Money Management

I have a taxable brokerage account for a few reasons, including that I want to invest more than I can put into tax-advantaged accounts. Find out more. 

I have many different kinds of financial accounts. One of those is a taxable brokerage account. It’s an account I opened at a discount online brokerage firm. Unlike many of my other accounts, there are no tax benefits to investing in it. But I still contribute money to it regularly.

Here’s why I’ve opened up a taxable brokerage account.

1. I’ve maxed out of my tax-advantaged accounts and still want to invest more

The biggest reason why I have a taxable brokerage account is because I have maxed out the contributions I am allowed to make to tax-advantaged accounts and I still want to contribute more money.

See, there are limits on how much you can contribute to accounts that come with tax breaks. In 2023, you can only contribute $6,500 in total to a traditional or Roth IRA or $7,500 if you’re 50 years old or over. If you have access to a workplace 401(k) (which I don’t), you can contribute a maximum of $22,500 or $30,000 if you’re 50 or over.

It’s worth maxing out these accounts first before investing in a taxable account if you’re saving for retirement since there’s no reason not to let the government subsidize your savings. But you don’t have to stop investing just because you hit the limits. Putting extra money into a taxable brokerage account can allow you to make even more of your money work for you.

Since I want to take advantage of compound growth as much as I can, I’m happy to put extra funds into a taxable account once I’ve finished making my investments in tax-advantaged accounts for the year.

2. I want an account that has fewer restrictions than tax-advantaged accounts

There’s another big reason why I have a taxable brokerage account: I want to be able to invest some money into an account that doesn’t have as many restrictions as tax-advantaged retirement accounts do.

In most cases, if you take money out of a 401(k) or IRA before age 59 1/2, you could owe penalties on the withdrawals you make. These penalties could be substantial. You are also required to begin taking required minimum distributions from many tax-advantaged accounts once you reach a certain age, which means the government tells you when to make withdrawals.

I may want to retire earlier than 59 1/2 and access some of my invested funds so I don’t have to live off my bank account alone. And I may have some money I want to just leave in a brokerage account to pass on to my kids, rather than being forced to withdraw money on a schedule that doesn’t work for me.

A taxable brokerage account gives me a place to invest money that comes with a ton more flexibility. Taking advantage of that simply makes sense for me.

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The good news is, anyone can open a taxable brokerage account — you don’t need an employer to do it for you. And there are many great online brokers that provide free accounts. So, if you’ve maxed out your tax-advantaged retirement plans, why not consider opening one of your own to put some of your money into so it can start working for you.

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A balance transfer can help you pay off credit card debt more easily but it could also come with problems. Here’s how. 

Balance transfer credit cards can be a really great financial tool. If you get a credit card offering a 0% APR on a transferred balance, you can move some of your debt over from cards that charge a much higher interest rate.

With the average credit card interest rate coming in at 20.09% as of February 2023, reducing your rate down to 0% could make a huge impact (even if you usually do get hit with around a 3% to 4% balance transfer fee when you move the money).

Unfortunately, balance transfers can sometimes backfire and end up making your financial life harder instead of helping you to succeed in becoming debt free. Here’s how that could happen.

1. You could end up charging up your other cards again

The single biggest risk of a balance transfer is that you free up credit on the cards you’re transferring the balance from. For example, say you have two cards with $2,500 balances. If you move the two $2,500 balances over to a new card, you now have a $5,000 balance on that new balance transfer card — and $5,000 in available credit on the two existing ones.

If you don’t have your spending under control, you could find yourself charging up the other cards again. If you ran up a $2,500 balance on both of those, you’d owe $10,000 instead of the original $5,000. That would leave you in a far worse position.

The key to avoiding this would be to make absolutely certain you trust yourself not to get deeper into credit card debt after your balance transfer is complete. If you are living on a budget, can keep your spending under control, and can swear off running up a new card balance, this won’t be an issue for you.

