Money Management

Investors who want to increase their returns sometimes turn to borrowing money. Learn why this can be one of the worst financial decisions you make. [[{“value”:”

The stock market has been doing very well lately. The S&P 500 went up by 24.23% last year, and it has kept growing so far in 2024. And any time the market is delivering positive returns, investors start wondering: Why don’t I borrow money to invest?

Seeing your portfolio grow is nice, but maybe you don’t feel like it’s good enough. Everyone wants to boost their returns, after all. So instead of just using their own money, some investors borrow money. It’s often a decision that leads to disaster.

Borrowing money to invest: The basics

The most common way to borrow money and invest is with margin. Margin is money you borrow from your stock broker. To do this, you need to open a margin account. A cash account, on the other hand, only lets you invest your own money. But it’s not hard to open a margin account — you only need to deposit at least $2,000 to meet FINRA’s requirements.

Many stock brokers offer margin accounts, which typically double your buying power. If you have $10,000 of your own money, you can borrow and invest another $10,000.

The other option is to take out a personal loan and invest with that. Investors generally stick to using margin, but some do ask about getting a loan. With interest rates the way they are, this would be expensive. The average personal loan rate is 12.17%, according to research by The Motley Fool Ascent. That’s more than you can realistically expect from any investment. You’ll also need to make loan payments every month, whereas you can normally repay margin at your own convenience.

The dangers of investing on borrowed money

When you borrow money to invest, it multiplies your gains or your losses. Investors who do this are an optimistic bunch, and they usually focus more on the first part.

Your investments could just as easily lose value. The stock market is volatile, and there’s no predicting what it’s going to do from week to week. You could find yourself losing money on your investments while still needing to pay interest on the money you borrowed. And interest rates are high right now — many brokers have margin rates of 12% or more.

If the value of your investments falls too much, it can trigger a margin call. Your broker isn’t going to risk losing the money it lent you. When your portfolio’s value goes below a certain threshold, you’ll get a margin call. That means you need to either deposit more money into your account or sell stocks to pay off your loans. If you don’t do either, your broker can sell stocks from your account itself to cover the loans.

It doesn’t matter if you’re sure your investments are going to bounce back quickly. It doesn’t matter if everyone’s portfolio took a hit from a global pandemic. If you get a margin call, you could be forced to sell at a loss.

Investing is better than gambling

The age-old wisdom about gambling is that the house always wins. When you use margin, you’re gambling, and your stock broker is the house.

It’s a great deal for your broker. You’re paying interest on what you borrow, win or lose. Your broker can always liquidate your positions if necessary — and if it’s not able to recover its money that way, it can sue you.

The borrower, on the other hand, is betting on their ability to time the market. No one can reliably do that. Some investors get lucky and make money, at least for a while. But even the ones who have initial success often end up losing money eventually.

Regular investing is boring. That’s a good thing. Boring is safe and reliable. If you invest $1,000 a month of your own money for 35 years, and get an 8% annual return, you’ll end up with $2.07 million. It may not be exciting at the beginning, but you also won’t have the stress of interest piling up and possible margin calls. And it gets a lot more exciting once you see how much your money is growing.

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Most Americans see a high credit score as an indicator of doing well financially. Find out why that’s not always the case. [[{“value”:”

It’s good to have a high credit score. There are certain times in life, like applying for a mortgage or an apartment rental, when your credit is going to make a big difference.

But there’s also a common misconception that a high credit score is a sign of financial success. That’s something 84% of Americans believe, according to a recent report by Ramsey Solutions. This kind of thinking can give you a false sense of security about your finances. If you’ve been using your credit as a gauge of your success, it’s best to rethink that.

Your credit score is only a small part of your financial situation

It’s not too complicated or hard to get a high credit score, once you know how to do it. You’ll have a high score if you get in the habit of:

Always paying your bills on timeNot borrowing too much on your credit cards

To be clear, these are both great habits. You should make it a goal to pay every bill on time and avoid charging too much on your credit cards. Ideally, you’ll also pay off your credit cards in full every month so you aren’t charged any interest.

However, your credit score is really just a gauge of how you manage credit, including your credit cards and loans. That’s only one part of personal finance. Your credit score isn’t based on how much you have in your savings account, your investments, or your income.

It’s good that you can get a high credit score even if you don’t have a large income or a lot of money saved. If those were requirements, it would be much more difficult for people to build credit and quality for top credit cards. But this also means excellent credit isn’t always a sign that you’re doing well with money. After all, it’s possible to have a high credit score even if you:

Live paycheck to paycheckHave nothing in your savingsHave no retirement accountsPay for a car loan or mortgage you can barely afford

A high credit score is valuable. If you don’t have one yet, then it’s certainly smart to improve your credit score. But there’s much more to financial success.

What does it mean to be financially successful?

