Money Management

Certain financial tips may cause more harm than good. Here are three you should ignore. [[{“value”:”

You’re likely to receive your fair share of personal finance advice. You might get some tips from an older sibling or parent. Or, you might get financial advice from the internet.

A lot of the tips you’ll hear may be useful. But these three particular tips are actually anything but helpful. So all told, they’re pieces of advice it pays to ignore.

1. You can never have too much savings

You may have heard that there’s no such thing as having too much money in your savings account. But actually, that’s false.

You should absolutely keep enough money in savings to cover yourself for emergencies. At a minimum, that means socking away enough cash to pay for three months of essential bills. And you may decide that you’d like to save beyond that point — say, up to a year’s worth of bills if that brings you peace of mind.

But once you’re set for emergencies, don’t just keep funneling cash into your savings account. Instead, look to start investing money. Going this route could make you a lot wealthier in the long run.

Right now, many high-yield savings accounts are paying between 4% and 5% interest. But the stock market’s average return over the past half-century has been 10%. Also, today’s savings account rates are far from the norm.

Even so, let’s say you snag a 5% yearly return on a $10,000 savings account deposit over a 10-year period. At the end of that window, you’ll have about $16,300. With an average return of 10%, during that time, an investment portfolio might grow your $10,000 into almost $26,000.

2. All debt is bad debt

Some people will tell you that any type of debt you take on is bad news. But while it’s generally best to steer clear of high-interest credit card debt, you don’t necessarily need to stay away from all debt. In fact, if you resolve to never owe money in any shape or form, then certain goals, like buying a home, might remain out of reach for the majority of your adult life.

Rather than write off the idea of debt, recognize that certain debts, like a mortgage, can actually lead to more wealth. If you buy a home for $250,000, in 30 years from now, it may be worth $750,000. So paying interest on a loan that lets you not only own a valuable asset but have a roof over your head for three decades, may be more than worth it.

3. A credit card balance can help you build credit

It’s true that paying your credit card bills on time every month can help you build credit. But that doesn’t mean you need to owe money on your credit cards for your credit score to benefit.

In fact, owing money on your credit cards is not a good thing. It means losing money to interest (unless you happen to have a 0% introductory rate), and it could actually cause damage to your credit score rather than help it.

One important factor that goes into calculating credit scores is utilization, or the amount of available credit you’re using at once. Carrying too large a balance relative to your total credit limit could hurt your credit score rather than help it. And paying interest on a balance could prevent you from meeting other big goals. So while it’s perfectly OK to use a credit card, aim to pay your balance in full every month.

Unfortunately, there’s a world of bad financial advice out there. But these are three tips you really don’t want to follow.

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Here’s a decision that could help you achieve financial independence. Learn how it can save you money every year. [[{“value”:”

An individual retirement account, or IRA, is a specialized type of investment account designed to help people save money for retirement. It can be one of the most powerful wealth-building tools available to American workers. Not only can an IRA allow you to save and invest for retirement in a tax-deferred manner, but there are some other big reasons to open one and contribute often.

Here’s a rundown of how much you can invest in an IRA, how they can save you more on your taxes than you think, and how you could build a million-dollar nest egg over time.

How much can you put into an IRA?

The IRS sets an annual maximum IRA contribution each year. For 2023, the contribution limit is $6,500, with an additional $1,000 allowed for investors 50 and older as a catch-up contribution. For 2024, the limit is rising to $7,000, with the same catch-up allowance.

It’s also worth noting that you can make IRA contributions until each year’s April tax deadline (this is why I just mentioned the 2023 limits, even though we’re well into 2024). In other words, if you open an IRA this month or next, you can still make your 2023 IRA contributions until April 15 and potentially save money on your tax return right away.

To contribute to an IRA, you need to have earned income from a job or business you participate in. To qualify for a tax benefit, you’ll need to meet certain requirements, which I’ll discuss more in a bit.

Traditional or Roth?

There are two main types of IRA you can open with an online broker — traditional or Roth. There are a couple other types available if you’re self-employed, but these are the options that anyone can open.

There are a few differences between the two, but the most significant is the tax treatment.

Traditional IRA contributions can potentially be deducted on your current-year tax return, which can save you a ton of money. As an example, if you max out a $7,000 IRA contribution for 2024 and you’re in the 22% tax bracket, you could save $1,540 on your 2024 federal income tax.

On the other hand, Roth IRA contributions are not tax deductible, but qualified withdrawals after you retire are completely tax free, regardless of how much your investments have grown. On the other hand, traditional IRA withdrawals are treated as taxable income.

Generally speaking, traditional IRAs are best for those who want to save money on their taxes now, while Roth IRAs are best suited to people in lower tax brackets now who want tax-free retirement income.

Can you open an IRA if you already have a 401(k) at work?

The short answer is yes. But if you have a 401(k) at work, or if you’re married and your spouse does, it might limit your ability to take a tax deduction for your traditional IRA contributions. Roth IRA contributions are income-restricted for everyone. The short version of the rules is that to make a full contribution to a Roth IRA for 2024, your adjusted gross income (AGI) must be less than $146,000 (single filers) or $230,000 (married filing jointly).

