Money Management

You may want to focus on buying a home before focusing on building a nest egg. Read on to see why that’s a mistake. 

Buying a home is an expensive prospect these days. In September, the median sale price for an existing home was $394,300, says the National Association of Realtors.

If you’re aiming for a 20% down payment on a median-priced home, that means you’ll have to come up with about $79,000 in your savings account to be able to buy. And so you may decide to first focus your efforts on purchasing a home, and then start saving money for your retirement.

It’s easy to see why you may be inclined to go this route. Homeownership is something you may have a desire for now, whereas retirement might be decades away. But if you wait too long to start saving for retirement, you’ll risk coming up short on funds later in life.

The problem with prioritizing homeownership

You may be eager to become a homeowner so you can stop paying rent. And it’s easy to see why you’d rather pay down your own mortgage loan than somebody else’s. But if you don’t start to allocate funds to retirement savings until you’ve saved enough for a down payment and purchased a home, you’ll risk not having a large enough nest egg to meet your goals during your senior years.

Let’s say you’re trying to save up an $80,000 home down payment, and you’re able to sock away $8,000 a year. That means you’re a decade away from owning a home.

If you were to split your $8,000 for your home down payment so that half goes into your IRA or 401(k), it would take you 20 years to purchase a home. That may not be optimal. But it could also help ensure that you’re able to build up more of a nest egg for retirement.

Remember, too, that you might think you’ll be able to pump more money into retirement savings once you’re done amassing a down payment. But that may not happen for one big reason — you might end up having to spend that money on expenses like property taxes, maintenance, and repairs, which are costs you don’t bear when you rent.

In fact, if you put off retirement savings until you’ve purchased a home, you might end up in a situation where you never manage to fund your IRA or 401(k) plan at all. That’s clearly not a good situation to put your future self in.

Striking a balance

You might really want to own a home. But let’s say that instead of saving $8,000 a year for a down payment, you only save $4,000, and the other $4,000 goes into a retirement account. If you continue to save at that level over a 40-year period, and your investments deliver a 10% average annual return, which is in line with the stock market’s average, you’ll end up with almost $1.8 million in retirement savings.

Meanwhile, let’s say you don’t do that and instead, put off retirement savings completely for 10 years so you can save $8,000 a year toward a home purchase. Let’s also assume that once you’ve bought your home, you have enough money to put $4,000 a year into a 401(k) or IRA. If you contribute $4,000 annually for 30 years, you’ll end up with $657,000, assuming that same 10% average annual return.

Now that may be enough money for you to retire on. Or not. It’s hard to know. But it’s definitely nowhere close to $1.8 million. It’s only about one-third as much, in fact.

That’s why you should ideally try to fund your nest egg alongside saving up for a home. It might mean having to wait longer to buy, or buying with a smaller down payment. But that way, you’re not sacrificing your retirement savings to get into a home of your own sooner.

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How much could you save by living with family after college? Find out from a 26-year-old who does. 

I’m one of the growing number of young adults who choose to live with family. After graduating college, I moved in with my parents, and then with some extended family members. One thing’s for sure: The whole living-with-family thing has its pros and cons.

The biggest pro: Living with family saves me more than $1,000 per month. I’ll dig a little deeper into what I do with that extra cash.

I save $1,000 per month on rent

Rent is my biggest expense. I live in Torrance, California, a nice suburban neighborhood in Los Angeles County. It’s expensive to live here on your own. According to Zillow, the median sticker price for a studio apartment is $1,673 monthly. When I graduated, I couldn’t afford that.

My extended family only charges me $700 per month. Combined with gas, water, and electricity savings, I pay at least $1,000 less than I would for a studio apartment of similar size to my current living space. That’s huge. I can do a lot with that extra cash.

Other ways living with family saves me money: Parking is free, the laundry machines are fast and free, I can carpool to family events, and most of my family is within a one-hour driving distance. By living with extended family, I save a lot of time and money.

What I do with the extra cash

I’ve spent a lot of cash buying stocks through a brokerage account. Since the slowing of the market in 2023, I’m still purchasing stock, but at a slower pace. That’s partly because I doubled down on being a responsible saver by paying off my misguided margin loans.

Recently, I’ve been putting money into a savings account so I can afford to move out. Much as I enjoy saving money by living this way, I’d like to be able to move out on my own terms. I plan on staying longer, but knowing that I can move out whenever will bring me peace of mind.

