Money Management

If you buy an inexpensive home, you might be able to avoid a mortgage. Read on to see how that might be possible. 

If you’re just about done with today’s elevated mortgage rates, rest assured that you’re in good company. The average rate on a 30-year mortgage today is 7.19%, according to Freddie Mac. Meanwhile, the median home sale price in August was $407,100, reports the National Association of Realtors.

So, let’s say you were to buy a home at that price and sign a 30-year mortgage at 7.19%. Let’s also assume you’re able to put down 20% of your home’s purchase price at closing, or $81,420.

That would leave you with a monthly payment of $2,208 for principal and interest on your mortgage — not a small amount. And that number also doesn’t include the other expenses that come with owning a home, like property taxes, homeowners insurance, maintenance, and repairs.

Of course, what’s frustrating is that if mortgage rates were sitting at more moderate levels, a $407,100 home with a 20% down payment would result in a monthly mortgage payment of just $1,749. That’s a monthly savings of $459 and a yearly savings of $5,508.

But what if there were a way to simply avoid a mortgage altogether in the course of buying a home? Chances are, you don’t have $400,000 and change lying around to make that happen. But if you’re willing to limit yourself to a small amount of square footage, then it may be possible to buy a home outright in cash.

Are you willing to consider a tiny home?

As the cost of housing has gotten increasingly expensive, more buyers have been turning to tiny homes because they’re less costly to purchase and maintain. Rocket Mortgage says the average cost of a tiny house is between $30,000 and $60,000, though a tiny home can cost more or less depending on the amenities that come with it and where it’s located.

But let’s say you don’t like the idea of having to pay upward of 7% on a mortgage. If you’re in a position to make a down payment of $81,420 on a home, then it means you probably have the money to purchase a tiny home without needing financing.

And even if you don’t have $81,420 on hand, let’s say you have half of that. That could still cover the cost of a tiny home in full, especially if you’re not so picky about the amenities you get.

Is a tiny home right for you?

There are definite pros and cons to buying a tiny house. The clear downside is limited space. Tiny homes typically range between 100 and 400 square feet, says Rocket. And so a tiny home may not be feasible if you have a larger family or expect to grow your family. Plus, you may find that it’s harder to sell a tiny home once you’re ready to move on than to sell a standard-sized home.

On the other hand, you’re apt to have limited maintenance with a tiny home. It should be faster to clean, too. And your utility bills may be considerably lower than what you’d pay to heat, cool, and power a regular home.

All told, you’ll need to weigh the pros and cons of a tiny home to make the decision that’s right for you. And one thing you may want to do, if it’s feasible, is rent a studio apartment for a month through a site like Airbnb and see how well you fare living in limited quarters.

Granted, a tiny house that’s detached will be a different experience, but it’s a good starting point if you’re used to having more space. But if you really can’t stand the idea of paying more than 7% on a mortgage, then it could pay to consider an option that allows you to buy a home in cash.

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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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Drivers whose car is totaled could be left waiting a while for an insurance check to get a new vehicle. Here’s how extra insurance coverage can help. 

Auto insurance provides important protection in case something goes wrong. In some cases, an accident or other incident will result in a car being so damaged it cannot be fixed. In these circumstances, the car could be declared a total loss or totaled and the insurer would pay out the fair market value of the car. The insurance ensures the car owner doesn’t have to cover the loss out of their own bank account.

However, when a car is totaled, it can take time for the insurer to process the claim, make a decision, and send out a check. In the meantime, a policyholder can be left without a vehicle to drive. But since most people need their car to get around, what will happen in these circumstances?

Will a car accident leave you stranded?

When a car is totaled, auto insurance should cover at least some of the costs. The coverage could come from the car owner’s insurer under collision or comprehensive coverage or it could come from the insurer for another driver if the other motorist was to blame for the crash.

When an insurer is responsible for covering the costs, it can take a while for the company to process a claim. Some states have limits on how long an insurance company can take to do so. These limits could range from 15 to 40 days to decide on the claim and then issue payment. In other states, the only requirement is that the claim be paid out within a reasonable time.

If an insurance company takes weeks or even months to pay a claim, most people can’t just go get another car in the meantime. They need the money from the insurance check to repay their old car loan so they can qualify for a new one, or to provide them with the funds needed to buy the new vehicle. During this time, though, most people often still need a car to get around for work and family reasons.

Make sure to have rental car reimbursement coverage

Paying to rent a car is the obvious solution while waiting for an insurer to pay out. But that’s not cheap. Rental cars can cost an average of $50 to $80 daily with prices varying depending on factors like geographic location and vehicle type.