Special features of IRAs

IRAs have some key advantages over 401(k)s and similar plans when it comes to flexibility. While you cannot borrow from an IRA like you can with most 401(k)s, you can withdraw up to $10,000 without penalty to use toward a first-time home purchase for you or someone else.

Plus, you can use any amount to help pay for college. In fact, many people use IRAs to save for college instead of 529 plans. You can withdraw the money to pay for college, but if your kids end up not needing it, you can simply keep it for your own retirement.

How much could your money grow in an IRA?

Once you’ve deposited money into an IRA, it can be invested in stocks, bonds, mutual funds, ETFs, and other types of assets. If you don’t want to pick your own investments, many brokers offer automated investing, or robo-advisory services that will construct an appropriate portfolio for you.

While it’s impossible to predict what your investments will do in the future, the stock market has produced annualized returns of about 10% on average over long periods. Based on this rate, and a $7,000 annual contribution rate, an IRA could produce a $1.15 million nest egg after 30 years.

An IRA investor’s best assets are contributions and time. So, there’s no better time to get started with an IRA through a top online broker than right now.

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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Just because you work in a certain field doesn’t mean you can’t seek help. Read on to see why this personal finance writer works with a professional. [[{“value”:”

When a good friend of mine who’s a doctor self-diagnosed herself incorrectly last year and suffered for a week without much-needed antibiotics as a result, I was quick to remind her that even the best doctors out there need doctors of their own. (This was after days of checking up on her and texting “Go. To. The. Doctor” over and over again.) But the reality is that I practice what I preach in the context of my career.

I write about personal finance and investing for a living. So I’m no stranger to picking stocks, and I know all about things like retirement savings and emergency funds.

Despite this, I choose to pay a financial advisor to oversee my long-term investments and help me work toward my long-term goals. Here’s why.

1. My advisor has knowledge I don’t

My financial advisor has been doing what he does for many years, and he holds different licenses that make him qualified to help people with their money. I don’t have those same credentials. And while I do consider myself fairly knowledgeable in the realm of financial matters and investing, my advisor knows even more. So I don’t in any way feel like I’m wasting my money by getting his help.

2. It’s good to have an outsider’s perspective

Sometimes, when you’ve been doing something a certain way for a while, you can get stuck in a holding pattern. Before I started working with my advisor, I was pretty set on a specific investing strategy. But he introduced me to new ideas that have since served me well. I think it’s a good thing to seek outside advice — for investing goals and in general — because it’s easy enough to get stuck in your own head.

3. It’s good to have input from someone who isn’t emotionally invested

My financial advisor wants me to do well for a few reasons. First, I believe he truly cares about helping the people he works with. Secondly, if my portfolio doesn’t do well under his guidance, he’ll risk losing me as a client — and other clients as well.

At the same time, my advisor isn’t emotionally invested in my success the way I am. If my portfolio’s value declines, he’s not going to get as stressed as I would, which might, at a time like that, put him in a much better position to manage my investments.

An advisor could do a lot of good for you

Even though I know plenty about investing, I still use a financial advisor to help me work toward my long-term goals, like retirement and college savings. If you’re handling your own finances alone, you should know that help is available — it may be more affordable than you’d think.

Of course, different advisors have different fee structures. Some will charge an hourly fee while others charge a fee that’s a percentage of assets under management. So it’s good to talk to different advisors until you find someone who feels like a good fit, and whose fees work for you. You should also verify your advisor’s credentials before making your relationship official.

One final thing: It’s a big myth that only people with a lot of money need a financial advisor. Wealthier folks may indeed be more inclined to work with a financial advisor, as evidenced by this Northwestern Mutual survey. But in reality, a financial advisor can help you work toward your goals no matter how much income or savings you have at your disposal. So don’t hesitate to explore your options even if you earn an average wage.

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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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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Don’t want to break the bank this Valentine’s Day? Read on for a few inexpensive options. [[{“value”:”

Many people look forward to Valentine’s Day and can’t wait to indulge their loved ones with gifts and fine dining galore. But if your personal financial picture isn’t so great, then you may not be able to afford a blowout Valentine’s Day.

The National Retail Federation reports that the typical consumer anticipates spending about $186 on Valentine’s Day this year. And if you’re looking to spring for a gift, flowers, and dinner at a fancy restaurant, then your credit card bill might easily total $186 — or more.

The good news, though, is that you don’t have to empty out your savings account to pull off a romantic Valentine’s Day. Here are a few affordable and equally fun options you can explore instead.

1. Arrange a picnic lunch

If you live in a part of the country where February’s weather isn’t so cold, then a Valentine’s Day lunch in the park may be more than doable. Pack some sandwiches, snacks, and perhaps a thermos of coffee, scout out a scenic location, and invite your partner to enjoy a mid-day meal. If it works to surprise them at the office and whisk them away to a secret location, even better.

