Money Management

Pet insurance can’t take the place of having money in savings for emergencies. Read on to see why. 

Not so long ago, my friend’s dog needed kidney stone surgery, and not shockingly, it was a multi-thousand dollar procedure. Thankfully, my friend had pet insurance that would cover the bulk of that expense. And since her dog is fairly young, doing the surgery was really an easy call.

The problem, though, was that my friend still had to charge that procedure on her credit card and carry the balance forward for a bit of time, all the while racking up interest. This annoyed her immensely since she had pet insurance and the expense at hand was a covered one. But because her pet insurance company took its time to process her claim and reimburse her, she wound up losing money to interest charges.

You need savings even if you have pet insurance

With human health insurance, what’ll often happen is you’ll present your insurance card at the time of a service or procedure, and the provider will bill your insurer from the start, leaving you to only be liable for a copay. Pet insurance often doesn’t work like that.

Instead, with pet insurance, you’ll commonly have to cover the cost of your pet’s care yourself, submit a claim, and then wait for it to get approved or not. Once approved, your insurer should issue you a check for the amount your policy allows for given your pet’s procedure.

But at the end of the day, you’re still shelling out that money upfront. And if your pet insurance company drags its feet on the approval process, you could end up waiting quite a while to get paid.

That’s what happened to my friend. She submitted a claim to her pet insurance company right after her dog’s procedure. But her credit card bill came due before her insurance company had so much as approved her claim. Since she didn’t have the money in her savings account to pay her credit card bill in full, she racked up some interest on it.

Thankfully, it wasn’t a catastrophic amount of interest, since she got reimbursed shortly thereafter and was then able to pay off her balance in full. But it irked her to rack up any amount of interest in that situation, and understandably so. And if you don’t want to land in the same boat, make sure you have some money set aside for pet care costs — even if you have a comprehensive pet insurance policy.

Don’t risk debt

Carrying a credit card balance forward for a month or so may not seem like such a big deal. But every dollar you waste on credit card interest is a dollar you don’t have for something else, whether it’s food, utilities, or treats for your dog.

Recent data by Lemonade found that 70% of pet owners don’t have any savings for a pet care emergency. If that’s the boat you’re in, sock money away in the bank in case your pet winds up needing surgery that you need to pay for. That could help bridge the gap until your insurance company reimburses you.

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A large real estate investor is selling 2,000 homes it recently bought. Read on to find out why potential home buyers don’t have to exit the housing market. 

Institutional real estate investors are backing away from the residential real estate market. Bloomberg recently reported that Starwood Capital, which owns a large real estate investment trust (REIT), is selling 2,000 of its single-family rentals. The company had only bought the homes two years ago.

And earlier this year, John Burns Research and Consulting found that institutional investors bought 90% fewer homes in the first two months of 2023 than in the same period last year.

Over the past couple of years, rising interest rates have made it more expensive for institutional real estate investors to make money from some homes. But even as some institutional investors shun the housing market right now, that doesn’t necessarily mean you should.

Buying a home is a personal decision

With current mortgage interest rates at about 6.9%, sales of existing homes fell 20% in May, according to data from the National Association of Realtors.

While it’s more expensive to buy a house right now compared to just a couple of years ago, the decision is not just financial; it’s also personal. More than one-fifth of home buyers say the desire to own their own home is the primary reason why they want to buy.

So while institutional investors may be backing away from the housing market, that doesn’t mean you should as well. There are many reasons why someone may want to buy a home, even when interest rates are elevated. For example, you may want a bigger house to grow your family, or you may be retiring soon and want to downsize to a smaller home.

Only you can know when it’s the right time to buy a home. Just make sure you’re well-prepared for the process.

How to prepare yourself for buying a home

If you’re just starting the home-buying process, set aside money for a down payment. Ideally, you want to put down 20% of the home’s price to avoid paying private mortgage insurance (PMI). You can still get a loan with less than 20% down, but you may pay a higher interest rate.

It’s also good to check your credit score and get a free credit report. Knowing your credit score will help you know which loans you qualify for and what interest rate you can expect. Also, combing through your credit report will allow you to dispute any inaccurate information you may find.

Another important step toward buying a home is to find the best mortgage lender. Not all lenders will offer you the same interest rate or the same mortgage terms, so it’s important to shop around. Some lenders charge more fees than others, while some have faster loan approval times. Even qualifying requirements between lenders can vary.

Taking the time before you begin looking for a home to find the best lender could make your home-buying process much easier and help you avoid any surprises once you’ve found the home you want to buy.

Remember, only you can decide when it’s the right time to buy a house. But if you follow these few simple steps first, you’ll be much more prepared to do so when the time comes.

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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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It’s good to make money on investments, but you don’t want a tax nightmare to ensue. Read on to see how to avoid one. 

When you sell investments at a profit in an IRA, it doesn’t impact that year’s tax bill. That’s because IRAs let you enjoy tax-deferred gains on your investments. (And with a Roth IRA, your gains are actually tax-free.) But when you sell investments at a profit in a taxable brokerage account, capital gains taxes come into play immediately.

