Money Management

Spending 50% of your income on housing is generally a dangerous move. But in some cases, it may be OK. Read on to learn more. [[{“value”:”

For many Americans, housing is their largest monthly expense. But even so, it’s important not to go overboard on housing-related spending so you have enough money left over to cover your remaining bills. Spending too much money on a home could put you at risk of falling behind on your mortgage payments and eventually losing your home to foreclosure.

As a general rule, it’s a good idea to keep your monthly housing costs to 30% of your income or less. And that doesn’t just mean to keep your mortgage payments to 30% of your pay or less. Rather, that 30% should include additional recurring expenses such as:

Property taxesHomeowners insuranceHOA fees, if applicable

But what if you’re looking at homes in a really expensive housing market, and it’s pretty much impossible to keep your housing costs to 30% of your income? Is it OK to go higher — as high as 50%?

Generally speaking, it’s not wise to commit 50% of your income to housing costs. You won’t be leaving yourself with a lot of money left over for your remaining bills, so you might struggle to pay them. That could lead to costly debt in non-mortgage form, like credit card balances you have a hard time keeping up with.

However, in some cases, it may be OK to spend 50% of your income on housing. You’ll just have to make sure your remaining expenses are notably low.

When you have to spend more for a home

Zillow reports that the average U.S. home value is $347,716. But in some parts of the country, that won’t even buy you a closet.

Take San Francisco, where the average home value is a whopping $1,236,502. If you’re buying a home in an expensive city, it may be almost impossible to keep your housing costs to 30% of your income due to the local market.

Now granted, if you’re buying a home in an expensive city, then chances are, you’re earning an above-average salary to compensate. But that still doesn’t mean you’ll manage to keep your housing costs to 30% of your income.

It’s important to be realistic about your local housing market. If sticking to 30% of your income isn’t feasible, it’s OK to look beyond that threshold as long as you’ve crunched the numbers and are certain you can afford the payments you’re taking on.

When you might get away with spending 50% of your pay

It’s one thing to spend, say, 38% of your income on housing instead of 30% because your local market is inflated. It’s another thing to spend half of your income on housing.

But again, if you’re in an expensive housing market, that may be your reality. You may also be OK to spend half of your income on a home if your remaining expenses are low.

Let’s say you live in a city and walk or bike almost everywhere so your transportation costs are next to nothing. AAA puts the average monthly cost of owning a car at $1,015. If you’re not spending much money to get around, it gives you more leeway to spend on a home.

Similarly, let’s say you’re childfree and have no intention of having kids. Care.com puts the average weekly cost of daycare for an infant at $321. But if you’re not paying for child care, or any expenses related to having a child, then you should be able to more comfortably spend extra on a home.

Finally, perhaps you don’t tend to dine out often because you love to cook, and that your go-to entertainment is jogging at the local park or curling up with some good streaming content rather than attending concerts and going to the theater. That’s a less expensive lifestyle in general, which could mean that you’ll be fine spending half of your pay on a home.

Generally speaking, it’s not a good idea to spend 50% of your income on housing. But that doesn’t mean that it’s never OK. Under the right circumstances, you can commit to that sort of housing expense without necessarily winding up in over your head.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More 

Let’s go to the mall! But if you lean on retail therapy a little too much, read on for advice on how to scale back your spending. [[{“value”:”

Do you remember back-to-school shopping? At the end of the summer, you’d make a special trip to the mall to pick out new jeans, new shoes, new shirts — then you’d race home to try them all on again and decide what your first-day-of-school outfit was going to be. That bag of new clothes meant you were going to be a new you, and this was going to be your year. Sigh…I can still smell the Cinnabon all these years later.

These days, I’m not a big shopper, and I don’t usually buy more than one or two items at a time now — probably because I’m not outgrowing my clothes every year anymore, so I can hold onto items a lot longer. But I’m only human, and I’m plenty susceptible to the little thrill that comes with buying new things. Research shows that the act of spending money and anticipating the item releases dopamine in our brains, sending a happy little signal that this is good, and we want more. This can lead to an expensive shopping habit that blows your budget.

How to curb the urge

On one of those back-to-school shopping trips, maybe in early high school, I went to the mall with my friend and her mom. It was a lot of fun, but I remember her mom had a strict shopping policy: For every item you buy, you have to pick something in your closet at home to give away. I didn’t love the idea as a teenager, but it stuck with me. And all these years later, I not only understand it, but practice it myself.

Employing a one-in, one-out policy in my wardrobe has several benefits. First, it gives me a reason to sort through my clothes from time to time and take stock of what I actually wear versus what stays on the hanger or in the back of the drawer. Do I need that collared shirt that never fits quite right? Do I want to keep that pretty sweater that itches like crazy? Do I really want to keep wearing my millennial skinny jeans?? By sorting through my clothes before I shop, I can clear some space in my closet and only hang on to the pieces I really like.

