Money Management

Scared to invest your money? It could put you at risk of falling short financially in retirement. Here’s why — and what to do. [[{“value”:”

I was talking to a friend of mine the other day who’s in her early 40s. She earns a good salary and is able to save nicely for retirement. But when she told me that the bulk of her retirement savings were in cash, I almost wanted to jump through the phone and shake her silly.

When I asked why she was sticking to cash at an age when retirement is a good 25 years away, her answer boiled down to being scared of the stock market. And she’s not alone. A recent survey by Empower found that 28% of Americans say they feel safer when they keep their money in cash, as opposed to investments.

Investing in the stock market indeed carries some risk. But not investing in the stock market might carry an even greater risk.

You don’t want to end up short on retirement funds

Many people shy away from stocks because they’re worried about the possibility of losing money. And it’s true that if you build a stock portfolio, its value might swing wildly from one week or month to the next. But one thing you should know is that the stock market has a strong history of rewarding long-term investors over time.

Over the past 50 years, the stock market’s average annual return has been 10%. But there were plenty of years during that stretch when the market performed poorly. That 10% return accounts for both periods of a down market and a strong one. And if you’re investing over a lengthy period, such as my friend is for retirement, then it’s important to recognize that you’re likely to make money from stocks overall.

What’s more, not investing in stocks means running the risk of not having enough money to pay your retirement expenses. Let’s say you save $300 a month for retirement over a 40-year period, only you stick to cash and get an average annual 3% return on your money. All told, you’ll have about $271,000.

Meanwhile, let’s say you mostly invest in stocks, only your portfolio doesn’t do as well as 10% a year on average. Rather, let’s be more conservative and assume an 8% average yearly return. Still, with that same $300 monthly contribution and 40-year window, you’re looking at retiring with over $932,000 instead of $271,000. That’s a huge difference.

A good approach to stock market investing

If you’re worried about losing money in the stock market, which is understandable, one thing you can do to mitigate that risk is to build a diversified portfolio. You can do so by investing in stocks across a wide range of industries. Or, you can load up on broad market ETFs, or exchange-traded funds.

Another thing you should do if you’re fearful of stock market losses? Don’t check your portfolio every day, week, or even month. Seeing losses on the screen might cause you to react and sell assets when they’re down, thereby locking in losses. Instead, check your retirement plan or brokerage account every quarter.

And if you’re checking at that cadence and you see a loss, pledge to not make any moves until the following quarter unless there’s a specific reason to be worried about a specific investment you hold. One incident of missed earnings, for example, doesn’t mean you should dump a stock. A series of missed earnings is a different story. (You can find out whether a company you’re invested in has missed earnings or not by listening in to its quarterly earnings calls, reading transcripts of those calls, or reading press releases that usually follow or come out in conjunction with those calls.)

Not investing in stocks carries more risk than you might realize. On my end, I’m trying to convince my friend to allocate some of her assets to stocks. Showing her numbers like the ones above is helping her see the light. But if you’ve been staying away from stocks, recognize that refusing to invest in them might be the one thing that stands in the way of the comfortable retirement you deserve to enjoy.

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Spending too much on housing could wreck your finances. Read on if you’re in that unfavorable position now. [[{“value”:”

It’s hardly a secret that housing is commonly the typical American’s largest monthly expense. But with housing costs being elevated, a lot of people today are struggling financially.

Data from the Joint Center for Housing Studies of Harvard University finds that half of U.S. renters were spending more than 30% of their income on housing as of 2022. That’s problematic, because spending above 30% of your earnings on housing could put you at risk of falling behind on not just your rent payments but also additional bills. And that could, in turn, result in a lot of damage to your credit score.

Also, if you continue to spend more than half of your paycheck on rent, it might seriously hinder your ability to meet other goals. Those might include building up retirement savings, accumulating an emergency fund, or saving for a down payment on a home you own yourself.

If you’re currently spending more than 30% of your paycheck on rent, it may be time for some changes. Here are some options to explore.

1. Look into different neighborhoods with fewer amenities

Living in a neighborhood with easy access to public transportation, parks, and retail spots might cost you in the form of higher rent. Similarly, you might pay a lot more to rent a home in an area with a highly rated school district.

Think about the amenities you’re paying for and see if a move to a different neighborhood makes financial sense. Granted, there’s a cost involved in moving itself, but if you can get around that, such as by enlisting friends to help, then the rent-related savings could be worth it. Plus, the amenities you end up forgoing may not constitute such a huge loss.

Let’s say you live in an area with great schools but you don’t have kids. You may be paying for a benefit you aren’t using. Similarly, if you’re paying for easy access to great restaurants but have a newborn at home and don’t anticipate going out a lot in the coming years, you may be able to move to a cheaper (and quieter) neighborhood.

2. Boost your income with a side job

It can be really difficult to take on extra work when you already have a full-time job. But it may be that you don’t have many options for finding a rental that’s less expensive than what you’re paying for now. If so, boosting your income with a second job may be your best option.

