Will a Home Office Deduction Really Trigger an IRS Audit?

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

There is a common perception that taking a home office deduction is a red flag that will trigger an IRS audit. But is it even true? Possibly, if it doesn’t comply with IRS regulations, and it seems excessive for your business or income. But if it’s handled properly, the risk of an audit from taking the deduction is actually quite low.

IRS Home Office Deduction Rules

The IRS rules required for a home office deduction include:

Regular and exclusive use. You must use part of your home exclusively for conducting business. It needs to be a dedicated space – preferably a room, that you run your business out of. It can’t be a family room that doubles as an office.

Principal place of your business. Your home office must be your principal place of business, though you may qualify if you also conduct business outside of your home office, but use the home office substantially and regularly for business purposes. This includes meeting with clients on a regular basis at your home office, even though you also conduct business at another location. You can also deduct a structure, such as a garage, if it is used to store business materials there, or used as a studio. But again, it must be used substantially and exclusively for business, and not shared with some non-business purpose.

There are also special rules for employees who use a home office:

• Your business use must be for the convenience of your employer, and
• You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.

As long as you are deducting your home office within the scope of these IRS rules, you should be OK to take the deduction.

So why do so many sources say that the home office deduction is an IRS red flag for audits?

Taking an Excessive Deduction

Any tax deductions that you claim that look excessive will automatically generate IRS concern. The IRS has all kinds of metrics to determine whether or not an expense is reasonable based on the taxpayer’s income and business type.

For example, if your business earns $12,000 in gross revenue, but you expense $7,000 as a home-office deduction, that will be a flag. This will be particularly true if the home office deduction is the largest in a list of expenses that ultimately results in your business showing a loss.

An outsized deduction can be an indication that a business may not be legitimate, an excessive allocation of the home for the business, or even an attempt by the taxpayer to gain a tax break for the cost of maintaining a home that cannot be deducted on Schedule A as a legitimate personal deduction.

As an example, let’s say that you live in a 3,000 square foot house, but you claim 1,200 square feet as a home office. This would be an indication that 40% of your house (and housing expenses) is used substantially and exclusively for business. As that is unlikely arrangement, it could trigger an audit.

The key with all business expense deductions is that they must be reasonable and necessary. Any deductions that look excessive or superfluous can trigger an audit.

Taking an Inconsistent Deduction

The home office deduction should be relatively consistent from one year to the next. That’s because the expenses that comprise the deduction – home mortgage/rent, real estate taxes, insurance, homeowner’s association dues, and utilities – are fairly stable expenses. Your home office deduction should represent a fixed percentage of those expenses, based on the ratio of home office space to gross household space.

Since they form the basis of your deduction, that deduction should not change substantially from year to year. But if you show a deduction of $5,000 one year, then $10,000 the next, you could be inviting an IRS audit.

The IRS may suspect that you are padding the deduction in order to offset a higher income from one year to the next. Make sure that if you take the deduction, that you keep the consistency factor in mind each year that you use it.

An Audit Might be Triggered by Something Other than Your Home Office

It’s likely that any time a person who takes the home office deduction gets audited that it’s assumed that the home office is the reason. In reality however, a tax return can be audited for just about any reason. First, a person who is self-employed already has a higher risk, due to the ability of deducting expenses from income.

But an audit could be triggered by virtually any other expense on your return, or simply by the fact that you are taking too many expenses in general. One example is contract labor. The IRS is on the lookout for businesses classifying people as contractors who are actually employees. If you have a large line item for contract labor, this could be the reason for the audit.

The point is, a home-office deduction is hardly an automatic audit. As long as the deduction complies with IRS regulations, and is reasonable, consistent and based on actual home expenses, you should be safe taking the deduction.

How about you all? Have you avoided taking a home-office deduction for fear of being audited?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/dierken/448629059/sizes/q/

Hidden Costs of Owning a Pet

The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy! 

A pet can be a great companion and a wonderful addition to your family. While it may not cost $250,000 to own a pet over the years while some sources claim that’s how much it costs to take care of a child to the age of 18, there are some notable expenses that need to be considered before you decide to get a pet.

According to the ASPCA, the first year of pet ownership if you have a dog or cat exceeds $1,000 and that doesn’t even cover unexpected expenses. Regular expenses you can expect to pay for a cat or dog include shots and veterinary expenses, food, grooming supplies, a bed, toys, liter and a litter box (for a cat), spaying or neutering and so on.

For hidden costs associated with pet ownership, here are a few things you’ll have to consider and how to budget for them.

Extra Medical and Preventative Care

Everyone wants a healthy pet, but there may be some underlying issues beyond your control. Taking your pet to regular vet appointments can help rule out or highlight any medical issues that require extra care.

You may need to pay for additional vaccinations or preventative care for issues like fleas or parasites along with any pre-existing conditions your pet may have. Not to mention, any accidents could range from $1,000 to $5,000 depending on if your animal needs surgery or not.

Babysitting and Training

If you travel quite a bit or spend a few nights away from home each month, be sure to budget for a pet sitter. Most animals shouldn’t be left alone in the house for long periods of time because they could run out of food and dogs especially need to be checked on and walked frequently.

Even if you have a day where you work long hours away from your home, you may need to find a dog walker who can help care for your dog.

If you’d like your animal to be trained, pet trainers and group classes range from $50 to $125 per hour in most cases.

Housing Fees

Homeowners have an advantage when choosing a pet because they can choose from a wider variety and don’t have to worry about paying a fee in order to keep their pet at home. Renters on the other hand, are often required by their landlord to pay a deposit or non-refundable fee for their pet and in some cases ‘pet rent’ which causes an increase in their monthly rent rate. Landlords do this to protect their property from any damage your animal may cause whether it’s to the carpet, the window screens, etc.

Replacing Items in your Home

If you have a smaller or low maintenance pet like a hamster or fish, you may not have to worry about this unexpected expense much, but if you pet is mobile, they can get into mischief. Scratched up furniture and chewed up shoes are common for dog and cat owners who will need to replace those items sooner or later.

Will Pet Insurance Help?

Pet insurance is another expense if you decide to utilize it, but it can help protect your pet in the event of a medical emergency along with your wallet. On average, the cost of pet insurance is around $384 per year with deductibles ranging from $100 to $500.

