Money Management

If you’re getting a tax refund, you should use the money wisely. Here are three moves to make with that cash. [[{“value”:”

In 2023, the average tax refund was $2,903 according to The Motley Fool Ascent’s tax research. Whether you get back more or less than that amount, chances are good your refund will be one of the largest lump sums of money you receive during the year (outside of perhaps the paychecks you probably use to cover your routine expenses).

Getting a big lump sum of money deposited into your bank account gives you a chance to do something important to get you closer to accomplishing your financial goals. In fact, here are three great things you may want to do if your tax software shows a refund is coming your way.

1. Pay off debt

If you have credit card or other high-interest debt, paying it off could be a great move. You could make real progress on reducing your balance if you get a large tax refund, or could perhaps even pay off the balance entirely. Since the average credit card interest rate is 21.47%, reducing your balance could provide huge savings.

Say, for example, you owe $3,000 at 21.47% and you were making payments of $200 a month toward what you owe in an effort to repay your balance. You’d have 18 more payments and would pay a total of $510.67 in interest. But if you got the average tax refund of $2,903, you could reduce your balance down to less than $100 and pay it off with your next payment, saving yourself hundreds in interest.

2. Bulk up your emergency fund

If you don’t already have three to six months of living expenses saved, you could use your tax refund to bulk up your emergency fund. Surprise costs can happen to anyone at any time, and if you are unprepared, you could find yourself going into debt to cover them.

If you can deposit a tax refund of $2,903 (or whatever amount you get) into a savings account for emergencies, this could give you enough to at least cover some unexpected expenses. You’ll have more peace of mind and will be less likely to get stuck reaching for the credit cards when things go wrong.

3. Invest for your future

Investing in a brokerage account is another great option, especially if you already have an emergency fund and don’t have high-interest debt.

If you invest a tax refund of $2,903 and earn a 10% average annual return on that money over a decade, you’d end up with $7,529.63. If you invest a $2,903 refund every year for that full decade, you’d have $58,422.61. That’s a good amount of money, and you’re likely going to be a lot happier to have so much cash than you would be if you’d just spent your refund.

The right one of these options will depend on where you are in your financial journey. High-interest debt should usually take priority, followed by emergency savings, and then investing. But it’s up to you to decide which option is best for you and which you’re most excited about. The important thing is to make the most of the opportunity that getting a big refund presents and use the money to improve your personal finances over the long haul.

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Buying a home isn’t right for everyone. Read on to see if renting is a better idea for you this year. [[{“value”:”

There are plenty of good reasons to want to buy a home rather than rent one. For one thing, as a homeowner, the money you pay into your mortgage helps you build equity in an asset you own. And also, as a homeowner, you don’t have to follow a landlord’s rules. This means that if you want to paint your walls neon green or adopt a 110-pound dog from your local shelter on a whim, you can.

But in some cases, renting can be a more financially and logistically sound decision than owning. Here are a few signs that you should stick to renting in 2024.

1. You’re worried about job security

Although the U.S. economy and job market are both in pretty good shape, there have been plenty of reports of layoffs to start off 2024. If your company recently had a round of layoffs, and you’re anticipating further cuts, then you may want to continue renting this year and wait for things to calm down.

First of all, if you apply for a mortgage and are laid off during the process, your mortgage lender may not let your loan go through. Also, getting laid off could constitute a huge hit to your income.

Owning a home can be a financial strain when you’re earning your regular paycheck. But imagine how stressful it might be to commit to a home only to then lose your job and find yourself bringing in a lot less in unemployment benefits while you look for work.

2. You don’t have a lot of money to put down on a home

In January, the median existing U.S. home sold for $379,100, according to the National Association of Realtors. That means it might take a large amount of money to come up with a 20% down payment on your home purchase.

Now, it’s possible to get a mortgage without putting down 20%. But in that case, you’re generally looking at also paying for private mortgage insurance. This is a costly premium you pay to protect your lender that only adds to your ongoing expenses.

