Money Management

It may not be easy — but it can be done. 

In 2021, the average U.S. income was $97,962, per recent research from The Ascent. The median U.S. income that same year was $69,717.

But what if your annual income is nowhere close to these numbers? What if you’re barely scraping by on a $30,000 annual salary?

If that’s the case, you might be struggling to pay your rent, keep up with your auto loan payments, and cover the cost of food and utilities. So saving for retirement might seem like an utter joke.

But the reality is that you can save for retirement on a lower income, even though that’s apt to be extremely challenging. Here’s how.

Budget very carefully

If you’re only earning $30,000 a year, then you’re probably not spending hundreds of dollars a month on things like leisure and non-work apparel. But there may be a few things you spend money on regularly that you can cut back on.

Canceling one of two streaming services you subscribe to could put $15 a month back in your pocket. That’s $180 a year that could go into your IRA account. And while that’s not a ton of money, it’s a lot better than saving nothing.

To figure out how to eke out savings, go through your credit card and bank statements from the past three to six months and try to identify areas in your budget where you can cut back. There may not be many opportunities, but all you need is at least one to start building some long-term savings.

Put the savings process on autopilot

Automating your savings might make it easier to stick to your goal of building a retirement nest egg — even if that goal is to save, say, $500 or so a year. If you have access to a 401(k) plan through your job, you might, for example, sign up to contribute $50 a month from your salary. Once your paychecks are reduced by that sum, you might manage to learn to live on less.

You can also, in many cases, automate transfers over to an IRA. Doing so could similarly help you stay on track, because in that situation, you’ll have money leaving your checking account at the start of each month, before you get a chance to start spending it.

Don’t give up on retirement savings

Can you save $5,000 or $10,000 a year for retirement when your income is limited to $30,000? Probably not. But it may be possible to save something on that lower income, whether it’s $300, $500, or a little bit more. And while socking away $25 or $50 a month for retirement may not seem like it’ll amount to much, in time, it can.

Also recognize that while you may be earning $30,000 a year at present, ideally, your wages will go up over time, especially if you work on building more job skills and advancing in your career. Once that happens, you should have a prime opportunity to save even more for your future. But if you’re able to get started now on a lower income, you’ll give yourself a nice base to build upon.

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All you need to do is put that money to work. 

These days, many consumers are pretty much spending every dollar they have to cover essential bills. We can thank persistent inflation for that. And so if you don’t have any money left over to invest with most months, it’s understandable.

You may, however, come into a chunk of money at some point in time, whether it’s a bonus at work or a tax refund. In fact, the average tax refund so far this year is $2,933, so even if you’re only looking at about one-third of that, it’s $1,000 to put to work. And if you’re willing to invest that money, here’s an easy way to do it.

Invest in the broad market

Some people are afraid to buy stocks in a brokerage account because they don’t really know what it takes to research different companies and determine which ones are a good buy. If that’s a dilemma you’ve faced, but you’re eager to grow your money by investing, a good solution may be to load up on broad market ETFs.

ETFs, or exchange-traded funds, are publicly traded funds that track different benchmarks. Some ETFs track a specific sector, like healthcare or energy, while others track the broad market.

The great thing about ETFs is that they take a lot of the guesswork out of investing. Rather than spending hours researching different companies, you could, for example, buy shares of an S&P 500 ETF and see where that takes you. And chances are, it’ll take you to a place where you’re snagging a pretty sweet return on your money in the long run.

The S&P 500 index has generated an average yearly return of about 10% over the past 50 years. Now, let’s say you’re sitting on $1,000. If you put that money into an S&P 500 ETF, do nothing, and wait a little over 24 years, you could end up growing it into $10,000, assuming you get that same 10% average annual return. It really is that simple.

Put your money to good use

When you come into a chunk of money, it can be very tempting to spend it. But if you spend your money, you won’t grow it into anything — and you might soon come to miss it.

If you invest your money, you can turn it into even more money. And that could do a lot for you over time.

An extra $10,000 could come in very handy once you’re ready to retire. It could also help pay for a large chunk of your kids’ college education, or cover an expensive home repair or renovation you might otherwise have to put off.

So if you’re sitting on $1,000, or any sum of money you don’t need for immediate bills, it pays to invest that cash. And putting your money into broad market ETFs is a great way to generate solid returns over time without having to bear the stress of hand-picking stocks — and potentially making some very unfavorable calls.

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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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It may not be worth the price after all. 

For many people, joining Costco is an easy decision. And that was certainly the case for me.

Shopping at Costco commonly results in a much lower credit card tab compared to buying food and household essentials at my nearby supermarket or closest big-box store. And because I have an upgraded executive membership, I get 2% back on my purchases, the same way your credit card might give you cash back on the things you buy.

Now to be clear, you don’t need an executive membership, which costs $120 a year, to shop at Costco. A basic membership is all you need to get in the door, and at a $60 price point, it’s not such a huge investment.

But even so, a Costco membership may not automatically be the best thing for you. Here are a few signs that you might actually want to pass on a membership.

1. You don’t have a Costco nearby

I happen to have two Costco warehouses within 15 minutes of my house. But if you live nowhere near a Costco location, you may not make it to the store all that often. And in that case, a membership may not be worth paying for.

Granted, you could always shop at Costco online. But you’ll often find that doing so means paying extra for the items you’re buying.

Case in point: At my local Costco this week, a three-pack of cucumbers was $5.99. But to order that same item online for delivery, it costs $7.01.

