Money Management

If you run your own business, you have no employer to pay Social Security tax for you so you have to pick up the slack. Find out what you need to know. 

Social Security benefits are important earned benefits. As you work, money is withheld from your paycheck and paid into the retirement benefit system. You can then qualify for benefits based on average earnings over your career.

While pretty much everyone who works must pay into Social Security, people who own their own small businesses or who are otherwise self-employed will have to pay more of their own money into the Social Security program than other people do. Here’s why.

There’s a simple reason self-employed business owners pay more

When you work for a traditional company, your employer withholds Social Security and Medicare taxes from your paycheck.

You pay a 6.2% tax for Social Security and 1.45% for Medicare out of your earnings. That’s a combined 7.65% tax for the two programs collectively. Your employer matches these payments, also paying a tax of 7.65% on your wages. Social Security taxes are collected up to something called a “wage base limit,” and Medicare taxes are collected on all that you earn, with high earners facing an additional Medicare surcharge.

If you don’t have an employer to pay half of your total Social Security and Medicare taxes, you become responsible for paying the entire amount. While a typical worker only personally pays 7.65%, a self-employed worker or business owner would pay 15.3% in Social Security and Medicare taxes combined.

You get to deduct half of this amount from your taxable income when you file your taxes each year. But, while this helps defray the added cost, it doesn’t make it disappear entirely. You are still paying quite a bit more to the government because you are your own employer and don’t have anyone else to subsidize Social Security for you.

Understand all of your added costs as a business owner

Extra Social Security tax is just the start of the added cost — and complexity — that goes along with running your own business. Not only do you need to pay more in Social Security taxes but, depending on how much you make, you may also be responsible for sending estimated tax payments to the IRS quarterly throughout the year.

Plus, you also won’t have an employer match in a workplace 401(k) plan, so you’ll need to work a little harder at saving for retirement as well as finding a retirement plan that works for you. And you’ll need to decide what to do about health insurance when an employer doesn’t provide it as a workplace benefit.

You should take these added costs into account when making a business plan and determining how much money your company needs to make for you to be profitable and support yourself. You should make sure you’ve researched issues related to taxes, workplace benefits, and retirement plans for self-employed workers so you can be prepared for the fact you no longer have a company handling these matters on your behalf.

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Have you ever looked at your Costco receipt in disbelief? You aren’t alone. Here’s how Costco helps you spend more money than you think. 

I’ll be honest. I typically walk into Costco with a specific amount of money I’m planning to spend in my mind and walk out with a receipt that has a completely different (and higher) amount on it. And I know I’m not the only one.

The truth is that Costco is very good at getting people to spend more money on each trip to their local warehouse club. And here are three of the most effective ways it happens.

1. Bulk items you didn’t know were there

This is the main reason why I walk into Costco with a specific budget in mind, and then walk out looking at my receipt and saying to myself, “What just happened?”

Packaged items at Costco tend to be at least two to three times larger than what you’re likely to find in the grocery store. As an example, my kids love to take the popular snack Pirate’s Booty to school. My local grocery store sells 10-packs of individually portioned bags. Costco’s package has 40.

Now, spending more than you planned for this reason isn’t necessarily a bad thing. The 40-pack of snacks costs roughly twice what my grocery store charges for 10. So, while you might end up spending more than you planned if you find items you love in bulk, it can actually be good for your overall budget and personal finances.

2. Samples, samples, and more samples

Costco is well-known for offering samples of products throughout its store, ranging from cheeses to energy drinks.

While Costco doesn’t share data about how effective its sampling strategy converts to sales, other studies show that sampling can increase sales of a particular product from 600% to 2,000%. I’ve personally thrown an item or two (or 10) into my Costco shopping carts over the years simply because I enjoyed a sample of something I wasn’t planning to buy. And I’d be willing to bet many people reading this have done the same.

3. Impulse buys — and not just checkout candy

When I go to the grocery store with my kids, they always ask for something on display right near the register. Usually it’s candy, but it could be a drink from the cooler or a bag of chips. And while I usually won’t let them get candy, if it’s something at least moderately healthy and they behaved in the store, I tend to say yes and add a few dollars to my grocery bill.

Thankfully, Costco does not have checkout candy. If it did, it would likely be in massive packages, and us parents would be in trouble.

However, Costco takes the impulse buys to the next level and targets the parents. Here’s an example: I live in the Southeast and football season is coming up. Just inside the door, Costco had a stack of comfortable-looking tailgating chairs with my team’s logo when I went to the store a few weeks ago. At about $40, it’s certainly a good deal for a quality chair that would typically cost closer to $100. But at the same time, it’s $80 I wasn’t planning on spending – after all, who just buys one tailgating chair? I’d have to buy two.

Strategies to control your Costco spending

If you are like me and have spent way too much money at Costco in the past, it can be frustrating, especially if you have a “what just happened” moment like I sometimes do. If this is the case, there are some ways you can attempt to get your Costco spending under control.

