Big Money Blindspots To Avoid In 2024
Are you overlooking these areas in your personal finances?
Here’s what to expect in this newsletter!
(P.S. If this newsletter is cut off in your email just visit our Substack!)
📰 Interesting financial news: Stay up to date on what’s happening in the economy.
📈 What’s popping in the stock market: The 411 on trending/interesting stock market news.
📝 This week’s main topic: What this newsletter’s title is about!
🥰 Team CGF’s Amazon favs: Affordable yet helpful Amazon finds.
📰 Interesting financial news
AI Startups have raised billions. But can they make money? (SoFi Daily)
Did you miss the student loan forgiveness deadline? There may be other options. (CNBC)
Roth 401k employer matches may trigger a tax bill for you. (USAToday)
📈 What’s popping in the stock market
Inflation is biting into Target’s ‘Tar-zhay’ luster. (Ticker Symbol: TGT)
What emotion is driving the stock market today? Check out CNN’s fear and greed index.
📝 Main topic: 4 Main Financial Blindspots To Be Aware Of
Money blind spots are different aspects of your finances that you may have overlooked. Between budgeting, paying off debt, and dealing with inflation, it’s easy to lose sight of certain critical financial decisions.
Fortunately, CNBC’s Digital Financial Advisor Council recently released a list of financial blind spots for 2024, and we’re here to explain what you need to watch out for.
1. Credit scores
Remember how you paid attention to your grade point average in high school because it could help you get into a good college? Well, your credit score is similar to a GPA.
It’s a three-digit number based on your credit history, showing how well you manage and balance debt.
Your credit score includes five factors: your payment history, the amount owed, new credit, length of credit history, and the mixture of different types of credit.
All five factors influence your score, which falls between 300 and 850. The higher your score, the better your credit.
Very poor: 300-579
Poor: 580-600
Fair: 601-660
Good: 670-739
Very good: 740-799
Exceptional: 800-850
In October 2023, the average credit score among Americans was 717.
Note: You might have varying credit scores across the three different credit bureaus, Experian, Equifax and Transunion. This is because each bureaus calculates your score differently based on scoring models and the information they have about you.
A high credit score shows lenders and other creditors that you most likely pay your bills on time and you don’t rely too much on credit. Additionally, getting approved for a loan or a new line of credit is typically easier with a higher score.
With a fair score, you can still get loan approval or a new credit card, but you may have a higher interest rate, pay additional fees, and need a co-signer with a good or very good credit score.
Key tips to improve and maintain your credit score
Monitor your credit score with sites like Credit Karma, Credit Sesame, and WalletHub. Check your credit score annually or whenever you suspect a problem such as identity theft or fraud.
Check your credit report for any errors and dispute them in writing if necessary.
Focus on paying your bills on time every month, as payment history is a big factor in your score.
Reduce your overall debt-to-credit ratio, which is the total you owe on all your current credit accounts compared to your total available revolving credit limit.
If you have old accounts that you're not using, consider keeping them open to maintain a longer credit history.
Be mindful of opening new accounts too frequently, as each application can temporarily drop your score.
You may have heard that checking your credit can lower your score. However, it depends on whether you do a hard or soft inquiry. A soft inquiry is a general checkup that can be done through the above-mentioned website. A hard inquiry usually happens when you’re about to apply for a loan or make a big purchase.
2. Wills
If you’re young and healthy, chances are you aren’t thinking about a will. However, unfortunate events happen, and death can occur without warning. So, having a will, a document that says who gets your money and assets when you pass can help support your loved ones when you’re gone.
Without a will, every state has different intestacy laws handled by a probate court that will determine who gets your assets. Typically, the inheritance protocol is surviving spouse, adult or minor children, adopted children, parents, siblings, aunts, uncles, nieces, nephews, cousins, and distant relatives.
Don’t have a will? Here’s how to set one up
Determine the assets you want to include in your will and who you want to inherit them.
Choose an executor (e.g. a trusted friend or family member), to carry out your wishes and handle your affairs after your passing.
If you have minor children, designate a guardian.
You can draft your will yourself with will-making templates or software online to ensure legal validity and for complex situations, consult with a lawyer specializing in estate planning.
Once your will is drafted, sign it in the presence of witnesses, adhering to your state's specific requirements for will execution.
Keep your will in a safe place and consider sharing its location with your executor.
Regularly review and update your will as your circumstances change to ensure it reflects your current wishes and protects your loved ones.
3. Emergency savings
If you’ve been part of the Clever Girl Finance community for a while, you know how much we talk about emergency savings.
Your emergency savings are different from your regular savings because the money is left untouched unless there is an emergency, such as a job loss, medical emergency, car accident, or anything that interrupts your livelihood.
Depending on your financial situation, we recommend 3-6 months of savings that will cover all your necessary expenses.
No emergency savings? Do this
Add up all your mandatory expenses, such as rent, car insurance, gas, groceries, health insurance, and anything else you feel is essential to your way of life. Once you have a number, multiply that number by the number of months you want to save. For instance, if your total necessary expenses are $2,000 and you want to save for four months, you will have $6,000 to save.
