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While it might seem like using credit cards could hurt your finances because of the potential to rack up a huge amount of debt, you might be surprised that using debit cards can also be risky — but for different reasons.

The Differences Between Debit vs. Credit Cards

Although debit and credit cards may look the same, they’re completely different financial tools. I’m sure you’re familiar with how they work:

  • A credit card allows you to make purchases using borrowed money that you have to pay back with interest over time.
  • A debit card allows you to make purchases using your own money that’s linked to a bank checking or savings account.

But what you may not know is that credit and debit cards offer very different levels of legal and financial protection.

Debit cards give you fewer rights than a credit card, so it’s important to understand your potential liability.

What’s the Risk of Using a Credit Card?

First, let’s cover what happens if someone steals your credit card. Fortunately, you get some really nice protection thanks to a federal law called the Fair Credit Billing Act (FCBA).

This law is one of the reasons I prefer using credit instead of debit. The FCBA says if a thief takes your card or even just steals the card number and takes off on a shopping spree, you’re responsible for no more than $50.

It doesn’t matter if a cyber criminal hacks your credit card number online and then uses it to kick back in a five-star hotel in Maui for a week — you won’t have to pay more than $50. Plus, many credit card issuers offer fraud protection that completely eliminates your liability.

The protection gets even better if you become aware that your credit card is lost or stolen and report it before unauthorized charges are made. In that case, you’re not even responsible for $50 — you’re completely off the hook!

The FCBA protects you from unauthorized charges on revolving accounts, including credit cards, charge cards, retail store cards, gas cards and lines of credit. The law also protects you against other issues like being charged for unaccepted goods, undelivered goods or other formal disputes you make.

These are terrific protections that should make you feel confident about using a credit card in stores or online.

What’s the Risk of Using an ATM or Debit Card?

Now, let’s review what happens if someone steals your ATM or debit card. These cards are regulated by a federal law called the Electronic Fund Transfer Act.

Many people mistakenly believe that because their bank is FDIC-insured, their money is protected from theft. This is dead wrong.

The FDIC reimburses you up to a certain amount if your bank goes out of business, but not if a criminal accesses your bank accounts and steals your money.

Your liability for fraudulent charges on a debit card depends on how quickly you report it lost or stolen. Unlike with a credit card, your liability with a debit card is not capped at $50 — it’s unlimited.

Here’s How It Works

If you report a missing debit card before a thief uses it, you’re not responsible for any unauthorized transactions, just like with a credit card.

If you report your debit card as lost or stolen within two business days, you’re responsible for up to $50 only.

If you report unauthorized charges from a lost or stolen debit card within 60 days after you receive a bank statement, you’re on the hook for up to $500.

If just your debit card number is stolen while you still have the card in your possession, you have a little more protection. In that case, you’re not liable for fraudulent activity if you report it within 60 days of your statement date.

However, if it takes you more than 60 days to report fraudulent charges, you have unlimited liability. That means a thief could completely drain your bank account and get away with stealing your entire balance, plus you’ll probably have bank overdraft fees.

I use my bank’s iPhone app to check my bank accounts at least once a day. I would catch any unauthorized use immediately, report it within two business days and only get stuck with a $50 liability.

But if you’re not in the habit of reviewing your bank accounts on a daily basis, please think twice about using a debit card. Or consider switching to a better bank that offers tools to make it easy to stay on top of your transactions.

Now, let’s talk about when you should avoid using a debit card.

6 Risky Situations When You Should Never Use a Debit Card

Now that you understand the potential risks associated with debit and credit cards, here are six risky situations when I recommend you never use a debit card:

1. Shopping Online

Whenever someone tells me they don’t need a credit card because they simply use their debit card to shop online or make travel reservations, I cringe!

One of the most important rules for using debit cards is to never use them online. It doesn’t matter whether you’re buying shoes, getting concert tickets, paying your power bill or booking a cruise vacation.

Buying anything online using a debit card makes you vulnerable to a cyber criminal who could steal your card number and drain your bank account linked to the card — unless you watch your transactions like a hawk and would catch fraud immediately.

2. Making a Large Purchase

When you make a big purchase, like furniture, electronics or appliances, you get much less protection if you pay with a debit card instead of using a credit card.

For instance, let’s say your furniture is delivered and you find damage that occurred during shipment.

If the furniture company won’t reimburse you or exchange the merchandise, you can dispute the charge with your credit card company. The card company will reverse your payment to the merchant and inform them that they’ve opened a dispute on your behalf.

But if you paid with a debit card, the money is taken from your account right away. The only way to settle a dispute might be to begin an expensive lawsuit.

Additionally, many credit cards also offer extended warranties. So, if your new television has a 60-day warranty, but the display goes bad after 90 days, your credit card might protect you.

Of course, you should only use a credit card if you can pay off the balance in full or if you’re intentional about financing a planned purchase using a low-rate credit card, so you pay no interest or as little as possible.

3.  Dining Out

Using a debit card in a restaurant is especially dangerous because they’re one of the few places where the card leaves your sight. The server takes it away to process and you have no idea what could have happened.

Of course, someone could also steal your credit card number. But as I mentioned, because your potential liability is so much less with a credit card, paying with cash or a credit card is a smarter way to handle a restaurant bill.

4. Buying Gas

When you swipe a debit or credit card at the pump, some gas stations place an immediate hold on your account to make sure you don’t buy more gas than you can afford.

The hold amount varies by station, but could be $100 or more, even if you only plan to buy $10 worth of gas. While this practice is almost unnoticeable on a credit card, it can be a real problem with a debit card.

Some banks may process a debit transaction at the pump for the exact amount within seconds and clear the hold immediately.

But others may keep the hold for days, freezing a certain amount of money, which could cause you to bounce other payments or have new charges denied until the hold expires.

5. Making an Upfront Deposit

When you need to pay an upfront deposit for goods or services, never use a debit card. Some examples include booking travel reservations, making a deposit to order cabinets or flooring, securing freelance services or renting equipment.

As I previously mentioned, once a debit card charge is processed and money is withdrawn from your account, it’s gone.