If your pet is diagnosed with a serious condition or needs quick medical attention, pet insurance can really come in handy. In most cases, pet insurance is a reasonable option as long as you find a carrier that meets your needs and requirements. If you have an older animal, you can probably expect to pay more but keep in mind there are special plans and insurance companies that cater to owners with older animals so that is who you should gravitate toward.

Some companies will have age requirements and other guidelines to follow like requiring your pet to be spayed or neutered before enrolling in a policy.

Pet insurance may not be as beneficial if your animal has a pre-existing condition because most policies will not cover those. For example, if your cat was diagnosed with diabetes before you enrolled in an insurance policy, they may or may not cover those expenses. With pet insurance, it’s best to weigh your options and get started early so you have reliable protection long-term.

Starting a Pet Emergency Fund

Another alternative to pet insurance or something you can do in conjunction with your insurance policy is opening a pet emergency fund and contributing to it regularly. Some expenses just can’t be predicted, but you can prepare for them by setting aside at least $1,000 to $2,000 in a high-yield savings account to cover unexpected expenses for your pet.

Start by setting aside $50-100 per month if you can and work that expense into your regular budget so it becomes a habit. An emergency fund always offers peace-of-mind and the same goes for the safety and wellbeing of your pet.

How about you all? Are you a pet owner? What unexpected expenses have you been faced with?

Share your experiences by commenting below!

***Photo courtesy https://pixabay.com/en/chihuahua-dog-puppy-cute-pet-624924/

Reviewing Your Insurance Needs – Term Life Insurance

Over the past 1.5 years, I have experienced several significant life changing events (getting married in September 2014, moving, and had a baby in January 2016 – picture of Alex below!) that have given me the need to re-evaluate my current insurance needs. One of these potential insurance needs is life insurance.

The purpose of this post is to share my journey in to 1) discovering if this type of coverage is well-suited for my personal situation and if so, 2) how I went about obtaining life insurance from a provider.

Let’s get started! 

A brief side note: In a previous post, I looked at whether term or whole life (used for the Infinite Banking Strategy) insurance was better suited for me, discovering that term life was more appropriate. As such, the decision of using term vs. whole life insurance is outside the scope of this current post.

 

Do You Need Term Life Insurance?

A logical first step in this journey was to answer the question, “Do I need term life insurance?” Therefore, this is the first topic we will cover.

Eric Tyson in his book, Personal Finance for Dummies, provides the following concise bulleted list of the types of people who DO NOT need life insurance.

• “Single people with no children.”
• “Working couples who could maintain an acceptable lifestyle if one of the incomes were to disappear.”
  • This essentially means that both individuals in the relationship earn equal incomes and/or have the same amount of assets.
• “Independently wealthy people who don’t need to work” (ie people with rich relatives, people who have received a large inheritance, etc).
• “Retired people who are living off their retirement assets.”
• “Minor children who are dependent on their parents.”

Therefore, he suggests that anyone who falls OUTSIDE of these categories above NEED term life insurance coverage because you have others who are fully or partly dependent on your income.

In my case, I am not single, not (yet anyways) independently wealthy, not retired, and not a minor anymore. I am, however, married, and my wife and my incomes are pretty intertwined. Currently, we are essentially living off of my income and saving all of hers (she works from home and is self employed) for retirement and other purposes. In this regard, it could be argued that my wife is quite dependent on my income, and could not maintain our current state of living and working situation if I were to pass away. However, since my wife does have a master’s degree, I do believe she could find a non-self-employed job that pays a good income and providing an “acceptable” lifestyle within a couple years after me dying, if she needed to. Therefore, in the current state, it appears that I would need life insurance (but my wife would not), and that it would be of a reduced amount due to my wife’s future earning potential.

However, my wife and I also had a child in January of 2016, which will require support for a minimum of ~ 25 years, warranting a larger amount of life insurance for myself than if we had no children. Additionally, as David Bach recommends his book, Smart Couples Finish Rich (one of my favorites since it covers value-based financial planning!), a stay-at-home / working-at-home parent should also be insured, since if the working-at-home parent passes away, additional child care expenses would be incurred, which can be quite expensive if done full time.

My Decision: Because of the considerations above, it seems warranted for both my wife and I to have a term life insurance policy, in some amount.

 

What Type of Term Life Insurance Policy Should You Purchase?

So, you’ve decided that your personal situation is well-suited for obtaining a term life insurance policy. The next step is determining the type of term life policy that is best for you.

Below are the recommendations of from the books of several of my favorite PF authors:

• Dave Ramsey in his book, Total Money Makeover, recommends to purchase a 20 year level-term life insurance policy.
• Eric Tyson in his book, Personal Finance for Dummies, recommends to purchase a guaranteed-renewable policy that adjusts in price every 5-10 years over the period of time needed for life insurance coverage.
• Stewart Welch, in his book, The Complete Idiot’s Guide to Getting Rich, recommends to purchase a 15 or 20 year level-term policy, with the reasoning that after 20 years, that should allow enough time to have accumulated enough wealth to be independent.
  • He also recommends a smaller 10-15 year level-term policy for a stay-at-home / work-at-home parent.
• JD Roth in his book, Your Money The Missing Manual, recommends to purchase guaranteed renewable term life insurance.
• David Bach recommends his book, Smart Couples Finish Rich, to buy a level term policy for 20 years.

From the advice above, the consensus seems to be to purchase a 20 year level-term policy, meaning that you have the same death benefit and same premium for 20 years. This is almost akin to the the fixed rate loan of the mortgage industry.

My Decision: From the advice above, it seems that 20 year level-term policies are best suited for myself and my wife.

 

How Much Term Life Insurance Do You Need?

Having decided that you need one or multiple term life insurance policies, the next step is to determine the Dollar value of coverage you need.

In reading the literature, there seem to be two ways of doing this – 1) going for a ballpark figure and obtaining coverage X number of times your annual income or 2) actually calculating the amount of insurance to purchase by predicting future needs, current income, investment rate of return, etc.

