Money Management

A credit card isn’t a substitute for an emergency fund. Find out here why you shouldn’t be relying on your cards in case things go wrong. [[{“value”:”

Credit cards are good for lots of things, like helping you earn rewards and improving your credit score if they are used wisely. But there’s one thing they really aren’t good at.

Credit cards make a terrible backup plan for emergency expenses. If you are hoping that you can just charge surprise costs on your card, you could end up with a world of problems with your personal finances when a rainy day arrives.

Here are a few big reasons why you shouldn’t count on your cards to be there for you when things go wrong.

1. You can’t always charge unexpected expenses

One big reason why credit cards aren’t a great solution for emergencies is that you can’t always cover every cost with a credit card.

For example, some contractors won’t take credit cards. So if you have a home repair and need to hire a plumber or an electrician, you can’t guarantee that your credit card will be accepted. Likewise, your mortgage lender or landlord and your car loan lender probably don’t accept credit card payments, either. So if you miss some work and can’t afford your housing costs or car payment, you can’t just charge these bills.

You need money in the bank — ideally three to six months of living expenses — to be sure you can pay for some of your most important expenses if something goes wrong.

2. You could do long-term damage to your finances due to high interest rates

Credit cards come with high interest rates, which average 21.47%. If you have to charge payments you are making for emergency expenses, you’re going to make those costs even more expensive by paying interest on them.

If you charge emergency costs on your card, you will have to make payments toward your balance until you have paid it off in full. This could take months or even years, depending on how much you charged. During that time, you’re going to be using income to cover those costs that you can’t use for other things.

You don’t want to make your emergency cost more and reduce the chances you’ll be able to afford to live within your means in the future. And that’s exactly what could happen if you rely on credit cards for emergency expenses.

3. You may not have enough credit to cover your emergency costs

Finally, the last big problem with making a credit card your emergency backup is that you may not have enough credit to cover the bill. If you’re out of work for a few months, you might quickly hit your credit card purchase limit and still have living expenses to pay.

Even a home repair could be outside of your credit limit, as something like a new air conditioner could cost $5,913 on average, and many people simply don’t have $6,000 in available credit.

You don’t want to find yourself unable to pay for an unplanned bill or stuck paying huge interest costs on your emergency expenses. So don’t use a credit card as a backup plan in case of surprise costs. Instead, aim to save three to six months of living expenses in a savings account. You can get started with your emergency fund by saving your tax refund or a work bonus, or cutting a few fixed expenses (like canceling a gym membership) to redirect money to savings.

It may take a little time to save for emergencies, but you should do it because relying on your credit cards is a decision you’re likely going to come to regret.

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 

The richest Americans follow a few smart savings strategies that can work for anyone. Learn how they save so you can do the same. [[{“value”:”

The 1% is an exclusive group. In the United States, you need a net worth of $5.8 million to join that club, according to Knight Frank.

What does it take to save that kind of money? There’s certainly an element of luck involved, and the wealthiest Americans tend to earn very high salaries. But self-made multimillionaires also follow smart savings strategies to build wealth — and they’re strategies you can use to improve your finances, as well.

1. They make it automatic

Thomas Corley studied 233 millionaires over a period of five years for his Rich Habits study. The ones who became millionaires by saving and investing “consistently saved 20% or more of their net pay, each paycheck.”

One of the hardest parts about saving is making it a habit. To help with this, the millionaires in Corley’s study automated their savings. Most often, they’d direct 10% into employer-sponsored retirement accounts and another 10% into a savings account.

If you have a 401(k) plan available at work, you can follow this same approach yourself. Just decide how much you want deducted from each paycheck. Also, set up an automatic monthly transfer to your savings account. You’ll then be saving and investing every month, automatically.

2. They put most of their money in appreciating assets

Everyone has their own preferences as far as where they put their money. But there are some common trends at higher levels of wealth.

