Should I save money for my child in their name or mine?

By Sabrina Karl

If you’re looking to sock away money for your child, one question you’ll face is whether to save the money in their name. There is more than one right answer, and it depends on how and when you expect they’ll use the funds.

The easiest answer is for college savings. Though there are other ways to accumulate funds for tuition, books, and housing, the tax-advantaged 529 plan is considered by most financial experts to be the smartest move since the funds can be invested and grow tax-free, assuming the funds are used for approved expenditures.

A 529 plan should be set up in a parent or other custodian’s name, as it will be treated much more favorably when colleges assess your student’s eligibility for financial aid. Conversely, a 529 plan in the child’s name will significantly hamper their aid calculation.

For funds desired for other purposes, a simple savings account is one option, as is a custodial account, which can be invested in stocks, bonds, and other assets. For both savings and custodial accounts, naming your child as the primary account holder is generally the wiser move. (If going with a custodial account, be sure to familiarize yourself with the IRS rules on acceptable withdrawals.)

By putting these accounts in your child’s name, some or all of what they earn will be untaxed. Children not earning wages can earn up to $1,100 in 2021 in unearned income (e.g., interest, dividends, capital gains) before needing to pay tax. And earnings between $1,100 and $2,200 are taxed at the child’s rate, which is often zero. After $2,200, the earnings are taxed at the parents’ rate.

For kids with working wages, the calculation is different, but earnings from a savings or custodial account still have the chance to avoid taxation.

Save money by paying these bills with checking, not a credit card

By Sabrina Karl

If you’re in a position to charge most of your expenses to a credit card and pay the balance off in full every month, paying with credit offers several perks, such as rewards, increased purchase protection, and lowered liability in case of fraud.

But just because you can pay a certain bill with a credit card doesn’t mean it’s always a smart choice.

First off, there are a few categories of bills that are simply not payable by plastic. These include most loans, such as mortgage, auto loan, and student loan payments. Rent and life insurance premiums also cannot generally be paid with a credit card.

But in some categories, though the default way to pay is via your checking account, an optional method is offered to pay by credit card. This is where you need to pay close attention.

First check if there is an add-on charge for paying by credit card. Categories where this is common are utility bills and home and auto insurance premiums. Federal and state tax payments also can usually be charged to a credit card.

Next, do the math on whether the credit card fee is worth it. Occasionally, they are reasonable. For instance, the IRS’ charge for paying with credit is on the low end, adding about 2% to your payment. If you use a credit card that pays 2% cash back, it will be a wash for you. But if you only earn 1% cash back, you’ll lose money on the transaction.

More commonly, the added credit card fee ranges from 3% to 5%, or even more. Few cardholders will be able to make up that much of a fee with earned rewards, so when the fee reaches this level, you’ll be better served by paying with your checking account.

If you’ve experienced or suspect identity theft, do this first

By Sabrina Karl

It’s estimated that almost 4 in 10 Americans experienced the two most common types of identity theft during 2019 and 2020, with numbers projected to rise by the end of this year. With those odds, it’s wise to regularly monitor your bank and credit accounts, as well as your credit scores and reports.

So what do you do if you notice unauthorized activity? The sooner you notice and act on it, the better. And if that happens, the first place to go is IdentityTheft.gov, run by the Federal Trade Commission (FTC).

The FTC’s reporting site is well set up to guide you through the steps you should take if you notice suspicious activity on any of your accounts or credit reports. Though you can report identity theft to the FTC by phone, doing so online is far better, as it results in you receiving an official “ID Theft Report”, which you can use as proof that your identity was stolen.

Equally useful about reporting online at IdentityTheft.gov is that, if you create an account, you’ll receive access to their step-by-step guidance on how to deal with your identity theft, from who to contact first and how to place fraud alerts on your accounts, to whether you should call the police.

By creating an account to report your identity theft, the FTC’s site will create a personalized “recovery plan” for you, and then walk you through every step. It will update your plan as needed, track your progress through the steps, and even pre-fill forms and letters you’ll need to fix your affected accounts.