Listed below is a summary of my literature findings:

• Dave Ramsey in his book, Total Money Makeover, recommends to purchase policy equal to about 10 times your annual income.
• JD Roth in his book, Your Money The Missing Manual, recommends to purchase life insurance somewhere between 10-20 times your annual income.
• David Bach recommends his book, Smart Couples Finish Rich, to buy a policy between 6 – 20 times your annual income.
• Eric Tyson in his book, Personal Finance for Dummies, provides a nice table correlating the desired number of years of income to replace with a factor with which your annual after-tax income should be multiplied by to determine how much life insurance needed.
  • To replace 5 years of income, multiply your annual after-tax income by 4.5.
  • 10 years –> multiply by 8.5.
  • 20 years –> multiply by 15.
  • 30 years –> multiply by 20.
• Stewart Welch, in his book, The Complete Idiot’s Guide to Getting Rich, provides a pretty simple 3-step calculation (shown below) for determining life insurance needs (He recommends a $200,000 – $400,000 policy for a stay-at-home parent).
  • Multiply your total annual family income by 0.80 discount factor.
    • = Total income needed by surviving family.
  • Total income needed by surviving family minus surviving spouse’s annual income.
    • = Surviving family income need from outside sources.
  • Surviving family income need from outside sources divided by decimal form of rate of return expected on life insurance proceeds and other investment assets (0.075 is a reasonable estimate here).
    • = Total amount of money needed to provide for your survivors.
  • Total amount of money needed to provide for your survivors minus current savings and investments
    • = Total life insurance policy needed for deceased spouse (this calculation repeated for surviving working spouse).

In my opinion, the best approach (without considering costs/premiums) to estimating life insurance needs seems to be a hybrid one. This means comparing the results of a “more detailed” calculation with a quicker annual income multiplication (a factor of 20 seems best given the literature findings above) estimate and then use the most conservative / highest number.

My Decision / Results:

As mentioned above, I ran the numbers for my wife and I, and I can came up with 3 life insurance policy values for her, and 2 for myself.

• Myself (not working from home)
  • First, I came up with a target life insurance value representing 20 times my annual gross income.
  • Next, I performed the calculation recommended in the book, The Complete Idiot’s Guide to Getting Rich, and came up with a value representing ~7 times my annual gross income, so much lower than the “quicker” 20 x estimate.
• My wife (self-employed, working from home)
  • As I did with myself, I came up with a target life insurance value representing 20 times my wife’s annual gross income from working from home.
  • Next, I performed the The Complete Idiot’s Guide to Getting Rich calculation, and actually came up with a negative number after we subtracted our current savings/investments.
  • Finally, we have the number of $200,000 – $400,000 policy recommended for a stay-at-home parent, which is lower than the 20 x estimate previously mentioned.

Ideally (not considering cost), the general rule of thumb is that you want to be as conservative as possible with life insurance, and the most optimal course of action for me is to obtain two policies, one that represents 20 times my wife and myself’s incomes, respectively. This is the most conservative course because the 20 x estimates yielded the highest life insurance values.

 

Where Should You Buy Term Life Insurance?

So, you’ve decided what type of term life insurance you want to buy and a ballpark estimate of how much you need in a policy. Great!

The next step then becomes determining 1) where you should buy your policy and 2) how much will it cost.

Employer / Group Plan vs. Individual?

The general consensus in the financial literature seems to be that it is best to purchase a life insurance plan as an individual policy (in other words, not through your employer) since it is about the same price (health and disability insurance, however, are much cheaper purchased through your employer). This also avoids having to worry about if your life insurance is “portable” in that it follows you when/if you change jobs.

However, it is important to note that employers often do provide some amount of life insurance for free to you. For example, my current employer provides life insurance in the amount of 1x my current annual salary without having to pay any premiums myself. Of course, this free insurance is likely too little for most people who need life insurance, but it is a nice freeby!

Online – Direct or Through an Independent Agent/Broker?

Having now decided to obtain an individual policy, the question becomes, “Do you purchase the policy online or through an independent broker?”

It is important to stress here the word INDEPENDENT, as an independent agent/broker can shop around among multiple companies to find you the best deal. This is much different than a “captive” agent, who only sells for one company (examples include your local State Farm agent, local Geico agent, etc).

My opinion is that you won’t go too wrong by choosing either online or an independent agent. If you like to do things quickly and are self-sufficient, online is probably the best way to go. If you value the guidance of a real person, on the other hand, an independent agent is probably a good idea.

For me personally, the way I will likely go is to use both – first obtaining quotes online and then buying the actual policy through an independent agent (and using the online quotes to ensure that I am getting the best price from the agent).

 

Where Do You Obtain Term Life Insurance Quotes Online / How Much Does Coverage Cost?

The following sites were recommended in the PF books I have previously mentioned in this post as good sources for term life insurance quotes:

• Reliaquote
• Selectquote
• Term4Sale
• Ameritas
• Einsurance
• Intelliquote
• Insweb
• Insure

However, having gone through the process of obtaining quotes from these websites, the most straightforward sites (which give you a immediate online quote the fastest and don’t require an agent to spam your phone 5 times per day) I found are listed below:

• Reliaquote
• Intelliquote
• Term4Sale (my favorite site)

My Results

For myself, the best premium quotes obtained from the 3 websites above for a 20 year level-term life insurance policy in the amount representing 20x my annual gross income were around $80 per month, or $960 per year.

For my wife, the best premium quotes obtained a 20 year level-term life insurance policy in the amount representing 20x her annual gross income were around $24 per month, or ~ $294 per year.

So, if I was to go the most conservative route and choose to obtain life insurance policies equal to 20x our annual income, we would be looking at spending almost $1,300 per year on life insurance premiums.

 

Reality Check Based on Online Life Insurance Quotes

However, looking at the $1,300 per year price tag for maximum life insurance sort of bothered my cheap side.

While I could definitely afford $1,300 per year in premiums, it makes me wonder if it is necessary / worth giving up the chance to invest that money. This seems more appropriate in my personal situation given that I have been saving since I was 18 and have accumulated a medium amount of assets for a 30 year old. In other words, I simply don’t “feel” that it is necessary to have the largest amount of life insurance possible (20x annual income).

What Is The Purpose of Life Insurance For You?

So, where do you go from here if like me, your reality check revealed that 20x annual income is too much of a premium to warrant the large amount of insurance?

