Money Management

My family means more to me than anything. Here are three crucial things I’ve done to protect them financially. 

I welcomed my second child this summer, and ever since, I’ve been swept up in the routine of feedings, diaper changes, and naps. It hasn’t been easy to find the time to do even basic things like cleaning the house. But it was important to me that I made room for the following three financial moves to help keep my family secure, no matter what the future holds for us.

1. We built an emergency fund

Having an emergency fund is extremely important to me because there’s no way of knowing when unexpected costs will arise. One of our appliances could break, we might need to file an insurance claim, or one of the kids might need to visit the hospital unexpectedly. Without cash on hand, we’d really be in trouble if any of those things happened, especially while I was on unpaid maternity leave.

The general rule of thumb is to keep at least three months of living expenses in a high-yield savings account, but we set aside even more to be safe. Having that money there gave me peace of mind that we’d be able to tackle anything that came up.

2. We budgeted carefully

My maternity leave made our budget a lot tighter than we were used to right as our expenses rose with the birth of our new baby. Fortunately, we’d saved extra above and beyond my emergency fund to cover our routine costs while I was off work. It still wasn’t easy to see my savings account balance shrink month after month, but having that plan in place ahead of time kept me from losing too much sleep over it.

To be extra safe, we also did what we could to keep our expenses to a minimum while I was off work. We shopped around as much as we could to make sure we got the best possible deals on essential items, and we put off non-essential purchases for a day when life is a little less hectic and money is less tight.

3. We bought life insurance

I already had life insurance prior to the birth of my second child, but I increased it to ensure my family would be adequately protected should I die unexpectedly.

Generally, you want enough life insurance to repay your debts and replace your income. Those things didn’t change just because I had a baby. But I also hope to one day be able to contribute to my children’s college education costs. My existing policy wouldn’t have been adequate to pay for both of my children’s college as well as debts and routine expenses, so I bought a little extra.

Since I’m still fairly young and healthy, it didn’t cost me too much. Rates vary depending on your age and health, but it’s often possible for adults in their 30s like me to get policies for a few hundred dollars per year. While I sincerely hope I never have to use it, I feel a lot better having it.

Being a family of four is still somewhat new and our budget is still a little in flux, so there might be more financial changes on the horizon. But I try to keep my family’s security top of mind in everything I do. Sometimes that means saving when I’d rather spend or working on budgets instead of doing something fun, but it’s all worth it in the end.

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Overdrafting your checking account is the worst. Read on to learn how you can keep it from happening to you. 

Before the days of online banking, if you wanted to check your bank account balance, you needed to visit a branch or call your bank’s automated customer service line. Now, you can check up on your money anytime you want by way of your bank’s mobile app or website.

This is tremendously convenient, and surely has cut down on overdrafts — after all, it’s harder to accidentally overspend your checking account balance if you can check before you make a purchase to ensure you have enough cash. That said, we’re all human, and sometimes a bill payment goes through at exactly the wrong moment and you find yourself slapped with a fee for nonsufficient funds (NSF). Thankfully, there’s another 21st-century banking innovation that can help.

Opt in for low balance alerts

One of the best things about that banking app is the ability to set up various alerts for different circumstances with your account. You can enable alerts for unusual activity or when you receive a direct deposit paycheck. And you can also set up one that lets you know when your account balance falls below a certain dollar amount.

I’ve had this one configured on my own checking account for years — I get notified when my balance is under $100. I used to receive an alert much more frequently when I was still living paycheck to paycheck, but even though I improved my financial circumstances, I’ve left the alert on, because you never know what could happen.

No matter the state of your personal finances, it’s a good idea to set up these alerts with your bank. You don’t want to incur an NSF fee — these can cost upward of $35 each, and while the Consumer Financial Protection Bureau reports that bank revenue from NSF fees has fallen, banks still raked in $7.7 billion from them in 2022. Plus, if your payment to a third party (such as a creditor or utility company) bounces, you could also be hit with late fees and possibly even a ding to your credit score. Overdrafting your bank account is one of those occurrences that can snowball into a much larger problem for folks who don’t have much financial wiggle room to begin with.

What else can you do to prevent and mitigate overdrafts?

An ounce of prevention is often worth a pound of cure when it comes to your finances, and this includes overdrafts. Setting up low balance alerts can help, and here are a few other moves to make:

Set up overdraft protection

To give yourself an extra layer of protection, you can also set up overdraft protection with your bank. This is when you link another account (perhaps a savings account?), a credit card, or a line of credit to your checking account. If you overspend your balance, money will be sent from the other account to cover you. This isn’t free, but the charge for an incident will be less than an NSF fee.

Leave a buffer

My own buffer has grown recently, but I used to make a valiant effort to leave $100-$200 extra in my checking account, even in my days of shakier finances. These days, that number is $500-$1,000, and it’s worth missing out on the interest I’d earn by putting that extra into savings for the peace of mind it gives me.

Switch banks

Some major banks have lowered or eliminated NSF fees altogether in the last few years. So if you’re still banking somewhere that charges these fees, now could be a great time jump ship. It’s worth researching the fee schedule of any bank you’re considering opening an account with.

Overdraft problems could become a thing of the past, but with banks still making money from charging fees for overdrafts, it’s worth making the moves above to protect yourself and your finances.