On the other hand, putting a deposit on a credit card gives you the ability to dispute the charge and get your money back if something goes wrong.

6. Setting Up Automatic Bill Payments

While I love the idea of setting up recurring payments to make sure expenses like loan payments, gym memberships and utilities never fall through the cracks, it can become a bookkeeping nightmare if you don’t keep a cash cushion in your account.

To protect yourself from bank overdraft fees, consider setting up automatic payments on a credit card instead.

Should You Use a Debit or Credit Card?

Because dealing with fraudulent charges on a credit card is easier and less costly than with a debit card, be cautious about the six situations I covered — or paying with debit at any establishment that seems questionable.

If you have enough discipline to pay off credit card balances in full each month, they should be your primary payment method.

Not only do they give you more security and purchase protections, but they also help you build credit, give you a precise record of your expenses and allow you to earn rewards.

All of these benefits are free, as long as you pay your credit card bill in full every month. The trick to using a credit card successfully is to pretend it’s a debit card, so you never charge more than you can pay off right away.

But if you’re not ready to use a credit card for all your purchases, simply being informed about their pros and cons compared to debit cards will help you make smarter financial decisions.

This post originally appeared at Quick and Dirty Tips, a network of podcasts and digital content offering short, actionable advice from friendly and informed authorities. Laura Adams, host of the free Money Girl podcast, is a personal finance expert and award-winning author.

Paying for college and graduate school is a huge financial challenge, and the cost of higher education is likely to continue rising year after year.

Whether you’re a parent who wants to pay for a child’s education or you’re thinking about heading back to school yourself, it’s smart to start a college savings plan as soon as possible.

How to Get the Most Student Financial Aid

Before you get started, you should know the best ways to save for college that will also maximize your eligibility for financial aid. In this article I’ll give you eight strategies to follow so you qualify for as much federal student aid as possible and have more flexibility to pay those hefty college bills.

The reason you need to be strategic about how you save for college is that having certain kinds of financial assets will count against you and reduce your eligibility for financial aid.

Knowing the rules for how financial aid is awarded will help you structure your finances so more of your assets are not included in the formula for calculating your financial need.

Here are eight legitimate strategies to maximize your eligibility for federal student aid:

1. Don’t Save Cash in the Student’s Name

To qualify for financial aid for college you have to complete a lengthy form called the Free Application for Federal Student Aid (FAFSA).

The information you submit on the FAFSA is used to calculate how much aid you can receive and it generally assumes a student would contribute a higher proportion of their own income and savings than their parents. So having financial assets in a student’s name reduces aid eligibility.

When grandparents want to give money to a student, encourage them to give it to the parents instead (so it’s calculated at the parent’s need rate instead of the student’s) or ask them to pay it directly to the college, if that’s allowed.

Also, consider spending a student’s assets and income, instead of your own, before submitting the FAFSA form.

2. Use Education Savings Accounts

Coverdell Education Savings Accounts and 529 Savings Plans are tax-advantaged savings vehicles that also get special treatment when it comes to qualifying for federal student aid, so be sure to use them.

They’re treated like an asset owned by the parents, even if they’re in the student’s name — which increases aid eligibility, as I mentioned in the previous strategy.

Additionally, having money in a Coverdell or a 529 plan has minimal impact on the amount of financial aid you can receive.

3. Save to Retirement Accounts

Having certain kinds of financial assets will count against you and reduce your eligibility for financial aid.

In general, pensions and retirement accounts, like 401(k)s and IRAs, are not considered financial assets for the purposes of financial aid, whether they’re owned by the student or a parent.

Since retirement accounts are sheltered from needs analysis, contributing more to them can increase financial aid eligibility.

However, any pre-tax contributions you make to a retirement account in the tax year before you receive financial aid (that’s called the base year) are included as untaxed income.

Additionally, any money you withdraw from a retirement account to pay for school before submitting the FAFSA would count as taxable income and reduce eligibility for the following school year. So you don’t want to make any large contributions to or withdrawals from retirement accounts in any base year.

4. Use Cash to Pay Down Debt

Having debt — like credit cards, a car loan or a mortgage — doesn’t reduce your eligibility for financial aid, but having cash does.

So using a reasonable amount of cash savings to pay down debt, or accelerating necessary purchases, is a smart move to make before you submit the FAFSA.

However, be sure you don’t drain all your cash reserves because you still want to keep enough cash on hand to maintain a healthy emergency fund.

5. Consider the Custodial Parent’s Situation

If you’re divorced, the custodial parent of your college-bound child will be responsible for completing the FAFSA if he or she is the parent whom the student lived with the most during the past year.

If he or she is the parent with the least amount of assets and income, that will increase eligibility for financial aid.

6. Increase the Number of Household Students

Having multiple children in college at the same time allows you to qualify for more aid. If your kids’ birthdays aren’t less than four years apart, consider whether the oldest child could take a year or two off to work before going to college.

Or consider whether it’s a good time for you to go back to school and finish a degree or earn an extra one. When one or both parents return to school at the same time as their children, aid eligibility increases for both the student and the parents.

7. Pay with a HELOC Instead of an Equity Loan

If you don’t qualify for enough financial aid to cover all your college expenses and you have home equity, consider using a home equity line of credit (HELOC).

A HELOC is a good financing option for school because the interest you pay can be tax deductible and you only tap the amount you need.

That’s better than taking out a home equity loan, because if you don’t spend all the money you borrow on a home equity loan, it’s considered an asset that will reduce your aid eligibility for the following academic year.

8. Meet With Financial Aid Administrators

Schools have their own financial aid funds and set their own rules for doling it out. Don’t overlook any strategies that could help you maximize aid that’s available from your institution.

Also remember that aid eligibility is always based on the prior tax year — so, if your household or income situation changes, you should make an appointment to meet with the financial aid administrator at your school.

They can review your case and may be able to increase your aid package through a process known as Professional Judgment.

More Ways to Maximize Student Financial Aid

These eight strategies aren’t the only ways to maximize your eligibility for financial aid.

