Money Management

You don’t have to wait until your kids are older to start thinking about their finances. Check out three ways I’m preparing for my kids’ financial futures. [[{“value”:”

Most parents want to give their kids the best life they can. There are many factors that play into this, but money is obviously a big one. The financial decisions we make today affect our kids both in the present and well into the future.

When I became a parent, I took the following three moves within a few months of my kids’ births. They didn’t take long and they help me sleep better at night, knowing I’ve done what I can to set my kids up for a bright future.

1. I made them authorized users on my primary credit card

I admit, I got to this one a little late with my son. But when my daughter came along, I was quick to add both my kids to my primary credit card as authorized users. This essentially gives them the same rights to use the card as I have, although I’m still responsible for the bill.

They each got their own card in the mail, but I’ve hidden those away and I don’t intend to give them to the kids even when they’re old enough to know what credit cards are. My goal wasn’t to give them their own credit cards; it was to get my account on their credit histories to help them build their creditworthiness.

I’m good about paying my credit card bill on time every month and not charging too much to the card, so this will reflect well on my kids’ credit histories. When they’re old enough to apply for loans or credit cards themselves, they should have an easier time of it because their reports will already show them as having well over a decade of experience making regular payments on a credit card.

It might seem a bit like cheating to some, but it’s one of the easiest ways to give your kids a jumpstart on a strong credit history. If you’re interested in doing the same for your kids, check with your issuer to see what its rules are for authorized users. Some require authorized users to be of a certain age, while others have no age restrictions. Many issuers enable you to add authorized users online, but you can also contact the card issuer by phone. Usually, all you need is their name and birth date and possibly their Social Security number.

2. I opened college savings accounts for them

My kids each have a 529 college savings account where I set aside money each month for their higher education costs. My kids are too young to have any sort of career goals right now, so I have no idea whether they’ll want to attend a traditional university or go to a trade school. But they can use 529 funds for either.

I can also transfer 529 accounts to a new beneficiary, so if one of my kids needs more money for their school and the other needs less, I can make that adjustment as needed. But there are usually rules about how long you have to change the beneficiary after opening the account.

You don’t need a 529 account to save for higher education, but it’s possible to receive state tax breaks if you open a 529 through your state’s plan. These plans also have tax-deferred growth, and qualifying education withdrawals are tax-free. But you could pay a penalty if you attempt to withdraw the funds for non-educational expenses.

If you’re worried about having leftover funds in the account, you’ll be happy to know that a new rule change that went into effect this year enables 529 beneficiaries to transfer up to a lifetime maximum of $35,000 from a 529 plan to a Roth IRA in their name. But to do this, the beneficiary and plan must meet the following requirements:

The Roth IRA must be in the name of the 529 plan beneficiary.The 529 plan must have been open for at least 15 years prior to the transfer.You cannot transfer funds deposited within the five years prior to the transfer or any earnings associated with these funds.You can only contribute up to the lesser of your earned income or the IRA contribution limit each year ($7,000 in 2024), and these rollovers reduce how much you can contribute to an IRA directly.

Doing this could help your kids get a headstart on retirement savings if they don’t need all that you’ve saved for schooling.

3. I increased my life insurance

Though I don’t like to think about missing out on my kids growing up, I know there’s always a risk of that happening. That’s why I made room in my budget for additional life insurance after each of my children were born.

I had already had a policy prior to having children, but if you don’t, now’s a great time to compare life insurance providers. You can reach out and get quotes from a few to see which offers the best deal. They’ll take your age, health status, and desired coverage into account when setting your premium. If you’re not sure how much life insurance you need, think about what sort of expenses you’d like to cover for your family should you pass away.

You will likely need to submit to a medical exam in order for your policy to get approved, and this can take some time. So it’s best not to delay too long if you want your policy to go into effect soon.

I understand that not everyone can afford to take all the steps that I’ve mentioned here, and that’s OK. Even doing one of the above things could make a big difference to your child’s financial well-being down the road. All we can ever do is our best.

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Feeling iffy about your retirement prospect? Read on for steps you can take to improve your outlook. [[{“value”:”

Many people worry about retirement — having enough money, running out of money, and so forth. But in a late 2023 report by Northwestern Mutual, only 44% of women think they’ll be financially prepared for retirement. Compare that to 61% of men, and clearly, there’s a pretty big gap.

