Managing your money

Building credit without a Social Security number can be difficult, but it isn't impossible. Credit card issuers can't require you to provide a Social Security number.

Instead, issuers may ask for an individual taxpayer identification number (ITIN). An ITIN is a nine-digit identifier that acts like a Social Security number. For information on how to apply for an ITIN, visit General ITIN information on the IRS website.

Unfortunately, not all credit card companies allow the use of an ITIN to apply for a credit card. This means you will need to do some research to learn which companies allow you to use your ITIN.

Credit card issuers that accept ITIN numbers may still deny your application if you don't have a credit history. As a first step, apply for a regular credit card with your ITIN even if you lack a credit history. If you are denied, then apply for a secured credit card to establish that history.

It is easier to qualify for a secured credit card than for a regular card because you put down a cash deposit as collateral. This reduces risk for the card company because they can collect money from your initial deposit if you don't pay your bill on time. The credit limit on secured cards usually equals the amount of your deposit.

To keep your secured card (and credit!) in good standing, always pay your balance off on time and in full. Once you have a good payment record on your secured credit card, you may qualify for a regular, unsecured credit card.

You may want to pay for purchases with cash for various reasons. Those reasons include lack of a bank account, unfamiliarity with the banking system, mistrust of the system or general convenience. If you do choose to pay with cash, you should know how to do so safely. Here’s a rundown of all the cash-based payment options available to you.

Cashier's checks and money orders

If you have an account with a bank or credit union, you can get a cashier's check for a small fee. A cashier’s check is written by a financial institution using its own funds. When you request a cashier's check from your bank, money is moved out of your account and into the bank's account. 

Money orders, on the other hand, can be purchased at a variety of locations including banks, credit unions, post offices, and some retail businesses such as gas stations and drug stores. You must use cash to get a money order.

When buying a money order you should fill in the date and the name of the person you’re sending it to. Sign the order immediately so no one else can cash it in case of loss or theft. Keep a copy of a money order as proof of payment and, if your money order is lost or stolen, you can go back to the place of purchase and get a new money order.

Money orders for U.S. transactions are issued for up to $1,000. International money orders are limited to $700 for most countries. The cost of a money order varies according to the amount and where you order one.

Payroll cards

Payroll cards are a type of stored-value products,similar to pre-paid phone cards and bank debit cards. Since 2001, there has been steady growth in use of payroll cards, rather than payroll checks, to pay wages.Benefits to workers, particularly those without a bank account, include:

• Reduction or elimination of check-cashing fees.
• 24-hour access to funds through ATMs.
• Less need to carry a lot of cash.
• No need to withdraw all the money at one time.
• Easier money transfers within a family.

Some employers offer a choice of payment by payroll card, traditional check, or direct deposit. If you have a choice, here are some questions to consider:

• Is the payroll card issuer reliable, such as an established bank? If not, decline this payment option.
• Does the issuer offer protection if the card is lost or stolen? If not, decline this option.
• Are there fees for using the card? If you can’t afford them, decline this option.
• Can the card be overdrawn, and if so, will you be penalized for doing so? If so, consider declining this option.

Prepaid cards

Prepaid cards, also called stored-value and prepaid debit cards, are “pre-loaded” with money you pay to the issuer at the time of sale. You can buy prepaid cards online, at many retailers, and in some banks. Prepaid cards offer many benefits for consumers, including:

• An easy way to pay for goods and services without carrying cash.
• No need to have a good credit history or open a bank account to get prepaid cards.
• Built-in spending control because you can only spend what’s loaded on the card.
• In some cases, access to cash from ATMs.

A prepaid card looks like an ordinary credit or debit card. It has a card number, signature strip and company branding. But prepaid cards do not provide a line of credit like credit cards and they aren’t linked to a checking account like a debit card. When buying  prepaid card, here are some things to keep in mind:

• Unlike a credit card, prepaid card doesn’t earn interest or help you build a credit history.
• Fees associated with the card might be prohibitive.
• Prepaid debit cards issued by a bank may offer some Federal Deposit Insurance Corporation (FDIC) protection. Other types of prepaid cards do not offer FDIC protection.

Protect yourself with proof of payment

When you buy products or pay bills with cash, it’s important to get proof of payment. For most purchases, a sales receipt serves as proof of payment for a specific service or product. Keep your sales receipts and use them for documentation if you need to return products.

If you pay a bill in cash, ask the party receiving payment to record it in their records and give you a sales receipt. The receipt should show your name, a short description of the product or service purchased, the transaction date, and the amount paid. The receipt also should include the signature of the clerk or other person receiving payment. If this is a recurring bill, you should keep the sales receipt until you receive the next billing statement showing the previous bill was paid.

Avoid sending cash through the mail to pay a bill. Cash can be lost, stolen or destroyed before reaching the recipient. Instead, use alternatives like money orders or cashier’s checks to pay by mail or to make large purchases in person. Note that the Internal Revenue Service keeps track of transactions of $10,000 or more. This helps stop money laundering and other financial crimes.

Research says

People pay with cash or use cash alternatives for several reasons, including:

• Banking fees and deposit requirements are too costly for those with limited resources.
• Migrant workers and others without stable housing find it hard to open a bank account.
• Workers living paycheck to paycheck don't see any value in opening a bank account.

Research also shows that people are more likely to pay with cash for transactions under $20. In addition, Latinos and African Americans prefer using cash more than other demographic groups in the United States.

