Money Management

Failing to file could have serious financial consequences. 

Taxes are due this year on April 18, which means if you’re reading this right now, you still have plenty of time to get your return completed by the deadline. But what if you’re working on your taxes and already see that you’re going to owe the IRS money? Worse yet, what if you know with certainty that there’s not enough money in your checking account to cover that bill, and you’re also not in a position to magically scrounge up the money by April 18?

In that case, you may be inclined to wait on filing your tax return. After all, what’s the point of filing your return on time if you can’t pay on time?

But actually, being late with a tax return could have major financial consequences when you owe the IRS money. So it’s important to get your return in by April 18 even if you’ll need to make arrangements for paying your tax bill over time.

Don’t be late with your tax return

When you’re due a refund from the IRS, there’s no penalty for submitting a tax return after the filing deadline. The reason is that the IRS can’t process your refund until your return comes in. And so by delaying your return, you’re only delaying your refund.

That hurts you, not the IRS, because it gets to hang onto your money even longer. So the IRS doesn’t deal you a double blow by penalizing you for tardiness.

But when you owe the IRS money from the previous tax year, it’s a very different situation. In that case, if you’re late filing your tax return, you’ll be assessed a failure-to-file penalty that’s equal to 5% of your unpaid tax bill per month or partial month your return is late, up to 25%. That’s separate from the interest and penalties you’re apt to accrue for being late with your tax payment itself.

So even if you know you won’t be able to pay your tax bill by April 18, it’s still essential that you get your tax return in by that deadline. And if you can’t finish your return in time, request a tax extension.

A tax extension won’t give you extra time to pay your tax bill. But it will give you extra time to submit your tax return — an extra six months, in fact. So if you owe the IRS money and file a tax extension, and then submit your tax return in, say, June or July, you won’t face that costly failure-to-file penalty.

How to tackle an overwhelming tax bill

You might end up owing the IRS a bunch of money from 2022. If that’s the case, and there’s no way you can come up with the cash by mid-April, don’t panic. The IRS is generally really good about letting tax-filers pay their tax bills over time.

All you need to do is reach out and ask to get on an installment plan, which will allow you to pay off your tax debt gradually. As long as you make your payments under that plan, you won’t be considered delinquent by the IRS.

This doesn’t mean you’ll avoid interest and penalties on your tax bill, as those will still apply. But that way, the IRS won’t attempt to garnish your wages for the non-payment of taxes — something the agency has every right to do to people who ignore their tax debts and don’t make any effort to pay them.

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It’s important to beat inflation when you’re investing for a far-off goal. 

You’ll often hear that it’s important to save for retirement rather than rely on Social Security benefits alone. But the money you keep socking away in your IRA shouldn’t just sit in cash. Rather, it should be invested in different assets so it grows into a larger sum over time.

Now, some people are afraid to buy stocks because they’re known to be very volatile. But if you don’t buy stocks, your portfolio may not do a good enough job of outpacing inflation. And that could leave you in a tough spot once your career wraps up and retirement rolls around.

Why you need to beat inflation

The rate of inflation has been pretty out of control over the past year and change. But usually, inflation is far more moderate, and it’s actually a natural thing.

The problem, though, is that thanks to inflation, over time, the value of a dollar tends to decline. So something that costs $1 today might cost $1.50 in 10 years from now, and $2 in 20 years.

That’s why when you’re building retirement savings, it’s important to invest your money in a manner that can beat inflation. That way, you’re more likely to end up with the buying power you need later in life.

Stocks could help you outpace inflation

The return you get in your stock portfolio will hinge on factors like the companies you choose to invest in and how long you hold your assets for. But one thing you should know is that the S&P 500, which is generally considered representative of the broad stock market, delivered an average annual return of 11.88% between 1957 and 2021, according to Investopedia.

This doesn’t mean the S&P 500 performed well every year during that time period, but that 11.88% is an average over several decades. And if you invest in stocks over a longer period of time, like 30 or 40 years, you might end up with a return in your portfolio that’s comparable to 11.88%. This holds true whether you buy a diverse mix of individual stocks or invest your money in broad market ETFs (exchange-traded funds).

