What would you do if you were laid off from your job today? This question isn’t meant to make you want to hide under your desk, but to encourage you to evaluate your circumstances. What would happen to your financial situation if you suddenly didn’t have an income to rely on?
While it’s not exactly fun to plan ahead for life’s hardshipsâsay, your car breaking down or losing a jobâdoing so can help you stay afloat financially and avoid taking on debt to remedy an already tense situation.
What can you do to prepare your budget for a layoff? These four steps will help you prepare your budget for a layoff and survive a layoff financially:
1. Put some of your paycheck into savings
In order to prepare your budget for a layoff, one of the best things you can do is learn to live on less when you have your typical paychecks coming in. Living paycheck to paycheck is a reality for many, and a habit many promise to break once they earn more. If you can afford it, consider trying to live off only a portion of your paycheck. That way, you can always depend on having extra money to fall back on in the event of a hardship, like a layoff.
Jill Caponera, a consumer savings expert at coupon platform Promocodes.com, suggests paying yourself firstâputting some of each paycheck into savings before you spend any of itâin order to save for an unexpected job loss.
“Put money directly into your savings account the moment you get paid so that you’re never in a position where you’re strapped during a true financial emergency,” Caponera says. Try scheduling an automatic recurring transfer from checking to savings that hits after each payday, or create a direct deposit to savings from each paycheck through your employer.
If living on less isn’t feasible for you right now, start small and focus on taking baby steps to prepare your budget for a layoff. You could start with a money savings challenge and a more attainable goal, like living off of 97 percent of your paycheck and saving the remaining 3 percent. This means that if your take-home pay is $4,000 a month, your goal is to put 3 percent, or $120, into savings monthly and then limit your bills and spending to $3,880. As you get accustomed to that amount, gradually increase the percentage of your paycheck you save each period. Some budgeting experts suggest saving at least 20 percent of your income and living off of the other 80 percent.
If you devote even a small percentage of your paycheck to savings before the bills and discretionary expenses roll in, saving will eventually become habit. You’ll get used to budgeting only with your post-savings take-home pay, and you won’t miss the savings portion of your paycheck.
âPut money directly into your savings account the moment you get paid so that you’re never in a position where you’re strapped during a true financial emergency.”
2. Save 3 to 6 months of expenses in an emergency fund
Once you’ve gotten used to regularly saving a portion of your income, you can save for an unexpected job loss by building up a solid emergency fund over timeâespecially if you are using an online savings account with a high interest rate. An emergency fund is a dedicated savings account that you only touch in the event of financial hardship, such as a medical emergency or job loss.
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Christian Stewart, founder of financial coaching site Do Better Financial, recommends having an emergency fund of three to six months of expenses to help you survive a layoff financially.
“The goal is to make sure all your bases are covered, meaning you can pay the bills and proceed with a relatively normal life until you find another job,” Stewart says. She notes the actual amount of money you need to save for an unexpected job loss will vary based on your lifestyle, employment industry and willingness to relocate, since this can dictate how long it could take to find another job.
To build an emergency fund and save for an unexpected job loss, Stewart recommends starting a zero-based budget. This form of budgeting gives every dollar you earn a job, such as paying a bill, funding your emergency account or financing fun and discretionary expenses. In addition to making your emergency fund a priority, this budgeting strategy helps you identify exactly how much you spend within each budget category each month. You can then find areas of careless spendingâperhaps an unused subscription serviceâwhere you could stand to cut back. You could redistribute those dollars to your emergency fund.
“In the event of a layoff, you will have a clear line of sight to regular areas of your spending that can be cut if it takes longer to find a new job,” Stewart says.
After you’re comfortable with the size of your emergency fund and feel like you can survive a layoff financially, you can use any extra savings for a different financial goal, such as saving for retirement or a down payment on a car or home.
3. Find income from a side hustle
Another way to survive a layoff financially is to have a side gig in place. Contrary to what some believe, side hustles do not have to take up an onerous amount of your time. There are actually many side hustles you can do while working full time, such as freelancing in your current field, driving for a rideshare app or tutoring.
Not only do side jobs create extra cash flow to devote toward savings or debt repayment when you have a full-time job, they also give you an added layer of security to help you save for an unexpected job loss. You might not be able to replace your full-time earnings with your music lesson business, but it can provide you with some predictable cash flow while you interview for a new position.
You could even turn your side hustle into a full-time job if you have a passion project you’ve been wanting to turn into a career. Alternatively, your side hustle turned full-time gig could help maintain your income stream if you plan to take additional time off after a layoffâif you decide to go back to school or make a move to a new industry, for example.
4. Know where to turn for assistance
Being laid off can be a traumatic experience, and if it does happen, it is important to know where to turn and how to make decisions that aren’t rooted in fear or emotion.
