Borrowing a loan to pay for your tuition has now become a common part of attending college. After graduating, you’ll find a mountain of loans you borrowed. The thought of repaying the loan at a specific interval of time can be stressful.

Relax, with the right strategies and the steady job in hand; you could clear the debts sooner than you think. Here is an article to guide you with six simple steps to pay off loans quicker.

Step 1 – Pay More Than The Minimum Amount

One of the simplest methods to pay off student loans is to make more than the minimum payment each month. While you make regular monthly payments, you’re nowhere close to clearing the debts you borrowed, and if you look at the added monthly interest, you may just be paying off the interest and never touching the principal.

Making extra payments lowers the overall amount you pay as well as the amount of time it takes to pay off the loan.

When you make the extra payment, ensure your loan servicer keeps the due dates for next month’s amount the same. Be sure the overpayment made covers the current balance and not the next month’s interest installment.

Step 2 – Choose The Standard Repayment Plan

A Standard Repayment Plan is another payment plan you could choose to repay the federal student loans faster by making extra payments for a fixed period. The repayment period could be ten years or a federal loan unless you choose a different period.

The Income-Driven Repayment plan is also another option for those who cannot stick to the Standard Repayment Plan. The income-driven program may extend the life of the loan to 20 to 25 years.

Another consideration is to consolidate your student loans. Keep in mind; consolidation typically adds more time to the life of your loan.

Step 3 – Aim For A Loan Forgiveness Program

A Loan Forgiveness Program is a dream come true for many to become debt-free. You can take advantage of this program if you work for a government sector or a non-profit organization.

When you work in public service in a job such as a teacher, nurse, first responder, or military, you may be eligible for a loan forgiveness program.

With these programs, the student’s federal loans are forgiven after working for a certain period of time. Unlike private student loans, which remain with you until they are paid off – or you die. Whichever comes first.

Step 4 – Consolidating Or Refinancing Student Loans

Consolidating your student loans means you combine all of your loans into one with a, hopefully, lower interest rate. Consolidation can help you manage your loans better by paying them all at once with one payment.

If you’re able to get a considerably lower interest rate, it may make sense to refinance to a lower rate to help you pay off your loan faster.

Refinancing Student loans is combining all the loans at a private servicer and getting a better rate of interest that can help you to pay off the debt faster with overpayments.

This can be possible if you have a good credit score from previously making your payments on time. However, we advise you to settle on a fixed interest rate and not a variable rate that can vary every month.

Step 5 – Try Making High Payments

Saving money and using it to repay your loans is difficult, but the best method. Instead of spending on clothes or a trip, putting everything towards your loan can help you save thousands of dollars over the life of your loan, as well as the time it takes to pay it off.

You could also use the debt snowball method where you focus on paying off one debt at a time, starting with the lowest balance.

For instance, imagine you are current on payments with a $10,000 student loan with an interest rate of 5% for 15 years. The average payment on this type of student loan would be around $106. By the time your loan was paid off, you would have paid approximately $2,730 in interest.

If you could increase the monthly payment to $500 a month, you would save yourself $2,267 in interest and cut your loan down to only 1.74 years!

Step 6 – Make Use Of The Interest Rate Reduction

Certain private loan servicers offer an interest rate reduction of about 0.25% to help cut down the total cost while repaying the loan. This option is provided when you sign up for an automatic loan payment plan.

You could take advantage of this option so you don’t have to worry about the due dates and can also make lump-sum payments to clear loans faster.

In addition to these ways to pay off student loans sooner, you can make biweekly payments on your monthly amounts. By paying twice during the month, this can help lower the total amount of interest you pay.

Also, rather than having one large lump sum at the end of the month, breaking up payments into smaller chunks can make repayments more manageable.

By using the biweekly method, you will make 26 half-payments instead of 13 full payments.

You could also create a payment plan by prioritizing the loan payments to be made first during the month. By proper planning and adopting the right way to repay your student loans, you can get out of debt sooner and stop giving your hard-earned money away.

This article originally appeared on Arrest Your Debt.

If you’re struggling with your finances, any form of insurance may seem like a waste of money. However, there are certain types of insurance that may be absolutely necessary.

Life insurance, for example, is a form of insurance that is not mandatory. Because of this, many people avoid spending extra money on life insurance to save money. However, is this the best place you should cut back on your spending?

What To Expect:

This post is an in depth analysis of how life insurance works and the different types of life insurance available to you. It will cover:

How Life Insurance Works

What Happens To Your Term Life Insurance If You Outlive It

Life Insurance Payouts And Taxes

Should You Get Life Insurance

If You Want Life Insurance, How Do You Get It

Medical Issues Life Insurance Does Not Cover

How To Decide What Insurance To Buy

The Type Of Life Insurance I Have For My Family

Life Insurance: An Overview

Auto and health insurance have been mandated, on some level, by either state or federal governments. Life insurance, however, is optional. Even though this type of insurance is optional, if you have people who depend on you, I highly recommend you have some level of life insurance coverage.

Life insurance is a unique type of insurance because it doesn’t necessarily protect you as the policyholder. It is more beneficial to your loved ones in the event of your death.

However, there are certain types of insurance you can benefit from while you are alive if you’re willing to pay extra. Features such as living benefits, the return on premium or cash values can be beneficial to you while you are still living.

In cases where you have an investment feature attached to the policy, such as a universal indexed policy or a variable universal life policy, you can use cash from the investment piece of the policy while you are still alive.

Life Insurance Basics

Life insurance is an agreement between you and the insurance company that states in the event of your death, they will provide death benefits to your designated beneficiary. This contractual agreement stipulates that as long as you make the monthly payments, known as premiums, your designated beneficiary will receive a lump-sum, tax-free payment in the event of your death.

Life insurance is obtained by individuals based on specific needs. Ultimately, the goal is to provide for loved ones long after you leave this earth. Individual needs vary from person to person, and the types of policies that are purchased come in different forms.

There are term insurance policies (coverage for a certain amount of time) and policies that cover you for your whole life. Also, generally, any benefits received by a beneficiary are not taxed upon disbursement.

How Life Insurance Works

As mentioned earlier, life insurance is a contractual agreement between the insured and the life insurance company. The agreement stipulates that the insured pays regular monthly premiums in exchange for the insurer paying a lump sum of money to a designated beneficiary if the policyholder dies during the contract.

Term Life Insurance

There are different types of life insurance policies. One type of life insurance policy is a term life policy. The other kind of policy is a whole life policy that covers the insured for their entire life.

With a term insurance policy, if the insured dies within the term limits agreed upon in the contract, the beneficiary is entitled to the amount of the insurance policy or the face value. For example, if you take out a 20-year term life insurance policy and die after 18 years, your beneficiary is entitled to the full payout.

If, however, you die one day after the 20-year contract expires, your beneficiary would not be entitled to a payout if the term policy was not extended. There are alternative types of term life insurance policies that we’ll cover later.

Term life insurance is, by far, the cheapest type of life insurance available.

Whole Life Insurance

For a whole life insurance policy, an individual covered under this type of insurance policy is covered for their entire life as long as they are current on their payments. Going back to the term life example, if a person purchases a whole life insurance policy at the age of 25 and due to an unfortunate event this person dies at the age of 65, they are still covered.

In this example, 40 years have elapsed since the individual purchased the insurance policy. Even though 40 years have gone by, any beneficiary listed on this insurance policy would be entitled to an insurance payout.

Whole life insurance can be very expensive depending on the amount of coverage you purchase.

Does Everyone Need Life Insurance?

People should only buy life insurance under the following circumstances:

People depend on them financially and their death would substantially impact the quality of life for those left behind

They are not “self insured,” meaning they do not have a large enough nest egg to pay off outstanding debts that may be transferred to heirs

Single People

If you are single and people do not depend on you financially, there may be no reason for you to purchase life insurance. If you have a pension or nest egg that would be able to financially take care of any heirs or spouses upon your death, you may not need life insurance.

Children

Children do not need life insurance policies unless the parents would need the money for funeral arrangements.

Stay At Home Moms

In our household, I am the primary income earner. My wife stays home and does not provide any income. However, we have a substantial life insurance policy on my wife.

Why?

If my wife were to pass away, I would have to pay for daycare and other expenses that my wife does “for free.” By staying at home with the kids, my wife saves us a ton of money and she is worth her weight in gold.

Just because someone doesn’t earn an income, doesn’t mean they don’t contribute financially to the household.

How Life Insurance Works If You Outlive Your Policy

This is an excellent question and goes back to the previous statement regarding term life insurance policies. Typically with a term life insurance policy, if you outlive the term of the insurance policy, you forfeit all of your premium payments.

Adding Riders To Term Insurance Policies

Since insurance policies are a way for individuals to plan for the future, some people believe term life insurance is unwise. To alleviate forfeiting term life premiums, there are options to attach specific “riders” to term insurance policies. This can protect the contract holder in the event they outlive their policy.

Return Of Premium Rider

One rider that can be added to a term life insurance policy is a return of premium rider. This protects the insured in the event they outlive the term of the policy.

For example, imagine a 46-year-old individual purchased a 20-year term life insurance policy at the age of 20. This person would have outlived their 20-year term policy by six years if they did not purchase another policy.

Some people believe this creates an unfavorable scenario when that individual lives beyond the 20-year term and forfeits all of the premiums they paid over 20-years. Using this example, let’s calculate the math.

