Money Management

You work hard for your money. Keep reading for ways to ensure that a fun purchase is still a wise one. 

Money is a useful tool, and it can improve your life in a variety of ways. Some of these are practical — you can invest for your retirement, buy yourself a home, or save money for a rainy day. But if all you do is work, save, and pay your bills, you’re not really having any fun with your money.

Treating yourself is important! To quote Thando and Lindie from Skilled Finances, “Treating yourself should still be a priority even when on a tight budget. Treats, whether big or small, can help with feeling like you don’t work to only pay bills, improve your relationship with money, and help with your overall well-being.”

The good news is that there are steps you can take to ensure your next “frivolous” purchase doesn’t break the bank, even if it’s a costly one. Here’s how.

1. Sleep on the purchase

I’ve shelled out money on larger buys a few times recently. I replaced my very-old-but-still-sort-of-functional washing machine with a new energy-efficient and water-saving model. And I upgraded an older Apple iPad that I use for both fun and work purposes. Deciding to buy each of these items (at a cost of about $1,700 total) was not a snap decision.

Instead, I thought about how I was going to pay for them, whether it made sense to purchase them, and how doing so would improve my life. It’s one thing to spend $50 or $100 on a whim (if you can afford to, that is) — but I’m not willing to spend more than that without thinking about it more deeply and evaluating the impact on my personal finances.

2. Shop around

Once you’ve really thought about a big purchase, now it’s time to figure out the particulars, including where you’ll buy the item and how much you’re going to pay for it. That’s right, it’s time to shop around! Looking at prices from different retailers is an excellent way to save money on a purchase of any kind.

I decided to buy my washing machine from big-box hardware store Lowe’s, because it had a good price on the model I wanted and would deliver my new washer and haul away the old. Plus, there’s a store location in my city, so I could look at washers in person before buying. And I looked at iPad prices online at Apple, Amazon, and Best Buy before settling on Best Buy, both for price and because of payment method (more on that below).

In addition to looking for sales and deals, if you like to use cash back apps, it’s also worth checking to see if you can earn money back by purchasing your item from a specific retailer. You might need to activate an offer or scan your receipt after the purchase.

3. Use the right payment method

Finally, once you’ve decided what to buy and where to buy it, you can make it an even better purchase by carefully weighing your payment options. Sure, you could use your debit card, but you’d be missing out on purchase protections and the chance to earn rewards or other perks. And if you’re shopping online, I definitely don’t recommend using debit anyway.

In the case of both the washing machine and the iPad, I opted to use retailer-specific credit cards that gave me a period of 0% APR to pay off my purchases, rather than those that offered points or cash back. Why? Well, I have many opportunities to earn rewards and cash back on my regular spending, but fewer ones to get 0% APR. And since I used retailer-specific credit cards, I also got to keep those credit card accounts active.

If you go a long time without using a credit card, you may find that the issuer closes your account, which can cause a credit score hit. A credit card account closure can impact your average length of credit history, as well as increase your credit utilization ratio, as you’ll have less available credit. So I like to use my store cards for the occasional big purchase, as these ones usually offer 0% APR and I can keep my credit score up. Store credit cards aren’t always the best ones out there, incidentally, but I get enough use out of these two (and neither of them has an annual fee) to make them a valuable part of my credit card collection.

Your mileage may vary. If you’re planning a vacation, for example, and making a big purchase with your favorite travel rewards credit card will earn you points toward a free flight, use that card. The point is to evaluate all your payment options and go with the one that makes the most sense for your budget and finances.

It’s absolutely fine to spend your money in ways that improve your life and let you have more fun. But make the above moves to ensure you don’t spend more than necessary in the process.

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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. The Motley Fool has positions in and recommends Amazon.com, Apple, and Best Buy. The Motley Fool has a disclosure policy.

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There’s good news for 529 plan owners. Read on to see what’s changing. 

If your goal is to save up enough money to put your kids through college, then opening a 529 plan is worth looking into. Unlike a regular brokerage account, where you pay taxes on investment gains year after year, gains in a 529 plan are yours to enjoy tax-free, as are withdrawals, provided that money is spent on qualified education expenses.