For more information be sure to check out and, which are two excellent resources for student financial aid information, advice and tools.

Your Turn: Have you used any of these tactics to maximize your financial aid eligibility? What other strategies have you tried?

This post originally appeared at Quick and Dirty Tips, a network of podcasts and digital content offering short, actionable advice from friendly and informed authorities. Laura Adams, host of the free Money Girl podcast, is a personal finance expert and award-winning author.

If you’re self-employed, a freelancer or work part time, investing for retirement can seem challenging. A Money Girl reader named Shawnna wrote to ask:

“I run a daycare from my home and only make enough to pay bills. I plan to continue my daycare for the next seven or eight years until my youngest child is halfway through college, when I’ll be in my late 40s. Will that be too late to start saving for retirement — and what’s the best way to invest when you’re self-employed?”

Just because Shawnna doesn’t have a traditional day job with a 401(k) doesn’t mean she doesn’t have great options to save for the future.

In this post, I’ll cover five of the best retirement accounts to consider when you’re self-employed.

Using them could make the difference between having a comfortable, happy lifestyle in retirement — or just scraping by.

What Is a Retirement Account?

If you’re a regular Money Girl reader or podcast listener, you know that I love retirement accounts. I recommend them because they come with fantastic tax breaks that save huge amounts of money.

But they’re all a little different, so I want to make you comfortable with the basics of some of the most popular types.

A common mistake that many people make is thinking that a retirement account itself is an investment. That’s not the case. It’s a special financial "bucket" where you hold investments or cash that get special tax treatment.

Once you contribute money to a retirement account, you might choose to invest it in vehicles like stocks, bonds, mutual funds or exchange-traded funds. Or you can even keep it in a money market fund or certificate of deposit (CD) within a retirement account.

Some of the most common retirement account rules include having to pay a 10% penalty if you take early withdrawals before reaching age 59 1/2 and limits on the amount you can contribute each year.

Depending on your work and financial situation, you may qualify for several different types of retirement accounts all at once. The more accounts you contribute to, the bigger the nest egg you can accumulate for retirement.

Here are five types of retirement accounts you should be familiar with when you work for yourself or don't have a retirement plan at work:

1. Traditional IRA

An IRA is an Individual Retirement Arrangement, which means it’s a plan for individuals only.

You can’t own an IRA with another person, not even a spouse. You manage every aspect of an IRA, such as opening the account, sending contributions and deciding how to allocate your money.

With any type of “traditional” retirement account, your contributions are tax-deductible. For instance, if you earn $50,000 and contribute $5,000 to a traditional IRA, you’re taxed on $45,000 of income only — not on $50,000.

Plus, all investment gains in a traditional IRA are never taxed until you take a distribution. On the other hand, investment gains in a regular, taxable brokerage account get taxed every year.

Who Can Use It

Anyone with earned income under the age of 70 ½ -- including the self-employed and minors who have jobs -- can use a traditional IRA. Even non-working spouses who file taxes jointly with a working spouse qualify for a spousal traditional IRA.


A traditional IRA allows you to save for retirement and cut your taxes in the current year.


If you (or a spouse) also participate in a workplace retirement plan -- like a 401(k) or 403(b) -- some or all of your contributions to a traditional IRA may not be tax deductible.

Another negative is that it has a low annual contribution limit, compared to other retirement options for the self-employed.

2015 Maximum Contribution

You can contribute up to $5,500 ($6,500 if you’re over age 50) to an IRA, as long as you have that much earned income.

2. Roth IRA

A Roth IRA is subject to all of the major rules that apply to a traditional IRA -- except when it comes to taxes and withdrawals. Your contributions to a Roth IRA are taxed up front, but your withdrawals during retirement are completely tax free.

And speaking of withdrawals, you don’t have to take any money out of a Roth IRA as long as you live. With a traditional IRA, on the other hand, you’re required to start drawing down the account after you reach age 70 1/2.

Additionally, you can withdraw contributions to a Roth IRA before retirement without triggering tax or penalties. However, this doesn’t apply to earnings in the account, which would be subject to tax and the 10% early withdrawal penalty if you’re younger than age 59 1/2.

Who Can Use It

Anyone with earned income, including the self-employed and non-working spouses, qualifies for a Roth IRA.


A Roth IRA allows you to save for retirement and avoid paying tax on decades of earnings and growth in the account. You get the full tax benefit even if you (or a spouse) participate in a retirement plan at work.


A Roth IRA has contribution limits based on your income and tax filing status. If you make over a certain amount, you may not qualify to contribute.

2015 Maximum Contribution

You can contribute up to $5,500, or $6,500 if you’re age 50 or older. This is the total limit for all IRAs.

For example, you could contribute $2,000 to a traditional IRA and $3,500 to a Roth IRA in the same year, but not $5,500 to both IRAs.

3. Solo 401(k)

While you’ve probably heard of a 401(k) plan offered by big companies, you might not know that you can also have one when you work for yourself.

They go by different names, such as a solo 401(k), an individual 401(k) or a one-participant 401(k). You can have a traditional or a Roth solo 401(k).

As both the employer and the employee in your business, you can make both kinds of contributions to a solo account.

That allows to you contribute more with a solo 401(k) than any other type of retirement account.

Who Can Use It

Anyone who is self-employed with no employees other than a spouse.


Since a solo 401(k) offers high contributions limits, it’s perfect when you have high self-employment income. Unlike a Roth IRA that imposes income limits, you can contribute to a Roth solo 401(k) no matter how much you earn.


The only downside to a solo 401(k) is that if your long-term business plan is to hire additional staff, you’d have to complete IRS paperwork to convert it into a regular 401(k).

2015 Maximum Contribution

On the employee side of a solo 401(k), you can contribute as much as 100% of your salary up to $18,000 or up to $24,000 if you’re 50 or older.

As the employer, you can contribute up to 25% of your net earnings, as long as your total contributions (including your salary deferrals) don’t exceed $53,000, or $59,000 if you’re age 50 or older.

Be aware that if your business is a side hustle -- like freelance writing or weekend photography -- and you also participate in a 401(k) at a second company, the total employee contribution you can make to both plans is $18,000 or $24,000 if you’re age 50 or older.