Recovering from identity theft is no picnic. But the longer it takes you to notice or act, the more tangled the problem becomes. Visiting IdentityTheft.gov is your smartest first move to minimize and fix the damage.

Why it’s smart to open a savings account at a different bank

By Sabrina Karl

If you’re like many Americans, you hold your checking account and primary savings account at the same bank. The convenience factor of that can’t be disputed. However, it’s also easy to argue that you can do significantly better for yourself by expanding your banking horizons and opening a savings account at a separate institution instead.

The biggest reason is that savings accounts have evolved considerably over the last couple of decades, due largely (but not only) to the advent of online banks. These are FDIC-insured institutions that operate no branches and the cost savings can be used to pay substantially higher interest rates.

You may look at the interest you earn on your savings account statement and think it’s such a pittance (in this low-interest environment we’re living through) that even boosting it by double wouldn’t matter much. But here’s the thing… Odds are high that you can multiply your interest earnings by five, ten, perhaps even 15-30 times.

The national average on bank savings account rates is a paltry 0.06% APY. Even worse are many banks, including some of the Big Four, that pay just 0.01% or 0.02%.

Contrast that with almost three dozen institutions (yes, 34!) that are currently paying at least 0.50% on savings accounts (the current leader tops out at 0.70%). That means if your current rate is 0.02% and you move that money to a 0.50% savings account, you’ll be multiplying your annual interest earnings by a whopping factor of 25.

If having your savings account at a separate institution sounds inconvenient, consider how easy it’s become to electronically transfer money between accounts with online banking. Assuming you’re using your savings account for just occasional deposits and withdrawals, doing so with online transfers is generally no problem, and an easy thing to get used to.

You can use 529 savings plans for more than you might think

By Sabrina Karl

It’s been 35 years since 529 college savings plans were first created, and still, many Americans don’t know what one is. But even if you count yourself among the parents familiar with these tax-friendly savings plans, you may be unaware that their allowed uses have been expanded in recent years.

A 529 plan allows you to contribute savings for a child’s future education expenses, invest those savings, let them grow tax-free, and then withdraw them tax-free if used for qualified higher education expenses.

But where notable changes have been made is in what counts as a qualified expense. College or trade school tuition, certain room and board allowances, books, computers, equipment, and supplies have always been covered, meaning a 529 withdrawal for these expenses incurs no tax hit and no penalty.

But two recent legislative acts have expanded that list of qualified expenses considerably. In 2017, the Tax Cuts & Jobs Act added the ability to spend 529 funds on K-12 education, meaning your younger child’s private school tuition is now eligible. One important caveat, however, is that K-12 withdrawals are capped at $10,000, whereas post-secondary education expenses carry no such cap.

More recently, the 2019 SECURE Act added the ability to use 529 funds to pay off student loan debt. The student loan payments can be on behalf of the beneficiary or any of their siblings. Once again, however, a limit applies: only up to $10,000 of student loan debt (per lifetime, per beneficiary) qualifies for tax- and penalty-free 529 withdrawals.

There is an important wrinkle to be aware of, however, in that not all 50 states have adopted the two federal laws in their plans. So where you hold your plan and where you live will determine whether you’ll personally qualify for these federal expansions.

As your car ages, here’s how to save money on auto insurance

By Sabrina Karl

As your car gets older, your auto insurance premiums inch downward, since the value of the vehicle declines, meaning the insurance company would need to pay less to replace it. But the decline in premiums is minor, while the vehicle’s value decreases much more substantially and quickly, making auto insurance on older cars and trucks less of a good deal.

Conventional advice is that vehicles under 10 years old should be fully insured, as they are still worth enough that claims for repairs or replacement make good financial sense. But after that, it makes sense to check what you’re paying in premiums, and what your car is still worth.

The two policy categories to consider adjusting are collision, which covers damage from colliding with another vehicle, a tree, or a structure, and comprehensive, which covers damage or loss from things like fire, theft, and falling objects. In most states, these coverages are optional and adjustable.

Note, however, that you must generally own your vehicle free and clear before you can reduce collision or comprehensive coverage, as most auto lenders require full coverage on vehicles with a loan.