If you have an individual that has purchased a 20-year term policy that equates to 240 payments. If that person paid $50 per month for the term life insurance policy, they would have paid a total of $12,000 for that 20-year time frame. Any consumer who has paid $12,000 only to see it “go down the drain” may not be happy with this scenario.

Implementing a return of premium rider would make provisions to return the $12,000 to the insured at the end of the 20-year term. Keep in mind that a return of premium rider is optional. Most consumers purchase term life insurance policies because they are cheaper and more cost-effective than a whole life policy.

To incur an additional cost while protecting yourself after your term has expired is an option – but it may not be the best one.

Accelerated Death Benefit Rider

There are other features of a term life insurance policy that can protect an insured while they are living. Having a living benefit rider protects individuals in the event they become ill with a chronic illness. These riders are more commonly referred to as accelerated death benefits.

This type of rider covers individuals if they become chronically, critically, or terminally ill. In some instances, insurers can advance up to 90% of the face value of the insurance policy to help cover the cost of medical care, treatment during an illness, or any cost related to long term care.

Before you purchase an accelerated death benefit rider, look into your basic term life policy. Some of these contracts include accelerated death benefits.

Can You Outlive Whole Life Insurance?

If you have a whole life policy, this point becomes mute because this type of policy covers you for your entire life. If you have a term insurance policy, outliving the term of the plan may not benefit you. If you have a straightforward term life insurance policy and you outlive it, essentially, you will forfeit all of the premiums that were paid during that term.

With riders such as the return of premium or accelerated death benefits, you get the most protection in the event you outlive your life insurance – but it will cost you.

Life Insurance Pay Outs

Ultimately, the purpose of purchasing life insurance is to protect your family and loved ones in the event of your death. Insurance policies help to provide for your loved ones financially when you die.

With that being said, there are instances when insurance policies do not pay out. It is essential to understand what is in your contractual agreement with your life insurance company. Such instances include:

Suicide

Some insurance policies include a suicide clause. This means, if you commit suicide within a specific time frame of your insurance policy, your loved ones do not receive any death benefits. At most, your loved ones would receive the premiums that were paid towards the plan.

Usually, there is one to two years for a suicide clause.

Smoking And Other Health-Related Issues

During the application process for your insurance policy, there are several questions that are asked of you before the issuance of the policy. Most of these questions pertain to your daily habits such as smoking, your occupation, or any hobbies that would put you at risk.

If you are a smoker and failed to disclose this information on your insurance application, the insurance company has the right to cancel your policy and deny any death claims.

Dangerous Activities

If you are a higher risk applicant or someone who participates in high-risk hobbies such as skydiving or bungee jumping and failed to disclose this in your policy application, this could cause your insurance policy to deny any claims.

You are still able to obtain coverage, but you would need to list the hobbies on your application and possibly pay a higher premium to be protected.

Illegal Activities

If you die while committing a crime, you can forget it. Something as simple as trespassing may make your beneficiaries ineligible to receive a payout if you succumb to a life-ending injury during a crime spree.

Act Of War

This clause is intended for individuals who are in war zones regularly or individuals who travel to regions of the world that have armed conflict. In such cases, your claim could be denied.

Living Outside Of The United States

There may be a clause in your life insurance policy that does not pay benefits if you decide to move outside of the United States. Before signing your insurance policy, you must read the details to make sure you are covered whether you live in or outside of the United States.

Fraud

Presenting false information on your insurance application could be considered fraud.

Anytime there is an insurance claim that is filed for life insurance benefits, the insurance company is sure to investigate the cause of your death. If the insurance company finds certain health conditions or activities more prevalent for an extended amount of time, your death claim could be denied.

Life Insurance Payouts And Taxes

In short, beneficiaries are not taxed on life insurance payouts. According to the Internal Revenue Service, life insurance payouts are not required to be declared as gross income. Typically, any death benefits are distributed tax-free to beneficiaries.

There is a caveat to this question. If there is interest earned on the death benefits, the interest is subject to taxation. For example, if the policyholder elected to hold a payout for a certain amount of time as opposed to having the benefits paid out immediately, the interest that accumulates is taxable.

If the beneficiary of a life insurance policy dies before the policyholder, the payout goes to the policyholder’s estate. The person who inherits the policyholder’s estate may have to pay estate planning taxes or inheritance taxes at a later time.

In general, a life insurance payout is not taxable. However, there are instances where taxes do need to be considered. In such cases, it is wise to seek the advice of a tax professional.

Life Insurance Payouts – Lump Sum?

Not surprisingly, many beneficiaries prefer to have a lump sum settlement. While this is the preference of many, it is not a requirement. There are other options for settlement of life insurance payouts.

Interest Option Payout

With this option, the insurance company holds the proceeds and pays the beneficiary interest payments that are earned at regular intervals.

Fixed Period Option

With this option, the insurance company pays the beneficiary a set amount for a fixed period that includes the interest payments and the proceeds of the policy.

Fixed Amount Option

The insurance company pays the beneficiary a set amount over a fixed amount of time that includes the proceeds and the interest. With this option, the proceeds are paid out until the funds are completely depleted.

Annuity Option

With this option, the insurance company pays the regular beneficiary payments over the beneficiary’s entire life.

All of these options can be combined based on the beneficiary’s choice. For example, if the recipient is close to retirement, they could choose to receive a fixed period option for the initial payout. After they retire, they can elect to receive the payment in the form of an annuity where the money is paid to them for the remainder of their life.

How Does Life Insurance Make Money?

With the vast amount that an insurance company pays out for premiums, one would think insurance companies could go broke by paying out a few premiums per year. The fact of the matter is people die every day. So how do insurance companies make enough money to pay these policies for beneficiaries?

Insurance companies, just like any other company, are for-profit businesses. Insurance companies take a portion of the premiums that are paid monthly by policyholders and invest them in the stock market, bonds, or even bond yields. This type of investment ensures they can make money on your money.

Theoretically speaking, if you have an individual who has paid a $1,000 annual premium over 20 years, this equals $20,000 in total premiums. If the policyholder dies during that 20-year term, the insurance company is contractually obligated to pay the face amount of that insurance policy to the beneficiary.

If the policy holder outlives the 20 year contract, the company not only keeps the $20,000 but they also made interest on the money over the 20 year time span.

For example, let’s take the 46-year-old individual who has a 20-year term policy. Over the 20 years, they paid $1,000 per year in premiums. This would total $20,000. If the face value of the insurance policy is $100,000, the insurance company is contractually obligated to pay the $100,000 to the beneficiary even though they’ve only received $20,000 in premiums.

Since insurance companies are a for-profit business, they find ways to invest those premiums over time, so they can afford to pay death benefits to beneficiaries.

Is Life Insurance Worth Getting?

The thought of leaving your spouse and children with a substantial financial burden upon your death is one that is unbearable for many consumers. Life insurance is an excellent idea to protect your loved ones from the financial burden that’s left behind when you die.

For example, if a husband and wife make a combined annual income of $150,000 per year and one of the spouses passes away unexpectedly, the household income may be cut in half. Life insurance helps to protect against the financial devastation caused by the death of a loved one and helps to make up for the loss of income that’s incurred when someone passes away.

Life insurance can also be used to plan for the future.

Even though term life insurance is more affordable than whole life, some whole life policies come with investment features that allow you to plan for your financial future. Whole Life policies such as an index universal life insurance policy have an insurance feature but also has an investment feature that allows you to pay towards your retirement or other unexpected costs that could arise in the future.

The main goal of obtaining insurance is to protect your loved ones when you pass away. When deciding to purchase a life insurance policy, there needs to be questions that are answered to ensure you’re making the best decision for your family long after you’re gone.

The main mistake most consumers make is not getting enough insurance to protect their families. When obtaining an insurance policy, it is vital to determine monthly expenses and other financial obligations that still occur after you passed away. It is always best to consult with an insurance professional to determine how much insurance is needed but a general rule of thumb is to have 10x your annual salary in life insurance.

What Age Should You Get Life Insurance?

Keep in mind, life insurance premiums are calculated on many factors. One of the main factors is age. The older you get, the more likely you are to have higher premiums every month.

The average age of an individual to purchase life insurance is 35. While this is the average age, some parents buy life insurance for minors by purchasing a permanent or whole life insurance policy for a lump sum. The more popular choice for life insurance is for adults to buy a policy for themselves to protect their families.

As we grow older and circumstances in life change, it is crucial that we change our plans as we change. If you are at the average age of 35 and single, a lot could change by the time you turn 38.

At the age of 38, you can have a wife, 2.5 kids, a dog, and a mortgage. The need for a life insurance policy would be different for a 35-year-old single individual; then it would be for a 38-year-old person married with more financial obligations.

The Average Life Insurance Premium

The average amount of a life insurance policy is contingent upon the age when the person purchased the policy. The younger the age, the lower the premiums. When individuals decide to buy a life insurance policy, they often look at the monthly rate and then work backward.

For example, if a 25-year-old female has a choice of a $50,000 insurance policy versus a $100,000 insurance policy, they would typically look at the monthly premiums and how much it would cost to maintain that policy over the term of the contract.

For a 25-year-old individual, a $250,000 term life insurance policy on average would be $16.02 per month. For a $500,000 policy, the monthly payments would be $24.63 per month. These are average quotes for these life insurance amounts.

