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How To Start Your Financial Life Midlife

For some, the realization that financial responsibility is important doesn’t kick in until midlife. You wake up one day, realize you’re in your 40s, and you have no idea where you’re going. It’s time to get started.

For others, a midlife calamity can completely reset the financial game. Issues like divorce, a career failure, a business failure or medical bankruptcy can put you in a position where you’re starting from a financial clean slate at midlife.

The most important thing to do is to never dwell on the past. Thinking about what could have been is not going to help you build a financial future. Keep your eyes on the present, as that’s where you can control your behavior, and on the future, because the future is what you can actually change.

Here are the key financial steps you should take if you’re starting from scratch financially at midlife.

In this article

Live lean, but smart

In terms of day-to-day spending, you need to live lean but smart. Spend time really reflecting on what spending is important to you and what isn’t, and cut the spending that isn’t important down to the bone.

One great way to do this is to go through your bank and credit card statements from the last few months. For each expense, ask yourself honestly whether this purchase was really worthwhile. Do you feel like it created lasting value? If you can’t even remember what the purchase was, or barely remember it, or it gives you no positive feelings, it’s something you should cut going forward.

Why is this so important? The less you spend, the more of your paycheck you’ll have left over to stabilize your financial future. With each passing month and year, stabilizing your future becomes more and more important, because there is a day in the future when you won’t be able to work or won’t have the desire to do so, and when that day arrives, you’re going to want to have the resources to step out of the workplace.

Find work

For many people in this situation, a good job isn’t a given. You may be changing careers or re-entering the workforce after a long break.

As you re-enter the workforce, you need to highly prioritize finding work and getting started. When you have 40 or 50 years until retirement, holding out for a better gig might make sense. When you have half that much time on the clock, finding a job is a lot more urgent.

While you may not have youth on your side, you do have life experience. You have many years of experience dealing with people, building relationships, and getting things done. Rely on that.

The biggest part of success at most entry-level positions is simply showing up and doing the work well with as little fuss as possible. Pay attention and be reliable and you’ll be in a position for raises and promotions, and most people at midlife already have tons of experience in those things.

If you need to jump into a fresh career path, find an entry-level job with lots of promotion and raise potential. Take any opportunity you get and run with it.

Get control over your debt

Starting your financial life at midlife is like starting a game halfway through. Every second counts, as you have ground to make up. Nowhere is this more true than with debt. The longer you allow debt to sit around, even if you make minimum payments on it, the more you’ll pay in the long run and the more years you’ll have to deal with payments. The truth is, if you’re starting your financial life over, you don’t have as many years as you once did. You have to face it now.

This is even more important with high interest debt. You need to address any debts with double-digit interest quickly and efficiently, because high interest debt will grow rapidly and stick around for a very long time, even with minimum payments.

What’s the plan? Make minimum payments on all of your debts each month, but make the biggest extra payment you can on your highest interest debt as long as that debt is over 10% annual interest. Keep repeating this until all of your high interest debts are paid off. This is a simple debt repayment plan.

Build an emergency fund

When a financial emergency strikes a younger person, it can be difficult to overcome, but they have time. If an emergency causes them to rack up debt, they have a lot of years to deal with it. For people restarting at midlife, time is of the essence. You can’t afford to get into debt.

The most effective way of avoiding high interest debt is to have an emergency fund, which is simply a pool of cash set aside for emergencies. The easiest way to do it is to open a savings account at a new bank, then set up an automatic small weekly transfer from your checking account. Then, forget about that savings account entirely until an emergency happens, at which point you tap the savings to take care of it. Here’s a thorough guide to emergency funds if you need more details.

Remember, an emergency fund’s main benefit is to keep you from going into high interest debt, so the “credit card” plan isn’t a good one. That just generates high interest debt, which you then have to pay off, and there are many emergencies that a credit card won’t handle anyway.

Save for retirement, but aim a little later

Many retirement guides assume that you’re going to retire at 65. If you’re starting over at midlife, you should really slide that age back to 70 for a few reasons. One, it gives you five more years to accumulate savings. Two, it gives you five more years for compound interest to work in your favor. Three, it maximizes your Social Security and other retirement benefits. Plus, if you’re midlife without much in the way of retirement savings, you’ll have to save a lot each year to retire well on time.

At age 40, you still have 30 years to go before hitting 70. You still have plenty of years to invest aggressively without really risking the money you’re going to have to live on. A good simple rule to follow is to be very careful with any money you’ll need to live on in the next 10 years and very aggressive with any other savings. At age 40, you won’t be at a point where you need any of that money for 20 years, so you can be super aggressive with your investments until age 60. That’s a lot of years for growth.

If you’re not sure how to get started with retirement savings, our retirement guide can help. In short, if your workplace offers a retirement plan, jump on it, particularly if they match your contributions. You should sign up and contribute as much as you possibly can. If your workplace doesn’t offer a retirement plan, you should sign up for a Roth IRA if you’re a relatively low income earner, or a traditional IRA if you’re a higher income earner and contribute straight from your checking account.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

10 Money Books for Children and Teens

Reading is one of the most valuable skills children learn. Not only does reading enable us to navigate the modern world, it provides an endless source of learning and entertainment.

I am incredibly thankful that all of my children are avid readers who love nothing more than to have a fresh new book in their hands, but over the years, I’ve learned that you can’t just toss any book at them and expect them to read it. They’re engaged by compelling stories and by things that match up well with their interests in the moment. They’re not immediately going to gravitate to a book about money unless it speaks to them in some way.

Why worry about it at all? The reality is that financial education is a big part of modern parenting. Many schools provide very little in terms of practical financial education, leaving it up to parents to prepare their children for this aspect of adult life, and it can be a real challenge.

There’s an abundance of great financial books for adults, but it’s harder to find great options for children that really hit the sweet spot of being age-relevant and interesting to them. Here are 10 options that manage to balance these two goals.

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The Berenstain Bears’ Trouble with Money by Stan and Jan Berenstain is a wonderful picture book for read aloud time or for early independent readers. It tells a relatable story from the perspective of the two younger Berenstain Bears about the challenge of having limited amounts of money. Children are going to be familiar with the idea of not having enough money to buy the things that they want, but what do they do in that situation? This book handles it with care.

Another good financially minded book choice for preschool children is Curious George Saves His Pennies by H.A. Rey. It focuses on the challenge of having enough patience to save for a large goal without getting distracted, balanced with George’s colorful adventures and distractions.

Brock, Rock, and the Savings Shock by Sheila Bair and Barry Gott takes the idea of compound interest and makes it into an accessible children’s book with a lot of clever rhyming and beautiful illustrations. The book focuses on twin brothers, one of whom chooses to spend on momentary impulses while the other saves his money, leading to the end when the saving brother has a lot of money built up thanks to the compounding.

Another great choice for early elementary children is The Squirrel Manifesto by Ric and Jean Edelman and illustrated by Dave Zaboski. It’s a beautifully illustrated book that brings to mind the fable of the grasshopper and the ant, focusing on a parable involving a squirrel saving resources for the winter to come.

For upper elementary kids: Lunch Money

Lunch Money by Andrew Clements and illustrated by Brian Selznick tells a great story of a rivalry between two entrepreneurially minded children, but within the rollicking tale comes a lot of good ideas about working to earn money, the value of cooperation, investing in yourself, and putting aside money for the long haul. These ideas are really effortlessly weaved into the story.

An alternative choice is How to Turn $100 into $1,000,000 by James McKenna, Jeannine Glista and Matt Fontaine. While this isn’t story-oriented like many of the other selections here, the provocative title and the perfect approach for older elementary-age children who are beginning to have somewhat more expensive tastes make this a great choice for adolescents.

Money Hungry by Sharon Flake tells a very memorable story about a 13-year-old girl who seems obsessed with money, finding all sorts of ways to earn a dollar here and a dollar there. As the story progresses, it becomes clear that she’s driven by a fear of poverty and some painful memories of not having enough when she was younger. This book has spurned some wonderful conversations in our home about money, needs and how different people see those things differently.

Another really great option for middle schoolers is Katie Bell and the Wishing Well by Nephi and Elizabeth Zufelt, which takes something of an opposite approach to Money Hungry. Here, the titular character finds all of her financial wishes easily granted, but finds that it’s not all it’s cracked up to be and that much of what we think of as a wealthy life comes from other things, like relationships.

The Truth About Forever by Sarah Dessen is a beautiful story about a teenager with a summer job who is using that opportunity to both earn money and escape from some difficult life issues, particularly the death of a parent. The book intertwines money issues with the multitude of concerns and difficulties teens often face, resulting in a wonderful story with a great conclusion.

A completely different type of financial book that might just click with your high schooler is I Want More Pizza by Steve Burkholder and editors Rebecca Maizel and David Aretha. This is a nonfiction book, but it’s extremely applicable to and targets almost perfectly the financial concerns of high schoolers. Should they get a job? Should they be saving for college or for a car? It does a great job of addressing the exact questions I often hear from the high schooler in my home.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

Got That New Job? 6 Financial Steps to Take Immediately

You’ve got a new job. Maybe it’s your first real job after graduation. Maybe it’s a significant step up from your old job. Maybe you’ve just returned to the workplace after a break. Whatever it is, you passed the interview and signed on the dotted line, and now you’re a fresh new employee.

This is the perfect moment to make some smart financial moves. Why? For one, this new job likely means an increase in income over your prior situation, thereby put some of that extra income to work for your financial health. For another, the first week or two in the workplace offers you abundant opportunities to get these things set up, as many workplaces offer meetings and other opportunities to get it done.

Here are some key things you should do as soon as you start your new job.

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Sign up for your workplace retirement plan

If your employer offers a workplace retirement plan, find out if they offer any sort of match to your contributions. If they do, sign up immediately with a healthy contribution right off the bat. The contribution should be at least enough to get every dime of contribution matching that your employer offers.

The advantage of doing this immediately is that it doesn’t feel like you’re “cutting” your pay. If you get a few paychecks without any retirement contributions taken out, then you suddenly start contributing to retirement, it can feel like a pay cut (even though you’re just choosing to save that money instead). By starting with the contribution right off the bat, it doesn’t feel like a pay cut at all.

What if they don’t offer a retirement plan, or don’t match?