“Sit down with a level-headed friend, spouse and/or counselor to process your new financial reality,” Stewart of Do Better Financial says. “If you’re receiving a compensation package, do yourself a favor and work out beforehand where the money will be spent and how long you need it to last.”
Speaking of work benefits, make sure you utilize all of the benefits possible before your layoff goes into full effect, such as getting an annual physical through your health insurance plan.
âSit down with a level-headed friend, spouse and/or counselor to process your new financial reality. If you’re receiving a compensation package, do yourself a favor and work out beforehand where the money will be spent and how long you need it to last.”
“If you’ve been laid off, or are expecting an upcoming layoff, you should immediately contact your state’s unemployment office to set up your account and start receiving your compensation,” consumer savings expert Caponera says. “While these benefits won’t pay as much as your full-time salary, these funds will certainly help to cover your monthly bills and living expenses while you continue to look for work.”
Each state has different benefits and paperwork requirements, so make sure you’re using your state’s government website to learn more and to survive a layoff financially.
Prepare your budget for a layoff
Facing a layoff can be emotionally and financially draining, especially if you don’t see it coming. The most important thing is to start planning ahead, and prepare your budget for a layoff before it happens.
The post A Step-by-Step Guide to Prepare Your Budget for a Layoff appeared first on Discover Bank – Banking Topics Blog.
If you have an irregular income, you know how great the good times feelâand how difficult the lean times can be. While you can’t always control when you get paid or the size of each paycheck if you’re a freelancer, contractor or work in the gig economy, you can take control of your money by creating a budget that will help you manage these financial extremes.
Antowoine Winters, a financial planner and principal at Next Steps Financial Planning, LLC, says creating a budget with a variable income can require big-picture thinking. You may need to spend time testing out different methods when you first start budgeting, but, âif done correctly, it can really empower you to control your life,” Winters says.
How do you budget on an irregular income? Consider these four strategies to help you budget with a variable income and gain financial confidence:
1. Determine your average income and expenses
If you want to start budgeting on a fluctuating income, you need to know how much money you have coming in and how much you’re spending.
Of course, that’s the basis for any budget. But it can be particularly important if you’re trying to budget on an irregular income because you may have especially high- or low-income periods. You want to start tracking as soon as possible to build up accurate data on your average income and expenses.
For example, once you have six months’ worth of income and expenses documented, you can divide the total by six to determine your average income and expenses by month.
Many financial apps and websites can help with the tracking, including ones that can connect to your online bank and credit card accounts and automatically pull in your transactions. You may even be able to pull in previous months’ or years’ worth of data, which you can use to calculate your averages.
If you’re budgeting on a fluctuating income and apps aren’t your thing, you can use a spreadsheet or even a pen and notebook to track your cash flow. However, without automated tracking, it can be difficult to consistently keep your information up to date.
2. Try a zero-sum budget
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget,” says Holly Johnson. As a full-time freelance writer, she’s been budgeting with a variable income for over seven years and is the coauthor of the book Zero Down Your Debt.
With a zero-sum budget, your income and expenses should even out so there’s nothing left over at the end of the month. The trick is to treat your savings goals as expenses. For example, your “expenses” may include saving for an emergency, vacation or homeownership.
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget.”
Johnson says if you’re budgeting on a fluctuating income, you can adopt the zero-sum budget by creating a “salary” for yourself. Consider your average monthly expenses (shameless plug for tip 1) and use that number as your baseline.
For example, if your monthly household bills, groceries, business expenses, savings goals and other necessities add up to $4,000, that’s your salary for the month. During months when you make over $4,000, put the extra money into a separate savings account. During months when you make less than $4,000, draw from that account to bring your salary up to $4,000.
“We call this fund the ‘boom and bust’ fund,” Johnson says. “By building up an adequate amount of savings, you will create a situation where you can pay yourself the salary you need each month.”
3. Separate your saving and spending money
Physically separating your savings from your everyday spending money may be especially important when you’re creating a budget on an irregular income. You may be tempted to pull funds from your savings goals during low-income months, and stashing your savings in a separate, high-yield savings account can force you to pause and think twice before dipping in.
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An easy way to put this tip into action when creating a budget with a variable income is to have all of your income deposited into one account, then disburse it into separate savings and spending accounts. “Transfer a set amount on the first of every month to a bill-paying account and a set amount to a spending account,” Winters, the financial planner, says.
“The bill pay account is used to pay for all of the regular expenses, like rent, insurance, car payments, student loans, etc.,” Winters says. These bills generally stay the same each month. The spending account can be used for your variable expenses, such as groceries and gas.
When considering your savings accounts, Winters also suggests funding a retirement account, such as an Individual Retirement Account (IRA).
