If you get paid every two weeks, you’ve probably noticed extra money coming your way certain months. Maybe you even thought your company’s payroll made a mistake! But it’s no mistake. You get two magical months like this a year: when you suddenly have a third paycheck andâthe best part isâyour monthly bills stay the same. Yes, it’s appropriate to jump for joyâprovided you have a plan for that extra income.
Why does this happen in the first place? If you’re paid biweekly, you get 26 paychecks throughout the 52-week year. That means two months out of the year, you end up getting three paychecks instead of your regular two.
Those two extra paychecks can go a long way. But without a plan in mind, they can also disappear. Fast. The first budgeting trick to saving two paychecks is to find out when they will hit your account. Grab a calendar and write down your paydays for every month in a given year and highlight the two extras. Maybe even put calendar reminders in your phone so you can track when the additional funds will hit your account. The extra paychecks will fall on different days every year, so tracking them in advance is key.
Samuel Deane, a founding partner of New York City-based wealth management firm Deane Financial, says there isn’t one correct way to budget with an extra paycheck, but that it should depend on your personal situation and financial goals. You could decide to give yourself some extra room in your budget throughout the year, for example, or use the extra money for something specific.
How can I budget for an extra paycheck? Consider these 5 budgeting hacks if you’re paid biweekly:
1. Pay down (mainly) high-interest debt
Once you’re done jumping for joy at the realization of the third paycheck, consider how your budget with an extra paycheck could help you pay down debt. “The first thing I usually tell my clients is to get rid of high-rate debt, which is usually credit card debt,” Deane says.
Before paying off debt with your new budget with an extra paycheck, make a list of all of your debts organized by balance and annual percentage rate (APR). Paying off the debt with the highest APR could save you the most money because you’re paying the most to carry a balance. Paying down a few low-APR, low-balance debts can also help you gain momentum and bring other financial benefits. For instance, if you owe close to your credit limit on a credit card, the high credit utilizationâor card balance to credit limit ratioâcould negatively impact your credit score.
If your budget with an extra paycheck includes debt repayment, you’ll start to owe less and have less interest accruing each month, freeing up even more cash from subsequent paychecks.
“The first thing I usually tell my clients is to get rid of high-rate debt, which is usually credit card debt.”
2. Build an emergency fund
Paying down debt isn’t the only way to budget with an extra paycheck. “Taking a look at whether you have a sufficient emergency fund is pretty important,” says Dan Stous, director of financial planning at Flagstone Financial Management.
An emergency fund of three to six months of your regular expenses can help you weather financial setbacks, such as a lost job or medical emergency, without having to take on new debt. Keeping these funds separate from your regular checking and savings accounts can help you keep them earmarked for the unexpected (and reduce the temptation to dip into them for non-emergency expenses). Places to keep your emergency fund include a high-yield savings account, certificate of deposit or money market account.
Sunny skies are the right time to save for a rainy day.
Start an emergency fund with no minimum balance.
Discover Bank, Member FDIC
If creating an emergency fund or adding to an existing one is on your to-do list, a budgeting trick to save two paychecks is to automatically transfer your extra paychecks into your emergency fund account.
3. Save for a big goal
If you want to save for a goal like a new car or home, or contribute to tax-advantaged retirement accounts, contributing two full paychecks out of 26 can be a good start. “If a client is debt-free and doing well, they might be able to focus on other goals,” Deane says. If you’ve got a financial goal in mind, a budgeting hack if you’re paid biweekly is to transfer your two extra paychecks from your checking account to a savings or retirement account right away.
If you have a 401(k) through an employer and already contribute enough to get your maximum annual match, Deane says you may want to consider a Roth IRA. A Roth IRA is for retirement, but it also allows first-time homebuyers who have held their account for at least five years to withdraw up to $10,000 to buy a home, Deane says. Your budget with an extra paycheck could then go to either major goal.