One effective strategy is to leave your credit cards at home and shop with cash. Now, I completely understand that finding new things at Costco is a big part of the draw for many people, so give yourself a little wiggle room. But bringing cash can help keep impulse buys to a minimum.

Also, don’t shop hungry. That’s one of the most commonly cited reasons for people to try a free sample of a product and buy it. There’s no excuse, as long as Costco continues to offer its $1.50 hot dog and soda deal. Or, as fun as it can be, avoid free samples altogether to remove temptation.

A Costco membership can be a great way to keep your grocery bills low. But it can certainly take some discipline to avoid going overboard.

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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.Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Target. The Motley Fool has a disclosure policy.

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Autopay can help ensure you never miss a card payment, but it doesn’t make sense for everyone to use this feature. Find out how to decide if you should. 

Most credit card companies allow you to set up automatic bill payment. You can arrange to have your card payment taken directly out of your bank account before the deadline by signing into your card account and selecting the “Payments” menu.

There are some big benefits of autopaying your credit card. But there are also some downsides to consider as well. Here’s what you should think about when making the decision about whether automating the process of paying your cards is right for you.

Benefits of autopay

The single biggest benefit of setting up automatic credit card payments is that you will never forget to make a payment since the process happens automatically. This alone may be reason enough to put your payments on autopilot.

See, if you are 30 or more days late paying your card, this tardiness will be reported to the credit reporting agencies. And the record of the late payment can send your credit score plummeting as much as 110 points if you have great credit and have never been late before, or around 60 to 80 points if your score already wasn’t perfect due to past late payments.

Being late could also trigger a penalty APR. This would mean your credit card’s interest rate would typically go up to around 29.99%. And you could be charged a late payment penalty of up to $41 by your card issuer.

There are other benefits of autopaying your card besides avoiding these undesirable consequences. It could be more convenient to not have to think about making payments, for one thing. And if you can set up autopay to repay your full balance instead of just your minimum payment, you won’t have to worry about owing interest on your card.

Downsides of autopay

Automatic payments do have some downsides, though, depending on your situation.

One big problem is that having money being taken out of your checking account automatically without your input could become a problem if your bank account balance isn’t always high enough to cover the cost of your card payment. If you try to make a payment with insufficient funds in your bank account, you could get hit with an overdraft fee, which may be around $35. You could also see your bank account balance go negative and incur fees for that as well.

If you’re autopaying your card, you may also be less likely to track your spending carefully or to take the time to think about whether your card purchases are worth it since they’ll just be paid for from your bank account without you having to think about it. If you don’t sign into your card account regularly because of the autopayments, you may also be slow to notice and report fraudulent charges.

If you don’t autopay your card’s full balance and pay only the minimum instead, you could end up in credit card debt and incur interest costs. While you may have intentions of going in and paying the rest of the balance off if you set up a smaller automatic payment, you may be less likely to do that if you know the minimum has already been paid.

These are big downsides, especially if autopaying your card ends up costing you overdraft fees or makes you less accountable to yourself with regards to your spending.

Is autopay right for you?

If you are confident that you will have the money for your automatic payment of your full statement balance to come out of your bank account, and if you know you’ll still check your card regularly to monitor spending and look for fraud, then there is no reason not to set up autopay.

But if you find yourself spending more when you don’t have to confront your card bill each month, you may be better off just putting a note on your calendar to pay your card manually instead.

Ultimately, you need to think about your personal finances and habits to make this choice, keeping in mind both the benefits and downsides of autopay outlined here. If you consider these issues, you can make the choice that’s right for you.

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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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If you’re getting started investing, you don’t want to pick the wrong account or make any of these other major mistakes. Here’s why. 

If you’re thinking about investing your money for the first time, you need to make certain you understand what you’re getting into. Investing can help you build wealth, but it also creates the risk of losing your hard-earned money.

You don’t want to make investment choices you regret, so be sure to avoid these big mistakes when getting started.

1. Choosing the wrong kind of investment account

Choosing the wrong type of account to invest your money could be a huge mistake because of the opportunity costs associated with a big decision. See, you have a few different choices. You could invest in:

A workplace 401(k): This is an account your employer offers. The company may match contributions you make toward it. You also make contributions with pre-tax income. You can’t take your money out until retirement or you’ll face penalties. An IRA: You can open a traditional IRA with any broker you want. You can make tax-deductible contributions. You cannot take money out until retirement or you’ll be penalized. A Roth IRA: You can open a Roth IRA with most any broker. Your contributions aren’t tax deductible in the year you make them but you get to withdraw money tax-free as a retiree. You can withdraw contributions but not gains anytime without penalty, but usually won’t want to as you’ll need to leave your retirement money to grow. A taxable brokerage account: There are no tax benefits for contributions, but you can access your money whenever you want. You may pay taxes on gains when you sell assets and make a profit, but they are typically taxed lower than regular income.