You can also have a solo 401(k) in addition to a traditional IRA or a Roth IRA. However, depending on your income and tax filing status some or all of your contributions to a traditional IRA may not be tax deductible.


But what if you’re a small business with employees? One of the easiest and least expensive retirement plans to administer is the SEP-IRA, which stands for Simplified Employee Pension. It’s an option for any size business or those who are self-employed with no employees.

With a SEP-IRA, contributions can only come from an employer. Employees can never contribute their own money.

So, as the business owner, you choose the amount to contribute each year. However, you must give all employees the same percentage.

For example, let’s say you have a small web design business with one employee named Jack. If you choose to contribute 15% of your pay to your own SEP-IRA, you’d also have to contribute 15% of Jack’s pay to his SEP-IRA.

But if you have a bad year with little profit, you can choose not to make any contributions. Employees are always vested in their SEP-IRA account, which means if Jack leaves your employment, he can take his retirement money with him.

Just like with a traditional IRA, when you take money out of a SEP-IRA before age 59 1/2, you’re subject to income tax plus an additional 10% early withdrawal penalty.

Who Can Use It

Anyone who is self-employed with or without employees, whether you’re set up as a sole proprietor, partnership or a corporation.


The major advantage of a SEP-IRA is the flexibility to make contributions in years when your business cash flow allows it and to opt out when money is tight.


The main downside to a SEP-IRA is that you must contribute an equal percentage of income to all employees. Also, there isn’t a Roth option or a “catch-up” provision that allows you to contribute more when you’re over age 50.

2015 Maximum Contribution

You can make SEP-IRA contributions for each of your employees (including yourself) up to 25% of each employee’s compensation for a maximum amount of $53,000.

You can also have a SEP-IRA in addition to other retirement accounts, such as a traditional IRA or Roth IRA. You can even have a 401(k) or 403b with another employer.

However, the total amount you can contribute to an employer plan plus your SEP-IRA is limited to 100% of your compensation up to $53,000.


A SIMPLE IRA is another retirement account option for any size business. It’s an acronym for Savings Incentive Match Plan for Employees.

Unlike with a SEP-IRA, employees can put their own money in a SIMPLE IRA through payroll deductions. In addition, the employer must contribute to their workers’ accounts each year as either matching funds or as nonelective contributions.

Here’s how the matching option works: The employer must match what the employee contributes on a dollar-for-dollar basis up to 3% of their compensation.

The nonelective option means that the employer has to pay up regardless of whether the employee contributes any of his or her own money. The employer is required to give the employee 2% of their compensation up to a limit each year.

For instance, if you make $50,000, the employer would be obligated to kick in 2% (or $1,000), regardless of the amount you contributed. Again, the employer gets to choose between these 2 options — they never have to pay both matching and nonelective contributions.

You’re always 100% vested in (or have full ownership of) all the contributions you and an employer make to a SIMPLE — and you can stop making contributions at any time during the year.

Who Can Use It

Anyone who is self-employed without employees or with fewer than 100 employees, whether you’re set up as a sole proprietor, partnership or a corporation.


The major advantage of a SIMPLE IRA is that it’s generally easier to administer than a regular 401(k).


The major drawback to a SIMPLE IRA is that if you do have employees, you’re generally required to contribute to their accounts. Also, the contributions limits aren’t as high as other retirement options for the self-employed.

2015 Maximum Contribution

A SIMPLE IRA is funded by both employee and employer contributions. As an employee, you can contribute $12,500, or $15,500 if you’re age 50 or older.

And as I mentioned, from the employer side, you must choose to make contributions as either a flat 2% of compensation or up to a 3% matching contribution.

If you use a SIMPLE IRA for your business you can also contribute to a traditional IRA or a Roth IRA, or to a retirement plan at another company.

The retirement plans that I’ve covered are the most common, but this isn’t a complete list. Check out IRS Publication 590, Individual Retirement Arrangements and Publication 560, Retirement Plans for Small Business, to explore options for your business endeavors.

If you're like Shawnna and are having trouble saving for retirement because your business is just getting started or has irregular income, it's still important to get in the habit of saving as early as possible.

Open one of the retirement accounts I covered here and begin setting aside even a small amount on a regular basis.

While it's never too late to begin investing for retirement, you'll thank yourself later if you get a head start now!

If you need help setting up a retirement plan or aren’t sure how to use multiple retirement plans properly, be sure to contact a qualified tax accountant. Paying a professional to help you maximize tax benefits for your business and retirement accounts will pay off.

Your Turn: Are you self-employed? Will you use one of these accounts to save for retirement?

This post originally appeared at Quick and Dirty Tips, a network of podcasts and digital content offering short, actionable advice from friendly and informed authorities. Laura Adams, host of the free Money Girl podcast, is a personal finance expert and award-winning author.

My QDT editor, Alyssa, was recently talking to her best friend about a financial dilemma. Erica, who is 28 years old, has accumulated a lot of savings, but she has no idea what to do with it. So Alyssa told her to email me for an answer.

Erica says:

“I've saved up $40,000 over the past two years, but it’s just sitting in my checking account. I know there must be a better place for it, but I'm torn between investing, paying off student loans or saving for a house.

I contribute to a 403(b) retirement plan through work and have about $85,000 in student loans that charge 4% interest. Is there a rule of thumb for how much of my savings I should use for these different purposes?”

Here’s a specific strategy to follow any time you're not sure what to do with your money.

What to Do with Extra Cash

First, I want to congratulate Erica for being such a terrific saver! There are worse problems to have than not knowing what to do with a flush bank account.

Nevertheless, it can be unsettling to have a lot of money sitting idle.

Whether you’re a good saver or you get a cash windfall from a tax refund, an inheritance or the sale of a home, it’s a major opportunity in your financial life. So I want to make sure you don’t squander it.

Maybe you’re like Erica and have extra cash that could be working harder for you, but you’re not sure what to do with it. You may even be paralyzed and do nothing because you have a deep-seated fear of making a big mistake with your cash.

