Money Management

It’s all about the long-term rewards. 

Any money you need for near-term savings goals or emergencies should sit in your savings account. That way, you won’t risk losing out on principal. But if you’re saving for a long-term goal, then you’re generally better off putting that money into a brokerage account and investing it.

Now you might own a range of stocks in your brokerage account, and that’s a good thing. Diversifying your holdings is a great way to make money.

Meanwhile, some of the stocks in your portfolio might pay you an ongoing dividend. When companies make money, they can either use it to reinvest in the business or share some of the wealth with stockholders. When they go the latter route, it results in dividend payments.

Dividends are commonly paid on a quarterly basis. And that’s a great thing, because it’s predictable income in your brokerage account you can look forward to.

But tempting as it may be to cash out your dividends as they come in, a better bet is to put them to work. That way, they can help you grow even more wealth over time.

It pays to reinvest your dividends

Not all stocks pay a dividend. And companies that start out paying one can opt to slash their dividend or even stop paying one if they decide to go a different route.

Meanwhile, some companies’ dividends aren’t much to write home about. But other companies pay a very generous dividend.

AT&T, for example, has a 5.9% dividend yield. So if you own $10,000 in AT&T stock, it means you’d potentially be looking at $590 a year in dividend income.

Now you may be tempted to cash out your dividend payments and use that money as you see fit. After all, it’s extra money — a bonus of sorts. But a better bet is to reinvest your dividends so your portfolio grows even more.

In this example, rather than keep your $10,000 in stocks invested, you could, once your dividends are paid out, be investing $10,590 instead. That means you’ll have all the more opportunity to gain wealth in your brokerage account.

Of course, not every company will pay that high a dividend. But if you make the decision to reinvest all of your dividend income, it could go a long way.

You can automate the process

Many brokerage accounts today offer what’s known as DRIP — a dividend reinvestment plan. What this does is takes your dividends and reinvests them automatically as they come in, so you don’t have to think about it.

So, let’s say that instead of cashing out your AT&T dividends, you decide to reinvest that money instead. If your brokerage allows it, which is likely the case, you can arrange to have that money invested back into AT&T so you can grow that portion of your portfolio.

Of course, you don’t have to put the process on autopilot. You can also take your dividend payments and invest them in any stock or asset of your choosing. The point, however, is that if you don’t need the money right away, reinvesting it could end up being a wise choice — and one that makes you very wealthy over time.

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It’s an option worth looking at. 

If you’ve been struggling to afford a home in today’s market, you’re not alone. In January, the median home sales price increased to $359,000, up 1.3% from a year prior, according to the National Association of Realtors.

Now that wouldn’t be so bad if mortgage loans weren’t so expensive. But because mortgage rates remain elevated, many would-be buyers are finding that they just can’t swing a home purchase based on their limited financial resources.

If that’s the situation you’re in, you may be considering the idea of buying a home with your parents. That way, you can split the down payment, split the mortgage, and split the ongoing expenses, from property taxes to maintenance to homeowners insurance.

But is buying a home with your folks a good bet? Or is it a move you might regret?

The upside of buying a home with your parents

One major benefit of sharing a home with your parents is sharing its costs. But beyond that, having multiple owners means there are more people to tackle things like maintenance and repairs. If you have a demanding job, that could be a plus.

Also, if you have a great relationship with your parents (which, if you didn’t, you probably wouldn’t be contemplating a joint home purchase), living together could prove to be a rewarding experience. And if you have young children and at least one of your parents is retired or only works part-time, you might benefit by gaining some built-in childcare.

The downside of buying a home with your parents

Parents, by nature, tend to have a tough time not parenting. So even if your folks are wonderful people who you enjoy spending time with, you might find that living with them as an adult isn’t such a terrific experience. After all, when you’re 35, do you really want to be reminded to bring a jacket when you go out at night?

Also, while it may be nice to have your parents close by, too much closeness could be a bad thing. It’s not fun feeling like you don’t have privacy.

Plus, you and your parents are clearly at different stages of life. But what happens when one of your needs changes?

What if your parents decide to retire fully and relocate? What happens to the home then? Or, you might decide to relocate for a new job, or a better school district. But these decisions become tricker any time you have a joint homeownership situation. And when your joint owners are your parents, there’s the potential for feelings to get hurt in a really bad way.

What’s the right call?

Clearly, there are pros and cons to buying a home with your parents. One thing you may want to ask yourself, though, is “Would I be buying a home with my folks if the housing market weren’t so expensive?” If the answer is no, and your more ideal situation is to buy a home on your own or jointly with a spouse or partner only, then you may want to hold off until prices cool down or your personal finances pick up.

Any time you buy a home, you’re making a big commitment. Buying one with your parents adds a whole layer of complication. So if you’re feeling iffy about the idea of purchasing a home jointly with your parents, then you may be better off going with your gut and saying no to that idea.

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It’s okay to start small. 

Recently, there’s been a steady drumbeat of stories about personal savings rates hitting near record lows. It got me curious. Have things really changed that much over the past 50 or 60 years? For example, how much were Americans saving during the Kennedy Administration? What about when Jimmy Carter was president?

