Money Management

You’d think a strong labor market report would be good news. Read on to see why the opposite might hold true. 

Economists spent much of 2022 warning consumers of a 2023 recession. But at this point, it’s pretty safe to say that we’ll be steering clear of a broad economic downturn this year.

In fact, September’s jobs report tells us that the labor market and economy are quite strong. Last month, a surprising 336,000 new jobs were added to the economy. And the national unemployment rate held steady at 3.8%, which is a historically low number.

Of course, you’d think the addition of 336,000 new jobs would be a good thing. But here’s why the opposite might end up happening.

The problem with a strong labor market

The Federal Reserve has been raising interest rates in an effort to slow the pace of inflation. At its last meeting, the central bank hit pause on its rate hikes. But it still has two more meetings to go before the end of the year. And now, there’s reason to be concerned that the Fed might use September’s labor market data to justify an additional rate hike.

The Fed does not want to send the economy plummeting into a recession. It simply wants to control inflation. Too many rate hikes have the potential to do the former. But if the Fed sees strong growth in the labor market, it might take the opinion that the U.S. economy can withstand another rate hike. The result? Higher borrowing costs for consumers.

The Fed is not in charge of setting individual consumer borrowing rates. The rate you’re charged on an auto or personal loan, for example, is set by your lender — not the Fed.

Rather, the Fed controls the federal funds rate, which is what banks and financial institutions charge each other for short-term borrowing. When that benchmark interest rate rises, short-term borrowing becomes more expensive for banks and lenders, so they tend to pass that cost onto consumers.

As it is, consumer borrowing rates are elevated across a range of products, from home equity loans to mortgages. Another rate hike could therefore be financially devastating for consumers who need to borrow in the near term and can’t wait.

It’s okay to celebrate, but with caution

A strong labor market report should be a good thing in theory, and so it’s okay to be happy about the fact that the jobs situation is solid. But if you’re gearing up to apply for a loan, you may want to do so very quickly — before the Fed raises rates again and borrowing becomes more expensive.

Meanwhile, just because the labor market is strong right now doesn’t mean that things won’t deteriorate at some point. So if you’re currently short on emergency savings, do your best to boost your personal cash reserves while the economy is in good shape and you’re still gainfully employed.

Incidentally, higher interest rates make it a good time to be putting money into a high-yield savings account. So boosting your cash reserves might give you not just peace of mind, but extra income in the form of interest.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2025

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.

 Read More 

Owning your own home can be a hassle, but it also comes with several benefits. Take a look at what you should know about homeownership. 

Buying a home comes with a lot of upfront and ongoing costs. It also comes with a lot of responsibilities. Not only will you have to commit to paying a mortgage loan, property taxes, and insurance, but you’ll also need to take on the cost and responsibilities associated with maintenance and upkeep. If something goes wrong, you can’t just call a landlord — you have to handle the issues on your own.

Despite these hassles, I have owned my own home for well over a decade and I find being a homeowner to be well worth the downsides. There are a few key reasons why that’s the case.

1. Homeownership can help you build wealth

The single biggest reason I believe homeownership is worth the hassle is because owning a house can help you build wealth.

When you make monthly mortgage payments, a portion of that goes toward principal and helps you build home equity. You eventually own your house and have an asset that’s worth hundreds of thousands of dollars. This isn’t the case if you rent. Your monthly mortgage payment is essentially a type of forced savings, while your rent just buys you a place to live.

As you live in your house, it typically goes up in value each year. This property appreciation also helps you build wealth since you’ll end up owning a more valuable asset over time. These big financial benefits help explain why homeowner wealth is 40 times higher than that of renters.

Now, this doesn’t mean you can’t get rich by renting. It’s definitely possible to do so. But you’ll need to be a lot more diligent in how much you invest since you won’t be acquiring an asset automatically via monthly housing payments.

2. There may be more choices of homes for sale than for rent

In many cases, you will have a wider selection of homes to buy than homes to rent. At least where I live, rental properties tend to be mostly apartments or condos rather than single-family homes, and they tend to be more concentrated in urban areas. I wanted a house on acreage in the country, and you can’t easily get that in a rental property.

3. You can customize your house to your liking

Finally, the last big benefit of homeownership is the ability to customize the property. You can invest in making the space your own in a way that you would not want to do if your money was improving the landlord’s property instead of your own. You also don’t need to get permission to paint or change the kitchen cabinets or do anything else you’d like.