Consider whether or not you realistically expect to earn a much higher salary later in your career. If you follow your current career trajectory, can you expect to double your income in a decade or two? If so, strongly consider opening a Roth IRA if you’re eligible for it. It takes advantage of your relatively low income tax rate by having you pay taxes now on your contributions, then when you take withdrawals later when you’re retired and may be in a much higher tax bracket, you won’t have to pay taxes.

If you’re likely not going to see major increases in salary over the course of your career, consider a traditional IRA instead.

You can sign up for a Roth IRA or a traditional IRA through your investment firm of choice. It’s easy and can be done online. You’ll then fund those accounts directly from your checking account, usually through a regular automatic transfer. Not sure how to get started on this? Our retirement guide can help you by showing you the ins and outs of each of these types of accounts.

Find the Best Roth IRA Accounts

Invest today for more retirement savings tomorrow.

Learn about health care options

Does your new job offer health insurance? If it does, you should sign up for some level of coverage, simply to protect yourself against catastrophic injury or illness, or to cover ongoing expenses if you have someone with ongoing medical costs in your family.

However, if your partner already has health insurance that covers you, you should sit down together and compare policies. Choose the one that’s the most cost effective for your situation.

What if they don’t offer one?

If your employer does not offer a health care plan and you don’t have a partner with a plan that covers you, you should seriously consider the options available on the health care exchange in your state and sign up for a plan on your own. Again, the biggest reason to do so is to protect you and your family against the expense of a catastrophic injury or illness, and with a new job, you can likely afford a basic health insurance plan.

Stabilize your financial situation

If your income is seeing a big boost, this is a perfect moment to stabilize your financial situation. You choose to live day by day on a large portion of your take-home income, say 70%, and then use the other portion (in this case, 30%) to get your financial house in order. If your income increases significantly, living on 60% or 70% of your take-home pay is likely to result in little change to your day-to-day life at first, but you’ll quickly see your finances stabilizing, which will greatly help with financial stress. Here’s what to do.

Construct a debt repayment plan

If you’ve accumulated debt while going to school, unemployed, or working a lower-income job, a major financial goal should be to eliminate the high interest debt. Your first step in doing this is to assemble a debt repayment plan, which, at its core, is just a list of your debts ordered by interest rate, with the highest at the top. Make minimum payments on all debts, then make a large extra payment each month on whichever debt is at the top of the list, until you’re down to just low-interest debts.

A new job is a perfect time to start hammering away at your debts because you’re likely seeing a big bump in income. Don’t just spend that income on fun things! Use it to clear the table for a healthier financial life going forward.

Start an automatic emergency fund

An emergency fund is a pool of cash set aside to handle emergencies so that you don’t go into high interest debt to cover it. Plus, cash handles many situations that credit cards struggle with, such as identity theft and natural disasters.

Building up an emergency fund is challenging when you don’t have a healthy, steady income, but now that you do with a new job, it’s easy. Just open a savings account and set up an automatic small weekly transfer, then forget about it until you have an emergency.

What should you prioritize?

With all of these options, what should you prioritize? Start by assigning your increase in pay to solving your financial difficulties, so that you continue to live on your previous income level. If you need more than that, do so, but you should start from day one by putting aside a good chunk of your income for long-term financial stability.

Essentially, you want to prioritize things by return on money. Make sure you have health care coverage, because the financial downside of a major injury or illness is catastrophic. After that, your best return is getting employer matching on your retirement savings. After that, it’s paying off high interest debt, then building up an emergency fund so that you don’t get into high interest debt again. After that, you should focus on saving for retirement without matching, up to 15% of your take-home pay, and keeping your emergency fund well stocked.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

The Best Car Insurance Companies in Florida

The search for the best car insurance company entails digging into such factors as price, coverage options and customer satisfaction. And things get more complicated when you are choosing auto insurance in Florida. That said, we break down how you can choose insurance you’ll afford while feeling comfortable with your choice in auto insurance carrier.

Florida has some of the highest car insurance rates in the nation due to factors like its weather, its no-fault insurance law and the high rate of uninsured drivers. In fact, the Insurance Information Institute reports that Florida had the sixth highest in uninsured drivers in 2019 at 20.4%, the year with the most recent data.

That said, you can still find an insurance company in Florida that provides excellent coverage within your budget. We took a look at the best insurance carriers that serve Florida and picked our five favorite ones, including the best overall auto insurance company in Florida. (Spoiler alert: It’s Geico.)

The factors that influence how much car insurance companies will charge you include your age, marital status, driving history and even ZIP code. Each insurer weighs those factors differently. The best strategy for finding cheap car insurance in Florida will always be to compare quotes. Just make sure the quotes you get are comparable in coverage, and of course, check out our reviews below.

In this article

Methodology

When comparing Florida auto insurance companies, we used our SimpleScore Methodology to consider factors such as discounts, coverage, support, customer satisfaction and accessibility.

We also looked at authoritative reviewers and gatherers of auto insurance statistics such as J.D. Power, Bankrate, Insurance Information Institute and Consumer Reports. Bottom line: We’ve worked to give you the best advice about car insurance in Florida.

The best car insurance companies in Florida

These insurers were ranked at the top of J.D. Power’s 2020 U.S. Auto Insurance Study in the Florida region. J.D. Power is a global leader in customer service surveys. These insurance providers also have excellent marks on our own SimpleScore and have gained the notice of Consumer Reports and the Insurance Information Institute.

  • Geico — Best overall for Florida auto insurance
  • State Farm — Best for Florida auto insurance claims customer service
  • Allstate — Best overall for Florida auto insurance customer service 
  • Progressive — Best for Florida auto insurance coverage options
  • Liberty Mutual — Best for Florida auto insurance discounts

Best overall for Florida car insurance – GEICO

When compared to other Florida auto insurance providers, Geico got top marks both from J.D. Power and Consumer Reports. Why? This carrier’s scores for claims and non-claims service were excellent. In fact, Geico is our favorite all-round Florida auto insurance carrier.

J.D. Power Rating

3/5

AM Best Rating

A++

Standard & Poor’s

AA+

SimpleScore

4.8 / 5.0

SimpleScore GEICO 4.8

Discounts 5

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

Among the auto insurance carriers we track, Geico’s premiums were among the lowest for average minimum coverage, at $433 (per Bankrate’s 2020 data), which is actually also one of the lowest among the Florida providers we like best.

In addition to ranking among the best with J.D. Power for auto insurance companies in Florida (846 out of a score of 1,000) in 2020, we found that Geico was one of the largest auto insurance providers in 2019, according to the Insurance Information Institute, with almost 14% market share. We found that coverage options were robust, with 11, and discounts were quite plentiful, with 16.

Best for Florida car insurance claims customer service – State Farm

We consider State Farm to be the best in claims service satisfaction, an assertion backed up by its strong ratings with Consumer Reports.

J.D. Power Rating

4/5

AM Best Rating

A++

Standard & Poor’s

AA

SimpleScore

4.6 / 5.0

SimpleScore State Farm 4.6

Affordability 4

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

State Farm’s wide reach can be a major attraction for some, with more than 19,000 independent agents and over 16% of the market share among auto insurance direct premiums written. This ensures that such benefits as the number of coverage options (we counted 13) is at your fingertips.

Over at Consumer Reports, we found that State Farm gets a 4 out of 5 for both claims and non-claims service satisfaction, although the company doesn’t rank as well for premiums and policy review satisfaction.

Best overall for Florida car insurance customer service – Allstate

When compared to other Florida auto insurance carriers for overall customer satisfaction, Allstate landed on top, with a J.D. Power score of 851 out of 1,000.

J.D. Power Rating

3/5

AM Best Rating

A+

Standard & Poor’s

A-

SimpleScore

4.4 / 5.0

SimpleScore Allstate 4.4

Discounts 3

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

Allstate is a solid provider of car insurance, with good coverage options, customer support and accessibility. This carrier offers two apps: QuickTrip, which provides support for routing daily trips and maintenance reminders, as well as Allstate Mobile, which can be used for filing claims and other tasks.

This carrier is not a favorite for premium prices: Consumer Reports only gives Allstate a 1 out of 5 in that category, although the company ranks well with claims satisfaction, with 4 out of 5.

Best for Florida car insurance coverage options – Progressive

Progressive is the best in coverage options in our estimation, when compared to other Florida insurance providers, with 13 at our count.

J.D. Power Rating

3/5

AM Best Rating

A+

Standard & Poor’s

AA

SimpleScore

4.2 / 5.0

SimpleScore Progressive 4.2

Discounts 4

Coverage Options 5

Customer Satisfaction 4

Accessibility 4

When it comes to claims satisfaction, Progressive performs well, says Consumer Reports, with a 4 out of possible 5. The Progressive app is also robust, with the ability to get roadside assistance, file a claim and more.

Progressive is middle to top of the pack in premium costs for Florida auto insurance. Bankrate found that average minimum coverage was $1,356, near the top of the providers we follow, while full coverage was middle of the pack at $2,573. That said, Progressive has definite advantages as a large, established insurer.

Best for Florida car insurance discounts – Liberty Mutual

Of the Florida auto insurers we compared, Liberty Mutual won out with its insurance discounts (we counted 17). Options include such discounts as rewarding you for driving a hybrid or electric vehicle and even if you get a quote from this company before your policy runs out.

J.D. Power Rating

3/5

AM Best Rating

A

Standard & Poor’s

A

SimpleScore

4.8 / 5.0

SimpleScore Liberty Mutual 4.8

Discounts 5

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

Liberty Mutual is also one of our strongest in coverage options, with 18 counted. One nice feature is that you can have the option for original manufacturer replacement parts, which means that if you have a Toyota Camry, you can get parts made by Toyota, not an after-market manufacturer.

Consumer Reports found that Liberty Mutual did not enjoy the satisfaction in premium prices that you might hope for, but satisfaction in claims processing was strong with 4 out of 5.

[ Read: Steps to Switch Car Insurance Companies ]

Choosing your Florida car insurance provider

One of the first decisions you’ll have to make when signing up for car insurance is whether to choose a local or national carrier. Both come with advantages and disadvantages.

Local carrier

Pros 

  • A personal relationship with your agent.
  • Services that are specific to your location.

Cons 

  • Fewer discounts.
  • Fewer digital tools.
  • Slower claims process.

National carrier

Pros

  • More discounts.
  • Faster claims process.
  • More money to invest in digital tools.

Cons 

  • May not have an individual agent.
  • Less of a personal touch.

Florida’s minimum insurance requirements

Florida’s minimum insurance requirements are the lowest in the U.S., with 10/20/10 in bodily injury liability and property damage liability. That’s as of March 2021.

