Tag: Financial Plan

10 Things to Know About Working in New York

10 Things to Know About Working in New York
Thinking about working in New York? There are some features of work life in the Big Apple that set it apart from the work culture in other cities. Is it true that if you can make it there you can make it anywhere? We’re not making any promises, but we can give you some tips about what working in New York is really like. 

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1. Salaries are high – but so is the cost of living.

For many fields, particularly those that require highly skilled workers, salaries in New York are higher than those in other cities. But before you get too excited about the fact that salaries in New York tend to be higher, keep in mind that the cost of living in New York is higher, too.

Luckily, there are plenty of financial experts around to help you figure out how to keep your finances in check. These are the top 10 New York financial advisor firms.

2. New Yorkers put in long hours.

New Yorkers tend to work longer hours than folks in other cities. In part, that’s because the workday itself is longer, but it’s also because New Yorkers tend to have long commutes. If you want to have plenty of free time to pursue side hustles or hobbies, working in New York might not be the best fit for you.

3. Commuting by public transit is the norm.

According to recent Census Bureau figures, 55.6% of New Yorkers take public transportation to work, 0.8% bike to work, 10.3% walk and 3.9% work at home. Hate crowds? Commuting by public transit could take some getting used to.

4. Office happy hour options are plentiful.

Working in New York means having a multitude of options for weekday lunches and office happy hours at your fingertips. Socializing with your coworkers after the end of a workday is easy with so many places to go and easy public transportation options to take you home at the end of the evening.

5. Being a working parent is expensive in New York.

10 Things to Know About Working in New York

New York has some of the highest childcare costs of any city in the nation. Being a working parent in New York is expensive – and it’s not easy, given the long hours New Yorkers put in. New York has a lower rate of working mothers than many other major U.S. cities, in part because the high price of childcare makes it hard for many New Yorkers to earn more than they would have to pay for childcare.

6. New York work culture takes some of its cues from Silicon Valley.

Some New York workplaces are taking their cues from the start-ups of Silicon Valley, implementing casual attire, flexible workdays and other features. In an effort to compete with companies in other cities, some New York companies are expanding the perks they offer their workers, so if you’re lucky enough to get a job in one of those companies, you’ll find that working in New York has its compensations.

7. Lots of New Yorkers have more than one job.

Whether they’re care workers who work double shifts or actors who tend bar on the side, many New Yorkers have more than one job. For some, having a second (or third) job is a matter of necessity, while for others it’s a way of advancing their career or expressing their artistic side. Plus, getting a second job (or a roommate) makes it easier to live the New York dream without going into debt.

8. There are professional support opportunities here.

Because it’s a huge, densely populated city, New York has professional support opportunities for those up and down the career ladder. You can get help finding a job or finishing your GED. You can also attend high-powered networking events and conferences. The important thing is to know what resources are out there and how to take advantage of them.

9. You can outsource a lot of tasks – if you have the money.

If it’s in your budget, you can outsource a lot of tasks that you don’t want to have to tackle during your non-working hours. That includes mailing packages, getting food, dropping off dry cleaning, completing home repairs and more. Of course, these services aren’t within reach of all New Yorkers, and many people like to do these basic “life admin” tasks themselves. But if you’re planning on diving into the workaholic lifestyle in New York and you think you’ll have some money to spare, there are lots of companies looking to make outsourcing chores easier for you.

10. It helps to know someone.

It helps to know someone when you’re looking for work in New York, if only to stand out from the pile of applications that so many New York jobs attract. That’s why it’s a good idea to build and maintain your network and put it to work for you when you’re looking for a new (or just better) job.

Bottom Line

10 Things to Know About Working in New York

Working in New York isn’t for everyone, but many find it to be an exciting challenge unlike what they would face elsewhere. For others, working in New York is more of a means to an end – living in New York. Wherever you stand, working in New York is made easier when you have a strong network and plenty of determination.

