Money Management

Can you teach an old dog new (investing) tricks? 

I’ve spent the last year drastically improving my finances. In 2022, I started meeting regularly with a financial planner and increased my income. As a result, I got out of debt, took my credit score to over 800, and started saving money for the future. As I look back on all I’ve accomplished and learned in the last year, there’s one omission that is getting harder and harder to ignore: I’ve never had investments of any kind.

It’s the ultimate form of imposter syndrome; I’m surrounded by folks who are savvy investors, and I’ve never even had so much as a 401(k) plan through an employer. For all but the last year of my old career, I was very focused on paying off the debt I incurred as a college and then graduate student, and investing seemed like a thing only rich people did. Now I’m a full-time freelancer, without access to an employer 401(k), so it’s up to me to forge my own investing path starting in 2023.

Is it too late for me?

I am approaching middle age, which means that if I want to be able to spend my later years not working (or working much less), I will have to invest more money in the working years I have left. Had I started earlier, I could have invested less and taken advantage of compound interest for longer. Compound interest is the reason people are encouraged to start saving for retirement as early as possible.

For an example in real numbers, let’s say I had started investing $250 per month when I was younger, with the intention to work for 45 years (and maintain the same level of investing). The stock market’s average return over the last 50 years was nearly 10% before inflation, but let’s be a bit more conservative here and say my return on investment (ROI) was 7%. After 45 years, I’d be sitting on a balance of $862,498.55. Not bad.

It’s been almost 15 years since I started my career, however. So let’s say I am now looking at retirement in 30 years. To achieve the same return, I’d need to invest about $755 per month. Quite a difference. I’m not panicking, however. For one thing, I hope and intend to keep working into my senior years, because I enjoy it and I like being busy and learning new things. I’m very fortunate that my work allows me to do that. And for another, my earning potential has increased significantly over earlier in my working years, so I am capable of saving more now.

I’m in good company

According to research from The Motley Fool, 58% of Americans own stock, so I’m clearly in good company among the 42% who don’t. I’m trying not to be down on myself for not investing sooner, and taking to heart these words of wisdom from Jenn Uhen, the founder of The Pledgettes. She said, “I appreciate this Chinese Proverb, ‘The best time to plant a tree was 20 years ago. The second best time is now.’ Since we can’t go back in time, the only choice we have is to act in the future.” To that end, 2023 is the year that I’ll become a brand-new investor. Here’s my plan.

This year: Pick the right taxable brokerage account

It’s a big wide world of investing out there, and I have my pick of brokerage accounts. Since I’m new to this and comfortable with online financial accounts, I’ll likely choose one of the best online stock brokers for beginners to give myself the best chance to learn and grow as an investor.

While I hope to become more confident over time, it’s likely better for me to start out with investing in exchange-traded funds, or ETFs, before jumping into buying stocks. With only a small amount of money, I can invest in fractional shares of ETFs, and they’re traded on major stock exchanges, making them easy to buy. Since I’m planning to start this process with a few hundred dollars, this is ideal. ETFs also make it easy to diversify investments, resulting in less risk — after all, I don’t want to put all my eggs in one basket.

Once I’ve chosen the right account for me and given myself some seed money, there are other investing pitfalls I’ll need to avoid. When I get started, I want to stay invested and keep adding money over time. It’s a mistake to try to time the market, and to avoid that temptation, I’m planning to buy with dollar-cost averaging and add a set amount of money every month. By the same token, I don’t want to spook myself into panic-selling if the market takes a downturn, because I’m in this for the long haul. Checking on my account on the day I add money is likely sufficient to ensure that all is well, and I can avoid the stress of watching daily market fluctuations.

Next year: Start a retirement account

Based on how long I’ve waited to start investing, you might be wondering why I’m not immediately going all-in on a tax-advantaged retirement account. There are a few good reasons why I’m waiting.

Since it’s my intention to max out a retirement account starting in 2024 and going forward, I want to ensure I’ve picked the right one for me. As I noted above, I’m self-employed, and I have several options. Based on my initial research, it sounds as if a Solo 401(k) might be a good bet, but I’ll be consulting with my financial planner and building my knowledge to make the right choice.