What does that mean? Coverage must include up to $20,000 for everyone in an accident (middle number), subject to a limit of $10,000 for one person (the first number), and $10,000 for property damage (the last number). Also, instead of policy limits, policyholders can satisfy the requirement with a combined single limit policy. 

By comparison, Maine’s and Alaska’s minimum required coverages are at 50/100/25. (For Maine, policyholders must also carry coverage for medical payments.)

Property damage

Florida requires that all drivers carry a minimum of $10,000 in property damage liability insurance. This coverage will protect other drivers from financial loss in case you are at-fault for an accident and damage another vehicle. Failure to do so can result in the suspension of your registration or driver’s license.

Personal injury protection

Florida is one of a handful of no-fault auto insurance states. This means that regardless of a car accident, each driver is responsible for covering their own medical bills. As a result, the state requires that all drivers carry at least $10,000 in personal injury protection. This coverage will pay for 80% of medical expenses from a covered accident.

Taxi insurance

Florida requires that taxis carry extra car insurance to protect their passengers. Vehicles registered as taxis in the state must carry at least $125,000 bodily injury liability per person, $250,000 bodily injury liability per accident, and $50,000 property damage liability per accident.

How much does car insurance cost in Florida?

Drivers in Florida pay $2,364 annually for full coverage and $1,101 annually for minimum coverage, according to Bankrate records.

Florida car insurance can get high depending on the ZIP code, as much as $3,314 in Miami, the state’s largest metropolitan area. (Miami-Dade is one of the largest counties in population in the U.S., with almost 2.8 million in 2018, according to the U.S. Census.)

Meanwhile in North Florida, Tallahassee has some of the cheapest premiums for the state, according to Bankrate.

City Average annual premium for full coverage
Jacksonville $2,230
Miami $3,314
Orlando $2,405
Tampa $3,027
Tallahassee $2,043
St. Petersburg $2,662

Bankrate uses Quadrant Information Services to analyze 2021 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Quoted rates are based on a 40-year-old male and female driver with a clean driving record and good credit.

Car insurance FAQs

Florida drivers face a variety of unique circumstances that make car insurance rates more expensive. Factors that cause Florida car insurance rates to be high include:

  • The state’s no-fault insurance law.
  • A high rate of older drivers.
  • A high rate of uninsured drivers.
  • High rates of inclement weather.

Florida requires that drivers carry $10,000 of both property damage liability and personal injury protection coverage. But you can certainly choose to purchase more insurance, and you may want to. Florida’s minimum requirements don’t provide any protection for your vehicle, only for other drivers. If you want your car to be covered in an accident, increase your coverages.

Both collision and comprehensive coverage protect you in case of damage to your vehicle, but they apply to very different situations. Collision coverage protects you in case of a car accident. Comprehensive applies to situations where your car is damaged for a reason other than an accident, such as vandalism, theft or inclement weather.

We welcome your feedback on this article and would love to hear about your experience with the insurers we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

What Does Frugality Mean?

Merriam-Webster defines frugality as “careful management of material resources and especially money.” Yet, there’s much more than that packed into such a simple word.

For some, frugality means hope and opportunity. That’s the feeling I get from the word. For others, frugality means missing out. Frugality can mean less work for some people and more work for others. How can such a simple word have so many different meanings to so many different people? It’s because everyone brings different life experiences to the table.

In this article

Frugality is efficiency with money

Let’s start with the basic definition of frugality: “careful management of material resources and especially money.” Whenever we make a careful choice about how we spend our money, we’re being frugal. Any time we decide that maybe spending $100 on something mildly tempting isn’t a wise choice, we’re being frugal. Whenever we shop around for a better price, we’re being frugal. Whenever we buy something because it’s going to last for a long time, we’re being frugal. Whenever we buy the bulk package because it’s cheaper per use, we’re being frugal.

In that sense, almost all of us are somewhat frugal in our everyday life People are always making choices about when it’s OK to spend money and when it’s not OK.

What makes frugality different than normal everyday life? Frugality is a conscious effort to be more efficient with your money beyond what one might do by default. You’re practicing everyday life when you choose not to buy a cool new $300 gadget that you don’t really need — we all do this pretty frequently. You’re practicing frugality when you spend some time figuring out what the most cost-efficient package of toilet paper is so that you can make the right choice now and in the future. When you take any extra step you would not have normally taken before to be a little more efficient with your money, you’re being frugal.

If you are looking to really get efficient with your money, consider comparing car insurance companies. Use our handy-dandy tool below!

Frugality is efficiency with other resources, too

When you’re being efficient with your money, you might notice that many of the same principles apply to the other resources in your life, too. For example, you can be frugal with your food by being careful not to prepare too much for a meal and saving leftovers and extras for future use. You might prepare meals in advance because it’s not just money efficient but time efficient, as you can use a lazy Sunday afternoon to make busy weeknight evenings far more efficient.

This is particularly important when you consider that we often exchange money for other resources, like time. We’ll order takeout mostly because it’s more efficient during a busy evening, not because we love the food. For example, spending $40 on takeout when you could prepare the same meal for $20 at home isn’t frugal in a money sense, but it might be if it saves you time and energy that you can efficiently apply elsewhere.

Frugal strategies should be considered in terms of time and energy and other resources, too. A frugal strategy that saves you $1 but requires 20 minutes of energetic effort probably isn’t a good frugal strategy because that $1 is actually costing you 20 minutes of time and energy that could have been applied elsewhere, likely with a much better return on that investment.

Isn’t this just minimalism, then? They overlap a great deal, but frugality doesn’t always mean “less,” it just means more “efficient.” Frugality doesn’t mean exchanging your time or energy or other resources inefficiently just to save a buck. It means being efficient with those resources, too.

Frugality is NOT misery or cheapness

Another important factor to consider when it comes to frugality is that it’s very easy to take frugality too far.

As noted above, in the process of being efficient with your money, you’re always exchanging something for that efficiency. For example, if you buy bulk toilet paper, you’re getting more toilet paper for your dollar, but you have to have the space to store that toilet paper. If having your closet jam-packed with unused toilet paper makes you feel miserable, then the small amount of money you’re saving isn’t worth it.

Frugality should not make you feel worse. It should not damage your sense of contentment in your life. It should not damage your relationships. That’s being cheap, not frugal.

While you do have to give something up to gain value elsewhere, you should be looking for the things that are clear wins, and it’s not a clear win if you’re unhappy or if you’re damaging relationships.

Frugality is seeing extra benefits

Frugal living often exposes extra benefits that you might not have noticed otherwise.

An example of this is frugal hedonism. When you add the constraint of keeping cost low to your choices, it doesn’t mean that you’re choosing misery. Rather, it means that you’re widening the range of things you might have considered outside of your original comfort zone, and in doing that, you discover new perks and pleasures.

Frugality can mean less stress, as you have fewer possessions to worry about. Frugality can mean better relationships, as you lean into doing low-cost and free social events and doing more swapping and task-sharing with friends. Frugality can mean discovery of new hobbies, as you try new things you never thought about before and discover a new interest.

Frugality is a financial tool anyone can use

A final important aspect of frugality is accessibility. It’s a financial tool that everyone can use.

There are many financial tools that aren’t available to everyone. Not everyone can invest. Not everyone can have a credit card. Not everyone can even have a savings account.

However, everyone needs to eat. Everyone needs shelter. Everyone needs clothing. Everyone needs social relationships. All of those things give us opportunities to practice frugality and be more efficient with our resources.

This is often why frugality is overlooked when people talk about finances. Frugal tips feel so common and ordinary and part of everyday life that we don’t think of frugal techniques as tools for building our financial future, but that’s exactly what they are.

If you apply frugality to your life and manage to spend $100 less per month without feeling misery, suddenly you’re putting $100 less per month on that credit card. You’re suddenly able to put $100 more per month toward paying off debts. You’re able to put $100 more per month into your retirement savings. Over time, that builds into changing your life, as you’re able to buy a car without a loan or you finally have a house down payment or you finally got out of debt and don’t have that bill hanging over your head any more.

It starts with frugality, and that’s a tool we can all use.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

The Best Car Insurance Companies of 2021

Ease of filing claims, customer service, discounts for such habits as being a good driver or student — these are some of the criteria we look at when choosing the best auto insurance companies on our radar.

The standout was Amica Mutual Group, with its perfect SimpleScore of 5 out of 5, but the others that made our list have their own impressive story to tell, such as State Farm for teen drivers and USAA for military members and their families. Bottom line? You’re bound to find an insurance provider you love from our list.

[Related: What’s the Average Cost of Car Insurance In the U.S.?]

The 10 best car insurance companies of 2021

Rank Company SimpleScore Best insurance company for:
1 Amica Mutual Group 5.0 Best overall car insurance
2 American Family 4.8 Best car insurance for diminishing deductible 
3 Geico 4.8 Best car insurance for customer support
4 Liberty Mutual 4.8 Best car insurance for coverage options
5 State Farm 4.6 Best car insurance for teen drivers
6 Nationwide 4.5 Best car insurance for safe drivers
7 Farmers 4.4 Best car insurance for state-specific discounts
8 USAA 4.4 Best car insurance for military members
9 Allstate 4.4 Best car insurance for accessibility
10 Progressive 4.2 Best car insurance for maximizing savings

Why trust us in finding the best car insurance?

Our research methodology

We’ve created the SimpleScore™ to help you objectively compare products and services here at The Simple Dollar.

Our editorial team:

  • Identifies five factors to compare across each brand
  • Determines the rating criteria for each factor
  • Calculates an average of those five factor scores to get one SimpleScore™

We break down each of these five factors and their rating criteria for our review of the best auto loan companies of 2021.

Why do some brands have different SimpleScores™ on different pages?

Some brands like Bank of America, Wells Fargo, and Chase have different SimpleScores™ because they offer more than one financial solution — like auto loans, home loans, personal loans and banking.

The Simple Dollar also looks at external studies from authoritative sources such as Consumer Reports, the Insurance Information Institute, AM Best and J.D. Power for inspiration.

[Related: The Best Cheap Car Insurance Companies of 2021]

In this article

Best car insurance companies reviewed

Best overall car insurance company – Amica

Amica Mutual is our best overall for auto insurance, gaining our notice in customer service, accessibility, discounts and coverage options.

