Money Management

Ramsey is a big proponent of saving money, but does he believe a college fund is crucial? 

Dave Ramsey is a big proponent of making smart financial decisions — which includes saving money. But, does he believe that parents should prioritize setting money aside in a college fund to help ensure their children can afford to earn a degree?

The answer isn’t as straightforward as you might expect. Here’s what the finance guru has to say about college savings.

Ramsey isn’t always a proponent of prioritizing a big college fund

Unsurprisingly, Ramsey believes parents should start saving for college for their kids as soon as possible. But there’s a big caveat to that: He wants parents to take care of their own needs before funneling money into a college account.

“Before you jump into saving for college for your kids, you need to set up your future for success,” Ramsey said. “Don’t worry, this isn’t selfish—it’s smart!” Ramsey urges parents not to save for college until they have all of their debt paid off except for their mortgage loan, and until they have an emergency fund with enough in it to cover three to six months of living expenses. He also urges parents to make sure they’re saving 15% of their incomes in a retirement account before saving money for their kids’ education.

After accomplishing these goals, only then does Ramsey think you should make a plan to start saving to help your kids cover the cost of earning a degree.

Is Ramsey right?

It may seem like doing all of these tasks first is going to delay your efforts to save for college for a long time — perhaps so long that you won’t be able to build up much of a college fund at all. But the reality is, Ramsey is absolutely right that becoming free of high-interest consumer debt and taking care of your retirement must be bigger priorities than saving for your kids’ education. And there’s a simple reason for that.

Your children can find other ways to pay for school, including scholarships and grants. But if you don’t have money saved for emergencies or for your later years, you can’t borrow your way out of that problem. You don’t want to get to retirement and end up having too little money to support yourself. And you don’t want to find yourself facing an emergency expense that you have to borrow for because you’ve focused on building a college fund instead of being prepared.

If you leave yourself financially vulnerable because you’re focused on saving for college for your kids, you could end up hurting your entire family’s financial stability. Those kids you didn’t want to burden could be forced to support you as a retiree when it turns out you don’t have the money to live independently, and that would be worse for everyone.

If you really want to make sure you’re saving for your kids, try to accomplish these other key tasks as quickly as you can — perhaps by taking on a side gig to pay down debt or living on a tight budget until you’ve got your emergency fund ready.

Then you can move ahead with building up that college fund while knowing you’re also going to be in a good position to take care of yourself, too.

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That’s not necessarily a good thing, though. 

Up until February, existing home sales were on a steady decline. And given the way mortgage rates soared in 2022, that decline was understandable.

But in February, existing home sales rose 14.5% compared to January, according to data from the National Association of Realtors (NAR). That marks the first monthly gain in 12 months and the largest increase in monthly home sales since July of 2020.

Compared to February of 2021, however, existing home sales fell 22.6%. And that’s an important thing to note.

Why did existing home sales pick up?

Existing home sales are based on closings, which means home buyers probably contracted to buy the homes in question a few months prior, when mortgage rates had taken a temporary dip. Higher mortgage rates, which emerged in 2022, have been cooling the housing market, leading to fewer home sales and a decline in home prices. In February, the median home sale price was $363,000, a 0.2% decline from February 2022.

What buyers and sellers should know

Existing home sales data gives buyers and sellers insight on the state of the real estate market. When existing home sales decline for many months in a row, it can be an indication of a cooling or declining housing market. And that might inspire sellers to list their homes sooner rather than later. It might also inspire buyers to put in offers, thinking they’ll have more bargaining power.

On the flipside, when home sales pick up month after month, it’s a sign of a strong real estate market. And it signals that buyer demand is solid.

But the key to existing home sales is the patterns that emerge from it. A single month of higher existing home sales isn’t necessarily an indication that buyer demand is about to surge once again. Rather, in this situation, there’s a likely explanation for it.

Mortgage rates took a modest dip for a limited period of time, and buyers jumped on that. There may not be much more to the story than that.

Will 2023 be a good time to sell a home?

Based on where we’re at today, the 2023 housing market might continue to favor sellers over buyers. Although home prices dropped in February compared to a year prior, that dip was quite modest. And also, right now, the U.S. housing market seriously lacks inventory.

The NAR reports that as of February, there was a mere 2.6-month supply of homes available. It normally takes at least a 4-month supply to create a balanced housing market. And in many cases, it takes more like a 6-month supply of homes to fully meet buyer demand.