The other big reason I’m waiting is that I have a goal of buying a house in 2024. While some people do regard buying a primary residence as an investment, I don’t. I know that buying a home will cost me more money than I can expect to get back from the purchase, especially during the first several years of ownership (when more of my mortgage payments will go toward interest than my principal balance).

That said, after a lifetime of constantly moving and a bad experience with homeownership in the past, it’s a dream of mine to stop renting and settle into a home of my very own. Right now, I am focused on saving a significant amount of money for a down payment and closing costs, and to give myself an emergency fund for home repairs. Once I’m in a home, I can shift my savings goals to retirement.

Let’s get started

While I do have some regrets for not becoming an investor sooner, I’m excited about the future and keeping this encouragement from Jenn Uhen of the Pledgettes in mind: “It’s not possible to be a perfect investor. So focus on being a good investor. Know you probably have a number of good investments in front of you. And make a choice. If you’re still feeling apprehensive, start small.”

By opening a taxable brokerage account in 2023 and a retirement account in 2024, I’ll be starting small — but making the right moves to grow my money well into the future.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

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.

 Read More 

The right savings account is a must to get the most from your money. 

Since last year, there have been several interest rate hikes. While savings accounts previously offered barely anything, that’s no longer the case. Many of the best savings accounts now have APYs from about 3.5% to 4.5%.

However, not all banks offer anywhere near that much. For example, if you stick with a big bank, odds are you’ll earn a significantly lower interest rate. Some of them offer as little as 0.01%.

It’s a smart move to earn as much interest as possible, but it’s even more important when you have a large amount of savings. To demonstrate that, let’s look at how much $20,000 in savings will grow, depending on the account you choose.

How much $20,000 earns you in a savings account

Savings account APYs (annual percentage yields) vary quite a bit. The table below shows how much you’d earn in one year depending on your account’s APY. It compares APYs of 0.01%, since that’s what some big banks offer, the current national average of 0.35%, and a few rates available right now through high-yield savings accounts.

There’s no arguing that you lose a lot of money if you keep your savings in the wrong place. You’re looking at a difference of about $700 to $900 between the top savings accounts and those with a subpar to even an average APY.

Why do savings account rates differ so much?

The primary reason why some savings accounts have much higher interest rates is because they’re offered by online banks. These banks usually don’t have branches you can visit, which saves them money on overhead costs. Banking locations and the staff to run them aren’t cheap. Because online banks save in this area, they can pay more interest than brick-and-mortar banks.

Online banks also need to offer those competitive rates to attract and retain customers. Big banks already have established brands and massive customer bases, so they don’t need to compete on interest.

This means in-person banking normally isn’t an option if you want a high interest rate. Some high-yield savings accounts also don’t offer a debit card. You may need to transfer your money to a checking account first to withdraw it. While this isn’t always convenient, it’s not a huge drawback. After all, savings accounts are designed for storing your savings, not moving money back and forth.

How to maximize your savings

If you don’t have a high-yield savings account already, it makes sense to open one. You’ll earn much more interest, and there’s no downside. Online banks are just as safe, as they offer the same FDIC insurance as the big banks. That covers up to $250,000 per account in the event of bank failure.

There are plenty of high-yield accounts to choose from. While APY is one of the most important features, also look at minimum deposit requirements. Not all accounts have these, but some require a minimum balance to earn the APY. Check for monthly maintenance fees, as well. Most of the top online banks don’t charge these, but it’s still good to double check.

Once you’ve found an account you like, you can sign up online. You’ll need to provide your address, Social Security number, and possibly a scan of your government issued ID. The process of opening a bank account online is usually quick and easy. After that, transfer over your savings to start earning interest.

These savings accounts are FDIC insured and could earn you 14x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 13x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

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.

 Read More 

A trip to Costco doesn’t always make sense. 

It’s easy to see why so many people love Costco. Shopping there often results in a lower credit card tab than shopping elsewhere, especially if you have a larger family to feed.

Now, you may be inclined to push yourself to go to Costco to make sure you’re getting good value out of your membership, whether you’re paying $60 for a basic one or $120 for an executive one. But there are times when it actually doesn’t pay to do your shopping at Costco. Here are some examples.