Life Insurance Claims Can Be Denied

There is always a chance that a claim can be denied by an insurance company. It is an unfortunate event, but it does happen. It is important to understand the reasons why life insurance claims can be denied and how you can avoid this occurring.

Within a life insurance policy, there is a contestability period. This is a provision in the insurance policy that gives the insurer enough time to investigate information that was gathered during the application process. Typically, this period is between 2 to 3 years and is mandated by state law.

During this period, if the insurance company finds any misrepresentation of information in the application process or omission of serious information, this gives the insurer the ability to void the insurance policy. If during that time, a policyholder dies, the insurance company can deny an insurance claim.

Failure to disclose relevant information is grounds for a claim to be denied. If certain pieces of information are discovered to be missing from the application during the contestability period, the insurance company can use that as grounds to deny a claim. For example, if you fail to disclose a visit to your doctor for a severe medical condition, the insurance company could use this to deny the claim.

Failure to pay your policy premiums will cause your claim to be denied. It is an unfortunate situation when a beneficiary believes they are going to receive financial relief through a payout of an insurance policy only to find you did not maintain your part of the contract by making the premium payments.

How Long Should Life Insurance Should Last

Term life policies come in a variety of lengths. Generally, term life policies come in 10, 20, or 30-year timespans. The goal of life insurance is to cover your beneficiaries financially. If you will be able to get out of debt, pay off your mortgage, and retire within 30 years, this may be an appropriate amount of time.

If you can self insure in less than 30 years, you can opt to purchase a smaller time frame. The goal is to attempt to predict when your loved ones will be protected by the nest egg you have accumulated and the lack of debt.

Whole Life policies are different as they cover the insured for their entire life. Therefore, you do not need to predict how long you will need insurance.

Can You Cash Out Life Insurance?

A whole life insurance policy, that has a cash value, that can be utilized for a cash benefit. You can withdraw a limited amount of cash against these types of life insurance policies. Keep in mind, there may be a 10% early withdrawal penalty depending on your age. The cash withdrawal is usually tax-free as long as you withdraw less than the total amount of the premiums paid into the policy.

Cash withdrawals from your life insurance policy should not be taken lightly. If you’re financially strapped for cash, being able to cash out on a life insurance policy can come in handy. Keep in mind that any amount you withdraw from your cash policy will reduce the benefits when you die.

The sole purpose of purchasing a policy should be to protect your loved ones you leave behind when you die. You want to make sure you’re leaving your spouse, children, and any other beneficiaries enough money to be financially stable for a certain amount of time.

Getting Your Money Back If You Cancel Your Policy

If you have a term life policy, the chances of getting money back if you cancel your insurance policy are slim to none.

Term Life Free Look Period

The free look period of an insurance policy is a stipulation within the insurance contract that allows an insured to cancel the policy if they change their mind. In essence, it is for consumers who have buyer’s remorse. If you cancel your policy within the free look period, any premiums you paid into the insurance policy will be fully refunded.

The free-look period can range from 10 to 30 days. It is important to check the terms of your insurance policy to determine how long your free-look period is.

Whole Life Cancellation

With a whole life policy, the forfeiture terms are much different than for a term life insurance policy. The amount of money you could receive back depends on how long you had the policy and the stipulations outlined within the insurance contract. Since whole life insurance policies have a cash value, it is likely you would receive some of your money back if you decide to cancel your insurance policy.

Canceling a whole life insurance policy is a decision that you should not take lightly. Cancellation of the policy can be subjected to future higher fees from the insurance company, so it is wise to think long and hard before you make the final decision to do so.

Does Life Insurance Check Medical Records?

Most insurance companies will accept the information that is provided on an insurance application by an applicant without requiring medical records. Often, insurance companies want to know basic information about you that includes:

Height

Weight

Date of birth

Lifestyle habits

Annual income

Other financial information

When answering the questions on a life insurance application, it is important to be as honest and as truthful as possible. If an insurance company finds out later that you’ve lied about a piece of information that is pertinent to their risk assessment of you, they can cancel your policy or deny a claim when your beneficiaries file a death claim.

When Medical Examinations Are Needed

There are some instances when insurance companies may require an in-person physical examination. Some insurance companies require you to schedule a medical exam if you’re trying to purchase a policy over a certain amount.

For example, if you’re trying to purchase a policy over $150,000, it is not uncommon for insurance companies to require this type of examination. The examination is arranged by the life insurance agent and is performed by a licensed healthcare professional that is appointed by the insurance company.

These examinations are flexible because the health care professional can meet you at a location that is convenient for you. During the physical examination, the healthcare professional will get relevant information on your medical history, such as medications, surgeries, or any existing medical conditions.

You will be asked about any family health history issues and take your blood pressure. Also, they will listen to your heartbeat, check your weight and height, draw blood, and get a urine sample. During their discussion, they will ask you about any lifestyle habits that could affect your health. Again, no matter how the application is taken, it is important to be as honest and as truthful as possible.

The Type Of Life Insurance I Purchased

Right now, I am 36 years old, married with three kids. I am the sole income earner for our family, and my wife is a stay at home, mom, and wife. If I were to die today without life insurance, my wife would struggle to maintain our family’s current quality of life.

My house is not entirely paid off, and my nest egg is about 1/3 of where I want it to be when I retire. Due to this, I needed to purchase term life insurance for my family.

I purchased the maximum amount of term life insurance I could through my employer. I was able to buy a $250,000 term life plan that is in place while I remain employed. This $250,000 is exceptionally cheap and costs about $9 a month for me.

Even though my wife doesn’t provide monetary income, if she were to pass away, it would be challenging to pay for daycare and all of the other services she offers for “free” on a daily basis. Because of this, we also got a $200,000 term policy on her through my work for a similar amount.

I also recognized that $250,000 might not last very long with a mortgage and monthly expenses, so I purchased an additional $750,000 20 year term plan outside of my work. The extra $750,000 is about $30 a month.

You read that right, I have a 1 million dollar policy on my life – and my wife hasn’t killed me yet!

I recommend having 10x your annual salary in term life insurance for proper coverage

What We Would Do With Our Life Insurance Payout

If my wife passed away, I would use a portion of the $200,000 to pay off my home completely. The rest I would use to fund daycare and other child-related expenses.

If I suddenly died, my wife will pay off the home and invest much of the 1 million dollars so she can live life off the interest. Also, it will give her some breathing room so she can find a job if she wants.

How long will 1 million last? If you were to invest 1 million dollars in the stock market, you would receive an average annual return of $80,000. With a paid-off house, she could easily manage off this amount.

Why I Chose A 20 Year Term Life Policy

The reason I chose a 20-year term policy was due to my current financial position and a bit of forecasting. When my 20-year term policy expires, I will be 55 years old. I should have everything paid off and a substantial nest egg as well as my pension at that time.

With a paid-off house, large nest egg, and pension, there would be no reason for me to have life insurance. At this time, I will be self-insured, and my wife will easily be able to survive with the same quality of life we currently maintain.

Need Life Insurance? Follow These Steps

First and foremost, check with your employer. Many employers have life insurance as part of their benefits package they offer at reduced costs. This is usually the best way to get the first part of your life insurance.

Online searches are one of the best ways to find life insurance policies that are right for you if you need additional insurance. With an online search, you’re able to shop multiple insurance providers simultaneously without having to make numerous phone calls or drive to various locations. This can be a more convenient option for individuals who don’t want the headache and hassle of talking to multiple insurance agents.

For instance, a company that has sponsored Arrest Your Debt is PKA Insurance. On their website, you can get instant term life insurance quotes from over 30 companies.

Wrapping It Up

If you have a family and people who rely on you or your income, what would happen to them if you died today? Not only would they be left to pick up the pieces but they would also need to figure out how to pay the bills in an emotionally difficult time.

In the worst-case scenario, make sure you protect your family if you are suddenly taken from this world. Term life insurance is very cheap and should be included in your budget as a need if your family heavily relies upon you financially.

Evaluate your current financial situation and decide whether life insurance is right for you. If it is, check with your employer and other companies to get the proper coverage and best rates possible.

This post originally appeared on Arrest Your Debt.

According to a Gallup poll, more than 50 percent of Americans own stock. If you’d like to join their ranks, you’re going to need to study up about stock market basics.

The sooner you start, the better off you’re apt to be. The stock market has been a bull market – one that experiences rising prices – since March 2009, which makes it the longest bull market in U.S. history. It will inevitably and eventually turn into a bear market – one in which stock prices fall over a period of time by at least 20 percent – at some point.

My Disclaimer About Stocks

This post will give you a detailed view of the stock market and how to invest in individual stocks, bonds, and other investments. However, I will go back to my mantra that slow and steady wins the race.

Your retirement funds should be in low fee index funds and you should be riding the market through the ups and downs. Trying to time the market will end in a disaster if you are playing with your retirement.

However, if you’re properly funding your retirement with 18% – 20% of your income and you have extra money to spare, investing in the stock market for fun or as an investment is something you can definitely experiment with. This guide will give you the basics you need to know before you start investing outside of your retirement account.

The Basics of Stocks

The first thing to understand is what a stock market actually is. Also known as a share market or equity market, a stock market is actually a collection of markets, or stock exchanges, where participants engage in the buying, selling and issuance of shares of publicly traded companies.

