Tag: emergency fund

The Best Way to Spend Your Paycheck

by Advantage One, posted in Budgeting, Career, Checking, Lifestyle, Saving, Tips & Best Practices, Uncategorized

Everyone loves payday, but too many employees don’t know how to allocate their paycheck in a way that best serves their financial needs. Use the tips outlined below to learn how to manage your paycheck responsibly. 

1. Automatically deduct contributions

Your first step in managing your paycheck is making sure you are deducting the optimal amounts. Your employer will likely deduct funds for your health care plan and taxes, but you can determine how much tax is withheld by changing a few elections on your W-4. If you receive too large a tax refund for the prior year, or you’re stuck with a big bill when you file, consider adjusting the amount withheld on your W-4. Also, be sure to take full advantage of any employer-matching offers for your retirement funds — don’t give up free money! 

2. Budget for necessities 

After your contributions are deducted from your paycheck, you’ll be left with your take-home pay, or net income. You’ll use this money for covering expenses until the next payday, so it’s best to budget first for necessities, such as your mortgage or rent payments, utility bills, insurance premiums, etc. You can use the “envelope system” to actually put cash away for necessities or set up a detailed old-fashioned budget, which prioritizes your needs. You can also choose to use the “50/30/20 budget” that sets aside 50% of your income for needs. 

  1. Budget for wants

Once you’ve set aside money for your needs, you can use some of the remaining funds for wants, or discretionary expenses. This can include entertainment costs, dining out and clothing, in addition to what you really need. Here, too, you can put away the cash you need for a spending category into an actual envelope, mark down the amount you can spend in that category on a paper or in an app budget, or simply keep in mind that 30% of your paycheck can be spent on these expenses. 

  1. Pay yourself 

Now that you’ve taken care of your needs and wants until the next paycheck, it’s time to think about the future. Put a percentage of the remaining funds into savings, including IRAs, college saving plans, CDs, investments, emergency funds and the like. Use your predetermined amounts, or 20% of your take-home pay, if using the 50/30/20 budget. If you have any outstanding consumer debt, be sure to pay toward it as well. 

  1. Don’t feel forced to spend it all

Many people mistakenly think they need to spend all of their paycheck before the next one arrives. If you’re left with extra money at the end of the month, there’s no need to waste it. You can beef up your savings, get ahead of your debt or stash some cash away for an expensive time of year, like the holiday season. 

Learning how to wisely manage a paycheck can take some time, but once you’ve got the hang of it, it will be easy and almost happen by itself. 

Your Turn: Do you have any tips on paycheck management? Share them with us in the comments.

Which Financial Steps Should I Take After a Divorce?

by Advantage One, posted in Budgeting, Lifestyle, News & Events, Saving, Tips & Best Practices, Uncategorized

Q: I’m going through a divorce, and one of my biggest stressors is identifying how I’m going to deal with my finances on my own. What steps do I need to take to ensure ongoing financial stability after a divorce?

A: Divorce can be difficult on many levels, and one of the most formidable challenges for most is the financial strain it causes. Making sense of your finances after a divorce takes work and time, but with proper planning and a responsible approach, it can be done. 

Here are 10 financial steps to take after a divorce:

1. Close all joint accounts

If you haven’t already taken this step, do so immediately. Review all your financial accounts and credit cards and close all the ones that are jointly owned by you and your ex-spouse. In the best-case scenario, failure to take this step can leave your accounts open to fines and maintenance charges for accounts you don’t really use. In the worst-case scenario, your ex-spouse can rack up huge bills on a shared credit card or leave a shared checking account in the red, leaving you to pick up the tab or risk ruining your credit score and financial health. 

2. Change beneficiaries on your savings and retirement accounts

This step is equally important and is also often forgotten about by divorced individuals until it’s too late. Neglecting to change the beneficiaries on your accounts after a divorce can mean your ex-spouse ends up inheriting your IRA, 401(k) or another savings account after you pass away. Changing the beneficiaries on each relevant account can be done quickly and easily with a single form. Look for the designation of “primary beneficiary” and “contingent beneficiary” on each account’s form and list your choice. 

3. Review your living trust and make any necessary changes

Don’t wait to review your living trust and estate plan or you may never make the necessary changes. Speak to your attorney for guidance. If your ex-spouse is the one who primarily dealt with the attorney and you’re looking for a new start, you can ask friends and family to recommend a new attorney you can use. 

4. Open new accounts

Once the divorce is finalized, you’ll want to open new accounts with your name exclusively listed as the owner. This includes credit cards, checking and savings accounts. Once you have new credit cards in your name, take steps to build up your credit quickly, like making regular, small purchases on your cards and paying the balance in full each month.

