Money Management

It could strain and even destroy the relationship. 

There’s a good chance that at some point in life, a friend or family member will ask you for a loan. Maybe they’re short on cash while waiting for their next paycheck, or they need some help to cover a big expense. If you’re doing well financially, you might consider loaning them the money.

Financial advisor Dave Ramsey would definitely advise you not to do it. He recently shared advice on this subject, saying, “It’s fine to give money to friends and family in need if you have it, but loaning them money will mess up relationships.” He makes a great point here, and before you give anyone a loan, you should know how this can backfire.

A not-so-simple favor

When someone you care about asks you for money, it’s natural to want to say yes. You might feel pressured, or you might just feel like it’s the right thing to do. And it probably doesn’t seem like a big deal, either. You give them a loan, they pay it back, and that’s that.

Not exactly. That’s the best-case scenario. And while it could certainly turn out that way, it could also go south.

What often ends up happening is the borrower doesn’t pay you back when they said they would. They may ask you for a little more time. Or, they might just not pay you and not bring up the loan at all, putting you in the awkward position of saying “Hey, remember that money you were supposed to pay me back last Saturday?”

Therein lies the problem with loans between friends and family. It’s not like a loan from the bank, where the borrower gets charged interest, plus a late fee every time they miss a payment. You’re probably not going to charge interest or late fees to a friend. You’ll give them a no-interest loan with no fees to be nice.

That’s why loans between friends and family tend to fall at the bottom of most people’s financial priorities. Since there are no real consequences to not paying you back on time, the borrower doesn’t have much incentive to do so, either. They will if they can, but your loan will come after all their other bills, and that probably includes non-essential lifestyle expenses. Don’t expect them to cancel Netflix or stop going out to eat just to pay you back.

It could ruin the relationship

Loaning someone money seems like a decision that could strengthen the relationship, since you’re doing them a favor. Ironically, it often ends up doing the opposite.

As Ramsey explains, when you loan someone money, it changes the dynamics of the relationship. Until they’ve paid you back, you’re the lender and they’re the borrower. This may not matter at first, but it will if they don’t pay you back when they said they would.

If that happens, you might find yourself internally questioning all of their spending choices. Why are they posting pictures of meals at expensive restaurants or new shoes they’ve bought on social media? If they have enough money for that, shouldn’t they have paid you back already?

The way the borrower sees you could also change. Even though you’re in the right, they might see you as an annoying nag when you remind them that they haven’t paid you yet.

Maybe everything goes back to normal afterwards. But there’s also the possibility that you two see each other differently. You think of them as someone who took forever to pay you back, and they think of you as someone who hassled them way too much over a loan.

Should you ever loan money to friends and family?

Ramsey says it’s okay to give friends and family money if you have your finances in order, but you should never loan them money. I’m inclined to agree with him about this. Loaning people money is usually a massive headache. I’ve done it a few times, and although I always got paid back, it took much longer than promised each time.

If someone wants to borrow money, there are plenty of great personal loan options available. If they’re coming to you instead, it’s probably for one of two reasons:

They don’t have good credit. This could be due to previous financial missteps, like not paying back loans or credit cards on time. If a bank doesn’t want to lend someone money because of their credit score, you should probably think twice, too.They don’t want to pay interest. No one does, but that’s normally how loans work. Keep in mind that you could be earning interest on that money in a savings account or investing it, so you technically lose money when you loan it out for free.

There’s nothing wrong with saying no when someone asks you for a loan. You may decide it’s worth it, if you really want to help someone out, but just be aware that it often doesn’t go as smoothly as planned.

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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.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.

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Having too little homeowners insurance could be a costly mistake. 

Buying homeowners insurance is important for anyone who owns their own property.

Mortgage lenders require homeowners insurance in order to protect their collateral (the house that secures the loan). Even homes with no mortgage should be insured because people have so much of their net worth wrapped up in their houses.