Low housing inventory pretty much gives sellers a built-in upper hand. When buyers don’t have many properties to choose from, they lose negotiating power. That means home prices might remain expensive on a national scale in 2023.

That’s good news for sellers. But at a time when it’s gotten so costly to sign a mortgage, it puts buyers in a very tough spot.

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The sooner you act, the better. 

We’ve all watched prices rise over the last few years, and rent costs were definitely part of that general trend. Thankfully, the median rent cost has started to ease. After peaking at $2,053 in summer 2022, the amount has now dropped a bit, to $1,978. Of course, rental costs vary depending on where you live.

However, recent data shows that the average rent-to-income ratio for Americans reached 30% at the end of 2022, and this isn’t good news at all. Ideally, your housing costs should come to no more than 30% of your gross income. Otherwise you risk falling behind on other bills and not being able to save for emergencies and goals like retirement. If you’re struggling to afford your rent alongside all your other bills, here’s what you should do.

1. Check your lease (and talk to your landlord)

First things first: Definitely find your copy of the lease and give it a good read-through, because knowledge is power. There’s likely information in the lease about whether you get a grace period to pay your rent (such as five days past your normal due date), and if you’re late, how much of a late fee will be tacked on. For example, I’ve had rentals where I would have been charged $25 for each day rent was late.

Now give your landlord or property manager a call or shoot them an email to explain your situation. If you’re generally a reliable tenant and this is the first time you’ve come up short for rent, they might be willing to cut you a break and give you more time to get the cash together. If you rent from a corporation rather than an individual, you will probably have less success negotiating for a longer grace period, unfortunately.

2. Contact local agencies for help

A lot of rental assistance programs opened in the early days of the COVID-19 pandemic, and unfortunately, many of them have since been shuttered. But head on over to the National Low Income Housing Coalition’s site and check out the list of state and local rental assistance programs. You may find one in your area. You can also call 211 to reach the United Way and find local nonprofits and religious groups that may be able to help.

3. Ask family and friends

It’s not easy to ask others for financial help, but you may have more resources at your disposal than you realize. If you feel comfortable doing so, see if a friend or other loved one might be willing to spot you some cash for rent this month. Don’t take advantage of this generosity by making them chase you down to be repaid. Write up an agreement stating how much you owe, and include a plan and a timeline for when you’ll pay them back.

4. Tap other sources of money

Ideally, you shouldn’t withdraw money from say, a retirement account, for any purpose other than being paid in retirement (as you’ll incur a penalty to do so). But if you’re behind on your rent and potentially facing eviction, keeping a roof over your head is more important. You might also see if there’s a way to put your rent payment on a credit card (again, not ideal). You’ll incur a fee from a third-party service to do so, and it’s important to prioritize getting your finances in order so you can pay off the charge sooner rather than later and minimize the interest your balance will accrue.

5. Pick up a side hustle

Don’t underestimate how much good having a second source of income can be for your finances. If you get a side hustle, not only might you have an easier time affording rent and other bills, but you can pay off debt, save for emergencies, and sleep a lot better at night for having fewer money worries. It doesn’t have to be a big undertaking, either. Even delivering for DoorDash a few evenings a week might give you a nice cushion.

6. Share your costs, if possible

If you live paycheck to paycheck and always feel as if you’re one small emergency away from being unable to make rent, consider sharing your space and costs with a roommate, if possible. If you live in a small one-bedroom apartment, this likely isn’t feasible, but if you have multiple bedrooms and are allowed to add someone to your lease, consider it.

7. Know your legal rights, if all else fails

While you figure out how to cover rental costs, it’s also a good idea to learn about tenant rights in your state of residence, just in case. The U.S. Department of Housing and Urban Development (HUD) maintains a webpage with tenant rights information by state.

If you’re short on money for rent this month, don’t panic. Take a deep breath and run through these steps to give yourself the best shot at making that payment.

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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.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool has positions in and recommends DoorDash and JPMorgan Chase. The Motley Fool has a disclosure policy.

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Are you saving enough money for retirement? 

When you reach your 40s, it’s important to take a step back and assess your financial situation. This is the time when you should be in a stable financial position, and the goal is to have enough money in savings to cover any unexpected expenses that may come up. But how much exactly should you have saved by this point? Let’s find out.