J.D. Power Rating

5/5

AM Best Rating

A++

Standard & Poor’s

AA

SimpleScore

5 / 5.0

SimpleScore Amica 5

Discounts 5

Coverage Options 5

Customer Satisfaction 5

Accessibility 5

In addition to top marks from our own SimpleScore, Amica Mutual got the attention of Consumer Reports for claims, service and policy review. There was a bit of a markdown for satisfaction in price of premiums, but the rating was still solid when compared to competitors.

This provider offers your standard fare of auto coverage, including comprehensive, collision and uninsured motorist, then offers extra features that you might not find elsewhere, such as free airbag repair.

Customers can get a free quote online and customize coverage options to meet their driving and coverage needs. Amica also makes it easy to report and track claims online and hassle-free. You can get a number of discounts for big savings on your policy, too. You’ll save when you’re accident-free for at least three years and when you take a driver safety class.

Best car insurance for diminishing deductible – American Family

The best insurance company for diminishing deductible, American Family rewards you for safe driving by crediting your deductible $100 each year ($50 with a six-month policy term) up to your policy maximum.

J.D. Power Rating

N/A

AM Best Rating

A

Standard & Poor’s

A

SimpleScore

4.8 / 5.0

SimpleScore American Family 4.8

Discounts 5

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

With 18 discounts offered, this insurance provider leads the pack with some unusual ways to save, such as discounts for young volunteers and for having a parent who is an American Family customer.

American Family’s SimpleScore is practically perfect, with top marks for accessibility and support. You can choose how you want to get help from using the online chat to talking to an agent.

While this insurance company didn’t make the top 10 with J.D. Power for claims satisfaction in 2020, it did rank in the top 20, with a score of 862 out of a possible 1,000. You’ll experience ease in filing a claim, with the ability to file by app, by phone or online.

Best car insurance for customer service – GEICO

Geico is our favorite for customer service, with its handy virtual assistant, access to insurance agents and more.

J.D. Power Rating

3/5

AM Best Rating

A++

Standard & Poor’s

AA+

SimpleScore

4.8 / 5.0

SimpleScore GEICO 4.8

Discounts 5

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

Geico caters to the tech-savvy consumer, which is great for those who don’t want to speak to an agent or listen to the never-ending elevator music while you’re on hold. With the ability to personalize your alerts and access all of your important information, Geico Mobile makes things easy.

Geico’s range of coverage includes the standard fare — collision, comprehensive and liability insurance. Unlike many other companies, rideshare insurance for Lyft and Uber drivers is also available. 

Geico does offer mechanical breakdown coverage, though it’s only for new cars less than 15 months old with less than 15,000 miles. While it’s not applicable to all people, if you fall into this category, you’ll be able to renew mechanical breakdown coverage for up to seven years or 100,000 miles.

Best car insurance for coverage options – Liberty Mutual

We found that Liberty Mutual offers the best in coverage options just by sheer volume — we counted 18. There’s even coverage for teachers while on school grounds and for driving to Mexico.

J.D. Power Rating

3/5

AM Best Rating

A

Standard & Poor’s

A

SimpleScore

4.8 / 5.0

SimpleScore Liberty Mutual 4.8

Discounts 5

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

In addition to top-notch coverage options, Liberty Mutual offers among the most in discounts. In addition to alternative energy discounts and a good student discount, this provider rewards you for military service and even has an early shopper discount that rewards you for getting a quote and signing up before your current policy expires.

This insurance company came in 14th among auto insurance providers in J.D. Power’s 2020 claims satisfaction study, with a 867 out of a possible score of 1,000. Liberty Mutual’s app allows you to file and track claims from your phone, or the company promises a 5- to 10-minute process when filing online.

Liberty Mutual did not fare well with satisfaction in price of premiums, according to Consumer Reports, although they came off quite well in satisfaction in the handling of claims.

Best auto insurance for teen drivers – State Farm

State Farm is our favorite for teen drivers. In addition to the ubiquitous good student discount, this auto insurance provider offers two programs that encourage safe driving habits.

J.D. Power Rating

4/5

AM Best Rating

A++

Standard & Poor’s

AA

SimpleScore

4.6 / 5.0

SimpleScore State Farm 4.6

Affordability 4

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

State Farm is the largest U.S. auto insurance provider by direct premiums, holding 16% of the market in 2019, according to the Insurance Information Institute. We know the size of a company shouldn’t be all we look at, but there are times when it comes in handy.

When it comes to support and accessibility, this provider gets full marks. Count on finding an agent when you need to — access to 19,000 independent contractor agents shows the power of working with a large company.

But if you don’t have time for a phone call, the State Farm mobile app allows you to contact a representative or send a picture of the damage. A user-friendly app is something we often take for granted, but not all companies have this luxury.

Best car insurance for safe drivers – Nationwide

Nationwide is our clear favorite for the safe driver. In addition to possible eligibility for a lower rate if you have at least five years of safe driving, benefit from the proprietary SmartRide® program and get 10% for signing up.

J.D. Power Rating

3/5

AM Best Rating

A+

Standard & Poor’s

AA+

SimpleScore

4.4 / 5.0

SimpleScore Nationwide 4.4

Discounts 3

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

In business since 1926, this insurance provider serves all 50 states and is among the leading companies in the industry. In fact, Nationwide ranked eighth in 2019 in the nation for auto insurance by direct premiums written, according to the Insurance Information Institute, with 2.5% of the market share.

While Nationwide received strong marks for claims-related service from Consumer Reports, it didn’t fare so well with only a 1 out of 5 for premium prices. Interestingly, Bankrate found that Nationwide was one of the highest for average full coverage premium, at $1,485 a year.

We liked Nationwide for its coverage options and discounts — in fact, Nationwide’s number of coverage options was one of the highest of the companies we reviewed, with 15.

Best car insurance for state-specific discounts – Farmers

Even with strong nationwide discount options, Farmers is a standout for state-specific discounts as well. In some states, you can get discounts for having daytime running lights, VIN etchings, and in California only, alternative fuel.

J.D. Power Rating

2/5

AM Best Rating

A

Standard & Poor’s

A

SimpleScore

4.4 / 5.0

SimpleScore Farmers 4.4

Discounts 4

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

Farmers is at the absolute top for coverage options among the insurance providers we track, with 19, including customized equipment like aftermarket infotainment systems and drivers for rideshare companies like Lyft and Uber.

Farmers had an eye-popping $2,000 average in full coverage premium, according to Bankrate. That was only outdone by one other auto insurance company that Bankrate tracked, MetLife at $2,123. The same is true with minimum coverage average, which was $808 for Farmers, making it No. 2 after MetLife at $821. (Bankrate used Quadrant Information Services in February 2021 to pull these numbers.)

This insurance provider’s customers report strong satisfaction in claims processing, Consumer Reports found, something that can give you peace of mind when choosing insurance.

Best car insurance for military members – USAA

USAA is our favorite for military members and their families among auto insurance providers, and for good reason. They get top marks with JD Power for auto claims satisfaction, as well as a perfect score from Consumer Reports.

J.D. Power Rating

5/5

AM Best Rating

A++

Standard & Poor’s

AA+

SimpleScore

4.4 / 5.0

SimpleScore USAA 4.4

Discounts 4

Coverage Options 5

Customer Satisfaction 5

Accessibility 4

USAA fares well on our SimpleScore as well. Count on excellence in customer service and discounts. However, this provider isn’t available to everyone. Only active service members, veterans and their families are eligible for a car insurance policy through USAA. 

Given there are such strict restrictions, you should expect the quote process to take longer and be more involved than other competitors. However, that’s a small price to pay for its exemplary service and established reputation.

This insurance provider offers some of the lowest average premiums — Bankrate reports that USAA’s average minimum coverage premium is one of the lowest among the providers we follow, at $384; its full coverage premium average is actually the lowest of the ones Bankrate tracks, at $1,225.

Best car insurance for accessibility – Allstate

We like Allstate the best for accessibility, meaning we appreciate the ease in filing claims and transparency of information, such as coverage options and discounts.

J.D. Power Rating

3/5

AM Best Rating

A+

Standard & Poor’s

A-

SimpleScore

4.4 / 5.0

SimpleScore Allstate 4.4

Discounts 3

Coverage Options 5

Customer Satisfaction 4

Accessibility 5

Allstate makes up more than 9% of the market share in private passenger auto insurance in direct premiums written, according to the Insurance Information Institute, making it fourth of the top 10 auto insurance providers in the U.S.

But it’s the customer support, customer satisfaction and accessibility such as the user-friendly apps that got our attention, including the proprietary QuickTrip® app that helps you find the best routes and gives you daily maintenance reminders.

Consumer Report respondents didn’t care for the pricing of premiums — the company received 1 out of 5 for that item. However, Allstate fared better with satisfaction in handling of claims, with a 4 out of 5.

Best car insurance for maximizing savings – Progressive

We love Progressive because it maximizes savings for customers, with not only the usual discounts such as for paying in full and being a safe driver, but also for owning your home and having continuous insurance.

J.D. Power Rating

3/5

AM Best Rating

A+

Standard & Poor’s

AA

SimpleScore

4.2 / 5.0

SimpleScore Progressive 4.2

Discounts 4

Coverage Options 5

Customer Satisfaction 4

Accessibility 4

Unique to Progressive, the Snapshot tool bases your rate on your driving habits — like how often you drive, if you slam on the brake or if you used your phone while driving. You’ll get an automatic discount for using the Snapshot app.

This insurance provider’s insurance coverages are full of surprises, such as free pet injury coverage that pays any veterinary bills if your pets are injured in an auto accident. And in addition to the standard fare like liability, collision and comprehensive, gap insurance from Progressive covers 125% of the cost of the car if it’s totaled while you’re still making payments. 

Compare 2021 car insurance rates

Make sure when comparing car insurance quotes from different companies you are looking at the same policy type and coverage level. Cheaper quotes could just be a policy with less coverage.

How does the auto industry work?

There are projected to be almost 290 million registered vehicles in the U.S. in 2021, according to Hedges & Company, up from about 287 million in 2020. And the National Highway Traffic Safety Administration estimated there were 6.7 million vehicular accidents in 2018, the most recent available data. That’s a lot of cars and a lot of repairs to keep up with. That’s where insurance comes in.

Auto insurance helps cover car repairs and personal costs when life happens. Whether it’s an accident, pothole or car trouble, your coverage can help you cover these costs after your deductible. The less your car’s value is, the less you’re likely to pay in premiums — though it will depend heavily on your coverage, state, age and other factors. 

