Do kids really need extra stuff to grow into thoughtful, well-rounded adults? DisobeyArt / Shutterstock.com
Editor’s Note: This story originally appeared on Living on the Cheap. Having kids is wonderful (if that’s what you want). I am biased, though. I’m the mother of two young children (ages 5 and 1), who are hilarious, obnoxious, ridiculous, perfect little beings. One of the things people will always (and truthfully) tell you is — kids are expensive. And, I get that.
To afford the median priced home in the U.S. now, you’d need to earn a salary of $115,000. Here’s what to do if you can’t afford this price.
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Becoming a homeowner has long been part of the American Dream. Unfortunately, buying a house right now has become something of an impossibility for many people. In fact, new research shows that the median-priced home is well out of reach for the typical American.
Here’s just how much you’d have to make in order to be able to afford a reasonably-priced home across the U.S., along with some tips on what to do if your earnings fall short.
According to Redfin, a home buyer purchasing a property in August of 2023 would have needed to earn an income of $114,627 annually in order to afford to buy a median-priced property.
To determine how much income home buyers would need to make to afford a house, Redfin calculated the monthly payment for a median price home purchased using a 30-year loan at the median interest rate with a 20% down payment. A home was considered affordable if housing costs were below 30% of a buyer’s income. With a median monthly payment of $2,866 in August, buyers would need to earn around $114,627 to afford it.
That is a 15% increase in the amount buyers needed to earn in August of 2022, even after adjusting for inflation. It is also a 50% increase in the income needed to be able to afford a median-priced home prior to the COVID-19 pandemic.
There are two primary reasons why people need to make so much money now to be able to afford to buy the typical home in the U.S.
While rates have eased over the last several weeks, it’s still very expensive to get a mortgage loan. While you could find home loans for 3.00% or less for a 30-year fixed-rate mortgage during the COVID-19 crisis, rates hit a two-decade high in October of 2023, with the average rate coming in at 7.57%. The higher mortgage rates are, the higher monthly payments will be, and the more money a person will need to make to be able to afford a home.
Despite the fact that mortgages are so expensive and fewer people are buying houses, prices on properties (which climbed during the pandemic) haven’t really fallen, in large part because there are few homes for sale. People aren’t selling because they don’t want to give up their own low mortgage rates they locked in a few years ago.
This has driven the median home price to $420,000 as of August when the research was done, up 3% compared with the prior year. This is just $12,000 short of the all-time high median value. The more expensive a house is, the more you have to borrow from a mortgage lender, and the higher the payments will be.
Sadly, this combination of high home prices and high costs of borrowing both contributed to the fact home buyers must make $114,627 a year, which is $40,000 more than the typical household income.
If you cannot afford to buy the median-priced house, you have a few options. You can wait and hope mortgage rates and potentially home prices fall. Some experts do expect rates to drop in 2024, especially if the Federal Reserve (the country’s central bank) lowers the overnight rate at which banks can borrow from each other.
Lawrence Yun, chief economist at the National Association of Realtors, predicts rates could fall to between 6.00% and 7.00% by spring of 2024, and the Mortgage Bankers Association has a similar prediction, indicating they expect rates to end 2024 at 6.1%. Fannie Mae is a bit more optimistic, predicting rates will settle at around 5.7%. So there could be hope on the horizon.
You could work to save more money so you can put more down and borrow less, which would make your monthly payments more affordable on your income. Or you could buy a smaller, cheaper home that’s below the median value. This may not be possible in all markets, however.
The reality is, if your housing costs would exceed around 30% of your income, buying a home under the current conditions would be unaffordable and you’d need to choose one of these other options. That may be frustrating if you’re hoping to achieve the American Dream of homeownership, but you definitely don’t want to buy a house that you don’t make enough to afford.
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Insurance coverage of all kinds can be expensive, but consumers have options to reduce their premiums. Learn more here.
