Money Management

Need to finance holiday purchases? Read on to see what your best option might look like. 

The holiday shopping season is now in full swing. And this year, consumers expect to spend an average of $875 apiece on holiday gifts and seasonal purchases, according to the National Retail Federation.

If you’re not sure how you’re going to pay for your holiday purchases, then you may be looking to finance them. And in that regard, you have options. You could charge your purchases on a credit card. But going that route might end up costing you a lot of money in interest.

As such, you may be interested in a more cost-effective way to pay for holiday purchases. And you may decide that both a personal loan and a “buy now, pay later” plan, or BNPL plan, might fit the bill. Both of these options, however, have their share of benefits and drawbacks.

Is a personal loan your best bet?

The nice thing about personal loans is that they allow you to borrow money for any purpose. And they also tend to offer competitive interest rates — much lower rates than credit cards commonly charge. You’re especially likely to snag an attractive rate on a personal loan if you have a great credit score.

Plus, with a personal loan, you get the benefit of fixed monthly payments. That can make your debt easier to manage.

But still, any time you take on debt, you run the risk of falling behind on payments and damaging your credit in the process. So that’s a risk that exists when you turn to a personal loan as a financing option.

Also, personal loans take time and effort to originate. As such, lenders tend to impose borrowing minimums. If you’re only expecting to spend about $875 on holiday purchases like the average consumer, then you may not be borrowing enough to qualify to take out a personal loan.

What about BNPL plans?

The nice thing about BNPL plans is that if you stick to your payment schedule, you can avoid having to pay any amount of interest on your purchases. With a personal loan, you’re signing up to pay interest either way. Plus, with a BNPL plan, you’ll get a predictable payment schedule to stick to.

BNPL plans can also be pretty easy to put into place, as you’re usually approved on the spot. With a personal loan, it can take a few days to get your loan proceeds after you apply (though in some cases, the process can move more quickly than that).

But falling behind on a BNPL plan could mean accruing interest and penalties on the sum you’ve borrowed. Plus, you’ll risk credit score damage — though to be fair, that same risk exists for falling behind on personal loan payments.

What’s your best choice?

If you’re not sure whether to turn to a personal loan versus a BNPL plan for your holiday purchases this year, the answer is, you should ideally avoid both. It’s one thing to borrow money for an essential purchase or need, like a fridge or washing machine. It’s another thing to rack up debt in the course of buying gifts and decorations.

If you can’t afford those purchases, your best option really is to scale back and stick to a spending limit you can cover in full. Racking up any sort of holiday debt could put you in a bad financial position heading into the new year. So if you’re at the point where you’re seriously considering borrowing money for holiday purchases, you may want to reset some spending priorities and find ways to make the most of the funds you have.

Our picks for the best personal loans

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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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Want to owe the IRS less for 2023? Read on to see how. 

Paying taxes is something we all have to deal with. And they’re something a lot of us tend to resent. After all, when you work hard, it stinks to have to part with a portion of your income to pay the IRS.

But perhaps it’s even worse to think you’re done paying your taxes for the year, only to realize that you have an underpayment on your hands when you go to file a tax return in April. Such is a risk taxpayers will need to prepare for.

Mark Steber, Chief Tax Information Officer at Jackson Hewitt, says, “One trend we saw last year — and expect to be even bigger this year from the better economic conditions for 2023 — more taxpayers than ever might experience a balance due to the IRS or owing taxes when they file versus an expected tax refund.”

If you’re worried about owing money on your 2023 taxes, the good news is that there are a few moves you can make in the coming weeks to potentially lower your IRS bill. Here are three worth jumping on.

1. Sneak more money into your 401(k)

You have until next year’s tax-filing deadline to finish funding your IRA account for 2023. But for 401(k) contributions to count for 2023 purposes, that money needs to land in your account by Dec. 31 of this year. So if you’re able to sneak a little more money into your 401(k), you can potentially shield some extra income from taxes.

That said, 401(k) contribution changes have to be processed through your company’s payroll system. And that could take time. So if you’re serious about adding more money to your 401(k) before the end of the year, your best bet is to put in for that change immediately.

2. Sell an underperforming investment at a loss

Not every investment in your portfolio is guaranteed to be a winner. Perhaps you own shares of a stock that has consistently been losing value month after month for a while now.

If that’s the case, you may want to sell that stock at a loss prior to the end of the year. That’s because you can use your loss to offset capital gains in your brokerage account.

Let’s say you sold shares of stock at a profit earlier this year and gained $1,000 in the process. If you unload a bum stock and take a $600 loss, you’ll shrink your capital gains tax burden to just $400.

And if you don’t have any capital gains to offset this year, worry not. You can use a loss to offset up to $3,000 in regular income and then carry the remainder of your loss, if applicable, into future tax years.

