Money Management

You may want the college dorm experience. But read on to see what living at home might cost you instead. 

Living in a college dorm can be a wonderful experience for some people. For others, it can be a disaster. Often, dorm living means cramped quarters, having to share a bathroom with 11 other people, and getting absolutely no privacy whatsoever.

Then there’s the cost to consider. At public four-year colleges, students living on campus pay an average of $11,557 a year for room and board. At private colleges, they pay an average of $12,857 a year.

These aren’t small amounts of money by any means. So you could save a bundle by living at home rather than living in a dorm. But you may also not save as much money as you expect to.

What will your costs look like at home?

For many people, living in a dorm means having their meals covered. When you live at home, someone needs to pay for your food. That someone may be your parents, but it’s a cost to consider nonetheless.

You should also consider the cost of having a car when deciding whether to move into a dorm or live at home. Some colleges don’t even allow freshmen students to have a car on campus. And even if it’s allowed, you may not need one. And that can be a huge amount of savings.

Progressive says that in medium-cost states, auto insurance tends to average $100 per month. Your costs may be higher as a younger driver, and also, depending on where you live.

And also, you might have to cover auto loan payments on a car if your parents don’t have one to lend you. So all told, while you might save money by skipping the dorm, your savings may not end up being as substantial as expected.

Look at the big picture

Let’s say you’re looking at a $12,000 tab to live in a college dorm for the upcoming academic year, and you’re looking at $6,000 for that same timeframe when you factor in the cost of food, a car loan, and auto insurance. Clearly, you stand to save money by commuting from home.

But what you gain in the form of money in your savings account, you might lose out on in the form of the college experience. If the idea of living in a dorm room, bonding with roommates, and having easier access to your classes sounds appealing, then it may be worth it to shell out the extra money, even if it means spending more in the course of getting your degree.

But if you’re not so keen on dorm living in the first place and you’re looking to minimize your debt, then you may decide to live at home and commute instead. This might be an especially economical choice if you don’t need a car to get to college because you have access to low-cost public transportation.

Ultimately, do know that the decision you make for your freshman year doesn’t have to be set in stone. If you end up living at home and don’t love it, you could always plan on moving into a dorm for your sophomore year and beyond.

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Do you really want to burden your children financially when you’re retired? If not, read on to see how you can avoid that. 

It’s an unfortunate fact that a lot of people wind up cash-strapped in retirement. And in those situations, sometimes, adult children can wind up getting burdened at a time when they’re also trying to raise families of their own.

But while it’s one thing to have to fall back on your grown kids in a pinch, it’s another thing to plan on it. And in a recent Natixis report, 12% of respondents say they’ll count on help from their children to cover retirement costs.

If the idea of that doesn’t sit so well with you (or your kids, for that matter), then it’s imperative that you ramp up your IRA contributions. Saving more money consistently could make it so you’re able to cover your own retirement expenses without having to turn to anyone else for help.

It pays to prioritize your IRA

Funding an IRA can be a difficult thing when you have various bills, from car payments to a mortgage loan, to cover. But if you don’t make an effort to prioritize your IRA, then not only might you suffer once your retirement rolls around, but your grown kids might suffer, too.

Unfortunately, many of the expenses you face during your working years are expenses you’ll continue to be on the hook for in retirement. You might manage to shed a few costs, like commuting expenses and, if you’re lucky, your mortgage. But you’ll still need to pay for transportation, food, utilities, and healthcare, among other things. And it’s important to build up a solid enough nest egg to cover those costs in full.

So, let’s say you’ve been putting IRA contributions on the back burner to the point where you only have $5,000 in savings, but you’re also 50 years old and still a good 15 years away from retirement. At that age, your annual IRA contribution maxes out at $7,500 (the limit is $6,500 if you’re under 50 years old).

If you manage to sock away $7,500 in an IRA for the next decade and a half, and your investments generate an average annual 8% return, which is a bit below the stock market’s average, you’ll end up with an IRA balance of almost $220,000. That, combined with income you receive from Social Security, may be enough to help you avoid hitting up your grown kids for money later in life.

Also, do note that the current $7,500 annual contribution limit for IRAs will likely increase over time. If it does, it would pay to ramp up your contributions accordingly.

Make that commitment

You might think you’re doing right by your kids by spending money on them and putting less into your IRA. But if you don’t make your IRA contributions a priority, you might end up significantly burdening your children during their adulthood.

If that’s a situation you want to avoid, take a closer look at your spending and make changes that allow more money to land in your IRA. And if you’re older and don’t have too much time left before retirement, definitely do your best to max out your contributions from now until your career wraps up.

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A 0% APR credit card can save you money on interest charges. Find out why it’s important to pay off your balance before you lose that promotional rate. 

