Money Management

Renting a private home has its benefits, but also some drawbacks. Read on to learn how a big one almost cost me a lot of money. 

When I travel with my family, we tend to favor private vacation rentals over hotel rooms. First of all, we’re a family of five, so cramming into a single hotel room is often uncomfortable, and renting two adjoining rooms or a suite is often cost prohibitive.

Also, while we like to dine out as a family while on vacation, we don’t necessarily want to go to a restaurant or cafe every single time we need to eat. The upside of renting a private home is getting access to a kitchen so we can buy groceries and cook rather than pay for prepared food.

Finally, it’s hard to find a hotel that will allow you to bring a dog. But many vacation rentals are dog-friendly if you’re willing to put down an extra deposit.

This past summer, we decided to take a family trip without our dog since we’d be driving about 14 hours to our destination, and our dog doesn’t love being in the car. Between that and struggling to find a dog-friendly rental at our destination, we decided to leave him behind and have my father look after him, which he’d already done once or twice before.

It was a good plan in theory. But in practice, it failed, and we almost lost all of the money we paid for our rental as a result.

When your plans have to change

Many of the homes listed on sites like Airbnb and VRBO have fairly inflexible cancellation policies. It’s common for these homes to have a 60-day policy where if you don’t cancel at least two months before your trip, you get no refund at all should your plans change.

We found out about 45 days before our trip that my father would need eye surgery in August that couldn’t wait. The problem was that as part of his recovery, he couldn’t do anything strenuous for a month after. Walking my dog is a pretty strenuous activity since he’s about 75 pounds and pulls a lot. And since my dad doesn’t have a fenced-in yard, walking him is the only option.

As such, my father could no longer watch our dog while we were away. And while we reached out to many pet sitters that were recommended by friends, every single lead turned out to be a dead end. At one point, we were pretty convinced we were going to lose the $1,000+ we’d put on our credit card to book our rental.

Lesson learned

In the end, we managed to find a pet sitter through Rover in our area who had glowing reviews. We wound up using her services while we were away and she did a great job with our dog. But it was nerve-wracking leaving him with a pet sitter for the first time, and it wasn’t our ideal choice. Rather, our preference once we found out about my father would’ve been to cancel our trip and rebook a vacation that was dog-friendly, which our initial booking wasn’t.

If you’re planning a vacation and intend to book a private rental, you may want to consider one with a more flexible cancellation policy than the home we booked. Some private homes, for example, will allow you to cancel your booking up to 14 days before your check-in date for a full refund. That’s better than 60 days.

But ultimately, if you want the most flexibility, you may need to settle for a hotel. Many hotels allow you to cancel without financial penalty up to 48 hours before your stay, so if your plans change at the last minute, you won’t necessarily be out any money.

On our end, I think this is the last time we’ll book a private rental with a 60-day cancellation policy. And it may be the last time we book a home that isn’t dog-friendly, too. Even if we decide that it’s better to leave our dog at home for future trips, it’s still a good thing to have the option to bring him along should our plans for his care fall through.

Had we not found that dog sitter through Rover at the last minute, our only choice would’ve been to have my husband take our kids on vacation while I stayed home with our dog. And that clearly would’ve been a bummer all around. I’m glad we managed to salvage the situation in the end, but I’ve definitely learned from my mistake.

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Many people embrace the idea of financial independence and early retirement. Read on to see why I’m only willing to make so many sacrifices to get there. 

There’s a reason I’ve aggressively funded a retirement plan, whether it’s been an IRA or a 401(k), since my mid-20s: I know that Social Security benefits alone won’t make for a comfortable retirement. And I don’t want to deal with the financial stress so many seniors today have to grapple with.

In recent years, I’ve done my best to max out my retirement plan contributions. I’ve even tried my best to save and invest on top of that by putting money into a regular brokerage account.

While a regular brokerage account doesn’t offer the same tax benefits as a traditional IRA or 401(k), like tax-free contributions and tax-deferred investment gains, it does offer the freedom to tap your assets when you want to. With an IRA or 401(k), you’re penalized for taking withdrawals before age 59½. And so if you want the option of early retirement, it’s a good idea to keep some of your assets in a regular brokerage account so you have penalty-free access at any time.

