1. Self-Financing

This is your idea, so the first place to look for funding is obviously your own assets and your own collateral.

Your Savings

Of course, if you have savings, you can use them. Having skin in the game is important. If you are quitting your day job to start this venture, though, be sure you have enough savings, not just for the business, but to live on while the business ramps up.

Using your emergency fund as business capital is a risky proposition!

A Home Equity Line Of Credit (HELOC)

Homeowners with equity can use some of that equity to start a business. Requirements for HELOC loans have gotten tighter in the past 10 years, with most lenders requiring at least 20% of the home’s value to remain in the property.

I can say from personal experience that a HELOC is a helpful way to get money to start a business. I am also glad both the bank and I had the sense to stay above water on the loan! In no case do you want to owe more than your home is worth.

Remember that if you fail to pay, your home is at risk.

A Credit Card

This is a thing people do, but you should proceed with caution. It is the equivalent of going to a hard money lender for a loan to purchase an investment property (in other words, the terms and the interest rates are not in your favor).

Using credit cards as startup seed money is a last resort, and you should be sure the business can pay it back sooner than later. Credit card interest piles up brutally fast.

A Bank Loan

If you don’t own a home, you can approach the bank for a collateralized or noncollateralized loan. This can be tricky without collateral unless your credit score is excellent.

If there is a business partner or someone you know who could co-sign, that would be great. Just be sure that the other party is fully aware of the risk of co-signing a loan and that your relationship can manage the strain this kind of financial connection can bring.

If your business has collateral in the form of equipment or inventory, that could be sufficient to secure the loan without a co-signer.

2. Crowdfunding

Crowdfunding can get you the money you need to start a business. If you have helped a friend build their dream of a sock knitting business or run across a fascinating story about a unique product (like a foldable kayak – a real thing) through Kickstarter or a similar platform, you have seen crowdfunding at work.

This is also a great way to tell your story and for friends and people in your network to support you. You can build some capital and market the new business at the same time, especially if you offer something of value related to the business as an incentive to invest. 

Look at Kickstarter and other crowdfunding platforms. Don’t just dive on and make your pitch. Study the platform you’ve chosen. Look at what projects do well and how they pitch themselves. There are lots of ideas competing for crowdfunding dollars. Research will raise your chances of success.

3. SBA Loans

A Small Business Administration (SBA) loan will not just provide you with the financial backing you need to get your business off the ground. It will also force you to get your strategic planning ducks in a row. The SBA has rigorous standards and guidelines for the application process and for the terms of the loans themselves. You’ll have to do some work to meet the requirements, but the terms are excellent, and you’ll know your proposal has been professionally vetted.

Loans are guaranteed by the Small Business Administration, but funding comes from qualified banks, credit unions, and other lending institutions. There are several SBA products, but for our purposes here, I will highlight two.

SBA 7(a) Loan

This is one of the more popular products SBA offers. The application and approval process takes some time, so this is not a source of immediate cash infusion for your business.

That being said, there is a lot of upsides, with low interest rates, no minimum loan amount, and a maximum of $5 million.

SBA Microloan Program

For loans of $50,000 and under, this can be an excellent program. Local nonprofit lenders like Pennsylvania’s Community First Fund do an outstanding job of building up local businesses–both new and established–with these types of loans.

You can use SBA microloans to finance the supplies, inventory, or equipment or as working capital for the business. You can’t use them to pay off debt.

You’ll need to be organized and prepared, but SBA loans are one of the top ways to get money to start a business if you can qualify.

4. Angel Investors

To connect with an angel investor, you either have to know somebody who knows somebody, get on Shark Tank, or – more likely – contact an investor network. Here are just a few organizations that serve as a matchmaker between angel investors and business ventures they might invest in:

• Tech Coast Angels
• MicroVentures
• Angel Capital Association

You can expect angel investors to be professionally skeptical and to take a good deal of convincing. You’ll want to fine tune your business plan and be ready to make a convincing pitch to a knowledgeable audience.

5. Venture Capital

Venture Capital (VC) firms invest in new enterprises in exchange for an equity stake in the business. A VC investment will provide your business with capital, but the firm will be a part owner of your business and will have a say in the way it’s managed. That arrangement works for many startups, but you’ll have to decide whether that dilution of your control works for you.

You may have to pay some attention to the structure of your business before approaching a Venture Capital firm. Limited liability companies (LLC) and S corporations are increasingly popular ways of creating a business entity, but many venture capitalists still prefer to invest in corporations, specifically C corporations.

Why would that be? Many VCs are organized as partnerships or LLCs, which are not allowed to own S Corporation shares. The S Corporation structure is designed for small businesses and has useful features for startups. Venture Capital investors may invest in small businesses, but they want those businesses to become bigger so they can sell their shares at a profit. S Corporations can only have up to 100 shareholders, and VCs don’t want to see that kind of limitation on growth. The C Corporation structure can accommodate more growth.

As with angel investors, your pitch to a VC firm has to be on point. These individuals and firms see hundreds if not thousands of pitches for new businesses every year and pick a handful to back. Be prepared.

Finding Your Own Path

This business is your dream. You’ve done your homework and have found a product or service that is in demand. There are many ways to finance that dream. Know that you have options. You might not have realized the resources available to you as you begin this new venture. You don’t have to pick just one. Most businesses use several funding sources to get off the ground.

Whatever the dream, you can get money to start that business. There are funding sources out there to take advantage of. It will take initiative, creativity, and persistence, and you may have to deal with some missteps and rejections along the way. Keep believing, refine your ideas, and don’t quit!

The post 5 Ways to Get Money to Start a Business appeared first on FinMasters.

You can have a good and fulfilling life by taking either path. But for right now, with the choice of trade school or college, you need to decide which one is right for you? To make an informed decision, you need to fully understand what each option entails. In order to do that, we will go over the relationship between education and earnings, the differences between trade schools and colleges, and, finally, the pros and cons of each.

A Strong Link Between Education and Earnings

Education has a tremendous impact on your career earning potential. And while today many Americans are starting to doubt the worth of going to college, the studies of lifetime earnings by education level consistently show that college graduates earn more money than associate degree holders or college graduates.

Of course, average lifetime earnings aren’t consistent across all programs. Some college degree holders earn more than others. Some trade school or associate degree graduates earn as much as college graduates.

You also have to consider costs. Getting a college degree takes four years, sometimes more, and leaves many graduates deeply in debt. If you want to reduce your debt load and get into the workforce faster, a trade program might be your best choice.

Three Kinds of Schools

You’ll be choosing among three different categories of schools. Let’s look at the differences.

