Think I'm getting a refund this year (fingers crossed, breath held, all that jazz) and, in thinking about what I spent my refund on last year, I realized I totally blew it.
How can I actually save (beyond, you know, not spending it) or maybe even grow this possible/hopeful check?
For some context, I wanna buy a house at some point in my life, I should probably get rid of my car loan at some point, and I have some credit card debt. Seriously, what should I do?
1. Put a portion of it in a savings account or ETF or index fund, that doesn't let you withdraw it for 3 months and add to that slowly. That way the temptation to spend doesn't get in the way.
2. I use a free app called Acorns that automatically invests it in a few different investment portfolios from conservative to aggressive. They make it easy to put in small deposits and work your way up. You can put in as little as $5 or as much as you want.
Agree with the suggestions already made. Something additional to consider is dividing your refund up into percentages according to your financial goals. For example, if you have credit card debt, but would also like to save for an emergency, you may consider an 80/20 split. 80% goes to your credit card debt that's also accruing interest (costing you money), and use the remaining 20% to start an emergency fund using a high-yield savings account (earning you money). For emergencies, you'll want something that's easily accessible, but if you're trying to save for retirement, ETFs are probably more ideal.
first, you need to pay all of your debts down! that is key. you cannot save when you are constantly putting out. Discipline is denying yourself now, so that your future self can have better.
You can also save as much as 20 a week in an account that you do not have access to and forget about it and let it grow.
Look into Financial Peace University. They have a website where you can get great information and resources. First thing, pay off your debt. Budget for every dollar and account for pocket money (eating out, movies, etc...you may need to cut back in order to pay down debt faster...be disciplined and aggressive). Use the snowball effect. Pay your smallest debt first (lets say it's a department store credit card) and pay the minimum payment on the rest. Once your smallest debt is paid off, roll over the amount you were paying on your department store credit card to the next smallest debt on top of the minimum balance. Remember that every dollar counts. Look for ways to save and use that money to pay off debt. Once your debt is paid off then begin to save aggressively. During this time, do your research on the housing market and decide where you would like to buy. Find out what you can actually afford (not what you "qualify" for which is usually much higher then what people can actually afford). Factor in the % you would need to put down to get the monthly mortgage payment that you can afford. Factor in HOA fees, maintenance and all other bills that come with owning your home. Always aim to have at least $2,000 - $4,000 in a savings account for emergencies. Good luck!
All good advice. I am in the pay down debt group.
You cant get ahead if you are paying 12%, 14%, 18$, or worse 24% interest!
Pay down that debt and you just MADE 12%, 14%, 18% or 24% interest!
Then take the money you WERE using to pay that monster and have it automatically deducted from your bank account monthly and deposited into a no load mutual fund, my favorite something like the Fidelity Contrafund, or a mix of Large Cap and Small Cap aggressive growth funds. I am assuming you are under 50. You are smart to realize doing this will be good for your financial well being in the long run. Good Luck!
All great advice here! Paying down your debt will raise your credit score. Live very frugally, for instance, we're mostly vegetarian due to bills, esp this month. Our credit score is 800+. The higher your credit score, the lower the interest rates on housing loans. A lot of major banks (Chase, etc), have a way of checking your credit score whenever you want without credit score penalties. If you don't have that I think you can sign up for Credit Journey which is by transamerica & you can get your score. GL!
First, have an emergency fund. Afterwards, consider the fact the stock market will get you 6-10% with index funds or blue chip technology stocks (Microsoft, Apple, Amazon, Google; Facebook might be good as well, since it recently took a decent tumble). So, anything that costs you more than 6-10% you need to pay off first (credit card debt), anything below 6-10% you should just pay on schedule (if you have an auto at 3%, that's very cheap money, doesn't make sense to pay faster than the schedule), so take whatever remains after the high interest loans are paid and put the money in the market.
1. Pay off the credit cards then the student loans. If you have balances on multiple cards, pay off the one with the smallest balance first so you feel the progress. Then....
2. Build an emergency fund, shoot for 6 to 8 months of expenses. No job is safe in this economy. Then....
3. Start building wealth. Like saving for the house. Find a house you can afford without living in poverty for everything else. Worst house in the neighborhood you want to live in and then put some sweat equity into it. Especially if you have handy friends and family. Investments are good, too.
I use an app called YouNeedABudget.com. It is an online checkbook AND budgeting tool. It was the only app I could find in 2016 that did both. There may be others now, but I've found no reason to change.
I concur with all the above advice with one exception:
I would pay off debt before I buy stocks, mutual finds or ETF’s. Why?
As Steve L noted, if you pay off a loan with 18% interest, you have effectively earned a guaranteed 18% return. You have no such guarantee in the financial markets. Once all credit card and installment debt (car loan) is paid, I would save for a down payment on a home.
Also as noted above, you should balance a 6-12 month emergency fund with paying off your debt.
Finally, I would deploy savings in an internet bank. As of today, one can earn over 2% in an internet bank such as American Express. and CITI.
Good job everyone!