2. You may feel you’re making progress when you aren’t

There’s another pitfall to balance transfer cards. They can give you a false sense of accomplishment. Once you’ve paid off multiple cards with a balance transfer card and have just one debt — and one monthly payment — left, you may feel more free. But the reality is, you still owe the same amount you did before and haven’t made any real progress on paying off your debt.

There’s a risk of falling into the trap of just continuing to move debt around without ever actually becoming debt free. To make sure you don’t fall victim to this, you’d want a solid plan to pay off the transferred balance.

3. You could get hit with a higher rate when the 0% promotion expires

Finally, the last big concern is that you could find yourself paying a high rate when the 0% promotion ends.

If you pay only the minimum due on the card with a transferred balance, you would not make much progress and could find yourself owing a ton of money at the end of the 0% promotional period. The card will likely jump back up to somewhere around the typical interest rate for credit cards, so you’d be back to paying a lot of interest again.

To avoid this, figure out how much you must pay each month to pay off the card’s balance before the 0% period ends and try to pay at least that much every month.

The good news is, while there are ways a balance transfer can backfire, you can make sure that doesn’t happen by following these tips. If you’re confident you can do that, a balance transfer may just be a great debt payoff tool.

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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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A low appraisal could be problematic when you’re buying a home. Read on to see why. 

When you buy a home, there are certain hiccups you might encounter when closing on your mortgage. Let’s say you’re laid off before your mortgage loan is finalized. Your lender may not be willing to move forward with that loan if you can’t show proof of a steady income.

Another problem that might prevent your mortgage from going through is if the home you’re buying comes back with a low appraisal. It’s common for homes to undergo an appraisal before mortgages are finalized, and during this process, an appraiser will assign a value to the property you’re looking to purchase. If that number comes back low, your lender might pull your mortgage.

The reason? Mortgages are secured by the homes they’re used to finance. But a lender isn’t going to let you borrow $250,000 to purchase a home that only appraises for $220,000. In that case, if you were to fall behind on your mortgage payments, your lender wouldn’t be able to get repaid in full by selling the home in question.

Now in recent years, home values have been elevated. And as such, low appraisals haven’t been such a big problem. In fact, the National Association of Realtors says that as of October 2022, only 7% of home purchase contracts were delayed due to appraisal issues, and that was down from 10% a year prior.

But still, this doesn’t mean you won’t run into an issue with a low appraisal. So it’s important to know that you’ll generally have these options in that situation.

1. Ask for a second appraisal

An appraisal often represents one person’s calculations of a home’s value. If you feel that the appraisal your lender has gotten isn’t accurate, you can often request another one. But that’s something you might have to pay for yourself, or ask your seller to bear the cost of it. And there’s also no guarantee that a second appraisal will yield a different result.

2. Make up the difference with a higher down payment

Your lender is not going to write you a mortgage that’s higher than what the home you’re buying appraises for. But in that case, you should have the option to borrow less so your loan can go through.

Of course, this only works if you have the money to make a larger down payment. But let’s say the home you’re buying appraises for $220,000, and you’re able to put down $45,000. Your lender might agree to a $175,000 loan because if it had to, it could conceivably sell your home at a high-enough price to be repaid in full.

3. Renegotiate your home’s purchase price

If an appraisal says that the home you’re looking to buy is only worth a certain amount of money, not only might that compromise your mortgage, but you may not want to pay more than that amount. So another option is to go back to the seller and renegotiate the terms of your purchase. They might agree to lower their price.

If they don’t, and you can’t work things out, you may be able to walk away from the transaction without losing the earnest money deposit you put down when you made your offer. Many home purchase contracts have an appraisal contingency that allows you, as a buyer, to walk away if an appraisal comes back too low and the seller doesn’t come down on price to address that issue.

All told, a low appraisal has the potential to cause a mortgage to fall through. But that doesn’t mean you don’t have options. That said, think carefully about buying a home at a higher price than what it appraises for. In a seller’s market, this often becomes necessary, but it does mean running the risk of losing money should you decide to sell that home in the future.