5. Update your insurance coverage

You don’t want to get stuck paying for coverage you don’t use — or worse, get stuck with no coverage at all. Review all your insurance policies, including life, health, auto and homeowner’s insurance, then change any plans that were shared with your ex-spouse. Pay particular attention to assets you may have listed in your homeowner’s policy as you may not own all of them any longer and each asset can increase your premium. Now that you are on your own, you may also want to consider taking out a disability insurance policy, which will provide you with the monthly equivalent of a paycheck if you become injured and are unable to work for an extended period of time. 

6. Build an emergency fund

Divorce is often expensive, and you may have wiped your savings clean after splitting up with your ex. Now that you are single again, it’s more important than ever to have a safety net that can tide you over in case of an emergency. You can open a new savings account at Advantage One Credit Union for just this purpose and save aggressively until you have enough to cover three to six months’ worth of expenses.

7. Adjust your budget to fit your new financial situation

You may have lost one stream of income in the divorce, but your everyday expenses will likely be considerably lower. On the other hand, you may have new expenses to cover, such as alimony and child support. Take the time to sit down and determine how your income and expenses have changed after the divorce, and then adjust your budget accordingly. 

8. Update all legal documents and records

If you’ve changed your legal name during the divorce, be sure to change the name of record on all your legal documents and accounts, including your driver’s license and Social Security number. You can contact your local DMV and the Social Security Administration for assistance. 

9. Purchase a new safe and shredder

If your ex walked away from the divorce with the safe and shredder, be sure to replace them as quickly as possible. A home safe is the best place to keep valuables and important documents, and shredding any documents containing sensitive information that you no longer need is an important part of protecting yourself from identity thieves.  

10. Analyze your investments

If your ex-spouse handled all the investing in your marriage, you’ll need to analyze your investments and create a new portfolio that fits your own investment style and needs. Consider working with an investment advisor for guidance.

Getting divorced can spell disaster for your finances, but it doesn’t have to be that way. By taking the steps outlined here you can keep your financial independence after a divorce.

Your Turn: Which financial steps have you taken after a divorce? Tell us about it in the comments. 

6 Steps to Crushing Debt

by Advantage One, posted in Budgeting, Credit, Debit, Lifestyle, Loans, Saving, Tips & Best Practices, Uncategorized

You and debt are so over. You’ve just about had it with those endless piles of credit card bills and those hideous numbers that never seem to get any lower. It’s time to kiss that debt goodbye!

Getting rid of high debt will take hard work, willpower and the determination to see it through until the end, but it is doable. Here, we’ve outlined six steps to help you start crushing debt today. 

Step 1: Choose your debt-crushing method

There are two approaches toward getting rid of debt: 

  • The snowball method, popularized by financial guru Dave Ramsey, involves paying off your debt with the smallest balance first and then moving to the next-smallest, until all debts have been paid off. 
  • The avalanche method involves getting rid of the debt that has the highest interest rate first and then moving on to the debt with the second-highest rate until all debts have been paid off. 

Each method has its advantages, with the snowball method placing a heavier emphasis on achieving results at a faster pace, which then motivates the debt-crusher to keep going, and the avalanche method, focusing more on actual numbers and generally saving the borrower money in overall interest paid on their debts. There’s no right approach, and you can choose whichever method appeals to you more.

Step 2: Maximize your payments

Credit card companies are out to make money, and they do this by making it easy to pay just the minimum payment each month, thus really paying only the interest without making progress on the actual principal, thereby trapping millions of consumers in a cycle of endless debt. Beat them at their game by maximizing your monthly payments. Free up some cash each month by trimming your spending in one budget category or consider freelancing for hire and channel those freed-up or newly earned funds toward the first debt on the list you created in Step 1. Don’t forget to continue making minimum payments toward your other debts each month!

Step 3: Consider a debt consolidation loan

If you’re bogged down by several high-interest debts and you find it difficult to manage them all, you may want to consider consolidating your debts into one low-interest loan. A personal loan from Advantage One Credit Union can provide you with the funds you need to pay off your credit card bills and leave you with a single, low-interest payment to make each month. Or, you can transfer your credit card balances to a single card with a low-interest or no-interest introductory period. Be aware, though, that you will likely get hit with high interest rates when the introductory period ends. 

Step 4: Build an emergency fund

As you work toward pulling yourself out of debt, it’s important to take preventative measures to ensure it won’t happen again. One of the best ways you can do this is by building an emergency fund. Ideally, this should hold enough funds to cover your living expenses for three to six months. Start small, squirrelling away whatever you can in a special savings account each month, and adding the occasional windfall, like a work bonus or tax return, to beef up your fund. 

Step 5: Reframe your money mindset

Sometimes, like when there’s a medical emergency or another unexpected and expensive life event, a consumer can get caught under a mountain of debt through no fault of their own. More often, though, there is a wrongful money mindset at play  leading the consumer directly into the debt trap. 

