Income-Driven Repayment Plans for Federal Student Loans – Guide

According to first-quarter data released in May 2021 by the Federal Reserve Bank of New York, student loans are now the second-largest source of consumer debt, outpacing both credit card and car loan debt and second only to mortgage debt. And for many Americans, that debt has become unmanageable. According to CNBC, more than 1 million borrowers default on their student loans every year. And the nonprofit public-policy research organization Brookings expects up to 40% of all borrowers to go into default before 2023.

Unfortunately, defaulting on student loans can have dire consequences, including wage garnishment and destruction of your credit, making it nearly impossible to get another loan — private or federal.

Fortunately, there are multiple repayment options for federal student loan borrowers, including deferment and forbearance, student loan consolidation, and income-driven repayment (IDR) plans. If your federal student loan payments exceed your monthly income or are so high it’s difficult to afford basic necessities, you can lower your monthly student loan payment by taking advantage of one of the various IDR plans.

Pro Tip: If you have private student loans, the federal options are unavailable to you. But you can refinance them through Credible to earn a $750 bonus exclusive to Money Crashers’ readers. Learn more about refinancing through Credible.

How Income-Driven Repayment Plans Work

The default repayment schedule for federal student loans is 10 years. But if you have a high debt balance, low income, or both, the standard repayment plan probably isn’t affordable for you.

But if your payments are more than 10% of your calculated discretionary income, you qualify for the federal definition of “partial financial hardship.” That makes you eligible to have your monthly payments reduced.

That’s where IDR plans come in. Instead of setting payments according to your student loan balance and repayment term length, IDR plans set them according to your income and family size. Even better, if you have a balance remaining after completing your set number of payments, your debt may be forgiven.

These plans are beneficial for graduates right out of school who are not yet employed, are underemployed, or are working in a low-salary field. For these graduates, their paychecks often aren’t enough to cover their monthly student loan payments, and IDR means the difference between managing their student loan debt and facing default.

How IDR Plans Calculate Your Discretionary Income

IDR plans calculate your payment as a percentage of your discretionary income. The calculation is different for every plan, but your discretionary income is the difference between your adjusted gross income (AGI) and a certain percentage of the poverty level for your family size and state of residence.

Your AGI is your annual income (pretax) minus certain deductions, like student loan interest, alimony payments, or retirement fund contributions. To find the federal poverty threshold for your family size, visit the U.S. Department of Health and Human Services.

Using these guidelines, some borrowers even qualify for a $0 repayment on an IDR plan. That’s hugely beneficial for people dealing with unemployment or low wages. It allows them to stay on their IDR plan rather than opt for deferment or forbearance.

And there are two good reasons to take that option. Unless it’s an economic hardship deferment, which is limited to a total of three years, time spent in forbearance or deferment doesn’t count toward your forgiveness clock. However, any $0 repayments do count toward the total number of payments required for forgiveness.

Additionally, interest that accrues on your unsubsidized loans during periods of deferment and on all your loans during a forbearance capitalizes once the deferment or forbearance ends. Capitalization means the loan servicer adds interest to the principal balance. When that happens, you pay interest on the new higher balance — in other words, interest on top of interest.

But with IDR, if you’re making $0 payments — or payments that are lower than the amount of interest that accrues on your loans every month — most plans won’t capitalize any accrued interest unless you leave the program or hit an income cap. The income-contingent repayment plan (a type of IDR) is the sole exception. It capitalizes interest annually.

Student Loan Forgiveness

Any of your student loans enrolled in an IDR program are eligible for student loan forgiveness. Forgiveness means that if you make the required number of payments for your IDR plan and you have any balance remaining at the end of your term, the government wipes out the debt, and you don’t have to repay it. For example, let’s say your plan requires you to make 240 payments. After doing so, you still have $30,000 left on your loan. If you’re eligible for forgiveness, you don’t have to repay that last $30,000.

There are two types of forgiveness available to those in an IDR program: the basic forgiveness available to any borrower enrolled in IDR and public service loan forgiveness (PSLF).

Public Service Loan Forgiveness

The PSLF program forgives the remaining balance of borrowers who’ve made as few as 120 qualifying payments while enrolled in IDR. To qualify, borrowers must make payments while working full-time for a public service agency or nonprofit. Public service includes doctors working in public health, lawyers working in public law, and teachers working in public education, in addition to almost any other type of government organization at any level — local, state, and federal. Nonprofits include any organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. They do not include labor unions, partisan political organizations, or government contractors working for profit.

PSLF can potentially benefit those required to have extensive education to work in low-income fields, like teachers. Unfortunately, it’s notoriously difficult to get. According to Insider, the program is still rejecting 98% of applicants after an ongoing history of rejecting borrowers who believed they qualified but weren’t granted forgiveness.

But there may be hope. In May 2021, the Biden administration announced ongoing plans to review and overhaul all the federal student loan repayment, cancellation, discharge, and forgiveness programs, including public service loan forgiveness, to better benefit borrowers, according to Insider.

For the best chance at receiving PSLF, the ED recommends you fill out an employment certification form annually and every time you change jobs. Additionally, once you reach 120 qualifying payments, you must complete a PSLF application to receive the forgiveness.

IDR Loan Forgiveness

For all other IDR borrowers, each program requires them to make a set number of payments — from 240 to 300 — before they qualify to have their loan balances forgiven. At this time, because the program isn’t yet 20 years old and no borrowers have qualified, there is no specific application process for student loan forgiveness.

According to the ED, your loan servicer tracks your number of qualifying payments and notifies you when you get close to the forgiveness date. No one yet knows if there will be a standard application form or if it will be automatic. Hopefully, as the program reaches the age when borrowers can start using the benefit, the process will become standardized.

Drawbacks to Forgiveness

Forgiveness is one of the biggest advantages of IDR, especially for borrowers with high balances relative to their income. But there are pros and cons of standard student loan forgiveness. First, while forgiveness sounds like it could be a significant financial benefit, the reality is after making 20 to 25 years of IDR payments, the average borrower doesn’t have any balance remaining to forgive.

And if the government does forgive your balance, the IRS counts that as income, which means you have to pay income taxes on the amount forgiven. If you have a high balance remaining and can’t pay your taxes in full, that means making multiple additional payments — this time to the IRS — just when you thought you were finally done with your student loans.

The American Rescue Plan Act of 2021, signed into law by President Joe Biden on March 11, 2021, makes a crucial change to this student loan policy. According to Section 9675, borrowers receiving a discharge of their student loans no longer have to pay income tax on any balances forgiven through Dec. 31, 2025.

That won’t help most borrowers currently enrolled or who plan to enroll in IDR. The first to become eligible for forgiveness only did so in 2019 — those who’ve been enrolled in income-contingent repayment since its beginning in 1994, as noted by the National Consumer Law Center. But some experts believe this change could become permanent, according to CNBC.

Note that balances forgiven through PSLF are always tax-exempt.

What Loans Are Eligible for IDR?

You can only repay federal direct loans under most IDR plans. But if you have an older federal family education loan (FFEL), which includes Stafford loans, or federal Perkins loan — two now-discontinued loan types — you can qualify for these IDR plans by consolidating your student loans with a federal direct consolidation loan.

Note, however, that consolidation is not the right choice for all borrowers. For example, if you consolidate a federal Perkins loan with a direct consolidation loan, you lose access to any Perkins loan forgiveness or discharge programs. Further, if you consolidate a parent PLUS loan with any other student loans, the new consolidation loan becomes ineligible for most IDR plans.

Private financial institutions have their own programs for repayment. But they aren’t eligible for any federal repayment program.


4 Types of Income-Driven Repayment Plans

There are four IDR plans for managing federal student loan debt. They all let you make a monthly payment based on your income and family size. But each differs according to who’s eligible, how your loan servicer calculates your payments, and how many payments you have to make before you qualify for forgiveness.

If you’re married, some calculations can depend on your spouse’s income if you file jointly. Because you can lose some tax benefits if you file separately, consult with a tax professional to see whether married filing jointly or married filing separately is more advantageous for your situation.

Regardless of your marital status, each IDR plan works differently. Your loan servicer can help you choose the plan that’s best for you. But it’s essential you understand the features, pros, and cons of each IDR type.

1. Income-Based Repayment Plan

Income-based repayment plans (IBRs) are likely the most well-known of all the IDR plans, but they’re also the most complicated. Depending on when you took out your loans, your monthly payment could be a more substantial chunk of your discretionary income than for newer borrowers, and you could have a longer repayment term. On the other hand, unlike some other IDR plans, this one has a favorable payment cap.

  • Monthly Payment Amount: You must pay 15% of your discretionary income if you were a new borrower before July 1, 2014, and 10% if you borrowed after that date. If the amount you’re required to pay is $5 or less, your payment is $0. If the repayment amount is more than $5 but less than $10, your payment is $10. If you’re married and your spouse owes any student loan debt, your payment amount is adjusted proportionally.
  • Discretionary Income Calculations: For IBR, discretionary income is the difference between your AGI and 150% of the poverty level for your family’s size and state of residence. Your loan servicer includes spousal income in this calculation if you’re married filing jointly. They don’t include it if you’re married filing separately.
  • Payment Cap: As long as you remain enrolled in IBR, your payment will never be more than you’d be required to pay on the 10-year standard repayment plan, regardless of how large your income grows.
  • Federal Loan Interest Subsidy: If your monthly payments are less than the interest that accrues on your loans, the government pays all the interest on your subsidized loans — including the subsidized portion of a direct consolidation loan — for up to three years. It doesn’t cover any interest on unsubsidized loans.
  • Interest Capitalization: If your monthly payments are no longer tied to your income — meaning your income has grown so large you’ve hit the payment cap — your servicer capitalizes your interest.
  • Repayment Term: If you borrowed any student loans before July 1, 2014, you must make 300 payments over 25 years. If you were a new borrower after July 1, 2014, you must make 240 payments over 20 years.
  • Eligibility: To qualify, you must meet IBR’s criteria for partial economic hardship: The annual amount you must repay on a 10-year repayment schedule must exceed 15% of your discretionary income. If you’re married and filing jointly and your spouse owes any student loan debt, your loan servicer includes this debt in the calculation. IBR excludes only the parent PLUS loans from eligibility.
  • Forgiveness: Your remaining loan balance is eligible for forgiveness after you make 20 or 25 years of payments, depending on whether you borrowed before or after July 1, 2014.

2. Pay-as-You-Earn Repayment Plan

The pay-as-you-earn (PAYE) plan is possibly the best choice for repaying your student loans — if you qualify for it. It comes with some benefits over IBR, including a potentially smaller monthly payment and repayment term, depending on when you took out your loans. It also has a unique interest benefit that limits any capitalized interest to no more than 10% of your original loan balance when you entered the program.

