[Note from editor: The “Mastermind Showcase” highlights companies and news from members of the GEM. Today’s showcase: StreetText.]
StreetText’s flagship product Lead Magnet gives agents access to ready-to-use Facebook ads that come with lead capture pages, text messaging A.I., integrated social information, and drip emails. The software has been used to launch more than 47,000 ads and generate over 3.3 million leads. Its dashboard provides a detailed breakdown of the effectiveness of each ad, as well as providing a place to track and manage new leads.
Direct Zapier connection means agents can integrate StreetText into the tools they already use.
Co-founder Stephen Whiting started StreetText in 2010, with LeadMagnet launching in 2014.
What we like: As a dedicated ad play focused on the single largest audience on the internet, what’s not to like?
If you want more financial discipline you are probably looking to curb impulsive spending, save money, or maybe just achieve financial stability.
Building self discipline your financial decisions is an important part of building wealth over the long run.
What’s Ahead:
Why is self discipline the key to becoming a good saver
Being a good saver requires self discipline since there is so much fun stuff to do and buy. You are exposed to more advertising than anyone in the history of the world, and the marketing companies know a lot about psychology and exactly how to get you to part with your money.
So it takes a lot of self discipline in order to fight those tactics and stay on course to meet your goals. You have to have a clear goal and know that meeting that goal is more important than anything you can buy.
It requires a lot of self discipline to overcome the temptation to delay gratification of spending money and to save it instead.
Steps to develop self discipline
Step 1: Set a goal – then break it down into regularly recurring actions
What exactly do you want to achieve? It could be to build a fully funded emergency fund, start investing, pay off your debt, or even achieve financial independence – or anything in between.
Write down exactly what your goal is and the date by which you want to achieve it. For example, you may want to pay off your credit card debt within one year.
Then break down exactly what actions you need to take on a regular basis. Make these actions as small and as regular as possible. A small daily action is better than a larger monthly action.
For example, if you owe $10,000 on your credit card you’ll need to pay $833.33 off each month. Is that doable? If your budget allows for that, great. If not, you’ll need to figure out what exactly you need to do make up the difference.
If your regular payment is $150 and you can pull an extra $200 per month from your monthly budget that means you’ll need to come up with an additional $484 per month. If you have time to walk dogs after work you may decide to pick up a dog walking client for a few walks per week. At $25 per walk you’d have to walk the dog 20 times per month to make up the $484 you need. If you picked up a client that needed the dog walked everyday after work, you’d have the full amount.
You now have a goal and an action plan to make that goal happen.
Here are a few examples of short, mid, and long-term goals, but feel free to fill in the blanks with your own personal financial goals.
Short-term goals
Saving money each month towards your emergency fund
Going out to dinner with friends twice a month
Small household projects (planting a small indoor garden, painting a room, etc.)
Mid-term goals
Saving for a weekend getaway
Paying cash for your next car
Paying off your credit card debt
Long-term goals
Down payment on a house
Paying off your student loans
Putting money away for retirement
Read more: How to prioritize and save for multiple goals at once
Step 2: Track your progress
You’ll want some way to visualize and track your progress. A lot of people find this extremely motivating.
Using the example of paying off your car above, you could make a thermostat and color in a section each time you make a payment, representing the amount of money you’ve paid off (or is left on the loan). Or cover a piece of paper with stars (or anything else) and color in a star every time you send in your payment, each star representing one payment or a set amount of money.
Hang your tracker on the fridge so you can see it every day to remind you of what you are working towards. Make it a little celebration each time you get to fill in more of your tracker.
You can also go digital with your goal tracking. Apps like Empower offer a few different services for investing and checking up on your financial health. But, in this instance, I’m referring to the free tools they offer to keep track of your net worth.
You can create an account with them without opening an investment account. The wealth management and planning tools are the ones that you will probably be most interested in to help determine where you are at currently.
You can connect all of your financial accounts within the tool. These will be things, such as:
Checking account
Savings account(s)
Investment account(s)
Student loan account(s)
Auto loan account
Mortgage account
Credit card(s)
Medical debt account(s)
Sometimes, it can be pretty scary to see what your actual net worth is vs. where you want to be.
But, I use this as a driving force to work harder every month to increase my overall net worth. Because the faster I can get my net worth up, the faster I can get to my long-term goals.
Step 3: Find your tribe
Find people in your life who are working towards similar goals. This will help build self discipline because you’ll have a community that is embodying the new behaviors you want to build.
If you meet regularly with others who are paying off debt, you’ll have more discipline to follow that same path. You’ll have someone to share your successes with and a friend who can help when you are struggling.
Contrast that to when your friends regularly encourage overspending. Just going out to have a meal or a drink with friends can end up costing $100 or more in some instances. Something that sounded so innocuous, has now completely derailed your goal.
This isn’t to say you need to replace your entire friend group – not at all. But it will be up to you set a budget for having fun and then stick to it.
For example, instead of having two-three drinks, only have one. Go out for lunch instead of dinner, or a matinee instead of a night movie.
All of these options still give you the freedom to hang out with your friends and enjoy your life, but it won’t cost you nearly as much. And when you stick to your budget, your future self will thank you for your discipline.
Read More: The Cost Of Friendship – How Your Friends Affect The Way
Tips to meet your financial goals
Determine your needs vs. your wants
Setting up your financial goals and a way to track them are the first steps. But staying on track can get tricky when life happens. This is where needs vs. wants come into play. There are things that all of us want to have. But these are the things that can throw us off track so fast it will make your head spin.
So keeping in mind if the item/service is a need or a want can help you have more financial disciplined. Just remember to think long and hard about any purchases before you pull the trigger. If it is a need, then go ahead and do it. But if the item is actually something you want instead, it’s usually best to hold off even for a bit to make sure you still really want it as much as you think you do.
Reduce, reuse, recycle
When it comes to purchasing wants, you have a few other options that can save you a ton of money. If there is an item that you are wanting to purchase, but it simply isn’t in the budget, what might be some other ways to achieve the same goal?
Reduce, reuse or recycle may just be the best option here. If you have things in your house that you can get rid of (and maybe even make some money off of their sale), then that is one way to get the potential want. Sell your old stuff and then use the proceeds to purchase the new want item.
Or, if you can reuse an item you have in your house already, paired with something else, in order to create a similar item, then why not do that? Sometimes, all a table or chair needs is a fresh coat of paint in order to feel like a completely new item. So get creative and think outside the box about things you already have at your disposal.
And if all else fails, recycle your old items. You may not make any money off of them, but you could potentially get a tax write-off. Plus, it declutters your space, which can make it feel like a completely new room. Sometimes, that is really all you need.
Make it automatic
No matter what you goal is you can probably automate at least some of it.
If you want to save more, schedule automatic transfers from your checking to your savings. If you want to pay off a certain amount of debt each month, set automatic payments to your accounts.
Having these transactions happen automatically will remove the friction that can be caused when you have to manually make that extra payment, or save that extra money. You can always go in and stop or change the automatic payment if you can’t swing it one month, but making it the default will cause it to happen more often than not.
Of course, don’t set yourself up for failure. Setting an automatic payment without a plan to make sure the money is available will cause more harm than good. Create a feasible plan and realistic goal, then set it up to run without any extra effort from you.
Read more: Put your money on autopilot
Put your emergency fund in a high yield savings account
If you are working on building your emergency fund – or already have a solid savings account – you’ll want to make sure you are getting the most interest possible. This will help grow your savings rate since you’ll be earning a little extra interest each month.
Interest rates on high-yield savings accounts are higher than they’ve been in years, and the difference between online accounts and those at your local bank are huge. So, while these high yield savings account rates may not be anywhere close to the average return you will get on investing your money, it’s still nice to make some interest on your savings.
The best high yield savings account, in my opinion, is the CIT Savings Builder.
Read more: How Much Should You Save Every Month?
CIT Bank Savings Builder
CIT Bank Savings Builder has a very competitive APY – compared to the pennies you get from a credit union account.
You only need $100 to open an account and they charge no maintenance fees. To earn the highest APY, you need to get your account up to $25,000, or you need to deposit at least $100 monthly. See details here.
The CIT Savings Builder has a completely online platform, so everything can be done directly from your smartphone, just to make life simpler. They are also FDIC insured up to $250,000 per account type.
CIT Bank. Member FDIC.
Summary
Overall, it is extremely easy for our money to flow through our fingers like water. This is why you have to be cognizant of what you have and where you want to be with your finances.
If you want to avoid debt, save more money, or invest for your future then it’s important to develop self discipline in your finances.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
We are going to under the cover and discover $13 an hour is how much per year.
For most Americans, this is hovering near minimum wage.
Let’s get this straight… This is not a livable wage.
If you are in high school or college and have support from your parents, then this is great spending money for you.
However, if you are making it on your own, $13 per hour will not make ends meet each month.
For most people, being at minimum wage is common and the goal is to make your way up the payscale and quickly!
In this post, we’re going to detail exactly what $13 an hour is how much a year. Also, we are going to break it down to know how much is made per month, bi-weekly, per week, and daily.
That will help you immensely with how you spend your money. Because too many times the hard-earned cash is brought home, but there is no actual plan for how to spend that money.
When living close to minimum wage, you must be know how to manage money wisely.
More than likely, you are living paycheck to paycheck and struggling to survive to the next paycheck. Take a deep breath and make this minimum wage just a season.
The ultimate goal is to make the most of your hourly wage with inspirations to make more money.
If that is something you want too, then keep reading. You are in the right place.
$13 an Hour is How Much a Year?
When we ran all of our numbers to figure out how much is $13 per hour is an annual salary, we used the average working day of 40 hours a week.
40 hours x 52 weeks x $13 = $27,040
$27040 is the gross annual salary with a $13 per hour wage.
Breakdown of 13 Dollars an hour is how much a year
Typically, the average workweek is 40 hours and you can work 52 weeks a year. Take 40 hours times 52 weeks and that equals 2,080 working hours. Then, multiple the hourly salary of $13 times 2,080 working hours, and the result is $27,040.
That number is the gross income before taxes, insurance, 401K, or anything else is taken out. Net income is how much you deposit into your bank account.
Work Part Time?
But you may think, oh wait, I’m only working part time. So if you’re working part time, the assumption is working 20 hours a week at $13 an hour.
Only 20 hours per week. Then, take 20 hours times 52 weeks and that equals 1,040 working hours. Then, multiple the hourly salary of $13 times 1,040 working hours, and the result is $13,520.
How Much is $13 Per Month?
On average, the monthly amount would average $2253.
Annual Amount of $27,040 ÷ 12 months = $2,253 per month
Since some months have more days and fewer days like February, you can expect months with more days to have a bigger paycheck. Also, this can be heavily influenced by how often you are paid and on which days you get paid.