The good news, though, is that there are flexible side jobs to be had — ones you can do at your own pace and schedule. These include driving for a ride-hailing service or working for a grocery delivery service. You may also be able to find remote work you can do when it’s convenient, like data entry. This way, you don’t need a car to earn extra money.

3. Look into rental assistance

The rental assistance programs that were put in place in the wake of the pandemic may no longer be available to you. But that doesn’t mean you’re totally out of luck. There may be resources available to you through your state or local community. You can search HUD’s resource locator for help in your area.

It could also help to connect to a housing counselor to discuss your options for finding a more affordable rental. You can search the CFPB’s database for a counselor who’s local to you.

In some parts of the country, it may be virtually impossible to find a rental that only takes up 30% of your income or less. But if you have the flexibility to move to a less costly home, take advantage of it. Otherwise, try your best to grow your income and look into resources that may be able to provide some financial relief.

Where to invest $1,000 right now

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If you shop at Sam’s Club, don’t miss out on valuable membership benefits. You could use those additional savings and club offerings. Find out more. [[{“value”:”

A warehouse club membership can unlock significant savings. Many people join Costco or Sam’s Club to get discounts on everyday expenses like groceries and household goods. If you’re a Sam’s Club member, ensure you take advantage of all the valuable membership perks.

Since you pay a yearly fee ($50 or $110, depending on membership level) to shop at the popular retailer, you should do what you can to maximize the benefits provided. Here are a few Sam’s Club perks you may forget to use.

1. Discounted gift cards

Like other retailers, Sam’s Club sells gift cards. But the warehouse club sells them at a slight discount. If you’re planning to purchase gift cards for gifts or to spend at your favorite restaurants and stores, check to see if you can save money by getting them at Sam’s Club. Look for limited-time gift card deals that offer additional savings — these deals are especially plentiful during the holiday season.

2. Scan & Go

All Sam’s Club members have access to Scan & Go. This service lets shoppers scan items using the Sam’s Club mobile app as they shop. As you scan, the app keeps a running total of your bill. You can pay in-app to avoid waiting in a long checkout line when you’re finished shopping.

This is a valuable benefit because it can help you stay on budget as you shop. You’ll be more aware of how your shopping decisions will impact your finances by seeing the total before you check out. It can also save you time by skipping the traditional checkout line.

All you have to do is show your digital receipt to an employee before walking out the door. Sam’s Club also promotes Scan & Go offers throughout its clubs. These additional discounts are only available to members who checkout using Scan & Go, so take advantage of this.

3. Sam’s Cash bonus offers

Here’s another perk you want to take advantage of: Sam’s Cash Bonus Offers. Members can earn bonus Sam’s Cash through this program.

After linking their debit cards and credit cards, activating offers, and making qualifying purchases with linked cards at participating merchants included in the program, members earn Sam’s Cash. You can earn up to $500 annually in Sam’s Cash.

Sam’s Cash can be redeemed in the following ways:

Spend it in a club or onlinePay membership feesCash it out in a club

4. Save money on entertainment

You may be aware that you can use your Sam’s Club membership to save money on travel, but did you know you can also save money on entertainment expenses? You can get a deal on tickets to select amusement parks like Walt Disney World and LEGOLAND, movie tickets, concerts, and sporting events. Before spending money on entertainment expenses, check to see if your Sam’s Club membership can help you keep more money in your bank account.

Is a Sam’s Club membership worthwhile?

Is a Sam’s Club membership worth the investment? Only you can decide. Be sure to consider whether you can afford the annual cost before joining. You should also consider your typical spending habits and research what products are sold at Sam’s Club to know what to expect.

But it may be worth the cost if you have extra room to store bulk items and a club is nearby. If you stick to your shopping list, Sam’s Club could help you keep more money in your wallet. For more money-saving tips, check out our personal finance resources.

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.Natasha Gabrielle 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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Credit cards and debit cards are popular ways to pay for purchases. See recent data on what Americans prefer and why the type of card you use matters. [[{“value”:”

Most Americans pay for purchases with credit and debit cards. After all, paying by card is faster and more convenient than paying in cash.

Even though credit cards and debit cards look similar, they have some notable differences. Most importantly, a debit card is tied to your bank account, while a credit card is a revolving line of credit in your name. If you’re not sure which is better, here’s what Americans prefer and how to pick the right payment method.

More people have debit cards — but it’s close

A staggering 242.7 million U.S. adults had debit cards in 2021, according to credit and debit card statistics collected by The Motley Fool Ascent. That’s 93% of U.S. adults. Credit cards are also common, as 214 million U.S. adults (82%) had one or more in 2022.

Overall, 28.7 million more Americans have debit cards than credit cards. While debit cards are more popular by this measurement, it’s worth mentioning that most checking accounts include a debit card. Lots of adults may have a debit card by default just from opening a bank account. But it doesn’t necessarily mean that debit cards are their preferred payment method.

Americans spend more with credit cards

There was $10.4 trillion in purchase volume on credit and debit cards in 2022. Credit card spending accounted for $5.6 trillion (53%). Debit card spending accounted for $4.9 trillion (47%). Even though more people have debit cards, Americans as a whole spend $700 billion more on credit cards.

