Money Management

Some companies allow you to buy life insurance as a workplace benefit. Read on to see if this is a good idea. 

If you’re a salaried employee, now’s the time when your company may be asking you to elect your benefits for 2024. In the coming weeks, you may have to sign up for health insurance, decide if you’ll be funding a flexible spending account, and figure out if you should sign up for employer life insurance.

Many companies offer employees the option to buy life insurance through their workplace plans. And if you don’t yet have life insurance, that could be a tempting option.

But there are pros and cons to buying life insurance through your job. And it’s important to know what those entail. Let’s take a closer look.

The upside of employer life insurance

One major benefit of buying life insurance through your job? It’s easy — or at least it should be.

Most employer life insurance plans guarantee you coverage as long as you buy in. Compare that to applying for coverage on your own, and you’re at the mercy of a life insurance company that may or may not approve you depending on the state of your health, among other factors.

Employer life insurance might also be pretty cost-effective. Employers — especially larger ones — are often able to negotiate competitive rates with insurers so the cost of life insurance is affordable. You might pay more for comparable coverage if you shop around for life insurance on your own.

The downside of employer life insurance

When you buy life insurance through your employer, that coverage may end up being tied to your job. This means that if you were to leave your job, you might either lose your coverage or be forced to convert it to an individual policy that ends up being far more expensive.

To be fair, sometimes employer life insurance is portable, which means you can take it with you from one job to the next. But definitely ask that question before making your choices.

Also, with employer life insurance, you may not get many choices concerning the specifics of your coverage. When you buy life insurance on your own, you can generally choose between a term life policy or whole life insurance, which covers you permanently. If you buy insurance through your company, you may be limited to a specific term life plan that doesn’t last as long as you’d want it to.

For example, if you have very young kids, you may want a 20-year term life policy at a minimum. Your employer, however, might only offer a 10-year policy.

What’s more, you may not get all of the coverage you need. Because it’s so easy to qualify for employer life insurance, coverage limits are usually capped. You may need more life insurance to protect your loved ones than what your employer’s policy provides.

For example, you may want to replace your $80,000 income 10 times over, as that’s what experts tend to recommend at a minimum. But if your employer’s policy maxes out at $100,000 of coverage, you’re clearly going to be short of your goal.

An estimated 52% of Americans have a life insurance policy in place. If you want to join their ranks, you may be considering a policy through your employer. But make sure to get the details of that plan and ask the right questions so you can make an informed choice.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

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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Taxes can work very differently for gig workers. Take a look at some of the most important concepts to know. 

There has never been more freelance work, or gig work, available than there is right now. Millions of Americans who want additional income, flexibility, and new opportunities are turning to gig work as either a side hustle or a full-time job opportunity.

Gig work can be very rewarding, but the tax implications of the gig economy are very different from W-2 employment. If you’re new to earning self-employment income, here are some of the key concepts you should understand about how taxes work.

You (probably) need to make quarterly payments

If you are self-employed, you might be required to make quarterly estimated tax payments to the IRS. Specifically, if you expect to owe more than $1,000 in federal taxes for a given year, you are generally required to make quarterly payments. The IRS sets four deadlines — typically April 15, June 15, Sept. 15, and Jan. 15 of the following year.

There are a few exceptions. For example, if your federal income tax withholding from a job is at least 90% of your total tax this year, you won’t be penalized if you don’t make quarterly estimated payments.

However, it’s important to note that spreading out your payments throughout the year is generally better than getting hit with a large lump-sum tax bill when you file your return. So even if you’re not technically required to make estimated payments, it’s still a good idea if you anticipate that you’ll owe a significant amount of money.

Self-employment tax can be costly

One thing many gig workers don’t realize is that there’s an additional tax if you’re self-employed.

When you have a W-2 job, you only pay half of the Social Security and Medicare taxes based on your income. But if you have income from gig work, you are considered to be both the employer and the employee, and therefore are responsible for both sides of the tax. Social Security tax is only assessed on a certain amount of income, while Medicare tax is charged on every penny you earn. For 2023, here’s how these taxes (collectively known as the Self-Employment Tax) break down:

15.3% on the first $160,200 of net earnings2.9% of any net earnings in excess of $160,200

You have some valuable tax breaks available to you

It isn’t all bad news for gig workers. There are some valuable tax breaks that people with self-employment income qualify for. Just to name a few common examples:

Retirement plans: If you have self-employment income, you have access to certain types of retirement accounts with higher contribution limits than traditional and Roth IRAs have, such as the SIMPLE IRA and SEP-IRA.Home office: If you use a room in your home exclusively for your gig employment, you may be able to claim a home office deduction.Mileage: If your gig work requires you to drive from one place to another, you may be able to deduct the IRS’s mileage rate.Qualified Business Income (QBI) deduction: This was part of the 2018 tax reform and essentially allows gig workers to deduct as much as 20% of their self-employment income.

