Money Management

While there are checking accounts out there that pay interest on your balance, my main one doesn’t. Keep reading to learn why this doesn’t matter to me. 

Some bank accounts give you the opportunity to not just store your money and keep it safe, but to help it grow by earning interest. Savings accounts are one example, as are certificates of deposit (CDs) and money market accounts.

Traditionally, checking accounts haven’t been among the bank accounts that earn interest, but these days, there are a few out there that do. The checking account I use to pay most of my bills doesn’t, however. Am I losing sleep over this fact? Nope — and here’s why.

I don’t keep a lot of money in my checking account

That’s really the main reason why I’m not fussed about my checking account not earning interest. Money is in it only temporarily, and most of the time, it doesn’t get to hang out and get cozy. When I get a direct deposit in the account, I send the money elsewhere. If it’s money I’ve earned from a client, I have to take a percentage off the top to cover my quarterly freelance taxes. My next deduction is money I’m saving for my goals, like buying a home and paying for a big vacation next year. And finally, there are always, always bills to pay. Ah, adulthood.

I do leave a cushion in my checking account, but it’s usually right around $1,000, if not a little less. I do that so I have some breathing room in case of a surprise bill (it’s nice to be able to leave my savings alone if I can) and so there’s no chance of me accidentally overdrafting the account. If I was the kind of person who kept more in my checking account, sure, it might be nice to earn some interest on it, but it’s not my reality.

Is it worth opening an interest-earning checking account?

Opinions vary, and while having a high-yield checking account isn’t important to my own personal finances, you might really like earning an APY of 1% or 2% (or more) on the money you keep in a checking account. This is quite generous, given that the average APY on checking accounts is 0.07% as of this writing.

Note that in order to open one and earn that high APY, you might need to make a certain number of transactions every month, set up a direct deposit above a certain amount, or maintain a certain balance in the account. In short, the perks might be nice, but the hoops to jump through to access them make these accounts less accessible to everyday people and more geared toward those who keep a lot more in their checking account than you or I do. A high-yield savings account, on the other hand, is absolutely worth opening for just about anybody. Savings research from The Ascent noted that just 31% of Americans have a high-yield savings account, and if you don’t have one yet, you’re missing out. The best high-yield savings accounts are easy to open and come with no fees or minimum balance requirements. And right now, some of them are even beating inflation.

Which checking account features matter?

Earning interest on my checking account doesn’t matter to me, but these checking account features absolutely do. I recommend you consider them, too, if it’s time to open a new checking account.

A great mobile app: Being able to bank from anywhere is amazing, and the checking account you’re considering should come with a full-featured and easy-to-use banking app.Low fees or no fees: Why pay a maintenance fee for the privilege of keeping your money in the bank? Some banks have even done away with overdraft fees, too.Easy access to your money: By this, I mean a robust ATM network so you can take money out as needed. And if you’ll be relying on out-of-network ATMs, look for an account that will reimburse you for fees.

An interest-earning checking account might be worth it for you, but since the purpose of my checking account is to funnel money outward, my current account is working just fine for me.

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If you have a brokerage account, you’ll want to follow a few rules to make sure you build wealth. Here are three rules to help keep your account on track. 

Opening a brokerage account can help you build wealth. This is true whether you open an individual retirement account (IRA) with an online broker to save for retirement, or you open a taxable brokerage account to save for other goals.

When you open a brokerage account with a discount online broker, you can start getting your money into the stock market without paying any commission fees. You should be able to earn better returns than you could even with the best high-yield savings account, as long as you make smart investment choices.

But you also face a potential risk of loss when you begin investing. You’ll want to minimize that risk and maximize the chances your investments will perform well by following three simple rules.

1. Maintain the right asset allocation

One of the first things you’ll need to do is decide on an asset allocation that makes sense for you. This refers to how you divide up your money into different assets. You don’t want to have too much exposure to high-risk investments or you could risk outsized losses. You also don’t want to invest too much in safe investments that present a limited risk but that come with limited returns.

One good rule of thumb is to subtract your age from 110 and put that percent of your money into the stock market while putting the rest in a safer investment such as government bonds. For example, a 30-year-old would want 80% of their invested money in the stock market (110 – 30 = 80).

You also want to be sure you don’t put all of your money into one company or even one industry or type of investment. For example, ideally, you’ll have an ownership stake in a good mix of small, mid-sized, and large companies across different industries in your portfolio.

Since this can get confusing, you can also opt to invest in index funds that track the performance of the stock market as a whole, or of the S&P 500, which is an index made up of 500 of the largest U.S. companies. If you buy these types of assets, you get instant diversification.

