As featured in The Wall Street Journal, Money Magazine, and more!

Money Management

No investment is without risk. You may feel safe when you do what financial advisers consider the “right thing” — invest in a broad stock market index fund with a long-term view — but there is risk there as well.

invest risk

Unfortunately, to build wealth over time, investors need to accept a significant amount of risk. Leaving money in risk-free investments, such as high-yield savings accounts, isn’t really investing at all. By taking on very little risk, keeping the bulk of your wealth in a savings account practically guarantees you’ll lose purchasing power over the long term due to the rising costs of goods that you might buy with that money.

Most middle class investors will need to grow wealth, rather than just preserve it, if financial independence is their end goal. So, just know that if you’re interested in growing your wealth over long periods of time, you’ll need to consider riskier investments than savings accounts.

Different Products, Different Risks

There is a dizzying selection of investment types scattered across the entire risk spectrum. These range from money market funds (low-risk investments, similar to savings accounts) to complex financial derivatives (risky financial moves often best left to professional investors).

Anyone who has ever invested in a 401(k) plan has had the opportunity to be familiar with risk profiling. To help you design your retirement portfolio, most 401(k) managers allow you to select your investments based on your appetite for risk. By asking the investor several questions about how they would react to different levels of investment performance, these 401(k) tools will categorize the investor based on their own, personal risk tolerance: usually low, medium, and high.

Measuring and evaluating the risk involved in any investment is a little more complex, though. While an investor’s risk tolerance can be categorized or marked on a scale, an investment’s risk should be plotted using several dimensions. To evaluate an investment, you should consider the different types of risk that could affect its performance in order to determine whether the investment is appropriate for you.

Resource: How to Evaluate an Investment Portfolio

Market risk

Market risk considers a broader picture. If you are invested in stocks, particularly if you choose the less expensive (but not necessarily safer) route of investing in a broad stock-based index fund, you have to accept that the overall economic condition of the country — or even the world — will cause your investment’s value to fluctuate. Market risk is relevant also for investments in single companies, bonds, or other products.

A market crash or decline could crush this investment’s performance, even if the quality of your investment remains the same. Investments also follow trends. For several decades, real estate could appear to be a “good” investment, encouraging more people to buy real estate and driving up prices for everyone else. Once the overall sentiment of investors switches to the belief that real estate is overpriced, your property could lose potential value… even though the structure hasn’t changed.

Learn More: 3 Keys to Deciding If Your Real Estate Is a Good Investment

Default risk

Default risk is related to the quality of the underlying investment, and is more apparent when investing in a single company, through stocks or bonds. If you invest in a company’s or municipality’s bond, you generally expect a guaranteed return. The promised return is usually higher than what a savings account would provide, but you face the risk of default. If the company files for bankruptcy of if the municipality is mismanaged, it’s possible you won’t receive the return you were promised.

Pensions, thought to be stable investments for retirements, are also exposed to default risk. Today, your company may be promising all retirees access to free health care, but if your company later restructures, that promised benefit might disappear. The government offers a type of insurance for companies that offer pensions, but sometimes that insurance isn’t enough to ensure all pensioners receive exactly what had been promised.

Inflation risk

Financial planners like to assume that inflation runs about 3 or 4 percent a year over long periods of time. This allows planners and investors to calculate the expected “real” returns for an investment. If you assume inflation is 3 percent and your savings account earns 1 percent APY, your real return is a loss of 2 percent a year. This real return takes the effect of inflation into account.

There is a chance, however, that during any particular time, the measure of inflation — or for a more accurate description in this case, the increase of the cost of goods — is significantly more than 3 percent. If the country were to enter a period of hyperinflation, investments in your savings account would result in devastating losses when compared to consumer prices. (At least until banks began to offer more appropriate interest rates.) When a gallon of milk costs $25, a gallon of gasoline costs $30, and a movie ticket costs $75, it will be much harder to get by on the same income you had with today’s prices.

Mortality risk

Consider mortality risk when you have or are considering investments in pensions, insurance contracts, annuities, or any investment with a long-term horizon.

Skydiving

Annuities are the best examples. If your annuity payments or distributions to you continue only as long as you’re alive, you run the risk of dying before you receive enough of your benefit to make the premium payments and fees worthwhile. If your investment strategy focuses solely on the long-term, there is a chance that you will never live to enjoy the benefits.