  • Monthly Payment Amount: You must pay 10% of your discretionary income but never more than you would be required to repay on the standard 10-year repayment schedule. If the amount is $5 or less, your payment is $0. If the amount is more than $5 but less than $10, you pay $10. If you’re married and your spouse owes any student loan debt, your payment amount is adjusted proportionally.
  • Discretionary Income Calculations: For PAYE, your servicer calculates discretionary income as the difference between your AGI and 150% of the poverty line for your state of residence. If you’re married and file jointly, they include your spouse’s income in the calculation. They don’t include it if you file separately.
  • Payment Cap: As with IBR, as long as you remain enrolled, payments can never exceed what you’d be required to repay on a standard 10-year repayment schedule, regardless of how large your income grows.
  • Federal Loan Interest Subsidy: If your monthly payments are less than the interest that accrues on your loans, the government pays all the interest on your subsidized loans for up to three years. It doesn’t cover any interest on unsubsidized loans.
  • Interest Capitalization: If your income has grown so large you’ve hit the payment cap, your servicer capitalizes your interest. But no capitalized interest can exceed 10% of your original loan balance.
  • Repayment Term: You must make 240 payments over 20 years.
  • Eligibility: To qualify, you must meet the plan’s criteria for partial financial hardship: the annual amount due is greater than 10% of your discretionary income. If you’re married and filing jointly and your spouse owes any student loan debt, this debt is included in the calculation. Additionally, you can’t have any outstanding balance remaining on a direct loan or FFEL taken out before Sept. 30, 2007. You must also have taken out at least one loan after Sept. 30, 2011. All federal direct loans are eligible for PAYE except for parent PLUS loans.
  • Forgiveness: As long as you stay enrolled, you remain eligible for forgiveness of your loan balance after 20 years of payments if any balance remains.

3. Revised Pay-as-You-Earn Repayment Plan

If you don’t meet the qualifications of partial financial hardship under PAYE or IBR, you can still qualify for an IDR plan. The revised pay-as-you-earn (REPAYE) plan is open to any direct federal loan borrower, regardless of income. Further, your payment amount and repayment terms aren’t contingent on when you borrowed. The most significant benefits of REPAYE are the federal loan interest subsidy and lack of any interest capitalization.

However, there are some definite drawbacks to REPAYE. First, there are no caps on payments. How much you must pay each month is tied to your income, even if that means you have to make payments higher than you would have on a standard 10-year repayment schedule.

Second, those who borrowed for graduate school must repay over a longer term before becoming eligible for forgiveness. That’s a huge drawback considering those who need the most help tend to be graduate borrowers. According to the Pew Research Center, the vast majority of those with six-figure student loan debt borrowed it for graduate school.

  • Monthly Payment Amount: You must pay 10% of your discretionary income. If the amount you must pay is $5 or less, your payment is $0. And if the repayment amount is more than $5 but less than $10, your payment is $10. If you’re married and your spouse owes any student loan debt, your payment amount is adjusted proportionally.
  • Discretionary Income Calculations: Your discretionary income is the difference between your AGI and 150% of the poverty line for your state of residence. If you’re married, they include both your and your spouse’s income in the calculation, regardless of whether you file jointly or separately. However, if you’re separated or otherwise unable to rely on your spouse’s income, your servicer doesn’t consider it.
  • Payment Cap: There is no cap on payments. The loan service always calculates your monthly payment as 10% of your discretionary income.
  • Federal Loan Interest Subsidy: If your monthly payment is so low it doesn’t cover the accruing interest, the federal government pays any excess interest on subsidized federal loans for up to three years. After that, they cover 50% of the interest. They also cover 50% of the interest on unsubsidized loans for the entire term.
  • Interest Capitalization: As long as you remain enrolled in REPAYE, your loan servicer never capitalizes any accrued interest.
  • Repayment Term: You must make 240 payments over 20 years if you borrowed loans for undergraduate studies. If you’re repaying graduate school debt or a consolidation loan that includes any direct loans that paid for graduate school or any grad PLUS loans, you must make 300 payments over 25 years.
  • Eligibility: Any borrower with direct loans, including grad PLUS loans, can make payments under this plan, regardless of income. If you have older loans from the discontinued FFEL program, they are only eligible if consolidated into a new direct consolidation loan. Parent PLUS loans are ineligible for REPAYE.
  • Forgiveness: As long as you remain enrolled, your loans are eligible for forgiveness after 20 years of payments for undergraduate loans or 25 years for graduate loans.

4. Income-Contingent Repayment Plan

The income-contingent repayment plan (ICR) is the oldest of the income-driven plans and the least beneficial. Your monthly payments are higher under ICR than any other plan, and you must make those payments over a longer term. Additionally, although they limit the amount of capitalized interest, it’s automatically capitalized annually whether you remain in the program or not.

There is one major plus: Parent PLUS loans are eligible. But you must still consolidate them into a federal direct consolidation loan to qualify.

  • Monthly Payment Amount: You must pay the lesser of 20% of your discretionary income or what you would pay over 12 years on a fixed-payment repayment plan. If you’re married and your spouse also has eligible loans, you can repay your loans jointly under the ICR plan. If you go this route, your servicer calculates a separate payment for each of you that’s proportionate to the amount you each owe.
  • Discretionary Income Calculations: For ICR, your servicer calculates discretionary income as the difference between your AGI and 100% of the federal poverty line for your family size in your state of residence. If you’re married filing jointly, your servicer uses both your and your spouse’s income to calculate the payment size. If you’re married filing separately, they only use your income.
  • Payment Cap: There is no cap on payment size.
  • Federal Loan Interest Subsidy: The government doesn’t subsidize any interest.
  • Interest Capitalization: Your servicer capitalizes interest annually. However, it can’t be more than 10% of the original debt balance when you started repayment.
  • Repayment Term: You must make 300 payments over 25 years.
  • Eligibility: Any borrower with federal student loans, including direct loans and FFEL loans, is eligible for ICR. For parent PLUS loans to qualify, you must consolidate them into a federal direct consolidation loan.
  • Forgiveness: As long as you remain enrolled, your loans are eligible for forgiveness after 25 years of payments.

How to Apply for Income-Driven Repayment Plans

To enroll in an IDR plan, contact your student loan servicer. Your servicer is the financial company that manages your student loans and sends your monthly bill. They can walk you through applying for IDR and recommend the most beneficial plan for your unique situation. You must complete an income-driven payment plan request, which you can fill out online at Federal Student Aid or use a paper form your servicer can send you.

Because your servicer ties payments on any IDR plan to your income, they require income information. You must submit proof of income after you complete your application. Proof of income is usually in the form of your most recent federal income tax return. Have this handy when applying over the phone. They also need your AGI, which you can find on your tax return. You must also mail or fax a copy of your return before your application is complete.

It generally takes about a month to process an IDR application. If you need them to, your loan servicer can place your loans into forbearance while they process your application. You aren’t required to make a payment while your loans are in forbearance. But interest continues to accrue, which results in a larger balance.

You can change your student loan repayment plan or have your monthly payments recalculated at any time. If an IDR plan is no longer advantageous to you, you lose your job, you switch jobs, or there’s a change in your family size, contact your student loan servicer to either switch your repayment plan or have your monthly payments recalculated.

You aren’t obligated to do so if the change would result in higher monthly payments. However, you must recertify each year.

Recertification

You must recertify your income and family size annually by providing your student loan servicer with a copy of your annual tax return. You must recertify even if there are no changes in your family size or income.

Loan servicers send reminder notices when it’s time to recertify. If you don’t submit your annual recertification by the deadline, your loan servicer disenrolls you, and your monthly payment reverts to what it would be on the standard 10-year repayment schedule.

You can always reenroll if you miss your recertification deadline. But there are a couple of reasons not to be lax about recertification.

First, if your income increases to the point at which your monthly payment would be higher than it would be on the standard 10-year repayment schedule, you can’t requalify for either the PAYE or IBR plans. But if you stay in the program, your payments are capped no matter how much your income increases.

Second, if you’re automatically disenrolled from your IDR plan because of a failure to recertify, any interest that accrues during the time it takes to get reenrolled is capitalized. That means your servicer adds interest to the balance owed. Even after you reenroll in your IDR plan, you begin earning interest on the new capitalized balance, thereby increasing the amount owed. And that’s true even if you place your loans into a temporary deferment or forbearance.


How to Choose an IDR Plan

The easiest way to choose the best IDR plan is to discuss it with your loan servicer. They can run your numbers, tell you which plans you qualify for, and quote you monthly payments under each plan.

Don’t just choose the plan with the lowest monthly bill unless you can’t afford a higher payment. Instead, balance your current needs with the long-term costs of any plan. For example, one plan might offer a lower monthly payment but a longer repayment term. Further, although your interest rate remains fixed on all the IDR plans, some offer benefits like interest subsidies that can reduce the overall amount you must repay.

Even if you think you’ll qualify for PSLF, which could get you total loan forgiveness in as little as 10 years, it’s still worth it to weigh your options. Currently, too few borrowers qualify for PSLF, so it might not work out to pin your hopes on it until the program becomes more streamlined.

Note that IDR plans aren’t suitable for everyone. Before enrolling in any IDR plan, plug your income, family size, and loan information into the federal government’s loan simulator. The tool gives you a picture of your potential monthly payments, overall amount to repay, and any balance eligible for forgiveness.


Final Word

If you’re struggling to repay your student loans or facing the possibility of default, an IDR plan probably makes sense for you. But they aren’t without their drawbacks. It pays to research all your options, including the possibility of picking up a side gig to get those student loans paid off faster.

Student loan debt can be a tremendous burden, preventing borrowers from doing everything from saving for a home to saving for retirement. The faster you can get rid of the debt, the better.

Source: moneycrashers.com

60/40 Stock & Bond Portfolio – Guide to Asset Allocations, Pros & Cons

The stock market is a system that tends to follow tradition. Traditionally, investors have been expected to start young, build a buy-and-hold portfolio, and be careful with asset allocation in order to avoid high levels of risk.

Much has changed in investing over the past couple of decades with robo-advisors making moves for many investors, access to the market widely available through discount brokers, and a rise in short-term trading.

Still, many people feel more comfortable investing in the traditional ways, which is what makes the highly traditional 60/40 portfolio so popular.

Read on to learn about the 60/40 portfolio model, how to build one for yourself, and its pros and cons.

What Is the 60/40 Portfolio?

The 60/40 portfolio has been around for decades and is more of an investment strategy than a defined portfolio because there are no assets set in stone that build up the portfolio.

The strategy is based on a safe asset allocation strategy that has been used in retirement accounts for so long that it’s hard to pin down where it started or who first developed it.

The 60/40 portfolio strategy suggests 60% of your investment assets should be invested in equities like stocks, exchange-traded funds (ETFs), and mutual funds.

The other 40% of the portfolio’s assets should be invested in fixed-income securities like U.S. Treasury bonds, corporate bonds, and other debt securities that produce income through interest rates or a discount on the price of the security.

The idea is that by diversifying your portfolio across asset classes that experience different levels of volatility and risk, you’ll be able to access the gains the stock market provides during bull markets while minimizing losses during downturns or all-out bear markets.

