Money Management

EVs are better for the environment, even when considering some of the drawbacks. Read on to find out how to get the best deal on one. 

Electric vehicles have become a popular choice among car buyers lately, with sales of EVs climbing nearly 50% over the past year, according to Kelley Blue Book.

Some car buyers opt for EVs because they want to own a car that’s better for the environment than gas-powered vehicles are. Meanwhile, others are considering an EV purchase thanks to expanded and updated tax credits.

Let’s take a quick look at the impact on the environment and your personal finances that buying an EV may have.

Yes, EVs are better for the environment

This may not be much of a shock, but the latest research does show that EVs cause much less emissions than gas-powered vehicles do. Of course, the EVs themselves don’t put out any pollution, but there are sometimes carbon emissions coming from the electricity generated to charge EVs.

The U.S. uses a mix of coal-powered and renewable energy power plants, which means that some EV charging will have an environmental impact. According to a recent article in The New York Times, in most cases, EVs contribute far less carbon emissions than gas-powered vehicles do.

But it depends on where you live and what vehicle you have. For example, some EVs that are charged every night in an area of the country that relies heavily on coal-powered power plants could actually cause more carbon emissions than owning a gas-powered or hybrid vehicle, the article said. In short, the cleaner the electric grid, the cleaner the EV.

And there’s also the issue of EV raw materials, such as lithium and cobalt. The mining and smelting processes for the materials can result in hazardous material, and some of the production occurs in areas of the world where there is little regulation.

Finally, while some EV batteries are recyclable, there isn’t a great system for doing so. Currently, an estimated 5% of all lithium-ion batteries (including for tech gadgets) are currently recycled.

But while all of these factors need to be improved, electric vehicles are still better for the environment nearly every time, according to the Environmental Protection Agency.

EVs aren’t great for your wallet, but there are some incentives

If you’re in the market for a new car, chances are you can get a gas-powered vehicle for cheaper than its EV counterpart. The average transaction price for a new gas-powered vehicle in September was $47,889, while the average EV price was $50,683, according to Kelley Blue Book.

But there are some significant EV incentives right now that can help with the cost. Here’s what you need to know:

Tax credits: You could receive up to $7,500 for a new EV and up to $4,000 for a pre-owned EV in 2023. You can use this IRS form to apply for the credit.2024 incentives may be easier to get: The U.S. Treasury Department has proposed allowing EV buyers to get the tax credit as a point-of-sale discount at dealerships, potentially making it easier to receive the credit next year.Low- and middle-income EV buyers may want to wait: Next year, people with lower tax liabilities could receive the full credit amount, compared to an adjusted amount this year. The change could make an EV more affordable for more buyers in 2024.Not all EVs qualify for the credit: There are certain manufacturing restrictions placed on EVs in order to qualify for the credit. You can view a complete list of qualifying vehicles in The Ascent’s EV tax credit guide.

With the current incentives, now could be an excellent time to buy an EV, whether you do it for the environment, are looking to save money on gas, or just think they’re cool (a perfectly respectable choice, I might add).

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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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Your credit score impacts your life in several ways. Find out about some of the lesser-known ways a low credit score could affect you. 

Your credit score is a rating of how likely you are to pay back money you borrow. Scores range from 300 to 850, with 670 and higher being considered good credit.

You might already know about some of the consequences of a low credit score. Loans will cost you much more, because you’ll be charged a higher interest rate. You also probably won’t qualify for any of the best credit cards, and these are the ones that have the most benefits.

If you don’t have any pressing need for a credit card or loan, those may not be a big deal to you. But your credit score isn’t just used when you borrow money. There are quite a few other situations where it comes into play, including in your everyday life.

To understand why good credit is important, here are the drawbacks of a low credit score that many people don’t know about.

1. You could pay more for insurance

In most states, insurance companies can and do factor in your credit score when setting your rates. They do this because research has found that people with lower credit scores file more insurance claims, on average. If you have a low credit score, you’re considered a higher risk.

A low credit score could lead to paying more for auto insurance and homeowners insurance. It’s usually not just a few extra dollars, either. The average cost of car insurance is more than twice as much for drivers with poor credit as it is for drivers with excellent credit. Drivers with poor credit pay $2,109 more per year for their auto insurance.

2. It may be harder to rent a home

As you probably know, your credit score is extremely important when buying a home. Mortgage lenders use it to set interest rates, so poor credit can cost home buyers hundreds of thousands over the life of a mortgage.

But your credit score can also be a key factor when renting a home. Many landlords and property management companies run a credit check on rental applicants. If you have a low credit score, you may not meet the requirements for the home you want. Or, if there’s competition for a place, the owner could use credit scores as a deciding factor.

Even if you qualify for a rental with a low credit score, the owner might want a larger security deposit. If someone with excellent credit only needs to pay a deposit of one month’s rent, someone with poor credit may need to pay double that, depending on the landlord and the laws for that area.

