Money Management

Want to keep your down payment as low as possible? Read on to see why that may not be a good idea. 

The amount of money you’re required to put down on your home purchase during your closing will depend on your mortgage lender. A 2022 survey by the National Association of Realtors found that 35% of consumers thought they’d need 16% to 20% for a down payment. But many lenders will accept a 10% down payment, and others might agree to even less.

If you’re looking to buy a home, you may be inclined to keep your down payment to a minimum. That way, you’ll have more funds available for things like moving costs, furniture, and home renovations once you move in.

But making a smaller down payment on a home has its drawbacks. Here are a few you should know about.

1. Your monthly mortgage payments will be higher

The less money you put down on your home, the higher you can expect your monthly mortgage payments to be. Higher payments could put a strain on your budget, so that’s something to consider when determining what down payment to make.

2. You might get stuck paying private mortgage insurance

If you take out a conventional mortgage and don’t put 20% down at closing, you’ll be hit with private mortgage insurance, or PMI. That might sound like something that benefits you, but it isn’t.

Rather, PMI is a premium that’s usually tacked onto your monthly mortgage payments, and its purpose is to protect your lender (not you) in case you fall behind on your payments. The cost of PMI is generally 0.5% to 1% of your loan amount, so it’s not insignificant. For a $300,000 mortgage, 1% PMI leaves you paying an extra $250 a month. So all told, a smaller down payment could cost you more money in the form of PMI.

3. It might take you a really long time to build equity

The less money you put down on a home initially, the longer it’s going to take you to build up equity. Home equity is measured as the difference between your home’s market value and your mortgage balance. Having more of it is a good thing, since you can borrow against it as needed. And also, if you’re forced to sell your home suddenly (say, to move for a job), having more equity puts you in a better position.

How much should you put down on a home purchase?

The amount of money you decide to put down on your home should hinge on:

How much cash reserves you haveHow much your lender insists onHow much you’re expecting to spend on things like home repairs

If you can get to the 20% mark for your down payment, you’ll avoid PMI, and there’s a lot of benefit to doing that. But if you can’t manage a 20% down payment, don’t sweat it. Just don’t automatically assume that you’re best off putting down the lowest amount your lender will accept. You may be able to get away with a 5% down payment. But putting down 10% might better work to your benefit.

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For some people, hefty restaurant spending is the norm. Read on to learn more. 

For some people, restaurant meals are a treat worth splurging on as long as it’s only on occasion. That’s because it tends to be far more expensive to dine at a restaurant than to cook a meal at home.

Meanwhile, data from Popmenu compiled in late 2022 revealed that 58% of consumers were eating restaurant food more often than they did in 2021. This isn’t surprising seeing as how many people were still avoiding restaurants in 2021 due to the pandemic.

What is surprising, though, is that 30% of consumers spend an average of $180 on restaurant food each week. That’s over $9,000 a year — and it’s a lot more than some people should be spending.

Can you afford to dine at restaurants?

It’s easy to see the appeal of eating at restaurants. Not only do you get a break from grocery shopping, meal-prepping, and post-dinner cleanup, but dining out can be a fun, social experience. You get to catch up with friends, try new foods, and enjoy the ambiance of a dining area that isn’t the table in the corner of your kitchen.

The problem with eating at restaurants, though, is that it can be a lot more expensive than cooking at home. You might easily spend $30 on a restaurant entree when a similar portion would cost under $10 to whip up in your own kitchen. And at a time when inflation is surging, and many people are routinely raiding their savings accounts just to cover their bills, you may want to consider cutting back on restaurant spending, especially if money is getting tight.

What’s more, if you’re teetering on the edge of debt, or you already have a balance racked up on your credit cards that you need to pay off, then it may be time to curb the practice of dining at restaurants entirely until you’re in a better spot financially. And this applies to takeout meals as well. Though takeout tends to be less expensive than restaurant meals because you’re not necessarily ordering drinks or handing over as large a tip, the cost there can also be much higher than the cost of cooking at home.

How to spend less at restaurants

Maybe you can’t bear to give up restaurant meals altogether. If so, there are steps you can take to make them less expensive.

First, don’t choose higher-end eateries. A moderately priced cafe in town might serve its share of delicious food and charge you $20 for an entree rather than $35. And you might even get some leftovers out of the deal.

Next, skip the appetizers when you dine out. It’s nice to sample different kinds of food when you’re at a restaurant, but often, you’ll pay $10 or $12 for just a few bites’ worth when you order an appetizer. To put it another way, if you’re looking at a restaurant where the average entree is $20 and the average cost of an appetizer is $12, it’s probably worth it to just get a main meal.

Finally, skip the alcohol or opt for a restaurant that’s BYOB. It’s one thing to want a break from cooking. But it’s pretty silly to pay $9 for a single glass of wine when you can buy the entire bottle for that price at your neighborhood liquor store. And if you enjoy having a drink with your meals, go the takeout route and split a bottle of wine with friends in somebody’s home.

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Have a 401(k) through your job? Read on to see what feature you should really want your plan to offer. 

