Money Management

Don’t assume it’s an expense you can skip. 

If you have people in your life who depend on you financially, then it’s really important to put life insurance in place. A life insurance policy could replace your income for many years if you pass away unexpectedly, making it possible for your loved ones to pay their bills without stress.

But what if you don’t work? What if you’re a stay-at-home parent whose job is to watch your kids? Although it’s a difficult job, it clearly doesn’t come with a paycheck.

You might assume that if you don’t have a paying job, it’s not necessarily to get life insurance. But actually, you’d be wrong.

Stay-at-home parents need life insurance, too

You may have decided to take a career break to raise your kids for a number of years. And you might assume you don’t need life insurance in that situation.

But remember, the cost of putting a child or two into a care facility could be astronomical. If you pass away, your surviving partner might need to bear that cost so that they can work. And a life insurance policy could help pay for that expense so your family isn’t as burdened financially as it might otherwise be.

Care.com reports that in 2021, the cost of putting one child into a childcare center was $226 a week on average. For two kids, it was $429. Meanwhile, the cost of a nanny for one child was $694 a week, or $715 for two kids.

Expenses like these could really put a strain on your family’s finances. And childcare isn’t the only thing your family might need to pay for in your absence.

Let’s say you pass away and leave behind a spouse and two kids. Your spouse might work a demanding job that leaves them no time to cook, clean, and care for two children on their own. So they might need to hire a housekeeper to pick up the slack — yet another added expense.

Don’t sell yourself short

If you’re not holding down a job right now, you may not be contributing financially to your family. But that doesn’t mean you’re not contributing. And it’s important to have a backup plan in case you’re not around to provide the care you’re giving right now.

A good bet is to calculate the annual cost of childcare in your area. Then, multiply that by the number of years you might need it until your kids are able to stay home alone.

As an example, you might estimate the cost of childcare at $20,000 a year until your oldest is 14. So if your oldest is 4 years old now, that means you may want a $200,000 life insurance policy. And if you want to add in extra money for a housekeeper, you may decide on a $300,000 policy.

Of course, life insurance is an expense your family will have to pay for. But if you opt for a term life insurance policy, you might spend a lot less than you would on a whole life policy. And you may be pleasantly surprised at how affordable your policy is.

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They’re important ones to contemplate. 

You’ve probably noticed that banks are offering higher interest rates for products like savings accounts and CDs these days. That gives you a prime opportunity to score a great return on your money in a pretty low-risk fashion.

When you invest money in assets like stocks and crypto, you risk losing principal. With a savings account or CD, your principal of up to $250,000 is protected provided you’re at an FDIC-insured bank.

Meanwhile, when you put money into a savings account, your interest rate can change pretty frequently. With a CD, you’re guaranteed the same interest rate for a preset period of time. And often, that interest rate will be higher than what a savings account is willing to pay you.

That said, with a CD, you must commit to keeping your money in place for a certain amount of time, whether it’s 12 months, 24 months, or a different time frame. So before you make that commitment, ask yourself these important questions.

1. Do I need this money for emergency bills?

You should, ideally, have at least three months’ worth of living expenses on hand as your emergency fund. And that money should not sit in a CD.

The reason? You need to be able to tap your emergency fund on a whim, and CDs don’t allow for that. Make sure you’re not tying up emergency cash, and only open a CD with money you’re not earmarking for sudden unplanned bills.

2. Do I expect to use this money within the next seven years?

As a general rule, you shouldn’t invest money you expect to use or need within seven years, the reason being that if the market suffers an extended slump, you may not have a long enough investing window to recover from losses in your portfolio. But if you have a pile of cash you want to earn a return on that you don’t expect to use within seven years, then you may be better off investing it in a brokerage account instead of putting it into a CD.

When you go the investment route, you take on more risk. But you might also snag double the return compared to what a CD will pay you — even at today’s higher rates.

3. Do I know the penalty for cashing out my CD early?

Cashing out a CD before it comes due will commonly result in a penalty. It’s important to know what that looks like before tying up your money.

