Money Management

Your emergency fund could be the only thing standing between you and expensive debt. Keep reading to find out what not to do with that money. 

There is no better feeling in the world than knowing you’ve got emergency savings. It helps you sleep better, you can breathe easier, and if a surprise bill pops up, you have cash at the ready to cover it. I lived without an emergency fund for basically my whole adult life until very recently, and I don’t recommend it.

If you’re lacking in emergency savings, don’t feel bad — you’re certainly not alone. A survey from SecureSave found that 67% of Americans wouldn’t be able to cover a $400 emergency from their savings, and this is a staggering reminder of how difficult it is to save money for a rainy day and how many people live paycheck to paycheck. I got out of the paycheck-to-paycheck trap by increasing my income, and it’s something I recommend to others frequently. You can’t simply budget your way into making enough money, and no, your morning latte purchase isn’t to blame.

Ideally, your emergency fund should have enough money to cover three to six months’ worth of bills, but any amount of saved cash can help you out of a jam. It’s not enough to just have the emergency fund itself, though. You also have to keep your money safe and accessible, so you can cover that medical bill or car repair. Here are two things you shouldn’t do with your emergency savings.

1. Invest it

Yes, investing your money is a good way to grow it for the future, and you might assume that putting your emergency fund into a brokerage account and investing it will mean you’ll have more money when that unexpected bill pops up. But here’s the thing about investing: It’s a long-term move.

Over the last 50 years, the stock market has generated an average 10% annual return, but individual years within those five decades have seen stock values fluctuate wildly. If you invest your $10,000 emergency fund and the market takes a dip right before you need the money, you could find yourself locking in losses. And if you’ve lost your job and that $10,000 was intended to cover three months of expenses, you really need the $10,000. If the value of your portfolio has fallen 20% to $8,000, and you don’t have time to wait for a recovery, you’ll have to sell at that low because you need the money. Invest for the long term and keep your emergency fund out of the market.

2. Put it into a CD

CDs (certificates of deposit) are actually a great way to keep money safe and growing for a few months to several years. But they do come with a pitfall: If you withdraw your money before the CD term is up, you’ll incur a penalty. And depending on how long your CD term is and how long the money has been in the account, you could even lose some of the money you put in, rather than just the interest you’ve earned.

What should you do with your emergency fund?

Thankfully, you have options for where to keep your emergency fund that aren’t a CD or the stock market. These days, a high-yield savings account is the most accessible option for just about anyone — many of the best ones are offered by online banks, and they’re so easy to open. And best of all, your emergency fund will grow in one! As of this writing, the average APY on savings accounts overall is just 0.43%, but high-yield savings accounts are paying 10 times that or more.

A money market account is another excellent option for your emergency fund. You’ll get the same higher APY that high-yield savings accounts are currently offering, plus easier access to your money. Most money market accounts come with check-writing capabilities or a debit card — or sometimes both! Savings accounts often don’t come with this, but many of them shine by having no minimum required to open an account (while some money market accounts do require a minimum to open, or to earn the highest APY).

Money in the bank for emergencies equals more peace of mind. So do yourself a favor and keep your emergency fund out of the stock market and CDs.

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I want to make sure my mortgage loan goes off without a hitch. Read on to learn what I’m taking care not to do until after closing. 

I’ve been in the process of trying to buy a home for several months. I finally found a property, made an offer, and had it accepted. But I had to agree to a long closing, because the sellers had a tenant living in it.

Since I have been fully approved for a home loan and I am now just waiting on my mortgage to close, there are a few key things I’m making sure not to do so I don’t mess up the chances of actually getting the financing for my new home on closing day. Here’s what I’m avoiding.

1. Opening up any new lines of credit

I am making absolutely certain not to apply for any new kinds of credit prior to my closing. This means I won’t apply for a credit card, personal loan, or anything else that would require a credit check.

There’s a simple reason for that. My lender checked my credit when I applied, and will check it again right before the home loan closes. If there are no changes, then my closing should go ahead as scheduled.