Tips for Maximizing Your Money

  • Come up with a budget – and stick to it. Instead of spending $5 a day on a latte, put that money in one of the best savings accounts where you can earn interest.
  • Work with a financial advisor. In addition to helping you craft a financial plan and identify your financial goals, a financial advisor can help you determine the right investments for your financial situation, time horizon and level of risk tolerance. A matching tool like SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Photo credit: Â©iStock.com/Tempura, ©iStock.com/NYCstocker, ©iStock.com/Pavlina2510  

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Hitting the Books Again? Here’s How to Financially Prepare for Grad School

Deia Schlosberg had been working as an environmental educator, teaching students about issues concerning conservation and sustainability. While she loved teaching, she wanted to reach people on a larger scale about the importance of protecting the environment. So she decided to follow her dream of becoming a filmmaker—a dream that would require her to return to school for a graduate degree. She had no idea at the time that it would lead to becoming an award-winning documentarian.

While Schlosberg’s choice may have paid off, learning how to pay for grad school as a working adult can be a challenge. There are various benefits to getting an advanced degree: You can learn more, you can earn more, you can further advance in your current job or prepare for a career change. However, you might also find yourself stressed by the expense and resulting debt of it all, especially if you have kids, a home or other financial commitments. So a big question on your mind could be, “How much should I save for grad school?”

To financially prepare for grad school it’s important to weigh the benefits and stressors that surround getting an advanced degree.

Below are some lessons on how to financially prepare for grad school to help you determine if and when you should go back to school. If you haven’t yet decided if graduate school is right for you, see section 1 for tips on how to decide. If you already know you want to go back to school, skip to section 2.

1. Decide if going back to school is right for you

Getting an advanced degree may seem like a ticket to success, but depending on your chosen area of study, the outcome may vary. For Schlosberg, it was a bit of a risk. It can be difficult to get a break in the film industry, and going to grad school could mean carrying around debt for a long time. Is this the type of outcome you would be willing to accept?

According to Emma Johnson, best-selling author, career consultant and founder of Wealthysinglemommy.com, there are a few things you can do to help you decide whether or not going back to school is right for you:

  • Do your homework. When considering how to pay for grad school as a working adult, research your degree options and the jobs to which they might lead. Compare cost and compatibility—for instance, will classes for the program align with your work schedule? Once you’ve determined what kind of occupation you may pursue after grad school, search online for information about that occupation’s average earnings.
  • Solidify your goals. You may find clarity in writing out your goals for going back to school. Some benefits are tangible, like earning more money, building a professional network and gaining skills. Others might be less tangible, such as finding personal fulfillment. Once you know your goals, it will be easier to determine if a graduate degree makes personal and professional sense.

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“Your savings should not only depend on tuition but also what the degree is—i.e., how easy it will be to repay once you are working in the desired field.”

– Deia Schlosberg, filmmaker
  • Give your degree program a test run. Consider taking classes that relate to the degree you are interested in getting in grad school. These classes can give you a taste of the subject matter you’ll be studying and help you meet people involved in the field. Also, if prerequisites are required for your advanced degree, they often cost less online or at a community college, which is important to remember when thinking about how to prepare your finances before grad school. Make sure the course credits will be accepted at the graduate school you plan to attend.
  • Take a hands-on approach. To level up in your existing career or find out what it’s like in a new field before making the change, get some work-related experience first. For instance, to learn more about moving up in your own field, get out and meet those higher level professionals by attending conferences and networking events. The same tactic applies if you want to change careers.

2. Know how much you need to save

How to pay for grad school as a working adult can be complicated, but you’ve decided you’re ready for it. Plus, hitting the books at a time when saving for retirement or your child’s education could be at the forefront makes the task of how to prepare your finances before grad school even more critical.

Understanding how to prepare your finances before grad school becomes more complicated if you’re also budgeting for a retirement plan or child’s education.

Figuring out how much to save for grad school begins with determining the cost of attendance. Here are a couple ways to do that, according to Johnson:

  • Do the research. Once you have found a school and degree that you like, visit the school’s web site. Some schools may provide the cost of tuition, fees and estimated costs for books, supplies and transportation. Costs can vary tremendously, depending on various factors: whether you attend full or part time, whether you attend a public or private school, whether you are an in-state or out-of-state resident and the time it takes to get your degree.
  • Determine your budget. Once you have a handle on the school-related costs, build a spreadsheet that accounts for these costs and projects monthly income and living expenses. Working through a savings plan beforehand can help you financially prepare for grad school by showing just how much you’ll need to budget for monthly on tuition plus living expenses. Once you determine these factors, you’ll get a better idea of what you need to save up.
  • Create a savings buffer. After you determine your monthly costs, pad that number. “Your savings should not only depend on tuition but also what the degree is—i.e., how easy it will be to repay once you are working in the desired field,” Schlosberg says. She saved a little more than she estimated, giving herself an extra cushion to cover some of the potential risk to her finances.

