Money Management

Borrowing against your home might seem like a great option. And it may be, but there are risks involved. Read on to learn more. 

Home values are up on a national scale. And while that’s created a challenging real estate market for buyers, it’s a great thing for homeowners.

These days, U.S. homeowners have almost $30 trillion in equity, says the St. Louis Federal Reserve. That means a lot of people may be in a strong position to qualify for a home equity loan or line of credit (HELOC).

Meanwhile, many homeowners seized the opportunity to tap their home equity in 2022. Data from the Mortgage Bankers Association shows that homeowners took out 50% more home equity loans and HELOCs last year than in 2020.

If you’re sitting on equity in your home, you may be eager to jump on that bandwagon. But whether you’re looking at a home equity loan or a HELOC, you should know that there are pros and cons to borrowing against home equity.

The upside to borrowing against home equity

When lenders write loans, they risk not getting repaid. But that risk gets whittled down when there’s an asset that can secure the loan in question.

Such is the case with home equity loans and HELOCs. Since they’re secured by home equity, lenders take on less risk. As such, these loans can be a more affordable means of borrowing money when you need to.

By contrast, personal loans are unsecured. If you don’t have great credit, you might struggle to qualify for one. Or, you might get stuck with a really expensive interest rate.

To be clear, the better your credit score, the greater your chances of getting approved for a home equity loan or HELOC. And if you want to snag a competitive borrowing rate on a home equity loan or HELOC, you’ll need strong credit. But if your credit score is only okay, you might still qualify for a home equity loan or HELOC because your lender knows you’re sitting on a valuable asset.

The downside to borrowing against home equity

Falling behind on any loan could damage your credit score. But falling behind on a home equity loan or HELOC could put you at risk of losing your home. So you’ll need to decide whether that risk is one you’re comfortable with.

The idea of losing your home due to a failure to repay your home equity loan or HELOC might drive you to borrow money in another way — or put it off altogether. And right now, that’s not such a bad idea seeing as how interest rates are up across the board.

Weighing your options

To decide whether you should tap your home equity for borrowing purposes, ask yourself:

Do I need to borrow money right now?Is a home equity loan or HELOC really my best bet?

If you have great credit, you may find that you’re able to snag a competitive interest rate on a personal loan. And you might be more comfortable going that route because you’re not putting your home on the line.

Meanwhile, if you don’t need to borrow money right away, you may want to wait and see if rates come down. That could result in a lot of savings.

And if you’re worried that holding off on a home equity loan or HELOC is risky due to the potential for property values to come down, remember that if you’ve been in your home for several years, you may have had equity in it before home values started soaring a few years ago. So even if your home value drops in a year or two, borrowing against your equity might still very well be an option at that point.

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Eager to grow your wealth? Read on to see how you can make that happen. 

Americans are wealthier than ever, recent Federal Reserve data shows. During the second quarter of 2023, U.S. household wealth hit a record $154.3 trillion. That’s on top of a $3 trillion increase during the first quarter of the year.

How’d we get here? A big part of it has to do with rising stock and home values.

Investors’ portfolios grew by $2.6 trillion during the second quarter of the year, while real estate values rose by $2.5 trillion. The result? Americans’ net worth is higher than it’s ever been before.

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If you’re wondering what exactly net worth is, it’s the difference between your assets and your liabilities. So let’s say you own a home worth $500,000 and also have $50,000 in your savings account. That’s $550,000 in assets. If you owe $250,000 on your mortgage but have no other debt, you’re left with a net worth of $300,000.

You may be eager to grow your net worth, and one thing you should know is that this sort of thing generally happens over time. But here are a couple of steps you can take to see your net worth increase.

1. Buy a home

Higher real estate values have led to a recent uptick in household wealth. So if you want to grow your net worth, buying a home could be a smart bet. If you rent a home, the value of your rental won’t change your net worth for the better.

But let’s be clear: Homeownership is not for everyone. And you can absolutely grow your net worth even if you decide never to buy a place of your own.

In fact, if you’re looking to purchase a home, it should be because you want a place of your own and you’re confident in your ability to keep up with the work and expenses that comes with homeownership. You shouldn’t rush to buy a home for the express purpose of growing your net worth.

However, let’s say you buy a $300,000 home whose value rises to $500,000 in 10 years. That right there could make it so your net worth increases $200,000 over the next decade.

2. Build an investment portfolio

Investing in assets like stocks is a great way to grow wealth over time, since investments have the potential to gain value. Now, one thing you should know is that on a short-term basis, you may not see your net worth increase by loading up on stocks. That’s because the stock market can be quite volatile, and your portfolio might lose value over, say, a two-, three-, or five-year period.

Rather, people tend to make money in the stock market over the long run. So if you’re willing to sit tight and be patient, you might manage to grow your net worth substantially with a stock portfolio.

Over the past 50 years, the stock market’s average annual return has been 10%, as measured by the S&P 500. If you invest $10,000 this year and score that same return in your portfolio, in 20 years, that $10,000 in stocks might be worth around $67,000.

