Money Management

Thinking of upgrading your Costco membership? It could be a good idea. But read on for some of the pitfalls you might encounter. [[{“value”:”

One of the best personal finance decisions I’ve ever made in the context of shopping was to upgrade my basic Costco membership to an Executive membership. These days, I pay $120 a year for a Costco Executive membership. That’s double the cost of a basic membership.

However, my Executive membership gives me 2% cash back on my Costco purchases. And since I shop at Costco frequently, it’s common for me to rack up more than $100 in cash back from that membership per year. As such, the extra $60 fee more than pays for itself.

But while I appreciate having an Executive membership at Costco, there are certain pitfalls you might encounter if you decide to upgrade. Here are some less obvious drawbacks to be aware of.

1. Your Executive membership might tempt you to spend more

The danger of chasing a credit card sign-up bonus is that you might end up spending more money for the express purpose of meeting a threshold that entitles you to a perk like free cash or air miles. Similarly, if you upgrade to Costco’s Executive membership, you may find that you’re more tempted to buy extra things so you can score a higher reward certificate at the end of your membership year.

Of course, you could always try to train your brain not to do that. But also, a part of you might go, “Well, I wasn’t planning to blow $20 on a fleece sweatshirt I really don’t need, but I get 2% back, so…”

There lies the danger. And you don’t want your Executive membership to lead to excessive spending that hurts you financially.

2. Certain purchases don’t qualify for cash back

The Costco Executive membership gives you 2% cash back on most purchases. But it doesn’t give you cash back on all purchases. Some of the things you won’t get cash back on are:

Gas fill-upsCigarettesTobaccoAlcohol (depending on your state)StampsFood court purchases

Now, perhaps some of these products aren’t things you buy anyway. But not being eligible for cash back on gas fill-ups, for example, is a huge bummer. I almost always try to fill up my car in conjunction with a Costco run to save big at the pump, since Costco’s gas prices are lower than most stations in my town.

3. You no longer get early access to stores

There was a point in time many years ago when a Costco Executive membership gave you early access to your local warehouse club store. Not anymore. Costco did away with that benefit ages ago, but I really miss it.

I’m someone who doesn’t like crowds. The one negative of shopping at Costco in my book is that it tends to be full of people — even when you go at what seems like a random hour during the day. So I miss being able to shop at a time when the store was a bit emptier.

That said, I’ve found that Costco tends to be less busy in the evening. So if you happen to be free at that time, you might benefit from fewer crowds.

I love my Costco Executive membership and can’t imagine downgrading to a basic one. If you’re thinking about upgrading your membership, it may be a move that serves you well. But do be aware of these drawbacks before moving forward.

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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 positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Taking too much money out of savings at once can raise red flags. Here’s how to be sure you’re not arousing suspicion. [[{“value”:”

It’s your money sitting in the bank, but have you ever wondered if someone might be watching what you do with those funds? If so, the answer is yes. There are eyes on your bank account and, more specifically, folks looking out for signs of illegal activity. Here’s what you need to know about your savings account and when a withdrawal is large enough to raise a red flag.

The Bank Secrecy Act

Some banks limit the number of times you can withdraw money from your savings account, while others do not. That decision is totally up to the bank. However, a decision that’s not left up to individual banks is what happens when a customer withdraws $10,000 or more from either their savings account or checking account.

In 1970, Richard Nixon was in the White House, and Congress sought a way to fight crimes like tax evasion and money laundering. One of the solutions Congress came up with was the Bank Secrecy Act (BSA), a law that established how banks must conduct record keeping and when a financial institution was obligated to report unusual withdrawals to the federal government.

The BSA was amended after the attacks of 9/11, but the goal remains the same: Make it tougher for people to finance terrorist activities, launder money, or hide money from the IRS.

What happens

Imagine that you’ve been saving money to landscape your backyard and add a new stone patio. You withdraw $25,000 from your savings account to pay the contractors. Since you’re withdrawing more than $10,000, your bank automatically files a report under the BSA that’s sent to the Financial Crimes Enforcement Unit (FinCen) within the U.S. Treasury Department.

FinCen knows that most reports received each year represent legitimate withdrawals, and no one believes you’re doing anything illegal. In fact, an isolated $25,000 withdrawal won’t raise eyebrows at all. What FinCen is more interested in are patterns of suspicious withdrawals.

Let’s say your neighbor Sam owns a small print shop. It seems legit enough. However, every few months, Sam withdraws thousands of dollars from either their savings or checking account. Sometimes Sam withdraws more than $10,000, and sometimes they make a series of smaller withdrawals. In either case, a pattern begins to emerge.

When a report like Sam’s hits a FinCen desk, it’s enough to warrant a closer look. Is Sam laundering illegal gains for a criminal enterprise, funding domestic terrorism, or just really bad with money?

FinCen knows all the tricks

No matter how Sam tries to make withdrawals, their pattern of activity brings unwanted attention from FinCen. For example, Sam may withdraw $9,900 in an attempt to stay under the $10,000 threshold. They may withdraw $7,500 from one bank branch and then drive to another to withdraw an additional $2,500.

Sam is not fooling anyone. Banks look at the total amount an account holder withdraws rather than individual transactions. Any time funds are taken out on the same day, a report is generated.

Sam’s best bet (as long as they’re not up to something shady) is to keep a careful record of their withdrawals and save receipts showing how the money was spent. That way, if FinCen has questions, Sam can explain their interesting banking behavior.