As you work on paying off your debts, take some time to determine what got you into this mess in the first place. Are you consistently spending above your means? Is there a way you can boost your salary or significantly cut down on expenses? Lifestyle changes won’t be easy, but living debt-free makes it all worthwhile. 

Step 6: Put away the plastic

Credit cards are an important component of financial health and the gateway to large, low-interest loans. However, when you’re working to free yourself from debt, it’s best to keep your cards out of sight and out of mind. You can set up a fixed monthly bill to charge one or more of your cards to keep them active, but only do this if you know you will pay off the charge in full before it’s due. Learning to pay your way using only cash and debit cards will also force you to be a more mindful spender. 

Kicking a pile of debt can take months, or even years, but there’s no life like a debt-free life. Best of luck on your journey toward financial freedom!

Your Turn: Have you kicked a significant amount of debt? Tell us how you did it in the comments. 

How Should I Spend My Stimulus Check?

by Advantage One, posted in Budgeting

Handwritten budget figures on notepadThe stimulus checks promised in the Coronavirus Aid, Relief and Economic Security (CARES) Act are starting to land in checking accounts and mailboxes around the country. The $1,200 granted to most middle class adults is a welcome relief during these financially trying times.

Many recipients may be wondering: What is the best way to use this money?
To help you determine the most financially responsible course of action to take with your stimulus check, Advantage One Credit Union has compiled a list of advice and tips from financial experts and advisers on how to use this money.

Cover your basic life expenses
First and foremost, make sure you can afford to cover your basic necessities. With millions of Americans out of work and lots of them still waiting for their unemployment insurance to kick in, many people are struggling to put food on their tables. Most financial experts agree that it’s best not to make any long-term plans for stimulus money until you can comfortably cover everyday expenses.

Charlie Bolognino, CFP and owner of Side-by-Side Financial Planning in Plymouth, Minn., says this step may necessitate creating a new budget that fits the times. With unique spending priorities in place, an absent or diminished income and many expenses, like subscriptions and entertainment costs, not being relevant any longer, it can be helpful to reconfigure an existing budget to better suit present needs. As always, basic necessities, such as food and critical bills, should be prioritized.

Build up your emergency fund
If you’ve already got your basic needs covered, start looking at long-term targets for your stimulus money.

“I would immediately place this money in my emergency fund account,” says Jovan Johnson, CEO of Piece of Wealth Planning in Atlanta.

Emergency funds should ideally be robust enough to cover 3-6 months’ worth of living expenses. If you already have an emergency fund, it may have been depleted during the pandemic and need some replenishing. If you don’t yet have an emergency fund, or your fund isn’t large enough to cover several months without a steady income, you may want to use some of the stimulus money to build it up so you have a cushion to fall back on during lean times that are likely to come in the months ahead.

Pay down high-interest debts
According to the Federal Reserve Bank, Americans owed a collective $930 billion in credit card debt during the fourth quarter of 2019. Using some of your stimulus check to pay off high-interest debt would be a great way to get a guaranteed return on the money, says Chris Chen, of Insight Financial Strategists in Newton, Mass.

This advice only applies to credit cards and other private, high-interest loans. The federal government put a 6-month freeze on most student loan debts, so they should not be as high a priority right now.

Boost your savings
If your emergency fund is already full and you’ve made headway on your debt, it can be a good idea to use some of the stimulus money to add to your Advantage One Credit Union savings account. The money in your savings can be used to cover long-term financial goals, such as funding a dream vacation or covering the down payment on a new home.

Consider all your options before choosing how to spend your stimulus money. In all likelihood, this will be a one-time payment received during the pandemic. If you need further assistance, feel free to reach out to us at 734-676-7000 or news@myaocu.com. We’ll be happy to help you maintain financial stability during these uncertain times.

Your Turn:
How are you spending your stimulus check? Tell us about it in the comments.

Learn More:
marketwatch.com
bankrate.com

Step 4 of 12 Toward A Debt-Free Life: Create An Emergency Fund

by Advantage One, posted in Budgeting, Tips & Best Practices

Young caucasian woman working at modern deskYou may be feeling impatient to start more aggressively paying down debt, but it’s important to first create an emergency fund. If you don’t have money socked away for unexpected expenses, you’ll be tempted to use the money that’s already earmarked for your debt payments to fund this expense.

Experts recommend keeping three months’ worth of living expenses in an emergency fund, but you can start with a modest $1,000. Set up an automatic monthly or weekly transfer from your [credit union] Checking Account to your Savings Account until you have a fully padded emergency fund. This may take several months, but no worries, you can continue following the next few steps towards a debt-free life as your emergency fund grows.

Your Turn:
Why do you think it’s so important to have an emergency fund? Share your thoughts with us in the comments.

