Know how much you are willing to pay: Before your appointment with an insurance agency, you should consider how much risk you want to assume for yourself versus how much risk you want the insurance company to assume for you. In other words, would you rather make higher monthly insurance payments and have a lower deductible or would you rather pay a lower monthly insurance payment and have a higher deductible? If youâre okay with paying a hefty deductible during a medical crisis, then you might consider choosing a plan with a lower monthly payment. On the other hand, someone who needs more consistent medical care might opt for a plan with a lower deductible.
Research the insurance agency that you will be doing business with: Ask friends and loved ones for feedback on the agencies theyâve worked with and find out how their experience was. If you are an employer, do some research to see what agencies other companies do business with. The important thing is that you choose an agency that you trust.
Know what to bring with you: In order for the agent to help you the best they can, they will need to know as much information as possible about yours and your familyâs medical history. The agent will want to know about any of yours or your familyâs medical conditions and personal habits such as drinking, smoking, diet, etc. Call in advance and find out exactly what you need to bring. Be truthful and thorough so that your agent can find the best health insurance policy for you.
Make a list of the questions that you will want to ask: Itâs easy to get overwhelmed during these appointments. Writing down your questions will not only help you to be more organized, but it will also lower your chances of forgetting to bring up important topics.
Questions to ask your health insurance agents
Before meeting with a licensed insurance agent, you should write down a list of questions that you want to have answered during your appointment. Here are some questions you should be asking your agent about your insurance before buying:
How much will it cost? This is probably the most dreaded part of the conversation, but it has to be discussed! The overall cost of your health insurance policy will depend on your premium, deductible and out-of-pocket-max. When browsing through plans, youâll want to take notes on how much these three items will cost up front, because each plan varies in rates.
Premium: Health insurance premiums are rates that you will pay every month in order to secure your coverage. The initial payment you receive will be a premium, and will continue monthly.
Deductible: If your plan has a deductible of $2,000, then that means you will be responsible for paying the first $2,000 of health care before your plan begins covering certain costs. Once you pay your deductible, youâll pay significantly less for your health care.
Out-of-pocket max: This is basically the maximum amount of money that you will ever have to be responsible for paying while coveredâas long as you stay in-network, that is. Letâs say your out-of-pocket max is $5,000, but you end up needing surgery that costs $30,000. You would only have to worry about paying $5,000. Additionally, if youâve already reached your $2,000 deductible, then you would only have to pay $3,000. The purpose of an out-of-pocket max is to protect you from having to pay extremely expensive bills, but rememberâthe surgery would need to happen at a medical facility that is in-network.
Is my current doctor covered? If youâre already receiving health care, youâll want to know if your current doctor is a part of any prospective insurance companyâs network of health providers. This information should be fairly simple to find out but could be an important factor in your decision. If you are currently taking any medications, youâll also want to ask your agent to check the formulary to see if your prescriptions are covered.
Who do I contact when I have questions? Itâs important to find out if your prospective health insurance company has a customer service team you can call or message when you need to inquire about bills, claims, copays or anything else insurance-related. Does the company have a separate phone number to call when you want help finding a health care provider? Is this customer service line automated or will you be speaking to an actual insurance representative? These questions are important to determine what kind of support is available long after youâve signed a contract.
What happens during an emergency? When going to see a doctor for a normal visit, you have time to plan and make sure that the doctor is in-network. However, during an emergency, we may not have the same luxury. Itâs possible that in a case where you need dire medical attention, the closest health care provider may not be in-network. You should ask about your prospective companyâs policy on emergencies and what the standard routine consists of.
Questions to Ask When Shopping for Health Insurance is a post from Pocket Your Dollars.