Even loftier, “you could put aside money to start a business,” Deane says. If you plan on starting a business someday you could put away the paychecks annually and let those savings build as start-up capital.
4. Get ahead on bills
If you already have an emergency fund, are currently debt-free and are making good progress on your savings goals, try this budgeting hack if you’re paid biweekly and get a third paycheck: Pay certain monthly bills ahead of time.
“If you have the ability to prepay some of your bills, it can ease anxiety in the coming months,” Deane says.
Before using this budgeting hack if you’re paid biweekly, check with your providers to confirm that you will not be met with a prepayment penalty, and get up to speed on any prepayment limitations. Some providers may even offer a discount or incentive if you pay something like a car insurance bill all at once. You could also explore whether or not prepaying your bills makes sense for utilities, your cellphone or rent.
If you’re looking for budgeting hacks if you’re paid biweekly, consider that managing money isn’t only about dollars and cents. Emotions often play an important part in personal finance, and they’re often the root cause of people’s decisions. Accepting this fact could be an important part of successfully managing your money.
“From an emotional and behavioral standpoint, people should reward themselves for being responsible,” Stous says. “Basically, treat yourself.”
Perhaps you need a vacation from the daily grind, want to enrich or educate yourself or your family or simply want to get a date night at your favorite restaurant on the calendar. A budgeting trick to save two paychecks could be supplemented with some spending on yourself.
“If you have an extra paycheck and a debt reduction goal, then maybe you apply the whole thing toward that goal. On the other hand, maybe you have a goal to retire in 10 years and you’re off track. Then, it’d be wise to put that money, or at least a portion of it, toward that goal.”
There’s no one-size-fits-all budgeting trick to save two paychecks
When you’re deciding how to budget with an extra paycheck, you might find yourself going back and forth between options.
“If you have an extra paycheck and a debt-reduction goal, then maybe you apply the whole thing toward that goal,” Stous says. “On the other hand, maybe you have a goal to retire in 10 years and you’re off track. Then, it’d be wise to put that money, or at least a portion of it, toward that goal.”
Even though budgeting solutions are not the same for everyone, being disciplined and proactive about the savings opportunity of a third paycheck can help you form a strong foundation for your financial future.
The post The Magical Third Paycheck: 5 Budgeting Hacks If You’re Paid Biweekly appeared first on Discover Bank – Banking Topics Blog.
Having kids is anything but cheap. According to the USDA, families can expect to spend an average of $233,610 raising a child born in 2015 through age 17âand that’s not including the cost of college. The cost of raising a child has also increased since your parents were budgeting for kids. Between 2000 and 2010, for example, the cost of having children increased by 40 percent.
If you’ve had your first child, you understandâfrom diapers to day care to future extracurricular activities, you know how it all adds up. You’ve already learned how to adjust your budget for baby number one. How hard can it be repeating the process a second time?
While you may feel like a parenting pro, overlooking tips to prepare financially for a second child could be bad news for your bank account. Fortunately, affording a second child is more than doable with the right planning.
If your family is about to expand, consider these budgeting tips for a second child:
1. Think twice about upsizing
When asking yourself, “Can I afford to have a second child?”, consider whether your current home and car can accommodate your growing family.
Kimberly Palmer, personal finance expert at NerdWallet, says sharing bedrooms can be a major money-saver if you’re considering tips to prepare financially for a second child. Sharing might not be an option, however, if a second child would make an already small space feel even more cramped. Running the numbers through a mortgage affordability calculator can give you an idea of how much a bigger home might cost.
Swapping your current car out for something larger may also be on your mind if traveling with kids means doubling up on car seats and stowing a stroller and diaper bag onboard. But upgrading could mean adding an expensive car payment into your budget.
“Parents should first decide how much they can afford to spend on a car,” Palmer says.
Buying used can help stretch your budget when you’re trying to afford a second childâbut don’t cut corners on cost if it means sacrificing the safety features you want.
Families can expect to spend an average of $233,610 raising a child born in 2015 through age 17âand that’s not including the cost of college.