Furthermore, if you don’t have a lot of money saved in general, you might leave yourself short on funds for a home-related emergency. Remember, when you buy a place of your own and the fridge dies or the water heater stops working, that’s your financial problem, not your landlord’s. So if you don’t have a lot of money in your savings account, you may want to stick with renting for the time being.

3. Your schedule is too jam-packed to handle maintenance

The nice thing about renting a home is not having to do any work to maintain it. When you own a home, the opposite holds true. But if you’re a super busy person with a demanding job, you may not have the time needed to maintain your home. And in that case, one of two things might happen.

You could either ignore routine maintenance and risk causing damage to your home, or you could not ignore the problem and outsource that work instead. But in that case, you’re looking at paying a lot more for maintenance than if you were to do the work yourself. And that could put a strain on your budget.

There are definite benefits to owning a home rather than being a renter. But if these scenarios apply to you, you may want to consider renting for the remainder of the year. You can always reassess in 2025, depending on factors like your job situation, savings level, and schedule.

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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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Your ability to invest in an IRA depends on your income and whether you have access to a workplace plan. Learn more here. [[{“value”:”

An individual retirement arrangement (IRA) gives you the chance to save for retirement while getting a tax break. You can open an IRA with any brokerage firm and you have the ability to make tax-deductible contributions to it, up to the year’s annual contribution limit. In 2024, that’s $7,000, or $8,000 if you’re 50 or older and able to make catch-up contributions.

One of the great things about an IRA is you don’t need an employer to open one for you. So, whether you have a 401(k) or other retirement plan at your job or not, you can find one of the best brokers for an IRA and start putting away money for your future.

You do, however, want to make sure that you are eligible to make deductible contributions before you get started. Here’s how to know.

Do you or your spouse have a workplace retirement plan?

If neither you nor your spouse has a workplace retirement plan, then the good news is you are allowed to make tax-deductible contributions to an IRA, no matter how much money you earn. Income limits only apply if you or your spouse has access to an employer-sponsored retirement plan. You can contribute the entire $7,000 (or $8,000 if you’re eligible for catch-up contributions) no matter what you earn, if you don’t have a workplace plan.

However, that is the combined limit for both traditional IRAs and Roth IRAs. Roth IRAs are another kind of retirement plan you can open for yourself, but they come with a deferred tax break. You contribute to them with after-tax dollars (so no deduction is available the year you invest), but you’ll be allowed to withdraw money tax free.

You’ll want to decide if you should contribute to a traditional IRA, Roth IRA, or both by thinking about whether you want your tax break now or later. This can depend on whether you expect your tax rate to be higher now or in the future, as it makes sense to try to save on taxes during a time you’ll be paying the highest rate.

If you are interested in putting at least some money into a Roth, be aware there are different Roth IRA income limits — so be sure you fall within those. If you don’t want to contribute to a Roth, then you don’t need to worry about this and can put the entire deductible $7,000 or $8,000 into your traditional IRA if you can afford to max out your contributions.

Here are the IRA income limits if you or your spouse has a workplace plan

So, what if you or your spouse do have a workplace retirement plan? If that’s the case, you may lose your ability to make deductible contributions to your IRA if you earn too much.

Here are the rules if you have a workplace plan. These limits are based on adjusted gross income (AGI), which is income minus deductions.

And here are the limits if your spouse has a workplace plan.

As long as your income doesn’t go above these limits, you should seriously consider putting some of your retirement funds into an IRA this year. That’s because IRAs come with some great benefits, including:

A wider choice of investments than a 401(k) can typically offer.Potentially lower fees, compared to what you may have to pay for 401(k) administration or the expenses you’d have to pay for the investments your 401(k) offers.Control over your own retirement account, so you don’t have to wait for an employer to open one for you, and if you leave your job, your account won’t change.

If these benefits are appealing to you, get started investing today, so you can come as close as possible to maxing out your account by year’s end.

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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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The average Costco shopper spends around $100 to $150 per order. Find out more about what people are spending at the warehouse club. [[{“value”:”

Shopping at Costco is something many people are passionate about, with many internet discussions dedicated to finding the best deals and discussing Kirkland brand products to identify the best culinary delights.