In my opinion, these three big benefits of homeownership make it well worth the hassle associated with owning your own place. But before you buy a home, you need to consider the pros and cons. If you don’t want to commit to staying in one place for a while to build equity, or if you don’t want to take on the responsibility of maintaining a home, renting may be a better bet for you — at least for a while.

Always weigh the pros and cons of being an owner carefully before you decide whether to move forward with buying a property of your own. It’s a big decision that can affect you for years.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

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.

 Read More 

This writer eventually plans to ditch her home. Read on to find out why. 

When my husband and I bought our home 14 years ago, we specifically sought out a house that could accommodate a larger family. And we’re very thankful for the fact that our home can comfortably fit our family of five.

We have enough bedrooms where nobody has to share (though my twin daughters choose to bunk together for social reasons), and we actually have enough bathrooms where everyone can use one at the same time if need be. We also have a decent-sized kitchen, a basement that serves as a nice hangout spot for the kids, and a home office that allows me to be productive.

Our home has met our needs for many years, and we hope it continues to do so for many more. But I’m also well aware of the fact that my current home is not my forever home. Here’s why.

When your circumstances change

The main reason I don’t plan to stay in my home forever? It’s expensive, and I don’t expect to need such a large home down the line.

My husband and I made a point to keep our mortgage payments fairly low relative to our income. But we live in New Jersey, which has the highest property taxes in the nation, and that expense has consistently gone up for us through the years. So even though we were judicious about the mortgage loan we signed, we’re still paying more for our home than we anticipated.

There’s also maintenance to consider. When you have more square footage, there’s more work to do, and there’s a higher cost involved. That’s not a cost I want to bear if I don’t have to.

As such, my intent, at least as of now, is to stay where we are while my kids are still attending school. We like our neighborhood, and the kids are happily settled. But do I intend to stay in this home once I’m retired and have an empty nest? Not at all. Doing so just wouldn’t make financial sense.

Instead, our plan is to do two things on the housing front later in life: downsize and relocate. We don’t expect to need as much space, and the smaller a home is, the easier and less expensive maintenance tends to become.

We also don’t plan to stay in New Jersey due to the high cost. Right now, it makes sense to pay those exorbitant property taxes because we get something out of it — access to good schools. But once we no longer need that benefit, there’s no sense in paying that premium.

Have you really found your forever home?

You might assume that the home you’ve come to know and love is the home you’ll stay in permanently. And in some cases, that could make sense. But before you make plans to never move again, think about the costs of owning your current home versus a smaller one, or a home in a different part of the country.

Many people manage to pay off their mortgages before retirement, and we’re on track to do the same. When you have a paid-off home, it’s easy to grow complacent and just stay where you are. But the harsh reality is that money gets tight in retirement for a lot of people — even those who save for it. So it pays to keep downsizing and relocating as an option once you no longer have kids living at home.

Now, you may be wondering, “Why do I have to decide whether I’ll stay in my home now?” And the answer is, you don’t. If you’re in your 30s or 40s, you can of course take your time deciding where you’ll live in your 60s, 70s, and beyond.

But one thing you should do is keep good records of home improvements you make throughout the years. If you end up selling your home rather than staying there forever, you’ll want that information, because it might come in handy in reducing your capital gains tax burden when you sell your home.

Other than that, you don’t have to take any specific action, though it’s never a bad idea to run through different financial scenarios in your head in the course of your retirement planning. And that includes thinking about where you’ll live.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

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.

 Read More 

Becoming a minimalist isn’t about living with nothing. Learn what minimalism is truly about and how the lifestyle can put money in your bank account. 

Mimimalist.com sums up minimalism like this, “Minimalism is a tool to rid yourself of life’s excess in favor of focusing on what’s important — so you can find happiness, fulfillment, and freedom.” Minimalism is also a great way to improve your financial situation. Here, we’ll talk about how minimalism and finances intersect.

Döstädning

The Swedish have an exercise they lovingly call “death cleaning,” although the Swedish word for it, “döstädning,” sounds so much nicer. Once a Swedish adult reaches the end of middle age (or sooner), they get rid of all the stuff they’ve accumulated over the years, the pots and pans of their lives they no longer have use for. The idea is to do it themselves so their loved ones won’t have to deal with it after they’re gone.

It’s a loving, intentional act. As they go through their possessions, they are able to enjoy the memories associated with a particular item. And then, they let it go.