2. Be frugal about baby gear
It’s tempting to go out and buy all-new items for a second baby, but you may want to resist the urge. Palmer’s tips to prepare financially for a second child include reusing as much as you can from your first child. That might include clothes, furniture, blankets and toys.
Being frugal with family expenses can even extend past your own closet.
“If you live in a neighborhood with many children, you’ll often find other families giving away gently used items for free,” Palmer says. You may also want to scope out consignment shops and thrift stores for baby items, as well as online marketplaces and community forums. But similar to buying a used car, keep safety first when you’re using this budgeting tip for a second child.
“It’s important to check for recalls on items like strollers and cribs,” Palmer says. “You also want to make sure you have an up-to-date car seat that hasn’t been in any vehicle crashes.”
3. Weigh your childcare options
You may already realize how expensive day care can be for just one child, but that doesn’t mean affording a second child will be impossible.
Michael Gerstman, chartered financial consultant and CEO of Gerstman Financial Group, LLC in Fort Lauderdale, Florida, says parents should think about the trade-off between both parents working if it means paying more for daycare. If one parent’s income is going solely toward childcare, for example, it could make more sense for that parent to stay at home.
Even if this budgeting tip for a second child is appealing, you’ll also want to think about whether taking time away from work to care for kids could make it difficult to get ahead later in your career, Palmer adds.
“If you stay home with your child, then you’re also potentially sacrificing future earnings,” she says.
4. Watch out for sneaky expenses
There are two major budgeting tips for a second child that can sometimes be overlooked: review grocery and utility costs.
If you’re buying formula or other grocery items for a newborn, that can quickly add to your grocery budget. That grocery budget may continue to grow as your second child does and transitions to solid food. Having a new baby could also mean bigger utility bills if you’re doing laundry more often or running more air conditioning or heat to accommodate your family spending more time indoors with the little one.
Gerstman recommends using a budgeting app as a tip to prepare financially for a second child because it can help you plan and track your spending. If possible, start tracking expenses before the baby arrives. You can anticipate how these may change once you welcome home baby number two, especially since you’ve already seen how your expenses increased with your first child. Then, compare that estimate to what you’re actually spending after the baby is born to see what may be costing you more (or less) than you thought each month. You can then start reworking your budget to reflect your new reality and help you afford a second child.
5. Prioritize financial goals in your new budget
Most tips to prepare financially for a second child focus on spending, but don’t neglect creating line items for saving in your budget.
Sunny skies are the right time to save for a rainy day.
Start an emergency fund with no minimum balance.
Discover Bank, Member FDIC
“An emergency fund is essential for a family,” Palmer says. “You want to make sure you can cover your bills even in the event of a job loss or unexpected expense.”
Paying off debt and saving for retirement should also be on your radar. You might even be thinking about starting to save for your children’s college.
Try your best to keep your own future in mind alongside your children’s. While it feels natural to put your children’s needs first, remember that your needs are also your family’sâand taking care of your future means taking care of theirs, too.
“Putting money aside when you’re expecting can help offset the sticker shock that comes with a new member of the family.”
The key to affording a second child
Remember, the earlier you begin planning, the easier affording a second child can be.
“Putting money aside when you’re expecting can help offset the sticker shock that comes with a new member of the family,” Palmer says. Plus, the more you plan ahead, the more time you’ll have to create priceless memories with your growing family.
The post Affording a Second Child: How to Make Your Budget Work appeared first on Discover Bank – Banking Topics Blog.
Maybe you want to lose those stubborn 10 pounds, score a big promotion or run your first marathon. Whatever your priority, it all starts with setting a goal.
Financial priorities are no different. Whether you want to save for your child’s college education or get yourself out of debt, budgeting to help reach your financial goals allows you to determine what’s most important to you, make a plan to attain those goals and hold yourself accountable for success.