Smart planning can make all the difference

In my first full year as a freelance worker (the term “gig worker” didn’t really exist back then), I was shocked when I was hit with a $14,000 tax bill in April when tax time rolled around. The reason is that having never done anything besides W-2 work and being several years off from even considering becoming a financial planner, I had no idea about any of these things. I didn’t know to make quarterly tax payments, I had no clue that self-employment tax added thousands of dollars in tax liability, and I didn’t know about self-employed retirement options and other valuable tax breaks.

With that in mind, if you’re relatively new to being a gig worker, or simply want to do a better job of planning for and reducing your tax bill, understanding these three important concepts can put you in a great position to do just that.

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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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Store credit cards could help you save big on holiday shopping. Here are some questions to ask yourself to decide if you should open one. 

The holiday shopping season is just around the corner, or it may already be here if you’re an early shopper. Even if you don’t have too many people on your list, the cost of gifts can add up quickly. Stores may try to entice you to open their credit cards in order to save as much as you can. But that may not be the right choice for everyone. Here are four questions to ask yourself before you say yes to that overeager cashier with the credit card application.

1. How often do you shop at the store?

Opening a store credit card could make sense if you frequently shop at that store all year round. You’ll have plenty of opportunities to take advantage of its perks and reap any rewards it offers. But if it’s a store you shop at once or twice per year, it might not be worth adding to your wallet. It’ll just be another account you have to keep track of and you probably won’t get that much use out of it.

2. What kind of benefits does the card offer?

Some store credit cards offer better perks than others. For example, some may offer rewards that you can put toward future purchases. Others may earn you free shipping when you order online or give you access to exclusive discounts.

It’s important to weigh how much the store credit card will actually save you before applying. Knocking a few dollars off your bill might not be worth it. But I’ve had a store credit card save me more than $100 on a single purchase, so in that case, it was definitely worth opening for me.

3. What are the consequences if you don’t keep up with your payments?

Like all credit cards, store credit cards charge you interest if you fail to pay your balance in full at the end of the month. The average annual percentage rate (APR) for all types of credit cards is around 24.24%. If you had a $500 balance on a card with this APR and only made the $40 minimum payment each month, it would take you 15 months to pay off and you’d owe $70 in interest on top of your $500 principal.

Store credit card APRs can be even higher than this. Their credit limits are generally low, so you probably won’t be able to rack up large amounts of debt on them. But there’s still the potential for costly interest charges, especially if you keep charging more to the card before you pay off your existing balance.

This may not concern you if you’re confident that you’ll be able to pay your balance in full each month. In this case, you won’t owe any interest. But if you’re concerned about falling behind on your payments, it might be best to avoid this risk and skip the store credit card. If you really need to buy on credit, consider a card with a 0% introductory APR or a low standard APR.

4. How will opening the store credit card affect your credit?

Every time you apply for a store credit card, you’ll have a hard inquiry added to your credit report. This drops your credit score by a few points. It’s not a big deal if you get approved for the card because the boost you’ll get from having access to more credit (via your credit utilization ratio) will more than offset it. But if you’re not approved for the card, it could just make your credit score even worse.

Requirements to open these cards generally aren’t that stringent, but it doesn’t hurt to inquire about them before you apply. If you have poor credit or you’ve recently applied for one or more loans or credit cards, now might not be the time to apply. The lender might be concerned that you may not be able to keep up with your payments due to your low score or recent behavior. Rather than take this chance, consider waiting and apply for the card in the future when your credit is on better footing.

Remember, while a store credit card can be a big help during the holiday season, it doesn’t go away when the holidays end. You’ll need to keep an eye on that account as long as you have it to make sure that you’re keeping up with your payments and that someone isn’t using it without your knowledge. If you’re not comfortable with this, it’s probably not the right move for you right now.

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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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Borrowing rates are up, but that doesn’t mean refinancing is permanently off the table. Read on to learn more. 

In 2020 and 2021, mortgage lenders found themselves overwhelmed with refinance requests. But that hasn’t been the case this year.

It’s gotten very expensive to sign a mortgage. As of this writing, the average interest rate for a 30-year fixed loan is 7.57%, according to Freddie Mac.

Homeowners tend to be motivated to refinance so they can lower their monthly payments. And today’s mortgage rates just aren’t conducive to that.

But while refinancing your mortgage may not lower your rate or monthly payments, you might still benefit from doing so today. And if not, you might benefit from refinancing in the future.

