Planning for retirement is a continuous process that changes as your circumstances shift. A successful retirement plan is designed to create financial security and provide enough money for you to enjoy retirement. Although it may require some effort, putting in the work now can help set you up for the future.

Here are some things to consider when it comes to retirement planning:

Some experts suggest that the average individual should have $1 million stored away to live comfortably in retirement. Others think a potential retiree should aim to build up savings and investments that can provide 70-90% of their pre-retirement income. Ultimately, it’s different for everyone and retirement savings needs vary depending on age, income, and desired lifestyle.

Estimate your Social Security benefits

The Social Security Administration (SSA) has a calculator on their website that can estimate your future benefits. It displays your estimated monthly amount for early retirement (at age 62), full retirement (at age 67), and delayed retirement (at age 70). Typically, there is a sizable difference in your monthly benefits between early, full, or delayed retirement age.

For instance, a person born in 1960 earning $50,000 annually can expect the following monthly SSA benefit amounts:

Based on this example, if this person retires at 67 rather than 62, they’ll receive an additional $529 a month, or an extra $6,348 annually.

Therefore, postponing your retirement could mean an increase in SSA benefits, depending on your situation. Creating a SSA account online is a great way to get the most accurate information about your retirement benefits. When you do, your actual past earnings can be used for the calculations, so you can see your estimated Social Security benefits based on the retirement ages you choose.

Creating a retirement plan

After determining the amount of Social Security benefits you’ll receive, it’s a good idea to calculate your everyday expenses and estimate how much more money you may need for your standard of living. SSA benefits are helpful, but they may not cover your living costs in retirement. Once you realize how much income you may need, you can begin to build a savings and investment plan to best help you achieve those goals.

One of the fundamentals of retirement planning is to assemble a balanced portfolio that will provide you income in your “golden years.” Comprehensive retirement plans incorporate financial strategies such as savings accounts, mutual funds, index funds, and stock market investments. A diverse selection of investments may buffer market dips, so it’s not a bad idea to spread your retirement savings among different accounts.

Understanding how to do this could reduce your financial concerns about the future, so let’s look at a few options for building your diversified portfolio.

Traditional savings

Starting early is best, but it’s never too late to start saving money for retirement. Interest in a traditional retirement savings account accumulates over time, but the annual interest rate (APR) is usually low, and investment returns are minimum. An alternative might be to place your cash savings into certificates of deposit (CDs), which usually secure deposits and interest rates for a period of 1 month to 5 years. CDs typically have higher APRs, but if you withdraw your money early, you may lose some, or all, of your earned interest. Be sure to read the fine print and do your research so that you make the best choice to meet your needs.

Employer retirement savings plans

Employer-sponsored retirement plans, such as 401(k) plans, can be an easy way to save money for retirement. These plans often provide considerable tax advantages for future retirees. With traditional 401(k)s, employee contributions are made pre-tax, meaning they are subtracted from your gross income.

Keep in mind that withdrawals from 401(k) plans are subject to taxes, no matter when they’re made. It’s also worth noting that the tax rate will change over time with your income and retirement status, so the amount you pay in taxes today may not match what you pay in retirement.

Conversely, Roth 401(k) contributions come from after-tax funds, which may decrease your contribution for the same payroll deductions. However, qualified withdrawals aren’t subject to income tax, so that may benefit you down the road. With either type of account, some employers will match employee contributions.

If your employer offers matching, you put in a certain percentage of your income, and your employer will match that amount up to a certain point. It may be a one-for-one match (you put in 5% of your income, and your employer adds another 5%), or they may match 25% of your contribution up to a certain limit. Whatever they give you, it’s essentially free money. If you can do it, make the maximum contribution to gain as much as possible.

Individual retirement plan

An individual retirement account (IRA) is similar to a 401(k) account, but IRAs aren’t tied to an employer. Contributions are made to a Roth IRA with after-tax money or to a traditional IRA with pre-tax dollars. With each, you are subject to the same withdrawal stipulations, so make sure you understand any implications that may come from an early withdrawal or any restrictions on taking out a loan from your account.

IRAs are a good method for retirement investing, and since you make your own investment decisions, you have an added measure of control. You can invest your IRA contributions in stocks, mutual funds, bonds, and other fixed-income investments. Depending on your tolerance for risk, you may decide to allocate 90% of your account to a mutual fund and 10% to the bond market. Or, if you’re nearer retirement and are looking for a slower growth option that carries little risk, you can invest more (or all) of your funds in bonds. It’s completely up to you. Stock trading IRAs are available as well. They allow you to invest in one or more stocks while still receiving tax advantages on contributions or withdrawals.