Of course, that gap could be attributed to another gap: the gender pay gap. In 2022, women earned an average of 82% of what their male counterparts brought home, according to Pew Research Center data. And that pay disparity has been in place for a good 20 years, putting women at a pretty big disadvantage.

If you’re feeling less than confident about your retirement prospects, don’t just resign yourself to a lifetime of financial insecurity. There are steps you can take to approach retirement from a better place — and enjoy a comfortable lifestyle once your career comes to an end.

Start saving early on

The more people talk about and bring attention to the gender pay gap, the greater the chances of it narrowing in time. But one thing you can do to overcome that gap is make the most of your income by setting aside a small portion of it for retirement savings early on in your career. Even if you’re only able to contribute modestly to your individual retirement account (IRA) or 401(k) due to limited earnings, steady contributions over time can go a long way when coupled with the right investments.

And speaking of investments, it pays to go heavy on stocks in the course of building a retirement nest egg. Though investing in the stock market does carry risk, you should know that it’s averaged an annual 10% return over the past 50 years. And that accounts for great years and years when the market tanked.

So let’s say you’re able to contribute $200 a month to a retirement plan over a 40-year period. That does most likely mean having to start in your 20s. But if your portfolio delivers a 10% return during that time, you’ll end up with a nest egg worth $1.06 million.

Talk to a financial advisor early on

Some people avoid seeking financial help because they think they don’t have enough money or savings to warrant an advisor’s input. But that’s a mistake.

It’s the job of a financial advisor to help you make the most of your money — no matter how much or how little of it you have. And if you sit down with a financial advisor at a relatively young age, they can help you establish a savings and investment plan that makes it more likely that you’ll hit your goals, one of which may be to enjoy a comfortable retirement.

In fact, it’s a good idea to share your main retirement concerns with a financial advisor so they can help you devise a plan to overcome them. If you’re worried about paying for healthcare expenses later in life, for example, they might advise you to take advantage of options like health savings accounts that allow you to sock away money for long-term medical needs.

It’s natural to lack confidence in the context of retirement — no matter what gender you identify with. But if you’re concerned about your ability to retire in general, your best bet really is to start saving and investing as early as possible, and to seek help from someone who can objectively devise a plan that’s conducive to meeting your goals.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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Buy now, pay later apps are a popular way to pay for purchases. Discover the latest trends with this type of financing and why you should be careful about using it. [[{“value”:”

Buy now, pay later (BNPL) apps hook consumers with what seems like a fantastic offer. Can’t afford to pay for something in full? Use a BNPL app, and you can pay it off over time, interest-free.

There’s debate about whether these provide a valuable service or a fast track into debt. Based on recent research, either can be true, but there are serious risks to using BNPL.

The Federal Reserve Bank of New York published a report on how and why consumers use BNPL. Here are the most important takeaways about BNPL usage for financially fragile and financially stable consumers.

1. Financially fragile consumers are frequent users

First, let’s clarify what makes a person financially fragile or financially stable, according to the New York Fed. It classified consumers as financially fragile if any of the following factors were true:

Having a credit score below 620Having been declined for a credit application in the past yearHaving fallen 30 or more days delinquent on a loan in the past year

Everyone else was put in the financially stable group.

When financially fragile consumers use BNPL, they’re likely to use it often. Among those who had used it at least once, 59% reported using BNPL five times or more in the past year. More than a quarter (27%) had used it at least 10 times. They also use it for smaller purchases, with 62% having an average purchase price under $250.

Financially fragile BNPL users gravitate toward it for the ease of access and convenience. It’s often one of the only interest-free financing options they can get approved for. This group is also more prone to overspending with it. They’re more likely to state they use BNPL for purchases they couldn’t otherwise afford.

2. Financially stable consumers use it less often and for large purchases

Among financially stable adults who use BNPL, it’s more of an occasional way to pay. Only 23% reported using it five times or more in the past year, and 14% reported using it at least 10 times.

This group is also far more likely to make big-ticket purchases with BNPL. More than half (56%) had an average purchase price higher than $250. And 17% had an average purchase price of $1,750 to $2,000, compared to only 5% of financially fragile BNPL users.

Financially stable consumers often mention 0% interest as their reason for using BNPL. While they have access to credit, they prefer to avoid using their credit cards, likely because of high interest rates.