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The Investment Thesis Behind the 60/40 Portfolio

The 60/40 portfolio is based on a strategy of diversification that many believe provides the perfect balance between risk and reward. The thesis is simple.

Most experts agree that it’s nearly impossible to time movements in the stock market, but they also agree that by avoiding stocks altogether, you’re robbing yourself of the opportunity to produce significant returns. Despite their inherent volatility, it’s important to maintain exposure to the stock market while working to balance the risk of those equities falling on hard times.

That’s where fixed-income securities come into play. These investments come with significantly lower risk. Once these securities mature, investors are paid back their entire initial investment amount.

The interest payments received throughout the life of the investment (or the difference between the price of buying the security and the price paid at maturity) acts as the return.


Who Should Take Advantage of the 60/40 Portfolio?

Because the 60/40 portfolio is highly customizable, it’s a great fit for just about any investor. As you’ll learn, the portfolio can be adjusted for different risk levels and investment strategies.

However, there is one concern with the portfolio. The strategy is based on a strict asset allocation of 60% equities and 40% fixed-income investments. However, many experts disagree on what an optimal asset allocation looks like.

Because your goals and appetite for risk are likely to change over time, many suggest using your age to determine the split between equities and fixed-income investments.

For example, instead of allocating 40% of your assets to bonds and other debt securities and 60% to equities in all cases, this variation on the strategy suggests if you’re 21 years old, you should allocate 21% to fixed-income securities and 79% to equities.

This variation involves adjusting your holdings as you age to include more fixed-income assets and fewer equities, becoming more conservative as you near retirement.

Ultimately, a 60/40 portfolio is a traditional, moderate-risk portfolio that could result in slower growth than other options. By following the 60/40 portfolio to the letter, your risk may be too heavily moderated or too aggressively accepted, depending on your age and investment goals.


Pros and Cons of the 60/40 Portfolio

As with any other portfolio strategy, there are pros and cons that should be considered before diving into the 60/40 portfolio.

60/40 Portfolio Pros

There are several reasons to consider following the 60/40 strategy in your own portfolio. Some of the most exciting aspects of the portfolio include:

  1. Diversified to the Max. The portfolio, although made up of only a few assets at most, is designed to be highly diversified, offering complete exposure to whichever sector of the market you prefer. The mix of underlying assets in each fund acts as an insurance policy against volatility.
  2. Fully Customizable. The portfolio doesn’t outline the exact funds you should invest in, just that 60% of your investments should be in equities and 40% should be in fixed-income assets. This leaves you the option to choose the investment strategy, level of risk, and asset exposure of the funds you buy within the predefined allocation. Few portfolios offer this level of customization.
  3. Evenly Balanced Risk. Through the strict asset allocation rule, risk is evenly balanced. While there are opponents to the idea of fixed allocation, this is a tried-and-true strategy that’s been used for decades.
  4. Easy Management. Finally, there are very few assets to keep track of here. This makes maintaining balance and managing your portfolio an extremely simple process.

60/40 Portfolio Cons

While there are plenty of reasons to be excited about deploying this portfolio strategy, there are also a few drawbacks that should be considered before diving in. They include:

  1. Fixed Allocation. Asset allocation is fixed at 60% stocks and 40% bonds, which is rather modest for younger investors and a bit risky for those nearing retirement. Most financial advisors suggest following a fluid allocation strategy that changes as your risk tolerance and goals change.
  2. Low Bond Yields. In recent years, the market has been experiencing historically low bond yields as a result of a low-interest-rate environment. By allocating such a large percentage of your portfolio to fixed-income investments, you could be missing out on much of the gains the bull market has to offer.

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How to Duplicate the 60/40 Portfolio

As mentioned above, the contents of a 60/40 portfolio aren’t set in stone. It’s more of a guide explaining how you may want to go about asset allocation that can be applied to several different investment strategies.

As a result, there are several ways to go about building the portfolio — a task made easier by the abundance of low-cost ETFs on the market today.

Here are six popular ways to build a 60/40 portfolio for yourself based on your investing strategy and risk tolerance. The funds mentioned here are low-cost Vanguard index funds, but you can choose any fund you like that gives you exposure to the same types of assets.

The Low-Risk 60/40 Portfolio

For investors with a low risk tolerance who want access to the market as a whole, the build of the portfolio is best as follows:

  • 60% in Vanguard Total Stock Market Index Fund ETF (VTI). One of the most diversified ETFs on the market today, the VTI is designed to give investors exposure to the total United States stock market. The past performance of the fund has been stellar, beating others in its category relatively regularly over the past 10 years.
  • 40% in Vanguard Intermediate Term Treasury ETF (VGIT). The VGIT is focused solely on intermediate-term, high-quality U.S. Treasury securities. While these government bonds come with relatively low yields compared to longer-term options, their yields are stronger than short-term bonds and liquidity is reasonable.

The Moderate-Risk 60/40 Portfolio

While the low-risk 60/40 portfolio is a great option for many, investors know that the lower the risk associated with the investment, the lower the potential for gains.

One great way to slightly increase the risk while greatly expanding your earnings potential when using this portfolio strategy is to include international stocks in your equity holdings and swap out Treasury bonds for corporate bonds in the bond portion of the portfolio.

Here’s how that looks:

  • 60% in Vanguard Total World Stock ETF (VT). The VT ETF fund was designed to provide exposure to a highly diversified list of stocks, both in the U.S. and around the world. While the international side of the portfolio increases the risk, it also increases potential profitability, as emerging market growth tends to outpace growth in established markets like the United States.
  • 40% Vanguard Total Corporate Bond ETF (VTC). On the bond market, corporate bonds are known for paying higher yields than Treasury bonds but do come with increased risk. By investing in the VTC fund rather than VGIT, it’s possible to increase the earnings on the fixed-income side of your portfolio.

The High-Risk 60/40 Portfolio

Finally, if you’re willing to accept higher levels of risk, the potential returns of the 60/40 portfolio can be increased by including some different asset classes into both the equity and fixed-income sides of the equation.

Among your equities, consider mixing in some small-cap holdings. Small-cap stocks are known for high levels of volatility and risk, but they’re also known for the potential to outpace the returns of their large-cap counterparts.

On the fixed-income side, look into real estate investment trusts (REITs). These real estate investments are riskier than bonds but have much greater potential to increase your profitability while providing a source of predictable returns in the form of exceptional dividends.

Adjusting the portfolio for a high-risk investor is as simple as investing in the following funds:

  • 30% in Vanguard Total World Stock ETF (VT). The VT fund remains an anchor in this investing strategy, providing access to a diversified group of U.S. and international holdings. This fund should represent about 30% of your holdings in the high-risk rendition of the 60/40 portfolio, or half of your equity allocation.
  • 30% in Vanguard Small-Cap ETF (VB). The VB fund is made up of a diversified group of small-cap stocks, providing exposure to high-growth opportunities in smaller companies. This fund takes the other 30% allocation on the stocks side of the portfolio in this model.
  • 20% in Vanguard Total Corporate Bond ETF (VTC). About half of your fixed-income allocation, or 20% of the total portfolio, should be invested in the VTC fund to gain exposure to corporate bonds.
  • 20% in Vanguard Real Estate ETF (VNQ). Finally, the VNQ fund is an index made up of investable REITs, which gives you broad access to real estate investments while maintaining diversification within the asset class. This fund takes up the other half of your fixed income allocation, representing 20% of the portfolio.

The Growth 60/40 Portfolio

If you’d rather focus on a growth strategy than simply making bucket investments in diversified groups of equities, the growth 60/40 portfolio is the way to go. Here’s what it looks like:

  • 60% in Vanguard Growth Index Fund ETF (VUG). The VUG fund was designed to provide diversified exposure to U.S. large-cap growth stocks. These are companies that have a proven history of generating significant growth, but provide a level of safety in that they are all large-cap, established companies. In the growth rendition of the portfolio, this fund represents 60% of your investment allocation.
  • 40 % Vanguard Intermediate-Term Treasury ETF (VGIT). The other 40% of the portfolio would be invested in the VGIT, offering stability through intermediate-term Treasury securities.

The Value 60/40 Portfolio

If you’re following a value investing strategy, the best way to take advantage of this portfolio is to invest the stock portion of your assets into a value-centric fund like the Vanguard Value Index Fund ETF (VTV).

This fund provides diversified exposure to large-cap value stocks, meaning these are large-cap companies with valuation metrics that suggest they’re trading at a discount.

You can then invest the remaining 40% of your assets using the VGIT for your bond holdings.

The Income 60/40 Portfolio

Finally, those focused on income investing can also take advantage of this portfolio with one small tweak. As with the traditional 60/40 portfolio, 40% of your assets should be allocated to the VGIT, providing safety through investments in intermediate-term Treasury securities.

The other 60% of the portfolio should be invested in the Vanguard High Dividend Yield ETF (VYM). The VYM is made up of a wide range of stocks known for paying high dividend yields.

By investing in the fund, you’ll gain diversified exposure to stocks of all sizes in various sectors that all have one thing in common — they all have a history of offering investors a high dividend yield. That’s music to an income investor’s ears.

Pro Tip. M1 Finance offers expert pies designed around several portfolio strategies, including the 60/40 portfolio. If you’re not interested in building your own, use a prebuilt expert pie on M1 Finance to add the portfolio to your holdings.


Keep Your Portfolio Balanced

Regardless of which rendition of the 60/40 portfolio you choose to go with, it’s important to make sure to maintain balance. The entire thesis behind the portfolio is to provide meaningful returns while creating a safety net by balancing higher-risk equities with lower-risk fixed-income investments.

As time passes, some investments will rise in value and others may fall. As a result, your investment portfolio will fall out of balance. If the balance becomes too skewed, the portfolio may fail to meet your investment objectives.

The good news is that the 60/40 portfolio strategy is a buy-and-hold strategy, meaning you won’t be required to rebalance your portfolio monthly. However, it is best to take a look at your portfolio on at least a quarterly basis.

Moreover, with so few assets, maintaining balance is a relatively simple process. When one asset grows to take up more than its allotted percentage, simply sell a little of it and buy more of its counterpart to bring the portfolio back to the 60/40 balance.


Final Word

There’s a reason the 60/40 portfolio is one of the most talked-about strategies on Wall Street. For decades, investors have been deploying this strategy, which has worked to build wealth over time.

However, as times change, the traditional investing models are being replaced with newer, more fluid options. While the traditional 60/40 concept has been a go-to for some time, it’s not the best fit for all investors, nor is it optimized for investing during a bull market where bond yields are chronically low and stocks are on the rise.

Nonetheless, when markets are flat or falling bearish, and you feel a safer approach is best, the portfolio is a great fit. Moreover, if you’re willing to take the time to customize and are interested in REITs rather than heavy bond allocation, the portfolio can be adjusted to fit your needs.