Life is short. It’s almost always shorter than you would like for it to be. But realize that mortality risk runs in the opposite direction, as well. If you live longer than expected, and you have tried to plan your financial life so you fully expend your wealth during retirement, you run the risk of running out of money.

Related: Should You Take a Lump Sum for Your Pension?

Spend some time to think about the risks of your investments. You may discover that your tolerance for risk is lower or higher than you expected. Perhaps you’ll need to adjust to accept more risk in order to meet your financial goals.

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Budgeting doesn’t come naturally for everyone. Some of us need a little assistance with tracking our income and spending. That’s where budgeting tools come in.

There are several front runners in this space. Many of them offer a wide range of features to help you manage your money better. Here are four of the best budgeting tools that we’ve found:

Personal Capital

Personal Capital is a money management tool that tracks your investments and other financial accounts. What’s great about Personal Capital is that it’s an all-in-one tool. Not only can you track things like your net worth and portfolio balances, but you can also get down to the nitty gritty details of your budget.

After you link your financial accounts by logging into them through the Personal Capital website, you’ll see different charts on the main dashboard. One of those is a cash flow chart. This chart shows you your income and spending for the last 30 days — a quick glance at your budget details.

Personal-capital-cash-flow-spending

Simply click the chart to be brought to another page. Here, it will show you the details of your budget. You’ll see where your income is coming from, and where you’re spending money.

Personal Capital is free to use, but it charges a fee for optional wealth management services for people with investment portfolios worth over $1 million.

Mint

Mint has long been considered the gold standard for budgeting tools. Between its website and mobile app, Mint gives users the ability to see their money activity in real time. Much like Personal Capital, Mint syncs all of your financial accounts into one dashboard. From there, you can see your spending categories, investment balances, and upcoming bills.

Mint-Review

What’s unique about Mint is that it also offers a free credit score. You’ll see the number on your dashboard every time you log in, and your score is updated every three months. Although there are plenty of websites offering free credit scores these days, Mint makes it easy to keep all your financial data in one place and avoid having to log in to multiple websites.

Mint is free to use. You’ll receive financial product recommendations for things like credit cards and savings accounts, based on your profile.

Learn More: Mint vs Personal Capital

You Need a Budget (YNAB)

You Need a Budget (YNAB) is a premium budgeting tool for the more involved users. The latest update included direct import, which allows users to sync their bank accounts with YNAB and have transactions imported automatically rather than manually. Despite this, users still have to manually categorize each expense, which can be a benefit to some because it creates more awareness of spending.

YNAB

What sets You Need A Budget apart from other budgeting tools is its comprehensive knowledge base. Users can sign up for free 30 minute online workshops on topics ranging from credit to debt. YNAB has a podcast with over 250 budgeting episodes and a YouTube channel that features weekly tutorial videos.

YNAB comes at a cost of $50 per year. This price tag may deter some users who aren’t looking to add another bill to their budget. However, YNAB’s website claims that new budgeters save on average $200 their first month, making the investment in the budgeting tool worth it. You can try out YNAB on a free trial for 34 days.

Good Ol’ Spreadsheet

Let’s not forget about the good ol’ spreadsheet for budgeting. Years ago, before online budgeting tools were popular, many people who budgeted simply tracked their income and spending in spreadsheets. It definitely takes more manual work and time than simply syncing your accounts on a financial aggregator. But the awareness you create when you update the budget spreadsheet yourself can be enough to get you out of bad spending habits and reach your savings goals.

You can grab a free budget template online with a simple Google search. If you have Microsoft Office, the program also includes free budget templates for Excel.

Stay On Track: 10 Guardrails to Help You Reach Financial Freedom

Final Thoughts

When choosing an online budgeting tool, it’s important to make sure the website is secure. The three online budgeting tools mentioned in this article (Personal Capital, Mint, and YNAB) have all been vetted for proper security protocols. Another benefit of using a spreadsheet for your budget is that you avoid giving external websites access to your financial accounts.

No matter how you choose to track your income and spending, the important thing is that you do it, especially if you are trying to save or get out of debt. Being aware of where your money goes, and knowing how to cut expenses, is a great first step toward financial freedom.