Beyond the basics

While retirement savings accounts and plans are good choices, there are also other retirement investments that you could make, such as buying local, state, or federal bonds, investing in company stock, purchasing life insurance plans, buying annuities, or investing in real estate.

Each has its own risk level and specific opportunities for larger or more secure returns. If you choose to invest in more speculative methods (like real estate), consider your risk tolerance. Can you afford to lose that investment money and still retire comfortably? The answer to that question may be significant for your future plans.

Remember to consider the basics when you invest. Make sure you are accounting for mortgage payments, credit card debt, and things like possible future medical expenses. And make sure you take taxes into account.

Financial advisors can provide advice based on your financial situation. Discussing your plans now, with a financial consultant or a tax advisor, may help you make better financial decisions for your future. Whether you’re looking for swift growth in your funds or for rock-solid security, there are options that could help you invest money to your advantage. The sooner you start, the more you can earn.

This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.

Many people aspire to own their home. It’s a goal that represents financial stability and maturity. However, many homeowners overlook the importance of budgeting for home maintenance when considering the overall cost of homeownership. Regular maintenance is essential to keep your home in proper condition and avoid costly repairs down the line. Let’s review some home maintenance tips and ways to implement a financially proactive approach to help ensure a healthy and budget-friendly home for years to come.

The importance of home maintenance

One of the key aspects of homeownership is understanding some basic practices of caring for your home. Neglecting home upkeep can lead to more significant problems and costly repairs in the future. With each passing year, various parts of your home, both internal and external, will require repair or replacement. These maintenance needs can vary depending on factors such as the age of your home, weather conditions, climate, structural condition, and location. It is crucial to identify these potential maintenance needs early on to plan and budget effectively.

There are several factors to consider when anticipating regular maintenance to your home, including:

By considering these factors, you can gain insights into the potential maintenance needs of your home and plan accordingly.

Budgeting for home maintenance

Once you understand the importance of upkeep and have identified the potential maintenance needs, it is crucial to include it in your budget. Building an adequate budget should include your mortgage, utilities, and credit card bills, but people often overlook including costs of caring for a home in their budgets. While it may require some sacrifice in disposable income, budgeting for routine maintenance is essential to avoid financial stress in the event of unexpected repairs.

Rough estimate: Save a percentage of the home’s purchase price

One approach to budgeting for home maintenance is to set aside a percentage of your home’s purchase price each year. For example, if you purchased a home for $200,000, setting aside between 1% and 4% of the purchase price, or $2,000 to $8,000 per year, can provide a rough estimate of the necessary maintenance fund. The percentage you choose should align with your current monthly budget and what you can comfortably afford to save.

Rough estimate: Save money per square footage of the home

Another approach to budgeting for home maintenance is to save a specific amount per square foot of your home each year. This method accounts for the size of your home and assumes that larger homes will cost more to maintain. Setting aside $1 per square foot per year can provide a rough estimate of the necessary maintenance fund. If you have a smaller home, this approach can be less burdensome on your monthly budget.

More precise estimate: Life expectancy & replacement value

For a more precise estimate of anticipated home maintenance costs, you can take a detailed inventory of the major components of your home. This includes HVAC systems, roofing and siding, appliances, water heaters, fencing, windows, and doors. After listing these components, follow these steps to create a more accurate budget:

  1. Determine the age and life expectancy of each component. Research guides such as Scott Gibson’s guide on This Old House can provide insights into the expected lifespan of different building materials and systems.
  2. Research the cost of repair or replacement for each component.
  3. Rank the components based on their remaining life expectancy, prioritizing those that require attention soonest.
  4. Allocate a budget for each component accordingly.

While this approach requires more time and research, it provides a more accurate estimate of costs and helps create a long-term savings plan.

Financing home maintenance projects

Even with effective budgeting, unexpected home repairs or maintenance projects can still occur. In such cases, a backup plan for financing these projects is needed. One option is to consider a personal loan specifically designed for home improvement projects. Personal loans offer flexibility and allow you to finance your home maintenance needs without depleting your savings or disrupting your monthly budget. With a personal loan, you can address urgent repairs or undertake larger home improvement projects while making affordable monthly payments.