These exchanges operate under specific regulations, and they are actually subsets of the stock market itself.

If you trade in the stock market, you actually buy or sell shares or equities on one or more of several stock exchanges that operate within the market. The top stock exchanges in the U.S. are the New York Stock Exchange, or NYSE; the Nasdaq; the Better Alternative Trading System, or BATS; and the Chicago Board Options Exchange, or CBOE.

About The Stock Market

The stock market is a dedicated market where buyers and sellers meet, interact and engage in various transactions with one another. Because it involves a massive number of participants, the market assures fair prices as well as pricing transparency – key components of effective trading.

One of the most crucial aspects of the free market economy, the stock market earns this significance through a number of means. Some of the things that make it such a key component of the economy include:

Stocks Allow Companies To Raise Money

By going public and entering the stock market, a company can raise the money that it needs to keep growing and remain profitable. The stock market facilitates this primarily by allowing companies to sell stocks, or shares, to investors.

Companies can also issue corporate bonds, which are investments in debt that are sold to investors. Through these bonds, companies get the cash that they need when they need it and pay a pre-determined number of interest payments to investors. When such a bond reaches maturity, the interest payments cease, and investments are returned to investors.

Investors Make Money When A Company Makes Money

Stocks let common investors participate in the financial achievements of companies. The stock market provides a level playing field that allows common investors to enjoy the fruits of public companies’ labor.

This may occur through capital gains, which represent an increase in the value of a capital asset that propels its worth over the purchase price; such gains are not realized until the stock, or asset, is sold. Shareholders may also be rewarded through dividend payments, which are explained later in this article.

Investing In Stocks Helps Our Economy

Stocks help with capital formation and economic growth for the country. By acting as a platform through which individuals’ investments and savings are channeled into productive investment proposals, the stock market helps to generate more capital for the nation while helping the economy to continue to grow.

For individuals, the stock market provides a controlled, managed and secure environment in which hundreds of thousands of participants can safely buy and sell stocks. In the past, these stocks were issued on actual paper; today, the stock market operates almost exclusively on an electronic basis.

The Primary Market

Many people don’t realize it, but the stock market actually consists of two types of markets: the primary market and the secondary market. The primary market is the one that lets companies issue and sell shares to the common public for the first time via initial public offerings, or IPOs.

IPOs allow companies to raise the capital (money) they need to grow and become profitable through the sale of shares to investors. Essentially, the company is divided into a number of shares, and it sells part of them to the public at a specific price.

For example, a company might be divided into 50 million shares, offering 10 million shares to the public. If it sells all of those shares at $10 each, it can raise $100 million in funding. Investors can then hold onto shares that are anticipated to grow in value, and they may also receive dividend payments.

Companies may also issue new, additional shares at later stages. Rights issues, or rights offerings, may be offered to current shareholders. These shares are known as subscription warrants, and they are offered in proportion to the company’s existing holdings, thereby diluting the overall value. Shareholders aren’t obligated to buy these warrants, which are usually discounted; if they do, they can trade them as they see fit.

Public companies may also offer follow-on offers, or FPOs, which occurs when more shares are issued following an IPO. The shares that come in already exist, so their overall value isn’t diluted. This means that the earnings per share, or EPS, remains the same.

Additionally, public companies are allowed to perform buybacks, which reduces the total number of shares that are available on the market. They may also delist shares voluntarily or involuntarily, which usually happens with a company goes out of business, files for bankruptcy, becomes private, doesn’t meet listing requirements or becomes engaged in a merger.

Dividends versus Retained Earnings

Companies may reward shareholders through the issuance of dividend payments, which come from a portion of its earnings. The majority of those earnings are kept as retained earnings by the company. The rest may be issued as cash payments to certain classes of shareholders, which is the most common way.

They may also be issued as shares of stock or other property. Even if a company isn’t experiencing a profit, it may issue dividends to certain shareholders to maintain a good track record. These may be issued on a monthly, quarterly or annual basis; they may also be issued non-recurring dividends, or special dividends.

The Secondary Market

The secondary market encompasses the regular trading of stocks and other securities, including exchange-traded funds, or ETFs; commodities; corporate bonds; derivatives based on stocks; currencies; and more.

When most people talk about trading on the stock market, they are referring to trading on this secondary market.

Top Roles Of Stock Exchanges

A stock exchange takes on many roles. Most importantly, it:

Maintains trading systems that effectively manage buy and sell orders from a variety of participants, performing a crucial price-matching function that ensures fair buying and selling prices

Creates and maintains a number of market-level and sector-specific indicators that provide a benchmark by which participants can track the movement of the overall market – the S&P 500 and the Nasdaq 100 are well-known examples

Maintains all corporate announcements, news, and financial reporting through official websites

Supports other transaction-related, corporate-level activities such as allowing profitable companies to reward investors through dividend payments.

Primary Participants In The Stock Market

To learn share market basics, it helps to understand the types of participants that are involved in it on a regular basis. Perhaps the most common participants are long-term investors who tend to be more conservative with their activities.

Short-term investors, better known as day traders, actively trade on the market throughout any given day. Such investors will be active during stock market business hours; for the NYSE and the Nasdaq, those occur weekdays from 9:30 a.m. until 4 p.m.

Of course, investors and day traders aren’t the only ones who are involved with the stock market. Other participants include:

Stockbrokers

Also known as regulatory representatives, stockbrokers are licensed professionals who buy and sell securities on behalf of investors. In other words, they act as intermediaries between investors and stock exchanges like the NYSE.

If you are a common investor, you will need a cash account with a stockbroker – who most typically works for a brokerage firm – to access the exchanges.

Portfolio Managers

As the name implies, portfolio managers are professionals who focus on developing effective investment portfolios – collections of securities – for their clients. They most commonly work for hedge funds, mutual funds, and pension plans, where they make buying and selling decisions for the portfolios that are under their management.

They make these decisions by staying abreast of the latest share market trends, establishing investment strategies that are based on things like recommendations from analysts and short- and long-term financial charts.

Investment Bankers

Investment bankers typically act as representatives for companies in a variety of capacities. For example, when a company wants to go public and engage in an IPO, it will work with an investor banker who will handle every aspect of the process on their behalf. These professionals may also be hired to assist with pending mergers and acquisitions and related activities, handling the process in a way that ensures compliance with regulatory standards.

Custodians

Along with depot service providers, custodians are institutions that hold clients’ securities for safekeeping so they can trade effectively on the stock exchanges.

Custodians work in sync with stock exchanges to efficiently transfer shares to and from respective accounts. These entities help to keep the markets moving effectively, so they play a crucial role in the operation of the economy on a daily basis.

Market Makers

Finally, market makers are broker-dealers who maintain their own inventory of shares. These professionals post up-to-the-second bid and ask prices, and they then profit from the difference between the prices that they quote. For example, a brokerage house is a type of market maker because it offers buying and selling solutions for investors, helping to maintain the liquidity of financial markets.

Primary Functions of the Stock Market

Whether you want to learn to be an active, long-term investor on the stock market or are interested in becoming a short-term day trader, it helps to also understand the primary functions that are handled by the stock market. With a firm grasp of these concepts, you will be better prepared to make effective trading decisions.

The seven most important functions of the stock market are:

Fair dealing in securities transactions – One of the top functions of the share market is to ensure fair dealing in securities transactions. In this vein, it ensures that all market participants have instant, real-time access to data for buy and sell orders, which allows for transparent and fair pricing. It also efficiently matches these buy and sell orders, facilitating the seamless operation of these transactions.

Efficient pricing discovery – The stock market is responsible for ensuring efficient pricing discovery, which involves deciding the appropriate prices for securities. This is typically accomplished by assessing the supply and demand of the market, but many other factors come into play as well. The market utilizes efficient mechanisms that ensure accurate pricing for all participants.

Liquidity maintenance – To keep the exchanges functioning properly, the stock market must also ensure that anyone who is qualified and willing to trade securities receives instant access to real-time information. These participants must also be able to place orders that are executed at fair prices – and they should be assured of that.

Validity and security of transactions – For the market to operate properly and effectively for everyone, it must work to ensure that all participants are verified. These participants must also remain compliant, so the market relies on regulatory agencies like the Securities and Exchange Commission, or SEC, to ensure this. There is no wiggle room for default by any involved parties, so this is a particularly important function of the stock market.

Support of all eligible types of participants – The stock market must also ensure that all eligible participants are able to operate seamlessly within the exchanges. These participants include market makers; investors; day traders; speculators; and hedgers.

Protection of investors – Because there is a vast number of small, common investors who typically have limited financial and investing knowledge and are largely ignorant of the common pitfalls of operating on the market, the share market must also implement measures to protect and shield them from losses. One example of such a measure is categorizing stocks into segments that are based on risk profiles; the market may impose limits or allow no trading by common investors on particularly risky categories. Restrictions may also be imposed on individuals who have limited income or knowledge; for example, only certain investors may trade certain high-risk derivatives.

Balanced regulation – The market must also ensure the balanced and fair regulation of publicly listed companies. In the U.S., for example, such companies’ dealings are monitored by the SEC. The market also mandates certain requirements for such companies, including the timely filing of financial reports and the real-time reporting of relevant developments to shareholders.

How Stock Exchanges Make Money

It’s obvious that participants in stock exchanges like the NYSE are in it to make money. What many don’t realize, however, is that the exchange itself generates money. In fact, it has to do so to continue functioning.