Meanwhile, a lot of people put a big emphasis on saving outside of an IRA or 401(k) so they can embrace the FIRE movement, which stands for “Financial Independence, Retire Early.” The FIRE movement has gained a lot of traction in recent years. But while it’s an okay idea in theory, it’s definitely not for me.

I’m only willing to make so many sacrifices

Year after year, I push myself to save money for the future, but that comes at the expense of different things. My husband and I, for example, just upgraded to a new car after driving a 2007 Prius around for over 16 years.

We also live in a home that’s below our means, and while it’s comfortable enough, more space would be nice. However, we don’t want to take on a larger mortgage because it’s important to us to be able to save.

But while I’m willing to make certain sacrifices to save for retirement, I’m not willing to go to the extreme of saving 70% or 80% of my income like some of those FIRE people do. For one thing, I have three kids, so that instantly makes it difficult. But also, I don’t want to give up every single luxury for myself or my kids just to be able to retire early.

I like taking trips with my family and making memories. I enjoy going to restaurants and ordering takeout meals. And while my kids’ extracurricular schedule is tough to keep up with, I want them to be able to explore different sports and activities without money getting in the way. To really do FIRE, I’d need to give some of these things up, and I’m not just not willing to.

Very early retirement doesn’t sound so great

Would I perhaps prefer to work fewer hours than I currently do? Sure. Seeing as how I have kids to take care of and a household to run, cutting back would be great. But since I’m nowhere close to a traditional retirement age, I have to say that the idea of retiring completely at this point in life would be terrible for me.

Even though I’m plenty busy at home, I don’t need that much downtime. I feel like I’d be bored if I were to stop working now since my kids are in school for 6½ hours a day. And I think I’d feel overwhelmingly unfulfilled.

I’m not the only one. Ongoing research shows that for many people, attaining financial freedom at a young age doesn’t automatically translate to a happy, fulfilled life. And many early retirees struggle with their own identity crises.

And also, while I’m not financially independent in the sense that I don’t have to work any longer, I do have savings to fall back on. That makes me feel financially secure, which is also important.

All told, I don’t have the desire to retire early, so it would be silly for me to make major sacrifices in order to attain something I don’t want. And if I’m willing to make changes to my spending, I can potentially cut back on work a bit to make my schedule more manageable and give myself more time to spend with my kids or pursuing hobbies.

Decide whether FIRE is right for you

The FIRE movement is a choice you may want to make, and that’s totally okay. More power to you! In fact, you may want to sit down with a financial advisor if you’re serious about ending your career in your 30s or 40s. They can help you devise a savings and investment strategy to get there. But the concept is just not for me.

Of course, if you’re not interested in FIRE like me, it’s still important to save some amount of money for retirement. But you can save in a manner that has you continuing to work well into your 60s or even beyond if that sounds fine to you.

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A CD ladder can minimize certain risks of locking money away, but is it enough to make that a good place for your emergency savings? Read on to find out. 

Recent data from SecureSave found that 63% of Americans couldn’t cover an unplanned $500 expense. As a general rule, it’s a good idea to aim for an emergency fund with enough money to cover at least three months of essential expenses — whatever that means based on your personal spending.

The optimal place to put your emergency fund is a high-yield savings account. That way, you’ll have access to your money at all times. But you may be tempted to open a certificate of deposit (CD). That’s because CD rates tend to be higher than what savings accounts pay, and the rate is guaranteed throughout the term of your CD.

Your savings account might be paying you 4.5% today. But in a month or two, that rate might drop to 4.2% and keep dipping. If you lock in a 12-month CD right now at 5%, you’re getting 5% for an entire year.

Of course, the downside to putting money into a CD is that you’re not able to touch it during your CD’s term. If you withdraw that money prematurely, you could face a costly penalty (the exact amount of which will depend on your bank and the length of your CD). That’s why you’ll often hear that if you’re going to put money into a CD, it’s best to take a laddered approach. This means dividing your money into different CDs that come due every few months so some of your cash gets freed up at regular intervals.

You may be wondering if keeping your emergency fund in CDs is a safe bet if you’re going to set up a CD ladder. And the answer is that while a CD ladder minimizes some of the risk of CDs, it’s still not a good idea to keep your entire emergency fund in a CD.

