Credit Card Travel Rewards: How to Maximize it

One big reason that many people sign up for credit cards is to generate rewards points that they can then use for travel. Sometimes, these rewards convert into travel benefits at a very nice rate. For example, a card might reward two miles for every dollar spent, and then those miles can be used to book cheaper flights than one can find while paying cash, or a card might be used to get free nights at a hotel chain and can be used in conjunction with a rewards program within that chain to accumulate even more free nights with frequent use.

Here are some strategies to get maximum value out of credit card rewards programs that benefit travel.

If you’re ever worried about the interest rate on a credit card, you’re probably using it wrong. You’re either looking at it because you’re carrying a balance, in which case you shouldn’t be using a credit card at all, or you’re looking at it when you’ll never be carrying a balance, in which case the rewards program is more important.

Figure out how you want to travel first.

Why are you traveling? Where do you want to go? What transportation will you use to get there? Where will you stay?

These are the types of questions you should be asking and answering before you even consider using a travel rewards credit card. Different people have very different visions of what they want out of travel.

You might be a person who wants to take one nice vacation a year, in which you fly to a city and stay at one of the nicer hotel chains for a few nights, but rarely travel outside of that. You might be someone who travels a few times a year, mostly by car, and stays at relatively inexpensive hotels. Perhaps you’re storing up rewards to pay for most of a really big trip for your whole family in a few years, like several days at Disney World.

Each of those plans would encourage the use of a different travel rewards card. Obviously, not all trips will be exactly the same, but travel rewards work well for facilitating similar trips.

For example, if you plan on staying at a nicer hotel but less frequently, you may want to look at a card that helps you stay at a Marriott, or perhaps you travel more frequently and are more budget-oriented for the frequent trips and a Best Western is a better option for you.

Similarly, if you plan on flying, you may want to consider whether an airport near you is a hub for a particular airline and then use a card that works well with that airline. For example, if you live in the Chicago area, you’d likely want to lean toward a card that works with American or United, as Chicago-O’Hare serves as a hub for that airline, and Atlanta is a hub for Delta.

The key thing to remember is this: you’re better off when it comes to credit card rewards to pick a few chains related to your travel needs and stick with them. Have a preferred airline, a preferred hotel chain, and a preferred car rental agency. If you’re planning on specific destination travel, you may want to consider a card affiliated with that destination, as it will usually rack up rewards for that destination at a nice rate.

Join customer rewards programs for the businesses you select.

Before we get around to using credit card rewards for travel, it’s a good idea to sign up for the customer rewards programs for the travel-related businesses you prefer. Since you’re already committing to regular use of those businesses anyway, their customer rewards programs will often amplify the value of using them frequently.

For example, some hotel chains will offer a free night of lodging after staying with that chain for several nights, and that can stack with credit card rewards. So, if you earn rewards from your credit card that enables a free night at a hotel in that chain, it will also effectively give you a fraction of an additional night.

It’s a good idea to sign up for these programs first because many such programs will actually link your credit card and your customer rewards account, making everything stack together nicely.

If you travel very infrequently and inexpensively, a travel rewards card probably isn’t worth it.

It can be tempting to get a travel rewards card if you always stay at the same hotel, but the truth is that if you accrue rewards faster than you can use those free hotel nights or airline miles, you shouldn’t use a travel rewards card and should use a cashback rewards card or a card that gives you a discount.

For example, if you travel perhaps once a year and only stay at a hotel for one or two nights, you will probably get more value with a rewards card that offers rewards associated with the retailer you use most frequently rather than a card that offers travel-related rewards. For someone who rarely travels but buys a lot of items on Amazon, for instance, an Amazon Visa will generate a lot more value than a travel rewards card.

For many cards, “miles” can be used with a variety of airlines and hotels, but there’s a catch.

For example, Capital One travel reward cards have several airline partners and multiple hotel chains that you can use your points with. These transfer directly into the rewards programs for those individual airlines and chains at some exchange rate— for example, 1,000 rewards points might mean 500 points in a particular hotel’s rewards program.

These cards tend to offer a lot of flexibility, but it comes at a cost. The exchange rates for cards that offer lots of airlines and chains tend not to be as good as cards associated with a specific airline or chain, as a general rule.

In other words, you should get a more general travel rewards card if the specifics of your travel change a lot and you’re not often able to use the same airlines or hotels. If you’re able to very consistently use one airline or one hotel chain or are aiming for one specific destination, you should use a card associated with that airline or chain or destination.

For example, if you intend to stay at Marriott hotels often, you should strongly consider a Marriott Bonvoy card, but if you intend to stay at a Best Western frequently, consider a Best Western card. These cards will just put points into your rewards account with those hotels, helping you to easily get free nights. You would then use those specific rewards programs for your hotel bookings.

Similarly, if you know you’re going to usually fly for travel using a specific airline, use a card associated with that airline.

You should choose a card that’s geared toward where most of your spending will be. If you’re going to regularly be buying airline tickets for two or three or four people but all stay in one room, an airline rewards card is better, but if you’re often traveling solo and for longer periods, the hotel rewards will almost always give you more value.

Focus on what you actually do or what you have concrete plans to do, rather than what you might do.

A final tip: rather than thinking about what you might do in the future, think only about what you’ve done in the past or what you’ve strongly committed to doing going forward.

For example, if you rarely travel but have a vague notion about traveling more, don’t get a travel rewards card quite yet. Instead, use a different rewards card and see if your travel actually increases in the next year or two.

If you’ve vaguely thought about a Disney vacation, don’t jump on board with a Disney rewards card yet. Instead, use a different rewards card and see if that plan starts to turn into something concrete, and then switch to the card when you start to think about actual dates and plans a year or two in the future.

If you do these things, you’ll get maximum benefits out of travel reward credit cards. Just remember the fundamentals: don’t use a credit card just to get rewards. Instead, use it as a tool to build credit and always avoid carrying a balance; consider the rewards program to merely be an extra perk for good behavior. Not sticking to that plan will cause the costs of the card to quickly exceed the benefits of the rewards.

Your First Credit Card: What You Should Know

Credit cards are a fantastic tool for building credit that can make shopping — particularly online shopping — more convenient and secure. However, credit cards come with significant risks. I should know — during college, I racked up a lot of credit card debt that haunted me for many years and drained tens of thousands of dollars from my pocket.

Credit cards are like chainsaws — they’re incredibly efficient and useful tools, but they can also be incredibly dangerous.

As my own children approach the age where they may choose to have a credit card of their own, here are 10 key pieces of advice I’ll give them before they get their first credit card.

1. Carrying a balance means credit card companies are taking cash from your pocket, and you get nothing in return.

When your bill arrives, the credit card company will certainly allow you to pay less than the full balance. You only have to make a minimum payment, which seems like a good deal at first glance.

Here’s the problem: they’re going to charge you interest on every cent that you don’t pay off, and that interest rate is high.

Let’s say you get an $800 credit card bill in the mail and the minimum payment is $28 (interest plus 1% of the balance). If you just make the minimum payment, that leaves $772 on the card. If you have an APR of 30% on the card, you just got dinged with (roughly) $20 in interest. Your balance just went up to $792. Yep, next month you still owe $792, even though you threw $28 at the card.

Not only that, you now have that $792 debt hanging over your head. Add more to it and the interest will grow, too, month after month. Minimum payments barely even scratch the balance, and that’s by design. Credit card issuers make real money off of you continually paying interest. You get nothing out of it, too. All you got was the ability to make an impulsive purchase, one that you’re paying off for months or even years, and you’re paying a lot more than that initial cost, too.

How bad is it? If you have $800 on a card with a 30% APR and a minimum payment of the interest plus 1% of the balance, it will take you 113 months to pay it off and you will have paid a total of $1,261.04. Yep, $461 just vanished out of your pocket, for nothing.

2. Never put anything on a credit card that you won’t be able to pay in full when the bill arrives.

If you’re putting something you can’t actually afford on your credit card, you’re making your first mistake. Eventually, you will have to pay for that item, and when that bill comes around, it’s going to cut into your budget for next month. You may be buying something cool now, but you’re making things very tough on yourself next month.

