Money Management

When I went on vacation recently, I was able to save money thanks to my travel credit cards. Here’s how I made it happen. 

Recently, my family and I went on a vacation for a week. During the course of the trip, my credit card saved me money in multiple ways. In fact, here are four examples of how my card allowed me to keep more money in my checking account.

1. I got a free airline ticket

I use my credit card for as many purchases as possible, which helps me earn rewards points. My card also gives me bonus rewards when I book airline travel. Since I’ve spent quite a bit on travel over the course of this year, I earned enough credit card points to get a free airline ticket. This meant I saved over $400 on the trip before even leaving my house or packing a single bag.

Now, it’s true I had to spend money to earn the miles that I cashed in for my free ticket. But I would have had to spend the money anyway, so there was very little reason not to use my card for my past purchases so I could save hundreds on this trip.

2. I got a free checked bag

My credit card saved me money when I arrived at the airport as well. This time, the savings came from the fact that free checked bags are one of my cardholder perks.

Flying with a checked bag would typically come at a cost of $30 on this particular vacation. But I didn’t have to spend this, since my card allows me to check a suitcase at no extra cost.

Because I was able to check a bag without worrying about paying for it, I also didn’t have to try to stress about getting clothes for a family of four into carry-ons. And I didn’t have to transport multiple carry-on bags through the airport (along with my two kids) just to avoid having to pay to check bags. This was a huge savings of both time and effort.

3. I didn’t have to buy food at the airport

My credit card offers me access to an airline lounge, which has food and drinks available. My family of four was able to eat lunch at no cost and enjoy several fruity (non-alcoholic) drinks. We were able to eat meals at the airline lounge on both our departing and returning flights.

Since we normally spend about $40 to $50 on food and drinks when we go to the airport, my card saved me $80 total here by enabling me to avoid buying meals at both ends of the trip.

4. I got early check-in at my hotel

Finally, I was able to get early check-in at my hotel using a different travel credit card that was issued by that hotel company. Because we had early check-in, I didn’t have to pay a fee to get into my room earlier.

I was also able to schedule my flight at a time that was convenient — and that came with less expensive tickets — rather than trying to make sure we didn’t land too early and have nowhere to go for hours.

All of these were major money savers and are huge benefits of having a travel card. I would never go on a trip without one, since I don’t see a point in paying extra for things I could get included as cardholder perks.

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Does it make sense to bother shedding existing debt before taking on a mortgage loan? Keep reading to learn why the answer is yes, if you can manage it. 

If there’s a mortgage loan application in your future, you should know that in the process, your credit history and finances will be exposed like never before. The reason for this is simple: Your lender needs to ensure that you’ll be able to repay the money it’s loaning you to buy a home. And since a house is likely to be the biggest expense you’ll ever face, this makes a lot of sense.

Your lender will want to know about your employment situation (including how much money you make), as well as any assets you might have (such as cash in a savings account or investment holdings). It’ll pull your credit report and do a deep dive, and you’ll be expected to explain any delinquent accounts or other black marks reflected in your credit score.

Your credit report also has information about your current debts, and that information combined with your income gives your lender a look at your debt-to-income ratio. If that number turns out to be a bit too high, you could be rejected for a mortgage loan.

Your debt-to-income ratio matters for a mortgage

A National Association of Realtors (NAR) study found that in 2022, debt-to-income ratio was the most common reason for a potential buyer to have a mortgage application rejected — for almost one-third of applicants (32%), this was the culprit.

Your debt-to-income (DTI) ratio is exactly what it sounds like: A percentage that says how much of your income goes to debt payments, like a car loan, credit cards, and any other money you’re paying back to creditors. If you’re hoping to buy a home, a mortgage lender will consider both a front-end and a back-end debt-to-income ratio. Your front-end DTI represents how much of your income will be taken up by housing costs, and this should be no more than 28%. Your back-end DTI is all of your monthly debt payments, and this should be no more than 36%. Together, this is sometimes called the 28/36 rule.

The best way to improve these numbers ahead of applying for a mortgage is to pay down your debts, if you can. And it’s worth making the attempt, because owing less will help you sleep better at night, free up more money for other expenses, and help you get approved for a mortgage on your dream house.

Try raising your income to help you pay off debt

While a lot of financial gurus will tell you that the secret to paying off debt is to give up everything you love, I’m here to dispute that. On the contrary, I found that a better way to pay off debt is to increase your income. Don’t get me wrong, it’s still a good idea to take a closer look at your discretionary spending and stop spending money on things you don’t enjoy or don’t use (neglected streaming service or random subscription box, I’m looking at you). But living on ramen noodles isn’t sustainable for anyone past college age.

If you boost your income, any extra money you can bring in (less taxes, of course) can all go toward your debt. Dust off your resume and see if you can score a side gig to do in your free time. You might also be able to talk your way into a raise at your main job. And if you find a side hustle you enjoy, you might want to hang onto it long enough to build yourself an emergency home maintenance fund, too. When it comes to the costs of homeownership, the initial stage of buying the house is only the beginning.

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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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The IRS needs an overhaul. Read on to see where it stands to improve. 

