Money Management

Generative AI is opening up all sorts of new possibilities, but it also has its limitations. Here’s what you need to know before taking its financial advice. 

Pretty much everyone has heard about ChatGPT and other AI platforms that can answer questions, write stories, and synthesize data almost instantaneously. While the technology is still fairly new, it’s clearly here to stay, and its capabilities will likely only grow with time.

The possibilities are exciting, but we also need to exercise caution with how we use this new technology. That’s especially true for the 53% of consumers who said they trust generative AI to assist them with financial planning, according to a recent Capgemini Research Institute survey. Here are a few things you should know before you go sharing the details of your financial life with an AI chatbot.

AI doesn’t always get it right

One of the first things you’ll notice when using ChatGPT or any other generative AI tool like it is a disclaimer telling you that the technology doesn’t always get information right. These language models are trained off existing data written by humans and use this to string together sentences that sound natural. But sometimes they don’t actually make sense.

These incorrect answers are known as hallucinations, but they’re not always easy to spot, especially if you’re unfamiliar with the topic you’ve asked the chatbot about. Generative AI always sounds confident in its responses, but it’s up to you to determine whether the information it gives you is actually sound.

Those who hope to use AI to help them make financial decisions should consider it a jumping-off point. Note what it recommends, but then verify this with other credible, human-written sources. This will help ensure you’re not missing any critical information or basing your decisions on an AI hallucination.

AI doesn’t always know what’s happening right now

Generative AI’s knowledge depends on the data its creators trained it on, and that doesn’t always include current events. ChatGPT, for example, is only trained on data through 2021 and knows nothing about things that have happened more recently.

This is important to be aware of when using AI to guide your financial decisions. Some financial decisions, like where to keep your money, depend a lot on current market conditions. And if the AI doesn’t know what those are, it might not give you the best advice.

Comparing its suggestions to what knowledgeable humans have said on the same topic can help you avoid falling into this trap. Educating yourself about the current economic conditions could also help you spot flaws in the AI’s logic.

You don’t know who’s seeing your data

Generative AI is still in its infancy, and its developers are keen to improve it. One of the ways they do this is by analyzing the content of conversations that users have with the chatbots to identify common mistakes and opportunities for improvement. Companies like ChatGPT claim to anonymize your data, but it’s still best to avoid giving out too much personal information.

Don’t share your Social Security number or your financial account numbers with a generative AI chatbot. And avoid giving out too much other personal information, like your exact address. In most cases, you shouldn’t need this to get help with most of your financial questions anyway.

Know its limitations

It would be great if we could hand off our complex problems to an AI that understands exactly what we want and delivers tailor-made responses. But we’re not there yet. AI is a tool, and like most tools, is only useful if you know how to use it.

Understanding the limitations of generative AI can help you tailor your prompts to provide more accurate information and recognize when something’s gone amiss. But if you want truly personalized financial advice, asking a human is still your best option. You can start by seeking out financial advice from sites like The Ascent. Or you can look up financial professionals, like Certified Financial Planners (CFPs), in your area who can provide guidance specific to your situation.

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The 4th of July is a uniquely American experience. Keep reading to learn how much Americans spent on fireworks in 2022 alone. 

I have a potentially tragic but fun story for you. Back when I was on Facebook, I ran across photos posted by a couple I know. Like many young couples, this pair dealt with too many bills and insufficient cash to cover them. It was a stressful situation.

However, one of their posts surprised me around the first day of July. The post read, “Here’s what $1,500 worth of fireworks look like.” The photo shows the man standing with his young son in front of stacks of boxes. You know, firework boxes with “keep away from flame” warnings printed on the side. Unfortunately, the pair had stacked the flammable boxes next to the furnace.

The good news is that the pair survived and were able to load up on fireworks again the next year. The not-so-good news is that the family was out $1,500 that could have gone toward paying bills or building an emergency fund.

As shocked as I may have been that anyone would shell out $1,500 for fireworks, this couple was not alone.

Shooting up like a bottle rocket

The amount of money Americans spend on fireworks each year has shot up. According to the American Pyrotechnics Association (APA), we spent $2.3 billion on fireworks in 2022.

Just as surprising is how much Americans spent on fireworks in 2020, the first year of pandemic-related lockdowns. Despite social distancing rules and mask mandates, those who love the 4th of July came together to spend $1.9 billion on fireworks.