But how big is the checking account hit for the average Costco shopper on an average trip? Here’s what you need to know.

This is what the typical shopper at Costco is spending

The data is somewhat mixed when it comes to spending per trip, but various estimates indicate that the typical Costco shopper spends somewhere between $100 and $150 per visit. Some sources say the customary spending is closer to $100 and other sources report it’s closer to $150.

Former Costco CFO Richard Galanti also indicated in a March 2023 earnings call that Costco Executive members tend to spend more per visit compared with Gold Star members. Executive membership comes at a cost of $120 annually compared with $60 for the basic Gold Star membership, so it’s not surprising that those who spring for the upgraded membership may be bigger Costco spenders.

Since the typical person is spending around $100 to $150 per month on their Costco visits, and the typical warehouse club member makes about 30 trips a year to the store, this means that warehouse club members spend around $3,000 to $4,500 annually buying all the bulk goodies that Costco has on offer. That’s a lot of money to put on a credit card in the course of scooping up those bargains.

How does your Costco spending compare?

Now you know what the typical Costco shopper spends and you can see how your own expenditures stack up. If you’re spending more than your peers, that’s not necessarily a bad thing — but it all depends what you’re buying.

Costco offers good deals on many bulk items, including pantry staples like olive oil. So if you’re buying primarily necessities at the warehouse club — and have made sure the prices are competitive with your local stores’ — then there’s nothing wrong with using the bulk of your grocery budget or household-items budget at Costco.

But if you’re getting caught up with a bunch of impulse buys and wasting money on items you don’t really need, then it may be a problem if your spending is above average. In fact, even if your spending is less than the typical Costco visitor’s, it’s still a problem if you are:

Making unnecessary purchasesBuying bulk items you aren’t eating or using up prior to expirationGoing into debt to support your Costco habit

How can you stop overspending at Costco?

If you find yourself consistently overspending on visits to the warehouse club, you may want to try techniques such as shopping from a list or bringing only enough cash to the store to cover the items you need to buy. This can help you to continue taking advantage of deals at Costco that can save you money, without wasting your hard-earned funds on purchases you come to regret.

Ultimately, knowing how your spending compares to the average shopper is interesting, but you’ll want to focus on how your own spending fits in your budget to know if your Costco purchases are helping or hurting your own personal finances. If you discover you’re overspending relative to your purchasing power and financial goals, it’s time to make a change.

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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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Do you need a new credit card account? Keep reading for a few situations that indicate a new card might be right for you. [[{“value”:”

Credit cards come with some amazing benefits and perks if you use them right. Depending on your card, you could earn a substantial amount of rewards and enjoy valuable cardholder benefits like airline lounge access or extended warranties. But not every card is the right one for every person.

Should you find a new one that’s a better fit? Watch out for these three signs that suggest getting a new credit card could help to improve your financial life.

1. You aren’t earning very many rewards with your current card

Earning rewards is one of the best reasons to have a credit card. So if your card doesn’t have a rewards program but you can qualify for a card that does, consider applying for a new card.

Likewise, if your rewards program is a poor fit, then getting a different card makes a lot of sense. Say, for example, you used to travel often and had a great travel rewards card offering five times the miles on travel purchases. But now you have kids and you travel only as far as your local Costco. In that case, you might be better off picking a card offering you extra cash back on groceries instead.

Take a look at your card statements over the past few months to see where you spent the most, then look for a rewards card with bonus rewards in that particular spending category. If you can find a card that will give you more points or cash back for your target spending areas, it’s probably time for a switch.

2. You’re paying a high APR on your existing credit card

If you don’t carry a balance, it doesn’t matter what your credit card’s APR is. But if you do, then it matters a whole lot. The average credit card interest rate is 21.47%. That’s a very high rate. If you’re carrying a balance, you’re making purchases a lot more expensive.