Meanwhile, let’s say you invest $250 a month for retirement over a 30-year period. If your portfolio generates an average annual return of 11.88%, you’ll end up with over $707,000 to your name.

Don’t shy away from stocks

Stocks can be riskier than more stable assets, like bonds. But when you go heavy on bonds, you run another risk: not generating a high enough return to beat inflation.

If you’re looking to buy stocks, hold them for a few years, and then cash them out at a profit, then yes, you may end up losing money. But when you’re talking about an investment window that’s decades long, stocks become less risky. And so it pays to make them the focus of your investment strategy if you’re trying your hardest to build a retirement nest egg.

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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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Living in Tornado Alley can be pretty expensive. 

When choosing the place to call home, location is one of the most important considerations. It can affect everything from the length of the daily commute to the schools that children attend. More interesting to home insurers, it can also dictate the likelihood of theft and natural disasters and the cost of rebuilding a home following a loss.

These factors could come back to bite homeowners who live in one of the five states listed below. Fortunately, there are steps homeowners everywhere can take to keep their annual premiums as low as possible.

The five states with the highest average annual homeowners insurance premiums

The following five states have the highest average annual homeowners insurance premiums in 2023 based on our analysis of standardized personas:

Nebraska ($4,398)Oklahoma ($3,783)Mississippi ($3,373)Arkansas ($3,368)Kansas ($3,073)

The majority of these states fall within Tornado Alley. This understandably raises the risk of tornadoes and damage from high winds. But residents in several of these states also face the threat of serious hail damage.

Mississippi undoubtedly earns its place on the list due to its proximity to the coast. Many states on the Gulf Coast see higher rates due to the risk of hurricanes and flooding from storm surges.

It’s worth noting that not all residents of these states will pay this much for homeowners insurance. These are only averages. Some people will pay more while others will pay less, depending on the size and construction of the home, their claims history, and their location within the state.

How homeowners can find the best deal on insurance

The best thing homeowners can do to reduce their home insurance premiums is to shop around before buying. Compare quotes from a handful of companies and evaluate the overall value they provide. Price is obviously going to be an important factor, but the quality of a company’s customer service and the comprehensiveness of its coverage also matter.

Many homeowners insurance companies require homeowners to contact them directly to get a quote, so choosing the right insurer could take some time. However, some of the big names in the industry offer online quote tools to provide a faster price estimate.

Homeowners who have recently made upgrades to their home or plan to do so should look for insurers that reward these changes. Installing a new roof or storm shutters, for example, qualifies a home for discounts with several popular insurers.

Finally, raising a home insurance policy’s deductible can lower its premiums. But this also increases the homeowner’s out-of-pocket costs in the event of a claim. So it’s crucial to save for the deductible in an emergency fund in order to avoid costly debt.

Homeowners may run into multiple deductibles, especially if they live in one of the states above. Many insurers now charge separate wind and hail deductibles that are higher than the standard home insurance deductible. Homeowners must meet this before the insurance company will pay anything for wind- or hail-related claims. As with the standard deductible, increasing this could lower monthly homeowners insurance premiums.

Don’t skimp on coverage

It might be tempting to reduce coverage in order to keep costs down, but this can be a dangerous mistake. If the policy’s limit is less than what it costs to rebuild a home, the homeowner could have to pay for the rest of the repairs on their own in the event of a total loss. Stick to the tips above to keep costs down and shop around for lower rates once or twice per year to ensure no better deals go unnoticed.

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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.Kailey Hagen 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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It’s an option that’s probably available to you. 

Building a diversified portfolio is one of the most important steps you can take as an investor. If you load up on a wide range of companies and assets in your brokerage account, you can not only grow a lot of wealth over time, but also protect yourself in the face of stock market turbulence.

But what if you’re not exactly overflowing with available funds to invest? Between your rent or mortgage payments, car payments, utility bills, and food costs, you might run into a situation where you’re down to your last $5 from that month’s paycheck.