As you will discover when trading on the market, various fees are imposed and passed along to the exchanges to keep these for-profit institutions up and running.

The primary ways in which stock exchanges make money include:

Transaction Fees

Every time a trade is performed on an exchange, a fee is imposed. This means that whenever you make a buy or sell order, you are paying a transaction fee for the pleasure. Depending on how you trade on the market – in other words, whether you work through a robo-advisor, through a mutual fund or with help from a stockbroker – the fees you pay may vary.

Listing Fees

A stock exchange also earns money through the charging of listing fees. Whenever a company engages in an IPO, for example, it must pay a variety of listing fees to do so. Similarly, listing fees are imposed for activities like follow-on offerings. These fees, therefore, don’t pertain to common investors, but they are a major source of income for exchanges.

Market Data Sales

Stock exchanges generate vast amounts of market data on their platforms on a continual basis. They then turn around and sell this data to various clients, including brokerages, so that they can engage in effective equity research and the like. The types of data that may be sold by an exchange include real-time data; reference data; historical data; and summary data.

Tech Product Sales

Many stock exchanges are also in the business of selling tech products to various participants. Interested parties may purchase things like trading terminals and dedicated network connections directly from exchanges – and the exchanges price these products to ensure that profits are made every time.

Private Services

Stock exchanges may also offer certain private services, charging clients for the privilege. For example, an exchange may provide special access to high-frequency trading systems to larger clients like mutual funds and asset management companies, or AMCs. Participants may pay various regulatory and registration fees to gain access to such services.

How to Learn Stock Market Basics

Now that you know the basics of the share market and stock exchanges, you’re better prepared to learn the basics of trading on them.

First, it helps to understand what it actually means to own stock.

Contrary to popular belief, owning stock in a company doesn’t give you any real, direct influence over how it conducts business.

The vast majority of people who own stock own only a microscopically small percentage of shares in any given company.

Rather than having direct influence by owning shares in a company, doing so is a way of putting your faith in the company’s management. If you lose faith for any reason, you can always just sell your shares and move on. An important thing to keep in mind is that most public companies provide stock options to senior executives.

Also known as insiders, these execs often have as many shares as most common investors; in many cases, they have far more than average. Companies do this to give these executives incentives for maintaining and increasing the price of the company’s stock.

Depending on the company and how much stock you own in it, you may be entitled to voting rights. This does not mean that you are allowed to vote on important decisions for a company. Rather, it means that you are able to vote for its directors. These directors are responsible for hiring upper management, so you may enjoy a small amount of influence under such circumstances.

Stock Order Types

Before you can effectively trade on the market, you must familiarize yourself with the most basic order types that are involved in doing so. Here’s a simple breakdown of the basic types:

Market Orders – A market order is one in which stock is bought or sold immediately and at prevailing market prices. It remains open until the order is completely filled, which can take time in some cases. Fees tend to be lowest for these types of orders, which are the bread and butter of long-term investors.

Limit Orders – Also known as pending orders, limit orders are most commonly used by day traders. This type of order specifies a certain price at which the order must be filled. If the price of the necessary stocks is too high or too low, there is no guarantee that the order will trade at all. A common type of limit order is a stop order, in which a particular stock must move above or below a certain level to trade.

Other Order Types – Depending on the brokerage you use, you may also be able to place a variety of other order types. One very popular and useful one is the stop-loss order, which remains dormant until the relevant stock passes a certain price threshold. It then becomes an active market order. Other popular order types include all-or-nothing, or AON, orders; immediate-or-cancel, or IOC, orders; and stop-limit orders.

Getting Started with Trading on the Stock Market

If you are a beginner at trading on the share market, it’s natural to be apprehensive. However, getting started with buying and selling stock is actually quite easy. That’s especially true thanks to online trading, which has leveled the playing field and democratized the process even more.

The simplest way to begin is by setting up an account with an investment firm or brokerage firm. Stockbrokers employed by such firms accept market orders and facilitate payments between you and other trading participants. Once you have submitted an order with your broker, he will fill it from his inventory or route it through the trading network to find a matching seller. The trade is then executed.

How to Make Money on the Stock Market

Like any trader, you would probably like to start making money on the stock market as quickly as possible. Put simply, the key to doing so is buying at the right time and selling at the right time. A good rule of thumb is to only sell stock that you own under the following circumstances:

Buying it was a mistake

The price has risen dramatically

The stock has attained an unsustainable or ridiculous price

Remember too that the stock market is not like a slot machine. Therefore, it’s crucial to keep greed and emotion out of the trading process – something that’s often easier said than done, especially for beginning traders.

Stock Trading Platform Options

Determine what your goals are for trading on the stock market, and then choose from the following options to get started:

Online Brokers – Most common investors used discounted online brokers rather than full-service ones. These brokers provide you with tools that allow you to make informed trading decisions.

Robo-Advisors – Robo-advisors use computer algorithms to automatically make investment decisions for clients. They are among the most affordable ways to go, and they’re ideal for people who are interested in long-term wealth building.

Traditional Brokerage Firm – Most common investors don’t need to bother with this option anymore.

Through Your Employer – If your budget is extremely tight, investing just 1 percent of your salary into your employer’s retirement plan can be a good way to get started with investing.

Advice for Beginning Stock Market Traders

Regardless of which of the above options that you use, you can hit the ground running as a trader by keeping a few things in mind. Develop a diversified portfolio of stocks and stock index funds, and hold onto it through thick and thin.

Diversification allows you to not put all of your eggs into one basket, so to speak; when certain stocks underperform, others may excel, which balances things out. Ideally, 10 percent or less of your portfolio should be made up of individual stocks; the rest should consist of index funds.

The S&P 500, a popular index stock index, delivers historical average returns of 7 percent annually. If you invested $1,000 into it 30 years ago, you would have $7,600 today – all without having lifted a finger, so to speak.

The Bottom Line

This guide has merely scratched the surface of the complex world of the stock market and stock market trading. However, you should now have a general idea about how to proceed with learning how it works and how to start trading. With time and patience, you can become an effective trader who earns nice profits from your investment activities!

This post originally appeared on Arrest Your Debt.

This simple retirement calculator will help you see if you are on track to have enough money when you reach your desired retirement age, or if you need to save a bit more each month.

Retirement Calculator

Scroll down to use my free investment calculator to see if you are saving enough.

Your financial plan should focus on eliminating your debt and fully funding your nest egg. Financial security is worth its weight in gold, and your retirement plan should take into consideration your current age as well as the age you want to retire.

Time is not always on our side if we have allowed our retirement savings to take a back seat for an extended period. Also, who knows if social security will still be around when we get older.

Retirement Calculator Savings Plan

My calculator gives you a simple look at how much you may need to save to meet your retirement goal. The calculator factors in the following information:

Your Current Age

Your Desired Retirement Age

Current Retirement Savings Balance

Expected Investment Return

Financial Needs In Retirement (Total Monthly Amount)

Include Social Security Benefits

Any Guaranteed Pension Benefits

With this information, the calculator factors in the monthly amount you need to contribute to your retirement savings each month to reach your retirement goal based on age and desired monthly income.

ACCESS THE RETIREMENT CALCULATOR HERE

How Much Should I Save For Retirement?

The amount someone should save for retirement is different for every individual. The first area you should focus on is determining how much money you want to live off of each month. What monthly income do you want to have available to you?

Keep in mind, your current annual income is probably paying for more things than it would in retirement. For instance, by retirement age, you may no longer have a mortgage, kids to put through college or other outstanding debts. Retired individuals often need less money to live off of than younger working people.

With this number in mind, you can better prepare to meet this goal by figuring out how many working years you have left and how much you should invest each month. Keep in mind, today’s dollars will be worth less in the future due to the inflation rate. To ensure your money does not lose value, it needs to be making at least 2% – 3% per year to keep up with inflation.

This tool is the best retirement calculator I have found that keeps it simple enough to understand. To double-check the calculations, you can use my simple compound interest calculator to see the lump sum you will have when you retire.

Wrapping It Up

While this free tool will give you insight on how your individual retirement account may be doing based on your savings, pension, and social security income, you should always consult with a financial advisor before making any significant changes.

Retirement income needs to last your entire life so meet with a financial advisor that specializes in retirement planning to create a plan based on your individual needs.

Mortgage Payoff Calculator

Imagine for a moment – not having a monthly mortgage payment. With this free early mortgage payoff calculator, you can see what impact making extra payments on your principal will have on the life of your loan.

This mortgage payoff calculator figures in a variety of variables to give you a clear picture of how and when you can pay off your mortgage if you adjust your payments. The following information is evaluated:

Original Loan Amount

Extra Payments Towards Your Mortgage

One Time

Monthly

Quarterly

Yearly

First Extra Payment Date

Original Loan Length

Mortgage Interest Rate

Mortgage Payoff Calculator Results:

When you enter your variables, the mortgage payment calculator will show you your current amortization payment schedule, as well as the impact making extra payments has on your interest and time savings.

If you currently have a 4% interest rate and want to know how much time and money you will save if you refinanced to a lower rate, this financial calculator will help you decide if it makes sense financially to do it.

ACCESS THE MORTGAGE PAYOFF CALCULATOR HERE

What Happens If You Make 1 Extra Mortgage Payment A Year?