But, how much homeowners insurance should a property owner buy, exactly? This guide will help owners decide the amount of coverage they require.

Replacement value coverage

Every homeowner should have enough insurance to rebuild their house if something were to happen to it.

This means they need replacement coverage insurance, not market value insurance. Market value coverage only pays what the property is worth at the time something happens to it. That might be less than it costs to rebuild it.

No homeowner wants to see their house destroyed by a covered loss, only to find they can’t rebuild what they had because they don’t have enough replacement value coverage. So be sure policy limits are high enough to provide plenty of money to get back the house that was lost.

Personal property coverage

Homeowners need personal property coverage as part of their home insurance. This pays to replace things in the house that were destroyed by a covered cause.

Homeowners should again get replacement value coverage, rather than market value coverage, because otherwise they could end up with far less than they need to replace their stuff. After all, the insurance payout on a 10-year-old couch or TV probably wouldn’t be enough to buy a new couch or similar television, since these assets depreciate (go down in value) quickly.

Homeowners need to make sure they have a sufficient amount of property coverage to pay to replace all they own. Since it’s helpful to have a home inventory in case an insurance claim needs to be made, homeowners can prepare one to help them estimate the amount of coverage required.

Liability coverage

Homeowners should have liability coverage, which pays out if the property owner is sued because someone is hurt on their space. Typically, it’s a good idea to have a minimum of around $500,000 in liability coverage because this would cover most serious injuries.

Homeowners with a lot of assets or high incomes may want to opt for more liability coverage to provide full protection for assets. Those who don’t have sufficient insurance coverage could be forced to pay out of pocket if an injured victim sues them for damages personally that their insurance doesn’t cover because the losses are above the policy limits. Wealthy people with lots of assets and income could be more vulnerable to this kind of lawsuit.

Other add-ons

Finally, many homeowners should also add additional policy provisions, such as additional living expense coverage. This would pay for costs incurred if the homeowner experienced extra expenses associated with a covered loss. For example, this kind of insurance would pay for added costs of a rental property while a home is being repaired when something has gone wrong.

By making sure to have these kinds of coverages in place, homeowners can get the insurance they need to protect themselves against major financial losses if something goes wrong with their house and its contents.

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If you’re thinking about withdrawing your money from the bank, read this first. 

The collapse of Silicon Valley Bank (SVB) was the second-biggest bank failure in U.S. history. Authorities moved quickly to reassure consumers that their money is safe. All the same, SVB’s failure, followed swiftly by that of Signature Bank, sparked concerns about how safe banks are. Here’s everything you need to know.

How banks work — and why they sometimes fail

At heart, a bank is a financial institution that stores people’s money and makes loans. The two sides of banking operations are important, particularly when understanding why banks sometimes fail. Put simply, a bank is not a giant safe deposit box as banks put the money you deposit with them to work.

I’m simplifying a little, but your deposits enable the bank to lend money to individuals or businesses or buy securities such as bonds. Banks use the interest earned to cover the costs of running the bank, including paying staff and operating, say, a free checking account. It also means the bank can pay you interest on a savings account and generate profits.

You can look at a statement or check online to see how much money you have in the bank. But whether you use a brick and mortar or online bank, that money isn’t just sitting there waiting for you to access it. Although there are rules around what percentage of deposits a bank is allowed to loan out, if everybody tried to withdraw their cash at the same time, it would be problematic.

This is known as a “bank run,” and there’s often a snowball effect at play. Banks can only stay afloat if customers believe their money is safe. If people stop believing, they start to withdraw their money. This triggers panic and leads more people to withdraw their funds. In a worst-case scenario, this can then cause the bank to fail.

In the case of SVB, a lot of its customers were tech companies who’ve been feeling the pinch recently. As SVB clients started to make higher withdrawals, it had to sell bonds to meet the demand. Bonds have lost value in recent months because of what’s happening in the wider economy. Investors and customers got spooked, and regulators had to close the bank.