It’s never too late to start saving

Whether you’re a new homeowner or have owned your home for a while, there’s always time to start saving for home maintenance. While starting early is ideal, starting late is still better than not saving at all. The key is to commit to saving for home maintenance and find a strategy that works best for you. By prioritizing home maintenance and regularly setting aside funds, you can minimize the financial stress of unexpected repairs and ensure the long-term health and value of your home.

Pro tips:

After working through these three simple steps, you could have money deposited into your bank account in as little as one business day. Since understanding the personal loan approval process will help you make the best financial decision for you, here’s what to expect when you apply for a Best Egg loan.

Best Egg Personal Loan Process Steps

There are three main steps to our personal loan process.

Step 1: Find your best fit

Whether you’re pre-approved for an offer or are simply shopping around, take some time to learn about your options first. Evaluate your budget to find out what you need, check out customer reviews to learn more about us, and become familiar with our suite of loan types. This way, you’ll know what you’re aiming for when you begin your application.

Step 2: Apply for your loan

To apply for a personal loan, you’ll need to provide some personal information including:

In addition, we’ll ask for financial information such as:

Step 3: Get offers

The final step in the personal loan approval process is to get your offers. When you apply for a Best Egg loan online, you can find out if you have offers within a few minutes. Once you choose one that suits your needs, be sure to review the details and disclosures before moving on.

If you’re approved, you’ll receive a welcome email with important loan information like your account number, monthly payment amount, and due date. After your loan is processed, money could be deposited in your account in as little as one business day.

How do I apply for a personal loan?

There are two main ways you can apply for a Best Egg personal loan—online or over the phone. To apply online, click “View offers” in the top-right corner of bestegg.com and enter your email address to begin an application. To apply by phone, call us at 855-282-6353. Our loan specialists are available Monday through Thursday 8:00 am—10:00 pm, Friday 8:00 am—8:00 pm, and Saturday 9:00 am—6:00 pm to assist you.

Frequently Asked Personal Loan Approval Questions

Will the personal loan approval process impact my credit score?

You can check your rate and apply for an offer with no impact on your credit score, but if you choose to accept an offer after being approved, a hard inquiry will be placed on your credit report. This hard inquiry could impact your credit score.  

Are there pre-payment penalties?

No. There are no penalties or fees for paying your personal loan off early.

Are there any fees associated with a Best Egg loan?

Yes. There’s a one-time origination fee included in the principal loan amount. This fee is automatically deducted from the amount deposited into your bank account.

Will I need to submit documentation to verify my application?

Potentially. Some applicants may need to submit specific documents to verify personal and/or financial information during the application process.

Can I be approved for more money than I requested?

Yes. You may receive an offer for more money than you requested, but you’re always free to select the loan amount that best fits your needs.

How long does it take to get a personal loan from Best Egg?

The entire process from applying to funding usually takes around 1 to 3 business days. If you’re approved, your money will be deposited directly into your bank account once the loan is processed. Then, you’ll be free to use it to consolidate debt, refinance credit cards, make home repairs, or almost any other purpose.

Have additional questions we didn’t cover here? Visit our Personal Loans page to learn more.

When you get a loan from a lending institution, you enter into an agreement that you’ll pay that loan back within a certain amount of time. If you fail to repay it according to the terms of the agreement, that’s known as defaulting on the loan. Defaulting can have severe consequences for your financial health, so let’s explore what personal loan default entails, the potential consequences, and practical tips on how to avoid it.

Understanding personal loan default

Personal loan default happens when you haven’t made your payment by the agreed-upon due date. While some lenders may offer a grace period and allow you to make a payment after the due date without penalties, defaulting usually occurs immediately after the due date is missed.

Consequences of defaulting on loans

Defaulting on a personal loan can lead to several negative consequences. Here are a few of the most common:

Impact on credit score

Late or missing payments can negatively impact your credit score for up to 10 years. Even a single negative mark can significantly lower your credit score, making it challenging to get approved for loans or lines of credit.

Collection actions by lenders

When you default on a loan, lenders may take action to collect the amount due. These consequences may vary depending on the loan agreement and the lender, but in some cases, you could be responsible for late fees or additional charges for missing the due date. They can also report the default to the credit bureaus, further damaging your credit history.

Legal consequences

While defaulting on a loan isn’t a criminal offense, it can lead to legal consequences. If you’re unable or unwilling to repay your debt, the lender could decide to turn your account over to a debt collection agency. After a certain period of non-payment, they may file a lawsuit.

