Consider this your crash course in audit preparedness. You’ll learn about common audit triggers and tips for how to handle the audit process.

So What Does Being Audited Mean, Exactly?

If you are being audited by the IRS, it means that the agency plans to review your tax return and confirm that the information you’ve provided is accurate. The main goal is to determine whether your income, expenses, and credits – which determine the amount of taxes you owe – have been reported correctly.

Learn more: Get to grips with personal taxation by exploring our comprehensive guide on how do taxes work for individuals.

Different Types of IRS Audits

Not all audits are the same. The IRS may perform the following types of audits:

• Correspondence audit
• Office audit
• Field audit
• Taxpayer Compliance Measurement Program (TCMP)

The exact procedures of each of these audits are quite different. If you receive an audit notice from the IRS, check to see what type of audit to expect.

How Does the IRS Select Who to Audit?

On average, the IRS audits just 3.8 out of every 1,000 tax returns — yielding an audit percentage of just 0.38%^[1]. Still, that may not be terribly reassuring if you’re currently on the receiving end of an audit. According to the IRS, audit selection criteria are based on random selection, computer screening, and auditing returns with a high probability of non-compliance.

What Do I Do if I Receive an Audit Notice?

If you receive an audit notification in the mail, don’t panic. Not all audit types will place you under intense scrutiny. Before you do anything else, check the following:

• What is the stated reason for the audit?
• Does the letter specify the year being audited?
• What type of audit can you expect?

Read this notice carefully, as it will contain important information about why you’re being audited and what to expect. There may also be instructions on what to do next, so read the full letter immediately after you receive it.

Learn more: Find out how to effectively settle IRS tax debt, even if it’s 2, 3, or 4 years old, with our practical guide.

Common Types of IRS Audits

Not every IRS audit is created equal. The IRS uses several different types of audits, each of which has its own level of detail. Here’s what to expect from each type of audit.

• Correspondence Audit – A correspondence audit is the simplest type, as well as the most common. Correspondence audits make up 85% of all audits^[2]. In this audit type, the IRS will simply send a letter asking for clarification about a portion of your tax return and provide a means for you to send information back.
• Office Audit – If the issue is too complex for a correspondence audit, you may receive a letter requesting an “office audit” or a face-to-face audit. In this audit type, you’ll come to an IRS office to answer questions about your tax return. Make sure to bring any documentation about deductions or credits at this time.
• Field Audit – Field audits are the least common, though they’re also the most invasive. During a field or office audit, an IRS agent visits your home or office to discuss your return. This is the most comprehensive audit type. It may examine your lifestyle, income, and business activity. You may want to consult an attorney or accounting professional to help you through this process.
  Field audits are very rare, and it would be very unusual for you to face one.
• Taxpayer Compliance Measurement Program (TCMP) – This rare form of audit is most common among high-income individuals, and it is simply designed to collect statistical data for future audits. The IRS may select specific items for this audit, and you’ll be asked to provide documentation, such as bank statements or receipts, to support your income or deductions.

Learn more: New to filing taxes? Our guide walks you through everything you need to know when filing taxes for the first time.

Common IRS Audit Triggers

While some audits are simply a matter of random selection, the IRS also uses computer systems to flag tax returns for an audit. This can happen due to some of the following common audit triggers.

• Math Errors – Always check your math! If you perform a calculation incorrectly, the IRS may flag your return and leave you subject to an audit.
• High Income – According to a 2022 report by the Government Accountability Office, higher-wage earners were generally more likely to get audited than those from lower income brackets. Those making more than $500,000 per year were especially more likely to be audited^[3].
• Unreported Income – Your employers send forms W-2 and 1099 to both you and the IRS. If your tax return is missing this information, you may receive an audit notice about your unreported income.
• Early Retirement Withdrawals – Did you make an early withdrawal from your retirement account? If so, this may also trigger an audit to ensure that you report these distributions accurately.
• Related Party Audits – You may receive an audit notice if someone you’re financially connected to receives an audit. A common example would be a business partner. If your business partner submitted a tax return that didn’t comply with established regulations, you may also be audited.

Learn more: Our article explains what happens if you don’t file or pay taxes, and why it’s crucial to stay compliant.

Navigating the Audit Process

What does being audited mean for you? The answer depends on the type of audit you’re facing, but there are still some general things you should do from the moment you first receive the audit notice.

Read the Letter Carefully

First, read the audit notice carefully. Make sure that you understand the key elements of the audit.

• What year(s) is the IRS is looking at?
• What is the reason for the tax audit?
• What type of audit will you be facing?

Look for any specific instructions and/or deadlines that will influence your next steps.

Verify the Letter’s Authenticity

Understandably, you may be concerned that the letter is part of some type of fraud or phishing scam. You can verify the letter by checking the contact information against that of the IRS website or by checking that your name, contact information, and Social Security number are accurate. When in doubt, contact the IRS directly through the information on their website.

Respond Immediately

Never, ever ignore a letter from the IRS. Doing so can actually worsen the situation. The letter will usually request a response. Respond immediately and provide any requested documentation. In a correspondence audit, this may be all that’s needed to clear up the situation and move forward.

Cooperate Fully

Unfortunately, there’s not much you can do to get out of the audit. Make sure to cooperate to the best of your ability. Be honest about all of your information. Even a hint of hostility or dishonesty could severely hurt your case.

Keep Detailed Records

Save everything the IRS sends you. Organize your records by date. This will help you maintain your own records as well as provide a trail of documentation that you may need if you choose to seek professional assistance.

Seek Professional Help

If you’re facing a complex tax audit, you may not feel comfortable handling it yourself. You can choose to seek the assistance of a CPA or even a tax attorney to be your advocate with the IRS.

How Far Back Can the IRS Go?

Don’t be surprised if you receive an audit notice for a tax year older than your most recent return. The IRS is fully capable of reviewing past returns to determine prior liability.

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For Tax Fraud: Forever

There is no statute of limitations for tax fraud or failing to file a tax return. If the IRS suspects you of these crimes, there is no limit to how far back they can investigate.

For Most Audits: 3 Years

The good news is that the statute of limitations is much shorter for other types of audits. The standard rule is that the IRS can look back at the previous three years. Just be aware that this is three years from the due date (usually April 15), so if you file early, the statute of limitations does not begin until the official April deadline.

For Large Errors: 6 Years

Here’s where it gets a little confusing. For large errors, the IRS can go back six years. A “large” omission is more than 25% of your gross income^[4]. This extends the statute to a full six years.

Understanding the Lookback Period

Keep in mind that the IRS may or may not actually look back this far. In fact, the IRS website states that most audits cover only two years’ worth of returns^[5]. And since correspondence audits (the most common type) are designed to address minor issues, taxpayers can often anticipate a fast turnaround.

Still, it’s always a wise idea to maintain clear, detailed tax records. The good news is that if you use electronic filing systems you can save your financial records indefinitely, so you’re always prepared.

Learn more: Get ahead of tax season with our review of the best tax software providers for 2024, ensuring a smoother filing experience

Consider Professional Help

If you are being audited by the IRS, should you immediately call a CPA or tax attorney? Not necessarily. A simple correspondence audit may be cleared up by providing some additional information. But you might consider reaching out to a professional if any of the following apply.

• Office and Field Audits – Though less common, office and field audits are a bit more invasive. You might request a CPA or tax attorney to represent you.
• Complex Tax Issues – Does your tax situation involve business expenses, rental income, foreign income, or income across multiple states? If so, a CPA may be able to help you sort through complex tax issues to clear up the audit as smoothly as possible.
• Tax Debt – If you’re already aware that you owe tax debt, you might consult a tax professional who can assist you in negotiating a settlement or payment plan with the IRS.
• Tax Fraud – A tax attorney can help you if you’re being investigated for tax fraud. At the very least, they can advise you on your rights and help you resolve the situation with minimal legal consequences.

What Does Being Audited Mean for You?

One thing is certain: being audited doesn’t have to mean the end of the world. If you know more about why you’re being audited and what to expect from the process, you can move forward with greater peace of mind.

If you’re not quite sure how to move forward, don’t hesitate to reach out to a professional. It’s important that you get help right away, especially if you’re facing a deadline from the IRS. After all, the sooner you address the audit, the sooner you can get on with life.

The post What Does Being Audited Mean? appeared first on FinMasters.

While private real estate investing can be lucrative, there are many important considerations to make before jumping in. This guide will explore some of the pros and cons of private real estate investing.

What Is Private Real Estate Investing?

Private real estate investing involves the direct ownership of property or contribution to a private real estate fund or partnership. It can be a more active form of investing than traditional avenues, as stakeholders are often directly responsible for maintaining the properties they own.

Private real estate investing is considered an alternative financial vehicle. Unlike public real estate investment trusts (REITs), private real estate isn’t traded on financial markets. It also demands a more managerial outlook than other typical items in a portfolio.

Learn more: Uncover effective ways on how to start investing in real estate with our insightful guide to top strategies.

Residential properties are probably the most popular vehicles for private real estate equity due to their availability, ease of management, and potential for predictable ongoing revenue. Commercial properties, specialized buildings, and undeveloped or semi-developed land are also favorites of the private real estate investment community.

Profits in private real estate investing are realized via regular income like rents and value appreciation over time. Investors can also take advantage of tax deductions on property depreciation.

More than $160 billion was raised globally for private real estate investments in 2022. Like any investment vehicle, the private real estate market endures ups and downs, especially in times of inflation and recession. Even so, the industry is positioned to grow as real estate markets expand.

Is private real estate investing worth the risk? Here’s a look at some of its advantages, drawbacks, and potential opportunities.

Learn more: Enhance your property investment knowledge with our selection of the best books on real estate investing.

Pros of Private Real Estate Investing

Private real estate equity is especially attractive to high-value investors and funds. Here are some of the reasons why.

High Potential Returns

There are many avenues for finding success in private real estate investing.

Rental income and lease payments are common for residential and commercial properties. Undeveloped land with valuable resources like oil or minerals can also earn investors extraction royalties. Depending on the property, private equity holders can even earn ancillary income from sources like parking space rentals or licensing fees.

Appreciation is another appealing prospect to private investors.

Properties tend to increase in value when held for several years. This is especially true in areas going through rapid development or economic growth. Private investors earn money through appreciation by selling the property at a higher value or leveraging their equity for refinancing or other investments.

Diversification

Diversification is a key concept for all investment strategies, including real estate. The idea is to distribute one’s money across a wide variety of commodities and assets.

An investor’s portfolio may include holdings in stocks, bonds, cash, or even cryptocurrency. They may also have holdings in multiple industries, such as positions in real estate, tech, consumer goods, and utilities commodities.

