Money Management

If your salary will rise in the new year, you should consider investing at least some of the extra money you’re bringing home. Find out why it’s a good idea. 

If you’re lucky enough to get a raise in 2024, you have a great opportunity. You can use the extra income that you have coming in to make a meaningful difference in your personal finances.

You’ll need to make an informed choice about what to do with the extra funds ASAP, though — ideally, before you get used to having the extra money in your checking account available to spend.

So, what’s the best thing to do with the cash that comes from a raise? Here’s what you need to know to help you decide.

Use your raise wisely before you get used to the extra cash

One of the best things that you can do with the money you get from a salary bump is to divert it right into your retirement investment accounts.

See, the median retirement savings was just $87,000 in 2022 (according to research from The Motley Fool), which is not nearly enough money for most people to be on track for a secure retirement. A nest egg of $87,000 would produce about $3,480 a year in retirement income assuming you withdrew 4% of your account balance, which most experts believe is a safe withdrawal rate to avoid running out of money.

Since the average monthly Social Security benefit is just $1,907 a month, you’d be left trying to live on about $2,197 per month as a senior — which isn’t enough for most people, especially considering that healthcare costs tend to rise as you get older.

Unless you are already investing about 15% of your income for retirement, using your raise to inch up the amount you’re saving could help you to far exceed the average balance and actually invest enough for a secure future.

Say, for example, that you were making $50,000 in 2023 and you got a 2% raise in 2024. You wouldn’t be used to that extra money in your budget yet, so you could transfer the extra 2% right into your retirement plan and save an extra $1,000 a year. If your employer provides a 50% 401(k) match, that would bring your extra savings up to $1,500. Assuming a 10% average annual return, investing an extra $1,500 a year for 30 years would increase your retirement account balance by about $271,415.14.

Of course, if you get a raise every year, you could do even better than that. For every year you get a raise, you can divert some or all of the extra money to your retirement plan before you have a chance to increase your expenses. Do this until you hit the recommended 15% savings rate and you may be able to effortlessly hit your retirement contribution goals without making any major lifestyle changes.

Is investing your raise for retirement the right choice for you?

Investing your raise is a good option as long as you don’t have a ton of high-interest debt you need to pay off, and as long as you have an emergency fund already in place. If you don’t have three to six months of living expenses saved or you have credit card debt at a very high rate, you should most likely divert all the extra money from your salary increase to paying down your debt and saving for a rainy day first before investing — as long as you’re already earning your full 401(k) match. Try to at least earn your matching contributions, if you’re eligible — because you’d otherwise be leaving free money on the table.

The key, though, is to identify some kind of financial goal that will make a meaningful impact on your future and use some or all of your raises to accomplish it, rather than just absorbing the extra money into your checking account and spending it without thinking about it. By using your raises wisely, you can increase your financial security and you won’t even miss the extra cash since you’ll never have gotten used to spending it in the first place.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

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.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.

 Read More 

Financing remains expensive, but the sticker price of EVs is trending down. Find out what that could mean for potential buyers. 

Good news for fans of electric cars: By most estimates, the cost of electric vehicles (EVs) is steeply declining. Take Tesla, a market leader. According to Kelley Blue Book, the average transaction price for a Tesla vehicle dropped 24.7% from June 2022 to June 2023.

Why are electric cars getting cheaper? Good question. Battery costs, tax incentives, and competition are current trends shaping the cost of electric vehicles in 2024.

Battery costs

The battery is the single most expensive part of an electric vehicle. It’s the heart of the beast, the chrome crown at the center of it all. When batteries get cheaper, so do EVs. Battery production costs have declined 14% from 2022 to 2023, according to BloombergNEF.

Analysts anticipate the good times will continue. Goldman Sachs predicts that the cost of producing batteries will decline 11% each year on average through 2030; that could put EVs on equal cost footing with gas-powered vehicles by 2029. That’s a win for the average car owner.

One reason battery costs are falling: Lithium, a critical component in many EV batteries, is becoming cheaper, according to a recent report by the International Energy Agency (IEA).

Lower battery costs ultimately translate into more affordable electric vehicles in 2024. But don’t expect double-digit cost declines next year; it may be years before EV price tags reflect lower production costs. Much depends on EV demand continuing to go up.

Tax incentives

The government is all aboard the EV train. The IRS has proposed changes to EV tax credits, making them more flexible into 2024 and beyond. Though the complete list of eligible cars has yet to be released, credits could range from $7,500 for new EVs to $4,000 for used ones.

In fact, the U.S. government is getting a smidgen fed up with naysayers. The U.S. Department of Energy released a short and snappy myth-busting report, one that claims tax incentives offered by the Fed, states, and utilities are fueling rising EV demand.

