Your Money in the News ? Nov 10th
This week: why side hustles are good for business, debt free holiday, 5 things that beat buying a house, money and mindfulness
The idea of the ?Side Hustle? has taken on with millions of Americans. In fact, a 2017 survey by Bankrate found that 44 million of them are making money from a side hustle. ?Could a side hustle actually promote a happier, more productive worker? Let?s take a look at 3 important reasons to encourage employees to earn income outside the office:
Employees may feel more financially secure.
Even if employees make a solid paycheck, financial dread can still apply to daily life. In a shifting marketplace with a possibility of a downturn in the economy, diversifying one?s income can become an excellent way to remedy those worries. Money stress is no joke? it affects people?s relationships, health, and psychological well-being. ?Having an additional stream of income can give employees more financial confidence as well as help to dig them out of any debts.
Employees could gain valuable skills
A side gig is a great way to hone new skills. Whether through better communication skills or a deeper understanding of finances, an employee who takes on a side job can obtain many valuable insights that will enhance their performance at the office.
Employees might find a sense of purpose.
Oftentimes, our 9-5 jobs are not filed under the ?dream job? section of our lives and taking on side jobs can allow us to find out what you really love doing. Should your boss be threatened by it? Absolutely not. Just because an employee finds passion in their side hustle, does not mean they will quit their day job. An employee who enters the office with a renewed sense of energy from doing what they will love will bring a higher level of productiveness to the office. ?
Sometimes, the holiday season can get us spinning out of control with the dizzying thoughts about what to buy, who to give it to, and how to do so without going into debt. Rather than indulging in these stressful thoughts, let?s look at 6 ways we can give to others and save money in the long run for a smoother transition into 2018.
Curate a budget. Follow a plan.
You may want to start out with a detailed list of categories like ?gifts to give? and ?holiday meals.? Make notes on who to include like, family members, co-workers, teachers, and friends, then decide what the average price of your gifts should be ($15-25 is a good start!) Be on the lookout for special sales or rebates and compare prices from other retailers to determine the best deal.
Shop Black Friday and Cyber Mondays.
If stepping into the manic of excessive shopping lines is not your thing, shopping online for Black Friday and Cyber Monday will get the job done. Not only will you get some of the best deals on Black Friday, but you will get them every weekend too. As for Cyber Monday, you will often get the most out of your dollars and you can save big time.
Homemade gifts anyone?
Truly, the holiday season is about giving from the heart. If money is tight, why not dream up clever homemade gifts to give loved ones? This move will help balance your budget while providing loving, fun presents. Baked goods, soaps, and lotions are among the most simple ideas. The key is to stay creative and in alignment with your unique talents.
Collect those coupons.
Research holiday meal ideas and coordinate meals, desserts, and sides with what?s on sale. The further you plan your meals in advance, the more time and money you will save. There are many sites like Thrive Market that allow you to shop for groceries online and save a bundle while you?re at it. Not only that, but simply collecting coupon books from your local grocery store can help you save several dollars.
Look out for the clearance racks.
Why pay for things at full price? The sooner you start investigating gift ideas, the better. No matter what you choose now, it will inevitably go on clearance later, so keep that in mind to maintain your budget.
Get an early start: shop for holidays throughout the year.
Avoiding a financial hangover means planning ahead for the holiday season. Scout out gift ideas early and look out for special sales. Whether you wait for the clearance rack, save up your coupons, or vie for online purchases, stay mindful of your budget and stick with your plan to keep your happiness flowing after the holidays.
If buying a house is on the top of your investment to-do-list, think again. According to research from the St. Louis Federal Reserve, the median cost of a home sold in August 2017 was $300,000. This means the actual cost of the down payment is more like $463,000 over the course of the loan based on interest rates. Buying a home is a big decision, but it?s certainly not your biggest (or best) money decision. Let?s take a look at 5 financial decisions that will pay off in the long-run and add to your investment list.
Commit to your retirement number.
It?s important to understand what money range you will feel comfortable retiring with. In fact, 81% of Americans do not know exactly what they need to save for your retirement. Avoid this savings crisis once and for all by figuring out how much you need to save for the life you want to live after your career. Start by estimating your annual retirement expenses. Healthcare is an important factor and after you determine what that cost will be, subtract it from your expected annual Social Security benefits. Multiply that by 25 and you will have the total amount you?ll have to save before retirement.
Ditch your credit card debt (ASAP.)