When deciding whether to live with family, it’s worth considering the costs of doing so. The best-case scenario is you become wealthier and more connected with your family. I’d like to be wealthier, but only if it doesn’t bankrupt me in other areas of life…including my relationships.

Downsides to living with family

Living with family saves me money that I’ve used to invest and save toward my own apartment, but it’s not all rainbows and unicorns. For starters, I have limited privacy. Despite having my own room, family has a way of inserting its nose into your personal life.

Example: Want to bring over a special someone? Hold up. You’ve got two teenagers occupying the living room, a frantic mom folding laundry, and various callers ringing the doorbell. Living with family may require you to compromise on privacy.

But I think the tradeoff — personal space for saving money — is worth it (for now). One nice perk about living with family is you’re not beholden to a 12-month rent contract. You can choose to move out anytime, so long as you can afford it. It’s not easy, but it’s doable, and you have the choice.

Is it worth living with family as a 20-something?

If you think you can save money and remain healthy by living with your family, then go for it. Just be sure to align incentives so that you and your family are happy to have you.

Here are three ways to align incentives and create a “your success is my success” mindset:

Pay rent. That way, your family can expect you to support them financially.Share success. I got a new job, so I offered to bump my rent payments by $100.Figure out what’s hard for your family and easy for you. Make it your thing. In my case, a big part of living with my extended family is taking care of the animals.

When “your success is my success,” it becomes a lot easier to live with family. Everyone likes a win-win situation, and with a little practice, you can make living with relatives benefit not just you, but your whole family. It’s practical to live with family as an adult, and sometimes, it’s worth doing.

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

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A recession could cause your IRA to lose value — or not. Read on to learn more. 

Many financial experts spent the better part of 2022 warning consumers to gear up for a 2023 recession. Only that never happened. And while we’re not quite done with 2023, at this point, it’s pretty fair to say that the economy is in a good position to hold steady until 2024.

But just because we managed to avoid a 2023 recession doesn’t mean we’re permanently in the clear. There’s a good chance all of us will experience a recession at some point in time. And if you have money sitting in an individual retirement account (IRA), you should know that a recession may or may not have an impact on it.

What’s a recession, anyway?

Technically, a recession is defined as two or more consecutive quarters of decline in gross domestic product. But when the media talks of a recession, it generally refers to a period of general economic decline. Higher levels of unemployment, for example, could be called a recession, as could a drop in consumer spending.

But one thing that’s worth noting is that a recession is not defined as a decline in stock market values. A recession could cause stock values to drop, but that’s not guaranteed to happen.

Another recession is likely

Over the past 40 years or so, the U.S. economy has experienced a number of notable recessions. In the early 80s, rampant inflation and interest rate hikes drove the broad economy into a slump. In the early 1990s, rising oil prices fueled a downturn.

In the early 2000s, the dot-com bubble burst. That, coupled with the events of Sept. 11, drove the economy into a recession. And anyone who was of working age or older in 2007 surely remembers the Great Recession — a multi-year affair triggered by the collapse of the housing market that led to widespread job loss.

Interestingly enough, our last recession — the one that took place in early 2020 following the COVID-19 outbreak — was fairly short-lived. And its impact on the stock market was quite temporary. Stock values briefly declined during the first half of the year before staging a marvelous recovery before 2020 closed out.

The point of all of this is that we’re likely to have another recession. And it may or may not impact your retirement savings. Recessions don’t always drive stock values down, but they could. So it’s important to know what to do in that situation.

Safeguarding your IRA in recession

If a recession hits and causes your IRA to lose value, the best thing to do is actually nothing. See, you don’t lock in investment losses in your IRA unless you actively sell off investments when their value is down. If you leave your IRA alone after it loses value, you give it a chance to recover.

In March of 2009, the S&P 500 index (which is generally considered representative of the stock market on a whole) had a value of about 683. Compared to 1,288 a year prior, that read like a huge hit. But as of this writing, the index’s value is roughly 4,240.

People who sold off investments at a loss in 2009 may have never recovered. Those who left their portfolios alone may be sitting pretty right now.

All told, it’s hard to predict exactly what will happen to your IRA in a recession. But if you pledge to leave your savings alone, you can set yourself up to recover nicely.

It’s also important to load your emergency fund with cash you can tap in the event of losing your job — something that may be more likely to happen during a recession. If you have money in a regular savings account for that purpose, you’ll be less likely to need to tap your IRA in a pinch.