3. You could be required to pay a deposit for utilities

When you set up utilities at a new home, you need to apply for service. This is technically considered a credit application, so getting gas, water, and electricity service normally requires a credit check. With electricity, for example, the power company lets you use electricity and bills you based on how much you use.

Utility companies often require that applicants with low credit scores pay a deposit upfront to receive service. That way, if you don’t pay your bill, the company can cut service and use the deposit to cover what you owe. Applicants with high credit scores normally don’t need to worry about paying a deposit.

How to improve your credit score

Good credit makes life a lot easier and less expensive. If you don’t have a high credit score yet, here’s how you can improve your credit:

Always pay your bills on time. Your payment history is the most significant factor in your credit score. It’s especially important to pay credit cards and loans on time, as they’re reported on your credit history.Don’t overspend on your credit cards. If you use too much of your credit limit, it can hurt your credit score. It’s better to keep your credit utilization (the portion of your credit limit that you use) below 30%. For example, if your card has a $10,000 credit limit, aim to keep the balance under $3,000.Review your credit report at least once per year. You can request this for free at AnnualCreditReport.com. Credit reporting errors can negatively affect your score. It’s important to review your credit report so you can catch and dispute any errors.

Anyone can build credit and achieve a high credit score. It doesn’t happen overnight, but if you follow those habits, you’ll be well on your way.

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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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Inflation battering your business? Read on to see what’s in store. 

Inflation has been a problem for consumers for several years now. But it’s not just individuals who are struggling with higher costs. Inflation has had a big impact on small businesses, too.

A good 23% of small business owners say that inflation is the most important problem in operating their business, according to September’s NFIB Small Business Optimism Index. If higher costs are hurting your business, you may want to make some changes ASAP.

When will inflation subside?

The Consumer Price Index, which measures changes in the cost of consumer goods and services, peaked at 9.1% in June 2022. In September, the index came in at 3.7% for annual inflation, which is a vast improvement. But on a month-to-month basis, the index was up 0.4% from August. So all told, inflation is still a problem, albeit perhaps a smaller one than it was a year or so ago.

If you own a business, you may be wondering when inflation will subside. And the answer is, never.

Inflation is a generally persistent factor in our economy. Over time, a 2% rate of annual inflation is more of the norm, and it’s what the Federal Reserve tends to target. But all told, operating costs for businesses have a natural tendency to rise over time, just as living costs tend to rise, albeit modestly in an ideal world, for consumers.

Today’s inflation measurements could persist well into 2024 — it’s hard to know. The Federal Reserve may raise interest rates one more time late this year to try to bring inflation down. But that’s not guaranteed to happen.

Also, if the Fed raises rates, that’s not necessarily great for you as a small business owner, either. It could mean higher borrowing costs if you need a loan and higher interest rates on your credit cards.

How to battle inflation

You can’t make inflation go away. But one thing you can do is conduct a thorough analysis of your costs and try to find ways to reduce your company’s spending.

One option you may want to consider is reducing office space if your business lends easily to remote work. If you have employees who are happy to do their jobs from home, let it happen if it saves you money by virtue of getting to rent much less space.

Additionally, comb through your bank account and credit card statements and see if you’re paying for any services you’re not really using or getting great value out of. You may be paying for advertising or marketing services, for example, that aren’t really driving more customers to your door. If that’s the case, it may be worth canceling.

Finally, pay attention to the benefits you’re spending money on. If you’re bringing in a financial wellness coach once a quarter but employee participation is low, then you may want to prioritize your spending elsewhere.

Unfortunately, inflation could end up being a nagging problem for small businesses well into 2024 and beyond. But if you do a good job of monitoring your company’s expenses and being careful with your spending, you can ideally make it less of a problem 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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The central bank has announced that it won’t be raising interest rates. Read on to see what that means for your finances. 

The Federal Reserve has been intent on cooling inflation. The central bank has long maintained that an annual rate of 2% inflation is optimal for a stable economy. With levels surging well beyond that in 2022, the Fed had to take action by implementing interest rate hikes. And since March of 2022, it’s raised its benchmark interest rate 11 times.

At its Oct. 1–Nov.1 meeting, however, the Fed opted to leave interest rates as is. And that’s the second meeting in a row in which the Fed has made this decision.

A pause in interest rate hikes is generally good news for consumers. But the question remains — is the Fed really done with rate hikes, or are more yet to come?

Consumers get a break

The Federal Reserve does not have a hand in setting consumer interest rates. So the rate you’re charged for an auto loan or personal loan, for example, is set by a specific lender — not the Fed.

The rate the Fed oversees is the federal funds rate, and it’s what banks charge each other for short-term borrowing. But when that rate increases, financial institutions tend to pass the cost along to consumers in the form of higher interest rates on different products.