In this case, it’s crucial to be aware of your rights and seek legal advice if necessary. Consulting with a credit counselor can make navigating the consequences of loan default much easier as well.

How to avoid personal loan default

Defaulting on a personal loan can happen for various reasons, including financial difficulties or simply forgetting the due date. To avoid defaulting on your loan, consider the following tips:

Stay organized and set reminders

Write down payment due dates and place them somewhere visible, like your refrigerator or desk, or set up auto payments so your payment is always made on time. Digital reminders on your phone or computer can also help you stay on track.

Communicate with your loan servicer

If you don’t think you’ll be able to make your payment on time, proactively reach out to your loan servicer. They may be able to offer options like deferment or forbearance, which will temporarily pause or reduce your loan payments.

Explore debt consolidation

If you’re struggling to manage multiple loan payments, debt consolidation involves combining many debts into a single loan with a lower interest rate. This can make your monthly payments more affordable and reduce the risk of defaulting on any one loan.

What to do when your loan Is in default

In the event you find yourself in personal loan default, it’s essential to take prompt action. Here are some steps to consider:

  1. Contact the lender: Reach out to your lender and explain your circumstances. They may be willing to work with you to find a solution.

Remember, it’s crucial to be proactive when dealing with loan default. Getting help from professionals and exploring available options can help you work through this situation.

Conclusion

By staying organized, communicating with your loan servicer, and exploring options like debt consolidation, you can better manage your loan payments and reduce the risk of default. If you do default on a loan, taking immediate action and seeking professional advice is the best way to address the situation effectively.

In today’s fast-paced world, savvy financial planning has become more important than ever. From saving for retirement to budgeting for emergencies, strategic money management can provide peace of mind and help you reach your financial goals. Let’s take a look at some smart financial habits for effective financial planning. Whether you’re new to managing money or looking to enhance your existing financial habits, this guide will provide you with the knowledge and tools to navigate your financial future with confidence.

The importance of financial planning

Financial planning is the process of creating a roadmap to manage your money. It involves setting clear goals, creating a budget, saving for emergencies, monitoring your credit report, and regularly reviewing and adjusting your plan. Strategically managing your finances can help you secure what you’ve earned, reach new financial milestones, and keep your financial future on the right track.

Step 1: Create a budget

A budget is the foundation of effective money management. It helps you understand where your money is going and allows you to make informed decisions about saving and spending. Whether you prefer using a personal finance app or a spreadsheet, the key is accurately tracking your income and expenses. By doing so, you can identify areas where you can cut back on unnecessary expenses and allocate funds toward your financial goals. If you need some help, Best Egg Financial Health has a free budgeting tool called Money Manager. It can review your spending and automatically create a budget for you.

Step 2: Set goals

Once you clearly understand your budget, it’s time to set financial goals. Take a moment to reflect on what truly makes you happy and what you want to achieve in the future. Remember, these goals can be both short-term and long-term. Be realistic, but stay optimistic about what you can accomplish.

Step 3: Build in milestones

Setting long-term goals can be overwhelming, so it’s important to break them down into smaller, more manageable milestones. These milestones serve as checkpoints along your financial journey, allowing you to celebrate your progress and stay motivated. By setting short-term goals every few months, you reinforce the positive habits you’re developing and keep your focus on the bigger picture.

Step 4: Prepare for the unexpected

Life is full of unexpected events that can impact your financial health. From home repairs to medical expenses, it’s crucial to have a buffer for emergencies. Setting aside savings for unexpected costs provides peace of mind and helps you maintain stability during challenging times. By planning ahead and having an emergency fund, you can navigate life’s unexpected moments without compromising your financial well-being.

Step 5: Monitor your credit report

Your credit report plays a significant role in your financial health. It includes your credit history, credit score, and debt-to-income ratio. Lenders review your credit report when you apply for a loan or credit card. You can get your free credit report at Best Egg Financial Health. You can also leverage the financial toolbox to help maintain and monitor your financial progress, pay down debt, and check for errors on your report. If you find discrepancies, it’s important to report those immediately to the 3 credit bureaus—TransUnion, Equifax, and Experian.  

Step 6: Review your financial plan

A financial plan is not set in stone. Don’t be afraid to regularly review and adjust your plan as your circumstances change. Celebrate the goals you have achieved and consider setting new ones. Life is unpredictable, and your financial plan should adapt accordingly. Regularly reviewing your plan ensures it continues to align with your goals and helps you make informed financial decisions.