Rather than using your credit card to buy things you can’t afford, just treat it as a convenience that helps keep your identity and bank account safe, while also giving you some rewards. If you don’t have that cash sitting in your checking account right now, don’t buy whatever it is you have in mind. Wait.

3. Pay your bill in full every month. If you can’t, stop using the card until the bill is fully paid off.

The best approach for keeping a credit card under control is to pay off the balance in full each month when the bill arrives. This keeps interest charges from accumulating on your bill, something you really don’t want. If you’re buying things you can’t really afford, it’s going to be impossible to pay the full bill when it comes in, and that’s when the trouble begins.

If you ever find yourself in a situation where you can’t pay off the full bill, put the credit card down for a month or two and live off of your checking account until you have the card paid off in full. That way, your mistakes don’t compound on themselves.

4. If you keep the card paid off, the interest rate on a credit card doesn’t matter as much as the rewards.

If it’s not clear yet, the fundamental rule of credit cards is to never put anything on there that you can’t pay off in full when the bill arrives, and pay it off in full when the bill arrives. Doing anything else is a very costly mistake. Let’s say you do follow that rule, though. If you do, don’t worry about the actual interest rate on the card, because it means little to you. Rather, focus on the rewards offered by using the card.

5. Choose a card that earns useful rewards at a high rate based on how you currently live, because a card should not change your spending habits.

You want a card that will generate rewards based on how you already currently spend. A good rewards card should not alter your spending in any way. Rather, it should reward you for what you already do. Those rewards should be flexible and useful to you. Even if a card offers a nice rate of rewards, if those are rewards that aren’t convenient and useful for you to spend, they don’t really matter. In general, cards that offer direct cashback or offer direct discounts at the retailers you already use are the best options, particularly for new users who aren’t trying to game the system.

6. If you don’t pay your bills, there are real consequences that last.

What happens if you just don’t pay your credit card bill? First and foremost, you’ll wind up with some nasty marks on your credit report that will last for up to seven years. Not only will that make it much more difficult to get any kind of loan or credit card going forward, but it can also raise your insurance rates, make it harder to get an apartment, and even hurt you in a job search. All of those things are made much easier if you have good credit, and not paying your bill means that you have bad credit.

Not only that, they will hound you for years, and eventually turn the debt over to a collection agency, who will also hound you for years. You’ll get phone calls and letters using all kinds of strategies, some of them really nasty in tone, to get you to pay.

While it seems like an immediate solution to your problem to just throw the credit card bills in the trash, they don’t just disappear. The problem festers, and it builds into other consequences that can really hurt your career and other areas of your life. Just stick to the advice above: pay off your card in full every month.

7. A credit card is not an emergency fund, and it will fail you in many types of emergencies.

First of all, if you use a credit card in an emergency, that bill is still going to arrive, and if you’ve paid for something that you can’t actually afford, you’re not going to be able to pay off the card. You’ll be carrying a balance, and the interest will keep devouring your money while you get nothing in return.

Second, there are a lot of emergencies where credit cards don’t help. Theft is one. Identity theft is another. What do you do in those emergencies? You should strive to have a cash emergency fund sitting in a savings account at a bank where you can access it if you need it.

8. If you can’t get approved for your first card on your own, ask for a trusted person to co-sign with you.

If you apply for a card and are declined, it’s not the end of the world. There are other routes to take that will help you get a card.

The first option is to look for someone who will co-sign on a card with you, probably a parent or another very close friend or relative. Their willingness to do that is a major extension of trust because by co-signing, they’re saying that they will pay for the balance on the card if you fail to or unable to do so, and you are hanging debt on them if you don’t take care of things yourself.

Another approach is to ask if they will add you to their current card as an authorized user. In that situation, they’ll likely just cut up the card that comes in your name, but it can provide a starting point and a small boost to your credit that will help down the road when you get your own card.

What if those aren’t options?

9. If you can’t get someone to co-sign, visit a credit union and look into a secured credit card.

Many financial institutions offer another option for people who really need to build credit in the form of a secured credit card. A secured credit card is one in which you pay a certain amount upfront as a “deposit” of sorts on the card. As long as you use the card normally, it’s fine, and if you cancel the card after normal usage, you get that deposit back. However, if you stop paying the bill, they’ll use the deposit to pay it for you.

Because of that deposit, financial institutions will issue a card to someone who might not otherwise qualify for a card because of their bad or nonexistent credit. After all, they’re at reduced (or zero) risk of someone not paying their bill because of said deposit.

10. Use your credit card bill as a tool to identify your worst spending choices, so you can correct them.

Your credit card bill isn’t just a downer. It’s also a useful tool for figuring out your worst spending decisions and also a way to check for identity theft. Each month, when your credit card bill comes in, go through it, item by item. Take note of anything that seems wasteful. If you look at a purchase and it didn’t either cover something necessary or fill you with genuine lasting joy, it’s probably a wasteful expense.

Keep those wasteful expenses in mind. Turn them over in your head, again and again. Knowing that those things aren’t good uses of your money will help you cut back on things that don’t really matter. Also, while you’re looking through your bill, look for expenses you don’t recognize. They can potentially be signs of identity theft, where someone has access to your credit card information and is making charges you didn’t approve of. If you find any, contact your credit card issuer immediately to get it fixed.

Credit cards are powerful tools if used correctly.

They can build your credit, make shopping easier and more secure, and give you rewards for your normal spending. However, they make it quite easy to start accumulating debt, which can haunt you for years. Treat credit cards like a sharp knife or a chainsaw. They’re powerful tools, but if you don’t use them well, they can really hurt you.

Living from Paycheck to Paycheck: How to Get Out of the Cycle

For the first several years of our adult lives, Sarah and I lived paycheck to paycheck. Most of the time, we would have been unable to pay our bills when they were due if our next paycheck didn’t safely arrive in our account right on schedule.

From a super short term perspective — on the order of hours and days — it made sense. We had money in our account. We wanted something. We went and bought it. Our next paycheck would help us deal with our bills, so we didn’t worry about it. Still, if we ever stepped back and looked at a wider perspective, it was disastrous.

We had no emergency fund. If a real problem came up, like a car not starting, we were in a real jam.

We had extremely limited domestic skills. We didn’t know how to prepare many meals because we rarely ate at home, and everything seemed difficult and time consuming.

We didn’t know how to repair basic things, so something like a toilet problem meant a panicked call to a landlord and soaking a bunch of our clothes.

Basically, we just threw money at domestic problems like food — we usually went out to eat, got takeout or made super-simple convenience meals, all of which were expensive — and basic repairs. We’d call the landlord for simple things, and our inability to repair things caused damage to our own stuff while we waited — plus it made life really inconvenient and unpleasant at times.

We walked a professional tightrope. We were so dependent on our next paycheck to keep the bills paid that we were both afraid to rock the boat at all at our workplace, and thus our supervisors could demand ridiculous things from us. Job searching was fraught with danger because we couldn’t handle getting fired from our old job while we were interviewing for a new one.

We were making zero progress toward our long term goals in life. We weren’t saving for a house down payment. We weren’t saving for our next car. We were making minimum payments on our debts and often racking up more credit card debt. The one good thing we did was start our retirement contributions early, something that a few mentors strongly encouraged us to do, and we did simply out of trust and respect.

Every single one of those things added additional stress to our lives. Not only did these events themselves cause stress when they happened, but they also added stress if we thought about them much. Often, we avoided thinking about them — if we got too stressed, we’d just spend money on something to distract us.

That was our reality for our first several years of our adult professional life. We lived paycheck to paycheck. And that description of life above? It’s got a lot in common with how most Americans live.

The shocking thing is that the vast majority of Americans also live paycheck to paycheck — somewhere between 75% and 80%, depending on how you count it. Most people would hit serious financial troubles if their next paycheck didn’t arrive in full and on time.

How did we break out of it? I’ve written before about our own story, but today I want to step back and generalize it a little, turning it into some practical steps that almost anyone can take to get out of their own paycheck to paycheck lifestyle.

But first, let’s address the why.

Why should someone want to get out of paycheck to paycheck living?

