Money Management

It’s important to factor in the cost of auto insurance when buying a car. Read on to learn more. 

So far, 2023 is shaping up to be a pretty bad time to buy a car. Not only are vehicle prices still elevated due to lingering supply issues, but borrowing rates are up across the board due to recent interest rate hikes implemented by the Federal Reserve. As such, any auto loan you sign today might come with a higher interest rate attached to it.

That’s why it pays to do what you can to keep your car ownership costs to a minimum. And that means opting for a car that isn’t the fanciest one on the lot.

But if you’re going to splurge on that fancy car, make sure to budget in higher costs for auto insurance. Chances are, you’ll end up spending a lot more money to insure your vehicle than you would with a more average car.

Going high-end might cost you in more ways than one

If money isn’t particularly tight and the car you drive is important to you, then you may be inclined to upgrade to a fancy model this year, even if that means having to pay more in the form of a down payment and auto loan. But in a recent blog post, financial guru Suze Orman cautions that, “A fancy car can cost $500 more a year to insure than a less flashy car.” So that’s an expense you’ll need to keep in mind.

Of course, it’s not just auto insurance that will cost you extra with a high-end vehicle. You’re also looking at spending more on maintenance and repairs. Luxury vehicles tend to come with more expensive components that cost more to handle and replace.

Let’s say your car is swiped and your passenger-side mirror gets smashed. If you own a regular car, you might spend $200 to $300 to replace it. If you own a high-end vehicle, it might cost upward of $1,000 to get a new mirror if the one that broke has fancy components like a camera built in.

That’s why you’ll need to be really careful when shopping for a new vehicle. Even if you can afford the monthly auto loan payments associated with that purchase, you’ll need to make certain you can also swing the associated costs, like higher car insurance premiums, maintenance, and repairs.

Should you buy a luxury car?

Some people spend a lot of time on the road every day going to work. If you’re in a good place financially and have been saving up for a nicer car, then you may decide you’re going to treat yourself to a more upgraded car you’ll be using all the time.

But before you make that call, do yourself a favor and really research the costs associated with owning a luxury vehicle. The last thing you want to do is risk falling behind on any of your bills because you opted for a car that’s not as affordable to you as you expected it to be.

If you do decide to buy a fancy car, make a point to shop around for auto insurance. You may find that one insurance company has a better rate to offer than others, and that small amount of savings could go a long way given your other costs.

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It can take quite some time to close on a mortgage. Read on to see how you can set yourself up for a quicker closing. 

The process of buying a home can be a lengthy one, especially in today’s market. That’s because the real estate market is sorely in need of inventory, so it might take you longer than usual to find a property that meets your needs.

But once you get an offer accepted on a home, it could still be many weeks until you’re able to move in. And a big part of that has to do with the mortgage closing process.

Rocket Mortgage says that buyers who are financing a home purchase can expect closing on a house to take 30 to 45 days. In some cases, such as when lenders are backlogged or financial questions or issues arise in the course of finalizing a home loan, that window can get extended even further.

If you don’t like the idea of having to wait so long to actually take ownership of a home you’re buying and move in, there’s one step you can take to make things happen more quickly. But it’s not an easy one.

Are you willing to pay cash for your home?

It’s often the process of finalizing a mortgage that delays the closing process when buying a home. So if you can take a mortgage out of the equation by paying for your home in cash, you might get to move in sooner.

But paying cash for a home is not an easy thing to do. As of March, the median price for an existing home sold was $375,700, according to the National Association of Realtors. That’s hardly a small amount of money to come up with.

Now, it may be that you are able to buy a home in cash because you’ve been saving aggressively for many years, you’re buying in a market where property prices are low, or you recently received a windfall from a family member, like an inheritance. In that case, you shouldn’t necessarily rush to make a cash offer.

Parting with hundreds of thousands of dollars to buy a home could mean having fewer financial options down the line if your circumstances change. You may decide that you’re burned out at work and want a less stressful career. Making a career change that leads to a pay cut may not be doable if you’ve spent your cash reserves in one fell swoop to purchase a home.

Also, when you put a whole lot of money into a home purchase, you lose out on the opportunity to do other things with that cash, like invest it. So you’ll need to consider whether paying in cash and getting a quicker closing is worth the potential drawbacks.

When cash just doesn’t work

Many buyers simply cannot afford to pay for a home in cash. If that’s the boat you’re in, a mortgage may be in your future. But you can move things along quicker by responding to your lender in a timely manner when they ask for information and making sure to provide them with accurate information from the start.

At the same time, have realistic expectations. If you get an offer accepted on a home on June 1, assume you won’t be moving in until mid-to-late July or even August. That way, you can make other arrangements if the process of closing on your mortgage takes longer due to circumstances outside your control.