Delve into the world of private real estate investing with our latest post exploring its pros and cons. #RealEstateInvesting #PropertyPortfolio

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The biggest benefit of diversification is risk mitigation. When you hold positions in several different areas, the investments that perform well can balance out the ones that are underperforming.

For example, if a boom in the real estate market drives up the value of your property holdings, it can make up for times when your tech stocks suffer from industry-wide slowdowns.

By contrast, concentrating all your investment capital in just one or two specific areas exposes you to risk. If your portfolio holds nothing but communications, for instance, you’re tied to the ups and downs of that industry alone. When the communication sector goes through a downturn, your portfolio’s value can take a disastrous hit.

Diversification addresses this issue, protecting shareholders from market volatility and changing economic cycles. By adding private real estate interests into your portfolio and holding a diverse array of properties, you can effectively manage and mitigate your overall risk.

Control and Decision-Making

Private real estate investing is a more active form of investing than stocks or ETFs. For example, owning a residential property for rental income necessitates property maintenance, improvement costs, regulation awareness, and so forth.

While active management takes more work, it gives the investor more control over their assets. They make decisions and take actions that directly affect their holdings in hopes of generating income. More passive investors may not often have a meaningful say in the day-to-day maintenance of their holdings.

Being more involved in decision-making gives investors a sense of control over their assets. It also reinforces the investor’s connection and dedication to their properties, which can be great incentives for active management.

Tax Benefits

Large-scale investments are often vehicles for holders’ tax strategies. Several real estate investing strategies help limit annual taxable income, offering the opportunity for deductions.

For example, an investor in low-income housing may receive tax credits for making improvements, complying with energy efficiency regulations, or depreciation. A commercial real estate investor can get breaks on property taxes, interest expenses, or qualified income.

Limiting one’s taxable income can result in a more favorable tax return at the end of the year. This, in turn, can free up cash flow and other income strategies like compound growth.

Be sure to consult a tax professional before adopting any tax mitigation strategy!

Access to Unique Opportunities

Private real estate investors have access to prospects that other investors don’t. For instance, they can invest directly in residential or commercial properties. They can also make profits via natural resources like oil or gas.

Certain strategies are unique to private real estate investors.

Besides owning properties themselves, they can become part of a “syndicate”, pooling their funds with those of other investors. They can serve as lenders for development projects, earning interest on debt or mortgage payments, or invest in one-off opportunities in niche markets like senior housing or healthcare businesses that need more specialized attention.

These properties and strategies generally aren’t available to everyday investors, as they often require greater capital or are limited to accredited investors. The exclusivity of these assets makes them more appealing to those who can afford them.

Cons of Private Real Estate Investments

Despite its potential benefits, the private real estate investment market comes with some real disadvantages that investors have to consider carefully.

Illiquidity

Investing in real estate is a complex process involving very large assets. Converting investments into cash can be difficult and may take a considerable amount of time. This illiquidity can prove a detriment to some investors.

Since they’re more exclusive, private real estate investments have much smaller pools of potential buyers. The process of investing may further be subject to regulation compliance, zoning disputes, and many other administrative requirements that can slow down transactions and make it more difficult to liquidate an investment.

Risk and Volatility

The scale and substance of private real estate investments make them inherently risky. Real estate is susceptible to economic downturns and recessions, especially during certain market cycles. And since they’re highly illiquid, investors may have a harder time unloading the assets to get out of risky circumstances.

External factors also contribute to the real estate market’s volatility. Interest rate changes, inflation, consumer confidence, and other trends can all negatively affect values.

Higher Capital Requirements

Private real estate investments are more exclusive simply because they require more capital funding. The minimum amount needed for the initial buy-in is often impossible for smaller-scale investors to meet. Many real estate investments are limited to accredited investors because managing them requires specialized experience.

Limited Transparency

Publicly traded assets like stocks are subject to regulation and reporting requirements. Though stockholders don’t have access to every single minute aspect of public company management, they get quite a bit of detailed information about company operations and earnings.

That’s not the case with private real estate opportunities. Such investments aren’t held to the same level of public disclosure as public commodities. Because of this, fund managers might restrict the information they give to the general investment pool, which can be frustrating for those who want to know more.

Longer Investment Horizon

The complex, large-scale nature of private real estate investing requires a not-inconsiderable time commitment. Returns on investment may not actualize for years after raising initial capital. As such, private real estate investing isn’t generally a suitable avenue for those focused on short-term growth or immediate gains.

Private Real Estate Funds

Rather than buying and managing a specific property, many investors put their resources into private real estate funds. Similar to mutual funds and ETFs, these financial instruments pool money from multiple investors. That capital is then used to provide capital for a range of real estate projects.

A real estate fund can instantly diversify one’s portfolio, spreading investments across different types of real estate properties across various locations.

These funds are typically run by experienced managers who are upfront about the characteristics and strategies of certain funds. Depending on how managers permit or limit exit strategies, they may offer slightly more liquid investments as well.

Open Up Your Private Real Estate Investment Playbook

Opportunities for private real estate investment cover a wide spectrum. Considering which ones to follow comes down to the investor’s general financial goals and risk tolerance.

Residential properties are popular, as they can provide rental income, steady appreciation (if they are in desirable locations), and less complicated lease terms.

Commercial properties, meanwhile, offer more sizable returns on investment, with a wealthier potential tenant base and more complex, longer-term lease agreements. Industrial properties represent the “biggest” private real estate investments. They frequently come with corporate tenants and decades-long lease terms.

Each type of private real estate investment has potential benefits and drawbacks. For this reason, due diligence is crucial in evaluating which ones to pursue. Research on location, income potential, market demand, property condition, financing options, and legal compliance will go a long way toward helping you make the right option.

When faced with such prospects, consulting with financial professionals with experience in private real estate investing can be highly beneficial.

Their guidance comes from years of working on large-scale investments. If you’re just beginning your private real estate investment adventure, make it a point to have a trusted financial expert in your support circle.

The post Private Real Estate Investing: Pros and Cons appeared first on FinMasters.

Teens still have to learn how to make a budget before they leave the nest. You’re likely to encounter various challenges when talking to teens about money, but there are positive ways to teach them the concept of budgeting and implement strategies that will work for the rest of their lives.

Why Is Teaching Budgeting for Teens So Difficult?

Why is it so hard for teens to make responsible decisions? Biology, for one thing.

The prefrontal cortex is the part of the brain responsible for decision-making and association. However, it’s also the part that takes the longest to mature. Scientists have found the prefrontal cortex fully develops after a human reaches their mid-twenties. Even the most skilled teachers run into this complication, let alone parents.

On top of that, teens are surrounded and influenced by a lot of outside factors. Consumer culture, more pervasive now than ever, has made personal branding a huge focus for many of them. Add traditional peer pressure into that mix, and the messages the teen brain receives are almost deafening.

The natural impulsiveness of teens and peer pressure often complicates the process of learning budgeting for teens.

Right off the bat, parents face a solid wall of resistance that isn’t really their children’s fault. But when they’re on the cusp of adulthood, teens need to learn about saving money and establishing good spending habits.

They have a lot of noise to contend with, and physical development makes decisions even harder for them to make. How can parents get through?

Why Is Teaching Teens Budgeting Tips So Important?

With some rare exceptions, teenagers don’t face the complex decisions about money that adults have to manage. Many receive allowances they spend on pursuing fun stuff. That’s normal and intrinsically valuable for their development.

Adults have to transition those attitudes about money when they become independent. Mortgages, credit cards, car payments, investments, retirement savings, and emergency funds are some of the budgeting elements adults face every day. Teenagers don’t have to deal with these things, but they need to be prepared for them.

Attaining financial literacy is no easier than acquiring other kinds of knowledge. Still, it’s the backbone to managing wealth and security when you reach adulthood. When introducing the concept of a budget for teens, you need to be practical and considerate of their situation and proceed with care.

Introducing Budgeting Concepts to Teenagers

Researchers suggest that it’s never too early to talk about money with children. Even 5-year-olds can understand the concept of saving money. When they hit their preteen years, they encounter more spending options and slightly more challenging decisions.

The tween years are often the ideal time to start introducing the concept of budgeting for teens. When preadolescents have money to spend, parents can integrate some of the more intricate financial concepts with their children’s reality.

Here are some practical methods and approaches to start with when they become aware teenagers.

Teach Them to Understand Income

Regardless of age, the first step in every financial decision is knowing how much money you make and where it comes from. With teenagers, income often comes in the form of a weekly or monthly allowance. Some earn money by working part-time or selling goods online. Some also receive cash gifts for birthdays and holidays.

These forms of income parallel how adults earn money — through full-time jobs, investments, reselling, and so forth. Teenagers must understand this: How they make money now isn’t that different from how they will in the future. It’ll just be on a much larger scale.

But for now, focusing on this first step is very important in the journey of budgeting for teens. Have them compute all the money they make from allowances, chores, work, and other sources. Add the money they get from all these sources in a single month. That figure is their first monthly income statement.

Learn more: Check out our comprehensive lists of suitable jobs for 14 and 15-year-olds, along with online jobs tailored for 16-year-olds.

Help Them Understand Regular Expenses

Next comes the other side of the coin (pun intended): Where does your teen’s money go? This is the part where parents can introduce a few expenses that might cross over with their children.

Adults understand regular expenses such as rent, mortgage, car payments, insurance, utility bills, etc. On top of entertainment, teenagers may be responsible for adult-like expenses such as gas, clothing, transportation, and even their share of the family’s mobile phone bill. As with income, have your teen make a monthly expense report including all their must-haves and must-dos.

At this point, your teenager can subtract their monthly expenses from their monthly income. Do they have enough money to cover their needs, or do they need a little more? This move explains the concept of net worth, even if they just have $2 left.

Make Sure They Understand Savings

Now comes the point to talk about saving money and setting savings goals. First off, let your teen know that many adults have massive problems wrapping their heads around the concept of savings. That will hopefully humanize you and make your teenager feel like they’re not being “talked down to.”

Make sure they understand the point of savings: to have enough money to afford a major investment. Compare your savings for a house, retirement, car, or vacation to your teen’s savings for college, entertainment, transportation, or travel. Explain how their savings goals parallel yours.

Learn more: Kickstart your savings journey with our quick-start guide on how to start saving money effectively.

Create a Budget

With all those concepts firmly understood, you’re ready to tackle what should be at the heart of every family’s financial strategy: the monthly budget. The first step is accounting for expenses in two categories: saving and spending. From there, encourage them to set up subcategories that dictate where the money will go.

Larger savings goals may be for a car, college, a laptop, a cell phone, or deposits into their savings account. Regular spending includes lunch money, gas, streaming subscriptions, clothes, entertainment — anything teens need on a very basic level.

Allocate Money for Expenses

At this point, it’s time to decide how much money your teen will set aside for these expenses. There are several viable strategies for doing so.