Source: moneycrashers.com

10 Ways to Save Money on School Uniforms for Kids

According to the National Center for Education Statistics, 1 in 5 public schools required students to wear uniforms as of the 2017-18 school year. These can be anything from identical outfits marked with the school’s name or logo to a basic color scheme, such as plain white shirts and tan pants.

According to 2011 research from the University of Nevada, Reno College of Education, a school uniform policy can have many benefits for students. It can make it easier to get ready for school, boost self-esteem, reduce bullying, and improve classroom discipline. But it has one big downside for parents: the cost. According to CostHelper, a school wardrobe of four or five uniforms can cost anywhere from $100 to $2,000.

One reason uniforms often cost more than regular clothes is that parents have less choice about where to buy them. If you can only get your kids’ school wardrobes from the official school store, you must pay whatever that store charges. However, you can get around this problem with the right shopping strategies. The first tip to try: shopping secondhand.

Ways to Save With Secondhand School Uniforms

Clothes are one thing it nearly always pays to buy secondhand if you can. With school uniforms, that’s doubly true.

Since young children grow so fast, their outgrown uniforms can still have lots of life left in them. Naturally, these previously worn uniforms don’t look brand-new, but neither do most school clothes after a few weeks of wear. Secondhand school uniforms cost much less than new ones, and in some cases, they’re free.

1. Try Uniform Swaps

If you have two children attending the same school, the younger kid can wear the older one’s hand-me-downs. But if you have only one child or your kids go to different schools, you can end up with clothes in good condition and no one to hand them down to.

A uniform swap is a way to expand your hand-me-down family. By pooling resources with other parents, you can pass on your child’s outgrown uniforms to younger students at your school and receive uniforms from older students in turn.

Some schools hold official uniform exchanges. For example, at St. Catharine School in Ohio, you can trade in gently used school uniforms for larger sizes or pick up other people’s trade-ins at significantly reduced prices. Other schools, like St. Stephen’s Academy in Oregon, give parents points for their trade-ins, which they can use for purchases or donate.

If your child’s school doesn’t have an official uniform exchange, hold a clothing swap party of your own. Invite other parents over, lay out all your outgrown uniform items, and see who can use them.

If you don’t have the space to meet and exchange clothes in person, start a social media group where parents can post photos and descriptions of their kids’ outgrown clothes. When you find someone who has the size your child needs or needs the size you have to give, you can contact each other to arrange a pickup.

2. Shop at Thrift Stores

If you live in or near a large city with a large student population, there’s a good chance you can find outgrown school uniforms at local thrift stores. Check the stores closest to your child’s school to maximize your chances of finding them.

Even in smaller cities and towns, thrift stores are an excellent place to look for basic pieces that are often part of a school uniform. Dress shirts, solid-color polo shirts, and chino pants are likely to show up on their racks. You can’t count on finding the pieces you need in your child’s size, but if you do, they’ll be significantly cheaper than new clothes.

To find thrift stores in your area, do an Internet search on “thrift stores” or “thrift shops” with your town’s name or zip code. Also, check the websites of the largest store chains — such as Goodwill, Salvation Army, and Value Village — to find their nearest locations.

3. Find Sellers Online

If you can’t find suitable secondhand clothes for your child’s uniform at local stores, try looking online. Start consulting your local Craigslist and Facebook Marketplace groups in early July, and look for new listings every other day or so. That gives you roughly two months to find all the pieces you need to build a complete school wardrobe for your child. Just be sure to contact sellers quickly when you find something you need so someone doesn’t beat you to it.

Another reliable source for secondhand uniforms online is eBay. You can create saved searches for each specific garment your child needs, such as “navy shorts size 8,” and receive daily emails of all new listings for your saved search. You can pick up pieces one at a time or — if you’re lucky — find a lot of uniform clothing all in the same size.


Ways to Save on New School Uniforms

The biggest downside of secondhand shopping is that you can’t be sure of finding what you need. If the start of the school year is approaching and you still don’t have a complete school wardrobe for your child, don’t panic. There are ways to buy new uniform-appropriate clothes and still keep costs down.

4. Buy the Minimum

For starters, don’t buy more of any component than you really need. Your child may need a clean shirt for school every day, but kids can usually get away with wearing the same skirt, pants, or sweater several days in a row. Jackets and ties can go even longer between cleanings.

How many pieces your child needs depends on how often you intend to do laundry. Mothers discussing their kids’ school wardrobes on Mumsnet generally say they include:

  • Five to 10 shirts
  • Two to five sweaters
  • Two to five skirts or pairs of pants or shorts

On top of that, you can add one or two school blazers and one or two dresses or jumpers if your uniform includes these pieces. And your child also needs at least one pair of school shoes and enough socks and underwear to last the week.

If you shop smart, you can put together this minimalist kids’ wardrobe for less than the $240 average parents reported spending on back-to-school clothes in a 2019 National Retail Federation survey. CostHelper says it’s possible to find pants and skirts for as little as $5 each, tops for as little as $3, and shoes starting at $15. That’s less than $100 for the whole wardrobe.

5. Visit Cheaper Stores

If your school’s uniform consists of basics like solid-color tops and pants, there’s no need to buy them at the official school store. Many major retail chains sell uniform-appropriate clothes for kids at quite reasonable prices. In fact, several retailers offer lines of kids’ clothes designed explicitly for this purpose, such as:

6. Shop Online

If stores in your area don’t carry the school uniform pieces you need at prices you like, try shopping online. Some online retailers specialize in school uniforms, and others have sections devoted to them. Good places to shop online include:

  • Amazon. The e-tail giant has an entire section called The School Uniform Shop. It provides links to uniform-appropriate garments from many popular brands, including Nautica, Izod, and Dockers. Alternatively, you can search for “school uniforms” to find apparel for girls and boys. Check out these Amazon savings tips for more ways to save.
  • French Toast. Online retailer French Toast deals in school uniforms for all ages, which you can search by school or gender. The site also offers two- and three-packs of identical shirts or pants for a discounted price per piece.
  • Lands’ End. The school uniform shop at Lands’ End offers sturdy clothing in all sizes, from toddler to adult. Clothes are covered by the brand’s unconditional lifetime guarantee. There’s even a selection of adaptive garments for kids with disabilities. This apparel combines easy-to-use magnetic closures with decorative buttons for a uniform look.
  • Lee Uniforms. For teens and young adults, the Lee Uniforms store on Amazon offers school- and work-friendly pieces. The selection is limited, but the prices are excellent.
  • SchoolUniforms.com. As its name implies, SchoolUniforms.com specializes in uniform basics, from blazers to plaid pleated skirts. Garments come in a range of sizes to fit children ages 3 and up, including plus sizes.

When shopping for uniforms online, you can save still more by using a mobile coupon app like Rakuten or Ibotta. If you prefer to shop from a computer, install a money-saving browser extension like Capital One Shopping to help you find great prices and available coupon codes.

Capital One Shopping compensates us when you get the browser extension using the links provided.

7. Wait for Sales

If your school has an official uniform store, call that store and see when it plans to offer discounts or promotions. In many cases, uniforms go on sale in October, after most parents have already bought their kids’ clothes for the year. You can save money on school uniforms by buying just enough pieces to get through September and waiting until October to stock up.

If the school uniform is a generic outfit available from many stores, keep an eye out for sales at all the stores in your area. Consider signing up for emails from your favorite local stores to let you know when uniform clothing goes on sale. Sometimes, these emails also provide coupons, which can boost your savings still more.

Timing your purchases can help at department stores too. Clothes often go on sale at the end of the season — for example, summer clothes in September or winter coats in March. If you plan ahead, you can save by buying school uniforms for next year during these end-of-season sales.

If you’re unsure when and where school uniforms are most likely to go on sale in your area, create a Google Alert for the term “school uniform sale” with your location or zip code. Whenever a new sale pops up, you’ll receive an email about it. You can also use the term “school uniform clearance” to learn about end-of-season clearance sales.

8. Check Out Clearance

Even when a department store isn’t having a sale, there’s usually a clearance rack you can check for marked-down clothing. Since school uniforms tend to be plain clothes without a lot of eye appeal, there are often at least a few pieces that don’t sell and end up on the clearance rack.

For example, the frugal-living bloggers at Life Your Way and Joyfully Thriving both report finding uniform pieces for less than $5 on the clearance racks at stores like Gap and Macy’s.

9. Buy Bigger Sizes

If your child is still growing, there’s a good chance the uniforms you buy now won’t fit by the end of the year. However, you can make them last as long as possible by sizing up.

Choosing clothes with an extra inch to spare in the legs and sleeves gives your kid room to grow into them. Some uniform pants and skirts come with adjustable waistbands, so they’ll accommodate your child’s growth in width as well as height.

And if you find a great price on a particular piece your child needs, you can buy next year’s sizes now. Assuming they plan to attend the same school for the foreseeable future, you know they’ll need the same uniform next year, so buying multiple sizes at once lets you get them all at the best possible price.

10. Buy to Last

If your child has stopped growing but still has a few more years of school to go, you can save money by choosing quality clothing that will last. These well-made pieces may cost more upfront than cheaper brands, but they pay off in the long run. A $50 blazer that wears out after one year costs $50 per year, but a $100 blazer that lasts for four years costs only $25 per year.

For example, clothes from Lands’ End come with a lifetime guarantee. If they don’t last your child until graduation (or they outgrow them), you can return them for a full refund. Clothing from Dickies, available at Walmart, is also guaranteed for its “expected life,” though they don’t define the term. Clothes from Target’s Cat & Jack line come with a one-year guarantee.

Another way to make school uniforms last as long as possible is to choose the darkest colors allowed. On light-colored clothes, minor spots or stains show up more vividly, making them unfit for school wear. Darker-colored clothing, such as maroon, navy, or forest green, hides these minor flaws.


Final Word

Saving on school uniforms doesn’t end when you’ve made your purchases for the year. If your kid’s uniforms become unwearable due to rips, stains, or lost buttons, you’ll have to replace them in a hurry — possibly at full price. To avoid this problem, handle school uniforms with care to make them last as long as possible.

Always follow the washing instructions and line dry or dry flat when possible to avoid wear and tear from the dryer. Treat stains promptly, repair rips, and replace buttons.

If your sewing skills are up to it, you can even get another year or two of life out of garments by letting down the cuffs or adjusting the waistband to fit your child’s larger size. Following all these steps reduces waste, so you can also pat yourself on the back for being green.

One final tip: Label all your kids’ school clothing with their names. When all the students in a school wear the same outfit, it’s easy for them to grab someone else’s sweater or jacket by mistake. Sewing in a name tag or writing on the care tag with a permanent marker increases the chances misplaced clothes will find their way home again.

Source: moneycrashers.com

12 Ways to Increase Rental Income From Your Vacation Home

Bought a vacation rental and wondering how to maximize your income from it?

First and foremost, shift into the mindset of an entrepreneur in the hospitality industry. You’re a businessperson now, and you need to think like one. In particular, focus on creating a strong product, marketing it, and building efficient business processes.