1. Traditional colleges typically offer a range of four-year degrees. They provide both general education and a specialized major and present significant academic challenges. They may be public, non-profit private, or for-profit private.
2. Community colleges typically offer two-year programs. Some of these prepare students for a transfer to a four-year program. Others are trade-focused. Most community colleges are public, and they usually offer a range of trade-focused associate degrees. They usually require some general education courses.
3. Trade schools focus entirely on trade-specific certifications. Programs may range from a few months to two years. Most have no general education requirements. Trade schools may be public or private, but many are private for-profit institutions.

Each of these general types has advantages and disadvantages. None is inherently better or worse than the others. Your job is to choose the one that best suits your needs and goals.

Let’s look at some of the pros and cons of each option.

Trade School Pros and Cons

Trade School or College? What's the Difference? Pros and Cons of Each

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Community College Pros and Cons

College Pros and Cons

Key Questions to Ask Yourself When Deciding Between Trade School and College

If you’re considering these options you’ll need to look at all of the factors discussed above. You’ll also have to consider the most important factor of all: your own needs and desires. Start by asking yourself these questions.

• Are you prepared to commit to a career? If you are ready and you believe a trade career is appropriate for you, a trade school or a community college trade program might be your best option.
• Do the career options offered in trade programs really appeal to you? The trades offer many well paid career options, but they aren’t right for everyone. Think seriously before making a commitment.
• Are you prepared to face the academic load of a traditional college? The academic life also isn’t right for everyone. If you struggle with abstract or theoretical academic work a trade program might be ideal for you.
• How much debt are you prepared to take on? College is expensive and often involves high debt levels. The investment pays off but it sometimes takes time and debt levels can surge due to interest. Are you ready for that commitment?
• What’s your priority: reliable work or personal growth? Many people attend college not only to boost career prospects, but to expand their knowledge and horizons. Is that what you’re after, or is a paying job more important?

There are no right or wrong answers to these questions. They are meant to help you clarify your objectives and make the choice that will best suit you.

The post Trade School vs. College: How to Choose the Right Path for You appeared first on FinMasters.

This is the cost of being poor in America, and it’s it’s a cycle that’s hard to break out of.

But what are the actual costs imposed by financial stress? Let’s take a look at how being low on money costs even more money and the factors that contribute to high costs in poverty.

The “Boots Theory”

Science fiction nerds may be familiar with the “boots theory,” which partially explains why being poor costs so much. The idea comes from the vivid mind of author Terry Pratchett. In the book Men at Arms, part of the Discworld series, one of the characters, Captain Samuel Vimes, offers this simple explanation: The rich are rich because they are in a position to make better financial decisions.

“Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that’d still be keeping his feet dry in ten years’ time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.”

Terry Pratchett, Man at Arms

When you can’t afford to take care of basic things, like covering your feet properly, problems snowball from there, and the cost of being poor is compounded.

Once you understand the “boots theory” you see examples of it everywhere.

Beyond Boots

Just like with the example of the boots, the cost of being poor does not start out with things being literally more expensive. A gallon of gas is a gallon of gas. It starts out as cost as a percentage of income, where everyday things require a bigger chunk of what you have and leave you with fewer choices. Let’s go from fictitious boots to the very real reasons for the high cost of being poor.

How the Poor Spend Their Money?

Understanding the cost of poverty starts with understanding how poor people spend their money. Data from one study of household expenditures is a starting point:

This chart reveals several key points.

• Low-income Americans spend over 80% of their income on necessities. That leaves little or no cushion when things go wrong.
• Housing, food, and transportation dominate spending. Housing, in particular, represents over 40% of an average low-income budget.

Let’s look at some of these core expenses and how they contribute to the high cost of being poor.

Things that cost more when you’re poor:

1. Housing
2. Food and Groceries
3. Transportation
4. Healthcare
5. Financial Services
6. Childcare
7. Communication
8. Taxes

1. Housing

If you can qualify for a mortgage, you have a big leg up on people who rent. You’ll still make a payment every month, but every payment builds your equity and your wealth. It’s not just vanishing into someone else’s pocket.

Home ownership tends to be more expensive when you’re poor, for two main reasons.

• Higher interest rates. Higher-income individuals usually have better credit^[1]. That gets them lower interest rates on their mortgages.
• Higher maintenance costs. People who buy homes on limited budgets often have to settle for older homes in poor condition. That jacks up maintenance costs.

Of course, most low-income people don’t own their homes. The US homeownership rate for families with incomes under $30,000/year was 36% from 2010 to 2017. The other 64% had to rent or were homeless.

But what if you are in a housing market where you can’t pull together first/last/and security deposit to get a rental? You wind up spending more money even in the short run because you can’t afford the cost of getting into a rental unit.

Here in my town of Albuquerque, NM you can find a 550 square foot studio apartment and pay $595. That’s if you look carefully and aren’t picky about the neighborhood. But to get into that apartment, you have to come up with $1,800 for the first month, last month, and a security deposit. If your credit is bad you may have to pay even more upfront.

Your options become limited, and if you can’t come up with the $1800 all at once, you might pay $290 a week at an extended stay hotel^[2]. That won’t be sustainable for very long.

2. Food and Groceries

Low income families don’t just pay a higher percentage of their income for food and basic household needs. They also pay higher prices. There are several reasons for this.

Access to Food

Many low-income people live in food deserts, areas with few or no stores selling food^[3]. They may also lack access to transportation to cheaper food stores. That can leave no option but to buy at convenience stores or fast-food restaurants.

Studies confirm that families with access to large stores pay lower prices than those who shop in small neighborhood stores^[4]. Here are some hard figures.

Survey performed in Minneapolis/St. Paul in 2014

Smaller stores often have limited capacity to handle perishable goods, which means less access to fresh vegetables and other healthy foods.

Inability to Buy in Bulk

Buying in bulk can generate substantial savings on goods that can be stored. Higher-income families are more likely to have access to stores stocking bulk quantities of generic or store-brand goods (think Costco) and more likely to have space to store these purchases and a vehicle that will let them transport them. Lower-income families may not be able to afford the more economical sizes even if they have access to them.

The differences can be substantial. For example, a bag of 200 Huggies Snug & Dry diapers costs $43.00, or $.215 per diaper. A pack of 34 pieces costs $21.99, or $.64/diaper. For a month’s supply (200 diapers) that’s a difference of $85!

Those prices come from Amazon.com. Families that have to buy diapers at a convenience store are likely to pay even more.

Restrictions on Cooking

Low-income families may not have kitchens or may not be permitted to cook in their residence. If they have kitchens they may lack refrigerators and freezers, making food storage more difficult and increasing spoilage and waste.