If you’re budgeting on a fluctuating income as a contract worker or freelancer, you may also want to set money aside for taxes because the income and payroll taxes you’ll owe aren’t automatically taken out of your paychecks.
4. Build up your emergency fund
“The best way to weather low-income periods is to prepare with an adequate emergency fund,” freelancer Johnson says. An emergency fund is money you set aside for necessary expenses during an emergency, such as a medical issue or broken-down vehicle.
Generally, you’ll want to save up enough money to cover three to six months of your regular expenses. Once you build your fund, you can put extra savings toward other financial goals.
When you’re budgeting on a fluctuating income, having the emergency fund can help you feel more at ease knowing that you’ll be able to pay your necessary bills if the unexpected happens or when you’re stuck in a low-income period for longer than anticipated.
A budget can make living with a variable income easier
It can be challenging to budget on an irregular income, especially when you’re first starting. You might have to cut back on expenses for several months to start building up your savings and try multiple budgeting methods before finding the one that works best for you.
“Budgeting requires a mindset change regardless of which type of budget you try,” Johnson explains.
“The best way to weather low-income periods is to prepare with an adequate emergency fund.”
However, once in place, a budget on an irregular income can also help free you from worrying about the boom-and-bust cycle that many variable-income workers deal with throughout the year.
The goal is to get to the point where you can budget with a variable income and don’t have to worry about when you’ll get paid next because you set your budget based on your averages, planned ahead during the high times and have savings ready for your low times.
The post 4 Tricks for Budgeting on a Fluctuating Income appeared first on Discover Bank – Banking Topics Blog.
You probably donât need us to tell you that the earlier you start saving for retirement, the better. But letâs face it: For a lot of people, the problem isnât that they donât understand how compounding works. They start saving late because their paychecks will only stretch so far.
Whether youâre in your 20s or your golden years are fast-approaching, saving and investing whatever you can will help make your retirement more comfortable. Weâll discuss how to save for retirement during each decade, along with the hurdles you may face at different stages of life.
How Much Should You Save for Retirement?
A good rule of thumb is to save between 10% and 20% of pre-tax income for retirement. But the truth is, the actual amount you need to save for retirement depends on a lot of factors, including:
Your age. If you get a late start, youâll need to save more.
Whether your employer matches contributions. The 10% to 20% guideline includes your employerâs match. So if your employer matches your contributions dollar-for-dollar, you may be able to get away with less.
How aggressively you invest. Taking more risk usually leads to larger returns, but your losses will be steeper if the stock market tanks.
How long you plan to spend in retirement. Itâs impossible to predict how long youâll be able to work or how long youâll live. But if you plan to retire early or people in your family often live into their mid-90s, youâll want to save more.
How to Save for Retirement at Every Age
Now that youâre ready to start saving, hereâs a decade-by-decade breakdown of savings strategies and how to make your retirement a priority.
Saving for Retirement in Your 20s
A dollar invested in your 20s is worth more than a dollar invested in your 30s or 40s. The problem: When youâre living on an entry-level salary, you just donât have that many dollars to invest, particularly if you have student loan debt.
Prioritize Your 401(k) Match
If your company offers a 401(k) plan, a 403(b) plan or any retirement account with matching contributions, contribute enough to get the full match â unless of course you wouldnât be able to pay bills as a result. The stock market delivers annual returns of about 8% on average. But if your employer gives you a 50% match, youâre getting a 50% return on your contribution before your money is even invested. Thatâs free money no investor would ever pass up.
Pay off High-Interest Debt
After getting that employer match, focus on tackling any high-interest debt. Those 8% average annual stock market returns pale in comparison to the average 16% interest rate for people who have credit card debt. In a typical year, youâd expect a $100 investment could earn you $8. Put that $100 toward your balance? Youâre guaranteed to save $16.
Take More Risks
Look, weâre not telling you to throw your money into risky investments like bitcoin or the penny stock your cousin wonât shut up about. But when you start investing, youâll probably answer some questions to assess your risk tolerance. Take on as much risk as you can mentally handle, which means youâll invest mostly in stocks with a small percentage in bonds. Donât worry too much about a stock market crash. Missing out on growth is a bigger concern right now.
Build Your Emergency Fund
Building an emergency fund that could cover your expenses for three to six months is a great way to safeguard your retirement savings. That way you wonât need to tap your growing nest egg in a cash crunch. This isnât money you should have invested, though. Keep it in a high-yield savings account, a money market account or a certificate of deposit (CD).
Tame Lifestyle Inflation
We want you to enjoy those much-deserved raises ahead of you â but keep lifestyle inflation in check. Donât spend every dollar each time your paycheck gets higher. Commit to investing a certain percentage of each raise and then use the rest as you please.
