Money Management

No one wants to outlive their money. 

It sometimes seems as if there’s no end of planning and saving for the various stages of life. Retirement is no different, but over the last few decades, the expected retirement years for a typical American have changed, thanks to increasing lifespans.

Unfortunately, we have seen a drop in the average expected lifespan (from 79 for a baby born in 2019 to 76 for one born in 2021) according to the National Center for Health Statistics, largely due to COVID-19 and the opioid epidemic. There’s also variation in life expectancy based on sex, race/ethnicity, income/wealth, current age, and location, but overall, we’ve come a long way. The average life expectancy in 1900, for example, was just 47.

Despite demographic variation and health challenges, it stands to reason that many Americans will have to plan and save money for a longer retirement than ever, be it by choice or necessity. Is the solution to a longer lifespan a longer career? Here’s what to consider.

Is it worth it to work longer?

If you’re not even close to retirement age yet but are already dreaming of it, you may not want to think about tacking on even more years of working. But while there’s no way to know how long you’ll live, the last thing you should want is to retire without enough money to sustain yourself for the rest of your life. With that in mind, planning to continue your career for longer might be a good idea. If you’re in a very physical line of work, you might consider transitioning to something less demanding as you get older.

There are many advantages to this mindset:

You can contribute to an employer-sponsored retirement plan, like a 401(k), for longer (contribute at least as much as you need to claim employer matching funds), and contribute to an IRA account alongside it to build yourself the largest nest egg possible.Extra income can work for you if you put it into a brokerage account or a high-yield savings account, and it’ll have more time to grow before you need it.You can delay taking Social Security up until age 70, and end up with a higher benefit amount.You can plan to work more when you’re younger and healthier and ease off as you get older, perhaps by dropping to contract or part-time work.

In addition to delaying your retirement, there are other things to consider to ensure you don’t outlive your money when the time comes to stop working.

Take time to plan and save for the retirement you want

While it may seem daunting, it’s worth sitting down and estimating how much money you’ll need in retirement. A typical rule of thumb is that a retiree needs about 80% of their working income per year to keep up the same standard of living, and would save 25 times that. Subtract your expected Social Security income (which can be found on the SSA website) and any other money you expect to receive (such as from a pension, if you have one), from that 80% figure to land on your expected annual retirement income to be made up through savings and investments.

Another consideration you can’t forget about is taxes. Retirement investment accounts, like IRAs and 401(k)s, can be tax-advantaged in different ways. With a traditional 401(k) or IRA, the money is taxed at withdrawal, reducing your taxable income now. But with a Roth IRA, you fund it using taxed dollars, meaning you don’t pay taxes on your withdrawals. So it’s worth thinking about whether you expect to be in a higher or lower tax bracket in retirement, and plan accordingly. Whatever you decide, the more years you’re investing (especially if you’re working longer), the more opportunity you’ll have to benefit from compound interest.

There’s no way to know how long you’ll live, but people are generally living longer than just about any other time. If you want to have a comfortable and happy retirement, it’s worth thinking about all these factors now, and perhaps discussing them with a financial advisor. Also, focus on taking care of your health and finances while you’re young, as it’ll be a lot harder as you get older.

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 

A little effort could go a long way. 

Maybe you’re looking to pad your savings account by several thousand dollars. The idea of doing that can be daunting.

But what if you were to approach your savings goal in a more moderate fashion — specifically, in $100 increments? You may find that pushing yourself to save just $100 a month is a slow and steady way to get your savings balance where you want it to be. And with that in mind, here are a few steps you can take to close out March with an extra $100.

1. Have a no-spend weekend

If you’re not familiar with the concept of the no-spend weekend, it basically means you only spend money on essentials and not a thing more. So if you normally do your grocery shopping for the week on Sunday, you can still charge food on your credit card. But what you wouldn’t do is spend money at the movies, in restaurants, or at the mall for things like accessories.