In some cases, having money sit idle is exactly the right financial move. But it depends on whether or not you’ve accomplished three fundamental financial goals, which I’ll review in a moment.

To know the right way to manage your extra cash, you need to step back and take a holistic view of your entire financial life. Consider what you’re doing right and where you’re vulnerable.

To make good financial decisions, think about using a three-pronged approach. I call it the PIP plan, which stands for:

  1. Prepare for the unexpected
  2. Invest for the future
  3. Pay off high-interest debt

Let’s examine each one so you understand how to use the PIP (prepare, invest and pay off) approach for your situation.

1. Prepare for the Unexpected

The first fundamental goal you should have is to prepare for the unexpected. As you know, life is full of surprises. Some of them bring happiness, but there are infinite devastating events that could hurt you financially.

In an instant, you could get fired from your job, need to travel to see a loved one, be the victim of theft, get an oversized tax bill, experience a natural disaster, get a serious illness or lose a spouse.

Being prepared for what may be around the corner is a work in progress. It should change over time, because it depends on factors like whether you have a family, your total amount of debt and your income.

While no amount of money can reverse a tragedy, having safety nets -- like an emergency fund and insurance -- can protect your finances. That will make coping with a tragedy much easier.

Everyone should accumulate an emergency fund equal to at least three to six months’ worth of your living expenses.

For instance, if you spend $5,000 a month on essentials -- like housing, utilities, food and debt payments -- make a goal to keep at least $15,000 in an FDIC-insured bank savings account.

While keeping that much in savings may sound boring, the goal for your emergency fund is safety, not growth. The idea is to have immediate access to your cash when you need it. That’s why I don’t recommend investing your emergency money, unless you have more than a six-month reserve.

If you don’t have enough saved, make a goal to bridge the gap over a reasonable period of time.

For instance, you could save half of your target over two years, or one-third over three years. Put it on autopilot by creating an automatic monthly transfer from your checking into your savings account.

If you’re like Erica and already have enough saved, consider moving it into a high-yield savings or money market account that pays slightly more interest for large balances. You can find the best federally insured banks and credit unions at sites like and

Another important aspect of preparing for the unexpected is having enough of the right kinds of insurance. Here are some common policies you probably need:

  • Health insurance, which is legally required under the Affordable Care Act, known as Obamacare.
  • Disability insurance, which replaces a portion of income if you get sick or injured and can no longer work.
  • Life insurance if you have dependents or debt co-signers, who would be hurt financially if you died.

2. Invest for the Future

Once you start building an emergency fund and have the right kinds of insurance, begin the second goal I mentioned: Invest for retirement. If you’re like most people, you’ll need to work on both of these goals at the same time.

Here’s how to invest for retirement. Unlike your emergency fund, money in your retirement account should never be tapped until you retire.

Another huge distinction between saving and investing is safety. Remember to keep savings safe. However, safety comes at a cost because it gives you no or little return.

To beat inflation and earn enough to accumulate one or more million dollars for retirement, you must invest and take some amount of risk.

Use qualified retirement accounts, like a workplace plan or an IRA, to get extra tax savings that work in your favor.

Some employers match a certain percentage of your contributions to a 401(k) or 403(b), which turbocharges your account. So always invest enough to max out any free matching at work.

Erica says she’s contributing to her company’s 403(b), which is terrific -- but she didn’t say how much. My recommendation is to contribute no less than 10-15% of your pre-tax income for retirement.

For 2015, you can contribute up to $18,000, or $24,000 if you’re over 50 years old, to a workplace retirement plan. And by the way, those limits apply to just your contribution. If your employer provides matching, you can exceed those amounts.

Contributions to a retirement plan at work can only come from your paycheck. In other words, you can’t move money from your savings into a 401(k) or 403(b). You must adjust your payroll deduction to increase or decrease the amount you invest.

3. Pay Off High-Interest Debt

Once you account for the first two parts of my PIP plan by preparing for the unexpected and investing for the future, you’re in a perfect position to also pay off high-interest debt, the final “P.”

Always tackle your high interest debts first because they’re costing you the most. They usually include credit cards, car loans, personal loans and payday loans with double-digit interest rates.

Remember, when you pay off a credit card that charges 18%, that’s just like earning 18% on an investment after taxes -- pretty impressive!

Common low-interest debts include student loans, mortgages and home equity lines of credit. These three types of debt also come with tax breaks for some or all of the interest you pay, which makes them cost even less. So don’t even think about paying them down before implementing your PIP plan.

Let’s say Erica identifies the right amount to isolate for her emergency fund, purchases any missing insurance coverage and still has cash left over. She could use some or all of it to pay down her only debt, which are low-rate student loans.

However, because Erica is ahead of the curve, financially speaking, another acceptable option for her would be to work on other goals.

These are icing on the cake once you’ve put your PIP plan into motion. They might include saving for a house, car, vacation, a child’s education or any other goal that aligns with your values and dreams.

How to Manage Extra Money

When it comes to managing extra money, always consider the big picture of your financial life and choose strategies that follow my PIP plan: Prepare for the unexpected, invest for the future and pay off high-interest debt.

Review your situation at least once a year to make sure you’re still on track. As your life changes, you may need more or less emergency money in the bank or different insurance coverage.

When your income increases, take the opportunity to bump up your retirement contribution -- even increasing it one percent per year can make a huge difference.

And here’s another important tip: When you make more money, don’t let your expenses increase as well. If you earn more but maintain or even decrease your expenses, you’ll be able to reach any financial goal you dream about much faster.

Your Turn: Are you sitting on savings you don’t know how to manage? Will you implement any or all of the PIP plan?

This post originally appeared at Quick and Dirty Tips, a network of podcasts and digital content offering short, actionable advice from friendly and informed authorities. Laura Adams, host of the free Money Girl podcast, is a personal finance expert and award-winning author.

If you were born after 1980, you’re part of the millennial generation and are between the ages of 18 and 33 as I’m writing this article in 2014. You’re also known as Generation Y because you came after Generation X, which is my generation. Gen X are people born from about 1964 to 1980.