And those expenses aren’t limited to college. You can take a 529 plan withdrawal to pay for private school for your fifth grader should you so choose. However, these plans are commonly referred to as college savings plans because many parents open them for that express purpose.

But there’s a risk in saving in a 529 plan, and it’s ending up with excess funds. Granted, it can be argued that this is a very good problem to have. But it’s also a problem that could prove costly.

If you take a 529 plan withdrawal for non-education purposes, you’ll be penalized 10% on the gains portion of that sum. You won’t be penalized on the principal portion, though, because 529 plans are funded with after-tax dollars. Non-educational withdrawals from a 529 plan are also subject to taxes.

But beginning in 2024, the rules here are changing for the better. Starting next year, you’ll have more options for putting untapped funds in a 529 to good use.

When you have an overage on your hands

Given the ever-rising cost of college, it’s natural for parents to aggressively fund their 529 plans. But what if one of your children goes rogue and decides college isn’t for them at all?

Suddenly, you have a balance you need to get very creative about using up to avoid penalties. And while you can always switch beneficiaries within a 529 plan, that won’t necessarily solve your problem.

Say your oldest child opts out of college but you have enough money in your younger child’s 529 plan to pay for their college completely. That still leaves you in a bind with regard to your older child’s balance.

Beginning in 2024, however, you’ll have the option to roll unused 529 plan funds into a Roth IRA for that 529’s designated beneficiary. There are, however, some rules you’ll need to follow.

You can only roll whatever amount represents the annual limit for IRA contributions. This year, that limit is $6,500 for savers under 50. As that limit rises, you should expect to be able to roll a higher amount from a 529 to a Roth IRA per year.Those Roth IRA rollovers are subject to a lifetime limit of $35,000 per beneficiary. So if you’re stuck with $60,000 in a 529 that your child doesn’t want to use for education, you’ll still need a plan for your remaining $25,000.Your 529 plan must be open for at least 15 years before you roll unused funds into a Roth IRA. And 529 plan contributions made within the past five years can’t be rolled over.

A positive change

Many parents work really hard to build up nice balances in their 529 plans. If you end up with an overage on your hands, the last thing you deserve is a world of stress because of it. Starting in 2024, you have more options for putting that money to good use, which makes funding a 529 plan a less risky proposition.

That said, at some point when your kids reach their mid-teens, it’s a good idea to have a conversation about college and make sure you’re on the same page. You don’t want to keep funding a 529 plan when your 16-year-old insists they’d rather start a business right out of high school than pursue a degree.

And also, your kids may be on board with doing two years of community college before heading to a four-year school, resulting in a lower higher education tab on a whole. So the sooner you have these discussions, the less likely you might be to end up with an overage in your 529 in the first place.

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It’s important to save for retirement. Read on for ways to prioritize your savings as a small business owner. 

Owning a small business isn’t an easy thing, and there can be lots of pressure to have a handle on every single aspect of your venture, from inventory to payroll to accounts payable and receivable. But while you may be dedicated to your company’s success, you might get so caught up in it that you let your own long-term financial security fall by the wayside.

A recent study by Lincoln Financial Group found that 65% of small business owners are worried about not having adequate income during retirement. If you share that concern, here are a couple of important things to do.

1. Make sure to pay yourself a reasonable wage

The more of a salary you take as a small business owner, the less money you have to reinvest in the business itself. But if you don’t take an adequate cut of the profits, you might struggle to meet your own savings goals.

So comb through your banking records and see what salary you can afford to pay yourself based on how your company is doing. And remember, think about your own need for a raise the same way you would if an employee were to ask for one. Just as you might try your hardest to say yes in that situation, know that it’s okay to say yes to yourself.

2. Explore your retirement savings plans options

If you own a small business, sponsoring a 401(k) plan may not be so cost-effective. But there are certain plans you can explore that are designed specifically for small business owners.

One option is a SEP IRA, or Simplified Employee Pension. It’s a tax-advantaged savings plan that has you contributing funds to your own savings as well as your employees’ retirement accounts (you have to contribute the same amount of money, percentage-wise, for all employees so if you’re putting in 10% of your salary, you put in 10% of your workers’ salary to their accounts). The maximum you can contribute this year is $66,000, but contributions go in tax-free, yielding you some savings.

