Money Management

About to kick off your holiday shopping? Read on for some big pitfalls to steer clear of. 

Whether you’re ready to embrace the holiday season or not, here’s a reality check. At this point, many stores are already blasting Christmas music and adorning their aisles with tinsel. And so like it or not, the holiday shopping season has officially kicked off.

The average consumer is expecting to spend $875 on the holidays this year, according to the National Retail Federation. And you might end up spending even more if you have a lot of gifts and items to buy.

That’s why it’s so important to approach your Christmas shopping strategically. To that end, here are a few big traps you’ll want to avoid.

1. Waiting until Black Friday to buy everything you need

Black Friday is often hailed as the biggest sales event of the year. So you may be planning to do the bulk of your Christmas shopping then. That’s a mistake that could come back to bite you, though.

First of all, many retailers offer deep discounts in the weeks leading up to Black Friday, so it pays to be on the lookout for deals starting now. Also, if you wait until Black Friday to first start tackling your shopping list, you run the risk of stores running out of popular items. So rather than wait to start buying gifts, shop around throughout November and see what deals are out there.

2. Not setting a budget

Holiday debt is fairly common — but it’s not a situation you have to land in if you can help it. Before you start your shopping, map out a budget based on the amount of money you have available from your savings account and other sources.

If you only have $600 to work with, stick to that limit and set priorities. Identify the people who deserve a spot at the top of your gift list, and spend less on the people at the bottom. You can also get creative with gifts from the heart that may not cost very much, like homemade candy.

3. Opening up store credit cards

Throughout your Christmas shopping, you may be asked if you’d like to open a store credit card or seven. Don’t.

Often, retailers will lure you in with a big discount on your initial purchase. But store credit cards are notorious for charging higher-than-average interest. And opening too many new credit cards at once could cause damage to your credit score. That could put you in a bad spot if you’re trying to do something like apply for a loan or mortgage in the new year.

4. Falling back on a 0% interest credit card

If you don’t have enough savings to cover all of your Christmas shopping, you may be inclined to charge up a balance on a 0% interest rate credit card. After all, if you can pay off your balance by the time your introductory period comes to an end, what’s the harm?

But remember, 0% interest cards tend to come with a pretty limited introductory period. Beyond that, you could end up paying scores of interest on a lingering balance.

Plus, too much credit card debt relative to your total credit limit could hurt your credit score the same way opening too many new cards in short order might. So be mindful of that consequence and aim to pay for your purchases in cash to avoid any sort of lingering debt.

5. Using a buy now, pay later plan

With a buy now, pay later (BNPL) plan, you finance your purchase over a short period — usually 12 weeks or less. If all goes well and you make your payments on time, you won’t pay anything for that privilege — no interest, penalties, or fees.

But that’s a pretty big “if.” It’s easy enough to fall behind on a payment, and if you do, you risk not only financial penalties but damage to your credit score. So, once again, aim to pay for all of your purchases in cash.

And for clarity, it’s okay to use a credit card to buy things so you can rack up reward points or cash back in the process. But limit your balance to a sum you know you have the cash reserves to pay off in full.

Whether you enjoy Christmas shopping or not, it’s a task you’ll need to tackle in the coming weeks. Avoiding these traps could at least help ensure that you don’t wind up with a world of financial regret afterward.

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My home value has increased, but this has just resulted in higher property taxes. Learn more about why a higher home value doesn’t always benefit a homeowner. 

Home values rose during the pandemic, but briefly began to fall in the second half of 2022 in response to rising mortgage rates. Prices have started climbing again in many parts of the country, though.

My house is one of the many that has gone up in value in recent years. This may seem like great news since, after all, who doesn’t want to own a more valuable asset and have a higher net worth? In reality, though, I’m not actually happy that my home’s value has risen. Here’s why.

A higher home value means higher property taxes

There’s a simple reason why I’m not happy my home has increased in value. The fact that it is worth more now is going to cost me money, and I’m not going to benefit in any meaningful way from the price increase for a long time — if ever.

See, the added cost is going to come from a higher tax bill. Property taxes are calculated by multiplying your home’s assessed value by the tax rate where you live. And, in many locations, including where I live, taxing authorities assess the market value of a property each year. So, since my home is worth more money, my property tax bill will increase.

While I’ll be paying more, though, I don’t actually have any more money right now just because my home is worth more. I’m not planning on selling — and if I did, I’d just have to spend more money for a comparable property due to the rise in home costs where I live. So even though my home would sell for more, I won’t get to keep more profits.

I’m also not planning on getting another mortgage loan to tap into the equity in my home since rates are really high right now, so it doesn’t really matter that I have more value in the home. I can’t access that equity in an affordable way.