The millennial generation has some other not-so-flattering nicknames. It’s been dubbed the Boomerang Generation because of its members' propensity to move back home with their parents, perhaps due to financial hardships.

It’s also been dubbed the Peter Pan Generation, which refers to a perceived immaturity or unwillingness to grow up exhibited in millennials' tendency to delay starting a career, getting married and having children.

Now, before you think that everyone’s pegged young folks as slackers, various surveys and studies about millennials have also shown you’re an incredibly educated and optimistic group.

But that education comes at a cost -- as so many of you who are burdened with huge amounts of student loan debt know all too well. Additionally, many millennials were traumatized by the last recession, don’t like the stock market and are leery of investing.

Whether you agree with these millennial characteristics or feel stereotyped by them, here are five decisions that you, or anyone who wants to achieve financial success, must make to grow rich:

1. Live Within Your Means

One of the most important decisions to make when you’re starting out is to live within your means, or never spend more than you earn.

It sounds so logical and simple, right? But unfortunately, it’s incredibly easy to overspend when you make credit card charges that you can’t pay off in full every month.

Your life may not be as lavish as your parents', your high-earning friends' or your friends' who live beyond their means. That’s OK.

With hard work, smart spending and consistent saving, you can achieve your financial goals and dreams. No one said we were entitled to have everything we want right out of the gate.

Living within your means comes down to aligning your spending with your values. So think about what you really want to do or have, and make sure you’re allocating your money there, and never spending mindlessly.

Shifting into conscious spending and saving is a simple but powerful milestone that’s required to grow rich. I discuss the psychology of spending and how to set your priorities in Chapter One of my book, Money Girl’s Smart Moves to Grow Rich.

2. Leverage the Power of Time

If building wealth is one of your goals, the second decision you must make is to value your time and put it on your side. Here’s why that’s so important:

Let’s say you go out to lunch with coworkers every day and spend $15. That’s almost $4,000 per year that you could be funneling into a retirement account if you brought leftovers to work instead.

If you’re 25 years old and invest $4,000 a year in an Individual Retirement Arrangement (IRA) or a workplace 401(k), you’ll amass a surprisingly huge nest egg. With an average annual return of 7%, you’d have close to $1 million by the time you’re in your mid-60s.

Now, I’m not saying you should never go out to lunch or spend money on entertainment. My point is that you should never spend habitually or unconsciously without understanding the security and future financial freedom that you may be giving up if you invested that money instead.

3. Make Saving a Habit

When you’re just starting out, it can be difficult to start saving and investing on a regular basis. Few people feel like they have discretionary or extra money to set aside. But you must create the habit of saving (even small amounts) as early as possible, no matter how much it hurts.

Here’s a quote from Aristotle that sums it up, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.”

I recommend you save a minimum of 10% to 15% of your gross income starting with your very first paycheck. If you have a retirement plan at work, such as a 401(k) or 403(b), that’s an extremely valuable benefit you should never pass up.

If you don’t have a workplace retirement plan, open and contribute to an IRA instead.

4. Always Have a Financial Safety Net

When you have trouble getting ahead financially, one of the most common roots of that problem is not having a safety net, such as emergency savings.

For instance, if you have an unexpected car repair or lose your job, you may have no option but to finance your expenses on a credit card. Then the debt accrues interest and grows bigger every month, becoming even more difficult to pay off.

Instead, make a decision to save and always keep a minimum of three to six months’ worth of your living expenses in an FDIC-insured bank savings account. If you’re starting from zero, start with a small goal, like saving $100 first, and then building up to $500, $1,000 and so on.

Consider automating your emergency savings by having a small percentage of your paycheck directly deposited into a separate account. After a couple of paychecks, you won’t even notice that 2% or 3% is missing from your main account.

The peace of mind a financial cushion gives you is amazing. So cut your spending and make temporary sacrifices so you can fund your emergency savings account as quickly as possible.

5. Get the Credit You Deserve

A study from Experian, one of the nationwide credit bureaus, revealed that many millennials have poor credit because they don’t pay their bills on time.

If you’re habitually late paying bills, please realize your payment history is the most important factor in calculating your credit scores.

Another study from the Consumer Federation of America showed that millennials don’t understand how far-reaching or important credit is to their entire financial life.

Only 18% know the types of businesses -- including lenders, credit card issuers, insurers, utility companies and cell phone carriers -- that can use your credit to evaluate you as a potential customer.

Building good credit doesn’t happen by accident. It’s the result of having credit accounts, such as a credit card or car loan, and managing them responsibly over time.

Take advantage of online bill pay through your bank or using an application like Quicken, to make sure your money management never slips through the cracks.

Your Turn: Do you face any of these financial challenges? What habits have you developed to save money for your future?

This post originally appeared at Quick and Dirty Tips, a network of podcasts and digital content offering short, actionable advice from friendly and informed authorities. Laura Adams, host of the free Money Girl podcast, is a personal finance expert and award-winning author.

Knowing how to invest money in the financial markets can be confusing because there isn’t a one-size-fits-all solution.

Everyone’s financial situation is different. We all have different goals, amounts to invest, tolerance for risk and knowledge about investing.  

But before you get to how to invest, you need to choose a place to actually open your investing account. In this post, I’ll give you my favorite radically simple and innovative places to invest money right now.

You can use these recommendations no matter if you have lots of extra money to invest, or can only afford to set aside a few dollars each month.

4 Radically Simple Places to Invest Your Money

If you’re fortunate enough to have a retirement plan at work, such as a 401(k) or 403(b), your employer is in charge of it. That means you’re stuck with the brokerage and plan they choose.

Although you’re not in control, this is still the first place you should invest, when possible. That’s because it comes with terrific tax advantages and perhaps employer matching, to boot.

But when you don’t have access to a workplace plan, or you’re maxed out and still have extra to set aside, you need other places to invest your money.

There are many great investment firms and brokerages. Some of the biggest and well-known companies are Vanguard, Fidelity and Charles Schwab.

But just because a firm tops the charts doesn't necessarily mean that it's right for you -- especially if you don't actually use it.