Do I Need An Emergency Fund And A Rainy Day Fund?

by Advantage One, posted in Saving, Tips & Best Practices

Close up of the side of a glass jar of money containg bills and coins and labeled "Emergency Fund"Q: Do I need to have a separate rainy day fund and emergency fund?

A: In an effort to simplify their money, people sometimes consolidate accounts. This is OK in many instances, but it’s important to remember that rainy day funds and emergency funds serve different purposes. Additionally, it’s important to have not just one, but both funds available to tap into as needed.

Read on for all your questions on rainy day and emergency funds, answered.

Why have a rainy day fund?
Say your washing machine decides to suddenly quit on you and needs replacing. You’re now looking at an extra expense that can run anywhere from $350-$850 (or more). Where are you going to get that kind of money in a pinch?

According to a Federal Reserve Board report, if you’re like 44% of Americans, you’ll need to sell something you own or borrow money to fund such an unexpected expense. Or, you might choose to charge the purchase of a new washing machine to a credit card, which means you’ll pay extra in interest and the cost of the new machine will be haunting you for months—or even years—to come. Either way, a surprise expense of a few hundred dollars can be enough to send you into a tailspin of debt.

Is there a solution?
Here’s where your rainy day fund comes in. It’s a small savings account created just for these types of small, unfixed expenses that you know will crop up on occasion. You’ll tap into your rainy day fund to pay for minor household and car repairs, to cover the cost of summer camp for your child, or to replace your broken kitchen table. When you have a way to fund these small financial hiccups, they won’t have as much of a chance to disrupt your financial health.

Why have an emergency fund?
In contrast to your rainy day fund, an emergency fund is for much larger expenses. It should have enough padding to keep you afloat even if you experience a major disruption in your life, like a divorce, job loss or illness. Without an emergency fund, any of these, or a similar event, can leave you scrambling to pay your bills and quickly send you into a debt trap that can last years.

How much money should be in each fund?
Your rainy day fund, created for minor expenses, only needs to hold $500-$1,000. That should be enough to tide you over in the event of a small, unfixed expense.

Sometimes, you may be able to anticipate these expenses and save up for them accordingly. For example, if you know your child will need braces next year or that your HVAC system will need replacing in a year or two, you can build up your rainy day fund over the next several months until it has enough to fund these anticipated expenses.

Your emergency fund, however, should be positioned to pull you through major financial crises. That’s why you will need to have a lot more money in the account. Ideally, it should hold 3-6 months’ worth of your living expenses. This value will vary according to circumstance and can be anywhere from $3,000-$10,000 or more. Find your own magic number by tracking all your fixed and discretionary expenses for a month and multiplying that amount by 3 or 6.

Where should I keep these funds?
By definition, the cash in both of these funds needs to be easily accessible. Don’t lock the money up in a Savings Certificate or another long-term savings account that will make it difficult and/or expensive to withdraw when the need arises.

Your Advantage One Savings Account is a perfect home for both your rainy day fund and your emergency fund. You can even set up multiple accounts for each one. Your money is always safe here, and federally insured by the NCUA up to $250,000. Best of all, you’re free to withdraw your funds without penalty whenever you need to do so.

How can I build my funds?
You’re convinced: You need an emergency fund and a rainy day fund. But how are you going to get the money for both? If you’ve never saved up for unexpected expenses before, the prospect of doing so can be daunting.

No worries, though. With a bit of discipline and hard work it can be done! Use these three tips to build your funds:

  • Start a side hustle. Freelance for hire, take online surveys for spare cash or accept a seasonal position. Keep all or most of the extra money you pull in for your funds, making equal contributions to each fund.
  • Trim your budget. Take a long hard look at where your money goes each month and choose your biggest money-gobbler to be pruned. Use the money you save for your funds.
  • Make it automatic. Set up an automatic transfer from your Checking Account to your Savings Accounts so your funds grow on autopilot and are less tempting to use for fun.

It may be some time before your funds are fully padded, but that’s OK. It takes time to save up that kind of money, and hopefully you won’t need to tap into your savings until you’ve successfully built your funds.

Also, you won’t need to stick to your tightened budget or keep your extra job forever; you can drop both as soon as your funds are built, taking them up again only when the money in one of the funds is depleted.

Start setting up your rainy day and emergency funds today! You’ll sleep better at night knowing you’re prepared for any financial eventuality.

Your Turn:
Do you have a rainy day fund and an emergency fund, or do you use the same source to fund any extra expense? Share your take with us in the comments below.

SOURCES:
https://www.thebalance.com/do-you-need-a-rainy-day-fund-and-an-emergency-fund-4178821

https://www.aarp.org/money/credit-loans-debt/info-08-2011/rainyday-fund-emergency-fund.html

https://www.nerdwallet.com/blog/banking/why-you-should-save-a-rainy-day-fund-and-an-emergency-fund/