Money Management

Owning a home may be the American dream for a lot of people, but it isn’t cheap. Keep reading to learn how and why your costs differ when you buy a house. 

As a person who’s been a renter nearly her entire adult life, it’s the conversation I love to hate. I’ll get to talking with a friend who owns a home, and I’ll find out their mortgage payment is less than what I pay in rent every month. It stings, but I have the data on my side: Owning a home costs more than renting one, despite that smaller mortgage payment.

Research from The Ascent found that in 2019, homeowners paid an average of $26,418 per year in housing costs, compared to $17,809 for renters. That extra $8,609 went toward costs renters either aren’t responsible for at all or expenses that cost less for renters. Let’s take a look at some ways owning your home will cost you more money than renting one.

1. The initial costs are higher

It likely won’t surprise you to learn that the upfront costs of homeownership are significantly higher than renting. When you’re signing a lease for a new rental, you’ll be expected to cough up a deposit (in my experience, it’s often equivalent to one month’s rent), that first month of rent, and perhaps a cleaning fee you don’t get back when you move out.

You’ll probably have some move-in costs to cover, too (I have never once moved to a new rental and not needed to buy something). This could be a new shower head, curtains, or cleaning supplies because your new rental isn’t as clean as you were promised it would be.

When you’re signing a mortgage loan, however — oh, those upfront costs! In most cases, a down payment will be the largest chunk of money a buyer puts into a home purchase. According to the National Association of Realtors, the median down payment for buyers in 2022 was 13% of the home’s purchase price. Plus, buyers may have to pay the closing costs for their mortgage loan (often 2% to 5% of the home’s purchase price) upfront, unless they roll them into the loan or have the seller pay them (not a guarantee, especially in a seller’s market).

2. Your insurance will cost more

If you’re a renter, it’s always a good idea to get a renters insurance policy. Your landlord will have a rental homeowners insurance policy, but this won’t cover your belongings in the event of, say, a fire or other peril; that’s what renters insurance is for. Renters insurance costs an average of just $14 to $30 per month, according to 2021 data amassed by Progressive, which isn’t bad at all.

Homeowners insurance, on the other hand, will cover the whole property when you own your home, including the house itself (and any outbuildings, like a detached garage) and its contents. As a result, it’ll cost more. In 2020, the average cost for an annual premium was $2,305, or $192.08 per month.

Costs vary based on where you live, the type of home you have, and what kind of coverage you want. But know that it’ll be more expensive than renters insurance, and if you have a mortgage, it’s likely to be required by your lender (and even if you bought your home in cash, it’s a terrible idea to forgo insurance).

3. You’ll pay property taxes — which often rise over time

If you rent, your landlord covers the taxes on the home you live in. But if you’re looking to buy, you’ll be paying this expense. Property taxes also vary widely depending on where you live, and it’s definitely something to consider when deciding where to buy a home. And if homes in your area are climbing in value (as they did in many areas during the buying frenzy of 2020–2022), your property taxes are likely also increasing.

4. Repairs and maintenance falls to you

As a renter, it’s likely that most of the repairs and maintenance around your home have been paid for (or even completed) by your landlord. But when the hot water heater stops working or you’ve got a leaky roof as a homeowner, you’ll need to whip out your checkbook or your credit card to cover the cost of repairs. The same goes for routine tasks like cleaning out your gutters or changing your furnace’s air filters.

5. Utility costs could be more

If you’re renting an apartment or a smaller home, it’s likely that your utilities don’t cost you too much. But utility costs are one spot where you might have some sticker shock when going from renting to owning. If you buy a bigger home than the one you’re renting, you’ll have more square footage to heat and cool. And you may be responsible for costs you’ve never paid before. As an example, I’ve only rarely had to pay the water bills for my rentals. When I buy a home, I’ll have to cover all the utilities.

As you can see, becoming a homeowner means signing on for a host of costs, both upfront and ongoing. Be sure to consider your finances as a whole when making the (very big) decision to buy a home.

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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 recommends Progressive. The Motley Fool has a disclosure policy.

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Like the idea of financing purchases on the spot? Read on for some tips on when to sign up for one of these plans and how to manage it. 

The option to pay for purchases over time rather than in full has existed for a long time. Years ago, there were layaway plans. And for decades, consumers have used credit cards to buy things they couldn’t afford to pay for outright.

In recent years, point-of-sale installment loans have grown more popular. These agreements allow consumers to pay for purchases in installments rather than at once.