Here are four radically simple places to make your money grow.

1. Acorns

Acorns is a free mobile app, which will also be a web-based application soon. It’s like nothing you’ve ever seen, because it allows you to automatically invest your digital spare change.

What’s digital spare change? Well, you give Acorns permission to round up your purchases on debit or credit cards and then invest the difference by automatically pulling it out of your bank checking account.

For instance, let’s say you link up a credit card and charge $12.25. Acorns would round up to $13.00 and know that you need to invest the difference of $0.75. Once you've accumulated at least $5 in total spare change, Acorns automatically takes it out of your checking account and invests it.

You can link up as many debit and credit cards as you like. Then you pick one of Acorn’s five investment portfolios, ranging from conservative to aggressive. Each one is made up of six exchange-traded funds (ETFs) selected to achieve the portfolio objective.

To get started investing with Acorns, all you need is $5. Then they charge $1 per month for balances under $5,000 or 0.25% per year for balances over $5,000.

I’ve been using Acorns for several months and my virtual spare change totals about $40 a month. According to their calculator, if I maintain a moderate portfolio for 20 years, my change will be worth over $20,000.

That’s certainly not enough to retire on, but it’s a terrific reward for using a free app, and an easy way to set aside a little over a dollar a day for the future, without even thinking about it.

I don’t recommend that you only use Acorns to invest. However, if you’re struggling to get started, it’s an incredibly easy and painless option! And even if you’re already a pro at saving and investing, using the Acorns app is actually fun.

2. Betterment

If you’ve been a long-time Money Girl reader or podcast listener, you know that Betterment is a frequent sponsor. But what you may not know is that I became a customer and a huge Betterment fan several years earlier.

Betterment's founder, Jon Stein, and his great team have built an easy and efficient way to invest for any goal. It’s a one-stop shop where you can open a regular investing account or an IRA, including a rollover from an old workplace retirement plan.

It takes less than five minutes to set up a Betterment account, and you can get started for as little as $100. Their fees depend on your account balance, but as long as you have an automatic monthly deposit set up, it won’t be more than 0.35% per year.

To pick your portfolio, Betterment gives you simple slider to indicate how you feel about investment risk. Then your money is automatically allocated across a suitable portfolio of low-cost ETFs that are right for you, no matter if you're very conservative or aggressive.

What I really like about Betterment is that each investment objective starts with a goal where you identity what you’re saving for -- such as retirement, a home or a vacation -- and when you want to achieve it. Then they make recommendations to help you get there.

You can set up automatic transfers so you get in the habit of investing on a regular basis. Betterment also has a great mobile app, so you can keep up with your investing progress on the go.

3. Aspiration

One of the most unusual ways to invest is through a new company called Aspiration. They launched in late 2014 with the goal of bringing middle class investors sophisticated products that were previously only available to investors with super-high net worth.

Their first product, the Aspiration Flagship Fund, is a blend of mutual funds designed to grow your money over the long term, while also limiting volatility along the way.

It uses a variety of advanced strategies to try to make money no matter if the stock market is moving up or heading down. It also watches global trends and corporate moves, in order to make profits.  

You need $500 to get started with Aspiration, but unlike most firms, they also have a maximum investment of $100,000 -- so they stay focused on everyday investors. They don't have any retirement account options right now, just a regular taxable account.

Something else that's different about Aspiration is instead of charging a flat fee to manage your money, they charge a “pay what is fair” fee schedule. You actually get to decide what to pay them -- even zero!

Aspiration believes letting you decide what to pay helps build trust. And if that weren’t generous enough, they also give away 10% of their revenue to charities in the U.S.

4. FutureAdvisor

FutureAdvisor is an online investment advisor that manages investments you already own, or new ones that you purchase through them, such as regular brokerage account or an IRA.

Their goal is to provide quality financial advice to ordinary Americans. They offer complete, top-tier portfolio management based on unbiased advice, diversification, tax-efficiency and low-cost index funds.

Think of FutureAdvisor as a management layer you add over your existing accounts to help you maximize return. They use computer modeling to analyze your investments, and then recommend the best way to allocate your money.

They work through two well-known brokerage houses: Fidelity and TD Ameritrade. So if you have accounts at other places, FutureAdvisor does the paperwork to consolidate your investments there. You’ll pay a 0.5% annual fee for the investments they manage.

The Best Place to Invest Money

The place(s) you choose to invest money will affect your customer experience, investment options, amount and quality of advice you can get, and fees you have to pay.

You’re not limited to one type of investing account or service. For instance, you could have a retirement plan at work, open up an IRA with Betterment or FutureAdvisor and have a regular investing account through Acorns or Aspiration.

You can max out both a retirement plan at work and an IRA every year. However, depending on your income, you might not get 100% of the tax benefit for an IRA when you or your spouse also have a retirement plan at work.

But no matter your situation, you can always invest any amount of money in a taxable investing account, in addition to what you contribute to a tax-advantaged retirement account.

As I mentioned, these recommendations are just a few of the many places to invest. But I hope they give you some ideas and inspiration about how simple investing really can be!

So get started by doing some research, and using at least one of them to achieve your short- or long-term financial goals this year.

Your Turn: Do you use any apps to help you invest? Will you be trying any of these tools?

Disclosure: We have a serious Taco Bell addiction around here. The affiliate links in this post help us order off the dollar menu. Thanks for your support!

This post originally appeared at Quick and Dirty Tips, a network of podcasts and digital content offering short, actionable advice from friendly and informed authorities. Laura Adams, host of the free Money Girl podcast, is a personal finance expert and award-winning author.

When someone asks me about the most important factor for achieving financial success, my response usually takes him or her by surprise.

You might expect me to say that what’s most important for your financial health is living within your means, investing early or creating a financial plan. While those are important, in my opinion, nothing is more essential to your financial success than the person you share your life with.   

In this post, I’ll tell you five important traits to look for when you’re choosing a life partner, plus many to avoid. Not only will these characteristics help you choose a great partner, but you’ll also be more likely to have a successful financial life together.