Still, when it comes to managing your money, knowing how to set financial goals and sticking to them can feel like opposite sides of the same coin. You might even find yourself asking, “How do I create a simple budget to reach my financial goals?” If you follow these three steps, you could be crossing the finish line in record time:
1. Pick a day to get started
Sometimes the hardest part of tackling a new project is simply getting started, especially if your to-do list feels like it’s never ending. There’s always tomorrow, or the day after that… right? To create a simple budget to help you reach your financial goals, pick a day and time to get started. Consider picking a time when you do your best thinking, are most focused and least likely to get interrupted. Maybe it’s Sunday morning over breakfast and coffee before kicking off a day of chores or on a weeknight after the kids go to bed.
Once you’ve landed on the best time to sit down and create a simple budget, add it to the calendar and schedule reminders on your computer or phone to hold yourself accountable.
2. Create a simple budget, however complex your finances
Chances are your finances are pretty complicated, with lots of moving parts. Things seem to be moving along nicely with your regular expenses like rent, groceries, transportation and entertainment… and then your carburetor goes kaput in your car and you must replace it right away. Or that toothache has become unbearable and requires a root canalâand you’ll have to cover some of the expense out of pocket. Just when you’re finally making a dent in paying down your debt and getting your finances on track, life throws you some curveballs. But that doesn’t mean you can’t create a simple budget.
One of the easiest ways to create a simple budget and stay on track is to follow the 50-20-30 rule:
50 percent of your income should address your needs, such as housing, utilities, healthcare and transportation;
20 percent should be put toward your financial goals, like building your savings and paying off debt;
30 percent should cover your wants or discretionary expenses, like shopping, entertainment and dining out.
Managing your finances with the 50-20-30 is a good first step when you’re first learning how to create a budget, but trying to deal with multiple financial goals within that 20 percent bucket can be overwhelming. When it comes to budgeting to help reach your financial goals, certified financial planner Jim White suggests taking your financial goals one step at a time.
“Make a simple plan to tackle debtâor maybe just one debtâthen when that goal is accomplished, work on a simple plan for the next debt,” White suggests. “A bunch of small victories goes a long way to changing your financial discipline and gives you a boost to keep moving forward,” White adds.
Similar to how you picked a day to begin the budgeting process, make a habit out of managing your finances by picking one day of the week and checking in with yourself at a scheduled time. After about two months, budgeting to help reach your financial goals can become habit forming. “When you focus on your goals on the same day every week, you are creating a habit, and a pattern, to follow,” says Karen Ford, financial coach and motivational speaker.
Budgeting to help reach your financial goals becomes even more effective when you’re reviewing your priorities every seven days and making adjustments to your spending and saving as needed.
“Make a simple plan to tackle debtâor maybe just one debtâthen when that goal is accomplished, work on a simple plan for the next debt. A bunch of small victories goes a long way to changing your financial discipline and gives you a boost to keep moving forward.”
3. Automate your financial plan
Now that you know how to set financial goalsâwhether it’s paying down debt, saving up for a car or putting money away for retirementâwhat’s next? Time to get moving! One way to do that is to automate your finances. By setting up automatic bill pay and account transfers, it will be easier to stick to your plan for paying monthly expenses and contributing to savings.
When it comes to paying your bills and learning how to set financial goals, consider automating the bills that you pay regularly, especially those that fall within the 50 percent budget category that covers your living essentials. To gain momentum with your savings progress, set up automatic transfers from your checking account to your savings account for the amount you wish to save each month. If your financial goal is retirement, you could even set up automatic transfers to an individual retirement account (IRA) so you’re consistently making progress. You could also arrange to have a portion of your paycheck automatically go into savingsâbefore you even have time to miss it.
By making automatic contributions to your savings accounts, you are “subscribing to the idea of paying yourself first,” says Riley Adams, CPA and blogger for Young and the Invested, a professional’s guide to financial independence. “By doing this, it removes the temptation to spend and takes any lack of discipline out of the picture,” Adams says.