1. You only need one or two items

If there’s a Costco five minutes down the road from your house, then it could pay to pop over for a couple of items, the same way you might pop into the supermarket to restock on milk and bread once you run out. But if your nearest Costco is 20 minutes away or further, then it may not make sense logistically or financially to go there for just one or two things. What you save on the cost of those items, you might spend on gas.

2. You’re trying a new product for the first time

Maybe there’s a new type of protein bar you’re excited to sample. Or maybe you’re trying to incorporate healthier snacks into the mix for your kids, so you’re experimenting with different crackers.

There’s nothing wrong with taking a chance on a new item. But you probably don’t want to do so in bulk.

If you buy a smaller box of crackers for $3.50 and your kids reject it, in a worst-case scenario, you’ll have thrown out $3.50. But if you buy the bulk pack at Costco for $12 and your kids hate it, well, then you’re out that much more money.

In fact, as a general rule, you really shouldn’t buy anything in bulk that you’ve never tried before. So if you’re taking a chance on a new product, you’re generally better off skipping Costco and getting it at your regular supermarket.

3. There are big sales at your local supermarket

It’s often the case that Costco has a better price on groceries than a regular supermarket — unless a given supermarket is running a huge sale. If that’s the case, it could pay to do your shopping at your neighborhood grocery store rather than at Costco.

For example, say you’re looking to buy a bulk pack of eight 16-ounce pasta boxes at Costco for $8. Generally speaking, that might be a better price than what your regular grocery store offers. But if your supermarket is running a special where 16-ounce pasta boxes are $0.79 this week, then that’s the better deal.

It’s always a good idea to look through your regular grocery store’s circular before heading to Costco. And if you don’t get it in your mailbox, you can generally access it online to compare prices.

Shopping at Costco can be a huge money-saver. But in some cases, it pays to skip the Costco visit and make your purchases elsewhere.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2024

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.

 Read More 

You’ll need to be careful if you’re filing your taxes solo. 

If you’re self-employed or own a small business, you may be inclined to hire a professional to file your taxes. But if your tax situation isn’t so complex, you may decide to tackle your upcoming return on your own.

Let’s say the only income you have to report is wages as listed on your W-2 and a 1099 showing interest you earned in your savings account. If you’re planning to claim the standard deduction, then in that scenario, there may not be a need to hire a professional.

Even if you are itemizing on your taxes, you might still decide you’re capable of handling your return yourself. Besides, today’s tax software is sophisticated enough to point you in the proper direction, right? Well, maybe.

Mark Steber, Chief Tax Information Officer at Jackson Hewitt, cautions, “Not all software is the same.” So if you’re filing taxes solo, you’ll need to be careful about which program you use. And you’ll also need to do your own research on tax deductions and credits so you don’t miss out on any benefits you’re entitled to.

Don’t deny yourself a tax break

Companies that make tax software have to pass certain IRS standards, explains Steber. But this doesn’t mean that every software program out there will work as well as the next. And also, you can’t assume that if you use tax-filing software, that you’ll automatically be prompted to claim all of the credits and deductions you’re eligible for.

As such, if you’re going to file a tax return on your own, you’ll need to do two things:

Choose software from a company you’ve heard of, and one with a good reputationDo your own research on tax credits and deductions so you don’t lose out on money-saving opportunities

Steber also says that if you’re in a position to itemize deductions on your tax return, it could pay to hire a professional, even if you’re confident in your ability to navigate the situation on your own. The U.S. tax code is extremely complex, and there may be nuances you aren’t aware of. But it’s a tax professional’s job to be aware of those lesser-known rules — and let you know if they apply to you.

Will hiring a tax professional cost more than filing your taxes solo? Of course. But you may be surprised at how reasonable some of the fees are. And the fee you pay might be negligible compared to the savings you end up walking away with.

Software is better than paper

While Steber does caution that some of the tax software you’ll find out there isn’t the best, and that you need to be careful when using tax software, filing your return electronically is still generally a much better bet than filing on paper. Not only might it lead to a quicker refund, but you’re at least less likely to make a math mistake that delays your return from being processed.

Plus, when you file electronically, you don’t have to risk your tax return getting lost in the mail. And that alone should give you more peace of mind.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2024

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.

 Read More