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Paying for insurance can be expensive — especially in today’s environment. In fact, the cost of a homeowners policy has risen 21% on average compared with the prior year. And in some states, homeowners insurance costs have jumped as much as 68% since 2021. Car insurance costs aren’t much better, with the average premium price increasing 17% in the first six months of 2023. Higher repair costs and an increased number of claims are the biggest factors leading to rising rates.
Despite the high costs, it’s important to have the right coverage in place from a trusted insurer to avoid financial loss. The good news is, there are ways to save on insurance without compromising on coverage — even in this unfavorable market.
Just check out these three possible options for reducing insurance costs in 2024. Ideally, they can help to ensure less money ends up coming out of your checking account for insurance premiums in the upcoming year.
Shopping around and comparing policy options is key to getting the best price on insurance coverage. Insurance offerings change over time, and as a policyholder’s lifestyle changes and they age, they may find that a different carrier offers better premium costs for homeowners or auto insurance coverage. Insurers may also price policies lower for people who shop around, in a process called price optimization.
Over three-quarters of people who shopped around for insurance coverage did end up saving money, and since it only takes a few minutes to get some quotes online, there’s no reason not to do this. Just be sure to compare similar policies by confirming that the quotes are for the same level of coverage. The easiest way to do this is to look at the existing policy and make sure the new quotes have the same kinds of protections and the same coverage limits.
Asking insurers about discounts is also a great way to save, as there may be opportunities to reduce premium prices that policyholders aren’t even aware of. For example, Geico offers discounts of up to 12% for federal employees, and provides membership and employee discounts for people who are members of one of more than 500 different groups. But policyholders may not know they are eligible for discounts if they don’t ask.
Finally, it’s important for every policyholder to make sure they have the right deductible in place. The deductible is the amount the insured has to pay personally before insurance covers the rest of a covered loss.
A policy with a higher deductible is cheaper, although it does mean paying more out of pocket if something goes wrong. Often, though, it makes sense to choose the higher deductible and save the extra money.
For example, say that it costs $150 more per year in premiums to have an auto insurance policy with a $250 deductible versus a $500 deductible.
If a policyholder opted for the $500 deductible, they would pay $250 more in the event of a covered lossHowever, they pay $12.50 a month less for their insurance.If they saved that $12.50, in 20 months they would have $250 in their bank account to pay the extra out-of-pocket costs in the event of a covered incident.
As long as they went more than 20 months without a car accident, they’d be better off with the higher deductible. They’d have the $250 set aside to cover it, and would be able to continue saving the $12.50 on premiums indefinitely.
Policyholders should do the math on this, seeing how much they could save by opting for a higher deductible and estimating whether they’re likely to go long enough without a claim to save enough to cover the added costs. It’s worth running the numbers for a homeowners insurance policy, too, as a higher deductible also translates to monthly savings here.
By taking these three steps, consumers may be able to reduce their insurance premiums so they can pay less for the coverage they need and keep more money for other financial goals.
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It’s easy to forget to adjust your 401(k) contributions and estate planning during your year-end check-up. Read on to learn other steps to take, too.
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The end of the year can present an opportunity to plan for the upcoming year, imagining all of the financial goals we’ll accomplish. However, there are a few vital steps to year-end planning that can be easily overlooked. Here are four steps you shouldn’t skip in year-end financial planning.
401(k) contributions tend to be a set-it-and-forget-it expense. That convenience has a bit of a drawback though: Since that cash is coming out of your paycheck before you get it and you likely aren’t adjusting how much goes in regularly, it can be easy to lose track of how much you’re putting toward retirement. If your employer offers a contribution match, that’s free money for retirement you could be losing out on. Not to mention the fact that your contributions lower your taxable income, saving you money on taxes as well.
Let’s say you get a match up to 3% of your annual salary and you make $80,000 a year. That’s $2,400 in free money for retirement. Over 40 years, that one year’s worth of your company match alone would come to just shy of $36,000, assuming a 7% annual return. If you received a $2,400 401(k) match every year for 40 years at a 7% annual return, the amount would grow to about $480,000. You read that right.
