Money Management

Investing money is a smart thing — but only once your emergency fund is complete. Read on to learn more. 

A recent SecureSave survey found that 67% of Americans don’t have enough money in the bank to cover an unplanned $400 expense. So if you have enough money in your savings account to cover three months of essential expenses, you’re clearly in pretty good shape.

In fact, at that point, you may be inclined to consider yourself done on the emergency savings part. And you may be eager to take all of your incoming money that you don’t need for bills and invest it in a brokerage account instead. That way, you might snag a higher return than what your savings account pays you in interest, even with rates being more generous today.

But should you really call it quits on the emergency fund front when you’ve reached the three-month mark? Or should you be aiming higher?

Some people need extra protection

A three-month emergency fund buys you a lot of protection in the face of unplanned bills and job loss. But in some cases, saving beyond that point could be a good idea. In fact, some financial experts, such as Suze Orman, will tell you that you ought to aim for enough emergency savings to cover six months to a year of bills.

If you’re not sure whether to really call your emergency fund complete at the three-month mark, you may want to ask yourself these questions:

Am I the sole earner in my household? If you are, and you have multiple dependents who aren’t capable of contributing financially to your household (say, kids in elementary school), then you may want to boost your emergency fund in case you lose your job.

Do I have many non-negotiable bills? It’s one thing to cut back on leisure spending and things like cable and streaming services if you’re forced out of a job and money gets tight. But if you have many locked-in bills you can’t shed, like a mortgage and car payment, you may want to save beyond three months of expenses.

Do I work in a niche industry or have a highly specialized role? If you’re a bookkeeper and lose your job, chances are, you’ll find another company that needs your services in due time. But if you work a very specific job with unique skills and requirements, you may want to pad your savings in case you’re laid off and it takes a lot longer than three months to become gainfully employed again.

A personal but important decision

Investing your money in stocks and other assets could help it grow beyond what a savings account will allow for. So if you have your three-month emergency fund, you may feel comfortable putting your extra cash to work in a brokerage account.

But in some cases, a three-month emergency fund may not cut it. So run through the above questions and ask yourself whether you’re really set with three months’ worth of savings. If not, you may want to hold off on investing just a bit longer so you can build up more cash reserves.

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Owe money on a credit card? Read on to see how your balance compares to the typical American’s. 

Consumers commonly rely on credit cards to finance purchases. And using them can be a bit of a mixed bag.

On the one hand, charging expenses on a credit card means getting to rack up rewards or cash back. That’s basically free money (or the equivalent in something like gift card form) for items you were already planning to purchase, like groceries.

On the other hand, failing to pay off a credit card balance in full could have negative consequences. For one thing, too high a balance could damage your credit score — and that holds true even if you’re able to make your minimum payments month after month.

But perhaps even more problematic is the fact that the longer you carry a credit card balance, the more interest you might accrue. And you could reach the point where you end up paying more money in interest than the amount you originally charged on your card.

As of the first quarter of 2023, the average U.S. consumer with a credit card balance owed $5,733, according to TransUnion. That’s a pretty big jump from the average balance a year prior, which was $5,010.

But no matter what your credit card balance looks like, it’s best to do what you can to get it paid off as quickly as possible. Here are some tips for doing that.

1. Get on a budget

The more detail-oriented you are when it comes to your money and spending, the easier it might be to free up cash month after month and apply it to your outstanding credit card debt. So take an hour out of your week to set up a budget, and then make a point to stick to it, even if it means having to limit what you buy. The money you don’t spend is cash you can use to get out of debt and avoid losing even more money to interest.

2. Pick up a side job

Even if you do a great job of not spending your entire paycheck and freeing up cash for your credit card balance, if you owe somewhere in the ballpark of $5,733, putting $100 here or $200 there into your balance might still have you paying it for quite some time. In that case, it’s a good idea to get a side hustle and use your earnings to chip away at your debt more aggressively. That job can be pretty much anything that works for your schedule and allows you to earn a decent wage.

3. Look at a balance transfer

Part of the reason so many people get trapped in a cycle of credit card debt is that they keep accruing interest at a rapid clip. That’s why it pays to look at a balance transfer. Many of these offers allow you to move your existing credit card balances over to a new card with a 0% introductory interest rate. By getting a reprieve from racking up interest for a period of time, you’ll have an opportunity to chip away at your principal balance in the hopes of eliminating it for good.

Maybe you owe more than $5,733 on your credit cards. Or maybe your balance, thankfully, is quite a bit lower. Either way, the sooner you’re able to shed that debt, the better, so take these steps to rid yourself of your credit card balance as soon as you can.

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Personal loans can be a convenient borrowing option, but you don’t want to get in over your head. Read on to learn more. 

There’s a reason consumers are commonly drawn to personal loans. For one thing, these loans tend to come with competitive interest rates. You might lock in a much lower interest rate on a personal loan than you’ll get by charging expenses on a credit card.