Keep in mind that any time you automate your finances as part of creating a simple budget, you should monitor your accounts regularly. Check in to make sure your automated settings are up to date, that you always have the funds available in your accounts to cover your expenses and transfers and that your savings are growing according to your plan.
How to set financial goals in 3 steps
Once you find time to focus on your finances, create a simple budget and automate your payments and transfers, budgeting to help reach your financial goals is one habit that is sure to stick. By following these three rules and keeping yourself on track, you’ll be ready to build a solid foundation for your financial future.
The post How to Set Financial Goalsâand Crush Them appeared first on Discover Bank – Banking Topics Blog.
Perhaps you’ve found yourself driving across town to locate an ATM in your bank’s network. Or maybe you’ve been hearing about rewards checking accounts with benefits like cash back, which yours doesn’t offer. Oh, yeah. And what about that charge you saw on your last statement for not carrying a high enough balance? It’s pretty easy to feel like the only person on Earth with a checking account that’s just not cutting it.
Robert Farrington, founder of the personal finance website The College Investor, says it’s important to routinely review your checking account to make sure it still meets your needs. âYou might have opened a checking account in high school, college or when you got your first job, and you haven’t looked back,” Farrington says. “But banking has changedâand it’s likely that your needs have as well.”
Given the growing crop of new checking accounts with flexible
and appealing features, it’s probably time to take a closer look at your
current account offerings: What are they doing for you? Do they align with your
current financial situation? What benefits are you missing?
However, with all the options out there, you’re probably thinking, “How do I choose a checking account?”It’s simple, really. Just consider these three needs: no fees, convenience and lifestyle compatibility.
âYou might have opened a checking account in high school, college or when you got your first job, and you haven’t looked back. But banking has changedâand it’s likely that your needs have as well.”
Read on for how to assess your checking account’s performance for each need, and, if it’s lacking, how to select a checking account:
out if fees are eating away at your funds
Fees are a big consideration when picking a new checking account. One way to determine whether your current checking account is treating you fairly in regards to fees is to review your statements from the past few months, Farrington says. You may be getting charged for things you aren’t aware of, such as not meeting a minimum balance.
âIf you have an account that requires a minimum balance or a certain number of transactions, then looking at past banking records can help you determine if you’re meeting those requirements,” he says. If keeping a minimum balance seems to be a challenge, you might want to consider alternative options to help you avoid checking account fees.
What else should you keep an eye out for fee-wise on your monthly statements if you’re considering picking a new checking account? How about charges for out-of-network ATM usage? When you withdraw cash out of network because your bank doesn’t have branches or ATMs that are convenient for you, those fees can add up. According to Bankrate’s 2018 checking account and ATM fee study, the average ATM surcharge (the fee from the ATM owner for non-customers) has gone up 19 times in the past 20 years, reaching $3.02, its highest amount at the time the report was published.
A no-fee checking account means no charges for checks, online bill pay, monthly maintenance, replacement debit cards and even insufficient funds. That’s a lot of dough saved by picking a new checking accountthat comes with no fees.
Online-only banks may offer some of the best deals for no-fee checking, since they don’t operate physical locations and can often pass those savings down to you. For example, Cashback Debit, Discover’s checking account, charges no account-related fees.1
what conveniences you need
If you’re like most people on the go, you’ll want to access your checking account fast and at any time. So convenience may be a checking account benefit that ranks high on your list when considering how to select a checking account.
When it comes toÂ how to choose a checking account,Â understanding what features banks offer to make their checking account convenient is important, says Chane Steiner, the CEO ofÂ Crediful, a personal finance and credit blog.
Convenience can come in many formsâfrom easy access to your
bank’s services and personnel, to proximity, to mobile features and more. Below
is a list of services you should consider if convenience is a premium:
Customer service that’s available after hours or 24/7.
A large network of ATMs makes accessing your money quick and easy. So when picking a new checking account, consider the ATM network you’ll be able to use. For example, Discover’s Cashback Debit card can be used at over 60,000 no-fee ATMs nationwide. With a network this vast, you may be able to enjoy the convenience of ATMs located near you without having to pay out-of-network fees.