If a policyholder is without a car for 40 days while waiting for their insurer to provide them a check, they could be looking at a minimum of $2,000 in rental car costs. That’s a lot of unnecessary spending, especially for someone who will soon have to pay for a new car.

The good news is auto insurance can pay for rental cars for those whose vehicles are being repaired or whose cars are declared a total loss and who must wait for their new car. A policyholder can get a rental through their insurer after a covered loss if they have rental car reimbursement coverage.

Rental car reimbursement coverage is an add-on that usually comes at a pretty low price — usually, just a few extra dollars. But it can help save thousands by paying for a rental car when one is needed.

Drivers should check their insurance policy to make sure they have rental car coverage (or call their insurance company and ask if that’s easier). Doing this before an accident could ensure that a crash doesn’t leave them stranded or out thousands of dollars for a rental they have to pay for.

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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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Almost five years ago, my dog needed heart surgery. Keep reading to learn how my emergency money came to the rescue. 

In September of 2018, my active, happy, and much-loved 11-year-old dog suddenly became unable to breathe. A quick trip to the emergency vet revealed that the problem was a defect with her mitral valve. Her valve wasn’t working properly, allowing blood to flow the wrong way and causing her heart to become enlarged. Fluid had filled her lungs due to this issue, which was causing the breathing difficulties.

We started on some emergency medication, found a veterinary cardiologist, and discovered there was just one solution — but it came at a big price. Fortunately, I had a hefty emergency fund in my savings account. This meant I was able to save my dog without going into credit card debt or having to take out a personal loan.

Here’s what happened.

An emergency fund enables life-saving surgery

After taking my dog to the veterinary cardiologist, I learned that we had two options. The first was to put Molly (my beagle) on medication to try to help her heart work better, as well as on a diuretic to help keep fluid out of the lungs. The problem is, this solution would only give her around eight to 12 months to live.

The other option was surgery to repair the valve. The catch: It could only happen in either Japan or London because there were only two surgeons in the world (at the time) who could successfully perform the procedure she needed. The cost of the surgery itself would be high since it’s very specialized and requires a team of 10, and we’d also have to travel with her and spend three weeks abroad.

We didn’t have pet insurance, which wouldn’t have paid for an overseas procedure anyway. But fortunately, the decision was very easy for us. We had an emergency fund, and this was a clear-cut emergency.

Thanks to the money we had in savings, we were able to contact the team in London immediately, get her on the list, and four months later, she had a repaired heart. She will soon be celebrating her 17th birthday, and that heart is stronger than ever.

Everyone needs an emergency fund because you have no idea what’s coming your way

I never could have anticipated that I would need to spend money to take my dog abroad for heart surgery. After all, who would ever think that would be an expense to plan for?

But because I had an emergency fund with six months of living expenses in it, the money was there for me. I didn’t have to think about whether to get a loan or whether I could afford to save my pet. I really love her, and I know I would have gone into debt if I had to and spent years repaying it. But that wasn’t the case. I was able to make the decision based on what was best for my family without worrying about any long-term financial damage that would result.

That’s what an emergency fund does; it takes the financial pressures out of the equation so that when something goes wrong in your life, you are better able to cope with it and make the choice that’s right for you. You may have a completely different emergency than I did. But Pew research shows around 60% of households experience a financial shock over the course of a year, so it’s inevitable that you’ll face some kind of disaster at some point in your life.

To make sure you’re ready for it, prioritize emergency savings as a key financial goal. If you don’t already have an emergency fund, open a high-yield savings account today. Start with a deposit of whatever amount you can afford, and rework your budget by cutting what you can to build up that emergency savings ASAP. You don’t want to face a financial crisis unprepared, so get very serious about saving today before you — or a pet or person you love — finds themselves in need.

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Saving just 0.1% in annual index fund fees can have a significant impact on your portfolio. Find out why the trend toward lower fees is good for long-term investors. 

Management fees on exchange-traded funds (ETFs), mutual funds, and index funds have been getting steadily lower in recent years. That’s great news for investors, particularly long-term ones. Over time, those management fees — also known as expense ratios — can really eat into your returns.

Most recently, per The Wall Street Journal, State Street Global Advisors cut the fee on its SPDR® Portfolio S&P 500® ETF. The index fund now has a super low expense ratio of 0.02%. To put that in context, if you invested $10,000, you’d pay $2 in annual fees. That’s on top of trading fees and other costs, but it’s still extremely low.

Time and rates of return are core components of wealth building

There are no guarantees when it comes to investing. There will be years when the stock market produces significant gains, and years when it declines. But, historically, consistently investing a percentage of your income is a proven way to build wealth over time.

