Money Management

Many people can get away with an emergency fund to cover three months of expenses or less. Read on to see why this writer insists on having much more. 

It’s an unfortunate fact that many Americans do not have enough money in their savings accounts to cover surprise bills and routinely risk credit card debt because of it. A recent SecureSave survey, for example, found that 67% of Americans could not cover an unplanned $400 expense by dipping into their savings.

To be clear, though, a $400 savings account balance, though better than $0, is really not enough to be considered a complete emergency fund. The general rule of thumb is to try to save enough money to cover at least three months’ worth of living costs. And if you can aim for more like six months’ worth, even better.

Now, in the wake of the pandemic, some financial experts have said that an emergency fund to cover 12 months of living expenses wouldn’t be going overboard. Suze Orman is one of them. But the reality is that the typical worker can probably get away with a three- to six-month emergency fund.

I, however, insist on keeping 12 months’ worth of bills in the bank. And I have some very good reasons for it.

When there’s no other safety net to fall back on

Salaried employees who lose a job through no fault of their own can generally qualify for unemployment benefits. Those won’t provide 100% replacement income, but they’ll at least amount to something.

But because I’m self-employed, unemployment benefits aren’t something I’m eligible for. It’s true that at the start of the COVID-19 pandemic, lawmakers changed the rules so gig workers could collect unemployment due to the massive economic crisis at hand. But I’m hoping we’ll never experience a similar event again. And as such, I have to assume that unemployment benefits are perpetually off the table for me. This means that if I were to lose my job, I’d be fully reliant on my savings to cover my bills while looking for work.

Additionally, my income is variable. Many of my bills, however, are not — like my mortgage. As such, I like to have a higher cushion in the bank in case my income takes a hit.

I’m not just responsible for myself

If I were single and lived alone, I’d perhaps have a smaller emergency fund. That’s because I’d be willing to cut back on spending drastically if need be to cope with a period of joblessness.

But because I’m financially responsible for my kids, I wouldn’t want to put them in a position where they might have to pull out of sports or activities, or skip events with their friends, due to money being tight. Also, I’d be willing to eat instant noodles for weeks on end in the event of a lost job. But I wouldn’t want my kids to have to do the same (though to be fair, noodles for dinner every night would probably be their jam). So for their sake, I keep extra money in my emergency fund.

Plus, I happen to have a dog with some medical issues that are manageable at present, but could get worse over time. I wouldn’t ever want money to be the reason he couldn’t get the care he needs. So that, too, inspires me to keep more cash in the bank.

All told, a 12-month emergency fund makes sense for me. It may be more than what the typical American needs, but it’s what I need to be able to sleep at night and not spend my days worrying about money.

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Over the past few years, artificial intelligence (AI) has been making significant strides in finance. Read on to learn more about using AI in investing. 

Over the past few years, artificial intelligence (AI) has been making significant strides in various industries, including finance. One of the biggest areas where AI is making an impact is in investing. AI offers an opportunity to make smarter investment decisions, streamlining processes, and improving results. However, many investors are still hesitant to trust AI to manage their investments, unsure whether it’s worth the investment risk. Here are the pros and cons of using AI to help you invest.

What is AI and how does it work in investing?

AI is a computer system designed to simulate human intelligence. It learns and improves its analysis based on the data it receives. In investing, AI is used to analyze market trends, company performance, and other economic indicators to identify the best investment opportunities.

With AI algorithms constantly learning and improving, they can provide investors with valuable insights that humans may overlook, allowing for more informed investment decisions. Robo-advisors, for example, are virtual financial advisors powered by AI.

Benefits of using AI in investing

One of the primary advantages of using AI is that it can analyze vast amounts of data in a matter of seconds, something that might take humans hours or even days to do. Through machine learning and predictive analysis, AI can help identify trends and patterns that humans would never be able to detect.

By analyzing historical trends and patterns, AI can provide predictions for future stock price movements based on both technical and fundamental analysis. AI can also help reduce the likelihood of human errors as well as create a more accurate and reliable investment plan for both day traders and long-term investors.