What’s your favorite way to budget?

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So, you’re thinking about adding some plastic to your wallet. You want to take advantage of as many bonuses and offers as possible, and you definitely want to earn cash back where you can. You may even be thinking about travel hacking, where you open a number of new accounts in order to reel in a number of introductory point, mile, and cash back offers. Where do you look first?

524 rule

Chase offers a wide variety of credit cards with different perks, including low-fee balance transfers, travel rewards, rotating cash back categories, and even 5% back at Amazon. They are one of the more prominent card issuers, and frequently issue large sign-up bonuses to encourage new customers. Chase, however, has an interesting rule that makes them stand out when it comes to travel hacking.

The 5/24 Rule

You may have heard about their 5/24 Rule, especially if you’ve spent any time researching card hacking.

Simply put, if you’ve opened up 5 new accounts in the last 24 months, you’ll be denied for most Chase credit cards. This rule is all but inflexible, even with calls to customer service to beg them to reconsider. This is unfortunate, as it could lead to you missing out on some of the largest sign-up bonuses seen on credit cards to-date.

One important note: there are numerous reports that being pre-approved in a Chase branch for these cards leads to approval for the card. Anecdotally, I traveled to New York City last November and was approved in-branch for the Chase Sapphire Reserve at 12/24 accounts. So, this work-around could be a possibility if you live near a Chase branch.

Check Out Its Brother Card, the Chase Sapphire Preferred

If you’re considering taking on the travel hacking game (beware: it requires strong organization skills and a lot of attention to detail!), Chase should be high up on the list of issuers to pursue. You’ll be applying for credit cards regularly, so you’ll quickly exceed the limitations for the 5/24 rule. For example, in the last 24 months, I’ve applied and been approved for 15 cards. In the world of travel hackers, that’s not even on the high side of new accounts.

Cards Not Under 5/24

The following cards are reportedly not under Chase’s 5/24 rule:

  • Amazon Prime Rewards Visa (I was approved last month at 13/24)
  • British Airways
  • Fairmont
  • Hyatt
  • IHG
  • Ritz-Carlton
  • Disney (both Rewards and Premier)
  • AARP
  • Marriott Business (note: there are conflicting reports on this but I was approved last October at 11/24)

Note that these credit cards will still result in a hard pull and the opening of a new account. So, if you’re interested in them, you should prioritize them after you’ve put yourself past the 5/24 threshold.

Which Card First?

First of all, a disclaimer: if you’re getting into travel hacking, here’s the criteria you need to meet:

  • Have an excellent credit score (I would put this at 720+, if not 740+)
  • Pay off your credit card statement balances in full each month
  • Be disciplined and organized with your money
  • Be able to meet the minimum spend on a new credit card without being financially irresponsible
  • Be unafraid of spending time doing research — there are no shortcuts here!

I would prioritize Chase cards as follows:

  1. Chase Sapphire Preferred
  2. Chase Sapphire Reserve
  3. Chase Ink Preferred
  4. Chase United MileagePlus Explorer
  5. Chase Marriott Rewards
  6. Chase Freedom
  7. Chase Freedom Unlimited
  8. Chase Southwest Rapid Rewards Premier

Note that there are more than 5 on this list, so you’ll have to do some research as to which card is right for you. The Chase Sapphire and Ink lines earn Ultimate Rewards points. These offer flexible and valuable redemptions across a number of airlines and other travel partners. The Chase Freedom line offers cash back perks as statement credits. The other branded cards like United and Marriott offer brand-specific points and miles.

I’ve prioritized the United and Marriott cards ahead of the Freedom cards for a few reasons. First, it’s possible to change your credit card to the no-fee Freedom cards after some time. So, if you’re a Sapphire Preferred cardholder and you’d like to discontinue paying the fee, it’s possible to change that card over to a Freedom.

Second, the bonuses for those two branded cards are relatively valuable at the moment. The United offer at 50,000 miles is higher than it was in 2016. The Marriott points are now eligible to transfer to Starwood Preferred Guest® Credit Card from American Express at a good rate (3:1).