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“You may have to downscale your career and current lifestyle to go back to school, which may be a worthwhile investment of time and resources.”

– Emma Johnson, career consultant

3. Allow yourself a flexible timeline

One key factor in planning the timeline for earning your graduate degree: Don’t be in a rush. If you need to, create the time to save. It may not be necessary to go back to school full time or finish on a particular schedule, Johnson says. She mentions these possible paths to earning your degree when planning how to pay for grad school as a working adult:

  • Consider a side hustle. One option is to go to school full time and take on a side hustle. You may not make as much as you did as a full-time employee, but the income can complement your savings. It may also allow you to concentrate more on your degree and finish faster.
  • Attend part time. Go to school part time (nights and weekends) while working. It will take longer, but it will also minimize your debt, which could be better in the long run.
  • Take it slowly. Only sign up for a class or two—whatever you can afford—and continue to work. This part-time “lite” approach may take even longer, but could help you avoid overextending yourself financially or sliding into debt.
  • Take online classes. Consider online programs that could lower the cost of tuition and allow you to continue working full time.
If you’re wondering how to pay for grad school as a working adult, consider attending school part time and taking online classes.

4. Take advantage of potential cost-saving benefits

So you’ve done your research on how much you need to save while determining how to prepare your finances before grad school. But there are ways to potentially cut or eliminate some of those costs. What comes next are some solutions that may help pay your grad school bills:

  • Consider loans, financial aid and scholarships. “I took out some student loans for living expenses, but I tried to pay off my tuition as I went by working through school,” Schlosberg says. Graduate students may also be eligible for different types of scholarships and grants, which is aid that does not need to be paid back. Depending on your area of study, scholarships and grants can also be obtained through federal and state organizations, private foundations, public companies and professional organizations.
  • Ask your employer to pay the tuition. One way to financially prepare for grad school is to talk to your manager or human resources representative to find out if your current employer would help pay for, or fully fund, your degree through tuition reimbursement. This is most likely if you plan to move up the ladder and use your new skills on behalf of the company.
  • Take advantage of in-state tuition. Some people move to the same state as their desired school to try to get a break on tuition. “I moved to Montana and worked a couple jobs for a year before applying so I could get in-state tuition,” says Schlosberg. Whether you are already a resident or you move to a new state, be sure to determine how long you need to be a resident to qualify for in-state tuition at your desired university.
  • Cut back on discretionary expenses. Seemingly small things like adjusting your lifestyle to lower your monthly costs, which could mean fewer lattes and dinners out, might go a long way in resolving how to prepare your finances before grad school. “You may have to downscale your career and current lifestyle to go back to school, which may be a worthwhile investment of time and resources,” Johnson says.
When determining how to financially prepare for graduate school, consider scholarships, in-state tuition and tuition reimbursement.

Financially prepare for grad school and get a new start

Answering the question of how to pay for grad school as a working adult requires significant research and preparation, but some say it’s worth it, including Schlosberg. It not only gave her a whole new start, but a wealth of knowledge going forward to nurture her future endeavors. “Getting a graduate degree gave me the confidence to jump into a new career. I met an amazing network of people,” Schlosberg says.

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But an advanced degree may not be a necessity. While it could look impressive on a resume, for many employers, a master’s degree is not a requirement. “Whatever you do, don’t go back to school just for the sake of getting a degree,” Johnson says. When thinking about how to financially prepare for graduate school, make sure it fits into your financial picture and that you’re able to “weigh your sacrifices against future gains,” she says.

The post Hitting the Books Again? Here’s How to Financially Prepare for Grad School appeared first on Discover Bank – Banking Topics Blog.

Source: discover.com

What You Need to Know About Budgeting for Maternity Leave

Prepping for a new baby’s arrival might kick your nesting instinct into high gear, as you make sure everything is just right before the big day. One thing to add to your new-baby to-do list is figuring out how to financially prepare for maternity leave if you’ll be taking time away from work.