Drawbacks of using AI in investing

One of the biggest drawbacks of using AI in investing is the cost. AI software and services can be expensive, especially for individual investors or small firms. Additionally, there is always the risk of algorithmic malfunction or computer error, which could result in substantial losses.

AI algorithms and predictive analysis can’t account for everything, such as unexpected events that could impact the markets, like natural disasters or political upheaval. With so much market volatility and unpredictable external forces impacting the stock market, the decision-making behavior of investors can be difficult to predict accurately.

Should you use AI?

Before investing using AI, consider your investment goals and priorities. Do you value a more hands-on approach to investing, or are you comfortable with a largely automated process using algorithms? Do you prefer working with a human financial advisor or using an investment app like Robinhood?

The bottom line is, AI’s predictions are only as good as the data provided and they can’t account for everything. AI should be utilized to reinforce, rather than replace, human expertise in decision-making processes.

Artificial intelligence is transforming the financial industry. For investors who are willing to embrace the technology and its benefits, there are opportunities to make better investment decisions. However, it is important to weigh the costs and limitations of using AI in investing, as well as the risks involved. Ultimately, a combination of human expertise and AI-powered insights may be the best approach to achieve the optimal investment outcome. So before deciding whether to use AI to determine where to invest, consider your personal finances and investment goals.

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Personal loans are great, but read on to see why this writer won’t use one for just any purpose. 

The great thing about personal loans is that they make it possible to borrow money for just about anything. Need to fix your car? A personal loan could provide you with the money you need to pay for repairs. Want to renovate or start a small business? You can do those things, too.

It’s the unrestrictive nature of personal loans that makes them such a popular borrowing choice. As of the first quarter of 2023, U.S. personal loan balances amounted to $225 billion, according to TransUnion. So clearly, they’re a pretty popular way to borrow.

But I believe that personal loans need to be used judiciously. After all, you’re still taking on debt and committing to ongoing payments. I would not use a personal loan for these three purposes.

1. A vacation

I like to get away just as much as the next person. But I firmly feel that a vacation is something I should be saving up to pay for. And I don’t like the idea of having to finance one, because that means paying more in the form of interest.

Thankfully, I’ve been putting money away in my savings account since the start of the year, so I’m well-positioned to cover the family vacation I’m hoping to take this summer. But if that weren’t the case, I’d either put my trip off or otherwise do something really low-budget, like go camping for a week.

2. Furniture

It’s one thing to take out a personal loan to pay for furniture if you’ve moved into a new home and don’t have any. But my house is loaded with furniture. Granted, most of it has seen better days — we can thank my kids and dog for that.

But because I don’t need new furniture, I can’t justify taking out a personal loan to upgrade the items I already have. Like a vacation, new furniture is something I feel I should save up for since it’s not a need, but rather, a want.

3. A car

Because we live in the suburbs, my family needs to be a two-vehicle household. One of our cars, however, is really old and is basically on its way out, so we’ve been shopping around for a new one, even though car prices are still astronomical.

Now clearly, a car falls into a very different category than a vacation, or even furniture in the case when you already have plenty of it. A car is an absolute need when you live in an area with no buses to get around town, like I do. But I still wouldn’t take out a personal loan to finance a car purchase. Instead, I’d look to apply for an auto loan. Doing so would likely mean snagging a lower interest rate on the sum I’d need to borrow.

Many people like the flexibility personal loans give them. But if you’re thinking of signing one, be careful. These days, borrowing rates are up across the board. And even if you have great credit, you might get stuck with a higher interest rate on your loan. So if you’re going to pay all that interest, it should really be for the right reason.

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An assumable mortgage can help you snag a low interest rate. Read on to learn how to find homes with assumable mortgages. 

If you’re mad at yourself for not buying a home when interest rates hit record lows in 2020 and 2021 — or at any other time when they were lower than today’s rates — there might still be a way to go back in time.

This could be done with an assumable mortgage. This agreement involves taking over a seller’s loan — along with its terms — for basically the price of their equity. Taking over a low-interest mortgage could lower your monthly payments, but it might require more down payment upfront and some flexibility on the homes you buy. Let’s take a look at this type of mortgage and see if it can help you afford a home in 2023.