If I were just getting into travel hacking, I would be going straight down this list. You may be put off by the Ink Preferred being a business card, but applying for a business card isn’t as daunting as it might seem. Many people run small self-owned business through eBay selling or Etsy shops, and it’s perfectly reasonable to have a business line of credit for those expenses. The process is nearly exactly the same as a personal application; you’ll just need to provide some information about the type of business you operate.

To 5/24-ers and Beyond

My advice to the unfortunate folks who are past 5/24: don’t worry about it. While some of these bonuses are stellar (the previous Chase Sapphire Reserve bonus at 100,000 points was great while it lasted), the sheer number of other card issuers and bonuses means that there’s no shortage of great perks to be had.

Lately I’ve been focusing my efforts on airlines like Delta and American, as well as Membership Rewards points through American Express. New cards are constantly being rotated in and out. So, it’s more important to be able to jump on the higher bonuses when available, than to worry about getting back under 5/24.

Best of luck out there, and happy travels!

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Whether or not you should pay more for quality is a decision that comes up often when shopping. The answer varies depending on the product.For some purchases, paying more is a giant waste of money which would be better spent elsewhere. For other items, it’s well worth the additional investment up front to ensure a quality product that lasts. So, how do you decide?

buyright

This question could be asked of virtually any purchase, so we can’t cover them all. However, here are seven examples of popular purchases and our verdict on whether it makes sense to pay more for quality:

Cars: Pay More for Quality

When it comes to buying a car, especially a used car, going with the cheapest option could be a big mistake. There are plenty of stories of people who bought used cars thinking they were getting a deal, only to discover the car needed costly repairs. Although state “lemon laws” exist to protect consumers in situations like those, you may not discover the car’s problems right away. Ultimately, you could be left with a vehicle that costs you more than expected.

It’s worth it to pay more for a quality car that has a clean history and is up-to-date in its maintenance. Buying cheap will likely cost you more in the long run. A completely new car might be out-of-budget for many people (and isn’t the best idea from a personal finance standpoint, anyway!). Buying a late model used car can be just as good as new, though, and you’ll likely be able to extend the warranty on it.

Homes: Pay More for Quality

Things like location and square footage are important factors to consider when purchasing a home. These shouldn’t be overlooked solely for the sake of price.

Unlike an ugly kitchen that can be remodeled, the big concerns will be difficult (or impossible) to change later on. Buying a home that’s in a bad neighborhood or is too small for your family can make you incredibly dissatisfied after a while. Turning around and selling the home too soon after buying is not only a headache, but can also make you lose money.

Learn as much as you can about the homes you’re considering for purchase. If you don’t find the ideal place right away, that’s absolutely fine. House hunting can take months before you find the right property for you and your family.

Smartphones: Don’t Pay More for Quality

You’re probably familiar with absurdly high-priced smartphones like the Apple iPhone or Samsung Galaxy S series. With these phones costing $500 and up, many consumers opt for payment plans. They have a monthly installment added to their cell phone bills in order to even afford the device.

However, if you want a high-functioning smartphone, a $500+ device isn’t your only option. There are competitors who make comparable smartphones that come with top of the line specs as well. For example, the ZTE Axon 7 will cost you about $400 and comes with a sharp camera, generous storage, and an attractive design. Another example is the Moto G4 Plus, which costs $299. It comes with an HD display and a long battery life.

Part of the reason high-priced smartphones are so popular is because they’re seen as a status symbol. If you’re just looking for a reliable smartphone, you can definitely forego the brand name and still get good quality.

Mattresses: Pay More for Quality

You go to sleep on a bed every night. Why not pay a little more to ensure your mattress is comfortable?

Getting a mattress that’s made from durable and high-quality materials can make a big difference in how well you sleep and how pleasant your body feels. Whether you choose a bouncy innerspring mattress or a firm memory foam mattress, you usually get what you pay for in terms of quality. A good mattress can last up to 10 years. But a poor quality one could have broken springs or stagnant memory foam after just a couple of years.

Mattresses can cost thousands of dollars. But you don’t have to pay that price. Department stores like Macy’s have sales throughout the year that can save you a considerable amount of money on such a large purchase. Be sure to also shop around at local mom & pop stores near holiday weekends (like Labor Day), as many of them will be willing to negotiate the price with you.