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Own a pet? Read on to see why you need money in the bank in case something goes wrong. 

Adopting a pet is one of the most rewarding things you might ever do in your lifetime. But let’s be real — not only is it a huge time commitment, but it’s also a major financial undertaking.

When you own a pet, you have to pay for everything from food to supplies to standard medications and vaccines. And you might spend extra to pay for pet care services if you need to go out of town and can’t bring your pet along,

Then there’s healthcare to consider. We all know it can be a major burden for humans, even with health insurance picking up part of the tab. But veterinary care can, in some cases, be shockingly expensive. So it’s important to do what you can to gear up for costly pet care bills.

Make sure to pad your savings

Many animals start out healthy but develop health issues over time due to factors that include aging. It’s really important to have money in your savings account for unexpected pet healthcare bills. In fact, you may want to create a separate emergency fund just for your pet so you know you have the money available to deal with a medical issue when it arises.

How much money should you aim to save for pet care costs? Well, that’s a tricky figure to land on.

In a recent Lemonade survey, pet owners said they save an average of $439 a year to care for their animals. At the same time, 42% said they weren’t confident they could afford life-saving treatments for their pets based on that savings threshold.

Because you can’t see into the future, it’s impossible to know what healthcare issue might arise with your pet and how much treatment will cost. But you may want to err on the side of saving a few thousand dollars in case your pet winds up needing surgery or expensive medication that costs hundreds of dollars a month.

It pays to get pet insurance

When you own a pet, having money in savings for their care is important no matter what. But it’s also a good idea to purchase pet insurance so that if a major issue arises, you’ll likely have some financial relief.

A pet insurance policy may not pay for 100% of the costs you incur if your pet gets injured or falls ill. But let’s say your pet ends up needing a $5,000 surgery. Your pet insurance policy might end up paying for the majority of it, leaving you with a much smaller amount to charge on your credit card or remove from your savings.

Now, you may be thinking, “Instead of buying pet insurance, why don’t I just save the money I’d spend on it for my pet’s care?” The problem with going that route is that your savings may not be enough in an emergency, especially if your pet ends up falling victim to multiple issues or ailments at the same time.

The good news about pet insurance is that it can be reasonably affordable. And if you shop around with different insurers and compare rates, you might put yourself in a position to pay less.

When you bring a pet into your world, you commit to caring for it, even if that means having to spend money. Put the right pet insurance in place, and your pet’s next major medical event might be a lot less stressful from a financial standpoint.

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Paying a tax bill with a credit card can help you earn rewards, but there’s a cost to it. Find out if you should pay your taxes with a card. 

Now that you’ve filed your taxes, hopefully your tax bill has been paid for the year. But, if you still owe money to the IRS either for your 2022 taxes or because you must pay estimated taxes in 2023, you can arrange to have the funds transferred directly from your bank account or you can send a check. Neither of these options come with a fee. Or, you can pay your taxes with a credit card — which does come with a fee.

Since you’ll have to pay to use your cards to cover your tax bill, you’ll need to think carefully about whether this approach makes sense for you. There are a few situations where it may be a good option even though you’ll incur some added costs to do it.

Does paying your taxes with a credit card make sense for you?

There are several different services that allow you to pay your taxes with a credit card, but each one charges you for the privilege. Depending on which service you opt to use, you would get hit with a fee between 1.85% and 1.98%.

There are minimum fees imposed as well, although those minimum fees are either $2.50 or $2.69, so chances are your fees would be higher than that amount anyway.

Paying these fees can add a lot to your cost, but that doesn’t mean it’s never worth using your card to pay your tax bill. In fact, if you still owe taxes for 2022, using your card could be a good option for dealing with that issue. See, you will owe penalties and late fees if you didn’t pay your taxes by the deadline. And while the IRS offers payment plans, these don’t allow you to skip out on interest charges — and some of these plans have a fee as well.

If you can qualify for a 0% APR credit card that charges you 0% on purchases, you may be able to avoid the added costs the IRS imposes — but you’ll want to make sure you can fully pay off the tax debt you’ve put on your card before the end of the promotional rate, otherwise you’ll get stuck paying at the high interest rate most of these cards offer.

If you aren’t late on your taxes but you have to pay estimates or are planning ahead for a 2023 tax bill, you may also want to consider using a credit card if you can get rewards equal to or above the fees you’re paying (such as with a card offering 2% cash back) and if you use the tax payment to help you qualify for a new cardmember bonus with a minimum spending requirement.

How to pay your taxes with a credit card

If you decide to pay your taxes with a credit card, you can do so using one of the three processors the IRS has approved. It’s simple to visit the IRS website, pick between the services, and input your tax and credit card information. Just be sure you pay off your credit card bill quickly so you don’t get hit with interest on a big tax charge.