Ways to Increase Your Vacation Rental Income

Vacation rental properties rarely offer truly passive income. Even if you outsource property management, you still need to manage the manager. Instead, think of your vacation rental property as a side business you operate in addition to your full-time job.

Once you start approaching your vacation rental as a hospitality business, you can start optimizing that business to earn more revenue with less labor on your part.

1. Start With Strategic Finishes

After purchasing the property, your first project is putting it into marketable shape as quickly as possible. That includes any needed repairs, updates, and improvements. Don’t go overboard, but look for any obvious indicators of age in the property, including anything that looks dated or unattractive.

You should also be planning out your automation processes at this point, because they may impact your property updates. For example, you may decide to install a smart lock or key code lock on the front door (more on that later).

Think about any other smart home upgrades that may improve your marketing. Would guests feel more comfortable with a smart security system in place?

As you plan out your property’s finishes, keep resiliency in mind.

Aim to “tenant-proof” your property as much as possible, with scratch- and waterproof flooring such as luxury vinyl tile and door stoppers behind each door. Consider semi-gloss or glossy paint finishes to more easily wipe away scuffs, and use the same paint color throughout for easy touch-ups.

Your guests won’t be gentle with your property, so make it as indestructible as possible.

When your property repairs and updates are finished, it’s time to furnish and decorate it. You don’t need to buy furniture new; no guest expects to be the first person to have sat on the couch. But furniture needs to be tasteful and in good condition.

A word to the wise: Don’t decorate blandly. You are not operating a hotel, and one of the reasons guests choose to stay in a privately owned vacation home over a hotel is to get a more authentic experience. Tie in some local flavor and add a bit of your own personality.

Draw the line at political statements, though. I once stayed in an Airbnb filled with political posters and found them to be obnoxious and unprofessional.


2. Automate & Systematize Guests’ Stay

The less your guests must rely on you personally, the smoother their stay will be for both of you.

Find a way to automate guests’ check-in and checkout process, particularly their access to the unit. That could mean a smart door lock, a keypad lock, a lockbox, or keys left with a community office or doorman.

Note that smart door locks don’t have to cost an arm and a leg. You can buy the ULTRALOQ U-Bolt Pro for under $200, or go a little lower-tech with the AmazonBasics keypad lock for under $50.

Self-entry allows guests to arrive on their own schedule, rather than wasting both of your time in coordinating entry with you present.

But systematizing your renters’ stay doesn’t end at physical entry. You also need to plan for other frequent needs, such as gaining Wi-Fi access, and make them extremely intuitive and easy for your guests.

Create a concierge document that starts with bullets for the most common issues, such as the Wi-Fi network and password. You can then direct guests to longer explanations as needed. Consider a Google Document that you can both print physically for the unit and send a link digitally to guests before they arrive.

Automate this communication with guests. Create automated messages that go out to guests 48 hours before their arrival that include details like how to access the property, Wi-Fi information, and how to use any confusing appliances. Your concierge document can also include tips for local restaurants, attractions, and other entertainment.

As you systematize your vacation rental business, create policies for every contingency. That includes lost key policies and fees, late checkout procedures, pet policies and fees, your maid or cleaning service (which can be set up quickly through Handy.com), and backup contacts for times when you aren’t available.

In addition to operating a hospitality business, you also face standard landlord headaches like property repairs. Prepare for maintenance by building a network of contractors you can contact for immediate service, to minimize the risk of bad reviews and losing Airbnb guests over maintenance issues.


3. Perfect Your Pricing

One of the most fundamental building blocks for success as an Airbnb host is pricing.

To begin, ignore what long-term rental properties charge for monthly rents. Rather, look at them, but only to run a comparative cash flow analysis to determine which leasing model would generate more profit for your property.

Your competition as a vacation rental operator doesn’t include long-term rentals, but rather hotels and other comparable vacation units. Get a sense of what hotels and similar vacation rentals charge in your immediate area. Consider aiming for around 20% less on a nightly basis than nearby hotels.

Keep in mind that your pricing can and should rise as you establish yourself and your unit.

In the beginning, with few or no reviews, you’ll probably need to entice your first guests with bargain pricing. Once you establish legitimacy through reviews, you can raise your pricing to meet or slightly surpass nearby competitors. (More on building reviews shortly.)

Remember, pricing doesn’t end at your nightly rate. It also includes your cleaning fee, additional guest fees, pet fees, and any other fees you charge. By all means, charge a cleaning fee, but don’t use it as a backdoor gimmick to charge higher rates. Price it based on your actual cleaning fees, and keep your nightly rates transparent.


4. Incentivize Longer Stays

As with long-term rentals, the greatest labor and costs in managing short-term rentals come from turnovers. From cleaning to coordinating access with guests and answering their questions, it costs far more time and money to rent to 10 guests in a one-month period than to a single guest staying for an entire month.

What’s more, short bookings can actually cost you the more lucrative longer bookings. If someone rents your unit for one night, it prevents a prospective two-week guest from being able to book your unit for that block.

So, price accordingly. Charge a higher nightly rate for stays under a week, and then offer a discount for guests who stay at least seven days. Keep graduating that discount the longer they stay, up to a month.


5. Consider Pet-Friendly Policies — For a Price

Pet owners often have a hard time finding hotels and vacation rentals that accommodate their four-legged family members. That means a shortage of supply, which in turn creates an opportunity.

There’s certainly no shortage of demand. More than two-thirds of American households own a pet, according to the 2019-2020 survey by the American Pet Products Association.

Of course, pets cause more wear and tear on your rental property. That means you should charge extra for them to make it worth your while.

By accepting pets, you can not only collect more money on a nightly basis, but you can also attract more potential guests and achieve higher occupancy rates. And in the vacation rental business, profits come down to occupancy.

Young Woman Wearing Sweater Cuddling Pet Cat


6. Take a Multipronged Approach to Marketing

Putting together the perfect vacation rental listing is both an art and a science. Start your marketing with a killer rental listing.

First, hire a professional real estate photographer to take photos. It’s less expensive than you think, and it’s a one-time marketing expense that will continue paying off for years to come.

Photos should include several shots from different angles of each important room in the home. Pay particular attention to the kitchen, living spaces, bedrooms, and bathrooms. Show the photos to someone who has never been inside your property and ask them if they can visualize the layout and space.

Feature a few exterior shots as well, including the front of the property and any outdoor living spaces.

When filling out your listing profile, tick off each amenity, and select the bed sizes for each bedroom. Then in your written description, emphasize the property’s best features, and mention the most important amenities again.

If your location is a selling point, emphasize that as well. Include highlights like “Five-minute walk to the waterfront!” or “One block from the metro station!” Mention specific landmarks and tourist attractions nearby to boost your search rankings within vacation rental platforms — more on that momentarily.

Although Airbnb is the undisputed leader in the online vacation rental space, it is not the only player. Advertise your unit for rent on multiple platforms, including VRBO, Booking.com, and Craigslist. A previous player in this industry, HomeAway, was acquired by VRBO and merged in 2020.

But don’t stop there. Research ways you can market your vacation rental on social media, such as through local tourist groups on Facebook, or even paid Facebook ads.

The better your marketing reach, the higher your occupancy rate will be, which ultimately determines your bottom line.


7. Optimize for Search Rankings

Imagine your vacation rental is one of a hundred available in its neighborhood. A prospective guest logs into Airbnb and searches for units in that neighborhood — which ones does Airbnb display first, at the top of the page rather than buried at the end of that long list?

Vacation rental platforms have their own search algorithms, just like Google does. If you want your listings to appear first, you need to take pains to optimize for those algorithms.

First, listing platforms reward responsiveness. The faster you respond to inquiries, the higher the platforms will list your unit. Make it a priority to respond as quickly as possible, and if you can’t give prospects a precise answer immediately, at least reply back with a quick “I’ll check into that and follow up with you shortly.”

As with Google, click-through rate matters. That refers to the percent of users who see your listing title who actually click on it. So, boost your click-through rate by putting thought into your listing titles to make them irresistible. Your thumbnail photo also helps your click-through rate, so make it gorgeous.

Accept instant bookings, rather than requiring prospects to wait until you’ve manually reviewed them. Listing platforms include this as a search filter, so many prospects will never even see your listings if you don’t accept instant bookings.

Keep your calendar up to date. Airbnb rewards recency — the more recently your calendar was updated, the better.

Likewise, keep your listings up to date. Every two or three months, tweak your listings, perhaps to emphasize seasonal attractions in your area. This also makes a great time to review your listing for completeness within the listing platform, which also impacts your search rank.

“Completeness” refers to the percentage of available fields and selections that you’ve filled out. Even if you filled out every field before, they don’t remain static — listing platforms constantly add new features and options, and you need to stay current with them if you want your listings to appear before alternatives.

Be sure to mention local attractions in your listing description because some prospects search specifically for easy access to famous landmarks or other attractions. You want to make sure your listing appears front and center for those who do.

And, of course, the more positive ratings and reviews you have, the more platforms reward you with higher rankings.


8. Accrue Reviews ASAP

You can put together the best listing in the world, but if you have no reviews, guests will be reluctant to book with you.

Start with a simple two-pronged approach to scoring reviews. First, price your property competitively to beat your competition if you don’t have many reviews. Second, put together a guest follow-up strategy for securing reviews.

That strategy should include asking no fewer than three times for a review.

Mention it at the end of your checkout instructions message, then again in a post-checkout message thanking them for staying with you. Then leave a review for them as well, and message them to let them know you left a glowing review for them, and ask them if they would be willing to do the same if they enjoyed their stay.

Your goal is to reach 10 positive reviews as quickly as possible. When prospective guests see reviews in the double digits, they feel more confident in booking, and your occupancy rate will rise.


9. Create an Experience

As outlined above, you can and should automate your booking, check-in, and check-out processes as much as possible. Aim to make them so easy an 8-year-old could do it.

Send a series of messages out on an automated schedule. Spell out everything the guest needs to know about getting into your property and staying there comfortably.

Assemble a concierge document about how to use the various appliances in your unit, the best local restaurants, and standout local attractions. Mention both the famous nearby amenities they already know about and the insider scoop on local secrets.

For example: “Drop by the Bulldog for an iconic Amsterdam bar experience, but then walk over to Door 74, a tiny, hidden speakeasy with no signage and a Prohibition-era vibe.”

It’s those more unique guest experiences your renters will remember and rave about later both publicly in their reviews and privately to their friends.

Leave a bottle of wine or some other gesture that they wouldn’t receive at a hotel. You don’t need to spend much money on it, and half your guests won’t drink it anyway, but it makes a great first impression. Underneath it, leave a brief handwritten note welcoming them by name. And, of course, chocolates on the pillows don’t hurt either.

People remember the little things, the small touches that remind them why they chose an alternative to bland corporate hotels.

Bottle Of Wine Rose Red Woman Relaxing At Home Sofa Barefoot


10. Explore Co-Hosting

If you manage your own vacation rental, and other nearby units also serve as vacation rentals, start networking with the other neighboring owners. You can co-host for each other, or simply have one owner co-host for all the neighborhood units as a side hustle.