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You should absolutely always choose to buy a home instead of renting one, right? Nope. Read on to learn a few situations when it’s better to rent. 

“Renting is throwing money away!” “When you rent, you’re just paying your landlord’s mortgage!” “Buying a house is the best investment!” Have you heard any of these sentiments before? I sure have. I’ve spent the bulk of my adult life as a renter (and most of my childhood, too, now that I think about it). And I’m here to tell you that there’s nothing wrong with renting a home rather than owning one.

Renting actually comes with some pretty good perks. Perhaps the biggest is the cost difference between renting and owning. As research from The Ascent found, in 2019, homeowners paid an average of $8,609 more than renters did. That’s definitely not a small amount of money, and surely would have made a nice addition to, say, an IRA account.

That said, I’m preparing to jump back onto the property ladder after renting for more than 10 years straight (and bouncing from state to state, and rental to rental). It has only been recently that I could even conceive of getting a mortgage loan and becoming a homeowner again, due to the circumstances of my life, my job, and my finances. Here are a few circumstances (including my own) under which you are absolutely better off renting.

1. You’re still in school

I was broke as a joke when I was a student, so I can’t really imagine the circumstances under which you might be able to afford to buy a home if you’re still in school. But if you think you can afford it, you should still think twice. Why? You’re in the process of figuring things out, and if you haven’t even graduated yet, you might not know where a future career will take you. In short, you have your entire life ahead of you, so why tie yourself down with a mortgage now? Take some time to evaluate your options after you graduate.

2. Your career requires you to relocate

This was me for all of my last career. I worked in a competitive field with far more qualified (and overqualified) jobseekers than jobs, and as a result, I criss-crossed the eastern half of the U.S. a few times in pursuit of paying work. I owned a home for a few years very early in that career, and it was a huge mistake for a few reasons.

The first was that I had no reason to live in that city beyond my job, and when I was laid off two years after moving into the house, I also had little hope of getting another job in my field that was in the same area. If you are in a career that has you constantly moving, don’t buy a home. Rent, and be glad for the flexibility.

3. You live paycheck to paycheck

This was the other reason I shouldn’t have bought my first house. After years of poverty when I was a college and graduate student, I was enjoying my salary and not putting any of it away. Thankfully, I was able to handle all my bills, but I never had much left over between paychecks.

When it came to getting a mortgage, I saw only the monthly costs involved (mortgage principal, interest, homeowners insurance, taxes) and not the big picture. I assumed that since my housing payment was only going to be a little more than my rent had been, sure, I could afford a house! Spoiler alert: I could not afford a house. And when I was laid off, I had no emergency fund to tap to cover my costs. I ended up having to convince my lender to short sell the house, and it put a big dent in my credit score and gave me many sleepless nights along the way.

If this is you, you can’t afford a house. I don’t care if your friends who own their house pay less on their mortgage loan than you do in rent every month. You’re not seeing their total costs, which include repairs and maintenance. They don’t have a landlord to call if the kitchen sink leaks. You do.

4. You don’t want the extra costs/responsibilities of owning

What if you don’t want to take on those extra expenses and truly don’t feel like scheduling repair services when your hot water heater breaks or your air conditioner dies on the hottest day of summer? I’ve got a solution for you: Keep renting!

While I admit that the potential costs of home maintenance and repairs give me pause (to the point that I’m already dreaming of my emergency home maintenance fund), I’m ready to buy a home and start building equity. Meanwhile, I have a colleague who owns her home, but dreams of going back to renting. Obviously, the grass is always greener. But if you don’t want to wrangle with all those tasks that become your responsibility if you own a house (or pay someone else to handle them), renting is probably a better bet for you.

Say it with me again: Renting is not throwing money away. You’re paying for a roof over your head and saving money in the process. Don’t let anyone tell you renting is inferior, because if you’re in one of the scenarios above, it’s likely the better move for you.

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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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