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Home prices showed a gain in February. Read on to see how that might impact you as a buyer. 

There’s a reason 2023 has thus far proven itself to be a difficult year to buy a home. Not only have mortgage rates been elevated since last year, but real estate inventory has been very low. And any time there isn’t enough supply of a given commodity to meet buyer demand, the cost of that commodity — in this case, homes — has the potential to rise.

Meanwhile, new data from the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reveals that after seven months of decline, home prices rose 0.2% in February compared to a month prior. The index also reported a 2% annual gain in February.

That 2% annual gain was smaller than the 3.7% annual gain reported the previous month. But all told, buyers today should be aware that stubbornly high home prices might make it very difficult to navigate the housing market.

Don’t get in over your head

Many buyers today are turned off by higher mortgage rates. But the reality is that if you can afford mortgage payments at today’s rates, you might still want to move forward with a home purchase. That’s because mortgage rates have the potential to drop over time, and once that happens, refinancing to a new loan with a lower rate may very well be an option.

What could be more of a problem, however, is buying a home that’s overpriced. While you can refinance to a lower mortgage rate down the line, if you buy a home for $600,000 that’s really only worth $550,000, you can’t change your purchase price a few years later. And then you might end up in a tough spot should the need to sell your home arise a few years after buying it.

But even with that said, many people buy a home with the intent to stay a while. So if that’s your goal, you may decide you’ll move forward with a home purchase despite having to pay a premium and a higher interest rate on your mortgage.

But if you’re going to purchase a home today, run the numbers and make sure you’re not taking on monthly housing costs that exceed 30% of your take-home pay. If you go beyond that 30% mark, you might end up struggling to keep up with not just your housing expenses, but your bills on a whole.

And to be clear, that 30% doesn’t just apply to your mortgage payment itself. It should also include recurring, predictable housing expenses like homeowners insurance and property taxes. If you’re going to be paying those on an annual or quarterly basis, break the numbers down by month to make sure you’re not getting in over your head.

When will home prices come down?

The U.S. housing market sorely lacks inventory. And until inventory picks up, it’s unlikely that we’ll see a notable drop in home prices. That makes for a tough situation for buyers — there’s no question about it. But if you take your time to search for the right home, save well for a down payment, and run your numbers so you know what budget to stick to, you might manage to take the leap into homeownership in 2023 despite the many challenges that persist.

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Thinking of putting your children onto your credit card account? Read on to see if that’s a good idea, or a really bad one. 

Credit card usage is a very common thing among U.S. consumers. As of the fourth quarter of 2022, Americans had a total credit card balance of $930 billion, according to TransUnion.

You might have several credit card accounts in your name. But if you have older kids, they might have a really hard time getting a credit card — even if they’re already 18.

At that point, you have an option. You could add your children as authorized users on your credit cards until they’re able to qualify for a credit card of their own. But is that a good idea? It’s debatable. Here are the pros and cons to consider.

Pro No. 1: You can help your children establish a credit history

You can generally qualify for a credit card in theory once you turn 18. But if you don’t have any sort of work or payment history, then a credit card company may not want to take a chance on you.

If you add your kids to your credit cards, they’ll have a chance to build up a credit history. That could make it easier for them to function as adults, whether in the form of qualifying for a loan or renting an apartment when the time comes.

Pro No. 2: You can teach your children the importance of spending limits

Some people see a credit card as a license to spend whatever they want. By making your kids authorized users on a card of yours, you have a prime opportunity to teach them that this isn’t the case. You can set a spending limit they have to adhere to and even threaten to take away their privileges or make them dip into their own savings to pay if they exceed it.

Con No. 1: If your children don’t follow your rules, you’ll be the one on the hook for the higher bills

You might put two children of yours on your credit card account and say that each has a $300 monthly spending limit. But if someone exceeds that limit, ultimately, you’re the one who will be financially responsible. So let’s say one of your children spends $500 instead of $300 and doesn’t have the money to pay the difference. You could revoke that privilege so it’s not an issue going forward — but that doesn’t address the extra $200 you’ll then need to come up with.

Con No. 2: If you mismanage your credit card account, it could hurt your children’s credit

You might hit a financial snag and find yourself paying your credit cards late. But if you fall behind on payments and get dinged for being late, it’s not just your credit record that might be impacted. Your children’s credit could take a hit, too.

Some parents will tell you that it’s a good idea to add your children to your credit card accounts, while others might caution against it. Before you decide, think about your children’s habits and personalities. Are they the type to follow rules and spend carefully? If not, you may want to hold off on making them authorized users. But if you trust your kids to respect your guidelines, adding them to your credit card accounts could do a lot of good things for them.

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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 has a disclosure policy.

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