Money Management

Is joining Costco really a good choice? Read on to see why it may not be. 

For some people, joining Costco is an easy decision. Sure, you’re forking over $60 a year for a basic membership, or $120 a year for an Executive membership that gives you 2% cash back on your purchases. But the savings you’re able to reap on purchases like groceries and household supplies can more than make up for those fees.

That said, a Costco membership is something you should enjoy and benefit from. Here are a few reasons why you might end up unhappy with your decision to purchase a membership.

1. You don’t live anywhere near a Costco

Here’s a lesser-known fact about Costco: You don’t actually have to be a member to shop at Costco online. However, surcharges can apply to non-members, and certain online items are designated as member-only. So having a membership can pay even if you’ll mostly be limited to online shopping.

But let’s face it — a big part of the appeal of Costco is getting to go to the store, roam the aisles, scope out new products, and sample delicious food items. So if you don’t live anywhere close to a Costco store, you may end up feeling that your membership isn’t worth the money.

Also keep in mind that while Costco prices can vary from one region to another, you’re generally going to pay less for a given item at a Costco store than you will online. So if you don’t live close enough to a Costco to get there often, you may not end up getting as much value out of your membership as expected.

2. You don’t have a lot of storage space

Buying items in bulk at Costco could save you a fair amount of money. And that itself might make you happy.

What might make you less happy, however, is bringing home a carton of granola bars, a 12-pack of paper towels, and a case of laundry pods only to realize you have absolutely nowhere to put them. If you don’t have a lot of room for storage in your home, a Costco membership could actually lead to a situation where you’re forced to live among boxes and clutter. That’s hardly fun.

3. You don’t eat at home very often

You can load up on everything from produce to proteins to dairy products on the relative cheap when you go to Costco. But if you don’t eat at home very often, then you may not get as much use out of your membership.

Also, you may be inspired to buy bulk grocery items due to their low price point, only to end up throwing things away when they inevitably spoil before you’ve gotten a chance to use them. That’s not a great situation.

A Costco membership makes sense for a lot of people. But that doesn’t mean signing up for one is the right decision for you. Before you hand over your money, think about whether it’s reasonable to visit Costco on a somewhat regular basis and whether you have the room to store the items you might buy there. And also, keep your dining habits in mind, because those, too, should play a role in your decision.

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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 positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Thinking of renovating your home? Read this before you do. 

There may come a point when you decide you’re ready to improve your home. And if you can swing the cost of paying off renovations on top of your mortgage, then you may be eager to go for it.

After all, improving your home could enhance your quality of life. And besides, you can always try to recoup your money when you go to sell your property.

But while improving your home might seem like a great thing to do, it has the potential to backfire on you. Here are three reasons why.

1. Your property taxes might skyrocket

Your property taxes are calculated by taking the assessed value of your home and multiplying it by your local tax rate. And to be clear, your home’s value can rise a lot from when you sign your mortgage loan, whether due to market conditions or other factors.

But if you make major improvements to your home, there’s a really strong chance your assessment will rise and your property tax bill will follow suit. That’s an expense you might find difficult to bear, especially if you’re in the process of paying off a home equity loan or HELOC you took out to finance your improvements.

2. Your home might become ‘too rich’ for your neighborhood

There’s definitely such a thing as over-improving a home. If the typical house in your neighborhood has an assessed value of $300,000, but you improve yours to the point where your house becomes worth $450,000, that’s actually a problem, even though you may not think it is at first.

Selling a home that’s the most expensive one in town isn’t always easy. And also, when your home is worth so much more than the others around you, it can become difficult to fight back against property tax increases.

Say your tax assessor raises your home’s assessed value from $440,000 to $450,000, but homes in your area have been selling for around $300,000. In that case, you’re not going to have comparable sales to point to in order to argue that you’ve been overassessed.

3. You may not get your money back when you go to sell

Home improvements can raise the value of your home and get you a higher price at resale. But it’s actually pretty rare to get all of your money back on a per-project basis.

Remodeling Magazine recently put out a “Cost Vs. Value” report that explored 23 popular home improvement projects, including garage door replacement, window replacement, and bathroom remodeling. It found that only four of those 23 were likely to result in the full cost of the project being recouped at resale. So while you might think that spending $40,000 to redo your kitchen is apt to add $40,000 of resale value to your home, that may not happen.

There are plenty of good reasons to make home improvements. And if you can comfortably afford the ones on your list, you may want to get started sooner rather than later. Just be aware of these pitfalls before you firm up your decision.

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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.
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Ample money-wasting opportunities abound when you’re a parent. Read on to learn about some you can easily avoid. 

There’s a reason I made a conscious decision to boost my savings before having kids. I knew that between childcare, food, and transportation (we had to upgrade to a minivan to fit all of those carseats), raising children was going to cost us a bundle.

What I didn’t realize early on was how easy it is to waste your money in the course of parenting. If that’s something you don’t mind doing, then here’s how to pull it off.