Step 7: Seek professional help

If you’re unsure about creating a financial plan, there’s no shame in calling in a pro. A financial advisor can help you navigate the complexities of financial planning, clarify your goals, and develop an investment strategy. They have the expertise and knowledge to help you make informed decisions and maximize your financial potential.

Conclusion

Financial planning is a crucial aspect of effective money management. These tips can help you get started. Remember, financial planning is an ongoing process that requires regular review and adjustment. With the right habits and a well-informed approach, you can achieve financial stability and make sound decisions that benefit you and your loved ones.

Maintaining a budget can be a difficult task. Obstacles like employment, fulfilling obligations, unexpected car trouble, and unanticipated home repairs can make budgeting seem impossible. With all the other things that need attention, budgeting can often be neglected.

Creating a budget you can stick to can be challenging, but there are ways to ensure your financial goals are met. Here are several of the most common budgeting missteps and tips to help you build a budget that works for you.

A budget may help you reach some financial goals

The very thought of creating and maintaining a budget may make you feel stressed, but creating a budget should be an exercise that allows you to see where your money is going, so you can find better ways to reach your financial goals. Sure, it’s a lot more fun to go out to dinner with friends or buy that new pair of shoes than paying the credit card bill and covering the car insurance this month. But if you set up your budget properly and exercise a little restraint, you can have your cake and eat it too.

When building your budget, be sure to include the things you want. If there’s a new flat-screen TV you’ve had your eye on, include that in your budget strategy. At the same time, take into consideration your financial goals. If you want to pay off your debt quicker but are falling short, evaluate your budget to see if you can restructure it to pay more toward your debt. Structure your budget so that it will allow you to do both. It may mean that your timeline for reaching those goals may be a little longer, but it also could mean you can accomplish it all.

Ensuring your budget stays on track

After you’ve looked at all your expenses, compared them to your monthly income, and set aside some for savings and leisure, the next step is to document how much you’ll allocate each month to those buckets and stick to it.

Some fiscal pros endorse the 50/30/20 method as a successful way to budget. This is how the 50/30/20 system distributes your income:

The 50/30/20 method may not quite fit your needs, but no matter your financial situation, laying out some guidelines to allocate your money could help you better understand where your funds are going.

People often abandon their budgets because of unforeseen circumstances. Common reasons budgets can fail include:

Here are some tips for overcoming these difficulties and maintaining a budget.

Allocating funds for unexpected expenses

Budgets often go awry because unanticipated expenses arise, and it is easier to readjust if incurring a financial loss.

An emergency fund is a must for unexpected expenses. It’s also important to factor in expenses that may occur regularly. When building your budget, don’t overlook more unpredictable costs, such as taxes, car repairs, or annual subscriptions you may not see each month. Doing this will allow you to pay most of the cost when the bill arrives, rather than resorting to depleting your emergency fund or maxing out a credit card and possibly ruining your budget for that month.

It’s okay to make changes to your budget

Don’t feel bad if you need to change your budget because of a financial shift. If you’ve experienced a loss of income, a financial emergency, or some other circumstance that throws off your original budget, make adjustments. Despite the potential of going over your spending limits, the true purpose of a budget is to manage funds successfully.

When life happens, it’s totally acceptable to restructure your budget to make it work better for you. And when things improve, or you discover your budget isn’t optimal in the future, modify it again.

Don’t tighten the belt too far

Often, when people build a budget and really look at their monthly spending, they can be shocked at how much cash is squandered on unnecessary things. If that happens to you, you might decide to cut back on all your excess spending. Before you know it, you may be unhappy with your budget because you’ve cut out the latitude for fun.

Unless you’re in dire straits financially, feel free to allocate funds for the things that you enjoy doing. Just be sure to stay within your means. This isn’t an excuse to be frivolous with your money. Instead, it’s a way for you to still have fun while making sure you’re managing your finances properly.

Make time to regularly organize your budget

Finding the time to revisit your budget can be difficult, so it’s important to set a goal to look over it at least once a month. Making and maintaining your budget a part of your routine will quickly take the stress out of your financial obligations and help you see ways to reach your financial goals.

Many people aren’t really sure what a debt-to-income (DTI) ratio is, let alone where theirs stands. In this article, we’ll break it down for you, tell you what a DTI ratio is, how it affects your potential for credit, what is considered a good DTI ratio, how you can get yours, and even ways to improve it.