What happens to your money if your bank fails

Like any business, banks can fail. The trouble is that when a bank fails, it can have a big impact on the economy. If another business such as a supermarket chain fails, it affects its shareholders, employees, and, to a lesser extent, customers. But if a bank fails, not only can it put people’s savings and homes at risk, it can also dent trust in other banks, potentially triggering further failures.

The good news is that bank failures don’t happen that often, and there’s protection in place when they do. According to the Federal Deposit Insurance Corporation (FDIC), there have been ​​563 bank failures since 2001, over half of which happened during the financial crisis of 2008 and 2009.

Nearly all banks have FDIC insurance, which covers customers for up to $250,000 per client, per ownership category. This is a fund that was set up for exactly this situation — it’s designed to protect Americans against bank failure. As of 2019, the average American had $5,300 in median combined checking and savings balances, so the $250,000 limit will protect most people.

One issue highlighted by Silicon Valley Bank’s collapse is that some businesses have more than $250,000 in bank deposits. This is why the government stepped in to guarantee all deposits, even those over the FDIC threshold.

Call your bank, look on its website, or check your bank statement to find out if your bank is FDIC insured. This is the best way to ensure your money will be safe in the event of bank failure. The FDIC also has a BankFind tool. Check out our list of the safest banks in the U.S. for more information on choosing a safe place for your money.

If you use a credit union, there’s protection against failure for up to $250,000 through the National Credit Union Share Insurance Fund (NCUSIF). If your brokerage runs into trouble, Securities Investor Protection Corporation (SIPC) kicks in, though this works slightly differently from the FDIC.

How much money should I keep in the bank?

Not only have the recent troubles in the banking world reminded us that these institutions can fail, they also raise questions about how much money we should keep in bank accounts.

Don’t keep your savings under the mattress

The temptation to withdraw your money from the bank is understandable. The trouble is that — while they are not perfect — banks remain one of the safest places you can put your money.

You could keep your savings at home, but it is much riskier than using a bank account. If there’s a fire or flood, not only will your home be damaged but your savings could go up in flames or be destroyed by water. There’s also a much higher risk of theft. Banks have sophisticated security systems that are almost impossible to replicate in your home. Banks also offer a certain amount of fraud protection.

Even so, it doesn’t always make sense to leave large sums of money in a bank account. Sure, FDIC insurance covers as much as $250,000. But if you’re keeping that much money in the bank, ask yourself why. Savings and investments are both key financial tools, and it’s important to understand the difference between them.

Savings vs. investments

Put simply, there’s a limit to the amount of savings you need. The bank is the place to keep money you might need in the short term. If you have additional cash, perhaps you can invest it and build assets that could work for you long term.

Savings

Use your savings account for anything you might need in the near future, for example, your emergency fund or money you’re saving toward a vacation. The interest rates are much lower than you might get with investments, but there’s also much less risk involved. Plus, banks have clear rates of return, so you’ll know how much you’ll earn.

Typical accounts:

Savings accountsCertificates of deposits (CDs)Money market accounts (MMAs)

Investments

Investing is a way to build wealth for the future by buying assets such as stocks, bonds, or real estate, that will work for you over time. Once you have a solid emergency fund that will cover three to six months or more of living expenses, it’s worth considering ways to make any additional cash work for you.

There are no guarantees when it comes to investing, and it takes more work than leaving your money in the bank. If you’re trying to build wealth or save for your old age, historically, the stock market has beaten inflation and generated higher returns.

There’s one big caveat: Don’t invest money you might need in the coming five to 10 years. The average stock market return for the S&P 500 was 14.8% annually from 2012 to 2021, which is much higher than you’d get with a savings account. However, that’s an average — some years the value of your investments could fall. If that happens and you need money quickly, you don’t want to have to sell your assets at a loss.