Work Part Time?
Only 20 hours per week. Then, the monthly amount would average $1,127.
How Much is $13 per Hour Per Week
This is a great number to know! How much do I make each week? When I roll out of bed and do my job, what can I expect to make at the end of the week?
Once again, the assumption is 40 hours worked.
40 hours x $13 = $520 per week.
Work Part Time?
Only 20 hours per week. Then, the weekly amount would be $260.
How Much is $13 per Hour Bi-Weekly
For this calculation, take the average weekly pay of $520 and double it.
$520 per week x 2 = $1040
Also, the other way to calculate this is:
40 hours x 2 weeks x $13 an hour = $1040
Work Part Time?
Only 20 hours per week. Then, the bi-weekly amount would be $520.
How Much is $13 Per Hour Per Day
This depends on how many hours you work in a day. For this example, we are going to use an eight-hour workday.
8 hours x $13 per hour = $104 per day.
If you work 10 hours a day for four days, then you would make $130 per day. (10 hours x $13 per hour)
Work Part Time?
Only 4 hours per day. Then, the daily amount would be $52.
$13 Per Hour is…
$13 per Hour – Full Time
Total Income
Yearly Salary (52 weeks)
$27,040
Yearly Wage (50 weeks)
$26,000
Monthly Wage (173 hours)
$2,253
Weekly Wage (40 Hours)
$520
Bi-Weekly Wage (80 Hours)
$1040
Daily Wage (8 Hours)
$104
Net Estimated Monthly Income
$1,720
**These are assumptions based on simple scenarios.
Paid Time Off Earning 13 Dollars an Hour
Does your employer offer paid time off?
As an hourly, close to minimum wage employee, more than likely you will not get paid time off.
So, here are the scenarios for both cases.
For general purposes, we are going to assume you work 40 hours per week over the course of the year.
Case # 1 – With Paid Time Off
Most hourly employees, get two weeks of paid time off which is equivalent to 2 weeks of paid time off.
In this case, you would make $27,040 per year.
This is the same as the example above for an annual salary making $13 per hour.
Case #2 – No Paid Time Off
Unfortunately, not all employers offer paid time off to their hourly employees. While that is unfortunate, it is best to plan for less income.
Life happens. There will be times you need to take time off for numerous reasons – sick time, handling an emergency, or even vacation.
So, let’s assume you take 2 weeks off without paid time off.
That means you would only work 50 weeks of the year instead of all 52 weeks. Take 40 hours times 50 weeks and that equals 2,000 working hours. Then, multiple the hourly salary of $13 times 2,000 working hours, and the result is $26,000.
40 hours x 50 weeks x $13 = $26000
You would average $104 per working day and nothing when you don’t work.
$13 an Hour is How Much a year After Taxes
Let’s be honest… Taxes can take up a big chunk of your paycheck. Thus, you need to know how taxes can affect your hourly wage.
This is why you always wondering why your take-home pay is so much less.
Also, every single person’s tax situation is different.
On the basic level, let’s assume a 12% federal tax rate and a 4% state rate. Plus a percentage is taken out for Social Security and Medicare (FICA) of 7.65%.
Gross Annual Salary: $27,040
Federal Taxes of 12%: $3,245
State Taxes of 4%: $1,082
Social Security and Medicare of 7.65%: $2,069
$13 an Hour per Year after Taxes: $20,645
This would be your net annual salary after taxes.
To turn that back into an hourly wage, the assumption is working 2,080 hours.
$20645 ÷ 2080 hours = $9.93 per hour
After estimated taxes and FICA, you are netting $9.93 an hour. That is $3.07 an hour less than what you planned.
This is a very highlighted example and can vary greatly depending on your personal situation. Therefore, here is a great tool to help you figure out how much your net paycheck would be.
$13 an Hour Budget – Example
You are probably wondering can I live on my own making 13 dollars an hour? How much rent can you afford at 13 an hour?
Using our Cents Plan Formula, this is the best case scenario on how to budget your $13 per hour paycheck.
When using these percentages, it is best to use net income because taxes must be paid.
In this example, above we calculated that $13 an hour was $9.93 after taxes. That would average $1720 per month.
According to the Cents Plan Formula, here is the high level view of a $13 per hour budget:
Basic Expenses of 50% = $860
Save Money of 20% = $344
Give Money of 10% = $172
Fun Spending of 20% = $344
Debt of 0% = $0
Obviously, that is not doable when living so close to minimum wage. So, you have to be strategic on ways to decrease your basic expenses and debt. Then, it will allow you more money to save and fun spending.
To further break down an example budget of $13 per hour, then using the ideal household percentages is extremely helpful.
recommended budget percentages based on $13 per hour wage:
Category
Ideal Percentages
Sample Monthly Budget
Giving
10%
$68
Savings
15-25%
$135
Housing
20-30%
$676
Utilities
4-7%
$135
Groceries
5-12%
$203
Clothing
1-4%
$23
Transportation
4-10%
$135
Medical
5-12%
$225
Life Insurance
1%
$19
Education
1-4%
$11
Personal
2-7%
$35
Recreation / Entertainment
3-8%
$56
Debts
0% – Goal
$0
Government Tax (including Income Tatumx, Social Security & Medicare)
15-25%
$533
Total Gross Income
$2253
**In this budget, prioritization was given to basic expenses. Thus, some categories like giving and saving were less.
$13 An Hour Salary Calculator
Now, you get to figure out how much you make based on your hours worked or if you make a wage between $13.01-13.99.
This is super helpful if you make $13.12, $13.35, or $13.77.
Living on $13 Per Hour
Living close to minimum wage can be a very difficult situation.
Is it doable? Probably not for long.
You just have to be wiser (or frugal) with your money and how you spend the hard-earned cash you have been blessed with.
A lot of times when people are making under near the minimum wage mark, they feel like they are in this constant cycle that they can never keep up (which completely makes sense it is hard!).
When your thoughts are constantly focused on how you are struggling to keep up with bills and expenses, that is all you focus on.
You need to do is change your money mindset.
This is what you say to yourself… Okay, I am making near minimum wage for now. I have aspirations and goals to increase how much I make. For now, I am going to make sure that I am able to live on my 13 dollars per hour. I’m going to try and avoid debt and payday loans at all costs.
Other Tips to Help You:
Check your minimum wage for your state and city. You might find a higher minimum wage in a nearby city.
Look to living in a lower cost of living area to stretch your money.
Find ways to minizine your basic expenses.
Thrive with a minimalist lifestyle.
Decide if a roommate or moving back with your parents would help.
Bike or walk to work.
In the next section, we will dig into ways to increase your income, but for now, you must focus on living on $13 an hour.
5 Ways to Increase Your Hourly Wage
This right here is the most important section of this post.
You need to figure out ways to increase your hourly income because I’m going to tell you…you deserve more. You do a good job and your value is higher than what your employers pay you.
Even an increase of 50 cents to $13.50 will add up over the year. Even better $15 an hour!
1. Ask for a Raise
The first thing to do is ask for a raise. Walk right in and ask for a raise because you never know what the answer will be until you ask.
If you want the best tips on how specifically to ask for a raise and what the average wage is for somebody doing your job, then check out this book. In this book, the author gives you the exact way to increase your income. The purchase is worth it or go down to the library and check that book out.
2. Look for A New Job
Another way to increase your hourly wage is to look for a new job. Maybe a completely new industry.
It might be a total change for you, but many times, if you want to change your financial situation, then that starts with a career change. Maybe you’re stressed out at work. Making $13 an hour is too much for you and you’re not able to enjoy life, maybe changing jobs and finding another job may increase your pay, but it will also increase your quality of life.
3. Find a New Career
Because of student loans, too many employees feel like they are stuck in the career field they chose. They feel sucked into the job that they don’t like or have the potential they thought it would.
For many years, I was in the same situation until I decided to do a complete career change. I am glad I did. I have the flexibility that I needed in my life to do what I wanted when I needed to do it. Plus I am able to enjoy my entrepreneurial spirit.
4. Find Alternative Ways to Make Money
In today’s society, you need to find ways to make more money. Period.
There is no way to get around it. You need to find additional income outside a traditional nine-to-five position or typical 40 hour a week job. You will reach a point where you are maxed on what you can make in your current position or title. There may be some advancement to move forward, but in many cases, there just is not much room for growth.
So, you need to find a side hustle – another way to make money.
Do something that you enjoy, turn your hobby into a way to make money, turn something that you naturally do, and help others into a service business. In today’s society, the sky is the limit on how you can earn a freelancing income.
5. Earn Passive Income
The last way to increase your hourly wage is to start earning passive income.
This can be from a variety of ways including the stock market, real estate, online courses, book sales, etc. This is where the differentiation between struggling financially and being financially sound happens.
By earning money passively, you are able to do the things that you enjoy doing and not be loaded down, with having a job that you need to work, and a place that you have to go to. And you still make money doing nothing.
Here is an example:
You can start a brokerage account and start trading stocks for $50. You need to learn and take the one and only investing class I recommend. Learn how the market works, watch videos, and practice in a simulator before you start using your own money.
One gentleman started with $5,000 in his trading account and now has well over $36,000 in a year. Just from practice and being consistent, he has learned that passive income is the way for him to increase his income and also not be a slave to his job.
Tips to Live on $13 an Hour
In this last section, grasp these tips on how to live on $13 an hour. On our site, you can find lots of money saving tips to help stretch your income further.
Here are the most important tips to live on $13 an hour. Highlight these!
1. Spend Less Than you Make
First, you must learn to spend less than you make.
If not you will be caught in the debt cycle and that is not where you want to be. You will be consistently living paycheck to paycheck.
In order to break that dreadful cycle, it means your expenses must be less than your income.
And when I say income, it’s not the $13 an hour. As we talked about earlier in the post, there are taxes. The amount of taxes taken out of your paycheck is called your net income which is your home $13 an hour minus all the taxes, FICA, social security, and medicare are taken out. That is your net income.
So, your net income has to be less than your net income.
2. Living Below Your Means
You need to be happy. And living on less can actually make you happier. Studies prove that less is better.
Finding contentment in life is one thing that is a struggle for most.
We are driven to want the new shiny toy, the thing next door, the stuff your friend or family member got. Our society has trained you that you need these things as well.
Have you ever taken a step back and looked at what you really need?
Once you are able to find contentment with life, then you are going to be set for the long term with your finances.
Here is our story on owning less stuff. We have been happier since.
3. Make Saving Money Fun
You need to make saving money fun. Period.
It could be participating in a no spend challenge for the month.
Check out the 200 envelope challenge (which is doable on your income)
It could be challenging friends not to go to Target for a week.
Maybe changing your habits and not picking up takeout and planning meals.