The common rule of thumb for deciding if it’s still worth carrying collision and/or comprehensive coverage is to determine the current value of your car and the annual cost of your premium for both coverages. Once your collision and comp premium for the year is 10% of your vehicle’s total value, it’s time to consider dropping one or both of them.

This will happen at different stages depending on the vehicle and your state, since different vehicle models have different value retention rates and repair costs, and because auto insurance rates vary widely by state. Talking to your insurance agent to make a smart comparison is a good first step.

Hate the idea of budgeting? Try one of these simpler methods

By Sabrina Karl

One of the perennial pieces of advice for improving your personal finances is to establish a budget and then aim to live within it. The concept is tried and true. There’s just one problem: many people are repelled by the concept.

But whether you have a knee-jerk reaction against the general idea of budgeting, or are put off by the amount of work you imagine it will require, there are different ways to think about it and shortcuts for doing it that may make it work for even the most averse.

For one, the word “budgeting” can be problematic, triggering an almost allergic reaction in some because it sounds so constraining. Contrast that with instead calling it a “spending plan”, which can feel much more liberating because it highlights that you still get to spend.

As for feeling overwhelmed by the perceived work of planning, there are many ways to make this more manageable. That’s because there are no rules on how broad or how granular you categorize your spending.

For instance, you could simply track your spending according to four or five simple buckets, such as housing, transportation, living expenses, and savings/debt reduction. Or maybe food, gas, utilities, spending, and saving. How you slice it is up to you.

Simpler still is determining how much you typically spend per month and aiming to stay below, or even underspend, that amount each month. Instead of tracking categories, this method has you simply noticing your spending level as the calendar month wears on, and aiming to keep it below your threshold by the end of the month.

The most important goal for a spending plan is to simply establish and maintain one. Far less important is whether you track a monthly amount, four broad spending categories, or two dozen detailed categories.

The “pay yourself first” method for consistently saving more

By Sabrina Karl

For many Americans, paying the bills comes first. Then what we want to buy comes next, followed by any unexpected expenses that become necessary that month. Only after that do many households get to plans for saving.

The problem is that often, there’s no money left by the time savings are considered. And before you know it, six months have passed, and then a year, and little if any savings have accumulated.

Fortunately, you can beat this with the “pay yourself first” method. In essence, it moves saving higher up your monthly hierarchy, so that it happens consistently every month, rather than get repeatedly scuttled to “I’ll catch up next month” status.

Here’s how to do it. First, decide a monthly amount that you know you can regularly manage saving. It can be smart to start out modestly to build the habit, and then increase your savings amount as you’re able.

Second, shift your mindset a bit, thinking of this as simply another bill you pay every month, just as reliably and on-time as your electric bill. But this bill’s much more satisfying because instead of sending your money to someone else, you’re sending a gift to your future self.

Third, automate it. Set up a monthly transfer on the same day every month from your checking account into a savings account. This is critical, as it won’t require monthly action from you, and also won’t be subject to temptations that might prevent you from making the transfer yourself in any given month.

Anyone can start this, whether you can only afford to save $10 a month or are saving big and can put $1,000 away. Building the habit and the system is what’s most important, and once you’ve gotten that established, making adjustments to the amount is easy.

Three tips on making CDs work for your emergency fund

By Sabrina KarlYou’ve heard the advice: Build an emergency fund that equals 3 to 6 months of your living expenses to cushion you through financial storms, rather than let them batter you.

But putting that money in a simple savings account isn’t your only option, and with interest rates so low right now, higher-paying CDs can be appealing. In addition, some people find money in easy-to-access savings accounts to be too tempting.

Certificates of deposit pay higher interest in exchange for keeping the money on deposit for a set number of months or years. Having to “lock” your money in place might make CDs seem unsuited for an emergency fund. But these three pro tips make it work.

First, choose a CD that pays a high rate but also has a low early withdrawal penalty. This is what the bank will charge if you cash out early, and it usually just reduces your interest payment. But banks’ penalties range widely, so look for a mild one, understanding that if you must tap this money early for something critical, it’s an acceptable expense.