Co-hosts share property management responsibilities, such as communicating with guests, managing check-ins and checkouts, coordinating repairs, and more. See Airbnb’s explanation for a full list of responsibilities that co-hosts can perform. In compensation, the primary host can pay co-hosts a percentage of the nightly rate, a percentage of the cleaning fee, or both.

They can make an affordable and convenient way to outsource management, whether temporarily — for example, while you’re on vacation — or permanently. Or, if you live near the units yourself, co-hosting for neighboring vacation rentals offers an easy side gig to earn some extra money on other people’s properties.


11. Protect Yourself & Your Property

One way to protect your property is to physically make it damage-resistant, as mentioned above. But protection doesn’t end there.

Think carefully about the security deposit you charge. Charge as much as you think you can without scaring off guests.

Platforms such as Airbnb include some protections for hosts, and you should familiarize yourself with them. If you don’t use a platform and rent independently, look into other ways you can protect against damage, such as preauthorizing the guest’s card for an additional damage deposit, but not running the charge unless they cause damage.

But your guests aren’t the only people you need to worry about. If you buy the property with a family member, friend, or other partner, it inevitably causes conflict to one degree or another.

The most common disputes involve one partner wanting to use the property more often than the others, financial disputes over expenses, and disputes when one owner wants to sell and the others can’t afford to buy them out.

I’ve seen all of these disputes play out in my own family, and can attest firsthand to how vicious they can get — vicious enough to permanently poison relationships, even close family relationships.

Protect yourself by signing an agreement with your partners upon buying a property detailing exactly how you’ll split revenue, responsibilities, and access to the property, and spelling out the process you’ll follow if one partner wants to sell while others don’t.

A little foresight today can save a lot of stress and infighting tomorrow.

Further protect yourself with contingency plans in the event that laws or market conditions change.

Local regulation presents a real threat to vacation rental owners — cities like New York, San Francisco, and Santa Monica all but outlaw private properties being offered to short-term guests. Your city could change its regulations at any time, and you need a backup plan to protect against such seismic shifts.

Run the numbers to calculate how your property would create cash flow as a long-term rental, as one contingency plan. As another, look into leasing your property as a furnished corporate rental, for example, to travel nurses.

As a last resort, you can always sell the property, but it typically takes a few years for properties to appreciate enough to cover the closing costs from both the initial purchase and the eventual sale. But always have contingency plans in place, to protect against losses if conditions change.


12. Optimize Your Taxes

Vacation rental owners can benefit from both investment property tax breaks and small business tax breaks.

As a business owner, you can deduct expenses that you might otherwise have to itemize in order to take, allowing you to take the standard deduction while still deducting specific expenses. For example, you could potentially deduct for travel, home office, and charitable donations from your business, all while still taking the standard deduction. Just be careful not to get carried away and trigger an audit with the IRS.

Meanwhile, real estate investors get their own tax benefits. You can deduct costs from property management to maintenance, utilities to depreciation.

Beware, however, that a few cities — such as Santa Monica — require vacation rental owners to pay additional taxes. Make sure you include that expense when you run the cash flow numbers before you invest in a vacation rental in one of those cities.


Final Word

It’s a fun idea to own a vacation rental you can occasionally use yourself while earning some extra income.

But in many markets, it remains a competitive industry, and often property owners find themselves losing money at the end of the year without enough occupancy, particularly during slow seasons.

Always run conservative numbers when you calculate cash flow, and never lose sight of the fact that the property is an investment. Don’t get attached to any given property, or even to the idea. In real estate as well as stocks, emotion is the enemy of investing.

Even if the cash flow numbers work for a prospective vacation rental, run them for contingency plans such as using the property as a long-term rental. You never know when market conditions will change; look no further than the collapse of the travel industry in 2020 during the coronavirus pandemic and the energetic rebound in 2021.

Source: moneycrashers.com

9 Simple Ways to Save Money on Laundry Costs

When Benjamin Franklin said nothing in the world is certain except death and taxes, he obviously forgot about laundry. Laundry expert Mary Marlowe Leverette, writing for The Spruce, says the average American family does eight to 10 loads of laundry per week — more than one load every day.

Fortunately, thanks to the automatic washer and dryer, washing all those loads is a lot easier now than it was in the days of the washtub and scrub board. But given the cost of electricity, water, and detergent, it’s also a lot more expensive.

Fortunately, with just a few easy tricks, you can cut the cost of your weekly wash by half or even more. And don’t worry. None of them involve hauling your clothes to the nearest river and beating them against a rock.

Ways to Save Money on Laundry

Your best strategies for saving money on laundry depend on where and how you do your washing.

If you use a coin laundromat, what you pay per load is pretty much fixed. You can save some money by cutting the cost of the products you use, like detergent and fabric softener, but your best bet is to do laundry less often.

However, if you wash at home, your choices make a big difference. The type of washer you have, the water temperature, and how you dry your clothes all affect your bottom line.

1. Wash Fewer Loads

The No. 1 tip for cutting your laundry costs is to wash fewer loads. When you wash at home, this single strategy automatically cuts your costs on everything at once — water, electricity, detergent, and heat for drying. It also saves wear and tear on your washer. And it’s one of the few strategies that also works at the laundromat.

There are two primary ways to reduce the number of loads you do. The first is to wash full loads as much as possible. That’s particularly crucial for laundromat users. At home, you can save some water and energy when doing a small load by choosing a lower water setting. But at the coin laundry, you pay just as much for a small load as for a large one.

To keep your costs down, save your laundry for a week or more and do it all in one large load. If you just don’t have enough clothes to wait that long for laundry day, try sharing a load with a friend or neighbor.

The other way to cut the number of loads is to wear your clothes more than once between washings. According to the American Cleaning Institute, you only need to wash some items, such as T-shirts and underwear, after every use. You can wear others, such as jeans or dress shirts, several times before laundering. You can use bath towels three to five times before washing, and bedsheets can stay on the bed for up to two weeks.

How much you save with this tip depends on what you’re paying now for laundry. If you’re an apartment dweller in New York City, you could pay as much as $3.50 to wash a load of laundry and around $1 to dry it, according to Culture Trip. Thus, cutting back from two loads of laundry per week to one would save you $4.50 per week — over $230 per year.

But even if you wash your clothes at home, doing fewer loads is still a money-saver. According to ClearlyEnergy, the average cost of a home-washed load ranges from $0.24 to $1.08. That means your yearly savings for cutting out one load per week would be $12.48 to $56.16.

As a bonus, washing your clothes less often also helps them last longer. So you can cut your annual budget for new clothes too.

2. Use Cold Water

About 80% of the energy a washer uses is for heating the water, according to ClearlyEnergy. Thus, one of the quickest ways to cut your laundry cost is to wash clothes in cold water as often as possible.

Don’t worry that cold water won’t get your clothes clean enough. According to the U.S. Department of Energy (DOE), only oily stains really require hot water to remove them. Consumer Reports also recommends using hot water plus bleach for cloth diapers and the germ-laden sheets and towels of a sick family member. For everything else, warm or cold water does a perfectly adequate job.

You don’t necessarily need a special cold-water detergent to get your clothes clean on the cold setting. According to Consumer Reports, modern detergents are actually better at removing dirt and stains in low temperatures than higher ones.

3. Change Your Detergent

The best laundry detergents aren’t always the most expensive. In a 2021 comparison test by Good Housekeeping, the top performer was Persil, which costs around a quarter per load. However, the store brand from Costco did almost as well on most stains for just $0.12 per load.

For a family that does eight loads of laundry each week, switching from Persil to the Costco brand would save over $115 per year. That’s more than enough to make a Costco membership worth the cost.

Some frugal-living bloggers suggest making your own laundry detergent as a way to save money. Homemade detergents usually contain a mix of soap, borax, and washing soda. HouseLogic tested three DIY recipes costing $0.06 to $0.10 per load and found that all of them got clothes clean. They even did a better job on mustard stains than a commercial detergent.

However, homemade laundry detergents can cause problems for users who have hard water. According to detergent maker Dropps, these products can react with minerals in the water, leaving residue on your clothes. They can also leave buildup on the washing machine itself, leading to mold and mildew growth.

Also, making your own detergent takes time. If you spend half an hour mixing a 50-load batch, and you save $0.05 per load by using it instead of the Costco brand, then your total savings is $2.50 for half an hour of work. That works out to only $5 per hour, significantly less than minimum wage.

A quicker way to save on laundry detergent is to look for sales and coupons. For example, at stores in my area, liquid detergent sometimes goes on sale for $1.99 for a 33-load bottle — just over $0.06 per load. Adding a $0.50 coupon cuts the price to $1.49, less than $0.05 per load. You can also frequently find savings on detergent through the Ibotta app.

4. Use Less Detergent

Another way to cut your detergent cost is to use less. According to another of Leverette’s articles on The Spruce, the amount of detergent you need could be much less than the amount marked by the fill line on the cap or scoop. The amount you need depends on your detergent type, washer type, and water.

If you have standard water, you need about two tablespoons of 2X concentration liquid or one-third to one-half a cup of powder to clean a standard load (12 to 15 pounds). You can use half as much if the concentration of the detergent is 4X and one-fifth as much if it’s 10X.

If you have softened water, you should cut all these amounts still more. Use about one and a half tablespoons of 2X detergent and less for more concentrated liquids. On the other hand, you should increase the amount by about 25% for untreated hard water.

With a high-efficiency washer, you need even less detergent. It takes only two teaspoons of 2X liquid (one and a half teaspoons in softened water) to clean a standard load. With powdered detergent, use two tablespoons. You can use a marker to indicate the correct volume on the detergent bottle cap so it’s easy to measure.

And in some cases, you can get laundry clean without using any detergent at all. When The Straight Dope ran a test in 1997 to see whether detergent-free laundry balls were effective, they found that clothes washed with plain water got just as clean as those washed with Tide.

Using more detergent than you need is more than just a waste of soap. For one thing, according to Consumer Reports, it can trigger the washer to use an extra rinse cycle, wasting water.

Excess detergent can also harm your clothes or your washer. It can leave a residue on your clothes, making them feel soapy, sticky, scratchy, or stiff. Clothes may look dull or grayish. And buildup on the washer can lead to must or mildew, just as with homemade detergents.

So if your clothes or washer show any of these symptoms, use less detergent. Cutting your detergent use by half can cut the cost of the top-rated Persil detergent from $0.40 per load to $0.20. At eight loads per week, that’s a savings of $83.20 per year.

5. Skip the Fabric Softener

Another laundry product that can cause problems with your clothes is fabric softener. According to another Spruce article by ​​Leverette, both liquid fabric softeners and dryer sheets work by adding a lubricating coating to fabric that makes it feel softer on your skin. But if you use too much, it can leave stains on your clothes.

In fact, according to Martha Stewart, you shouldn’t wash some clothes with a fabric softener at all. Using it can reduce the absorbency of towels and the moisture-wicking properties of workout clothes.