3. Transportation

Transportation is an unavoidable daily necessity. Getting to and from work, bringing kids to and from school, purchasing your necessities… the list goes on and on. Unfortunately, many parts of the US have limited public transportation, and where it is available it’s far from cheap. If you can’t afford a car and public transportation is not accessible you may be forced to rely on taxis or Uber rides. That raises your transportation costs and contributes to the high cost of being poor.

Many people need cars, and if you’re living on a low income a car can be a serious burden. Let’s look at some of the factors in play.

• Financing. As with mortgages, people with lower credit scars will pay substantially higher interest rates on car loans.
• Maintenance. If you’re on a tight budget you’ll be likely to end up with an older second-hand car. You won’t have a warranty and repairs may be frequent and expensive.
• Fuel. Older cars generally get lower fuel economy than newer ones.
• Insurance. Car insurance is more expensive when you’re poor^[5]. Lower-income drivers pay 59% higher insurance rates than higher-income drivers with similar safety records, a difference of $681/year.

All of these factors make transportation more expensive for low-income Americans. These differences are exacerbated if you can’t afford housing near your job or school, or if you need to travel to get to services like laundromats.

4. Healthcare

Healthcare is a significant expense and multiple factors combine to make it a particular minefield for low-income Americans.

More Health Problems

Poverty isn’t healthy. Low-income individuals and families often live in unhealthy, polluted areas, because those areas are cheaper. Cheap apartments are often laden with mold and dust. Low-income people have less healthy diets, often work in stressful, dangerous jobs, and are more likely to be exposed to workplace contamination.

Poor Americans face numerous health challenges. They have higher rates of diabetes and heart disease than their more affluent counterparts. Their children are more likely to have asthma. The elderly poor are far more likely to face health issues. All of these add up to higher health costs.

Less Access to Insurance

America’s insistence on tying health insurance to employment has left many low-income people facing an insurance crisis. Low-income Americans often work in seasonal, part-time, or occasional jobs. They are often uninsured. If they are insured their coverage is likely to be of low quality and they may face high deductibles, co-pays, and out-of-pocket costs.

The high cost of health care is wildly out of proportion to the resources of low-income families. Individuals with no insurance or inadequate insurance can face financial ruin from a simple illness or injury.

Less Access to Preventive Care

Lack of insurance or inadequate coverage leaves many Americans skipping necessary health services or medications^[6]. This can rebound into much more expensive problems down the line.

Without insurance, standard dental cleaning and exam can cost $150-$300. That can be prohibitive for a poor household, but skipping it can lead to spending $200 to $600 on a filling. Skip that and you could be looking at $700 to over $1000 for a root canal.

These costs multiply as low-income Americans skip more services to avoid costs and become less healthy as a result. The combined cost of care and lost work can be enough to drive a family into extreme poverty.

5. Financial Services

We’ve already looked at how weaker credit records leave low-income people paying more for mortgages and car loans. The same applies to all kinds of loans, and to credit cards: with weak credit, you’ll pay more interest and you’ll get fewer rewards. And that’s just the tip of the iceberg.

Poor people live on a shoestring, and any unexpected event can leave them in a hole. When your expenses for the basics, food, shelter, transportation, outstrip your income, you soon find yourself in a position where you need to borrow to account for the day-to-day plus emergency expenses that come along.

That’s why rent-to-own stores exist. That’s why payday lenders exist. When you are out of options, these options may seem like the only way to go. They all have one thing in common: they are expensive.

Payday Lending

The CFPB defines a payday loan as a short-term, high-cost loan of $500 or less. In one scenario, a customer went online for a payday loan for around that much. When they read the fine print, they realized that they would be paying back $950 even if they paid the loan back by the end of the week, and around $2,500 if they took the full length of time the loan allowed for payback. They said, “no thanks.”

Many people don’t say that. According to Pew Research, borrowers spend $9 billion per year on payday lending fees^[7]. That is one massive poor tax.

Credit and Rent to Own

We all do this to some extent. If you take a full 30 years to pay off a mortgage, you have paid MUCH more for your home than the actual value. But you’ve also been able to leverage the equity in your home to do other things. Plus you have something of value that you can sell.

But what about smaller items like home furnishings and electronics? Not being able to pay for these outright winds up costing you a lot of money, whether you are using a high-interest credit card or purchasing from a “rent to own” store.

Here’s a real-time example: as I write this, you could purchase an Ashley Furniture Beuland Accent Bench for $291, on sale from its regular retail price of $399. Or you could pay it down at Aaron rent-to-own for $57 a month for 18 months. That’s $1,026 for the same piece of furniture.

Credit Card Cash Advances

Credit card companies make it easy. If you run out of cash before your next paycheck comes, you can pull a cash advance from your card. That convenience comes at a price. The average interest rate on credit card cash advances is around 25%, as opposed to 12.85-15.99% for purchases. You’ll usually pay a transaction fee, and there’s no grace period. Interest will accrue from the day you draw your advance. That makes credit card cash advances a very expensive way of covering a cash shortfall.

There are many much more drastic examples. Poor people often need credit, because they haven’t got the cash. Credit is also very expensive when you’re poor. That creates a cycle of debt that is hard to break.

Fees, Fees, Fees

Many poor people live paycheck to paycheck and have barely any reserves. That leaves them open to financial disruption from any unexpected event. Financial service providers offer many ways to escape these traps. All those ways have one thing in common: you’ll pay.

You can make a late payment on a loan, installment purchase, or credit card. You’ll pay a fee. You can overdraw your checking account, but you’ll pay a fee for that too. If your bank balance falls too low you may pay a fee.

Those fees add up, and the more you fall behind the higher they get. That adds one more burden, often at a time when you’re able to carry it.

6. Childcare

Heading to work when you have preschool or school-age children means figuring out childcare. That can add up quickly. If you are spending ¼ to ½ of your income on childcare and at ⅓ to ½ on housing, the pie isn’t going to slice off much more than that!

If you can’t afford childcare one parent may have to quit work and stay home, further reducing your income. A single parent could even be forced onto public assistance, losing the opportunity to build work experience that can lead to better jobs.

7. Communication

The modern world runs on high-tech communications. Without a phone and email, you’ll have a hard time looking for work or doing business. If you’re starting out poor all of this will cost you more than it otherwise might.

When high-income people look for a phone plan they have a range of postpaid plans, often with their choice of hardware. They are likely to have home wifi and an internet connection bundled with other services. If you’re poor you’re likely to be using a pay-as-you-go plan and relying on mobile data. Have you ever stopped in a coffee shop just to use the wifi? Add the cost of your drink to your communication bill.