Whatever it is challenge yourself.
Find new ways of saving money and have fun with it.
Even better, get your family and kids involved in the challenge to save money. Tell them the reason why you are saving money and this is what you are doing.
Here are 101 things to do with no money. Free activities without costing you a dime. That is an amazing resource for you and you will never be bored.
And you will learn a lot of things in life you can do for free. Personally, some of the best ones are getting outside and enjoying some fresh air.
4. Make More Money
If you want if you do not settle for less, then find ways to make more money. If you want more out of life, then increase your income.
You need to be an advocate for yourself.
Find ways to make more money.
It could be a side hustle, a second job, asking for a raise, going to school to change careers, or picking up extra hours.
Whatever path you take, that’s fine. Just find ways to make more money. Period.
5. No State Taxes
Paying taxes is one option to increase what you take home in each paycheck.
These are the states that don’t pay state income taxes on wages:
Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming
It is very interesting if you take into account the amount of state taxes paid compared to a state with income taxes.
Also, if you live in one of the higher taxed states, then you may want to reconsider moving to a lower cost of living area. The higher taxes income tax states include California, Hawaii, New Jersey, Oregon, Minnesota, the District of Columbia, New York, Vermont, Iowa, and Wisconsin. These states tax income somewhere between 7.65% – 13.3%.
6. Stick to a Budget
You need to learn how to start a budget. We have tons budgeting resources for you.
While creating a budget is great, you need to learn how to use one.
You do not have to budget down to every last penny.
You need to make sure your expenses are less than your income and you are creating sinking funds for those irregular expenses.
Budget Help:
7. Pay Off Debt Quickly
The amount that you pay interest on debt is absolutely absurd.
Unfortunately, that is how many of these companies make their money is from the interest you pay on debt.
If you are paying 5% to even 20-21% or higher, you need to find ways to lower that debt quickly.
Here’s a debt calculator to help you. Figure out your debt free date.
Make that paying off debt fast is your target and main focus. I can tell you from personal experience, it was not until week paid off our debt that we finally rounded the corner financially. Once our debt was paid off, we could finally be able to save money. Set money aside in separate bank accounts and pay for cash for things.
It took us working hard to pay off debt. We needed persistence and patience while we had setbacks in our debt free journey.
Jobs that Pay $13 an Hour
You can always find jobs that pay $13 per hour. Polish up that smile, fill out the application, and be prepared with your interview skills.
Job Search Hint: Always send a written follow-up thank you note for your interview. That will help you get noticed and remembered.
First, look at the cities that require a minimum wage in their cities. That is the best place to start to find jobs that are going to pay higher than the federal minimum wage rate. Many of the cities are moving towards this model so, target and look for jobs in those areas.
Possible Ideas:
Cashiers
Back of the house restaurant staff
Landscape Laborer
Retail jobs
Paraeducators at schools
Janitors
Farm help
Warehouse workers
Fast Food Restaurants workers
$13 Per Hour Annual Salary
In this post, we detailed 13 an hour is how much a year. Plus all of the variables that can impact your net income. This is something that you can live off.
How much is 13 dollars an hour annually…
$27,040
This is under $30000 per year and you need to make at least $45k a year.
In this post, we highlighted ways to increase your income as well as tips for living off your wage.
Use the sample budget as a starting point with your expenses.
You will have to be savvy and wise with your hard-earned income. But, with a plan, anything is possible!
Learn exactly how much do I make per year…
Know someone else that needs this, too? Then, please share!!
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
Investing in stocks can seem like a daunting task.
There are so many things to consider when it comes to investing, and the stock market is constantly moving.
Stock market investing is a popular option to increase net worth and make money.
Many people are looking for ways to invest their money, with the number of individual investors increasing rapidly in recent years.
This guide covers many important factors for how to invest in stocks for beginners.
Starting out as a newbie trader can be scary and overwhelming… don’t worry, all seasoned traders had to start at the beginning too!
Let’s take away that quell those thoughts and focus on why you want to learn to invest in stocks.
This guide will give you everything you need to know about how to invest in stocks as a beginner investor!
What Are Stocks?
In the most basic form, stocks are a form of investment. When you own a stock, you have a piece of ownership in the company’s equity.
The stock market is a real-time financial market in which investors buy and sell stocks and other securites. The stock market is made up of many companies and individuals who are actively investing in stocks.
Stocks are an excellent way for companies and individuals to invest in a company and receive a share of the company’s profits.
Many of the growth stocks (FAANG stocks) are those who investors want their stock price to increase over time. Thus, increasing their overall portfolio’s net worth.
FAANG Stocks is an acronym for: Meta (formerly known as Facebook), Amazon, Apple, Netflix, and Alphabet (formerly known as Google).
Some companies like Chevron (CVX) pay out a dividend each quarter to their investors.
There are thousands of stocks available to trade.
What Can You Invest In The Stock Market?
There are many investment opportunities in the financial market, so it is important to be informed about what you can invest in. Below are some of the places where you can invest your money:
Stocks
Bonds
Mutual funds
ETFs
Commodities
Futures
Options
Now, we are going to look at the most common.
Individual stocks
Individual stocks are a type of investment that you can make yourself.
You can choose how many shares of a certain company you want to purchase.
For example, you like Tesla for how they are innovative in the electric car space. You can choose to invest 20 shares of their stock.
As a long-term investor, you want to hold a portfolio of 10-25 stocks. Find a list of beginning stocks to build your portfolio.
Individual stocks can be bought or sold as a way to dip your toe into the stock-trading waters.
As a short-term investor, you are looking to make money as the stock price increases or decreases.
Mutual Funds
Mutual funds are managed portfolios of stocks.
As a result, mutual funds typically have load fees equal to 1% to 3% of the value of the fund.
One of the most popular mutual funds is VTSAX because of its expense ratio is .04%
Mutual funds are a clear choice for most investors because of the simplicity to invest in the market. This can be a good investment for both novice and experienced investors, as they offer decent returns with lower risk.
They tend to rise more slowly than individual stocks and have less potential for high returns. Mutual funds are a great way to diversify your portfolio and gain exposure to a variety of different securities.
All mutual funds must disclose their fees and performance information so that you can make an informed decision about whether or not to invest.
Exchange traded funds (ETFs)
Exchange traded funds (ETFs) are a type of exchange-traded investment product that must register with the SEC and allows investors to pool money and invest in stocks, bonds, or assets that are traded on the US stock exchange.
They are inherently diversified, which reduces your risk.
This is a good option for beginner investors because they offer a large selection of stocks in one go.
ETFs have a lower minimum to start investing, which is a draw for many investors starting out with little funds. Plus there are many different types of ETFs to choose from.
ETFs are similar to mutual funds, but trade more similarly to individual stocks. With ETFs and Index Funds, you can purchase them yourself and may have lower fees.
Why Stock Prices Fluctuate
Stock prices fluctuate because the financial markets are a complex system. There are many factors that can affect the price of a stock,
There are a number of factors that can influence stock prices, including:
Economic indicators like GDP growth, inflation, and unemployment rates
Company earnings reports
The overall health of the economy
Political and social instability
Changes in interest rates
War or natural disasters
Supply and demand,
Actions of the company’s management
Short squeezings like what happened with GME or AMC
The volatility in the stock market is the #1 reason most people stay out of investments. However, on average, the stock market has moved up 8-10% a year.
What is the best thing to invest in as a beginner?
The best thing to invest in as a beginner is your time.
You need to learn how the stock market works. Just like you would get a certification or degree, you should highly consider an investing course.
Learn and devote as much time as you can to investing in stocks.
How To Invest In Stocks For Beginners?
Investing in the stock market can be a great way to make money! If you’re looking for ways to make money or grow net worth, investing in a stock is a smart choice.
With online access and trading being easier now than ever, it can be easier than ever to start buying stocks.
Let’s dig into how to invest in stocks like a pro.
FYI…You should do your own research before investing.
Step #1: Figure out your goals
Figure out your goals to help with setting an investing strategy.
What are you trying to achieve with stock market investing? Is it supplemental income? A certain level of wealth for retirement? Are you looking for short-term or long-term gains?
Once you know what you’re aiming for, it will be easier to find the right stocks and make wise investment decisions.
Your reason to invest in stocks will be different than everyone around you.
Some people want to supplement their weekly income.
Others want to invest in companies for the long term.
My goal is to make weekly income from the stock market. That is my investment strategy for non-retirement accounts.
You need to spend time understanding WHY you want to buy stocks.
Knowing this answer will help you define what type of trader you will be.
Step #2. Decide how you want to invest in the stock market
When you decide to invest in the stock market, you need to choose what you want to invest in.
You can invest in stocks, which are shares of ownership in a company, or you can invest in bonds, which are loans that a company makes. There are also other options like mutual funds and exchange-traded funds (ETFs), which are collections of stocks or bonds.
Also, you can expand this to what types of investments will you have in various retirement or brokerage accounts. For example, you may invest in mutual funds with your 401k, ETFs with your Roth IRA, and stick with individual stocks for your taxable account.
This is a personal decision.
Many people when they are first starting to trade stocks choose to limit purchasing stocks with a limited percentage of their overall portfolio.
Step #3. Are you invest in stocks for the short term or long term?
The buy and hold investor is more comfortable with taking a long-term approach, while the short-term speculator is more focused on the day-to-day price fluctuations.
Once again, this is a personal preference.
One of the most common themes of many investing gurus is, “Remember that stock prices can go down as well as up, so it’s important to stay invested for the long term.”
However, this full-time trader wants to make money on those highs and lows.
Knowing your overall investment horizon will help you decide how much time you plan to hold onto your investments to reach your financial goal.
Also, you can choose different time horizons for different accounts.
Step #4: Determine your investing approach
Passive and active investing are two main approaches to stock market investing.
Passive investing does not involve significant trading and is associated with index funds.
Passive investing is a way to DIY your investments for maximum efficiency over time.
Thus, you would contribute to your investment account on the xx day of the month with $xx amount of money.
This happens with consistency regardless of where the market stands on that day.
You are less warry of where the stock market will go and focused on overtime it will continue to go up.
Active investing takes the opposite approach, hoping to maximize gains by buying and selling more frequently and at specific times.
Active investing is when an investor is actively acquiring, selling, or holding bought stocks.
This could be with day trading or swing trading.
You may hold stocks for less than a day, a few days, or a couple of weeks.
The purpose of having active investing is to make profits.
In the stock market, investors make efforts to increase their net worth over time or to make income off the market.
Step #5: Define your investment strategy
When it comes to investing in the stock market, there are a few key factors you need to take into account: your time horizon, financial goals, risk tolerance, and tax bracket.
Do you want to be an active trader or stick with passive investing? What kind of investor am I?
There is no right or wrong answer as this is a personal preference.
