Here’s how to minimize and delay the chunk that Uncle Sam claims. J.J. Gouin / Shutterstock.com
The Tax Cuts and Jobs Act of 2017 changed a lot of rules, but one thing remains the same: It is exceedingly difficult to evade the long arm of the taxman. That’s even true of Social Security benefits. Many people know that if you work while collecting benefits before reaching your full retirement age, it can result in a permanently reduced benefit. But earn too much money — even by simply making…
Here’s another great option to consider for your portfolio.
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You’ll often hear that if you want to grow a lot of wealth over time, buying stocks is the way to go. You could of course load up on safer investments, but adding stocks to your brokerage account might result in stronger returns that make it easier to meet your long-term financial goals.
But the idea of buying stocks can be daunting to some people. Recent Motley Fool research found that only 58% of U.S. adults own stocks. For the 42% of Americans who don’t, the reason could boil down to fear.
If you’re nervous about choosing stocks and landing on the wrong ones, a better bet may be to invest in the broad market instead. And there’s a really easy way to do that.
ETFs, or exchange-traded funds, are passively managed funds that track different market segments or benchmarks. You can buy ETFs that focus on energy, healthcare, or real estate, just as a few examples.
You can also buy ETFs that track the stock market broadly. The S&P 500 index, which consists of the 500 largest publicly traded companies, is often used as a measure of the stock market’s performance. So if you load your portfolio with S&P 500 ETFs, you’ll gain exposure to many types of companies without having to stress out about choosing the wrong ones or having to research businesses individually.
In fact, one of the things that makes ETFs such a great investment is that they lend to a diverse portfolio. And the more diversified you are, the greater your chances of being able to ride out stock market downturns while keeping your losses to a minimum. ETFs could also help you grow your portfolio nicely over time.
Buying an ETF in your brokerage account is similar to buying stocks. You just put in the name of the ETF you want to buy or the ticker it trades under and decide how many shares you want to own.
Many brokerage accounts even let you buy ETFs on a fractional basis. So, let’s say a given ETF is trading at $200 a share, but you only have $100 to add to your brokerage account. In that case, you could purchase half of a share — the ETF in question won’t necessarily be off limits.
One thing you should know is that your brokerage account is likely to charge you a fee for buying shares of an ETF. But ideally, that fee will be pretty minimal. Still, that’s something that’s good to know about so there aren’t any unpleasant surprises.
It’s easy to see why the idea of buying stocks on a company by company basis could be scary to you. If that’s the case, but you’re looking to grow your portfolio at a decent pace, then ETFs could be a reasonable alternative to fall back on. And you may find that buying ETFs eases a lot of your fears and makes you more comfortable with the idea of putting your money into the stock market.
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It’s a detail you can’t gloss over.
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If you’re going to drive a vehicle around town, you need auto insurance. If you’re caught driving without insurance, you could face fines and even a license suspension.
But avoiding that fate isn’t the only reason to buy auto insurance. You should also want to have coverage in case you get into an accident or your car sustains damage.
Let’s say your car gets hit and the resulting repair comes with a $7,000 price tag. That’s a sum you probably can’t afford.
With auto insurance, you wouldn’t need to pay that $7,000. You’d simply pay your deductible and have your auto insurance company take care of the rest.
But it’s important to have a handle on what your deductible looks like. And it’s equally important to make sure that you have enough money in your savings account to pay your deductible at any given point in time.
The average car insurance deductible is $500, according to American Family Insurance. Yours might be the same amount, or a bit higher or lower.
When you file a claim against your auto insurance policy, you’ll generally need to pay your deductible upfront as your vehicle undergoes repairs. Then, your insurance company will commonly pick up the remaining tab.
That’s why you must know what your deductible is and, ideally, have that much money in the bank. If you’re stuck having to pay a $500 deductible and your savings account is empty, you might rack up debt in the course of getting your car fixed, even with insurance in place.