Growing your net worth is a process. Don’t be discouraged if you don’t see much movement from one year to the next. But over time, you may be pleasantly surprised at how much wealth you manage to gain.

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It’s best to get an early start on retirement savings. Read on to see why starting later is less ideal, and how to salvage that situation. 

You’ll often hear about the importance of saving for retirement, and you should know that those warnings are not overblown. Seniors who have to survive on Social Security alone often end up cash-strapped because those benefits only replace about 40% of their pre-retirement wages. So unless the idea of a 60% pay cut sounds good to you, you’ll want to do what you can to build up some savings.

But what if you’re already in your 50s and you’ve yet to contribute money to your IRA or 401(k) plan? That’s certainly not an ideal situation to land in, but it’s also one you can salvage.

When you get a late start

The problem with starting to save for retirement in your 50s is twofold. First, you’ll only have a short period to sock away money in an IRA or 401(k). But also, you won’t benefit as much from investment gains in your account.

Over the past 50 years, the stock market has generated an average annual return of 10%, as measured by the S&P 500. If you save $300 a month in an IRA or 401(k) between the ages of 25 and 65, you’ll end up putting $144,000 of your own earnings into your retirement plan. But if your investments deliver an average yearly 10% return during that time, you’ll end up with almost $1.6 million. So all told, you’re looking at gains of over $1.4 million.

But watch what happens if you only manage to save $300 a month between the ages of 55 and 65. In that case, you’re putting $36,000 into your retirement account. But you’ll only end up with about $57,000. So you’re only looking at gains of around $20,000. Worse yet, you’re not looking at a very large nest egg for your retirement.

Even if you manage to save $1,000 a month starting at 55 through age 65, you’ll still end up with a little less than $200,000 in savings for retirement if your portfolio delivers the same 10% annual return used in the examples above. That’s better than a $57,000 nest egg, but even $200,000 isn’t a lot of money in the course of what could be a 20-year retirement or longer.

What to do if you’re first getting started with retirement savings in your 50s

When you don’t start saving for retirement until your 50s, you miss out on opportunities to grow your nest egg. But that doesn’t mean you need to give up on a secure retirement, either. There are a few steps you can take to better your situation.

Work longer. If you’re willing to extend your career by a few years, you can continue earning a paycheck and leave your savings untapped, plus potentially add to them. In the above example, saving $1,000 a month for 10 years at a 10% annual return resulted in about a $200,000 nest egg. If you work five extra years so you’re saving $1,000 a month for 15 years, you’ll end up with a savings balance of a little over $380,000.

Plan to work in retirement. Many people think that once retirement rolls around, work needs to be off the table completely. But there’s no reason to force that hard stop. If you hold down a part-time job, you can earn money to help make up for a lack of savings. These days, jobs are more flexible than ever thanks to the gig economy.

Rethink retirement spending. If you’re not retiring with as much money as you’d like, you may need to rethink some lifestyle choices. That could mean relocating to a less expensive part of the country or living in a smaller home as a senior. But making choices like these could allow you to stretch your income without having to give up on smaller luxuries that make day-to-day life more enjoyable.

It’s best to start saving for retirement at as young an age as possible. If you didn’t do that, don’t beat yourself up. It’s not as if you can go back in time. The best you can do is move forward and aim to save as much as possible while you’re still working.

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The top three expenses account for half of annual homeowner expenses. Here’s how to reduce your homeownership costs. 

After I bought my first home, I was shocked to discover how much routine maintenance went into keeping it up. A small leak in the roof led to minor drywall damage, an old sliding glass door — that neither slid nor could be seen through — needed replacing, and the worn carpet made worse by my dog led to new flooring for my living room.

Fortunately, my mortgage payment was low, so the repairs weren’t too much of a financial burden. But first-time home buyers are having a much more difficult time with homeownership expenses these days.

A Zillow and Thumbtack survey published earlier this year showed that everyday expenses — including utility bills, homeowners insurance, property taxes, and maintenance — cost the average homeowner a staggering $14,155 annually. And with the median home price up 29% over the past three years, new homeowners are facing a combination of pricey homes and extra expenses.

The most expensive homeownership costs

While there are many potential hidden costs that homeowners have to watch out for, Zillow and Thumbtack’s research highlighted three unavoidable expenses that account for more than half of the annual homeownership expenses.

The combination of property taxes, homeowners insurance, and utility bills cost homeowners an average of $7,742 annually. Unfortunately, there are two things listed here that you don’t have as much control over: property taxes and utility bills.

Your property taxes are based on the value of your home. And since home values have soared over the past few years, the average single-family property tax increased by 3% in 2022, up from a 1.8% increase in 2021, according to real estate research firm ATTOM Data Solutions.