Now, there aren’t universal rules when it comes to CD penalties. Rather, each bank sets its own. But as an example, one well-known bank penalizes savers who cash out a 12-month CD early with three months’ worth of interest withheld or deducted from their balances. It’s important to know what penalty you might face so you fully understand the risks involved.

Opening a CD isn’t a poor choice right now per se, especially with rates being higher. Just make sure to run through these important points before taking the plunge.

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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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Apparently, you can’t keep an optimist down. 

Although final stimulus checks hit bank accounts two years ago, the U.S. economy continues to show unexpected signs of strength. While some economists and politicians have spent months forecasting a dire recession, the economy does not appear to agree. One might even refer to current economic indicators as “plucky.”

One of the strangest indicators to come to our attention in recent days is courtesy of a Bank of America (BofA) survey.

Paint contractors

The BofA survey involved 45 professional paint contractors from across the U.S. At a minimum, survey participants spend more than $5,000 annually on paint. Approximately 7% of respondents spend more than $100,000 annually.

According to those contractors, 2023 has ushered in a period of heavy bidding activity and large backlogs. The largest contractors — those most likely to work in commercial end markets — report the most significant number of customers on their waitlists.

Curiouser and curiouser

What makes these findings even more curious is the fact that economists have predicted a sluggish construction outlook. It stands to reason that lower construction rates would result in less work for contractors, but we’re seeing something else entirely.

While this news is good for paint stocks like Lowe’s (LOW), Sherwin-Williams (SHW), and Home Depot (HD), it also says something about consumer sentiment.

Consider these facts::

Since the beginning of the year, interest rates have continued to climb.Two banks have failed.Home prices are as hot as ever in some pockets, pricing many would-be buyers out of the market.As of April 3, the GDPNow model estimate for GDP growth has dropped from 2.5% on March 31 to 1.7%.

Still, enough home and business owners hire paint contractors to create a backlog.

This may be a fluke, and paint contractors may be blanketed in false confidence. Even if that is the case, the number of people willing to shell out money for painting may be a sign of economic resilience in the face of dire predictions.

Credit card spending

Another indicator that Americans have confidence in the economy can be seen in consumer spending. According to a BofA analysis, household credit card and debit card spending rose by 5.1% year over year.

The analysis points to several possible reasons for the increase in consumer spending.

There was a meaningful increase in spending in the weeks after Christmas, suggesting that consumers may have minimized their holiday spending to maximize the discounts they could score after the holidays.The minimum wage has increased in more than 20 states, bringing the wage rate in line with inflation and leaving millions of Americans with more money in their bank accounts.The labor market remains surprisingly strong. Despite layoffs in industries like tech, the unemployment rate remains below 4%, within striking distance of record lows.

An odd mix

There is no denying that millions continue to struggle. Households across the country continue to feel the pain of inflation, and low-income families now deal with the loss of extended SNAP benefits.

As for those who continue to spend, BofA has a theory. Coming out of the pandemic, consumers enjoyed elevated savings accounts, even after adjusting for inflation. BofA theorizes that those consumers have yet to reach their financial limits.

Despite the mix of financial circumstances, and contrary to what one might expect, BofA’s analysis found that bank deposits remain above pre-pandemic levels across all income groups.

As optimistic as American consumers appear, it is yet to be seen if the increase in consumer spending is an aberration or if it’s settling into an actual long-term trend.

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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.Bank of America is an advertising partner of The Ascent, a Motley Fool company. Dana George has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.

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The quick answer? It depends on how much you owe. 

If you’ve ever been a salaried employee, you probably noticed that the paychecks that hit your bank account month after month didn’t represent your total earnings, but rather, your earnings after taxes were withheld. When you’re self-employed, that doesn’t happen. Rather, it’s on you to make sure you’re paying taxes on your income.

You can’t just wait until you file your tax return to pay those taxes, though. Just as salaried employees pay taxes as they earn money, so too does the IRS want you to pay taxes along the way if you’re self-employed. And the IRS expects you to pay those taxes once a quarter by a preset deadline. If you don’t, you could end up being penalized.