If you aren’t contributing enough to get the match, now’s a good time to reach out to your plan provider and adjust your contribution amount. (And you may want to consider scheduling a mid-year check-in, in case your circumstances change.)
With interest rates skyrocketing, it makes sense that you may be taking a debt-first approach to your finances to avoid costly high-interest debt. However, the high-rate environment also means that you could be earning more money by saving it in interest-bearing accounts. And if you neglect savings to the point that you don’t have an adequate emergency fund, you could find yourself reliant on high-interest debt, like credit cards, if something goes wrong.
In fact, almost 40% of Americans wouldn’t be able to cover a $400 emergency with cash or its equivalent, and 46% don’t have any emergency savings, according to the latest Survey of Household Economics and Decisionmaking from the Fed.
The typical advice is to save at least three to six months’ worth of necessary expenses (think: rent, health insurance, utilities, food, etc.) in an emergency fund. If you don’t have any savings at all, putting even a small amount of money away is a good idea, especially if you can get a high-interest savings account and set up auto-transfers.
As the end of the year approaches, the desire to look ahead — toward accomplishing your goals like getting out of debt or finally buying that expensive gift for yourself — can be tempting. But if you aren’t really looking at how you’re using money and the habits you’ve established, getting to those milestones is probably going to be a lot tougher than you expect.
A few things you may want to consider:
What financial tools you have access to (and whether you’re getting enough value out of them to justify the costs)The percentage (or amount) of your monthly paycheck that goes toward debt, savings, living expenses, and entertainmentWhether your existing expenses align with your financial priorities and values
Taking a close look at your financial habits outside of the “ideal” can help you more easily see if your plans are realistic or not. If you aren’t sure where to start, a budgeting app can help.
Estate planning can feel a bit morbid and uncomfortable, so it can be easy to overlook it. In fact, according to a survey from Consumer Reports, only 33% of Americans have a will in place. But it’s a vital part of any financial plan, especially if you have dependents. (If you’re in that 33%, now is also a good time to review your existing will and make changes if you’ve gotten married or divorced, moved to another state, or have simply changed your mind about something.)
Talking to a financial professional who understands your goals and needs can help you make sure that your loved ones know exactly what your wishes are and how to attain them, and that they aren’t short-changed in the process. The National Association of Personal Financial Advisors is a useful resource here.
The end of the year provides the perfect opportunity to dig into your finances and figure out exactly how you can make progress on your goals. And if you take the time to consider these often-overlooked aspects of your finances, you’ll be setting yourself up for success in 2024.
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Consider investing the money you save from driving a used car instead of a new one. Learn how this can go a long way toward helping you build a nest egg.
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Buying a car isn’t optional for many people who need to commute to work or use a vehicle to fulfill personal and family obligations.
Unfortunately, it’s expensive to buy a vehicle so you’ll probably have to borrow — and when that monthly payment comes out of your checking account, it can leave you with too little money for other expenses. That becomes a big problem if you’re not saving enough in a 401(k) or brokerage account for your retirement.
The good news is, there’s a simple change you can make that may make all the difference in your ability to save for retirement. Just buy a used car instead of a new one.
While you probably need to buy some kind of car, you most likely don’t need to buy a brand-new one. And there’s a big difference in price between a new vehicle and a used vehicle.
According to Edmunds, the average monthly payment on a brand-new car was $733 in the second quarter of 2023, and was $569 on a used vehicle. That’s a difference of $164 a month. So, let’s say you purchase a used car instead of a new one and you invest the difference — $164 a month — in a 401(k) or other retirement savings plan, like an IRA.
Leaving aside any 401(k) matching contributions that would result in extra money invested beyond that $164, the table below shows how much this monthly investment could turn into depending on how many years you take this approach (assuming a 10% average annual return on your investment, which is in line with the stock market’s long-term performance).