How much wealth you can build really depends on the following three factors:

How much you investHow long you invest it forWhat rate of return you can get on your investments

There are ways to maximize the amount you invest by, say, reducing your spending so you have more available cash. Or using tax advantaged accounts and/or maximizing contributions to your work 401(k). In terms of time, the earlier you get started, the better. You want to give compound interest — essentially earning interest on your interest — lots of time to work its magic.

Your rate of return is harder to control. It depends on many things, including your tolerance for risk, the types of investments you choose, and the performance of the economy. In my case, I am mostly a passive investor and the majority of my brokerage account portfolio is in index funds and ETFs. As a result, reducing the amount I pay in annual fees can directly increase my rate of return.

Even a fraction of a percent matters

Expense ratios on passive funds, like index funds and ETFs, are usually much lower than on mutual funds, which require active management. According to the Investment Company Institute, the average expense ratio for ETFs in 2022 was 0.16%. The average expense ratio for mutual funds was 0.44%.

In addition to State Street’s latest offer, several ETFs currently offer seriously low fees. For example, the expense ratios on our list of best low-cost index funds range from 0.03% to 0.06%. It’s easy to look at those numbers and think, “Those fees are only 0.1% less than the average.” But you’d be surprised at how much difference even a fraction of a percent could make.

Let’s say you have $50,000 to invest and you put it all into an index fund that tracks the S&P 500. The S&P 500 has delivered average returns of over 10% over the past 30 years. We can use that 10% rate to illustrate how relatively small changes in the expense ratios get magnified over time. It is a big oversimplification. But it shows how that 0.1% difference could equate to tens of thousands more dollars in your old age.

Low fees aren’t everything

The table above illustrates how much you can save with a low-fee index fund or ETF. But fees aren’t the be all and end all. It’s also important to look at the fund’s performance — particularly how closely it follows the index it tracks. Check to see if there are any minimum investment requirements. It’s also worth avoiding ETFs with low trading volumes and declining asset levels. Check out our guide on choosing the right ETF for more information.

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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.Emma Newbery 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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Forgetting to unsubscribe from an app can be a costly mistake. Take a look at some tips on how to avoid making the same error. 

I try to be smart about how I manage my personal finances, but unfortunately everyone makes mistakes — and I recently made one. Sadly, my error ended up costing me over $100 in unnecessary charges on my credit card.

While this isn’t financially devastating to me, it’s a bummer that I had to pay this credit card bill out of my bank account for no real reason. Here’s what happened, along with some tips on avoiding the error that I made.

A simple mistake comes at a cost

The mistake that I made was one that could happen to anyone. I signed my son up for a learning app, which had a monthly subscription fee. The app costs $12.99 per month, and my subscription auto-renewed each month.

My son used the app for a few months, but then he got bored with the games and it became too repetitive, so we moved on to other things. Unfortunately, I forgot to cancel the subscription. And because I have a number of other apps that I happily pay for each month, I missed it when I was scanning my credit card statement and I didn’t realize that I was still paying for it.

I let the unused subscription remain active for nine full months, which meant that I wasted a grand total of $116.91 for a program that was not opened even once during that time period.

How to avoid forgetting subscriptions of your own

I am definitely not alone in subscribing to something and forgetting to cancel it. Research shows around 30% of subscriptions go unused each month, with a monthly average value of $25.34. These unused subscriptions could be apps like mine, or streaming services, or a service like Amazon Prime.

Unfortunately, with the average household maintaining an average of 4.4 active paid subscriptions, it’s easy for things to get lost in the shuffle. You may:

Forget you signed up for a subscriptionAssume you’ll use your subscription soon and avoid canceling even if you don’t really end up using it againForget to cancel a subscription before the trial period ends

These are just a few of many ways you could fall into the trap of paying for something you don’t really get value from. To avoid this, it’s helpful to keep a master list of everything you’re signing up for that has a monthly or periodic fee. Review that list every single month and make a checkmark next to services you use. If you go more than a month or two without putting a check next to a particular service, it’s time to cancel.

You should also put renewal dates on your calendar as a failsafe so you’re reminded before any subscription service charges you. That way, you can take a second to consider whether it’s really worth paying for another month.

By taking these simple steps, you can avoid the mistake I made. I’ve made my own master list now, and I know for sure exactly when I last used each of the apps and streaming services that I’m devoting my hard-earned money to. I won’t find myself out another $100, and if you follow this advice, you won’t fall victim to the error I made.

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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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.

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