Many people commonly spend $100 in the course of staying entertained over a weekend. Limiting yourself to zero spending for one weekend in March could leave you $100 richer.

You don’t have to resign yourself to being bored for 48 hours straight or not seeing friends just because you’re putting the kibosh on spending for a bit. You can invite friends over to stream a movie using a service you’re already paying for. Or you could gather some friends for a peaceful afternoon hike. And if the idea of spending some time alone does appeal to you, you could always dive into a TV series you’ve been wanting to try or tackle the pile of books you bought months ago but haven’t yet gotten around to reading.

2. Make your own coffee

Store-bought coffee can be tough to give up. But if you’re willing to part with it for just a month, you might manage to bank an extra $100 in March, all the while acclimating to the idea of making your own coffee at home. And if you find that giving up store-bought coffee isn’t too painful, you might be motivated to cut back on it across the board.

3. Cut the cord with cable

The average household cable package costs $217.42 per month, according to Allconnect, so cutting the cord might easily get you to your $100 savings goal. That said, you can’t be expected to give up entertainment at home completely, so you might end up spending $15 or $20 on at least one streaming service. Plus, your cable package might include internet, and that’s something everyone needs.

So all told, canceling your cable plan this month won’t necessarily result in savings of $217.42. But you might manage to save $100 of that.

An extra $100 in the bank isn’t going to change your life. But imagine if you were able to sock away an additional $100 every month. In time, you might build yourself a nice pile of cash reserves. So if you’re serious about boosting your savings, try these tips in March. They may require an adjustment on your part, but it’s worth the effort.

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 

Ultimately, you should manage your money in a way that works FOR YOU. 

Spend enough time in the world of personal finance and you’ll hear from many of the same big-name financial experts frequently. Suze Orman is one such expert. She has hosted TV shows, written numerous books, and currently has a twice-weekly podcast called Women & Money. Orman has a lot of strong opinions, but it may surprise you to learn that a few of them go against advice offered by economists.

Economists’ research and insight is used to shape broad policies for taxation, employment, interest rates, and more, so it might stand to reason that they know a thing or two about how best to manage money. Yale University economist James Choi recently took a look at the most popular personal finance books to see where the personal finance gurus’ ideas and recommendations differed from academic economics theories.

The insights in the resulting paper illustrate how far removed academic theories can be from the lives of Americans and our struggles with money. As Choi notes, “popular advice tries to take into account the limited willpower individuals have to stick to a financial plan.”

Think about it: Is it easier to follow a half-dozen directives from a finance guru, or to track the broader economy and make your money moves based on it? Here are three key aspects of money management where the economists and Suze Orman don’t quite see eye to eye.

1. What kind of mortgage should you get?

The economists: An adjustable-rate mortgage (ARM)

Orman: Approach ARMs with extreme caution

Homeownership is something many Americans aspire to, and one of the many decisions to make is what mortgage type to get. After all, a home is likely the biggest purchase you’ll ever make, so it’s crucial to ensure you can afford your payments — you’ll likely be making them for a long time. The economists recommend pursuing an adjustable-rate mortgage (also known as an ARM).

True to their name, ARMs have interest rates that change (usually annually) after an introductory period of several years. They are back in the news thanks to higher mortgage rates in 2022 and 2023; CoreLogic found that in the year between May 2021 and May 2022, the rate of buyers getting an ARM more than doubled.

Suze Orman is wary of them. But if you’re interested in buying a home with an ARM, Orman recommends you do your research first and find out what the maximum rate increases might be for your loan. She also says to make a plan for what you’ll do if your ARM becomes unaffordable and you can’t refinance to a fixed-rate loan. This is great advice, actually — don’t go into any major money decision, like buying a home, without truly thinking it through first.

While it may be a scary prospect to sign on for a mortgage whose rates can change over time (therefore changing your monthly payments and making for a less-predictable housing budget), you’ll generally get a lower starting interest rate with ARMs. Plus, your rate/payment isn’t guaranteed to go up — it may even go down, depending on inflation rates during the life of your loan. So ARMs could be worth considering, especially when rates on mortgages are up across the board, as they are now.