“Buy now, pay later” plans, or BNPL plans, are a common type of installment agreement that consumers are increasingly adopting. As of September 2022, as many as 100 million Americans had used a BNPL plan in the past year at least once, according to TransUnion.

But while these point-of-sale installment loans might seem convenient, using one can easily backfire on you. It’s important to be careful when signing up for one. Here are some tips for signing up for and managing point-of-sale loans, or BNPL plans.

1. Read the fine print

The upside of BNPL plans is that you can usually avoid interest and fees on your purchases if you stick to your installment agreement. But if you don’t, your costs could rise. So before you sign one of these agreements, make sure you really understand what you’re getting into and when your payments are due.

2. Reserve these loans for emergency purchases

If you have a big purchase you can’t put off, such as having to replace an essential home appliance that recently broke, then you need to finance it if you can’t afford to pay for it in full. If the cost isn’t large enough to warrant a personal loan (which usually come with borrowing minimums), then you may want to sign up for a BNPL plan.

But it’s generally not a good idea to sign up for a point-of-sale installment loan for an item that isn’t essential. So if you want a new TV or laptop but you don’t have the money in your savings account to cover its cost in full, move on. You can push yourself to cut back on spending and save for that item, and then buy it a few months later without having to finance it.

3. Make room in your budget for your new loan payments

BNPL plans commonly give you just a few months’ time to pay off your purchases. And you don’t want to fall behind on your payments, because if you do, your credit score might take a huge hit.

Once you sign up for a BNPL plan or point-of-sale installment loan, immediately comb through your checking account records and credit card statements to get a sense of your regular spending, and then find ways to cut back enough to cover your new loan payments. You may need to curb your spending to a large degree to avoid falling behind. If you don’t think you can do that, pick up a side hustle to drum up the cash to make your payments.

Point-of-sale installment loans might seem like a good option to fall back on when you want to make a purchase and money is tight. But be careful when signing up for these loans. And if you’re going to do so, read the details carefully and do your best to keep up with your payment schedule.

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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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If you can earn a slightly higher APY by switching banks, you should, right? Read on to learn why one financial expert says no. 

If there’s one silver lining to this, shall we say, challenging economy we’ve all been living through lately, it’s the fact that some savings accounts are paying generous APYs on cash kept in them. And since it isn’t time-consuming to switch banks, you might consider moving your savings to a new account, especially if you’re currently keeping your money in an old-school savings account that doesn’t pay much interest.

But if you’re already the proud owner of an online-only savings account paying, say, 3.75% APY, should you rush to change bank accounts every time you hear about a hot new interest rate that’s slightly higher than what your current account pays?

Financial expert Ramit Sethi says no way. In fact, Sethi recently wrote on Twitter, “Getting an extra 0.5% is a pointless exercise in minutiae.” You might not expect Sethi to advise against chasing a higher APY as it becomes available, but he has a few good reasons to feel this way.

It’s more productive to worry about the big money questions

Unlike a lot of money gurus, Sethi doesn’t advise followers to give up store-bought coffee; he actually encourages people to intentionally spend money on the things that make them happy. He thinks people should stop worrying so much about $3 questions and instead focus on $30,000 questions. What does this mean?

If you’re struggling to keep up with your savings goals or even your daily bills, you might assume that the best move you could make is to cut out all your discretionary spending. No more fancy coffees for you, and don’t even think of keeping that $15 monthly streaming subscription. But cutting all the fun out of your life, especially when it amounts to so little in dollar figures, isn’t going to boost your savings by that much — plus, you’ll soon resent not being able to spend any money on things you enjoy.

A much better move, per Sethi, is to worry about the big stuff. Did you buy a giant house that is costing you so much money you can’t afford to save for retirement? Can you get a raise at work (or even change careers) to boost your income and savings? Does it make sense to buy a new car for $50,000 when a used one for $20,000 will suffice?

Answering these questions is far more productive than chasing a measly 0.5% boost on your savings account. After all, if you’ve got $10,000 in savings and are currently earning 3.75% APY on it, you’ll make $374.84 in a year (assuming you don’t add any money to the account). Moving it to an account that pays 4.25% is only going to net you an additional $49.91, for a grand total of $424.75. Worrying about earning less than $50 over a year definitely counts as a small money question.

Higher APYs aren’t forever

Sethi also pointed out in that recent tweet thread that banks offering high APYs on savings accounts is temporary. And this is true — APYs are variable, and fluctuate along with the Federal Reserve’s interest rate changes. So the sweet 4.25% you might be earning in that new account isn’t forever. If the economy starts to stumble and we see the Fed cut rates, your bank will do so as well. Thinking about your savings through this lens should raise the question: Does it make sense to chase higher interest rates if you’re not even guaranteed to get to keep them?