There are several signs of financial success. If you’re trying to evaluate your own financial situation, or if you want to improve it, here’s what to aim for:

You earn enough money to pay your bills, save, and invest every month. It’s generally recommended that you save at least 10% of your income and invest another 10%.You have an emergency fund that can cover at least three to six months of living expenses.You don’t have any high-interest debt. The most common type of high-interest debt in the United States is credit card debt.You set financial goals, such as saving a certain amount for retirement or increasing your income by $5,000 this year.You feel confident about your finances. Money isn’t a source of stress for you, and you don’t need to internally debate whether you can spend $20 here or there.

If you can say yes to all of those, then you’re in a secure financial position. Keep doing what you’re doing and setting new money goals for yourself as you go.

If you’re not there yet, that’s fine. Many people aren’t. To give you one example, Americans have a median savings account balance of $1,200, according to research by The Motley Fool Ascent. That’s nowhere near the three to six months of expenses recommended for an emergency fund.

Use each of those items above as goals, and set up a step-by-step plan to reach them. For example, three to six months of living expenses is a lot of money. You can’t build that up overnight. But you can commit to saving $100, $200, or $500 a month toward your emergency fund. Start by setting a goal of saving one month of expenses. After that, you can move on to two months, and then three.

Financial success is about more than a high credit score. If you have excellent credit, you should be proud of that. Just make sure you also focus on other parts of your finances, too, including how you manage your money.

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Your first credit card should be one you like and want to keep for the long haul. Make sure you pick a good one by looking for these key features. [[{“value”:”

When you’re new to credit, one of the best steps you can take is opening your first credit card. If you use a credit card and always pay the bill on time, it can help you build your credit score.

Ideally, your first credit card will be one you hang on to, because keeping your first card open is good for your credit history. Below, you’ll find the key features that can help you pick a great starter credit card.

1. No annual fee

There’s no reason to pay an annual fee for your first credit card. It shouldn’t cost you money to build your credit, and there are plenty of no annual fee cards available for consumers who haven’t established credit yet.

Some credit cards with annual fees have enough benefits to make those fees worth it. But cards like these are normally only available to consumers with good credit. Starter credit cards that anyone can get usually don’t have enough perks to justify an annual fee.

Just so you know, some starter cards are secured credit cards. These require a refundable security deposit to open. Paying a security deposit for your first credit card is fine. You can get your deposit back when you either upgrade or close the card. Upgrading is better, so if you decide to get a secured card, look for one that gives you that option.

2. Credit score monitoring

Everyone should keep an eye on their credit score, and it’s especially important when you’re building credit.

Make sure to pick a credit card that offers free credit score monitoring. This way, you can check that your credit score is going up from month to month. Credit score tools also show you the factors that are currently affecting your credit score, so you can see if there’s anything you need to fix.

3. Cash back or rewards points

Credit card rewards have gotten a lot better over the years. Even though the best rewards cards are for consumers with good credit, there are also a growing number of rewards cards you can get with no credit history.

While this isn’t an absolute must-have, see if you can get a card that earns rewards. Cash back cards are a good choice because they’re easy to use. They generally earn 1% or more on purchases. If you spend $20,000 a year on a card that earns 1% cash back, that’s an extra $200 you can send to your bank account.

4. A quality card issuer

Lots of people don’t worry too much about customer service when getting a credit card. But it’s not something to overlook, especially when you’re new to credit and may want to contact your card issuer with questions or concerns.

For customer satisfaction, Discover consistently does well in J.D. Power’s rankings. Bank of America has also scored highly; it tied for second in J.D. Power’s 2023 satisfaction survey, behind American Express (which doesn’t currently have cards for those who are new to credit). Discover and Bank of America both have excellent starter credit cards, including student credit cards and secured credit cards.

To sum it up, your first credit card should have no annual fee, credit monitoring, and be issued by a card issuer with quality customer service. If you can also get cash back or rewards points, that’s the cherry on top. The good news is that there are many cards with all these features, so with a little shopping around, you should be able to find one you like.

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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.American Express is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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Annual contribution limits for individual retirement accounts (IRAs) have increased for 2024. Find out how much they are and learn what else has changed. [[{“value”:”

If you hope to retire someday, you should take proper steps to prepare financially. Many people contribute to individual retirement accounts (IRAs) to build a nest egg for their retirement years. These investment accounts provide tax breaks.

With a traditional IRA, you can contribute pre-tax income. Some or all contributions may be tax deductible. These contributions grow tax-free until you withdraw money in your retirement years.

Roth IRA contributions are made with after-tax dollars (contributions aren’t tax deductible). However, when you withdraw money in retirement, you won’t be taxed.

IRA contribution limits have increased for 2024, and taxpayers can benefit.

Taxpayers can boost their IRA contributions in 2024

Taxpayers can contribute more money to their IRAs this year. The annual contribution limit for the 2024 tax year is $7,000, up from $6,500 in 2023. The IRA catch-up contributions limit for adults age 50 and older remains $1,000 in 2024, allowing for up to $8,000 in total contributions.