All that’s happened is more money will come out of my checking account. Many, many decades from now when or if I decide to sell, I’ll get more for my home if values are still up — and have to spend more with a mortgage lender to buy a comparable one at that time.

A higher home value only makes me wealthier on paper

Owning a home can help increase your net worth. And property appreciation is one way that happens. But unless and until you sell your home and are able to pocket a good portion of the profits, a house going up in value only makes you wealthier on paper. You have an asset that’s worth more, but it’s not like when your stocks go up in value and you get more money you can withdraw (or more money to earn interest that you can live on).

This doesn’t mean you want your property values to go down, of course. But be careful about assuming that just because your house is becoming valuable that you’re on track for financial success. You also need other investments that give you more easily accessible funds, too. Don’t rely on your home price to rise to set you up for a secure future.

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Adding more to a credit card payment can make a big difference because the money goes directly to repaying your principal. Read on to learn how it works. 

Paying off your credit cards can seem like an insurmountable task. If you have a lot of credit card debt, it may feel as if you will never get rid of it — especially if you make monthly payments from your bank account each month and barely see your balance fall.

If this sounds like your situation, you may want to think about adding an extra $10 per month to the amount you send to your creditors. This may seem like an insignificant increase, but it actually can make a difference in how quickly you become debt-free. Here’s why.

How does an extra $10 a month affect your credit card payoff efforts?

So, how much does an extra $10 monthly really impact your credit card payoff efforts?

The table below shows what a difference it could make to send in this extra payment out of your checking account each month, assuming you have a $5,000 credit card balance, a credit card interest rate of 21.19% (the current average rate as of August 2023), and a minimum payment equal to the lesser of 2% of your balance or $25.

An extra $10 per month cuts 36.2 years off the time you will be paying on your credit card, and it reduces the interest owed by around $17,745. It seems almost impossible to believe paying just $10 more can do that — but it does.

That’s because the minimum payment barely covers the credit card interest, so you don’t make much progress on paying down your balance. If your balance barely declines, your debt gets paid off really slowly. But when you add just $10 a month to your payment, that entire amount can go toward reducing your principal. It’s not a ton of cash, but it’s enough to matter.

How much extra can you put toward your credit card bill each month?

Paying an extra $10 a month can make a huge impact, but the more extra money you can put toward your cards, the better. After all, if just $10 can make such a huge impact, $20 or $50 or $100 will have an even more powerful effect.

If you want to become debt-free faster and get back tens of thousands of dollars that would be lost to interest, go through your budget today. Find cuts you can make — even if they seem like small ones — and redirect that money to your credit cards. This is especially helpful if you can cut a recurring cost — like canceling a membership or online service you don’t use and putting all that extra money toward your credit cards consistently every month.

It does require sacrifice to find extra money to pay above the minimums on your cards. But just think about it — would you rather have an extra streaming service or lunch out, or would you rather be debt-free sooner and left with a lot more of your own money instead of putting it into a creditor’s pocket?

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We’re in the third year of a strange housing market, with record-high home prices. Here’s what it will take to cool the market. 

The short answer is no; home prices are unlikely to drop soon. At the heart of the matter is low inventory. Barring a significant event, homeowners will be in no hurry to leave the low interest rates secured during the pandemic. And as long as home prices remain elevated, homeowners won’t want to sell their current homes only to pay more than expected for a new house.

How the housing market got here

Current home prices are a result of the perfect (or imperfect) storm. That storm includes:

Low inventory: For the above reasons, there are not enough homes on the market to drive prices down.Continued demand: Despite high home prices and interest rates, there continues to be more potential home buyers than homes for sale. While there may be fewer applications for new mortgages than during the height of the pandemic, there is still a steady stream of buyers.Record equity: Current homeowners have record equity in their properties. When they do sell, they’re in a better position to compete for the few homes on the market.Economy and employment: The economy grew by 4.9% in the third quarter (July to September). In addition, inflation is slowing, and the unemployment rate has been below 4% for 20 months. Real wages are up, and the median wealth for American households has grown. In other words, there are plenty of jobs and people willing to take on a mortgage loan.

Breaking the log jam

Just as several factors went into rising home prices, several things must happen to drive prices down:

New home construction: The more homes constructed, the more options buyers have. Better yet (for buyers), there is less competition to drive prices up.Slowing economic growth: As mentioned above, the economy is doing better than expected. Unfortunately, it’s a stalled economy that is most likely to reduce demand for homes.Affordability challenges: Two things could challenge a home buyer’s ability to afford a home. The first is a slowing economy and job loss. Even if they can qualify for a mortgage, a home buyer may not be inclined to purchase if they are unemployed. The other affordability challenge is simply this: At some point, home prices will outpace what the average home buyer can afford.

