Money Management

Membership fees are a huge revenue source for Costco. And that’s a good thing. Read on to see why. 

When you run out of milk or bread and need to run to your local grocery store on a whim, there won’t be an employee at the door asking you to show a membership card. By contrast, if you want access to Costco, you’ll need to pay for a membership, the cost of which varies based on the type you choose.

A basic membership at Costco costs $60 a year. An Executive membership costs $120, but in exchange, you get to earn 2% cash back on your Costco purchases. If you spend more than $3,000 a year at Costco, the Executive membership makes financial sense.

Now, some people refuse to pay any sort of fee to get into Costco. And if you’re in that camp, it’s understandable. After all, you don’t have to pay to get into a regular supermarket, Walmart, or Target. Why should you pay a fee simply to pad a retailer’s bottom line?

But while it’s true that membership fees are a huge driver of revenue for Costco, those fees are actually worth paying. Here’s why.

When your membership fee benefits you

Over the past year, Costco brought in almost $4.6 billion in membership fees. And those fees represent 72% of the company’s profits.

But before you get angry at that number, realize this. The whole reason Costco is able to offer such competitive prices is that it uses the revenue it collects in membership fees to offset its costs. And if you use your membership enough, you may find that your fee is more than worth paying.

Let’s say you shop at Costco twice a month and save $20 on each visit compared to what you’d spend at a supermarket or big-box store. Let’s also assume you only have a basic membership. This means you’re spending $60 to save $480. So all told, you’re coming out ahead by $420.

If you’re someone who doesn’t tend to shop at Costco often, then you’ll need to assess whether your membership fee is worth paying. Chances are, you’re not going to get value out of your fee if you only go to Costco once or twice a year (though it’s possible that your membership will still pay in that case if each visit has you bringing home a giant haul).

But if shopping at Costco saves you money, then you may not want to grumble about the fee. Or, go ahead and grumble about it, but keep paying it if that’s what makes financial sense for you.

Will Costco fees go up soon?

It’s been more than six years since Costco raised its membership fees. And on the company’s most recent earnings call, CFO Richard Galanti said “it’s a question of when, not if,” with regard to a fee hike.

But for now, Costco isn’t making plans to raise its membership fees. And chances are, a change like that won’t arrive until 2024 at the earliest. It’s unlikely that Costco would raise fees leading into the heart of the holiday season and risk alienating consumers at a time when retailers are vying for their business.

But even if Costco opts to raise fees in 2024, chances are, it’ll still make financial sense to keep your membership. And while you may not relish the idea of paying more, the silver lining is that a modest fee hike could lead to even more money you can add to your savings account.

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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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Many Americans have credit card debt, but it can be a drag. Read on for tips to get your balance down to $0 in time. 

Inflation began surging in 2021, and it’s been problematic for consumers ever since. It’s therefore not so surprising to learn that between 2019 and 2022, the share of families with credit card debt held pretty steady at around 45%, according to data from the Federal Reserve. After all, it’s hard to shed credit card debt when the cost of everything from groceries to utilities starts to increase.

That said, while the percentage of consumers with credit card debt didn’t change much during that three-year period, balances did shift downward. So that’s good news.

As of 2022, the average U.S. credit card balance was $6,100. The median balance was only $2,700.

When you have a median that’s lower than an average, it’s an indication that more people’s balances are in line with $2,700 than $6,100. It’s likely that that $6,100 figure stems from a smaller percentage of consumers owing a lot of money on their credit cards.

But the reality is that no matter what your credit card balance looks like, it’s best to do what you can to pay it down. The sooner you do, the less money you’ll lose to interest. Here are some options to look at in that regard.

Consolidate your debt so it’s more affordable

You might owe money on a string of credit cards with different interest rates ranging from, say, 16% to 24%. Ouch.

Well, what if you were able to consolidate those debts into a single loan at, say, 8% interest? That’s a considerably lower rate.

If you take out a home equity or personal loan and use it to pay off your credit cards, you can then pay off that single loan over time. Only you’ll be paying a fixed amount every month (whereas your credit card payments might vary as your interest rate adjusts). And you’ll be doing it at a lower interest rate, resulting in some savings and making your debt easier to pay off. Plus, you’ll get a set end date for when your debt will be paid off.

You could also do a balance transfer and move your existing balances over to a single credit card with a low or 0% introductory rate. But those introductory rates don’t tend to last very long. So if you think it’ll take you three years to pay off your credit cards and you’re only eligible for a 0% introductory rate for 12 months, a home equity loan or personal loan may be a better option.