If you break away from living paycheck to paycheck, meaning that you are consistently earning more than you are spending, you wouldn’t suffer any ill effects if you missed a few paychecks (aside from having to withdraw some money from a savings account), and you’re making progress toward your biggest life goals, almost all of the negative things mentioned above go away.

You’re no longer scared to death at work. While it might not be super convenient, it’s no longer the end of the world if you lose your job. You can survive for a while without it, giving you time to find another one. This frees you up to take less abusive behavior at work and also makes searching for another job a lot less scary.

Most life emergencies are no longer stressful disasters. Most things, like a car issue or an emergency trip or even a sudden job loss, aren’t apocalyptic any more. You’ll still be able to pay the bills. You’ll be able to handle the sudden expense. It’s not a problem, just an inconvenience.

You’re actually moving toward big life goals. You’re saving for retirement. You’re saving for a down payment. Those things are actually moving toward reality instead of being nebulous dreams, and that feels great.

You’re less scared to try new things, because you can handle the downside of a small failure. You become more willing to try new things and do more things for yourself because the worst case scenarios become a lot less disastrous. If you try fixing that toilet and it doesn’t work, it’s not too bad because you can handle the costs of any issues you might cause. This encourages you to try doing those things, which means that you start to feel less worried and more confident about all kinds of things in life.

A lot of everyday stress just goes away. All of this is good, but one of the biggest benefits is how it all adds up to a lot less everyday stress. For me, it actually cleared up some minor health issues, and it definitely made day to day life better. I was a lot less jumpy and emotionally touchy once we got away from paycheck to paycheck living, and the same was true for Sarah. Life was less stressful and more enjoyable.

Yes, breaking away from paycheck to paycheck living means making sone changes to your life, but even those aren’t as bad as they seem initially. Often, we’re afraid of change just because it’s a change in routine, not because it’s actually bad. We visualize horrible outcomes because we’re creatures of habit.

Here are some strategies for breaking away from paycheck to paycheck living that can work for almost everyone.

The first step is consistently earning more than you’re spending.

Almost every month, you have to be bringing in more money than you’re spending. There are a lot of ways to accomplish that, but if you’re not doing this month after month after month, you simply can’t get away from paycheck to paycheck living.

You have to spend less than you earn during normal months as well as months where there are some smaller unexpected events. Yeah, there are sometimes disaster months where everything goes wrong and you do have to spend more than you make, but those should be rare and you should have savings to tap (we’ll get back to that later).

This can be incredibly difficult, especially if your income is very low. You are likely going to have to make some tough lifestyle choices. Here are some things to think seriously about.

If you pay for medicine or other medical services, can you ask about lower cost options? There may be options that will work for you that require less expense out of pocket. Are there things you can do at home on your own? Are there less expensive prescriptions or can some of them be eliminated? It doesn’t hurt to ask.

Can you live in a different place that has lower expenses per month? This might mean living with a relative or renting a place with multiple roommates. Your goal should be to significantly reduce the monthly expense of keeping a roof over your head.

Can you drop your entertainment subscriptions? Do you have cable television? Do you have cellular data for your cell phone? Basically, if it’s a monthly service you have, consider significantly reducing it or dropping it. Switch to a low end phone with no data from an inexpensive service like Ting.

Are you eating an inexpensive diet with very little or no food from restaurants? A truly inexpensive diet is one that almost entirely consists of foods you prepare for yourself, mostly made up of inexpensive staples like rice, beans, pasta, peanut butter and so on. Your food intake should be modeled on that and should involve very little or no money spent at restaurants. When you’re out of the home, you should be taking meals with you so that you’re not tempted to eat at restaurants.

Are you signed up for all assistance programs you’re eligible for? If you’re struggling with a very low income, make sure that you’re getting the benefits of any assistance programs you’re eligible for. They can make an enormous difference. You can get started by contacting your state’s Department of Human Services — look them up online and give them a call. They can help you identify programs that can help, from local food pantries that can get food on your table, clothing pantries that can keep clothes on your back or assistance with medical costs.

Can you earn more by taking up a part time job? If you’re really struggling financially but working less than 40 hours a week, consider adding a part time job to the mix to bring in more income. Twenty hours a week at $10 an hour is another $200 each week, which can make a big difference to a person’s finances.

Can you ask your boss for a raise or for more hours? You’re likely to have more success with this if you’re always on time at work, deliver things by their deadline with high consistency, and have good results and performance reviews. If you’re not doing that at work, aim to start.

Can you give up some vices? If you smoke, consider dropping the smoking habit. If you drink, consider dropping the drinking habit. If you use drugs, consider dropping the drug habit. If you compulsively buy anything, break that compulsion.

Are there better “bang for the buck” options for how you spend for nonessential things? For example, you can get a lot of free entertainment from the movies and books available from your local library rather than buying books and paying for Netflix or cable.

Can you reorganize some of your debt, particularly credit card debt and student loan debt? Consider consolidating your student loan debt, particularly if you can lock in a lower interest rate and a lower monthly payment. Also, consider doing credit card balance transfers in order to reduce the interest rate on that debt. While it’s a good idea to lower interest rates, it’s a bad idea to get collateralized debt like a home mortgage to pay off non-collateralized debt like a student loan or a credit card. If they can’t repossess, don’t turn that debt into something they can repossess.

What about small steps, like buying only store brand household supplies? There are many, many little things you can do to trim a bit off your spending.

Remember, the goal here is to stabilize your income and spending so that you’re consistently spending less than you bring in each month. These changes are intended to bring permanent changes to your spending and income that should bring you closer to that target. Many people simply overlook these things, even though they’re obvious, and just assume that they can’t make it work. You can do this, no matter what your income level is.

When you’re making more than you’re spending, start doing something smart with the difference.

For us, cutting back on our spending was really only half the battle — or less than half. A big part of our challenge was to start doing something wise with that extra money when we started to really see the impact in our bank account.

We were so used to just spending any extra money in our checking account that while our life changes caused more and more extra money to appear, we were still very tempted to just spend all of it.

Our solution was to simply do something wise with any surplus we found in our checking account as soon as we discovered it, and to eventually automate those things. I’ll get back to automating in a second.

What kind of wise things did we do? Here are some suggestions, in order of priority.

Sell off some unused stuff to give yourself a head start on this list. Look through your closets and your rarely-used belongings and see if any of those items can easily be sold off. Take them to Craigslist or to local community buy/sell/trade groups on Facebook and turn those items you likely won’t use again into some cash. Use the cash for some of the items on this list to give yourself a nice running start.

Build up enough of a buffer in your checking account that you’re no longer at any significant risk of overdrafting. One expense that can often hound people who are living paycheck to paycheck is overdrafts. If you are regularly overdrafting your checking account, you’re frequently getting hit with fees of $35 or more and those can really add up and hurt. Your first step should be to put yourself in a situation where those don’t happen. Aim to have a constant buffer in your checking account of a few hundred dollars so that you don’t accidentally overdraft your account. For example, some people view a balance of $1,000 as being their “zero balance” and aim to always stay above that. Consider having a “zero balance” of $300 or $500 where your goal is to always stay above that number, no matter what.

Get caught up on your bills so that you’re no longer facing late fees. Once you’re out of the danger of overdrafts, aim to get caught up on all of your bills so that you’re no longer generating late fees. You should aim to pay all of your bills on time, both to avoid the direct expense of being late but also because being late consistently can have a negative impact on your credit score, which can then cause you to have worse interest rates on loans and even affect job applications.

The simple act of getting yourself away from overdrafts and late fees can make a huge difference in a person’s day to day financial life and can be a major milestone in terms of moving away from paycheck to paycheck living, but there are many more things you can and should be doing. Here’s what to do next.

Have an emergency fund in a savings account. An emergency fund is a pool of cash that you can tap in an emergency situation, so when an unexpected event occurs you have the money available to deal with it easily. You want an emergency fund that’s going to be available in all kinds of emergencies and safe from many disasters, and the best option for that is cash in a savings account at a bank where you have local branch and ATM access. It’s not a bad idea to use a different bank than your regular one so that you’re not tempted to tap the savings account every time you use your bank card. Whenever you have spare cash in checking, move it over to this emergency fund, out of sight and out of mind until there’s an emergency.

