Money Management

Whether to invest when you’re in debt depends on the kind of debt you have as well as other factors. Here’s how to decide. 

If you’re like most people, there are a lot of things you want — and need — to do with your money. For example, if you owe money to creditors, chances are good you are going to want to focus on repaying it. But, you may also want to invest your money so you can start earning returns and building wealth.

The big question is, should you open a brokerage account and start investing while you’re still working on paying debt or should you become debt-free first. In order to make this decision, there are a few key questions you need to ask yourself.

What kind of debt do you have?

The first thing to think about is the kind of debt you have, as well as how expensive that debt is.

For example, if you owe money on credit cards, you may be paying a high rate. The average interest rate on a credit card is around 20.09%, according to the Federal Reserve. If you pay off your cards early, the return on investment (ROI) you get is the amount of interest saved. So, your ROI for early payoff would be a little over 20% if your cards charge around the average rate.

It’s pretty unlikely you’re going to find many reasonably safe investments that are going to consistently earn you a 20% annual return on investment. So, you’d likely be better off trying to pay your cards off first before shifting your focus to investing.

If you have low interest debt, though, then you may be better off just paying the minimum and investing the rest. For example, say you have a mortgage loan at 3.25%. Since you can reasonably expect to earn about a 10% average annual return (before inflation) if you invest in an S&P 500 index fund (a pretty smart investment) over the long-term, you’d typically end up with a much higher net worth. So focus on investing extra money rather than using it to pay down your home loan.

How quickly could you become debt-free?

The next big thing to think about is how long becoming debt-free is going to take you. If you can get serious about your debt payoff and wipe your balance clean in a few months, then it may be worth delaying a shift to investing. You can eliminate what you owe, no longer have the monthly payment to worry about, and free up cash you were sending to your creditors to invest later.

But if it is going to take you many, many years to pay down your debt — even with extra payments — you may not want to wait to get your money into the market and working for you. Due to compound interest, your brokerage account balance can grow a lot bigger if you invest early because your returns will start earning returns that can be reinvested. The more time you give compounding to work, the easier it is to build wealth.

What investment opportunities are available to you?

Finally, think about what investment options you have. For example, if you have the ability to invest in a workplace 401(k) that offers an employer matching contribution, you should focus on maxing out that match as soon as you’ve made your minimum debt payments. Your employer’s contribution is free money that could provide up to a 100% ROI if you get a dollar-for-dollar match. It is not worth passing this up to pay off debt early.

By considering these issues, you can decide whether to invest while you’re still in debt or whether eliminating creditors from your life should be your primary priority.

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If you wait to start investing, it becomes a lot more difficult to accomplish your financial goals. Find out why it’s so important to start early. 

If you want to build wealth and have a high net worth, you are going to need to invest some money. It’s really hard to amass a substantial sum if you aren’t earning generous returns on your investment, so opening a brokerage account and buying stocks is crucial. You simply can’t earn the returns you need if you just stash your money in a savings account.

It can sometimes feel impossible to find spare cash to invest, though — so you may be tempted to put it off until later. Unfortunately, that can have dire consequences. In fact, here’s what happens if you wait a decade to start investing.

Waiting a decade can cost you much more than you think

Putting off investing for 10 years can make your life a lot harder going forward because you will have less time to take advantage of compound growth. This means you’re going to have to invest a lot more money to end up in the same place.

As soon as you begin investing, your money will (ideally) begin earning returns. Those returns can be used to buy more investments — without you having to put extra money in. Your account balance grows with no extra effort from you. And the returns you reinvested earn returns too, so you can earn even more money than you did before thanks to the fact your account balance is bigger.

When your invested returns earn more money for you, this is called compound growth. And the more time you have for compound growth to help your balance grow, the better off you’ll be. Say, for example, you start investing at age 30 and put aside $250 a month. Assuming a 10% average annual return, at age 65, you’ll have $813,101.21. But if you started at age 40 and put aside the same amount and earned the same returns, you would only end up with $295,052.01.

From age 30 to age 40, you would have invested a total of $30,000. But, your account balance would have ended up with $518,049 less in it because you’d have lost that decade of compound growth.

Putting off investing for a decade can cost you more than half a million dollars. Can you afford to give up that much money for your future?

Here’s how to start investing money now

As you can see, waiting a decade to start investing comes at an astronomical cost — and one you should not pay. Even if you can’t invest $250 a month right now, and even if you are older than age 30, you should still start investing today so you don’t give up any more opportunities for compound growth to begin working for you.