Personally, I next asked myself how I would want my life insurance policy to be used if I were to pass away. I would essentially want my life insurance policy to 1) pay a lump sum, 2) be invested by my surviving family at a reasonable interest rate, and 3) provide enough income for my family to live off of without them having to touch the money I have currently saved for retirement (so it can be used for their retirement).

In other words, my desire for how life insurance should be used is quite similar to the policy value calculation method from Stewart Welch, in his book, The Complete Idiot’s Guide to Getting Rich, discussed previously. However, current savings and investments would not be subtracted at the end since I would want to preserve that.

Performing this calculation lands me at needing a term life insurance policy approximately equivalent to 10 times my current annual income, which coincidentally, is what Dave Ramsey recommended in his book.

Listed below are the premium quotes for 20 year level term life insurance policies for my wife and I equivalent to 10x our annual incomes:

• Wife – $17 per month, or $204 per year.
• Myself – $49 per month, or $588 per year.
  • Total for 10x annual incomes policies = $792 per year, which seems pretty reasonable.

 

Term Life Insurance Application Process – Independent Life Insurance Agent

Armed with the prices of the term life insurance quotes obtained online, I then approached an independent insurance agent (the same insurance agent through which we obtained our Acuity homeowner’s insurance) in our area to also provide me with quotes for the same type of life insurance coverage.

As expected based on my previous experience with this agent providing very competitive pricing, the quotes provided by the independent insurance agent for the same type of term life insurance coverage for my wife and I were either similar or cheaper than the quotes I found online. As such, I decided to proceed with obtaining life insurance through the agent.

Step 1 of the Term Life Insurance Application Process – The Application

Shortly after giving the go-ahead to my agent that we wanted to proceed with obtaining life insurance through him, my wife and I were contacted by a third-party hired by the insurance company (Protective Life) to handle the application process.

The questions they asked us to provide answers for were pretty straight-forward and expected (everything needed to assess when we would potentially die and our ability to the pay the annual insurance premiums):

• Current and past job information, including salaries.
• Checking, savings, and retirement account information.
• Information about what debt we currently are carrying.
• Current and past health information, including history of diseases in family, health problems, and doctor contact information.

Step 2 of the Term Life Insurance Application Process – Health Exam

After completing the paper/electronic application, my wife and I set up appointments for a comprehensive life insurance exam through another 3rd party (ExamOne, part of Quest Diagnostics).

The health exam included getting our physical vital signs taken (heart rate, blood pressure, etc), a question/answer interview session about our health history, and blood + urine samples submitted for an in-depth battery of tests for indicators of the function of our internal organs. Being a scientist myself, I was pretty impressed at the large number (approximately 30) of test endpoints that our blood/urine was measured for.

Step 3 of Term Life Insurance Application Process – Underwriting / Life Insurance Policy Approval

After we received the laboratory results from the health exam, our entire insurance application was reviewed by Protective Life’s insurance underwriters to determine our risk of death, insure-ability, and what level of premium to charge us.

In the end, my wife received the highest health rating (lowest premium pricing), and I received the 2nd highest health rating (2nd lowest premium pricing).  We then reviewed/signed Protective Life’s insurance offer to us. The finalized premium pricings are shown below. As expected, they were right on par with the online quotes and the preliminary quotes from the insurance agent prior to submitting our application.

• Cost of my policy – $49.49 per month
• Cost of my wife’s policy – $14.94 per month.

Protective Life – Universal Life Insurance Structured as Term Life Insurance

One interesting twist came up when I was doing the final review of the policy offers from Protective Life. Intriguingly, instead of issuing a straight-forward term-life insurance policy, Protective Life insurance issues term life insurance policies as Universal Life Insurance.

A usual universal life insurance policy features a portion of the monthly premium going towards building cash value in some sort of investment vehicle. However, the term-structured universal life policies we obtained from Protective Life had no dividend payments, and no premium goes towards building policy cash value. The policy is designed to have a level/constant face value and non-changing premium cost for the 20 year term that I requested.

After 20 years, the policy provides the flexibility to continue having life insurance coverage if I so choose. Each year after the 20 year period, the face amount of the life insurance coverage decreases, and after ~ age 80, the premium cost would increase. However, I don’t have any plans to continue the coverage after the 20 year period.

So, there you it – our journey of obtaining level-term 20 year life insurance policies. Overall, I was pretty satisfied with the process, and it wasn’t too much of a headache at all. We are happily paying our ~$65 per month of premiums through automated bank withdrawals, and we haven’t really noticed any significant difference on our monthly finances.

How about you all? Do you have life insurance coverage? If so, what type of insurance did you opt for? Did you purchase online or through an agent? 

Share your experiences by commenting below! 

Why a Debt Consolidation With Lending Club Can Make Sense

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

There’s been growing interest in borrowing through peer-to-peer (P2P) lending platforms in recent years. Lending Club, as the largest P2P lender, gets most of the attention. The amount of coverage the platform gets may not be an exaggeration, either. A debt consolidation with Lending Club can make sense – and a lot of sense at that.

It’s not always about getting a better interest rate. Lending Club claims that it’s borrowers reduce their interest rates by an average of 35% when consolidating debt or paying off high interest credit cards. But it’s not absolutely certain that this is true in all cases. After all, loan rate APRs on the platform range from 5.99% to 35.27%, so not everyone is necessarily getting a better rate on every loan.

Is it worth doing a debt consolidation with Lending Club, even if you aren’t getting a significantly lower interest rate?

Very often, the answer is yes, and here are the reasons why.

High Loan Amounts

If you have a large amount of debt to consolidate, Lending Club may be a better loan source since they make loans that are larger than what are typically available from other sources. Lending Club’s current maximum loan amount for personal loans is $40,000.

Unless you have a house that you can pledge as collateral for a home equity line of credit (HELOC), it is unlikely that you will be able to get a bank loan for nearly that much money.

And while credit card companies will periodically provide you with an opportunity to consolidate debt through a credit line – often with a 0% introductory rate – those credit lines rarely exceed $10,000.

If you have substantially more than $10,000 in credit card debt, neither a bank HELOC nor a credit card company credit line are likely to provide an opportunity to consolidate all of your debt.

But $40,000 borrowed through Lending Club will almost certainly enable you to consolidate several high interest rate credit cards, and maybe even a high interest rate car loan.