Alright, Uncle Sam. We see you. And I’m inclined to believe you, considering China’s BYD is possibly the biggest EV-manufacturing rival to Tesla, and China is the U.S.’s economic rival. The U.S. is betting big on American EVs sliding down that cost curve.

U.S. tax credits are set to continue into 2024, but some cars may no longer be eligible or only qualify for reduced credits. If the vehicle contains Chinese components, it could be in trouble.

Competition

Competition in China versus the U.S. is heating up, but what about traditional car manufacturers in America? They’re not immune, either. The world took notice when Tesla made dramatic price cuts in early 2023; the company slashed prices by up to 20%.

When the No. 1 seller of EVs in America cuts prices like that, buyers expect other brands to make similar moves. Otherwise, buyers begin to wonder whether they should spend their money on a nicer vehicle, even if it costs more upfront than, say, a Volkswagen ID.4.

As competition heats up, price wars could continue to drop prices lower and lower.

EVs may be cheaper in 2024

Considering the current trends shaping electric vehicle prices, EVs will likely continue to get cheaper into 2024. Battery costs, tax incentives, and competition will contribute.

But there will likely be exceptions. Some popular vehicles, including the Tesla Model 3, may no longer get the full benefit of tax credits due to stricter regulations imposed by the Inflation Reduction Act. It remains to be seen exactly how these rules will play out.

Furthermore, so long as the Federal Reserve keeps rates high, car loans will remain expensive relative to recent history. The same applies to drivers who want to lease EVs (myself included). The cost of financing a car, EV or otherwise, depends on the federal funds rate.

Should the Federal Reserve cut rates in 2024, the cost of financing an electric vehicle will probably fall significantly. It’s something I’ll be keeping an eye on into the new year.

EV insurance could remain pricey

The cost of electric vehicle insurance varies by location, model, and insurance choices. Still. Generally speaking, insurance is more expensive than it was in 2022; some think that car insurance rates won’t fall in 2024.

EV insurance is typically expensive because many EVs are luxury vehicles; they’re pricey, they’re built with expensive parts, and that makes them expensive to replace. Insurers charge a premium for that. Expect to pay more insurance for a $50,000 car than a $30,000 one.

Though the cost of EVs is trending downward, insurance may remain pricey into 2024. The best car insurance companies offer reasonable rates, but this cost is worth considering. If you’re switching to a pricier electric vehicle, your insurance will probably go up, too.

Our best car insurance companies for 2024

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

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.Cole Tretheway has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Tesla. The Motley Fool has a disclosure policy.

 Read More 

Anyone can find more ways to exercise despite their budgets. Here are free and frugal ways to get fitter. 

You don’t need an expensive gym membership — or equally expensive athleisure gear — to get fit. There’s room in anyone’s personal finances for exercise. Here are just a few examples of frugal (or even free) ways to add more fitness to your life.

1. Walking

As long as you are able-bodied, you don’t really need anything special to start walking. Your everyday sneakers — so long as they fit well — will generally work just fine at the beginning.

You don’t need anywhere special to walk to, either. You can walk around your house. You can walk in your yard. You can walk through the neighborhood. If there’s a park nearby, you can walk there. If it’s cold outside, go to the local mall and walk. (You don’t need open stores to get your steps in.)

If you think walking is boring, walk with a friend. Or do what I do: Listen to an audiobook. (You can usually get these free from the local library!) As long as safety isn’t an issue, you could even watch videos on your phone while you walk.

Start small and work your way up. My 90-year-old neighbor walks two blocks and back every day.

Any exercise is better than no exercise.

2. Body-weight exercises

All that extra weight you’re trying to ditch? Use it to lose it!

There are tons of exercises you can do that don’t require any equipment. This includes both cardio exercises as well as strength training that uses the weight of your body for resistance. Here are just a few examples:

CrunchesPush-upsPlanksSquatsLungesJumping jacks

You can find free fitness apps and YouTube channels full of great at-home workouts you can do with no or minimal equipment.

3. Stretching or yoga

Flexibility is a key part of overall fitness, but it’s one many of us forget to focus on. A regular stretching routine can increase your range of motion, posture, blood flow, and may even help reduce back pain. (Anyone else resemble Quasimodo after a few hours at their desk?)

You don’t need an expensive yoga class for this, however. There are tons of online resources, videos, and apps that offer free guided yoga and stretching routines. If you can’t find one you like, build individual poses and stretches into your own full-body workout.

Oh, and you don’t need the fancy yoga mats or socks or pants. As long as your footing is secure, you’re good to go on the living room carpet in whatever pants are comfortable and stretchy.

4. Household weightlifting

When body weight alone isn’t cutting it, do some household weightlifting.

No, I don’t just mean lifting weights at home. I mean finding “weights” around your house that you can add to your workouts.