2. You don’t have much room for storage

The benefit of shopping at Costco is getting to save money by purchasing food and supplies in bulk. And because I live in a house with a basement, garage, and more than one refrigerator, I’m able to take advantage of bulk buying.

But if you live in a cramped apartment, then you may not have the room to store your Costco hauls. And the last thing you want is to have to live amidst clutter — or have to store Costco paper towels at the foot of your bed.

3. You don’t do a lot of cooking at home

I do my fair share of cooking at home, so I tend to spend a lot of money on groceries. But if your schedule doesn’t really allow for much time in the kitchen, then it may not be worth it to spend money on a Costco membership only to barely use it.

4. You don’t have a car

Though I live in the suburbs these days, I spent many years living in a city without a car. Back then, I’d shop at the supermarket frequently, and each day, I’d simply only buy what I could carry home.

That tactic might work when you’re buying a single loaf of bread and a few smaller items. But when you’re buying bulk items, you need a car. If you don’t have one, then you may want to skip the Costco membership.

There are plenty of good reasons to join Costco. And I know I certainly rely on my membership to save lots of money on the things I buy regularly. But if these signs apply to you, then you may want to forgo the Costco membership until your circumstances change.

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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 Costco Wholesale. The Motley Fool has a disclosure policy.

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High interest rates and high home prices is a tough combo for most.  

When we moved last summer, we traded a low interest rate for one 2.25% higher — and we were lucky. We got into our new home just before rates went up again. Between the higher interest rate and steeper property taxes in our new city, our monthly mortgage payment increased by $1,000. If we didn’t have to leave for a new job in another state, I would never have sold the old house.

But that’s me. There’s no one-size-fits-all answer that makes sense for everyone. The best decision depends on several factors. Let’s take a closer look.

Do you need to move?

If you or someone in your household is ill or has lost a job, you may have trouble paying your mortgage. If that’s the case, selling while prices are high and renting until your situation changes can make sense.

If you need to sell your home to take a job across the country or to be closer to aging parents, you can make it work. You have to do what’s right for you.

My husband and I once sold a home to pay for graduate school while everyone in our lives thought we’d lost our ever-loving minds. Still, it was the right move for us.

Are you planning to buy another home?

I’ve noticed over the past few years how many people I know are planning for a less-traditional retirement. They want to move into a cabin they’ve been building in the woods or live on a boat and sail the Caribbean for a few years. Several of our friends see selling their current homes and moving on to other adventures as freedom. If that’s the case for you, 2023 is a great year to sell.

However, you may want to wait if you’re considering selling and immediately shopping for a new home. In addition to trading a low interest rate for a higher rate, you’ll be walking into a housing market that looks very little like it did several years ago.

Currently, home prices are mixed (more on this in a moment), but it’s safe to say that you could sell your home and pay much more than anticipated for another house. The national median sale price of an existing home at the end of January 2020 was $266,300. By the end of February 2023, the median home price of an existing home had catapulted to $363,000.

Unless you don’t plan to buy a home immediately after selling, carefully consider how much you can afford to pay and still live the life you want.

Are you overly optimistic?

We’ve spent the last couple of years hearing that buyers are willing to pay anything to get into a home, and admittedly, we earned far more on the house we sold last year than expected. Still, nothing — including the housing market — remains static. Everything changes.

We rarely heard of home sellers dropping their prices in the heart of the pandemic and lockdowns. However, depending on where you live, you could be overestimating how much money you’ll make. As early as last summer, homeowners in cities like Boise, Denver, Tacoma, and Sacramento were forced to reduce the price of their homes to sell them.

Before making a final decision, meet with a real estate agent to learn about recent sales of comparable homes in your area. If it’s not enough to fund your next dream or get you into another home you can afford, consider postponing.

How long have you been in your current home?

If you don’t need to move and were fortunate enough to buy or refinance while rates were at historic lows, leaving now may not be your best bet. This is especially true if you haven’t been in the home long.

Let’s say you purchased your home in late 2019, and after a 20% down payment, you owe $250,000. Area homes are currently selling for $350,000. One glance at those numbers, and it looks like you’d make a cool $100,000 if you sold. However, a more realistic way to estimate your windfall is to subtract the cost of selling the home and the money you’ve put into upgrades and repairs.

It typically costs 10% to 15% to sell a home, with 5% to 6% going to the real estate agents and the rest going toward getting the home ready for sale and closing costs. Since it’s still a seller’s market, let’s assume you spend at most 10%.

If the property sells for $350,000, you must shave $35,000 off the top. And for the sake of illustration, let’s assume that you’ve put $15,000 into the house since moving in, on everything from a new water heater to landscaping. That money must also be deducted from your proceeds.

Now, instead of walking away with a cool $100,000, you’re left with $50,000. And that’s fine, as long as it’s enough to cover your next move.

Are you okay with a higher interest rate?

Some people live so far below their means that they can afford a more expensive house and a higher interest rate. If that describes your situation, you can afford to do whatever you want this year.

If that’s not your current situation, think twice before giving up an interest rate that provides breathing room in your budget.

As mentioned, there is no one-size-fits-all answer. Whether 2023 is a good year to sell your home boils down to your specific situation and what you hope to do next. One way to make the final decision is to calculate how much you can realistically afford to pay for your next home. If the numbers fit and you’ll walk away from a sale with the money you need to make it happen, the decision becomes much easier.

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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.Citigroup 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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