But, if my lender spotted an application for new credit, I would have to explain it — and the loan would need to go back to underwriting to make sure I was still eligible even with the new debt. That’s because lenders look at your total debt, relative to income, when approving you for a loan. Applying for new credit would change this calculation.

If you are waiting to close on a mortgage, do not borrow money for any reason. Don’t finance movers or a furniture purchase. Wait until after you close to avoid potentially derailing your loan.

2. Charging too much on my credit cards

I’m also avoiding charging too much on my credit cards for the same reason that I won’t open any new credit. Although I pay off my credit cards in full every month, the card issuer sometimes reports my balance to the credit bureaus before my payment has cleared so it looks like I owe money.

If my card balance is higher, this could also impact my debt-to-income ratio and thus adversely impact my ability to close on the loan. If you don’t want to risk your DTI being higher and your loan potentially being sent back to underwriting — or even getting denied if you were close to your lender’s DTI limits — keep the cards put away in the period between loan approval and closing.

3. Taking too much money out of my bank account

My mortgage lender required that I have several months of reserves in order to get approved for the loan. Reserves are liquid assets set aside that you could use to pay the monthly mortgage payment if you lost your income.

Since I’m self-employed and borrowing a good amount of money for a second home, my lender wanted to make sure I had enough funds available to cover the principal, interest, taxes, and insurance on the home for four months. It will be checking my bank statements and brokerage account statements again before closing to ensure that money is still there.

If your lender has reserve requirements, you don’t want to let your account balances drop before closing to the point where you can no longer meet those mandates. You also want to be sure you don’t take money out of your bank account that you need for your down payment or closing costs.

By avoiding any moves that could make your lender think you’ve become a riskier borrower, you can ensure you don’t jeopardize your chances to close on your home on time. Basically, just try to keep everything in your financial life as stable as possible before closing on your home, as mortgage lenders tend to get nervous if you make changes after they’ve pored over your financial details to get you qualified for your home loan. And the last thing you need is a nervous lender as you head into closing!

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This feature can stop unauthorized transactions and offer peace of mind. Here’s how it works. 

I’m one of those people who will lose pretty much anything if I forget to put it right back where it goes each time I use it. Unfortunately, this even extends to my credit cards.

If you’ve never experienced the sheer terror of, “Crap, where is my credit card?!” — well, you’re not missing out, because it’s awful. And it only gets worse each minute you can’t find your card. Pretty soon, you’re convinced you left it at the store or were pickpocketed on the subway.

Often, it shows up in a weird place, like in the freezer or under your bed. But by then, you may have already reported it gone to the issuer, leaving you with a useless piece of plastic and a two-day wait for your new card.

But what if that wasn’t the case? You don’t actually need to cancel your card right away. Instead, you could just freeze it.

Freeze before you cancel

Credit card freezing has to be one of the most overlooked safety features added to credit cards (and many debit cards) in ages. Basically, you can put a “pause” on your credit card, telling the issuer not to allow any transactions on the account.

(Note: This isn’t the same as freezing your credit reports. Freezing your credit stops people from opening new accounts in your name. Credit card freezing only impacts a single credit card account.)

You can freeze your card in just minutes through your issuer’s mobile banking app. Some apps even have the button right on the main screen when you log in. (Others will bury it in a couple menus, but it should still be easy to find.)

If you freeze your card and someone tries to use it, the transaction will be rejected. This will continue until you unfreeze your card.

Keep in mind that freezing your credit card doesn’t impact your balance. You’ll still need to make your required payments, and interest will still accrue on any unpaid balance.

Unfreeze in minutes

In the best case, you find your lost card somewhere safe. Maybe it was just under your keyboard for two days (real-life story), or perhaps it fell between the seats of your car after the trip to the drive-thru.

If you found your card somewhere safe — i.e., where you don’t think its security was compromised — you can just unfreeze your card and go back to using it like normal. The process is the same as freezing it; head into your card’s mobile app and click “unfreeze.”