A 0% APR credit card can be an excellent financial tool. These credit cards offer no interest for a set time. Some cards offer 0% APR on purchases, while others offer 0% APR on balance transfers when you transfer existing credit card debt to your new card. However, you won’t be able to enjoy 0% interest forever. That’s why paying off your debt before the no-interest period ends is essential. Not paying off your debt in time will cost you.

How 0% APR credit cards work

0% APR credit cards offer no interest for a set time, usually six to twelve months or more. Some card issuers have no interest offers of 15 or 18 months. Choosing a card that offers a lengthy no-interest period will give you more time to pay down your debt. During the promotional period, you won’t incur interest charges. Make sure you review the card details to verify whether the 0% APR offer applies to purchases, balance transfers, or both.

You can use these cards in two ways. Some consumers use no-interest cards to avoid credit card interest charges as they pay for new purchases over time. Others get balance transfer credit cards to consolidate existing credit card debt and avoid additional interest charges while they pay it off. When used carefully, these cards can help you save money.

Pay off your balance before the promotional period ends

When using a 0% APR credit card, you’ll want to prioritize paying off your balance in full before the promotional period ends. Before getting your card, consider your total expected balance and determine how much you’ll need to pay each month to pay off your debt on time.

Let’s imagine you get a new no-interest card and charge a $2,400 purchase. If the card issuer offers 0% APR on new purchases for 15 months, you must pay off the $2,400 charge within 15 months to avoid interest. That means you’ll need to pay $160 every month.

It’s also important to pay at least the minimum amount due and pay your credit card bill every month. Otherwise, you’ll likely be charged a late fee. Additionally, some credit card issuers revoke the 0% APR offer for cardholders who miss a payment or make a late payment.

Here’s what happens if you don’t pay off your debt in time

Whether using your card to pay no interest on new purchases or balance transfers, paying off the balance before the 0% APR period ends is recommended. If not, you’ll be charged interest on the remaining card balance. It’s essential to review the details of the 0% APR credit card offer to ensure you understand the offer rules and timeline. If not, you may make a mistake that negatively impacts your personal finances.

Is a no-interest card right for you?

A 0% APR credit card could be a good fit for you if you feel confident you can afford to pay your balance off in full before the promotional period ends. It’s worth noting that not every consumer will qualify for this type of credit card. For the best chance of approval, you’ll want a good to excellent credit score before applying for a no-interest card. If you decide to use this kind of credit card, review all offer details and have a plan for how you will pay off your debt.

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Nearly all lenders should allow you to make extra mortgage payments. But it’s not always a good idea. Here’s a look at what happens. 

A typical mortgage has a 30-year term, meaning you don’t actually own your home until you’ve made payments for roughly a third of your life. So it makes perfect sense you might consider making some extra mortgage payments — i.e., payments in addition to your required monthly payments — a few times a year to try and shorten your sentence.

Most mortgage lenders will be happy to let you make extra payments. Modern mortgages rarely include prepayment penalties. But just because you’re allowed to make extra payments doesn’t mean it’s the right move.

Here’s a look at what happens when you make extra mortgage payments.

Designated early payments

Any mortgage payment you make over and above your regularly monthly payment will still be applied to the current month. They’re considered to be extra payments and not early payments. In other words, making an extra payment in May doesn’t mean you can pay less in June. You’ll still be expected to make your regular June payment.

In most cases, if you want to prepay your mortgage payment for a future month, perhaps because you’ll be on vacation, you’ll need to contact your mortgage lender. It can specifically designate your additional payment as an early payment so it correctly applies to the next month.

Paying down your principal

The fact that extra payments count toward the current month is actually a good thing. It means those additional funds go entirely toward paying off your loan principal.

What many folks don’t realize is that a big portion of your ordinary monthly mortgage payment actually goes to paying the interest fees (especially in the first few years). Since only a small portion of your payment goes to the principal, it can take years to make much progress.

Even one or two extra mortgage payments a year can help you make a much larger dent in your mortgage debt. This not only means you’ll get rid of your mortgage faster; it also means you’ll get rid of your mortgage more cheaply. A shorter loan = fewer payments = fewer interest fees.

You can — but should you?

Alright, so we’ve seen what happens when you make extra payments. Now it’s time to consider if it’s actually a good idea. While there are certainly benefits to making extra payments, it might be the wrong move for some homeowners.

For instance, if you were lucky enough to pick up a mortgage when rates were at record lows — they got down into the 2% to 3% range before they spiked again — then making extra mortgage payments may not be the best use of your money. Instead, you should work on paying off other (read: higher interest) debts.

If you’re debt free (good job!), that money could probably be better used in a retirement or brokerage account. Barring all that, even just putting that money in a high-yield savings account could provide double the return on your investment than you’d get from extra payments on a low-interest mortgage loan.