And if you're already married or have a long-term partner, reviewing these five traits will be a great reminder for how to keep your relationship as healthy as possible.

How to Choose the Right Life Partner

Full disclosure: I’m not a psychiatrist or a marriage counselor. However, my authority on choosing the right life partner comes from being happily married for over two decades!

I met my husband in college and we got married right out of school. I feel very lucky that our relationship has remained super strong, even though we got married so young. I’m certain that I could never have achieved a fraction of my career or financial success if our relationship hadn’t turned out so well.

Not only can a bad relationship prevent you from making good decisions and reaching important financial goals, getting divorced can be a huge financial setback. Splitting up can leave you with a financial mess that’s extremely stressful and could take years to recover from.

I hear from divorced men and women all the time about financial struggles that resulted from their splits. So, my goal is to get you thinking about how to pick the right partner to begin with or how to turn around an existing relationship that isn't going as well as it should.

In the beginning of a relationship, you generally have romantic chemistry with someone because of his or her physical traits or perhaps how they interact with you. It’s important to separate those who are fun to date from those you’d want to marry or settle down with for good.

So, what I'm recommending is that you don't get serious with someone unless they have a basic set of character traits that will also be good for your financial life together.

Here are five important traits to look for in a potential life partner:

1. High Self-Esteem

Having self-esteem means you take pride and value yourself without being arrogant. You don’t let other people mistreat you or take you for granted.

People with high self-esteem might be described as confident, self-aware and cooperative. But they can also say “no” when it’s appropriate.

Someone with high self-esteem typically has a good sense of his or her strengths and weaknesses. They accept their mistakes and try to learn from them so they never happen again.

On the other hand, having low self-esteem means you feel unworthy and incompetent. You may depend too heavily on other people to make decisions for you, have a fear of taking risks or tend to blame others for your mistakes.

Having a life partner with high self-esteem could translate into him or her being motivated to move up in their career quickly and seek more lucrative job opportunities.

They may also have the confidence to negotiate for a higher salary or seek out help with your personal finances when you need it.

2. Responsibility

Responsibility means you follow through on promises and don’t let other people down. For instance, a responsible person will feel compelled to show up to appointments on time because they respect other people’s time and feelings.

Being responsible is taking care of yourself without relying on other people to remind you when to be somewhere or what to do. Responsible people know they’re in charge of their lives and get things done on time, like showing up for work, paying bills and managing finances.

Another aspect of responsibility is to avoid saying what you shouldn’t. In other words, if someone tells you something in confidence, keep it to yourself. Otherwise, people will figure out that they can’t trust you.

3. Honesty

One of the biggest financial problems a couple can face is dishonesty about money.

Honesty is a fundamental character trait in a life partner that’s non-negotiable, in my opinion. If you catch someone in a lie and they don’t have a really good excuse, like not wanting to spoil your surprise birthday party, I’d be ready to move on.

Now, I’m not talking about a white lie, like telling a friend that her new haircut looks great if she asks what you think. We all tell those kinds of half-truths from time to time to avoid unnecessary conflict.

But if someone is deceptive about places they go, people they’re with, how they spend time or their personal history, that’s a major red flag that you should never ignore.

One of the biggest financial mistakes couples make is being dishonest about money. It’s not uncommon for one partner to hoard it from the other, open up secret credit accounts or lie about their spending. This kind of behavior can obviously devastate your financial future.

It’s possible, but pretty unlikely, that a dishonest person could do a 180 and completely stop lying. The reality is that building your life around someone who just isn’t honest will probably end in disaster, so I’d steer clear.

One of the biggest joys in my relationship is having 100% transparency. Knowing that my husband and I will always be honest with each other, no matter what, gives me a huge sense of peace and happiness.

So, never settle on a partner who lies to you or plays games about how they feel or what they want. Life is too short to live with someone who doesn’t know how to be direct and honest with you.

4. Openness

Openness is a trait that’s similar to honesty, but has more to do with emotional intelligence. An open person is aware of his or her feelings, can express them and wants to communicate in order to keep an emotional connection.

Being open can seem risky because you make yourself vulnerable to another person. For instance, telling your partner that you’re worried about your financial situation or are unhappy with your career path.

He or she may accept your concerns and want to explore it further with you or completely reject what you say. Being open can take some maturity, and we’re all wired differently when it comes to our comfort level with emotions.

What’s important to remember is that choosing a partner who tends to be closed emotionally could make communication about many issues, including finances, very difficult.

In order to share an authentic life with a partner, each of you needs the ability to share your emotions openly and with ease.

5. Curiosity

Being curious means that you’re interested in life, new ideas and other people. You might enjoy adventure, learning new hobbies and skills or asking questions to dig deeper into topics.

Curious people usually enjoy personal growth and want to look beneath the surface to see what’s possible for their lives. You want to learn new concepts and become a better person and partner.

I’ve found that curious people don’t assume they have all the answers. They’re open to new ideas and the possibility of relearning something or changing their mind about it.

On the other hand, someone who isn’t curious probably views learning as a burden. Having a partner with little curiosity could mean that they don’t get interested in personal finances and never want to improve their ability to manage money wisely.

What Do You Look for in a Life and Financial Partner?

To sum up, high self-esteem, responsibility, honesty, openness and curiosity are my top five recommended traits to look for when you’re choosing a life partner.

Of course, there are many more traits that many of us want such as intelligence, sense of humor, positive attitude, common interests and similar backgrounds.

My biggest recommendation when choosing a life partner is to really know yourself first. Figure out your own values, wants and goals so you can choose someone who’s capable of understanding you.

Then be patient and take as much time as needed to get to know someone’s character, personality, personal history and goals, so you’ll know with absolutely certainty if you’re well-suited for a lifelong, quality relationship.

Your Turn: Are you considering finances in choosing your long-term partner? Or, if you’re already together, did finances play a role in that decision?

This post originally appeared at Quick and Dirty Tips, a network of podcasts and digital content offering short, actionable advice from friendly and informed authorities. Laura Adams, host of the free Money Girl podcast, is a personal finance expert and award-winning author.