To soften clothes without buildup, try distilled white vinegar instead. Just pour half a cup into the fabric softener dispenser or add it by hand during the rinse cycle.

Vinegar doesn’t harm fabric and leaves no odor behind. In fact, it can actually help remove odors from laundry and brighten both white and colored clothes. And at less than $2 per gallon, it’s cheaper than commercial fabric softeners.

If you’ve been relying on dryer sheets to eliminate static cling, there are chemical-free solutions for that too. One alternative is wool dryer balls. According to Real Simple, they reduce static and wrinkling and help keep clothes separated as they dry. That can cut drying time by 10% to 25%.

A set of wool dryer balls costs around $6 and lasts for about 1,000 loads of laundry. That works out to $0.006 per load compared to around $0.02 per load for Bounce dryer sheets. To save even more, you can make your own dryer balls from leftover woolen yarn.

An even cheaper fix for static cling is a ball of aluminum foil. According to CNET, the foil balls help discharge static electricity in the dryer and can also cut drying time. Three balls of foil cost around $0.15 and last for months. However, they won’t soften clothes like a dryer sheet.

6. Upgrade Your Washer

Modern high-efficiency washers bearing the Energy Star logo are much more efficient than old-fashioned top-loaders. These energy-efficient machines use less water and electricity and spin more water out of clothes, so they spend less time in the dryer.

ClearlyEnergy crunched the numbers to see how much upgrading your old top-loader could save you on both washing and drying. It found doing 392 loads of laundry per year in a standard top-loader costs $210. That includes $103 for water, $37 for electricity to run the washer, and $70 to run the dryer.

Switching to an Energy Star top-loader cuts all these costs by a lot. It uses only $55 worth of water, $17 for electricity, and $46 for drying for a total of $118. A front-loading Energy Star washer costs even less to run: $42 for water, $14 for electricity, and $41 for drying, or $97 total. That’s a savings of over $110 per year.

Unfortunately, to cash in on this yearly savings, you have to spend a big chunk of change upfront. The best-reviewed front-loading washer at Good Housekeeping is a GE priced at around $1,080, which means it would take nearly 10 years to pay for itself in lower energy bills. (People who wash more loads or always use hot water could see a faster payoff.)

However, if your old washing machine has just died and you’re shopping for a new one, it makes sense to choose an Energy Star model. According to Consumer Reports, the cheapest washers on the market cost around $400, $680 less than the top-rated GE model. But the GE’s lower energy costs would make up the price difference in roughly six years.

If you switch to a high-efficiency washer, use a detergent designed to work with it. According to Whirlpool, these machines require high-efficiency detergent that produces fewer suds and disperses quickly, making it effective with less water. To find these detergents in the store, look for the lowercase letters “he” in a circle on the label.

7. Cut Drying Time

There’s no point in continuing to run your dryer after the clothes are dry. It wastes energy and can damage clothing and cause shrinkage, according to Better Homes & Gardens.

To avoid overdrying, don’t use the timed cycle on your clothes dryer. Most dryers have a moisture sensor to detect when clothes are dry and shut the machine off automatically.

To make the best use of the moisture sensor, separate your clothes. Wash and dry heavy fabrics, such as blue jeans and towels, in a separate load from lightweight shirts and underwear. That lets each type of fabric dry at its own rate and reduces wear and tear on clothing.

Another thing that can hamper your dryer’s moisture sensor is buildup from dryer sheets. Consumer Reports recommends rubbing the sensors with rubbing alcohol every few months to remove residue if you use them. Check your dryer’s manual to see where the sensor is.

Another way to keep your dryer working efficiently is to clean the lint filter. When it’s clogged, air can’t flow freely and clothes take longer to dry. Just pull the filter out and peel off the accumulated lint after each load you dry.

And check the dryer vent every few months to ensure there’s no lint blocking it. Keeping a clean vent saves energy and helps prevent fires. Just unplug the dryer, pull it out from the wall, and disconnect the vent. Use the crevice attachment on your vacuum cleaner to remove any accumulated lint.

8. Try Line-Drying

You can save even more money by skipping the dryer completely and drying clothes on a clothesline or drying rack. According to The Spruce, drying a single load of laundry in an electric dryer costs about $0.45. (If you use a gas dryer, the cost is probably lower.) If you wash eight loads per week, switching to line-drying could save you about $187 per year.

Using an outdoor clothesline makes you dependent on the weather. You can’t hang-dry your clothes outdoors if it’s raining or if it’s so cold the wet clothes would freeze. But even if you can only line-dry half your laundry loads, that’s still a savings of about $94 per year. And if you have room for a large indoor drying rack, you can air-dry clothes all year long.

Another downside of line-drying is the extra time it takes. When I line-dry my clothes in the summertime, it takes me about 25 minutes to hang them on the line, plus another five minutes to take them down when they’re dry. That’s half an hour of my time to save less than $0.45 for using my gas dryer. If hanging my laundry were a job, it would pay me less than $0.90 per hour.

To me, the extra time I spend on line-drying is worth it because I enjoy the fresh air and activity. But I also do only one or two loads of laundry each week. If I washed eight to 10 loads per week like the average American family, it would take me over four hours each week to hang them all.

On the plus side, air-drying your laundry is easier on your clothes. Think about it: All that lint you remove from your dryer screen is bits of the fabric worn off by the tumbling action of the dryer. So line-drying also helps you save money on your wardrobe by extending the life of your clothes. Additionally, it reduces wrinkling, prevents static cling, and gives clothes a clean, fresh smell.

However, using an outdoor clothesline also allows dust and pollen to accumulate on your clothes as they hang dry. Fortunately, it’s easy to remove them. Just run the line-dried garments through the dryer for five minutes without heat. The lint trap catches all the dust, and the brief tumbling doesn’t cause too much damage to the fabric.

9. Wash at the Right Time

You can also cut your laundry costs by finding out whether your utility has time-of-use pricing. That means the company charges more per kilowatt-hour (kWh) during peak hours, when the demand is highest. That encourages customers to shift their power use to low-demand periods, reducing the strain on the electric grid.

For instance, Orange & Rockland Utilities has a summertime plan with three different periods. Customers pay around $0.32 per kWh during peak hours between 12pm and 7pm on weekdays. During “shoulder peak” hours from 10am to 12pm and 7pm to 9pm, they pay $0.11 per kWh. And during the nights and weekends, they pay just $0.02 per kWh.

Customers of this utility can save money by doing their laundry on weekends or between 9pm and 10am on weekdays. Based on ClearlyEnergy’s estimates for the amount of electricity required per load of laundry, a user with a standard-efficiency washer would pay around $321 per year doing laundry during peak hours. Switching to nights and weekends would cut that cost to about $21 — a $300 savings.


Final Word

The more of these laundry tips you use, the more money you can save in the laundry room. However, the single strategy that offers the biggest bang for your buck is to do fewer loads. Reducing the average family’s eight loads of laundry per week to four would cut their laundry costs in half instantly and save time as well.

The next-best tip is probably washing clothes in cold water. It cuts energy use by 80% instantly, doesn’t take any extra time, and doesn’t involve any sacrifice of cleanliness. And since many coin-operated laundries charge less for loads washed in cold water, it’s a tip that can work for laundromat users too.

As a bonus, most of these money-saving tips are good for the environment as well. Strategies like doing fewer loads, using cold water, using an Energy Star washer, and line-drying save energy and help reduce your carbon footprint. So you can feel good about living green while keeping a little more green in your wallet at the same time.

Source: moneycrashers.com

11 Ways to Avoid a Financial Midlife Crisis

Midlife crises are expensive.

From flashy cars to trendy clothes and accessories to artificially trying to look younger with Botox or surgeries, midlife crises cost you both money and stress.

It’s not easy parting with the vigor, fitness, and attractiveness of youth. Nor is it easy to accept our own mortality on a visceral rather than conceptual level. As you navigate the middle years of your adulthood, try the strategies below to stop the emotional and financial bleeding, and inject some fresh vitality into your life.

What Is a Midlife Crisis?

The idea of a “midlife crisis” was first popularized by Freudian psychologists like Carl Jung in the early and mid-20th century. Because there’s no official diagnosis or definition for a midlife crisis, and it expresses itself in many different ways, it’s difficult to study scientifically.

Consider two different models for midlife crises. In the classic model, it takes the form of an acute emotional crisis, often triggered by a single event during adulthood such as a death, divorce, or job loss.

The American Psychological Association explains that emotional crises are usually marked by a “clear and abrupt change in behavior” and can manifest through depression, trauma, eating disorders, alcohol or substance abuse, self-injury, and suicidal thoughts. Sadly, the suicide rate among middle-aged adults is distinctly higher than other age groups, per the American Foundation for Suicide Prevention. Middle-aged white men see particularly high suicide rates, with men nearly four times as likely to die by suicide than women.

The other model for midlife crises is more protracted, expressed as a period of lower happiness or slow-burning depression. Studies such as a 2020 paper by Dartmouth’s David G. Blanchflower demonstrate a “happiness U-curve” over the course of adulthood, with happiness declining through our young adult and early middle years before bottoming out in middle age. Happiness levels then start to rise again, with older adults reporting greater satisfaction and well-being.

During midlife crises, adults tend to contrast the goals and dreams of their youth against their current life — and find it wanting. That can lead to thoughts like “I’ve wasted my youth,” or “What have I done with my life?”

It’s hard to imagine a worse feeling.

Signs and Symptoms of a Midlife Crisis

In response to these feelings, adults often start flailing for a lifeline — anything to make them feel young, successful, attractive, energized, or in control of their lives and destinies again.

Although a midlife crisis feels immensely personal while you’re experiencing it, you’re not alone. Over one-quarter of adults admit to experiencing a midlife crisis, according to the Midlife in the United States studies. Just imagine how many more people experience one and don’t talk about it.

The common signs that you or a loved one may be experiencing a midlife crisis can take a variety of forms. Some are physiological and psychological, including depression, changes in sleep patterns, and an uptick in substance use. This can produce effects ranging from trouble getting out of bed in the morning to maddening insomnia to abusing drugs or alcohol. (If you notice any of these symptoms, consider seeking the counsel of a doctor or therapist.)

A midlife crisis can also lead to changes in one’s attitudes and behaviors, such as a sudden obsession with physical appearance, an increased interest in status symbols, or infidelity. It often accompanies feelings of resentment or blame that can wreak havoc on personal and professional relationships, and may be characterized by feeling restless, apathetic, or unfulfilled.


Financial Impact of a Midlife Crisis

Midlife crises can ruin you financially.

Before letting yourself drift into a midlife crisis, think twice about the destruction you could sow. You can literally lose everything you own and hold dear.

Therapists are cheap by comparison.

Risk of Divorce

Few events in life are as traumatic — or expensive — as divorce. The divorce process itself can cost tens or even hundreds of thousands of dollars between attorney fees, home sale costs, and other expenses from separating all your legal assets. Which says nothing of ongoing costs like alimony or child support.