Online banking can be “a great alternative to going to a branch if the majority of your transactions can be done online or you use services like direct deposit,” Steiner says. Think of the time you’ll save by banking from your computer or mobile device rather than traveling to a branch location.
Mobile check deposits can be an important feature when learning how to choose a checking account if you are remote, travel often or need to make a lot of deposits. In many cases, you can use your bank’s app on your mobile phone or tablet to snap a picture of a check you want to deposit and upload the image.
Branch access could be important to you if you get paid in cashâfor example, if you work in childcare or are a gig worker or freelancerâbecause you may need to visit the physical branch location in order to deposit the cash. In this case, a checking account at a traditional bank could be convenient.
There’s also a variety of other features to consider when picking a new checking account.
“You just have to define your needs and decide from there,” Steiner
For additional help thinking through what features are most important to you, let your lifestyle and financial goals guide you. What comes next are some tips on how to do just that.
your checking accountâand its perksâto your lifestyle
Maybe you like certain benefits that you’ve learned about in your research for picking a new checking account. “But you need to decide what’s most important to you for your banking needs,” Farrington says. “And those goals may be very different from your neighbor’s based on your banking habits.” If you’ve moved or changed jobs and your branch and ATM locations are no longer convenient, for example, that could be a good reason for seeking a new checking account.
On the other hand, Crediful’s Steiner says, âIf you realize you don’t go to a branch and simply need ATM access, an online checking account may be a great fit. It’s easy to open, convenient and most have all the services that a traditional bank offersâusually at a lower price or fee structure.”
Inevitable things (read: life events) should also be considered when thinking about how to select a checking account. These include getting married (think: combined lives, joint checking account) and having kids (think: convenience, cash in a pinch).
The reasons you first opened your checking account could also be different from why you need one now. Perhaps you used it to pay down a number of credit card bills in the past and regularly held a high balance. Fast forward, and now the cards are paid off and you’re no longer storing as much cash in the account, making you fall below your bank’s minimum balance requirement and causing you to get hit with fees. In that case, picking a new checking account that doesn’t have a minimum balance requirement may be a great choice.
Finding a bank that offers perks that complement your current lifestyle is important to consider when determining how to select a checking account, as it could help you make a final decision. Two benefits to consider:
Say hello to cash back on debit card purchases.
No monthly fees. No balance requirements. No, really.
Discover Bank, Member FDIC
Cash back rewards: If you find yourself frequently using your debit card, be sure to maximize that spending by earning rewards. On the money you spend, Discover offers 1% cash back on up to $3,000 in debit card purchases each month.2 To assess the potential value of this benefit, look at your monthly debit card spending and calculate how much you can earn in cash back. If you spend $3,000 every month, that’s an extra $360 a year. What could that extra cash be used for? Chances are, a lot of thingsâfrom a wedding gift to starting an emergency fund. Cha-ching!
Interest: âSome checking accounts will offer interest,” Steiner says. This allows your money to grow while being held in the account. Consider this if you keep high balances in your checking account.
Once you’ve considered how to choose a checking account and know what checking account you’re going with, the rest is relatively straightforward. It’s just a matter of following the right steps.
âIf you realize you don’t go to a branch and simply need ATM access, an online checking account may be a great fit.”
to make the switch to a new account
If you’ve decided upgrading is right for you, the next step (after you’ve mastered how to choose a checking account) is to actually make the switch. The good news is that the process is much simpler than the thinking that goes into picking one out.
Here are some quick tips for your new checking life:
Open the new accountâeither by completing your application online, in the case of an online checking account, or filling out an application at a branch.
Transfer your funds from your old account to your new one.
Change any direct deposits from the old account to the new account.
Set up automatic bill payments from your new account (and cancel them from your old account).