What is an assumable mortgage?

An assumable mortgage lets a home buyer “assume” responsibility for a seller’s current mortgage, including its loan term, monthly payment, and interest rate. For example, if a seller financed a home two years ago with a 30-year mortgage and a 3.75% mortgage rate, you would assume the low rate and continue paying the mortgage’s term, now 28 years.

How do you qualify for an assumable mortgage?

To be sure, you can’t just walk into someone’s house and take their mortgage. Certain qualifications must be met. For one, the seller’s lender will look at your credit history and debt-to-income ratio and may ask for employment information or proof of income. If approved, you’ll pay a small funding fee to initiate the loan, plus other expenses like a home inspection and title insurance.

Not all mortgages can be assumed. Most conventional mortgages are non-assumable, which leaves you with government-backed loans, such as:

FHA loansVA loansUSDA loans

Most importantly, you have to buy the homeowner’s equity to assume their mortgage. This differs from a traditional home loan, which gives you some flexibility over how much money you put down upfront.

Consider the following example. A homeowner has a 30-year mortgage with a 3.75% rate on a balance that started at $200,000 in 2020. Over three years, they’ve paid roughly $10,000 toward their principal, reducing the balance to $190,000.

In the same span, their home’s market value grew by $75,000. They now have $85,000 in equity, which represents the down payment you’ll need to pay to assume their mortgage.

You can pay this $85,000 in cash, or you can take out a second mortgage to cover the difference. Paying cash is preferable, however, as taking out a second mortgage to cover the down payment might mean paying interest at today’s rates, which kind of defeats the purpose of assuming someone’s mortgage to snag a lower rate.

How do you find homes with assumable mortgages?

Homes financed with conventional mortgages are usually non-assumable, meaning you’ll likely have to find homeowners who took out an FHA, VA, or USDA mortgage to initiate the agreement. And while in the past you would have had to jump through hoops to find this information — possibly going through country records or hoping a real estate agent could find it in a local MLS — many listing agents today are using assumable mortgages as a selling point in listing descriptions.

For example, you can use the real estate site Trovit to find listings with “assumable mortgages” in their descriptions. Just type in “assumable mortgage,” plus the location where you’re looking to buy, and the site will pull up classified listings using those keywords. You can also get notified when new listings pop up advertising “assumable mortgage” in the area you’re looking to buy.

It’s important to note that even if you find a home with an assumable mortgage, it’s ultimately the mortgage lender’s decision to allow a mortgage assumption. If you’re interested in this approach, be sure your personal finances are in good shape. A high credit score, low debt-to-income ratio, and enough savings to pay the homeowner’s equity is a good sign you’re in a position to assume a mortgage.

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You probably don’t enjoy wasting money. Read on to see why you may be doing just that. 

At a time when life has gotten so expensive thanks to inflation, the last thing you can afford to do is waste money. But a good 42% of Americans seem to be doing just that.

How so? A recent report from C+R Research found that 42% of Americans have forgotten about a recurring subscription they’ve kept paying for.

Now, imagine you signed up for a streaming service eight months ago, stopped using it, thought you canceled it, but didn’t. Meanwhile, month after month, you’ve been getting charged for that service on your credit card. That’s not good.

As such, you should definitely review your credit card statements from the past year and see what subscriptions you’re paying for that you may have forgotten about. But while you’re at it, it pays to reassess all of your expenses and make sure the things you’re paying for are really worth your money.

It’s not just subscriptions that are eating up your earnings

We all spend money regularly on essential expenses like rent or mortgage payments, car payments, and food. Those things aren’t negotiable — we need them to function.

But perhaps you’re paying for a host of services you really shouldn’t be. And even if you’re aware of those bills, that doesn’t make them worth spending your hard-earned money on.

Let’s say you got a great deal at your local gym a year ago that allowed you to join for just $20 a month for as long as you want. Some fitness centers charge a lot more than that, so your $20 monthly membership might seem like a great deal.

