Money Management

Going from renting to owning a home could come with sticker shock. Read on to learn how one writer is getting comfortable with spending more on housing. 

I’ve been a renter for nearly all of my adult life, and as a result, I’ve gotten very comfortable with having minimal housing expenses. When I sign a lease on a new place, I pay a deposit (that I often get back when I move out) alongside the first month’s rent. I then pay rent every month, and I also spend a little for renters insurance (a landlord’s homeowners insurance policy will not cover my belongings).

I occasionally pay for minor repairs and maintenance issues, but not often, and this has varied depending on where I lived and whether I had a landlord who was responsive to requests for repairs.

Homeowners are responsible for a lot more expenses than renters are. According to research from The Ascent, in 2019, homeowners with a mortgage paid $8,609 more than renters did for housing costs. I’m gearing up to buy a home again soon myself, despite the extra costs homeownership entails. Thankfully, the process of getting ready to apply for a mortgage loan is giving me a taste of the “homeowner mindset.”

I expect my housing costs to double

I live in a fairly inexpensive small city, which means my rent is a lot less than it would be if I lived in a big city like New York or Los Angeles. Right now, I spend about $1,000 a month on my housing expenses (rent and renters insurance). To see what I might be paying for housing after I buy, I turned to The Ascent’s mortgage calculator.

Based on the average rate on a 30-year fixed-rate mortgage of 6.81% (per Freddie Mac) as of this writing, a 10% down payment on a typical home in my area/price range, and realistic estimates of what I’ll pay for property taxes, homeowners insurance, and private mortgage insurance (PMI), I came up with a figure of $1,831 per month. That’s not quite double my current costs, but I’m also planning to put money into an emergency fund every month to give myself a financial cushion for repairs and maintenance costs. All in, $2,000 a month total is a solid estimate for me as a homeowner.

I can’t say for certain yet how much my total costs will be, but these are realistic figures based on the information I have now. I made this calculation using a homeowners insurance premium of $1,000 per year. I found numbers for this cost ranging from $600 to $1,400 per year in my city, so $1,000 feels like a safe estimate for what will most likely be a small, older home. My property tax figure was $4,000 per year, which is another educated guess based on discussions with friends who live locally and numbers in real estate listings in my city. I left off HOA costs, because homeowners associations aren’t common in my area — and I wouldn’t buy in an HOA anyway.

I can make a reasonable guess at the price for my eventual home based on home listings in my area, and it’s likely that I’ll have to pay for PMI because my down payment will most likely be 10% instead of 20%. I don’t want to tie up all my available cash in my mortgage, as I’d prefer to avoid going into debt when something inevitably breaks after I move in. My mortgage rate could be lower than the average, though, as my FICO® Score is in the “exceptional” range. Ultimately, it’s hard to say for sure what a house will cost me at this point.

I am actively saving money for a home

Luckily, I’m already getting experience with the costs of homeownership. Ever since I finished getting out of debt last fall, I’ve been pumping a few thousand dollars a month into a high-yield savings account. As a result, I’m familiar with the impact that buying a house will have on my finances.

While I’m no stranger to budgeting more money for housing costs, I’m sure other aspects of homeownership will feel new to me — such as the first time I have to seek out a plumber myself for a leak or find an HVAC technician to service my furnace, rather than just calling or texting a landlord.

Buying and owning a home sure isn’t cheap, but I’m glad that I’m getting to test drive a new budget for housing costs in the process of saving up to buy. If you’re hoping to buy a house yourself, it’s worth living with your projected housing costs for a while first. You can put the extra money into a savings account so it’ll grow with interest and be kept safe until it’s time to apply for mortgage pre-approval.

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The right real estate agent can be your best friend in the home-buying process. Read on to learn what to ask one before deciding to give them your business. 

It’s not a great time to buy a home, but I’m excited to stop renting and make a real home for myself in the city I moved to in 2021. Plus, I finally have the financial means to buy a modest home for my cats and me, and after my last attempt at homeownership ended badly, I’m older, wiser, and far more aware of how much this will cost me.

Later this year or early next, I’ll get to navigate high interest rates (as of this writing, the average rate for a 30-year fixed-rate mortgage is 6.81%, per Freddie Mac) and low housing inventory. I’ll also have to jump through more hoops with mortgage lenders to get a loan, as I’m self-employed. Thankfully, I’ll be buying with a real estate agent, which means I’ll have a sounding board, an ally, and support for the process — plus someone to do the sales paperwork.

Here’s my personal list of questions to ask agents I might want to hire. Consider asking questions like these before hiring the best real estate agent for you.

1. Do you work as an agent full time?

Some agents only work part time, and this doesn’t make them any less great at their job — but it means they have a lot less time available for clients. If the agent has multiple clients and works part time, that leaves even less time for me specifically. Plus, a part-time agent might be newer to the profession (and could help people buy/sell homes alongside another career they’re easing out of). I know I’ll have the greatest chance of successfully buying a home if I have someone with a lot of experience in my corner.

