5 Ways How You Value Money Affects Your Finances

5 Ways How You Value Money Affects Your Finances

Lee Huffman  Sun, September 4, 2022

Investors value money differently based on their experiences, goals and beliefs. This process is known as mental accounting, and it often affects how we budget and spend our money. Mental accounting can also affect our investment decisions, leading us to make choices that make it harder to meet our goals. Learn more about mental accounting, including how it applies to finance and whether or not you should use it to make decisions.

For more help with financial planning, consider working with a financial advisor.

Mental Accounting Definition

Mental accounting describes how two similar people choose to spend their income based on how each person values money differently. In many ways, these criteria are subjective, and investors weigh each of the categories differently, which complicates the topic even further.

Sometimes, mental accounting is detrimental and can make it harder for investors to reach their financial goals. This can happen when people view money decisions in relative terms instead of absolute terms.

Behavioral economists study the concept of mental accounting and how it affects our financial decisions ranging from daily spending to long-term investing. The concept was defined by famed economist Robert H. Thaler.

How to Use Mental Accounting in Financial Planning

In mental accounting, people treat money differently based on where it came from and how it is supposed to be used instead of treating every dollar the same. With investing and budgeting, people can treat their money differently in many ways. Here are a few examples:

Tax Refunds

Although a tax refund is getting a portion of the money withheld from your paycheck, many people view it as found money. They don’t always respect the time and effort it took to earn that money and, instead, feel that they can splurge when they get a refund. The money, which amounts to an interest-free loan to the government, may be used to fund a vacation, buy a big-screen TV or fund another purchase that they normally wouldn’t make.

If this happens to you, adjust your withholding rates to reduce your tax refund. This will give you extra money in every paycheck. Or consider using the money to build your emergency fund or contribute to this year’s Roth IRA.

Inheritance

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How I Got Rich Without an Inheritance

How I Got Rich Without an Inheritance

Jacob Wade   Mon, May 8, 2023

Have you ever dreamed of becoming rich?

While it can seem like an impossible task, becoming a millionaire isn’t just a dream, but a reality for everyday Americans, even without an inheritance. And while having a rich uncle is nice, learning what it takes to build a high net worth is much more valuable.

Nate Nead, Principal at Invest.net, shares with us five tips on how to grow your net worth from nothing to millionaire status before you retire. And while some things in this list might feel like common sense, Nate has actually walked the walk to show that these tips work. Here’s how to get rich without an inheritance.

Start a Business

Starting a business is challenging, but it is one of the few ways to earn money that has unlimited income potential. If you want to build real wealth, a business can help you get there quicker than other paths.

“As someone with more than ten years of experience in the business world, I can tell you with confidence that starting and running your own successful business is one of the most reliable ways to build wealth,” says Nead. “With my company bringing in seven figures annually, it’s given me ample opportunities to explore investments such as stocks, cryptocurrency, and real estate.”

Building a business from scratch takes quite a bit of time and effort, but it can be worth it in the long run.

Invest in Stocks (and Diversify)

Once you have locked in a career or built a business that brings in ample income, you need to put any extra funds you have to work. One of the best (and easiest) ways to do this is to invest in the stock market.

Investing in low-cost index funds can help you access the entire market in a single fund, and can grow your money over the long-term. But to speed up the process, taking time to research individual stocks can also result in larger gains.

“When it comes to investing in stocks” says Nead, “I’ve been very meticulous about researching different companies carefully while spreading out my portfolio strategically so as not to expose myself too much to risks.”

Investing in individual stocks can lead to larger gains, but as Nead mentions, you need to be careful to diversify your portfolio into multiple investments and asset classes to lower your overall risk.

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https://finance.yahoo.com/news/got-rich-without-inheritance-183006813.html

How Much Money Can I Give Away Without ‘Incurring a Tax Issue With the IRS?'

How Much Money Can I Give Away Without ‘Incurring a Tax Issue With the IRS?'

Ask an Advisor: I Want to Give Money to My Son and Daughter-in-Law. How Much Money Can I Give Away Without ‘Incurring a Tax Issue With the IRS?'

Michele Cagan, CPA   Tue, May 9, 2023

How much money can I give to my son and daughter-in-law without incurring a tax issue with the IRS?-Irwin

For 2023, you can give your son and daughter-in-law each $17,000 without having to deal with the IRS. But even if you give more, you won't have to pay any taxes right now. In fact, unless you surpass the lifetime limit, currently around $12 million, you won't have to pay any gift taxes.