If you don’t want to do this, make sure you do the necessary research to come up with a plan for how to divide up your investment dollars in a safe way.

2. Buy and hold for the long term

There are different approaches to investing. One option is to try to buy assets that are temporarily down and resell them right away for a quick profit. This is not a good option. It’s called day trading, and the vast majority of people who do it fail.

The better option is to buy assets and hold them for the long term. If you buy index funds or even stock shares in trusted companies with a solid reputation for success, it’s likely that over time you will make money. This means you may lose in some years, but gain in others.

Buying and holding means you don’t have to time things perfectly. Even if you have poor timing, over many years, your investment account balance will grow. Ideally, you should hold onto your investments for a very long time. Famed investor Warren Buffett said his favorite holding period is “forever,” but if you aren’t willing to commit for that long, you still shouldn’t buy any assets you don’t want to remain invested in for a minimum of around five years.

3. Minimize your investment fees

Finally, you want to aim to minimize your investment fees as paying fees dramatically reduces your effective returns. You need to invest much more, and make a lot more money, to be a profitable investor if you’re paying costly fees to someone to buy, sell, or manage your assets.

Fortunately, there are plenty of discount brokers that don’t charge you a fee to trade and plenty of low-cost ETFs with very minimal expenses. Be sure you find the right broker and that you research the cost of any investment you’re considering.

If you can follow these three rules, hopefully your brokerage account will perform well. It’s worth the effort, as investing done right is a great wealth-building tool.

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Gearing up to spend a fortune on back-to-school items? Read on for ways to keep your costs down so you can avoid debt. 

In some parts of the country, school is already in session and has been for weeks. But where I live on the East Coast, we still have a good number of days until school resumes officially.

To be clear, the back-to-school shopping season is pretty much a month-long affair, if not longer. I’ve already done some of my shopping in preparation for the start of the school year. But once classroom assignments come out and sports teams are finalized, I’m going to be looking at a very long list of items I need to buy, from school supplies to uniforms and gear. And I’m really not looking forward to the credit card tab that’s apt to ensue.

Of course, I’m not the only parent at risk of raiding their savings account or racking up debt just to cover the many items needed for the start of a new school year. The National Retail Federation says that back-to-school spending is expected to reach $41.5 billion this year for families of children in grades K-12. And parents in that category plan to spend an average of $890.07 on back-to-school shopping. Yikes.

Fortunately, there are a few things you can do to limit your back-to-school spending. And the less you spend, the less likely you are to end up with credit card debt that lingers.

1. Don’t get fancy

Everyone wants their kids to have the best of everything. But I follow one key rule in my household. I won’t spend more than I have to on kids’ clothes. This means that if a child of mine wants a $50 sweatshirt or a $35 pair of jeans, they can’t have it. Sorry.

Actually, I’m not sorry. It’s one thing for me, an adult, to invest in a higher-end brand because I don’t grow out of my clothing every six to 12 months like my kids do. If you want to shave your costs, don’t get fancy with back-to-school clothes. Stick to the basics and remember that generic brands like Amazon Essentials are your friend.

2. Ask for hand-me-downs

My family is fairly comfortable, financially speaking. We’re able to generally pay our bills without worry and we have cash socked away for things like travel and home repairs. In spite of that, I see no reason to pay for things like new clothing and sports gear when I have friends with older kids who no longer need theirs.

Now I won’t have my kids wear somebody else’s ripped shirt to save a few dollars. But some of my friends recently gave me clothing in great condition, and because of that, I easily saved $100 on back-to-school items like new fall jackets and soccer cleats.

3. Look to your local dollar store

I haven’t yet gotten my kids’ school supply lists, so I’m not sure what their teachers intend to ask for. But once those lists come home, I plan to try to scoop up as many supplies from my local dollar store as I can.

Granted, this strategy isn’t perfect because dollar store school supplies tend to run out in September. But it’s worth a try. And also, there are certain items I know my kids are bound to need, like crayons. So guess what? I’ve already hit the dollar store to stock up on those.

Many parents spend a fortune on back-to-school items and wind up in debt because of that. Certain expensive purchases may be unavoidable. But if you follow these tips, you may find that your 2023 back-to-school tab isn’t as dreadful as you thought it might be.

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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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Since neither my husband nor I have health insurance through work, we’re stuck buying an individual plan. This is expensive and the plans aren’t great. 

My husband and I both run our own businesses and we have done so for many years. We love many aspects of operating our own companies. We have direct control over our income, so we can make more or less money by choosing when and how much we work.

