Archives for January 4, 2020

If given the choice, would you rather lose 5 pounds or save $5,000 this year?

When asked that question, most people (84 percent) said saving money would be the higher priority, according to a recent report by Fidelity Investments. The online survey of 3,000 adults indicates that American families want to pay down debt (51 percent) and save more money (53 percent).

The key to making your financial resolutions a reality this year is to get started now. Wishing won’t do it; you need a plan.

Goal #1: Paying down credit card debt

Credit card debt is the most expensive kind of debt — significantly costlier than borrowing money to go to college, buy a car or even purchase a house. The average credit card interest rate is 17.3 percent, according to CreditCards.com. People with poor credit or those who carry a balance on a retail credit card could be paying 25 percent or more.

“Think about paying down credit card debt as an investment with a guaranteed return,” said Ted Rossman, an industry analyst at CreditCards.com. “Every dollar you put towards reducing that credit card debt is earning you a 17, 21, maybe 25 percent return. That’s really a tremendous savings.”

There are two basic ways to pay down credit card debt: the avalanche and snowball methods.

The avalanche method

With this approach, you prioritize your debt from highest to lowest interest rate and focus on the card with the highest rate.

“Take all the extra money you have and apply it towards the balance with the highest interest rate,” said Bruce McClary, a vice president at the nonprofit National Foundation for Credit Counseling. “As soon as you pay off that card, take all of your extra money and apply it to the next-highest interest rate. This process repeats until all the debt is paid off.”

Because you pay the most expensive debt first, the avalanche approach should save you the most money.

The snowball method

With this method, you prioritize the accounts by the size of the balance and start with the smallest one. Seeing results more quickly can be motivating for some people.

“It may not save the most money in interest over time, but it’s a great way to ensure successful completion for those who look for more visible signs of progress at earlier stages,” McClary told NBC News BETTER.

No matter which debt repayment strategy you choose, make more than the minimum payment on the balance you’re focused on eliminating. Otherwise, you’re just spinning your wheels.

“You really want to avoid that minimum payment treadmill. It’s really a disaster for your finances,” Rossman said. He gave us this example: If you have $5,700 of credit card debt at 17 percent interest and you make only the minimum payment each month, it will take you almost 20 years to pay off the balance. You’ll also pay more than $7,000 in interest.

Other options

If you have good credit — a FICO score of 690 or higher — you might be able to stop the interest from accruing for 12 to 18 months by getting a 0 percent balance transfer card. That could save you hundreds, possibly thousands, of dollars in interest.

“Look for a balance transfer card that gives you the longest amount of time to pay off your debt without interest, while charging you the lowest balance transfer fee possible,” said Sara Rathner, NerdWallet’s credit card expert. “Some of the best options we’ve seen charge a 3 percent fee on the transferred balance and give you 18 months interest free.”

Don’t know where to start? NerdWallet has a list of balance transfer cards, and some of them have no fee.

If you go this route, be sure to calculate your monthly payments (the balance divided by the number of months) so you’ll get that balance down to zero before the promotional rate ends and the interest rate skyrockets.

Some people find themselves so deeply in debt that they can’t see a way out. In that case, contact a nonprofit credit counseling agency in your area. It can negotiate with your creditors to create a plan that works for you. The initial consultation is typically free, and the ongoing cost is minimal.

Goal #2: Build your savings

Life happens — the water heater goes, you need some new tires or someone in the family gets sick — and when it does, there can be unexpected bills to pay. A rainy-day fund is the buffer that lets you pay emergency bills without going into debt.

“Our surveys show that people tend to incur an emergency expense that’s unplanned every 24 months or so, ” said Greg McBride, chief financial analyst at Bankrate.com. “And when it happens, it tends to average around $1,500. So you have to be prepared.”

But most Americans aren’t prepared. A Bankrate survey found that 60 percent of U.S. households don’t have enough saved to cover a $1,000 emergency. A third would need to borrow the money in some way, such as from a credit card or a personal loan or from family or friends.

How much should be in your emergency fund?

Personal finance experts contacted by NBC News BETTER recommend having enough to cover your expenses for three to six months. That could be a very intimidating figure. But remember, this isn’t going to happen overnight; it may take a few years. The important thing is to get started.

Matthew Frankel, a certified financial planner who writes for The Motley Fool, advises his clients to “start with a small but attainable goal” — maybe $1,000 — and to make a concrete plan to achieve it.

Rather than waiting until the end of the month to see whether there’s any money left to put into your emergency savings account, do the savings first, he said. Automate the process, so you don’t have to think about it.

“I always find that those who make it automatic tend to do better than those who don’t,” Frankel said. “Instead of saying, ‘I’m going to save the $50 out of every paycheck,’ set up a deduction plan at work — it will greatly increase your odds of success.”