It’s helpful to think of the auto industry as a never-ending cycle. We pour money into cars and maintenance, but car insurance helps cover the cost if anything goes wrong.

What’s factored into auto policies and rates? 

Your auto policy and the premium will depend on a few factors. It will also determine whether or not an insurer is a good fit for your car coverage needs. Most policies depend on the following:

Depending on these and other factors, you could pay more or less in car insurance. Think about buying a brand new, high-end car when you turn 21 years old. You’re likely to pay more for the car’s year, make and model. You may also pay more as a young driver with a less established driving record. You’re also likely to pay more if you live in California than your friends in South Carolina are paying. Keep in mind that your policy and premium are unique to your needs, driving record and other personal factors.

What’s happening in the car insurance industry today?

At the start of the pandemic, some insurers offered drivers a reimbursement on their monthly payment to help economically. Policyholders were driving less due to COVID-19 nationwide lockdowns. Allstate offered their drivers a 15% Shelter in Place payback on their premiums for April, May and June. Other providers offered credits toward premiums instead. Since that point, drivers have been on the road less often. If you’re working remotely but still need auto insurance, it’s the perfect time to look into low-mileage auto insurance for extra savings or switch carriers for extra savings. You’ll only pay for the miles you drive, and you’ll still have all the coverage you need.

Guide to finding the best car insurance for you

There’s a lot to know about the car and insurance industries to fully understand how auto insurance works, but we don’t want to bore you with a long history lesson. Here’s what you need to know to help make a well-informed decision about your car insurance.

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What makes the best auto insurance companies?

The best auto insurance companies give policyholders flexibility, affordability and simplicity from beginning to end. Whether it’s getting a free quote, paying a monthly premium or filing a claim, today’s top picks are giving customers what they need when they need it most. 

Coverage options 

Start by looking at a provider’s coverage options. You’ll want an insurer with a number of policies and coverage options to meet your needs. Ask your agent what types of car insurance they offer and if any add-ons are available, including rental car coverage and Roadside Assistance. Many insurers will offer a few options including collision, personal injury and gap coverage. 

Customer service 

Switching insurance providers isn’t all about rates. Service matters just as much, if not more. After all, you’ll be working closely with an agent to handle your policy, claims and any other concerns. Take a look at your agent’s BBB rating or J.D. Power rating to see what other customers think, and to weigh any pros and cons. You can also give your agent a call for a first-hand customer service experience to ask about claims, coverage, rates and more. 

Rates 

Your auto insurance shouldn’t break the bank. Shop around for the most affordable rates by speaking with agents and getting free quotes online. Be careful when aiming for the lowest rates, though. Cheaper coverage doesn’t always mean it’s the best. You may pay a low monthly price, but the policy could lack the coverage options you need. Make a list of necessary coverages and find the most affordable rate for your needs. 

Once you’ve found a premium you’re comfortable with, give the agent a call to get more information on discounts and other ways to lower the cost. You may save money on your rate by bundling home insurance, driving safely or taking a driver’s safety course. 

Consider these factors when shopping for car insurance

Check your state requirements: not every state is the same

In nearly all states, drivers are required by law to carry some form of car insurance or proof of financial responsibility. Every state has requirements for the level of insurance and the minimum amount of coverage each driver must have. Use the Insurance Information Institute’s guide to determine the insurance requirements for your state.

After you’ve found what’s the minimum amount of insurance required for your state, you should know if you live in a no-fault or fault state. If you live in a no-fault state, regardless of if an accident is your fault, collision damages and medical expenses will be covered by your insurance company.

We’ve researched state requirements and the best carriers across all 50 states:

What is an at-fault state?

There are two kinds of state laws when it comes to establishing fault in an accident:

  • No-fault state — This means that drivers only assume responsibility for their own injuries and damages. No-fault state drivers are required to carry personal injury protection (PIP) to ensure that you have the adequate coverage to pay for medical expenses from an accident.
  • At-fault state — Also known as a tort state, this means that the person responsible for the accident pays for all of the damages associated with that accident, including the other driver’s expenses.

Choose the right amount of coverage for you: Full coverage vs minimum

Full coverage annual rates are significantly higher than minimum coverage rates. But an inclusive car insurance policy isn’t something you should opt out of just to save money— especially if there’s a collision. Full coverage pays for damages to your car caused by an accident, while the state minimum, also known as liability insurance, will cover damages you cause to other people and their car while driving.

Even though a cheaper monthly premium might seem attractive, having more than the imposed state minimum will ensure that you’ll pay less out-of-pocket in case there’s an accident.

For example, in a major car accident, an individual’s medical expenses are likely to exceed $15,000, yet that’s the minimum liability limit in some states. When shopping for liability insurance, it’s a good idea to choose a coverage that will exceed what you might need.

While different states will require different types of coverage, the most basic auto insurance policies are bodily injury liability, personal injury protection (PIP) and property damage liability. There are additional coverage options as well, which typically cover things like pet injuries or new car replacement costs, among other expenses. Some examples include:

Understand your deductible and how it affects your premium

Most coverage options will have a deductible –– the amount of money you have to pay out-of-pocket towards a covered loss before your insurance policy will step in. Collision, comprehensive and uninsured/underinsured motorist coverage will all have a deductible.

While you shouldn’t opt out of coverage options just to save money, there are times it just doesn’t make sense to have the extra coverage. A classic example is collision coverage. If your car’s value is too close to the deductible, you probably won’t get reimbursed from your insurance company after a loss.

Let’s say your car is worth $1,000 and your deductible is $1,000. If you get into an accident and your car sustains $800 worth of damage, you wouldn’t get an insurance payout because your deductible would cover the entire cost. It’s always important to determine which types of coverage make sense for you, but especially if you have an older car that’s low in value.

How to save money on car insurance

Now that we’ve laid out the most important aspects that you should know about car insurance, here are some tips on how to save money on your car insurance policy.

1. Compare car insurance quotes

Risk isn’t the only factor that car insurance companies use to calculate your rate. Many insurers also use “price optimization,” meaning they set rates based on how much customers are willing to pay.

Large insurance companies analyze an enormous amount of customers’ personal data, such as social media posts, credit scores and even your online shopping habits. Then, they run the data through a proprietary algorithm that estimates how likely you are to shop around or just renew your existing policy each year. Shopping around every year or two is the best way to avoid this practice and it will help you find the cheapest car insurance options. For most car insurance companies, getting a quote is an easy, online process that you can do in minutes. You’ll just need to provide information like your address, vehicle information and driving history.

[ For You: Understanding Auto Insurance Quotes ]

Shopping around every year or two is the best way to avoid this practice and it will help you find the cheapest car insurance options. For most car insurance companies, getting a quote is an easy, online process that you can do in minutes. You’ll just need to provide information like your address, vehicle information and driving history.

2. Raise your deductible

A higher deductible means a lower monthly cost. It’s a better budget option but know that if you get into an accident, you’ll have a steeper up-front cost to pay for the damages.

3. Raise your credit score

A good credit score saves you money on just about every monthly service or bill and car insurance is no exception. If you focus on improving your credit score first, you’ll save hundreds and thousands of dollars on your annual premium. Look for ways to improve your credit score ahead of shopping.

4. Ask for discounts

If you want a policy with a lot of additional coverage, the end price can feel a little overwhelming. Especially when you consider car insurance isn’t something you’re actively using every day. Capitalizing on the discounts providers offer is one way to ease that financial burden. When you’re shopping around, look for discounts that tailor to your needs. Here are some of the common discounts offered by most providers:

  • Defensive driving discount
  • Good driver discount
  • Low mileage discount
  • Safe driver discount
  • Multi-driver or multi-policy discount
  • Student discount

5. Bundle your insurance

Do you pay separate companies or have separate policies for your renters, home or motorcycle insurance? Renter + auto discounts and home + auto discounts are common. Ask your insurance provider if there is a chance you could be saving money each month by bundling separate insurance.

Car insurance FAQs

Non-owner car insurance policies protect you if you are in an accident that damages someone else’s car while driving it. It’s a lot cheaper than a regular car insurance policy and many of the best car insurance carriers offer this type of coverage.

The amount you pay for car insurance depends on the coverage you choose, where you live and other demographic data. We found that the average cost of car insurance for a full coverage policy is about $130 per month, while a policy that just requires the state minimum coverage is under $100. If you are paying more than the $130 monthly premium, it’s worth shopping around for other car insurance companies or asking your current insurer why your rates are so high.

Regional providers often outshine nationwide options because they have fewer customers, allowing them to dedicate more time to each policyholder. So if customer service and the availability of representatives is important to you, a regional option may be best for you.
However, because regional insurance providers have fewer customers, they also tend to have more expensive premiums and fewer discounts.

Your car insurance coverage extends to a rental car within the U.S. If you’re planning to rent a car overseas, your credit card may provide coverage. If not, you may need to buy additional insurance from the rental agency.

After an accident, regardless of if you are at fault, you need to file a claim with your car insurance company. After the claims process, you will be able to get your car fixed and still keep your current car insurance.

However, your car insurance monthly premium will likely go up after an accident. The amount depends on the type of claim or driving incident.

In most states, car insurance is required by law. Not having coverage can result in license suspension and fines. But even if your state doesn’t require car insurance, you could be left with hefty car repair fees and medical bills to cover if you’re found at fault in an accident.

Ask the Experts

  • Ben ReynoldsBen Reynolds

    Ben Reynolds

    CEO and Founder

  • John DeichlJohn Deichl

    John Deichl

    General Manager

Can a policy become more expensive over time?

Your policy could become more expensive, especially as your career or financial situation changes, your risk of an accident or auto theft could increase your insurance rates. Missing loan payments could indirectly affect your rates since it will lower your credit score and car insurance companies significantly consider credit scores when determining your rates.

Can certain jobs affect my coverage?

Specific job titles can also affect your rates since being in a profession where you could be more distracted while driving can make you a more risky driver. Every provider will analyze this differently since being on the road more could significantly impact your car insurance rates even when your occupation is perceived as more responsible. 

Can I drive for Uber/Lyft using my personal car insurance?

No. Rideshare insurance is a hybrid policy that includes coverage for personal auto use and when drivers are signed in a ridesharing app, but not covered by the company’s insurance. Drivers for on-demand delivery companies should also have rideshare insurance to avoid a coverage gap.

Do I need to compare auto insurance rates if I move out of state?