You need money in regular savings

If your high-yield savings account is paying 4.5% interest and you can snag a rate of 5% on a one-year CD, you may be eager to score that higher return. But remember, if you’re going to open a one-year CD, you should fund that CD with money you don’t expect to need or use within the next 12 months.

Your emergency fund, however, does not fall into that category, the reason being that you might need some or all of that cash at any time. So that’s why putting your entire emergency fund into a CD is a poor choice. You could, however, consider putting some of your emergency savings into a CD if you’re going to do a ladder and you have a larger emergency fund.

Let’s say you ladder your CDs so you have one coming due every three months. Meanwhile, let’s say you build a six-month emergency fund. If you keep at least three months’ worth of living expenses in regular savings and have to deplete that cash, you’d conceivably have more of your money freed up in your CD ladder by the time that happens. So it’s an option you can consider.

But the reality is that earning a little bit more on your money isn’t worth landing in a position where you might have to cash out a CD before it matures. And it’s not worth the stress of sweating the timing of when your money will free up. So while you could keep some of your emergency fund in a CD with a laddered approach, a savings account is still generally your best bet.

Your peace of mind matters more than a little extra interest

The whole purpose of having an emergency fund is to give yourself the peace of mind that you can cover unplanned bills. It’s not worth forgoing that peace of mind for a slightly higher interest rate on your money.

RELATED: Emergency Fund Calculator

Let’s say you’re tempted to put $4,000 of your emergency fund into a 12-month CD paying 5%. That’s $200 in interest after a year. But if your savings account is paying 4.5%, that’s $180.

Of course, there’s no guarantee that your savings account will keep paying that rate. But let’s assume it does. In that case, is an extra $20 in the course of a year really worth running the risk of having to take a penalty for cashing out a CD early?

Probably not. So, again, while you could keep some of your emergency fund in a CD, for the most part, it’s really best to stick to a savings account alone.

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Saving for retirement is important. Read on to find out what other goal should come first. 

I worked a lot as a teen holding down gigs like babysitting and running youth programming. And as tempting as it was to spend my earnings, I made a point to put the bulk of my pay into my savings account as per my parents’ advice.

I continued to work throughout college, and while most of my earnings then went toward tuition and rent, I managed to pad my savings ever so slightly. But while I had a decent savings cushion by the time I graduated, I knew it wasn’t enough.

As a general rule, it’s a good idea to have enough money in your emergency fund to cover at least three months of living costs. I knew I didn’t have enough money to cover three months of bills at that time. And I also knew that I wanted more money than that in savings before signing an apartment lease and taking on certain expenses.

As such, I spent my first couple of years post-college building up a six-month emergency fund. And in doing so, I neglected my retirement savings. But I also don’t regret that.

Your near-term needs have to come first

It’s definitely important to save money for retirement. And the more time you give yourself to invest for the future, the more of a nest egg you might build.

I knew that by not contributing to an IRA in my early 20s (my company didn’t offer a 401(k) plan), I was losing out on the opportunity to grow that money. But I also knew I needed a financial safety net for the near term before worrying about the long term. So I put my emergency fund above my retirement savings until my balance got to a place where I felt comfortable taking on expenses like a place of my own.

In fact, I actually lived at home for a brief period after college so I could build my emergency fund and pay off the debt I accumulated to get a college degree. It wasn’t easy to go from living with friends to living with my parents. But my parents also aren’t the intrusive type, so it wasn’t a bad situation — just perhaps not the most ideal.

The numbers make sense

You may be eager to start saving for retirement from a very young age. But before you start focusing on your IRA or 401(k), make sure you’re all set with emergency savings.

You might earn a 10% annual return in your retirement account over the long run, since that’s what the stock market has averaged over the past 50 years. But seeing as how the average credit card APR was 20.92% during the first quarter of 2023, according to data from the Federal Reserve, it makes sense to prioritize your emergency savings over retirement savings.

You’re better off missing out on a 10% return in a retirement plan than having to charge surprise expenses on a credit card at almost 21% because you don’t have the money in savings to cover them.

Once my emergency fund was in a place I was happy with, I made sure to open an IRA and start funding it regularly. But I don’t regret making that a secondary goal at a time when my emergency fund needed work.

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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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