Don’t set yourself up to lose money

The IRS wants you to pay taxes as you go, and if you’re late with an estimated quarterly tax payment, you could face penalties. You could also face penalties for paying too little tax when you make your estimated quarterly payments, which is why it’s generally a good idea to work with an accountant or tax professional to calculate those payments for you.

Usually, you’ll avoid a penalty for underpaying your estimated taxes as long as you send the IRS money on a quarterly basis and owe less than $1,000 at the end of the year. You can also avoid being penalized for underpaying your taxes if you pay the IRS at least 90% of your tax liability for the year, or 100% of what you paid in taxes last year.

As an example, let’s say you paid $20,000 in estimated taxes this year, or $5,000 per quarter, but you were supposed to pay the IRS $22,000. Because $20,000 is a little over 90% of what you were supposed to pay, you generally won’t be penalized in that situation — but you will have to pay the IRS the remaining $2,000 you owe.

Similarly, if you paid and owed $20,000 in taxes last year and paid that same amount this year, that, too, will generally get you out of being penalized — even if that $20,000 is a little shy of what you owe.

When are estimated taxes due?

The deadline for submitting estimated taxes can change slightly from one year to the next, but generally, those payments are due by mid-April, mid-June, mid-September, and mid-January of the following year. For 2023, estimated taxes have to be paid by:

April 18June 15Sept. 15Jan. 16, 2024

The reason you get until January to pay your final tax bill is that you may not receive all of your earnings until the very end of the year. The IRS recognizes that if you first get paid for a given project or invoice on Dec. 31, you won’t necessarily be able to calculate your tax bill and pay it by that date, so you get a little more time once the year is over.

If you’re self-employed, it’s very important that you put these dates on your calendar so you aren’t late. Another option, if your income is fairly steady throughout the year, is to set up your estimated tax payments to go out automatically once a quarter. That way, you won’t have to think about it and risk missing any of these deadlines.

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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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The answer might surprise you. 

Going on vacation can be a fun thing to do. It can also be a very necessary thing. After all, taking a break from the grind could improve your mental health and help you avoid burnout.

A late 2022 survey by IPX1031 found that 91% of Americans plan to travel in 2023. And 51% of Americans plan to travel more in 2023 than they did in 2022.

But taking a vacation isn’t necessarily an inexpensive prospect. And if money has been tight, you may be wondering whether you should finance a vacation with a personal loan or a credit card. You may not really like the answer, however.

Personal loan versus credit card: Which is the better choice?

In the context of paying for a vacation, the answer to this question is actually “neither.”

It’s one thing to borrow money to pay for an essential expense that can’t be put off, like a home or car repair. And you can also argue that it’s reasonable to borrow money to finance something like furniture for your home, which is essential to your ability to function daily.

A vacation might seem like a necessary thing. But it actually isn’t.

Not being able to go to Miami for a long weekend or Paris for a week won’t negatively affect your quality of life the same way not having a kitchen table and being forced to eat on the floor will. Similarly, fixing a non-working heating system in your home is something you can’t put off. Going on a trip is something that can wait until you’ve saved up the money for it.

If you’re thinking of borrowing money in some capacity to travel, you should know that technically, a personal loan might be a more affordable option than racking up a credit card balance. But that doesn’t mean you should take out a personal loan to finance a trip.

While you might pay less interest on a personal loan than a credit card, at the end of the day, you’re still racking up debt. And you should really only do so for unavoidable expenses that can’t wait.

You can get a break without getting away

It’s definitely important to take time off from work, clear your head, and recharge. But you don’t need to leave the state or country to do that. And if you can’t afford to travel right now, opt for a staycation instead.

Spend a week exploring your city, reading books, binge-watching Netflix, and reconnecting with friends. Volunteer at the local animal shelter for a day (because nothing reduces work-related stress like cute puppies). Or go visit your grandmother across town and let her shower you with cookies and tea while you watch daytime talk shows together.

There’s nothing wrong with wanting to take a vacation, and once you’ve saved up the money, you should absolutely go ahead and book your flight. But until then, don’t borrow money to travel. Having debt hanging over your head can be a very stressful thing. And it might negate the mental health benefits of having taken that vacation in the first place.

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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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