When moving out of state, you will need an entirely new policy. The new rates will be determined by many factors including the zip code. You should also check whether your new state is no-fault, meaning your insurance company would pay for your injuries and related expenses after an accident, no matter who was responsible. Also, the party at fault could still be sued for injuries over a certain threshold. No-fault states require you to have personal injury protection insurance to cover you after an accident.

How much can someone really save by comparing rates?

You can potentially save hundreds of dollars by comparing your rates. It’s recommended that you shop every two to three years to compare the rates offered by your current insurance provider with other providers to properly assess your rate. 

We welcome your feedback on this article and would love to hear about your experience with the car insurance companies we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

If you’ve been denied coverage by private insurance companies due to past driving incidents, there are state assistance programs that can provide proper coverage and keep you safe from high bills or driving illegally. A handful of states have government-sponsored programs to help low-income families afford cheap full coverage car insurance. Hawaii, California, Maryland and New Jersey offer government-sponsored car insurance for low-income individuals. 

Usage-based car insurance (UBI) is determined based on your driving behaviors and miles driven. Powered by vehicle installed devices, plug-in devices, or even mobile apps, this type of insurance allows the carrier to monitor your driving habits and best align your premium with your actions while behind the wheel. Carriers such as Progressive and Allstate offer these programs.

If you are considered high risk to insure, it might be helpful to hire an independent insurance agent to find the best deal for you across multiple companies.

Due to the COVID-19 pandemic, many Americans are struggling to pay monthly bills. You are not alone. There are some companies offering support, delayed payments and discounts to help.

Don’t give up! There are multiple ways to get car insurance if private companies are offering high rates or don’t have a policy available. 

Source: thesimpledollar.com

What’s the Average Cost of Car Insurance in the U.S.?

When it comes to shopping around for car insurance, it can be difficult to figure out the pricing structure. Part of the issue is that the price varies significantly by where you live, the minimum coverage requirements and a number of other factors. 

Your auto policy and the premium will also depend on such factors as age; car year, make and model; driving record; and gender, which we get into more later.

The average cost of car insurance in the United States is $1,758 per year, which works out to about $146.50 per month. In Florida, the average monthly cost is 29% higher than the national average. A car insurance policy in Alaska, on the other hand, will cost you much less on average, at just $77.88 per month. Even ZIP codes in the same town can differ.

This means that your insurance premium and the premium of your friend living across town will likely be quite different.

With all those factors, how do you know what to expect when it comes to the cost of auto insurance? Well, we’ve got your back. We’ll go into how much auto insurance costs by state and by insurance provider, dive into the other factors, and talk about what you can do to save money on auto insurance.

Research Methodology

The Simple Dollar analyzed millions of car insurance rates in every U.S. ZIP code to determine the average cost by state, carrier, coverage amount, credit score, and other factors from Coverage.com. This includes analyzing thousands of rates from all 50 states that were publicly sourced from 2019 insurer filings. Rates are based on a 30-year-old male or female that had a clean driving record, and we looked at those who had both good and poor credit. These rates should be used to inform your car insurance shopping process, but your own quote may differ based on your unique driving profile.

In this article

What decides the cost of auto insurance?

Here, we’ll get into details about factors that decide the cost of your car insurance. They can be:

  • Age
  • Gender
  • Where you live
  • The car you drive
  • Your driving history
  • Education level
  • Profession
  • How long you’ve been driving
  • Your credit score
  • Your driving habits
  • The amount of coverage you choose
  • The type of coverage you choose

[Read: The Simple Guide to Car Insurance]

1. Why does where I live affect the cost of car insurance?

Car insurance rates vary dramatically by state and even ZIP code.

Let’s look at Louisiana. That state offers the most expensive rates for full coverage, with an average annual rate of $3,279.18. One of the reasons why car insurance is so expensive in Louisiana is because the state has one of the highest accident rates. The number of fatal accidents and frequency of collisions in the state is significantly higher than the national average, which leads to higher auto insurance rates.  

State car insurance rates are also determined by the number of uninsured drivers on the road. This leads Florida to be the most expensive state for minimal coverage — 26.7% of drivers don’t have car insurance. Uninsured drivers create more risk and ultimately increase the price of insurance for everyone.

Most expensive full and minimum coverage costs per state

State (Full coverage cost) Average Full Coverage Cost Average Full Coverage Monthly Cost State (Minimum coverage cost) Average Min. Coverage Cost Average Min. Coverage Monthly Cost
1. Louisiana $3,279 $273 1. Florida $1,544 $129
2. Florida $3,289 $266 2. Michigan $1,525 $127
3. Maryland $3,079 $257 3. Maryland $1,489 $124
4. Michigan $2,730 $227 4. Louisiana $1,488 $124
5. New York $2,609 $217 5. Rhode Island $1,445 $120
6. Pennsylvania $2,493 $208 6. Connecticut $1,309 $109
7. New Jersey $2,471 $206 7. New York $1,245 $104
8. California $2,417 $201 8. New Jersey $1,162 $97
9. Rhode Island $2,394 $200 9. Delaware $1,017 $85
10. Colorado $2,346 $196 10. Nevada $989 $82

Which states have the cheapest car insurance?

At an average premium of just over $300 each year, Iowa drivers pay the least amount for minimal coverage –– by a significant amount. Iowa’s low population density is one of the main reasons costs are so low. The majority of the state is made up of “dense rural” areas, rather than urban areas. With fewer drivers on the road, there is less risk of accidents overall.

Cheapest full and minimum coverage cost per state

State (Full coverage rank) Average Full Coverage Cost Average Full Coverage Monthly Cost State (Minimum Coverage rank) Average Min. Coverage Cost Average Min. Coverage Monthly Cost
1. Idaho $1,094 $91 1. Iowa $306 $26
2. Maine $1,242 $103 2. South Dakota $382 $32
3. Hawaii $1,264 $105 3. North Dakota $390 $32
4. Iowa $1,275 $106 4. Wyoming $393 $33
5. Vermont $1,366 $114 5. Nebraska $412 $34
6. Ohio $1,397 $116 6. Idaho $429 $36
7. Nebraska $1,397 $116 7. Hawaii $439 $37
8. North Carolina $1,417 $118 8. Montana $441 $37
9. North Dakota $1,419 $118 9. Ohio $462 $38
10. New Hampshire $1,487 $124 10. North Carolina $482 $40

2. What are my choices of insurance coverage and which are more expensive?

Though every state sets its own regulations, there is a minimum amount of insurance you must carry in each of the 48 states that require car insurance. (New Hampshire and Virginia don’t require insurance.) You can choose to carry higher limits, which will result in a higher premium.

What type of auto insurance coverage should I choose?

You can also choose to add collision and/or comprehensive coverage to your policy to create “full coverage.” While minimum coverage only protects you against liability claims from others, full coverage also protects your vehicle. Collision coverage, as the name suggests, protects your vehicle when it collides with another vehicle, building or other objects. Comprehensive coverage protects your vehicle in non-collision incidents, such as theft or a natural disaster. 

Not everyone needs full coverage. Here are some things to consider if full coverage is right for you:

  • Older vehicles may not need full coverage since the deductible could be higher than the value of the car.
  • Full coverage may not be worth it if you rarely drive and have little to no history of accidents.
  • If you have a lease or a car loan, check with your lender. You may be required to maintain full coverage.

Your policy limits and deductible will fine-tune your car insurance costs, whether you choose minimum or full coverage. The policy limits are how much the insurance company will pay for each type of incident. The deductible is how much you are responsible for paying before the insurance company starts to pay.

Should I choose minimum coverage vs. full coverage?

Minimum coverage car insurance differs in every state, but it usually includes: bodily injury, liability coverage and property damage liability coverage at a minimum. This is the cheapest coverage you can buy, and you can’t legally carry less than the minimum amount.

Full coverage car insurance, on the other hand, is more expensive because it offers significantly more protection. However, it’s worth the added cost. If you settle for the state’s minimum insurance requirements, you run the risk of being underinsured.

Full coverage car insurance usually includes:

You will see coverage amounts listed as three numbers separated by slashes, such as 30/50/30. These numbers represent, in order, bodily injury liability per person, bodily injury liability per accident and property damage liability per accident, in thousands of dollars. So 30/50/30 insurance covers $30,000 of bodily injury per person, $50,000 of bodily injury per accident and $30,000 of property damage per accident.

Drivers can also elect to purchase additional coverage for things like roadside assistance, rental car reimbursement and accident forgiveness.

If you get into a costly accident, there’s no guarantee that you’ll have enough coverage to pay for the full extent of the damages. In that case, you would be financially responsible for paying the difference, which would come out-of-pocket.

3. Can my credit score impact the cost of car insurance?

Your credit score can have a massive impact on your car insurance rates, regardless of other factors. Only three states — California, Hawaii and Massachusetts — ban insurers from factoring in credit score, while in many states your rates could more than double if your credit is poor.

Car insurance cost: poor credit vs. good credit

Carrier Good Credit Full Coverage Average Cost Poor Credit Full Coverage Average Cost Difference
Allstate $2,457.21 $3,528.41 $1,071.19
American Family $1,728.63 $2,897.22 $1,168.59
Farmers $1,534.08 $2,560.31 $1,026.23
Geico $1,336.58 $2,197.10 $860.52
Nationwide $1,379.07 $1,931.89 $552.82
Progressive $1,915.07 $2,976.39 $1,061.32
State Farm $1,902.69 $2,701.59 $798.90
Travelers $1,952.91 $2,635.82 $682.91
USAA $1,178.28 $3,486.49 $2,308.21
Average Difference     $1,058.96

4. Do my age and gender affect the cost of auto insurance?

In a word, yes. Even your basic demographics can have a strong impact on your car insurance costs. Most (though not all) states allow drivers to be rated based on:

  • Age: Younger drivers and those over the age of 75 generally pay more.
  • Gender: Among drivers under age 25, men typically pay more than women — this discrepancy tends to go away for more experienced drivers.
  • Marital status: Married people are considered lower risk, and thus tend to pay less for car insurance.

5. Can my type of car affect the cost of my insurance?

Which car you choose can have a surprisingly big effect on your insurance rates.