It’s also important to know your deductible so you can determine whether it pays to file a claim through your auto insurance company. Let’s say you have a $500 deductible and your car sustains $475 worth of damage. In that case, it wouldn’t make sense to file a claim, because the amount you’d be responsible for — $500 — would exceed the total cost of your bill.
Also, the more claims you file against your auto insurance policy, the more expensive it might become over time. So let’s say you have a $500 deductible and you’re looking at a repair bill of $600. It may be worth it to pay the extra $100 if doing so keeps the cost of your policy down.
You may not like the idea of having to fork over a large sum of money every time your car sustains damage and you need to pay your deductible. It’s possible to ask your auto insurer to lower your deductible. But usually, what’ll happen in that situation is that your premium costs will rise. And all told, you may not come out ahead financially.
Your deductible is something you’re only going to have to pay if your car is damaged or if you get into an accident. But you’re going to have to pay your auto insurance premiums even if you don’t end up filing a claim against your policy. So often, it pays to err on the side of a higher deductible and lower premiums, since those are a given expense.
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You may want to put these on your list.
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When we think of Costco, we tend to picture massive shopping carts filled with bulk toilet paper, deli meat, and cleaning supplies. But one great thing about Costco is the wide range of products it carries. You can buy everything from clothing to books to electronics at Costco. Heck, you can even buy living room furniture and major kitchen appliances.
Costco also tends to stock seasonal items that rotate during the year. And right now, the warehouse club giant has plenty of Easter goodies available at a price that won’t ding your checking account. Here are some worth looking at.
There’s nothing like a basket of gourmet chocolate to sweeten up your loved one’s Easter. Costco is selling a bucket loaded with high-end sweets, including milk chocolate truffles and chocolate truffle coffee.
When you’re putting together an Easter basket for an adult, nothing says classy like Godiva chocolate. But you may want something more low-key for your kids. After all, why spend extra on fancier chocolate your children might not even like?
If you want a more kid-friendly Easter basket that’s pre-made, Costco has you covered there, too. It’s selling a cute, colorful bucket that includes a chocolate bunny, cotton candy, and Peeps.
Many children love building gingerbread houses for Christmas. It’s a fun activity you can do as a family, and you get to eat your results — a win-win!
Now, you can introduce a similar concept for Easter. Costco has an Easter house two-pack available online (and you may find it at your local warehouse club store, too). It comes with 12 pre-baked cookie panels, icing, glittery sugar, and other decorative candies. And in case you’ve got allergies in the family, you can rest assured that this product is nut-free.
Want to build your own Easter basket instead of buying a premade one? If you’re looking to load it with chocolate and candy, Costco has you covered. You can buy a 30-count of full-sized M&Ms, Skittles, Starburst, and more. There’s enough candy in that box to even put a little aside for yourself.
Squishmallows are all the rage these days, but they’re not so easy to stuff into an Easter basket. Costco, however, is selling a multi-pack of eight 5-inch Squishmallows in an assortment of fun colors. They’re the perfect addition to a basket of chocolates and sweets.
The best part about shopping at Costco is that you’ll often run up a lower credit card tab there than you will at another store. So if you’re looking for the perfect set of Easter gifts and treats, pop on over to your local warehouse club store. And if you don’t even want to take that step, check out Costco’s selection of Easter toys and treats online. Many of Costco’s items come with free shipping, so there’s little to lose by shopping from the comfort of your couch.
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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.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.
You may be better off keeping that money in a regular savings account.
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At the start of the COVID-19 pandemic, a lot of people learned the hard way that not having an emergency fund is bad news. In 2020, millions of Americans lost their jobs, and in the absence of having savings to fall back on, many struggled immensely.
As a general rule, it’s a good idea to have an emergency fund with enough money to cover at least three full months of essential living costs. And if you’re able to aim higher, that’s even better.
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The purpose of your emergency fund is to get you through a period of unemployment and/or cover large unplanned bills that pop up, like home and car repairs. And if you’re wondering about that three-month rule of thumb, it’s because it might easily take that long to find a new job after becoming unemployed.