Everything you own goes under the microscope to be parsed and parceled. Anyone who tells you they came out ahead in a divorce clearly didn’t fight fair, because divorces inherently drain assets rather than build them. Only lawyers get rich off divorces.

As painful as life may feel in a midlife crisis, it can get worse. And often, “worse” looks like divorce.

Risk of Job Loss and Career Derailment

Those feelings of apathy and restlessness could cost you your job in addition to your marriage.

It’s common sense: depressed people who feel unfulfilled by their job simply won’t produce quality work. That means they won’t earn promotions, won’t secure glowing references to help them get a new job, and won’t be first on any friends’ or colleagues’ list to recommend when new opportunities arise.

That’s assuming they don’t get fired, of course. Or worse, flamboyantly quit and “go out in a blaze of glory.”

All of these outcomes can make it extremely hard to find a new job, especially a better job.

The Direct Cost of Splurges

Even people who don’t lose their jobs or spouses can still end up blowing absurd amounts of money on midlife crisis splurges.

Take your pick: sports and luxury cars, boats and yachts, motorcycles, flashy and expensive hobbies, outrageous vacations, vacation homes, cosmetic surgeries, overpriced designer clothes and accessories. The staples of midlife crises cost money, and a lot of it.

That’s money you could put toward building real wealth, toward your long-term financial goals that you’ve actually thought through rationally with your partner or financial advisor. Goals like, say, saving a down payment for your dream home, saving for retirement, or helping your children with their college costs.


Strategies for Preventing or Escaping a Midlife Crisis

Yes, every midlife crisis looks different. One person might take up with their much-younger secretary, while another goes down the rabbit hole of serial cosmetic surgeries.

But they all cost you, and usually in more ways than one.

The following strategies can all help you retain (or regain) control over your life, your happiness, and your personal finances. You’re not alone, no matter how it feels in the moment. Bring your life back into alignment with intentionality, and a focus on improving your personal relationships and progress toward long-term goals.

1. Talk Through It With Loved Ones and Professionals

Your spouse, family, friends, and other loved ones don’t know what you’re going through if you don’t tell them. Even if they suspect you’re falling into a midlife crisis, they don’t understand your perspective without you explaining it.

Try them. Be patient with them, just as you want them to be patient with you. They probably won’t fully understand it the first time you broach the topic, but that doesn’t mean you should never discuss it with them.

To meaningfully change your life, you need to bring the people who share that life with you on board with any changes. But it also helps to simply unload, to unburden yourself to a disinterested third party.

Talk to a counselor or other professional, not for advice per se — although they may offer sound ideas — but simply to get your grief and anxiety off your chest and out into the open. Left swirling inside of you, these emotions can build up pressure until they burst.

2. Retake Control With Lifestyle Design

Far too many people drift with the tides of life, falling into their jobs, their relationships, even the city where they live. It’s no wonder so many wake up one day and realize they’re living a life they don’t actually like.

Sit down and write out a description of your ideal life, starting with where you live, the kind of work you do, your family life, your social life, your hobbies, and every other detail you can put to paper. No holds barred, nothing off-limits — simply outline your perfect life.

Once you’ve written out the what, you can then start brainstorming the how. The process is called lifestyle design. It doesn’t happen overnight, but by steadily working toward a life you actually want to live, you’ll find fresh meaning and purpose.

3. Reevaluate Your Long-Term Goals

Similarly, your life should align with your long-term goals. When they no longer align, you start drifting in a direction you don’t truly want to go.

For example, my top financial goal is to reach financial independence within the next few years by building enough passive income to cover my living expenses. At that point, working becomes optional. I pursue passive income by budgeting a high savings rate (more on that momentarily) and funneling as much money as possible into investments. And despite feeling the occasional midlife pang, I can still sleep each night knowing that I ended the day closer to my goal than when I woke up that morning.

Whether you aim to buy a new home, retire early, help your kids with college, take dream vacations, or maybe even buy that dream sports car, take a second look at your long-term goals — then form a financial plan to reach them faster. And if you need some expert advice, don’t be afraid to reach out to a financial advisor or other financial professional.

4. Increase Your Savings Rate

Money can’t solve every problem — but it can solve many. And even when it can’t solve a problem entirely, it can usually help. For example, anyone can get sick or injured, but the more money you have, the better your health insurance and medical outcomes tend to be.

To paraphrase author Robert Kiyosaki: I’ve been happy and rich, I’ve been happy and broke, I’ve been unhappy and rich, and I’ve been unhappy and broke; and I can assure you that being unhappy and rich is still a lot better than being unhappy and broke.

So how do you build wealth faster? By growing the gap between what you earn and what you spend: your savings rate.

I don’t know what tomorrow will bring, but I do know that more wealth will better prepare me and my family for it. And I can also tell you firsthand that when I feel those midlife pangs, such as thoughts like “My old college roommates earn more than I do,” I find some comfort in my frugal but high-savings lifestyle.

5. Become Debt-Free

While you don’t necessarily have to pay off your home loan or even your car loan in full, you should definitely not carry any unsecured debts by the time you reach middle age.

First and foremost, that includes paying off your credit cards in full every month. But beyond credit card debt, it also includes student loans, personal loans, and any other unsecured loans.

Stop paying high interest rates on consumer debt. It’s awfully hard to achieve financial stability and build an emergency fund — much less build retirement savings in your IRA or 401(k) — when you have high-interest debt repayments hanging around your neck each month.

When you become debt-free, you suddenly start thinking offensively instead of defensively. It frees you to focus on building wealth, passive income streams, and perhaps even replacing your full-time salary with investment income. You gain a welcome feeling of control over your finances and your future, which does wonders in fending off midlife crises.

6. Consider a Career Change (Carefully)

Quitting in a blaze of glory might look great in movies, but it won’t do your career any favors. Of course, that doesn’t mean you should stay in that unfulfilling job either.

As part of your foray into lifestyle design, spend some time brainstorming careers that better fit your passions, strengths, and long-term goals. Bear in mind that the jobs you grow up hearing about — teacher, cop, accountant, and so forth — make up a minority of the actual jobs available today. Many of the jobs in today’s workforce didn’t exist five years ago, and you may never have heard of them.

Consider meeting with a career counselor to take a career aptitude test and discuss options. Although often not cheap, you walk out with a slew of ideas that had never previously occurred to you — ideas that could well fit you better than your current job.

And, of course, they might also offer a higher salary or better benefits.

In my post-college life, I’ve been a mortgage loan officer, a real estate investor, an Internet marketer, an e-commerce executive, a founder of an online startup, and a freelance writer. Twenty years ago, I would have raised an eyebrow if you’d told me I’d end up doing any one of those jobs.

For fun, explore alternatives like jobs that provide free housing and jobs that let you live anywhere. If you need a dash of adventure, becoming a digital nomad can certainly do the trick.

Just don’t lose your spouse in the process. Talk through major career or lifestyle changes with your partner before charging forward without their knowledge or support.

7. Consider a Side Hustle

Not everyone going through a midlife crisis is ready to change careers just yet. But they may still want something more from their working life, both financially and emotionally.

In that case, consider starting a side hustle while you figure out what you want to do with your career. You can turn a hobby of yours into a business and keep it fun if you like.

Starting a business doesn’t have to mean selling off all your assets and pouring it all into inventory and a commercial lease. To keep your startup costs low and build cash flow quickly, consider starting an online business.

All the while, you can keep working your day job while you decide what you want to do with the rest of your life.

8. Find a Mentor or Coach

Don’t try to reinvent the wheel on your own. Ask for guidance from people who have done what you want to do, and who can show you all the shortcuts.

Beyond helping you skip costly mistakes and detours, mentors and coaches can also help you ask the right questions. They have the benefit of both experience and outside perspective, and can see angles that you can’t while in the thick of your day-to-day struggles. “I know you think you want X, but from what you’ve told me, it sounds like Y would actually be a better fit for you.”

Mentors and coaches also help you feel less alone. They can take you by the hand and guide you back to the path you actually want to walk through this life.

9. Embrace Adventure — Constructively

My wife and I may not earn enormous salaries like some of our friends do, but we lead a life of adventure, travel, and endless opportunities.

We spend 10 months per year overseas. It took some work to move abroad, between my wife finding a job as an international school counselor and me establishing income streams I can earn from anywhere. But we did it because we didn’t want to follow the same trajectory of white picket fences and overpriced mortgages that we saw our friends following.

It was one of the best decisions we ever made. We live in a country with a low cost of living, enjoy free housing and outstanding health care, and get to visit an average of 10 countries each year.

But we did it together, and we planned it carefully. We put in the work, rather than one of us just running off one day in the throes of a full-blown personal crisis.

You don’t need to go as far as moving abroad to inject some adventure into your life. Start smaller if you like, and if you’re worried about money, explore these ways to travel the world for free.

10. Take Care of Yourself Physically

Once when I was going through a depressive period, my father told me to do three things: get eight hours of sleep every night, eat healthier, and work out every day. “Go through the motions of being healthy, and one of these days you’ll wake up and realize you feel better both physically and emotionally.” As usual, he was right.

Your body and mind form a feedback loop. One of the easiest ways to jumpstart an emotionally healthier loop is to force yourself into a physically healthier routine.

It doesn’t have to cost you more money. You can eat healthy on a budget, and work out at home with no expensive equipment or gym memberships. Neither do you need expensive or habit-forming sleep aids, with all the natural sleep remedies available.

Finally, consider quitting drinking. Alcohol is expensive, both in terms of your wallet and your health. Worst of all, it correlates strongly with depression: everything in your life looks worse after you’ve been drinking.

As a byproduct of living healthier, you might just find you feel younger, too.

11. Volunteer More

How many hours do you volunteer each month?

Countless studies show that volunteering improves personal happiness levels, lowers rates of depression, and generally boosts our sense of well-being — see this study from BMC Public Health for an example.

That says nothing of all the unselfish reasons to volunteer like, say, giving back to the world.

There are plenty of ways to volunteer locally, but if you want to combine volunteering with travel, try out these ideas to volunteer abroad for free travel.


Final Word

Less than a year ago, I was clinking giant steins at Oktoberfest. Today I have a baby and have crossed into my 40s. I’ve spent more than a few nights wondering what happened to the excitement of my younger days.

Middle-aged adults can find comfort in research from the Institute for Human & Machine Cognition demonstrating a silver lining to midlife crises. Most people who experience them come out the other side with a greater sense of curiosity about the world around them — and where they fit into it. Armed with a better understanding of themselves and their place in the world, middle-aged adults emerge more thoughtful, worldly, and compassionate than their younger selves.

As fun as it is to be young and fit and glamorous, growing wiser and wealthier with age comes with its own rewards. If the price you pay for them is letting go of the trappings of youth, just remember you’re going to lose them regardless. You might as well relinquish them gracefully, and embrace the perks of more mature adulthood.

Source: moneycrashers.com