Walking/Running Shoes: Pay More for Quality

Foot health is important, but often overlooked. Many see foot pain as unavoidable and as something you just have to deal with when you’ve been on your feet for long periods of time. However, that doesn’t have to be the case. High quality walking/running shoes can not only prevent foot pain, but can also support your soles and offer breathability.

Although high quality walking/running shoes offer better support, they do experience wear and tear just as any other pair of shoes would. If you use them daily, it’s recommended to replace them about every six months. This may come as a large expense to you if you’re not used to buying top of the line shoes or replacing them that often. But it’s worth it if it means preventing pain and promoting good foot health.

Batteries: Pay More for Quality

If you have small children with lots of electronic toys or otherwise use electronics often, you know how important it is to have long-lasting batteries. Dollar store batteries just don’t hold up to the trusted brands, Duracell and Energizer. In fact, some electronics specifically call for high-quality batteries in order to function properly. I’ve experienced this with my digital camera.

If you look at some dollar store battery packages, you’ll even see recommended purposes for the batteries. The recommendations are usually for low-drain devices like alarm clocks or television remotes. When it comes to high-drain devices, like a video game remote control or a digital camera, you’ll want to pay more for high-quality batteries.

Sunglasses: Don’t Pay More for Quality

Sunglasses are eyewear that protect your eyes from the ultraviolet (UV) rays in sunlight. There are two types of UV rays: UVA and UVB. As long as your sunglasses protect from both types of UV rays, you don’t have to worry about the price of them. Beyond that, you often pay more for style. Just look for the sticker that indicates the UVA/UVB protection. It might also say “100% UV protection”, which means the same thing.

Sunglasses, in general, are fragile. To decrease the likelihood of breaking them, try not to keep them in your pockets or hanging from your shirt. The best place for them when they’re not on your face is in a case.

Final Thoughts

There are plenty of times when paying more for quality equals a better product. There are also times when, clearly, it doesn’t. When you’re considering a purchase, really take time to think about and research whether the increase in quality is substantial enough to warrant paying a lot more. This is when it’s important to do things like read online reviews, to further examine your choices.

What other purchases can you think of that warrant paying a bit more for quality… or some that don’t?

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The Latte Factor: Your Spending Reflects Your Priorities

by Luke Landes
latte

The concept of the Latte Factor is one of the most divisive in personal finance. Money gurus get so worked up over whether the Latte Factor is a valuable lesson in money management, that one might think the issue were as important as the national debt. Most of the time, passionate responses pertaining to the […]

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Getting Out of Debt: Make That New Year’s Resolution Work

by Luke Landes
CLIMB DEBT

Along with losing weight, getting out of debt is the most popular New Year’s resolutions in the United States. This resolution, like all others, unfortunately tends to be forgotten within weeks. Well, if you resolved to get out of debt this year — and haven’t yet abandoned that idea now that we are at the […]

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Millennials Don’t Use Credit… But Should They?

by Abby Hayes

A recent survey by Bankrate showed that many millennials don’t carry credit cards on a day-to-day basis. In fact, just 33 percent of those surveyed in the 18 to 29 crowd even owned a credit card at the time of the survey. People in the 30 to 49 category carried significantly more plastic, with about 55 percent […]

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Can You Afford to Stay Home With Your Kids?

by Mike Collins
stay home

This is a guest article by Mike Collins, creator of Wealthyturtle.com. He shares with us how he and his wife decided to become a single-income family, and he offers some useful advice for those struggling with the same decision. Most new parents will at least consider the idea of living on a single income so […]

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The Financial Checklist Manifesto

by Jeff

There are so many different ways to organize, prioritize, and classify your tasks and responsibilities. You’d probably need a couple years just to sort through all of them on your own. You can have an organizer on your computer, your phone, in your pocket, or a notebook. If you’re short of paper, you can just […]

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How to Create the Ultimate CD Ladder

by Rob Berger
cd-ladder

The low interest rates offered by even the highest-yield savings and money market accounts are disappointing for savers. Even as the Fed starts to raise rates, savings account yields haven’t budged. So, do we just give up the idea of earning anything on our savings? Well, not necessarily. One alternative is to create what’s called a CD […]

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