The Federal Reserve Survey of Consumer Finances has asked people at every level of wealth about the assets they own. Those with a higher net worth typically have a much larger portion of their wealth in assets likely to increase in value, including:

StocksMutual fundsReal estate

The richest of the rich also have much of their wealth tied up in business interests. If you want to reach an extremely high net worth, launching a successful business is the best chance of doing so. But don’t worry if you’re not the entrepreneurial type. It’s still possible to become a millionaire through diligent saving and investing.

3. They’re well-prepared for emergencies

The 1% doesn’t keep that much of their money in cash, since the returns are generally low (savings accounts and CDs are offering excellent rates right now, but that’s far from the norm). They do, however, make sure they have enough money for emergencies.

Many financial experts suggest building an emergency fund with enough to pay for three to six months of living expenses. The idea is that if you lose your job, you’ll have enough money to pay your bills while you find a new one. You can also use your emergency savings for any other surprise expenses you have.

Faron Daugs, a Certified Financial Planner®, talked to CNBC about his wealthiest self-made clients. He says that most of these clients aim even higher with a six- to nine-month emergency fund. Ramit Sethi, author of I Will Teach You To Be Rich, who’s estimated to be worth around $25 million, says one of his money rules is a one-year emergency fund.

Making these strategies work for you

If you can’t put a lot of money in your savings, investments, and emergency fund right away, that’s fine. You can start following these savings strategies, no matter your financial situation. If you can’t save and invest 20% of your income, go with 10%, or 5%. Don’t have a six- to nine-month emergency fund? Start by putting away $500 to $1,000, and then build on it from there.

You don’t need to do it all overnight. What’s important is establishing responsible financial habits that will help you reach your money goals.

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 

See a real-life success story of buying an existing business: Tim Delaney, owner of Elma Wine & Liquor in Elma, New York. [[{“value”:”

Often when people think about entrepreneurship, the focus is on starting a new business from scratch. But sometimes the best way to “start” a business is to buy a business. Buying an existing business can be a great way for entrepreneurs to get a foot in the door.

There are a few advantages to buying a small business. Existing businesses tend to have an established brand, customer base, and business model. Ideally the business is already profitable, but new ownership can give it a better direction and a new burst of momentum.

Tim Delaney is the owner of Elma Wine & Liquor, which sells online (elmaliquor.com) and in-person from its brick-and-mortar location in Elma, New York. Tim is a passionate serial entrepreneur who also owns a software startup, a consulting firm, and a portfolio of real estate.

We interviewed Tim about his experience buying a small business, and why acquiring existing companies could be a great strategy for other entrepreneurs.

Lessons from buying a wine store

Elma Wine & Liquor has been in business for 60 years — but Tim Delaney didn’t start it, he bought it. The store has been under Tim’s ownership for the past 10 years, and he’s led it into a new era of expansion and growth.

Tim used a combination of bank financing and seller financing to buy the business. That’s something that a lot of would-be small business buyers should keep in mind: you don’t always have to pay cash or get a bank loan or Small Business Administration (SBA) loan to buy a business. There are often flexible options to finance the deal, and former owners can assist you with financing.

Business owners often get to a point where they want to retire, and selling their business is their best chance to cash in on their life’s work. Seller financing can be a win-win because it helps the business buyer complete the acquisition and change ownership, and the business seller gets a stream of income from the buyer’s future loan payments.

A successful small business, just like a nice house in a great location, is a valuable asset — and seller financing lets you borrow against that value. Even if you can’t get an SBA loan (which can be hard to get for acquiring businesses), if you have some capital of your own to invest, and you can work with the seller to find some financing options, there are various ways to make the deal happen.

How buying a small business created big financial success

By purchasing an existing business with the help of bank and seller financing, Tim Delaney was able to turn a relatively small investment of his own cash into a much larger success story. “I made an investment of $35,000 ten years ago and now I own a cash flowing asset worth over a million dollars,” Tim Delaney said. “The first couple years involved long hours and lots of sacrifice of personal time. But I think there is so much untapped potential in the idea of buying a small business, and I am a huge advocate for people to look into buying an existing business.”