Second, don’t put all of your emergency money in CDs. If your fund is, say, $25,000, consider keeping $5,000 in a savings account and the other $20,000 in CDs. The split is up to you, but the idea is to keep some easy, no-penalty funds available for smaller emergencies.

Three, open multiple certificates, such as four CDs at $5,000 each, or five at $4,000, rather than one $20,000 certificate. Multiple smaller CDs allows you to cash in only what you need, rather than triggering a bigger penalty on one large CD.

A savings account/CD hybrid emergency fund is a smart way to earn a little more interest, keep withdrawal temptation at bay, and still keep yourself covered for minor surprises.

What is the FAFSA, and when do I file it?

By Sabrina Karl

In addition to buying a house or car, paying for a child’s college education is among the biggest expenses many Americans incur in their lifetime. Fortunately, many families don’t have to fund it all themselves.

How much your child’s degree will ultimately cost depends on many factors, especially where they choose to go to school, how much your family income is, and what your assets are. But all roads to that calculation start at the same square one, and it’s called the FAFSA.

The Free Application for Federal Student Aid (FAFSA) is a standardized form used by the federal government, as well as many states and universities, to determine your family’s capacity to pay for your child’s education, and by extension, how much assistance you’re eligible to receive.

Virtually every student should submit a FAFSA, even if you think you make too much money to qualify for aid. That’s because the FAFSA doesn’t just target grants, but also your eligibility for low-interest federal student loans, which are available to almost everyone and are a much better deal than private student loans.

It’s critical to be aware of the FAFSA’s timing. First, know that you’ll need to file it ahead of every year your student will attend college. Second, the filing window opens October 1 of the prior year. So for a student starting college in the fall of 2022, you would file their first FAFSA as early as Oct. 1, 2021.

Filing as close to October 1 as possible is important, as many colleges dole out aid on a first come, first served basis, using students’ FAFSA filing date as their position in the queue. Also, some states have their own deadlines, so you’ll want to make sure you file in time to be considered by your state as well.

What is an umbrella insurance policy and should I buy one?

By Sabrina Karl

If you have a home or auto insurance policy, it includes some protection against losses from being sued over an incident occuring on your property or while operating your vehicle. But the coverage provided by these policies isn’t always enough, leaving you exposed to covering the rest of your liability with your own assets.

That’s where an umbrella policy comes in. Umbrella insurance refers to liability coverage that goes significantly beyond what your other policies cover, providing extra protection against potential financial losses if someone sues you, and covering your whole family.

Examples of where liability insurance would kick in include someone slipping on your front walkway and suing for their injuries, a lawsuit over your dog biting someone, a family suing you for their child being hurt while at your home, or your teenager causing a car accident that results in more damage or lawsuit payouts than your auto policy limits will cover.

In short, umbrella policies cover injury to others and damage to their possessions that are either caused by your family or that occur on your property. It does not, however, cover your own possessions and injuries.

While it might seem unlikely you’ll be sued for more than your auto and homeowner insurance covers, accidents can happen to anyone. In addition, the cost of umbrella insurance is generally very affordable, giving it a low cost-benefit ratio compared to what you could lose in a lawsuit. Though premiums vary by state, $1 million of coverage typically costs just $150 to $300 per year.

Deciding whether or not to purchase liability insurance is a personal decision, and speaking to your agent who already provides your home and auto insurance is the place to start. For many, it’s a small price to pay for peace of mind and sound sleep.

Save money by paying annually

By Sabrina Karl

Big bills that recur every year are often easier to handle when the amount is spread out over monthly payments. The regular installments can also make it easier for you to budget by keeping your expenses more uniform from month to month.

But that doesn’t mean paying monthly is always the best choice. In fact, some billers provide a significant discount for those who pay their full balance once or twice a year.

You’ve seen it on some small ticket items, like software or gaming subscriptions, where the cost is higher per month than if you opt to pay for an annual subscription right away. You can often save 10, 20 or even 30% this way.

But where you can really score the savings is on larger bills, and one of the top candidates for this is insurance.