Understanding your DTI ratio

Your debt-to-income ratio is a financial measurement that compares your monthly debt payments to your monthly income. It’s often used to determine if someone can afford to take on more debt. Lenders will look at your DTI ratio when deciding whether to approve any loan applications and how much to charge you in interest. (Tip: If you don’t know your current DTI ratio, Best Egg Financial Health has a DTI calculator that can help.)

This measurement can be useful for understanding your finances in general. But the question remains: What is a good debt-to-income ratio? Is there a specific number that determines if your DTI is good or bad?

That question is a little tricky to answer. Most lenders look at your DTI ratio as an indicator of your ability to manage debt and make payments on time. A good DTI ratio is one that each unique financial institution considers acceptable. It’s important to know the lender’s criteria for approving a line of credit and to make sure your DTI ratio is within those parameters.

There are 3 general benchmarks identified and accepted by the Consumer Financial Protection Bureau (CFPB) and other specialists that may give you a good idea of a healthy DTI ratio to target.

Those benchmarks are:

Here are a few examples of what DTI ratios look like in real life:

Knowing your DTI ratio can help prevent unexpected outcomes when you’re applying for credit. It also helps you see a comprehensive overview of your financial situation and can assist you in progressing toward your goals.

Summing up the debt-to-income ratio

When assessing your financial health, your DTI ratio is just one factor to consider. Lenders often will also consider your current credit score, past payment history, and income streams when determining your loan acceptance. Even if your DTI ratio is less than ideal, you can still be financially sound, and vice versa. It’s important to consider your financial standing in relation to your targets. It’s also important to remember that even if your DTI ratio isn’t stellar today, there are ways to improve it.

Paying down debt is the quickest way to improve your DTI ratio. If you need help paying down your debt, the Debt Manager tool at Best Egg Financial Health could help.

Another way to improve your DTI ratio is to increase your income. Asking for and receiving a raise isn’t always easy, but if you have an opportunity and are in line for a pay increase, it’s certainly a good idea to pursue. If not, picking up a side hustle can help boost your income with extra cash. Consider a gig delivering groceries, driving for a ride-share company, or even doing some pet sitting and dog walking. There are endless ways to put your talents and interests to work to make a little extra on the side. Before you know it, your DTI ratio will be in better shape, and you’ll be on your way to a brighter financial future.

The truth about borrowing from your 401(k) for home improvements. As a homeowner, there’s no better way to add value to your property than through renovations. Whether you’re improving existing rooms or adding new ones, the added comfort and curb appeal is worth the effort. However, funding an addition to your home is costly, and finding the money to pay for the project can be challenging.

A quick way for homeowners to obtain the needed funds is to borrow from a 401(k) or withdraw from an IRA. Taking money out of a 401(k) for home repairs is a convenient way for homeowners to fund a new home renovation project. Here are some risks and benefits of using retirement assets for home improvements.

The cost of using your 401(k) for home improvements

There are a few benefits to using your IRA or 401(k) instead of a personal loan to pay for home repairs and renovations, as well as some added risks. When borrowing from your 401(k), you’re ultimately borrowing from yourself and paying yourself back at lower interest rates than a credit card. Still, borrowing from a 401(k) significantly reduces your retirement savings. Employees who lose their job must also pay back the entirety of the loan within 30 to 60 days of termination or risk additional penalties.

How much can I borrow from my 401(k)?

Taking a loan from a 401(k) permits you to borrow up to 50% of the value of your 401(k), a maximum of $50,000 within 12 months. Homeowners with over $50,000 in renovation projects must consider finding additional funding sources besides a 401(k) loan. If you’ve previously borrowed from your 401(k), the amount you can borrow with a new loan is reduced by the outstanding previous year amount. Someone who borrowed $20,000 from their 401(k) last year and paid it off one month ago will only be able to borrow $30,000 from a new 401(k) loan.

Paying back a 401(k) loan

The cost of a 401(k) loan includes the principal amount and the interest rate. Any amount borrowed from your 401(k) must be paid back within five years and will be deducted directly from your paycheck. Borrowers must understand that a 401(k) loan carries the implications of a smaller salary.

When borrowing from your 401(k), it’s essential to consider that some plans will not allow you to make contributions while paying the loan back. Sometimes, you will lose the opportunity to save for retirement and benefit from an employer’s matching contributions.

Consider alternatives to finance home renovations

While borrowing from your 401(k) may seem like a convenient way to fund home improvements, it also comes with a great deal of risk. A personal loan for home improvement could be a better option for your needs and allow for you to still have the funds you need for your golden years.