Lauren Mochizuki, a nurse and budgeting expert at personal finance blog Casa Mochi, took time off from work for the births of both her children. Because she had only partial paid leave each time, she says a budget was critical in making sure money wasn’t a source of stress.

“The purpose of budgeting for maternity leave is to have enough money saved to replace your income for your desired leave time,” Mochizuki says.

But the question “How do I budget for maternity leave?” is a big one. One thing’s for sure—the answer will be different for everyone, since not everyone’s leave or financial situation is the same. What matters most is taking action early to get a grip on your finances while there’s still time to plan.

Before you get caught up in the new-baby glow, here’s what you need to do to financially prepare for maternity leave:

1. Estimate how long you’ll need your maternity budget to last

To financially prepare for maternity leave, you need to know how long you plan to be away from work without pay.

The Family and Medical Leave Act (FMLA) allows eligible employees up to 12 weeks of job-protected, unpaid leave from work per year for certain family and medical reasons, including for the birth of a child. Some employers may also offer a period of paid leave for new parents.

The amount of unpaid maternity leave you take will determine the budget you’ll need while you’re away.

When estimating how long you’ll need your maternity budget to last, Mochizuki says to consider how much unpaid leave you plan to take based on your personal needs and budget. For example, you could find you’re not able to take the full period offered by FMLA after reviewing your expenses (more on that below) and how much you have in savings.

Even if your employer does offer paid maternity leave, you may decide to extend your time at home by supplementing your paid leave with unpaid time off, Mochizuki says.

Keep in mind that despite all of your budgeting for maternity leave, your health and the health of your baby may also influence how much unpaid time off you take and how long your maternity leave budget needs to stretch.

As you’re financially preparing for maternity leave, make sure your spouse or partner is also considering what benefits may be available to them through their employer. Together you should know what benefits are available for maternity or paternity leave, either paid or unpaid, and how to apply for them as you jointly navigate the budgeting for maternity leave process. You can then decide how to coordinate the amount of time each of you should take and when that leave should begin.

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Contact your HR department to learn about your company’s maternity leave policy, how to apply for leave and whether there are any conditions you need to meet to qualify for leave. Ask if you’re able to leverage sick days, vacation days or short-term disability for paid maternity leave.

2. Babyproof your budget

When budgeting for maternity leave, make sure you review your current monthly budget to assess how budgeting for a new baby fits in.

In Mochizuki’s case, she and her husband added a category to save for maternity leave within their existing budget for household expenses (e.g., mortgage, utilities, groceries).

“We treated it as another emergency fund, meaning we had a goal of how much we wanted to save and we kept working and saving until we reached that goal,” Mochizuki says.

Figure out what new expenses might be added to your budget and which existing ones might reduce to financially prepare for maternity leave.

As you financially prepare for maternity leave, consider the following questions:

  • What new expenses need to be added to your budget? Diapers, for instance, can cost a family around $900 per year, according to the National Diaper Bank Network. You may also be spending money on formula, bottles, wipes, clothes and toys for your new one, all of which can increase your monthly budget. And don’t forget the cost of any new products or items that mom will need along the way. Running the numbers with a first-year baby costs calculator can help you accurately estimate your new expenses and help with financial planning for new parents.
  • Will any of your current spending be reduced while you’re on leave? As you think about the new expenses you’ll need to add when budgeting for maternity leave, don’t forget the ones you may be able to nix. For example, your budget may dip when it comes to commuting costs if you’re not driving or using public transit to get to work every day. If you have room in your budget for meals out or entertainment expenses, those may naturally be cut if you’re eating at home more often and taking it easy with the little one.

3. Tighten up the budget—then tighten some more

Once you’ve evaluated your budget, consider whether you can streamline it further as you financially prepare for maternity leave. This can help ease any loss of income associated with taking time off or counter the new expenses you’ve added to your maternity leave budget.

Becky Beach, founder of Mom Beach, a personal finance blog for moms, says that to make her maternity leave budget work—which included three months of unpaid leave—she and her husband got serious about reducing unnecessary expenses.

Find ways to reduce costs on bills like insurance and groceries to help save for maternity leave.