Loans Are Unsecured

Not only is $40,000 a very generous amount of money to borrow, but with Lending Club it’s also a completely unsecured line of credit. That means you don’t have to pledge important assets, like a house, a vehicle, business assets or a bank account in order to get the loan.

Try doing that with a bank loan that’s half that size!

Converting Revolving Debt to an Installment Loan

All loans taken through Lending Club are installment loans, for terms ranging from 24 months to 60 months. Both your interest rate and your monthly payment are fixed for the life of the loan, and the balance will be paid in full at the end of the term. At that point, you’ll be completely debt-free!

If you have a lot of revolving debt, converting it into an installment loan is the best way to make it finally go away. After all, revolving debt is set up that way precisely to keep you in debt forever. It’s the very definition of the word “revolving” – you keep circling around, always coming back to the same place. The entire arrangement is an intentional Catch-22.

But an installment loan can get you out of that debt trap.

You Can Apply Anonymously

It can be uncomfortable to sit through a face-to-face loan application with a bank. Not only does the banker know your name (and your face), but also the intimate details of your financial situation.

But if you apply for a loan through Lending Club, the entire process is done online – from the comfort of your home – and no one who invests in your loan ever actually knows who you are.

That will be a much more satisfactory situation for people who are deep in debt, and see themselves as somehow “impaired” as a result. It’s an embarrassment-free application process.

Near-Immediate Credit Score Improvement

Your credit utilization ratio represents 30% of your credit score calculation, and ranks second only to payment history (35%) as a factor in computing your score. Your credit utilization ratio can actually improve quickly after doing a debt consolidation loan.

Your credit utilization ratio is the amount of credit you have outstanding, divided by the total amount of credit you have available. For example, if you have $10,000 in outstanding debt, and credit lines totaling $20,000, your credit utilization ratio is 50% ($10,000 divided by $20,000).

Generally speaking, a ratio of 30% or less is considered to be a positive factor. As you exceed this level, the negative effect on your credit score increases. At 80% or more, the ratio indicates increased potential for loan default, and has a very negative effect. This is a situation where you can have a fair credit score even if you have an excellent payment history.

When you do a debt consolidation, you are moving debt from several credit lines onto a single loan. The amount of debt that you owe is the same, but the amount of your credit lines has increased by the amount of the debt consolidation loan.

If you have available credit $30,000, and you owe $20,000, your credit utilization ratio is 67%. That’s probably having a negative effect on your credit score.

But if you secure a debt consolidation loan through Lending Club for $20,000 to consolidate your credit card debt, your total available credit expands the $50,000. Your credit utilization ratio then drops from 67% to 40% ($20,000 divided by $50,000).

In addition, if the $20,000 original debt was spread across five different credit lines, you will now have just a single credit line with a balance due. That means that you will have substantially reduced the number of credit lines with outstanding balances. That’s another positive factor in your FICO score calculation.

All of this will have a positive effect on your credit score. Though there will be a negative affect as a result of having a brand-new loan (no payment history) it will soon be offset by the lower credit utilization ratio and by the smaller number of credit lines with outstanding balances.

In this way, the debt consolidation loan improves your credit score, in addition to making your debt more manageable.

If you are carrying an uncomfortable level of debt, check out Lending Club and see if a debt consolidation loan can help your situation.

How about you all? Have you tried any debt consolidation loans with Lending Club or elsewhere? What has been your experience?

Share your experiences by commenting below!

****Photo courtesy https://www.flickr.com/photos/lendingmemo/9526218147/sizes/q/

Why You Should Live on Less Before you Start Earning More

The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy! 

Should you spend less or earn more? This is a common question with a tough answer. While the answer heavily depends on who you are and what your financial situation and preferences are like, I’ve always been in favor of spending less and adopting a frugal lifestyle before you start to earn more. It’s one of the best ways to improve your finances quickly and truly get what you want out of life.

To fully understand the concept of spending less over earning more, you have to understand the benefits of earning more and how they are only sustainable after you’ve committed to living on less.

So why live on less when you can just work on earning more money right away?

Adopting a Frugal Mindset and Lifestyle Forces you To Work with What you Have

Living on less helps you prioritize your wants over your needs since there is a limited amount of money to go around. When you start living frugally and cutting your expenses, all of the sudden, budgeting becomes more of a necessity as you learn to strategically spend and save your money and make do with what you have.

When you have more money to spend, it’s easy to not take your budget seriously and splurge on items that you don’t truly need.

Back when I was in college and taking care of my son, I’d be happy if I earned $10,000 per year annually. While I definitely wanted to earn more money, I learned how to make ends meet so we could live comfortably and prioritize what our main expenses were, and which ones we didn’t need.

To help get through my low earning years, I gave up a lot of non-necessities and losing out on those expenses never made me any less happier. It actually gave me a relief because I didn’t have much to worry about each month.

Living on Less Motivates you to Learn More about Personal Finance

If you really think about it, why do most people turn to personal finance websites and resources? Often times, it’s because they want to learn more about how to manage the money they have, increase their income, get out of debt, or grow their money.

If your financial situation is perfect and you’re earning plenty of money, what motivation do you have to increase your knowledge about personal finance?

What piqued my interest in learning more about how to manage my money was having student loan debt and a low entry-level salary of $28,000 per year when I obtained my first job out of college. Today, I’m so thankful for my student loan debt because without it, I never would have started reading about personal finance nor started my own blog to document my journey out of debt.

Learning more about personal finance can educate and empower you to improve your habits and manage your money better but it all starts with living on less.

When you Should Work Toward Earning More

I’m definitely not against earning more. I just believe it’s crucial to understand that frugality can be a choice and not just a necessity. If you don’t have a lot of money, it’s obvious that you’re going to be interested in adopting a frugal lifestyle. But once you experience the benefits of frugality, it’s not hard to realize that you can choose to live frugally to optimize your income even when you do start earning more.

Ever since I graduated college a few years ago, my income has consistently doubled each year. While I’m so grateful to have the opportunity to increase my income, I realize that I could very easily be tempted to increase my spending and fall into lifestyle inflation as well.

Lifestyle inflation involves spending more just because you have more to spend. If you get a raise or start side hustling, it’s easy to want to treat yourself with the extra income you bring in and purchase something you feel you’ve always wanted. There is often no value behind this method of increased spending though and the extra purchases you make probably won’t help improve your life in the grand scheme of things.