This doesn’t mean you’ll have to pay the IRS the day you sell stocks at a profit. But if you sell a stock in July and earn $500 in the process, that $500 gain is taxable in 2023, and it’s something your tax return will have to account for.

That’s why if you’re looking at selling investments at a gain, it’s a good idea to do what you can to avoid a major tax crunch. Here are two moves you can make to soften the blow.

1. Hold investments for at least a year and a day

Capital gains taxes are broken down into two categories — short term and long term. Short-term gains apply when you sell an investment at a profit after holding it for a year or less. Long-term gains come into play when you’ve held an investment for at least a year plus one day prior to selling it.

Why does this matter? It’s simple — you’ll face a much larger tax hit for short-term capital gains than long-term gains. So it’s important to be mindful of your timing when selling a stock at a profit.

Let’s say you’ve held a given stock for 11.5 months and you’re looking to sell it for a $1,000 gain. If you’re single and earning $50,000 a year, that means you’ll be looking at a tax rate of 22% on your profit. So all told, the IRS will get $220 from that sale. Again, this doesn’t mean you have to pay the IRS $220 the day you make that sale, but it’ll add to your tax burden for the year.

On the other hand, let’s say you hold that stock a little more than two additional weeks and you end up bumping yourself into the long-term capital gains category. In that case, your tax rate on your profit is only 15%, so you’re only talking about owing the IRS $150.

2. Sell stocks at a loss to offset gains

There may be stocks in your portfolio that have been steadily losing money since you bought them. If you don’t think those stocks will eventually recover, then it could pay to sell them at a loss if you know you have capital gains on your hands. Any loss in your portfolio could help you offset gains.

So as an example, if you sell one stock at a gain and make $1,000 in the process, and you sell another stock at an $800 loss, you’re only up $200. And so the IRS can only tax you on $200.

It’s a good thing to make money on your investments. But it’s also a good thing to hand the IRS as little money as possible. So it pays to make these moves if there’s a winning stock you’re sitting on that you know will result in a nice profit.

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It’s possible to have too much money in your savings account. Find out why this is an issue and learn exactly how much you should have in your savings. 

A savings account is a good place to put money you don’t need right away, but will in the future. To ensure you have enough money in your savings, it’s best to get into the habit of adding to it every month.

However, as strange as it may sound, it is possible to overdo it. Just like you can run into issues if you don’t have enough money in your savings account, there are also consequences to having too much in savings. Fortunately, it’s fairly easy to figure out how much money you should have saved.

Here’s how much money you should have in your savings account

Your savings account should have your emergency fund and money for upcoming expenses. The exact amount will depend on how large of an emergency fund you want and the expenses you have on the horizon.

The traditional recommendation on emergency funds is to save enough to cover three to six months of living expenses. If your essential living expenses are $4,000 per month, then aim for $12,000 to $24,000. You can save more if you want. Some experts recommend having as much as a 12-month emergency fund. Saving less than three months of expenses isn’t recommended, because it may not be enough in an emergency.

Upcoming expenses include anything that falls outside of your everyday spending. Here are some common examples:

Down payment on a home or vehicleVehicle maintenanceTraveling/going on vacationHoliday gifts for family and friendsA wedding

Tip: Consider setting up sub-savings accounts for each savings goal you have. Many bank accounts let you create separate sub-accounts that are all part of your savings account. You could create sub-accounts and name them “Emergency fund,” “Travel fund,” “Home down payment,” and so on.

Why you shouldn’t save too much

The consequences of not saving enough are well documented. You may not have enough money for big expenses, which means you need to go into debt to pay for them. But why is it an issue to have too much money in your savings?

The problem here is that you could be investing that extra money and getting a much higher return. Some of the best savings accounts earn APYs of 4% or higher right now, which is very good. But the average stock market return is about 10% (before inflation) per year going back decades.

Imagine that you have $25,000 more in your savings than you really need there. Over the next 20 years, it earns an average of 3% per year. That’s less than current savings account rates, but rates change. A few years ago, even high-yield savings accounts were earning less than 1%.

After 20 years at a 3% APY, your $25,000 would be worth $45,519. Now, let’s say you had invested it instead and gotten a return of 8% per year. That’s reasonable, based on historical averages. After 20 years, your $25,000 would be worth $123,070 — a difference of $77,551!

An example of how to set up your savings

To put it all together, we can go over an example of how to figure out the amount you need in your savings. Let’s say that:

Your living expenses cost $4,000 per month, and you want a six-month emergency fund. Target: $24,000You plan to buy a $350,000 home and put at least 10% down. Target: $35,000You want to go on two weeks of vacation per year and expect to spend about $250 per day. Target: $3,500You spend about $1,500 per year on vehicle maintenance and registration fees. Target: $1,500You spend about $1,000 per year on holiday gifts. Target: $1,000

Based on those goals and expenses, you would need $65,000 total in your savings account. If you wanted to keep things more organized, you could follow that tip above about setting up sub-savings accounts. That way, you can track how much you have for each goal separately.