These limits apply to traditional IRAs and Roth IRAs. You must have earned income in 2024 to contribute to an IRA, and your contributions can’t exceed your household earnings for the year. Keep reading to review additional IRA guidelines for 2024 so you know what to expect.

Traditional IRA deduction rules for 2024

Anyone with earned income, even high earners, can contribute to a traditional IRA. A benefit of a traditional IRA is that some or all of your contributions may be tax deductible. However, some taxpayers may be ineligible to deduct their contributions.

If you or your spouse are covered by a workplace retirement plan, you can only take a deduction if you meet the income thresholds. The income limits have been adjusted for 2024.

Here’s an overview of the income limits for 2024:

Single filers with incomes above $87,000 who are covered by a workplace retirement plan can’t take a deduction. The ability to use a deduction begins phasing out with incomes above $77,000.Married couples filing jointly with incomes over $143,000 who are covered by a workplace retirement plan can’t take a deduction. The ability to use a deduction begins phasing out with incomes above $123,000.If you don’t have a workplace retirement plan, but your spouse is eligible for one, you can claim a full deduction with income between $230,000 and $240,000. You can’t take a deduction if your income is above $240,000.

If you or your spouse doesn’t have a workplace retirement plan, a full deduction can be taken.

Roth IRA income limits for 2024​​

You can contribute to a Roth IRA if you meet the income thresholds. Taxpayers planning to contribute to a Roth IRA should review the 2024 income phase-out ranges, as they’ve been adjusted. Here’s an overview of the income limits for the 2024 tax year by filing status:

Single filers can contribute to a Roth IRA with incomes up to $146,000. For those with incomes above $146,000, contribution limits begin to phase out, while those earning $161,000 or more are ineligible to contribute to a Roth IRA.Married couples filing jointly can contribute to a Roth IRA with incomes up to $230,000. For couples with incomes above $230,000, contribution limits begin to phase out, while couples earning $240,000 or more aren’t eligible to contribute to a Roth IRA.

Don’t neglect to plan for retirement

Ensure you don’t get too focused on your current personal finance needs that you neglect to plan for your retirement years. Investing in brokerage accounts like IRAs is one way to invest in your future. You can open an IRA through a brokerage firm.

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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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Love beauty products? Read on to make sure you’re not throwing your money away. [[{“value”:”

If you’re someone who prioritizes beauty products in your budget, you’re not alone. Data from Advanced Dermatology reveals that the average American spends $722 a year on their appearance. And depending on your personal collection of products, your credit card tab for personal care may be much higher.

Now, you may decide to make beauty products one of your financial priorities — after tackling expenses like rent, car payments, and food, of course. But if you’re going to spend a fair amount on beauty products, you don’t want that money to go to waste. Here are a few ways you may be throwing your money away.

1. Letting them expire

Just as food has the potential to go bad on you, so too can beauty products. You may have a little wiggle room beyond a given item’s expiration date — for example, you may be able to squeeze a couple more months out of a lip gloss or facial powder.

But be careful with eye makeup. When products go beyond their expiration date, they can start to harbor bacteria. You don’t want that stuff getting into your eyes.

Keep in mind that some beauty products don’t have a printed expiration date per se. Rather, there are rules of thumb to go by.

Mascara, for example, generally only lasts four to six months. Eyeliner can last a year, as can foundation and concealer. Powdered makeup can generally last a bit longer, like one to two years. But if you have powder that starts to crumble, it’s a sign you should toss it out.

To avoid running into a situation where your products expire on you, buy yours judiciously. Make sure you’ll actually use a given item before committing to a purchase. And if you already have a few of a given item, don’t buy more until you’ve used up your stash.

2. Not storing them properly

Storing your beauty products the wrong way could cause them to go bad sooner. Generally, you want to keep those products away from heat, sunlight, and excessive moisture. So if you have a bathroom window that tends to let in a lot of sun and create a lot of heat in one corner of your counter, don’t store your products there.

Bathrooms are a common place to store beauty products. And bathrooms tend to get a lot of moisture because that’s where you shower. So make a point to turn on your bathroom fan to keep the room ventilated while you’re bathing. And if you don’t have a fan, crack a window or at least leave the door open if that’s feasible.

3. Signing up for subscription boxes

Beauty subscription boxes or bags can be a fun thing to sign up for. Usually, you get a surprise assortment of products at different intervals (sometimes every month). And some of these services can seem quite affordable. Ipsy, for example, gives you five samples every month for a fee of $14.

The problem, though, is that the products you receive may not end up being useful to you. So in that case, you’re throwing money away.

Let’s say your subscription box includes a tinted moisturizer with a scent you can’t stand. Well, rubbing it all over your face is unlikely to go over well. That’s wasted money. Similarly, you might get a lipstick that’s the wrong color for you. Once again, that’s a waste.

It’s natural to allocate funds to beauty products in your budget. But try to avoid habits that could cause you to drain your bank account carelessly.

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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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