8. Taxes

Even government gets in on the action. You’ll often see figures indicating that the wealthy pay a larger share of federal income taxes, but taxes don’t stop there. When you factor in state and local taxes, sales taxes, and others, the tax burden lands most heavily on the poor. One analysis of tax burdens relative to income suggests that in ten US states the percentage of income spent on taxes by low-income people is six times greater than that paid by the wealthy^[8]. The same study found that in 45 out of the 50 states incomes were more unequal after taxes than they were before.

Living in Survival Mode

From my own experience of spiraling debt and decreased income after the Great Recession, being in survival mode means you are less able to think creatively about the future. You are so focused on making it through the current crisis that exploring the next big idea and making sound long-term decisions are pipe dreams. The impact of poverty on economic decision-making has been documented in numerous studies and is an integral part of the high cost of being poor.

Writing from the platform Scary Mommy, Rita Templeton thinks back on her own experience being poor. “Why does happiness depend on money? …Because nothing else keeps the bills paid.” There was a time not long ago when they couldn’t pay the electric bill and the power was shut off. Over a week with no heat, no light, no stove to cook on. Food spoiled.

She writes of pawning anything of value for pennies on the dollar. Filling tubs and anything with water while the water was still turned on. She writes of the feeling of being beaten down every day and how hard it is to find the emotional stamina to get out of that headspace.

Final Thoughts

Nobody wants to be poor, especially when you understand the exorbitant cost in dollars and well-being. When you see or interact with someone who is down on their luck, remember that it probably wasn’t just one thing that put them in that situation. And with the high cost of being poor, they are literally paying for it every day.

The post The Cost of Being Poor: Why It Costs So Much to Be Poor in America appeared first on FinMasters.

American consumer holds an average of $5,733 in credit card debt. At the same time, 39% of Americans do not have $400 on hand to cover emergencies^[1]. 

We all know someone who has found themselves in thousands or tens of thousands of dollars in credit card debt. Some of us have been through it ourselves.

Understanding how to use credit cards wisely is a necessary part of managing a budget and building wealth over time. If you take every credit card that is offered and run up those account balances, your finances can turn upside down pretty quickly. Let’s look at some ways to avoid that outcome.

Avoiding the Credit Card Debt Trap

Credit cards are called revolving credit. This is an arrangement in which you as the borrower are allowed to borrow money up to a certain limit and pay it back over time. This happens through a minimum monthly payment, all at once, or something in between. You can spend, borrow, and pay back up to that limit repeatedly as long as you pay enough to keep your account in good standing. 

Three features of credit cards combine to create the credit card debt trap.

• High rates. According to the Federal Reserve, the average US credit card user paid a 15.91% interest rate in February 2021^[2]. Many cards carry rates up to 25%.
• Low minimum payments. Most credit cards allow you to keep your account in good standing – and keep spending – with a relatively low monthly payment. That makes it easy to run up a balance.
• Daily compounding of interest. Most credit card interest compounds daily, meaning you’re paying interest on your interest, and that interest is added to your balance every day.

High rates, rapidly growing balances, and daily compounding mean your balance can get out of control very quickly.

While responsible use of credit cards offers advantages like convenience, security, and credit building, you need to manage them carefully to avoid the credit card debt trap. While everyone uses cards a bit differently, there are certain behaviors that all responsible credit card users share. 

Credit Card Rules to Live By

Here are a few rules of responsible credit card use:

1. Always Pay Your Balance in Full, Every Month

This may sound impossible, but the benefits are enormous. Credit card balances paid on or before the due date do not accrue any interest. By getting into the habit of paying the full balance each month, you are essentially giving yourself an interest-free loan for paying off your balance on or before the due date. Once you carry that balance into the next month, you start paying interest. And once you have that carryover balance, it can quickly snowball into larger and larger balances. That is exactly how you get into the debt trap you want to avoid.

2. Never Make the Minimum Payment

What if you have a balance right now? The next step in responsible use is to pay as much above the minimum payment as you can. Paying just the minimum is the fastest way into the credit card debt trap. It is very difficult to pay the minimum, keep accumulating interest on the debt, make occasional purchases on the card, and actually pay the card down. You will be in a perpetual cycle where you pay and pay, but can’t seem to put a dent in the overall balance on the card.

3. Don’t Use Cash Advances

Credit card companies love to hit your inbox or mailbox with offers of easy-access cash advances. Don’t do it. Credit card cash advances carry a higher interest rate than you pay on regular purchases, and interest typically begins accruing immediately, without a grace period. The wisdom of musician Tom Waits is pertinent here. In the song Step Right Up, he offers up this truism: “The large print giveth and the small print taketh away.” If you thought the interest rate on purchases with your card was high, the cash advance interest rate, hidden in the small print on your statement, will not make you happy.

4. Tackle Your Credit Card Debt Strategically

You may be well beyond that first rule of thumb of paying cards in full each month. You are not alone. Many Americans carry balances on multiple credit cards. So you have accumulated some debt and you want to do more than pay the minimum on all those cards. The next step is to pay down the debt strategically. 

If you have multiple cards with balances on them and other payments, like a car loan, you need to prioritize those payments and decide which ones you will pay off first? There are several strategies for getting out of debt. Many advisors advocate simply tackling the smallest balances first. Pay as much as you can towards them until they are paid off, then go on to the next smallest balance. Others advise focusing on the debt with the highest interest rate first. You’ll need to choose a strategy that fits your needs, and stick to it.

5. Keep Your Balance Below 30% of Your Limit

Your credit utilization ratio – the percentage of your available credit that you actually use – is an important part of your credit score. Managing the balance on each card is one way of making sure that ratio stays in line. Your target is to keep that ratio below 30%. If you have a credit limit of $1000, the goal would be to limit the balance at any time to $300 and pay that off when the next payment is due. 

Keeping your credit utilization rate well below 30% is even better. FICO reports that individuals with FICO scores over 785 had an average 7% credit utilization rate^[3]. They used only 7% of their available credit.

Wise Credit Card Use for New Credit Card Users

Credit cards can be a great way to start building credit from scratch. If you don’t handle them carefully, though, you could establish a bad credit record and bury yourself in debt at the same time. If you are new to credit cards, here are some ways to start using credit cards wisely. 

How to Use Credit Cards Wisely: 11 Rules to Live By

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6. Limit the Types of Purchases You Make

Consider using a credit card for just one or two types of purchases that are a normal part of your budget. You can pay for gas or maybe the latte you buy once or twice a week. You might pay your utility bill with a credit card and pay that off after you’ve paid rent and before the next credit card payment is due.

7. Use a Secured Credit Card

You can dip a toe in the water of wise credit card use by starting with a secured credit card. You’ll put down a deposit, which will become your credit limit: if you deposit $500, your credit limit will be $500. Because you have made a deposit, the issuer has little risk, so it’s relatively easy to get approved even with a limited credit record.