But while it’s crucially important to have an emergency fund to begin with, it’s just as important to find the right home for that cash. And in that regard, your best bet really is a savings account, not a CD. Here’s why.
The upside of putting money into a CD (certificate of deposit) account is getting to snag a higher interest rate on it. The downside, however, is that you must commit to locking your money away for the entire term of your CD. And if you cash out your CD early, you’ll be penalized financially.
Now, each bank can set its own penalty for an early CD withdrawal. But to give you a sense of what penalty you might be looking at, Wells Fargo charges a penalty of three months of interest for cashing out a 12-month CD before it comes due. And the penalty for cashing out a 24-month CD early is six months of interest.
Because early cash-out penalties can negate all of your interest earnings, a CD is simply the wrong place for your emergency fund, because the whole purpose of having one is to be able to tap it as needed. Also, with a savings account, you can withdraw a small portion of your balance if that’s all the money you need to cover an unplanned bill. CDs generally don’t allow for partial withdrawals — if you have a $10,000 CD and only need $1,000 to pay a surprise bill, you have to cash out your entire balance.
You may be tempted to put your emergency fund into a CD to earn more interest on your cash. But a better bet is to stick to a regular savings account.
Now that said, if you have money outside of your emergency fund that you’re not ready to invest, then by all means, open a CD. You might, for example, want $15,000 in your emergency fund. If you have $18,000 in cash, there’s no reason not to open a $3,000 CD and enjoy extra interest on that money. But otherwise, stick to a traditional savings account, even if it means earning a little less interest along the way.
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Think functionality before aesthetics.
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It’s pretty uncommon to buy a home that’s in perfect condition when you move in. Chances are, your home is going to have at least some issues, whether it’s ugly carpeting or a fence that’s missing panels.
As a new homeowner, you may be eager to tackle all of your renovations as soon as possible. But let’s face it — these projects can be costly, and you might only have enough money to work on them one at a time.
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In fact, you may not even have the money at all, leaving you to borrow it instead. And in that case, it’s really important that you set priorities with regard to your renovations. Here’s an approach you might find helpful.
Let’s say you’ve moved into your home only to find that your oven doesn’t work. That’s a problem, as it might seriously impede your ability to cook meals for your family. And so putting in a replacement oven is the sort of thing you may want to do first.
Similarly, let’s say your home comes with a deck that doesn’t seem structurally sound. That could be a big hazard. So a new deck is the sort of project you’d probably want to put above others.
Maybe your washing machine takes forever to clean your clothing. Or maybe your heating system works, but you find that it takes a while for the heat to kick in. These are the sort of projects that could improve your quality of life, so they should get relatively high billing on your list.
Similarly, you may have access to a basement that isn’t finished. Putting down flooring and installing lighting could give you added living space, which could clearly make your home life more comfortable. So that, too, is a good project to prioritize.
Maybe you think the tiles in your master bathroom are the ugliest pattern you’ve ever seen. Or maybe you’re just not a fan of the kitchen countertops the former owner of your home chose.
These things can be an annoyance. But they won’t make it so you can’t use your bathroom or prepare food. As such, you may want to put projects like these at the bottom of your list.
Knowing which home projects to embark on first is important. But it’s also important to choose the right means of financing a home renovation if you don’t have the cash to pay for it outright.
If you’re a new homeowner, you may not have enough equity in your property yet to borrow against it. But a personal loan could be a good bet in that scenario.
A personal loan lets you borrow money for any purpose, so you can take one out and use the proceeds to renovate your home. And if your credit score is in great shape, you might manage to snag a pretty affordable interest rate on a personal loan.
As of late 2022, U.S. personal loan balances came to $222 billion, according to TransUnion. So clearly, these loans are a pretty popular choice among consumers. And you may want to consider applying for one if you have a big home project to undertake.
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