To get started investing, make a budget that prioritizes paying yourself first. Ideally, you’d want to invest at least 10% to 15% of your income, but if that seems infeasible, start with 2% or 3%. Work that into your budget first as a must-pay bill and then plan your other spending around it. Once you get used to that, inch up your investments by 1% every few months until you find you simply can’t do it any more.

Even if you have to start small, don’t lose a decade of wealth building. Get started today. As you can see, it will have a huge impact on your future.

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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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Having a bank with local branches can allow you access to a safe deposit box, notary, and other customer perks. Find out more. 

There are many benefits to using an online bank. In fact, I’ve opted to use one myself. Online banks often charge fewer fees than traditional brick-and-mortar banks, which makes them an especially attractive option for people who don’t want to pay their financial institution just for the privilege of being a customer.

But, while choosing an online bank for your checking or savings accounts can make sense in some situations, it’s not right for everyone. In fact, there are three big reasons why some people may be better off with a bank that has local branches. Here’s what they are.

1. You can use a safe deposit box at the bank

Safe deposit boxes provide a great place to keep valuables. You could keep jewelry in one, or a coin collection, or important papers such as your last will and testament. Having this dedicated box at a bank can make it easier to ensure the things that matter the most to you are protected. It can also make it easier for your family to find and collect your valuables (and key documents, like a will) should something happen to you.

With many banks, you can open a safe deposit box as long as you’re willing to pay for it — even if you are not a regular customer of the bank. But, at banks with limited safe deposit boxes, access may be restricted to customers. If you want a box at one of those banks, you’d need a local account.

It can also be more convenient to manage your safe deposit box at a financial institution where you have other relationships as well.

2. You could get access to other customer benefits, such as a notary

Aside from a safe deposit box, a local bank branch can provide some other great benefits to customers. For example, I’ve been able to get papers notarized for free at my bank. I’ve called a few times in the morning when papers unexpectedly needed to be signed quickly, and the bank has always been able to get me that same day to get a notary’s stamp on them.

Other benefits include the ability to get a certified or cashier’s check by visiting your local branch — which you may need for certain transactions such as buying a house or a car. You can pop into your local bank to get these checks but only if you have a branch to go to. Otherwise, your online bank may not offer these options or it may take time for you to get your cashier’s or certified check sent to you by mail.

If you have a transaction that requires you to have one of these types of checks, being able to quickly pick one up could make life a lot easier.

3. In-person customer service can sometimes come in handy

Finally, there may be times when you have questions or need assistance that it is just easier to get in person. If you can visit a branch and meet with someone face-to-face, that can be much simpler — and sometimes much more likely to lead to a resolution to your issues — than calling a faceless customer service person.

When deciding whether to bank online or in person, be sure to consider these upsides of banks with local branches before deciding what is right for you

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Even seasoned Costco shoppers make mistakes. Read on to see which ones this writer has fallen victim to. 

I’ve been a Costco member for over 15 years. And while I’d like to think I’ve mastered the art of Costco shopping at this point, I’ve certainly made some mistakes along the way. Here are a few I’ll own up to that you may want to avoid.

1. Buying the wrong membership

Before my husband and I had kids, we stuck to a basic Costco membership instead of springing for an upgraded Executive one. This seemed like a prudent choice since we were a smaller household and didn’t spend nearly as much money on groceries as we do now.

But actually, not upgrading earlier on was a mistake. First of all, back then, my husband and I made our fair share of Costco purchases that weren’t groceries or household essentials. And those would’ve been eligible for the 2% cash back on Costco purchases you get with an Executive membership. With a basic membership, there’s no cash back on your purchases from Costco itself — though you may be eligible for cash back from your credit card.

Also, Costco’s Executive membership is basically risk-free, because if you decide to downgrade to a basic one and you haven’t racked up enough cash back to cover the cost of its higher annual fee, Costco will refund you the difference. Right now, a basic Costco membership costs $60, versus $120 for an Executive membership. But let’s say you only earn $50 from your Executive membership over a year. If you choose to downgrade, Costco will give you $10 back to make you whole.

2. Avoiding Kirkland products

When I first started shopping at Costco, I’d intentionally avoid Kirkland products because I assumed they were inferior. I quickly learned that not only is that not the case, but often, Kirkland products are actually made by the same companies many of us are already familiar with.

Now I have no idea how much money being a brand snob cost me back in the day. These days, however, I buy plenty of Kirkland products and find that it results in a nice amount of savings.