Turn to the gig economy for extra cash

No matter how you consolidate your debt, you’ll need money to pay it off. If your paycheck is mostly eaten up by basic expenses (which is the case for many people today), then you may need to turn to the gig economy for an income boost. You can use your extra earnings to whittle down your debt until it’s gone.

A side gig could also be your ticket to building an emergency fund. And that’s an important thing, because it might prevent you from racking up new credit card debt once your current balances are paid off.

In fact, it’s a good idea to try to sock away enough cash in the bank to cover three months of essential bills. That might seem like a lofty goal, but think about it this way: If you were to lose your job, it might take three months to land a new one. So even if it takes a lot of time to save it up, it’s a good thing to aim for three months’ worth of cash reserves.

No matter how your credit card balance compares to the average consumer’s, you probably want it gone. And these tips could make it possible to be debt-free sooner than expected.

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No matter when you retire, managing your personal finances will be easier with a plan. See why ridding yourself of most debt should be part of that plan. 

Retirement takes planning. And one of the things we each have to decide is what kind of retirement we hope to enjoy. Are you okay hanging out with the grandkids and fishing with friends? Or would you rather travel the globe to see how the rest of the world lives?

Whatever your “dream” retirement looks like, it will be easier to realize if you move into your golden years with retirement savings, no debt, and a plan. Here, we cover four ways taking debt into retirement could upend your dreams.

But first: When we refer to being debt-free, we mean that everything is paid off except your mortgage. Naturally, if you can pay your mortgage off before retirement, that’s a bonus. Still, most people will have a housing payment of some sort, be it monthly rent, a mortgage, or taxes and insurance on a mortgage that’s paid in full.

1. Debt adds to stress levels

We mention this first because it may be the most worrisome result of going into retirement with debt. From the first time we swipe our first credit card or finance a car loan, we know what it feels like to work for two different companies: the business that employs us and the company we owe money to.

Let’s say you earn $60,000 annually or $5,000 a month. You buy a new car for $40,000 at 7% interest and plan to pay it off in 60 months. That puts your monthly payment right around $792. Here’s how to figure out how many hours a month you work for the bank or credit union that loaned you the money:

Divide your annual salary by 2,080 hours (the average number of working hours in a year: 52 weeks x 40 hours). $60,000 ÷ 2,080 = 28.85. You earn $28.85 per hour.Divide $792 (the loan payment) by your hourly wage. $792 ÷ $28.85 = 27.45. You work over 27 hours a month for the lender.

As a younger person who can pick up overtime hours or take on a part-time gig, the stress is there but may not prevent you from sleeping at night. In retirement, when the only option is going back to work, the stress of owing money is an entirely different kettle of fish. There simply are not as many options for quickly paying the debt down.

What you can do: Starting today, don’t take on any new debt without first figuring out how many hours a month you’ll have to work to pay for it.

2. The stress of debt wreaks havoc on your body

Not to put too fine a point on this, but stress is bad for us physically, mentally, and emotionally. Among the issues that can arise from living with stress are:

HeadachesInsomniaHeartburnWeakened immune systemHigh blood pressureHigh blood sugarStomach issuesDepressionRisk of heart attack

Everyone reacts to stress differently, and you may be one of the fortunate ones who breezes through, but think about how long you’ve worked and how much you deserve relaxing days. Getting rid of as much debt as possible makes it easier to plan a workable budget and, more importantly, to relax.

What you can do: Take care of yourself and implement simple relaxation techniques into your everyday life. For example, pace yourself; set small, realistic goals; eat well; get enough sleep; and talk about the things that are bothering you. It’s easy to get caught up in day-to-day living and forget to be kind to your body and mind.

3. Interest payments will eat into your monthly income

There are some kinds of debt — like mortgages and business loans — that can ultimately increase your net worth. That’s not what we’re concerned about here. The kinds of debt that will eat up your monthly income without offering anything in return include credit cards, most personal loans, payday loans, and auto loans (unless you’re purchasing a rare vehicle with an amazing resale value).

Let’s imagine that a man named Joe retires and, between all sources of income, has $5,000 per month. Joe’s car payment is $500 monthly, and he makes a personal loan payment of another $500. That’s $1,000 per month that Joe must live without until he gets those debts paid off.