Another option you can look at is a SIMPLE IRA, or Savings Incentive Match Plan for Employees. You can either contribute a flat 2% of employee salaries, or match contributions of up to 3% of your employees’ salaries. The maximum amount you can contribute is $15,500 if you’re under 50, or $19,000 if you’re 50 or older. And like SEP IRAs, your contributions here are tax-free as well.

Don’t sell your retirement short

Running a business takes a lot of work. And after years of that, the last thing you deserve is to struggle financially during retirement. So as hesitant as you may be to take a higher salary than what you’re currently paying yourself, doing so could spell the difference between being able to save for your future or not.

At the same time, explore your savings plans options to see which ones make the most sense for you and your business. Chances are, it’s not just you who’s worried about having enough income in retirement. Your employees might share that very concern. So if you’re able to offer a retirement savings plan that benefits everyone, that could be a good way to retain key employees for many years and help ensure that your business has continued success.

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Taking time off work is important, but being able to avoid debt is too. Read on to learn how some people are using their PTO as an income source. 

I’m a firm believer in taking time off work, even though I sometimes struggle to unplug now that I’m a freelancer and no longer get paid time off, better known as PTO. It takes a bit more planning and legwork for me to take time off now, including working more before and after a vacation, so I don’t miss needed income.

But back when I was a salaried employee, I absolutely used as much of my PTO as I possibly could. After all, if you have a W-2 job, vacation time is part of your compensation package, and taking time off to rest and recharge (or travel) will make you a happier and healthier person and a better worker.

Unfortunately, a lot of Americans struggle with actually using PTO for its intended purpose. The U.S. Travel Association found that 780 million vacation days went unused in 2018. Since the COVID-19 pandemic canceled many people’s planned time away, a few companies have stepped in to help them maximize this compensation in other ways. But is it a good idea to use PTO for anything other than a much-needed rest?

Vacation time as loan collateral

A tiny financial services company in Minnesota is letting people use PTO for a unique purpose. Leech Lake Financial Services, which serves the Leech Lake Band of Ojibwe, is in the unique position of being able to help Americans who have gone underserved by banks. As reported by the Star Tribune, LLFS has a program where personal loan borrowers can use their vacation time as collateral.

Generally, personal loans are unsecured, meaning that if you don’t repay the loan, the lender won’t have anything to take and sell to recoup its losses. As a result, to get the most favorable rate on a loan, you need to have a pretty strong credit score. Many of LLFS’ clients are new to credit building, and if you’ve got a lower credit score, having collateral for a secured loan can save you money on interest. As LLFS clients repay their loans, their PTO is returned to them.

Vacation time as a source of cash — or other financial assets

Your unused PTO might also translate to money. Wired reported on a few companies that specialize in working with businesses to help employees convert unused PTO into cash payments. In some cases, employees can have the money put into a retirement account, or use it for travel costs or repaying loans. Cash payments were preferred, however, based on findings from Sorbet, a startup that helps businesses manage these programs and offers them loans to cover cashed-out PTO payments to employees.

Is it a good idea?

I’m of two minds on this topic. On the one hand, if employees can sell PTO and use that money to improve their lives and potentially even stay out of debt as a result, I think it’s great. And the program that LLFS is spearheading to help unbanked people avoid predatory lenders by offering favorable loan terms with PTO as collateral is innovative and could do a world of good.

But on the other hand, taking time off is important. Overworked employees are at risk of burnout, and companies should be encouraging their staff members to use PTO for its intended purpose. Perhaps the best solution is to use this method to get extra cash if you have a big bill and no way to pay it other than taking on debt. And if you have a lot of PTO, you might consider cashing out some of it and putting the money into an emergency fund for future unplanned bills.

Getting money from your PTO could be a good way to jump start a healthy savings account balance for future financial needs and goals, but it’s important to remember how vital time off is to our well-being.

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When I hit a curb, my tailpipe was damaged and since it’s part of another piece, it ended up costing $1,000. Here are the key reasons I didn’t file a claim. 

When I was leaving for a trip with my husband a few weeks ago, I was talking to him and not paying attention and ended up backing my car into a very tall curb. Unfortunately, I did it pretty hard and my tailpipe bent.