Ultimately, you want returns to be greater than the overall S&P 500 index for the year.
Once you’ve figured these out, you can start focusing on specific investment strategies that will work best for you.
Be aware of any fees or related costs when investing. Fees can take a bite out of your investments, so compare costs and fees.
Step #6: Determine the amount of money willing to lose on stocks.
Trading stocks online is inherently risky.
You want to consider what your “risk tolerance” is. Simply put, how much are you willing to lose in stocks before you want to quit?
The biggest reason most people quit trading stocks is that they do not know their risk tolerance and fail with risk management.
You will lose on trading stocks. The goal is to lose a small amount on some of the trades and gain a greater amount of more of your trades.
How much risk you can reasonably take on given your financial situation?
What are your feelings about risk?
What happens when your favorite stock drops 25%?
Understanding your risk tolerance and how much you are willing to lose will help you keep your losses small.
Start with a small amount of money when investing in stocks. Also, make sure you have enough money saved up so you can handle any losses that may occur.
How to Start Investing in Stocks
There are a variety of ways to start investing in stocks. Some methods include getting a small account balance and then buying shares, creating an investing club with friends, or researching the companies you want to invest in.
Now, that you have determined how and why you want to invest in stocks. Let’s dig into the nitty gritty of how to manage a stock portfolio.
On the other hand, if you don’t invest enough, you could miss out on potential profits. Try starting with an amount you’re comfortable losing if the stock market does go down.
1. Open an investment account
There are a few things you need to do in order to start investing in the stock market.
The first is to open an investment account with a broker or an online brokerage firm.
There are different types of accounts you can open:
Taxable accounts like an individual or joint brokerage
Retirement accounts like IRA or Roth IRA
These are the most basic investment accounts, here is a list of types of investment accounts.
If you plan to hold EFTs or mutual funds, Vanguard is a great place to start.
If you plan to be an active trader, I would look at TD Ameritrade or Fidelity. Be wary of Robinhood or WeBull.
2. Saturate yourself in Stock Market Knowledge
On the simplest level, it can be incredibly easy to begin your investing career with little-to-no knowledge, research, and expertise.
If you have even a remote understanding of stocks, then learn what you need from an easy-to-find YouTube video, followed by watching some of your favorite TV shows to learn more about the market and its secrets.
With that said, you need to be digesting the basics from start to end of getting your first investment started.
As the title reveals, investing can seem intimidating and complicated. Thus, stock market knowledge is invaluable.
3. Consider an Investing Course
A typical investing course would teach how to invest in stocks (and possibly other investments).
As a beginner trader, it is unlikely you will know the full extent of how the stock market works. There are many intricacies you must learn and understand.
Beginners should learn about stock investing basics, such as diversification and investment criteria.
Many investing courses offer a platform on how to make money by trading stocks.
Personally, I highly recommend buying this investing course.
If you choose not to follow my advice, that is fine. Come back when you have lost more money in the stock market than the price of the courses.
I CAN NOT STRESS ENOUGH… how important it is to have a solid foundation and practice in a simulated account before you use your real money.
4. Research the companies you want to invest in
When you’re ready to start investing in stocks, it is important that you do your due diligence and research the companies you want to invest in.
Look for trends and for companies that are in positions to benefit you.
Consider stocks across a wide range of industries, from technology to health care. It’s also important to remember that stock prices can go up or down, so always consider this before making any investment decisions.
5. Choose your stocks, ETFs, or mutual funds
Next, you have to decide what fits your investing strategy. Are you looking to buy:
Stocks
ETFs
Mutual Funds
Regardless of which type of investment you make, you must look for companies that have attractive valuations and growth prospects. In the case of index funds or ETFs, which fund has the companies you find attractive.
Most importantly, you should also take into account the company’s financial health and its prospects for future growth.
Make sure you understand the risks associated with holding a particular stock, including possible price fluctuations and loss of value.
7. Take the Trade
This is the hardest step for most people is to take their first trade.
Thus, why learning to trade stocks is great to learn a simulated account using fake money. Then, move to a LIVE account using your real money.
At some point, in your investing in stocks journey, you must press the buy button.
For many the investment platform may be overwhelming to use, so check out your brokerage’s YouTube videos to help you out.
8: Manage your portfolio
Managing your portfolio is important to keep your investments in good shape.
If you are a long-term investor, diversify your portfolio by investing in different types of investment vehicles and industries.
If you prefer to swing trade or day trade, then you want to make sure you always have cash on hand and are rotating your portfolio to take profit.
Investing can be difficult for beginners who often lack knowledge about the stock market.
It is important to remember to keep investing money and rebalance your portfolio on a regular basis. This will help ensure that you stay on top of your investments and achieve the desired result.
9. Selling Stocks
For most investors, it is harder to sell their stocks than to purchase them. There are a variety of factors for that. But, you must sell your stocks at some time to realize your gain.
Don’t panic if the market crashes or corrects – these events usually don’t last very long and history has shown that the market will eventually rebound. Most people tend to panic sell when stocks are low and FOMO buy when the market is at highs.
When you are ready to sell, aim to achieve a percentage return on your investment.
This will require some focus on your time horizon and the stocks you want to invest in.
Also, you need to consider any taxes that may be owed on the sale of stock.
If you’re new to stock investing, consider using index funds instead of individual stocks to gain broad market exposure.
10. Journal & Analyze your Trades
Journaling is a way of recording the important decisions you make during trading to help yourself remember what happened in your trades. It can be used as a tool for reflection, learning from mistakes, and reviewing your strategy.
Analyzing your trades means looking back on your trading history with the goal of improving it.
This is the most overlooked step of the investing process.
When it comes to buying and selling stocks, journalling what is happening in the market is an important part of being a successful investor.
Stock Market Investing Tips for Beginners
Ask any seasoned trader, and they will have a list of investing tips for beginners.
They have made plenty of trading mistakes they do not want to see newbies do the same thing.
When starting to invest in the stock market, beginner investors often seek out consistent and reliable investments.
This allows them to slowly learn about the stock market and take calculated risks while also earning a return on their investment. Over time, as they gain experience, they can expand their portfolio to include riskier but potentially more rewarding stocks.
1. Invest in Companies That You Understand
An investor should know the company they are investing in and have an idea of what type of return they expect.
When you are starting out, it is best to invest in stocks of companies that are easy to understand and have a proven track record.
Do NOT invest in stocks based on the advice of friends, what you read in the news, or on a whim – these can be risky moves. Be wary of the popular stocks you can find on the Reddit Personal Finance threads.
2. Don’t Time the Market
In the world of investing, there is one rule that no investors should ever break: do not time the market.
By following this rule, you will always be on top of your investments and will be able to reap the rewards.
There are times to buy stocks and sell stocks. This is something you will learn when investing in a high-quality investing course.
As an average investor, trying to time the market will leave you frustrated by your minimal returns or great losses.
3. Avoid Penny Stocks
Penny stocks are the lowest-priced securities on the market, and they don’t offer any significant upside potential to their investors. While you may hit a home run return on some, many penny stocks tend to trend sideways.
The risk is not worth the return.
If you plan to invest in stocks, avoid penny stocks and focus on healthy companies.
4. Consider Buying Fractional Shares
Fractional share investing lets investors buy less than a full share at one time. Many times, you may not be able to afford the price of a full share.
For example, buying a share of Amazon (AMZN) may cost you upwards of $2800 or more. Thus, you can invest a smaller amount with a fractional share.
You would have to check if your brokerage company allows the purchase of fractional shares.
5. Stay the Course
In order to be successful, a trader must stay the course and maintain their focus. By staying focused, they will have less chance of making mistakes that may lead to big losses or overtrading.
When you’re starting out in the stock market, it’s important to be disciplined with your buying. Don’t try to time the market, because you’re likely to fail. Instead, buy shares over time and stay the course.
That way, you’ll be more likely to see a profit in the long run.
6. Avoid Emotional Trading
In order to be successful in the stock market, you have to maintain a level head.
Responding emotionally will only lead to bad decision making. Instead, stay the course and trust your research and analysis.
Know your weaknesses as well as your strengths.
7. Do Your Research
When you’re ready to start investing in the stock market, it is important to do your research so you can make informed decisions.
There are a lot of stocks to choose from, and it can be tempting to invest in them all.
But remember, you don’t want to spread yourself too thin. Invest in stocks that you believe in and that have a good chance of making you money.
8. Build Wealth
Stock market investing is one of the best ways to grow your money over time.
For long-term investing, you buy stocks in companies and hold them for a period of time, typically years. Over time, as the company grows and makes more money, so does your stock. This is one of the most common ways to build wealth over time.
The other way with short-term investing is to consistently take profit and grow your account over time.
Stock investing FAQs
Here is a list of the most common questions and answers on stock investing.
Q: What is the difference between investing and trading?
Trading is buying or selling financial products with the goal of making a profit. This is normally a day trader or swing trader.
Investing, on the other hand, refers to the process of putting money into an investment with the hope that it will grow. Someone who is focused on the long-term.
Q: Do you have to live in the U.S. to open a stock brokerage account?
No, you do not have to live in the U.S. to open a stock brokerage account. You must find a brokerage company in your area of residence abroad.
Q: How much money do I need to start investing?
The very common question of, “How much should you invest in stocks first time?”
It is recommended to start investing with $500 or more. However, you can start with Acorns with as little as $5.
Check out this investor’s story by starting with a small account of $500 and growing it over $35k in less than 6 months.
It is best to grow your account with your growth or profit.
Q: Do I have to pay taxes on the money I earn from stocks?
Yes, you will be required to pay taxes on the money you earn from stocks.
Q: What are the best stocks for beginners to invest in?
The best stocks for beginners to invest in are those that have a history of staying consistently on an uptrend. These companies’ stock prices have typically risen over the course of the year.
Find a list of beginning stocks to build your portfolio.
Q: How do beginners buy stocks?
Above, we outlined this in detail. In order to buy stocks, there are a few different steps that you should follow in order to maximize your chances of success.
The first step is making sure you have an account. Once you have an account, the next step is to decide which stocks you want to invest in. Then, you must buy your stock. Finally, you must decide when you want to sell your stock for a realized gain or loss.
Q: How many stocks should you own?
The best answer is it depends on your investing strategy.
As a short-term investor, you can only manage a smaller number of trades.
As a long-term investor, you need a more well-rounded portfolio. of15-25 stocks.
More likely than not, the short answer is “as many as you can afford.”
Q: What is the best thing to invest in as a beginner?
The best thing to invest in as a beginner is an index fund.
Indexes are great because they diversify across many different types of investments and don’t require much effort on the part of the investor to maintain. Index funds are also less risky than other investments, especially in the beginning stages of an individual’s investing career.