When you have debt that’s costly that you want to consolidate

If you’re paying 3% on your mortgage now and your goal is to shrink your monthly payments, then you clearly won’t achieve that goal with a refinance. But there’s one situation where it could make sense to refinance despite today’s higher rates, and it’s if you have even more expensive debt that you’re trying to consolidate.

Refinance rates tend to come in slightly higher than purchase mortgage rates. So if you’re looking at an average rate of 7.57% for a 30-year mortgage, you may be looking at 7.75% for a 30-year refinance. And that’s a high rate in the context of mortgages.

But what if you also happen to have outstanding credit card balances where you’re paying 19% interest on your debt? And what if you happen to have taken out a personal loan when your credit was poor, resulting in a 14% rate? When you compare these rates to what mortgage lenders are charging, today’s mortgage rates don’t look so bad.

And so if you have enough high-interest debt, it could pay to do a cash-out refinance, where you borrow more than your remaining balance on your mortgage. This option may be available to you if you have a nice amount of equity in your home (which is largely the case today for U.S. property owners due to elevated home values).

Let’s say you owe $100,000 on your mortgage with a 3% interest rate, but have another $100,000 in high-interest debt that’s costing you well more in interest than today’s mortgage rates. If you’re able to do a $200,000 cash-out refinance, you might end up with a lower interest rate on all of your debt all in, despite seeing the interest rate on your mortgage balance rise.

Mortgage rates should come down in time

While refinancing a mortgage today probably will not result in savings on your home loan payments, it could still be an option worth considering to tackle high-interest debt. Also, remember that in time, mortgage rates are likely to come down. Once that happens, you may have an opportunity to refinance your mortgage to a lower rate.

Granted, if you signed your home loan in 2020 or 2021, you should know that rates may not end up being lower than what was available back then in your lifetime. So if you have a 3% mortgage rate locked in, consider yourself lucky.

But it may be that you signed a mortgage last year at 5% or 6%. Refinancing today generally won’t save you money. But refinancing in a few years from now might.

Our picks for the best credit cards

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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 early retirement movement has its detractors. Learn why one of the most common criticisms of it is off the mark. 

Americans have been retiring later. The average retirement age is 61, up from 57 in the early 1990s. In recent years, the expected length of retirement in the United States has also fallen, which isn’t good news if you’re hoping to make the most of your golden years.

FIRE, which is short for “financial independence, retire early,” is the solution for many people. It’s a lifestyle where you focus on keeping your expenses low and your savings rate as high as possible. The goal is to invest your money and build your portfolio enough to where you can live off the proceeds and retire at a younger age.

The FIRE movement has been growing in popularity. While it used to be a small niche topic, quite a few online communities are now dedicated to it, including a subreddit with over 2 million members. But it also has its fair share of detractors.

The most common criticism is that you need to drastically lower your quality of life in the present for a payoff later, but that’s a misconception. While some people have done that, there’s no rule that you need to deprive yourself to achieve an early retirement.

There’s more than one way to retire early

It’s true that saving a large portion of your income is the key to the FIRE movement. Participants typically aim for a savings rate of at least 50%, meaning they use at least half their income for savings and investments. Some go even further and aim for rates of 70% or 80%.

Saving that much probably sounds extreme, and it is. To be honest, some of the measures people were taking to save more money didn’t appeal to me, either. I had no interest in buying a tiny home, living in a van, or never going out to nice restaurants just to retire sooner.

Before deciding that FIRE isn’t for you, understand that you don’t need to cut spending to the bone. There are alternatives that allow you to save more without ruining your quality of life:

Increase your income. A good, ambitious approach is to try to raise your income every year. You could look for promotions and seek out raises at your current job, go job hunting, or both. Another option is to consider setting up a business or seeking out freelance work to build a side income stream.Cut back on big expenses that don’t matter to you much. For example, I haven’t had a car in five years. I haven’t needed one, and I’m able to save on a car payment, insurance, and gas. See if there’s anything you spend a lot of money on that you wouldn’t miss if you got rid of it or cut back.

Let’s say you currently take home $5,000 per month and save $1,000, for a 20% savings rate. If you get a raise to $6,000 per month and save all of the raise, then you’ve boosted your savings rate to 33%. And if you’re then able to cut a $400 expense, you’re now saving $2,400 per month for a 40% savings rate.

Retiring early while enjoying the present

You just saw how making a couple of hypothetical changes to your income and expenses got you to a 40% savings rate, setting aside $2,400 per month. What if you were to invest that $2,400 per month and get an 8% annual return, which is in line with the stock market average? After 20 years, you’d have $1.3 million.

Depending on your lifestyle, that may or may not be enough to retire early. It’s certainly far more than the average retirement savings and what most people have when they retire.

A big part of personal finance is finding the right balance between having a great quality of life in the present and preparing for the future. You can absolutely do that while working toward early retirement — if it appeals to 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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