Money Management

Want to spruce up your home? Read on to see how you can finance renovations. 

Now that spring is in full swing, a lot of people are starting to tackle the home improvement projects they’ve been putting off. You may want to put in a new deck, replace your crumbling fence, or give your landscaping a makeover.

All of these are great projects to tackle now that the weather is warmer and more cooperative. But if you don’t have enough money in the bank to pay for your home improvements outright, you may have no choice but to borrow some. Here are some reasonably affordable options to look at.

1. A home equity loan

With a home equity loan, you borrow a set amount of money based on the equity you’ve built up in your home. The upside of going this route is that you’ll be able to lock in a fixed interest rate on your loan, making your monthly payments nice and predictable.

But there’s a danger to taking out a home equity loan, and it’s that if you fall behind on your payments, you could eventually risk losing your home. So before you sign one of these loans, read the details carefully. Understand the terms of your loan, what your repayment period looks like, and what your individual monthly payments will entail.

2. A home equity line of credit

A home equity line of credit, or HELOC, works similarly to a home equity loan. Only instead of borrowing a fixed sum, you get access to a line of credit you can tap over a period of time — often, five to 10 years.

The benefit of taking out a HELOC is getting more flexibility. If your home improvements cost more than expected, you can take more money out of your HELOC. If they’re cheaper than anticipated, you can simply withdraw less and have less to pay back.

But HELOCs have their drawbacks, too. Like home equity loans, falling behind on a HELOC could put you at risk of losing your home. And also, unlike home equity loans, HELOCs tend to come with variable interest rates, not fixed. This means that while your payments might start off affordable, things have the potential to change over time as your HELOC’s interest rate climbs.

3. A personal loan

A personal loan allows you to borrow money for any purpose. And unlike home equity loans and HELOCs, these loans are unsecured. This means that if you’re a homeowner but fall behind on your payments, you don’t run that same risk of losing your home (though you do risk other big consequences, like extensive credit score damage).

Also, because personal loans are unsecured, lenders take on a bit more risk. As such, you might need really good credit to snag a competitive borrowing rate on a personal loan. And also, you might end up with a higher interest rate than with a home equity loan or HELOC (at least initially).

That said, personal loans are a very popular way to borrow. As of the first quarter of 2023, U.S. personal loan balances came to a whopping $225 billion, reports TransUnion. So clearly, a lot of consumers are turning to these loans, which makes them an option worth considering.

Many homeowners can’t afford to pay for renovations outright and need to borrow for them to some degree. It’s okay to go this route as long as you understand what terms you’re signing up for, and as long as you’re taking on payments you can afford. But if you’re not sure whether that’s the case, you’re better off postponing your renovations or finding a lower-cost approach.

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Finance personality Dave Ramsey frequently compares investing to a roller coaster. Learn why and check out some of his most useful investing advice. 

For much of his career, Dave Ramsey has said that investing can be a roller coaster, and it’s an apt comparison. Just like a roller coaster, the stock market goes through its fair share of ups and downs.

Take the performance of the S&P 500. That’s a stock market index tracking 500 of the largest publicly traded companies in the United States. Last year, it declined by nearly 20%. If you had invested $1,000 at the start of 2022, you would’ve ended up with a little over $800. But it has had its fair share of good years, too, including many where it rose by 20%, 30%, or more. And it has an average return of 10% per year.

Unfortunately, the ups and downs cause some people to make poor investing decisions. If market volatility is worrisome to you, Ramsey has a great piece of advice that can help.

How to not get hurt on the investing roller coaster

The best way to invest is to do it consistently, without changing your strategy based on what stock prices are doing. Ride those ups and downs, because over long time periods, the stock market grows in value. As Ramsey puts it, “No one gets hurt on a roller coaster except those that jump off in the middle.”

Now, staying on an actual roller coaster is easy. It’s clearly not a good idea to jump off one of those. Keeping your money in the market can be quite a bit more challenging, because it may seem smart to jump in and out.

This is called trying to time the market, and the general idea makes sense. Instead of watching your investments go up and down, why not buy low and sell high?

For starters, it’s impossible to reliably time the market. Even the professionals don’t know with certainty what’s going to happen. And when people try to time the market, it almost always goes poorly, for one of two reasons:

They make bad investing decisions based on their emotions. Despite their intentions, many people end up doing the opposite of buying low and selling high. They get excited when prices are high and buy in, and then panic sell their investments when prices are low.They miss the market’s best days. To maximize your return on investment (ROI), you need to be invested during the days when the market performs the best. If you miss even a small number of days, it can have a massive impact. For example, between 1992 and 2021, missing the S&P 500’s 10 best days would cut your total returns by 54%.