Typical accounts:

Brokerage accountsIndividual retirement accounts (IRAs)401(k)s

Sadly, banks do fail

Bank failures do happen. The good news is that in most cases, your money will be protected if yours does. Now is a good time to check that your account is FDIC insured and consider the money you’re keeping on hand. If you have significant amounts of money that you don’t need in the coming years, consider ways to make it work for you.

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These tips could shave hundreds off the average homeowners insurance premium. 

A home is the single biggest purchase most people will ever make, and very few have the cash on hand to buy one outright. So it makes sense to protect that investment with homeowners insurance. But that can often mean spending thousands of dollars per year on premiums.

The rate a homeowner pays depends on several factors, including the size and construction of the home, its location, and the claims history. Homeowners may not get to choose what their premiums are, but they can take steps to reduce their costs. Here are the five most impactful ways to reduce homeowners insurance premiums in 2023.

1. Bundling home and auto insurance

Bundling home and auto insurance remains the best way to reduce annual premiums. The typical standalone homeowners insurance policy in the United States costs about $1,787 per year. But add in auto insurance and the price tag drops to just $1,455 for home insurance. That’s a savings of $332 per year.

Of course, homeowners who do this will have to pay for their auto insurance policy as well. But they’ll likely still come out ahead compared to purchasing separate home and auto insurance policies.

2. Upgrading the roof

Replacing a home’s roof could easily cost tens of thousands of dollars, so it’s not something most homeowners are eager to do. But there are major upsides to doing so. A new roof can reduce the risk of certain types of storm damage, thus reducing the likelihood of needing to file a homeowners insurance claim.

Many home insurers also offer discounts to homeowners with new roofs. The average home insurance premium for a home with a newly upgraded roof was just $1,487 — $300 less than the national average. So it’s worth notifying a home insurer immediately after a roof upgrade.

3. Installing sprinklers

Homeowners who want to take their fire protection to the next level should consider installing sprinklers in their home. There is an upfront cost associated with this, which will depend in part on the size of the home. But it can significantly reduce the damages and cost of a claim if a fire breaks out in the home.

It’s also something home insurance companies like to reward with discounts. It won’t reduce premiums as much as the items above. But it’s still possible to shave about $174 off the average annual home insurance premium this way.

4. Installing a monitored fire alarm or burglar alarm

Smart home technology is becoming increasingly popular for its convenience, but it can also improve the safety of a home. Prime examples of this are fire alarms and burglar alarms that are connected to a central monitoring station. In the event of a fire or break-in, the monitoring company can alert the authorities, even if the homeowner isn’t around to realize anything has gone wrong.

Monitored fire alarms reduce the average annual homeowners insurance premiums to $1,629. And monitored burglar alarms bring the average annual premium to $1,644 per year, according to our data.

5. Upgrading home systems

Older homes could benefit from updating electric, heating, and plumbing systems. This could help these systems run more smoothly and reduce the risk of disaster due to faulty wiring or old plumbing.

There wasn’t a significant premium difference between the three above upgrades. Each should reduce the average homeowners insurance premium to somewhere between $1,665 and $1,676 per year.

Choose insurers carefully

The above moves are all viable ways to reduce homeowners insurance premiums. But not all companies offer all of these discounts. Homeowners who plan to pursue a specific discount — adding sprinklers, for example — should verify that their insurance company offers a discount for doing so. If not, they may want to get quotes from other companies that offer sprinkler discounts to see how cost savings might stack up.

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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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If you’re tired of market volatility, the golden butterfly portfolio could be the answer. 

For most investors, 2022 wasn’t a great year. The stock market had its worst performance since the Global Financial Crisis, with the S&P 500 dropping by 19.4% and the NASDAQ by 33.1%. Even if you know the best strategy is to weather the storm and wait for the market to rebound, it’s never fun to see your brokerage account take a hit.

Ups and downs are normally just seen as a fact of life for investors. When there’s a bear market, your investments lose money, at least temporarily. But there is a way to significantly cut down on volatility with your portfolio.