If you spend everything you earn, you’ll never ever get ahead. This is why it’s best to start improving your finances by lowering your expenses and making ends meet with the income you have first. Then, when you start to earn more money you can use the additional income to go toward major goals like paying off debt, building your retirement fund, or saving up for a down payment on a house.

You’ll know that you’re ready to start earning more when:

• You’ve lowered your living expenses as much as you possibly could
• You’ve embraced frugality and gotten creative with making ends meet
• You’ve educated yourself about personal finance and determined how you will make the most of an income increase
• You know how to manage your money properly to avoid lifestyle inflation
• You want to earn more money to help meet your financial goals and work toward stability, not because you believe more money will make you happy

Once you’ve mastered the art of living well on less, you’ll know that you don’t actually need the extra money to live when you start to earn more and you can use it for other purposes.

How about you all? When it comes to spending less and earning more, do you favor one concept over the other? Do you use both strategies to improve your finances?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/bradipo/4333249778/

Top Resources for Aspiring Investors

The following is a guest post by Ben Barlow. Enjoy! 

Whether you’re a novice trader or someone with a rich history of trading, it still remains a very difficult way to make money. Markets are difficult to predict and move quickly, meaning that you need to act fast when executing trades, spotting patterns before anyone else. As such, you need all the help you can get. Luckily, a number of tools are available. Here, we take a look at the top resources for aspiring traders.

• News Sites – Get to Know the Market

It may sound a little boring, but the best way to improve your trades is to read, read, read. Markets fluctuate based on world events so, by logic, the more you know about world events the easier it will be to make informed trades.

Start by continually reading reputable sites such as the BBC, which is widely used for technical analysis. When you have a good grip on the geo-political situation, expand your reading further to include more complex financial sites, such as the Financial Times. Here, going online is far better than buying a broadsheet, as the information is more up to date.

• Trading Calculators – Know the Rate Information

When you’re calculating your trades, it’s important to know exactly what’s at stake.

All you have to do is input your appropriate currency, account currency, leverage and position size. Once you’ve hit enter, you’ll have all the information you need to trade with. A good calculator should even be able to factor in the fees.

Calculators can be used to work out how much margin is needed to open a position, or you can use a profit calculator to see how much you stand to make from a trade. It’s simple and only takes a few clicks – there’s no need for pen and paper ever again.

• Apps – Trade on the Move

In the 21^st century, there’s absolutely no reason why you shouldn’t be monitoring your trades on the move. The markets move so quickly and with every second you’re away from the screen, you’re risking your profits.

To ensure you have all bases covered – even if you have stop-losses – ensure that you download as many trading apps as possible. Thanks to free public Wi-Fi and fast 4G networks, you should have no problems accessing them.

To conclude, tools are essential when you’re trading and they can prove a great help. Let us know about any of your favourites.

Why an IRA is the Best Use of Your Tax Refund

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

The 2015 tax season came to an end on April 18, or at least for those who do not need to file for an extension. Now comes the blessed tax refund process. And with that, comes decision time – will you spend the money on something that you need or want right now, or will you invest the refund to improve your long-term financial picture?

It’s a more important question than most of us think. According to the IRS, the average federal income tax refund for the 2014 tax year was $3,120. While that isn’t the kind of money that could change your life today, it could have a major positive impact if you handle it as part of a long-term strategy.

Investing your tax refund in an IRA could represent just such a strategy. Here are five reasons why an IRA is the best use of your tax refund.

Turning “Found Money” into a Long-term Asset

If you choose to spend your tax refund immediately, you can certainly get a “short-term high”. It could be spent on a much desired vacation, a room full of furniture, or even used as the down payment on a new car.

As exciting as those options would be, every one of them would have zero value after a few years, including a new car (since cars depreciate all the way down to near zero). But if you choose to invest the money, it will become a long-term asset, and part of your financial portfolio for potentially the rest of your life.

While it’s always fun to spend money in the short run, it’s your ability to invest for the long term that ultimately determines your financial future. Investing your tax refund in an IRA will turn a temporary windfall into a permanent asset.

Making a Contribution While You Have the Money to do it

We all have good intentions when it comes to saving and investing money. But sometimes reality gets in the way, and the planned savings strategy never happens. If you always desire to invest for the future, but never seem to have the cash to do it, receiving your tax refund is the best time to make it happen. The money will be available, and all you have to do is transfer it into an IRA account.

One of the big advantages of depositing a tax refund into an IRA is that it represents a way to kickstart your savings and investment plan. With your tax refund safely squirreled away in an IRA account, you may then have the motivation to continue funding it, all the way up to the maximum contribution of $5,500.

Converting a Windfall into a Perpetual Cash Flow

We’ve all heard the term the gift that keeps on giving, and that’s basically what an investment plan does. You are investing cash now, to create more cash later. That is a form of creating a perpetual cash flow.

In the case of making an IRA contribution with your income tax refund, if that amount of the refund is the IRS average of $3,120, and you invest it in your IRA at 8%, the account will provide you with cash flow of $250 over the first 12 months. And because of compounding of interest, future cash flow amounts will be higher in each succeeding year.

We can think of using your tax refund to fund an IRA as a way of converting cash into a cash flow. Millionaires learn that strategy early in life, and that’s largely how they become millionaires.

Getting a Jump Start on Early Retirement

It doesn’t matter how young you are, almost everybody thinks about and dreams about early retirement. Putting your income tax refund into an IRA each year could make that dream a reality in your life.

Let’s say that you are 25 years old, and for the next 30 years you commit to moving your annual tax refund – averaging $3,120 per year – into an IRA, instead of spending it now. At an average annual rate of return of 8%, your contributions will grow to $366,230 by the time you’re 55 years old.

Even if you are not making a serious effort to retire early, accumulating that kind of money well before traditional retirement age could create the opportunity to do just that. The accumulation of large amounts of money has a way of turning dreams into reality.

For what it’s worth, if you continue with the same pattern of investing your tax refunds each year until age 65, you will have $837,495 for the effort. That kind of IRA could make retirement a reality in your life, even if you have no other retirement savings available at the time.