Buying a small business can be like buying a house that gradually pays for itself. You need to take out a “mortgage” (bank loan/seller financing loan), but then the business creates its own “mortgage payments” (business income). If you have a solid business plan, you might even find that buying an existing small business can help you achieve big profits and growth even faster than if you had built a business from scratch.

In some ways, buying an existing business can be less risky than starting your own — and can still deliver significant return on investment. Tim saw this happen for Elma Wine & Liquor after he bought the business. He made the company grow in value, while using the profits to pay down the debt from the purchase agreement. Over time, increasing the business’s value and reducing debt has led to increased equity, and a higher net worth for Tim.

Small business ownership: Building wealth, creating opportunities, serving the community

Tim Delaney is a longtime entrepreneur who always wanted to be his own boss. But he has also found a great sense of purpose in seeing how his small business serves his community and creates career opportunities for his employees.

“Small businesses really are the drivers and heartbeat of our communities,” Tim Delaney said. “Personally I have learned the importance of treating every customer and employee with respect. Over the years of growing the business and building systems to help run it, I’ve been able to provide even more lucrative management jobs to my staff.”

Brick-and-mortar retailers often become their own little hubs of community activity. Elma Wine & Liquor serves that role for the town of Elma, New York, bringing people the joy of a well-chosen bottle of wine. “We strive to provide top notch customer service and offer a mix of tried and true big brands while introducing our customers to unique and different products from around the world,” Tim Delaney said. “One of the funniest things that has happened over the years is people thinking that one of my employees was my mother and another my son.”

Tim Delaney’s success story with Elma Wine & Liquor is a great example of how you don’t always have to start a business to be an entrepreneur. Sometimes the best path is to buy an existing business — and lead it to a new level of growth.

For more about Tim Delaney, check out his website, powerofbiz.com — he is available for speaking engagements and podcast appearances.

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 

Putting your tax refund into the stock market could yield huge results. Read on to learn more. [[{“value”:”

Getting money back from the IRS during tax season is by no means a given. But it may interest you to know that this year, as of March 3, the IRS had issued more than 36 million refunds. And the average refund amount was $3,182.

Now, since there’s more time to go in the tax season, that average refund can certainly change. But it’s clear that among those who have received a refund so far, the average amount has been pretty substantial.

If you’re in line for a tax refund this year, you may be inclined to spend that money on something fun — maybe a new phone and TV or a nice vacation. But here’s why it really pays to consider putting your tax refund into an investment account instead.

You can potentially grow that money into a much larger sum

Any time you invest money, you take on the risk that you might lose some or all of it. But if you commit to investing over a lengthy period, that’s less likely.

Case in point: Over the past 50 years, the stock market has averaged an annual 10% return. But there were plenty of periods during that half-century window when the market sustained prolonged losses. That 10% accounts for periods of growth and losses.

Now, let’s talk about your tax refund. Maybe you’re getting a little more than $3,182. Or maybe you’re getting less. But to illustrate the benefit of investing that money, let’s assume that your refund check amounts to $3,182, and that you invest it in a stock portfolio that delivers an average annual 10% return over the next 40 years. If so, you’re looking at turning that $3,182 into $144,000. That’s a pretty sweet deal.

Consider investing in a retirement plan

Of course, there’s one hiccup you might encounter when you invest your money and enjoy a nice gain — having to pay taxes on that gain. But if you invest your tax refund in a retirement plan like an IRA or 401(k), you can soften or even eliminate that tax hit.

With a traditional IRA or 401(k), your investment gains are tax-deferred. The IRS doesn’t collect taxes from you year after year as your portfolio gains value. Rather, you’re taxed at the time you take withdrawals, which is generally during retirement.

With a Roth IRA or 401(k), though, your investment gains are tax-free. So in the above example, if you were to put that $3,182 into a Roth IRA and grow it into $144,000, you’d enjoy about $141,000 in gains without having to pay the IRS a dime.

It can be super tempting to spend your tax refund on something enjoyable that will improve your life in the near term. But investing your refund could truly improve your financial situation in the long term. So consider not only investing that money, but choosing a tax-advantaged account to minimize your capital gains tax impact.

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