Saving for Retirement in Your 30s
If youâre just starting to save in your 30s, the picture isnât too dire. You still have about three decades left until retirement, but itâs essential not to delay any further. Saving may be a challenge now, though, if youâve added kids and homeownership to the mix.
Invest in an IRA
Opening a Roth IRA is a great way to supplement your savings if youâve only been investing in your 401(k) thus far. A Roth IRA is a solid bet because youâll get tax-free money in retirement.
In both 2020 and 2021, you can contribute up to $6,000, or $7,000 if youâre over 50. The deadline to contribute isnât until tax day for any given year, so you can still make 2020 contributions until April 15, 2021. If you earn too much to fund a Roth IRA, or you want the tax break now (even though it means paying taxes in retirement), you can contribute to a traditional IRA.
Your investment options with a 401(k) are limited. But with an IRA, you can invest in whatever stocks, bonds, mutual funds or exchange-traded funds (ETFs) you choose.
Pro Tip
If you or your spouse isnât working but you can afford to save for retirement, consider a spousal IRA. Itâs a regular IRA, but the working spouse funds it for the non-earning spouse.Â
Avoid Mixing Retirement Money With Other Savings
Youâre allowed to take a 401(k) loan for a home purchase. The Roth IRA rules give you the flexibility to use your investment money for a first-time home purchase or college tuition. Youâre also allowed to withdraw your contributions whenever you want. Wait, though. That doesnât mean you should.
The obvious drawback is that youâre taking money out of the market before itâs had time to compound. But thereâs another downside. Itâs hard to figure out if youâre on track for your retirement goals when your Roth IRA is doing double duty as a college savings account or down payment fund.
Start a 529 Plan While Your Kids Are Young
Saving for your own future takes higher priority than saving for your kidsâ college. But if your retirement funds are in shipshape, opening a 529 plan to save for your childrenâs education is a smart move. Not only will you keep the money separate from your nest egg, but by planning for their education early, youâll avoid having to tap your savings for their needs later on.
Keep Investing When the Stock Market Crashes
The stock market has a major meltdown like the March 2020 COVID-19 crash about once a decade. But when a crash happens in your 30s, itâs often the first time you have enough invested to see your net worth take a hit. Donât let panic take over. No cashing out. Commit to dollar-cost averaging and keep investing as usual, even when youâre terrified.
Saving for Retirement in Your 40s
If youâre in your 40s and started saving early, you may have a healthy nest egg by now. But if youâre behind on your retirement goals, now is the time to ramp things up. You still have plenty of time to save, but youâve missed out on those early years of compounding.
Continue Taking Enough Risk
You may feel like you can afford less investment risk in your 40s, but you still realistically have another two decades left until retirement. Your money still has â and needs â plenty of time to grow. Stay invested mostly in stocks, even if itâs more unnerving than ever when you see the stock market tank.
Put Your Retirement Above Your Kidsâ College Fund
You can only afford to pay for your kidsâ college if youâre on track for retirement. Talk to your kids early on about what you can afford, as well their options for avoiding massive student loan debt, including attending a cheaper school, getting financial aid, and working while going to school. Your options for funding your retirement are much more limited.
Keep Your Mortgage
Mortgage rates are historically low â well below 3% as of December 2020. Your potential returns are much higher for investing, so youâre better off putting extra money into your retirement accounts. If you havenât already done so, consider refinancing your mortgage to get the lowest rate.
Invest Even More
Now is the time to invest even more if you can afford to. Keep getting that full employer 401(k) match. Beyond that, try to max out your IRA contributions. If you have extra money to invest on top of that, consider allocating more to your 401(k). Or you could invest in a taxable brokerage account if you want more flexibility on how to invest.
Meet With a Financial Adviser
Youâre about halfway through your working years when youâre in your 40s. Now is a good time to meet with a financial adviser. If you canât afford one, a financial counselor is typically less expensive. Theyâll focus on fundamentals like budgeting and paying off debt, rather than giving investment advice.
Saving for Retirement in Your 50s
By your 50s, those retirement years that once seemed like they were an eternity away are getting closer. Maybe thatâs an exciting prospect â or perhaps it fills you with dread. Whether you want to keep working forever or retirement canât come soon enough, now is the perfect time to start setting goals for when you want to retire and what you want your retirement to look like.
Review Your Asset Allocation
In your 50s, you may want to start shifting more into safe assets, like bonds or CDs. Your money has less time to recover from a stock market crash. Be careful, though. You still want to be invested in stocks so you can earn returns that will keep your money growing. With interest rates likely to stay low through 2023, bonds and CDs probably wonât earn enough to keep pace with inflation.
