Money Management

Your emergency fund is there for unplanned but necessary expenses. Learn how to decide whether tapping it is the right move. [[{“value”:”

Taking money out of your emergency fund is a big deal. You need that money in your savings account to protect you against financial disaster when things inevitably go wrong. Without it, you could be forced to borrow or find yourself facing another serious personal finance crisis.

There are, of course, certain situations where withdrawing cash from emergency savings does make sense. After all, the money is there for a reason — to help you out in your time of need. The problem is, it can sometimes be hard to determine if a particular expense is an emergency that justifies a withdrawal.

To decide if you should act, consider asking yourself these three questions that will guide you in making the right choice.

1. Will the withdrawn funds pay for a true necessity?

The first and most important question to ask yourself is whether you are going to use the money for a true necessity. This is something urgent that cannot wait until you’re able to save up for it, and it is something you absolutely need — not just something you want.

You never want to take money out of an emergency fund for an optional expense because then it won’t be there when and if you really need it. With as many as 60% of Americans responding to a Pew Study reporting they had experienced an unexpected financial shock during the past year, you can’t afford to take the risk of leaving yourself without emergency money because you spent yours on something you didn’t really need.

2. What are your alternatives to tapping into your emergency fund?

The next thing to consider is what other options you have. If you could pick up some overtime or work a few hours at a side gig to get the money for your emergency expense, it’s probably worth doing that so you don’t tap funds you might need at a later time when you can’t just put in some extra hours.

But if you would have to borrow money to cover the unexpected expense, then using your emergency money to cover the costs is usually going to be the right choice. After all, one of the big reasons to have an emergency fund is to avoid having to go into debt to cover surprise expenses.

3. What are the consequences if you don’t withdraw the money?

Finally, you should consider the consequences of not taking the money out of the bank. If the outcome would be terrible for your health or financial security over the long term, then tapping your emergency fund is a good idea.

For example, you’re obviously better off pulling money from your emergency fund to make a car or house payment you couldn’t otherwise afford so you don’t face foreclosure or repossession. Likewise, you’re better off pulling money out for an unexpected medical bill than letting a health issue potentially get worse due to waiting.

If, on the other hand, the consequences aren’t too serious (like, for example, you’d miss out on a fun vacation), then you’ll want to avoid the withdrawal.

By asking yourself these three questions, you can make a smart choice about whether taking money out of your emergency fund is the right choice for the situation or something you might regret later.

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You can get airport lounge access with a membership to a lounge program or some travel credit cards. Learn about the pros and cons to see if it’s right for you. [[{“value”:”

When I started traveling often, I made sure to get a travel card with airport lounge access. Waiting around for flights is normally one of the worst parts of traveling. Waiting around for flights in a high-end lounge fixes that problem.

Or so I thought. Being able to get into airport lounges can be nice, but it’s also overrated. If you’re thinking about getting a credit card with lounge access, or buying a lounge membership, it helps to have an accurate idea of what lounges are like.

The airport lounge experience isn’t as amazing as it sounds

I’m generalizing here, to be fair. There are thousands of airport lounges in the world. Some of them are incredible, with gourmet food and gorgeous designs. Some are lousy, with old, beat-up furniture and hardly any amenities.

But the vast majority fall firmly into the “decent” category. They have comfortable places to sit. There’s free food and drinks, although usually nothing special. The food at most lounges is more buffet-quality than Michelin restaurant.

Lounges also get packed, especially at popular airports and during busy travel times. There may even be a line to get in, if the lounge is at capacity. This has become more common as people take advantage of credit cards that get them into airport lounges. When a lounge is bustling with people and there’s hardly anywhere to sit, the experience becomes far less relaxing.

If your expectations are too high, you might find that airport lounges don’t measure up. I’ve been to plenty of lounges that didn’t impress me. The more you visit, the more it takes for a lounge to stand out. Even though the experience isn’t always the best, I still think it’s good to have lounge access for one reason.

It still beats the boarding area

I was recently at an Air France lounge in Paris for business-class passengers. While it was comfortable and well-designed, it felt like a typical lounge experience. Find a place to sit, browse the internet, have a few snacks and a cappuccino from a machine.

It was a long wait, and the lounge filled up with a ton of people. By the time my flight was ready to board, I was getting tired of being there. And then I got the perfect reminder of why I shouldn’t take it for granted.

The boarding area was a disaster. Forget about finding a place to sit — there was barely room to stand. It was a mass of people and noise, with long boarding lines that wrapped around the room. I felt like I’d descended from airport purgatory into a circle of Hell. This was the ground floor boarding area at Charles de Gaulle Airport, so I’m barely exaggerating.

It was far worse than the normal boarding area, but the point remains. Even if an airport lounge is only OK, there’s a good chance that the boarding area is much worse. Seats are uncomfortable, if you can even find one. Many passengers seem to think that every jacket and bag they own deserves their own seat, too. And if you want something to eat or drink, be ready to pay three times the usual price for it.