Less expensive to insure

  • Big vehicles
  • Family vehicles such as SUVs or sedans

More expensive to insure

  • Small cars
  • Sports cars, especially those that are considered high-performance

6. How can my driving history affect the cost of auto insurance?

As you might expect, insurance companies don’t particularly like paying claims. So if your driving history is poor, you can expect higher premiums. In order of costliness, some things that could raise your rates include:

7. Do auto insurance companies care about my driving habits?

Statistically, the more you drive, the more likely you are to get into an accident. Likewise, parking on the street is more likely to result in damage than parking in your own garage. To save money on car insurance, consider:

  • Taking public transportation to work
  • Reducing your commute
  • Carpooling
  • Paying for off-street parking

8. How does the car insurance company I choose affect my cost of auto insurance?

Of course, all insurance carriers are free to set their own prices. Some carriers offer discounts for which you might qualify, such as safe driving bonuses or discounts for military families, and some may rate your particular risk level lower than others. So it always pays to shop around.

As you can see below, most major car insurance providers are in the same ballpark for rates, but there are some clear outliers. You’ll get the most expensive full coverage auto insurance premium from Allstate, and the most affordable from USAA.

On the opposite end of the spectrum, Travelers offered the most expensive minimum coverage rate of $815.41, and USAA offers the cheapest rate by far – just $487.04 each year. This makes USAA seem like the obvious choice, but USAA doesn’t provide coverage to just anyone — it has strict military and immediate family restrictions.

Carrier Full Coverage Average Cost Full Coverage Monthly Cost Minimum Coverage Average Cost Minimum Coverage Monthly Cost
Allstate $2,457.21 $205 $800.53 $67
American Family $1,728.63 $144 $813.48 $68
Farmers $1,534.08 $128 $614.64 $51
Geico $1,336.58 $111 $568.88 $47
Nationwide $1,379.07 $115 $830.00 $69
Progressive $1,915.07 $160 $742.80 $62
State Farm $1,902.69 $159 $801.81 $67
Travelers $1,952.91 $163 $815.41 $68
USAA $1,178.28 $98 $487.04 $41

How can I save on car insurance?

There are a few tricks for saving on auto insurance, including lowering the amount you drive, improving your credit score, and of course, driving more safely. You can also get a host of discounts, depending on your choice in insurance provider.

To get the best deal for your circumstances, conduct a car insurance comparison.

Different insurers offer different discounts. Insurers like Geico, State Farm and Progressive are frequently recognized for having cheaper car insurance rates.

Common discounts include:

  • Good student savings
  • Certain organization membership
  • Active duty military
  • Bundling other policies with the same company
  • Driving a low-risk car
  • Infrequent driving
  • Having a good credit score

Boost your credit score

Taking the steps to improve your credit score is a powerful way to save money on your car insurance. As an added bonus, it will help reduce costs in other areas like credit card APRs. Start by paying all of your bills on time, checking your credit report for errors and keeping your credit card balances low. Remember, improving your credit score is a marathon, not a sprint. It will take some months to see your score increase.

[Read: Car Insurance Rates Are Up – Here Are Eight Ways to Get Yours Back Down]

Car insurance cost FAQs

It varies by state, but in general, you can expect to need coverage for bodily injury liability, property damage liability and uninsured/underinsured motorist protection. States like New Hampshire don’t require car insurance, though additional requirements are in place.

It depends on a few factors. You should consider the likelihood of your car being damaged (based on your area, your vehicle’s age and similar factors) and your ability to pay for repairs if damages were to occur. Also think about how often you drive. From the start, driving more will put you at a higher risk for an accident.

After an at-fault accident, you can expect to see a 42% rise in your premium, according to data from InsuranceQuotes and Quadrant Information Services. Unfortunately, these rates were measured from people with relatively clean driving histories. If you have a less-than-perfect record, you may be subject to even higher premium increases. How much your rate will increase will depend on the claim type, if you were at fault, your carrier and what state the accident took place in.

We welcome your feedback on this article and would love to hear about your experience with the car insurance we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

6 Steps To Avoid Identity Theft Without a Service

There were almost 1.4 million cases of identity theft in the United States in 2020, with people using stolen identities to sign up for credit cards, collect fraudulent unemployment benefits and countless other scams. Cleaning up from identity theft can be a real pain and can drag on for years.

Identity theft protection is an easy counter to this problem. You pay for a service and they keep your identity safe. However, that protection comes at a price. What are your options for keeping safe from identity theft without paying for a protection service? The answer: Keep it simple.

A key part of protecting yourself against identity theft is to remember that scammers aim for easy targets. If you take a few simple steps to ensure that you don’t fall prey to the simplest scams, identity thieves will move on to another target.

In this article

6 simple identity theft prevention strategies

Read your bank and credit card statements carefully

Whenever you receive a bank or credit card statement, review it carefully, line by line. Make sure you recognize every transaction. If you find transactions that don’t make any sense to you or that you can’t trace, contact the financial institution immediately.

If you conclude that someone was using your account without your authorization, request to have that charge removed and also request to have a new card issued to you. In some cases with bank accounts, you may also want to change your account number and get new paper checks if you use them.

Don’t click on email links

If you receive an email that has a clickable link on it and you want to follow up on whatever that email is about, don’t click on the link. Instead, independently go to the website for the business and find the information yourself. Don’t even trust links that appear to be from friends, as scammers can easily fake email addresses. Ask friends to put in the subject line information unique to them so you know it’s legitimate, or confirm with them by text that they sent you that cute puppy You Tube video.

Why do this? Often, links in emails will look like one thing but actually take you to something else. You may end up at a web form or a sign-in prompt that looks completely legitimate but is actually a fake site so that when you sign in, you give that information to a scammer.

This can take a bit longer, of course, but this simple step alone protects you from a wide array of email tricks that can steal your identity.

Don’t give out personal information on the phone 

The same policy works with unsolicited phone calls, too. If someone calls you, never give them your personal information no matter what they tell you. Hang up and contact the company in question directly if you feel that there is something important that you should follow up on.

For example, don’t give information about yourself to a person on the phone claiming to be from your bank or claiming to be from the IRS. If you’re contacted by someone claiming to be from those organizations, use the actual website of the organization to look up the correct number, then call them back. If they don’t know what you’re talking about, then you know someone was just trying to scam you.

Have a password on all of your devices

Every computer and mobile device that you own should be password protected, ideally with something complicated enough that it can’t easily be guessed. You should have it set to automatically lock with a password every time you leave the device unused and every time you restart it. This is a very simple way to make things just a little bit tougher for a thief.

Choose a password that is not just a sequence of numbers (if possible) and isn’t a single word. A good strategy is to combine the two – use a word and a number you remember and alternate between the two. For example, I might use the password Trent and the number 2084 to create the password “T2r0e8n4t,” which is very difficult to crack but fairly easy to remember. 

Pass-phrases are particularly effective, such as: “My H4sb@nd Is A R0ck St@r!”. Some security experts recommend using a favorite song for inspiration. Have a unique password for each account; don’t recycle. 

Check your credit reports regularly

The three major credit bureaus (TransUnion, Equifax and Experian) collect your credit habits from lenders; potential lenders use them to assess your creditworthiness. These reports are also used to generate your credit scores. Check your credit reports from the credit bureaus for free once a year. One trick is to check one report every four months, alternating between the three, so that you are monitoring your credit more closely.

Once you’ve grabbed your credit report, go through it line by line to make sure you recognize the information. Contact the lenders first to get information corrected. The credit bureaus will not change accurate information. Reach out to the credit bureau about personal information such as your name, aliases, address or employer.

Use a password manager

A final tip: Use a password manager to keep your passwords safe. A password manager is software that keeps a heavily encrypted file of all of your passwords that can only be accessed by you. This allows you to have different, very complicated passwords for each of your financial services and other accounts, meaning that if one is hacked, the hackers won’t have access to any other accounts.

As long as you memorize a single very secure password for your password manager, it will manage secure passwords for all of your needs. There are many software packages out there that provide this service, such as 1Password and LastPass.

What if you still want a service?

If you still feel more comfortable using a service, The Simple Dollar recommends several identity theft protection services. These can provide peace of mind, but they work best in conjunction with using the other steps in this article.

What do these services do? Identity theft services monitor personally identifiable information in credit applications, public records, websites and other places for any unusual activity that could be signs of identity theft, according to the Consumer Financial Protection Bureau. Premium packages from these services offer additional features that help you fix identity theft problems and offer proactive help, such as letting you know if your bank has been hacked before it impacts you specifically.

What about credit monitoring? Credit monitoring is a part of identity theft services. Alone, it’s usually much less expensive, but it typically just watches your credit report.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

Using Scorekeeping To Build Financial Success

Frugal living often has a nice “honeymoon.” People dive in deep, find lots of ways to spend less money, and revel in the amount left in their checking account at the end of the month. The problem, of course, is that such behavior is often unsustainable. After another month or two, many of the new frugal practices start to wear on you and there’s a strong temptation to revert back to old spending habits.

One effective way to keep frugality present in your life is to turn it into a game. You set a “high score” by minimizing spending in a particular area of your life for a month, then you try to break that “high score.” You can reward yourself for doing so (ideally in a non-financial way), or simply enjoy the success of a new high score.

This is called scorekeeping. It’s simply setting a “score” over a particular period of time — a month is a great target — and then aiming to beat that “score” in the next period of time. It’s something we use to keep up frugal habits in many areas of our own life.

In this article

Why practice scorekeeping?

The biggest advantage of scorekeeping is that it gives you a short-term goal for frugality that’s always present in your thoughts, but it also strongly rewards long-term frugality strategies.

For example, you might find that by modifying your own spending, you’re able to get a particular area of spending in your life down to $200 a month, but it’s hard to get below that. If you want to beat that high score, you’re going to need to come up with some better long-term strategies. For example, maybe there’s a project you can work on over a weekend that will permanently lower that bill by $10 a month. Then, the next month, you’re able to hit $190 with that bill.

The advantage is that even if you take a month or two off from scorekeeping, those kinds of long-term projects you completed will still keep your spending lower than it otherwise would have, and scorekeeping provides the short-term motivation.

Another benefit of scorekeeping is that it encourages budgeting and careful tracking of one’s spending. After all, that’s how you keep score. By practicing budgeting and tracking your spending, you get much more in touch with where your money is really going, and that knowledge can encourage smarter choices.

Four examples of scorekeeping

Monthly food costs

Here, you keep track of every food item or beverage item you buy in a calendar month. At the end of the first month, your total spending in that category is your “score,” and then you aim to beat it. Your aim is to continue to enjoy food and not feel miserable, but keep trimming costs by trying new strategies.

