Money Management

It’s a good idea to invest in dividends, but those payments shouldn’t be the only thing you look at. Read on to learn why. 

The whole purpose of holding stocks in your brokerage account is to make money over time. Please pay attention to that last bit, because it’s not a good idea to buy stocks with the intention of selling them quickly and making a fast buck. Rather, it’s smart to load your portfolio with quality stocks and hold them long enough to appreciate in value.

Now some investors prefer to own stocks that pay dividends on a regular basis. When a stock pays dividends, it means the company is sharing some of its profits with its shareholders rather than keeping all of the money to put back into the business.

Not every stock pays a dividend. And not every stock that pays a dividend will continue to do so. But owning dividend stocks gives you yet another way to make money on top of share price appreciation.

That said, is it worth it to chase dividend-paying stocks? The answer is, it depends.

It’s more about finding quality businesses

When you collect dividends as a stockholder, you have options. You can take your dividend payments and use them to pay bills, whether it’s food, rent, or your credit cards. Or, you could opt to leave that money in your brokerage account, reinvest it, and use it to grow even more wealth over time.

As such, when you own shares of a stock that pays dividends, you’re really getting a bonus, so to speak. And for that reason, it’s worth holding dividend stocks in your portfolio.

That said, when deciding whether to buy shares of a given stock, its dividend (or lack thereof) should not be the first thing you focus on. Rather, the first thing should be the quality of the business itself. If it’s a company that manages its cash well, has a reasonable amount of debt, and has a lot of growth potential, then it may be a company worth putting your money into. If it happens to also pay a dividend every quarter, great.

But one thing you don’t want to do is buy stocks just because they’re paying a large dividend. Companies are not contractually obligated to keep paying dividends, so that practice could stop at any time. And in that case, you might be left with a stock that doesn’t offer you so much financial upside.

In fact, if you buy shares of a not-so-great stock for the dividend alone, what you gain in the form of those payments, you might lose in the form of limited share price appreciation. So it’s important to make sure you’re getting quality shares regardless of the dividend at hand.

Set your priorities

If you’re looking at two comparable businesses to add to your portfolio, and one pays a dividend and the other doesn’t, then sure, you might as well go for the dividend-paying stock. But generally speaking, you should treat dividend payments as a bonus — not the basis for your investment choice.

Although there are more than 60 Dividend Aristocrats trading today — companies that have increased their dividends every year for at least the past 25 — the stocks that fall into this category aren’t necessarily the most appropriate ones for your portfolio. So as long as you pledge to make dividends a secondary objective, there’s nothing wrong with investing in them right now.

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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.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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Many college grads don’t have a credit history or score. Read on to see how you can establish one. 

If you’ve graduated from college, you may have a strong academic history to be proud of. But you may not have a borrowing history. And that could end up being problematic.

If you’ve never had bills in your name, it means the credit bureaus won’t have a way to assign you a credit score. And without a credit score, you might struggle to get approved for a credit card, to buy a car, or to rent a home.

Experian reports that an estimated 28 million Americans are credit invisible — meaning, they don’t have a credit history or score. So if you need to build some credit, here are some moves worth making.

1. Get a secured credit card

A secured credit card is different from a regular one in that the line of credit you’re eligible for is secured by a deposit you put down. Here’s how it might work. You might apply for a secured credit card and put down a $1,000 deposit. That deposit then serves as your spending limit.

That may seem unhelpful at first. But if you charge expenses on that secured card and pay your bills on time every month, that positive activity will go on your credit record. And eventually, it could lead to the credit bureaus being able to establish a credit score for you.

2. Get a credit-builder loan

Unlike personal loans, where you borrow a sum of money and actually get to use the proceeds, a credit-builder loan’s purpose is to simply help you build credit. What happens is that as you repay your loan, your payments are added to your credit history. If you’re timely, that’ll work in your favor.

Only to be clear, with a credit-builder loan, you’re not really borrowing money. You might get a $1,000 loan in name, but you won’t actually be given $1,000 to spend. Rather, you’ll pay down your balance in full and then get access to those funds.

3. Become an authorized user on a parent or relative’s credit card

You may not be able to qualify for a regular credit card of your own when you’re fresh out of college. But if you have a parent or relative who’s willing to add you as an authorized user to one of their accounts, it could help you build credit.

Once you’re on that account, activity associated with that account will become part of your credit history. So if your mom puts you on her credit card account and pays her bill in full and on time every month, you might eventually end up with a strong credit score as a result.