How to get airport lounge access

There are a few ways to get into airport lounges:

Open a credit card with airport lounge access. Many of the top travel credit cards offer this perk. The most common options are a membership with Priority Pass (a program with over 1,300 lounges worldwide) or with a specific airline’s lounge program.Buy a lounge membership with an airline. If you’re a frequent flyer with an airline, you could buy a lounge membership. However, some airline credit cards include a complimentary lounge membership as a perk. The annual fees for these cards are often similar to or even less than the cost of a membership.Buy a day pass at the airport. Not all lounges offer day passes, but many do. The price is normally about $30 to $60 per person. This can be a good option if you don’t fly enough to make a lounge membership worth it.

If you fly multiple times a year, I’d recommend looking into travel cards with airport lounge access. These tend to have high annual fees, just to warn you. But they normally also have spending credits to help balance out the cost of the fee, and other useful travel perks. Plus, they earn points that you can use to pay for travel.

Airport lounges might not always wow you, but they beat the alternative. If you have realistic expectations, you’ll probably enjoy your time waiting for your flight there.

Our picks for 2024’s best credit cards

Our experts carefully review the most popular offers and select those that are worthy of a spot in your wallet. These standout cards come with fantastic benefits like sign-up bonuses worth $200 or more, 0% intro APR for up to 21 months, and cash back rates up to 5%.

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You may use your vehicle for work purposes. But here’s why it pays to be careful when deducting costs related to it. [[{“value”:”

One of the benefits of being self-employed is getting to enjoy a host of different tax breaks. You may, for example, be eligible for a home office deduction if you work out of your home and have an area used solely for business purposes. You can also save money on your taxes by deducting expenses that include professional license fees, equipment, and office supplies, like pens and notepads.

But in the course of taking tax deductions, you’ll need to be very careful if you want to avoid a tax audit. And there’s one mistake that could propel you to the very top of the IRS’s list.

Be careful when taking deductions for a vehicle

You may have a personal vehicle that you use for business purposes as well. Let’s say you’re a self-employed IT professional, and your work involves going to different businesses and setting up their networks and equipment.

It’s conceivable that you’re incurring mileage in the course of doing that work. So if you keep a mileage log, you may be able to deduct the cost of mileage on your taxes. The standard rate is $0.655 per mile for 2023, which is the tax return you’re filing this year.

But deducting mileage isn’t your only option for getting a tax break out of your vehicle. You could instead deduct your auto-related expenses. These may include:

Lease paymentsParking feesAuto insuranceRegistration fees

But here’s where you need to be careful. One thing you don’t want to do is deduct 100% of these costs, because chances are, you don’t just use your vehicle for business purposes.

In the above example, you might spend a lot of time driving around to see clients. But you probably also spend a lot of time using your vehicle to run personal errands and get to social plans.

So if you were to claim 50% business use of your vehicle, that perhaps would not be unreasonable. But if you claim 100% business use of your vehicle, your chances of getting audited could rise. That’s because it’s pretty unlikely that you never use your car for non-business purposes.

You may be even more likely to get audited if you claim 100% business use of a vehicle but you also don’t have another vehicle registered in your name. If you have a second vehicle, you may be able to get away with claiming 100% business use on your other one. But otherwise, you’ll need to be really careful.

Rely on an accountant’s advice

Whether you’re claiming a vehicle-related deduction on your taxes or another tax break, it’s important to consult a professional to make sure you aren’t bending the rules or putting yourself at needless risk of an audit. An accountant will be able to tell you what percentage of your vehicle to deduct. They’ll also be able to tell you which non-vehicle-related expenses are legitimate and which aren’t.

Remember, some of your deductible expenses may not be as obvious as others. So what you pay in the form of an accountant’s fee, you might more than recoup in the form of tax savings that a professional opens the door to.

Our picks for 2024’s best credit cards

Our experts carefully review the most popular offers and select those that are worthy of a spot in your wallet. These standout cards come with fantastic benefits like sign-up bonuses worth $200 or more, 0% intro APR for up to 21 months, and cash back rates up to 5%.

Click here to see our top credit cards

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 auto insurer a driver chooses has a huge effect on how much they pay. Avoid these five costly mistakes to keep premiums affordable. [[{“value”:”

Auto insurance isn’t cheap these days. The average annual premium was $3,017 in 2023, and inflation is expected to drive these costs even higher in 2024. But there are still plenty of drivers that manage to score a great rate on their coverage.

If you want to join them, you need to avoid common, but costly mistakes. Here are five you definitely don’t want to make this year.

1. Not shopping around

Every auto insurer has its own proprietary risk assessment formula that it uses to set premiums. That’s why the same driver gets vastly different quotes from different providers. But the only way to know which one offers the best rates is to compare them side by side.

Most auto insurers enable drivers to get quotes online and to save those quotes for later viewing. The process doesn’t take long. Drivers will need to know key details, like their vehicle identification number (VIN) and the dates of any accidents or traffic violations. Then, they just enter their information and wait for their quote.

2. Buying too little coverage

Nearly every state requires its drivers to have some auto insurance to get behind the wheel — usually bodily injury liability coverage and property damage liability coverage. Some states require a few others too. But state-minimum limits are often very low. This reduces premiums, but it might leave drivers in serious trouble if they are at fault for an accident.