For this scenario, I entered an original loan amount of $250,000 with a 3% annual interest rate on a 30 year fixed rate mortgage. The base monthly payment for this scenario was $1,054.01 a month. This does not count other fees that are commonly added in like homeowners insurance, taxes, etc.

Using the amount of $1,054.01 paid once each year, the payoff calculator shows I would save $17,542.19 in interest over the life of my loan. Also, I would pay off my loan three years and seven months earlier.

Is It Smart To Pay Extra Principal On Mortgage​?

From a numbers standpoint, if you are paying 4% in interest on your mortgage loan, financially speaking, it would make more sense to put your extra money into an investment. For instance, the stock market averages 7.9% returns on your money each year based on historical data. Paying off a 4% mortgage early will provide you interest savings, but you could make more money by investing.

With this being said, I chose to pay off my mortgage early because the financial security that comes from having a paid off house is worth more to me than extra zero’s in a bank account. This is where personal finance differs for each individual. What works for me may not work for you.

Here Is How Much You Can Save By Paying Extra On Your Mortgage:

If you have additional funds lying around, first make sure you are debt-free before you decide to start investing or paying off your mortgage early. If this is the case, if you do not make extra payments on your loan, check out how much money you will be paying in interest.

With the above scenario of a $250,000, 30 year fixed rate, 3% interest rate, you will pay $129,443.65 in interest to the mortgage lender over the life of the loan! Your $250,000 house will actually cost you $379.443.65!

Wrapping It Up

Try different scenarios with this mortgage amortization calculator to see what happens if you make an extra mortgage payment every month, quarter, or year. If you decide to tackle your mortgage, make sure any additional amount is applied to the principal balance rather than the interest portion.

Some companies will automatically apply the extra payment to go towards the overall interest owed, which is not what you want to do. Also, some loans have prepayment penalties if you attempt to save thousands with an early payoff. Speak with your lender and find out the best way to make additional payments that will be in your best interest rather than theirs.

Mortgage Calculator

In the market for a new home? Use this free mortgage calculator to determine how much your monthly mortgage payment will be depending on a variety of customization options.

Mortgage Calculator Fields:

Home’s Purchase Price

Down Payment

Mortgage Type

15-year fixed

30-year fixed

5/1 ARM

Monthly Interest Rate

Property Taxes

Homeowners Insurance

Homeowners Association Fees

ACCESS THE MORTGAGE CALCULATOR HERE

How Much House Can I Afford To Buy?

If you first go to a lender, they will pre-approve you for an amazing amount of money. When my wife and I purchased our first house, the loan amount I was pre-approved for way more than I could afford. The reason for this was some lenders look at your gross monthly income rather than the net income. As you can imagine, this backwards mentality can end up backfiring.

Before you go house shopping or attempt to get pre-approved for a loan, look at your monthly budget and decide how much you can safely spend on your mortgage. Avoid breaking even every month with your incoming and outgoing money.

Make sure your proposed monthly mortgage payment leaves room to still pay off debt and invest for retirement. If you can’t pay off debt or invest, the mortgage is too much.

Many financial experts agree that a home mortgage should not exceed 25% of your monthly take home pay. While personal finance is unique for each individual, avoid putting yourself in a bad financial position to pay for a home that may be larger than your budget can afford.

Using The Mortgage Loan Calculator

As you navigate the home buying process, try different loan terms. For instance, if you can’t afford to put 20% down in cash, be prepared to pay private mortgage insurance (PMI) for the life of the loan (unless you later refinance). The only way to avoid paying PMI is to ensure you are putting enough money down to reach that magical 20% number (or have at least 20% equity).

There is a significant difference between a 30 year fixed mortgage and a 15 year fixed rate mortgage. The total monthly payment on a 15 year loan is much more than a 30 year, but you will save tens of thousands of dollars on the total interest paid and shorten the loan term. The mortgage payment calculator has extended fields where you can see exactly how much you are saving by altering the loan type or down payment information.

A lower monthly payment is not always a good thing. Look at all the different variables such as if you can put more money down to get a lower interest rate if your credit score is less than desirable. Even though the latest mortgage rates are at all time lows, paying a few extra thousand to pay down your points may be a good move.

The calculator also breaks down a monthly amortization schedule so you can see your payoff date if you only make the minimum monthly payment.

Looking To Pay Your Home Off Early?

Use my mortgage payoff calculator at this link to see how quickly you could pay your mortgage off by paying extra on the principle!

This simple credit card payoff calculator will help you determine how quickly you can pay off your credit cards by paying extra each month!

Using The Credit Card Payoff Calculator

To use the calculator, use only one credit card at a time and follow these steps:

Enter the current balance of one of your credit cards.

Enter the current interest rate on your card.

When you do this, the calculator will give you the approximate amount you are paying in interest each month.

To see how quickly you can pay off your credit card, there are two options:

Enter the total monthly amount you can afford to put toward your credit card in the “Monthly Payment” box

or

Enter how many months you want to give yourself to pay off your credit card. The calculator will tell you how much you need to pay each month on the credit card to make that happen!

Access the credit card payoff calculator here.

What Should I Do With My Results?

Now that you know how long it will take to pay off your credit card, or how much you need to pay each month to get out of debt, there are a few steps you need to follow.

The credit card calculator only gives you the necessary information to make a plan.

Getting out of debt requires a plan – and a way to achieve your goal of becoming debt free!

Follow These Steps To Pay Off Your Credit Card Debt

Step 1 – Create a Budget

Step 2 – Cut out all unnecessary expenses

Step 3 – Create an emergency savings account before you pay off debt!

Step 4 – Increase your income with a side hustle.

Step 5 – Put every extra dollar towards your debt to reach your goals.

The 0% Interest Struggle

If you have been playing the shuffle game where you move your credit card balance from one card to another one with 0% interest – it’s time to stop.

Stop wasting time and spending all your energy applying for new credit cards. The time to break this debt cycle starts now.

If you need more information, I wrote this detailed article about the best way to pay off $10,000 in credit card debt. No more interest only games, no more holding onto this debt. The time for financial freedom is now – and you can do it!

This post originally appeared on Arrest Your Debt.

If you’re looking to an easy way to figure out how much money you should be spending on your needs, wants, and savings or retirement, this 50 30 20 budget calculator is what you need!

Simple 50/30/20 Calculator

To begin, enter your monthly take-home pay in the calculator below. The results will tell you how much of your take-home pay you should be budgeting for your:

Needs

Wants

Savings, Retirement, or Paying Off Debt

Access the 50 30 20 Calculator here

Enter your monthly take-home pay

1200

Your Budget For:

Necessities : $0.00

Wants : $0.00

Savings and paying off debt : $0.00

What Is A 50/30/20 Budget?

A 50/30/20 budget is a simple formula that divides up your take-home pay into easy to understand chunks. This budget puts a focus on your needs, wants, and savings.

What You Should Do With Your Results

After receiving your ideal percentages from the calculator, follow this rule to divide up your monthly budget into the proper areas to avoid overspending.

Needs Should Be 50%

After you have your own personal 50/30/20 budget numbers from the calculator, look at your 50% needs category. When you sit down to do your budget, make sure your needs don’t exceed your 50% number. For a reminder, needs are comprised of:

Food (not including eating out at restaurants)

Clothing (basic clothing – not the latest pair of Jordan’s)

Transportation (this could even be by bus or bicycle – not a BMW lease payment)

Utilities (water, gas, electric)

Minimum Debt Repayments (minimum payments needed to fulfill debt obligations such as credit cards)

Child Support

Alimony

Pretty much anything outside of these areas are more than likely going to fall into the want category.

Wants Should Be 30%

Take your personal want number and make sure you can fit all of your wants within this budgeted amount. If you can’t you either need to increase your income, or cut back on some of your wants.

In this process, be honest with yourself. Are the things in your want category bringing any value to your life? This is the place where you can make the biggest impact on your money and your life.

Narrow your wants down to things that truly add value to your life.

Typical wants include:

Entertainment

Vacations

Monthly Subscriptions

Daily Starbucks Habit

Savings Should Be 20%

In the most basic structure, you should be saving 20% of your income for retirement. However, many people still have cripling debt that is keeping them from saving.

If you have credit card debt or other consumer type debt, try to reduce the amount you are spending on wants and allocate more money to the savings category. Use the money designated to saving in order to get yourself out of debt as soon as possible.

If you need help and are living paycheck to paycheck, check out my related article about these simple steps you can take to get out of debt.

I also wrote a more detailed article on the 50/30/20 monthly budget that you can read here.

It is essential to find the right budget tool to help you get your personal finance situation back on track. This free monthly budget calculator will give you a great head start to put your money habits down on paper so you can see where you need to cut back or adjust.

This will help you create a spending plan so you can identify areas to adjust to ensure you have a fully-funded emergency fund. After that, you can focus on your retirement account and tackle your debt repayment. My free budget calculator will give you a budget breakdown that may open your eyes to some frivolous spending habits.

How Do You Calculate A Monthly Budget?

A budget is the first step in any successful money management plan. Knowing how much money is coming in each month and exactly where it goes is something everyone needs to do to ensure their money is going towards things that bring them value. This plan requires you to use a monthly strategy rather than an annual net income budget.

Monthly Net Income

The first step is to calculate your total monthly income. Your budget will always start with your total monthly income after taxes. The first section of this free budget calculator requires you to enter your after- tax monthly pay, as well as any extra income you expect to receive.