Now, it’s important to note that the cost of consumer borrowing is generally high right now on the heels of the 11 rate hikes the Fed has implemented over roughly the past year and a half. And the fact that the Fed didn’t cut rates at its last meeting means that consumers shouldn’t expect much near-term relief.

However, the fact that rates didn’t increase is a good thing, especially for borrowers with variable interest credit card and home equity line of credit (HELOC) balances. When rates are high, borrowers can react by holding off on signing new loans. But those who owed money on credit cards and HELOCs prior to the Fed’s rate hikes have largely had to just roll with them and pay up.

Are more rate hikes in store?

The Fed is scheduled to meet once more this year, in mid-December. And that means the central bank has another opportunity to raise rates once more before the end of the year. Whether it opts to do so will hinge largely on factors like unemployment and other economic data that’s released in the near term.

So what does that mean for you? For the most part, it means that if you don’t need to borrow money right now, hold off. We could start to see rate cuts in 2024 if inflation cooperates. Once that happens, borrowing could become less expensive.

Meanwhile, if you owe money on a credit card or HELOC, do your best to get ahead of that balance in case rates do, in fact, go up. And if you have the ability to stick some cash into your savings account, do that, because the one silver lining in all of this is that the Fed’s rate hikes have led to more generous interest rates on the part of banks. You may also want to consider locking in a longer-term certificate of deposit (CD) while rates are higher.

It’s too soon to say whether the Fed is done with rate hikes. But the fact that the central bank didn’t raise interest rates at its most recent meeting is certainly positive news for consumers on a whole.

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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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Putting money in savings won’t earn the returns you need to get wealthy — but taking these simple steps can make it happen. Find out what they are. 

Some high-yield savings accounts are currently paying around 4.00% or 5.00%, but this is an unusually high rate. That’s due to current economic conditions as the Federal Reserve has repeatedly raised rates to fight inflation caused by COVID-19. In general, most savings accounts in recent years have paid under 2.00%, and many still do.

Because savings accounts typically don’t provide a very generous return on investment, it’s really difficult to get rich just by sticking your money in savings. But there are some steps you can take to become wealthy — and you need to follow them if you want to retire in comfort without trying to live on Social Security benefits that replace just 40% of pre-retirement income, according to the Social Security Administration.

Open a tax-advantaged investment account

The first step to getting rich is to take advantage of tax breaks that help you grow your wealth. Specifically, there are several tax-advantaged retirement plans you may want to invest in, including:

A workplace 401(k): Your employer may offer this account, and you may be able to earn matching contributions. When you invest, you don’t pay taxes on the money you put into your account, so each contribution doesn’t reduce taxable income by as much.An IRA: You can open this account with any brokerage firm. You also get to take a tax deduction for your contributions. You don’t need an employer to help, and you’ll have a choice of which financial institution to invest with. You’ll also get to buy just about any assets available with your broker, and will therefore have a broad choice of investments.

You may also opt to open a Roth 401(k) (if your employer offers one) or Roth IRA (with a brokerage firm of your choice) instead. These accounts defer your tax savings until later. You don’t deduct contributions when you make them — but you withdraw money as a retiree without owing any taxes.

These tax-advantaged accounts can mean your money goes a lot further when you invest due to the tax savings — especially if you are also getting a matching contribution from an employer. The table below shows how a contribution might work for a 401(k) if you invest $5,000, get a 50% match from your employer on that entire amount, and are in the 22% tax bracket.

As you can see, there is no reason not to take advantage of tax savings because it’ll mean you don’t reduce your buying power by nearly as much as the total amount you’re investing.

The specific amount you end up saving over your career will depend on how much you invest, as well as what rate the deducted income would otherwise have been taxed at. But if you contributed $5,000 each year to your 401(k) for 20 years and all the money you contributed otherwise would have been taxed at the 22% rate, you’d save a grand total of $22,000 in taxes due to your investments.

Invest your money

Once you’ve opened your 401(k) or IRA, the next step is to pick investments. For many people, the best choice is an index fund.

Index fund investing does not require you to have any specialized investment knowledge. Funds track financial indexes and are designed to mimic the performance of those indexes. For example, you could buy an S&P 500 index fund, which is designed to track the performance of the S&P 500. You would gain an ownership interest in around 500 of the largest U.S. companies if you went this route.

Index funds provide easy diversification because money is invested in lots of different companies that are part of the financial index. They often charge low fees and have a consistent performance track record. The S&P 500 specifically has consistently earned 10% average annual returns over many decades.

That return on investment is enough to help you build wealth much more easily than putting your money in savings. In fact, $7,500 a year invested for 20 years at a 10% average annual interest rate would give you a $472,518.75 nest egg — compared with just the $232,269.00 you’d have if you had the money in a savings account earning 4.00%. It’s also important to note that savings account APYs fluctuate, so even if you’re earning 4.00% now, you likely won’t be over a long period of time.

By taking advantage of tax breaks and investing for your future, you can get rich and enjoy a life of future financial security instead of one filled with money worries.

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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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