Setting Up Another Tax Deduction for Next Year

Earlier we talked about using the cash from your income tax refund to create a cash flow; but you can also use it to create another tax deduction. If you are eligible to make a tax-deductible IRA contribution, then the amount of the tax refund going into your IRA will create a new deduction for the current tax year.

If you are in the 25% tax bracket for federal tax purposes, and say, 7% for your state, depositing a $3,120 tax refund into an IRA can reduce your tax bill by $998 (32% X $3,120). That’s like getting a 32% return on your tax refund just for putting it in the right place. Or using your tax refund from this year to build an even bigger refund next year.

How about you all? Can you think of a better place to put your 2015 income tax refund? What do you have planned for your refund?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/pictures-of-money/16687016624/sizes/q/

Money Tips for High School Grads

The following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

Graduating from high school often means taking that first step into adulthood and independence, and it’s the perfect time for graduates to learn how to handle the increase in income that will likely be coming their way.

When I was a teen, personal money management tips simply weren’t taught to the majority of kids. According to this Fox Business article, a full 83% of teens surveyed in today’s world also admit they know very little about money management.

I know that for me and my husband, our lack of education on how to manage money led to oodles of debt. Neither of us were taught anything about managing money, and that lack of knowledge led to many financial mistakes that cost us tens of thousands of dollars (in interest paid) and tremendous stress to boot.

As such, we’ve committed to teaching our kids the money tips we think will best benefit them as they enter the world of adulthood and independence. Here are the 7 money tips we’ll be teaching our kids by the time they graduate from high school.

Create Financial Goals

Many people mismanage their money simply because they haven’t determined what they want from it. When you create financial goals, you give your money a purpose, which helps you to avoid spending it on instant gratification items such as unlimited drive-thru runs and an excess of electronic gadgets.

Think now about what you want out of life from a financial standpoint, and write down a list of specific financial goals for yourself. Avoid blanket statements such as “I want to be rich”, and instead make measurable goals such as “I want to have $1 million in savings by the time I’m 40”. Then make a solid plan to achieve those goals.

By creating financial goals for yourself, you determine ahead of time how you want to make your money work for you.

Live Below Your Means

In simple terms, what this means is that you refuse to spend all of your money each payday. Decide on a portion that you can spend that will allow you to pay the bills and to achieve your financial goals, and leave the rest in the bank.

Automate Your Savings

As soon as you start earning a regular paycheck, set up a system – either through your bank or through your employer if it’s available – where a certain percentage or dollar amount of your paycheck goes directly into a savings account.

By developing the habit of automating your savings, you will easily grow a healthy savings account that can be the source of a home down payment, a plush emergency fund or an early retirement fund.

Start Retirement Investing Early

If you end up getting a job that offers a 401(k) plan, sign up early and start investing for your retirement years right away. If your job doesn’t offer a retirement plan, begin saving for retirement on your own by opening an IRA.

For young people, retirement investing often seems pointless as the retirement years seem so very far away. However, those early years of retirement investing will give you the advantage of compound interest in a big way, ensuring that you are set for a lush lifestyle during retirement should you want it.

Avoid Getting Caught up with the Joneses

The further along you get in your working years, the more you’ll see many of your peers spending money on the “big things” in life such as homes, cars, vacations and expensive clothing.

The thing that your parents and grandparents likely know from experience is that keeping up with the Joneses is like running on a hamster wheel – you work your tail off and never get anywhere.

Be sure that when you’re making purchasing decisions that you make them based on what’s best for you and your financial goals, and not based on gaining the approval of others.

Look for Money Mentors

If there are people in your life that manage money well, ask them if they would be interested in sharing their financial wisdom with you. Having a money mentor will help you to avoid many of life’s financial pitfalls and will allow you the benefit of learning from someone else’s money mistakes instead of having to learn from making your own.

Wait 72 Hours Before Making a Large Purchase

When considering a large purchase (anything over $100 is a good starting point), make a decision to wait 72 hours to see if that item is something that you truly want. Establishing this habit will help ensure you don’t blow big wads of money and then end up suffering with buyer’s remorse.

Earning an income is hard work no matter what type of job you have. By managing the money you’ve worked so hard to make in a smart manner, you’ll put yourself in a financial position down the road where you can have more choices about what you want to do in life.

How about you all? What is your best money tip for high school graduates?

Share your experiences by commenting below!

***Photo courtesy https://pixabay.com/en/girl-graduate-young-female-410175/

Parents Need to Know How to Teach Kids the Value of Money

The following is a guest post by Tina Roth. Tina is a personal finance blogger at Pro Finance Blog, who loves to write about money management and saving habits.

Children start learning from the age of 2 or 3; they learn from the environment they grow up. Responsible parents provide them with a healthy learning environment and instill an enthusiasm for learning into them.

But there’s something that even the most responsible of them tend to ignore, which is, teaching kids about money. According to child psychologists, kids should be taught about money from a very tender age.

 

A tabula rasa

Such is the mind of a child, and what’s intriguing is the initial scratch marks that disturb the blank state, stays there forever (Maybe not forever, but for a very long time). Whatever education a child receives, be it good education or bad education – stays with him.

If parents are extravagant or irresponsible with money, so would be their kids. The learning styles of children are unique, their learning circuits are more active than their parents could imagine. They learn from everything around them. So parents need to act responsibly with money, and follow the tips given below:

 

Play money games

One way to make kids responsible with money is playing games with them – games that are apparently silly but has a deep and sublime lesson to deliver, a lesson that relates to money.

One such game is coin identification. The game is played with toddlers, who learn to distinguish between nickel, dime and cents. Kids remember the names of the coins and the symbols on them. How can this game benefit them? By teaching them how to count money.

Games that involve savings are more helpful; those games should be played with 5-year olds. Kids should be given a target of savings. If they succeed in meeting the target, rewards should be handed to them. Rewards serve as motivation. Playing such games at an early age can turn kids into habitual savers when they grow up.

 

Affordability signals

Kids have an innate ability, they can sense anxiety, disapproval, anger and other negative emotions in adults. They even react to those emotions. If parents display negative emotions while dealing with money related matters, kids will learn it, which is why, parents should never give negative affordability signals.