An experienced financial advisor can help you navigate those rules, so you can continue to give gifts to the people you love without having to worry about gift taxes.

What Is Gift Tax?

The gift tax is a federal tax that may be imposed when you give someone property or money, and they don't give you something of equal value in return. The IRS sets limits on how much you can give other people each year and over your lifetime. If you give more, you could end up owing taxes, but not until you cross the lifetime limit.

Gift tax rates are steep, starting at 18% and topping out at 40%. The person giving the gift pays the tax. (A financial advisor may be able to help you navigate the tax consequences of your gifting strategy.)

Gift Limits and Lifetime Exemptions

The annual gift limit usually changes every year. For 2023, the limit is $17,000. That means you can give anyone up to $17,000 without having to deal with the gift tax.

There's no limit on how many people can receive your gift. So you could hand out $17,000 to 10 people and not trigger any annual gift tax issues. You can also give the same person up-to-the-limit gifts every year with no tax implications.

If any gift exceeds the annual limit, you'll file a gift tax return on IRS Form 709. This is purely an informational return with no tax due until you cross the lifetime limit of $12,092,000 (for 2023). Only the excess portion of the gift starts to whittle down that lifetime exemption. For example, if you gave your niece $20,000 in 2023, you would file a gift tax return and deduct $3,000 of that from the lifetime exemption.

What Counts as a Gift?

Any time you give someone money or property, and they don't return something of equal (or close to equal) value, that counts as a gift. For example, if you give your sister your old car when you get a new one, that's a gift. Other examples include contributing $20,000 to your grandchild's 529 plan or treating your best friend to an all-expenses-paid vacation.

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The Mindset Of Millionaires — How Their Views Can Lead To Financial Success

The Mindset Of Millionaires — How Their Views Can Lead To Financial Success

Jeannine Mancini   Mon, May 8, 2023

After more than 26 years of interviewing some of the world’s wealthiest individuals, self-made millionaire and author Steve Siebold compiled his findings into the widely acclaimed book “How Rich People Think.” By exploring the mental attitudes and strategies of successful individuals, Siebold’s book has helped countless readers unlock their own potential for financial success.

Studies reveal how rich people’s mindset differs from those who are not wealthy and how this contributes to their financial success.

One such study conducted by researchers at Brigham Young University in 2019 found that wealthy people tend to have a more positive and optimistic view of the world, while those who are less wealthy tend to have a more negative and pessimistic view.

For world-class thinkers, creating massive value for others is the key to becoming rich. They also believe that starting a business is the fastest way to make money, while the average person sees it as too risky. Siebold contends that having a job is no safer than owning a business, and those who work for themselves have the power to proactively seek out business and increase revenue at will.

Another belief of the wealthy is that the ability to amass wealth has more to do with street smarts and savvy than the ability to memorize information and excel on exams. They also believe that building wealth takes a team effort, while the average person sees it as an individual effort. Who you surround yourself with has more of an effect on your net worth than you may think.

The wealthy see making money as simple, but not necessarily easy. Money flows from ideas and problem-solving, which are skills that can be learned and developed. They also believe that creative thinking is the highest-paid skill in the world.

Studies have shown that wealthy people tend to have a different mindset when it comes to investing, with a long-term view and a focus on creating diversified portfolios that generate consistent returns over time.

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/mindset-millionaires-views-lead-financial-200354874.html 

4 Alternatives To Checking Accounts

4 Alternatives To Checking Accounts

GoBankingRates.com

A traditional checking account is the workhorse of the personal finance world.

According to a new GOBankingRates survey of 1,000 adults, more than nine out of 10 people have one, making them more popular than savings accounts — the No. 2 most common type — by nearly 20 percentage points.  People use checking accounts to receive direct deposits, make debit card purchases, transfer funds and, of course, write checks.

But the old-school, utilitarian checking account is long overdue for a makeover — and plenty of alternatives are vying to become your home base for personal money management.

Here’s a look at the most promising options. Plus, check out GOBankingRates’ best online checking accounts.

Ditch Your Old-Fashioned Checking Account for a Neobank

Many people have abandoned brick-and-mortar institutions for online banks, which typically have superior technology, better rates and fewer fees.

But there’s another digital-only option that could satisfy your checking needs and then some.