3. BNPL apps can be addictive

There’s an important warning in the New York Fed’s report: “We also show that across levels of financial stability, it is rare for people to use BNPL just once.”

Among financially stable consumers who had tried BNPL, about 72% have used it multiple times in the past 12 months. Among financially fragile BNPL users, that jumps to 89%.

Once you make a purchase you can’t afford with BNPL, it’s easy to do it again. And again. There will always be things you want to buy but can’t pay for in full. If you decide it’s fine to borrow money for them, you’re at risk of making this a habit. Some people even start “loan stacking” — juggling multiple BNPL plans simultaneously.

I never use BNPL for this reason, and I don’t recommend it unless it’s for something you absolutely need ASAP. Otherwise, you’re better off saving up the money first so you can pay in full. Wait until you have enough in your savings account before you buy.

Be careful with BNPL

BNPL apps may be presented as a convenient payment option, but they’re ultimately a sales tool. Stores show you that smaller payment amount to convince you to make impulse buys and spend more money with them.

When you use BNPL, you’re adding to your bills and taking on debt. The best option is to pay for purchases upfront. And if you can’t at the moment, wait until you can afford the price tag before you make the purchase.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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For millions, saving for retirement seems impossible. Learn how you can successfully save and invest, no matter how much money you earn. [[{“value”:”

If you’re a lower-income earner, your income probably ranges from $28,000 to $55,000. Unless you live in one of the least expensive parts of the United States, it’s likely that you’re stretched thin on occasion — and that can make saving for retirement particularly challenging. However, it’s not impossible to put money away for your golden years. Here are some of the ways it can be accomplished.

Take advantage of tax-deferred retirement accounts

Regardless of how much money you earn, you probably think about retirement at least occasionally. You want to invest, but you’re afraid you don’t have enough money and aren’t quite sure how to get started.

RELATED: Best Online Stock Brokers for Beginners

The single easiest way to save for retirement is to take advantage of tax-deferred retirement accounts. When you invest in a tax-deferred retirement account (like a 401(k) or tax-deferred IRA), those contributions are not taxed until you begin making withdrawals.

Imagine that you live in Ohio and earn $40,000 annually. After deductions for federal and state taxes, Social Security, and Medicare, you bring home roughly $639 a week, or $33,228 annually.

The beauty of contributing to an employer’s retirement plan is that you save for the future while minimizing how much you pay in taxes today. Take a look at this example to see what we mean:

You work for a company that provides a tax-deferred retirement plan.Your employer matches up to 3% of your monthly contribution. You realize that this is “free” money and sign up.You’re worried that too large a contribution may leave you short on cash each month, so you sign up to contribute 3% of your income, knowing that your employer is going to toss a matching 3% into your retirement fund.Your take-home pay drops by $20 per week, which amounts to $1,040 less deposited into your checking account annually. However, by contributing $20 per week, you end the year with $2,080 plus interest earned in your retirement account ($1,040 contributed by you and $1,040 contributed by your employer).

You may be surprised by how quickly you become accustomed to making that contribution. In fact, one of the easiest ways to build a retirement account without causing yourself discomfort is to increase your contribution by 1% per year.

One final word about pre-tax contributions. Contributing to your retirement account directly from your paycheck rather than handing over cash from your bank account takes a whole lot of the sting out of investing. Essentially, it’s a “set it and forget it” scenario. It’s easier to adapt to a situation that will automatically take place without you going to any trouble.

Create a “little at a time” plan

Let’s say you can come up with an extra $20 weekly to invest for retirement, but don’t work for a company offering a retirement plan. It may not sound like much, but given enough time, $20 a week can still grow into a plump little nest egg. Take a look at this example, based on a 30-year-old who begins investing $20 weekly.

They find $20 a week to put into an IRA, earning an average of 7% interest annually.They continue to invest $20 weekly until they retire at age 68 (equal to $86.66 per month or $1,040 annually).Their investment is now worth $178,083.

But what would happen if that person doubled their investment every 10 years? It could look something like this:

Ages 30-40: Invest $20 weekly

$20 per week invested (equal to $86.66 per month or $1,040 annually)After 10 years of investing with an average annual return of 7%, the retirement account is worth $14,259

Ages 40-50: Invest $40 weekly

Carryover $14,259$40 per week invested (equal to $173.33 per month or $2,080 annually)After 10 years of investing with an average annual return of 7%, the account has a balance of $56,733

Ages 50-60: Invest $80 weekly

Carryover $56,733$80 per week invested (equal to $346.66 per month or $4,160 annually)After 10 years of investing with an average annual return of 7%, the account is now worth $168,968

Ages 60-68: Invest $160 weekly

Carryover $168,968$160 per week invested (equal to $693.33 per month or $8,320 annually)After eight years of investing with an average annual return of 7%, the account would now hold $375,639

At age 68, they would have $375,639 to take into retirement.