If you haven’t hit your savings goals yet, transfer what you can to your savings each month until you do. Once you’ve reached your goals, you’ll be better prepared for major expenses.

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AI could automate 300 million jobs, but some people think it’ll create more positions than it will eliminate. Read on to find out how AI is impacting workers. 

Airbnb CEO Brian Chesky thinks artificial intelligence (AI) software, like the popular chatbot ChatGPT, will help entrepreneurs start businesses. Chesky said last month on the “This Week in Startups” podcast, “I think this is going to create millions of startups … entrepreneurship is going to be a boon.”

Chesky said that some people are worried about AI taking their jobs, but he added, “You only have to be worried if you don’t want to be a part of it because this is a creative tool for you.”

But while he’s optimistic that AI will be mostly good for workers, the results are mixed.

AI could both help and hurt workers

Chesky said that while it’s easy to think of all the ways AI could eliminate jobs, it’s harder to come up with a list of new jobs because we can’t yet conceive of everything AI can do. “But if we remember that at all other periods in history, technology created jobs that didn’t exist. This can do that too.”

He’s not entirely wrong to be optimistic. A recent Stanford and MIT study showed that workers who used AI in their jobs increased their productivity by 14% on average. The study also indicated that customer satisfaction and employee retention were higher when AI was involved.

AI could also create a lot of economic value. According to a recent Goldman Sachs report, an AI-powered increase in productivity could create $7 trillion in additional gross domestic product (GDP) over a 10-year period.

But this doesn’t mean everyone should be optimistic about AI. The same Goldman Sachs report also said 300 million full-time jobs are at risk of being fully automated. In the U.S. alone, two-thirds of jobs are exposed to some degree of automation.

Additionally, recent articles from the BBC and The Washington Post gave examples of copywriting and marketing jobs disappearing because of AI chatbots. Some people had to change careers entirely, with one writer becoming a dog walker and the other repairing air conditioners.

But it’s not just writers that are feeling the effects of AI. A recent report from the outplacement firm Challenger, Gray & Christmas found that 5% of May’s layoffs were due to artificial intelligence. The losses all came from the technology industry, and the report’s authors said they were surprised at how quickly AI contributed to the layoffs.

It’s too early to tell what will happen with AI and jobs

It’s still unclear to what extent artificial intelligence will impact jobs. But it’s already apparent that some workers may have to adapt to AI’s influence faster than others. For workers who have their own side hustle or small business focused on making creative content, AI may affect your work sooner rather than later.

As Chesky noted on the podcast, AI will be both “awesome for many people” and “wildly disruptive for others.”

If AI could take away your job, it may be worth asking yourself what you’d be interested in doing if that happens one day and making some preparations now. That may mean exploring new side projects to boost your checking account balance. Or, it may mean coming up with a plan to earn passive income.

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My property tax bill is extremely high. Here’s why it is so important to take taxes into account when buying a home. 

Like most people, I have a monthly mortgage to pay for my home. But, my mortgage isn’t actually the biggest cost of owning my own place. There’s something even more expensive that I am responsible for covering out of my checking account — and it’s an expense I’ll never be able to get rid of, unlike my mortgage payment.

This homeownership expense is a bigger burden than my mortgage

Real estate taxes are the expense that costs me more each month than my mortgage loan payments. Unfortunately, in the area where I live, real estate taxes are pretty high. We actually have to pay two separate tax bills. We have to pay our property taxes to the county where we live, and we also have to pay our school taxes on top of that.

Together, the school taxes and the real estate taxes that we owe on our home collectively add up to thousands of dollars. And, we pay this separately from our monthly mortgage payment, which covers only principal and interest. While many people pay property taxes and insurance as a part of their payment to their mortgage lender (with the money going into an escrow account), my husband and I opted out of that. Instead, we just write a check for our taxes and insurance when they come due.

Because we separately write our property tax check, it’s easy to compare that to how much our mortgage payment is just for our loan. And since we took out a relatively small mortgage and made a large down payment on our house, our property tax bill ends up being bigger than what we spend on our home loan.

Our property taxes are also going to be with us for as long as we own the home. Even after our mortgage has been paid off, we are still going to owe school taxes and county taxes — and likely a lot more than we do now, as our tax bills have gone up every year since we moved in over a decade ago.

Don’t forget to take property taxes into account when buying a home of your own

The reality is, property taxes are a fact of life nationwide — although they cost more in some locations than they do in others. And, anyone who is buying a home needs to think about the impact of these property taxes on their home affordability.

Your mortgage lender may require you to include them in your mortgage payment, but even if that’s not the case, you should figure out how much you must save each month to meet your annual tax obligation. Make sure this amount of money is added together with your loan payment when you determine if your house is going to be affordable or not.

Ideally, your total monthly home expenses including those property taxes shouldn’t exceed 25% of your income. And, remember, you’re going to have to pay these taxes for the rest of your time in the home, which could be harder to pay later in life after you retire. So take the time to think about whether your property tax bill is going to be affordable over the long term. If not, you may want to choose a house in an area with lower taxes so they won’t become a huge financial burden down the road.

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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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