Ever lifted one of those bulk-sized bottles of detergent from Costco? One of those in each hand while doing squats will definitely kick it up a notch! And you may have already found that a four-legged family member jumping on your back adds a noticeable degree of difficulty to a plank.

Not quite up for that much weight? Start by curling cans of tomato sauce. (Note: There are 16 ounces in a pound.) Then you can graduate to wine bottles (they average 2.65 pounds). When you’re ready for the big leagues, those gallon jugs of water weigh about 8.34 pounds a piece!

5. Resistance bands

Essentially giant rubber rands, resistance bands can be added to your workout in myriad ways. Here are a just a few exercises perfect for resistance bands:

Lateral band walkPlantar flexionClamshellStanding abductionTriceps kickbackPull apart

You can get a surprisingly thorough workout with these giant rubber bands, and they’re really affordable. Amazon will sell you a five-pack of different strengths for less than $15.

6. Running or hiking

While generally free activities, running, hiking, and even long-distance walking require the extra investment of a good pair of shoes. Not just so-so shoes, but good shoes. (And yes, it often helps to get shoes designed specifically for the type of exercise.)

Bad shoes can hurt not only your feet, but also your ankles, knees, hips, and back.

I’ve often had good luck finding deals on last year’s shoe models, which aren’t generally all that different from the latest model in terms of functionality (or even style for that matter). And don’t assume Amazon will have the best deal; often, I get better prices straight from the manufacturer’s website.

Also, always check your credit card issuer’s deal portals. I’ve found deals from Brooks, Asics, and more on my rewards credit cards. You can also check coupon apps and discount sites for additional deals. Rebates from cash back apps, like Rakuten, typically stack with credit card portals and rewards.

Getting fit doesn’t cost a fortune

When you look at the health stats, it’s obvious that we, as a society, can no longer afford not to exercise. Thankfully, it’s possible to add more fitness to your life no matter what your budget looks like. Use these tips as inspiration to build your own workout routine. It doesn’t matter if it’s fancy or frugal. Just get moving.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

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.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brittney Myers has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Costco Wholesale. The Motley Fool has a disclosure policy.

 Read More 

The U.S. has 24 million millionaires. You can increase your odds of becoming a millionaire by focusing on these three key moves. 

In the United States, there are around 24.5 million people who are millionaires. The United States is home to about 39.2% of all of the millionaires in the world. This is based on the number of people who have the equivalent of $1 million in U.S. assets.

There are about 336 million people in the U.S. With 24.5 million of them being millionaires, the odds that someone in the U.S. will end up a millionaire come in at around 7.29%.

Of course, some people are more likely to be among that 7.29% than others, including those who are born rich or who earn advanced degrees and go into lucrative professions. But, you don’t have to be an heiress or a sports superstar to become a millionaire (although it helps). You can do a few simple things to increase your chances, including the following three moves.

1. Take steps to increase your income

One of the best ways to maximize your chances of becoming a millionaire is to take steps to earn more money over your lifetime. After all, the more you earn, the easier it is to invest in assets that will eventually generate $1 million or more of wealth.

You can earn more money by choosing your profession wisely, and by pursuing advanced degrees. Men who earn a bachelor’s degree earn around $900,000 more in median lifetime income compared with males who have only a high school diploma. Women with bachelor’s degrees earn $630,000 more in median income than their peers with just high school degrees. And men and women with graduate degrees will earn $1.5 million and $1.1 million more respectively, compared to high school graduates.

If you make hundreds of thousands or millions of dollars more over your lifetime, it will be a lot easier to do the things needed to achieve millionaire status — like supercharging your savings.

2. Save early and often

You can also significantly increase your chances of becoming a millionaire by saving as much as you can and saving steadily. This is true no matter how much income you make.

Let’s say you start saving at age 20. To have $1 million by age 65, you’d only have to invest $115.91 a month to achieve millionaire status (assuming a 10% average annual rate of return, the approximate 50-year average return of the S&P 500). If you waited until age 45 to invest, you’d need to invest $1,454.96 per month instead.

If you start saving at a young enough age, your odds of becoming a millionaire are increased significantly since it’s a lot more feasible to find a couple hundred dollars to save monthly than it is to find a couple thousand. You could have a great chance of ending up with a seven-figure nest egg if you make consistent investments over a long time.

3. Invest wisely

Finally, you’ll need to invest wisely. This means putting money into a brokerage account and investing some of it in the stock market so you stand a chance to earn the returns you’ll need to become a millionaire.

If you invested your $115.91 a month starting at age 20 but you earned just a 3% rate of return because you kept your money in a savings account, you’d only have $127,957.19. You need compound growth to work for you (which is what happens when you invest, earn returns, and those returns are reinvested to earn you more money).