Secured card issuers will report your history to the credit bureaus, so these cards can be a good way to begin building credit. Because your limit is low, you’re not so likely to go deep into debt. You should still keep your credit utilization low and pay every bill on time and in full!

8. Build a Solid Credit History

Using a credit card responsibly can be a great way to build your credit. If you are just entering adulthood or otherwise new to the world of credit, signing up for a credit card with a low limit, paying it off every month, and keeping your credit utilization low can be a good way of establishing credit. That can help you get ready to secure an auto loan, qualify for leasing an apartment, and similar activities that require a credit history.

Helpful Tools for Keeping Credit Card Debt in Check

To stay on top of debt and especially credit card debt, here are a few tools to have at your disposal as you build a healthy financial foundation. 

9. Use a Budget

Understanding how to use credit cards wisely is part of an overall budgeting process. You can use our Simple Budget Calculator to get a clear sense of your monthly income and expenses. With a clear sense of your budget, you can manage credit card spending and repayment as part of that overall budgeting process. 

10. Schedule Your Shopping

We use credit cards to get products or services we want or need. We use them to get these things without waiting. Credit cards are for shopping, whether that’s filling up your Amazon cart or getting a bespoke tie or blouse in a local boutique. 

One of our most-read recent articles is a guide to the Best Days to Shop each month and what to shop for. We want what we want when we want it, but with a little bit of planning, you can use your credit card for shopping at the ideal time for the products and services you are looking for.

11. Spend Mindfully

Credit cards make it easy to buy what we want. Unfortunately, many of us want more things than we can afford. Keeping your spending focused on needs, and buying things we want only when we can afford them, can go a long way toward keeping our spending in check. A budget will help. Like the Japanese Kakeibo, some budgeting systems take it one step farther and build your budget around mindful shopping. Prioritizing your needs and indulging only those wants that can bring you lasting pleasure will bring you closer to full control of your spending.

Wise Credit Card Use is a Bottom Line Issue

The lure of buying now and paying later can snowball into situations that challenge your financial well-being. But when you learn how to use credit cards wisely, you’ll gain convenience, an understanding of cash flow, and an avenue for maintaining a solid credit history and rating.

Credit cards can be a valuable tool or a dangerous curse; the difference lies in how you use them. Using some simple principles for smart use of credit cards, along with some strategies for getting back on track, can go a long way in helping you reach your overall financial goals. And you can reach those goals sooner than you think.

The post How to Use Credit Cards Wisely: 11 Rules to Live By appeared first on FinMasters.

Of course, as an employee, you are the hired help just making a living, while the company is making exponentially more money from your hard work. But as a business owner, there is a lot on your plate. You are managing ups and downs in the economy. Your good employees never turn off those Indeed notifications as they keep one eye open for a better opportunity. Your bad-fit employees suck your time and energy before you part ways with them. And that’s just the tip of the iceberg. 

Risks and Rewards

There are risks and rewards on both paths. Understanding your own strengths and your capacity for risk-taking is part of the calculation when it comes to choosing the right path for you.

The decision does not have to be a once and done proposition. At different points in your life, you might find your prospects as an employee to be less advantageous. That can play out in several ways: you may take your employment as far as the company, your training and education can take you. You may find your skills and interests starting to diverge away from the job you currently hold.

But for this moment in time, what is the best path for you, employee or business owner? The first set of questions to ask yourself revolve around mindset. Where is your comfort zone? You can obviously work on making changes in your mindset to better meet challenges, but overall, where are you the most comfortable? Where are your gifts and experiences put to the best use?

Employee Mindset

With an employee mindset, the big picture is somebody else’s problem. 

As an employee, you are focused on a mission that may resonate with you but belongs to someone else. If you are happy to work under a corporate set of guiding principles and purpose, that’s great. If your preference is to have a set set of tasks and KPIs to measure your work against, that is an employee mindset. You’re there to do a job, do it well, reap the rewards, and not have the weight of the company on your shoulders when you are not working.

Owner Mindset

Starting your business is hard work that takes a lot of self-motivation. In the beginning, you will more than likely be putting more money into the business than you are getting out, but you know you want to persevere and grow this idea into a thriving business. If all of that excites you, that’s the owner mindset. If all of that makes you want to run in the other direction, stay on that employee path.

Pros and Cons of Employee Life

Pros and Cons of Starting and Owning a Business

Would You Rather Be Part of a Great Workplace or Run a Great Workplace?

Even if you work in a company that rewards you for innovation, allows you to set goals that are connected to larger corporate goals, allows you a lot of independence, and offers you a share in profits during solid times,  you are still working for someone else’s dream. If you are happy with that tradeoff, being an employee in a great company is a solid path for you.

But if you’d rather take your dreams and make them a reality, build a team, contribute to the wellbeing of your community, you might be cut out to start that business. 

It Might Not Have to be Either/Or

You may need to hold a job and start a business to build wealth. The truth is, for most of us, a paycheck and a 401(k) off in the distance somewhere are not going to get us where we want to go. And it’s not how the wealthy behave. People build and retain wealth by having multiple sources of income. 

If you are like me, the thought of running a business is pretty scary. If you feel that way, maybe don’t think of it as a business. “I own a few rental properties” isn’t hard to say. For tax purposes, you’ll probably do that through an LLC or S Corp. It’s technically a business, but that doesn’t mean you are leaving your day job, the benefits, and those 401(k) contributions. But you don’t really have to choose one or the other. There are ways to build wealth and grow a small business. Some popular options include owning real estate, affiliate marketing, or selling bespoke products online. None of those mean throwing away the security of being an employee.

Finding Your Own Path

The Robert Kiyosakis of the world will tell you to always get yourself into business ownership and investment, rather than being an employee or merely self-employed. But maybe you are not wired to just jump in and take the risks of starting a business. Walking away from your day job is great if you have the skills and determination to build a business and an investment portfolio. It isn’t the right choice for everyone.

But an approach that builds a plan over time to take advantage of the relative stability of your status as an employee, along with dipping a toe into, say, the short or long-term rental market, might be a great approach to building wealth beyond the 401(k). Plus you are making money you can use now. That 401(k) can’t be used for much (without a big penalty) until you reach age 59.5.

If you have that entrepreneurial bug, but don’t want to ditch that day job just yet, Nick Gallo offers some step-by-step instructions in this excellent article. He has some great advice if you are thinking about launching a business that you intend to replace your current job. 

But there are plenty of great reasons to remain an employee, enjoy that stability, reap the rewards, and let someone else manage the headaches of ownership.