Stick to consistent, long-term investing

Investing is an important financial habit, and “habit” is the key word. Your investing routine shouldn’t be something you change all the time based on market conditions. Here’s what you should do instead.

First, if you haven’t already, choose your investments. This is extremely important, because it’s much easier to stay in the market through highs and lows if you’re confident in your portfolio. You could pick stocks yourself, but an easier option is putting your money in investment funds. All the top stock brokers have these funds, which invest your money in a large number of stocks. Popular options include:

Exchange-traded funds (ETFs)Mutual fundsTarget-date retirement funds

Let’s say you want to invest your money in all the major companies so you have a diversified portfolio. You could invest in an S&P 500 ETF that will put your money in 500 of the largest companies on the market. Or, you could go even broader with a total stock market ETF. Most brokers will have both of these options available.

Next, decide how often and how much you’re going to invest. For example, you could invest $1,000 on the 15th of every month, or $300 every week. A popular starting point is 10% of your income, but you can do more or less depending on what works for you. And if you get a raise, or just decide you want to invest more, you can always do that.

After that, it’s just a matter of sticking to your schedule. Consistency pays off. If you invest $1,000 per month for 30 years and get an 8% annual return, you’d end up with nearly $1.5 million. That’s the power of investing — as long as you don’t jump off the roller coaster in the middle of the ride.

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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.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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CDs have eye-watering interest rates that may entice you to lock away emergency savings. Read on to learn why this might be risky. 

The Fed’s relentless interest rate hiking campaign may have broken some banks, stirred up the stock market, and made borrowing money more expensive. But for those who like fixed income, the Fed has inadvertently made certificates of deposit (CDs) cool again — at least, for the time being.

The best CD rates still continue to hover between 4.25% and 5% for both short and long terms, just slightly below the new federal funds rate range of 5% and 5.25%. For those who have a wad of cash set aside for emergencies, these high APYs can be enticing. After all, it’s been more than 15 years since savers have seen CD rates this high. What’s the harm of locking your money in a CD with a short term, like six months, if it means earning more for future emergencies?

It’s risky, and it might lead to forfeiting some of the interest your money is earning. Let’s look at why it might not be the best decision to lock your emergency savings in a CD, as well as some less risky options.

Why a CD isn’t the best place for your emergency savings

CDs aren’t great places to store three to six months of emergency savings because they’re not designed to be flexible. When you take out a CD, you agree to lock a sum of money for a specific amount of time. If you decide to cash out early, your CD provider will penalize you, usually in forfeited interest.

For example, a 12-month CD may have a withdrawal penalty equal to 90 days of accrued interest. So if you deposit $20,000 in a CD with a 5% APY, you might have to pay roughly $246 to cash out early (assuming your bank assesses interest on a daily basis). In contrast, you would earn $1,000 in interest if you kept your money in the CD for the full term.

What stings even more is that many banks charge the full 90 days of interest (or however long your penalty period is) even if you cash out earlier than 90 days. Yes, that means your bank can shave money off your principal if you cash out too early.

So, returning to my example above, if you cashed out after 60 days, you would have earned only $164 in interest. Your bank may still charge the full $264, which is the interest you earned plus $100 off your principal. You’re left with $19,900, plus the opportunity cost of not depositing your money in a more flexible account.

Other options for an emergency fund

Even if CDs aren’t the best place for your emergency fund, you can still take advantage of today’s high APYs. Here are some safer accounts to park your cash.

Money market accounts: Money market accounts are excellent places for your emergency fund. They’re extremely flexible and let you withdraw funds with checks or a debit card. Many of the best money market accounts have APYs that are only slightly lower than high-yielding CDs.High-yield savings account: The APYs on many high-yield savings accounts are super attractive and can be on par with CDs. You might have to meet some requirements to open one — such as having a minimum balance — and your withdrawals are usually limited to six per month without penalty. But these savings accounts can offer more flexibility than CDs, without sacrificing high interest rates.No-penalty CDs: Yes, there are CDs that won’t penalize you for taking early withdrawals. These no-penalty CDs often come with lower interest rates than other types and typically don’t have partial withdrawals. In other words, if you need to withdraw money early for an emergency, you’ll probably have to clear out your account and close it.

Your emergency savings are too important to lock up for any specific period. This money requires easy access; otherwise, you defeat the purpose of having an emergency fund at all, which is to protect yourself financially when the unexpected strikes.

Besides, with so many other savings vehicles — like money market and high-yield savings accounts — you can still earn high interest without locking up your cash. It might mean earning a little less than a CD, but it can be worth it for the added safety.

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Worried about the economy? Read on to see how you can set up your portfolio to withstand a recession. 