Q: How do we make money?
Traders make money in many ways. They can trade stocks, bonds, futures, and options on equities. They can go long when the market goes up and short when the market goes down.
Traders also use trading systems that are usually automated to manage the trades they make to maximize profit.
Trading is a risky investment and it’s not uncommon for traders to lose money. In order to keep losses small, many traders use the trading strategy based on minimizing risk in order to get the desired return.
Learn how fast you can make money in stocks.
Q: Why is Youtube Option Trading So Popular?
Video on how to trade options is very popular on Youtube. This is because of the high volume of interest on this topic.
For many people, learning options is an advanced strategy that takes more time and knowledge to learn.
This is my favorite youtube option trading channel as well as an overall investing strategy.
Additionally, traders are able to get a much higher return on motion trading versus going long or short on stocks.
Q: What is volume in stocks?
Volume is a measure of the number of shares traded in a given period, usually trading days.
This is an important metric if you plan to exit your trade to know there are enough buyers to buy your stock.
Q: How to invest in penny stocks for beginners?
Penny stocks are shares of a company that typically trade for less than $5 per share, which is also known as penny stock trading.
Investing in penny stocks can be a lot of fun and the highest risk, and there are many ways to get involved. For anyone who is new to the world of investing in penny stocks, it can be intimidating to know where to start.
However, there are a few things that you should keep in mind before diving into the world of penny stocks. One of these is researching what types of companies you want to invest in. Many of these penny stocks are not healthy companies and burning through cash.
It is important to always be careful when investing in penny stocks. Keep in mind that the risk of losing money is high and you should invest only what you are willing to lose.
Q: How to invest in stocks for beginners robinhood?
Robinhood is a stock brokerage company that allows users to invest in stocks without paying any fees. It also provides real-time quotes and charts. To invest, the user must have an account with Robinhood that holds at least $0.
Most major brokerage companies have zero commission fees on trading stocks as well.
Beware, Robinhood is known for stopping to trade various stocks during times of volatility whereas other’s brokers do not.
Q: What is a good price to buy at?
This is a hotly debated question as every investor sees the market from their view.
More often than not, people wonder the best time to buy stocks.
As such, you can read is now a good time to buy stocks?
Ready for Stock Market Investing?
If you are new to investing in stocks, there are a few things you take into consideration before diving into the market.
For starters, it is important to understand how stock markets work. You should also know the difference between a stock and an investment.
Investing in stocks can be a bit complicated, but this guide walked you through the basics of how to invest.
Before you invest in stocks, it is important that you understand your investment strategy. That way, you can make informed decisions about where to put your money and how much risk you are willing to take on.
Most people shy away from learning how to actively trade stocks because of the movies about Wall Street they have watched.
You will get a deeper understanding of investing in stocks the longer you educate yourself on the concept.
Overall, it is wise to diversify your portfolio and don’t put all your eggs in one basket.
So, what is your next move to start investing?
One of the best ways to improve your personal finance situation is to increase your income.
Here are the best investing courses to guide your path. With time and effort, you can start enjoying the lifestyle you want.
Learn how to supplement your daily, weekly, or monthly income with trading so that you can live your best life! This is a lifestyle trading style you need to learn.
Honestly, this course is a must for anyone who invests. You will lose more in the market than you will spend this quality education – guaranteed.
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After the recent extraordinary show of force defending changes to LLPAs by federal regulators and their friends, the forest through the trees risk remains in focus to me.
One of the great concerns I have, as both a former regulator and the former head of a major industry trade association, is the downside risk of keeping the GSEs in conservatorship any longer. For me, it’s really a question about the lesser of two evils.
What’s the greater risk to housing: an endless series of FHFA directors who change seats with each political administration and then proceed to tinker with policy in pursuit of political priorities? Or, the risk of releasing Fannie and Freddie without firmly legislating some of the reforms that I and many others advocated for, going back to the early years of conservatorship?
Make no mistake about it, I sat firmly entrenched for years opposing the “recap and release” crowd, to the point where the camps on both sides of the issue were in almost pitched warfare. The Mortgage Bankers Association argued that Congressional reform should precede any effort to release the GSEs. In fact I testified in front of Congress in 2017 stating such.
But today I now see the risks of letting this drag on into perpetuity without resolve. As each succeeding FHFA director comes into the role the industry, potential homeowners, lenders and more will face the risk of a cascading series of policy initiatives being implemented by the GSEs at the behest of the FHFA, regardless of whatever protests that may come from the respective staffs at either GSE.
While the latest was this clearly manipulated LLPA pricing structure and the now failed attempt at a DTI cap, the list of fees added to 2-4 unit homes, second homes, cash-out refinances, and more appear to be focused on political objectives and not actual risk.
In fact, MBA traditionally argued that g-fees and other pricing methods at the GSEs should only reflect the actual risks of the loans and not be used for other purposes. Prior to the collapse of Fannie and Freddie, pre 2008, the GSEs would give preferred pricing to their largest sellers in what was known as “alliance” agreements. The spread in pricing between a large seller and a small one was significant.
I remember early in my career at MBA taking three CEOs of independent mortgage banks to meet with then Acting FHFA Director Ed DeMarco to argue against any price disparity based on anything but the actual risk of the loan. And DeMarco responded, almost completely eliminating the pricing differences during his tenure.
But today we have more to be concerned with. You see, the LLPA changes, while small in impact, were just part of the slippery slope of adjusting fees and policies to make the GSEs do business differently and to get them to focus more on entry-level homebuyers.
The Urban Institute puts out a monthly chart book that is chock-full of incredible data about our marketplace. In the most recent May release, they show just how hard it is for the GSEs to expand access to minorities who make up a significant share of new first-time homebuyers.
As the chart above shows, it’s the Ginnie Mae programs, FHA in particular, that completely dwarf the efforts of the GSEs in this regard. And while these modest changes to LLPAs might help, there is far more that impedes the ability of the GSEs to be effective in this area.
But FHFA hasn’t stopped there. There is the implementation of goals focused on LIP (low income purchase loans) and VLIP (very low income purchase loans) that could result in a number of unintentional distortions to pricing and credit availability. It’s all in their affordability goals and, while complicated, we can already see distortions.
The goals, shown in the chart above, are clear, but if you look at how the GSEs have performed historically against these numbers, the fact is that there are many years over the last decade where these goals would have been missed.
But now things are changing. The GSEs are using the cash window to buy more of these LIP and VLIP loans, reducing the effectiveness of the cash window for other purposes. We are seeing the GSEs begin to selectively reduce the volume of high-balance purchases in order to improve the percentages.
Over the course of 2022, it appears that Freddie may have begun offering selected customers pricing incentives for lower balance owner-occupied purchase loans and also allowed customers with greater numbers of these loans to increase their delivery percentages.
Fannie Mae, on the other hand, seems to have required customers to simply deliver a representative mix of VLIP and LIP loans to both GSEs. Since Fannie Mae had lower delivery percentages with selected customers that had more of the lower balance loans, they believe they did not meet some of the enterprise housing goals for 2022.
The need to hit the targets is forcing the GSEs to reduce the ability of sellers to deliver what the market will bear and instead deliver to the mix the objectives that they need. The problem here is that they are turning to negative incentives.
Facing a market that is not producing loans at the aspirational levels of the current VLIP and LIP goals, the GSEs appear to have turned a corner. They are transitioning from positive incentives that might promote greater production of housing goals loans, to now imposing disincentives, from both a pricing and volume perspective, that create an adverse impact on a significant majority of GSE owner-occupied purchase borrowers.
Said differently, the GSEs are not able to produce enough VLIP and LIP “numerator” loans, so they have no alternative but to try to reduce the non-VLIP and LIP “denominator” loans in an effort to achieve the ratios that FHFA established.
Look, the GSEs have always had affordable housing goals. What has changed is that they no longer have a retained portfolio that can be used to help meet these goals through bulk purchases. But more importantly, this new structure is forcing pricing distortions which we are already seeing blatantly though the LLPA structure, but even more so through changes to usage of the cash window, disincentives to sellers to reduce higher balance loans, and more.
All of this will lead to hurting the mainstream borrowers that the GSEs have always served.
As shown above in the chart showing the GSEs’ mix to other sources, perhaps we need to think differently here. Yes, reasonable goals make sense for the GSEs. But all the programs within Ginnie Mae still dwarf any ability the GSEs have to significantly change the market.
But the greater question we all need to ask is this: is the lesser of evils the need to release the GSEs from conservatorship and allow them to return to a more self-managed business environment? This would lessen the ability of their regulator to use these two companies for political purposes, which might distort the market in ways that are ultimately more harmful than any gains they may make along the way.
For me, I have turned this corner. The GSEs are far too important to be overly manipulated in ways that might hurt execution for the traditional homebuyer in these programs. There are other ways to explicitly support affordable housing objectives. This to me is just too slippery a slope.
As I see the forest through the trees, I am faced with a new conclusion. We need to release the GSEs from conservatorship as soon as possible. There is too much at risk to the housing finance system over time as we erode their core business models for political purposes.
In life, you and your marriage partner may find yourselves facing many troubles and situations. While many of these are easier when together, that is not always going to be the case.
There are times when life is taken from a person quickly, leaving the partner without them. You never know what’s going to happen tomorrow.
You can’t predict the future, but you can prepare for the worst. Nobody wants to think about losing their spouse, but it’s a conversation that you should have
To soften the blow of this, insurance is often used to offer financial stability when the cost of the funeral, hospital stay, and bills are too much to handle alone. The cost of a funeral alone can easily add up to $10,000 or more. This can be a heavy bill to leave behind for your family to pay.
When the surviving partner dies, though, that same insurance might not be enough. For many, a survivorship life insurance policy is the go-to for coverage, security, and stability when it comes to dealing with everything left behind.
Common Use for Survivorship Life Insurance Policies
Most insurance policies work by providing money to a specific person after the one who was insured passes. This helps to ease the financial burden left behind by a death, which includes several expenses and more stressful bills that are without that extra paycheck.
With survivorship life insurance, though, two people are covered to pay for the costs associated with an estate. Unlike your ordinary life insurance, this only pays out when both parties have passed, as the name would suggest. It is mostly to cover the taxes and expenses with an estate so that the heir does not have to pay.
An estate comes with costs that could otherwise ruin its value, or at least drop it dramatically. When passing this to an heir, those costs could cause them to receive far less than promised.
Depending on the situation for which this person is receiving the estate that can be damaging. Not only that, but you would also not be giving the person as much as you had hoped. There is a reason they were chosen to receive your estate, obviously, and not giving them the full amount was probably never your plan. With this, you can ensure that they receive as much of the full amount as possible.