If you can’t possibly imagine a way to invest for retirement given your current financial situation, it may be because you assume that your contributions must meet a specific threshold or that small contributions don’t count. Nothing could be further from the truth. Your aim is to build up a block of money you can draw from in retirement, but there’s no rule that says the block must be made up of large contributions. Remember: It’s okay to start small.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Which of these big misconceptions have you heard about CDs? Let’s demystify certificates of deposit — and see if opening a CD is right for your money goals. [[{“value”:”

Certificates of deposit (CDs) have been getting a lot of attention in the personal finance world lately, and for good reasons. The best CDs pay APYs of 5.00% or higher (as of March 26, 2024), and if the Fed cuts interest rates soon, opening a CD today could turn out to be a smart move.

But CDs are sometimes complex and mysterious for people to understand. Many people want to save more money and earn higher yields on their savings, but they are vulnerable to a few big misconceptions about CDs.

Let’s look at a few of the biggest misunderstandings and misguided beliefs that people tend to have about CDs — and what you should do with your money instead.

1. “CDs are always better than a savings account”

If you’ve recently managed to save up a decent amount of cash, or have received a one-time windfall of “extra” money like a bonus at work, or a big tax refund, you might have heard through the grapevine that people with cash should open a CD. As if CDs are inherently “better” than a bank savings account.

The truth about CDs: High-yield savings accounts sometimes have higher APYs than the best CDs. As of March 26, 2024, the best CD rates are 5.00% APY or higher, depending on the CD term. But the best savings accounts offer up to 5.36% APY. And savings accounts don’t make you lock up your money; you can access your cash anytime without penalty.

2. “CDs work the same way as a savings account.”

Differences in APY are not the only difference between CDs and savings accounts. Certificates of deposit require you to make a one-time, upfront decision about how much cash to deposit all at once, and then you have to leave that money locked up until the end of the CD term. Savings accounts are more flexible — you can add different amounts of money to your savings account each month, based on your changing income, budgeting, and spending patterns.

The truth about CDs: Sometimes CDs can be a better choice than a savings account. But you have to be willing to commit your money to a CD for a certain amount of time. And make sure you understand the rules for early withdrawal penalties. There is also a special kind of CD called an add-on CD that lets you “add” additional cash to your deposit after opening the CD — but most banks don’t offer it.

3. “Only people with lots of money can open a CD”

Do certificates of deposit seem exclusive or “fancy” somehow? Like they’re only for “serious investors”? Sometimes people have a misconception that opening a CD is only for the wealthy, like you need to have $1 million in the bank before you can open a CD. But this isn’t true!

The truth about CDs: Many of the best CDs have low (or zero) minimum deposit requirements. There is a special category of CD called a “jumbo CD” that requires a large minimum deposit of $100,000 or more. But even if you don’t have six figures of cash sitting around, you’re still welcome to use your savings to open a CD.

4. “CDs are a good long-term investment”

Some people (wrongly) think that savings accounts are just a place to keep cash, and CDs are a more serious long-term “investment.” Even though some CDs pay higher interest than savings accounts, CDs should not be considered a long-term investment for most people’s goals.

The truth about CDs: If you put your money into a long-term CD, such as a 5-year CD, you’re likely to lose money to future inflation. The best 5-year CDs (as of March 26, 2024) are only paying 4.35% APY. Even if inflation comes down during that long-term commitment to a CD, your money probably won’t grow as much as it could have if you would’ve invested that cash in stocks. The S&P 500 has delivered a compound average annual growth rate of 10.7% for the past 30 years. Invest more aggressively if you want bigger growth.

Bottom line

Certificates of deposit (CDs) provide fixed rates of interest for a guaranteed length of time. This can make them a good choice for some people who want to lock in a high APY on their cash savings. But don’t assume that CDs are always the right choice. If you want more flexibility for your cash, opening a high-yield savings account can give you most of the upsides of a CD, without the restrictions.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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