Cut existing costs

As you budget for maternity leave, go through your existing budget by each spending category.

“The best tip is to cut costs on things you don’t need, like subscriptions, movie streaming services, new clothes, eating out, date nights, etc.,” Beach says. “That money should be earmarked for your new baby’s food, clothes and diapers.”

Cutting out those discretionary “wants” is an obvious choice, but look more closely at other ways you could save. For example, could you negotiate a better deal on your car insurance or homeowner’s insurance? Can you better plan and prep for meals to save money on food costs? How about reducing your internet service package or refinancing your debt?

Find ways to earn

Something else to consider as you budget for maternity leave is how you could add income back into your budget if all or part of your leave is unpaid and you want to try and close some of the income gap. For example, before your maternity leave starts, you could turn selling unwanted household items into a side hustle you can do while working full time to bring in some extra cash and declutter before baby arrives.

Reduce new costs

As you save for maternity leave, also think about how you could reduce expenses associated with welcoming a new baby. Rather than buying brand-new furniture or clothing, for example, you could buy those things gently used from consignment shops, friends or relatives and online marketplaces. If someone is planning to throw a baby shower on your behalf, you could create a specific wish list of items you’d prefer to receive as gifts in order to offset costs.

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4. Set a savings goal and give every dollar a purpose

When Beach and her husband saved for maternity leave, they set out to save $20,000 prior to their baby’s birth. They cut their spending, used coupons and lived frugally to make it happen.

In Beach’s case, they chose $20,000 since that’s what she would have earned over her three-month maternity leave, had she been working. You might use a similar guideline to choose a savings goal. If you’re receiving paid leave, you may strive to save enough to cover your new expenses.

Setting a savings goal and tracking expenses before the new baby arrives is an easy way to save for maternity leave.

As you make your plan to save for maternity leave, make sure to account for your loss of income and the new expenses in your maternity leave budget. Don’t forget to factor in any savings you already have set aside and plan to use to help you financially prepare for maternity leave.

Once you’ve come up with your savings target, consider dividing your maternity savings into different buckets, or categories, to help ensure the funds last as long as you need them to. This could also make it harder to overspend in any one category.

For instance, when saving for maternity leave, you may leverage buckets like:

  • Planned baby expenses
  • Unexpected baby costs or emergencies
  • Mother and baby healthcare

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“The purpose of budgeting for maternity leave is to have enough money saved to replace your income for your desired leave time.”

– Lauren Mochizuki, budgeting expert at Casa Mochi

Budgeting for maternity leave—and beyond

Once maternity leave ends, your budget will evolve again as your income changes and new baby-related expenses are introduced. As you prepare to go back to work, review your budget again and factor in any new costs. For example, in-home childcare or daycare may be something you have to account for, along with ongoing healthcare costs for new-baby checkups.

Then, schedule a regular date going forward to review your budget and expenses as your baby grows. You can do this once at the beginning or end of the month or every payday. Take a look at your income and expenses to see what has increased or decreased and what adjustments, if any, you need to make to keep your budget running smoothly.

Budgeting for maternity leave takes a little time and planning, but it’s well worth the effort. Knowing that your finances are in order lets you relax and enjoy making memories—instead of stressing over money.

The post What You Need to Know About Budgeting for Maternity Leave appeared first on Discover Bank – Banking Topics Blog.

Source: discover.com

How Much Should You Spend on an Engagement Ring?

How Much Should You Spend on an Engagement Ring?

There’s nothing like falling in love and finding the person you want to spend the rest of your life with. But when it’s time to shop for rings, it’s easy to get discouraged by the price tags. Just how much should you spend on an engagement ring? We’ll dive into the topic and discuss ways to save on the big purchase.

Find out not: How much do I need to save for retirement?

What the Average Engagement Ring Costs

Maybe you can’t buy love. But if you’re in the market for an engagement ring, you’ll quickly realize that it won’t be cheap. According to the Knot’s 2016 Real Weddings Study, Americans spent an average of $6,163 on engagement rings, up from $5,871 in 2015. Wedding bands for the bride and engagement rings combined cost between $5,968 and $6,258.