Our businesses have been profitable, and we’ve been lucky enough to be able to support ourselves without going into credit card debt. And we even get to live a pretty good life with a nice home and an affordable mortgage loan.

Unfortunately, there is one big downside to being self-employed — especially when two people in a marriage both have non-traditional jobs.

Buying quality health insurance is almost impossible

The biggest problem that comes from my husband and I both being self-employed is that neither one of us has an employer who can provide health insurance. This means we have to buy coverage on the individual market.

Buying coverage on the individual market is expensive — particularly when you don’t qualify for any premiums under the Affordable Care Act, which we do not.

In 2022, the national average monthly health insurance premium for one person on an ACA-compliant plan was $438 without subsidies. Since our family consists of us and our two children, when I began shopping for plans, I was looking at prices of around $1,400 per month or more just to get pretty basic coverage. That’s a big amount of money.

Even worse, most of these plans were not very good. They had little or no out-of-network coverage, and most had networks in just one state, which is a problem for me because I travel back and forth between two locations. When I was pregnant, I was willing to pay literally any monthly premium price to have coverage that would allow me to see doctors in two different states, but I could not find one.

This is not just a problem for me. Individual plans simply are not as good as those you can get from an employer. It’s a fact of life, since individual people don’t have the bargaining power that companies do. That means if you don’t have company-provided insurance coverage, you’re almost assuredly going to have to pay more for both premiums and care — just like we do.

Be sure to take all of your self-employment costs into account

It’s easy to forget about the fringe benefits that come from a traditional employment relationship. These might include:

Health insurance Workplace retirement plans Paid time offCommuter benefitsSubsidized child careTuition assistance

Not everyone gets all of these benefits. But many people get some of them. In fact, the Bureau of Labor Statistics reported that employer costs for civilian workers in March 2023 were $29.70 per hour for wages and salaries and $13.36 per hour for fringe benefits. That means fringe benefits account for about 31% of the $43.07 paid for each hour of work on average in the U.S.

If you no longer have an employer providing all of these benefits for you, you are going to have to provide them yourself. You’ll need to make a business plan, set prices for your company, and look at what it takes to be profitable. So don’t forget about the added costs you’ll incur by paying for insurance, putting money into a retirement account, and any income you’ll lose if you take vacations.

Going without health insurance or foregoing retirement savings are not options you should consider. I’m still happy to be running my own business, despite the challenges. But this is something you can’t forget to think about.

If your company can turn enough profits to allow you to pay for these essentials out of your checking account while still bringing in enough income to cover your other expenses and reinvest in business growth, then you just may have a viable career. If it can’t, don’t give up — but just be aware that you may need your business to grow a little more before you can give up all your other sources of income.

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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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When I put in an offer to buy the house I’m purchasing, I made my offer contingent on securing financing. Here’s why. 

Recently, I made an offer to purchase a home that’s a bit of a fixer-upper. When I put in my offer, I included one contingency or condition that had to be fulfilled in order for the sale to go through.

Here’s what that contingency was and why I included it.

This condition is vital when purchasing a property

When you put in an offer contract, normally you’ll want to include a few different contingencies. Contingencies are things that the sale is conditioned upon. The offer is made contingent upon, or dependent upon, certain things happening.

A typical offer to buy would include:

An inspection contingency: This means the purchase would be conditioned on a satisfactory home inspection.A financing contingency: This condition means you would need to be approved for financing.

If you have to sell your current home or close on the sale first, you’d also make your offer contingent on that happening.

When I put in my offer contract, I wanted to make it really attractive to the owners — mainly because the house wasn’t even listed for sale at the time. I couldn’t find a house I liked on the market, so I approached the people who were trying to rent this one and I offered to purchase it.

Since I wanted them to say yes, I kept the contingencies to a minimum and I didn’t ask for an inspection contingency. This is a risky move in most situations, but because I’m planning on doing a lot of major work to the house and I had a contractor walk through with me twice before making an offer, I was OK with waiving this one.

I insisted the financing contingency be included though. This was non-negotiable and there’s never a reason not to include this in a contract if you have to get a mortgage to buy the house.

Here’s why a financing contingency is so important

A financing contingency was crucial for me, and is vital for most people buying a house, because there’s always a chance you won’t be able to get a loan for the home.

Now, I was pre-approved for a mortgage, and anyone looking for a house should be pre-approved as well. But pre-approval is not a guarantee that you’ll get a loan. Things could go wrong after the fact, including a low appraisal that means you can’t meet the required loan-to-value ratio or an appraiser raising health and safety concerns with the home that make the loan too risky for the lender.