Pay off your debts, starting with your highest interest debt. Your highest interest debt is the one that’s costing you the most in interest, so pay it off first. Simply take extra money in your checking account from the smart spending tactics above and make an extra payment on that debt. If you pay it off, great! That’s one less minimum payment you have to deal with each month, and now you can tackle whichever debt is now the highest in interest rates.

I suggest focusing on these two steps until you have an emergency fund that’s at least equal to two paychecks and you’ve eliminated all of your debts with a higher interest rate than 10%.

Consider automating your positive financial moves. By this, I mean that you instruct your bank to move a certain amount each week or each month into your emergency fund, or you set up an automatic monthly payment toward one of your debts that’s bigger than the minimum payment, or you set up an automatic contribution into your retirement plan. For that kind of thing to work, you have to be consistently spending less than you earn such that your checking account is growing over time.

The advantage of automation is that you don’t have to remember to do something with that money and you don’t have to talk yourself into doing it each week and each month. It just happens. The only thing you have to worry about is making sure there’s always plenty in your checking account, which is why it’s a good idea to carry a buffer in there.

Start saving for major goals coming in the future. For most people that means saving for retirement. For some, it can mean other goals, like saving for a house down payment, saving for your next car or saving for a child’s education. At this point, your choice of goals is highly dependent on what you want out of life, but I will say that saving for your own retirement is never a bad option. You will virtually always be glad you did that.

Saving for retirement is quite easy. Most Americans are eligible for a Roth IRA account, which is kind of like a special savings account for retirement. One big difference is that once you put money into that account, you get to choose what is done with that money — a good all-around option is to just choose a target retirement fund. Money put into a Roth IRA can be withdrawn without penalty if you need it later, but the money earned in the account cannot be withdrawn without taking a penalty. However, if you wait until you’re at retirement age, the money earned in that account can be withdrawn without any penalties or income taxes. Yes, this is a way to make money without paying taxes on it if you’re willing to wait for retirement on that money.

It’s all about a lot of individual small steps adding together to make a big leap.

Almost all of the individual moves in this article are simple ones, and many Americans can do many of them with ease. The trick is actually doing them. People are often resistant to making changes in their lives and these steps represent change. However, if you want something different in your life, you have to start doing something differently.

These steps work. They were transformative for Sarah and myself. We don’t earn an exceptional income — neither of us have earned six figures in our lives, other than a couple of really exceptional years where we were buried in work, and we have three children at home. Still, we were able to follow steps like these and escape paycheck-to-paycheck living, and then build on that to pay off all of our debts, buy a home for our family and pay that off, too, over the course of about six and a half years.

It starts with simple daily changes that get you in a position where you’re spending less than you earn before making smart moves with the difference. Before long, you’ll leave paycheck-to-paycheck life behind.

Personal Loans: Can They Improve Your Credit Score?

Personal loans can be used to pay for pretty much anything you want. Whether you just need a quick cash infusion, have to make an unexpected purchase or need to bridge a financial gap, you may be considering taking out a personal loan. These loans are often unsecured, which means those without anything to put up for collateral may still be able to get approval.

Prospective borrowers looking to use a personal loan typically have a lot of questions. What effect is a personal loan going to have on my credit score? Will a personal loan raise my credit score? Can a personal loan hurt my credit score? As FICO is expected to adopt an updated credit score scoring system this year, the effects of a personal loan on your report are expected to increase your credit score.

Here’s how a personal loan could improve your credit score

Your credit score is a numerical representation of your creditworthiness. It’s designed to help lenders and financial institutions better understand your history of making good on your debts. Lenders and financial institutions use this snapshot to make decisions about what they will and will not let you do in the future.

A low credit score is not just the result of missed payments or negative credit history. Your score can also be low because you have no borrowing history for the credit bureaus to go off of. For people in this category, a personal loan may help to raise their score in the long run. By taking out a loan and demonstrating that you can fulfill your obligations to make on-time payments, you’ll start to build a positive credit history.

For those that have a negative borrowing history riddled with missed and late payments, personal loans can also help. By demonstrating that you’ve changed your ways and are now ready to make good on your financial obligations, you can start to erase your negative past and raise your credit score.

“Paying bills on time each and every month can have one of the biggest impacts on a credit score, and this includes personal loan payments,” says Amanda Wallace, head of insurance operations for MassMutual. “When times are tight, if there is nothing else you do, just pay on time. ”

While you could be better served to demonstrate your creditworthiness through a different borrowing mechanism, personal loans can still help to build the positive track record necessary for a higher score.

And here’s how it could hurt your credit score instead

Unfortunately, there’s a lengthy list of ways a personal loan can hurt your credit score. Some of these negative effects are only in the short term, while many could stick with you and your credit profile for several years.

Recently, the Fair Isaac Corporation (FICO) that’s responsible for creating the FICO credit score announced a rollout of changes coming to the credit scoring system in 2020. While the changes may not be adopted immediately, they’re coming, and they will affect how personal loans are viewed by credit bureaus. The company states people who take out personal loans will be flagged, as personal loans are a much riskier form of borrowing.  Even with this, making your payments on time and fulfilling your loan obligations should still have a long-term positive effect on your overall credit score under the new system.

Credit bureaus view too many inquiries into your credit as a negative. Think of it this way. If one friend asks you for money one time in a year and another friend asks you for money five times a week, which friend seems riskier to lend to? This is how credit bureaus tend to view credit inquiries like the ones required to secure a personal loan.

Taking out a personal loan also increases the amount of outstanding debt you have. It’s believed that around 30% of your credit score is based upon the amount of debt you have outstanding. The more debt you have, the lower your score.

Many of these negative factors, though, would only be short term if you make on-time payments and fulfill your credit obligations. Your credit score could take a nasty hit, though, if you start to miss payments or make late payments. As of the current system, late payments stay on your credit report for seven years. The new FICO system is looking to analyze a longer period of your credit history, which could make these missed and late payments even worse.

As personal loans are typically unsecured, they also typically carry higher interest rates and annual percentage rates (APR). In other words, the money is more expensive, which means your payments will be either larger or last for longer than with other sources of borrowing. These two factors increase the risk of missing a payment, which, in turn, increases your risk of hurting your credit score. If your credit score is already less than perfect, a bad credit loan may be worth considering.

The reason FICO is changing its scoring metrics is that personal loans are a much riskier form of borrowing. Because they rarely require collateral and often have higher interest rates, they can be a potential red flag of a riskier borrower. However, when used properly, personal loans can help in times of need when you have no other options for getting access to the cash you need. Additionally, they have the ability to help borrowers demonstrate and build a history of on-time payments.

But with these benefits do come the potential risks to your credit score. Both short term and long-term risks need to be weighed and considered before deciding to move forward with a personal loan.

Personal Expenses: How to Track Them

Once every few days, I open up a spreadsheet on my computer that I’ve been using for many years. Into that spreadsheet, I type in several lines of information — places where I’ve spent money, how much I spent there, the date I spent that money and what type of expense that was. Once I type those things in, a few automatic calculations occur and I have a nice view of my expenses over the last 30 days, the last year and since I started tracking such information.

It’s a nice little system, one that I’ve customized for my own needs over the years (I was a software developer in a previous stage of my life, so doing this kind of thing is kind of second nature for me), but many of the ideas are borrowed from some commercial software packages.

I consider it one of the most powerful things I do in terms of keeping my spending in check. Why is that the case, though? And how exactly do I do it?

Here are six reasons why you should be tracking your personal expenses.

1. Tracking your expenses helps make you more mindful of spending in the moment.

Once you get into the habit of tracking your expenses, you’ll find that the process makes you more mindful of the spending choices you make throughout the day. You’ll begin to associate things like, say, that $5 stop at the coffee shop with the impact it has on your total spending at the end of the month, and that will motivate you to find a cheaper solution or to cut back on a habit that really adds up.

It’s simple repetition, really. The more times you look at and think about a particular type of expense and the big impact it’s having on you, the more likely you are to think of that expense with a more critical eye.