Of course, this tactic could also backfire on you, because in our example, if your mom were to fall behind on her payments or be consistently late, it could end up harming your credit history. But ideally, you’ll choose your account holder wisely to minimize that risk.

Building credit right out of college isn’t easy. But if you take these steps, you might manage to establish a solid enough credit history to get more borrowing options of your own.

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HSAs and FSAs are both great ways to save for your medical care, but they’re not the same. Here are five key differences between them. 

According to the Peter G. Peterson Foundation, Americans spent over $4.3 trillion on medical care in 2021, which averages out to about $12,900 per person. That’s one of the highest per-person healthcare costs in the world. A single unexpected bill could amount to thousands of dollars, and that’s why many prefer to save up for healthcare costs in advance.

Two of the most popular ways to do this are using health savings accounts (HSAs) or flexible spending accounts (FSAs). The two accounts have similar names, but they have some key differences that affect who can have them and how useful they are. Here are five you need to know about.

1. Eligibility requirements

FSAs are only available to employees of companies that offer these accounts as a benefit to their workers. If your employer doesn’t have an FSA, you won’t be able to contribute to one.

HSAs are available to anyone who meets the following criteria:

They have a high-deductible health insurance plan (one with a deductible of at least $1,500 for an individual or at least $3,000 for a family in 2023)They aren’t claimed as a dependent on someone else’s tax returnThey aren’t eligible for Medicare

Check your health insurance plan if you’re unsure what its deductible is, in order to find out whether you qualify for an HSA.

2. Account ownership

FSAs are technically owned by your employer, and you can lose access to this account if you quit your job or are fired. This is one reason why many people don’t like to stash too much money here, especially if they don’t plan to remain with their employer for very long.

You own your HSA, though, and you can continue contributing to yours as long as you have a qualifying health insurance plan. You can use the funds whenever you want, even if you’re no longer able to make contributions. In addition, you can choose which bank or company you want to open your HSA with. The best HSA providers enable you to invest your funds so your money can grow more quickly over time.

3. Annual contribution limits

Contribution limits for FSAs and HSAs vary over time. In 2023, you may contribute up to $3,050 to an FSA. HSA contribution limits depend on the type of health insurance plan you have. Those with an individual health insurance plan may contribute up to $3,850 in 2023, while those with a family plan may contribute up to $7,750. And adults aged 55 and older can add an extra $1,000 to these limits.

In both cases, your contributions are made with pre-tax dollars. This means that they reduce your taxable income for the year. This could save you money on your taxes compared to keeping your medical savings in a savings account. In addition, if you use the money for medical expenses, you won’t pay taxes on it at all.

4. Rollovers

HSAs are the better choice for long-term savings because you can roll unused funds over from one year to the next without issue. Some people even use these accounts as an alternative to a traditional retirement account because they can leave their savings there and enjoy the tax benefits the account provides for as long as they want.

FSA funds often expire at the end of the year, but this varies by plan. Some employers may permit employees to roll over up to $500 to the next year or give you an extra 2.5 months to use up any remaining funds. But they aren’t legally required to provide these options.

5. Overall flexibility

HSAs are significantly more flexible for most people, which is why they’re more popular. In addition to allowing rollovers, these accounts also permit you to make non-medical withdrawals. However, you will pay taxes on these, plus a 20% penalty if you’re under 65.

But ultimately, it’s up to you to decide which account makes the most sense to you. And you can even use both if you meet the qualification requirements for them. Just remember to be mindful of the rules for each, so you don’t run into any surprises.

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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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Feeling like you can’t afford a big vacation this summer? Here are a few fun activities and mini-trip ideas that won’t cost you a lot of money. 

For many people, summer is the ideal vacation time because the weather is nice and school is out for several months. Summer will be here before you know it, and you may feel nervous about your ability to take a vacation because of your personal finances. But before you give up on your dreams of taking time away from your daily routine, you should know that you don’t have to plan a lengthy, expensive trip to get a much-needed break. There are other ways to take time away from school and work without draining your checking account.

1. Plan a nearby weekend getaway

Just because you can’t afford an expensive trip doesn’t mean you can’t have fun this summer. One option to consider is to plan a nearby weekend getaway. Choose a destination within driving distance of your home and plan a trip that fits your budget and interests. You’ll likely save money by skipping pricey airplane tickets. Plus, there’s something extra exciting about planning a road trip with your favorite people.

2. Book a relaxing staycation

Another alternative to a traditional summer vacation is a staycation. You deserve a break from your hectic schedule, and a two- or three-night stay in a comfortable, relaxing hotel room may be just the self-care you need to rest up before returning to your regular routine. Check to see if there are any hotel deals in your area that you can book so you have something to look forward to this summer.