Credit card debt doesn?t happen overnight (nor does eliminating it.) Considering the average American household carries $16,000 of credit card debt, it is crucial to crunch those numbers and find smart ways to pay off the debt and save for the future. ?For example, if you were to pay off that credit card debt of $16,000 with 15% annual interest (which credit card companies usually calculated as 1% of principal plus accrued interest), it would take just over 27 years and cost $19,000 in interest plus principle of $16,000. Now that makes buying a home seem a lot more expensive! Pro-tip: Take pay your current month?s minimum payment and commit to paying that amount even as your minimum payment declines. It will enable you to pay everything off in 5 years and 6 months (at a cost of $7,500 in interest.)
Create an emergency fund.
An emergency fund with 3-6 months of expenses is a must for practical financial planning. Peace of mind is something that can be aided by a comfortable money cushion and it will help you to stay afloat during the undulations of uncertainty in the economy. The fact that half of Americans can?t come up with $400 for an emergency without selling something or taking on debt means this is a major issue to rise above.
Use your 401(k).
A 401(k) plan comes with a long list of benefits including the fact that you don?t even have to pay taxes on the money you contribute to a traditional 401(k). In fact, the 2018 limit is $18,500 which means that can get a sizeable tax break for adding to your savings. Even better, that money grows tax-free until you withdraw it. If you don?t have a 401(k) or are self-employed, consider an IRA. Socially responsible IRA?s that invest in People and Planet can help you save for retirement while doing good.
Invest in stocks/index funds.
Stocks have beaten inflation by more than 6 percentage points annually while real estate has historically only returned about 1 percentage point more than inflation annually. ?This explains why index funds are a great way to get broad, low-cost exposure to the stock market without all that stress of picking out individual stocks. Pro-tip: whether with an IRA, 401(k), or a traditional brokerage account, put that cash in the stock market for a more relaxed retirement future. If you are worried about the environment, you can invest in green funds that work for the Planet.
The fact that 78% of full-time employees say they live paycheck-to-paycheck should prompt a major wakeup call for most Americans. ?Budgeting should be a no-brainer, but why is it so hard for many of us to gear up and create one? Let?s take a look at some simple tips and statistics to get the ball rolling on the road to better finances.
But first, let?s define said budget:
Simply stated, a budget is a monthly plan that breaks down where you allocate your income into categories. Why is this important? Because it helps you take control of your money. First and foremost, the journey towards financial freedom means you know where your cash is going and can just as easily point to the areas where you can cut the costs and save.
Next step: find out where your money is actually going.
While the cost of housing, food, utilities, and transportation is a little different for everyone, there are general guidelines that personal finance advisors use to see if your spending is reasonable. You should aim to spend about this percentage of your income on:
- Housing: 25%-35%
- Food: ?10%-15%
- Transportation: 10%-15%
- Utilities: 5%-10%
- Savings: 10%-15%
- Health care: 5%-10%
- Personal: 10%-15%
Lastly, consider the 50/20/30 rule.
The 50/20/30 rule is a guideline used by financial advisors to divide all of your expenses into three broad categories instead of several specific categories. The idea goes like this:
- 50% of the budget goes to the bare necessities like housing, food, utilities, and transportation.
- 20% of your budget is allocated strictly to savings, debt payment, and long-term financial goals (like 401(k), IRA, and an emergency fund.)
- 30% of your budget is for a little fun like personal needs and wants (based on lifestyle choices and flexible spending.)
As the rate of debt tallies higher and higher, Americans are dealing with the repercussions of such money stress like eating disorders, alcoholism, and anxiety. ?As of June 2017, Americans collectively had 1.021 trillion in credit card debt and student debt totals of around 1.3 trillion. ?With numbers that high, no wonder many are suffering from such debilitating side-effects.
Most research has lead to the connection between mental health and debt. One clinical psychologist, in particular, Thomas Richardson came to this conclusion while studying the effects of tuition increases in the U.K.
Interestingly, he found that how much you?re struggling financially and not able to pay bills had more to do with the increased stress than increased tuition. ?He found that the more anxious you felt about your finances, the more you tended to avoid them (which just fueled those the difficulties.) Furthermore, he found that people with mental health problems are three times more likely to be in debt problems.
So, how do we revamp our wallets and revive our wellness?
Richardson suggests that we refocus on what?s really important to us and what gives us a sense of achievement and satisfaction (hint: they should be free.) Simplicity is key. Imagine joyous moments like walks in the park, riding your bike, or hiking with friends.
Finally, focusing on the present moment makes us aware of the now and not money problems of the past or future. Mindfulness exercises can go a long way in retraining the brain to focus on positive notes. Meditation practices can be a wonderful way to relax the mind, while yoga can aid in relaxation of the body (and mind.)
The takeaway message
It?s just about taking one step at a time. Start small, open one bill at a time, and breathe easy. Personal finances are about individual empowerment because the possibility of change rests in your hands.
Just breathe slowly and begin.
Photo by Paul BenceTags: Your Money In The News