Find an account that pays a good APY and that you like overall

A much better move is to choose a bank based on factors besides just the offered APY. I have the bulk of my savings in an online-only bank. I opened the account about a year ago, and while the APY has gone up multiple times since then, it’s not earning the absolute peak APY available right now.

I’m actually just fine with that, because I like the bank’s mobile app, the way it lets me dedicate different parts of my savings to different goals, and how easy it is to reach a customer service representative at any time of day. Other factors might be more important to you, so be sure to focus on the whole picture when you choose a new bank account.

Yes, it can be worth it to switch savings accounts if your savings are earning, say, 0.39% APY (the current average for savings accounts, according to the FDIC). If you can multiply that by 10 and open an account paying 3.75%, go for it. Just understand that your new APY is temporary, and think twice about switching accounts every time you hear about an account paying just a smidge more.

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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. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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You may want to get a new rental. But read on to see if doing so really makes sense financially. 

One benefit of renting a home rather than owning one is getting more flexibility when it comes to things like moving. When you rent a home, you’re free to leave once your lease expires.

When you own a home, you’re not contractually obligated to live there. But you are required to keep paying your mortgage loan until that debt is whittled down to $0. And while you could always sell a home you no longer want to live in, the process of doing so can be lengthy and complex.

You may be inclined to find a new rental for a number of reasons. Maybe your rent has just gone up and you’re not interested in paying more. Or maybe your landlord tends to be slow to respond to maintenance and other issues, and you’re looking to rent from someone who’s more on top of things. It may even be that you’re fine with the amount of rent you’re paying and have a perfectly nice landlord, but you’re simply ready for a change.

There’s nothing wrong with picking up and moving. But you’ll first need to make sure you can afford the cost of a move.

Is moving within your budget?

The average cost of a local move is $1,250, according to Moving.com, while the average cost of a long-distance move is $4,890, assuming a distance of 1,000 miles. These estimates also make the assumption that you’re moving about 7,500 pounds worth of stuff.

Now, the amount you’ll spend to move will hinge on a number of different factors, including how much furniture and belongings you have and where you’re moving to. Moving rates can sometimes also be higher in cities, the logic being that it takes longer for a moving truck to navigate city streets than suburban roads that don’t tend to be as filled with traffic. So you’ll need to get estimates to see what costs you’re looking at.

From there, you’ll need to see if paying for a move is feasible. If you’re quoted $900 for a move and you have 12 times that amount sitting in your savings account, then you may have the option to simply dip in and make your move happen. But if money is tight, a move may not be doable.

Also remember that when you move into a new place, you might have to give your landlord a security deposit as well as your first and last month’s rent. You might be able to come up with that security deposit by getting your old one back from the landlord whose home you’re moving out of. But it could be a struggle to come up with the remaining funds.

Think carefully before signing a new lease

You may be motivated to ditch your current place and rent a new home in a different area or that comes with better amenities. But before you do, make sure it’s financially feasible. You really don’t want to go into debt over a move unless you absolutely have no choice but to get out of your current rental.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

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.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has positions in Citigroup. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Having too many credit cards could make it hard to redeem rewards or keep track of payments. Here’s how you can tell if you have too many. 

Having a credit card can be a good thing, as long as you are responsible with your card and don’t end up missing payments or carrying a balance. In fact, for many people, having multiple credit cards can make sense. If you have several, you can mix and match rewards programs so you get the most bang for your buck with all different kinds of spending.

But, if having one or two cards is good, is having tons of cards even better? Or is there such a thing as having too many cards?

Here are the risks of having more credit cards than you can handle

Having multiple credit cards isn’t necessarily a problem, but you could definitely end up with too many. And there are some big risk factors associated with having a huge number of cards. Here are some of the downsides:

You could end up deeply in debt: If you don’t have good control over your spending, you could find yourself with a substantial amount of credit card debt. The more cards you have, the more debt trouble you could potentially get into since you’ll have more credit available to you.You could forget to make a payment: If you have lots of cards to keep track of, the risk of a forgotten payment increases. If you miss a payment, your credit score could suffer, as payment history makes up the largest percentage of it.You could adversely impact your ability to collect credit card rewards: If you have multiple cards, it could be hard to keep track of which one provides the most rewards for a particular transaction. You could also end up having rewards expire before you can use them if you are splitting your spending among lots of different cards and you never earn enough on any one to redeem them.You could hurt your credit by applying for too many cards. Applying for many cards in a short period of time can damage your credit score.