It’s called the golden butterfly portfolio, which is designed to be resilient to all types of economic cycles. Investor Graham Stephan shared this portfolio in his newsletter, and he recommends it for those looking for more stability. While it works for that, it also has a drawback you should know about.

How the golden butterfly portfolio works

The golden butterfly portfolio involves dividing your investments equally into five market segments. Here’s how to split up your investments according to Portfolio Charts (the version Stephan shared had some slight differences, but this is the original):

20% U.S. total stock market20% small cap value stocks20% long-term Treasuries20% short-term Treasuries20% gold

This is much different than typical investment portfolios, which often have a 90:10 or 80:20 split of stocks to bonds. The golden butterfly puts much more in bonds and also invests in gold, which many investors avoid entirely.

Why is this portfolio more resilient to volatility? Stephan explains that there are only four types of economic scenarios a portfolio needs to withstand:

Rising prices (inflation)Falling prices (deflation)Market growth (bull market)Market decline (bear market)

The type of asset that performs best depends on the economic scenario. In bull markets, it’s stocks. When there’s high inflation, it’s commodities, which is why this portfolio has 20% gold. During bear markets and deflation, bonds provide stable returns.

Because the golden butterfly covers all the bases, it can handle any economic environment. It won’t always be in the green, but it’s highly unlikely that it will lose big.

Should you use the golden butterfly portfolio?

Historically, the golden butterfly portfolio does what it’s advertised to do and keeps you from taking any huge losses. But there’s one big catch: It significantly trails stock-heavy portfolios in bull markets.

That’s the tradeoff for a more stable portfolio. When the market is doing well and stock-heavy portfolios are making 25% to 30%, your golden butterfly portfolio may make less than half that.

Over long periods of time, the golden butterfly portfolio doesn’t perform as well as portfolios that have more money in stocks. The table below compares the results three portfolios would have delivered from 1992 to 2022. For each one, the hypothetical investor started with $500, and then invested $500 per month. The three portfolios invest their money as follows:

Golden butterfly90:10 in the U.S. stock market and long-term TreasuriesVanguard 500 Index Investor (an S&P 500 index fund)

Here’s how each portfolio performed.

The stock-heavy portfolios are much more volatile, losing over 30% in their worst years compared to under 13% for the golden butterfly. But they also get much higher returns during their good years. And when you compare the final balances, it’s not even close. The S&P 500 fund may be more volatile, but it ends up with nearly $400,000 more. The 90:10 portfolio also performs very well.

It’s understandable why you’d want to reduce volatility in your portfolio, especially after a year like 2022. But it’s unwise to sacrifice long-term growth for short-term stability. If you’re a young adult investing for retirement, most or all of your money should be in stocks. As you get closer to retirement, you can adjust your asset allocation so you’re not as vulnerable to bear markets. You could try the golden butterfly at that point, or you could just put anywhere from about 20% to 40% of your portfolio in bonds.

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Here’s everything you need to know to decide which program is right for you. 

Both the Supplemental Nutrition Assistance Program (SNAP) and the Special Supplemental Nutrition Program for Women, Infants and Children (WIC) provide much-needed food assistance to low-income families throughout the United States. But the two programs are not the same.

They differ in terms of the services they provide, who’s eligible for benefits, and how you apply. Below, we’ll look at these differences in more detail so you can determine which one best suits your needs.

What services do WIC and SNAP provide?

Here’s a quick breakdown of what benefits you can expect from SNAP vs. WIC.

SNAP services

SNAP gives qualifying participants an Electronic Benefits Transfer (EBT) card, which works like a debit card, and automatically loads a certain dollar amount onto it each month. Your state agency determines how much to give based on your household size and income.

You can use your SNAP card to purchase most foods, including fruits and vegetables, meat, dairy products, bread, cereal, and snacks. If you have a green thumb, you can also use it to purchase seeds or plants that will grow into food. But you cannot use SNAP benefits for alcohol, tobacco, supplements, most live animals, or pet foods.

