Money Management

Backing out of an agreement to buy a home could cost you. Read on to find out why. 

There’s a reason sellers tend to prefer cash buyers over those who need to get a mortgage. When a seller has the cash on hand to buy a home, there’s less risk of the deal falling through. On the other hand, a mortgage lender could pull a loan if something doesn’t check out during the underwriting process, leaving the seller to start from scratch and find a new buyer.

Now, most home purchase contracts include a mortgage contingency clause that basically states that if you’re unable to put a loan in place, you have the right to walk away from the deal as a buyer. And there are other contingencies that tend to go in real estate contracts that might offer you similar protection. But if you pull out of a home purchase contract for a non-covered reason, you should expect to lose the deposit you put down when you made your offer.

When you have a change of heart

When you make an offer on a home and a seller accepts, it’s common to put down a deposit known as earnest money. That deposit is held in an escrow account and released once the sale of the home is complete. What that earnest money does is protect the seller in the event that you change your mind about buying the home.

If you get cold feet about purchasing a property, you’ll generally have to forgo your deposit if you opt to walk away. Similarly, if you find a better home and you choose to purchase that one instead, you’ll lose your deposit.

If that’s something you can afford to do, great. You can chalk it up to a learning experience. But many people can’t afford to part with that sort of money.

Rocket Mortgage says the typical earnest deposit is about 1% to 3% of a given home’s purchase price. So if you’re buying a $400,000 home, which is roughly in line with the median home sale price today, as per the National Association of Realtors, that means you’d be giving up $4,000 to $12,000 by changing your mind about a home. That’s a pretty big financial hit.

When you can walk away without penalty

There are certain clauses you’ll commonly find in a home purchase contract that will give you the right to walk away without forgoing your earnest money. It’s common for these contracts to have an appraisal contingency so that if the home you’re looking at doesn’t appraise for a high enough price to allow your mortgage to go through, you can bail.

Similarly, it’s common for real estate contracts to include a home inspection contingency. This gives you the right to walk away without financial penalty if an inspector uncovers major issues with the home you’re looking to buy and the seller isn’t able to address those issues prior to your closing.

But unless you’re backing out of a home purchase contract for a covered reason that’s written into that agreement, walking away will generally mean leaving your deposit behind. So think carefully before you decide to bail on a home purchase. And just as importantly, make absolutely certain you really want to buy a given home before putting down earnest money on 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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Vacations are expensive, but they’re good for our health and can connect us to others. Check out why I choose to spend money on a beach vacation each year. 

Americans are notoriously bad at taking their vacation time. The latest data from the Pew Research Center shows that 46% of workers don’t use all their available paid time off (PTO).

Not only are vacations hard to fit into busy schedules, but they’re also expensive. Travel demand is up — as is inflation — pushing airfare prices up 52% from last year for domestic flights and 29% for international travel, according to Kayak.

Everyone has varying travel budgets, and my annual getaway to the beach costs about $1,000. And while it sometimes feels like a sacrifice to pay for it, there are a few good reasons why it’s a non-negotiable expense for my family.

Time away and time with family

I enjoy my job as a freelance writer, but like anyone else, I also very much enjoy taking time away from it. It’s been proven that taking time away from work, whether over the weekend or for extended time for a vacation, is good for mental and physical health. It also lends to increased productivity at work.

I don’t have to spend $1,000 to get a break from work, but committing the money to a beach vacation helps me physically disconnect from my work. Being out of town helps me get out of my normal routine and forces me out of my regular work-minded focus.

More importantly, the annual beach trip allows my family to hang out with other family members, some of whom we don’t get to see often. My wife and I try to make it a point for our kids to get as much time as possible with out-of-town family, and that’s helped establish this expense as not just a vacation but an investment in relationships as well.

Some financial decisions are personal

You may have other reasons to spend money on your vacations, but we’re all doing them for generally the same reason: They’re good for us.

I am a natural saver, which means it’s easy for me to question whether small and large expenses are worth it — and mostly lean toward the idea that they’re not. But I’ve also learned that some financial decisions are personal and shouldn’t only be weighed by how much they’ll take out of your bank account.

If you’re naturally inclined not to want to spend money, you may find it harder to justify the time and expense to get away. I get it. Even if you don’t take a week off, or a long vacation isn’t in the budget, taking short breaks from work is well worth your time.