Close your old account. “It’s suggested you keep your old account open for a month or so to make sure you don’t miss any last transactions that may post,” Farrington says.
your new checking outlook
It’s an easy process to switch checking accounts, and Steiner believes the relief you’ll feel once you’ve mastered how to select a checking account will be worth it.
âSpending a few hours to make the right choice is time
well-spent and will save you plenty of headaches in the future,” Steiner
You might even enjoy calculating how much you’re saving by
comparing your old statements with your new ones and adding up the fees you’re
no longer paying. Oh yeah, about being the only person on Earth with a checking
account that’s not cutting it? Now that you’ve done the research on how to choose a checking account that
will work for your financial goals, it’s pretty simple to finally be more in
control of your cash. And it only took the amount of time to read this article
1 Outgoing wire transfers are subject to a service charge. You may be charged a fee by a non-Discover ATM if it is not part of the 60,000+ ATMs in our no-fee network.
2 ATM transactions, the purchase of money orders or other cash equivalents, cash over portions of point-of-sale transactions, Peer-to-Peer (P2P) payments (such as Apple Pay Cash), and loan payments or account funding made with your debit card are not eligible for cash back rewards. In addition, purchases made using third-party payment accounts (services such as VenmoÂ® and PayPal, who also provide P2P payments) may not be eligible for cash back rewards. Apple, the Apple logo and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries.
The post What You Need to Know to Pick a New Checking Account appeared first on Discover Bank – Banking Topics Blog.
What if you could pay for your next date night or trip to the grocery storeâwithout having to dip into your budget? If you use cash back to your advantage, these benefits could become a reality.
In the past, you had to swipe a credit card to earn cash back. But with Discover Cashback Debit, you can earn cash back by spending with your debit card (you read that right: debit card), allowing you to reach your financial goals without the risk of going into debt.
To best use this budget bonus, you might be wondering, âWhat should I do with my debit card cash back?” According to Eric Rosenberg, financial consultant and founder of the website Personal Profitability, âYou could put [your cash back] into savings or treat yourself to something from your wish list.”
Read on for things to do with cash back to help you achieve the right balance of responsibility and fun:
1. Save for a rainy day
Sometimes it seems like everything goes wrong all at once: You get a flat tire. The sink starts leaking (ugh, again!). You get a parking ticket. Since life can throw unexpected, costly curveballs your way, it’s important to have an emergency fund. Also known as a rainy day fund, an emergency fund is cash that’s set aside to cover unplanned, yet crucial, expenses.
âSo many people can’t afford the cost of an emergency from their savings,” Rosenberg says. If you don’t have this type of fund to fall back on, starting an emergency fund (or adding to an existing fund) could be a top priority when evaluating what to do with your cash back from a debit card.
When thinking about building an emergency fund as a thing to do with cash back, note that experts typically recommend putting aside at least three to six months of living expenses for this purpose. To maximize your emergency fund, you may want to consider moving these savings (and the cash back you’re putting toward this fund) to a high-yield savings account. That way, your emergency fund can steadily grow with interest until you need it. (P.S. More to come on how to automatically move your cash back into savings.)
2. Pay down your debt
If you owe, it can be tough to climb your way out of debt. Whether it’s from credit cards, student loans or a mortgage, interest is accruing and costing you money. Learning how to use your debit card cash back to offset debt can help you save on those interest payments down the road.
According to consumer money-saving expert Andrea Woroch, when you’re focusing on paying off debt, “It’s natural to cut back where you can. But you may eventually hit a wall where you can’t find ways to tackle expenses any further,” she says. That’s where learning how to use debit card cash back comes into play. Since a debit card with a cash back feature can allow you to earn for your everyday spending, those earnings can become a new source for paying down debt, Woroch adds.
3. Shore up for those special moments
You know you’d like to have more nights out, but they don’t come cheap. What to do with your cash back could include spending on special outings, Woroch says. Is there a restaurant you and your significant other have been dying to try? Is there a concert the whole family is super eager to see? There may also be larger events with family and friends to think aboutâplanning a milestone birthday or anniversary or that getaway with college buds. You can set aside your debit card cash back and earmark it for your relationships to create memories that will last a lifetime.