The good news, though, is that you can actually do a lot with $5. Just ask Vivian Tu of Your Rich BFF.

When $5 can really go far

In a recent video, Tu explained that buying broad market ETFs is a great way to branch out and build a solid portfolio. But broad market ETFs can trade for over $200 a share, which may be beyond your investing budget. That’s not a problem, however, thanks to fractional shares.

As Tu said, “We no longer live in the Dark Ages.” And while investors, in years past, were forced to buy shares of stocks or ETFs in whole increments, these days, that’s not a requirement. That’s because most major brokerages now let you invest in fractional shares.

Here’s how that might work. Let’s say there’s a stock or ETF you want to own that trades for $200 a share. If you only have $5 to put into an investment, a full share clearly won’t be feasible. But the good news is that you can buy just $5 worth of whatever company or fund you’re looking at.

Now, you may be aware that some companies pay dividends to shareholders. If you’re wondering how that works in the context of fractional investing, it’s simple. If you put $5 into a stock that trades for $200 a share, it means you own 1/40 of a share. If the company pays a quarterly dividend of $40, you’d get $1. Everything is simply proportional.

Similarly, let’s say you buy 1/40 of a share of stock whose value increases by $100. That means you’d be looking at a $2.50 gain if you were to sell your fractional share of that stock.

Money doesn’t have to be a barrier to diversification

It’s hard to load up on different stocks when you’re limited in the amount of money you have to invest with. The great thing about fractional shares is that you can buy bits and pieces of different stocks and ETFs so that all told, you’re assembling a diverse investment mix.

In fact, if you really want to branch out to cover the broad stock market, look at buying shares of total stock market or S&P 500 ETFs on a fractional basis, or in full if you can swing it. That gives your portfolio exposure to different companies and market sectors without having to burden yourself with researching dozens of businesses.

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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’s a major problem, to say the least. 

If you’re spending a good chunk of your week worrying about money matters, you’re definitely not alone. A recent survey by SecureSave found that 30% of Americans are spending one to two hours every week stressing about money. That’s apt to be wreaking havoc on their mental health and impacting their productivity — at work and in life.

Now it’s easy to see why Americans have lots to worry about. A good 67% don’t have enough money in their savings account to cover a mere $400 expense. And on a broad economic scale, there’s lots to be worried about, from continued inflation to the potential for a recession to hit in the near term.

If you’re spending a lot of time worrying about money on a regular basis, it’s important to try your best to break that cycle. As Suze Orman, a well-known financial expert and SecureSave co-founder says, “When you can’t afford to pay your bills…it can impact your mental health and productivity.”

Now there may not be much you can do individually to address the problem of inflation or prevent the U.S. economy from tanking broadly. But you can most certainly improve your personal financial situation by building up an emergency fund.

Do you best to build some savings

If the idea of encountering an unexpected bill — and not having the money to pay for it — is keeping you up at night or distracting you from your responsibilities, then it’s time to map out a plan for building an emergency fund. That way, you’ll be less likely to immediately resort to credit card debt when hit with an unplanned expense.

Now as a general rule, it’s a good idea to have a robust enough emergency fund to cover at least three full months of essential expenses. And Orman herself even recommends saving enough to pay for up to a year’s worth of bills, if that’s feasible.

But it may not be feasible for you, and that’s okay. If you can’t manage a large emergency fund to cover three months of bills, having some amount of money in savings is better than having none.

So start small. Tell yourself you’re going to try to save $100 a month over the next year. That may not leave you with enough cash to cover multiple months of bills. But if you’re sitting on, say, $200 right now, and you manage to save up another $1,200 on top of that, you’ll be in a much stronger position to handle an unexpected expense.

An important way to prepare for a recession

Having emergency savings is important at all times. But it’s especially crucial at a time when recession warnings are still floating around.

This isn’t to say that you’ll be able to snap your fingers and magically watch your savings grow. You may need to make tough sacrifices, like cutting expenses or even taking on a second job. But if that spares you from spending numerous hours each week worrying about money, then it may be more than worth 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.The Motley Fool has a disclosure policy.

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