Extra income may include side hustles or off duty jobs you currently do.

Use the “+” buttons to expand each category. Entering your amounts into this cost calculator will automatically total your amounts.

Household Budget – Total Monthly Expenses

To identify your monthly expenses, look over your financial statements from the previous month. Focus on separating what your living expenses include as well as your discretionary spending. During this process, it is crucial to uncover everywhere you spent money. After we fill out the monthly budget calculator, we can move on to identifying areas to cut back and start saving.

**For annual expenses, divide the total cost by 12 to factor it into a monthly plan.

Housing And Utilities

While housing and utilities are necessities, it doesn’t necessarily mean there are not areas in which we can save money and free up some funds. Be sure to look through previous monthly expenses to identify how much you spent on:

Rent, Mortgage Payment

Home Equity Loan or Second Mortgage

Home Insurance (if paid separately)

Homeowner’s Association Fees

Home Repairs & Maintenance

Electric & Gas

Water, Sewer, and Trash

Phone Bill

Internet and/or Cable

Transportation

Many of us spend more on our vehicles than we really need. These areas will help you genuienly identify how much you are spending on transportation and where.

Vehicle Payment

Second Vehicle Payment

Vehicle Insurance

Gas

Vehicle Maintenance

Misc. Vehicle Expenses

Groceries

Full disclosure: I have always struggled with my grocery budget. With a family of five, it always seems we spend much more on food than we really should. While we have cut back on restaurant dining, we are still working on scaling back the amount we spend on daily groceries.

Groceries

Household Goods

Eating At Restaurants

Personal Hygiene And Personal Care

These expenses often fluctuate from month to month. Look at your last month of expenses and fill in the information.

Medical (co-pays and other expenses not covered by health insurance)

Prescription Drugs

Term Life Insurance

Clothing

Misc. Expenses

Haircut and/or Style

Kids

I had no idea how expensive kids were – until we had them. Be sure to count all of your costs related to your children.

Child Care Expenses

Child Support Payments

School Tuition & Supplies

Outstanding Debt

Hopefully, you were able to pay more than the minimum payments on your debt last month. However much you were able to put towards your specific debts, be sure to include it in this budget calculator.

Credit Cards

Personal Loans

Medical Debt

Student Loans

Tax Debt

Misc. Debt Payments

Miscellaneous Expenses

Last but not least is the misc. expense section. Because personal finance should be personal, this section is for all of those uncommon expenses that you and your family spend on each month.

Hobbies

Fun Money

Monthly Subscriptions

Vacations

Church Tithe & Charitable Donations

Animal Care

Holidays & Birthdays

Other Expenses

Calculate Your Results

Once you enter all of your financial information, it’s time to see how you are doing and where you could improve. Use the results button to calculate your current situation in my free budget calculator.

Find the calculator at

Arrest Your Debt.

How Do I Stop Living Paycheck To Paycheck?

Living paycheck to paycheck, as you know, is not fun. The first step to proper money management is to do a budget to see exactly what financial position you are in and where you are spending your money. After uncovering your spending habits, start budgeting intentionally, and make a budget planner that you can use to your advantage. After creating a monthly budget, follow these steps:

Create an emergency fund of at least $1,500

Start paying off debt – one debt at a time. Use the debt avalanche or debt snowball method

Save up more cash to cover 3 – 6 months of necessities

Contribute at least 18% of your income towards a retirement account

Save for college or any other specific high dollar future expense (if any)

Pay off your mortgage

Invest even more money!

I wrote a detailed article about how to stop living on monthly payments.

How Much Should I Be Spending A Month?

As I stated earlier, personal finance is personal. I can’t tell you how much you should be spending in any given category because it all depends on what you value in this life. If you enjoy buying coffee every day but need to save money, try cutting back in another area. Force yourself to only spend money on what brings you value rather than spending out of habit.

For more guidance, check out my related article on the 50/30/20 budget and how you can use these percentages to help structure your budget.

Have you heard of sinking funds? My wife and I used sinking funds before we even knew what they were – and it was completely by accident. This post explains sinking fund strategies for beginners and how you can use cash to take control of your finances.

Sinking Funds Keep You Afloat

With so many unknowns in life, you never know when a financial situation will occur that you’re completely unprepared for. For example, say you’re sitting at home and your central air stops. Here in Arizona, that’s pretty much the worst thing that can happen in the summer.

This problem falls just short of calling 911 because there’s little to no chance you’ll be able to sleep through two nights, let alone one, without air conditioning.

To add to the stress, you have no idea how much it is going to cost to fix it. It could be a simple hundred dollar fix, or you could be facing the harsh reality of needing an entirely new unit.

Either way, you’re going to have to figure out a way to get it fixed and pay for the service. In the past, your only choice may have been to use a credit card. Which led to trying to pay off the repair for the next few years.

Even with a $2,000 emergency fund, this may not be enough to cover the expensive repair.

This is where a sinking fund offers help. In this article, we’re going to talk about everything you need to know when it comes to these types of funds:

How to set them up

How to calculate how much to put into them

How to figure out how many you should have

What Is A Sinking Fund And What’s The Purpose?

Before deciding to actually set up one of these funds, it’s important to know their purpose. In simple terms, the sinking fund definition is:

a fund where a person sets back a certain amount of money over time in order to use it for future expenses.

Each sinking fund serves a unique purpose. They can be for something specific, like an event or future purchase, or they can be set up for any unexpected situations that might occur.

To avoid destroying your budget by unexpected financial disasters, it’s important to make a plan to protect yourself. The whole purpose of a sinking fund is to be able to have that extra money to help you in these instances.

Sinking funds are person-specific and while you and I may have similar funds, you may have different financial needs and additional funds.

How Do Sinking Funds Work?

It’s also important to understand how sinking funds work. Basically, you set aside money every month for a certain goal. I will detail how to make and calculate them later in this article, but understand it’s important to set goals and boundaries.

For starters, make sure you know what you’re saving for. While an emergency savings is for general emergencies, sinking funds work much better if you know exactly the specific purpose of the fund.

Sinking funds work hand in hand with your monthly budget. Think of them as a bill that you pay to yourself.

Since everyone has different earnings and situations, it’s important to look at your personal details and figure out what amount you can afford to delegate into each fund. You might be surprised at how much you can spare to put into these funds every month when you are intentional about it.

Sinking Fund – What’s With The Name?

Now that you know what a sinking fund is, you might be wondering why it has that name. Some people might think it’s called this because they feel like they’re sinking when unexpected expenses come up, but that’s actually not the case.

While the word sinking has a negative connotation, it actually has to do with sinking or decreasing, the amount of debt you owe or might owe in the future. If you use this type of fund correctly, it can really make life a lot easier. My wife and I have avoided our fair share of financial emergencies by using this method.

Not only will you have more financial freedom, but the impact of an unexpected financial situation won’t be as severe. With so many people struggling and living paycheck to paycheck, this is something that’s extremely important and crucial to living a fulfilling life.

Why Sinking Funds Are Important

Besides helping you learn how to save money, a sinking fund is important for a couple of different reasons. For starters, you never know what life will throw at you or what kind of situation might come up.

Building sinking funds is essential to being financially literate and responsible. If you’re looking to improve your financial situation, add sinking funds to your strategy.

Depending on the exact circumstances, these situations can make or break your budget and end up putting you behind on all your other bills. Another reason they’re so important is that they reduce the chance of you having to put yourself into more debt, by opening a credit card or taking out a loan.

When you’re already on a tight budget and barely scraping by, the last thing you want is to add is another bill or payment to your monthly expenses. This is especially true for those things that can take belongings as collateral.

How To Make A Sinking Fund – For Beginners

Think about your own life and the typical financial emergencies you experience. This can be anything from vehicle maintenance, air conditioning repairs, you name it. Keeping sinking funds separate from your regular money will help you create better financial habits.

These funds can also be used for planned expenses that usually go on a credit card (i.e. vacations)

Once you know what you want to save towards, decide how much you are willing and able to delegate into this fund or funds each month. Think of them as monthly bills that you have to pay.

For example, you might want to save $200 for a special occasion or $5,000 for a vacation. Next, decide how many months you need to have this total amount. By doing a few simple calculations, you can figure out how much you need to be putting away.

How Many Sinking Funds Should I Have?

For us, we have three main sinking funds:

Vacation Fund

Vehicle Fund

Kids School Fund

Emergency Fund (already funded)

Fun Money Fund

The reason we don’t have an air conditioning fund or other high dollar funds is that we also have 6 months of emergency savings saved up in cash. However, when we were first starting out we had other smaller funds delegated to more specific issues.

We also send our kids to private schools so we put money away each month into that fund to help offset the tuition balance. This does not include their college fund.

This is where the personal in personal finance comes into play. You may not have the same funds that I do – and that’s OK!

Large And Planned Purchases/Expenses

To start, we have large and planned purchases. The targets in this category should be ones that you already know about and require a decent amount of money to purchase.

These can include things like a large vacation, some upcoming and needed work on your car, a down payment on a house or a new family vehicle. Since these purchases take so much money, they should have plenty of time associated in your timeline.

Small And Planned Purchases/Expenses

The next category is ones that are considered small and planned purchases. Similarly to the previous category, these should be targets that are already known about and planned for. The only difference is that they won’t cost nearly as much money.