What you can do: In the years leading up to your scheduled retirement, focus on paying off high-interest debt, followed by other types of debt. If you’re a year or two away from retirement with debt hanging over your head, consider extending how long you work.

4. Medical costs can be a bear

As the only industrialized nation in the world without universal health coverage for its citizens, American retirees must plan to pay out of pocket for many health-related expenses. According to a recent analysis from Fidelity, a single person retiring this year may need to have approximately $157,500 saved (after tax) to pay for healthcare expenses in retirement. For the average retired couple, that’s $315,000.

That may be a tough figure to hear, and to be sure, much of it will depend on how healthy you are. Still, paying your portion of medical costs (no matter how much they are) will be easier if you aren’t carrying debt.

What you can do: If you work for a company that offers a health savings account (HSA), you’re in luck. Unlike most flexible spending accounts (FSAs), the funds you contribute to an HSA are carried over from year to year. After you turn 65, you can withdraw the money without getting hit with a tax penalty. As long as you use the money to cover medical expenses, you won’t even have to pay income tax on your withdrawals.

Retirement is sort of like a Choose Your Own Adventure book. The outline of your story is there, but you get to fill in the details. Before bidding your coworkers adieu, determine how you want your retirement adventure to look and plan accordingly.

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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.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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When you’re a gig worker, staying on top of your finances is a must. Find out what money errors other gig workers make so you can do better. 

Being a freelancer or gig worker has its benefits. Many people choose this type of work because they want more flexibility and control over their income. If you’re considering becoming a gig worker, you should consider how your finances will change when you leave the traditional work world.

Many freelancers make similar money mistakes. Below, I’ll outline a few common financial mistakes that gig workers make and tell you how to avoid them.

1. Ignoring the need to prepare financially for time off

Some traditional jobs provide employees with personal time and sick day benefits. But you don’t get that luxury when you work for yourself. A frequent money mistake gig workers make is disregarding the need to prepare for missed income when they’re away from work.

There will be days when you’re unable to work, whether for personal reasons or because you’re sick. You’ll also likely want to take some time off for vacation. If you’re not working, you won’t be making money — but your bills still need to be paid.

You can prepare ahead of time so you’re not concerned about your bank account balance while away from work. One way to do this is by regularly setting aside money throughout the year. It’s best to keep the cash in a savings account so you earn interest. When it comes time to step away from work for sickness, vacation, or personal reasons, you’ll have the money needed to pay yourself.

2. Skipping quarterly estimated tax payments

Taxes look different for gig workers. Unlike W-2 workers, income taxes aren’t withheld from your paychecks. That means you must set aside money throughout the year to cover your tax liability. But that’s not all. According to the IRS, taxes must be paid as you earn money. For this reason, freelancers and gig workers are responsible for making quarterly estimated tax payments.

Many gig workers forget to save money regularly to afford their tax payments or skip quarterly estimated tax payments. If you miss quarterly estimated tax payments or make late payments, it could cost you. You could be charged a penalty. But you can avoid extra fees by staying on top of your quarterly estimated tax payments.

Here are two tips that may be helpful:

Automate your savings: You can automate the savings process by setting up recurring transfers from your checking account to your savings account. This way, you don’t forget to save enough money for tax payments. Set payment due date reminders: Set reminders on your phone or mark your calendar so you know when the next quarterly estimated tax payment is due. Doing this in early January is recommended so you don’t accidentally miss payments during the year.

3. Forgetting business deductions

You’re eligible for a tax deduction for qualified business expenses as a gig worker or freelancer. Self-employment taxes can add up fast, so taking eligible tax deductions is an excellent way to reduce your tax liability. Many freelancers fail to take advantage of all available deductions, including business deductions. If you want to maximize your deductions and reduce your tax bill, you may want to consider hiring an accountant to help prepare and file your tax return.

4. Failing to track all income

Being well organized is essential when you run a business or have a side hustle. Many gig workers fail to track their income throughout the year. Forgetting to do this can make tax season more of a challenge. Remember, you’re responsible for reporting all income you make.

Tracking your income as you earn it can save you time during the busy tax season. You can use small business accounting software or use a spreadsheet to track the money you make. When April rolls around, you’ll be glad you took the time to prioritize good record-keeping.

Don’t neglect your finances

Staying on top of your financial affairs is especially important when you’re a gig worker. If you neglect to stay on top of essential financial tasks or fail to stay organized, it could impact your wallet. Check out our free personal finance resources for additional money-related tips.

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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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