Another benefit is that if I see something online or in a store that I like, I take a mental step back first and consider whether there’s anything I have at home that I’d be willing to let go of and replace with this new item. That keeps me from making impulse buys and overcharging my credit card for things I don’t need. It gives me the chance to decide whether I like the item so much that I’d be willing to part with something else to have it.

Make mindful choices

A one-in, one-out policy is sort of like taking stock of your kitchen pantry before you go to the grocery store. You don’t want to buy a bunch of snacks or canned goods when you already have those items at home and forgot about them. And you don’t want to buy that sky blue dress, only to hang it up next to your cornflower blue dress that you forgot about while you were at the store. (This is how I ended up with two white turtleneck sweaters, so I’m speaking from experience.)

Being more mindful both before and during your shopping trips can lead to a more organized closet and a fuller bank account. That’s a double dopamine rush, in my book.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More 

This writer prefers her credit cards to her debit card. Read on to see why. [[{“value”:”

For the past decade or so, I’ve done the bulk of my banking online. The CDs I opened last year, for example, were all set up online. And the bulk of my bills get paid out of an online checking account that’s linked to an online savings account.

But despite doing most of my banking online, I maintain an account at a physical bank in town for one reason — access to cash. My online bank doesn’t have a great network of ATMs, but my physical bank does. It’s convenient to have that account when I need to withdraw money, or when I need an in-person service like a notary signature.

Meanwhile, I have a debit card associated with my physical checking account. But I don’t think I’ve swiped that card in many years, and there’s a big reason for that. However, I may soon start to use my debit card more often.

Why my debit card hasn’t seen much action

Over roughly the past decade, I’ve pretty much only used my credit cards for in-store or online purchases, not my debit card. And the reason is simple.

With my credit cards, I get cash back or rewards for the things I buy. With my debit card, I get the convenience of not having to come up with physical cash, but that’s about it.

So let’s say I typically spend $5,000 a year on restaurants. With a debit card, I get $0 back. With a credit card giving me 3% back on restaurant purchases, I get $150 back.

And that’s just in one spending category. So all told, using my credit card has been the smarter decision in recent years, for the most part. However, a change in the way a lot of stores and restaurants in my area have started doing business could prompt me to start using my debit card more often in the future.

When a debit card makes more sense

Over the past couple of years, there’s been an uptick in restaurants and small businesses passing the cost of credit card processing fees onto their customers. Where I live, most restaurants, for example, now charge somewhere in the ballpark of 3% to use a credit card versus paying cash or swiping a debit card.

Now, constantly having to hit the ATM is a hassle, so I’d almost always rather just hand over a card. And since one of my credit cards gives me 3% back on dining purchases, even if I’m charged 3% to use my card, I break even.

However, some businesses I’ve come across charge a higher fee than that for using a credit card. So going forward, in situations like that, it will make sense for me to use my debit card instead. Although merchants are allowed to pass the cost of their processing fees on to consumers, it’s generally not permissible to impose a surcharge on debit card purchases.

All told, there are lots of good reasons to use a credit card over a debit card. But if you’re in a situation where using your credit card will cost you more, then you may want to look to swipe your debit card.

That said, if you’re not used to paying by debit card (like me) and you intend to start using yours more often, it pays to review the balance on the checking account associated with that debit card every week. This is something I already do with my credit cards to track my spending, and it pays to do so with your debit card if you’re going to be using it more frequently.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

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.

“}]] Read More 

The summer months are the perfect time to visit another country. Keep reading to learn what not to do with your money while you’re there. [[{“value”:”

If your plans this summer involve going to another country, you’ll want to start planning ASAP. Prices are only going up from here. By booking now, you can get a better deal and make reservations for any popular activities you want to do.

While you’re getting travel ready, it’s also a good idea to get financially ready. There are a few common money mistakes that people make when they travel abroad. By preparing ahead of time, you can make sure you avoid them.

1. Going into debt to pay for it

Travel can be an amazing experience, but you shouldn’t be borrowing money to do it. It’s a want, not a need.

It’s tempting to pay for what you can and put the rest on your credit card. Lots of people do this. They save enough for flights and hotels, but then rely on credit cards for all their spending on vacation (which always turns out to be much more than they expected). And there are also those who just pay for the entire vacation — flights, hotels, and all — using a credit card or loan.

You still eventually need to pay the bill, and it’s going to cost even more with the interest charges. And it’s an especially bad time to have credit card debt. The average interest rate on interest-bearing cards is nearly 23%!

Instead of going into debt, come up with a realistic budget for your trip. Then, start saving money for your travel fund in a high-yield savings account.