2. How should saving money work?

The economists: All the money you have saved or invested is fungible

Suze Orman: Create a dedicated emergency fund

Saving money is something many Americans struggle with, and so it’s no surprise that economists and finance gurus have thoughts on the subject. In the case of economists, Choi notes that “Standard economic theory does not earmark portions of household savings for specific purposes; money is fungible.” This means you don’t have to save with particular goals in mind, such as your emergency fund, a vacation, or purchasing a new car.

Finance gurus, on the other hand, including Orman, are big fans of dedicated savings. Saving a solid emergency fund is a major cornerstone of the advice Orman gives because it’s impossible to predict what life will throw at you (such as a job loss, medical emergency, or pandemic). Ultimately, Orman has been recommending that her followers have up to a year of expenses saved. This is money that is earmarked just for emergencies. Orman also likes high-yield savings accounts as a home for your emergency savings.

This is pretty solid advice, as your emergency savings will be easily available when you need it, and watching it grow can be motivating. And the best savings accounts are currently paying upwards of 4% APY and offer handy money management tools like mobile apps, so it’s worth opening one.

3. Should you receive stock dividends?

The economists: Dividends are a disadvantage due to taxes

Suze Orman: It’s good to own stocks that pay dividends

Economists and finance gurus alike have thoughts on investing, and a particular point of contention is whether it’s worth it to invest in stocks that pay dividends. Economists believe that a company’s dividend policy is irrelevant because if you own stock in these companies, you’ll owe capital gains taxes on what you earn. If you desire money from an investment, economists believe you should sell the investment rather than rely on it generating income for you via dividends.

However, many finance gurus, including Orman, are fans of stocks that pay dividends, especially when it comes to funding retirement. In fact, Orman noted in a recent podcast episode, “I would only really feel comfortable if I was a retiree owning stocks that paid a dividend.”

Ultimately, economists and Orman agree about the importance of passive funds for retirement investing. This is a lower-cost way to invest than actively managed funds, and as Orman notes, very few actively managed funds consistently earn more than passive ones.

Orman likes long-term investing, too, which has long been an effective way to build wealth. The S&P 500 gained value in 40 out of the 50 years between 1972 and 2021, generating an average return of 9.4%, so if you’re looking to start investing, this strategy should be on your list.

Should you stop listening to personal finance gurus?

These differences of opinion might have you questioning the tips and tricks you’ve heard from finance gurus like Orman. But it’s not necessary to disregard her advice, especially as a lot of it is very helpful. And as noted earlier, people like Orman talk to a lot of ordinary Americans about money troubles and give advice that may go against economists’ recommendations, but is often easier to understand and follow.

Advice from finance gurus is more accessible, too. You can listen to Orman’s podcast on any one of the big podcasting aggregators out there, and it’s free. You can check out her books from the library. There’s no paying for academic articles or digging into research journals. Just remember to consider all angles and possible solutions for your money management concerns, be they buying a house, saving money, or investing.

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 

You might be surprised at the difference in this part of a vehicle’s cost. 

You might think buying a used car will save you money. And you’re right. The average new car price in 2023 is $48,094, according to Kelley Blue Book, while the average used car sells for $27,564. Even if you buy a higher-end used car, it might have a lower purchase price than the new car you have your eye on.

However, if you’re planning to finance your next vehicle purchase, there’s one other thing you need to keep in mind. Lenders typically give higher interest rates on used car loans.

Used car interest rates

Used car interest rates can be significantly higher than those charged by lenders who finance new cars. To add some context, here’s the difference between new and used car interest rates as of Feb. 8, 2023, according to data on 48-month car loans from myFICO.com.

