Ghosts and goblins may scare the kiddies, but it’s often mundane money terrors that keep grown-ups awake late at night. Debt, fear of the future, and other uncertainties can creep into your subconscious where they can turn mysteriously into the adult version of the monster under the bed.
The Halloween horrors that go bump in the night may come in the form of your bank statement, your future finances, or unexpected car repairs. Are any of these financial tricks keeping you up? If so, here are some treats to make them go away—and help you sleep soundly.
|†rick:||I’ll never get out of debt.|
Treat: Debt can be a real monster—particularly high-interest credit cards. High-interest debt is a vampire that drains your cash flow to pay for past purchases.
There are some steps you can take to try to mitigate the interest bite. For instance, if you have a history of on-time payments with your credit card issuer, call them and ask for a lower rate. Investigate options like balance transfer cards with a low temporary interest rate—like 0% for a period of time. One caveat: Card issuers often charge a fee of 3% or more of the amount transferred. And the interest rate charged on new purchases may be much higher than the rate on the amount transferred. Make sure you understand the fees and conditions—then run the numbers to ensure it’s worth your while. Most personal finance sites have a calculator you can use like this one from Bankrate.com.
It can take an aggressive commitment to shake the debt beast off your back. The secret is to know how much you spend and where. Then look for areas where you can cut costs. For instance, maybe you can take breakfast and lunch to work with you if you’re used to buying it on the go.
Cell phone plans can be big expenses as well. It would be tough to get by with no cell phone but you may be able to cut down on your data plan. Track your data usage, find out where you use the most—for instance, video chat or streaming music—and use WiFi instead of your data. Don’t be afraid to shop around for a service provider—investigate the big companies as well as the small ones.
- On Fidelity.com, read Viewpoints: "How to pay off debt—and save too."
|†rick:||I don’t need an emergency fund.|
Treat: Getting a safety net in place may sound daunting. But it’s really just a series of small steps. First, start saving a percentage of your take-home pay just for emergencies. Our suggestion is to begin putting 5% of each paycheck into an account that you cannot easily touch. Here’s the secret: Make it automatic. Either have a portion of your paycheck directly deposited into a savings account or set up a recurring transfer to move money from your checking account to savings every time you get paid.
The goal is to save from three to six months’ worth of expenses. After you’ve achieved that accomplishment—and you will if you’re consistent—keep saving for emergencies so you always have a cushion to soften the blow of unexpected car repairs or other scary emergencies.
- On Fidelity.com, read Viewpoints: "How to save for an emergency."
|†rick:||Insurance is a scam.|
Treat: Insurance is one of those things you may not appreciate until you need it. But it can be another important component of a safety net. For instance, maintaining short- and long-term disability policies could help you in case you’re unable to work due to an accident or illness.
Term life insurance is designed to cover a set amount of time. Families with young children, obviously, could buy peace of mind with a term life insurance policy. Single people may find uses for it as well. Proceeds from life insurance can be used to cover funeral costs or even provide money to pay for the care of any pets you may have as long as you have a pet trust or an agreement with a caregiver in place ahead of time.
For longer-term uses or estate planning, permanent life insurance policies cover you for your entire life—as long as you keep up with the premiums.
- On Fidelity.com, read Viewpoints: "4 important questions to ask about life insurance."
|†rick:||I’ll be haunted by bad credit forever.|
Treat: Late payments, collection agencies, debt settlements, and other types of negative information do linger on your credit report for years after they appear. The good news is that they eventually go away—and you can soften the impact of negative information with good behavior.
One of the main credit scoring models used by lenders is called FICO.
FICO isn’t the only credit scoring model around these days; other scoring models, like the Vantage score, for instance, look at the same information but may weight it differently.
So, the bad news is that negative information hangs around like a bad smell. At first it seems unbearable but the effect dissipates with time.
Late payments, Chapter 13 bankruptcies, foreclosures, and collection accounts will all show up on your credit report for seven years. Chapter 7 bankruptcies will appear for as long as 10 years.1
While lenders will see the negative marks, the weight of them on your score will lessen with time.
What you can do, besides wait it out, is pay down debt and stay on time. Generally, having much more credit available than used is better than spending up to your credit limit. Paying on time, every time, consistently should help you eventually recover from any dings that are affecting your credit score.
- On Fidelity.com, read Viewpoints: "Seven credit card tips."
|†rick:||I’ll have to work until I’m 90.|
Treat: You can probably retire one day. There’s just one tiny catch. It takes a commitment to reasonable spending and saving choices. Nearly everyone can save more for their future. You just have to be willing to forego some spending now, save some money for the distant future, and invest in an age-appropriate mix of investments that won’t keep you up at night when market volatility strikes.
Contributing to a workplace retirement account like a 401(k) is a great place to start if you have the option. We suggest contributing 15% of your pretax income to your 401(k)—that includes the employer match, if you get one. Beginning to save at least 15% of your income at age 25 may help you maintain your lifestyle in retirement—assuming you retire at 65. Don’t give up if you can’t save 15% at first—set that as a goal and just save what you can now. Aim to increase the amount you save over time. Do try to at least contribute enough to get the entire match from your employer—it’s free money after all.
If your employer doesn’t offer a retirement plan, consider opening an IRA. You can choose the tax-deferred option with a traditional IRA or get tax-free withdrawals of earnings and contributions in retirement with a Roth IRA. A distribution from a Roth IRA is tax free and penalty free, provided the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, disability, qualified first-time home purchase, or death.
No matter which you choose, you can make your savings to your retirement account automatic too—by setting up direct deposit or automatic transfers. Transferring the money before you have a chance to think of spending it can be powerful—it’s one of the reasons 401(k)s help people save.
No matter how you do it—start saving now. You may be surprised at how much you’re able to accomplish—and that it may be easier than you thought.
- On Fidelity.com, read Viewpoints: "Retirement rules of the road."
- No 401(k)? You may have choices. Read Viewpoints: "No 401(k)? How to save for retirement."
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917