3. Purchasing bulk grocery items without consulting my family

I often buy products at Costco that I expect to share with my family. But sometimes, I’ll make the mistake of purchasing new food items without having my picky children do a taste test first. And you can probably see where this is going.

I’ve thrown out a fair amount of food through the years by virtue of assuming that my kids will eat a given item when, in fact, they insist that it’s terrible. And if you’re wondering why, in those cases, I couldn’t just consume all of that food myself, try eating 500 multigrain crackers in a three-week period, and you’ll have your answer. (That, I find, is a reasonable shelf life once you’ve opened the package.)

I’ve learned to remedy this, however, by dragging my kids to Costco on occasion and having them sample new grocery arrivals at the store. Granted, this method isn’t fool-proof, because sometimes they’ll love something in sample form only to declare it unacceptable when I put it on the table a week later at home. But in many cases, having my kids give their seal of approval has helped me avoid Costco food waste.

4. Shopping while hungry

Shopping when you’re hungry can be a bad idea in general. And at a store like Costco, where there’s often a new snack item to be scooped up in bulk, it can be downright dangerous. And it’s definitely led me to make my share of impulse purchases.

As such, I try to make a point to visit Costco when I’m not utterly ravenous. And if I’m really hungry, that’s what the food court frozen yogurt is for.

I can admit that to this day, I still have a habit of buying food items at Costco on a whim — especially when it comes to the bakery department (darn you, delicious cakes). But for the most part, I’ve managed to steer clear these other blunders, and that’s helped me save money and avoid aggravation.

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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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People with perfect credit share several financial habits. Learn about one surprising way they manage credit differently than everyone else. 

A high credit score is important, and most people do well in this regard. Research by The Motley Fool Ascent found that the average credit score is 714, which is considered good credit. A perfect credit score of 850, on the other hand, is extremely rare. Only 1.31% of Americans with a FICO® Score have reached the 850 mark.

Your credit score all depends on your financial habits and how you manage credit. So, it makes sense that Americans with perfect credit do a few things differently than most others. If you’re looking for ways to improve your credit score, then following the same financial habits could help.

Some of these things are what you’d expect. People with perfect credit tend to always pay on time, and they also carry lower balances on average. But there’s also one financial habit that most of us probably wouldn’t guess.

Here’s the surprising habit of Americans with perfect credit

Americans with perfect credit tend to have more credit cards. They have an average of 5.9 credit cards, compared to 3.9 credit cards for the average person.

This may seem completely upside down, especially if you ever heard the myth that having too many credit cards is bad for your credit. Your number of credit cards actually isn’t a factor used in calculating your credit score, so it doesn’t help or hurt your score. However, it does influence one of the biggest scoring criteria — your credit utilization ratio.

Your credit utilization refers to how much of your credit you use. Every month, your credit card issuer reports your card’s current balance and credit limit. For example, if your card has a $1,000 balance and a $5,000 limit, your credit utilization is 20%. It’s recommended that you keep your credit utilization below 30%.

When you have more credit cards, you have more credit limits. That helps keep your credit utilization lower. For example, if you have $5,000 in balances and $10,000 in credit limits, your utilization is 50%. If you have the same balances and $20,000 in credit limits, your utilization is 25%.

You don’t need lots of credit cards to have a high credit score

With survey data, it’s always good to remember that correlation is not causation. Americans with perfect credit tend to have more credit cards. That doesn’t mean they have perfect credit because they have more credit cards.

It might even be the opposite. They could have more credit cards because they have exceptional credit, meaning their applications are more likely to be approved. They may also be more knowledgeable about credit, including the benefits that the best credit cards can offer, and apply for more cards because of that.

Their high credit scores probably come from their other financial habits. Here are the two most important credit habits they follow that do have a clear impact:

They pay on time. Americans with perfect credit typically have no delinquent payments on their credit history, compared to 1.8 for the average American. Payment history is the biggest factor in your credit, and just one late payment can take over 100 points off your score.They have lower credit card balances. They have an average balance of $2,558, compared to $5,221 for all consumers. Credit utilization is the next biggest credit scoring criteria, and by carrying low balances, Americans with perfect credit maintain low credit utilization.

As mentioned, having more credit cards can help with your credit utilization. It’s not necessary, though. You can keep your utilization low whether you have one credit card or a half-dozen.

Get as many credit cards as you feel comfortable using. Just make sure to keep your credit utilization low, no matter how many cards you have, and always make your payments on time.

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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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