If you have a 401(k) plan through your employer, you have a prime opportunity to build up a solid retirement nest egg. But does your company’s 401(k) offer you the option to save in a Roth?

As of 2021, about 88% of 401(k) plans included a Roth savings option, according to the Plan Sponsor Council of America as reported by CNBC. But if your 401(k) doesn’t come with a Roth, you may want to put your nest egg elsewhere.

The importance of being able to save in a Roth

With a traditional IRA account or 401(k), you get an immediate tax break on your contributions. So if you put $3,000 into one of these plans, the IRS won’t tax you on $3,000 of income the year you make your contributions.

However, with a traditional retirement plan, you’ll be taxed on withdrawals during retirement. And you’ll also be forced to take required minimum distributions, or RMDs.

RMDs effectively force you to spend down your plan balance in your lifetime rather than get to leave that money alone. For some people, they’re not a problem, because those withdrawals are needed to cover living costs.

But if you end up with a large Social Security benefit and other income, like earnings from a job you opt to hold down, then you may not need to tap your savings in retirement every year. With a traditional IRA or 401(k), at some point, you won’t get that choice because RMDs will apply.

Now, let’s talk about Roth IRAs and 401(k)s. With a Roth savings plan, you don’t get an immediate tax break on the money you contribute. But withdrawals are yours to take tax-free during retirement.

Plus, right now, Roth IRAs are the only tax-advantaged retirement plan to not impose RMDs. And come 2024, Roth 401(k) plans won’t force savers to take RMDs, either. That gives you a lot more flexibility in retirement.

Also, think about how burdensome it might be to have to pay taxes on your retirement plan withdrawals at a time in life when money may be tighter. With a Roth IRA or 401(k), that won’t be a concern.

You don’t have to save in your employer’s plan

Just because you’re offered a 401(k) plan through your job doesn’t mean you have to participate in it. So if your company’s 401(k) doesn’t come with a Roth option, you may want to open a Roth IRA on your own and save your money there.

Of course, if your company offers a 401(k) match, you may want to contribute enough to that plan to capitalize on that match in full, since that’s akin to getting free money for your retirement. But beyond there, you may want to keep your savings in a retirement account that allows you to benefit from a Roth setup.

And to be clear, you can absolutely have retirement savings in more than one account. So if your only choice through your employer is a traditional 401(k), you can fund it just enough to snag your match and then open a Roth IRA elsewhere.

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A writer explains why it’s worth it to her to carry a mortgage she has the cash to pay off. Read on to follow her logic. 

Many people have the goal of paying off their homes early. I don’t.

Now, the funny thing is that I have enough money to pay off my mortgage loan in full right now. But I instead plan to carry that mortgage for over a decade. Here’s why.

It’s a matter of financial sense

These days, the average 15-year mortgage rate is 5.64%, according to Freddie Mac. But in the summer of 2020, I refinanced my mortgage when borrowing rates dropped to record lows. And between lower borrowing costs and the fact that I had a credit score in the 800s, I was able to lock in a rate of under 3% on my 15-year loan.

Meanwhile, these days, I’m earning more than 3% on the money I have in my savings account. And I also have different investments that are generating, or have the potential to generate, much more of a return than that.

Because of this, it makes sense for me to carry my mortgage for the remainder of my 15-year loan term despite having the ability to pay off my home right now. Not only am I paying less interest on my mortgage than I’m earning elsewhere, but because I itemize on my tax returns, my mortgage interest serves as a nice tax deduction. So that makes my choice to carry my mortgage an even savvier one.

Of course, I’d feel differently if I were looking at a mortgage with a higher interest rate attached to it. In fact, if I were looking at a rate of 5.64% like the average 15-year mortgage borrower today, I’d probably think about accelerating my payments or even paying off my loan balance in full. But because I have such a great rate locked in, I’m good to continue sending my lender a payment every month, even if it means spending money on the interest portion of my loan.

Should you try to pay off your mortgage early?

If you signed a mortgage recently, you may have gotten stuck with an interest rate in the 5% range or even higher. In fact, many people sign 30-year loans because they result in lower monthly payments than 15-year loans, and these days, the average rate on a loan with that term is 6.28%, per Freddie Mac.

If you’re paying a lot of interest on your mortgage, trying to shed that debt sooner could make financial sense. And while you may not be able to pay off your home on the spot, shaving a few years off your repayment period could result in a nice amount of savings.

But remember, mortgage rates have the potential to drop over time. We may not see rates in the 4% range anytime soon. But in a few years from now, borrowing could end up being a lot less expensive on a whole. So if you’re tired of losing so much money to mortgage interest but you’re not in a position to pay off your home in one fell swoop, keep an eye on rates over time and work on boosting your credit (or maintaining an already great score) so you can pounce on the opportunity to refinance once it arises.

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Curious as to what it’s like to be a part-time pet-sitter? One writer shares her friend’s experience. 

A few years ago, a good friend of mine found herself wanting to drum up extra cash. She had credit card debt she was desperately trying to pay off, and she wanted more financial flexibility given her limited earnings at her full-time job (which, thankfully, she’s since moved on from).