There’s a reason so many people have struggled with their taxes for years. The IRS has been sorely underfunded for decades, and as a result, reaching the agency and getting help from it has been akin to a nightmare.

But things may soon be changing for the better. As part of the Inflation Reduction Act, the IRS has been approved for $80 billion in funding over a 10-year period of time. And while some of that money will be earmarked for enforcement (meaning audits), much of it will be used to enhance the taxpayer experience.

In fact, the IRS recently released its Strategic Operating Plan for 2023 through 2031. As part of that plan, the IRS has pledged to “dramatically improve services to help taxpayers meet their obligations and receive the tax incentives for which they are eligible.” Here are some specific areas that could use improvements.

1. Wait times

It’s not uncommon to call the IRS for help and wait on hold for an hour. And during tax season, you might wait even longer — that is, if you even manage to get through to an agent at all.

In 2021, the IRS received a record 282 million calls, but only 32 million of those calls were answered by an actual customer service agent. Now that the IRS has added funding coming its way, it can use the money to ramp up hiring so taxpayers aren’t subjected to unreasonable wait times. This is especially important during tax season, when people may be staring down a filing deadline.

2. Agent education

Even if you manage to get an IRS agent on the phone, you’re not guaranteed to connect with someone who’s actually capable of answering your questions accurately or helping you to resolve the issue at hand. Now that the IRS is getting an influx of cash, it will ideally use some of that money to provide more training so that when agents pick up the phone, they’re in a better position to assist callers.

3. Free tax help

The IRS has programs in place to help certain tax-filers get free assistance. The Volunteer Income Tax Assistance program, for example, is designed to provide tax help for low-income filers and those with language barriers.

But even so, there are many tax-filers who may need assistance with their taxes but can’t afford the fees a tax preparer might charge. Ideally, the IRS will expand its free offerings so more people can get the guidance they need.

Some people may be worried that additional IRS funding will result in an uptick in audit rates and therefore nothing good. But actually, a well-funded agency could make the process of filing taxes much smoother on a whole for everyone. Also, the more manpower the IRS has, the easier it might become to issue refunds. So if you like the idea of seeing your money hit your bank account sooner every year, then you may want to embrace the idea of additional IRS funding.

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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.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Bear markets can be especially problematic for retirees. Read on for some Suze Orman advice for riding out bear markets without losing money. 

If you’re an investor, you’re keenly aware of market trends. For example, when the stock index closes up 20% from its low, we’re in a bull market and everyone is happy. When the index drops by at least 20% from its high, we’ve entered a bear market, and the grumbling begins. Bull and bear markets may be as regular as the seasons, but they can be nerve-wracking, particularly if you’re retired.

Suze Orman’s advice

Financial guru Suze Orman recently offered this advice via Twitter: “Once you are living off retirement income, my recommendation is to keep three to five years of living expenses in a money market account or a high-yielding savings account. That ensures that when we go through rocky times — bear markets, recessions, or unsure periods such as the current congressional disagreement over raising the debt ceiling — you can live off that money rather than make withdrawals from stock or bonds that may have lost value.”

Guaranteed income

Orman suggests that retirees aim to pay monthly fixed expenses with guaranteed income. Guaranteed income includes Social Security, pensions, rental properties, and annuities.

According to Orman, if you can cover your monthly expenses with guaranteed income, you don’t have to worry about dipping into retirement to pay bills. You’ll only have to draw from retirement savings when you need money to do something you want to do, like take a trip or start a new hobby.

The funds kept in a money market account or high-yield savings account are liquid, meaning you can withdraw them without penalty. More importantly, you give the money in your retirement savings account time to recover.

What history teaches us

The advantage of being able to pay bills with guaranteed income is that you never have to make a bad situation worse. During a bear market, investments lose value. However, bear markets don’t last forever. According to Hartford Funds, there have been 27 bear markets in the S&P 500 Index since 1928, and the average length has been 9.7 months.

The critical point is this: Following each bear market has been a bull market that’s lasted an average of 2.7 years, significantly longer than the bear market. More importantly, stocks lose an average of 35% in a bear market but gain an average of 114% during a bull market.

Orman advises leaving your investment funds alone while stock values are being battered. You want those stocks to remain in your account so they can benefit from the dramatic gains that occur during the next bull market.

And the best way to leave those investment funds alone is to put money away in a money market account or high-yield savings account that you can draw on when you need a little extra.

A realistic approach

Let’s say your fixed monthly expenses amount to $4,000. If you put three to five years’ worth of living expenses in a liquid account, you’ll need $144,000 to $240,000 in that emergency fund. That’s not feasible for most people.

Instead, look at how much money you’re short each month and make sure you have enough put away to cover the shortfall. Here’s an example:

Plan for the worst and hope for the best

Remember to add a little extra to cover less common expenses, like HOA dues, property taxes, or out-of-pocket medical expenses. And if possible, pad the account with enough to cover emergencies, like car repairs, or to pay the deductible on a homeowners insurance claim.

By now, you may feel like a pro. As an investor, you’ve likely ridden out enough bear markets to know what to expect. After all, a person who spends 50 years investing can expect to live through approximately 14 bear markets.

The goal — and Orman’s point — is to avoid potential stress by planning for the next inevitable bear market.

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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 no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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