And in the latter case, your card’s interest rate has the potential to climb while you’re in the process of paying off your balance. Personal loans come with fixed interest rates, so your monthly payments are nice and predictable.

Also, personal loans allow you to borrow money and use your proceeds for any purpose, whether it’s renovating a house or starting a business venture. When you take out a mortgage loan, for example, you can only use the proceeds to purchase a home.

Recent data from TransUnion reveals that total U.S. personal loan balances reached $225 billion during the first quarter of 2023. And the average personal loan balance per borrower was $11,281.

If you’re in the process of shopping around for a personal loan, you may be looking at borrowing a similar sum. But before you sign your loan, make absolutely sure you can afford those monthly payments.

Don’t get in over your head

Because personal loans are flexible and commonly touted as affordable, it’s easy to go overboard when taking one out. If you have great credit, you might qualify for a fairly large personal loan. But qualifying for a loan doesn’t automatically mean you can afford the payments that come with that loan. And you don’t want to end up in a situation where you fall behind on your payments and your credit score takes a massive hit.

As such, before signing a personal loan, do these two things:

Figure out what you’re borrowing for and do your best to accurately estimate the cost.Figure out what monthly loan payment actually works for your budget.

Let’s say you’re borrowing money to renovate your house, and you have a few different projects you want to tackle. Rather than randomly apply for a $15,000 loan because you think that’ll cover everything you need to do, get estimates or do research to see what your projects will actually cost. If the total only comes to $12,000, borrow that — not $15,000.

What’s more, look at your essential bills, compare them to your paycheck, and see how much room you have left over for personal loan payments. If you can only swing a monthly payment of $300, don’t take out a loan that will have you paying $400 every month.

Will personal loan balances keep climbing?

At the end of 2022, total personal loan balances amounted to $192 billion, and they’re now at $225 billion. That represents a year-over-year growth of 26.3%. As such, it’s fair to assume that consumers will continue to turn to personal loans to meet their financial needs. But you should still be very careful when taking out one of these loans of your own.

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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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Wondering how your emergency fund stacks up? Read on to see how much savings the typical American is sitting on. 

You’ll often hear that it’s important to have money in your savings account for unexpected bills, or to get through a period of joblessness. Without emergency savings, you might otherwise end up with costly credit card debt, and that’s something that has the potential to ruin your finances for many years.

A recent New York Life survey found that among Americans who have an emergency fund, the average amount saved in it was $16,776.18. But is that what your emergency fund should look like? Not necessarily.

Your emergency fund is all about you

Your emergency fund should be set up to get you through a personal crisis. As a general rule, it’s advisable to have enough money in emergency savings to cover a minimum of three months of essential living expenses. For added protection, you could aim for six to 12 months’ worth of bills. That’s a good goal if you have a household full of dependents and you’re the only one who works and earns an income.

Now, it happens to be that the typical American with an emergency fund has $16,776.18 saved up. But that doesn’t mean that’s the most appropriate amount for you to save.

Rather, what you’ll need to do is take a look at your essential expenses and see what they total on a monthly basis. These could include:

Mortgage or rent paymentsCar payments and transportation costs, like gas, tolls, and parkingFoodUtilitiesHealthcareEssential tech services, like an internet connection at home and a cell phoneChildcare

From there, you can see what your emergency fund needs entail.

Let’s say you add up your essential bills and see that they come to $3,500 a month. A three-month emergency fund puts you at $10,500. So in that case, even if you’re not sitting on a savings balance of $16,776.18, you’re in pretty decent shape if you have $10,500 or more in the bank.

On the other hand, let’s say you total your monthly expenses and realize it costs you $6,000 a month to cover your essential bills. Maybe you have an expensive mortgage and high childcare costs that are driving that number up. In that case, a $16,776.18 emergency fund actually doesn’t cut it — even though that’s a lot of money to have in savings.

Make sure you’re covered

You never know when you might need to access cash in a pinch. Even if you don’t end up losing your job, you could run into issues with an expensive home or car repair that your regular paycheck can’t come close to covering. You might also, unfortunately, end up needing medical treatment that leaves you owing thousands of dollars to your various healthcare providers.

Having a fully loaded emergency fund is the best way to secure the financial protection you need. But rather than fixate on what the typical American has socked away for emergency expenses, think about the amount of money you need to make sure you don’t land in debt.

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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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It’s important to actively invest your 401(k). Read on to see why. 

As of March 2023, the average 401(k) plan balance was $78,800, according to Bank of America. That’s down from $86,000 from a year prior. But it’s also not so shocking, seeing as how the stock market had a pretty volatile year.

No matter what your 401(k) plan balance looks like, it’s important to take an active role in investing your money. If you don’t, you may not end up happy with the results.

Take control of your 401(k) plan

It’s wise to invest your 401(k) so your money grows into a larger sum over time. And if you don’t choose investments for your 401(k), you might automatically have your plan invested in a target date fund. Most 401(k)s have target date funds as their default option when savers don’t choose their own investments.