âYou could put [your cash back] into savings or treat yourself to something from your wish list.”
4. Support your children’s allowance
If you have kids, you’ve probably heard this one before: âMom, Dad, can I have some money?” Sometimes it can feel like you’re a walking ATM. One thing to do with cash back is to set aside an allowance for your kids. You can then use this cash to teach your children good savings habits and how to manage money on a monthly basis for the things they need and want, says Rosenberg of Personal Profitability. The best part: The money isn’t really coming out of your budget since you’re earning it for your everyday expenses and from money you’d be spending anyways. Win-win.
In thinking about what to do with your cash back, spending it on gift-giving and holiday expenses may be a good goal. “Some people go into debt during the holidays. To help avoid that circumstance, use your cash back to get ahead,” Woroch says.
And, really do think ahead if holiday spending is on your list of things to do with your cash back. The earlier you stash your cash back away for the holidays, the longer it will have time to accrue if you put it in a savings account for safekeeping. Season’s greetings may be the last thing on your mind while you’re flipping burgers on the 4th, but planning ahead could really impact your end-of-year festive spending.
How to maximize your cash back
Now that you know what to do with your cash backâwhether it’s going to work for your emergency fund or funding emergency holiday giftsâconsider steps you can take to get the most out of your extra dough. For example, find a rewards program that matches your spending style. With Discover Cashback Debit, you can earn 1% cash back on up to $3,000 in debit card purchases each month.1 That’s up to $360 a year. Not too bad for just going about your daily debit card spending.
Get 1% cashback on Debit from Discover. 1% cashback on up to $3000 in debit card purchases every month. Limitations apply. Excludes Money market accounts.Discover Bank,Member FDIC.Learn More
To make the process of saving that extra cash even easier, consider opening a Discover Online Savings Account. If you sign up for Auto Redemption to Savings, your cash back will be automatically deposited into your savings account every month.
âThe hardest part about saving for many people is remembering to make a transfer or take the cash to the bank,” Rosenberg says. “If you can automate it, you are setting yourself up for success. It’s like saving while you sleep.”
If you’re still considering how to use your debit card cash back to the fullest, Woroch suggests paying for group purchases when you’re out with family or friends. “Whether you’re going to dinner or renting a condo, cover the entire expense on your card and ask friends and family to pay you back with cash or [via mobile payment],” Woroch says. “This way you can benefit from earning more rewards.”
When it comes to how to use your debit card cash back, the key is to make sure you have enough in your account and aren’t spending too much if you offer to temporarily foot the bill. You don’t want to overextend in order to earn, as you could be hit with overdraft fees or not have enough in your account to cover bill payments, Woroch says.
“Whether you’re going to dinner or renting a condo, cover the entire expense on your card and ask friends and family to pay you back with cash or [via mobile payment]. This way you can benefit from earning more rewards.”
Get ahead with a combination of strategies
If you’re looking for things to do with cash back, using these tactics can help you improve your financial foundation and have some fun along the way. Understand your needs and goals to help you create a cash back plan, and then maximize your strategy with tools to help you automatically direct your cash back to savings to limit the temptation to spend the money elsewhere.
“We are all so busy these days, and managing money is often pushed down on the to-do list,” Woroch says. Learning how to use your debit card cash back can help you put money management front and center. Start earning!
1 ATM transactions, the purchase of money orders or other cash equivalents, cash over portions of point-of-sale transactions, Peer-to-Peer (P2P) payments (such as Apple Pay Cash), and loan payments or account funding made with your debit card are not eligible for cash back rewards. In addition, purchases made using third-party payment accounts (services such as VenmoÂ® and PayPal, who also provide P2P payments) may not be eligible for cash back rewards. Apple, the Apple logo and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries.
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