2. How well do you know this city and the surrounding area?

I’ve lived in my current city for just two years, and while I’ve lived in this particular state for seven years, I can’t claim to be an expert on the area. Ideally, the real estate agent I hire will be, though. There are a lot of small towns and villages close to my city, as part of a larger metropolitan area, and while I really like the neighborhood I rent in, I’m open to considering other neighborhoods — both in the city and surrounding area.

Another area of concern is the nearby river — I live in a valley and some places close to the river are prone to flooding when we get heavy rains and snowmelt. The right agent for me will need to know which areas to avoid so I can save myself from this hassle.

3. Have you worked with other clients like me?

No two clients are alike, but I want to know if a prospective agent has helped others like me buy a home. I’m buying solo, I work from home, and I will be sharing the house with my cats. As a result, my wants and needs in a home are likely different from that of someone who is buying with a partner, or who has children. On a similar note, factors like the quality of local schools don’t matter to me, while they are extremely important for buyers with kids. It’s also important to ensure an agent has worked with people who have a similar budget to mine.

4. How do you like to communicate with clients?

Not all millennials are afraid of phone calls, and I’m definitely okay with hiring an agent who likes to chat on the phone. That said, I don’t always have time in my schedule for this communication method, so ideally the agent I hire will be a texter or down to exchange emails frequently.

The last time I bought, the agent I used was a prodigious emailer and sent me links to new homes for sale on the MLS (multiple listing service) every few days, which was excellent — I could peruse them at my leisure and let her know which ones I wanted to view. I’m hoping to find the same this time around.

5. Do you have references?

The National Association of Realtors found that the average number of transactions for an agent in 2021 was 12, so it’s a reasonable expectation that any agent I’m considering will have recent clients I can contact for a reference. I’ll ask them about working with the agent in question, how well they communicated, and how long it took to find the right home. Along with personal references, I’ll also look online for agent reviews.

If you’re dreaming of buying a home, be it now or in the future (perhaps after rates have come down?), I recommend creating your own list of questions to ask an agent you’re considering hiring. While every home buyer is different, you want to find someone who can guide you while being mindful of your needs. Having an agent who knows your city well, communicates in the way you prefer, and is well regarded in your community will go a long way toward making the buying process much smoother.

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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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Some 401(k)s have fallen by the wayside. Read on to see how you can avoid that trap. 

Carving out money for a 401(k) is not always an easy thing to do. After all, when you have loads of immediate bills to cover, finding spare cash for your retirement savings can be tough.

That’s why if you’re going to contribute to a 401(k) plan, you’ll want to make sure not to forget about that money. But if you leave an old 401(k) where it is upon switching jobs, you run that very risk.

There are tons of forgotten 401(k) plans out there

You may be reading this and thinking, “How could anyone just forget they have money in a 401(k)?” But data from Capitalize reveals that there are an estimated 29.2 million forgotten 401(k) accounts just sitting around waiting for their owners to claim them. All told, that amounts to an astounding $1.65 trillion in retirement plan assets.

What’s more, Capitalize says the number of forgotten 401(k) plans increased by over 20% since May 2021. And that’s due largely to the Great Resignation.

Over the past two years, many workers have left their jobs in search of better opportunities. For some, it was a matter of wanting more flexibility. For others, the goal was to find more fulfilling work. Either way, there’s been a lot of job-changing over the past couple of years, and that’s led to an uptick in 401(k)s that have been left behind.

How to make sure your 401(k) isn’t forgotten

A big reason so many people forget about their 401(k)s is that those accounts only contain small amounts of money and they opt to leave their 401(k)s alone upon switching jobs. It’s pretty unlikely that someone with a $400,000 balance in their 401(k) is going to change jobs and simply forget about a nest egg that large.

Rather, what’s more likely to happen is that someone with $500 or $600 in their 401(k) might switch jobs, figure they’ll move their money over at some point, and then forget about it. Since it’s not such an enormously large sum, it’s easy to see how it might end up falling by the wayside.

But the reality is that no matter how large or small your 401(k) plan balance is, it’s best to make sure you’re keeping tabs on that money and aren’t forgetting it. Any time you leave a job that sponsored a 401(k) for you, it’s best to roll that money into a new retirement account right away.

In this regard, you have options. If your new job offers its own 401(k) plan, you can send the money into that new employer plan. If not, you can roll an old 401(k) into an IRA.

Now, one thing you don’t want to do is roll a 401(k) into a regular brokerage account. Doing so could trigger taxes and a penalty. Rather, your aim should be to roll an old 401(k) into another retirement plan.

Any time you save money, whether it’s for retirement or emergencies, it means you’ve sacrificed something. So don’t let your hard work go to waste. Keep tabs on any 401(k) plan you have, and if you leave the company sponsoring it, roll that money into a different retirement plan right away so you don’t risk forgetting about it.