Credit cards are the better way to pay

It’s a close race between credit cards and debit cards in terms of popularity. However, when it comes to which is better, credit cards have a few key advantages.

Credit cards can help you build your credit

When you make purchases and pay them off on time using credit cards, it raises your credit score. A high credit score has a variety of benefits, including lower interest rates on loans and even lower insurance rates in most states. Debit card purchases don’t affect your credit score.

You can earn rewards on your spending

There are cash back credit cards that generally earn anywhere from 1% to 6% back on purchases. There are also travel credit cards that earn rewards you can redeem for travel purchases. Most debit cards don’t earn cash back or points. While there are some rewards debit cards, they don’t earn nearly as much as what top rewards cards offer.

They have better fraud protection

By law, you’re only liable for a maximum of $50 in unauthorized credit card purchases. On unauthorized debit card purchases, you could be liable for $50, $500, or the full amount depending on how quickly you report it. Many credit and debit cards offer $0 fraud liability, though.

The downside of credit cards is the risk of credit card debt. You need to be careful to only spend what you can afford. It’s very easy to go into debt with credit cards.

There’s no risk of that with a debit card, because you’re not borrowing money when you use one. For that reason, it’s often recommended to treat your credit card like a debit card — only use it for purchases you can afford with money in your bank account.

If you can do that, and you pay your credit card bill in full every month, then a credit card is the best choice. It’s good for your credit score, and rewards can be a valuable benefit that you don’t get from a debit card.

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A mortgage pre-approval won’t guarantee you a loan, but it’s a step in the right direction. Read on to learn more. [[{“value”:”

These days, the housing market seriously lacks inventory. Because of this, your real estate agent might tell you that it’s a good idea to get pre-approved for a mortgage loan as you go about searching for a home.

The mortgage pre-approval process is similar to that of actually applying for a mortgage. You give a mortgage lender certain financial information they request, like your income and savings, and it runs a credit check on you to see how risky a borrower you are.

To be clear, mortgage pre-approval isn’t the same as an actual mortgage. But it’s a step in that direction.

Basically, with a pre-approval letter, you get a sense of how much money you’re eligible to borrow for a home based on the information you’ve provided to your lender. Having that letter is important, because it sends sellers the message that you’re a serious buyer whose finances have already been vetted.

You may be wondering how likely you are to turn a mortgage pre-approval into a full-fledged mortgage loan. And the answer is, if your financial situation doesn’t change for the worse, then chances are, your official mortgage will get approved without a hitch. But if your financial picture worsens, you may not end up with that home loan after all.

It’s a matter of risk

Generally, to go from the mortgage pre-approval stage with a lender to an official mortgage, the lender needs to do a deeper dive into your finances. Of course, you also have to find a home you want to buy and make an offer on it. But once that happens, your lender will dig into your finances and make sure it considers you a reliable loan candidate. If your finances don’t change for the worse between the time of your mortgage pre-approval and your actual loan, then getting an actual mortgage should be a snap.

Let’s say that at the time you got pre-approved, you had a credit score of 700, an income of $90,000, and savings worth $150,000. If, a month or so later when you’re ready for an actual mortgage, your credit score is still 700, your income is $90,000, and your savings are at, say, $148,000 because you had to make a car repair, you should be in a good position to have that mortgage go through.

But let’s say a negative financial event occurs during that same window. Let’s say you fail to pay a bill on time and it’s reported to the credit bureaus. If that causes your credit score to fall to 610, it could compromise your mortgage, since lenders typically require a minimum credit score of 620 to qualify for a conventional home loan.

Don’t lose out on your mortgage

If you’re eager to become a homeowner, there are certain steps you can take after getting mortgage pre-approval to make your mortgage official. First, make sure to pay all bills on time. Being delinquent on even a single bill could cause your credit score to plummet.

Next, avoid taking on new debts when you know you’re on the cusp of a mortgage. If your lender sees new loans in your name or much higher credit card balances, it might worry that you’re overextending yourself and deny you your loan.

Along these lines, try to avoid large purchases that aren’t necessary right away. It’s a good thing to be able to show that your savings situation hasn’t changed much.

Again, if you need to take a modest withdrawal for a one-off bill, a lender generally won’t hold that against you. But if you have $150,000 in the bank at the time of your pre-approval, don’t go out and buy yourself a $40,000 boat.

Finally, if possible, don’t switch jobs until your mortgage is official. You can accept a promotion, but a last-minute job change could be problematic.

That said, it’s generally less problematic if you accept a new job of the same nature at a different company. If you’re a CPA, moving from one accounting firm to another won’t necessarily hurt you. And if your income rises, it could help you.

All told, mortgage pre-approval doesn’t guarantee you an actual loan. But as long as your financial situation doesn’t change for the worse, there’s a good chance that if you’re pre-approved, you’ll eventually be able to get an actual mortgage.

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.*

They just revealed what they believe are the 10 best stocks for investors to buy right now…

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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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