Accepting the loss

Unfortunately, sometimes you have to accept that the card is gone for good. If it’s been a week and the card hasn’t turned up, it might be time to bite the bullet and report it as lost to the card issuer.

As soon as you report the card, the issuer should cancel it. (Note: Just the physical card itself will be canceled; your credit card account will still be open.) Then the issuer will mail you a new card with a new number and expiration date.

Upon arrival, you’ll need to activate the new card. Don’t forget to update your card information for any bills that may automatically draw on the card, such as your utilities or subscription services.

Losing your credit card is never a good feeling, even if you find it later. But you don’t necessarily need to call in the troops over a misplaced card. Freezing your card while you hunt it down can save you a lot of hassle when you find the card in the couch cushions or under the dog bowl. You can always report it lost at a later time if you can’t find it.

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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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I don’t want to spend a lot of time managing my money, so I’ve adopted a few simple techniques to make it easy. Here are three of them. 

When it comes to my financial life, I want to have plenty of money in the bank and in my brokerage account. But I don’t want to spend a ton of time actually managing money. I don’t find that fun, and there are better things to do with my limited hours on this earth.

To make sure I can be successful financially without spending hours handling money management, here are three ways I’ve simplified matters.

1. I automate everything

One of the best moves I made to simplify my money management is automating everything. Specifically:

A set amount of money transfers over to my brokerage accounts each month to ensure I’m saving enough for retirement. In total, I have around 20% of my money moved into different investment and savings accounts.My credit card bills, mortgage, utility bills, and almost all other bills come out of my checking account automatically each month.

Since my money goes exactly where I need it to without any intervention on my part, I don’t have to think about whether I’m doing the right thing with it. I also don’t really have to budget, because the money for savings and bills goes out on payday and I know everything I have left in my account is mine to spend as I’d like.

If you do just one thing to make your own money management easier, this would be the technique I’d recommend. Most people tend to just stick with the status quo, so chances are good that once you’ve automated your transfers to savings, you’ll just keep doing it and will end up with the money you need to accomplish financial goals without any extra effort.

2. I have separate savings accounts for different goals

Another way I’ve simplified my money management is to have different savings accounts for different purposes. This may seem to be more complicated on the surface, but it’s not. My opening multiple separate savings accounts, I can:

Move money exactly where it needs to be for different purposes without having to keep track of which portion of my savings is earmarked for things like emergencies versus a new car purchase.Easily keep track of how far along I am with accomplishing financial goals. I can just open up my bank app and see exactly how much I have in different accounts.

My separate savings accounts are earmarked for:

VacationsCar repairsHome repairsHolidays/birthdaysRetirementMedical billsEmergencies

You should also open separate accounts for different things that you hope to accomplish — and decide how much to save in each one. For example, if you want to take a $4,000 vacation once a year, you could open a savings account for that and automate contributions of $334 per month to that account so you’d have the money you need when trip time comes around.

3. I stick to just a few credit cards

I want to maximize the credit card rewards I earn. But I don’t want to have to pay a ton of different credit card bills each month, nor do I want to have to do things like activate quarterly rewards programs.

So, rather than trying to manage dozens of cards or having to remember to activate bonus rewards, I’ve picked three great cards. One maximizes my cash back at Amazon (where I buy almost everything), another I use only for travel, and the third is a general-purpose cash back card that I use for everything else.

If you enjoy the credit card rewards game and can be organized enough to keep track of multiple cards or different rewards programs, getting a bunch of cards could make sense for you. But if you want to keep things simple, you can focus on getting one or two cards that give bonus rewards for the spending you do the most, then a card you use for everything else that pays the most generous cash back possible for everyday purchases. A card offering 2% back for every purchase, like the Citi® Double Cash Card – 18 month BT offer, could be a great option for this.