Looking back, we see that $407 million was spent on firecrackers, sparklers, Roman candles, cherry bombs, and other celebratory explosives. Ten years later, spending increased to $636 million, despite how many Americans say they don’t have enough money in the bank to cover a basic emergency. In 2019, the total hit the $1 billion mark; as of last year, it’s more than doubled.

Medical expenses

Of course, it wouldn’t be the 4th of July without someone losing a finger or two. According to the Consumer Product Safety Commission (CPSC), firework-related injuries shot up by 25% between 2006 and 2021.

Last year alone, there were an estimated 11,500 emergency room visits for injuries related to fireworks, including 11 deaths. Here are the most commonly injured body parts:

Eyes:16%Head, face, and ears: 19%Hands and fingers: 29%Trunk and other: 12%Legs: 19%

Given the complexity of some injuries and whether a patient is moved from the E.R. to a regular hospital room, it is impossible to estimate how much was spent on medical care. The medical expense was likely a burden for some. Unless an insurance policy covers the cost, the patient or their family is responsible for pulling money out of their savings account or using a credit card to pay the hospital bill.

Avoiding injury

The CPSC offers these tips for those who wish to avoid injury and the subsequent visit to the emergency room:

Do not allow children to ignite or play with fireworks, even sparklers. Sparklers burn at a temperature of around 2,000 degrees Fahrenheit.Keep the garden hose or a bucket of water nearby in case of fire.Only light one firework at a time, then move away quickly.Do not try to relight or handle malfunctioning fireworks.Do not put any part of your body over a firework as you light the fuse.Never point a firework at anyone.Once a firework is completely burned out, soak it with water before throwing it away.Only set off fireworks labeled for consumer use (rather than professional).Make sure fireworks are legal in your area before making the purchase.Never use fireworks if you’re impaired by drugs or alcohol.

For many of us, the 4th of July brings back some great memories of time with friends and family. Whether you plan to shoot off your own fireworks or watch a public display, do it safely.

Oh, and you might want to avoid stacking fireworks around a red-hot furnace.

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You can declare bankruptcy to eliminate credit card or mortgage debt. Find out what happens to you before and after you file. 

The game is up. The floor has crumbled, the ceiling is falling, and lenders have your ankles grasped tight. You’re being pulled into a bottomless debt spiral, and there’s no way forward but down, down, down.

You consult your attorney on the matter. Together, you reach a solution: Declare bankruptcy, the legal process that helps individuals reorganize or eliminate debt.

Declaring bankruptcy is a big deal. On one hand, it potentially eliminates or reduces your debt to manageable levels. On the other, it carves through an individual’s possessions and credit score like a hot knife through butter.

If you’re an individual filing bankruptcy, rather than an organization, you typically have two options: Chapter 7 and Chapter 13. Here’s what happens when you file for bankruptcy.

Chapter 7

Chapter 7 is the Hail Mary of bankruptcies. In a Chapter 7 bankruptcy, you are appointed a trustee that helps you sell your assets to repay your debt. By the end of the process, all your debts are forgiven, with a few notable exceptions.

If you and your attorney decide it’s in your best interest to file a Chapter 7, you’ll have to do two things first: pass the means test and take a credit counseling course. The counseling course helps you decide whether bankruptcy is right for you.

The means test determines your ability to actually repay your debts, or lack thereof. Should you pass it, you can file a Chapter 7. Should you fail the means test, you have three options:

File for Chapter 13.Wait six months and try again.Decide against filing for bankruptcy in favor of other debt-repayment strategies.

There were 413,616 Chapter 7 bankruptcy filings in 2021, according to a study by The Ascent. Chapter 7 does the most to eliminate debt. But a Chapter 13 bankruptcy gives filers more control over their assets.

Chapter 13

A Chapter 13 bankruptcy is a softer pitch than a Chapter 7. In Chapter 13, you are appointed a trustee. The trustee helps you reorganize and possibly renegotiate debts so they’re easier to repay. Most notably, you get to keep your belongings, including your home.

If you and your attorney decide it’s in your best interest to file a Chapter 13, you’ll have to take a credit counseling course first. Then you can file and begin the process of reorganizing debts so that they’re payable within three to five years.

Here’s what happens after

There are consequences to filing for bankruptcy, both positive and negative.

The good:

Chapter 7 filers will have eliminated most (if not all) of their debts.Chapter 13 filers will have reorganized and/or reduced their debts so they’re manageable.

In general, the best part of filing for bankruptcy is that debt becomes manageable. Even if debt isn’t completely eliminated, there is a clear path to paying it off. In some ways, it’s a clean slate.