1. Buy your kids expensive clothing

Some people will tell you that buying expensive clothing for your kids will translate into it lasting longer. I’m here to tell you that it won’t, so you might as well save your money.

A pair of basic boys jeans at the Gap can easily cost you $40 or more when it’s not on sale. If you buy a pair of Amazon Essentials jeans, it’ll cost you $24 or less — sale or not.

Now granted, if you want the pricier jeans, you could always try to keep checking for sales. But sometimes, when your kids rip or lose their clothing, you don’t have that luxury. Rather, you need to buy new clothing ASAP.

And trust me when I say that a pair of Gap jeans is not going to survive any better than a pair of Amazon jeans when your kid gets tackled to the ground during a friendly game of touch football, or when they fall off their bike and become one with the pavement.

Accidents and falls aside, kids just tend to wear out their clothes. And when they don’t manage to wear them out, they manage to stain them. So either way, there’s no sense in running up a huge credit card tab to clothe your children. Find the cheapest items in their size and call it a day.

2. Push activities your kids aren’t into

When my son was younger, he reluctantly agreed to take piano lessons because his father and I thought it would be a fun and interesting thing for him to do. What happened instead was that we spent hundreds of dollars on lessons only to have my son grow tired of piano quickly and never so much as strike a key since his last instructional session many years ago.

That experience helped us realize that kid activities are expensive enough, so why pay for anything ours are not begging to do? Since then, we’ve only signed our kids up for things that they’ve asked to try. And while we spend quite a lot of money these days on those activities — including the piano lessons my daughter now willingly and happily attends — at least I don’t feel like I’m throwing my money in the garbage.

3. Throw big birthday parties and invite the entire class

I’m all about being inclusive, and I hate the idea of throwing a birthday party for my kids and excluding some of their classmates, even if they’re children mine aren’t particularly friendly with. That’s why, in the past, I’ve spent hundreds of dollars on a 120-minute birthday party at a venue that could accommodate a few dozen kids.

But those days are gone. At this point, I downright refuse to spend $800 so my children can invite their classmates to a bounce place for a couple of hours.

At this point, if my kids want to celebrate their birthdays with little people their age, they can choose a couple of friends and a reasonably priced activity, like bowling or a low-cost restaurant. I’ll even host a small group in my house and spring for pizza and a cake. But I’m not spending the equivalent of a mortgage payment on a party.

Most of us would probably rather not throw our money away in the course of raising kids. So make sure to avoid the above pitfalls at all costs.

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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 have an emergency fund that’s larger than it should be or you have money you won’t need in the short term, your account balance may be too big. 

Having money in savings can help you avoid a whole lot of financial trouble. If you have cash in a savings account, you can use that money when you must buy something you can’t afford to pay for out of a single paycheck. You can also avoid getting into credit card debt when surprise expenses happen since you’ll be able to tap into your savings account to pay the unexpected costs.

Having too much money in savings, though, can be a problem. The interest rate on the typical savings account is typically below 0.50%, which is lower than the Federal Reserve’s targeted 2% annual rate of inflation — so people who overinvest in a savings account will find themselves losing ground.

How much is too much, though? Your savings account balance is probably too big if either of the following things are true.

Your emergency fund exceeds a year’s worth of living expenses for no clear reason

It is extremely important that you have an emergency fund. Surprise expenses or an unexpected drop in income can happen to anyone. Without money saved for emergencies, this could lead to serious financial damage.

But you don’t want your emergency fund to be too big. In most cases, experts recommend that you have three to six months of living expenses set aside. If you really want to be prepared for big surprises or a long income loss — perhaps because you work in an industry where jobs are scarce, you have medical issues, or you’re the sole breadwinner for your family — then it may make sense to have enough in your emergency fund to cover a year’s worth of expenses.

But once you get beyond that, keeping extra money for emergencies usually doesn’t make a whole lot of sense. A year gives you a lot of time to make more permanent lifestyle changes if you’ve faced a really big emergency, or to get back on your feet career-wise.

READ MORE: Emergency Fund Calculator

So unless there’s a clear reason why you would need more than a year’s worth of expenses in an accessible savings account, you probably have too much in savings if your emergency fund exceeds this amount.

You have money you won’t need for years to come

Another big sign that your savings account balance is too big is if you’re saving money in the account when you won’t need those funds for more than three to five years.

See, if you have a long timeline before you’re going to need the money you’re setting aside, it’s usually best to put the funds in a brokerage account. That way, you can invest in assets that should help you increase your account balance by more than the inflation rate so you won’t lose buying power. And with a long timeline before you need the money, you should be able to wait out any downturns in the market.

You should check your savings account balance to make sure you don’t have money needed for long-term goals or too much emergency fund money. If you find that you do have these funds in savings, consider moving the money elsewhere to make better use of 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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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A foreclosure on your record could damage your credit. Read on to learn more. 