The benefits of saving early

The more money you save now, the better prepared you will be for future life events such as retirement or buying a house. Plus, investing now means taking advantage of compounding returns. This refers to the ability of investments to produce more gains over time simply by reinvesting your profits into similar investments instead of cashing them out. By doing this, your initial investment will grow much faster than if left untouched.

Regular contributions over time can add up quickly. Even small amounts can make a difference in the long run when compounded over years. So even if you haven’t started saving enough yet, you still have time to invest and meet your long-term goals. The key is to get started now!

How much should you have saved?

The exact amount of money that you should have saved by age 40 depends on your individual situation, but there are some general guidelines that can help give you an idea of where you should be. According to a study by Fidelity, people in their 40s should aim to have at least three times their annual salary saved by this point. So if yours is $50,000, then you should strive to have $150,000 saved.

If possible, it’s even better to aim for five times your annual salary saved by age 40. That way, if life throws an expensive curveball at you (such as medical bills), you’ll be able to handle it without completely depleting your savings account. But what if you don’t have that amount saved? Is it too late?

How much do you need in retirement?

Another way to see if you have enough is backwards planning. A good starting point is using a variation of the 4% rule. Many retirees have relied on this rule to help determine how much they should spend in retirement. While this rule isn’t perfect and many believe the number should be lower, it is a good starting point.

Here’s how it works: You add up all of your investments and withdraw 4% of that total during your first year of retirement. In later years, you adjust how much you withdraw to account for inflation and how long you live. This rule was meant to tell you how much you could withdraw from your retirement portfolio, but we can use it to backwards plan how much you need at retirement. Here is the altered equation:

Desired retirement income ÷ 4% = how much you need saved by desired retirement age

This rule works for any retirement age. Let’s assume you want $50,000 a year in retirement and want to retire at 65. Using the 4% rule, you would need $1,250,000 by the time you are 65 and ready to retire.

$50,000 ÷ 4% = $1,250,000

How much do you need to save per month?

Now that you know how much you need by age 65, the next step is to calculate how much you need to save right now. This math is a little more complicated since you have to account for compound interest. Luckily, there are plenty of calculators out there, like the Savings Goal Calculator from the U.S. Securities and Exchange Commission.

You first enter your desired final savings, your initial investment, the number of years you have until you hit 65, and the estimated interest rate. Using the desired savings goal of $1,250,000, $1,000 in your retirement accounts, and a 10% annual interest rate compounded daily, here is how much you need to save per month, depending on when you start.

Age 20: $108.66 per monthAge 25: $185.97 per monthAge 30: $315.92 per monthAge 35: $537.25 per monthAge 40: $922.78 per monthAge 45: $1,621.27 per month

If you started earlier, you wouldn’t need to save as much. But if you are 40 and still have 25 years before retirement, you still have plenty of time to invest and take advantage of compound interest. This also assumes you have $1,000 at age 40 to start with. If you have more saved up, then you don’t need to save as much. For example if you are 40 and have $50,000 in your retirement accounts, then your monthly savings requirement would be $477.92, about half of your target if you only had $1,000.

This still may be a large amount to save every month. If it’s too much, you can look at a part-time job in retirement, drawing from Social Security earlier, or adjusting your retirement age goal. These factors can significantly impact how much you need to save. The importance of this exercise is to help you better understand your savings goals and what options you have before it’s too late.

Having enough money saved by age 40 puts you in a great position not only for managing any unexpected expenses, but also for planning ahead for retirement and other long-term goals. Of course, everyone’s individual financial situation is different, so what works well for one person may not work as well for another. A great starting point is having three times your annual salary saved by age 40 or calculating your desired income in retirement and using a variation of the 4% rule to calculate how much you should save today. By proactively saving now and making smart decisions with your finances, you can ensure that your financial future looks bright!

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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 positions in and recommends Target. The Motley Fool has a disclosure policy.

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It’s worth going after higher pay. 

Maybe you’re unhappy with your pay because you know you could be commanding a higher salary based on your skills and level of experience. Or maybe your pay is pretty reasonable, but you’re struggling to cover your bills based on your current paycheck thanks to factors like inflation.

A higher paycheck could do a lot of great things for you. It could help you build your savings account balance, pay down debt, and just plain have more financial flexibility for those unexpected bills that tend to come up here and there. A higher wage might also make it possible for you to save for longer-term goals, like buying a home.