Believe it or not, there was a time when people would stay at one company for their entire career. When it came time to retire, they would walk away with a pension covering their needs for the rest of their lives. Nowadays, pension plans are rare, and most employees are invested in a 401(k) plan.

If you’re about to start a job with a 401(k), want to make sure your 401(k) is set up right, or just want to learn a little more about how it works, you’ve come to the right place. Read on to learn how a 401(k) plan can help you on your way to retirement.

What is a 401(k) plan and how does it work?

A 401(k) plan is a type of employer-sponsored retirement account. If your company offers a 401(k) plan, you can save and invest for retirement with pre-tax dollars. That means you don’t pay any taxes on income the year you earn it. Instead, you pay taxes on withdrawals in retirement, presumably at a lower tax rate than you pay during your working years.

Some 401(k)s also offer the option to make Roth 401(k) contributions. In this case, your contributions are made with after-tax income. That means you pay taxes on the income this year but don’t pay any taxes on withdrawals in the future, including capital gains. For younger savers and investors with decades to go before retirement, Roth contributions may be better than traditional 401(k) contributions.

At many companies, the employer will match employee contributions to a specific limit. For example, they may match 100% of up to 3% of your salary or 50% of up to 8% of your salary. Every company’s plan works differently, so check with your manager or HR department for more information on your specific plan.

Once you contribute, you typically have a list of mutual funds or exchange-traded funds (ETF) available for investing. Ideally, you’ll have a long list of low-fee funds that you can buy shares in, but some employers offer very limited options that may include high costs. Again, every plan is different, so be sure to check your 401(k) documents to best understand the investment options available through yours.

What happens if you withdraw from a 401(k) plan before you retire?

You can save a lot on taxes with a 401(k), but the plan is designed to keep those funds invested until you retire. Once you turn 59½ years old, you can withdraw from a tax-advantaged retirement account penalty-free. With a 401(k), that means you just pay regular income taxes on withdrawals.

Early withdrawals from a 401(k) plan are subject to both taxes and penalties. You’ll pay your regular income tax rate plus a 10% penalty. That’s a huge cost, so avoid early withdrawals if you can.

Some 401(k) plans also allow you to borrow against your retirement balance. You can withdraw money early and pay it back. However, if you don’t pay back the fund in full, you’ll get stuck with the penalty and taxes. That makes 401(k) loans a last resort if you’re in a financial pinch.

What is the difference between a pension plan and 401(k)?

Pension plans and 401(k) plans are both retirement plans, but the funding and plan management are very different.

Pensions are called a “defined benefit” plan. That means employers are committing to pay a specific benefit in the future. How they save and pay for it is up to the employer; workers just have to show up and do their jobs. Then, in retirement, they’ll get a steady paycheck from the pension plan.

401(k) plans are considered “defined contribution” plans. Instead of a specific payment in retirement, employers contribute to your 401(k) account right away. It’s up to you to manage it well and save enough for retirement.

401(k) plans are popular with employers because they can avoid big future liabilities. Instead of a promise to pay more in the future, they can make an additional contribution every payday with no future commitments.

How much should I contribute to my 401(k)?

There is no one-size-fits-all answer for retirement savings. Everyone has different incomes, monthly budgets, and retirement goals. No one will make sure you make regular retirement contributions. It’s important to take charge of your retirement and make sure your 401(k) is working for your goals.

Many financial experts suggest saving at least 10% to 15% of your gross income (that’s income before taxes and deductions) for retirement. That’s how much most people need to save to keep the same standard of living during their golden years. If that sounds like a lot, you can always start small and work up to a bigger number in the future.

Also, remember that your employer-matching counts toward that 10% to 15% goal. If your employer matches up to 3% of your pay, you can contribute 3% less and still reach 10% or more.

Whatever you do, always take full advantage of your employer match. If you don’t, it’s like leaving free money on the table. Take every dollar your employer offers. Retirement contributions are often a major part of your total compensation package.

What are the typical 401(k) plan costs and fees?

The biggest disadvantage of 401(k) plans is the cost. 401(k) plans are notorious for high fees. Unless you’re lucky enough to have them covered by your employer, you’ll likely pay a percentage of your account balance every year to the brokerage or bank that holds the account.

In addition to the plan fee, you’ll also likely pay fees for each mutual fund or ETF. The best plans include a wide range of low-cost funds, but many have limited, high-cost options only.