If you want your wedding to happen sooner rather than later, keep in mind that on average, couples spend more than $30,000 to tie the knot. That’s roughly how much you can expect to pay for everything from your wedding reception and DJ to your cake and your photographer. Location matters when it comes to weddings, however, so you might be able to save some money by choosing a more affordable place to host your ceremony.

How Much Should I Spend?

How Much Should You Spend on an Engagement Ring?

Conventional wisdom says that anyone planning to propose to their partner should prepare to spend at least two or three months of their salary on an engagement ring. But spending too much isn’t a good idea for various reasons.

A recent study conducted by Emory University connected pricey rings to divorce rates. Men who spent more money on rings for their fiancees were more likely to end their marriages. That’s a possible long-term consequence of overspending on an engagement ring. In the short term, using a large percentage of your money to buy a ring might prevent you from using those funds to pay bills or stay on top of your debt, which can hurt your credit score.

If the marriage doesn’t work out and your ex-spouse decides to sell their diamond engagement ring, its value won’t be nearly as high as it was when it was first purchased. That’s why diamond rings can be such bad investments.

So exactly how much should you spend on an engagement ring? It’s a good idea to make sure that the price you pay doesn’t prevent you or your partner from accomplishing whatever you’re planning to achieve in the future, whether that’s buying a house or having a child. Rather than following an old-school societal notion that says you should spend x amount of money on a ring, it’s best to spend an amount that won’t compromise your financial goals or jeopardize the status of your relationship.

How to Save on the Ring

If you don’t want the engagement ring you’re buying to break the bank, it’s a good idea to learn as much as you can about the rings and what makes some more expensive than others. Diamonds are the gems most commonly used in engagement rings, and if you’re buying one for your significant other, it’s important to familiarize yourself with what jewelers refer to as the four C’s: clarity, cut, color and carat weight.

In terms of clarity, the best diamonds are flawless, meaning that they don’t have any blemishes when viewed under a microscope with 10 power magnification. Since no one’s eyesight is that powerful, you can get away with choosing a diamond with a lower clarity grade that costs less. Getting a diamond that has fewer carats (meaning that it weighs less) or getting one that isn’t completely colorless can also lower its overall price.

Or don’t get a diamond at all. Your partner might be just as happy with a simple band, a white sapphire or an emerald ring and it probably won’t cost as much as a diamond engagement ring. Shopping for your ring at a vintage store, looking for one online rather than in-person and getting a ring with a series of smaller stones surrounding the center stone (also known as a halo ring) are a few additional ways to save when buying a ring.

Final Word

How Much Should You Spend on an Engagement Ring?

There’s no need to spend a fortune on an engagement ring. And you don’t have to feel guilty about cutting corners in order to find one that you can afford to buy.

Like any other major purchase, it’s a good idea to take time to save up for a ring. If you have to take on more credit card debt or a personal loan in order to buy an engagement ring, it’s a good idea to find out how long it’ll take to pay off your debt. It isn’t wise to begin a marriage by digging yourself (and your partner) into a deep financial hole.

Tips for Getting Financially Ready for Marriage

  • If you haven’t already, start talking about money. It’s important to establish an open dialogue and make sure you understand and respect each other’s money values.
  • You might also consider sit down with a financial advisor before the big day. A financial advisor can help you identify your financial goals and come up with a financial plan for your life as a married couple. A matching tool (like ours) can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Photo credit: ©iStock.com/sergey_b_a, ©iStock.com/svetikd, ©iStock.com/adamkaz

The post How Much Should You Spend on an Engagement Ring? appeared first on SmartAsset Blog.

Source: smartasset.com

As Markets Wobble, Will We See a Wave of Reverse Mortgages?

Reverse Mortgages -- Are we Seeing a Boom?Kameleon007/Getty Images

Over the past three months, the stock market has been on a roller coaster. Investment portfolios have followed suit, which could be particularly concerning for those who are counting on those funds for retirement.

For those close to retirement, a lack of savings may mean monthly expenses go unpaid. As a result, retirees may be considering a reverse mortgage to bring in much-needed cash.

“Retirement accounts have been suffering under the macroeconomic conditions that we see out there today. People are looking at the use of home equity to absorb some of those shocks in their retirement plans,” says Steve Irwin, president of the National Reverse Mortgage Lenders Association.