A target date fund is a fund that adjusts your asset allocation as a specific milestone nears. In the case of a target date fund for retirement, what will generally happen is that you start off investing in more aggressive assets, like stocks, and then shift toward more conservative ones, like bonds, as your target milestone — retirement — gets closer.

Now, there is a benefit to investing your 401(k) plan in a target date fund, and it’s that you don’t really have to put much thought into the process. Rather, your target date fund will do the work for you.

To put it another way, a target date fund is one of those “set it and forget it” investments. And if that’s what you want, then you may end up happy with that choice.

But target date funds have their downside. For one thing, these funds will sometimes invest too conservatively. That could mean ending up with less savings once you’re ready to kick off retirement.

Also, target date funds are notorious for charging high fees. Those fees could eat away at your 401(k) returns over time, leaving you with — you guessed it — less money.

Don’t sit back and do nothing

Investing a 401(k) plan can be tricky. Unlike IRAs, which allow you to invest your retirement savings in individual stocks, 401(k)s generally do not give you this option. Rather, you’re limited to different types of funds.

But it could work to your benefit to invest in broad market index funds rather than target date funds. Index funds tend to come with much lower fees because they’re passively managed — they simply track the performance of different market indexes, like the S&P 500. And you might end up with better returns from an index fund that’s stock-focused than a target date fund, which may invest your money more conservatively.

All told, a lot of people invest their 401(k)s in target date funds. But that doesn’t make them the best choice. So rather than let your 401(k) effectively invest itself, do yourself a favor and choose your own investments. And if you’re eager to buy individual stocks but can’t do so in your 401(k), consider opening a brokerage account and holding some stocks there to further diversify your total 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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Consumers trust American Express more than any other credit card company. Find out why and see if you should get one of its credit cards. 

Trust is an important factor when choosing a credit card issuer. You want one that you can count on for customer service, to have your back if you need to dispute a transaction, and to provide all the benefits it advertises.

American Express is the most trusted card issuer, according to a recent credit card study by The Ascent. An impressive 86% of Americans said they found American Express to be trustworthy. Next on the list, in terms of trustworthiness, were Capital One (84%), Chase (82%), and Discover (81%).

This doesn’t come as a surprise, as American Express has a great reputation among consumers. If you’re considering applying for any American Express cards, here’s what makes this card issuer special.

It consistently ranks No. 1 in customer satisfaction

American Express was the top card issuer in the J.D. Power 2022 U.S. Credit Card Satisfaction Study. It scored 848 on a 1,000-point scale, 34 points above the average for national card issuers.

What’s most impressive is how American Express has consistently provided excellent customer service. J.D. Power has been doing its credit card satisfaction surveys for 16 years. American Express has been first in 12 of them.

No one wants to contact their credit card’s customer service department, but if you need to, you hope for the experience to go as smoothly as possible. That’s one of the benefits of having an American Express card. There are multiple ways to get in touch with customer service, including by phone and live chat. Wait times are usually short, and representatives are good at resolving your issue so you don’t need to keep calling back.

American Express offers its own purchase and travel protections

Many American Express cards offer complimentary protections on eligible purchases. Examples include:

Purchase protectionReturn protectionExtended warrantyTravel insurance

At first, this might seem like no big deal. Lots of credit cards from other card issuers offer these kinds of protections, too. But there’s one huge advantage to getting these protections through American Express.

American Express provides these benefits and handles claims itself. Other card issuers provide these benefits through third-party companies.

The result is that the claims process tends to be a lot easier with American Express. Many consumers have reported online that they’ve had much better experiences filing claims with American Express. Specifically, they say that there’s less back and forth required, and that American Express is more likely to approve claims.

American Express handles disputes itself

Another notable difference between American Express and most other card issuers is that it’s also a payment network. Chase and Capital One, for example, are strictly card issuers. Their cards are on the Visa and Mastercard payment networks. American Express, on the other hand, issues cards and processes payments.

This can be helpful if you need to dispute a credit card transaction. If you have a Chase Visa card, you’d need to file a dispute with Chase. Chase then passes that information on to Visa, the payment network, which handles the dispute and decides whether to side with you or the merchant.

If you have an American Express card, it’s much different. You file your dispute with American Express, and American Express decides whether to side with you or the merchant. You get to provide your evidence directly to the payment network, instead of providing it to the card issuer. This doesn’t necessarily mean you’re more likely to win a dispute with American Express, but it doesn’t hurt.

In addition to being the most trusted card issuer, American Express also has one of the best credit card lineups. It offers excellent rewards credit cards, and plenty of travel cards, including several with popular airlines and hotels. You have plenty of card options with American Express, and if you get one, you can expect a high level of service.

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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.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase, Mastercard, and Visa. The Motley Fool recommends Discover Financial Services and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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