Which Should It Be?

If you crave stability and want the buck to stop somewhere else, remaining an employee is the best bet. There are some ways you could, and probably should, start thinking about building wealth beyond the paycheck and the 401(k). But there is a lot to be said for having that day job be the bedrock of your financial plan.

On the other hand, if you are feeling hemmed in by your job description, have a passion, or a business idea you’ve been longing to test out, it may be time to start your own business. If you feel like you have the mindset and the passion to go for it, develop a solid plan, seek the guidance of wise mentors, and get started!

The post Should I Get a Job or Start A Business? appeared first on FinMasters.

Maybe you’ve been collecting art since forever, and somewhere along the way, you started getting serious. Should you think of art as an investment? And if so, what do you need to know in order to go from appreciating and enjoying art to making smart investment decisions? Let’s explore when and how art can be a good investment for you.

Invest in Art With Money You Can Afford to Lose

This is the first rule of art investing, or any investing where your return is not guaranteed. This is not investing in a low-risk mutual fund. If art is something you are passionate about, there is nothing wrong with collecting it. As an investment strategy, you need to think about it as a long-term alternative investment. Wealth is built when you have your financial bases covered and can begin to dabble in investments where the risk/reward calculations are more dramatic. If you are investing in art, you have to be prepared to have your money tied up for a long time or even to lose it.

Advantages of Investing in Art

Investing in art has some distinct advantages compared with other asset classes. 

• You have a physical asset. With art, you have something to show for it. It’s not just a number in an account somewhere. It’s not a portfolio of companies you don’t really know much about being looked after by a fund manager. 
• Art brings pleasure. You can display artwork proudly in your home and enjoy it and share that enjoyment with friends and family who visit.
• Consistent value. This may surprise you, but art is not volatile the way stocks and other asset categories can be. There are no guarantees, but the art market tends to be fairly stable over the long haul. 
• Reliable gains. The data show that well-selected art portfolios tend to appreciate over time.

You’ve got to choose wisely, and you’ll need to have a good eye for art and a good sense of the market, but art does tend to gain value over time.

Disadvantages of Investing in Art

Make no mistake, there are also disadvantages in the art market, and you will have to consider them before investing.

• Art is not a liquid asset. You can’t quickly cash out on a Monet, so if you think you might need your money in a hurry, this is not the place to park it.
• You’ve got to know your stuff. You either have to know a great deal about art or put your trust in an expert who can make wise decisions on your behalf.
• Art needs proper storage and maintenance. This is not something you can just store and forget about. Art needs to be carefully displayed or stored and, when necessary, restored by people who really know what they are doing. But you need to be careful here, too. Even great restoration can negatively impact the value of a work of art.

Art that the market accepts as collectible typically appreciates over time, sometimes dramatically. The challenge lies in selecting pieces and artists who are or will be accepted as collectible. That requires detailed knowledge of both art and the art market.

How to Invest in Art?

Art investing is very personal and needs to be a hands-on endeavor. Here are a few things to keep in mind in the investment process.

• Know the artists. Learn about the artists whose work you’re considering. Does their work have a track record of increasing value? Are they new and getting buzz in the art world? 
• Authenticity is key. If the artist is still living, determining authenticity is not complicated. If they and their representatives claim it, it is an authentic piece. For artists who are no longer living, get a reliable certificate of authenticity.
• Get an appraisal. You want the value of your pieces to go up, and that starts with paying the right price. You’ll need to pay an appraiser, but knowing the value of a piece ahead of the purchase is crucial to making a sound decision. 
• Buy originals for the best odds on a positive return on your investment. There is a market for prints (copies of a painting that are high quality and on a limited run) but they may or may not appreciate in value. 
• Know the dealer. It can be difficult to find information on small-scale art dealers but do as much due diligence as you can. Check the dealer’s reputation. Most galleries and dealers will have information about past exhibits and works they have represented. If you can find previous customers, they can be a great resource.

Galleries and auction houses are going to put the most positive spin on artists and the value of the work. As much as possible, seek independent verification of the artist’s background, the authenticity of the work, and its current value.

Where to Purchase Art?

Keeping all of the above in mind, where you purchase a work of art is important. Here are the most typical venues for art purchases and what to look for as you purchase with an eye toward long-term investment value.

(When) Is Art a Good Investment?

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Auction House

For making a calm, rational decision, an auction may not be the best place for purchasing works of art for investment. Unless you have the discipline to go in with a budget ceiling and stick with it, a bidding war can escalate the cost of a work beyond what you had intended to pay. Also, this is a scenario where you want to have your research buttoned up ahead of time. You want to know everything you can about the artist, the work you are interested in, and the auction house itself before signing in and picking up that numbered paddle. 

Gallery

For a clear-headed art purchase, a gallery is the better choice. After the research is done, a purchase at a gallery can be made without the heightened drama that can accompany an auction purchase. 

Online 

The popularity of the purchase of art through online galleries and auctions is increasing every day. Just make sure you are purchasing from a reputable source, and follow all the research and data collection guidelines – which you will probably be doing largely online anyway.

Direct From the Artist

If you are personally acquainted with artists you believe in, buying work directly from them can provide valuable support to an emerging artist and can be a way to get great deals on potentially valuable pieces. Just be sure that your personal connection to the artist is not coloring your judgment. These purchases are likely to be high on the risk scale.

What Medium Is the Best Investment?

When we think of investments in works of art, most of us think of paintings. We think of masterworks hanging in the Louvre, the Whitney, the Tate, or other famous museums. 

According to Widewalls, the medium is much less important than understanding the market. So while the most popular media for collecting and investing are paintings, drawings, photography, and sculptures, the medium is not the main concern in your investment strategy.

Tools for Understanding and Exploring the Art Market

If you are just getting started in collecting and investing, here are some tools that can help you understand the current market better.

• Magnus is an app that collects data on art. In this age where knowledge is at our fingertips, a way to find out about artwork in real-time can be a valuable tool. When you see a piece that catches your eye, there might be some data available.
• Art Market Research is your source for more general information on art market trends. From fine art to handbags and rare whiskey, there’s a market for that. Understanding the year-over-year trends can help you assess the appreciation potential of a piece you’re considering.
• Masterworks allows you to dip a toe into the market by purchasing a share in works of “blue-chip” artists. The fractional ownership system is similar in some ways to platforms like Fundrise, which invests in a portion of a commercial real estate property.
• Artemundi is one example of an investment fund dedicated to helping people manage art portfolios. With a number of funds to join, account management services, and appraisal services, companies like this can be a helpful resource to the serious collector. 

This is a sample of the resources available to a beginning art collector. We’re not endorsing any of them, and if you plan to invest in art, you should explore as many options as possible and examine all of them critically.