For all of these reasons, you’ll want to be sure you don’t get so many credit cards that you find yourself in financial trouble.

How many credit cards is too many?

So, how many cards is too many? A lot depends on your specific situation.

If you enjoy keeping track of credit card rewards bonuses and you don’t mind carrying multiple cards in your wallet to maximize potential rewards earnings, then it may be worth getting a couple cards.

You’d want to be sure you have one that gives you extra bonus rewards in all of the key areas where you spend the most. For example, you could have one card for gas and groceries and another for restaurants. And, you’d want to be sure you apply for them over time, were able to manage the payments on all of them, and were confident in your ability not to overspend.

However, if you prefer simplicity, one or two cards could be sufficient for your needs. Just look for a good all-around cash back or rewards card and save yourself the hassle of trying to manage multiple cards and all the complexity that comes along with them.

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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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If you’re hundreds of thousands of dollars in debt, and you don’t know how to pay it off, Dave Ramsey can help. Read on for advice on paying down large debts. 

If you want to get out of debt — and stay out — there’s perhaps no better guru to turn to than Dave Ramsey. The best-selling author and radio host has helped millions of people get out of debt, from those who owe $2,000 on a credit card to those who are paying off their mortgage loans.

But in 2019, Ramsey received a call from one of his most indebted fans: “Dave,” the listener, who went by Will, said. “I need your help. Sadly I can say I’m over $500,000 in debt, and I don’t know where to start.”

Will began to list out his debts, which included $393,000 in mortgages and $121,000 in loans and credit cards. The exact debts and their amounts were the following:

Will earned about $110,000 in household income, which is much more than the real median household income in the U.S ($70,784). But with so much debt — and from so many sources, too — Will had no idea where all his money was going.

In about five minutes of video time, Ramsey laid out a pretty sensible plan to help Will get out of debt. Let’s take a look at what Ramsey would do if he was in Will’s situation.

1. Sell off your liabilities

After asking a few questions, Ramsey learned that Will’s rental property earned about $100 per month. Since Will was responsible for paying the water bill, that $100 essentially became nothing.

So for Ramsey, this was an easy decision: sell the rental property. As Ramsey pointed out, the property could become a liability if a major repair forced Will to dig into his own pockets to fix it. Plus, Will had built up equity in the property — roughly $40,000 to $50,000 — which could be used to pay down debt.

This advice isn’t limited to Will’s situation. Even if you don’t own a rental property, you may have certain assets — like cars, motorcycles, and boats — that are costing you more to maintain than they’re actually worth. It’s okay to have nice things when you can afford them, but if you’re trying to pay down debt, these should be the first things you sell off.

2. Get on a tight budget

Next, Ramsey gave Will a little pep talk:

“So we’re going to sell the rental, then we’re going to get you on a tight budget: I’m talking beans and rice and rice and beans. You’re not going to go on vacation, you’re not going to see the inside of a restaurant, unless you’re working there. We’re getting you out of debt because it’s rough living in New Jersey making $110,000 being this freaking broke.”

Ramsey’s definition of a tight budget is a zero-based budget. With this kind of budget, you subtract expenses from your monthly income until you reach zero. The idea is that you give “every dollar a name” and exclude purchases that would force you to spend more than you’re making.

If your expenses are greater than your income, Ramsey would recommend cutting out nonessentials and trimming down necessities as much as you can. He would also recommend increasing your income by taking part-time jobs, or by selling assets you don’t need.

3. Snowball your debt

Finally, Ramsey recommended that Will “snowball” his debt. With a debt snowball, Will would list his debts from smallest to largest, focus on paying down the smallest first, then proceed paying off each debt until he reached the biggest one.

The reason for a debt snowball is mostly psychological: by paying off small debts first, Will can “build momentum” and work his way to larger, more formidable debt opponents. It can also help Will celebrate small victories early on, which can help him stay motivated when he’s paying big debts that take long periods of time.

Should you listen to Ramsey’s advice?

Ramsey can help you organize a debt repayment strategy, stay focused, and celebrate victories along the way. His community of followers is strong, and they often support “baby steppers” from all walks of life, from those just paying their first dollars to those making the last payment on their mortgages. If you want to pay substantial amounts of debt — but you lack the motivation to get started — Ramsey can be a great first step into fixing your personal finances.

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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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