What type of signal is negative affordability signal? Kids often ask for toys or superhero costumes, which are expensive; their requests meet with rejection. When they ask parents why are they not buying the stuff, parents reply they can’t afford it. Such replies are negative affordability signals.

Instead of giving such replies, parents should tell their kids that they can buy it, but choose not to buy because there are better and wiser ways to spend money. What are those ways? You may ask. This takes us to our next point:

 

Good and bad investment

Children should be taught about good and bad ways to invest money, so that they don’t take wrong investment decisions later in life. When conversing with an adult, you can describe an investment as good or bad investment in terms of the result it produces – profit or loss. But with kids, you need to take a separate route.

Describe safe investments as good investments and unsafe investments as bad investments. This is by far the most logical way to categorize investments. Tell stories to your kids and let them process those stories.

Tell them stories of stock market investments, how sloppy investors ended up broke overnight. Tell those stories to your kids painting risky investments as bad as safe investments as good. But there’s a risk that such stories will make them risk averse. How to eliminate the risk?

 

Struggle and wisdom

You can eliminate the risk if you connect money to struggle and wisdom. Teach your kids the truth about money, that earning money requires a lot of hard-work and wise investment decisions.

True, there are shortcuts, but shortcuts are either ethically wrong or legally wrong or both. Your kids may have a penchant for quick ways to earn money and the media and the pop culture may fuel it, but if you convince him that choosing shortcuts can never lead to financial freedom, then he might eventually suppress his proclivity for shortcuts.

Once again, tell him stories of successful people whose struggle and perseverance have led them to success. Such people are Warren Buffet, Bill Gates, Chris Gardener, Steve Jobs, etc. Buy your kids books that highlight on the motivational aspects of rich people, so not only their wealthy lifestyle but the ladders they climbed be known to your kid.

 

It takes time

The purpose of teaching kids about money is make them equipped to handle money-management in their adult life. This is a complicated process and will take time. Responsible parents need to act patiently and monitor the progress. The tips given above can be of help.

Raising Kids on the Cheap

The following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

According to the latest numbers, the average cost to raise a child in the U.S. is just over $245,000. This is how much it costs just up until age 18, not including college costs. Or so the experts say.

But we’re raising our four kids on MUCH less than that. I’d be willing to bet that we spend less than half of the average to raise our kids. So, what’s our secret? Is it really necessary to spend a quarter million dollars to raise a kid?

Here’s how we reign in kid-raising costs and save more money to put toward building our future and our kids’ futures as well.

Keep a Lid on Grocery Costs

The average family of four spends a lot of money on groceries. Whereas the low-cost meal plan for a family of four is said to cost $786 a month, the liberal-cost meal plan for a family of four comes in at $1195 a month.

Our family of six keeps grocery costs to no higher than $450 a month. Here’s how we keep grocery costs low, thereby effectively reducing the amount of money it costs to raise our kids:

• We meal plan. By mapping out a weekly meal plan each week and shopping only according to what’s on the meal planning list, we avoid the rush of take-out meals and restaurant trips that happen because “there’s nothing in the house”.
• We avoid pop, chips and other processed foods. By purchasing mostly whole foods we avoid the costly purchase of pop, chips and the like and save those things for special occasions.
• We avoid random trips to the grocery store. We get what we need for our weekly meal needs, and then stay out of the stores until the next week.
• We cook from scratch. By planning meals that we can make from scratch, we save the extra cost that often comes with processed foods. We make many of our meals on the weekend and freeze them so that we can just pop a meal in the crockpot or oven to make for a quick dinner meal.

Learning to keep grocery costs low goes a long way in reducing the amount of money it costs to raise a child.

Be Choosy About Extracurricular Activities

Too many extracurricular activities can overwhelm your child and your pocketbook. In order to save both time and money, pick 1 or two extracurricular activities per year that your child really loves, and enroll your child in those activities only. By allowing your child to focus on a limited number of activities, you’ll give them the ability to focus on and learn what they truly like and don’t like to do. And you’ll save tens of thousands of dollars in the process.

Be Smart About Clothing Purchases

Yes, it’s important for kids to have name-brand clothing that’s “in”, especially in the junior high and high school years. However, that “in” clothing doesn’t have to break the bank. Work to find quality used clothing for your kids, and to pick one or two expensive items that are important to your child. Older children can be allowed to have more say in what clothing is purchased.

When I entered middle school, my mom started giving us kids a small yearly clothing budget. Whether we wanted to buy one item or a thousand items with that money, the choice was ours. This helped us to think carefully before we bought clothing and to find a balance between fashion and frugality.

Go Easy on the Gadgets

It wasn’t too long ago that I heard someone complain that their child’s $600 iPhone really put a strain on the family finances. Your kid may need a phone, but does he really need a $600 phone? Work to be frugal when deciding on electronic purchases for your kids. Set an affordable and reasonable budget for electronic purchases instead of buying your child “the best of the best”.

Or work out a plan where you pay half of the cost of a gadget but your child has to save up the cost of the other half so that you can spend less and help your child get a first-hand understanding of the value of a dollar.

Don’t Teach Your Child That Money Grows on Trees

Just because your child asks for X dollars a week so that they can have unlimited fun with friends doesn’t mean you have to give it to them. Even the ultra-rich Donald Trump gave his kids a minimal weekly spending allowance.

Assign your kids chores around the house for which they can earn spending money, or set a small weekly spending allowance for them so that they can learn to be choosy about purchases and to live within their means.

Consider Day Care Costs

Working doesn’t just bring in money – it costs money to work as well. Transportation, clothing expenses and oft-expensive lunches out can eat up a good chunk of one’s income. Another thing that can eat up a good chunk of one’s income is daycare expenses.

If daycare, transportation and other work costs are eating up too much of your income, consider having one parent stay home with the kids if it’s possible in order to avoid day care costs.

While staying at home doesn’t work for every family, in some cases it’s truly more cost-effective for one parent to stay home.

What kids need most from their parents isn’t a never-ending stream of cash; they need love, support and healthy boundaries. “The best” for your kids has very little to do with how much money you spend on them. And as a bonus, a financially healthy household will help ensure your child isn’t burdened with supporting you financially as you get older.

How about you all? How have you been able to save money while raising children? What other tips or tricks do you have on the subject?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/calliope/1776265241/