“Another alternative to traditional banks is neobanks, which operate exclusively online, typically through an app,” said Laura Adams, MBA, personal finance expert with Finder.com.

If you don’t know the term, you’re safely in the majority. Just a tiny sliver of the study’s respondents — 0.3% — keep their cash in one.

Even so, the concept is familiar to anyone who keeps their money in a digital bank.

Neobanks exist purely online with no branches or other physical infrastructure and they’re known for offering better rates and a more seamless technological experience than brick-and-mortar banks, which pass their enormous overhead costs onto their customers.

But that could just as accurately describe Ally Bank, which doesn’t qualify as a neobank.

So, What’s the Difference Between Neobanks and Online Banks?

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How To Transfer Money From Savings Into a High-Yield Savings Account

How To Transfer Money From Savings Into a High-Yield Savings Account

GoBankingRates.com

Young beautiful woman dressed in stylish outfit transferring money using online banking service on laptop computer connected to wifi.

Switching banks is a chore that requires you to update your information for all direct deposits, automatic payments, subscriptions and recurring transfers to linked accounts. You’ll be getting a new debit card, account number and routing number, and you’ll have to download and navigate a new and unfamiliar app.

That’s a headache — but for the first time in years, the juice might be worth the squeeze.

More From Your Money: Choose a high-interest saving, checking, CD, or investing account from our list of top banks to start saving today.

Despite aggressive Fed rate hikes, the national average savings rate is still just 0.33% — but you can earn 10 times that or more by transferring your money to a high-yield savings account.

Look to Small Banks for Big Yields

When the Fed began raising its benchmark rate to tame inflation, some banks followed its lead and paid their depositors higher yields after years of paltry returns — but others did not.

Each institution sets its own rates, but according to the New York Times, one clear trend has emerged. Big corporate banks with a national or global presence have not raised their savings yields in any meaningful way despite the Fed’s action because they didn’t have to. The giants are flush with cash and simply don’t need to pay more to incentivize deposits. The little guys, however, aren’t so fortunate.

If your savings are languishing in a big bank, you’re probably earning somewhere between 0.01%-0.23%, which is their way of telling you they don’t care if you stay or go. On the other hand, smaller institutions and online banks want your business so badly that they’re willing to pay 3%, 4%, or — in at least one case — 5% to earn it.

It’s time to recognize their efforts.

Steel Yourself for the Switch

Changing banks can be a stressful situation even if you’re making a lateral move. But if you’re switching from a big corporate bank to a small institution — especially an online bank, where many of the best rates are hiding — you’ll have to prepare yourself for an entirely new banking experience.

Things to consider include:

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Cutting Out These 24 Expenses Will Save You Over $15,000 a Year

Cutting Out These 24 Expenses Will Save You Over $15,000 a Year

John Csiszar   Sun, May 7, 2023

When it comes to living expenses, the truth is that most Americans subsist on a very thin margin, even if their earnings are solid. A recent survey from LendingClub and PYMTS revealed that about 51% of Americans who earn over $100,000, are living paycheck to paycheck.

The good news is that if you take a closer look at how you live, you'll likely find many areas where you can trim expenses and give yourself an extra buffer.

See what expenses you could cut from your budget, how you can save thousands of dollars in the process and how you can better invest the money instead.

1. Credit Card Interest

Monthly Savings: $64.47

Annual Savings: $773.61

Every month that you don't pay your full credit card balance you'll be charged interest. That's essentially money you're throwing away. The average American has a monthly credit card balance of $7,279, according to a recent report from LendingTree. With an average annual percentage rate of 19.07%, many Americans can save big on fees by getting rid of their credit card debt.

Let's assume you've built up the average amount of credit card debt and want to pay it off over the course of a year. By the end of that year, you'll have paid $773.61 in interest, according to Credit Karma's debt repayment calculator.

2. Life Insurance

Monthly Savings: $33

Annual Savings: $430

Life insurance is an essential benefit for many because it provides protection for spouses and heirs in case the primary breadwinner dies unexpectedly. This can be especially important if the family has a mortgage or other debts to pay off. The annual premium for a healthy 35-year-old male for a $500,000, 20-year term policy is about $430, according to CNN.

But if you have no dependents, you likely don't need life insurance and might consider canceling your policy. Another option is to look for a job with employer-paid life insurance.

