Money Management

As a homeowner, I’ve committed to saving for surprise expenses and avoiding deferred maintenance. Here’s why, along with some details on other key rules I’ve put in place. 

When I got a mortgage and bought my own property, I wanted to make sure I was making a good investment. That’s because buying a home isn’t just about finding a place to set down roots. It’s a major financial decision.

To make sure I didn’t end up regretting the impact buying had on my financial life, there are three rules I’ve set for myself as a homeowner. Here’s what they are.

1. Save up for surprise expenses

One of the main rules I set for myself was a rule designed to ensure I wouldn’t be caught off-guard by unexpected expenses associated with owning my own place.

As a homeowner, I don’t have a landlord to turn to who can help me make repairs if something breaks. It’s up to me to cover the costs when the fridge goes on the fritz or some other major or minor problem develops.

The Bureau of Labor Statistics report on consumer spending indicates the average spending on home maintenance, repairs, insurance, and other expenses came in at $2,335 in 2021. To make sure surprise home expenses don’t send me into debt, I’ve committed to saving 1% of my home’s value each year for repairs that may come up.

This is a rule I never break by setting up a transfer of the required amount each month into a special home repairs savings account.

2. Avoid deferred maintenance

Another major rule I set for myself was to avoid deferred maintenance. If something breaks — even if the issue is minor — I aim to get it fixed within a month. I also stay on top of routine tasks, like changing the air filters in my home regularly.

By avoiding deferred maintenance, I make sure my house doesn’t end up with a bunch of little stuff that’s broken and affects my enjoyment of the place and lowers its property value. This also ensures that little problems don’t turn into big issues and that I’m not going to get stuck paying a bunch of repair costs all at once.

3. Keep housing costs below 25% of my income

Finally, my last rule had to do with how much house I bought. I made sure to keep my housing costs below 25% of my income, even though lenders were willing to lend me more money than that since I don’t have any other debt.

It was important to me to set this rule and stick to the spending limit I was comfortable with so I didn’t end up house-poor. I didn’t want my mortgage loan payments to be so big that I had to work more than I wanted to or had to give up on other important goals.

By following these three rules, I’ve been able to cover any unexpected issues at home without stress. I’ve also been able to continue working toward my key financial objectives while enjoying living in a well-cared-for house.

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A salary advance can help you get money fast. But is it a good idea to borrow against your paychecks? Read on to find out when it’s a smart idea. 

A salary advance is a way to get your paycheck faster, without having to fall prey to payday loans and other forms of predatory borrowing. Their interest rates can be higher than other personal loans, but for those confronting an emergency, they can be a quick way to finance a surprise expense. Let’s take a peek at these loans and see when they’re a good idea — and when you’re better off avoiding them.

What is a salary advance?

A salary advance is a loan that fronts you a portion of your paycheck before the day you’re normally paid. They can be broken down into two main groups: those offered by banks and credit unions (small-dollar loans) and those offered as a benefit by employers (salary advances).

Small-dollar loans: These are bank loans that have interest rates and fees. The amounts are typically small — hence the name — and the loan term will be short, usually a few months.Employer-sponsored salary advances: These are offered by employers, usually as an employee benefit. Your employer will give you a percentage of your next paycheck today (say, 80%), and it’ll deduct what you borrow when your paycheck is actually cut. Some employers don’t charge interest, while others will charge only fees to cover the extra accounting work.

When is it a good idea to take out a salary advance?

Getting a personal loan with your paycheck attached as collateral may seem like a risky idea. But in some circumstances, it’s the only financial tool you have. Here are some situations that justify taking out a salary advance:

You’re facing health issues. When it comes to your health, time is money. Getting a salary advance to cover hospital expenses, especially when you don’t have a credit card, might mean seeing a health expert faster.You have a loved one in a medical emergency. This is especially important if the loved one lives far and you need money to travel. Normally, I wouldn’t recommend taking out a loan for traveling. But in this case, seeing a loved one in a medical emergency is more important than any interest or fees you might pay on a salary advance.You need to fix your car. If not having a car would cost you money — such as taking unpaid time off — then fixing the car is essential. In this case, it would be better to get a salary advance and get the car back on the road than wait.Your home has structural damage. You don’t want to live in a home that puts your health in danger. For homes that need major structural repairs, a salary advance can accelerate the timeline.

Should you take out a salary advance?

A salary advance can help you in situations that require cash now. If you don’t have other financing options, such as a credit card, a salary advance can help you take action when time is of the essence.