Because there’s a long lead time for a reverse mortgage, Irwin says it’s too early to tell if the numbers are up. However, a leading indicator shows we might be on the edge of a wave of reverse mortgages.

NRMLA data shows an uptick in consumers who’ve taken the initial step and completed the financial counseling needed to proceed with a reverse mortgage. Irwin says counseling sessions in the month of March were up 25% compared with the year before.

Before homeowners can apply for a reverse mortgage or complete a final application, they must complete independent third-party counseling, he notes, adding that those counseling sessions are up significantly in the first quarter.

Historically, those counseling sessions had to be done in-person, but because of the COVID-19 pandemic, some states have allowed online sessions.

Reverse mortgage basics

Since the first reverse mortgage in 1990, over a million have been issued and currently about 550,000 are outstanding, according to the NRMLA. Unlike a forward mortgage, in which you pay down a loan to live in your home, a reverse mortgage draws from the equity you’ve built up in your home.

To qualify for a reverse mortgage you must meet the following criteria:

  • Be aged 62 or older
  • Own your property outright or owe a small amount on a traditional mortgage
  • Live in the home as your primary residence
  • Not be delinquent on any federal debt
  • Meet with an approved counselor

Most reverse mortgages are backed by the Federal Housing Administration as part of the Home Equity Conversion Mortgage program. Once approved, a borrower can withdraw funds as a lump sum, a fixed monthly amount, a line of credit, or a combination of these options. The loan comes due when the borrower either moves out or dies.

And although the instant hit of cash may be a welcome development, the homeowner is still responsible for other monthly payments.

“Keep in mind with reverse mortgages … you still have to have the financial resources to live in the house,” says Mary Bell Carlson, the accredited financial counselor behind the Chief Financial Mom. “You’re going to be living in the house, you still owe the property taxes, you still owe the insurance, the HOA, and all the maintenance on the home while you’re living there.”

One other note: As with a traditional mortgage, there are fees and upfront costs.

Is now a good time for a reverse mortgage?

Keep in mind, a reverse mortgage will hand you money, but the lender uses the equity in your home to give you that money.

“The amount of funds available through a reverse mortgage are calculated based on the age of the borrower, or in the case of a couple, the youngest person’s age, the home’s value, and the interest rates in effect at the time,” Irwin explains. “The lower the interest rate, the greater percentage of equity that can be made available.”

Currently, interest rates are at historic lows.

“We understand a lot of people have been looking at the reverse mortgage and just haven’t decided whether or not to move forward. But they understand that responsible use of home equity can absorb different shocks to people’s income streams,” Irwin says.

Another pandemic-related factor in play? Nursing homes and assisted-care facilities aren’t exactly an appealing option in the current climate. This may partly be why some seniors are opting to stay put in their own homes.

“We know that people want to age in place, and I think many senior homeowners who may have been considering moving or moving to a care facility are almost hesitant and reluctant to go anywhere right now,” says Irwin.

Before contemplating a reverse mortgage in the current environment, you must consider if you can still pay the expenses that come with owning a home. Lower interest rates will mean more cash in your hand, but if you don’t have funds set aside to cover needed repairs, maintenance, and other expenses of homeownership, pause for a moment to suss out your best option.

“A [reverse mortgage] doesn’t mean that [borrowers] just live scot-free in the home. They still have to have some kind of cash flow to keep up the home, and they can’t let the home fall into complete disrepair. That is a violation of the contract, and they could lose the house for that,” Carlson says.

Irwin says the answer depends on each homeowner’s situation.

“This is an individual case-by-case decision, and we want to ensure that it is a decision that’s carefully considered and discussed with trusted advisers and family members. But from strictly the available amount of proceeds given the current interest rate, yes, it is a good time.”

The future of reverse mortgages

Irwin says he expects more seniors to look at reverse mortgages as the pandemic-fueled financial crisis continues.

“It’s a needs-based transaction. They need to augment their financial stability,” Irwin explains. “They need to augment whatever retirement funding they have in place, or they need to relieve themselves of the burden of monthly principal and interest payments of a regular mortgage. I think that we will see more and more the use of the reverse mortgage as part of a more comprehensive financial plan in retirement.”

The post As Markets Wobble, Will We See a Wave of Reverse Mortgages? appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com