3. Brokerage Commissions and Fees

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https://finance.yahoo.com/news/cutting-24-expenses-save-over-162049715.html

The Limit Does Exist: Legal & Savings Bank Withdrawal Limits

The Limit Does Exist: Legal & Savings Bank Withdrawal Limits

Eric Reed   Sun, May 7, 2023

Just about every bank puts a limit on how much cash you can withdraw each day. In part, this is a security feature to prevent thieves from cleaning out unauthorized accounts. In other part, this helps banks and ATMs to stabilize liquidity. If accessing cash, especially on an unscheduled basis, is important to you, here’s what you need to know about daily withdrawal limits from a personal account at a commercial bank.

If you’re not sure what type of financial institution should keep your money then you may want to consider working with a financial advisor.

What Are Withdrawal Limits?

A daily withdrawal limit is the maximum amount of money you can withdraw from your bank account in a single day. These limits largely exist for two reasons.

The first is to manage cash flow and liquidity. Banks keep a limited amount of cash on hand at any given time, as do ATMs. By setting withdrawal limits, the bank can control how much they have to distribute at any given time.

Just as importantly, if not more so, withdrawal limits are a security feature. By limiting daily withdrawals, banks help protect their customers against unauthorized access. Even if someone gets your debit card and PIN number, there’s a limit to the damage they can do.

There are three main categories of withdrawal limits:

ATM Withdrawals

This is by far the most common use of the term “withdrawal limit.” Your bank’s ATM withdrawal limit is the maximum amount of physical cash you can take out of an ATM in one 24-hour period. For example, many banks have a $500 limit, which means you can’t take out more than $500 in cash during a single 24-hour period.

Typically banks apply the ATM limit cumulatively, across all ATM transactions in a single 24-hour period. This means that it is not a limit on how much you can withdraw at once, but rather a limit on how much you can withdraw from ATMs altogether over the course of a day.

While your bank sets a limit on ATM withdrawals, individual ATM operators can do so as well. This limits how much money you can take out of that operator’s machines over the course of a single day.

For example, say your bank has a $1,000 withdrawal limit and you use an ATM with a $600 limit. This means that you can withdraw up to $600 from that ATM operator’s machines in a single day, but you can withdraw an additional $400 from other ATMs before hitting your bank’s limit.

If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

Cashier/Teller Withdrawals

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Two Documents You Should Have for End-of-Life Planning

Two Documents You Should Have for End-of-Life Planning

04.08.2020 | Category: Understand how life insurance works

Talking about the type of care we want in our final days is something our culture tends to avoid, but a growing number of people believe that the value of such conversations far outweighs the discomfort.

As important as it is to talk about our end-of-life wishes, it’s just as important to create a legal record of those wishes. To ensure that your wishes are carried out, especially if you become physically or mentally incapacitated and unable to express those wishes, experts from both the health care and legal professions recommend you have two important documents in place:

A living will

A durable power of attorney for health care

Retaining an attorney to create these documents is recommended to be sure they are prepared correctly to meet the requirements of your state. However, it is not always necessary, or legally required, to have an attorney create these documents.

Numerous organizations offer templates of both of these documents, including CaringInfo (a program of the National Hospice and Palliative Care Organization) and Aging with Dignity’s Five Wishes program. Five Wishes has documents available in 29 languages and meets the legal requirements in 44 states, and is widely used in the other six states with the completion of one additional step. If you use an online template, make sure that it’s specific to the state you live in, since requirements vary from state to state.

Here’s some information on what each document is for and why they’re so important.

Living Will

A living will, also known as an advance health care directive, is a legal document in which you give instructions regarding your preferences for medical care in the event you are unable to make decisions for yourself. Living wills provide guidance for doctors and caregivers in instances such as terminal illness, coma, late-stage dementia or end-of-life care.

Why you should have it: By planning ahead, you can get the medical care you want and avoid care you don’t want. A living will can relieve your loved ones and caregivers of having to make what could be agonizing decisions. It can also help minimize confusion or disagreement about the choices you would want people to make on your behalf.

A living will forces you to answer difficult questions about end-of-life care. You may want to consult your doctor about what to include in your living will. Medical situations and procedures that can be addressed in a living will include the following:

Instructions on tissue or organ donations

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3 Things To Sell When You’re Ready To Take Your Wealth to the Next Level

3 Things To Sell When You’re Ready To Take Your Wealth to the Next Level

Yaёl Bizouati-Kennedy  Sat, May 6, 2023 If you’re financially stable and want to take your wealth to the next level, there is a rather easy way to go about it: Sell some of your most valuable goods. Some of these items might be even more valuable than anticipated, enabling you to convert the newly earned cash into investments — and ultimately generating more wealth.