One is the popular 50/30/20 rule — 50% of their income goes toward what they need, 30% for what they want, and 20% for savings. Another is zero-based budgeting, in which they assign every dollar they make to a regular expense or savings account until their income reaches zero.

You can also talk about percentage-based budgeting, paying off small debts first, or automatically putting a portion of monthly income toward savings (“pay yourself first”). A budgeting app can be very useful at this stage.

Looking for ways to teach financial skills to your teen? Check out our practical advice on #budgeting-for-teens. #TeenFinance #MoneyMatters

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Introduce Tracking and Monitoring

Finally, give your teenager the tools they need to stay on top of their budget. Apps like Mint or PocketGuard are especially handy for this. However, your teenager should also use more hands-on programs like spreadsheet software, accounting software, or even green ledger paper to physically track their income, savings, and spending.

Again, underscore that many adults have problems keeping track of their money. It’s a real-world issue that can be hard to fix without knowledge. That’s what you’re trying to provide to your teenager right now: the ability to reach a higher level of discipline and communication when it comes to money.

Learn more: Discover the top budgeting tools of 2023, including both free and paid options, to elevate your financial planning.

Why Is Budgeting Important?

Children and teenagers don’t typically think too deeply about the specifics they’ll have to tackle as adults, aside from daydreaming about their future careers.

However, teenagers are in a strong position to understand budgeting concepts. They’re important to learn because they establish habits that can sustain them as adults. With a firm foundation in basic financial planning, they’re more likely to endure the unpredictable when they’re adults.

They may see positive results from budgeting sooner than they think. A 22-year-old Princeton student graduated debt-free, attributing her achievement to her father’s insistence on financial education. There are numerous stories about young entrepreneurs and investors who found notable success after learning about earning and savings as teenagers or even younger.

These success stories are unique, but we know they’re possible to achieve. One thing is for certain: all great financial success comes from a deep understanding of how budgeting works. The lion’s share of failure stories are of those who didn’t have it.

Learning How to Withstand Peer and Cultural Pressure

Most modern parents remember how peer pressure affected them as teenagers. Multiply that pressure by two, throw in media influence toward consumers, and augment it all with the pervasive influence of the internet. That’s the kind of pressure modern teenagers face.

These kinds of influences can have a big effect on a teenager’s budget. They want to have the things their friends have. They’re driven by consumerist culture and social media influencers to spend money on things they want.

This is another area in which budgeting for teens can help. It counteracts the emotional pressure they feel with the reality of money planning. There’s virtue in having a defined savings goal, whether it’s college tuition or a used car. Accounting for every cent they have and properly allocating their money are homegrown defenses for withstanding outside pressure.

Open communication is key to helping your teenager survive cultural pressure. Being honest about your own experiences as a teen will help them understand their own position. Reinforcing their savings goals and discussing concepts like delayed gratification are also valuable.

Encourage Responsible Money Management

Financial literacy and accountability don’t arrive overnight — if ever. Fiscal responsibility must be taught and culturally nurtured.

You can teach your teen how their income-making methods will transfer over into adulthood. Compare their chores to your job. Working may be a grind, but sticking to it breeds a task-based approach. Older teenagers can get part-time jobs of their own for direct experience.

Allowances offer a chance for education on other money matters, like financial independence, budgeting practice, and the consequences of making certain choices. This approach is especially effective for budgeting for teens, as it provides an ideal instrument for demonstrating how to set financial goals and how to use their money toward achieving them.

However your teen gets their money, it’s never too early to instill a sense of financial priorities and goals. Having those concepts firmly in mind is the key to staying financially — and emotionally — successful as adults.

Track Your Teen’s Financial Progress

Your teenager should monitor and track their progress when learning how to budget, and so should you. But it’s important to do so without being overbearing or intrusive. They’re not babies anymore, but teenagers still feel vulnerable and sensitive.

That’s why open, unthreatening communication is such a vital part of teaching budgeting for teens. Talk honestly and freely about setting savings goals, creating budgets, monitoring cash flow, and controlling spending. As always, sharing your own experience in these areas can be valuable.

Beyond that, work with your teenager and agree on expectations. If you plan on monitoring their bank account, explain that from the outset. Insist that it’s for education purposes only, not to impose your standards on them.

Most of all, give your teenager the respect they need (and deserve). Sometimes teens need privacy, and that can instill a sense of financial independence. That’s what all this teaching is about in the first place.

Budgeting for Teens: A Valuable Learning Experience

The real world can be scary, but learning how to manage money doesn’t have to be. That’s why budgeting for teens is a crucial thing to teach. The driving principle is being open, honest, and supportive.

Make learning how to budget hands-on experience. Collaborate on a budget, help your teen sweat the details, resist undue outside influence, and spur positive financial habits. If you’re successful, they will learn something valuable. You will, too!

The post Budgeting for Teens: Practical Advice for Parents appeared first on FinMasters.

Let’s look at some realistic strategies to help teens save for a car. With determination, smart budgeting, and a little help, your dream of owning your own wheels can become a reality.

Have an Honest Discussion With Your Parents

The first thing to do when wondering how to save for a car as a teenager is to sit down with your parents and have an open conversation about your goal of buying a car and how to budget for it. While this may seem scary, remember that your parents will probably want to help you succeed.

Approach the discussion with maturity. Come prepared with realistic estimates of the costs involved (we’ll help you with that below). Outline a reasonable savings plan and explain how having a car would positively affect your life, like getting to after-school activities or a part-time job on your own.

Throughout the conversation, demonstrate that you are willing to take on greater responsibility to enjoy the privilege.

It’s also important to set clear expectations during this conversation. Express your commitment to staying focused on your studies and maintaining good grades, saving a certain amount per month, or even assisting more around the house in exchange for their support.

Be prepared to compromise on things like how much your parents are willing to contribute financially or any restrictions they may want to set. Keep in mind that even though they’re your parents, they probably have valuable guidance to offer since they have experience with budgeting for expenses like auto insurance and maintenance.

With a spirit of cooperation, you’re more likely to come up with a solution that will benefit you in the long run. This conversation also lays the groundwork for strategies like saving for a car, helping to get a loan, or finding a used car.

Last, you should realize that your parents are concerned for your safety. That is a reasonable concern: accidents are the leading cause of death among American teens. You will need to convince them that you can handle a car safely and responsibly.

Learn more: Our latest post navigates the complex decision of whether or not parents should buy their child a car.

Do Your Research

Before setting a savings goal, especially when you’re learning how to save for a car as a teenager, it’s crucial to understand what you’re saving for. This means doing research to determine the true costs of car ownership.

1. Monthly Expenses

You have to budget for more than just the purchase price of the car. You’ll need to show your parents that you’re prepared for the monthly expenses that come with car ownership.

Car insurance costs will be high for a new teen driver, so you should plan for at least $400 per month. Factor in gas, which for a used compact car may be around $100 a month. Maintenance costs like oil changes and tire rotations will run $50 to $75 per appointment.

Many teens buy older cars because they are more affordable, but older cars have higher maintenance costs. Be aware of this tradeoff as you budget!

If you’re planning to borrow to buy a car, you’ll have to be prepared to make those monthly payments.

2. Used Car Prices

Next, explore prices for used cars in your area. Compact cars might not be as flashy as the latest muscle car, but they generally have lower sticker prices and get better gas mileage. Be realistic about what you want and what you need.

3. Ratings and Reviews

As you research models, explore their reliability ratings to get an idea of potential maintenance costs. If you have friends who own the models you’re considering, talk to them about what their monthly expenditures look like.

Remember that at this point in your life, you should prioritize a car that makes sense: a car that’s safe, gets decent gas mileage, and takes you where you want to go. Save the flashy status symbols for later in life when you have more financial stability and flexibility.

4. Create a Spreadsheet

Once you’ve researched costs, create a detailed spreadsheet outlining these anticipated expenses. This will give you a realistic target to start saving toward. Remember to account for sales tax, title transfers, and registration fees as well.

While it certainly takes diligence, evaluating all these factors will prepare you to reach your savings goal. It will also show your parents that you are serious and committed.

Learn more: Before you hit the dealership, understand ‘how much car can I afford‘ to make a financially sound decision.

Increase Your Income

The best way to save for a car as a teenager — or for anything, for that matter — is to increase your income. If you don’t already have a part-time job, start exploring options that fit into your school schedule.

1. Job Ideas While in School

Popular teen-friendly jobs include:

• Serving and other restaurant work
• Tutoring
• Pet sitting or dog walking
• Check-out, stocking, and bagging at the grocery store

Numerous job opportunities can fit around your school schedule. You can also try turning your talents into a business by offering freelance writing services, designing websites, or providing music lessons. Another idea is to ask parents, teachers, and neighbors if they need help with cleaning, yard work, or other small projects.

Learn more: Our post offers a comprehensive list of job opportunities suitable for 14 and 15-year-olds looking to enter the workforce.

2. Job Ideas While Out of School

During summer and school breaks, as you explore how to save for a car as a teenager, you can ramp up your savings by looking for full-time temporary work. Warehouse jobs and retail often hire seasonal workers. If you demonstrate responsibility, you could work out an arrangement with your supervisor to work part-time during school and full-time during breaks.

Learn more: Our guide features more than 15+ online jobs for 16-year-olds eager to start their work journey.

3. Be Strategic With Shifts

Being strategic with the shifts you choose can help you maximize earnings. Nights and weekends tend to pay more than day shifts.

If you’re tracking your monthly income goals, picking up extra shifts when possible can help you meet or exceed them.

Start Saving Early

It’s never too early to learn how to save for a car as a teenager. Starting to put money away for your future car purchase, even as early as middle school, gives you a huge head start. This early financial planning is key to making your dream of owning a car a reality in your teenage years.

Even if you can only contribute $20 or $30 per month at first, consistency is key. Don’t underestimate the power that comes from a “money mindset” and creating a savings habit young.

Open a High-Yield Savings Account

As a teenager, once you start saving money for a car, it’s wise to open a high-yield savings account right away. This strategy not only separates your car savings from your everyday expenses but also enables you to earn interest, which is a smart step in learning how to save for a car as a teenager.

Learn more: Discover our top 13 picks of finance books for young adults, perfect for building a solid foundation in financial literacy.

Time is on your side when you start early. The magic of compound interest can help you more than you think.

Look for teen savings accounts with higher interest rates, which are often available at online banks or credit unions.

Set up automatic transfers from your checking account to savings as soon as you get paid. This takes the mental labor out of the process and holds you accountable.

Start with a goal of transferring at least 10% of every paycheck. If you are living with your parents and they are covering your basic needs, you can save much more. Over time, increase the amount if possible. This is important: Never dip into your designated car savings for other purposes!