That being said, if your mortgage has a higher interest rate — current rates are over 6% — well, then that could be a different story. You’ll be hard-pressed to get a 6% return on a savings account, so it could be beneficial to make a principal-only payment a few times a year.

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Paying off a personal loan ahead of schedule could save you money. Read on to see if that’s a good move, or if you should bulk up your savings instead. 

As of the end of 2022, U.S. personal loan balances sat at $222 billion, according to TransUnion. That means they’re clearly a popular borrowing choice.

One of the nice things about personal loans is that they allow you to borrow money for any purpose. You can take out one of these loans and use the proceeds to fix up your car, improve your home, or start a business if that’s something you’ve always wanted to do.

Also, personal loans tend to offer competitive interest rates. Granted, the higher your credit score, the more affordable your interest rate is likely to be. But still, you may find that borrowing via a personal loan results in much lower interest changes than racking up a balance on a credit card.

But even though the interest rate on your personal loan might be reasonable, you should know that the sooner you pay your loan off, the less money you’re apt to spend on interest. As such, if you come into extra money (say, due to a raise at work), you may be inclined to use it to pay off your personal loan ahead of schedule. But before you do that, ask yourself whether your savings could use a boost.

Make sure you’re covered for emergencies

Your primary financial goal should be to have a fully loaded emergency fund — one with enough money to cover at least three full months of living expenses at a minimum, and ideally more like six months’ worth. If you don’t have that amount of cash in your savings account, then you should take any extra money that comes your way and put it in the bank.

READ MORE: Emergency Fund Calculator

It’s true that the interest rate on your personal loan may be higher than the interest rate your bank is paying you on your savings. But if you don’t have a complete emergency fund, you might land in debt when an unplanned bill comes your way, or if you lose your job and it takes a while to find a new one. And at that point, your borrowing options may not be so affordable.

It’s all about priorities

When you have a limited sum of money to work with in any context, it’s important to set priorities. And so if you’re torn between boosting your savings and paying off a personal loan balance early, you’ll need to assess your emergency fund and see if it’s complete. If not, your money should go there first.

But if you happen to have a nice, robust emergency fund — one with enough money to cover half a year’s worth of expenses — then you can, and should, feel free to put extra cash you come across into your personal loan to get it repaid sooner. Personal loans generally do not charge a penalty for early payoff (though it’s always best to read through your loan documents just to make sure). So if you’re able to whittle yours down a little bit sooner, you stand to benefit financially.

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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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Inflation levels have been dropping. Read on to see how that might impact your portfolio. 

In June 2022, annual inflation, as measured by the Consumer Price Index (CPI), reached an astounding 9.1%. Thankfully, inflation has been slowly but steadily declining since hitting that peak. And in April 2023, the CPI came in at 4.9% for annual inflation.

That’s not great, as the Federal Reserve has made it clear that it wants to see inflation at 2%. It’s this level, the Fed feels, that’s most conducive to economic stability. And from a consumer spending perspective, 2% inflation is clearly a lot more palatable than 4.9% inflation.

If inflation continues to soften, it could cause the Fed to hit the brakes on interest rate hikes. Those rate hikes have been making it more expensive for consumers to borrow across a range of products, from auto loans to personal loans. But cooling inflation might also be a good thing for your brokerage account.

Ready for a break from a volatile stock market?

A big reason the stock market has been so volatile for the past year and change is none other than rampant inflation, and the resulting interest rate hikes on the part of the Federal Reserve. If inflation continues to slow down, it might, in turn, allow the stock market to calm down. And that could give investors a chance to regroup, reassess their portfolios, and make changes without having to worry about taking losses in the process.

Because the value of your investments has the potential to change over time, it’s a good idea to examine your portfolio and do some rebalancing every so often. That could mean selling certain stocks and replacing them with stocks from different market sectors to attain the optimal level of diversification.

But it’s hard to rebalance and sell stocks when the market is volatile because often, doing so will mean locking in losses. And that’s clearly not something any investor wants to do. So if inflation cools and results in a period of stock market steadiness, a lot of people might benefit.

Also, cooling inflation could help quash some of the recession fears consumers and investors alike have been harboring. That, too, could be a good thing for your portfolio. In fact, if inflation cools enough, it could help spur a stock market rally, allowing investors who lost a fair amount of money in 2022 to get to a better place.

Will inflation levels keep dropping?

Based on the pattern we’ve seen over the past 10 months or so, it’s fair to assume that inflation will, indeed, continue to cool. That doesn’t mean we’re going to get to 2% inflation in 2023, though. And it also doesn’t mean the Fed is going to stop raising interest rates this year (though there’s also a good chance it will).

But either way, if inflation continues to taper off, it could end up being a great thing for investors. So if you’re not particularly thrilled with the state of your brokerage account at present, remind yourself that things very much have the potential to get better.

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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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