While it doesn’t happen often, around 8% of loans end up being denied by underwriters. Anyone could potentially fall into this category if something unexpected happens. And, if you haven’t made your offer contingent on securing financing, you could lose your earnest money deposit if you can’t complete the sale because you can’t get a loan.

I put down a $20,000 deposit to buy my house, and I wasn’t going to take a chance of losing that money if the bank didn’t come through for me. You shouldn’t either if you’re buying a home.

The purpose of contingencies is to protect you from loss if something goes wrong. If you cannot pay outright for a home, then a financing contingency is an absolute must in all circumstances because you can’t take a chance of not getting a loan and losing any money you’ve invested in the purchase thus far. If you’re putting in an offer to buy a home now or in the future, don’t sign an offer without one.

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Not saving enough could put your retirement at risk. See recent data on Americans’ retirement savings and learn what you can do to increase your own. 

Saving for retirement is an important habit so that you can live comfortably once you stop working. Social Security benefits help, but they don’t cover everything. In fact, they usually only replace about 40% of pre-retirement earnings. A healthy retirement nest egg can help you bridge that gap, cover your expenses, and enjoy your golden years.

Unfortunately, many Americans don’t feel like they’re on track with their retirement savings. A shocking number don’t have any money saved for retirement. Here’s the latest data and what you can do if your retirement account isn’t where you’d like it to be.

American adults are falling behind on their retirement savings

Among non-retired Americans, 28% don’t have any retirement savings, according to Federal Reserve data gathered in a savings study by The Motley Fool Ascent. That number has been on the rise, too. In 2021, 25% of non-retired Americans reported not having any retirement savings.

The glass-half full outlook on this would be that 72% do have some money saved for retirement. Even so, the majority don’t feel confident in their retirement savings. Only 31% of non-retired Americans believe their retirement savings is on track, down from 40% in 2021 and the lowest percentage since 2017.

Not having enough retirement savings is a major issue. It could eventually lead to working longer than you’d like or needing to live on a tight budget as a senior. With the potential impact of inflation and how much health care can cost, it’s always better to have more than you need, not less.

Feeling like you’re not on track for retirement is also stressful. You might worry about what you’ll do when you get older and if you’ll ever be able to stop working. The good news is that you can make lots of progress on your retirement if you know what to do. And the earlier you get started, the easier it will be.

How to get your retirement savings on track

If you aren’t saving for retirement yet, the first thing to do is see what your options are. Here are a few of the best and most common choices.

A 401(k) plan is a retirement account that many companies offer to their employees. If your employer offers one, it’s a way to get retirement contributions taken directly out of your paycheck. Contributions are tax-deductible.An individual retirement account (IRA) is a type of account anyone can open and use to invest for retirement. Just like with 401(k)s, contributions are tax-deductible.A Roth IRA is another type of IRA. Contributions aren’t tax-deductible, but withdrawals are tax-free. Many employers also offer Roth 401(k)s as an alternative to traditional 401(k)s.

A 401(k) is a good place to start, if you have that option available. IRAs and Roth IRAs also work well, either instead of or in addition to a 401(k).

Next, commit to putting a portion of your income toward your retirement savings every month. A popular starting point is 10%, but any amount can work. You can contribute less if you can’t afford that much, or more if you have plenty of discretionary income. Just keep in mind that there are IRA contribution limits that you don’t want to exceed.

Once you’ve decided how much to contribute, make it automatic. This is easy if you’re saving through a 401(k), since contributions will come right out of your paycheck. With IRAs and any other brokerage accounts you use, there will most likely be an option to automate your investments. I recommend doing this to get into the habit of saving on a consistent schedule.

Invest your retirement savings to maximize growth

Contributing to a retirement account every month is one of the best habits you can build. There’s one other key move you need to make: Invest that money so it can grow.

Every retirement plan has investment options. With 401(k)s, it will depend on the plan provider, but most offer various investment funds. With IRAs, you can invest in all the same options you could invest in through a brokerage account, meaning stocks, bonds, and investment funds.

As far as what to invest in, target-date funds are a simple, effective option. These set up an investment portfolio for you, optimized for your chosen retirement year. Mutual funds are another option. These put your money in a large number of investments, typically in stocks. Many of these invest in hundreds of companies, allowing you to build a diversified portfolio in as little as one investment.

By contributing to a retirement account every month and investing that money, your nest egg will grow and grow. The sooner you start, the more time your money has to grow through compound interest. If you haven’t done so already, that’s a great incentive to get started right away.

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

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