Dr. Bryce Hruska said in the Pew Research Center study, “A vacation could consist of a few days spent off work taking time to do something that you enjoy.” So a vacation doesn’t need to be long, or break the bank, to be beneficial.

How to plan for large expenses

If you’re budgeting for a vacation, there are some practical ways to plan for a large annual expense. Automating your savings through an app can be a great way to slowly but steadily set aside money each month so that you’re financially prepared for the cost when the bill comes due.

I keep my vacation expenses in mind when I consider going on shorter weekend trips throughout the year. If I want to get away for a weekend, I think first of how much I have or haven’t saved for our beach trip and whether it’s the right time to spend that money.

I’ve also used the cash back from my rewards credit card to help offset my vacation expense. My card offers cash back that accumulates throughout the year, while other cards, like travel credit cards, have points that can be redeemed for hotels or flights.

No matter how you plan your vacation, automating deposits into a vacation savings account and setting up a vacation budget will make it more likely you’ll actually use up all of that PTO this year.

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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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Taking on an expensive car payment? Read on for ways to make sure you don’t fall behind. 

If you’re buying a car and are looking at an auto loan payment of $750 a month, it doesn’t necessarily mean you’re purchasing a luxury vehicle. The average monthly payment for new vehicles hit a record high of $730 during the first quarter of 2023, according to Edmunds. So if you’re now on the hook for $750, it may just be that you had to buy a larger car, like a minivan or SUV, to accommodate a bigger family.

But no matter the reason for your $750 monthly car payment, the reality is that it’s a lot of money. And if you’re going from having no car payment to a payment of $750 a month, it could really constitute a shock to your finances. Here are a few steps you can take to cope with such a large car payment.

1. Start following a streamlined budget

Budgeting isn’t something everyone likes to do. And if you’re managing your bills just fine, you can easily argue that there isn’t a need for you to do it.

But any time you commit to a large recurring expense, whether it’s a car payment, a mortgage, or a personal loan, it’s important to adjust your spending accordingly. So take a look at your recent bank and credit card statements to see what your monthly spending looks like. And from there, identify expenses you can trim as needed to make room for your new $750 monthly car payment.

Of course, depending on your financial situation, you may not have to cut your spending at all. Let’s say you’ve been saving $800 a month for the past few years and have a solid emergency fund and retirement nest egg already. You may decide that for the time being, you’re just going to spend the additional $750 a month, and if you’re only able to save $50 a month moving forward, so be it.

That’s not necessarily a terrible choice to make once you’re set on emergency savings (though it’s always good to keep funding an IRA on an ongoing basis for retirement purposes). But even if you know you have the room in your budget to spend a lot on a car payment, you should still have a solid sense of what your expenses look like so you can make adjustments as needed.

2. Consider a side hustle to boost your income

Perhaps your regular paycheck simply can’t handle an additional $750 a month. If that’s the case, and you have no choice but to spend that much on a car payment, then look to the gig economy for a second job that can put extra cash in your pocket and help ensure you don’t fall behind on your auto loan.

The good news is that there are many side hustles you can do either from home or at your own pace. Think about your schedule as well as your skills to land on the ideal gig. If you’re great with animals, you can look at starting a pet-sitting business on the side to drum up extra cash.

And remember, if you get a nice salary increase at the start of the new year or in conjunction with a promotion, you could decide at that point to dump your side hustle if it’s taking up too much time. You may, however, need that second job as you’re adjusting to spending an extra $750 a month.

3. See if you can snag a discount on your auto insurance

Your monthly car payment may be non-negotiable based on the vehicle you’re buying. But you can try to compensate a little by seeing if you can shrink your auto insurance costs.

Some insurers, for example, will give you a discount if you don’t use your car for commuting. If that’s your intent, let your insurer know. You may also be eligible for a discount on your premiums if you take a defensive driving course.

And don’t forget, spending some time shopping around for rates could leave you paying less for auto insurance. It may just be that your car insurance company is on the expensive side, and there’s a more economical option if you look around.

A $750 monthly car payment is a tough expense to keep up with. But if you’re careful with budgeting and boost your income as needed, you might manage to swing those payments just fine. And if you’re able to reduce what you’re spending on auto insurance, even better.

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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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