Minimalism is about more than saving loved ones from the chore of sifting through your possessions. And it’s about more than minimizing the amount of “stuff” that surrounds you. Being a minimalist is about removing everything that distracts you from what you truly value in life.

For example, it’s not the crudely shaped piece of pottery your child made for you in kindergarten that you hold so dear. It’s the memory of that child at age five. It’s the feelings you carry for them today.

Financial benefits

There are many known benefits of minimalism, such as:

You experience less stressYou have better focusYou spend less time cleaningYou spend less time looking for thingsYou get to help the environmentYou live in a visually appealing spaceYou have more time for rest

Becoming a minimalist has the added benefit of giving you a financial boost. Here are seven ways that happens.

1. You’re less likely to run up new debt

As you’re learning to tell the difference between needs and wants, walking away from unnecessary purchases begins to feel more natural. After a while, you may find that you’ve trained yourself to enjoy saving.

2. Spending less will leave you with more cash

Once intentional spending becomes a habit, you’re far more likely to have money left over at the end of each month. That’s money you can use to build an emergency savings account or invest for retirement.

3. You’re more likely to live below your means

In 2022, the average person spent $314 per month on impulse purchases. That’s nearly $3,800 a year that could be put to work in a certificate of deposit (CD) or money market account (MMA). Living below your means simply means spending less than you could if you wanted to.

4. You’re far more likely to reduce or eliminate debt

Having extra cash makes it easier to get rid of existing debt, particularly if that debt carries a high interest rate. That also means you can save more, as you won’t be paying interest charges.

5. Your credit score will likely increase

Thirty percent of your FICO® Score measures how much debt you have compared to how much credit is available to you. The lower your debt, the higher this portion of your credit score.

6. More money means getting to follow dreams

Spending less on things you don’t need should leave you with more money to pursue the things you care about. That may mean going back to school, traveling to your grandfather’s birthplace across the sea, or donating to an animal rescue organization.

7. You’re likely to purchase high-quality items

Let’s say you’ve had the same fall sweater for 10 years, and it’s looking a little ragged. Intentional shopping is likely to lead you to replace it with a high-quality sweater that will last for many years. Bringing high-quality items into your home means not having to buy a replacement very often, ultimately saving you money.

Steps to get started

If you want to become a financial minimalist, it won’t happen overnight. However, small steps can slowly integrate it into your life and bank account:

Create a budget: If you don’t already have one, create a simple budget. If you do have a budget, go over it and decide what expenses you can realistically get rid of without feeling deprived.Make each purchase intentional: Being intentional means taking control of your actions and thinking them through before deciding what to do next. Not only does intentional spending lead to higher-quality purchases and saving money, but it also serves as a reminder that you’re in control of your finances. You’re done working for money. Now it’s time to make money work for you.Chip away at debt: Few things are more satisfying than feeling the weight of debt lift off your shoulders. Getting rid of debt is a tangible result of your decision to prioritize what really matters and letting go of the notion that your stuff defines you.Get rid of things you can live without: Selling the possessions that no longer serve you is a great way to come up with money to reduce debt.Invest if possible: Investing isn’t about trying to get rich (for most people). It’s about investing for your future, creating a financial situation that allows you to continue living your dreams.Create a mantra: Although it may sound silly, having a mantra to repeat when the going gets tough can be helpful. For example, “I am not what I own,” or “Being financially free feels better than living large” are examples of simple things you can remind yourself of when you’re tempted to splurge on something you can easily live without.

Minimalism represents the attempt to simplify your life, to strip it down to what really matters to you. If that sounds good, you’re the only one who can make it happen for you.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2025

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.

 Read More 

Your small business needs to spend money to protect its future. Learn why you shouldn’t cut corners by skipping these important items. 

When you’re running a small business, you need to be smart about your expenditures. You want to grow your business bank account balance while making smart investments in your company’s future, so you don’t want to spend on anything unnecessary.

However, there are three big things that your company should not be afraid to pay for — and should make sure to pay enough to get the best, even if that costs a little extra. Here’s what they are.

1. Insurance

Insurance provides vital protection against potentially devastating financial losses. Every business should have liability insurance in case it is sued. Companies should also have:

Business interruption insurance so they can stay afloat in case something causes them to temporarily be unable to perform their work.Property and equipment insurance if they own any expensive property.Workers’ compensation insurance, which may be required by state law for companies with employees.