Insurance companies are only required to pay up to the policy’s limits for covered claims. If a driver has just $25,000 of bodily injury liability coverage but they injure someone to the tune of $30,000, they’ll have to pay the remaining $5,000 out of their own pocket, plus their policy’s deductible. It’s best to purchase higher coverage limits when possible. Drivers may also want to investigate optional car insurance protections as well.

3. Going with a low deductible without understanding the tradeoff

Low deductibles are nice in an accident because drivers won’t have to pay as much out of pocket. But they also bring higher monthly premiums. And often, this isn’t a great tradeoff for drivers.

Compare premium costs for low- and high-deductible options before deciding which way to go. If choosing a higher deductible results in significant savings, it could be more affordable in the long run. However, drivers may wish to save for their deductible in their emergency fund so they’re prepared in the event of an accident.

4. Lying or failing to update crucial application details

Certain things, like accidents or living in areas with high rates of auto theft, increase car insurance premiums. Some drivers might quietly omit these things from their application to avoid the premium hikes that come with them. But this isn’t a good idea.

First of all, those details may not stay secret. Insurance companies have ways of learning about a driver’s record and if they discover they’ve been lied to, they can hike rates or deny coverage. And if a driver files a claim after lying on their application, the claim could be denied.

5. Focusing only on price

Price is obviously one of the biggest factors when shopping for auto insurance, but it’s not the only one to consider. Drivers also need to think about coverage options, especially if they’re seeking rare protections. For example, those who work for ride-hailing companies will need coverage that protects them while they’re working. Not all companies have this, though it is becoming more common.

Customer service is also important. Having a helpful claims representative can take some of the sting out of an accident while a poor claims representative will just make everything worse. So it’s important to weigh these other factors as well when evaluating auto insurers.

Try to keep a long-term focus when shopping for car insurance. Consider not just the monthly costs but how a particular policy would help or hurt in the event of a claim. It’s always possible to change auto insurers down the line, but it’s much easier to choose one you’re happy with from the start.

Our picks for 2024’s best credit cards

Our experts carefully review the most popular offers and select those that are worthy of a spot in your wallet. These standout cards come with fantastic benefits like sign-up bonuses worth $200 or more, 0% intro APR for up to 21 months, and cash back rates up to 5%.

Click here to see our top credit cards

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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Older Americans seriously lack retirement savings. Read on to see how you can avoid this fate if you’re starting your career now. [[{“value”:”

It’s not a secret that the more savings you bring with you into retirement, the more comfortable your senior years could be. But recent Northwestern Mutual data on Americans’ retirement savings paints a pretty discouraging picture.

A 2023 survey found that Americans in their 60s have an average of $112,500 socked away for retirement. And while that’s certainly better than having no savings at all, it’s a sum that may not go very far.

When a large number gets whittled down

An IRA or 401(k) balance of $112,500 would be pretty sweet if that money only needed to last for a year or two. But some people end up with a 20-year retirement — or much longer.

In fact, because your retirement savings might need to last for decades, experts have long advised taking withdrawals to the tune of about 4% per year. But if you’re looking at a balance of $112,500, that results in only $4,500 of annual income.

For most people, that $4,500 should come on top of Social Security benefits. But the typical senior today only collects about $23,000 per year from the program. So adding $4,500 only brings that total to $27,500.

Chances are, that’s not going to make for the retirement of your dreams. It may not even be enough to cover your basic expenses without having to cut corners, like downsize your home.

Save early to set yourself up for success

People in their 60s today are approaching retirement at a disadvantage. Many weren’t told to start saving independently early in their careers because back then, pensions were more common.

But if you’re in your early 20s and have recently joined the workforce, you should know from the start that a workplace pension is something the typical private sector employee generally isn’t privy to. And you should make an effort to consistently fund a retirement plan so you’re able to grow your money nicely over time.

Over the past 50 years, the stock market has rewarded investors with an average annual 10% return. So if you’re investing with a brokerage account for almost that long, it’s conceivable that your returns will be comparable.

So, let’s say you save and invest $200 a month for retirement over a 45-year period (say, age 22 through 67) and your portfolio gives you a 10% return during that window. That could result in a balance of $1.725 million. Yes, you read that correctly.

And OK, so you may not be able to start saving for retirement at age 22. That could mean starting right out of college, and you may need a year or two of full-time work to get on your feet.

But let’s whittle that savings window down to 40 years instead of 45. You’re still looking at a total of over $1 million by the time retirement age arrives, assuming that same $200 monthly contribution and 10% annual return. You’re also looking at more than nine times what the typical near-retiree has saved today. So while it’s not an easy thing to start funding an IRA or 401(k) plan at a young age, the upside could be huge.

Our picks for 2024’s best credit cards

Our experts carefully review the most popular offers and select those that are worthy of a spot in your wallet. These standout cards come with fantastic benefits like sign-up bonuses worth $200 or more, 0% intro APR for up to 21 months, and cash back rates up to 5%.

Click here to see our top credit cards

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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