There are thousands of families members that find themselves with drastically less heritage than they assumed they would receive because of unpaid expenses, taxes, fees, and much more. If you want to leave your legacy with your children or loved ones, a survivorship insurance policy will protect your savings and allow your inheritance to reach its full potential.
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Estate Planning with Life Insurance
Having any type of final expense insurance is not difficult.
In fact, it is often easier than your average life insurance because it can be issued as a no medical exam life insurance policy. These policies are exactly what they sound like, you’ll be able to get the insurance coverage that you need, regardless of your health or any pre-existing medical conditions.
This can help you to insure your estate without issue so that whoever is receiving it is not stuck with massive bills that chip away at the overall amount. The ease of getting it also makes it easier on you, obviously. While other types of life insurance have stresses and because you to go through several steps to finally be insured, this makes it easier. When going for this type of insurance, it is possible to get it and get out without becoming stressed, worried, or bothered by what must be done.
With the importance of your estate, it is necessary to ensure it goes to your chosen heir in a complete amount. Having survivorship life insurance is the option to keep your estate at full value and help your heir get it without spending large sums of money.
It’s always best to meet with a trusted estate planning attorney to see if you are in need of a survivorship life insurance policy. There are a lot of different factors that you have to consider when deciding if you need a survivorship life insurance policy or a traditional plan. An estate planning attorney can help walk you through the process and make the best decision for you and your family.
Advantages and Disadvantages of Survivorship Life Insurance
Because there are so many different life insurance options, it’s important to understand the pros and cons of each option. Life insurance is one of the most vital purchases that you can make for you and your family, you should make well informed and educated decisions.
Not having the right type of policy, or not having a policy at all, is one of the worst mistakes that you can make. It could leave your loved ones with a mountain of debt and no way to pay for it. That’s not the inheritance that most people want to leave behind after they pass away.
One of the advantages to these survivorship life insurance policies is the standards that most companies used to issue them. If you go with a plan that uses medical underwriting, it’s going to be very different from a traditional term life insurance policy, because it’s based on the health of two people instead of just one.
This means that even if one person doesn’t have perfect health, you’ll still be able to get coverage as long as the other person is in good health. For anyone with any serious health complications or any pre-existing conditions, this can be extremely beneficial.
Another major advantage to these policies is the monthly premiums. In most cases, a survivorship life insurance policy is going to be cheaper than buying two separate policies for each person. These plans will give you life insurance coverage for less expensive monthly payments.
Just like other life insurance plans, there are disadvantages to these policies. The biggest disadvantage is obvious, you won’t receive any payment for the loss of your spouse.
When the first person dies, the surviving spouse will be left with all of the funeral expenses, medical bills, unpaid debts, and much more, but they won’t receive any funds from the life insurance policy. For a grieving spouse, it can be difficult to pay for all of these expenses.
This is where a traditional policy is an excellent tool. One alternative to the survivorship life insurance is purchasing a traditional term life insurance policy for both you and your spouse. These policies only cover one party instead of two.
In most cases, a term policy is much less expensive than most applicants think. Aside from how affordable they are, it’s also much more beneficial when your spouse dies, it will leave you with the money you need to pay off any debts or pay for any funeral expenses.
Just like with most other policies, you can always go with a no medical exam term life insurance plan. They are easy to apply for, and you can get insurance coverage quickly. In some cases, it can be as quick as a couple of days.
Getting Life Insurance
It’s easy to see why everyone should have a quality life insurance policy, but getting an affordable plan can be a long and stressful process. There are hundreds of companies that offer dozens of different insurance products.
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To get a house with a decent mortgage rate, you need a good to excellent credit score. But your biggest, most important payment — your rent — doesn’t even count. That’s an even bigger problem if your credit score doesn’t show any other key forms of credit, like a credit card or car payment.
It seems like the odds are stacked against you, as though renting an apartment or house, which costs a pretty penny by the way, isn’t a legitimate living situation. Fortunately, there are now ways around that.
In fact, as long as you can get the property owner on board, and sometimes even if you can’t, it’s really easy to ensure your rent payments count toward your credit score.
Why You Should Add Rent Payments to Your Credit Report
There are many factors that go into your credit score, and your payment history accounts for 35%.
But that’s a dilemma if you haven’t yet built or have to rebuild your credit score. How can you prove your creditworthiness if you don’t have something to repay?
Enter rent-payment reporting.
Rent is a massive monthly expense. Unfortunately, credit bureaus like Experian, TransUnion, and Equifax haven’t traditionally accounted for your housing costs unless it was a mortgage, creating a stubborn catch-22 for some would-be homeowners.
You need a higher credit score to afford a home — or even just a credit card with better rates and perks. But you can’t raise your credit score if no one knows about the payments you’re making. It’s so ridiculous it would be funny if it weren’t so depressing.
But thanks to rent reporting, people with a low or no credit score can use their on-time rent payments to bolster their score, improving their odds of obtaining credit.
How to Add Rent Payments to Your Credit Report
You have options when it comes to adding rent payments to your credit report: You can sign up for a service yourself, though the rental property owner may already work with a rent-reporting company. Though the specific steps vary from company to company, the process always follows a predictable pattern.
1. Determine Whether Your Property Reports Rent Payments — & to Whom
Some property owners already allow renters to opt into rent-reporting programs. Typically, the service is free to the renter. However, they may require you to have rent automatically deducted from your bank account each month.
There are even government-sponsored programs to help disadvantaged renters build their credit scores. These are renters the government considers “credit invisible,” which basically just means they have an insufficient credit history. If you’re one of them, you should take the government up on that. Falling into this category makes borrowing more expensive and can throw up barriers to housing and employment, according to the Consumer Financial Protection Bureau.
And if neither of those is an option, there may be free or low-cost rent-reporting services you can sign up for on your own. Those require varying levels of input from the property owner, though, so ensure they’re willing to participate to the degree required before handing over any dough.
Note that not all rent-reporting companies report payments to the same credit bureaus. For instance, some only report to TransUnion, others report to TransUnion and Experian, and still others report rent payments to all three credit-reporting bureaus. Be sure to understand which bureaus your service reports to.
2. Enroll in a Rent-Reporting Service
If the property already has a rent-reporting service, just ask the people in the office how to sign up or opt in. It may be as simple as filling out a form giving them permission to do it. If not, it’s unlikely to take any longer than the DIY method.
If your property is a no-go on rent reporting, it doesn’t hurt to ask if they’d be willing to sign up. Just in case, show up equipped with information on how it could benefit the property owner (like this article on Forbes).
And if they say no, you can sign up for one yourself. That means you have to pay the fees, which are usually less than $100 per year, though they can go higher for more benefits, such as reporting to all the bureaus or expanding the length of time they report for. There may also be a setup fee, though that’s usually less than $100 (often as low as $25 or less).
The one potential hiccup is that the rent-reporting company may ask the property owner to participate by verifying your rent payments. And that means they may have to at least be willing to provide some support. But some services can do it through your bank account without going through the property.
To enroll in a rent-reporting service, you must provide a copy of your lease along with some personal information, such as your name, birthdate, and address. The process is easy, and you can complete it online in a matter of minutes.
3. Ensure Accurate Rent Payment Reporting
If you’re making the effort to report your rent payments to build credit, it’s crucial to verify the accuracy of your credit report. There are a couple of methods to monitor your credit score effectively.
One option is to visit AnnualCreditReport.com, where consumers can obtain a free credit report from each credit bureau once per year. A few months after rent reporting starts, check the relevant bureau’s credit report. If you rent reports to more than one bureau, check them a few months apart so you can keep tabs.
Hint: In light of numerous scams associated with the COVID-19 pandemic, the website now allows individuals to access their credit reports weekly until December 2023.
Another approach is to create an account with the three major credit bureaus. Most allow at least some access for free. Paid accounts have more features, but they can cost $10 to $30 per month and only give you access to one bureau’s reports.
Fortunately, there are other options. Many credit cards, banks, and free credit monitoring apps like Credit Karma also offer similar services, allowing you to stay informed about any updates or modifications to your credit information. Some may even give you access to more than one bureau’s info.
How Much Do Rent-Reporting Services Cost?
The cost for rent-reporting services really runs the gamut. Supposedly, you get what you pay for. But it really depends on what you need, so you can’t just opt for the most expensive one and call it a day. Nor can you opt for the cheapest and expect to get the results you’re looking for.
There are three charges to be on the lookout for.
Many rent-reporting companies charge a setup fee. The more they offer (again, supposedly), the more it costs. For example, Rent Reporters charges almost $100 as a one-time setup fee. And you get a personal credit specialist to help you improve your score. Boom’s setup fee is only $10, but all it does is report rent payments.
Then there’s the monthly subscription fee. You can get Boom for as little as $2 per month. But Rent Reporters and LevelCredit charge a minimum of around $7. But unlike Boom, Rent Reporters provides 24 months of rent history for free, and LevelCredit also reports your cellphone and utilities.
Lots of these companies offer additional paid services. You can get past rent history, often as far back as two years (24 months), discounts for roommates or domestic partners to add it to their credit reports, and even credit monitoring. Past credit history is often around $50, though you can get it for less, but not every service offers it. And the other services depend on what they offer and how much they already cost.
Have I mentioned that they supposedly charge based on their level of service? The reality is that may or may not be true for you. It’s not that the statement is untrue on its face. It’s that it really does depend on what would benefit you the most.
For example, Boom is dirt-cheap compared to its peers, but it also reports to all three bureaus. Rent Reporters and LevelCredit only report to TransUnion and Equifax. So despite having more features, if what’s most important to you is credit bureau coverage, Boom wins out.
And it doesn’t stop there. Experian Boost also gives you credit for paying your utilities. Boom and Rental Kharma include your previous rental history at no additional charge. Some, like Rock the Score and PaymentReport, give you options if the property owner won’t participate. And Piñata has a rewards program.
All these options mean you can get exactly what you want for a price you can afford.
How to Choose a Rent-Reporting Service
When choosing a rent-reporting service, it’s tempting to sign up for the first one with the right price. But there are several factors to consider. Follow these steps to find the best rent-reporting service for you.
Check with the property owner. Check to see if your property already uses a rent-reporting service. If so, sign up through them. That means you could skip the rest of the steps. But if their service doesn’t report to all bureaus, you can still sign up with another one to compliment the one they offer.
Research available services. Look for rent-reporting services online and compare their features, costs, and reputation. Pay attention to factors like the duration of reporting, customer support, and ease of use.
Check credit bureau partnerships. Ideally, the service should report to major credit bureaus like Experian, Equifax, or TransUnion. Reporting to multiple bureaus increases the likelihood of your rental payments being included in your credit history with the specific bureau a particular creditor uses.
Evaluate the reporting method. Some services require a direct connection with property management, while others rely on alternative data sources like bank statements. Choose a method that suits your preferences and provides accurate reporting.