When I took the car to the dealer, apparently the tailpipe was attached to some other car part (maybe the muffler, but I’m really not a car person and I paid limited attention so I don’t know for sure). The bottom line was, the whole doohickey had to be replaced and the bill would be just over $1,000 for parts and labor.

Despite the fact that this was a big expense and I had collision coverage, I opted to just pay the money out of my savings account. I did this rather than making an auto insurance claim for two key reasons.

1. My deductible meant I wouldn’t have ended up with any money anyway

The biggest reason why I decided not to make an insurance claim for the $1,000 in damage — despite having collision coverage — is that I have a $1,000 deductible on my auto insurance policy. This meant I would have had to pay $1,000 out of pocket before the insurer covered the rest of the tab.

With the total price for my repairs coming in at only a little bit over $1,000, I would have been making a claim with my insurer to receive reimbursement of less than $100. It wasn’t worth the paperwork, time, and effort to get such a small amount of money back from the insurance company.

2. I didn’t want a claim on my record that could cause my premiums to increase

There was also another important reason why I opted against making a claim with my insurance. If I made a claim, it would go on my record as an accident. And this could result in a substantial increase in auto insurance premiums.

In fact, in Florida where I live, the typical rate increase after a collision is about 40%. I was simply not willing to get stuck paying a huge amount of extra money on my auto insurance premiums for the foreseeable future — and losing access to good driver discounts — in order to get a small amount of money from my insurance company.

For both of these reasons, it simply did not make any financial sense for me to report the minor incident to my insurance company. Had the crash been more serious, or had there been other drivers involved, my choice would have been a different one. But, since that wasn’t the case, paying out of pocket for repairs was the right move.

Ultimately, the reality is, auto insurance provides coverage for crashes — even if the policyholder causes them — but it’s important to carefully consider whether making a claim is the best choice in every situation.

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I want to make sure I’m using the right credit cards, so I ask some key questions every year. Here’s how to know your credit cards match your spending. 

I have several credit cards I use regularly and keep in my wallet. But, despite the fact I generally like the cards, I don’t want to just get comfortable with them and stick with the same card issuer out of inertia.

To make sure I don’t get stuck in a rut with my cards, there are a few key questions I ask myself about them every year. Here’s what they are.

1. Does the card still justify any annual fee I’m paying?

The first and most important question I ask is whether the card’s benefits are still worth whatever annual fee I am paying — if any.

One of my cards has a hefty annual fee of $450, while another has a $99 fee. Several others do not charge annual fees at all.

I don’t want to pay a fee if the card is no longer offering enough benefits to make it worthwhile. So, each year, I will consider exactly how much the fee is, whether I got enough cardmember benefits the year prior to exceed that amount, and whether anything is changing in the coming year that would prevent me from taking advantage of those benefits.

For example, my card with the $450 fee is worth paying for because it provides me with lounge access, and I regularly fly and use the airline lounge. But, if I was going to stop flying for some reason, I would want to cancel the card since it would no longer be worth the annual cost.

2. Am I still excited about the rewards program and member benefits?

I will only use rewards cards because I want to get points, cash back, or miles for using my credit cards. I don’t want to earn rewards that I won’t redeem or that I am not excited about.

So, I look at each card’s rewards program carefully.

I check to see if I’ll still be able to earn bonus rewards with the kinds of spending I plan to do during the course of the year. So, for example, if I have a rewards card that provides bonus spending for gas purchases but I won’t be driving very much that year, that card may not be one I want to use regularly.

I also check to see what I can redeem rewards for. If I have to redeem them for airline miles but will be mostly taking road trips, then that card may be off the list.

3. Does the card offer any new features I’m not taking advantage of?

Finally, my last goal is to see if the card has introduced any new perks that I wasn’t previously aware of or taking advantage of. If I have a cardmember benefit, I don’t want to leave it on the table.

By asking these questions every year, I make sure I’m using the right cards for my needs, maximizing the rewards I can earn, and not paying an annual fee that doesn’t make sense to pay. It only takes a few minutes to go through my credit cards checklist and it’s well worth the effort.

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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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