2. Cook a multi-course dinner together

Many restaurants offer pre-fixed, multi-course meals on Valentine’s Day. But if you go out to eat, you might easily pay upward of $50 per person. If you’re on a budget, plan out a three-course meal at home and prepare it together. It’ll give you an opportunity to spend time with one another in a less packed and noisy environment. And a bonus, you might even end up with leftovers so you don’t have to worry about dinner for the rest of the week.

3. Make it a movie marathon night

Those cheesy romantic movies people love to watch during the holidays? There’s no rule stating you can’t watch a Christmas flick on Valentine’s Day. Microwave some popcorn, pull out your favorite fleece blanket, and cozy up on the couch for some full-fledged romance on screen. If your partner is someone who tends to not want to leave the house after dark (especially during the heart of winter), then chances are, they’d rather do this than go out for a night on the town.

4. Take a trip down memory lane

Those photos you and your partner took on your first vacation 12 years ago? You probably haven’t looked at them in years. Instead of paying up for a Valentine’s Day meal or event, take the opportunity to bust out your old photos at home and reminisce about the good times you and your partner have had through the years. You could even build on this idea by starting to plan your next fun trip or outing.

There tends to be a lot of pressure to spend money on Valentine’s Day, but there doesn’t have to be. If your partner knows money is tight, chances are, they wouldn’t want you to bust your budget in the course of celebrating. So rather than do that, consider one of these options for a fun Valentine’s Day that won’t cost a lot.

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…

See the 10 stocks

*Stock Advisor returns as of February 6, 2024

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 recommends Flow. The Motley Fool has a disclosure policy.

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How much could your money grow in a “boring” CD? Keep reading to find out — you might be surprised. [[{“value”:”

CD rates are the highest they’ve been in years, and for the first time in a while, more people are looking to CDs as a part of their investment strategy, not just as savings vehicles. And you might be surprised at how elevated CD yields combined with the power of compound investment returns could grow your money over time.

With that in mind, here’s how much $1,000 could grow to in a 5-year CD right now, along with some alternative strategies to maximize your yield as well as financial flexibility.

How much would a 5-year CD grow?

First, we’ll start with the easiest answer of how much you could get by simply putting your money into a 5-year CD and leaving it alone.

As of this writing (Feb. 4), the best APY on our top 5-year CDs list is 4.30%. The income you earn will depend on how much you put into the CD, but for the purposes of illustration, we’ll use a hypothetical $1,000 CD deposit.

After the first year, the CD would grow by 4.30%, which would give you an ending balance of $1,043. In the second year, the $1,043 would grow by 4.30%, which would produce a balance of $1,087.85. In the third year, the 4.30% APY would be applied to this amount. Here’s a look at the year-by-year growth of $1,000 in a 5-year CD, compounded at 4.30%.

So, if you were to put $1,000 into the highest-yielding 5-year CD on our top CDs list, you’d earn a total of $234.31 of interest over the five-year term. At the end of the term, you can either withdraw the balance of $1,234.31, or you could allow your CD to be renewed for another 5-year term at the then-current rate. (Note: Most CDs automatically renew unless you specifically tell the bank you plan to withdraw your money.)

Should you buy a 1-year CD instead?

If your goal is to maximize your income, it’s important to point out that unlike at most times throughout modern history, shorter-term CDs are paying higher APYs than longer-term ones. Typically, it’s the other way around — that is, banks are willing to pay a premium if you’re willing to leave your money on deposit for a longer period of time.

As of Feb. 4, 1-year CDs on our best-of list have APYs up to 5.50% — significantly higher than the 5-year CDs on our radar.

The reason for this is that CD rates come from three primary factors — the bank, the current interest rate environment (are the Federal Reserve’s benchmark interest rates high or low?), and expectations for future interest rate movements. In other words, right now interest rates are at multi-year highs, but they aren’t expected to stay that way for long, and you’re seeing that reflected in the yields paid by 5-year CDs.

It might seem like a better idea to simply put your money into 1-year CDs for the time being to maximize yield, but there’s one big problem. In a year, you’ll need to renew the CD at the current rate, and there’s no guarantee that you’ll be able to get nearly as high of an APY that is available now. In fact, most experts predict that interest rates (and therefore CD yields) will be significantly lower a year from now.

A CD ladder can help you maximize current income and long-term flexibility

To be clear, if your goal is to lock in an APY to generate consistent income, a 5-year CD is probably the best move for you. On the other hand, if your primary goal is to maximize your current income, and/or not necessarily keep your money tied up for five years, a CD ladder could be right for you.

You can read a primer on CD ladders for more details, but the general idea is that a CD ladder involves dividing your money among CDs of different maturities. For example, instead of putting $10,000 into a 5-year CD, you’d put $2,000 into a 1-year CD, $2,000 into a 2-year CD, and so on.

By doing this, you’ll increase your current income, since some of your money will be in CDs that pay higher short-term rates. Every year, some of your money will mature, which will give you the flexibility to use it if you need it. And if you don’t, you can renew the maturing CDs into new 5-year products.

In a nutshell, a CD ladder combines the best of all three worlds — high initial yield, long-term APY visibility, and financial flexibility. And it could be the best approach to incorporating CDs into your investment strategy.

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…

See the 10 stocks

*Stock Advisor returns as of February 6, 2024

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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