Number of months reported. Some rent-reporting companies can report as far back as 24 months, while others report starting with your first payment while you’re signed up moving forward. The former is expensive, but it could help you qualify for credit or a loan faster. If you don’t need that, sticking with the latter is usually cheaper.
Assess the cost. Some services charge a monthly fee, while others have an annual fee or one-time payment. Consider your budget and choose a service that provides good value for the features offered.
Read customer reviews and ratings. Read reviews on trustworthy platforms like Trustpilot or the Better Business Bureau to get an idea of the experiences and satisfaction levels of other users. That can give you insights into the reliability and performance of the service.
Consider additional features. Some rent-reporting services offer additional features that can enhance your financial well-being. For example, they can provide credit-monitoring services, educational resources, or tools to track your credit score progress.
Understand privacy and data security. Review the privacy policy and data security measures of the rent-reporting service. Ensure they have appropriate safeguards in place to protect your personal and financial information.
Check for customer support. Consider the availability and quality of customer support provided by the rent-reporting service. Determine whether they offer multiple channels of communication, such as phone, email, or live chat, and whether they have a reputation for responsiveness and helpfulness.
It can help to make a chart or spreadsheet and tick off or jot down the features each service has so you can compare them all at once. Once you’ve decided which one’s best for you, all you have to do is sign up.
Final Word
If you’re balking at the idea of paying a company to report your rent payments to credit bureaus, that’s totally fine. Really, this isn’t a service you should waste money on unless it helps you.
But they do have benefits. For example, when you increase your credit score, you receive lower interest rates on loans and credit cards. That alone could help justify the cost.
But as awesome as these services are, that doesn’t mean you need one. If you have stellar credit and your report shows on-time monthly payments for obligations like your car or credit cards, you don’t need to report your rent payments. The service is best-suited to those who are trying to build credit or repair bad credit.
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Heather Barnett has been an editor and writer for over 20 years, with over a decade committed to the financial services industry. She joined the Money Crashers team in 2020, covering banking and credit content for banking- and credit-weary readers. In her off time, she enjoys baking, binge-watching crime dramas, and doting on her beloved pets.
The dividend payout ratio is the ratio of total dividends paid to shareholders relative to the net income of the company. Investors can use the dividend payout formula to gauge what fraction of a company’s net income they could receive in the form of dividends.
While a company will want to retain some earnings to reinvest or pay down debt, the extra profit may be paid out to investors as dividends. As such, investors will want a way to calculate what they can expect if they’re a shareholder.
Understanding Dividends and How They Work
Before calculating potential dividends, investors will want to familiarize themselves with what dividends are, exactly.
A dividend is when a company periodically gives its shareholders a payment in cash, or additional shares of stock, or property. The size of that dividend payment depends on the company’s dividend yield and how many shares you own.
Many investors look to buy stock in companies that pay them as a way to generate regular income in addition to stock price appreciation. A dividend investing strategy is one way many investors look to make money from stocks and build wealth.
Investors can take their dividend payments in cash or reinvest them into their stock holdings. Not all companies pay dividends, and those that do tend to be large, established companies with predictable profits — blue chip stocks, for example. If an investor owns a stock or fund that pays dividends, they can expect a regular payment from that company — typically, each quarter. Some companies may pay dividends more frequently.
Pros and Cons of Investing in Dividend Stocks
Since dividend income can help augment investing returns, investing in dividend stocks — or, stocks that tend to pay higher than average dividends — is popular among some investors. But engaging in a strategy of purchasing dividend stocks has its pros and cons.
As for the advantages, the most obvious is that investors will receive dividend payments and see bigger potential returns from their holdings. Those dividends, in addition to stock appreciation, allow for two potential ways to generate returns. Another benefit is that investors can set up their dividends to automatically reinvest, meaning that they’re holdings grow with no extra effort.
Potential drawbacks, however, are that dividend stocks may generate a higher tax burden, depending on the specific stocks. You’ll need to look more closely at whether your dividends are “ordinary” or “qualified,” and dig a little deeper into qualified dividend tax rates to get a better idea of what you might end up owing.
Also, stocks that pay higher dividends often don’t see as much appreciation as some other growth stocks — but investors do reap the benefit of a steady, if small, payout.
What Is the Dividend Payout Ratio?
The dividend payout ratio expresses the percentage of income that a company pays to shareholders. Ratios vary widely by company. Some may pay out all of their net income, while others may hang on to a portion to reinvest in the company or pay off debt.
Generally speaking, a healthy range for payout ratios is from 35% to 55%. There are certain circumstances in which a lower ratio might make sense for a company. For example, a relatively young company that plans to expand might reinvest a larger portion of its profits into growth.
How to Calculate a Dividend Payout
Calculating your potential dividend payout is fairly simple: It requires that you know the dividend payout ratio formula, and simply plug in some numbers.
Dividend Payout Ratio Formula
The simplest dividend payout ratio formula divides the total annual dividends by net income, or earnings, from the same period. The equation looks like this:
Dividend payout ratio = Dividends paid / Net income
Again, figuring out the payout ratio is only a matter of doing some plug-and-play with the appropriate figures.
Dividend Payout Ratio Calculation Example
Here’s an example of how to calculate dividend payout using the dividend payout ratio.
If a company reported net income of $120 million and paid out a total of $50 million in dividends, the dividend payout ratio would be $50 million/$120 million, or about 42%. That means that the company retained about 58% of its profits.
Or, to plug those numbers into the formula, it would look like this:
~42% = 50,000,000 / 120,000,000
An alternative dividend payout ratio calculation uses dividends per share and earnings per share as variables:
Dividend payout ratio = Dividends per share / Earnings per share
A third formula uses retention ratio, which tells us how much of a company’s profits are being retained for reinvestment, rather than paid out in dividends.
Dividend payout ratio = 1 – Retention ratio
You can determine the retention ratio with the following formula:
Retention ratio = (Net income – Dividends paid) / Net income
You can find figures including total dividends paid and a company’s net income in a company’s financial statements, such as its earnings report or annual report.
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Why Does the Dividend Payout Ratio Matter?
Dividend stocks often play an important part in individuals’ investment strategies. As noted, dividends are one of the primary ways stock holdings earn money — investors also earn money on stocks by selling holdings that have appreciated in value.
Investors may choose to automatically reinvest the dividends they do earn, increasing the size of their holdings, and therefore, potentially earning even more dividends over time. This can often be done through a dividend reinvestment plan.
But it’s important to be able to know what the ratio results are telling you so that you can make wise decisions related to your investments.
Interpreting Dividend Payout Ratio Results
Learning how to calculate dividend payout and use the payout ratio is one thing. But what does it all mean? What is it telling you?
On a basic level, the dividend payout ratio can help investors gain insight into the health of dividend stocks. For instance, a higher ratio indicates that a company is paying out more of its profits in dividends, and this may be a sign that it is established, or not necessarily looking to expand in the near future. It may also indicate that a company isn’t investing enough in its own growth.
Lower ratios may mean a company is retaining a higher percentage of its earnings to expand its operations or fund research and development, for example. These stocks may still be a good bet, since these activities may help drive up share price or lead to large dividends in the future.
Dividend Sustainability
Paying attention to trends in dividend payout ratios can help you determine a dividend’s sustainability — or, the likelihood a company will continue to pay dividends of a certain size in the future. For example, a steadily rising dividend payout ratio could indicate that a company is on a stable path, while a sudden jump to a higher payout ratio might be harder for a company to sustain.
That’s knowledge that may be put to use when trying to manage your portfolio.
It’s also worth noting that there can be dividend payout ratios that are more than 100%. That means the company is paying out more money in dividends than it is earning — something no company can do for very long. While they may ride out a bad year, they may also have to lower their dividends, or suspend them entirely, if this trend continues.
Dividend Payout Ratio vs Dividend Yield
The dividend yield is the ratio of a stock’s dividend per share to the stock’s current price:
Dividend yield = Annual dividend per share/Current stock price
As an example, if a stock costs $100 and pays an annual dividend of $7 the dividend yield will be $7/$100, or 7%.
Like the dividend payout ratio, dividend yield is a metric investors can use when comparing stocks to understand the health of a company. For example, high dividend yields might be a result of a quickly dropping share price, which may indicate that a stock is in trouble. Dividend yield can also help investors understand whether a stock is valued well and whether it will meet the investor’s income needs or fit with their overall investing strategy.
Dividend Payout Ratio vs Retention Ratio
As discussed, the retention ratio tells investors how much of a company’s profits are being retained to be reinvested, rather than used to pay investors dividends. The formula looks like this:
Retention ratio = (Net income – Dividends paid) / Net income
If we use the same numbers from our initial example, the formula would look like this:
~58% = (120,000,000 – 50,000,000) / 120,000,000
This can be used much in the same way that the dividend payout ratio can, as it calculates the other side of the equation — how much a company is retaining, rather than paying out. In other words, if you can find one, you can easily find the other.
The Takeaway
The dividend payout ratio is a calculation that tells investors how much a company pays out in dividends to investors. Since dividend stocks can be an important component of an investment strategy, this can be useful information to investors who are trying to fine-tune their strategies, especially since different types of dividends have different tax implications.
In addition, the dividend payout ratio can help investors evaluate stocks that pay dividends, often providing clues about company health and long-term sustainability. It’s different from other ratios, like the retention ratio or the dividend yield.
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FAQ
How do you calculate your dividend payment?
To calculate your exact dividend payment, you’d need to know how many shares you own, a company’s net income, and the number of total outstanding shares. From there, you can calculate dividend per share, and multiply it by the number of shares you own.
Are dividends taxed?
Yes, dividends are taxed, as the IRS considers them a form of income. There may be some slight differences in how they’re taxed, but even if you reinvest your dividend income back into a company, you’ll still generate a tax liability by receiving dividend income.
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Best for cash back: Maximum Rewards® World Mastercard® by Amalgamated Bank
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Cons
Higher variable APR on purchases and balance transfers after the introductory period
3% foreign transaction fee
Features
Travel insurance including
Amalgamated Bank supports a number of different causes from environmental sustainability to workers’ rights, and it’s union-owned to boot. Founded in 1923, it’s been rallying behind rallying people for over a century. It’s net-zero and run on renewable energy, pro-union, an ally to immigrants, and politically progressive.
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Best socially responsible card: Rewards Platinum Visa® from Green America
Pros
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$150,000 in Travel Accident Insurance
Cons
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Features
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Maybe you’ve heard of Green America, the nonprofit working to combat climate change, promote ethical practices and corporate governance, fight for social justice, and more. Green America’s work covers a broad range of issues, and its credit card, the Rewards Platinum Visa®, supports these efforts with every transaction. And it earns unlimited points on everything.