3. Visit out-of-town friends and family

One of the most expensive costs that goes into a vacation budget is accommodation costs. Whether you rent a home or book a hotel, the costs can add up fast. If you can’t afford your usual vacation plans, you may want to consider visiting friends or family who live out of town. If you know friends or family with extra space and the ability to host, this could help make your upcoming travels less expensive and gives you time to catch up with loved ones.

4. Explore your town or city by enjoying local events

If you’ve already planned to take time off this summer but feel a vacation is out of reach, why not explore your town or city? Look for fun events and activities nearby your home for cost-effective fun. In many communities, there are multiple free events held throughout the summer. You might also consider trying new-to-you outdoor activities like kayaking or hiking if you’re looking to spend more time being active outdoors.

5. Go camping

If you and your crew like to spend time outdoors and are up for a different vacation experience, a camping trip could be the perfect alternative summer break plan. You can unplug from technology, spend time soaking up the sun, and enjoy each other’s company without the risk of racking up expensive credit card debt.

6. Plan weekly summertime outings

Perhaps you want to skip taking a trip altogether but still want to enjoy plenty of summertime adventures. Instead of booking a trip, you may want to plan weekly outings with your family. This will give everyone something exciting to look forward to, and it can be a more affordable solution if money is tight. The best part is you don’t have to plan expensive outings. Look for low-cost things to do to keep your spending to a minimum. Consider roller-skating, mini golf, or an afternoon visit to the trampoline park.

Now is the time to start saving for next year’s vacation

If you’re feeling financial pressure and are considering skipping your usual vacation plans this summer, you may want to begin saving for next year’s vacation now. Saving a few dollars every week can allow you to save up enough cash for an unforgettable holiday. By keeping your extra cash in a high-yield savings account, you earn interest and boost your bank account balance faster so you can reach your vacation savings goal sooner.

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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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Should you be working to boost your savings beyond a three-month emergency fund? Read on to find out. 

Many people are worried about a near-term recession, and understandably so. For one thing, financial experts keep warning of one. Also, the Federal Reserve’s interest rate hikes are likely to cause a pullback in consumer spending because borrowing has gotten so expensive. So it wouldn’t be totally shocking to see broad economic conditions decline during the latter part of 2023.

New data from Northwestern Mutual reveals that 26% of Americans cite a recession as their top concern. And 50% of Americans are taking steps to boost their savings account balances to cope with economic uncertainty. But should you be doing the same?

How much protection do you already have?

What makes the idea of a recession so scary is that it can go hand in hand with job loss. So a good way to mitigate your concerns is to have a solid emergency fund. If you have enough money in the bank to cover at least three months of essential expenses, you won’t have to worry as much about losing your job and not being able to pay your bills while you look for work.

If you’re wondering whether you need to be saving more to protect yourself and your family in the face of a recession, run the numbers to see if you have enough cash in the bank to cover three full months of essential bills. And to be clear, when we say “essential,” we’re talking about things like rent and mortgage payments, food, and utilities. If your emergency fund can’t cover your cable package or Netflix subscription, you can always cancel those things if need be. You can’t not have a home or skip eating.

Now, one thing you may find interesting is that according to Northwestern Mutual, the average American has $65,100 in savings. So if you’re sitting on that level of cash reserves, then chances are, it’s enough to cover three months of living expenses and then some.

But that $65,100 figure is probably so high because a small percentage of the population has a very large amount of money in savings. So if you have nowhere close to $65,100 in the bank, it doesn’t mean you’re not prepared for an emergency. But if you can’t cover three months of bills by tapping your savings, it means you need to do some work.

Should you save more than three months’ worth of bills?

A three-month emergency fund is really the minimum you should be aiming for. The more months of bills you can cover, the more peace of mind you get in the event of a layoff. And if you’re the sole breadwinner in your household, you may want to aim for six months of expenses in savings so you really don’t have to worry about landing in debt upon losing your job.

If you have, say, a three-month emergency fund right now, you don’t necessarily need to start slashing expenses to an extreme to go beyond that point. After all, you’re already in good shape. But it also wouldn’t hurt to spend more judiciously in the coming months to give your savings a boost.

All told, it’s encouraging to see that Americans are taking steps to boost their savings in light of recession fears rather than resigning themselves to unfortunate consequences. You may want to give your savings account a closer look and see what’s right for you — before economic conditions start to worsen and saving money gets even harder.

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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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