It’s best to open a separate account for your emergency fund so you’re not tempted to use it for daily expenses. Consider keeping the money in a high-interest online savings account. They pay significantly more than a traditional savings account, and they tend to have no or low fees.

Many of the best high-yield savings accounts require minimum opening deposits of only $100 or less and are currently paying about 2 percent annual percentage yield, according to Bankrate.com. Compare that to the average savings account, which pays only 0.09 percent APY, according to Value Penguin.

Most online savings accounts are FDIC-insured, and you can typically transfer money to your checking account within a day.

If your’re looking to build more wealth in 2020, money won’t simply appear — you’re probably going to have to make some changes to reach your goals.

Here are five lifestyle changes that have helped self-made millionaires get to where they are today. If they worked for them, they could also work for you.

Generate two incomes — or more

The richest people focus on earning, and they typically aren’t content with one source of revenue.

As author Thomas C. Corley found in his multi-year study of self-made millionaires, the rich “do not rely on one singular source of income,” he writes in “Change Your Habits, Change Your Life.” In fact, “65% had at least three streams of income that they created prior to making their first million dollars,” Corley says, such as real-estate rentals, a side hustle or a part-time job.

Once you start bringing home two paychecks, try Jay Leno’s strategy: Save the bigger of the two checks and live on the other. It not only frees up more cash that you can save and invest, but it helps prevent lifestyle inflation, which is when you increase your spending as your income increases.

Save to invest

“Investing money is how you will get super rich,” says self-made millionaire Grant Cardone. “The only reason to save money is to one day invest money.”The only reason to save money is to one day invest money.Grant CardoneSELF-MADE MILLIONAIRE

In fact, how much you save and invest is often more important than the size of your paycheck, says personal finance expert Ramit Sethi. “On average, millionaires invest 20% of their household income each year. Their wealth isn’t measured by the amount they make each year, but by how they’ve saved and invested over time,” he writes in his book, “I Will Teach You to Be Rich.”

Automate your finances

Once you’ve committed to investing your money, the easiest way to stick with it over time is to make the process automatic. Set up a regular transfer so that money from your paycheck is sent to your savings or investment accounts every month, before you even see it.

Say one of your 2020 goals is to put $2,000 into an emergency fund. Start by figuring out how much you’d have to save per paycheck over the course of the year to reach that goal. Then set up an automatic transfer so you move that amount from your checking account to your savings each time you get paid.  

If you have even bigger wealth goals, automation can help get you there, too. It helped one millennial, Grant Sabatier, save over half his income and eventually become a millionaire. “Automation is essential,” he tells CNBC Make It. “When I first started saving and investing, I was a little more old school — I was trying to invest as much as possible into the online savings accounts I had set up, and it was a pretty manual process. Now, one of the biggest recommendations I make is to automate as much of your savings as possible.”

Build relationships with successful people

Your community matters. It can even affect your net worth, says self-made millionaire and author Steve Siebold: “In most cases, your net worth mirrors the level of your closest friends. … We become like the people we associate with, and that’s why winners are attracted to winners.”We become like the people we associate with, and that’s why winners are attracted to winners.Steve Siebold

Coreley agrees: “Wealthy, successful people are very particular about who they associate with,” he writes. “Their goal is to develop relationships with other success-minded individuals.”

If you don’t have highly motivated people in your network, Corley suggests joining groups for people who share your same career goals or personal interests. 

Think big

If you set your expectations exceptionally high and are up for any challenge, you’re on the right track. After all, “no one would ever strike it rich and live their dreams without huge expectations,” Siebold writes.

And don’t put off setting money goals or implementing these lifestyle changes — if you want to build wealth, jump in today, says Sethi: “The single most important factor to getting rich is getting started, not being the smartest person in the room.”

The acronym “FAFSA” trended on social media Friday as some students who recently completed the Free Application for Federal Student Aid worried — incorrectly — that filling out the form had made them eligible to be drafted into the military.

Interest in the topic surged after a U.S. drone strike ordered by President Trump killed Iranian military leader Qassem Soleimani, leading to fears of possible military conflict with Iran.

One alarmed observer wrote on Twitter TWTR, -2.41% : “FYI: If any of you filled out a FAFSA form to apply for student loans, you are registered in the selective service. That’s pretty damn near every millenial and Gen Zer.” Another wondered why the U.S. has an all-volunteer military if “they trick you into Selective Service System on #FAFSA.”

Those concerns were misplaced: With a few exceptions, males in the U.S. must register with the Selective Service when they turn 18 regardless of whether they fill out the FAFSA. That’s been the law of the land since 1917. Failing to register for Selective Service is a felony punishable by a fine of up to $250,000 or a prison term of up to five years, according to the Selective Service website. But the U.S. hasn’t drafted people into the military since 1973, when the Vietnam War was ending.