Take advantage of this tax-advantaged retirement plan

Retirement may feel like a long way off, but it’s never too early to get started. In fact, thanks to the power of compounding, earlier contributions are worth the most during retirement. There’s no such thing as a contribution that’s too small. The biggest mistake people make with their 401(k) is not getting started early enough.

If you have a 401(k) plan at work, you should absolutely participate. It’s one of the smartest decisions you can make for your long-term financial needs.

It can be frustrating when your debt is climbing each month and no matter how much you try to pay it down, the high-interest fees seem to keep you from ever getting ahead. If you’ve found yourself in debt and are beginning to feel like you’re slipping deeper and deeper in, a debt reduction plan may be the salvation you’re looking for.

To pay all your debt down, a debt reduction plan can help you prioritize, set a plan of attack, and stay on track while you make progress.

How to create a debt reduction plan

Creating a debt reduction plan may help you manage your debt better. Left without a plan, it’s harder to stay on track and you could see the balances on your debt increase from fees and compounding interest.

With a debt reduction plan in place, it’s easier to keep track of your debt and your progress. You’ll see the clear success of your plan in action. Here are 4 steps to creating a debt reduction plan.

1. Audit your expenses

Something to keep in mind when you’re auditing yourself: Don’t beat yourself up. It’s not about what you’ve done or what circumstances have gotten you here. It’s about figuring out what to do now that you’re here. So, let’s do that.

Your first step is to look at everything you’re spending money on. By auditing your expenses, you’ll be able to see where your money is going. What portion of your income goes toward daily spending, monthly bills, and debt?

To audit your expenses, there are several methods you could use. You can use a computer spreadsheet to list your bills and monthly payments. You can break out the legal pad and write out your expenses. Or you may choose to track your spending automatically with the Money Manager tool at Best Egg Financial Health. No matter which method you choose, this will allow you to keep tabs on how your money is being spent and help you decide what costs you could potentially cut out ASAP.

2. Audit your debts

After creating a list of expenses, separate your list of debts. With this list in hand, you can now start to understand how much of your income is going toward your debt. This is known as your debt-to-income (DTI) ratio. Knowing your DTI ratio will help you see the big picture and understand what options you might have available to reduce your debt.

Then, take this list of debts and mark how much you’re paying toward them each month. Are you making the minimums, more than the minimums? Also, list out what your interest rates or APRs are for each.

It’s also helpful to know what kind of debts you have. Some of the debts to consider in your debt reduction plan include:

This part of your debt audit can help you determine which ones should be paid off first.

3. Create a plan to pay down debt each month

Now that you have a bird’s eye view of your finances and the details of your debts, it’s time to set your goals.

What debts do you want to pay down first? How much of your monthly income can you contribute to paying these debts down, on top of the minimums you’re making now? Which debts do you feel comfortable sitting out there if you can’t pay them off right away? Your debt reduction plan should help you answer these questions.

How do you figure out your priorities? There are several methods out there, such as the debt snowball and debt avalanche methods, that can help you pay down debt on your own. The Debt Manager tool at Best Egg Financial Health will analyze your current debt and automatically sort them by debts with the highest interest to show you ways to get out of debt sooner and for less money.

It’s also important to consider all the options you have available.  Some of the common ways other people have paid their debt down include:

4. Consider debt consolidation as an option in your debt reduction plan

A debt consolidation loan is an easy fit for a debt reduction plan. Here’s why: With a fixed-rate personal loan, you could have a single monthly payment to keep track of, and the interest rate on the loan could be lower than the interest rates on your existing debt. Debt consolidation is a great option for someone who wants to simplify their debt payments and reduce their interest.

Why a debt reduction plan is important

When you have your plan in place, you’re more likely to be successful. With an approach that is achievable and realistic for you and your finances, your debt reduction plan could help you on your way to paying down debt.

Think about your debt reduction plan like any project in your life or career. How do you set your mind to a goal and achieve it? Set a daily reminder, keep a notebook, create a spreadsheet, have a complex system of sticky notes, maybe even build a support group of trusted friends—it doesn’t matter how you plan and keep track of your goals. Just keep track and check in with yourself often.

And by the way, it’s okay if you don’t reach your monthly goals now and then. Continue to keep yourself accountable and adjust. Even with the perfect debt reduction plan, life still happens. Take it in stride and remind yourself of the hard work you’re doing right now to reduce your debt.