 “We often overlook the potential value of the items we’ve collected over the years, but what might seem like clutter to us could be a dream purchase for someone else,” said Andrew Latham, CFP and managing editor at Supermoney.com.

That luxury watch gathering dust in your drawer, the designer handbag you haven’t used in years or that vintage audio equipment stored away in the basement could be the key to unlocking a new world of financial opportunities, said Latham.

“By identifying and selling these high-value items, not only do you declutter your space, but you also create an opportunity to invest in your future and turn your once-forgotten possessions into long-lasting wealth,” added Latham.

Jewelry

“I  have evaluated thousands of jewelry items and have helped many people turn what they thought was junk jewelry into considerable amounts of cash, said Matt Harris, certified pearl specialist and pearl jewelry designer at Matt Harris Designs.

Harris said that when he ran a consignment store, he came across a lot of people selling either inherited pieces of jewelry they never wear, or pieces — such as engagement rings — that former partners offered, as well as pearls.

“You’d be surprised at how many people have no idea what their jewelry is worth,” said Harris. “Take gold for instance: It is at almost an all-time high, today trading at $2,020 per ounce. Just over 20 years ago throughout 2002 it hovered in the $200s.”

In addition to gold, Harris noted that Burmese sapphires, red spinel, Columbian emeralds and many other gemstones have skyrocketed since the ’80s but the average jewelry owner has no idea what they have or what it could be worth.

Harris recommends going to a reputable consignment store, or to a local gemologist or gem dealer, who can be very valuable in helping turn these old collections into cash.

Take Our Poll: Would You Put All of Your Savings in an Apple Savings Account?

Handbags

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10 Ways To Build Wealth Fast

10 Ways To Build Wealth Fast

John Csiszar   Fri, May 5, 2023

Wealth-building is a process that generally takes time. Although the idea of becoming an overnight millionaire is appealing for many, the only real way to get rich overnight is via speculation, an inheritance or a lottery win.

Ironically, the best way to build wealth "fast" is to chart out a prudent path toward long-term gains. The quicker you can save and invest, the faster your money will compound, which is the true magic behind building wealth. Here are 10 ways you can grow your net worth as rapidly as possible without taking on undue risk.

Save

You can't begin any type of wealth-generation plan without having money to invest. As soon as you start drawing an income, make it your top priority to save as much money as you can. One strategy often recommended by advisors is to "pay yourself first," meaning put money in savings immediately when you receive your paycheck, even before you pay your bills. This type of "forced savings" will require you to trim your discretionary spending but will also result in rapidly growing wealth.

Buy an S&P 500 Index Fund

The S&P 500 index doesn't guarantee profits, but it's proven itself time and time again to be a tremendous generator of long-term wealth. In fact, most investors are surprised to learn that the "risky" stock market has never lost money over any 20-year rolling period. And yet, the long-term average return of the S&P 500 is north of 10%. This means the S&P 500 index has a tremendous risk/reward profile over the long run. Even legendary investor Warren Buffett, the "Oracle of Omaha" himself, has directed his trustee to keep 90% of his money in an S&P 500 index fund after he passes.

Buy Dividend-Paying Stocks

Dividend-paying stocks may seem like a slow and boring way to build wealth, but they are one of the best ways to tap into a solid and growing source of income, and capital gains as well. The so-called "Dividend Aristocrats" are large, well-known companies in the S&P 500 index, like Coca-Cola and McDonald's, that have raised their dividends for at least 25 years in a row. This means that those who bought these companies 25 years ago are earning huge effective yields on their original investment amount. Combined with the potential for capital gains, the Dividend Aristocrats can be a great way to build wealth.

Buy a Rental Property

One of the key ways to build wealth fast -- and over the long term -- is to earn passive income. And one of the best ways to generate passive income is to own one (or several) rental properties. With a well-managed rental property, you'll receive a steady stream of income every month, with little additional effort required on your part. While you'll have to find tenants to move in and will have to deal with occasional maintenance issues, your income will essentially be on auto pilot. Unlike your mortgage payment, your rents will continue to rise over time, meaning your tenants will be paying some or all of your mortgage while you watch your properties appreciate in value.

Housing Market 2023: Is a Double-Digit Drop in Prices Coming?

Keep Asking for Raises

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