This doesn’t mean that tracking expenses will cause you to never spend money on anything fun ever again. Rather, it will simply make you more mindful of those expenses. There might be times where you recognize you’re not getting a whole lot of value out of a treat, but at other times, it’s something that’s really worth your while.

2. Tracking your expenses helps you to see spending mistakes before they become disastrous personal finance problems.

One of the biggest reasons that people find themselves in financial trouble is due to overspending. People simply get into a routine of spending as much as (or more than) they earn. Because of that, it becomes very difficult to achieve any long-term financial goals and, if any sort of unexpected events occur, it can be disastrous. The truth is that just shy of 80% of U.S. workers live paycheck to paycheck.

While it can be easy to point to one or two big expenses that lead to overspending, it’s often a myriad of little expenses that are the true culprit. It’s easy to pick out that $100 expense, but 10 expenses of $10 each can often go without much notice. It’s only $10, after all, but if that $10 happens again and again, it can add up swiftly.

Tracking your expenses can expose overspending of all sizes, and if you do it diligently, expense tracking can identify when it’s a small issue before it becomes a larger issue where you’re struggling to make ends meet.

3. Expense tracking provides the backbone for a workable and sensible budget.

Many people associate “financial responsibility” with “making a personal budget,” but the truth is that a good workable budget is built on top of an accurate picture of your spending, which you can really only build through tracking your expenses. Everyone has different spending habits and routines, and simply plopping a ready-made budget on top of your individual habits will almost always result in disaster.

Rather, a good budget starts by taking a deep look at how you’ve been spending your money, sorting that spending into sensible categories, and setting some modest goals for some of the more flexible categories.

For example, if you spend $200 on your hobbies each month, $150 is a sensible amount to budget for that category, but you don’t know how much you’re really spending — and thus how much to budget — without tracking your expenses along the way. Knowing your actual spending lets you make realistic budget numbers that can really help you make positive financial progress.

4. It can improve your relationship with your partner.

Money is one of the most common sources of disputes between couples, and it often boils down to spending habits. If one partner spends more on non-essentials than the other partner, it can easily lead to friction, particularly when that non-essential spending is causing other financial problems.

Tracking your expenses is a very powerful way to not only get a clearer view of your own spending blind spots, but it can also provide useful information in money conversations. A simple record of where the money went can reduce a “he said/she said” dynamic down to actual numbers.

While it can’t solve all financial disputes, it can go a long way toward helping both partners identify spending problems without resorting to accusations and anger.

5. It makes it much easier to set financial goals.

A final advantage of tracking your expenses is that doing so makes it much easier to set financial goals for yourself.

You can easily set specific spending targets for yourself, such as capping your spending on a particular hobby to $50 a month. This is basically akin to budgeting, which is really just a form of financial goal setting.

However, the real advantage of setting spending goals like that is that completing those goals frees up money for bigger financial goals in life. If you are able to trim $200 a month from your spending across several categories, then you have $200 each month with which to get yourself caught up on your bills, get out of overdraft cycles, establish an emergency fund and start paying down high-interest debt.

It’s all about tracking your finances.

6. Tracking your expenses can kill financial stress.

One of the biggest sources of financial stress for most people is the eternal question of where all of the money went. A paycheck comes in and it seems like you’re flush with cash, but a few days pass and the account seems practically empty. What happened? Tracking your expenses answers that question.

Tracking all of your expenses means you know where every dime of your money is going, and that changes the question from a stressful mystery to something clear and understandable. Rather than feeling like everything is out of control, it transforms the question into one of personal decision-making, something that’s far less stressful.

In short, tracking your expenses returns the sense of control over your finances to you. You’re no longer just along for the ride on a financial roller coaster.

Getting started with tracking your expenses is quite easy.

The most straightforward way to get started is to simply write down all of your expenses in a notebook. All you need is a cheap spiral notebook and a pen.

When I first started tracking my own spending, I did it with a simple pocket notebook and a pen. Whenever I spent money on anything, I either jotted it down in that notebook immediately or I stuffed a receipt in the pages of the notebook.

I noticed several things quite quickly. The big one was that I didn’t like writing stuff down in the notebook, not because it took effort, but because doing so meant I had spent money on something and I would have to reckon with that spending later. With a lot of frivolous expenses, I didn’t want to have to reckon with it later because I knew, on a deep level, it was a bad decision.

What does that look like for you? Whenever you spend money, save that receipt, and once every day or two, write down every single item that you spent money on — the date, the item and the amount. You can (and should) also give it a category. You might find it easy to just use categories like “food,” but I take it a bit further and use categories like “basic food,” “eating out,” and “gourmet food” to differentiate between needs and different kinds of wants.

When I’m recording expenses, I go through grocery lists and group all of the items into “basic food,” “gourmet food,” (meaning food at the store that had a cheaper alternative) and “household supplies” by using a highlighter. I do the same for all multi-item receipts. Then, I just add a new item entitled “Food at grocery store” with the category “basic food” and the total, then another item entitled “Food at grocery store” with the category “gourmet food,” then another item entitled “Supplies at grocery store” with the category “household supplies,” and each one has the total cost of the items of that type from the receipt.

There really isn’t a good list of categories with which to sort your spending. Just come up with ones that make sense to you. You might want to just start writing them down now and leave a space for categories, then when you have a few dozen entries, come up with categories and categorize the expenses then.

I find that there is a lot of value in doing this by hand. It really helps me keep in touch with my spending in a way that just typing data into digital tools doesn’t achieve, and I find tools that automatically fill in the data to be even less impactful for me. They’re still useful, but writing it down just hits home in a deeper way.

Speaking of automated tools, there are three tools that I recommend depending on how you want to approach things. I personally do not use any of these regularly (though I’ve tried them all), mostly because I feel uncomfortable using third party tools to directly access my financial accounts, but that’s not because they’re actually insecure in any way. I just choose to minimize the number of online accounts I have that have any access to personal data.

The easiest one to use — but the one that feels the most hands-off and least helpful overall to me — is Mint, which automatically retrieves data for you from your accounts and displays it in an app. It’s free and really easy to use, but I find that it spends too much time offering me suggestions (and ads) that are irrelevant to what I want to see.

A much better option is a subscription service called You Need a Budget, which I consider the best all-around automated budgeting and expense tracking tool out there. It also retrieves data for you, but you can enter a lot of information yourself to supplement that, and it offers a lot of genuinely useful views of your data.

If you’re kind of a spreadsheet wonk, I’d like to give a nod to Tiller Money, which integrates with Google Sheets to automatically pull data from your accounts into a spreadsheet.

Once you have a month or two of data, you can start making some powerful decisions.

The actual process of recording your expenses is a powerful thing. It serves as a strong constant reminder of where your money is actually going, something that can shape your thinking as you’re recording it.

When you start to accumulate a lot of spending data, however, it becomes even more powerful. The collected data enables you to take a step back and look at your broader spending patterns.

With a month’s worth of data from tracking your spending, you can easily ask questions like, “How much money did I spend last month at coffee shops?” or “How much money did I spend last month eating out?” or “How much money did I spend last month on entertainment purchases?” The answers to those questions — and many like them, depending on the categories you’ve chosen — can really shape your thinking when it comes to spending choices.

The realization that you’re spending hundreds a month at coffee shops, $1,000 in the last month eating out at mediocre restaurants or $350 on hobbies can be a real eye-opener. Not only does it show you where your money is actually going, it can help you to realize that your money is going towards things that aren’t providing a lot of value in your life for the amount you’re spending.

When you add up your spending in each category for the month, what you’re doing is creating the backbone of a budget. You can go through all of those categories, figure out which ones are reasonable and which ones are ones where you’re overspending and can cut back, and then use those actual numbers to create a basic budget for yourself.

This whole process reveals a deep truth about budgeting. The real value of budgeting isn’t in creating neat charts and tables, but in the fact that it can identify a few of your worst spending areas and help you get better control over them. It’s not in a chart, but in how that chart changes your behavior.

For most people, a budget is going to reveal some areas of overspending on non-essential items, which you can cut back on by choice, as well as some areas of essential spending that you’d like to cut back on (like trimming bills). While earning more money is always a great solution to this problem, it’s not an immediate solution; thus, the immediate tool at hand is frugality.