She contemplated driving for a rideshare company and working at a local restaurant on weekends. But as a dog lover, she decided that pet-sitting for dogs would end up being a far more enjoyable gig. Here are some tips she has for anyone looking to go a similar route.

1. Don’t expect the work to be easy

My friend grew up with dogs and had plenty of experience caring for them. But even so, she faced her share of challenges as a pet-sitter.

For one thing, she had to balance her main job with her side gig. Often, that meant leaving her office during lunch to take dogs out for a mid-day walk — and having to stay at work later to make up for those longer breaks.

Also, she realized that some dogs are more prone to being anxious than others. One dog barked up such a storm when she left the house in the morning (even though his owner never had that happen) that she had to ask her boss to work from home for a number of days. She didn’t get in trouble per se, but it was hard having to ask for that favor since her company generally looked down on remote work (this was pre-pandemic, before working from home became a far more acceptable setup).

2. Be firm with your rates

My friend had specific financial goals she was looking to meet as a pet-sitter. So she learned early on not to negotiate too much with clients.

Generally, she charged $50 a day for a dog to be cared for in her home. That included any feedings they needed and all walks.

One client who she sat for repeatedly eventually asked for a discount in exchange for repeat business. She agreed in that one case, because the client traveled a lot and needed her services often — so it wound up being worth it to accept a little less pay per gig. But otherwise, she stood firm with clients who weren’t likely to be repeat customers.

3. Don’t use an app or service if you can avoid it

My friend initially signed up with Rover and used it to secure some gigs. Rover is an online marketplace for clients to find pet-sitters (and vice versa). But she realized early on that she’d be better off booking her own jobs. Now to be fair, she got lucky early on in that she met one client in her apartment complex, and that client referred her to several others. But still, not having to go through Rover to find clients helped her earn a lot more.

These days, Rover charges a $35 fee to set up a profile as a pet-sitter or care provider. Rover also takes 20% of your earnings. If you can drum up enough business on your own, it’s not worth losing that money.

These days, my friend no longer cares for other people’s pets — namely because she adopted her own dog two years ago, and he doesn’t do well with other animals in his space. But she’s glad she put in the time as a pet-sitter because it helped her pay down her debt and boost her savings account balance.

Ultimately, pet-sitting wound up being a great side hustle for her because she got to do something she enjoyed. And if you love animals, you may feel similarly.

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Starbucks has introduced a new lineup of olive oil drinks. Read on to see what side effect it’s causing. 

If you tend to frequent Starbucks, then you’re probably no stranger to interesting coffee combinations. And you’re probably also used to running up quite a large credit card tab in the course of getting your daily dose of caffeine.

Meanwhile, Starbucks recently introduced a new line of olive oil–infused coffee. The goal is to entice consumers based on the health benefits olive oil is known for.

But so far, consumer reception has been a mixed bag. Not only might the olive oil taste not appeal to all Starbucks fans, but some people who have sampled the new coffee lineup are reporting that their digestive systems are staging a rebellion in its wake.

When your coffee leads to extra bathroom trips

Coffee is a diuretic, so it’s not unusual to need a bathroom stop after consuming a large cup. But Starbucks customers who have tried the new olive oil lineup are running to the bathroom afterward for, well, a different reason.

That’s not totally surprising, though. A 16-ounce Starbucks coffee with olive oil could contain as much as 34 grams of fat. That’s more fat than you might consume in a typical meal. And that alone could be a driver of needing an immediate bathroom run following a Starbucks olive oil drink.

Also, many Starbucks drinks contain caffeine, which is a stimulant. That means it has the potential to stimulate the digestive system, too.

Will the Starbucks olive oil line make you sick?

You may not suffer any long-term repercussions from drinking coffee infused with olive oil. But might you have to cancel some of your morning plans after drinking one of these beverages? That’s possible, especially if you’re someone who has a weaker stomach and a more active digestive system.

Of course, you won’t know how a Starbucks olive oil–infused coffee will hit you until you actually try one. And similarly, you won’t know if you enjoy the taste until you give it a go. But if sampling one of these beverages results in a bout of digestive upheaval, then you may want to steer clear of olive oil–infused coffee and stick to the Starbucks drinks you normally order.

Along these lines, you may want to limit the extent to which you visit Starbucks on a whole, even if you don’t have any issues (taste, digestive, or otherwise) with its new olive oil coffee. You might spend 10 times more on a single Starbucks coffee than you would brewing your own at home. And at a time when inflation is surging, it wouldn’t be a bad thing to curb your spending and focus on adding money to your savings account.

This isn’t to say that you can’t splurge on the occasional Starbucks treat and make your own coffee most of the time. But you may want to think twice before trying the new olive oil lineup. It might sound interesting in theory, and there may even be some health benefits involved. But the last thing you want is to risk showing up late to work because you tried coffee with olive oil and subsequently could not get off the bowl.

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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 Starbucks. The Motley Fool recommends the following options: short April 2023 $100 calls on Starbucks. The Motley Fool has a disclosure policy.

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