The good news is, you don’t need to pick stocks to invest wisely. Just put your money into an ETF tracking the S&P 500, a financial index of 500 large U.S. companies that has produced 10% average annual returns over the long run.

While the overall odds of someone in the U.S. becoming a millionaire are about 7.29% based on the percentage of the population with that much money, you can increase your odds significantly if you just take these simple steps.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

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.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.

 Read More 

Want to get bigger tax breaks? Learn how choosing itemized deductions over standard can unlock significant tax savings for some. 

Unless you spend lots of time hanging out with accountants, or you are passionate about reading the questionnaires on your tax software, most Americans probably don’t understand the differences between choosing itemized deductions over standard. The fact is, most Americans don’t need to decide whether to itemize deductions. IRS data shows that about 87% of American taxpayers take the standard deduction.

And for most people, the standard deduction is good enough. If you’re a typical middle-class or working-class taxpayer, even if you own a home and pay some mortgage interest and property taxes, you probably still won’t have a big enough pile of deductions to itemize. If you’re part of a married couple in a state like California or New York that has high state and local income and property taxes, you’re only allowed to deduct $10,000 of those “SALT” taxes — which makes it harder for you to amass enough itemizable deductions to beat the standard deduction.

However, if you move a little further up the income ladder, things get interesting. If you can afford to pay additional (deductible) expenses over the course of the year, you might find that choosing itemized deductions over the standard deduction can make a big difference to your taxes.

Let’s look at a few unexpected benefits of choosing itemized deductions over standard.

Benefit 1: You can reduce your taxable income (and your tax bill)

The biggest reason why people want to itemize deductions is because it gives them a larger number to subtract from their taxable income. The standard deduction for 2023 is $13,850 for single people, and $27,700 for married couples (filing jointly).

As a taxpayer, you should always take the biggest deduction you’re allowed to use. For most people, that’s the standard deduction. But for someone who pays a lot of mortgage interest, who can deduct the full $10,000 of state and local taxes, and who has other itemizable deductions (like giving money to charity), all of a sudden, the situation looks different.

For example, let’s consider a single guy named Tony who lives in New York. Tony has a high income (adjustable gross income of $150,000) and owns his home. He’s paying lots of state income tax to New York and local real estate taxes to his local city ($10,000 of SALT deductions), and he pays mortgage interest of $9,000 per year. Because Tony has $19,000 of itemizable deductions, and his standard deduction amount would only be $13,850, he can itemize.

Here’s what Tony’s taxes look like because he can itemize deductions, compared to what he would pay with only the standard deduction:

So in this case, being able to itemize deductions saved Tony $1,236 on federal income taxes.

Benefit 2: You can get charitable giving write-offs

Many people assume that all charitable contributions are tax-deductible. This isn’t true. Because of IRS rule changes in the Tax Cuts and Jobs Act of 2017, people are only allowed to get tax deductions for charitable donations if they itemize their tax deductions. Anyone who takes the standard deduction can’t get a tax break for their charitable gifts, no matter how generous they are.

So this means that if you want a tax break for your charitable giving, you need to make sure your itemizable deductions add up to be more than the standard deduction. Throughout the year, pay attention to how much you’re spending on home mortgage interest, state income taxes (if your state collects an income tax), and property taxes. Use tax software to understand just how close (or how far) you were from itemizing on last year’s tax return. If it turns out that you only need to give another $1,000 or $2,000 to charity to be able to itemize, maybe you should dig deep and give even more generously.

For people who have enough financial flexibility to itemize deductions and write a big year-end check to charity, charitable giving can become a useful tax-planning strategy. Some people can choose to reduce their taxable income by another few thousand dollars, while benefiting a good cause.

Benefit 3: You can deduct some medical and dental expenses

If you’ve had an expensive year of healthcare bills, such as a major surgery, dental procedures, or the birth of a new baby, you might be able to use itemized deductions to get a tax break. As part of the rules for itemized deductions, people can deduct the portion of their qualified medical and dental expenses that add up to be more than 7.5% of Adjusted Gross Income (AGI).

For example, if you have an AGI of $90,000, and you racked up $12,000 of medical bills, you can deduct: $12,000 – ($90,000 x 0.075). This comes out to: $12,000 – $6,750 = $5,250 of itemizable medical expense deductions.

Deductible medical expenses include prescription drugs and insulin, eyeglasses, hearing aids, smoking-cessation programs, laser eye surgery, and weight loss programs. Just make sure that your total healthcare costs add up to more than 7.5% of your AGI, and you might be able to get a tax break to compensate for those big expenses.

Bottom line: Choosing itemized deductions over standard can make a difference to your taxes, especially if you have enough cash to make some strategic donations to charity. If you’ve had an unfortunate year with lots of extra medical bills, itemizing can also help you recoup some of that money.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

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.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.

 Read More