One good way to start is by trimming your required monthly bills. Here are 40 tactics for trimming your ordinary monthly bills, as well as some common bills that people can delete entirely. Ask yourself whether each bill you have is necessary and, if it is, ask yourself how you can cut that bill back a little. A good first step is to simply call that company and see what can be done to make that bill smaller.

The other approach is to cut back on your non-essential spending. It’s worth noting that I think it’s a bad idea to cut non-essential spending to the bone. If you trim out all of the stuff you enjoy, you’re going to quickly resent the changes. Rather, you should try to identify the 20% (or so) of your non-essential spending that’s least important to you and cut those things, while being mindful of what you’re gaining as a result of those cuts. If you spend $400 a month eating out, see if you can trim that to $300 by cutting out the $100 spent on the most forgettable meals. If you have some expense you just don’t want to cut, look for some other expense you can cut back on a little harder.

Tracking your personal expenses takes a bit of time, but it’s a powerful nudge toward smarter spending and better financial choices.

Tracking my spending was one of the best things I started doing during my financial turnaround. It gave me a little constant nudge to avoid spending money on frivolous things and soon revealed some of my worst spending habits. Understanding the areas in my life where I was overspending — and simply knowing where all of the money was going – was a transformative change in my financial life.

Get started today. I recommend doing it by hand at first, simply because of how powerful that act is in terms of getting you to notice your expenses. After you build up some entries, start looking at the patterns and see what they’re telling you about sensible changes you can make to your spending. It does take a bit of time, but it can have an enormous impact on your use of money.

How to Make Money from the Comfort of Your Home

The Simple Dollar started as a way for me to organize my own thoughts about our ongoing financial changes and perhaps as a way to make a few dollars on the side. I started writing down my thoughts, put a few ads up on the site and shared the link with some friends. After a ton of work, it slowly built into a thriving side gig and then eventually into my full-time work.

Both before and after the launch of The Simple Dollar, I tried all kinds of ways to make extra money working from home. I had a small computer consulting business. I mowed lawns. I wrote about parenting issues.

Along the way, I learned a lot of useful lessons about how to make extra money from home. Here are the key lessons I learned.

Identify things you can do quickly and with a reasonably high level of quality that others seem to be unable to do with the same mix of speed and quality.

I learned early on in my career that I had the ability to write reasonably good articles, documentation and content at a fast rate of speed. I had a process that I honed over the years that involved having a core idea, jotting down notes, turning them into a really simple outline and then just churning out reasonably good words – and I could do it fast. I don’t claim to be a great wordsmith, but I do think I can convey ideas in a personal way at a pretty high rate of speed, and that’s a skill.

My wife, on the other hand, can crochet like a machine. If we’re watching a television program, she’s usually crocheting something for someone and her hands are a blur of activity while doing it. She can churn out all kinds of things surprisingly quickly, given that she’s usually doing it while focused on something else.

I have a friend that can churn out YouTube videos on certain topics incredibly quickly. He has a number of technical skills and a system in place that lets him produce reasonably good videos at surprising speeds.

I have a friend that makes handmade soaps. I have another friend that makes glass etchings. Another friend makes deck furniture. Yet another friend tutors math students.

All of these people are drawing upon skills that they either naturally have or that they built up over time that lets them do a particular task better and/or faster than the average person, usually both, and usually significantly better and/or faster than the average person.

That’s the key to finding the right at-home work for you. Find something you can do faster and better than the average person, then figure out how you can easily sell that skill either to an employer or through some kind of marketplace.

What if you can’t figure out that skill? It’s not hopeless, but it will be a lot harder to find good work at home.

Don’t sink a whole lot of money into it.

Many “work from home” opportunities are actually just attempts by businesses to get you to buy their stuff with the idea that you’ll then sell that stuff at a markup. This usually requires you to invest money upfront into products, marketing materials and other items.

Don’t do that. In fact, avoid it like the plague. In those situations, you’re the customer, not the money earner. If a “work from home” opportunity involves you spending more than a tiny amount of money upfront to get started, then it’s not something you want to be involved with.

A good work from home opportunity is one in which you use a skill and, in some cases, equipment you already have to make money. You may have to buy a small amount of material to get started, but it should be a trivial amount and, after that, the income should make everything self-sustaining while producing income for you.

If that’s not the case, then it’s not a good way to make extra money from home. If it’s requiring a significant up-front investment from you, it’s probably not something you want to be involved with.

In fact, of the work from home side hustles that won’t work out well, most of them revolve around putting your own money into it upfront. Those fail the vast majority of the time, leaving you having tapped your own money, a lot of your own time and energy, and sometimes friendships, too.

Even if you do find something that doesn’t require a lot of money, you can still nickel and dime yourself with little expenses. A piece of software here, a web hosting plan there, a few car trips, and before you know it, you’ve devoured much of what you make. You have to keep track of your expenses if you work from home, not just for taxes, but also to determine if the time is worth it for you. Here are some good strategies for minimizing a lot of common work at home expenses, but the real key is to just keep track of them and keep a close eye on them.

The magic ingredient is time.

There are a lot of advantages to working from home, particularly if it’s a side gig when you’re making extra money. It gives you quite a bit of scheduling flexibility, eliminates commuting, and allows you to multitask household chores.

That being said, it’s still work. You have to put time into it if you want to get money out of it, and that means working in a focused manner when at home. If working at home just means an endless flood of distractions, whether it’s Netflix or chores or a hobby, then you’re not turning that time into money.

The single most important ingredient for successfully working at home, no matter what you’re doing, is focused time. Yes, you can often flex that focused time around your other scheduling needs, but if you don’t sit down and do the work, you won’t make money.

If you’re considering working from home at all, I strongly encourage you to read my earlier article on twelve strategies for maintaining focus while working at home. In a nutshell:

  • Find small rituals that signify the ‘start’ of a block of work and the ‘end’ of a block of work.
  • ‘Bank’ as much work as possible and use every droplet of focused time.
  • Set and keep a regular schedule.
  • End each working session with a period of reflection on successes and failures
  • Have a specific place in your home where you work
  • Find an ‘alternative workplace’ or two outside of your home, and maintain a ‘portable office’ bag
  • At the beginning of your work session, start loads of dishes and laundry
  • Figure out which times of the day are most conducive to your focus, and work during those periods.
  • Turn off digital distractions during those key focus periods.
  • Use ‘focusing audio’ by playing it in the background.
  • Try to get in the ‘flow’ as much as you can.
  • Block off times for professional development.

To put it simply, if the magic ingredient is time, figure out how to get as much value out of that time as you possibly can. This is especially true if you’re not doing freelance work using a skill you have. If you’re working from home on tasks that are mostly about applying focus and grit, these tips are extremely important.

Most “make extra money at home” gigs are freelance jobs.

Most people that want to make extra money at home rely on freelancing work that enable them to use the skills they’ve identified to make a quick buck.

People who are trying to sell their digital skills often go to sites like Fiverr or Freelancer.com, whereas people who make things often sell through sites like Etsy or eBay.

The goal, if you’re freelancing, is to figure out what you can offer that you can do with a great deal of efficiency, then offer it in an appropriate place. At first, you’ll want to keep prices relatively low to build up a reputation and some clients, but as success builds, the limitation often becomes the time you can give to it.

There are a few legitimate part-time jobs to make extra cash from home, but they can be demanding.

Aside from freelancing gigs, there are a lot of jobs that are more traditional in their employee-employer relationship that allow you to work from home. Most of these jobs are location independent contract positions, often in fields like medical transcription, software development, document translation, call center representative, and so forth.

You can find listings for these kinds of positions on sites like Upwork and Career Builder. They tend to aim for candidates with some experience in those fields or with obvious transferable skills (meaning you’ve done similar tasks in the past), which is important because such jobs usually involve a great deal of independent work and you’re expected to come in the door with some knowledge of what to do.

It won’t be easy, but it will be flexible.

The advantage of a side gig that’s also a “work from home” gig is that it’s both flexible and also not essential for you to make ends meet. Of course, those two things can work against you in terms of being focused and making things successful.