Build a line item for emergency savings into your budget.
Open a separate account that isn’t linked to your checking account where you can save your emergency funds.
Set up automatic transfers from your paycheck or checking account into your emergency fund each month to ensure consistent contributions until you reach your goal.
Cut out your unnecessary expenses and redirect those funds into your emergency savings whenever possible.
Save any windfalls, such as tax refunds or bonuses.
Automating your savings is a great way to build up your savings fast. You can also try out different money challenges as a fun way to save money.
4. Tax withholding
Do you know how taxes work or how to do your own taxes? It’s okay if you don’t because most people don’t either.
A simple explanation on how taxes work is that if you work for an employer, they will take a percentage of your gross income and send it to the government to pay your taxes. How much your employer takes depends on numerous factors, such as earnings, filing status, withholding allowances, and other withholdings.
When employees are unaware of how much money is being withheld, one of three things usually happens during tax season.
Scenario 1: You owe nothing because the correct amount was taken out.
Scenario 2: Too much money was taken out, and you get that money back in a tax refund.
Scenario 3: Not enough money was taken out, and you owe money to the government.
If you have a side hustle or freelance, be extra careful with tax holding as most of your money is untaxed. You’ll eventually have to pay taxes on that earned money during tax season.
I made this mistake when I first started freelancing. I was only making a few extra hundred dollars a month, but it added up, and when tax season came, I owed money.
Now, I take a percentage from each payment I receive and move that money into a separate account so I’m prepared for tax season.
How to prepare for tax season
You can visit the IRS website and use their estimator to determine your withholdings. For freelancers or those with a side hustle, make sure you understand your tax obligations based on the structure of your business.
Keep all your relevant documents organized e.g. W-2s, 1099s, receipts for deductible expenses, and any other income-related documents.
Use tax prep software or hire an accountant to help navigate complex tax situations and maximize your deductions.
Throughout the year, keep track of any life changes (e.g. marriage, divorce, dependents(, or financial transactions that may impact your taxes (e.g. job changes, investments, or major purchases like a home).
Take advantage of tax-advantaged accounts like IRAs and HSAs to reduce your taxable income.
Be sure to file your taxes early to avoid last-minute rushes and potential penalties for late filing.
4. Retirement savings
Many Americans overlook retirement savings. Saving for the faraway future doesn’t seem as pressing as paying for bills and necessities in the present.
Although many people recommend saving 60% to 70% of your income, it’s best to consider how you want to live in retirement. With a lifestyle in mind, calculate your total cost of living and whatever that amount is; you want to make that your retirement savings goal.
Tips to save for retirement
When saving for retirement, the earlier you can start, the better. For instance, thinking about retirement in your 20s may seem overwhelming, but it can help you save more money. Starting to save later in life is also possible and important.
The simplest way to start is through your employer’s 401k plan. To start saving more money, make sure you take advantage of a salary match your employer may offer.
Take advantage of tax-advantaged retirement accounts such as IRAs or Roth IRAs to maximize your savings potential.
Regularly review and adjust your retirement plan as needed to ensure you stay on track to meet your goals.
🥰 Team CGF’s Amazon Favs
If you’re looking for more ways to get rid of those blindspots, check out these books that we love.
1. Repair Your Credit Like the Pros: How credit attorneys and certified consultants legally delete bad credit and restore your good name
Author Carolyn Warren wants you to avoid becoming a victim of inaccurate credit reporting or past mistakes. Repair Your Credit Like The Pros helps put you in control of rectifying errors so you can restore your reputation.
By following the techniques of certified credit repair specialists and attorneys, you can effectively repair your credit independently.
2. The Complete Book of Wills, Estates & Trusts (4th Edition): Advice That Can Save You Thousands of Dollars in Legal Fees and Taxes
The Complete Book of Wills, Estates & Trusts is a go-to resource for safeguarding an estate for loved ones. In this fully updated fourth edition, attorneys Alexander A. Bove, Jr. and Melissa Langa draw on their decades of practical and educational experience to provide clear, honest, and engaging insights into a range of complex legal matters.
This book will walk you through all the important aspects of preparing your will, such as the difference between a will and a trust, the taxation of wills and trusts, and much more.
3. Taxes Made Simple: Income Taxes Explained in 100 Pages or Less
If you’re looking for a simple explanation of taxes without legal jargon, Mike Piper's Taxes Made Simple is for you. It explains in plain English the difference between deductions and credits, how to calculate your refund, which tax forms to fill out, and so much more.
4. The New Retirement Savings Time Bomb: How to Take Financial Control, Avoid Unnecessary Taxes, and Combat the Latest Threats to Your Retirement Savings
In "The New Retirement Savings Time Bomb" by renowned tax advisor Ed Slott, you'll learn how to take charge of your retirement savings in simple, easy-to-understand language. This practical guide helps you navigate through tax traps and prepares you for any future changes so you can safeguard your hard-earned money.
This book is a must-read for every American planning for retirement, whether it's just around the corner or decades away.