What you should do if you want to buy

If you’re moving to a new city, consider whether you’d prefer to rent until home prices, interest rates, or both cool. Of course, there’s always the possibility that home prices will take another bounce as interest rates drop, driving up competition even more. Since nobody knows for sure what the market will look like in the near future, here’s what you should do if you plan to buy:

Decide how much you can afford

Don’t forget property taxes, maintenance, and other expenses associated with being a homeowner.

Consider how long you plan to remain in the home

If you’re paying far more for a home than it was worth pre-pandemic, you may find yourself in a pickle if you attempt to sell too soon. Let’s say you pay $400,000 for a house that would have sold for $275,000 just before the COVID-19 outbreak. While we have no idea how much home prices might soften, imagine that houses in your neighborhood are worth 10% less once the market normalizes. That means your $400,000 home is suddenly worth $360,000 ($400,000 x .10 = $40,000). If you plan to sell soon, you could make less on the house than you need to recoup your investment.

Decide how much you are willing to spend and stick to that limit

One of the most challenging things to do in a competitive market is to stick to a budget. No matter how much you want a property, few things are more miserable than being house poor.

Find the right real estate agent

A good real estate agent shows you homes in the areas you’re interested in. A great real estate agent offers advice, but never pushes you into a contract that’s wrong for you.

Do not waive contingencies

To entice a homeowner to accept their offer, some home buyers have waived their right to contingencies, like a home appraisal (to ensure the house is worth what you’re offering to pay) and a home inspection. Let’s say you decide to skip the home inspection, but upon moving in, you learn that there is black mold or some other major issue. You have no recourse. You can’t go back to the seller because you’re the one who agreed to waive the inspection. Even if it means losing out on a house, be careful about giving up your rights.

It’s been an odd few years for home sellers and buyers alike. Naturally, we’d all like to know which way the wind is blowing and what’s likely to happen next. Unfortunately, we’ll have to wait to know for sure.

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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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It’s time to sign up for health coverage for 2024. Read on for a step-by-step plan to tackle this important task. 

Health insurance is one of those things you should really never go without. All it takes is a single emergency room trip and battery of tests to potentially leave you on the hook for thousands of dollars in medical bills — bills that could quickly become medical debt if you don’t have a pile of cash laying around in your savings account.

Some people have access to subsidized health insurance through their employers. If you’re self-employed or work for a small business that doesn’t offer a health plan, then you’ll generally need to buy your own coverage through HealthCare.gov.

If that’s the case, you get a limited window to sign up for coverage during annual open enrollment, which runs from Nov. 1 through Jan. 15. Since the time to choose your upcoming health plan is now, here’s a step-by-step approach to take.

Step 1: See how much you spent on healthcare this past year

The amount of money you spent on healthcare costs this past year and the frequency at which you saw the doctor should influence your decision when it comes to choosing a health plan for 2024. Why? If you racked up a lot of expenses over the past 12 months, it could be a sign that a lower-deductible plan is a good choice for you, as opposed to a plan with lower premium costs and higher deductibles.

The health insurance plans you get to choose from come in four tiers:

BronzeSilverGoldPlatinum

The lower your plan’s tier, the less you’ll pay for your premiums. But lower-tier plans tend to have higher deductibles. The math there may not work out in your favor if you end up having to use your coverage a lot.

For example, a bronze plan might come with a $2,400 annual premium but a $4,000 deductible. If you get injured and need to meet that deductible in full, you’re looking at $6,400. A higher-tiered plan might cost you $3,600 a year in premiums but come with a $1,200 deductible. So that would leave you paying $4,800 instead of $6,400.

Step 2: Update your personal details

The cost of your health coverage will depend on factors that include:

Your geographic locationThe size of your familyYour income

It’s important to update this information each year on your HealthCare.gov account, as it could dictate what health plan options you’ll be presented with and what your costs will be. Keep in mind that you may be eligible for a health insurance subsidy that offsets your costs based on your income and family size, so it’s important to make sure that information is up to date.

Step 3: Review the plan choices in your area

Once you’ve updated your personal details, you’ll be given a list of plans to choose from. And then it’s really a matter of crunching numbers and using common sense based on your anticipated healthcare needs and spending.

When looking at plans, pay attention to premiums as well as deductibles. Also check to see which plans are eligible for a health savings account (HSA), if that’s an option you’re eager to take advantage of.

Remember, the tax savings you get from contributing to an HSA could help offset the expense of a higher-deductible plan. Plus, you’ll generally get lower premiums when you opt for a plan with a higher deductible.

If you’re responsible for securing your own health insurance, you have a pretty big decision on your hands. Take the time to explore your choices in the coming weeks and don’t rush through the process. You don’t want to act hastily and wind up with a not-so-great plan.

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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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