In the short term, you can eat at home more often, especially when you prepare meals with simple inexpensive ingredients. A slow cooker meal with lots of beans and rice is going to get you there! Eating leftovers, whether for lunch in the next day or two or as a “mixed plate” for dinner in a few days, will also keep costs low.

In the long term, the strategies that will help you consistently set high scores are “meal prep days” (where you prepare and freeze lots of meals at once for easy cooking at home), putting good procedures in place for leftovers, buying core non-perishable ingredients in bulk (like big bags of rice), and simply cooking more at home so that it begins to feel much easier.

Monthly energy costs

With energy costs, your goal is to get your home energy bill as low as possible. The best strategy is to compare your monthly energy bill to the bill for the same period a year before, as that accounts for variations in weather.

In the short term, when you’re just aiming for a low-energy expense this month, energy saving steps like turning the thermostat down in the winter or turning it up in the summer can really help. On days when it’s cool, wear warm clothes in the house; when it’s hot, open a window instead of turning on the air. Run your ceiling fans throughout the year in a seasonally appropriate direction.

In the long term, there are lots of steps you can take to permanently lower your energy bill, or at least lower it for the season. Add more insulation to your home or install weatherstripping. If you really want to kill it, consider things like geothermal heating and cooling or solar panels.

Monthly entertainment costs

For entertainment and hobby costs, you simply track all money you’ve spent on those types of expenses per month, then compare that number to previous months. Easy enough!

In the short term, choosing to enjoy less expensive options is a great strategy. Hit the library instead of the bookstore. Use something you already have instead of buying something new.

In the long term, try some new hobbies, ones that won’t have as much of an ongoing cost. Keep trying new things until you find ones that click. You might try going on hikes for a month by doing trail walking at a local park, or you might try disc golf, or you might try knitting, or you might try reading. Those are all low-cost hobbies that can replace much more expensive ones. Don’t just stick to one because it’s “cheap,” though. Try lots of “cheap” ones until you find one that really clicks.

Monthly transportation costs

How much does it cost in a given month for you to get from one place to another? What about fuel, maintenance, insurance and parking? You should also include depreciation of your car’s value. Don’t forget things like Uber and bus fares and plane tickets. The lower you can get those costs, the better.

In the short term, the most effective way to keep costs low is to drive less and use your feet, a bicycle or mass transit more often. All of those options are less expensive than driving to and from your destination. There are also lots of tweaks you can do to minimize car expenses, like avoiding hard accelerations.

In the long term, see if you can cut out one of your cars entirely, which eliminates ongoing costs like vehicle registration and insurance. Try to identify more efficient commuting routes. If you like biking, consider investing in a pannier bag that enables you to use the bike for things like grocery store trips.

How we use scorekeeping

We use scorekeeping from time to time in each of these categories, but my biggest focus is with energy costs. I’m constantly trying to lower our home energy use without making anyone uncomfortable.

Over the years, I’ve added weather-stripping to doors, figured out the optimum temperature for our thermostat so that everyone is comfortable during the various seasons, installed ceiling fans, and countless other tweaks. Even with energy cost increases, we now spend less on energy in an average month than we did during our first year in this home and that’s after adding on a room as well, and almost all of the changes are completely invisible.

A desire to beat our energy cost “high score” helped fuel this, and it’s saved us many thousands of dollars over the years.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

Which Retirement Plan Is Right for Me?

At some point, most of us realize that we need to start saving for retirement. For some, it comes from seeing the struggle of a parent or a grandparent trying to make ends meet on Social Security alone. For others, it comes from a vision of a great retirement, or even retiring early. In any case, saving for retirement is a vital part of almost everyone’s financial journey.

The process of actually saving for retirement isn’t so clear, however. There are options in abundance out there for most people to save for retirement. Virtually all Americans have access to traditional IRAs, and most Americans have access to a Roth IRA, too. Many Americans also have workplace retirement plans, and there’s always the ability to just put your money in an ordinary investment account.

How does a person navigate these options? What’s the difference between them? Let’s dig in.

In this article

It’s the taxes!

Almost all retirement accounts for individual savers have a few key features in common. You deposit money from somewhere, either directly from your paycheck or your checking account, and you usually agree to have this done automatically on a regular schedule. You choose investment options for that money. Then, it sits there until you need it in retirement (or in a serious financial crisis).

The big difference between the various retirement account options is taxes. Here’s how.

Taxes in a normal investment account

Investment accounts are set up directly with an investment firm, like Fidelity, Vanguard, Charles Schwab or Edward Jones. In a normal investment account, you deposit money directly from your checking or savings account. Remember, money in your checking account or savings account is money you’ve already paid income taxes on (or soon will). Once the money is in an investment account, you choose how it’s invested: stocks, bonds, index funds, whatever you like.

As long as you leave it alone and let it grow without selling it, you don’t owe taxes on that investment. However, it may generate income for you in some way, such as dividends. You will owe taxes on dividends and other income in the year in which you earn it.

When you sell an investment in a normal investment account, you owe taxes on how much you earned from the sale. So, if you initially bought an investment for $5,000 and you sell it for $8,000, you’ll owe income taxes on the $3,000 you made, even if you immediately invest it in something else. This is called capital gains, and it’s taxed at the current capital gains tax rate. As of 2020, short term capital gains (investments you held for less than a year) are taxed at a normal income rate, while long term capital gains are taxed at a lower rate.

  • Pros: Very simple, no requirements, you pay lower taxes on investments you hold for more than a year
  • Cons: Dividends and other income are taxed as you earn them, no other tax benefits

Taxes in a traditional 401(k)/403(b)

For many people, the easiest option for retirement savings is a workplace retirement account, usually called a 401(k), 403(b), or TSP. These plans work similarly.

With this type of account, money is taken out of your paycheck before taxes. This means that your taxable income goes down for the year if you use this type of retirement plan. You’ll bring home a smaller paycheck (because some of it goes directly into your retirement account), but the reduction in your paycheck will be less than the amount you contribute (because you owe less taxes this year). Some employers actually match your contributions up to a certain amount, immediately adding 50% to your money or even doubling your money.

Once the money is in the account, it’s invested according to your instructions when you set up the account. If investments in your account earn income, it stays within the account and is reinvested according to your instructions and you do not owe taxes on that money. The only time you owe taxes on a traditional 401(k) or 403(b) account is when you withdraw money.

If you withdraw money from this account when you retire, it’s treated like normal income and it’s taxed just like you would see if it were a normal paycheck. Usually, taxes are withheld as you withdraw the money to make filing your taxes easier at year’s end. The advantage is that usually in retirement your income level is lower, so the amount taken out for taxes is much smaller.

The contribution limit for the 401(k) and 403(b) is quite high, at $19,500, with a $6,500 additional catchup if you are 50 or older.

  • Pros: The simplest option for those who have it, you can rebalance without tax worries, your tax rate in retirement is likely to be much lower than it is during your career, your employer might match contributions
  • Cons: Withdrawals are taxed as regular income; if you take money out of the account before retirement, there can be a 10% additional penalty

Taxes in a traditional IRA

Another option to consider is a traditional IRA. You can set up a traditional IRA on your own at an investment firm. You deposit money into the account from your checking account and choose how it’s invested. Once money is in the account, you can buy and sell it as you desire without any tax consequences, which means you can rebalance as you desire. Also, any income that your investments might earn stays within the account and isn’t taxed until you withdraw it.

One advantage of a traditional IRA is that your contributions to it are tax deductible, provided you meet the income limit. So, if you’re claiming individual deductions on your taxes (for most people, this usually happens while they’re paying off a home mortgage), you might be able to also deduct your traditional IRA contributions.

IRAs have an annual contribution limit. In 2021, that limit is $6,000, or $7,000 if you’re 50 or older. This is a limit across all of your IRAs, traditional or Roth.

When you withdraw money from a traditional IRA when you are retired, the withdrawn money is taxed as normal income, just like withdrawals from a 401(k) or 403(b). However, as noted there, your taxable income level should be lower in retirement, and thus you’ll pay a low tax rate.

  • Pros: Easy to set up, you can rebalance without tax worries, your tax rate in retirement is likely to be much lower than it is during your career, you may be able to deduct contributions in the year you made those contributions if you have enough other deductions
  • Cons: Withdrawals are taxed as regular income; if you take money out of the account before retirement, there can be a 10% additional penalty

Taxes in a Roth IRA

A Roth IRA is much like a traditional IRA, with a few key changes. Roth IRAs are available at most investment firms and you can easily set one up yourself. As with a traditional IRA, you make contributions from your checking account. However, your contributions are not tax deductible, which is only really important if you have a lot of other deductions anyway.

Once your money is in a Roth, you can buy and sell investments within the account without tax penalty, and any dividends or other income you earn don’t trigger taxes, either.

IRAs have an annual contribution limit. In 2021, that limit is $6,000, or $7,000 if you’re 50 or older. This is a limit across all of your IRAs, traditional or Roth. Furthermore, you can only contribute to a Roth IRA if your income level is low enough. In 2021, the limit for partial contribution is $140,000 of modified adjusted gross income (MAGI) for single filers and $208,000 for joint filers.

It’s when you withdraw money from a Roth that they really become amazing. For starters, you can withdraw your contributions at any time without penalty, so if you’re in a pinch, you can get those contributions back (though you can’t later decide to put old contributions back into the account again). Here’s the real amazing part, though: When you’re of retirement age (59 1/2 or older), you can withdraw your earnings from a Roth IRA, and it’s not taxable income

A Roth IRA can be a good option if you anticipate having more income when you retire or if you anticipate a rise in taxes.

  • Pros: Roth IRAs are easy to set up, you can rebalance without tax worries, you can withdraw contributions without penalty, no taxes on gains if withdrawn in retirement
  • Cons: Income limit, limit on annual contributions, contributions not tax deductible

Which option should you choose?

If you have a workplace retirement plan and your employer offers matching contributions, that’s going to be your best option every time. Contribute enough to that plan to get every dime of matching. That matching money blows away the tax benefits from other accounts.

There’s also the Roth IRA; contribute as much as you can, up to the annual limit. If you want to contribute more, use your workplace retirement plan, if available.

Or consider a traditional IRA. In this situation, it’s very similar to your workplace retirement options, but you’ll likely have more and better investment options. If you want to contribute more than the IRA annual limit, use your workplace retirement plan, if available.

Only use a normal investment account for retirement if no other options are available to you.

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Source: thesimpledollar.com