A lot of people think the U.S. is on the verge of a financial crisis. Worse yet, 39% of Americans think we’re already there, according to an April Nationwide survey. And 38% of Generation X and 29% of baby boomers expect a prolonged period of severe downturn.

It’s easy to see why so many people feel this way. Not only have recession warnings been abundant, but the banking sector has seen its share of upheaval over the past few months. And that alone has a lot of people spooked.

Clearly, none of this paints a very rosy picture. But if you’re worried about a recession and general economic instability, then there’s one key move you can make to protect your portfolio.

It’s all about branching out with your investments

Economic downturns and stock market declines don’t always go hand in hand. In fact, in 2020, when unemployment levels were sky-high and there was a lot of economic turmoil, the stock market, after a brief decline, actually had a pretty good year.

But it’s easy to see why investors may be bracing for losses in their IRAs and brokerage accounts. And if you’re worried about your portfolio, one of the most important things you can do is diversify your holdings.

If you limit yourself to stocks within the same few market sectors, your portfolio might take a massive hit if the economy tanks and those specific sectors are impacted. But if you branch out so you’re invested across a wide range of market segments, then you’re less likely to see such extreme dips in your portfolio even if the economy worsens.

Now, there are a couple of different ways you can branch out in your portfolio. One option is to simply buy lots of different stocks. You don’t need 100 of them — but you may want to aim for a good 25 or so across a range of sectors.

Another option is to invest in broad market ETFs, or exchange-traded funds. If you buy shares of an S&P 500 ETF, what you’re effectively doing is putting your money into 500 large companies without having to buy shares of each one individually. ETFs are a great choice for investors who are worried about hand-picking the wrong stocks or simply want more instant diversification.

Stay positive, but be prepared for a financial crisis

We don’t know to what extent, if any, economic conditions will worsen as 2023 moves along. And either way, a lot of people are of the mindset that things are pretty bad already, as evidenced by the almost 4 in 10 Americans who think we’re currently in the throes of a crisis.

Either way, a diversified portfolio could be your ticket to getting through a period of economic rockiness with minimal losses. So if you can’t remember the last time you took a look at your holdings, log into your account and see how your money is spread out. And if you’re not happy with your level of diversification, make some near-term changes before it becomes even harder to rebalance your portfolio.

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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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Doing work yourself isn’t always the most cost-effective option. Read on to learn more. 

As a homeowner, one of the things I try to do is make sure the exterior of my house looks nice and presentable. After all, it’s the first thing people see when they come to my door.

And also, I like my home to look nice for me. That’s why I make a point to have flowers planted every spring.

Only I don’t do any of that work myself. Rather, I write a check to my landscaping company to do the work for me.

You’d think that would be the more expensive route to take. But actually, it helps me come out ahead financially.

When you can earn money by bailing on home projects

This year, my landscaper charged me $200 to plant flowers in my front lawn. That cost included labor and the flowers themselves.

I happened to be home when the team came to do the planting. It was a group of three, and it took them about 90 minutes to get the job done.

Since they do this sort of work for a living, it’s fair to assume they’re faster at it than me. And since it took three of them 90 minutes, I think it’s fair to say that it would’ve easily taken me five hours to do the same job.

Also, they had the flowers with them when they showed up at my house. They no doubt had to get them from a local nursery, which surely took time. So really, doing the work myself would’ve most likely been a five and a half hour job.

Now, let’s take the $200 I took out of my bank account and divide it by 5.5. That means I paid roughly $36 an hour to free up five and a half hours in my own schedule. And I’m not even accounting for the cost of the flowers (to be fair, nurseries around here are reasonably priced so it probably wasn’t a lot).

Meanwhile, I’m self-employed, and thankfully, I earn more than $36 an hour. So even when accounting for taxes, I still came out ahead financially by outsourcing the job and using those hours to work rather than doing my own gardening.

Also, by having my landscaper’s team do the work, I was reassured that it was done correctly. I’m not exactly a gardening wiz, and had I done the work myself, I might be looking at a bunch of dying flowers right about now.

Some services are worth paying for

When you’re self-employed, you can often justify the cost of outsourced home maintenance because the time you don’t spend on it yourself is time you can work and earn money. But even if you’re not self-employed, some things may be worth paying for.

If you don’t like to garden or aren’t very good at it, it could be worth it to hire a landscaper if you can afford it. HomeGuide says landscapers typically charge $25 to $50 per hour, per person. Of course, your costs will hinge on the work involved and where you live.

The point, however, is that there’s nothing wrong with paying for a gardener, or for another home serviceperson to take care of tasks you’d rather not do yourself. Granted, if you have zero money in your savings account and a lot of debt, then you may want to push yourself to do more things yourself. But if you’re doing fine financially, you shouldn’t feel bad about outsourcing the work you just don’t want to do.

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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 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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