Also, keep in mind that this data is for 48-month car loans. Interest rate differences can be even wider when you finance a car over 60, 72, or even 84 months. It’s also worth noting that the differences are generally largest in the lower credit tiers. On a 48-month, $30,000 car loan, a borrower with a 580 credit score would pay nearly $1,300 more in interest over the loan term if the vehicle was used.

Why are used car interest rates higher?

There are a few reasons why lenders typically give higher interest rates for used cars than new ones.

For one thing, it’s tougher to know how much a used car is truly worth, from a lender’s perspective. Lenders typically don’t inspect vehicles before offering loan terms, so there’s a lot more uncertainty with used cars. Think about it this way. If you buy a brand new Honda Civic, the lender knows exactly what kind of condition the vehicle is in. If you buy a 2018 Honda Civic with 60,000 miles on it, there’s a wide range of possible conditions it can be in at the time of purchase.

There’s also statistical data that shows used car buyers are more likely to default on car loans than new car buyers. It’s tough to say why this is, but one possible explanation is that a used car is more likely to have mechanical issues before the end of the loan term, and borrowers are less likely to make payments on a non-working vehicle, especially if they run into financial trouble.

The bottom line

While buying a used car can potentially save you money on the purchase price of your next vehicle, it can also be considerably more expensive to finance — especially in the relatively high-interest environment we’re in. To be sure, it can still make good financial sense to buy a used car, but when comparing your options, don’t forget to include financing costs in your budget.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

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.Matthew Frankel, CFP® 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.

 Read More 

If you can avoid mistakes, you can be a successful investor. 

People who are new to investing sometimes think that the most knowledgeable, expert investors have the most success. After all, it seems pretty logical. In many pursuits, experts do a whole lot better than amateurs.

But investing is one of the rare exceptions where beginners can do just as well as experts. Personal finance enthusiast and investor Graham Stephan recently compared investing to amateur tennis. He says you don’t need to be an expert to win at investing; all you need to do is avoid unforced errors.

So, what should you avoid? Stephan pointed out the top five mistakes investors make. Here’s what they are and what to do instead.

1. Going all in on one stock

No matter how much you like a company, never make it your only investment. As Stephan explains, there have been more than 28,000 companies traded on U.S. markets since 1950, and 78% of them aren’t around anymore.

A golden rule of investing is to build a diversified portfolio. If your money is invested in various stocks, you’re not reliant on any single company’s success. There are two ways to have a diversified investment portfolio:

Pick stocks yourself and invest in at least 25 to 30 companies. This can be time-consuming, so it’s only recommended if you want to actively manage your portfolio. If so, you can select stocks and build a portfolio on any of the top stock trading platforms.Choose an investment fund that invests your money in a large number of stocks. Index funds are a popular choice here. Total stock market funds and S&P 500 funds are both good, easy ways to invest.

2. Trying to time the market

Timing the market is when you attempt to predict price movements and use that for your investment decisions. This is a poor strategy because it’s nearly impossible to reliably predict market movements. Even if you could, a study by Charles Schwab found that people who simply invest on a regular basis would get comparable returns to a hypothetical investor with perfect market timing.

The biggest risk with timing the market is that you’ll get your predictions wrong. If that happens, you could lose money. Or, you may miss out on the market’s best days, which will cut into your returns. Stephan noted that if an investor stayed in the market from 1997 to 2017, they would have earned 7.2%. But if they missed just the 10 best days over that 20-year time period, their return would drop to 3.5%.

Don’t try to jump in and out of the market. Set a schedule, such as investing $1,000 on the 15th of each month, and stick to it.

3. Expecting returns in line with the market average

Historically, the average stock market return is about 10% per year. But that’s the average from a wide range of yearly returns. Some years will see the market grow by 20% to 40%. In others, it will drop by 15% or more. It’s actually rare to see annual returns in the 8% to 12% range, as Stephan mentions that this has only happened five times since 1926.

New investors occasionally get discouraged when their portfolios don’t grow like they thought they would. Some hesitate to continue investing or even consider selling at a loss.