Picking the right account type matters a lot. If you are saving for retirement, you should choose a tax-advantaged account as there’s no reason to pass on the help the government offers. If you contribute $1,000 to an IRA and can deduct the contributions, you could save as much as $220 on your taxes if you’re in the 22% tax bracket. Why give up those savings?

On the other hand, if you put money into a retirement account and end up needing to withdraw it sooner, you could face a 10% penalty, a huge hit to take for no reason. So think carefully about what you plan to do with the money before selecting what kind of account to invest in.

2. Picking the wrong brokerage firm

There are different brokerage firms you can open an account with. Most don’t charge commissions or account fees. But that’s not necessarily the case with every broker, so you’ll want to read the terms and conditions before opening an account.

Different brokers also offer different features. You want to use a broker you’re comfortable with, that has a desktop and mobile app you can use easily, and that offers tools you’ll use to help you become a better investor, such as ETF screeners or charts that track key metrics of stocks you’re interested in buying.

3. Paying unnecessarily high fees to invest

When you select investments, you must pay attention to the expenses you’ll pay. There are some low-cost ETFs (exchange-traded funds) that have very low expense ratios and are easy to invest in. There are also actively managed funds where you have to pay a high fee to a professional to pick assets.

Fees can dramatically decrease your returns. Let’s say you invested $10,000 over 20 years and earned an average annual 10% return. If you paid a 0.5% investment fee, your $10,000 investment would turn into $61,414. But if you paid a 2.5% fee, you would only end up with $42,484.

Don’t lose your money to high fees. Look for low-cost investments with a solid performance track record.

4. Trying to get rich quick

Finally, trying to get rich quickly is a recipe for disaster. There’s an inverse relationship between risk and reward and if you’re trying to chase high returns, there’s a strong chance you’ll lose money. Slowly, steadily building wealth through solid, reliable investments held over the long term is the surest path to success.

Fortunately, these four mistakes are pretty easy to avoid, so just keep them in mind and get started investing today so you can get on the path to building wealth the right way.

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

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This program can help get you into a house faster, but is it a great idea for you? Keep reading to learn what to consider. 

Real estate technology platform Zillow recently announced the launch of its 1% Down Payment loan program that allows customers to obtain a conventional mortgage loan with as little as 1% of the purchase price upfront. So, on a $300,000 home purchase, the borrowers would only need to come up with $3,000 toward the down payment.

How Zillow’s 1% down payment loan program works

These conventional mortgages technically have a 3% down payment, which is currently available to first-time buyers. However, at closing, Zillow will contribute 2% of the purchase price toward the down payment, leaving just 1% for the borrower to pay. Borrowers can typically pay for other closing costs with gift funds, or they can typically be rolled into the loan itself, so it’s entirely possible that 1% of the purchase price is all it would take to buy a home with this program.

The program is aimed at people who can afford the monthly mortgage payments on a home, but who are struggling to come up with the initial cost of the down payment. There are other programs with little or no down payment options, such as VA loans and USDA loans, but Zillow’s program doesn’t have the same restrictions.

For the time being, the program is only being offered in Arizona. Zillow plans to roll it out to other markets later.

To qualify for the program, borrowers must be first-time home buyers, as that is who qualifies for 3%-down conventional mortgages in the first place. They also must complete a home buyer education course and agree to occupy the home as their primary residence. Borrowers need a minimum FICO® Score of 620 and need an income below 80% of the area’s median income.

Pros and cons of a 1% down mortgage

The big advantage here is that first-time home buyers can get into a home without having to come up with a large down payment. Many people who would love to buy a home have simply been hit hard by inflation and have been allocating most of their income to paying rent and other living expenses, making it difficult to save enough for even a 3% down payment.

There are some drawbacks to a low-down payment mortgage, as well. For one thing, conventional mortgages with less than 20% down typically require private mortgage insurance, or PMI. Costs can vary, but typically range from 0.5% to 1.5% of the loan amount per year. Plus, the smaller your down payment, the more you have to finance through your mortgage lender, and therefore the larger your monthly payments will be.

There’s also quite a bit that isn’t clear just yet. We know Zillow is paying 2% of the purchase price as part of the down payment, but does the loan have a higher origination fee or interest rate than it otherwise would to offset this? After all, Zillow Home Loans is a business and needs to make money somehow.

Is it the best way for you to get into a home?

As mentioned, Zillow’s 1% Down Payment program is only offered in Arizona for the time being, but the company is targeting a wider rollout. A low-down payment mortgage like this can be a great way to get into a home with little upfront cost, but it’s important to weigh the pros and cons and understand what you’re getting into with fees and interest.

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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.Matthew Frankel, CFP® has positions in Zillow Group. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.

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