“That’s very alarming that people are thinking they’re going to be drafted if they filled out a FAFSA,” said Karen McCarthy, the director of policy analysis for the National Association of Student Financial Aid Administrators (NASFAA), a nonprofit that advocates for increased student access to college. “Filling out a FAFSA doesn’t register anybody for selective service.”

The Selective Service said on its official Twitter account Friday morning that its website was experiencing high traffic volume “due to the spread of misinformation.” (The agency could not be reached for comment immediately because its website was down.)

“The Selective Service System is conducting business as usual,” the account tweeted. “In the event that a national emergency necessitates a draft, Congress and the President would need to pass official legislation to authorize a draft.”

But there is one key point FAFSA applicants should be aware of: If they don’t register with Selective Service between the ages of 18 and 25, they’re ineligible for federal student aid.

The U.S. Department of Education checks to make sure that every male student who fills out the FAFSA has also registered for Selective Service. If the student was legally required to register for Selective Service but never did it, their school will be notified and federal funds won’t be released, McCarthy said.

That requirement has taken on new significance as the average age of new college students has crept up. Some 38% of undergraduate students were over 25 in 2017.

There are cases in which schools can decide to release funds even if the student didn’t register for Selective Service, McCarthy noted. But schools are only allowed to do that if the student can prove they didn’t knowingly break the law by not registering. For example, a student who didn’t live in the U.S. between the ages of 18 and 25 wouldn’t have been required to register.

NASFAA has long advocated against tying federal student aid to Selective Service status, McCarthy said. The group has also lobbied against a question on the FAFSA about whether the applicant has had any drug-related criminal convictions. Both questions have nothing to do with whether a student is eligible for federal student aid, McCarthy said.

“Questions like, ‘Have you previously defaulted on a student loan?’ are fine,” McCarthy said. “But some of these other requirements we see as extraneous. Everyone is interested in making the FAFSA simpler, so we would love to see those eliminated.”

Advocates have long argued for streamlining the FAFSA, in part because they believe more students would apply for aid if the form were simpler.

Students routinely leave money on the table by failing to fill out the FAFSA: In 2018, more than half of high school students (52%) were eligible for Pell Grants, a federal grant for low-income students, but more than a third (37%) of all high school schools didn’t fill out the FAFSA. The 661,000 students who didn’t claim their Pell Grant money missed out on $2.6 billion in free money for college, according to a study by the personal-finance website NerdWallet.

Failing to register for Selective Service can also render men ineligible to enroll at some public colleges, and in some states, make them unable to get a driver’s license or apply for a federal or state job, according to reporting by the Washington Post and USA Today.

Oil prices tend to see sustained gains following Middle East crisis events, while stocks eventually churn higher as safe haven assets gold and Treasurys fade from their initial pops, according to historical analysis.

Crude prices jumped roughly 3% on Friday after a U.S. airstrike in Baghdad killed Maj. Gen. Qasem Soleimani, Iran’s top military commander. Safe haven assets rose as well, with bonds and the U.S. dollar moving higher. U.S. equities slipped, with the S&P 500 down about 0.7% and the Dow Jones Industrial Average losing more than 230 points, or 0.8% as investors took some risk off.

If financial markets follow historical precedent, many of those changes will reverse in the coming months.

CNBC used hedge fund analytics tool Kensho to analyze financial markets after 20 crisis events in the Middle East over the last three decades, including the attacks on oil facilities in Saudi Arabia last September. The analysis found that crude prices see a positive change more than 80% of the time in the month following major events. Gold and stocks followed as the next most successful asset classes.

Looking at a three-month horizon, stocks and oil rallied further while safe haven assets gave up their gains. Treasurys and the dollar post negative returns over this time frame, on average, while gold prices are flat.

Opinions on near-term oil prices were mixed after the attack. UBS said in a note that investors should not expect an extended rally, while SunTrust said the strike was “likely to place a new higher floor” for oil.

Analysts were somewhat cautious on stocks amid uncertainty about how Iran would respond.

“Barring an escalation, the backdrop for equities remains favorable,” Evercore ISI said in a note to clients, while UBS suggested that investors “consider protection strategies.”

Soleimani was a key figure in Iranian politics and the leader of an elite Iran special forces unit. He had been blamed for an attack earlier this week on the U.S. Embassy in Baghdad. The targeted strike also killed Abu Mahdi al-Muhandis, the deputy commander of Iran-backed militias known as the Popular Mobilization Forces.

The U.S. State Department urged American citizens in Iraq to leave the country as quickly as possible. Iranian leaders have called for retaliation in response to the strike.