Is Investing in Art Right for You?

Art is not an asset class for everyone. And if you may need that money to pay the bills in the near future, this kind of investment is not for you. But if you appreciate art and are looking to diversify your investment portfolio, art may be an interesting and valuable path forward for your long-term investment goals.

(When) Is Art a Good Investment? is a part of our guide Alternative Investments For Beginners. Read up on other popular types of alternative investments:

• Investing in Art: (When) Is Art a Good Investment?
• Real Estate Investing For Beginners
• Investing in an Online Business 
• Investing in Commodities
• Crypto Interest Accounts
• Investing in Collectibles

The post (When) Is Art a Good Investment? appeared first on FinMasters.

Let’s dive in and discover how you can turn your credit invisibility around.

What Is Your Credit File?

Your credit file is much more than your credit score. It’s your entire borrowing history: which institutions have loaned you money and your track record in paying that back. It shows late payments, defaults, bankruptcies, and other credit problems.

Your credit file is composed of the credit reports kept by the three major credit bureaus: Experian, Equifax, and TransUnion. All of the information in those files is reported by companies you have done business with. Usually, those companies are lenders and credit card issuers.

Most of the companies that bill you day in and day out don’t report, so paying your rent and utility bills on time won’t build up your credit file. That said, failing to pay your bills can hurt your credit score. Find out more in our guide on how utility bills affect your credit score.

What Is a Thin Credit File?

If you haven’t used loans or credit cards, you’ll have a thin credit file or no credit file at all. With a thin credit file, lenders don’t know what or who they are looking at. That can become a big problem, especially if you plan to finance major purchases. If you have a thin credit file and you see moves like buying a car or a home in your future, the time to start building that credit file is now. It will take time, but you can do it.

A thin credit file can make it hard to get credit. If you don’t have enough information on file to generate a score, potential creditors will have nothing to evaluate. Even if you’re managing your money well, there won’t be any evidence of that.

Even if you have enough information on file to generate a score, a thin credit file can leave you subject to rapid swings in your credit score.

The Consumer Financial Protection Bureau (CFPB) highlights that over 45 million American adults face credit invisibility, unable to generate a credit score due to limited information.

The Thinner the File, the Bigger the Drama

With little credit for credit monitoring companies to observe, every credit-related move you make will have a dramatic impact on your file. With a thin credit file, everything you do – positive or negative – is magnified. You need to be extra careful about your credit activity.

If you have a deep file with numerous accounts and entries, the impact of a single missed payment will be small. Why? Because there are so many other items to balance out a small misstep.

Think of it as dilution. A drop of red dye can color a shot glass of water but be barely visible in a gallon jug. The impact of a negative entry on a credit file works the same way. The thinner the file, the more visible the impact.

Who Has a Thin Credit File?

Anyone can have a thin credit file, but there are specific groups that are most likely to face this obstacle.

• Young people entering the world of adult financial responsibility.
• Recent immigrants.
• People who have avoided credit and handled finance with cash and debit.
• People who stopped using credit for long enough that their credit data is too old to use.
• Newly single and had little to no credit in your own name.

If you’re in one of these groups, or if you have a thin credit file for any reason, you probably know all too well what a thin credit file can do. Your main concern is probably getting out of that trap. Let’s look at some ways to do that.

What Is a Thin Credit File? (And What Can You Do About It)

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Fattening Up That Credit File

There are a number of ways to start building credit for the first time, or after a period of time when you have not been using credit. Here are a few ideas to get you started down the road to getting a credit history for lenders to work with.

1. Become an Authorized User

If you’ve never had a credit card, you could start by becoming an authorized user on someone else’s card. The primary cardholder still has full responsibility for the balance, payments, and making any changes. But the credit report on the account will go to both the primary cardholder and authorized user. Make sure that you have a good relationship with the primary cardholder and that the primary cardholder has a good credit track record, especially with this card. Also, check to be sure that the credit card issuer includes authorized users in their credit reports.

2. Retail Store Cards

Another way to expand your credit file is to apply for a retail card, like for Kohls, Amazon, or wherever you shop. These cards are usually easy to get: you’ve probably been offered a card after shopping in-store or online recently.

Store cards offer lower limits than a Mastercard, Visa, or Discover card, so you can start with small purchases, pay them back, and build credit.

3. Secured Credit Cards

Secured credit cards are an effective and accessible way to build credit. You put down a deposit, and the amount of the deposit becomes your credit limit. The lender takes only minimal risk, so they’re willing to issue a card even if you have a thin credit file.

Many issuers will raise your credit limit or even move your card to non-secured status if you establish a good payment record.

4. Credit Builder Loans

Many local bank and credit unions offer credit builder loans. The money you borrow is placed in an interest-bearing account at the lending institution. You make the payments, and when the loan is paid you get the lump sum.

Again, there’s little risk to the lender, so approval is easy, and you get an installment loan on your record. You also walk away with a lump sum of money at the end of the deal, which is a great incentive to make the payments.

If you’re considering buying a car, for example, you can save for a down payment and build your credit at the same time!

5. Get Payments Counted

Utility and rent payments are generally not counted toward your credit score. Credit reporting bureaus have recognized this gap, and are introducing products to close it. Look into Experian BOOST, Experian RentBureau, and TransUnion’s eCredable Lift.

Each of these services will only affect one of your credit reports, but that still means something, and when your credit file is thin every little bit helps.

6. Make Those Payments

Getting new credit accounts will thicken your credit file, but you need to make sure you’re filling that file with positive records. A secured credit card or a credit builder loan is a great way to build credit, but you need to be sure that you’re making every payment on time, or you’ll be doing yourself more harm than good.

Making every payment on time is a huge part of building your credit file, so you’ll want to be sure to keep your commitments well within your capacity.

It’s always good to avoid biting off more than you can chew, but it’s especially important when you have a thin credit file. A credit card can make spending tempting, so be sure to keep an eye on that temptation!

7. Mind your Credit Utilization Ratio

As you build your credit, understand that credit reporting companies will also be looking at your credit utilization ratio. The ideal is to use under 30% of your available credit limit on your credit cards. Less is even better: the average credit utilization ratio of FICO’s “high credit achievers” is only 7%^[2].

Credit utilization is especially important if you have a thin credit file because most of your credit products will have relatively low limits. If your limit is low it’s easy to push credit utilization up with a few transactions.

Use our debt utilization calculator and keep coming back to it to stay on track with this important credit metric.

If you have a low limit on a card consider putting a few small recurring expenses that you’d pay anyway, like a Netflix subscription or your internet bill, on the card. Then you can set up an automatic payment from your checking account and just put the card away.