Ask your parents if they would be willing to match your monthly savings, either partially or dollar for dollar. This can turbocharge your savings, especially if you consistently exceed your contribution targets.

Remember that you’re never too young to save or invest.

Learn more: Gain valuable insights on managing money wisely with our collection of financial tips for teenagers, shared by 15 experts.

Ask Grandparents or Other Relatives to Contribute

While your parents may be your first choice for seeking help when learning how to save for a car as a teenager, your grandparents and other relatives might be willing to help.

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Approach this conversation in much the same way you did with your parents: armed with information, facts, and a plan.

Explain your savings goal and state that any contribution they could offer would mean so much to you. Get creative and ask them to give you money instead of birthday or holiday gifts, or ask if they’d be willing to join a matching program for milestones you reach.

Be sure to ask for their advice. Adults love to give it, and it’s often worth listening to. It also shows that you appreciate their knowledge and you’re not just after money.

If any of your relatives contribute, make sure you share your progress updates with them so they can enjoy being part of your journey.

Another option to explore is to ask whether anyone in your family has an old but functional car they may be willing to pass down or sell to you at a discount. This may give you access to affordable transportation faster.

Reduce Your Expenses

As unexciting as it may be, learning how to save for a car as a teenager requires you to reduce your expenses where possible. How much money are you spending on new clothes, eating out, and going out with friends every month? Identify areas where you can realistically cut back, even if it’s only temporary.

For example, packing lunch from leftovers at home rather than buying out every day can save you a few hundred every month.

To be successful at reducing your expenses, you have to evaluate your needs versus your wants.

Avoid Impulsive Purchases

Earning more is half of the savings equation. The other half is spending less.

Did you know that as a teen, your brain is hard-wired to be more impulsive? The prefrontal cortex, which is the part of your brain responsible for impulse control, is still developing during your teen years. This can make it harder for you to control your impulses and think through the consequences of your actions.

Peer pressure is also at an all-time high for teens. You may feel like you need to make impulsive decisions to gain approval from your friends or elevate your social status.

But all this impulsivity can sabotage financial goals like saving for a car. The urge for instant fun competes with long-term priorities.

Just because your brain is still developing doesn’t mean you’re powerless. Practice self-awareness and recognize when you’re tempted by impulses.

Maintain a visual reminder of your savings goal by putting a picture of your dream car on your phone or bedroom wall.

Avoid situations or friends who tend to encourage poor impulse control. Talk to your friends about your savings goal and encourage them to set their own savings goals so you can work together.

Set Incremental Milestones

Another important thing to take into consideration when planning how to save for a car as a teenager is to set incremental milestones. Staying motivated over months or years of saving can be challenging, even for adults whose brains are fully developed.

To help with this, break your total savings goal down into smaller milestones to maintain momentum.

Maybe you start with a goal of saving your first $500. Then, make your next milestone $1,000. Ask if your parents, grandparents, or other relatives could make contributions to your savings account every time you reach a milestone.

Seeing your savings grow incrementally can provide a sense of accomplishment and progress that helps you stay focused.

Consider an incentive reward system for yourself: After hitting a milestone, treat yourself to a fun activity or desired purchase. Just make sure the reward amount fits within your overall budget.

Scale Up Your Income

When learning how to save for a car as a teenager, you must understand that it takes discipline to control expenses, but focusing on continuously increasing your income will further accelerate your savings.

At your part-time job, demonstrate good work so you’re considered for raises and promotions. If other jobs in your area offer higher pay, what’s holding you back from applying?

As you gain skills and experience, aim for positions that pay more. Investing energy in advancing your career trajectory pays off doubly: You get higher wages while learning new skills for the future.

Consider an Auto Loan

Once you turn 18, financing a used car through a small auto loan may be an option worth considering. A loan could help you buy a more reliable used car while staying within your budget. If you have substantial savings, you can use that money to pay a good chunk of the car’s price as a down payment.

Research lenders and get pre-approved before shopping for a car. Credit unions typically have some of the best rates.

As a teen, loans can be difficult to secure because you don’t have a credit history built up. There are a few ways to approach this:

1. Before you turn 18, ask your parents if they’ll add you as an authorized user on their credit card. They don’t have to give you access to the card (in fact, they probably shouldn’t), but this can lay the foundation for good credit.
2. Ask your parents about getting a debit card that builds credit.
3. Ask a parent to cosign an auto loan to help you secure both approval and a lower interest rate.

Before committing to a loan, have an honest discussion about the risks of debt. Debt is not a quick fix; it can have major long-term ramifications. Shop for the shortest loan terms possible while keeping payments manageable. Only borrow what you can realistically afford to repay from your income.

Buy Used to Save Money

One of the best ways to save for a car as a teenager when purchasing your first vehicle is to buy a used car instead of a new one. While a brand-new car may sound exciting, a used car offers big savings.

With any given model, choosing one that’s a few years old with low mileage can reduce costs by a major amount. This is because the loss of value is steepest in the first one or two years for new cars.

Narrow down your options and consider having a mechanic inspect the car before purchasing. Look for newer tires, brakes, or batteries to avoid immediate expenses.

Celebrate Your Accomplishment

Figuring out how to save for a car as a teenager is a major accomplishment. Make sure to celebrate this financial milestone. Give yourself credit for the discipline required to buy a car.

Learning how to save for a car as a teenager is about more than just owning a car. To reach that goal, you will need to learn and master skills that will help you for the rest of your life!

Owning your own car is a tangible reminder to be proud of your money management skills. Let the satisfaction of this achievement motivate you toward future goals like college, an apartment, or starting your career. Enjoy the ride.

The post How to Save for a Car as a Teenager: A Step-by-Step Guide appeared first on FinMasters.

Here’s what you need to know before making a trip to the dealership.

What’s the Bare Minimum Score Needed?

There’s no minimum credit score required to buy a car. So the answer to “What credit score do you need to buy a car?” is simply “It depends.” Past rules of thumb suggested a range of acceptable credit scores, from 600 to 660 to 720.

Many auto lenders make options available to those with both good (prime) and bad (subprime) credit scores. They may offer loans without a credit check at all.

However, a good credit report will make it easier and cheaper to buy a car. While auto lenders are more flexible these days, they’re still careful about taking on excessive risk. A buyer with a low credit will pay higher car loan rates.

How Auto Lenders Check Credit Scores

When you apply for a car loan, the lender submits your personal information to at least one of the three major credit bureaus: Equifax, Experian, and TransUnion. These agencies review your credit history and submit a report to the lender.

This report reflects all aspects of your credit history. It includes your record of making monthly payments on time on credit cards and other accounts, if any. The report will also outline the causes of your negative credit history, like late payments, foreclosures, collections activity, bankruptcy, and more.

The summary of all this information is your FICO^® credit score. This number is typically between 300 and 850. In 2022, the average FICO^® score in the U.S. was 716^[1]. While different lenders have different criteria for their decisions, your number is a guide for setting loan terms and interest charges.

The range of scores is broken down into different brackets or tiers. So, what credit score do you need to buy a car?

Auto Loan Credit Score Brackets

Your credit score will fall under one of the five categories below. Each classification corresponds to a defined annual percentage rate on interest. These “brackets” are defined loosely as follows.

781 to 850: Super Prime

Car buyers in the top tier of credit scores present the least risk to auto lenders, and they get the best deals on interest rates. As of August 2023, the average annual percentage rate for a super prime buyer is 5.18%.

661 to 780: Prime

Prime credit scores rank just below super prime. Borrowers in the prime bracket are still likely to get favorable interest rates: as of August 2023, the average is 6.40%.

601 to 660: Near-Prime

Those with fair credit scores may have made the occasional late payment. They might have also gotten more credit inquiries on their behalf or a thinner mix of credit sources. The average annual percentage rate for near-prime borrowers stands at 8.86%. That’s not bad, but it’s a significantly higher cost over the life of the loan.

501 to 600: Subprime

This bracket of credit scores is the first “not good” level. Although subprime borrowers can probably find an auto lender willing to work with them, the interest rates jump dramatically. As of August 2023, that rate is 11.53%.

300 to 500: Deep Subprime

The lowest level of credit score includes borrowers who have had several negative credit events. They may have experienced multiple collection efforts, repossessions, charge-offs, or bankruptcy. The current average interest rate for these higher credit risks is 14.08%.

It’s still possible for those with subprime and deep subprime credit scores to take out a loan. But along with high-interest rates, they might also face tougher terms and limitations from auto lenders.

How Subprime and Deep Subprime Scores Affect Car Loan Terms

If you have a subprime or deep subprime credit score, you will face more rejections from auto lenders. If you are approved, you’ll face more expensive, restrictive, or limited loan terms.

• Higher Interest Rates – As discussed above, borrowers with subprime and deep subprime credit scores will pay higher interest rates than those with better scores.
• Bigger Down Payments – An auto lender may be happy to issue a loan to a subprime borrower who makes a markedly larger down payment on their car. This may make the lender feel more secure about the borrower’s ability to make future payments.
• Shorter Loan Terms – A lender might set a shorter period for the borrower to repay the loan. This makes the borrower’s monthly payments much higher. but it helps the lender limit their risk exposure.
• Higher Costs – In addition to higher interest rates, a subprime borrower may face higher origination and administrative fees to offset the costs of the loan.
• Prepayment Penalties – The lender may assess penalties on a subprime borrower if they manage to pay off their loan ahead of schedule. While these fees should be included in the loan agreement, they may still take borrowers by surprise. Many borrowers do not read their loan agreements thoroughly.
• Credit Insurance – Lenders might ask or require a subprime borrower to take out credit insurance as a protection against loan default.
• Repossession Tools – Borrowers with low credit scores may be required to place GPS trackers and starter interrupt devices on their vehicles. This enables the lender to disable the vehicle and locate it easily if they want to repossess it.

The “Buy Here Pay Here” Option

When considering what credit score do you need to buy a car, people with subprime or deep subprime credit ratings have viable options, such as the “buy here pay here” loan. This type of loan doesn’t come from a traditional lender. Instead, the loan is executed and administered by the dealership where the car is purchased.

In a “buy here pay here” loan agreement, the dealership offers to finance the loan in-house. It may even skip the credit check or offer favorable terms over a short time. 

The auto dealer evaluates the maximum amount it will loan the new car buyer. This valuation takes the buyer’s income into consideration, as well as other factors like the debt-to-income ratio.

The dealer then finds the cars in its inventory that will cost less than the loan amount. After the borrower buys the car, they remit their monthly payments directly to the dealership.

Advantages

The clearest advantage of taking out a “buy here pay here” loan is the easy qualification. The dealership usually doesn’t make a credit check. The loan is designed for a borrower with a suboptimal credit history.