Many home and auto insurance companies provide the option of monthly payments. And in some cases, the cost to pay monthly may be low or zero. But more often, there is a surcharge for splitting your bill into 12 payments, and it’s smart to figure out exactly what your insurer charges.

Life insurance also falls into this category. Though the percentage savings here might be just 10 percent or less, since these policies tend to clock in higher than your typical bills, you could save a modest little bundle by paying once a year.

What if you can’t afford paying all at once? One strategy is to work up to it by socking away funds in a savings account until you have enough for the full annual bill. At that point you can shift to paying your savings account just 1/12th of the annual bill every month, giving you enough funds to pay the yearly bill amount when the time comes.

How to reduce your debt with the avalanche method

By Sabrina Karl

For anyone with multiple debts, the prospect of paying them all off can feel overwhelming. But with a few minutes and a pencil and paper, you can use the debt avalanche method to craft a plan that will have you paying the least amount of interest and getting debt-free as soon as possible.

Start by collecting the details of all your outstanding debts so you can list them with their interest rate and minimum monthly payment. Most people will focus on credit cards, auto loans, personal loans, and student loans, but if paying off your mortgage early is a goal, you can include it as well.

Next, order the debts by interest rate, with the highest-rate debt at the top. The idea is to always be focusing your extra payments on whatever debt is costing you the most.

All the while you’ll make the minimum monthly payments on your lower-rate debts, to keep everything current and build your credit. You’ll also need to decide how much extra money you can commit each month to your debt reduction goals.

Whether that commitment is $100 or $1,000, the avalanche method will have you applying the entire extra amount to the debt at the top of your list. And if you have extra one month, you can pay that towards your top debt as well. You’ll do this every month until that debt is paid off, then move to the debt with the next-highest rate.

The avalanche method has basic math in its favor. By always targeting your most expensive debt, you reduce how long you’re on the hook for that high interest rate, and reduce the overall interest you’ll pay in the end. For those with significant debts, it will also shorten the time needed to reach your debt reduction finish line.

2020 and 2021 contribution limits for typical retirement accounts

By Sabrina Karl

With the new annual calendar still relatively fresh, Americans are in that roughly three-month period during which both 2020 and 2021 retirement contributions are possible. That’s because the IRS allows you to make your previous year’s contribution to some accounts as late as April 15.

But how much can you contribute? The answer varies based on the account type and your age. Let’s take a look at the three most common tax-deferred retirement accounts: 401(k)s, traditional IRAs, and Roth IRAs.

If you’re enrolled in your employer’s 401(k) plan, you can contribute up to $19,500 in 2021. In addition, those 50 or older this year can utilize the “catch-up contribution” rule, raising their limit by $6,500, or $26,000 total.

Unlike traditional and Roth IRAs, 401(k)s only allow contributions during their respective calendar year. Since contributions are generally only permissible via payroll deduction, there is no option for adding more before you file your tax return.

In contrast, traditional and Roth IRAs allow you to meet your contribution maximum anytime during the calendar year and through April 15 (or whatever that year’s tax filing date is). So with these accounts, you have plenty of time to decide how much you can sock away.

Though traditional and Roth IRAs are different account types (traditional IRAs contribute pre-tax dollars and Roth IRAs contribute already taxed dollars that will be exempt from future taxes), they carry the same IRS limits. And between 2020 and 2021, the limits held steady. Those under 50 can contribute $6,000, and those 50 or older, $7,000.

Note that in the case of traditional and Roth IRAs, it is a combined limit. You cannot contribute $6,000 to both, but rather your contributions to one, the other, or both cannot together exceed $6,000 (or $7,000 for those age 50 or older).

How saving without investing actually costs you money

By Sabrina Karl

We’ve all heard the advice… Spend less than you earn and save the rest.

That’s a good start, and if you successfully follow this adage, you’ll fare better than most. But it really is only a start. Because unless you’re saving for just a couple of years down the road, saving is simply not enough.

The critical next step, of course, is investing some of what you save. For some, investing is intimidating, or even outright scary. The fear of potentially losing even a portion of your hard-earned savings in an investment is a risk some feel they can’t or shouldn’t take.