This affinity card has a fairly competitive APR, doesn’t charge an annual fee, and has a few nice benefits like travel insurance and a lower foreign transaction fee. But it’s not perfect, and we wish it were more clear about how donations worked and where exactly they were going.
This is a good choice if you’re interested in socially responsible causes and giving back.
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Best card for charitable donations: Charity Charge Card
Pros
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Cons
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2% foreign transaction fee
Features
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The Charity Charge Card automatically gives to charity every time you use it. Can your current card do that?
When you apply for this credit card, you get to choose the nonprofit you want your spending to automatically benefit. If a nonprofit is set up to receive credit card donations, it is likely available as an option. Bonus: your donations may qualify for charitable tax deductions, which can help the fact that you otherwise won’t earn rewards or cash back sting a little less.
Since donations are calculated as a percentage of spending, you’ll have a greater impact the more regularly you use this card. If you don’t want to miss out on rewards entirely, you could use this card for some of your spending that wouldn’t qualify for the best rates otherwise.
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Read more: Want To Help But Can’t Give Cash? 10 Alternatives To Donating Money
Best secured credit card: Secured Mastercard® by Amalgamated Bank
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Cons
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$35 annual fee
3% foreign transaction fee
Features
Set your own limit and qualify for a credit limit increase
The Secured Mastercard® by Amalgamated Bank is a decent low-fee secured card for eco-conscious borrowers. It has a minimum limit of $300 and a maximum of $5,000, and your line is determined by your security deposit. This carries a modest annual fee (for a secured card) of $35 and fairly average interest rates, and it’s a little more flexible than the average competitor.
You may be eligible for a credit limit increase in as little as seven months after opening an account with responsible use and can get your deposit back in less than a year.
This is a good option for borrowers with little or poor credit, but you should only choose this if you couldn’t qualify for one of the others, as it doesn’t earn rewards and has higher fees.
Learn more.
Best for travel: Visa Signature Card (Climate Card) by Beneficial State Bank
Pros
No annual fee
Unlimited one point per dollar on all purchases
Cons
1% foreign transaction fee
Features
Travel insurance and protection including: Travel & emergency assistance services, travel accident insurance, auto rental collision damage waiver, and roadside dispatch
Beneficial State Bank is a purpose-driven financial institution with an eco-friendly card for people who may want their spending to help out green charities and nonprofits.
The Climate Card is similar to the Rewards Platinum Visa by Green America in that it earns flat-rate rewards that can be donated to charity. But unlike the Green America card, the Climate Card has you choose what happens to your points. So if you want to donate them, you can. But if you want to instead redeem for cash or travel, that’s your prerogative too.
This is a good travel card because it has a 1% foreign transaction fee (compared to 1% or 2%) and comes with benefits like insurance and roadside dispatch. And because it lets you choose between keeping your points and donating them, it’s also one of the most flexible choices.
Learn more.
Best fee-free credit card (for people in Washington): Verity Signature Rewards Visa
Pros
No annual fee
No foreign transaction fee
1.5 points per dollar on all purchases
0% intro APR on purchases and balance transfers for the first 12 billing cycles
Cons
Only people in Washington state are eligible to join Verity Credit Union
Features
Signature Rewards Visa protection benefits including: extended warranty protection, emergency assistance travel services, accident insurance, and more
Credit cards without foreign transaction fees can be hard to come by, but this card makes it happen. The Signature Rewards Visa by Verity Credit Union charges no annual fee and no foreign transaction fee, giving it a huge advantage over all the others on this list. But it has the huge disadvantage of being only available to people in the state of Washington.
Points can be redeemed for cash, travel, gift cards, or purchases and there are no restrictions for earning. There’s also an intro APR offer of 12 months on purchases and balance transfers, making this comparable to many rewards cards on the market. If you do qualify to join Verity, consider it for this — especially if you’re on the fence about eco-friendly cards.
This is a good card from an admirable credit union, but it won’t be a fit for everyone (or most).
Learn more.
Best debit card for earning: Aspiration Spend and Save
Pros
Up to 10% cash back on eligible Conscience Coalition purchases
Earns up to 3.00% interest with qualifying debit activity
Cons
Monthly fees for the Plus Plan ($7.99 a month paid monthly or $5.99 a month paid annually)
Does not earn cash back on all purchases
Does not build credit
Features
$10 minimum deposit
Additional green benefits like carbon offsetting and planting trees with purchases
The Aspiration Spend & Save account offers a debit card that earns rewards like a credit card and comes with a whole host of eco-friendly benefits. There are two plans to choose from.
The base Aspiration plan uses a “pay what is fair” fee structure and the Aspiration Plus plan costs $5.99 or $7.99 a month depending on if you pay monthly or annually. The Aspiration plan pays up to 1.00% interest and up to 3% – 5% cash back while the Aspiration Plus plan pays up to 3.00% interest and 10% cash back on Conscience Coalition spending.
Both have features like early direct deposit and the ability to plant trees when you spend, but only the Aspiration Plus account includes additional automatic offsets and Purchase Assurance. If you decide this account is right for you, pick the Plus Plan to maximize benefits.
Read our full Aspiration review.
Aspiration Zero Credit Card
Aspiration used to offer a credit card called the Aspiration Zero Credit Card, but they are no longer accepting new applications. Now, this bank’s only individual solution is the Spend & Save account, a rewards-earning checking account with a debit card.
Best debit card for eco-friendly spending: FutureCard Visa Debit Card
Pros
No monthly fees or annual fee
6% cash back on eligible purchases at FuturePartners
5% cash back on “climate-smart spending” purchases such as EV charging, bikes and scooters, public transit, etc.
Cons
Does not earn cash back on all purchases
Does not build credit
Features
See your climate impact using your FutureScore
Complete missions to earn FutureCoins
The FutureCard Visa Debit Card earns rewards based on your spending habits. The more eco-friendly your purchases, the more you’ll earn.
With this card, you’ll get points for “climate-smart spending.” This is defined as purchases with a lower carbon footprint, and examples include electric vehicle charging and secondhand items. There’s no cap on earnings but you won’t earn cash back on all purchases.
This card is also unique because it provides you with a summary of your impact in the form of a FutureScore. The app then gives you suggestions for living more sustainably and pays FutureCoins, which can be redeemed for cash, when you complete Missions. Look out for promotions and bonus days to earn even more cash back on your purchases.
Learn more.
Best business credit card for nonprofits: Charity Charge Nonprofit Business Card
Pros
No annual fee
Discounts and rebates on business spending
Cons
Does not earn rewards
Features
Mastercard Zero Liability protection
If you own or work for a nonprofit and are looking for a business credit card, look no further than the Charity Charge Nonprofit Business Card. This business card is exclusively for nonprofits and works with over 2,000 nonprofits to meet their spending and financing needs.
This card doesn’t charge an annual fee and offers service benefits specifically geared toward not-for-profit rather than for-profit institutions. These include expert guidance from the support team and dedicated representatives.
The Charity Charge Nonprofit Business Card is ideal for nonprofits with less credit to work with, especially newer and growing organizations.
Learn more.
What is an eco-friendly credit card?
An eco-friendly credit card or green credit card has a positive environmental impact.
There isn’t one single type of eco-friendly credit card, as the term “green” looks a little different to everyone, but the point is that they’re better for the planet. There are also green and eco-friendly debit cards.
A card might be green if it:
Has a smaller carbon footprint than the average card
Rewards you for eco-friendly spending
Donates to environmental nonprofits
Plants trees with each transaction
These are just a few examples.
There are also cards that have a more general positive impact. For example, they might support socially responsible missions such as fair labor and equal housing. These can benefit the planet but might also benefit other causes as well. The Rewards Platinum Visa® from Green America is a good example of this.
Pros and cons of greener cards
Green credit and debit cards aren’t for everyone, but for some might be just what they’ve been looking for. Here are a few of the main pros and cons to consider with this type of product.
Pros
Eco-friendly cards offer many benefits for people with environmental — or financial — goals.
Some allow you to donate to charities without using money out of your own pocket, and these donations could be tax deductible. The best ones even let you choose the charity.
Others incentivize you to be more eco-friendly in your spending habits by handing you the most rewards points for green purchases. This could help you live more sustainably.
And a few have their own unique benefits, like Aspiration’s tree-planting with transactions.
Many of these cards earn some sort of rewards for spending, with several offering flat rates on everything. And a handful also have everyday perks like purchase protection and discounts too.
Cons
While greener cards offer benefits like lowering your impact and motivating yourself to make more sustainable choices, they do require you to compromise in some areas.
When it comes to rewards you actually earn, most of these cards just aren’t as competitive as others. The highest rate we’ve seen for green credit cards is 1.5% cash back, and this is the lowest base rate for many of the best rewards cards out there. And you might not have a lot of flexibility in how you redeem these rewards with an eco-friendly card.
These cards also don’t have as much going for them in the perks department. They have leaner travel benefits, if any at all, and very few free features.
Sure, the satisfaction of knowing you’re helping the planet is rewarding, but it might not help you save money and isn’t as flashy as what other cards offer.
Who are eco-friendly credit cards and debit cards best for?
If your spending habits make sense for one of these cards and you’re willing to compromise on rewards some in order to do good with your dollars, an eco-friendly card could be right for you.
You might decide to go green with your card because you don’t want to support big banks with harmful practices that hurt the planet, people, or both. For example, many major card issuers are responsible for enormous carbon footprints and lend money to fossil fuel companies.
Some are also involved in scandals, wrapped up in politics, and sneaky about where they spend money. It’s not a good look.
If you want to be part of something different, these cards are just one way to do that.
Read more: What is public banking?
Who are eco-friendly credit cards and debit cards not ideal for?
Don’t go for a green credit card or socially responsible card if your number one priority is earning the most rewards. These cards have lower payouts than others, fewer options for redemption, and often less earning flexibility.
Eco-friendly credit and debit cards are not yet on par with the rest of the options in the personal finance world. And until they have higher rewards rates and more benefits overall, they’re not likely to become mainstream any time soon.
Fortunately for those who want to help the planet but don’t want to sign up for one of these cards, there are other ways to spend more sustainably. This next section is for you.
What if you don’t want a green credit card?
If you don’t want to have to compromise on rewards — or you just don’t need a new card — but still want to make a positive impact, you can skip the card and do these things:
Click the link below for more ways to make your money green.
Read more: 12 easy ways to make your money green and protect our planet
Summary
There are many green credit and debit cards to choose from, each with its own benefits for your wallet and the environment. We’ve highlighted the best here, but even some of these leave a little to be desired when it comes to rewards earning, perks, and redemption.
But if this category catches on as consumers grow more conscious of their impact on the planet, more eco-friendly cards will be available and this space will become more competitive.