Some examples of situations that could go into this category are:

Small household appliances

New flatware or dishes

Upcoming special dates like anniversaries and small family day trips

These might not take nearly as long to earn towards and you might actually meet the amount in just a few paychecks. One thing to keep in mind is that you don’t want to dip into this fund if you come across something you like because it can throw off all of your earnings and really put a damper on your plan.

Unexpected Expenses/Purchases

The third category you should put your targets is the unexpected expenses/purchases. While you might not necessarily know what this will be for, you’ll at least know that it’ll be used when something unexpected happens.

The more prepared you are, the higher the chance that the situation won’t financially devastate you. Some situations that would fall into this category are:

Broken appliances

Cars that need sudden repairs

A new computer

Surprise medical expenses

Since you never know when these things will happen, you should try and save as much money into them as you can. The main reason is that these situations usually aren’t very cheap, so saving as much as you can will help decrease the amount you’ll have to pay out of pocket.

Forgotten Expenses/Purchases

No matter how prepared we think we are, there’s going to be a time when something completely slips our mind. If you don’t have three to six months of living expenses saved up, having smaller sinking funds is a great alternative.

Just like the unexpected category, you might not automatically know what situations will be taken care of with this category. Some situations you might run into are:

Expenses that only happen every 6 months

A school trip that happens later in the year

New clothes for your children and various school activities

Many of these things we know about at one point, but end up completely forgetting about because they’re not things we think about on a daily basis.

How Are Sinking Funds Calculated?

Basically, there are 2 main ways to figure out how to do your calculations. The first way is by seeing how much you want to put into each target and how long you have to do it. You’ll then divide these numbers.

For example, if you have 18 months to save $3,000, you’ll want to divide 3000 by 18. This results in needing to save $167 every month. The other way is to look at the extra money you have in your budget and divide it up into your separate categories.

Keep in mind, the most important purchases should receive a higher portion of the money available.

How Much Do I Put in?

You’ll know how much you need to put in based on which calculation you did. If we take the example of $3,000 in 18 months, then you know you’ll need to put in $167 per month.

If you get paid 2 times a month, this equals around $83.50 out of each paycheck.

If you do this with each of your targets, you’ll be able to add them together to see the amount you’ll need to take out each month in order to add to your sinking fund total. If you use the other method, then break down the extra money you have and keep putting that amount in.

When one sinking fund reaches your goal total, this gives you the ability to add more to your other funds.

Examples/Types Of Sinking Funds

We’ve been talking about sinking fund categories and targets, but some people may still need some ideas on what kinds of targets they should choose.

Remember, these are just examples and the reasons why people use sinking funds are going to be different from one person to the next. Some of the more common ones are:

House

Car sinking fund

Vacation

Holiday/special occasions

Medical

There will be many people who use some of these as targets, but if they aren’t a concern to you or a big deal, you can easily leave some out.

House

The first type of fund is for the home. This can include things like home repairs or renovations. Keep in mind, this does NOT include situations that are an emergency, such as a broken window or a leaking roof.

There’s a high chance you’ll know exactly what renovations you want to do and when you want them done. In order to figure out how much should go into this example, you’ll want to check prices for the renovation and see how much it would cost for a professional to do it and how much it would cost for you to do it.

Once you know the amount, you’ll be able to figure out how much you need to save every month.

Vehicle

The next example is a vehicle sinking fund. While this could be used to deal with upcoming work that will need to be done, most people will use this example to save for a new car.

Regardless of which one you choose, it’s important to know how much you’ll need to save.

This is a little bit easier for a new car because you’ll know the highest amount you’re willing to spend. Vehicle maintenance, on the other hand, can be a little tricky. Depending on what needs to be done, you’ll want to call around to different places to get quotes.

Once you know the amount, you can then start saving towards it.

Vacation

One of the most common types of funds are ones that are geared towards vacation. While some people go every year, others can only afford to go every couple of years. It’s going to depend on your personal situation, but you want to make sure you save enough to have a fantastic time – by paying with cash and not coming home to more credit card debt.

The easiest way to do this is to decide where you want to visit, when you want to go, what activities you’ll want to do and what other things you’ll need to consider. It’s important to also have some spending money in case you see something you didn’t consider!

Holiday/Special Occasions

Holidays and special occasions come every year, but it doesn’t make them any easier. This is especially true for those that have a lot of these types of events close together or if you have a large family.

In fact, some holidays, like Christmas, can really drain your money quickly. With this being the case, you’ll have plenty of time to save what you need. In order to ensure you have enough, consider how many people you have to buy for and how much you want to spend on each.

From there, you’ll be able to figure out how much you need to put in every month.

Medical

The final example is for those that have upcoming medical expenses. These are ones that aren’t surprises or unexpected. They should be ones that you know are coming and won’t be happening for a few months.

A few examples would be:

An upcoming surgery you’ll need

An elective procedure

Birth of a child

It’s important to see how much your insurance will cover and consider any costs that you’ll have to pay out of pocket. Once you know this amount, you can save what’s needed in order to ensure you have plenty to cover it.

The Best Accounts To Keep Your Sinking Funds

Finally, we’ll talk about where you should keep your sinking fund. While you could always keep them at your house under your mattress, putting it into some kind of account will give a little extra security.

The last thing you want is to save so much money towards your goals, only to lose everything for various types of reasons.

While it’s ultimately up to you, we’re going to take a look at 5 different types of accounts you can put the money in. These are:

Certificates of deposit (CD)

Money market accounts

Normal savings account

Completely separate savings account

There isn’t a right or wrong answer, so make sure you’re using the account that works the best and makes the most sense to you and your needs.

The biggest thing to keep in mind is when you may need access to your money. If you’re saving up for a house, you can tie up that money in a CD unlike if you’re saving up for unexpected vehicle repairs.

Don’t tie up your money into investment vehicles that you can not easily access if there is a chance you may need it for an emergency expense.

Certificates Of Deposit

The first type of accounts you can use are called certificates of deposit also known as CDs. When you purchase these types of certificates, they are guaranteed to gain interest over a period of time at a fixed interest rate but you can not withdraw the money early.

This is not a type of fund you want to use if you may need quick access to your funds.

Money Market Account

There’s also the option of using a money market account. These are accounts where the user deposits a certain amount of money and earns interest depending on the interest rates that are currently in the money market.

Since you never know exactly what the rates are, you don’t want to count on getting a certain amount extra each month. The best way to use these is by depositing the required amount every month, then using any interest as extra.

This way, you won’t be relying on the interest amounts, but you will be able to keep your money in a safe and secure place while making money on your money. You can also quickly access this money if needed.

Normal Savings Account

An option that’s extremely popular is a normal savings account. When most people sign up at a bank, they usually get a checking and savings account. Many people will just put the amounts in the savings account they have with their bank.

While this is a decent option, it takes a lot of discipline to make sure you aren’t dipping in for reasons that are different from your target.

Honestly, if you don’t think you’ll be able to hold off from doing this, it’s probably not the best option.

Completely Separate Savings Account

This is the option we currently use, althought we should probably switch over to a money market. The reason we haven’t made the switch is because we aren’t saving up for anything long term at the moment so the money we would make from interest is minimal.

Also, I haven’t been able to convince myself that the effort to open a money market account is worth the small amount of interest I would gain from our current sinking funds.

The option that the majority of people go with is a completely separate regular savings account. This can either be at your normal bank or you can choose a completely different one.

Having a separate account means you’ll have an easier time only getting into the account for the targets you’ve set up. Clearly having separate funds for each sinking fund is the best way so you don’t accidentally mix up your money.

Sinking Funds vs Emergency Savings

Many people think that a sinking fund is the same thing as emergency savings or an emergency fund. The fact is that these 2 funds are similar but quite different.

With a sinking fund, you know exactly what you’re saving towards and you know exactly how much you put into it every month or pay period. An emergency fund, on the other hand, is a general fund that helps with any kind of emergencies that come up.

In reality, you should establish and fully fund an emergency savings account before you start to use a sinking fund. Sinking funds are best used after your emergency savings fund is full.

Sinking Fund vs Traditional Savings Account

There’s also a difference between a sinking fund and a traditional savings account. While these don’t have many differences, they do have 1 large one.

Remember, with a sinking fund, you’re saving towards a specific target or situation that you’re saving for. For a savings account, though, you’re more likely to be saving towards future financial goals or certain activities and experiences that you want to do or have.

For example, you might be using a sinking fund to save towards your yearly taxes, while you might be using a savings account to save enough money to put a down payment on a house.

While they can be used together, it’s going to take a lot more discipline to save what you need for your different goals. As a result, it’ll just make things easier if you have separate accounts.

Wrapping It Up

Not only do sinking funds allow you to be a little more prepared for most unexpected situations, but it can also help you meet your goals of making better financial habits.

For every little bit you save, that’s less you’ll have to potentially take out of your normal pay or the money that needs to be spent on your normal bills. It might seem like it’s just a simple little thing that isn’t that big of a deal, but for those that struggle, the stress of unexpected situations can really make life rough.

‘With a sinking fund, that’s just one less thing you’ll have to worry about and you won’t have to make yourself sick trying to figure out how you’re going to pay for the situation, as well as ensuring you’re making ends meet.

It might not answer all of your problems, but it can give you a little bit of extra hope and relief.

This post originally appeared on Arrest Your Debt.