It may be beneficial to apply for a balance transfer credit card in this situation. These offer a special promotional rate, such as 0%, for transferred balances — although you do pay an upfront fee of around 3% to 5% to move the money over. Still, if you have a plan to pay down the debt by the end of the 0% period, it could absolutely be worth applying for the balance transfer card to make paying off your existing cards easier.

If you aren’t carrying a big balance now but periodically do and you end up owing interest for a few billing cycles a year, looking for a card with a lower APR could help you save. Compare the rates on new cards versus your existing ones to see if there’s a better deal out there. If there is, jump on it so you can send your creditors less (or, if possible, make a plan to stop carrying a balance, so you can enrich yourself instead of credit card companies).

3. You’ve improved your credit a lot

Finally, if you’ve improved your credit profile since you applied for a card, you may want to look into what else is out there. You may now qualify for better rewards cards or cards with better perks.

This is especially true if you originally got a secured credit card that required you to make a deposit. You may be able to graduate to an unsecured card and get your security deposit back. An unsecured card is likely to have more to offer besides just easy qualification and credit building.

If you spot any of these signs, start looking for your perfect new card today. You’ll likely end up very glad you made the switch.

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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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Target. The Motley Fool has a disclosure policy.

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My accountant has told me I’m going to owe several thousand dollars when I submit my tax forms to the IRS. Read on to learn why this is great news. [[{“value”:”

The average tax refund in 2023 was $2,903 according to The Motley Fool Ascent’s tax research. Many people get a refund, and it’s common for people to actually look forward to tax season because of it.

I rarely get a refund, though. And in fact, my accountant has already informed me that when I do my taxes this year, I am going to have a big bill and owe several thousand dollars.

While it may seem as if it would be upsetting to owe money rather than get it back, I’m actually really happy that I owe a lot. Here’s why.

I’ll owe money because my income is higher

One of the reasons why my tax bill is going to be a few thousand dollars is because my income went up in 2023.

As a freelancer, I have to pay estimated taxes during the year. Most people get money withheld from their paychecks, but that doesn’t happen for me. To avoid potential underpayment penalties freelancers like me either need to pay 90% of the tax owed for the current year or either 100% or 110% of the tax owed for the prior year (with the specific percent depending on income).

Since it’s hard for me to anticipate how much tax I’ll owe for the upcoming year due to the fact my income is irregular, I opt for paying based on the prior year’s bill. This means that, since my income went up, I underpaid. If my income had gone down, it would mean I’d overpaid and was getting a refund. But, I’d rather earn more than earn less just to get a little bit extra in taxes.

If your income goes up during the year, if you’re a freelancer and you take the same approach I do and pay taxes based on last year’s earnings, you should plan for a bigger tax bill and save during the year for it. Tax software can give you an estimate of what you’ll owe based on your income.

If your employer withholds a percentage of pay, then this shouldn’t be as big of an issue for you — unless you happen to earn a higher income from some outside source your employer doesn’t know about. In that case, it may not withhold enough to account for the fact you end up in a higher tax bracket.

If you do happen to earn extra income outside your job, let your employer know this if you don’t want a big tax bill, so it can adjust accordingly. Or you can just plan for that bigger bill and save for it, if you’re like me and would rather not get a refund.

I didn’t give the IRS an interest-free loan of my money

There’s another reason why I’m happy I’ll have a big tax bill. It means I didn’t give the IRS the free use of my money, essentially providing them with an interest-free loan. A refund would just be a return of my own money that I hadn’t had access to all year, because of overpaying my taxes.

I’d rather not give up my funds for months at a time for no reason, missing out on the chance to keep the money in a savings account to earn interest or to have it available in case of emergencies.

If you are getting a big refund, you may want to consider adjusting your withholding next year so that doesn’t happen. That way, you can use your money during the year instead of waiting for the IRS to give it back to you at the end.

The IRS has a withholding estimator online you can use to figure out how much you should have withheld. Use it to make sure you avoid penalties for underpaying without sending in extra money for no reason. After all, you have better things to do with that hard-earned cash.

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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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