Take Advantage of Catch-up Contributions
If youâre behind on retirement savings, give your funds a boost using catch-up contributions. In 2020 and 2021, you can contribute:
$1,000 extra to a Roth or traditional IRA (or split the money between the two) once youâre 50
$6,500 extra to your 401(k) once youâre 50
$1,000 extra to a health savings account (HSA) once youâre 55.
Work More if Youâre Behind
Your window for catching up on retirement savings is getting smaller now. So if youâre behind, consider your options for earning extra money to put into your nest egg. You could take on a side hustle, take on freelance work or work overtime if thatâs a possibility to bring in extra cash. Even if you intend to work for another decade or two, many people are forced to retire earlier than they planned. Itâs essential that you earn as much as possible while you can.
Pay off Your Remaining Debt
Since your 50s is often when you start shifting away from high-growth mode and into safer investments, now is a good time to use extra money to pay off lower-interest debt, including your mortgage. Retirement will be much more relaxing if you can enjoy it debt-free.
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Saving for Retirement in Your 60s
Hooray, youâve made it! Hopefully your retirement goals are looking attainable by now after working for decades to get here. But you still have some big decisions to make. Someone in their 60s in 2021 could easily spend another two to three decades in retirement. Your challenge now is to make that hard-earned money last as long as possible.
Make a Retirement Budget
Start planning your retirement budget at least a couple years before you actually retire. Financial planners generally recommend replacing about 70% to 80% of your pre-retirement income. Common income sources for seniors include:
Social Security benefits. Monthly benefits replace about 40% of pre-retirement income for the average senior.
Retirement account withdrawals. Money you take out from your retirement accounts, like your 401(k) and IRA.
Defined-benefit pensions. These are increasingly rare in the private sector, but still somewhat common for those retiring from a career in public service.
Annuities. Though controversial in the personal finance world, an annuity could make sense if youâre worried about outliving your savings.
Other investment income. Some seniors supplement their retirement and Social Security income with earnings from real estate investments or dividend stocks, for example.
Part-time work. A part-time job can help you delay dipping into your retirement savings account, giving your money more time to grow.
You can plan on some expenses going away. You wonât be paying payroll taxes or making retirement contributions, for example, and maybe your mortgage will be paid off. But you generally donât want to plan for any budget cuts that are too drastic.
Even though some of your expenses will decrease, health care costs eat up a large chunk of senior income, even once youâre eligible for Medicare coverage â and they usually increase much faster than inflation.
Develop Your Social Security Strategy
You can take your Social Security benefits as early as 62 or as late as age 70. But the earlier you take benefits, the lower your monthly benefits will be. If your retirement funds are lacking, delaying as long as you can is usually the best solution. Taking your benefit at 70 vs. 62 will result in monthly checks that are about 76% higher. However, if you have significant health problems, taking benefits earlier may pay off.
Pro Tip
Use Social Securityâs Retirement Estimator to estimate what your monthly benefit will be.
Figure Out How Much You Can Afford to Withdraw
Once youâve made your retirement budget and estimated how much Social Security youâll receive, you can estimate how much youâll be able to safely withdraw from your retirement accounts. A common retirement planning guideline is the 4% rule: You withdraw no more than 4% of your retirement savings in the first year, then adjust the amount for inflation.
If you have a Roth IRA, you can let that money grow as long as you want and then enjoy it tax-free. But youâll have to take required minimum distributions, or RMDs, beginning at age 72 if you have a 401(k) or a traditional IRA. These are mandatory distributions based on your life expectancy. The penalties for not taking them are stiff: Youâll owe the IRS 50% of the amount you were supposed to withdraw.
Keep Investing While Youâre Working
Avoid taking money out of your retirement accounts while youâre still working. Once youâre over age 59 ½, you wonât pay an early withdrawal penalty, but you want to avoid touching your retirement funds for as long as possible.
Instead, continue to invest in your retirement plans as long as youâre still earning money. But do so cautiously. Keep money out of the stock market if youâll need it in the next five years or so, since your money doesnât have much time to recover from a stock market crash in your 60s.
A Final Thought: Make Your Retirement About You
Whether youâre still working or youâre already enjoying your golden years, this part is essential: You need to prioritize you. That means your retirement savings goals need to come before bailing out family members, or paying for college for your children and grandchildren. After all, no one else is going to come to the rescue if you get to retirement with no savings.
If youâre like most people, youâll work for decades to get to retirement. The earlier you start planning for it, the more stress-free it will be.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].
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.
Deia Schlosberg had been working as an environmental educator, teaching students about issues concerning conservation and sustainability. While she loved teaching, she wanted to reach people on a larger scale about the importance of protecting the environment. So she decided to follow her dream of becoming a filmmakerâa dream that would require her to return to school for a graduate degree. She had no idea at the time that it would lead to becoming an award-winning documentarian.