3. Buy supplies or equipment for your small business or side hustle

If you’re solely a salaried employee, the supplies or equipment you buy to do your job can’t serve as a tax deduction. So even if you decide to invest in a pair of noise-canceling headphones to focus better at work, it won’t help you from a tax perspective.

However, things work very differently when you own a small business or earn income in a freelance manner. In that case, you should absolutely keep track of the various purchases you make that allow you to do your job.

Meanwhile, you may have a list of items you intend to buy for your business or side hustle in the new year. If you purchase them by Dec. 31 instead, they’ll count for this year’s tax write-off purposes.

Nobody wants to pay the IRS more money than they have to. If you employ these tips, you may find that you’re able to reduce your 2023 tax burden nicely.

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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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A new year brings new opportunities for you and your finances. Learn whether 2024 should be your year to become your own boss. 

The end of a calendar year is a good time to take stock of your life and see what’s working and what isn’t — this is the idea behind New Year’s resolutions, after all. A financial resolutions survey conducted by The Ascent’s research team at about this time last year found that a whopping two-thirds of respondents planned to set a personal finance goal for 2023. This isn’t so surprising — many people likely want to save more, pay off debt, and make the kind of money moves that can be truly transformative.

Throwing off the shackles of a W-2 job that isn’t working for you and embracing that freelance life can definitely be one, too. I quit my W-2 job at the beginning of 2023, and it felt like leaning into all the other changes I’d made to my finances in 2022 (paying off debt and amassing real savings for the first time in my life).

If you’re dreaming of saying sayonara to your job and becoming a full-time freelancer in 2024, there are other questions to answer beyond just “Should I quit my job to freelance?” Answer the following questions, and you should have an easier time answering the big question.

Am I ready to worry more about taxes?

No one enjoys paying income taxes, but contributing your fair share to society is important. As a W-2 worker, you probably don’t spend a ton of time thinking about those taxes — but if you become a full-time freelancer, taxes become a much bigger part of your world. You’ll be required to pay estimated taxes four times a year, in January, April, June, and September, and if you short the IRS, you’ll be assessed penalties. Plus, you pay taxes as both an employee and a business owner.

If you’re seriously contemplating going freelance, I recommend lining up a good tax professional (such as a CPA) sooner rather than later — this person can tell you how much to pay the IRS and your state (if you live in a state with income taxes), as well assist in filing your annual return. Remember, self-employed folks have access to a lot more deductions, but since tax laws change every year, having someone who knows how the system works will be a big weight off your shoulders.

Can I handle setting up my own benefits?

If you’re currently a member of the W-2 world, you likely have benefits through your job. These might include a 401(k) plan for retirement, health insurance, and paid vacation time. As a freelancer, you will have to procure these for yourself. There are more options for self-employed retirement plans than you may realize, and you may be able to save more for retirement in a tax-advantaged manner than you could before — for example, with a Solo 401(k), you contribute money as both employer and employee and wind up with a much higher limit than you would on an employer’s plan.

For health insurance, you’ll either need to get on a spouse’s plan (if you have one), or face the healthcare marketplace. Right now is open enrollment, but if you leave your W-2 job, that counts as a qualifying life event and you’ll be able to sign up for new coverage at any point. Be prepared for plans to be quite expensive, especially if you earn too much to qualify for any assistance.

Finally, you won’t get paid vacation time, so it’s on you to build that into your financial life. I recommend working a little extra every week and banking the money you earn from those extra hours and assignments into a special fund for vacations and sick days. Face it, there’s going to be days where you won’t be able to work for whatever reason.

Do I have money saved?

Speaking of building your savings in the form of a sick and vacation day fund, it’s best to enter the new freelance phase of your life with as much savings as you can muster. Many experts recommend that your emergency fund cover three to six months’ worth of bills, and this is a solid target for W-2 employees.

If you lose your W-2 gig through no fault of your own (say, because of layoffs at your company), you’ll generally qualify for unemployment benefits. As a freelancer, you have no such luck. So if you have more in your savings account (perhaps nine months to a year’s worth of bills?), you could be in good shape to quit your job to freelance in 2024.

Would I like to be my own boss?

Finally, the last question to answer before deciding whether to quit your W-2 job concerns the nature of your work itself. If you have difficulty staying on task and maximizing your working hours, you might struggle with managing your own workload. Remember, while you will have clients, they will not be bosses in the traditional sense. Freelancing can be a great fit for those of us who are self-motivated and don’t need a manager checking up on our work. If that’s not you, think twice about becoming your own boss.

2024 could be the year you throw off the shackles of W-2 employment. Just consider the above questions carefully to make the best decision for you.

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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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