Companies may need additional protections as well, such as commercial auto insurance. Always make sure to buy enough coverage — including the right types and the right maximum policy limits — and to get it from a trusted insurer who will be there to pay a claim promptly if something goes wrong.

Spending money on insurance can be crucial to make sure the company can stay afloat and not have to empty its bank account for problems.

2. Professional help for accounting or legal issues

Companies can face a host of legal and accounting issues that must be addressed. For example, you may need advice on how to structure a business, or on how to respond to a lawsuit if a disgruntled customer sues. Companies also may have complex tax rules to comply with, including tax rules related to sales tax and employee taxes.

You don’t want to make a mistake and end up facing legal problems or having the IRS come after you because you didn’t follow the tax rules. So, be sure to pay what you need to get high-quality professional advice.

3. Compliance costs

There are a whole host of regulatory rules that apply to different kinds of businesses. For example, you need to follow workplace safety rules and labor laws. You may also need to follow industry-specific rules, such as HIPAA privacy guidelines if you’re in the healthcare industry.

Fines for not following all regulatory requirements can be huge. For example, if you violate HIPAA regulations due to willful neglect and you don’t correct the issue in a timely manner, you could face a $50,000 fine.

It’s not worth being penalized by the government for not complying with the rules applicable to your business. If you are required to do certain things — such as providing workers with personal protective equipment or maintaining a secure environment for medical records — you should spend the money necessary to comply with the rules.

Ultimately, you never want to jeopardize the long-term success of your company to save a few bucks in the short term. Think big picture — and consider downside risks — whenever you decide if a particular expense is worth incurring.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2025

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.

 Read More 

Life insurance doesn’t have to be expensive. Keep reading to learn how to keep insurance costs down. 

Life insurance can provide vital protection for loved ones in case of an untimely death. But, those who buy policies will have to pay premiums out of their bank accounts for decades to keep this protection in place.

Fortunately, there are ways to keep life insurance costs down. Here are four tricks to try to ensure premiums are as affordable as possible.

1.Give up high-risk habits

Life insurers assess the risk of having to pay out a covered claim. People who engage in dangerous hobbies such as scuba diving or skydiving are more likely to pass away while insurance is in effect. As a result, insurers may deny coverage or charge much more to people who do high-risk activities.

Skydivers, for example, might pay as much as $2 to $5 more per $1,000 of coverage even if they jump just a few times annually, while scuba divers could see premiums increase by as much as $10 per $1,000. Some insurers may refuse coverage entirely for those with these hobbies.

Now, not everyone will give up dangerous pastimes just to save on life insurance. But, anyone buying coverage obviously has loved ones to provide for so it’s worth considering whether taking on the added risk of death — coupled with the added cost of life insurance — is really worth it.

2. Maintain your health

People who have health issues, including chronic conditions, may face higher premiums for life insurance or may not be eligible to get coverage at all if they have a serious pre-existing medical issue.

Staying as healthy as possible, including maintaining a healthy weight and avoiding smoking cigarettes, could be important to keep premium costs as affordable as possible. Of course, it’s also beneficial to simply be healthier, so working on maintaining your health can do more than just help reduce life insurance premiums.

3. Choose term life instead of whole life

When buying insurance, consumers have a choice between whole life coverage and term life coverage. Whole life coverage costs between five and 15 times more than a comparable term life policy. That’s a huge amount of money.

Most people don’t need whole life insurance coverage because insurance is supposed to be there to provide for dependents who rely on their income or services. Eventually, though, kids grow up, mortgages and other debts are paid, and people stop working and no longer rely on their job for income. When this happens, life insurance isn’t necessary anymore.

Whole life insurance would remain in effect indefinitely, so the death benefit would eventually be paid out. It also has an investment component. Term life insurance doesn’t have an investment component and is in effect only for a period of time — such as 20 or 30 years. No death benefit will be paid if the policyholder doesn’t die during this period.

Those who want to keep costs down should almost always opt for term life unless there’s a very specific reason they will need ongoing insurance for the rest of their life (such as having a disabled loved one to provide for). There are better options, with fewer fees and restrictions, to invest money in rather than spending extra for whole life coverage.

4. Shop around for coverage

Finally, it’s important to shop around to save on insurance. Prices can vary from one company to the next for similar coverage. Work with an independent insurance agent or get several quotes online to compare costs and see which insurer offers the best deal.

By shopping around and keeping these other tricks in mind, consumers can avoid overpaying while getting exactly the policy terms they’re hoping for.

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.

 Read More