A “buy here pay here” loan is also extremely convenient. Dealers usually make quick approval decisions, often on the spot. There may be a low down payment or even no down payment. Paperwork for a “buy here pay here” loan is frequently kept to a minimum.

Disadvantages

There’s considerable risk involved in a “buy here pay here” loan. If the dealership is willing to take it on, it has to find ways to mitigate that risk. That means passing extra costs down to the customer.

For example, the dealer may price the car much higher than its market value. It will likely set vastly higher interest rates. Right now, the average rate for a “buy here pay here” loan is around 20%. The terms of such a loan are often inflexible.

The borrower’s credit status might also take some cruel hits. Since the dealer usually does not report to any of the credit bureaus, the loan won’t influence your credit score. Even if you make regular payments and eventually pay off the car, your score won’t improve. (Although some dealers will report missed payments to the bureaus, which could hurt your score.) You also can’t use a “buy here pay here” loan to diversify your credit portfolio.

It doesn’t stop there. Repossession terms for a “buy here pay here” loan are the strictest in the auto business. The repo’s timeline is usually extremely short, and even one late payment could trigger repossession.

The borrower may be forced to take out credit insurance. If they acquire the car with no down payment, they’re already in “negative equity,” where they owe much more than the car’s market value. This immediately puts the loan underwater, and the dealer may demand that the borrower take out gap insurance.

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Other Financial Options for Subprime and Deep Subprime Borrowers

The “buy here pay here” loan option is loaded with risks to the borrower. But subprime customers still need cars. What other options do you have for taking out a loan with an imperfect credit history?

1. Improve Your Credit Score

You may think this is “easier said than done.” But with patience, you can take small, mindful steps to improve your credit score. The self-evident ways to do this include making on-time payments, limiting credit card use, and monitoring your credit reports.

You can pay down pre-existing debts to chip away at your credit utilization ratio. Eventually, you may be able to diversify your credit sources, which improves your credit score.

2. Find a Credit Union

You may face different requirements if you want to join a credit union. But if you meet the criteria, it may be a great option for financing an auto loan.

Credit unions are nonprofit businesses. This makes them more attentive and flexible to their customer bases. In turn, a credit union may be far more willing to set favorable terms for a car loan, even with suboptimal credit.

3. Get a Co-Signer

A common solution for teenage first-time car buyers with no credit history is to have their parents co-sign on their loans. That option is also available to independent adults with bad credit.

Finding a co-signer for your new car will make loan approval easier. But you’ll have to keep in mind that if you make late payments or default, that co-signer will be responsible for paying off the loan. That could be tricky at best and relationship-ending at worst.

4. Make at Least a 20% Down Payment

If you are asking yourself, “what credit score do you need to buy a car?” and know your credit history isn’t flawless, making a down payment of 20% on the new car purchase can be one of the best options you have. A down payment of at least 20% might be enough for a reluctant lender to change their mind.

5. Save Up Cash

Of course, the easiest way to avoid the hassle of a car loan is not to get one. If you have the means and the time, consider building your cash reserves until you can afford a new or used car with no payments, no interest rate, and no threat of repossession.

Good Credit, Bad Credit, No Credit — There Are Options for All

What credit score do you need to buy a car? The answer varies from lender to lender, but no matter how depressing your credit history is, there’s an option for getting a car loan somewhere. Maintaining and improving your credit score is important, but even with bad credit, you can find an auto loan.

If you have to buy a car with bad credit, you will probably be facing a high interest rate. Your best move in that case is to buy a used car, spend as little as possible, and work on improving your credit so that you can refinance with a cheaper loan or even upgrade your vehicle.

The post What Credit Score Do You Need to Buy a Car? A Quick Answer appeared first on FinMasters.

Do You Need a Computer?

A computer is the hub of every home office. The Bureau of Labor Statistics reports that 27.5% of American employers allow employees to work from home for at least a portion of the week^[1]. And as of 2021, nearly 16% of Americans had gained income from the “gig” economy^[2].

If you work from home or you’re some type of contractor, a computer may be essential for your income. If your employer doesn’t provide you with a computer, you’ll need to buy or finance your own.

Even if you already own a computer, you may need to upgrade your setup in order to run essential software or match your employer’s specifications. If your computer fails, you may need to replace it quickly, whether or not you have cash on hand.

Before you pursue financing options, you’ll need to determine whether a computer is something you really need. If you do need a computer, you’ll need to decide how much computing power you need. Computers come in a huge range of specs, with prices generally ranging from $300 to $3,500 depending on configuration and brand. Don’t pay more for features you won’t use^[3].

If you already struggle with poor credit, you don’t want to run the risk of taking on additional debt or damaging your credit with missed payments. So, how do you finance a computer with bad credit, then?

Learn more: Are you curious about diving into remote work but lack prior experience? Here’s your guide.

Is Financing a Computer a Smart Idea?

Financing isn’t for everyone. Financing any purchase allows you to:

• Complete the purchase without waiting to save enough money.
• Shop around for the best financing options.
• Rebuild your credit by making consistent, on-time payments.

But on the other hand, financing items such as computers doesn’t always make sense. That’s because financing can:

• Cause you to pay more in interest charges.
• Change your debt-to-income ratio.
• Present opportunities for missed payments that lower your credit score.

Additionally, your financing option may be influenced by different credit types. Revolving credit (such as a credit card or line of credit) will offer flexible financing but may not offer the same amount of money as an installment loan.

Ways to Finance a Computer With Bad Credit

Consumers are facing record-setting costs for basic necessities, so it’s understandable that you might not have the funds to purchase a new computer outright. But if you need to buy a computer right away, you can explore the following ways to finance a computer with bad credit.

1. Credit Card

Your first computer financing option might already be in your wallet. Using a credit card to purchase a computer means you’ll get the laptop or desktop you need today and then pay your credit card balance over time.

Of course, if you have poor credit, you may not have a sufficient credit limit to cover the entire purchase. You can still fund a portion of the purchase with your credit card and then pay the remainder out of pocket.

2. In-Store Financing

In these challenging times, many consumers might not have the funds to buy a computer outright. However, if you’re looking to finance a computer with bad credit, several retailers offer in-store financing options. The exact terms and conditions vary between retailers, but you’ll generally pay a down payment (often a percentage of the total purchase) and then make installment payments directly to the retailer over time.

Unlike traditional lenders, in-store financing doesn’t determine your eligibility solely by your credit score. In fact, retailers use this as a selling point to secure business from those who would otherwise be unable to buy a computer. Just watch out for hidden fees and high interest rates.

3. Buy Now, Pay Later (BNPL) Programs

While some retailers offer a “buy today, pay later” option for in-store financing, a growing number of third-party apps allow you to complete major purchases and then make payments over time. Apple Pay Later, for example, is a popular choice.

BNPL apps will complete the purchase for you and then split the purchase into a series of equal installments. The best BNPL providers can even do so with little to no interest and minimal fees, making them a great choice for people looking to finance a computer with bad credit.

Learn more: Dive into the latest Buy Now Pay Later (BNPL) statistics to understand current consumer trends.

4. Personal Loans

Another way to finance a computer with bad credit is by taking out a personal loan. Personal loans are one of the most flexible forms of financing around, and some lenders may offer better interest rates than your credit card.

Some lenders offer personal loans as low as $1,000, which may be perfect for financing your new computer. The major drawback is that personal loans typically have higher credit requirements than other options on this list, so check the lender’s requirements before applying.

Pros:

Personal loans are ideal if you’re looking for:

• Fast approval time.
• Flexible options for financing.
• Clear loan terms.

Generally, personal loans don’t require collateral, which means you can apply for a loan without committing any of your existing assets.

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Cons:

Here are some reasons why personal loans aren’t always a good option for those with bad credit:

• Lenders tend not to approve financing for bad credit.
• Loans that are available with bad credit may have high fees and interest rates.
• Fees and penalties can be high for missed payments.
• Just applying for a personal loan can hurt your credit.

Still, if you can find a lender who will work with your credit score, this may still be an option for computer financing loans.

5. Business Loans

Are you buying a new computer to support your own business? This is common among copywriters, graphic designers, or other freelance professionals. If your computer is going to be used for business purposes, you might be able to finance a computer with bad credit by getting a small business loan.

Equipment loans are a particularly attractive option since they’re already designed for buying things like computers and office equipment. Even office furniture can be financed with an equipment loan, though lenders may ask you to detail what items you’ll be purchasing when you apply.

Alternatives to Computer Financing Loans

The above options can potentially help you finance a computer with bad credit. But any type of financing will add to your debt load and potentially impact your credit score, especially if you miss a payment. For these reasons, it may be helpful to consider one of the following alternatives to financing loans.

1. Delay the Purchase and Save Your Money

The best way to avoid finance charges altogether is to pay for your computer outright. Sure, it may take a little longer to save up, but if you can delay your purchase until you have the money, you’ll be able to buy a computer without all of the added interest charges or a monthly bill.

2. Look for Bargains

A computer might be within easier reach than you think. Make sure you’re not trying to buy more computers than you need. And, before you look for loans for bad credit, shop around for computer bargains. For example, some retailers may offer “open box specials,” where you get like-new products at a steep discount.

Some electronics manufacturers also offer refurbished computers that still come with a warranty. These options translate into major savings and eliminate the need for third-party financing.

3. Crowdsharing

Why not ask your friends or social media followers for financial support? This can be a great option when launching a new business. Crowdfunding platforms let you request donations by posting messages like, “Come support my new graphic design business!”

The crowdfunding platform will usually take a cut of this money, but the rest is yours. Business owners might offer something in return for support — such as a discount or early access to your services — but your fan base may prove more supportive than your credit bureau.

Make Your Purchase Count

In the current economic climate, many consumers are exploring how to finance a computer with bad credit due to the necessity of these devices in daily life. Computer shoppers have a number of options when it comes to buying new laptops or desktop computers. Do your research, as lenders vary when it comes to interest rates and loan terms. Financing will almost always cost more than buying an item outright, but following this guide can help you reach the best decision when you’re making an essential purchase.

The post How to Finance a Computer With Bad Credit (Step-by-Step) appeared first on FinMasters.

Decide Whether a Personal Loan Is Right for You

Before applying, you must decide whether a personal loan is your best option.

Personal loans offer flexible financing. They can also come with lower interest rates than a typical consumer credit card, which can be optimal if you’re struggling with credit card debt.

But this doesn’t necessarily mean that personal loans are low-interest. For example, if you’re looking to buy a car, a typical auto loan will offer better rates and terms than a personal loan. According to TransUnion, borrowers have taken on more than $8,000 in average personal loan debt in recent years, so these types of loans can truly add a lot to your monthly expenses (and stress levels).