Ultimately, it’s up to you how much time you want to spend managing different areas of your financial life. But if you want to make things easy, implementing these three techniques I use could go a long way toward helping you to do that — while ensuring you’re still on the path to building wealth.

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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.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Christy Bieber has positions in Citigroup. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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You can invest money in many different kinds of accounts. Read on for three accounts to explore, so you can decide which ones are right for you. 

When you first begin investing, it’s smart to start with the most accessible account available to you. For many people, this is a workplace 401(k) plan. It’s best to contribute enough to your 401(k) to earn the full amount of any employer matching contribution provided by your company, if one is provided. A 401(k) is easy to sign up for by completing some paperwork at work, your contributions are made with pre-tax dollars, and if your company matches your contributions, you get free money.

After you’ve put money into your 401(k), though, you most likely will want or need to open a brokerage account to keep investing. There are many different options for account types and you should understand the ins and outs of each before you decide which one(s) to open. For many people, it makes sense to have several, because they can help you achieve different goals.

Here are three types to consider.

1. Traditional IRA

A traditional IRA is a brokerage account you can open to save for retirement. Here’s how a traditional IRA works:

You can claim a tax deduction for money you contribute to your IRA, up to annual limits. The annual contribution limit is an aggregate limit with Roth IRAs (mentioned below).If either you or your spouse has a workplace retirement plan, there are income limits to make tax deductible contributions.You will pay taxes on withdrawals from your account as a retiree.You can invest in pretty much any asset your brokerage account offers.You will be required to take required minimum distributions (RMDs), which are distributions the government mandates once you reach age 72 or once you turn 73 if didn’t turn 72 by Dec. 31, 2022.If you withdraw money before age 59 ½, you will have to pay a 10% penalty in addition to your ordinary income taxes on the distributed funds.

An IRA can be an ideal investment choice if you think your current tax bracket is higher than it will be in retirement. It can help you save on taxes right now.

2. Roth IRA

A Roth IRA is another tax-advantaged retirement account you can open with a brokerage firm to help you save for your future. Here’s how it works:

You do not get to claim a tax deduction for money you contribute to a Roth IRA in the year you make the contribution.You are allowed to make contributions up to the annual limit, which is a combined limit with traditional IRAs.You cannot contribute to a Roth IRA if your income is too high.You can withdraw funds tax free in retirement as long as you comply with certain rules (like making sure you’ve had the account open for at least five years).Distributions from your Roth IRA won’t count when the government determines if you make so much money that your Social Security benefits should become partly taxable.You can invest in pretty much any asset your broker offers.You are not required to take RMDs, no matter how old you are.You can withdraw your contributions anytime, but must pay a 10% penalty if you withdraw gains before 59 ½.

A Roth IRA can be an ideal choice if you think your tax bracket will be higher as a retiree so you want to defer your tax savings, if you don’t want to have to take required minimum distributions, or if you are worried your investment income in retirement will be high enough that Social Security payments are taxed.

3. Taxable brokerage account

A taxable brokerage account doesn’t come with the same tax breaks that retirement plans do but there are other benefits. Here’s how it works:

You pay taxes when you sell assets in this account at a profit. You can deduct losses.You may be taxed at your ordinary income tax rate if you are subject to short-term capital gains taxes (because you owned the asset for a year or less).You can be taxed at a more favorable capital gains tax rate if you owned the asset for a year or more (your capital gains tax rate is either 0%, 15%, or 20%, depending on income).You can invest in any asset your brokerage account offers and even do things like trade on margin (borrow against your assets to get more money to trade).You can withdraw money whenever you want. You don’t have to wait until you’re a certain age or use the funds for retirement.

A taxable brokerage account is a good option if you’re saving for long-term goals other than retirement, or if you have already exhausted your tax-advantaged retirement accounts and still want to save more.

Once you’ve maxed out your 401(k), it’s time to consider the pros and cons of each of these three options to decide where your money should go next. You may just find you want to open a few of these account types, and that’s a perfectly OK choice too.

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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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