The keys to the castle are simple: you have to be able to really focus at home, and you have to understand what you can do well efficiently that others may value. Figure that out and you may just find some part time success from the comfort of home.

How to Cleverly Save Money for the Unexpected

Over the last week, I’ve heard tons of questions and participated in lots of conversations about COVID-19. The topic of COVID-19 itself is pretty far outside the realm of what is covered on The Simple Dollar, as it digs deep into health care and public policy issues and The Simple Dollar sticks to personal finance and frugality issues. However, whenever there is a major societal challenge, there are financial and frugal impacts for all of us.

So, let’s discuss them.

In general, I tend to stick to the same basic principles in life through thick and thin. Rather than altering what I’m doing radically because of a crisis or a disaster, I try to live my life so that a crisis won’t upend things — or will alter things as little as possible. Thus, almost everything I describe below are things that I normally do during normal times and during moments of crisis. These principles and strategies are ones that I repeated during the financial crisis of 2008, during the severe flooding that rocked the area around where I live in 2010, and I’m using right now, too. They’ve helped during a lot of personal crises, too. I expect that these principles and strategies will be suited for almost every major crisis that comes along in my life.

Who should I trust for accurate information? In any situation, I tend to trust the people who have spent their lives working with and studying situations like these. In the case of an illness or pandemic, I trust doctors, medical scientists and virologists, not politicians or talking heads. In a natural disaster, I tend to trust engineers, building contractors and the like. Those people have been working with situations like this or studying situations like this for the entirety of their professional lives, and if anyone knows the situation, it’s them.

As an aside, it is never a bad idea to wash your hands often, minimize touching your face and stay at home when possible if you’re feeling sick as a way to avoid contracting and spreading many kinds of illnesses. Those are things we should all be doing all the time.

Now, let’s talk about finances and frugality.

When the unexpected happens, don’t rock the boat with your finances.

If a major unexpected event in life happens, whether it’s a widespread illness, flood, stock market crash or a personal loss, it’s almost always a mistake to make a major financial move in the heat of the moment. You should not sell your stocks because of what the stock market is doing today or what it has done over the last week or the last month. That’s a giant mistake that usually just locks in your losses.

So, if you have money in stocks right now, my advice is to sit tight. Ride the roller coaster. Pulling out money right now is nothing more than an extremely risky gamble. What about buying investments right now when the price is lower? That’s risky, too, but I view it as a lower risk than selling.

What if you need that money to live on? Many people are already in retirement but still have significant amounts of their retirement savings in the stock market. If that is your situation, then you need to speak to a fee-based financial advisor who can look at your exact situation and give you some guidance.

What if you’re not in any immediate danger, but the stock market is leaving a sick feeling in your stomach? Don’t look at it. Don’t sweat the day-to-day action. You are in the stock market for decades, not days and weeks. The only people that should worry too much about the daily action on the stock market are day traders and people in the financial industry — and I’m not talking to those folks. For everyone else, looking at the daily stock market returns is basically useless.

My investment strategy is simple: if I am not going to need the money for 10 or more years, it’s invested in something aggressive, like stocks or real estate. Because I don’t need the money for that long, the volatility of a day, week or month isn’t a big deal. I have lots of time to recover and have the power of compound interest work for me.

If I’m going to likely need that money within 10 years, it’s in something relatively safe and not volatile. Things like highly rated bonds and money markets are good choices for those time horizons.

What if you need to change things? The best approach is to change your contributions. If you’re getting close to the point where you’ll need the money in ten years, shift your contributions from aggressive investments to safer things. That’s the money you’ll tap in ten years. If you need to, you can start slowly rebalancing by gradually moving money out of riskier things and into safer things, but try to do it with additional contributions at first. In general, don’t rebalance during periods of high volatility. If the stock market has gone up or down more than a few percentage points in a day within the last week or so, wait to rebalance.

If your retirement savings are in a Target Retirement fund, you’re fine. Those types of investments self-balance over time as you approach retirement, so you don’t really have to worry about these things.

What I’m describing here is exactly what Sarah and I are doing with our retirement accounts right now. We’re not touching a thing. In fact, we’re barely looking at the stock market right now. That’s what you should be doing, too. Looking at daily stock market swings adds stress when there doesn’t need to be any.

Smart frugal principles help right now, too.

We’ve all seen pictures and videos and read stories about people stocking up on things like toilet paper. To some, it seems crazy. To others, it’s worrying and a nudge to also stock up.

Here’s how we approach this.

We tend to buy our nonperishable foods and household supplies in bulk and/or when there’s a sale (ideally both), regardless of what’s going on in the world. That means at any given time, we have a month or so worth of food items and household supplies for our ordinary life around our house.

Our bulk buys are only things we know we’re going to use. For example, the household supplies we buy in bulk are things like soap, toothpaste, floss, dishwashing detergent, laundry soap, toilet paper, and so on. If I see a good deal on those things, I buy them because I know we’ll eventually use them. If I see that we’re running even close to low on any of those things, I buy a bulk bundle of them at the lowest price I can find (usually the biggest version of the store brand at a warehouse club, but not always).

We do the same thing with a lot of food items — we buy nonperishable foods that we know we will eat in bulk. We always have lots of dry beans, dry rice, peanut butter, canned tomatoes (and, to a lesser extent, other vegetables, though we usually buy them flash frozen), dry pasta, flour, sugar and yeast (we bake a lot of our own bread products by hand or in a bread machine). When we see a really good sale on one of those items, we buy it. When we notice we’re getting even close to low on something, we’ll stock up on it.

Aside from the cost savings of this strategy (buying in bulk, buying store brands, targeting sales and doing it only with stuff we know we’ll use), if something were to disrupt our ability to buy groceries or household supplies, we’d be fine for at least a while.

What do you do if your cupboards are relatively bare? I basically encourage everyone who isn’t pushed up against the wall financially to gradually move to a bulk buying system like this one, where you buy nonperishable things in bulk that you know you will use before their expiration date. If you have an opportunity to do so now without crushing your finances, do it, but do it in a realistic way. There’s no reason to buy six months’ worth of toilet paper. Buy one large package of it (in store brand form), enough for a month or two, at the best price you can get. Do the same for other nonperishable items that you know you will use up anyway in the next few months.

Another valuable frugal principle to have is to make a lot of things for yourself, particularly food. The more adept you are in the kitchen, the less you have to rely on others to make food for you and the more money you save along the way. This also makes you less reliant on restaurants (and the health of restaurant workers and delivery people).

I don’t claim to be an expert home chef, but I can make a lot of things with complete ease. I did this mostly by making dishes (with variations) that I liked and my family liked over and over, until all of the skills involved became second nature. My family likes spaghetti with sauce, for example, and I’ve made that so many times that I can practically do it blindfolded. Along the way, I got very fast at it, figured out how to make it with lots of variations, and also figured out how to make it delicious, none of which were true early on. I also got very fast at cleanup.

That same thing is true for lots of family favorites, things like homemade pizza, homemade bread, tons of different soups and stews, tons of variations on eggs and omelets, and so on. Simply knowing how to do all of these things well and do them quickly means that I’m naturally more interested in cooking from home, since that’s more convenient and also far less expensive. It has the additional benefit of always being an option (as long as there’s electricity, of course, but then we’re beginning to talk about situations that there’s no real way to prepare for).

Another principle we follow is having a lot of finished meals on hand, stored away in the freezer for easy preparation. If I’m sick or otherwise incapacitated, I’m not going to want to cook. I’m going to want something as easy as possible to get calories in my stomach. We keep some prepackaged meals in the cupboard, but we really lean into preparing meals in advance and keeping them in the freezer.

If we make a big pot of soup, we make it even bigger and fill up some quart-sized containers of soup for the freezer. If we make a casserole, we make four of them and freeze the other three such that they can be pulled from the freezer and popped in the oven.

This not only has the advantage of giving us really convenient food that we made ourselves, but the cost of that meal is usually really cheap because it was made from bulk ingredients. We could buy the 10-pound bag of potatoes at the store, for example, when making a big batch of potato soup. We could buy the jumbo box of lasagna if we’re making four pans of it at once.