Personal loans, especially ones that involve a co-signer, should be used only when it makes sense or is truly necessary. When you’re seeking to consolidate credit card debt, or if other funding options aren’t available for a large purchase, a personal loan can be a good option.

Applying for a Personal Loan With a Co-Signer: The Pros

A co-signer is a second party who signs a loan agreement. Even if you’re listed as the primary borrower, the co-signer is now contractually obligated to pay the loan along with you.

For the borrower, this brings many advantages, including the following.

1. Qualify for a Loan With Poor Credit

Many lenders require you to have a credit score in the near-prime (620 and above) or prime (660 and above) range. Without a co-signer, a lender may reject your loan application outright. But if you apply with a co-signer — particularly one with strong credit — you’ll stand a better chance of receiving approval.

Learn more: Heads up: Our newest post sheds light on the top personal loans for bad credit, simplifying your journey to financial recovery.

2. Qualify for a Higher Loan Amount

When you apply for a personal loan, your lender will review your credit history to determine your eligibility and the amount you qualify for. You may not qualify for a large amount if you have bad credit. A co-signer may be able to increase the loan amount and help you qualify for a larger loan.

3. Qualify for Better Interest Rates and Terms

Your credit history also plays a role in determining your interest rate and loan term. A high interest rate means you’ll be paying more for the loan. If you apply for a personal loan with a co-signer, you may qualify for a better interest rate or favorable loan term.

4. Improve Your Credit

Applying for a loan with a co-signer won’t directly boost your credit score. But if you end up qualifying for a loan, that can improve your credit mix. And, by making consistent on-time payments on it, you can make progress in repairing a below-average credit score.

Applying for a Personal Loan With a Co-Signer: The Risks

Many of the risks of applying for a joint loan apply to the co-signer more than the primary borrower. After all, the borrower receives the truest benefit, and the co-signer takes on the greater risk. That presents a challenge in finding the right person to cosign the loan. Here are some reasons why it might be risky.

1. You May Take on More Debt Than You Can Manage

One of the main risks is that by qualifying for a higher loan amount, you may find yourself faced with more debt than you can manage. Make sure that the monthly payments fit into your budget to prevent yourself from defaulting on the loan.

2. Co-Signers Take on More Debt

The primary borrower will usually make payments on the loan, but the co-signer is equally responsible. As a result, a joint loan will impact the co-signer’s debt-to-income ratio, which can affect their ability to qualify for loans. And if you default on the loan entirely, the co-signer becomes responsible for the loan.

3. The co-signer’s Credit History Can Be Damaged

Missed or late payments won’t just show up on your credit report. They’ll also affect your co-signer. When you apply for a loan with a co-signer, that individual’s credit is linked to yours, and you can cause damage if you fail to repay the loan on time.

How to Apply for a Personal Loan With a Co-Signer: Step-by-Step

Should you decide to pursue a personal loan with a co-signer, you’ll have to find the right co-signer and the right lending program. Here’s what to expect in the loan application process.

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1. Find a Potential Co-Signer

While you might wait until you start shopping for loans, it never hurts to find a co-signer beforehand. Some possible options include:

• A close family member with excellent credit
• A close friend that you’re comfortable talking about money with
• A personal or professional mentor that you know well and trust

For example, young adults might ask their parents to co-sign a personal loan since the relationship is usually close enough that the parents can agree and monitor the loan repayments.

2. Discuss Repayment Options With Your Co-Signer

From a contractual standpoint, your co-signer is assuming a great deal of risk while you’re reaping the benefits of their strong credit score. Make sure to have a candid conversation that addresses future issues, such as the possibility that you might struggle to make your payments.

Since most co-signers are close family members or friends, it’s important to be honest about possible challenges before they interfere with your relationship. Once you’re on the same page, you can move on to shopping for lenders.

3. Find the Right Lender

Not all lenders will accept a co-signer. You’ll need to spend some time researching possible lenders to find the right option. 

Online lenders generally make it easy to research and compare rates and terms, and they usually provide their requirements on their websites. But your co-signer may already know of a good lending option, which can make the process all the easier.

4. Compare Rates and Terms

With so many lenders out there, it’s important to compare rates and terms to ensure that you get the best deal.

The best way to go about this is to compare the interest rates and loan terms of at least three lenders. Some online lenders allow you to prequalify, which will give you a better idea of your loan amount and the cost of repayment.

5. Gather Your Documentation

To get approved for a loan, you and your co-signer must provide documentation regarding your current financial situation. The lender will perform a credit check for you and your co-signer, but each of you must still provide:

• Identification
• Bank statements
• Tax records
• Pay stubs

You and the co-signer must demonstrate proof of income. This reduces the lender’s risk and ensures you receive a favorable loan. The lenders will also want to assess your current debts and your credit score.

6. Complete the Application

Every lender will use a slightly different process but will generally require the documentation you gathered in step 4.

Remember that this process will involve a hard credit inquiry, which will temporarily lower both your credit score and your co-signer’s. If you plan on applying to multiple lenders, complete the applications within the same 30-day window to minimize the damage.

7. Respond to Any Additional Lender Requests

The loan approval process varies by lender and may take additional time. Make sure to respond quickly if the lender requests additional information or documentation. That way, the process will go as smoothly as possible.

8. Sign the Loan Agreement

Assuming you get approval, you and the co-signer must sign the loan agreement. This makes the co-signer responsible for the loan if you fail to make payments.

Once you sign the agreement, the money will be dispensed directly to you, typically as a lump-sum payment. Any origination fees or other lending costs will be paid at this time, though they might also be rolled into your monthly payments.

9. Stick to Your Repayment Schedule

When you apply for a personal loan with a co-signer, the most important step of all is to stick to your repayment schedule. After all, your co-signer put a lot on the line to help you get this loan. Don’t risk their credit by missing payments. In fact, making consistent payments will improve your credit score and reduce your need for a co-signer for future loans.

Conclusion

Applying for a personal loan with a co-signer is great for young adults who are still building their credit and can rely on their parents for support. But it can also be a solid option for those with low credit who need flexible funding to cover debts or a large purchase.

Alternatively, you might consider working on your credit to eliminate the need for a co-signer. But if you need money today, you might be able to get by with a little help from your friends.

The post How to Apply for a Personal Loan With a Co-Signer (in 9 Steps) appeared first on FinMasters.

But how do you pay rent online, exactly? In this guide, you’ll learn more about the methods for doing so, as well as the pros and cons of online rent payments.

How to Pay Rent Online: Landlord-Based Systems

Some landlords make it a point to collect rent online. In recent years, several fintech solutions have emerged to help them accept payments from their tenants.

Tenants can take advantage of features like:

• Mobile apps for convenient payments from a mobile device
• The option to make one-time payments or set up recurring payments
• Flexible payment options, such as ACH transfers or a credit card
• Notifications and reminders so you never miss a payment

Landlords love these systems because they automate the rent collection process and can automatically calculate and charge late fees for missed payments.

Learn more: Find out the essential steps to take as a newcomer interested in real estate investment opportunities.

A downside is that the robust features of these solutions make them more popular with landlords of larger properties or those with multiple rental properties. You’re unlikely to find these services from smaller property managers or if you’re renting a house from an individual owner.

Here are some rent collection platforms that are popular among landlords.

1. Rentec

Rentec is a comprehensive solution that offers many property-management features. Renters can take advantage of things like:

• Full and partial payments
• ACH and credit card payment options
• Mobile app for added convenience

Rentec is most commonly used by owners of larger properties.

2. Buildium

Buildium offers a number of accounting and property management features, including an option for renters to make one-time or recurring payments online. Residents can also connect their bank accounts or credit cards.

Landlords will incur a small cost to use the service, which also varies by payment method. Consequently, this is also a service you’ll likely find among landlords of large or multi-site properties.

Learn more: By the way, if you’re looking to simplify your property investments, you might find our roundup of the best real estate investment apps quite insightful.

3. Appfolio

Appfolio allows tenants to pay rent online. Residents can connect a bank account or credit card for easy one-time payments or use the software to set up recurring payments.

The product itself is geared toward multi-unit landlords and requires a minimum of 50 units to use the base software package, so, once again, this is likely a service you’ll find at larger commercial properties.

4. PayRent

Unlike other software providers, PayRent exclusively focuses on rent payment and doesn’t offer a suite of property management features. This means that even smaller landlords might opt for this service, and tenants can set up automated payments using their bank accounts or credit or debit cards.

However, PayRent also allows landlords to pass on processing fees to tenants, so you might experience a small charge when paying with a credit card or bank transfer.

5. Apartments.com (Formerly Cozy)

Apartments.com now offers a rent-only application through which users can make payments for free using a bank transfer. However, other forms of payment come with a small fee, which the renter may be forced to pay unless the landlord chooses to cover it themselves (don’t hold your breath).

How to Pay Rent Online: Tenant-Focused Systems

If your landlord doesn’t use an online rent payment solution, it’s still possible to pay rent online using a different payment system. You can easily adapt these methods to pay rent online.

To pay your rent using any of these methods, you’ll need prior approval from your landlord. Not every landlord will have access to these services, and while some services may be free for the resident, the landlord will have to pay additional fees to transfer the money to their bank account.

If you’d like to pay rent online, your first step will be to discuss your options with your landlord. Remember that you will have to pay well in advance to assure that the transaction is completed by the due date.

Here are some of the more common ways to pay rent online.

1. PayPal

PayPal is a fast, simple option, and because it’s so popular, there’s a strong chance that your landlord will have access to this service.

But while PayPal is free for tenants to pay rent, the company charges a small fee for landlords to collect the money (usually 3% of the transaction). Given that the average apartment rent is $1,700, that charge comes to $51. Your landlord might decline to use this service to avoid this fee, or they may pass it on to you.

2. Venmo

Venmo is another common payment option, though it comes with the same pros and cons as PayPal, its parent company.

On the plus side, Venmo allows renters to submit rent payments online. However, landlords will be assessed a 2% fee, and, once again, the ability to pay with Venmo is conditional on your landlord having an account and granting you permission.

Learn more: By the way, if you’ve ever thought about exploring payment platforms beyond Venmo, our post details some excellent alternatives.

3. Zelle

Zelle may be one of the better ways to pay your rent online. You can use the app to transfer money directly from your bank account, and it lets you make payments for free.

The downside is that both your bank and your landlord’s bank must be compatible with Zelle. Some banks may even tack on additional fees, so check to make sure you can send money for free before using the service.

4. Apple Pay

Apple Pay makes it easy for iPhone users to transfer money to one another, which may make it another useful option for paying your rent online. Users can simply connect their credit or debit cards and make payments directly within the messaging app.

As with other solutions, this method is contingent on your landlord having access to the service. Some landlords may prefer to use a service that makes it easier to track rent payments.