While Schlosberg’s choice may have paid off, learning how to pay for grad school as a working adult can be a challenge. There are various benefits to getting an advanced degree: You can learn more, you can earn more, you can further advance in your current job or prepare for a career change. However, you might also find yourself stressed by the expense and resulting debt of it all, especially if you have kids, a home or other financial commitments. So a big question on your mind could be, “How much should I save for grad school?”
Below are some lessons on how to financially prepare for grad school to help you determine if and when you should go back to school. If you haven’t yet decided if graduate school is right for you, see section 1 for tips on how to decide. If you already know you want to go back to school, skip to section 2.
1. Decide if going back to school is right for you
Getting an advanced degree may seem like a ticket to success, but depending on your chosen area of study, the outcome may vary. For Schlosberg, it was a bit of a risk. It can be difficult to get a break in the film industry, and going to grad school could mean carrying around debt for a long time. Is this the type of outcome you would be willing to accept?
According to Emma Johnson, best-selling author, career consultant and founder of Wealthysinglemommy.com, there are a few things you can do to help you decide whether or not going back to school is right for you:
Do your homework. When considering how to pay for grad school as a working adult, research your degree options and the jobs to which they might lead. Compare cost and compatibilityâfor instance, will classes for the program align with your work schedule? Once you’ve determined what kind of occupation you may pursue after grad school, search online for information about that occupation’s average earnings.
Solidify your goals. You may find clarity in writing out your goals for going back to school. Some benefits are tangible, like earning more money, building a professional network and gaining skills. Others might be less tangible, such as finding personal fulfillment. Once you know your goals, it will be easier to determine if a graduate degree makes personal and professional sense.
“Your savings should not only depend on tuition but also what the degree isâi.e., how easy it will be to repay once you are working in the desired field.”
Give your degree program a test run. Consider taking classes that relate to the degree you are interested in getting in grad school. These classes can give you a taste of the subject matter you’ll be studying and help you meet people involved in the field. Also, if prerequisites are required for your advanced degree, they often cost less online or at a community college, which is important to remember when thinking about how to prepare your finances before grad school. Make sure the course credits will be accepted at the graduate school you plan to attend.
Take a hands-on approach. To level up in your existing career or find out what it’s like in a new field before making the change, get some work-related experience first. For instance, to learn more about moving up in your own field, get out and meet those higher level professionals by attending conferences and networking events. The same tactic applies if you want to change careers.
2. Know how much you need to save
How to pay for grad school as a working adult can be complicated, but you’ve decided you’re ready for it. Plus, hitting the books at a time when saving for retirement or your child’s education could be at the forefront makes the task of how to prepare your finances before grad school even more critical.
Figuring out how much to save for grad school begins with determining the cost of attendance. Here are a couple ways to do that, according to Johnson:
Do the research. Once you have found a school and degree that you like, visit the school’s web site. Some schools may provide the cost of tuition, fees and estimated costs for books, supplies and transportation. Costs can vary tremendously, depending on various factors: whether you attend full or part time, whether you attend a public or private school, whether you are an in-state or out-of-state resident and the time it takes to get your degree.
Determine your budget. Once you have a handle on the school-related costs, build a spreadsheet that accounts for these costs and projects monthly income and living expenses. Working through a savings plan beforehand can help you financially prepare for grad school by showing just how much you’ll need to budget for monthly on tuition plus living expenses. Once you determine these factors, you’ll get a better idea of what you need to save up.
Create a savings buffer. After you determine your monthly costs, pad that number. “Your savings should not only depend on tuition but also what the degree isâi.e., how easy it will be to repay once you are working in the desired field,” Schlosberg says. She saved a little more than she estimated, giving herself an extra cushion to cover some of the potential risk to her finances.
“You may have to downscale your career and current lifestyle to go back to school, which may be a worthwhile investment of time and resources.”
3. Allow yourself a flexible timeline
One key factor in planning the timeline for earning your graduate degree: Don’t be in a rush. If you need to, create the time to save. It may not be necessary to go back to school full time or finish on a particular schedule, Johnson says. She mentions these possible paths to earning your degree when planning how to pay for grad school as a working adult:
Consider a side hustle. One option is to go to school full time and take on a side hustle. You may not make as much as you did as a full-time employee, but the income can complement your savings. It may also allow you to concentrate more on your degree and finish faster.
Attend part time. Go to school part time (nights and weekends) while working. It will take longer, but it will also minimize your debt, which could be better in the long run.
Take it slowly. Only sign up for a class or twoâwhatever you can affordâand continue to work. This part-time “lite” approach may take even longer, but could help you avoid overextending yourself financially or sliding into debt.