Highs and lows

By the way, the average savings rate in November 1961, when John F. Kennedy was still in office, hit 11.6%. And despite inflation, stagnant wages, the loss of good-paying jobs, and skyrocketing gasoline prices, the rate was 11.9% smack-dab in the middle of President Carter’s term in office. Heck, during the Ford Administration, savings rates hit 17.3%.

So what gives? Other than a huge spike in savings shortly after the first stimulus checks were released in 2020, we’ve been steadily falling off the wagon, dropping as low as 3.4% in October 2022.

According to the Bureau of Economic Analysis, the average savings rate as of today remains below 5%. That means for every dollar we earn, we’re putting less than a nickel into savings.

It may all strike you as obvious. One reason personal savings are down is because it’s expensive out there. Once monthly bills are paid, there is very little left over to save. A LendingClub study found that 64% of Americans live paycheck to paycheck. That amounts to 66 million of us who can’t imagine finding extra funds to save. What’s more, 8 million of those people earn more than $100,000 annually.

All that to say, whether you live paycheck to paycheck or have simply never cared to deposit money into a savings account, it’s not too late to get on track.

Setting a savings goal

There’s no single savings formula that works for everyone. For example, if your goal is to start a small business, you’re going to need a different amount of money put away than the next person. If your goal is to rid yourself of debt, your plan will look different from someone who’s already debt-free.

However, you won’t know how much you need until you inventory your goals. An inventory can be as simple as this:

I want an emergency fund in place by next year.I want to move to a new state in five years.I want to start my own business in 10 years.I want to retire at age 55.

If you don’t already have one, now is the time to create a monthly budget. Hoping to hit your goals without a budget is like hoping to find a hidden city without a map. It’s unlikely to happen by accident.

50-30-20 rule

One budgeting method designed to help people cover all their financial bases is called the 50-30-20 rule. The beauty of the 50-30-20 rule is how simple it is. There’s no fancy footwork involved. Here’s how it works:

50% of your paycheck goes toward things you need, like housing and utilities.30% goes toward things you want, like dining out, new clothes, and soccer for the kids.20% is dedicated to savings and investments.

Let’s say you’re contributing 8% of your paycheck each month to your company-sponsored 401(k). That means you’re already investing 8% and can focus on the other 12%. Split it up in any way that works for you.

Give yourself permission to start small

Do not be discouraged if you’re nowhere close to saving and investing 20% of your paycheck. Start small and allow your efforts to snowball. For example, If you’re currently saving 1% of your income, aim to hit 2% in three months. Once you’ve juggled bills so that 2% is workable, aim for 3%. Saving money — whether it goes into an emergency fund or a retirement plan — can be accomplished a little at a time, particularly if you start young.

Ultimately, saving is all about self-care. It’s about protecting yourself from unforeseen circumstances, preparing for the day when you retire, and paying for special events. If it feels overwhelming, that’s natural. As long as you’re saving something, you’re moving in the right direction.

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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 something you might benefit from greatly. 

Owning a pet is hardly an inexpensive prospect, and you’ll need to have a decent chunk of money in a savings account before adopting one. In fact, the ASPCA estimates that the average annual cost to own a dog is $1,391, while the average yearly cost to own a cat is $1,149 when you factor in expenses like food and pet insurance.

And this assumes your pets don’t have any health issues or specialized needs. If so, your costs could easily be double or triple.

That’s why it’s important to do what you can to save money on pet care. And one good way is to shop for food and supplies strategically.

Meanwhile, Amazon could be a great source for affordable pet care products. And now, the online retail giant makes it even easier to buy the things you need for your pet.

It pays to set up a profile for your pet

You may have a go-to list of pet food items and other products you buy regularly. You could always plug those products into an Amazon search and see what comes up. But spending a few minutes to set up a pet profile on Amazon could really work to your benefit.

Once you create your pet profile, Amazon will spit back a list of deals and product recommendations for your pet. And that might open the door to savings.

You might, for example, get a list of pet food and realize the food you’ve been buying is overpriced compared to similar brands. So if your pet doesn’t have special dietary restrictions or needs, you may be inclined to make a switch — and reap some nice savings in the process.

Meanwhile, Amazon’s pet profiles aren’t just limited to dogs and cats. You can also set one up for a bird, reptile, horse, fish, or small animal.

The details you’ll need to provide will hinge on what type of animal you have. For a dog, you’ll be asked to list its name, age, and breed. So if you have a large dog, you may get recommendations for popular food brands for large breeds, as well as toys that are more resistant to strong teeth.

See what’s out there

Even if you think you have your pet care and feeding routine down pat, it never hurts to see what other product options might be available to you. Setting up a pet profile on Amazon takes just a few minutes, but you might enjoy a host of deals once you take that step. And that could pave the way to saving a little money on pet care at a time when just about everything has gotten so unbelievably expensive.

Along these lines, if you commonly buy pet food and supplies at a local store, ordering them on Amazon could save you the hassle of having to lug large bags across town and to your door. So on top of the savings you might reap by purchasing these items on Amazon, you might spare yourself a sore back or shoulder — which is important when you need to preserve all your energy for walking or chasing a pet around.

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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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Maurie Backman has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.

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