The bad:

Filers will see a significant drop to their credit scores.Filers may lose a significant amount of assets, including their homes and heirlooms.Filers may have their bankruptcy details become publicly searchable.

There’s more to bankruptcy than losing your valuables. After you declare bankruptcy, your credit score drops, and borrowing money becomes harder. Taking out a mortgage? That’ll cost you. Taking out an auto loan? Buckle up for higher rates.

Bankruptcy can be a drawn-out, painful process with long-lasting repercussions. There are other options, like debt consolidation, which makes debt more manageable. For example, you may wish to take out a debt consolidation loan to shrink credit card interest payments.

The decision to file for bankruptcy is a serious one. Consider consulting with an attorney before filing. You’ll benefit from the opinion of an expert sworn to protect your best interests.

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Mortgages are expensive these days. Read on for some tips to fight back against rising home prices. 

Home prices have risen rapidly in recent years and mortgage rates are higher as well. While the cost of homeownership has become less affordable, there are some factors in your control. Here are three things in particular that can help you save money when you use a mortgage to buy a home.

1. Shop around

One of the most common mistakes first-time (and repeat) home buyers make is not shopping around for a mortgage, and simply accepting the first loan offer they get. I certainly did this the first time I bought a home, and likely overpaid by thousands of dollars in the process.

It’s difficult to overemphasize the importance of shopping around for a mortgage lender. Different lenders not only have different origination fees, features, and loan programs, but it’s not uncommon for the same borrower to get offered significantly different interest rates from two lenders.

Let’s say that you’re looking to borrow $400,000 on a 30-year fixed-rate mortgage to buy a home. One lender offers you a loan with a 6.625% APR, while another offers 6.75%, both with the same $1,000 origination fee and no points. This might not sound like a big difference, but the lower rate would save you nearly $12,000 in interest over a 30-year term.

The point is that shopping around for a mortgage could be the best return on a few hours of your time that you’ve ever seen. Plus, there are special rules in credit scoring formulas that make sure consumers aren’t penalized for rate-shopping.

2. Work on your credit

Building great credit takes years, but you might be surprised at the impact you can have with a few months of smart planning. And you might be shocked at how much of a difference a small jump in your credit score can make when it comes to mortgages.

Consider this example. If you have a FICO Score® of 650, you can expect a 30-year fixed-rate mortgage APR of 7.499% as of this writing, according to myFICO.com. On the other hand, a borrower with a 670 is seeing an average APR of 7.069%.

On a $400,000, 30-year mortgage, the monthly principal and interest payments on these loans would be $2,680 and $2,797, respectively. Over a 30-year mortgage term, this means that the borrower with a slightly higher credit score would save over $42,000 on interest.

3. Boost your down payment

It’s a well-known fact that putting more money down when you buy a home can lower your monthly payment. And while it can certainly be a smart strategy to wait and save more for a down payment, that’s not the only way to boost your available cash.

Most states and many local governments have down payment assistance programs, especially when it comes to first-time home buyers and those with low-to-moderate incomes. The Department of Housing and Urban Development (HUD) maintains a list of local home-buying programs that can be an excellent starting point.

The bottom line

Mortgage rates are roughly double where they were at the beginning of 2022, and home prices haven’t exactly declined during that time. However, it could still be a good time to become a homeowner, and by using these strategies, you can make sure you will keep your housing costs as low as possible.

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Purchasing a Sam’s Club membership is not right for everyone. These four signs should serve as red flags that membership is not for you. 

There are 600 Sam’s Club locations scattered across the U.S. and millions of Sam’s Club members. However, membership is not for everyone. In fact, it can be the wrong financial decision. Here are four signs that paying for a membership would be the wrong move for you.

1. The services you need are free

A surprising number of Sam’s Club benefits are available to everyone, whether they’re a member or not. They include:

Sam’s Club Cafe: You don’t need a membership to visit the Sam’s Club food court. You’re free to stop in for a meal, meet friends for coffee, buy a yogurt cup, or whatever else your heart desires. Alcohol: Most states do not allow membership stores (like Sam’s Club) to sell alcohol only to members. So, if your motivation for purchasing a membership is to score a discount price on alcohol, there’s no need. Take it for a test drive: If you’re not sure Sam’s Club is right for you, a one-day guest pass allows you to shop online for an entire day. As a non-member, there will be a 10% service fee added to your total, but a guest pass may be just enough to convince you that you’re not totally infatuated with the warehouse store. Buy prescription drugs: There’s no denying the appeal of $4 prescriptions, but you don’t have to be a Sam’s Club member to take advantage of that sweet deal. If the primary reason you’ve considered joining has anything to do with pharmacy access, there’s no reason to shell out for the membership. Have an eye exam: Say you’ve heard good things about an eye doctor who works at Sam’s Club. While you need a membership to purchase anything from the optical department, you’re free to have an eye exam without a membership.