5. Remember the ACH Option

An ACH (Automated Clearinghouse) payment is not exactly an “online payment”, as you don’t have to log onto the Internet to pay. Instead, you will set up an automatic transfer from your checking account on the same day every month.

This system has many of the benefits of online payments. You’ll pay on time, and you’ll never forget to make a payment. You just have to be sure that you have enough in the account each month to cover the payment, or you could be hit with expensive overdraft fees or even have a payment refused.

Advantages of Paying Your Rent Online

Are online rent payments a good idea? In many cases, yes. Here are some of the many benefits of paying your rent online, though keep in mind that these benefits won’t be found through every payment method listed above.

1. Enjoy Added Convenience

If you’re like most people, you likely pay very few bills (if any) with a paper check and a stamp these days. Why should your rent payments be any different?

The ability to pay rent online gives you a convenient way to cover the costs of lodging. And because you don’t have to wait for the postal service to deliver your check, you’ll gain greater control over when you submit your payment.

2. Pay on the Go

If your landlord uses an online rent payment portal, you’ll be able to submit payment online from anywhere in the world. If you forgot to send a payment and the deadline is fast approaching, simply log onto the app. That way, you’ll never miss a payment because you forgot to mail a check.

3. Avoid Late Fees

Many rent payment portals allow you to set up recurring payments online, enabling you to automatically submit a payment on the same day of each month. Automating your rent payments means you’ll never miss a deadline, which in turn means you’ll never be hit with late fees.

4. Build Your Credit

Even if your landlord doesn’t report your payment history, some credit bureaus let you connect your credit card or bank account. The bureau’s software will automatically scan for payment data. Adding consistent on-time rent payments to your credit history may help you improve your credit score.

5. Earn Reward Points

You’re paying rent every month. Why not use that to your advantage?

Many online payment systems work through your credit card. Using your credit card to pay your monthly rent can be a helpful way to rack up reward points for things like cashback, airline miles, or other perks. Just be careful to keep track of your credit card balance and pay it in full before the due date. If you carry a balance, you could be stuck paying high interest charges and damaging your credit score.

6. Online Reminders

Landlords who use a payment gateway can set up automated reminders so that even if you don’t set up recurring payments, you’ll still receive reminders that prevent you from missing a payment. Again, this feature is unique to landlord-based systems, but it’s a helpful one if you have trouble remembering your payment schedule.

7. Secure Transactions

Sending a check through the mail is a good way for identity thieves to grab your information. Paying your rent online will shield you from this risk, especially if you use an approved platform. Many of the payment options on the market offer additional security features designed to protect your data and money.

Learn more: Discover essential steps to safeguard your identity in an increasingly digital world with our comprehensive guide on identity theft prevention.

Disadvantages of Paying Rent Online

Despite these advantages, there are some drawbacks to paying your rent online. These may vary depending on your payment method but often include the following.

1. Not Always an Option

One of the most obvious disadvantages of paying online is that it simply may not be an option. Not every landlord will offer an electronic payment portal, nor will every landlord accept payments made using PayPal or Zelle.

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If you were counting on making payments electronically, you might not have that option with your current landlord.

2. Additional Fees

Depending on your chosen payment method, you may experience additional fees. For instance, landlord-focused payment solutions such as PayRent or Apartments.com can bring additional charges, especially when paying by credit card. Your landlord may pass these costs on to you, adding to your monthly payment.

3. Credit Card Payments Can Be Dangerous

Beware of any payment option that relies on your credit card. Why? Because it’s easy to forget a payment, especially when you’re making them each month. If you fail to pay your credit card balance before the due date, you could face steep interest charges.

4. Not Always Available for Public Housing

Public housing is typically administered on a state-by-state level. Those who use this form of housing may not have access to online rent payment options, which means you could be stuck paying your monthly rent with a check and a stamp.

Some public housing administrators do offer online portals, though there may be additional service fees associated with payments made through them.

5. Online Payments Aren’t Instantaneous

Remember: your payment isn’t necessarily processed the instant you click “pay now.” In some cases, it can take two to three business days for a bank transfer to fully process.

If you initiate a payment the day before your rent is due, your landlord may not receive the money until after the deadline. Thus, you can still be charged with a late penalty.

Bottom Line: When Should You Pay Rent Online?

Assuming you have access to the right payment platform, paying rent online can be a smart choice. The best times to pay rent online are when:

• Your landlord offers a convenient app or electronic payment portal.
• Paying online requires no additional fees.
• You remember to pay your credit card balance promptly.
• You have the option to set up recurring payments.
• Your landlord authorizes you to submit payments online.

Assuming you can deal with (or avoid) the potential fees, paying your rent online offers a convenient way to stay on top of your financial obligations.

The Future of Paying Rent Online

According to the Department of Housing and Urban Development, the US is currently home to over 44 million rental households. The ability to pay rent online makes life easier for landlords and tenants alike.

The above methods will help you find a safe, affordable payment option and empower you to dodge the potential pitfalls of online rent payments.

The post How to Pay Rent Online: 10 Battle-Tested Payment Methods appeared first on FinMasters.

Despite the inroads made by online shopping and delivery services, most consumers still go to physical supermarkets and department stores. However, they could be making themselves more susceptible to suggestion and influence at the point of purchase.

Physical retailers have ways of getting shoppers to buy more than they need at the cost of personal finance best practices. And their tactics are more subtle than pop-ups, commercials, and ads.

Here’s how stores trick you into spending more than you planned and some helpful ways to save.

1. The 99-Cent Solution

A famous way for stores to trick you into spending more is the 99-cent solution. This trick has been around since retail markets were invented. You’ll see sale items and pantry staples priced for a certain dollar amount plus 99 cents — soup for $2.99, frozen pizzas for $8.99, socks for $11.99, etc.

Retailers know that since shoppers primarily pay attention to the first number in the price (the “2” in “$2.99”), they may not pick up on the fact that the item is actually $3.

The solution is simple: get in the habit of mentally rounding up prices.

This even goes for products priced in the mid-dollar range. The more you think you’re spending, the more cautious you’ll be.

2. Suggestive Product Placement

Supermarkets tend to place their most profitable goods near the entrance. Fresh-baked bread, flowers, attractive produce, and grab-and-go snacks are often positioned to be the first things shoppers see when they come in and the last things they see before they check out.

These products appeal to many shoppers. Some can’t resist the allure of brightly colored cookies and pastries, while others may enjoy the instant gratification a bag of chips and a soda can offer.

Managers employ various strategies to trick you into spending more, such as positioning their most profitable items at eye level in the aisles. Wherever you go, they’ll try to get you to buy something without much thought or effort.

To guard against this, make a shopping list beforehand and stick to it as much as possible. Impulse buys may still happen, but having a plan in place will help you avoid most unnecessary purchases.

Learn more: Getting a grip on your finances starts with understanding how to budget; this beginner’s guide can pave the way.

3. Big Sale Signs

Thrifty shoppers are always looking for a bargain, and retailers know this. They understand that even the illusion of a good deal will appeal to these customers. As such, they tend to play up price discounts, clearance sales, and other promotions.

This doesn’t mean the discounts aren’t real, just that stores go out of their way to promote them with large signs and bold-type prices, drawing your attention to heavily advertised items you may not need.

Remember that sales are usually seasonal. Back-to-school items are priced lower around August, chocolates and flowers are marked down close to Valentine’s Day, and Christmas specials can begin as early as October. Be aware of those pushes before they happen. Question the value of the products you look at.

4. “Free” Samples

Free samples are one of the biggest draws of massive membership stores like Costco. Whenever you see a platter of freshly prepared food items or a tray of ice-cold beverage samples, you’re guaranteed to see a swarm of hungry shoppers.

The objective, of course, is to get you to buy the item on the spot. As direct and guileless an approach as it may seem, it’s just another example of how stores trick you into spending more.

Some shoppers might feel a slight sense of obligation to the workers who give them samples. After all, if they’re taking the time to feed you and talk to you, the least you can do is buy what they’re selling.

Don’t take the bait. And if you do, remember that you’re not obligated to do anything more than thank them.

5. Colossal Carts

Shopping carts were introduced in the 1930s. After World War II, retailers started making them bigger. By the mid-1970s, they had become so big that consumer advocates began noticing.

These days, with the rise of discount membership outlets, shopping carts are three times bigger than they were in 1975.

The logic behind this strategy is plain if you take the time to think about it — the more space you have to fill, the more you’ll find to fill it.

Many supermarkets now offer miniature shopping carts. If you’re just making a run for a few items, it’s a good idea to grab one of these smaller carts.

Another option is to bring your own reusable grocery bag. That way, the size and weight of the items you put in it might limit you from buying what you don’t need.

6. Miles of Aisles

Shoppers who don’t arrive at the store with a clear idea of what they need tend to find themselves wandering aimlessly down each aisle. As you might imagine, this can easily become a waste of time and money, especially if you’re at a superstore with dozens of aisles.

Overcoming the urge to meander is mainly a matter of self-discipline and planning. You’re less likely to drift if you have a concrete objective for your trip.

Resist the urge to venture down every aisle. This is how stores trick you into spending more than you planned. Stick to your shopping list and try not to deviate from it. A little curiosity is okay, but giving in to every impulse is a good way to spend much more than you intended to.

7. You Need It Now

The modern retail experience is defined by time: buy now, act fast, don’t delay. Retailers understand this all too well, which is why they promote limited-time offers.

Sales that only run for a limited time promote urgency: if you don’t pull the trigger immediately, you won’t get the bargain price. FOMO is a very real thing, and many retailers take advantage of this uniquely human trait.

In reality, limited-time discounts is how stores trick you into spending more than you intended. They’re typically seasonal and rarely reflective of shoppers’ actual needs. All they do is prey on your anxiety over missing out on a good deal to convince you to buy things you have no use for.

If you don’t actually need something that’s on sale for a limited time only, don’t give it a second thought.

8. Anchors Away

One retail tactic that showcases how stores trick you into spending is price anchoring, which is when stores advertise high market values on questionable items to make sales that don’t actually save the customer money.

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Shoppers are often so busy thinking about other things that they don’t take the time to analyze market values. Consequently, they accept whatever price the store gives them. In truth, “suggested” retail prices can be exaggerated beyond reason.

The solution is knowing the average going prices of various items before you ever set foot in the store. However, this requires a little research. Online shopping communities, social media groups, and message boards can be a good place to start.

9. The Sound of Music

You might not even notice it, but background music is one method in the arsenal of how stores trick you into spending more.

As recently as 40 years ago, calming music was thought to promote relaxation in shoppers. This supposedly made them likely to spend more time at the supermarket, naturally leading to more purchases.

Muzak went out of fashion decades ago, but music still plays a big part in sales strategy. Background music is still designed to make shoppers want to linger around, and it’s targeted for maximum effect.