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The loss of a job could turn into an opportunity to open a business. Should you take it? Read on to learn more. 

Although the U.S. labor market had a pretty solid 2022 and has remained fairly healthy in 2023, layoffs have still come into play. In fact, data from BizReport reveals that roughly 200,000 jobs were lost due to layoffs in 2022 and 2023. And for every 100 people who lost their jobs during that time, 13 started their own companies.

But should you start a small business after losing your job? You may be tempted to, but it’s really important to go in prepared. So ask yourself these key questions before venturing out on your own in response to a layoff.

1. Do I have a decent chunk of money in savings?

It can take many months, if not years, for a new business to become profitable. And you’ll need a way to pay your bills while you build your business up. That’s why it’s best to start a new business at a time when you have plenty of money in your savings account.

In fact, you may even want to tell yourself that you won’t start a business until you have enough cash in the bank to cover a full year of essential living expenses. The last thing you want is to take on personal debt in the course of making a career pivot and venturing out on your own.

2. Am I really ready to be my own boss?

It’s nice not having to take orders from other people. But to run a business, you need to be focused, disciplined, and willing to put in the time. And you may not be in that place. If that’s the case, you’re probably better off applying to work for someone else who will be tasked with running the company.

Let’s say that in addition to having lost your job, you’re going through some life changes. Maybe you recently had a baby or are dealing with an aging parent’s health issues. These are perfectly good reasons to decide that it’s not the right time to open a business you have to oversee every aspect of.

3. Do I have an actual business plan?

You may be interested in the idea of running your own company. But have you thought about what that will actually look like?

How will you sell and market your product or service? Where will your business be located? How much help will you need? And how will you pay to get your company up and running?

These are all questions you must have answers to before starting a business. If you’re not at the point of having thought them through, then you may, at the very least, want to apply for some sort of temporary position while you iron out the details.

Starting a business could be a rewarding experience, and it’s natural to consider doing so in the wake of a layoff. But before you dive in, ask yourself whether you’re really in the right place logistically and financially. You may come to the realization that it’s not the right time to start a business, and that waiting is a better choice.

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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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This writer has never borrowed money via a personal loan. Read on to see why. 

If you’re thinking about taking out a personal loan, you’ll probably be in good company. U.S. personal loan balances amounted to $225 billion during the first quarter of 2023, reports TransUnion.

And it’s easy to see why so many consumers are drawn to personal loans. Not only do they generally come with competitive interest rates (at least compared to credit cards), but they’re very flexible in that they allow you to borrow money for any purpose.

You could take out a personal loan to start a business or fix up your home. But you could also take out a personal loan to go on vacation, and that’s your choice.

But while personal loans may be pretty popular among U.S. consumers, I’ve yet to take one out myself. And there’s a big reason why.

I don’t like to pay interest on the things I buy

Some people don’t mind financing purchases and paying them off over time, all the while racking up interest in the process. But paying interest is something that bothers me, and it’s something I aim to avoid at all costs. As such, I won’t take out a personal loan for something I feel I can or should just save up for instead.

Let’s say I want to take a vacation, only money is tight and I can’t afford one at present. If I were to take out a personal loan to finance that trip, I wouldn’t enjoy it. Rather, I’d spend the whole time worrying about the interest it would cost me and the monthly payments I’d be on the hook for upon my return.

Now, I will say that just because I don’t like paying interest doesn’t mean I’ve never done it. The car that I drive right now is one that I financed via an auto loan. But that purchase was justifiable.

I live in the suburbs and cannot get around without a car. It’s just not doable. So while I didn’t love having loan payments during the time I was paying off my car, I also didn’t feel bad about myself for taking them on.

Similarly, when my husband and I bought our house years back, we, like most people, financed it with a mortgage loan. We didn’t have hundreds of thousands of dollars at our disposal to sink into a home purchase, so we had to take out a loan.

But other than my home, my car, and my education, I’ve never borrowed money. And so that explains why personal loans are something I personally have no experience with.

Is a personal loan right for you?

There were times when I came close to taking out a personal loan, such as when we were finishing our basement and were looking at a large bill for that renovation. Ultimately, we decided to use a combination of my husband’s salary bonus, cash from our savings account, and extra working hours (and income) on my part to pay for that renovation outright.

If you’re looking at a similar project that will improve your quality of life and potentially raise the value of your home, then a personal loan may be worth signing. Similarly, if you have an urgent expense you can’t put off, like a home or car repair, and you don’t have the cash in savings to pay for it, then that’s a good reason to take out a personal loan.

But I wouldn’t recommend signing a personal loan to finance a purchase that isn’t really necessary, like a vacation. Even though a personal loan can be an affordable option for borrowing money, you’re taking on debt nonetheless and spending money on interest. That’s something you may want to try to avoid like I do.

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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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