Let’s say Sam has regularly withdrawn large amounts of cash to cover the cost of their mother’s nursing home care. Sam certainly did it the hard way. While they could simply save receipts from the nursing home, three easier (and less suspicious) options would have been to:

Write a check for their mother’s care rather than pay in cash.Use a credit card to pay for care, then pay the card off before the end of the billing cycle to avoid interest charges.Arrange a wire transfer from the bank to the nursing home.

Funds in your checking or savings account are yours to spend, and the chances of hearing from the U.S. Treasury Department are slim. Still, there’s no harm in understanding what triggers a report from the bank and being prepared to answer questions if asked.

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A new credit card can boost your credit score if you don’t charge too much. Learn about the credit-building benefits of a new account. [[{“value”:”

There are plenty of great reasons to open a new credit card account. Many cards come with sign-up bonuses, for example which means that you can get points, miles, or cash back for spending a certain amount on the card within a certain period of time. A new rewards card could also be a better match to your spending, or your new card may come with perks like airline lounge access that you didn’t have before.

There’s another really important reason you may want to sign up for a new card: Doing so could improve your credit score — but only if you are smart about how you use it.

There’s a simple reasons your new card could help improve your credit score

A new card may have a major positive impact on your credit score because that new card comes with a new line of credit.

Many factors go into determining your credit score, and one of them is your credit utilization ratio. Credit utilization ratio refers to how much of the credit available to you you’re actually using. It accounts for a whopping 30% of your FICO® Score, second only to payment history (which makes up 35%).

Opening a new card gives you more available credit, which, in turn, can help improve your credit score — if you know how the rules work.

Understanding credit utilization

The credit utilization component of your credit score is pretty easy to understand. Here’s an example:

Say you have a credit card with $1,000 in available credit.If you charge $500 on the card, you’d divide $500 (credit used) by $1,000 (credit available).In this scenario, you’d have a 50% credit utilization ratio

The lower your credit utilization ratio, the better your credit score is likely to be. That’s because not maxing out your cards shows you can be responsible with credit. And having a low balance means you’re much more likely to be able to make payments on the debt you do owe, since you won’t be overwhelmed with obligations.

It’s best not to let your credit utilization ratio get above 30%, but since you’re better off with keeping this ratio as low as possible, adding a new card to your arsenal is really helpful because of the new credit line that comes with it.

Let’s take our above example and assume you added another new card — this time with a $2,000 credit limit. Now, you have:

A credit card with a $500 balance and a $1,000 limitA credit card with a $0 balance and a $2,000 limitYour new credit utilization ratio is $500 (credit used) divided by $3,000 (total credit available). That gives you a utilization ratio of about 17%.

As you can see, you have a much more favorable utilization number now, so your credit score should improve.

Here’s why you need to be careful

You do need to be careful with your new card, though. Specifically, you don’t want to charge too much on it. If you do, then you could hurt your utilization ratio by increasing your credit used. If you get in over your head and start missing payments, that could lead to even bigger problems.

So, when you apply for a new card, be sure to use it wisely. Charge only a limited amount and pay off your balance in full each month. That way, both the new line of credit and the positive payment history it provides can help you improve your credit score over time.

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Not interested in budgeting? Here’s how to enjoy the benefits of it without actually having to do it. [[{“value”:”

At this point, we’re still fairly early on in the new year, which means you may still be motivated to uphold the financial resolutions you set for yourself. And one of those may be to finally stick to a budget.

But what if budgeting is something you truly can’t stand to do? If so, that’s understandable.

Budgeting doesn’t have to be painful. Numerous apps can make it a lot easier. But if you’re still not interested in budgeting, don’t force yourself to do it. Instead, do these things, which might benefit you financially just as well.

1. Set up an automatic transfer to your emergency fund

The whole point of setting up and sticking to a budget is to get a good sense of where your money is going so you can work toward different goals. But you can achieve that same objective without a budget.

Instead of checking your spending regularly, you can set up an automatic transfer from your checking account to your emergency fund. That way, money will land in that account off the bat every month (or at the frequency you choose) before you get a chance to spend it.

To put it another way, you could spend hours entering your purchases into a spreadsheet in the hopes of being able to move $100 into your savings at the end of the month. But if you simply move that $100 over at the start of the month and then work with the remaining funds you have, you’ll achieve the same goal — with a lot less hassle.

2. Sign up for your company’s 401(k)

Maybe one of your goals is to save for retirement. If you sign up for a 401(k) plan through your employer, you can potentially skip the whole budgeting process. That’s because 401(k) contributions are taken as payroll deductions.

So, let’s say you want to save $100 a month for retirement. With a 401(k), that $100 comes out of your pay before you even notice it’s gone. If you’re meeting that goal, you can tell yourself that budgeting isn’t necessary for you.

3. Practice mindful spending

Handing over money for things like rent and food isn’t something you should have to spend time contemplating. You need a roof over your head, and you need to eat.

But there are probably non-essential things you spend money on regularly. And that’s OK. But it’s also important to think carefully about those non-essential items and make sure they’re really adding value to your life. If not, that money could be going into savings instead.

For example, you might enjoy your monthly brunch with friends at a restaurant with a $40 pre-fixed menu. But are you enjoying that meal so much that it’s worth $40? If not, next month, suggest a potluck brunch at your apartment that costs each participant $15. That way, you’re $25 richer — without having to do things like track your grocery or gas receipts all week.

There’s absolutely nothing wrong with budgeting. Quite the contrary — for many people, it’s what helps them stay on track financially. But if you don’t see it working for you, these moves could serve as a reasonable alternative.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has nearly tripled the market.*

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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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