But it’s important to understand how not investing can be riskier than playing it completely safe. That’s because simply socking cash away in a savings, money market, or CD account will rarely earn enough to keep up with inflation. This means your money will actually be worth less in the future than it is now, and most of us can’t afford that kind of falling behind.

Yes, it’s true investing offers no guarantees. While it offers significant upside earning potential, you also have to take on the risk of possibly losing money. That’s why the key is investing for the long haul.

During any single year, the stock market can rise or fall. But the losing years have generally numbered only about one out of every four. By investing long-term, you would historically have reaped three years of gains for every year of loss.

Of course, the stock market’s pattern is not this reliably tidy, and is never predictable. But with interest rates on bank accounts and CDs significantly suppressed over the last many years, simply saving without investing any of your long-term funds means you’re taking on a bigger inflationary risk than you might realize.

Debit user? Earn real interest by switching to rewards checking

By Sabrina Karl

Among the pandemic’s many consequences is the tanking of bank interest rates, after the Federal Reserve dramatically dropped rates last March. As a result, it’s hard to earn much on your money in the bank, and even worse, this is likely to continue for a few years.

Fortunately, those who use a debit card regularly, or who are willing to get in that habit, can earn relatively substantial interest with something called a rewards checking account.

How much can you earn? While the highest-yield nationally available savings accounts are currently paying about 0.70% to 0.80% APY, multiple rewards checking accounts across the country are paying upwards of 2.00% APY, and some even above 3%.

What’s the catch? First, these accounts always have a maximum balance that  can earn the highest rate. A common cap is $10,000, while some accounts allow more. The most generous usually tap out at $25,000.

Second, you have to earn the higher rate each month by undertaking certain transactions. Primarily, these are debit card purchases, with each bank specifying a minimum number of qualified debits. They might also require a direct deposit, bill payments from the account, or an ACH deposit coming into the account.

Part of the catch is that when you meet the requirements for a given month, you’ll earn the high rate. But miss the mark and you’ll earn close to zero that statement cycle. So there is a bit of monitoring required to make sure you hit the target every month.

But for those who already use a debit card regularly, these requirements could be very easy to meet. And for others, regularly shifting some purchases to a debit card might also be easy. In either case, making the switch to rewards checking could become a potentially lucrative new habit.

Five factors to help you choose a 529 plan

By Sabrina Karl

Once you’ve decided to open a 529 account to save for college, the next decision is what state’s plan to choose. That’s because most 529s don’t require residency in their state, and you may be better served by a different state’s plan than your own. So how to choose?

First, take a close look at your state plan. All 529s offer federally tax-free growth and qualified distributions. But some plans offer an additional tax break for residents of that state, taken as a state tax deduction for contributions made. Check if your state’s plan offers such a benefit, and if so, how much.

Second, it’s always wise to check any investment’s fees. Find what’s called the expense ratio, which is published for all investments. Ideally, choose a 529 plan with fees below 0.50%, but at a very minimum stay below 1%. Expense ratios are a useful apples-to-apples comparison, with lower numbers meaning lower fees.

Also note that 529 plans can be direct-sold or set up by a financial advisor, called donor-advised funds. If you’re doing this on your own, look for a direct-sold plan to enjoy lower fees.

Third, the best 529 plans are ones that will earn the most going forward. Of course, no one can predict future returns. But you can research past returns over different time periods for any 529 plan, as well as utilize 529 rating websites.

Fourth, check if the available investment options will suit you. For instance, if you prefer a hands-off approach, age-based funds will auto-adjust your investment as your student approaches college age. But if you prefer more DIY investing, look for more flexibility and options.

In addition, contribution minimums may be important to you. If you plan to make frequent small investments, be sure to choose a plan with low minimums.

Use transaction monitoring to fight identity theft

By Sabrina Karl

You’ve heard it before — regularly check your credit report to make sure identity thieves aren’t using your financial information and accounts for their gain and your detriment. But there’s a way to stop some fraudsters in their tracks much sooner than if you wait for your next credit report check.