2. Using a card with foreign transaction fees

Credit cards are usually the most convenient way to pay for purchases. They’re also the safest when you’re abroad. Since your debit card is connected to your bank account, it’s better not to carry that around with you every day.

With any card you’re planning to use abroad, check if it has a foreign transaction fee. You can find this information on the pricing and terms that came with the card or on the card issuer’s website.

Some cards charge this fee on international transactions, with the most common amount being 3%. If you spend $2,000 on your trip, that’s another $60 in fees. It’s an extra cost you don’t need, because it’s easily avoidable.

If you don’t have one already, open a credit card with no foreign transaction fee. There are plenty of options available. If you plan to travel often, one of the many travel credit cards is probably a smart choice.

3. Saying yes to currency conversion at stores or ATMs

When you’re abroad, some stores and ATMs may offer dynamic currency conversion. This is a service that charges you in your home currency instead of the local currency. For example, if you’re withdrawing money at an ATM in Europe, it may ask if you’d like to pay in Euros or dollars.

Always decline currency conversion and pay in the local currency. Currency conversion includes a hefty markup, sometimes more than 10%.

There’s no advantage to accepting currency conversion. Sure, you’ll know exactly how much you’re going to pay in your home currency. But it’s a safe bet that will be much more than you would’ve paid if you declined this option.

4. Only bringing an American Express or Discover card

If you only carry American Express cards or Discover cards, that’s no problem in the United States. The days of U.S. businesses excluding those types of cards are largely over. They’re both now accepted at 99% of U.S. businesses that accept credit cards.

Internationally, it’s a different story. Acceptance is hit or miss. Businesses that accept credit cards just about always accept Visa and Mastercard, but American Express and Discover may not be an option. Make sure to have a Visa or Mastercard. Here are some of the best options:

Best Visa credit cardsBest Mastercard credit cards

It’s also a good idea to have cash in the local currency, just in case. The cheapest way to get cash isn’t at a currency exchange, but by withdrawing money using your debit card at a local ATM — just remember to decline the currency conversion, if it gives you that option.

All these money mistakes are easy to avoid once you know about them. Keep them in mind and you won’t pay any unnecessary fees or get into debt on your summer vacation.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

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.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends Discover Financial Services and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

“}]] Read More 

You may be able to use your brokerage account to your advantage tax-wise. Read on to see how. [[{“value”:”

With the IRS filing deadline coming up, a lot of people have taxes on the brain this month. And if you’re not happy with the outcome of your return — say, because you found out you owe the IRS a pile of money for 2023 — then you may be eager to do what you can to reap more tax savings in 2024.

But one thing you may want to do is turn to your brokerage account. There may be a hidden tax break available to you.

Do you have an opportunity to lower your taxes?

There are no tax breaks to be had by contributing money to a brokerage account. Similarly, you’ll pay capital gains taxes on brokerage account profits year after year. Rather, the tax break you might be able to eke out of your brokerage account could come in the form of a bum investment.

Sometimes, even the most seasoned investors pick assets that don’t end up working out. So if you have a stock or asset in your brokerage account that’s been consistently losing value and is down right now, you have a choice. You could leave that asset in your portfolio and hope for the best. Or, you could sell it at a loss and use that loss to better your tax situation.

Capital losses (like selling a stock for less than what you paid for it) can be used to offset capital gains. Let’s say you sold a stock in your brokerage account last month at a $4,000 profit, but you have a stock whose value is down $4,000 from when you first bought it. If you sell off that stock, you’ll cancel out that gain, letting you avoid paying the IRS taxes on that $4,000.

You should also know that if you don’t have capital gains to cancel out, the IRS will let you use up to $3,000 in capital losses per tax year to offset ordinary income. Let’s say you got a $3,000 raise at the start of 2024, only you didn’t adjust your withholding to have more tax taken out of your paychecks. What may happen is that you end up owing the IRS money again in 2025.

However, if you’re sitting on a $4,000 loss in your brokerage account, you can use $3,000 of that to offset your raise. You can then even carry your remaining $1,000 loss to the following tax year and use it to your advantage then.

A strategic tax move that could work out

Clearly, your goal in assembling an investment portfolio isn’t to lose money on the assets you own — it’s to make money. But if you happen to have a stock or asset that just hasn’t panned out, you should know that making that loss official could work to your benefit from a tax perspective.

In fact, even if you have certain stocks in your portfolio that are down but likely to recover, you might still consider selling some if you have a lot of capital gains to offset. A good idea in this regard, though, is to consult a financial advisor or tax professional so they can guide you through the process and help you understand the rules. That way, you won’t accidentally make a move that doesn’t achieve its intended purpose.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More