But if you want to boost your pay, the most efficient way to do it may be to switch jobs. Data from Zippia found that the average salary increase when changing jobs is 14.8%. And you may find that your salary rises more when you switch companies as well as jobs.

Meanwhile, today’s labor market is pretty solid. So if you’re unhappy with your wages, it could pay to go after a new job — provided it’s a good fit for you.

Use your connections to your advantage

There are different steps you can take to snag a new job. But one of the most effective means of scoring one may be to reach out to your network of contacts and ask for help.

You certainly should reach out to professional connections, but it wouldn’t hurt to tap your broad social network as well, from friends to neighbors to former college classmates. Tell the people you know what sort of job you’re looking for and what your skills are. And have an updated copy of your resume ready at all times so you can jump on the opportunities people present to you.

Know what salary and role you want

If you’re looking for a new job for the express purpose of raising your wages, then it’s important to approach your search with a clear number in mind. What specific salary are you looking for? And does that number take employee benefits into account? A generous 401(k) match, for example, might make up for a salary that’s a few thousand dollars lower than your target.

At the same time, you probably don’t want to accept just any old job. So think about your skills and how they can be best put to use, all the while letting you do something you find interesting and even meaningful.

Finally, think long term. What sort of job can you pursue that might lend to a nice amount of career growth? What growing industry can you break into?

If you want higher pay, switching jobs may be your ticket to it. And looking outside of your current company might open a lot more doors. But do your best to be organized and targeted in your search. The last thing you want is to land a higher paycheck, only to wind up with a job you hate that makes you miserable — because while money is important, it shouldn’t come at the expense of your happiness.

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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 positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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It’s important to understand how these policies work. 

When friends of mine bought a house a few years back after having rented all their lives, they knew to put some cash aside in a savings account for home repairs. But when their water heater stopped working just over a year after they’d moved in, they were shocked to learn that their homeowners insurance policy would not pick up the tab.

I wasn’t surprised to hear that at all, though. In fact, a lot of people I know have some big misconceptions about homeowners insurance. And one is that it will cover every single expense related to a home. But that couldn’t be more wrong.

It’s not coverage for every little thing

You probably pay a fair amount of money for homeowners insurance, no matter where you live. In fact, Progressive’s prices range from $999 to $1,655 for a 12-month policy effective on or after April 1, 2020. But even if your costs veer toward the higher end of that range, it doesn’t mean your policy will pay for everything you expect it to.

Your homeowners insurance policy will generally offer a few types of protection. You’ll usually be covered in the event of property damage, such as from a weather event (though you won’t always be covered in the event of a flood unless you have a separate flood insurance policy).

You’ll also generally have liability coverage that protects you in the event that someone gets injured on your property. And you’ll often have protection against theft, at least to some degree.

But homeowners insurance isn’t like health insurance. With health insurance, you’re expected to show your insurance card whether you’re being rushed to the hospital for emergency surgery or you’re going to the doctor to follow up on a condition you’ve had for years. Your health insurance company even picks up the tab for preventive care, like annual physicals.

Homeowners insurance doesn’t get utilized every single time there’s something to be fixed or addressed within your home. So if your home is broken into, your insurance coverage will generally kick in. The same holds true if a tree falls onto your roof and causes damage.

But one thing your homeowners insurance policy won’t cover is wear and tear. It’s simply not designed to do that. And many of the home-related expenses property owners face have to do with wear and tear.

So, getting back to my friends’ water heater issue. Had someone broken in and stolen their water heater, their insurance company probably would’ve paid for another one. But because their water heater stopped working over time due to age, they can’t file a claim against their homeowners insurance.

You should also know that in some cases, it may not pay to file a claim against your homeowners insurance policy, even if the issue in question is covered. That’s because you have to meet a deductible with every claim. And if your deductible is the rough equivalent of the total bill, then you’re generally better off paying for repairs yourself. File too many claims, and your homeowners premiums could start to soar.

Know the rules of your policy

Not only will your homeowners insurance policy not cover wear and tear, but it may not cover things like earthquake damage and sewer line backups. It’s important to familiarize yourself with the terms of your specific policy so you know what to expect out of it.

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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 recommends Progressive. The Motley Fool has a disclosure policy.

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