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New to Costco? Check out which three mistakes new Costco members might make, as well as how to avoid them. 

Every new Costco member makes a few excusable mistakes, like putting big items on conveyor belts in checkout lines when veterans know to leave them in the cart. But some mistakes will cost you more than just wounded pride.

Take heart, new member. If you’re about to make your first trip to Costco — or did but are wondering what went wrong — be on the lookout for these three common mistakes.

1. Buying brand names

Yes, Costco has amazing deals on brand names and very seldom do other stores beat its prices on the same products. But the secret juice to saving money at Costco is indisputably, uncontroversially buying Kirkland Signature products in bulk.

For those who, like me, grew up eating generic brands of cereal and carried off-brand Lunchables to school, make no mistake — Kirkland Signature is not inferior to brand names. In fact, many are well-known superheroes disguised under the Kirkland brand. For example, some Kirkland coffees are made by Starbucks, and its cranberry juice is Ocean Spray.

These products are your bread and butter in saving money — metaphorically, but also literally because Kirkland butter is great and super cheap. One Kirkland product I love is the shelled pistachios. For $15, I can buy a 1.5 pound bag (24 ounces) bag. That’s less than half the price of buying the same quantity of Wonderful Pistachios from my local Safeway ($7.99 for six ounces).

So skip the brand names. It’s going to work wonders for your finances.

2. Getting the wrong membership

Costco offers two annual memberships: Gold Star for $60 and Executive for $120. And while there are several differences between the two, the big difference is that an Executive membership earns 2% cash back (up to $1,000 in earnings) and a Gold Star doesn’t.

Now, I get why you would feel hesitant to buy an Executive membership. After all, you’re trying to save money. Why not start this Costco thing with a savings of $60 and choose the Gold Star membership?

Truth is, most Costco shoppers will spend enough to justify getting the Executive membership. The magic number here is $250. If you can spend $250 per month ($3,000 per year), you’ll earn enough to cover the difference between the two memberships, or $60. If you can spend that, it’s worth getting the Executive membership.

Now, if you really want to earn cash back, you could also get the Costco Anywhere Visa Card. This rewards card earns 2% back on Costco purchases, but when combined with the Executive membership, you can earn 4% back. That’s really good and can compete with some of the best grocery credit cards.

3. Paying full price for certain products

The more frequently you shop at Costco, the more you’ll notice how certain brands and products are the headliners for sales and promotions. A rookie move, then, would be to buy these products at full price, rather than wait until they’re discounted.

For example, Costco frequently runs promotions on its electronics, whether that’s televisions, laptops, headphones, speakers, or smartphones. It also has seasonal promotions on furniture — both indoor and outdoor — and on kitchen appliances. Tires are another favorite sale item, as are mattresses — which often come with a $150 to $200 Shop Card during a promotion.

The point: Be on the lookout for the products typically on sale at your local warehouse. While you can’t always time a purchase exactly right — tire purchases, for instance, might be difficult — you can stop yourself from paying full price for items that can wait.

That said, if you purchased something at full price before it goes on sale, Costco may credit you the difference. The retailer has a price adjustment policy that will reimburse if you request the adjustment within 30 days of your purchase. So if you bought an air fryer for $100 right before it went on sale for $60, Costco would give you $40 back.

All in all, making a mistake at Costco boils down to saving less than you could have with the right knowledge. But by buying Kirkland Signature products, getting the right membership, and paying attention to sales, you’ll squeeze more value out of your Costco membership. You might not know all the ins and outs of Costco yet — such as how to avoid Costco traffic — but you’ll be saving money, which is what Costco veterans do.

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It is possible to finance really big purchases with a personal loan. Keep reading to learn what to consider when looking for a lender. 

Personal loans are a versatile way to borrow because you can use the money for pretty much anything. But what if you want to borrow a lot of money for a very large purchase? Will you be able to find a personal loan that allows you to make that move or will you need to look into other options?

Just how much can you borrow when you get a personal loan?

The good news is, it is entirely possible to fund large purchases using a personal loan. In fact, there are several personal loan lenders out there that will allow you to borrow as much as $100,000.

Now, you will of course need to qualify for the large loan based on your income and your credit score. Lenders are going to want proof that you’ll be able to make the monthly payments, so you’ll often have to provide documentation such as tax returns or pay stubs.

RELATED: How Much Personal Loan Can I Get?