10. The Old Switcheroo

Have you ever noticed how often your local grocery store’s layout changes? Sometimes, there’s an obvious reason for the shuffle, like if the store has recently undergone a complete remodeling. Other times, though, it’s simply a sneaky for a store to trick you into spending more.

Most shoppers take comfort in knowing where everything at their neighborhood stores can be found, especially if they’ve been going there for years. When that’s suddenly no longer the case, it creates tension.

A new store layout can make habitual shoppers nervous that they won’t be able to find their go-to pasta sauce, laundry detergent, or medications. As a result, they might go down other aisles to check for other essentials. They’re likely to do so until they familiarize themselves with the new layout.

As you well know, more time in the store equals more opportunities for sales.

The store probably hasn’t gotten rid of the product you want, only moved it. This is another way stores trick you into spending more. They know that the extra time you need to find the item will create more opportunities for impulse buys. Keep that in mind as you search frantically for your favorite potato chips.

Tricks Used by Online Storefronts

But what about online retailers? After all, many modern shoppers prefer to make purchases on the Internet rather than visiting a traditional store. Unfortunately, online retailers can be just as crafty as brick-and-mortar stores, and they have some sly ways of tricking you into spending more.

Some common tactics include:

• Putting extra items in your basket as part of a “combo” deal.
• Charging unexpected fees at checkout for shipping and handling.
• “Confirm-shaming” customers with loaded opt-out statements (“No, I don’t want to improve my health”).
• Hiding advertisements inside what looks like genuine content.
• Claiming that there is “only one piece left” of an item you searched for.

Of course, the most widespread online shopping manipulation technique is bombarding you with ads based on your searches or even on things you said while your phone was on!

Unfortunately, these online tricks can have drastic effects on your wallet.

Forewarned Is Forearmed

There’s nothing inherently unscrupulous about any of the strategies mentioned here (aside, perhaps, from price anchoring). These subtle psychological lures have been around for as long as shops have.

As long as brick-and-mortar stores exist, managers will return to these strategies to generate more revenue and keep you spending more than you should. Knowing how stores trick you into spending and what those methods look like is the key to avoiding being made a sucker.

The post How Stores Trick You Into Spending More (And How Not to Fall for It) appeared first on FinMasters.

The best answer is: not overnight. Investing takes time and planning. Here is how you can build wealth confidently and realistically.

The Waiting Is the Hardest Part

Every investor faces some form of financial FOMO: the “Fear Of Missing Out.” For example, if you’d invested just $1,000 in Amazon stock at its initial public offering (IPO) in 1997, you’d cross the $1 million mark in under 20 years^[1].

But as much as we love these stories of overnight success, they’re exceedingly rare and easier to identify in hindsight. The truth is that the investments with the highest growth potential also carry the highest risk. That trendy new tech startup you’ve been eyeing offers no guarantee of success.

Instead, investors should focus on long-term growth over short-term strategies. Maybe that doesn’t sound as exciting as getting in on the ground floor of the next Apple or Amazon. But it’s a more reliable way to build wealth over time, as long as you know how to invest.

Ways to Invest $100k to Make $1 Million

What’s the best way to invest $100k? There’s no “right” answer, and investors have multiple options for growing their investments safely and reliably. Here are some of the possibilities. This is how to invest $100k to make $1 million:

1. Build a Stock Portfolio

The simplest way to invest 100k to make $1 million is by purchasing individual stocks. Historically, the stock market has delivered an average rate of return of 10% for at least 50 years^[2]. This means that if you invested $100k in a well-balanced stock portfolio and added $400 to $500 per month, you could reach your $1 million goal in roughly 20 years.

But there are some caveats to consider. This assumes that the stocks in your portfolio match this historic 10% performance. If your portfolio only yields an 8% return, it could take 25 to 30 years before you reach your goal.

Additionally, purchasing individual stocks takes both planning and monitoring. To achieve your greatest yields, you’ll need to actively manage your portfolio by adding and subtracting stocks to mitigate your losses and maximize your gains.

This can take time unless you also invest in a broker who can manage your portfolio for you. That costs money, and many managers will only hire larger accounts.

Learn more: Embarking on your investment path? Get acquainted with essential steps to shape your first stock portfolio in our recent piece.

2. Purchase a Mutual Fund, Index Fund, or ETF

Investing in the stock market doesn’t always require you to pick your own stocks. You might also consider purchasing a “fund,” which is a basket of stocks that typically represent a diverse range of industries.

Mutual funds are among the most common. A typical mutual fund contains well over 100 different securities, which means that investors gain immediate access to a diversified portfolio.

Exchange-traded funds (ETFs) are rising in popularity, partly because they trade on the stock exchange just like a regular stock, which gives investors greater flexibility.

Don’t overlook index funds for long-term growth potential. Rather than trying to “beat” the market, index funds are designed to track a particular market index, such as the S&P 500 or Nasdaq. Index funds often outperform carefully selected stocks in an actively managed mutual fund, especially when you take management fees into account.

The advantage of a fund is that you get built-in diversification, and some funds are actively managed by the fund manager to maximize your gains, making it a great way to invest $100k to make $1 million.

3. Pursue Dividend Reinvestment

Some companies pay dividends to their shareholders. Dividends aren’t typically large but offer some passive income to shareholders based on the number of shares that they own.

If you want to use $100k to make $1 million, you might consider taking advantage of these dividend stocks. You can use the extra windfall to increase your investment without spending a dime of your own money.

Look for companies that offer what’s called a dividend reinvestment program (DRIP). This means that you can use the company’s dividends to purchase additional shares of stock, which also increases the amount you’ll receive in future dividends.

Dividend growth investing is a proven strategy for achieving market-beating gains and mitigating losses during downturns.

4. Invest in Real Estate

If you want to invest $100K to make $1 million, considering diversification is key. One promising avenue is real estate. The most direct way to invest in real estate is by purchasing an investment property on your own. You can either “flip” the property to earn a profit or rent it out to collect passive income from your tenants.

You can also invest in real estate investment trusts (REITs). An REIT functions very much like a mutual fund in that it allows investors to build real estate portfolios featuring companies that own or manage valuable real estate.

REITs are a convenient option for real estate investing, and many REITs can be purchased from a major stock exchange, just like a stock or ETF.

5. Navigate Inflation With a Government Bond

While the stock market has yielded an average 10% rate of return, there have been periods in which the rate of inflation outstripped the benefits of stock market investing. For instance, if an investment asset yields a return of 7%, but the national rate of inflation is at 9%, you’re actually losing money even if stock prices are rising.

Diversifying your investment portfolio with government bonds can protect you during periods of inflation. The U.S. Treasury offers something called Treasury Inflation-Protected Securities (TIPS), which are a type of bond designed to match the current inflation rate, which prevents you from experiencing loss.

6. Save Your Money in a High-Yield Savings Account

Don’t discount the possibility of earning interest from a high-yield savings account, such as a certificate of deposit (CD) or money market account (MMA). Some of these accounts offer interest rates as high as 5%.

This means that if you saved just $10,000 in a 6-month CD with an interest rate of 5%, you’d earn just under $250.

Granted, this may not sound like much, but a high-yield savings account comes with none of the risks of the stock market. You likely won’t reach your $1 million investment goal with a savings account alone, of course, but this can be a smart way to stash your money until you’re ready to make a decision about what you want to invest in.

Tips for Maximizing Your Investment

If you really want your $100k to make $1 million, you’re going to have to build your investment over time by finding ways to add to your total investment. Try these tips to help you increase your investment over time and reach your goal of becoming a millionaire.

1. Start Early

According to a 2022 survey, 45% of Americans regret not investing more in the stock market when they were younger^[3]. Don’t let that be you. The sooner you can start investing, the better you’ll be able to see your wealth build over time.

Besides, when you’re young, you have more room for risk in your portfolio. This is why younger investors can be a bit more aggressive in their early years. They essentially have a lifetime to make course corrections.

2. Invest Regularly

Even if you’re able to make an initial $100k investment, it doesn’t mean that you’re done. If you want to invest $100k to make $1 million, you’ll need to add to your investment over time.

Be as consistent as possible. Some investors might even automate their finances so that they can regularly put away $400 or more a month toward their investment portfolio. This way, you’ll keep your investment goals a priority and can experience realistic growth toward your future.

3. Reinvest Your Investments

You don’t necessarily have to wait 20 years or more to “cash in” on your investments. On the contrary, if you want to invest $100k to make $1 million, you can take the earnings you receive from your investments and reinvest them to build your total portfolio.

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Some dividend stocks let you reinvest your earnings right back into the company, but you might also consider using your earnings to invest in other companies or other investment vehicles. For example, if you collect money from a rental property, you might use this passive income to contribute to your stock portfolio.

4. Avoid Taxes on Your Retirement Accounts

Sometimes, building wealth isn’t about the money you’re making as much as it’s about the money you’re saving. If you’re saving for retirement, you might consider using a tax-advantaged account such as a traditional IRA or 401(k).

Both of these options allow you to deduct the cost of contributions from your current income taxes, which will give you more money to invest in the years prior to retirement.

Just be aware that you’ll have to pay tax on any distributions once you reach retirement age, and your accounts have stipulations on when you can start receiving distributions.

5. Take Advantage of Employer Contributions

Does your employer offer matching contributions for your retirement account? If so, don’t leave any free money on the table.

Every employer will set a limit on how much they will contribute to the worker’s retirement account. Always contribute enough to receive your full employer match, which can maximize the amount of money you’re saving for retirement.

6. Pursue Growth Stocks

If your goal is to invest $100k to make $1 million, you’ll most likely do so through the stock market.

But while startups may have a lot of promise, they come with high risk. Instead, focus on growth stocks. These are companies that seem poised for rapid growth. This is a risky strategy because growth doesn’t always match predictions, but it can achieve stellar returns.

7. Diversify Your Portfolio

What is your risk tolerance level? Younger investors can afford to invest in a few hot startups, though as you get older, you’ll need to adjust your strategy to protect your investments.

The best way to do this is through diversification. While diversifying your portfolio means purchasing stocks from multiple industries — such as healthcare, tech, or consumer staples — it also means purchasing multiple types of assets, like stocks, bonds, and real estate.

That way, if one stock or asset takes a downturn, the rest of your portfolio remains intact and your chances to invest $100k to make $1 million remain high.

How to Invest $100k to Make $1 Million: Your Next Steps

With these tips and strategies, you can build a stronger investment portfolio, whether you hope to invest $100k in order to make $1 million or simply want to begin investing to secure your future.

Wondering where to start? You might start by contacting a financial advisor. A financial professional can be a mentor and guide, offering advice and expertise on the best ways to manage and grow your portfolio. By dreaming together, you stand a better chance of turning those dreams into reality.

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