That said, I wouldn’t depend on salary advances for nonessential spending, such as funding a vacation, wedding, or birthday party. I would also be wary of taking a salary advance when doing so would jeopardize paying bills, credit cards, and your daily necessities. For example, it doesn’t make sense to use a salary advance to cover car repairs, if by doing so you can’t pay for groceries for the next three weeks.

If you have a decent credit score, I recommend using a 0% APR card for most urgent expenses. These cards don’t charge interest for unpaid balances for a specified period of time, usually six to 18 months. They can help you avoid getting salary advances, while also saving money on interest and fees.

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

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Open houses are crowded and don’t provide a real chance to take a close look at the home or get questions answered. Find out what I do instead. 

I’m currently in the market for a new house after accepting an offer on our current home. I want to see several different properties before I move forward with getting a mortgage and putting in an offer of my own. And I don’t want to just buy a house — I want to buy the right house where I can hopefully stay put for a while.

Although I want to visit a number of different properties before I move forward with buying one, I am steering clear of attending open houses. There are a few key reasons why.

Open houses can be crowded

One of the biggest reasons why I don’t want to go to open houses is because they can be really crowded. This is especially true in the area where I’m looking for homes, which is a popular neighborhood that is something of a tourist attraction in the area. Many people tend to visit open houses there, even if they aren’t really interested in buying, just because they want to see what the homes look like.

The last thing I want to do when I’m considering buying a house is navigate around a big crowd of people in order to try to see the features of the home or make an assessment about whether it will work for our family. The big crowds can be a distraction and cause me to miss important things that would help me decide if the home is a good fit.

It’s harder to get questions answered at an open house

At many open houses, the real estate agent who is running things tends to be busy talking to the many visitors in the home. In fact, I’ve seen real estate agents trying to solicit business at open houses I’ve attended, and it has sometimes seemed as if they are more focused on what the open house can do for them in helping them find clients rather than focusing on selling the home in question.

When I visit a property, I want to be able to get one-on-one attention from the listing agent so if I have questions as I move through the rooms, I can get them answered. There’s a lot to think about when looking at a property, and if I have several questions, I may forget some of them while waiting in a crowded line for my turn.

I’d rather set up a private showing to avoid the feeling of competition and take my time to see the home

The bottom line is, open houses can make me feel stressed if I see a lot of people at the house because I’ll worry I have a lot of competition. There’s no reason to experience this undue stress when the open house is the least optimum way to explore a property.

That’s why I steer clear of going to them and instead I work with my real estate agent to set up private showings of any home I may be interested in buying.

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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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Have an executive membership at Costco? Read on to see if it’s worth hanging onto. 

Years ago, I made the decision to upgrade my basic Costco membership to an executive membership. And I haven’t gone back to a regular membership since.

Since I do a lot of shopping at Costco, an executive membership makes sense despite the higher cost, which is $120 versus $60 for a basic membership. But if you’re not sure whether your executive membership is worth keeping, then there are two main questions you’ll need to ask yourself.

1. Am I getting at least $60 in cash back?

The upside of paying for an executive membership is getting 2% cash back on every Costco purchase you make, including online purchases. You might earn enough cash back for your executive membership to pay for itself. But if you’re not earning at least $60 back in Costco cash, then you’re basically losing money with an executive membership.

Comb through your Costco spending from the past year and see if it amounted to at least $3,000, 2% of which is $60. That $3,000 in spending represents your breakeven point. If you’re spending even just a touch more than that, your executive membership is worth it.

2. Am I benefiting from other executive member perks?

Executive members at Costco get access to other benefits beyond 2% back on their purchases. But if you’re not using those benefits and you’re not spending enough to make up your extra $60, then an executive membership isn’t worth keeping.

If you buy auto insurance through Costco, for example, as an executive member, you can get access to added benefits that include roadside assistance, glass repair reimbursement, and lockout assistance. And if you buy pet insurance through Costco, as an executive member, you’re eligible to have your enrollment fee waived.

In some cases, it could be worth it to keep an executive membership even if you’re not quite getting your extra $60 back as long as you’re using these other benefits. But if not, then it may be time for a downgrade.

Finally, Costco executive members are eligible for a monthly edition of The Costco Connection magazine. Now I’ll admit that this isn’t a particularly compelling perk for me. But the magazine does tend to feature different offers and information about Costco and its products, which you might find interesting. That said, it certainly doesn’t pay to spend money on an executive membership for the sole purpose of getting the magazine.