2. You tend to be an impulse buyer

In 2022, 64% of U.S. adults reported an increase in their impulse spending. If you’ve ever strolled through a Sam’s Club, you know how easy it would be to pick up items you don’t need. You may even pick up a few things you don’t want, simply because the price is so low.

If you’re trying to build an emergency savings account or meet another financial goal, now may be the wrong time to become a member of a club with so many temptations on display.

If impulse buying has become an issue for you, consider it a sign to wait.

3. You’re unlikely to benefit from lower prices

Let’s say you want a Sam’s Club membership so you’ll have a “cheap place” to buy diapers, toilet paper, or soft drinks. The problem with that plan is that you can often find these three items (and many others) for less at your local grocery store, Target, or Walmart.

Before shelling out for a membership, do a little comparison shopping for the items you’re most likely to buy. Paying for a membership is only worth it if you’ll keep more money in your checking account each year than the membership costs.

4. You’re shopping for one or two people

The truth is, there are some purchases at Sam’s Club that a small household cannot possibly consume before they go bad. This includes fresh produce, some vitamins, sunscreen, and over-the-counter medications.

For some, a Sam’s Club membership makes perfect sense. However, you have every right to say: “No, thank you. It’s not for me.”

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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.Dana George has positions in Target and Walmart. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.

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If you don’t save enough for retirement, you’ll only end up hurting yourself. Read on to see why. 

One thing many people don’t know about financial expert Suze Orman is that she wasn’t always wealthy. In fact, there was a time when Orman actually had to live out of her car due to a lack of money.

As such, Orman is sympathetic to the fact that not everyone is a high earner. And she understands that carving out money for savings, whether it’s for emergencies or retirement, isn’t easy.

But Orman also knows that people who don’t save adequately for retirement risk ending up cash-strapped once their careers wrap up. And that’s why she doesn’t like to hear people say they can’t afford to fund an IRA or 401(k) for the future.

An important goal to prioritize

If you’re only a modest wage earner, it’s easy to see why you might struggle to sock a lot of money away each year for retirement. After all, how are you supposed to focus on such a far-off milestone when you have bills to pay and credit card balances to chip away at now?

The problem, though, is that if you don’t save for retirement, you might spend the latter part of your life unhappy and teetering on the edge of poverty. It’s that simple. And it’s that fate Orman doesn’t want anyone to have.

Now a lot of people have their reasons for not prioritizing their retirement savings. In some cases, those reasons are quite legitimate. But even so, Orman doesn’t like to hear about how people can’t afford to fund a retirement plan because that’s such a necessary thing to do in her mind.

In fact, in a recent Tweet, Orman said, “At a minimum, you want to save 10% of your salary in your #401k. If you’re not yet at 10%, boost your contribution rate by at least 1 percentage point right now. Don’t tell me you can’t afford it. You can’t afford not to do this.”

She’s totally right. If you neglect your long-term savings and are forced to live only or mostly on Social Security in retirement, you might end up struggling. That’s because those benefits will only replace about 40% of your pre-retirement wages if you earn an average salary. And that 40% figure doesn’t account for benefit cuts, which are a strong possibility at this point.

Now, take a look at your expenses and imagine covering them all with a 60% pay cut. It’s probably not doable. And that’s exactly why you have to make an effort to save for retirement.

Small boosts could go a long way

You may not be able to save 10% or more of your income for retirement now. If that’s the case, save 2% this year if that’s all you can swing, and next year, make it 3%, and so forth.

What’s equally important is starting to save for retirement at a young age. Let’s say you manage to stick $1,000 into your 401(k) or IRA at age 25. If you invest your savings in the stock market, you might generate a 10% average annual return on your money, which is in line with the market’s typical performance over the past 50 years as measured by the S&P 500 index. By age 65, that $1,000 will be worth around $45,000.

Now $45,000 isn’t enough for most people to retire on. The point, however, is that the sooner you make an effort to save for retirement, the more opportunity you’ll have to grow wealth. And the more you’re able to save, the more financial freedom you’re apt to enjoy during your senior years.

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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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