It’s important to understand that your money isn’t going to steadily grow by 10% year after year. There will be ups and downs. Keep a long-term perspective and don’t let down years bother you.

4. Putting all your eggs in one type of asset

Many investors go heavy on stocks, since the stock market is a proven way to build wealth. Stephan recommends a more diverse portfolio with a mix of assets that will do well in all economic climates. He likes the golden butterfly portfolio, where the investor allocates equal 20% shares into:

U.S. large cap stocksU.S. small cap stocksLong-term treasuriesShort-term treasuriesGold

This is the one debatable recommendation on the list. Truth be told, younger investors are fine sticking with an S&P 500 or total stock market index fund. When you’re investing for decades in the future, you don’t need to get too complicated with asset allocation.

As you get closer to retirement, it’s a good idea to balance out your portfolio with less volatile securities, such as bonds. The golden butterfly portfolio is an option, but you’ll have a large portion of your money in gold, which is volatile. Also, returns could lag compared to a more stock-heavy portfolio.

5. Not sticking with it

Investing is the most effective way to build wealth. It’s especially powerful when you invest over a long period of time, such as 20 years or more. That gives your money plenty of time to grow and earn compound interest, meaning interest on top of the interest you’ve already earned.

But to maximize your returns, you need to be consistent. If you only invest every now and then, or if you stop after a year, you won’t earn nearly as much as you could’ve.

Commit to investing a specific amount every month. Some people start with 10% of their income, but you can use whatever amount works for you.

Investing doesn’t need to be difficult. If you have a diversified portfolio and invest regularly, you’ll build wealth. The only other thing you need to do is watch out for mistakes along the way, like trying to time the market or investing too much in a single stock.

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.Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.

 Read More 

Prepare for your costs to go up if you move to a city. 

Many people migrate from cities to suburbs as they get older or their families expand. But you might end up in the opposite situation, where you’re moving from a suburban area to a city.

Maybe you’re embracing city life to be closer to your job. Or maybe you’ve grown bored of the suburbs and want a change.

In some cities, having a car isn’t so necessary. That’s because you can fall back on public transportation — and save yourself a lot of money in the process compared to automobile ownership.

But you may want to hang onto your vehicle once you take up residence in a city. You might need it for errands, weekend trips, or even your commute if your office happens to be in a suburban area you can’t reach by bus or train.

You’re no doubt aware that auto insurance is one of the biggest expenses you’ll face in the course of owning a car. But you should also know that if you move from a suburb to a city, your auto insurance rates might climb. Here’s why.

1. Crime rates could be higher

Although this isn’t always the case, it’s often the case that crime rates are higher in cities than in suburbs. And that means your vehicle may be more likely to get stolen. That’s something auto insurance companies know to account for. And so you may find that due to that added risk, your premium costs go up.

2. The population may be denser

Cities tend to be more packed than suburbs. And the more cars there are on the road, the more likely it is that an accident could occur — or at least such is the logic your auto insurer might employ.

3. Street parking may be the norm

It’s not a given that people who live in the suburbs will park their cars in their garages. Homeowners commonly use their garages for storage and leave their cars on the street. But in cities, street parking is often the norm. And that could lead to more incidents of theft. The result? Higher auto insurance premiums.

Prepare for your costs to rise

Keeping a car in a city could cost you more money than anticipated not just in terms of auto insurance, but also, in terms of things like having to pay for parking. So before you make the decision to hang onto your car, run the numbers to make sure having one is still affordable.

If you need a car to get to work every day, then you probably have no choice but to hang onto yours. But if you only need that car for occasional errands or outings, then you may want to see if it’s more cost-effective to simply hail a rideshare every time you need a lift and the bus or train won’t suffice.

The average cost to own a vehicle is $10,728 a year, according to AAA. If you end up spending $100 a week on rideshares, you might still end up reaping savings compared to the cost of car ownership — especially if a move to a city causes your auto insurance premiums to skyrocket.

Our best car insurance companies for 2022

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

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