Once an identity thief has your info, they may take control of one or more of your financial accounts, apply for new credit cards in your name, claim your tax refund, withdraw money from your bank accounts, or sell your information to other identity theft criminals.

The good news is that some of these violations can be detected almost immediately after they take place by making a regular habit of monitoring the transactions leaving your bank and credit card accounts, and simply noticing when something doesn’t look familiar. If you see a transaction that you or an authorized user don’t recall making, it could be a tip-off that someone has gained access to your account, card number, or login credentials.

The optimal precaution would be to check your transactions daily, but establishing a routine to check 2-3 times a week or at least once weekly can be very doable, with just a few minutes’ time, if you use a financial management app, website, or software that automatically downloads all your accounts’ transactions in one place (many of which work well on smartphones). Alternatively, if you don’t have too many accounts, you can login to each one separately to view recent activity.

The big advantage of transaction monitoring is its potential immediacy, because the sooner you can alert your bank or card issuer that you didn’t make a transaction, the sooner they can shut down further access to that account or card to stop the thief from causing more damage.

Don’t want to track expenses? Consider the alternative.

By Sabrina Karl

There’s no shortage of advice on how to handle your personal finances better. Order one less latte a week. Sit down and make a budget. Pay off that debt. You’ve likely heard them all.

Still, the advice to track what you spend is worth repeating. It’s a powerful practice with many positive benefits. But perhaps the best way to be convinced of its value is to consider the opposite: tracking nothing.

Without monitoring what leaves your bank accounts and adds to your card balances, you’ll be operating in financial darkness. Anything that hits your accounts will simply accumulate to your spending, and at the end of the month, you’ll owe what you owe and your balance will sit where it sits.

But lurking in there may be various financial whammies. For one, if you’re charged more than expected, you’ll never know. Worse, if someone fraudulently buys something with your credit or debit card number, you’ll not only pay for their illegal purchase, you’ll also miss the chance to quickly report the fraud and stop them from making more damaging transactions.

Additionally, many households have numerous automated charges set up, such as subscriptions for TV programming, online software, memberships, etc. If you no longer use a service, it can be easy to forget. Yet the fee will show up religiously every month, whether you notice it or not.

Without tracking, you’ll simply lack knowledge about how much you’re spending on what. This can affect how you decide on new purchases, as a lack of accountability makes impulse purchases easier to justify.

In contrast, carefully watching your expenses puts you in the driver’s seat, empowering you with a sense of control and the ability to find expenses you can reduce or eliminate, or report if you aren’t the one who made them.

As you choose a health plan, consider the triple benefit of an HAS

By Sabrina Karl

With the end of the year approaching, many Americans face a choice on their 2021 health insurance policy. If you aren’t already in a high-deductible plan, it’s worth considering one of these policies as they offer a triple tax benefit that can significantly stretch your healthcare dollar.

The tax magic from high-deductible plans comes in the form of a health savings account (HSA), with only those enrolled in a high-deductible plan being eligible to make HSA contributions. By putting money aside for healthcare expenses in an HSA, you protect it from taxes in three ways.

First, any money deposited into an HSA (up to the annual limits of $3,600 for an individual or $7,200 for a family) can be deducted from your taxable income, dollar for dollar. In that way, HSAs are treated just like IRA or 401(k) contributions. Sock away $5,000 in your HSA and the income on which you pay taxes goes down by $5,000.

Second, any growth on your HSA funds is also tax free. Whether you earn interest in a bank HSA or investment gains in a brokerage-style HSA, none of these earnings will ever be taxed. Compare that to the tax bill increase that would be triggered if you instead put the funds in a standard bank or investment account.

Lastly, whenever you withdraw HSA funds for an eligible healthcare expense, there is no tax on your withdrawal. This differs from withdrawals taken from an IRA or 401(k), where those distributions, even if taken after reaching the required retirement age, are taxed as regular income. Eligible HSA withdrawals, in contrast, are a completely non-taxable event.

When all of these tax breaks are combined, the amount of you can save on healthcare is significant with an HSA, and is worth considering for 2021 and beyond.