Take online classes. Consider online programs that could lower the cost of tuition and allow you to continue working full time.
4. Take advantage of potential cost-saving benefits
So you’ve done your research on how much you need to save while determining how to prepare your finances before grad school. But there are ways to potentially cut or eliminate some of those costs. What comes next are some solutions that may help pay your grad school bills:
Consider loans, financial aid and scholarships. “I took out some student loans for living expenses, but I tried to pay off my tuition as I went by working through school,” Schlosberg says. Graduate students may also be eligible for different types of scholarships and grants, which is aid that does not need to be paid back. Depending on your area of study, scholarships and grants can also be obtained through federal and state organizations, private foundations, public companies and professional organizations.
Ask your employer to pay the tuition. One way to financially prepare for grad school is to talk to your manager or human resources representative to find out if your current employer would help pay for, or fully fund, your degree through tuition reimbursement. This is most likely if you plan to move up the ladder and use your new skills on behalf of the company.
Take advantage of in-state tuition. Some people move to the same state as their desired school to try to get a break on tuition. “I moved to Montana and worked a couple jobs for a year before applying so I could get in-state tuition,” says Schlosberg. Whether you are already a resident or you move to a new state, be sure to determine how long you need to be a resident to qualify for in-state tuition at your desired university.
Cut back on discretionary expenses. Seemingly small things like adjusting your lifestyle to lower your monthly costs, which could mean fewer lattes and dinners out, might go a long way in resolving how to prepare your finances before grad school. “You may have to downscale your career and current lifestyle to go back to school, which may be a worthwhile investment of time and resources,” Johnson says.
Financially prepare for grad school and get a new start
Answering the question of how to pay for grad school as a working adult requires significant research and preparation, but some say it’s worth it, including Schlosberg. It not only gave her a whole new start, but a wealth of knowledge going forward to nurture her future endeavors. “Getting a graduate degree gave me the confidence to jump into a new career. I met an amazing network of people,” Schlosberg says.
But an advanced degree may not be a necessity. While it could look impressive on a resume, for many employers, a master’s degree is not a requirement. “Whatever you do, don’t go back to school just for the sake of getting a degree,” Johnson says. When thinking about how to financially prepare for graduate school, make sure it fits into your financial picture and that you’re able to âweigh your sacrifices against future gains,” she says.
The post Hitting the Books Again? Here’s How to Financially Prepare for Grad School appeared first on Discover Bank – Banking Topics Blog.
When personal finance blogger Allan Liwanag was establishing his career and living paycheck to paycheck, he often had just enough money to cover his expenses each month. He ran into an issue with an old checking account that caused him some major grief.
“I forgot to account for the $15 monthly fee that the bank would charge,” Liwanag says. “So I was short covering my rent. It was a stressful situation because I didn’t know at first if the bank would process the payment for the rent or not.” The bank ultimately covered it, but Liwanag got charged $35 for an insufficient funds feeâon top of the original monthly fee.
Liwanag, who now runs a consumer money-saving site called The Practical Saver, learned a lot from that experience. The main point being, checking accounts can rack up feesâeven for standard activity. In fact, bank fees, including those for ATM usage and overdrafts, continue to rise year-over-year, according to a 2019 Bankrate survey. As Liwanag learned, fees could eat away at the funds in your checking account, which may become problematic when it’s time to pay bills or take care of other expenses.
What you may not know is that there are no-fee checking account options without the hassle of common fees. Discover®Cashback Debit, a no-fee checking account, for instance, doesn’t charge any account fees.1 It also offers no-fee checking without an opening deposit requirement, which is especially beneficial if you’re starting with a small balance or plan to make big withdrawals or transfers.
So you might be thinking right about now, “What are the benefits of a no-fee checking account?” To answer that question, it’s important to understand what types of fees you may be racking up and how you can make the most of a no-fee account. Let’s get to it.
Bank fees, including those for ATM usage and overdrafts, continue to rise year-over-year.
Your most common checking account fees
Checking account fees can become a trap you may not realize you’ve fallen into until it’s too late. It’s possible to be charged fees just for keeping your account open or for services or features you may have assumed came standard with the account. Being charged a fee doesn’t necessarily mean you’ve done anything wrong, but it’s a hassle you can avoid with the proper research.
Here is a list of some of the common checking account fees you could be paying:
Monthly fees to maintain or service your account
Overdraft or insufficient funds fees
ATM fees
Fees to order books of checks
Online bill pay fees
Stop payment fees
Replacement debit card fees
Not sure which checking account fees you’re dishing out for? Contact your bank or visit its website to get a copy of your deposit account agreement. This document usually has a list of fees related to your checking account that may apply to you.