Build Your Credit File Slowly

Building up a thin credit file is a marathon, not a sprint. It’s important to understand that you don’t want to rush out and take all these steps at once. It’s well worth the time and effort. Remember, you’re not just building up you’re credit file, you’re learning good financial habits that will serve you for the rest of your life.

A thin credit file is not something to get overly stressed about. It doesn’t mean you’ve been financially irresponsible, it just means you haven’t built up a paper trail that proves your responsibility. Understanding what a thin credit file is and having some tools in hand to build your file over time will help you reach your financial goals and keep your credit rating solid.

The post Thin Credit Files: What They Are and How to Fix Them appeared first on FinMasters.

Insurance may not protect you. Many insurance plans have high deductibles and high out-of-pocket maximums. You could be on the hook for thousands of dollars for a single trip to the ER.

What goes into emergency room costs? Why does ER care cost so much, even when you arrive with health insurance? And how can you mitigate those costs in future visits? Here’s what you need to know to understand the costs, understand your options, and plan for these unexpected costs.

What am I Paying For When I Visit the Emergency Room?

According to a recent United Health Group study, the cost of an average non-emergency ER visit is $2,000^[2]. If you have insurance, you’ll be paying a co-pay of around $150 for the visit itself. That doesn’t include other fees that might get added on, like the lab work and prescriptions that might be required after an ER visit, or the services of an out-of-network doctor.

To understand emergency room costs, we have to break them down into their component parts.

The Ambulance Ride

If you have a true emergency, you will probably arrive at the emergency room in an ambulance. When emergencies happen and you are incapacitated, the ambulance will get care to you as you are transported to the medical facility. That en route care can literally be a matter of life and death, so it’s good to have it. It can also be expensive, so it’s good to have a handle on what goes into that transportation and care cost.

A recent study from the University of Michigan found that, even with insurance, the average ground ambulance transportation left the patient on the hook for an average of $450^[3]. An air ambulance can cost well over $20,000!

That’s before you even set foot in the ER.

Emergency Room Costs

The cost of your ER visit will vary with the cause of your visit. Here’s a rundown of average costs of some typical reasons for a visit:

• If you come to the ER as a result of a car accident or some other very serious injury, one cost you will likely encounter is the trauma fee. This is the cost of having the trauma unit get you stabilized. You certainly WANT to have trauma care when it is needed, but it will cost you. In an interview for Fresh Air^[4], reporter Sara Kliff says: “This is the fee that trauma centers charge for essentially assembling a trauma team to meet you when you’re coming in and those folks out in the field, maybe the EMTs, for example, have determined that you meet certain trauma criteria.”

• Another common reason for an ER visit is a broken bone. Setting a broken leg can cost as much as $7,500.

• Lab work and diagnostics can add hundreds of dollars to your bill, depending on what is called for.

• Doctors’ fees for sub-trauma level care can add hundreds of dollars an hour to your ER bill. These fees can start at around $100 for basic care and well over $1,000 for the first hour of critical care^[5]. 

• In-network/out of network fees. One thing to realize about doctor fees – just because you go to an in-network hospital doesn’t mean you will necessarily be seen by an in-network doctor.

The more complex your emergency, the higher the cost will be.

Costs of Doing Business

Beyond the care you receive during an ER visit, there are operating costs of an ER that you are also paying for. Sarah Kliff describes the “facility fee” as “the cost of keeping the doors open 24/7 in the ER“. This charge can vary a lot from one ER to another, usually ranging from $50 to around $400.

Is Urgent Care a Better Option?

So what about all those Urgent Care facilities that are cropping up in strip malls across the country? Are those a better option? 

Urgent care facilities are set up to handle non-life-threatening situations. If you’ve been in an accident and have a major injury, get to the ER. If you are experiencing chest pains or other heart-related symptoms, get to the ER.

Emergency Room Costs: Why Is Going to the ER So Expensive?

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But if you are experiencing minor cuts, a UTI, back pain, or minor burns, you might save money and time by going to an urgent care facility. 

In short, if life and limb are in danger, get to the emergency room.

What if I’m Uninsured?

If you are facing a serious and/or life-threatening medical emergency, you will receive care. Emergency rooms cannot refuse to treat a patient. That care will not be free. If you don’t have insurance, those costs could be far above your means. You’ll have to ask about the hospital’s charity policy, work out a payment plan, and contact Medicaid to see if you qualify. 

Compared with a copay of $150 plus some lab fees, you would be looking at an average bill at an average of around $2,000. And if you have more serious issues or get transported via helicopter ambulance, the cost could be in the tens of thousands of dollars. 

7 Ways to Manage (or Avoid) the Cost of Emergency Care

Medical emergencies are by nature hard to predict, but there are things you can do to mitigate their financial impact.

1. See a primary care physician. Primary care physicians can provide care for non-life-threatening conditions at lower costs than an ER.
2. Use Urgent Care. If it’s not a life-threatening emergency, an Urgent Care facility might be a better option if the facility can treat your illness or problem. 
3. Try Telemedicine. Online telemedicine providers like GoodRx provide affordable consultations that can help you decide whether you need an ER visit or not.
4. Use a Free Clinic. Check the National Association of Free and Charitable Clinics for options in your area.
5. Consider using a Health Savings Account (HSA). It will reduce your taxable income and give you a cushion for medical costs.
6. Cut your costs. There are lots of ways to get help with medical bills, including using government resources like Medicare, Medicaid, and CHIP. You can also find help with groups like the Patient Advocacy Foundation (PAF). If you are uninsured, PAF has resources to help you understand your rights in that situation. If you feel that a bill is inappropriate a patient advocate can help you negotiate.
7. Prepare. It’s hard to think straight during a medical crisis, so plan beforehand. Find out what urgent care facilities are in your area and what cases they accept. Locate primary care doctors in your area. Learn about ER costs at hospitals in your area. Find out which hospitals have relationships with your insurer. If you have a plan in place you won’t have to think about money when trouble strikes.

In a true emergency, there may be little you can do to control costs. If you’re unconscious and someone calls an ambulance, all that matters is getting care. Those incidents are rare, though, and many ER visits are avoidable or manageable.

Prioritize Your Health

All financial planning is about planning for the future, which includes the unexpected. An ER visit definitely qualifies as the unexpected. First and foremost, you’ve got to take care of yourself. Without your health, a lot of other financial problems can begin to pile up.

The priority is getting the care you need. You also have to take care of your finances. Understanding the emergency room costs can help you manage your health and those costs more effectively.

Interested to learn more about the underlying reasons for the high cost of healthcare in the US? Start here: Why Is Healthcare So Expensive?

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