One of the only options to lower your property taxes is to pay an appraiser to come to your home and assess it. If they value the house for less than your county or city does, you may be able to submit that information to lower your property taxes. But there’s no guarantee that it will work, and you’ll have to pay for the assessor with your own money, which may cost between $600 to $2,000, according to Rocket Mortgage.

As for utility bills, the only way to really reduce this expense is to adjust your thermostat so that you’re using less energy, turn out your lights more often, reduce your water usage, or install an alternative energy source like solar panels. Aside from changing your energy usage habits, utility rates are often fixed and can’t be negotiated.

Shop around for homeowners insurance

While there aren’t many options to lower your property taxes and utility bills, you may be able to significantly reduce your homeownership expenses by shopping around for cheaper homeowners insurance.

According to Consumer Reports, homeowners insurance premiums jumped 12.6% in 2022 and are on track to increase another 7.1% this year. Which means finding a better deal is more important than ever.

The first step is to determine how much insurance you need. You can do this by considering what level of property and liability coverage you want and any additional coverage you may need, like flood insurance. Talking with an insurance agent or browsing insurance websites will help you determine your ideal level of coverage.

Once you have an idea of the coverage level you want, spend some time evaluating different companies. Compare rates between companies that offer similar coverage, review their discounts, compare their deductibles, and take into account their customer reviews. If you’re buying a new home, you may want to consider a few companies that offer the best insurance for new construction homes.

Keep in mind that you can change insurance companies whenever you want to. If you just bought a house and think you’re paying too much for insurance, you can still shop around. And if you’ve been with a company for years but aren’t satisfied with its customer service or its prices, you’re free to find the best homeowners insurance company for you.

While some homeownership expenses can’t be lowered, you have some control over how much you’re paying for homeowners insurance. And with the cost of nearly everything being higher than just a few years ago, it’s worth seeing if you can lower your insurance bill.

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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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Youth sports can do more than just take over your life — they can also take all of your money. Read on for ways to manage your costs and shave them down. 

Ask me what my plans are for pretty much any weekend between now and late November, and I’ll give you the same answer: soccer. I have three kids in three different soccer programs, including one on a travel team. And while I’m hardly shocked that I’m spending most of my free time on a soccer field, I was a bit shocked when I started getting the bills for my kids’ programs.

Data from the Aspen Institute’s State of Play 2022 report finds that the average family spends $883 a year to cover the cost of one child’s primary sport. So when we read between the lines, we can infer that many families are incurring much higher costs than that since many people have multiple kids who also play multiple sports.

My husband and I make it a priority to enroll our kids in sports and other activities. To make that work, we spend less on things like travel and household purchases. But still, there have been times when we’ve come close to dipping into our savings just to cover those expenses (namely since all of those program fees tend to come due at once).

If you have kids who want to play sports, you may be eager to say yes. And there’s a lot to be gained from having your child join a team and engage in physical activity. But there are also steps you can take to keep your costs down.

1. Choose rec sports if your child is first starting out

As mentioned, one of my children plays soccer on a travel team. And between initial fees, equipment, uniforms, and tournaments, I’m probably looking at spending anywhere between $1,000 and $2,000 this year.

But before my daughter went all-in on travel soccer, she played the rec version for a few years. A season of rec soccer in my town only costs around $150, which is far more reasonable. This helped her determine that soccer was the one sport she wanted to focus on.

My son started out playing rec soccer, too. Only he’s decided that he wants to focus on running (which, thankfully, he can do for free through his school).

I still pay around $150 for him to play rec soccer through our town program. But I’m not willing to pay what I’m spending for travel soccer when it’s not his primary sport.

2. Don’t be ashamed to ask for hand-me-downs

Because kids tend to grow quickly, sports equipment and gear don’t always last that long. So it’s a good idea to ask neighbors and friends for hand-me-downs to shrink your costs.

A few years ago, a friend gave my son soccer cleats her son had outgrown. That saved us about $30 to $40. This year, I passed a pair of cleats on to a friend whose child needs them this fall.

If your child is part of a team, definitely ask around to see if anyone has outgrown gear or equipment. Some teams actually keep an inventory to help parents out.

3. Buy your stuff during the off season

When your child is about to start soccer in the fall and you’re buying their gear in August or early September, you’re probably not going to snag any discounts, because that’s when everyone is buying those things. If you’re looking to save some money, plan ahead.

If you know your child will be playing soccer next fall, buy cleats in the next size up during the winter, when most parents are more focused on sweaters and gloves. And if you can’t find off-season gear at your local sporting goods store, check Amazon. It tends to have a little of everything all year round.

Youth sports have the potential to wreak havoc on parents’ finances. It’s definitely not worth landing in credit card debt to put your kids in a sports program, so if you can’t afford it right now, be honest and encourage them to seek out free options through their schools. But otherwise, you can at least take these steps to lower your costs.

Freeing up your weekends, however, is a whole different story — and I honestly have no advice there seeing as how I plan to be perpetually parked on a soccer field until Thanksgiving.

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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. Maurie Backman has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.

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