Whatever your reasons for paying with cash, your long-term goal should be to open a checking and savings account with a reputable bank. This way, you can better protect your money and build your credit.

How can you determine if you are getting into too much debt? 

A good benchmark to use is your debt-to-income ratio (DTI). This ratio compares the amount of money you pay toward debt and the amount of money in your take-home pay. Learn how to calculate this ratio and see how much debt you can safely handle.

How to calculate your debt-to-income ratio

Start by calculating your monthly household debt payments. Remember that debt is only the payments you make to repay a lender for money that you've borrowed. Examples include credit card debt, auto loans, student loans, medical bills, or any other debt you are making a monthly payment on. Your home mortgage payment is not included in your debt-to-income ratio.

Next, calculate your monthly take-home pay (this is your net income). Then divide the total debt payments per month by your monthly net income. You will likely get an answer that equals less than one (such as 0.35 or 0.23). Now, multiply this number by 100 to see the percentage of your take-home pay that goes to pay down debt (for example, .35 x 100= 35%). 

Ideally, financial experts like to see a DTI of no more than 15 to 20 percent of your net income. For example, a family with a $250 car payment and $100 of monthly credit card payments, and $2,500 net income per month would have a DTI of 14 percent ($350/$2,500 = 0.14 or 14%). The $350 of debt is 14 percent of the $2,500 monthly income.

How to use your debt-to-income ratio

The DTI helps you understand how much debt you currently have and how much more you can safely take on. Use this formula before deciding whether to make a new purchase using credit. For example, if you estimate that an extra $50 in monthly credit card payments will increase your DTI above 20 percent, you may want to wait to buy that new item until your net income goes up or your total monthly debt payment goes down.

Remember, not all debt is bad! Some debt, such as student loans are necessary.  Understanding your DTI assists you in being a smart borrower so you can be an informed borrower and not have too much debt.

For many, holidays are also a season for taking on too much debt. It doesn't need to be that way if you develop a game plan ahead of time. Here are some ideas for smarter spending, or not spending, at holiday time. Find the ways that make sense for you and avoid paying holiday expenses months after the event.

• Make a budget of how much you want to spend and who you want to spend on. 
• Have family conversations about limiting the number of gifts or limiting their cost.
• Limit the use of credit cards since they make it very easy to spend more than planned. 
• Watch for sales and coupons for gifts and holiday decorations and food items. Many free shopping apps can assist in getting the latest deals. 
• Some stores offer layaway plans. Layaway helps you get the gift when you see the sale and then spread out the payments over a certain period. You must pay in full before you can pick up the item. Buy Now, Pay Later plans are also offered at many stores or through your credit cards. These plans allow you to take home the item today and pay in installments after purchase. Look carefully at the fees and interest rates for these plans and make sure to look at the total cost.
• Challenge stores to price match when you can.
• Buy items early when you see them on sale if your spending plan allows. Or take advantage of year-end sales for gift purchases that can wait until after the holiday. This may be particularly helpful for saving money on big-ticket items.
• Homemade gifts are a great way to personalize a gift without breaking your budget.
• Give a gift to an entire family or group instead of each individual. This may save money as well as time shopping for each person.
• Gift cards can also be a welcome gift, but try to give cards for retailers that the receiver frequents. 

While it is important to take an active interest in your 401k, it is also important to consult with financial experts. Before you speak with a financial investment professional, such as a representative of the 401(k) institution, an independent financial planner, or a wealth management consultant, make sure you can answer these questions: 

What is a 401(k) anyway?

A 401(k) retirement plan is an employer-provided benefit that allows employees to save a percentage of their current income and defer the taxes on the investment and the earnings. That means you do not pay taxes on a portion of your current salary until you withdraw the funds. A 401(k) is a complex financial savings instrument, subject to changing government regulations. It is a smart idea to learn more about them. The best place to start is through your employer and through trusted sites, like the Internal Revenue Service's (IRS) page on 401k retirement plans. 

What are your investment goals?

The designated goal of a 401(k) is to provide for financial security in retirement. If you are closer to retirement, a more conservative strategy will buffer you from market ups and downs. In contrast, for those who are several years from retirement, a more aggressive strategy will provide an opportunity for growth as well as time for recovery from the downturns.

What are your current financial needs?

A benefit of an employer-provided 401(k) is the funding match up to a specific percentage. If you are able to set aside the full percentage from your salary, do so. If your current financial obligations make that too difficult, contribute as much as you can now, and plan to increase the amount as circumstances change (e.g., salary increase). Seek advice to develop a plan to balance your current needs and your longer-term goals.

What happens when the stock market has sudden changes? 

Take a deep breath

Sudden drops in the stock market are particularly unsettling if your retirement plan is a 401(k) benefit. “Don’t panic” is the first piece of advice - and one that both financial experts and seasoned investors agree on. So hit the “pause button” before you pull all your retirement savings out of the market.

Take inventory

Volatility in the market is normal, as are average higher returns in the long run, compared to guaranteed saving instruments (e.g., CDs). But no one can predict the timing, severity or duration of changes or returns. Sudden drops can serve as a reminder to review your 401(k) account so that it reflects your tolerance for risk and that it is aligned with your financial goals.  

Take action

If you have an employer-provided 401(k), now is a good time to:

• Review the performance of the holdings in your account; and
• Speak with a representative of the institution managing the portfolio.