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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 Executive membership rewards certificate won’t work on everything. Here’s a list of purchases you can’t spend it on. 

An Executive membership at Costco costs $120 a year, compared to $60 a year for a basic membership. But there’s a big perk to upgrading to an Executive membership — getting 2% cash back on your Costco purchases.

If you spend $3,000 a year at Costco, you’ll break even on the $60 upgrade fee for the Executive membership. So from there, it’s just extra cash back coming your way.

Meanwhile, if you have an Executive membership at Costco, you’ll receive a rewards certificate once a year in the mail. You won’t get to cash out your rewards month after month, but rather, you’ll need to wait a year for them to accrue.

You can then take that rewards certificate and use it to buy anything from buying groceries at your local Costco store to a new TV. But here are a few items you can’t use your Executive rewards certificate for.

1. Costco gas

Costco tends to have some of the most affordable gas in town. But unfortunately, you can’t present your rewards certificate at the pump — even if you’re filling up at Costco. You’ll need to pay cash for your gas or charge it on a credit card.

2. Food court purchases

The Costco food court can be a great source for a cheap lunch. But you won’t be able to get your meal for free by redeeming your rewards certificate, since food court purchases aren’t eligible. Thankfully, though, you may be able to fill up at the food court for as little as $1.50 thanks to Costco’s inflation-resistant hot dog and soda combo. So make a point to carry a little cash when you’re doing your shopping at a time that coincides with a meal.

3. Travel services

Costco’s travel services can hook you up with amazing vacation packages at affordable prices. But unfortunately, you can’t redeem your rewards certificate for travel. You’ll need to find another way to pay. Remember, though, you can still accrue cash back on travel booked through Costco if you have an Executive membership.

4. Auto services

Costco’s auto center could be a good place to go if you need to replace a tire or something similar. But you’ll need to find a way to pay directly, since you can’t use your rewards certificate for auto services. Just like with travel, though, you can earn cash back on that new tire purchase with your Executive membership.

5. Costco.com purchases

You’ll find a host of items on Costco.com — more inventory than you might find at your local store. But if you’re hoping to use a rewards certificate to pay for your online haul, think again. You can’t use a rewards certificate online. You can only use it for in-store purchases.

The fact that you can’t use your rewards certificate for so many different things might be a point of frustration. But it could still very much pay to upgrade to an Executive membership if you spend more than $3,000 a year at Costco, because you’re basically looking at coming out ahead financially either way. Besides, if you’re someone who shops at Costco regularly, then chances are, you’ll easily manage to find a way to put that certificate to good use, no matter what it amounts to.

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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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If you have a taxable brokerage account, you’ll be taxed when your investments make a profit. But that doesn’t mean you have to pay taxes every year. Find out more. 

There are different kinds of brokerage accounts you can invest in. You could open a taxable brokerage account, or you could open a tax-advantaged brokerage account, such as a traditional IRA or a Roth IRA.

If you have a tax-advantaged account, you can either take a deduction for the amount of money you contribute to the account in the year you invest (in the case of a traditional IRA) or you can withdraw money tax-free (in the case of a Roth IRA). You also will not pay taxes as your money in the account grows.

If you have a taxable account, though, the rules work differently. Not only do you not get any tax savings either when you contribute to the account or when you make withdrawals, but you also have to pay taxes in certain circumstances as your account balance grows.

So, when exactly do you have to pay taxes on the money in your brokerage account? Here’s what you need to know.

This is when you’re taxed on the money in your brokerage account

When you have a taxable brokerage account, you will have to pay taxes if you make a profit on your investments when you sell them.

Say, for example, you buy $1,000 worth of a particular stock and the value of your shares goes up and your investment is now worth $2,000.

If you don’t sell and pocket the $1,000, you will not owe taxes on that $1,000 gain. If the stock’s value goes back down before you sell and you only end up with $1,200 worth of shares at the time when you unload your shares, you’d be taxed only on the $200 in gains you actually made when you sold the asset.

The gains you make “on paper” don’t count and aren’t taxed, since you don’t actually have that money yet — and you potentially may never get it, as the financial markets fluctuate.

Here’s how much tax you’ll have to pay

The amount of tax you have to pay when you sell your investments at a profit will be based on how long you held the stock.

If you held the stock you made a profit on for a year or less, you will be taxed at your ordinary income tax rate. Your gains are just treated as regular income.

But if you own the asset for longer than a year, you’ll be taxed at the more favorable long-term capital gains tax rate. The table below shows what your long-term capital gains tax rate would be.

You are also allowed to deduct losses to offset your gains. So, for example, if you made a profit of $1,000 on one stock but lost $200 on another, you would typically pay capital gains taxes only on $800 in profits.

The rules can be a little confusing as to exactly what losses can be deducted from and what expenses you can deduct. And aside from capital gains taxes, you may owe taxes on dividends and interest received in your taxable brokerage account. However, most tax-filing programs can help you figure out exactly what your tax liability will be — or an accountant can help too.

The bottom line, though, is that you won’t have to worry about paying taxes on profits when your investments perform well in your brokerage account — until you sell them. And your taxes will be a lot lower if you hold your investments for more than a year.

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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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