Well, it is a great deal if you actually go to the gym. If you don’t, then why keep paying?

Similarly, maybe you hung onto your landline because it was a super cheap add-on to your cable TV and internet package. But if you haven’t used it in months, then you might as well dump it — even if it only adds $5 to your monthly bill.

And speaking of cable, if you’re subscribed to a number of streaming services, it may be that you actually don’t need to keep paying for it. If you only watch one or two shows a week, you might manage to find some content on your streaming services that acts as a nice replacement.

Conserve your funds

Cable, landlines, and gym memberships are just a few examples of things people tend to pay for needlessly. The point, however, is that at a time when living costs are so frustratingly high, it’s really important to conserve funds. And that means you need to stop paying for things that aren’t giving you good value.

Now, if you’re subscribed to a streaming service you watch nightly, then by all means, keep it around. But you may find that if you’re willing to dump the services you don’t get great use out of, your bills become much easier to manage on a whole. And you may even have more money left over for the things you really enjoy.

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Many credit card companies allow you to change credit card due dates. Discover two strategies for paying the bills on time. 

The bill arrives. Your payment is due. But your paycheck hasn’t come in, leaving you to squeeze in a minimum payment and hopefully pay off the 30% interest fee next credit cycle. Argh!

Whatever is causing you to do the credit card cha-cha, consider this quick fix: Adjust your credit card due date to match your payday schedule. It’s easy and may help you keep up with bills by staggering or simplifying your monthly payments.

Here’s how to change your payment due date, and the perks of doing so.

How to change your payment date

Call your credit card company. You can typically find the number on the back of your card. A customer representative will pick up, and you can ask them to move the due date. Whether they approve your request may be affected by the following:

Your credit historyYour desired due dateYour credit card company’s policy

Credit card companies are most likely to approve your request if you have a history of paying bills, if you request to move your due date to a weekday, and if the company’s policy allows it. Some companies straight up disallow this. It only costs five minutes or so to check.

You may be able to adjust your payment date through your card issuer’s mobile app. For example, in the Discover app, you tap the “Payments” icon, scroll down, and click “Change Payment Due Date.” In the Chase app, you scroll down, tap “Manage Account,” and then “Request a new due date.”

It’s pretty straightforward. However, some companies (like Chase) may not apply the change until your next billing cycle. In this case, a payment date change may not help you pay whatever you have due right now.

Perks of changing your credit card due date

There are two reasons to change when your bills are due: flexibility and simplicity.

Flexibility: Say you use a grocery credit card to pay for groceries and a cash back card for everything else. Both are due on the 15th. Change the due date of your grocery credit card to the 30th. Staggering dates allows you to spread out payments, which gives you greater flexibility with your money.

Simplicity: Say you have three credit cards, and each is due on a different date. Simplify payments by changing all due dates to the 30th, making tracking deadlines easy.

Generally speaking, staggering payments benefits cardholders who get paid multiple times per month. Combining deadlines benefits cardholders who only get paid once per month.

I stagger payments on the 15th, the 26th, and the 30th. I’ve found that this strategy helps me make timely payments. I get paid four times monthly, and I’m tempted to spend any money I don’t immediately put toward credit card payments on books, food, and nonessentials.

The temptation to spend money just sitting in your checking account can be a real problem for some folks, myself included. Know thyself, and all that.

Other credit card payment strategies

Everyone can benefit from adjusting credit card due dates so they immediately follow paydays. It makes tracking payments simple. For example, if you get paid on the 30th, consider changing your credit card due date to the 1st (or the 3rd, just in case you get paid a little late).

Cardholders can benefit from automatic payments. Forget to pay a bill? No problem. I have my credit account set up to withdraw monthly minimum payments from my checking account, just in case it slips my mind (it’s happened before).

You can typically set up automatic payments from your mobile app. Consider setting it up to pay monthly minimum payments, since missing a payment can tank your credit score.

Most financial experts recommend paying monthly bills in full whenever possible. That way, you don’t rack up credit card interest. The best credit card companies allow cardholders to adjust due dates to meet their financial needs.

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

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