When you sign a mortgage, you’re making a commitment to keep paying that loan until your home is paid off. So if you fall behind on your loan payments, your mortgage lender might eventually have to force the sale of your home to get repaid in a process known as foreclosure.

Experian says that usually, you need to have skipped four consecutive monthly payments for your home loan to wind up in foreclosure. But once that happens, you run the risk of losing your home. And that could not only upend your lifestyle, but also, damage your credit score significantly.

A major red flag

The extent to which your credit score drops after a foreclosure depends on different factors, including how high or low it was to begin with. Also keep in mind that every time you have a late payment on record, whether it’s a mortgage payment or a credit card bill whose deadline you let pass, your credit score takes a hit.

And we just learned that a lender generally won’t pursue foreclosure until you’ve missed four payments in a row. So by the time you’re facing foreclosure, your score might have already taken a beating, and the foreclosure itself may not actually cause it to plunge so much more.

But either way, you should know that a foreclosure is really bad news from a borrowing standpoint. No matter how much it impacts your credit score and how low that number gets, your foreclosure will stay on your credit report for seven years, and there’s generally nothing you can do to get it erased sooner. So whether your credit score falls by 100 points, 200 points, or more, the reality is that if a lender sees a foreclosure on your credit report, it will be less likely to want to loan you money.

How to avoid foreclosure

Because home values are fairly elevated these days, it may be possible for you to avoid foreclosure by simply putting your home up for sale if you can’t afford to make your monthly mortgage payments. However, if you’re underwater on your mortgage — meaning your loan balance is higher than your home’s market value — then that won’t work unless you happen to have enough money to make up the difference (and if you’re behind on your mortgage payments, chances are, that’s not the case).

In that situation, one solution you could look at is a short sale, where your lender agrees to sell your home at its market value, and whatever it sells for will satisfy your remaining mortgage balance. In other words, if you owe $180,000 on your home and it only sells for $170,000, your lender would simply eat the difference.

Now, you should know that a short sale, like a foreclosure, will show up on your credit report. But it may not serve as the same red flag as an actual foreclosure. And so it may be your best option if your lender is willing to agree to it.

One final route you can look at if you’re having trouble making your mortgage payments is to find somewhere to crash temporarily (say, with a family member or friend) and rent out your home to a tenant. If you’re able to command enough rent to cover your mortgage payments, you can try to wait out the market and see if the value of your home rises.

But this option can be risky and complicated in its own right and will only work under the right circumstances. So you may, unfortunately, be limited to a short sale if you can’t sell your home for a high enough price to pay off your mortgage in full.

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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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Ready to switch to a new bank account? Read on to see how you can make sure you’re choosing the right one. 

Being a small business owner means being tasked with numerous decisions. Should you raise wages for full-time employees? Should you expand your product or service line? And it is time to swap your current bank account for a new one that will better serve your needs and perhaps make your banking experience a lot smoother?

Moving to a new bank could work to your benefit and make it easier to run your business. But before you open a new small business account, make sure to run through these key questions.

1. What special services and features does this bank account come with?

Some banks offer benefits like free payroll management tools and remote check deposits. Other banks allow your account to integrate seamlessly with accounting or bookkeeping software so it’s easier for you to maintain solid business records. Do some research to see what special perks you’ll be privy to as a new account holder.

2. Is there a minimum balance requirement?

It’s a good idea to leave yourself with a cushion in your bank account in case there’s a period when clients are slow to pay their bills and your expenses come in higher than expected. But you also don’t want to get stuck having to stash too much cash in your bank account.

After all, that’s money you may want to use for other things, whether it’s marketing, equipment, or employee bonuses. Find out what minimum balance you’ll be on the hook for before opening a new bank account and make sure it’s not a problem.

3. Is there a daily or monthly transaction limit?

The median small business has average daily cash outflows of $374 and average daily cash inflows of $381, reports JPMorgan Chase. It’s common for businesses of all sizes to engage in numerous transactions per day.

But some bank accounts limit the number of transactions that can be processed in a day before a fee applies — or limit your daily transactions, period. Others impose monthly limits. If you tend to do a lot of transactions, then this is something you’ll need to be mindful of and check on before opening a new account.

4. Is the nearest branch conveniently located?

There are certain banking matters you may need to tend to in person. And if yours is a cash-heavy business, you might want easy access to a branch so you can deposit those piles of money into your account without having to hang onto them overnight.

That’s why it’s important to consider the location of the nearest branch that’s available to you. And also, look at the hours. You don’t want a branch that closes so early that getting there won’t be feasible based on your schedule.

Opening a new bank account for your small business is something you’d probably rather only do on occasion — say, every few years, if that. So it’s important to choose the right account from the start when you’re making a switch. If you make a point to answer these questions before signing up, you may be quite happy with the new account you end up with.

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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. Maurie Backman 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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