Don’t pay for a service you’re not benefiting from

A Costco executive membership absolutely makes sense for me because I spend enough money there during the year to get more than $60 back. And while I don’t currently buy my auto or pet insurance through Costco, it’s nice to know that the option exists, and that there are potential discounts to be had.

But if you’re not getting good value out of your executive membership, there’s no reason to pay for it any longer. So if that’s the case, go to customer service the next time you stop at Costco and ask to go back to a basic membership. You can do so at any point and get a prorated refund.

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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 positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Interested in annuities? Keep reading to learn which type Suze Orman recommends and why. 

Annuities are a controversial topic in the finance industry. There are those who staunchly advocate for annuities, while others criticize them harshly. Suze Orman is one such critic who is known for not being a fan of annuities. However, not all annuities are created equal, and there are circumstances where they do make sense. In a recent Women & Money podcast episode, Orman stated that she does not hate all annuities, and there are some annuities she believes are worth considering.

What is an annuity?

An annuity is an insurance contract that guarantees a future stream of income in return for a lump sum or a series of payments. One of the biggest benefits of annuities is that they can help ensure financial stability in retirement. By purchasing an annuity, you can guarantee yourself a fixed income that will continue for the rest of your life or for a set period of time.

While annuities may seem like an attractive option for those looking to secure their financial future, there are several downsides to consider. One of the biggest drawbacks is that they can be quite inflexible. Once you’ve committed to an annuity, it can be difficult or even impossible to get out of it without paying hefty fees.

Additionally, the fees associated with annuities can be high, eating away at your returns over time. And while annuities are often marketed as a way to ensure a steady stream of income throughout your retirement, they can be complex and returns can fluctuate for certain annuities. This is why financial gurus like Dave Ramsey and Suze Orman aren’t fans of annuities. However, Orman does believe that a single premium deferred annuity (SPIA) may make sense for some people.

What is a single premium immediate annuity?

There are several types of annuities, but the type that Orman mentions in her podcast are single premium deferred annuities (SPIA). A SPIA will have you pay a lump sum of money upfront, and in return, you receive a steady stream of income at a later time. Here are four reasons why Orman believes SPIAs are worth considering.

1. Tax benefits

Annuities provide tax benefits to those looking for a guaranteed monthly income. SPIAs allow you to make contributions to a tax-deferred account without the limitations of a 401(k) plan or IRA. These plans have contribution limits, and Roth IRAs have income limits.

Typically, the growth of a tax-deferred investment will be greater than that of a taxable investment. This is because you have more of your money working for you since Uncle Sam doesn’t take his cut of it every year. You instead pay taxes on the portfolio gains when you take your money out.

2. Guaranteed rates

Interest rates on SPIAs tend to be higher than those of the best CDs and Treasury notes. These are guaranteed and cannot go below a certain minimum. SPIAs may be a good fit for those who need a higher income than what is provided by a straight interest-bearing investment.

Orman states that you should only look for SPIAs where the term for the guaranteed rates last as long as the surrender period. Surrender periods typically last seven to 10 years, and the early withdrawal penalty can be as much as 10%. You do not want to get a SPIA that only offers a high guaranteed rate for one or two years.

3. Current interest rates

The Federal Reserve’s recent interest rate hikes have been the fastest cycle in over 40 years. With interest rates approaching 20-year highs, many insurance companies are offering very favorable rates that are guaranteed. This is one of the reasons why Orman states SPIAs are great options when interest rates are higher.

The perfect time to have purchased an immediate annuity, for example, with respect to interest rates, would have been in the 1980s, when interest rates were as high as 20%! You did not want to invest in SPIAs in the 2010s, when interest rates were close to 0%.

4. Benefits for older investors

Orman states that SPIAs are usually a much better choice for people who will be 59½ or older in the year that the surrender charge is up. If you are under 59½ and take distributions from your SPIA, then you will have to pay a 10% penalty on any gains. You may also have to pay state penalties. In addition, retirees are typically in a lower tax bracket than when they were working. Orman states that SPIAs can therefore take the place of CDs or treasury notes to help provide income in retirement.

Many people think that Suze Orman “hates annuities,” but she concedes there are circumstances where they do make sense. In particular, single premium income annuities work well for those who want to have consistent income during retirement, protect their investment principal from market fluctuations, and feel that they will be in an even lower tax bracket during retirement. While annuities aren’t the perfect product for everyone, if you assess your personal finances and do your research, you may find that annuities are the right addition to your retirement 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.
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