What if the unexpected is coming quickly? These strategies help if you have some lead time, of course, but what if you have very little lead time? Getting some prepackaged foods is fine, but just make sure that you’re not buying more than you’ll ever use before they expire.

There are a multitude of other smart moves you can make, both to prepare for the unexpected and to help your financial future at the same time.

Here are some additional specific things you should be doing in your ordinary life that really show their value in unexpected times.

Constantly build new skills and relationships at work. Your goal at your job, beyond doing the tasks assigned to you and collecting a paycheck, should also be to build some strong positive relationships with people there as well as building skills you can use to get a better job someday. That should be part of your motivation every day at work – you do the tasks to make money now, you build skills and relationships to make more money later.

This helps in unexpected times because the more skills you have and the more relationships you have, the easier it will be to find work in an uncertain economy if you find yourself without work.

Yes, sometimes it will be hard to build good relationships in some workplaces. Don’t expect perfection – just remember that the perfect is the enemy of the good. Stick with being positive where you can and aim to lift people up rather than cutting them down, even when they’re not around. Help people out, especially when the effort you have to put out is much smaller than the benefit that the other person gets. (If you can do something in five minutes that will take someone else hours, just do it.)

Most people should not be in immediate danger of losing their job due to current uncertainty, but this is still a great strategy to have for any job you hold.

Have an emergency fund. This isn’t something that most people can produce in a jiffy, but moments of crisis should be a powerful reminder of how useful it is to have an emergency fund. Simply put, an emergency fund is cash stowed away somewhere (usually a savings account) that you can put to use during any kind of emergency. I have a small emergency fund in cash in my home and a larger one in a savings account in a nearby bank.

Obviously, building one very quickly isn’t realistic for many Americans, but it should be a good goal to have, simply because of the protection it offers against the unknown and unexpected. Things like a job loss or a period of illness are much easier to handle with an emergency fund.

My strategy for building one is to set up an automatic transfer from your checking account to your emergency fund savings account, for a small amount each week. Make it $10 or $20. If you do $10 a week, you have $520 set aside after a year. If it’s $20, that’s more than $1,000. Then, never turn it off. Let it keep building, essentially forever. That way, after a while, you never have to worry about it being there.

What if you don’t have an emergency fund and are facing a crisis that requires cash? Unfortunately, in those situations, debt is usually the answer. If you have to put some expenses on a credit card or a personal loan to get through a very bad situation, that’s an unfortunate situation. However, you should aim to get that debt eliminated as soon as you can and, even more important, keep that experience in mind as you aim to build an emergency fund.

Eliminate expenses that aren’t memorable. My rule of thumb when it comes to expenses that aren’t strictly needs is that if they’re not memorable, then they shouldn’t recur. If I look at my bank statement and see a bunch of stops at the coffee shop and they all blur together and aren’t memorable, then I know I need to cut back seriously on those stops. If I see a meal eaten out and I can’t even really remember it, then I know I should eat out less often and save such events for special occasions. If I see an entertainment expense or a hobby expense and I have to struggle to recall anything about it, a real change is needed.

Again, the reason this prepares you for the unexpected is that it frees up some of your spending to put yourself in a more financially stable position so that you can survive getting sick, you can survive a job loss, you can survive whatever life throws at you. You are much more likely to survive the unexpected if you cut out the unmemorable expenses in your life and apply that saved money to building an emergency fund or getting rid of debt.

There’s nothing wrong with using money to do something you enjoy in a genuinely memorable and impactful way, but when you’re spending money on stuff that just fades away pretty quickly, there are better things to be doing with it.

You can start doing this immediately and it will have an impact very quickly. Look over your expenses for the last month. Which ones from two or three or four weeks ago do you barely remember or not remember at all? You should really cut down on those particular expenses going forward because they have no real positive impact on your life. They’re just dollars vanishing from your pocket, dollars that can do a ton of good when they’re used in other ways.

Minimize your recurring expenses. Take a look at every single weekly, monthly, quarterly, and annual bill you have and ask yourself whether it’s actually necessary. If it’s not, is it providing you any real value for the money you spent? If you’re not getting enough value, cancel it. If it’s a necessary bill, is there anything you can do to make that bill smaller? Call up the company that’s issuing that bill and see what you can do to trim it down or consolidate it.

The smaller you can make your recurring expenses, the easier it is to make ends meet on your current pay and the easier it is to survive if you have to take a lesser-paying position unexpectedly.

Unexpected events, big and small, are a part of life. While you can’t predict exactly what they are, you can expect that they will happen.

When times are good, you have an opportunity to get ready for the times when things aren’t quite so good. This way, when things take a tumble, you’re not caught in a panic with life changes that you can’t easily handle.

My thoughts, hopes, and prayers are with everyone working to combat the coronavirus outbreak. The best thing I can do to help is to be prepared myself, take simple steps to keep myself and others safe, and share sensible advice. That’s all most of us can do in most unexpected situations.

Save Money on Car Insurance

My wife and I switched our auto insurance coverage recently and paid our full annual premium up front. It was a painful little payment, even though we had shopped around and such. This led us to both researching various methods with which one could save money on auto insurance. Here are seven useful and applicable tips that we discovered to save money on car insurance.

Take a defensive driving course. If you have a speeding ticket or other minor violation on your record, it generally boosts your premiums on your auto insurance. Most states keep track of your violations through a point system – each violation earns you a number of points and each year sees a small reduction in points. Your point total is what insurers use to adjust your premiums upward – the more points, the more you pay. Taking an optional defensive driving course offered by your state for a small fee (some states, like Idaho, even offer these online) can net you a reduction of a few points, directly saving money on your insurance. A $30 course and a few hours can see as much as a 10% reduction in your premiums over the next few years.

Look at a combination homeowners policy and car insurance policy. We did this (because we happened to be moving at the time as well) and found that a combination package that covered both of our vehicles as well as our home was substantially less expensive than the independent insurances would have been. If you’ve got home and auto insurance through separate companies, call up your agents and ask for quotes on combination packages – likely, that will save money.

Increase your deductibles. If you’re in good financial shape with a well-built emergency fund, look at raising your deductibles. This will directly lower your premiums, but still cover you in the case of a major accident. I found that if I raised my deductible from $500 to $1,000, that $500 difference is paid for in just over a year by letting me put that $500 in my emergency fund instead. After that, it’s just cheaper monthly bills.

Work on improving your credit. If you have some dings on your credit report, this can negatively influence your premiums. Insurance companies use as much information as they can get to estimate how risky of a driver you are, and if you have lots of credit issues, you’re much more prone to risky behavior. Keep all of your bills paid on time and work on lowering your credit card debt.

If your car is old, remove collision coverage and just go with liability coverage. My rule of thumb is that if a car’s cash and/or trade-in value approaches $1,000 (or less), you should just go with liability coverage. A car in that state is nearing the point of replacement anyway, so if you get in an accident, it’s probably going to simply need replacement and the cash value of the car is negligible – you’ll probably not get much less selling it for scrap. So don’t throw out good money in this situation – move to just liability coverage.

Pay your annual premium all at once. If you pay semiannually, quarterly, or monthly, you’re likely paying a fee each month for this “convenience.” Instead, just save up the premium in a savings account and pay it once a year. Let’s use an example of a person whose annual premium is $900 a year, and each payment plan charges a fee of $8.95 a payment. If one pays monthly, that means a monthly bill of $83.95 every month. Instead, a person could put only $73.50 a month into a 5% APY savings account and pay the whole thing once a year without payment fees. That’s a savings of more than $10 a month.

Buy a car that’s less prone to theft or accident. Insurers also take the type of car you’re buying into account, even down to the color. A flame-red Mustang is going to have far higher premiums than a silver-colored Honda Odyssey, for example. Why? Aggressive colors are often linked to aggressive drivers, and vans are often a sign of a stable and secure situation (what kind of person drives a minivan versus what kind of person drives a Mustang). Consider the statement that your car makes about you – and consider that same statement is being made to the insurance company.

Remember, if you do all of these things and your premiums don’t budge, it may be time to shop around for new insurance. Don’t hesitate to get quotes from other insurers if you suspect your current insurance is way overpriced.