Another good tipoff: “If you see monthly, quarterly or annual fees broken out on your monthly bank statement, you’ll know whether your account is truly no-fee,” says CPA and financial analyst Riley Adams of Young and the Invested, a site with strategies for financial independence.
It’s important to review your statements regularly to identify which fees you are being charged and to determine how that’s impacting your budget.
3 benefits of a no-fee checking account
Now that you’ve identified the many possible checking account fees you could be charged, you’ll find that the benefits of a no-fee checking account go beyond just freeing up some cash in your budget. In addition to the features you’re used to with a regular checking account, a no-fee checking account gives you a financial edge in the following ways:
More money for your financial goals. “Having a no-fee checking account can help you get ahead financially,” Adams says. “Instead of paying monthly service fees and even overdraft fees, you can apply that money toward your own financial goals.” The money you save on fees could be used to pay down debt, boost a savings account or help fund an education, business venture or vacation.
Flexibility. A benefit of a no-fee checking account is that it allows you to bank on your terms. If you’re just starting out, a no-fee checking account without an opening deposit requirement means you have the flexibility to fund the account with whatever amount makes sense for you. Need to make a big transfer from checking to savings? No problem, since you won’t have to worry about dipping below a minimum balance threshold. You can even go on your merry way using ATMs in your bank’s network without being restricted by fees, and if you accidentally overdraw, your no-fee account’s flexibility may save you the stress of a ding for insufficient funds.
No surprises. “Should I get a no-fee checking account?” was an easy decision for Liwanag because he knows exactly what to expect with one. “A plus of no-fee accounts is that you can rest assured that unaccounted-for or surprise fees will not kick you into overdraft,” Liwanag says. (Or, in other words, less s-t-r-e-s-s.)
Manage your finances with multiple no-fee accounts
There are also ways that no-fee checking accounts can help you better manage your income and expenses, in case you’re still wondering, “Should I get a no-fee checking account?”
Liwanag had no problem answering that question: âI have four,” he says, “which I use for easily tracking specific budget categories or expenses.”
As he explains, it can be easier to track expenses when money for different priorities, such as his emergency fund or that much-needed vacation, is bucketed into different no-fee checking accounts. Because he may be charged fees for excessive withdrawals from a savings account, Liwanag uses his no-fee checking accounts to manage the money he’ll need to access frequently for specific purposes.
The best part: Maintaining multiple checking accounts doesn’t cost him extra since a benefit of no-fee checking accounts means fees aren’t in the equation, he says. Some banks do have limits on how many checking accounts you can open, so be sure to consider this if you’re using a multiple account strategy like Liwanag.
Keeping your expenses organized is a pretty big motivator; so if you’ve answered “yes” to the question, “Should I get a no-fee checking account?”, the next step is knowing how to choose one.
Find the best no-fee checking account for your needs
Although the benefits of a no-fee checking account are key, don’t lose your head too much and forget to consider other checking account features that match your lifestyle. If customer service is your deal breaker, make sure the bank offers it around the clock and that it’s recognized for being top-notch. If you’re always on the go and your phone is right there with you, mobile features and mobile check deposit may be on the top of your list. If you’re regularly withdrawing cash, evaluate the bank’s network of no-fee ATMs and see if an ATM locator is offered to make tracking them down a breeze.
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If the benefits of a no-fee checking account are top of mind, you may also want to consider the perks of a rewards checking account. For example, Discover’s Cashback Debit even offers 1% cash back on up to $3,000 in debit card purchases each month.2 So on top of a no-fees savings strategy to meet your goals, you could also earn up to $360 a year. (Vacation, here we come!)
Start on your path to smart checking
Clearly, the benefits of a no-fee checking account and a no-fee checking account without an opening deposit requirement are numerous. Just be sure to do your research, then compare your findings carefully. The no-fee checking account you choose should ultimately help you reach your personal financial goals. You may find that saving on fees and reducing financial stress could be just the edge you need to set your checking account on the best course.
1Outgoing wire transfers are subject to a service charge. You may be charged a fee by a non-Discover ATM if it is not part of the 60,000+ ATMs in our no-fee network.
2ATM transactions, the purchase of money orders or other cash equivalents, cash over portions of point-of-sale transactions, Peer-to-Peer (P2P) payments (such as Apple Pay Cash), and loan payments or account funding made with your debit card are not eligible for cash back rewards. In addition, purchases made using third-party payment accounts (services such as Venmo® and PayPal®, who also provide P2P payments) may not be eligible for cash back rewards. Apple, the Apple logo and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries. Venmo and PayPal are registered trademarks of PayPal, Inc.
The post Should I Get a No-Fee Checking Account? appeared first on Discover Bank – Banking Topics Blog.