WIC services

WIC participants receive a WIC card that’s similar to a SNAP EBT card. But instead of providing a monthly dollar limit participants can spend up to, it authorizes you to purchase certain types of foods that the program has approved. These can include fruits and vegetables, meats, cereals, dairy products, and infant formula, among other things. Benefits expire on the last day of the month.

In addition to this direct food assistance, WIC can also connect people with nutrition education and breastfeeding support. These services can help families squeeze the most value out of their WIC benefits.

Who’s eligible for WIC and SNAP benefits?

Here’s a closer look at who qualifies for each program. It’s worth noting that you could be eligible for both types of benefits if you meet the criteria for both programs.

SNAP eligibility requirements

Your state agency will determine if you’re eligible for SNAP by checking to see if your gross and net income meets certain criteria for your state and family size. Gross income is your total household income before any deductions. Your net income is your income after certain allowable deductions for things like earned income, dependent care costs, and some medical expenses are made.

Generally, your gross income cannot be more than 130% of the poverty line and your net income may not be more than 100% of the poverty line. However, those who are elderly or disabled may be eligible for the program even if their income is higher than this. You may also be deemed categorically eligible if you qualify for another government assistance program, like Temporary Assistance for Needy Families (TANF) or Supplemental Security Income (SSI).

When determining eligibility for SNAP, your state agency also looks at your household resources, including the amount of cash you have in your bank account. Typically, you cannot have more than $2,750 in countable resources or $4,250 if at least one member of the household is over 60 or disabled. But certain things, like your home or retirement plan income, don’t count toward your household resources.

WIC eligibility requirements

WIC is open to pregnant, postpartum, and breastfeeding women as well as households with infants or children under the age of five. Eligibility lasts only as long as the household continues to meet at least one of these criteria.

The WIC program has income requirements as well. To qualify, you must have an income at or below the level your state agency sets. This must be at least 100% of the poverty line but can be as high as 185% of the poverty line if your state agency permits this. You may also qualify automatically if you’re eligible for SNAP, Medicaid, or TANF.

The final requirement to receive WIC benefits is nutrition risk. This means you or a member of your household has qualifying medical or dietary conditions, like anemia, being underweight, or a history of poor pregnancy outcome. A doctor, nurse, or nutritionist must determine this. It’s usually done at a WIC clinic at no cost, but you can have your personal doctor conduct this assessment as well.

How do you apply for SNAP and WIC benefits?

State agencies handle applications for SNAP or WIC benefits. Here’s what you need to know to apply.

Applying for SNAP

Use the State Directory of Resources on the USDA website to find your state SNAP agency. From here, you can view a list of local offices and the online application, if your state offers one. Fill out this application or contact your state SNAP agency to get the process started. You will need to submit information proving your household income.

If you’re found to be eligible for SNAP benefits, you’ll receive a notice telling you how long you will receive them. This is known as your certification period. Before this ends, you’ll get another notice with instructions on how to recertify if you wish to do so.

Applying for WIC

If you believe you’re eligible for WIC, find your state agency by using the USDA’s WIC Directory. This will provide you with contact information. Reach out to the agency and follow its instructions in order to apply.

You will need to provide income information and information about your children or pregnancy. If your application is approved, your state agency should inform you about how long you’ll be eligible for these benefits.

SNAP or WIC: Which is right for you?

WIC benefits are definitely worth pursuing if you believe you meet the income requirements and you are pregnant or have young children. SNAP benefits appeal to a wider audience, because the only criteria is income. But you don’t have to choose one or the other if you believe you qualify for both.

Taking advantage of these programs can free up additional cash in your budget that you can use to pay down debt, save for your long-term goals, or build an emergency fund. Just make sure you stay up to date on the rules for each program you qualify for, as these could change over time.

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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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