And not all lenders have such high loan limits, so if you’re borrowing and need a big sum, you’ll want to research your options carefully to find a loan provider that can give you the money you’re looking for.

But if you have solid financial credentials and take the time to get a few quotes, you should be able to get the cash you need deposited into your checking account so you can move forward with your purchase.

Should you fund really big purchases with a personal loan?

While you can fund a big purchase with a personal loan, this doesn’t necessarily mean you always should. There are a few key considerations to make before moving forward.

Could you fund the purchase in cash? While personal loans tend to have lower interest rates than credit cards do, you still do have to pay financing charges. In fact, the average interest rate on a personal loan as of August 2023 was 12.17%. If you can avoid that interest cost by paying from your savings account, you’re often better off since paying interest makes your purchase more expensive.Is the purchase necessary? Committing to pay a substantial monthly payment for a large loan can reduce your future spending power and make it more difficult to accomplish other financial goals. So be sure the purchase is actually worth making before moving forward.Can you afford the monthly payments? You don’t want to struggle for years to make your loan payments, so be sure that the monthly amount due based on the amount you borrow is going to be comfortably affordable for you. If it won’t fit into your budget, don’t move forward.What are your alternatives? You may have other options, such as a home equity loan, home equity line of credit, or car loan, depending on exactly what you’re purchasing. Since these are secured loans, the interest rate may be lower than for a personal loan. Be sure to consider all of the different borrowing solutions to see which makes the most sense for your current needs.

By taking the time to consider these issues, you can make an informed choice about whether taking out a large personal loan is the right financial move.

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College students need to be careful not to get into credit card debt. Learn which expenses it’s best not to charge. 

College students can get credit cards if they have a parent willing to cosign or if they have proof of income sufficient to pay the card. And getting a card in college can sometimes make sense, as students can begin building credit and earning rewards for essential spending.

RELATED: Best Credit Cards for Students

It’s important for young people to use their cards wisely, though. And that means not putting these four expenses on their card.

1. Spring break costs

Spring break travel can be expensive. According to Squaremouth.com data, the average cost of an insured spring break trip was $5,606.05 in 2023. But while you can make great memories on spring break, you shouldn’t take a costly trip unless you can pay for it out of your bank account.

If you charge a trip on your credit card, it could take you years to pay it back, especially with credit cards charging high interest rates and imposing low minimum payments. Do you really still want to be paying for those margaritas you don’t even remember drinking when you’re 30 and trying to buy your first house?

Instead of splurging on a costly trip, consider taking turns with your friends visiting each other’s hometowns and playing tour guide. As long as your parents don’t mind providing a free place to stay, you’ll spend a fraction of the amount while still making great memories.

2. Medical expenses

Medical expenses are a necessity, but you should aim to avoid charging them on a credit card if at all possible. Instead, check with your school to see if it offers a school-based health center that might have more affordable care.

Or, if you do need to pay for medical services you can’t afford to cover all at once, ask about starting a payment plan with your care provider. You’ll likely pay much less interest if you work out a payment plan directly with the provider than if you use your credit card.

Medical debts are also treated differently on your credit reports. Paid medical debts that were in collections and unpaid medical debts in collections that are less than a year old are not displayed on your credit record, nor are collections activities for medical debts for less than $500. This is not the case for credit card debt, as collections activities can be reported immediately and remain on your account for up to seven years after the first missed payment.

3. Entertainment expenses

You deserve to have fun in college. But, just like with a spring break trip, it’s simply not worth it to charge nights out when you’ll get stuck paying a ton of interest and will be forced to cope with these debts as you’re trying to get your adult life started.

RELATED: How to Budget in College

Many campuses offer free events, so check them out to fill your calendar with fun that won’t cost you a fortune. And look into local places that offer student discounts when you do want a night out, so you can keep costs down.

4. Vehicle purchases

Finally, you’ll want to avoid putting any portion of a car purchase on a credit card unless you can pay off the bill in full when the statement comes. That’s because there are cheaper ways to finance a car. As of August 2023, the average interest rate on a credit card was 21.19%. Car loan rates are typically well below this, and qualified borrowers are often able to get rates below 10%.

Of course, you may not want to borrow for a vehicle at all if you can get by on public transportation or walking. You can get your car once you have a post-college job and are better able to afford a down payment, qualify for an affordable car loan, and cover all the costs associated with vehicle ownership (like auto insurance).

By avoiding putting these four expenses on a credit card, you can make sure you don’t leave school with debt that you regret.

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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.
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