Considering the fact that the median retirement savings for American households is $87,000, ending up with as much as $323,741 extra in your investment account just by switching from a new car to a used one could make all the difference in how financially secure you are as a retiree.
As you can see, the sooner you make the switch to a used car, the more this move will benefit you. And if you can buy a cheaper used car than average and save even more, you can make even more progress in setting yourself up for a secure future.
Driving a new car is an expense many people just don’t need to incur — especially since brand-new vehicles lose their value almost immediately, and you can often find reliable late-model used cars you can drive without worry for a long time. Since you don’t have to personally pay for upgrades and special packages that dealers put a big markup on, you can usually get way more for your money buying used than buying new.
Seriously consider making your next car a used one. As soon as you do buy, set up an automatic transfer of the money you’re saving on car payments right into your retirement account. When you have a lot more cash than your fellow Americans as a retiree, you’ll be glad you opted for cheaper wheels during your working years.
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Credit card companies sometimes offer low promo APRs to cardholders. Find out why this may be an offer you’re better off avoiding.
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A few weeks ago, I saw that I had a special offer for one of my American Express cards: A promotional APR of 6.99% for six billing cycles. That’s super low for a credit card. The average credit card interest rate is 21.19%, according to the most recent Federal Reserve data. My card’s promotional APR is more in line with what mortgage lenders charge.
Even though this is a low rate, I didn’t activate the offer. Because with offers like these, it’s often the card issuer that comes out ahead.
There are a few ways credit card companies make money. For starters, they get a cut of the fees merchants pay on every credit card transaction. But the way they make most of their money is interest charges when cardholders carry a balance from month to month.
So the more you spend, the more money your card issuer makes in transaction fees. It makes even more if you don’t pay off your card and start incurring interest charges. In 2022, Americans paid about $164 billion in credit card interest and fees, according to a WalletHub analysis.
One of the many ways card issuers convince you to spend more money is with these low promotional APRs. Since the interest rate is so much lower, you might feel as if you can take your time paying off your balance. But even with a lower APR, you’re still paying interest. It’s better to avoid this whenever possible.
Also, after the promotional period ends, your card will go back to its standard APR. Your card issuer can then charge that APR on any balance you have left over. If your credit card’s interest rate is anywhere near the average, you’ll likely be paying over 20% per year. On a $2,000 balance, that’s over $400.
The reason I don’t bother with promotional APRs is because I always pay off my credit cards by the due date. A 6.99% interest rate doesn’t wow me, since I never want to pay interest on my credit cards in the first place. If I carried a $1,000 balance for six months at that rate, I’d still pay about $35 in interest for no reason.
It’s good to get into the habit of paying your cards in full. This way, you can take advantage of all the benefits the top credit cards offer, like rewards on your purchases, bonus offers, and purchase protections, without losing money to interest. For example, many cash back cards allow you to earn 2% or more back on purchases. That can be an easy way to save more money, but not if you’re paying 20% in yearly interest charges.
If you need to carry a balance, the best option is a credit card with a 0% intro APR. If you have a good credit score, you can likely qualify for one, and a 0% APR is as low as it gets. There are two types of this card available:
Credit cards with a 0% intro APR on purchases don’t charge interest on new purchases for the intro period: These work well if you have a large purchase coming up that you need to pay off over time, such as a home remodel.Balance transfer credit cards have a 0% intro APR on balances brought over from other cards: These are a popular way to pay off credit card debt. You can transfer over your other cards’ balances, pay a small balance transfer fee (generally 3% to 5%), and then pay no interest on your balance transfer card for the intro period.
Even with a 0% intro APR, only carry a balance if you absolutely need to. You’re still going into debt when you carry a balance. And if you don’t pay it off during the intro period, you’ll start getting charged interest.
Just like promotional APRs, 0% intro APRs are a tactic to get you to spend money and carry a balance. You can use them to your benefit, if you make sure to pay off your balance as quickly as possible. But if you don’t need them, stick to your normal spending habits and pay your credit cards in full.
If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.
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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. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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