Money Management

That’s a really positive thing. 

Anyone who’s ever signed a mortgage, or refinanced one, is likely familiar with the concept of the home appraisal. The purpose of a home appraisal is to determine how much a given property is worth.

When mortgage lenders give out loans, they run the risk of not being repaid. And this risk tends to be amplified when lenders write loans to borrowers whose credit isn’t in the best of shape.

As part of the process of mitigating that risk, lenders commonly insist on a home appraisal, whether in the course of getting a mortgage or refinancing one. If a given property appraises at a high-enough value, the lender gets some protection in that it could potentially force the sale of that home via the foreclosure process and get repaid what it’s owed without facing a financial shortfall.

The problem with home appraisals, though, is that in some cases, they can be somewhat subjective. And that opens the door to racial bias.

A report from the Department of Housing and Urban Development (HUD) found that there’s been a huge gap between home appraisal values for properties in white neighborhoods versus those in Black neighborhoods. And now, steps are being taken to address the problem at hand.

A skewed system that can’t continue as-is

On average, homes in majority-Black neighborhoods are valued at less than half of those in neighborhoods with few or no Black residents. That’s clearly problematic.

Thankfully, steps are being taken to address the issue of racial bias in the context of home appraisals. It was recently announced that HUD, through the Federal Housing Administration, is creating a process designed to give some recourse to those seeking FHA loans who feel their homes appraisals aren’t accurate and have been skewed by racial bias.

As an example, those seeking to refinance an FHA loan, or any mortgage for that matter, generally need to go through a home appraisal. Once this new process is implemented, a homeowner trying to refinance their mortgage can take clearer steps to ensure that the appraisal they receive is fair.

This change is actually one of many being implemented to clean up the processes that lenders must follow when a borrower requests a Reconsideration of Value review if concerns arise in the context of appraisal bias. Under this new set of processes, lenders will have clear guidance on how to address buyer or homeowner concerns.

An important step in the right direction

White homeownership rates across the U.S. are substantially higher than those of Black people or minorities. That’s been the case for a long time, and it’s a system that needs to change.

Tackling home appraisal bias is certainly a step in the right direction. But more work needs to be done to address the issue of housing inequality, including addressing bias at the mortgage application level and eliminating the clearly terrible practice of redlining.

It’s long been said that owning a home can lend to financial stability. And everyone deserves a fair shot at that.

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Who would’ve thought there’s a right time of year to buy a vacuum cleaner? 

Most people don’t think of March as the prime time to find great shopping deals. There are no major sales like Black Friday or Prime Day, but you can still find great deals on specific things if you know what to look for. Here are five common household items you can buy for a steal in March if you’re in the market for them.

1. Vacuum cleaners

Vacuums typically go on sale in March, according to Consumer Reports. This makes sense as it’s the time of year when people start to think seriously about spring cleaning. If your vacuum isn’t doing its job or you’ve been considering upgrading to a robot vacuum to take this household chore off your plate, now’s a great time to shop for deals.

2. Winter coats and clothing

Those of us in the northern part of the country may still have another month to go until spring finally arrives. But in many parts of the U.S., temperatures are already warming and retailers are looking to ditch their excess stock of winter gear to make way for spring and summer items. So it’s possible to score a low price on winter coats, boots, and other accessories.

Shopping for yourself is pretty straightforward because you likely already know your size. If you’re shopping for young children who are still growing, consider buying a size or two larger than what they’re currently wearing. That way, it should fit them by the time next winter rolls around.

3. Space heaters

Space heaters are another winter item that most people use less as we move into spring, so retailers usually discount their remaining stock. If you frequently use one in your home or are interested in trying one next winter, start comparing models now.

The right one for you will depend on your budget and the size of the space you’re trying to heat. Always make sure the model you choose has good safety features and never leave it running unattended. You don’t want to wind up with a home insurance claim for fire damage.

4. New windows

Windows, even small ones, can be pretty expensive. But they’re usually at their cheapest in March, according to Consumer Reports. So now’s a great time to purchase them if you’re building a new home or planning to remodel.

The upfront cost will likely still be high, especially if you plan to replace all the windows in your home. But it could be a smart thing for your bank account in the long run. New windows could help better insulate your home, reducing monthly heating and cooling costs.

5. Air purifiers

Allergies are one of the unfortunate side effects of spring for many people, but an air purifier could help mitigate this. They help remove dust and other airborne allergens from your space so you can breathe easier — literally. Many retailers discount air purifiers around this time of year, so you could find a great deal if you’ve been thinking about buying one.

The five things listed above are some of the more common deals you’ll find in March, but they may not be the only ones. If you’re in the market for something in particular, check the rates on popular retailers’ websites every few weeks to see if they drop and keep an eye out for sales. If an item is seasonal, like many of the things on this list, you can often find great prices leading up to or at the end of that particular season. Patience is key if you want to score the best possible deals.

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Are you wasting money on auto insurance? 

Auto insurance rates recently hit an all-time high, with a nearly 14% increase (13.72%) in cost from 2022 to 2023. With the average annual premium of a full coverage auto policy now over $2,000, many are looking for ways to lower their car insurance premiums. Having the right car insurance coverage is essential to protecting yourself and your vehicle. But you may be paying more than you need to. Here’s how you can determine if you’re overinsured and make sure you have the right amount of protection for your needs.

How much car insurance is enough?

The amount of car insurance necessary depends on several factors, including where you live, what type of vehicle you drive, and how often you use it. If you live in a state that requires liability insurance, then that should be your minimum coverage requirement. The most commonly required liability limits are 25/50/25, which means:

$25,000 in bodily injury per person$50,000 in total bodily injury per accident$25,000 for property damage per accident

In some states, additional insurance such as medical payments or uninsured motorist coverage may also be required. Beyond these requirements, additional coverages like collision and comprehensive are optional, but may be necessary depending on your circumstances.

How much auto liability should you have?

Liability insurance covers damage caused by accidents in which the insured person is determined to be at fault or liable. Your net worth is a key indicator of your financial health, and an important factor in determining the ideal liability coverage for you. Calculating it is easy. Add up all valuable assets like homes, cars, and investments; then subtract any debts owed to get your total. Having enough protection can offer the peace of mind that comes with knowing your possessions won’t be at risk due to an accident — so make sure you have sufficient coverage!

How much bodily injury liability coverage should you have?

Medical bills and injuries can cost more than property damage, so it’s important to ensure your total bodily injury limit is higher. That way you’ll never be left paying out-of-pocket costs, even if damage costs exceed what you’re worth.

How much property damage coverage should you have?

Your property damage coverage should be enough to protect your assets and what you have to lose. How much is your car worth? Depending on your vehicle’s value, you might need physical damage coverage even if your car is paid for in full.

Ultimately, you should carry the highest amount of liability coverage that fits your budget and your net worth, and is above your state minimum. Many drivers, however, may need more coverage than the minimum their state mandates, and 100/300/100 is an ideal coverage level. You may need to consider other types of coverage such as comprehensive, collision, and gap coverage. There are other extras you can add on, such as rental car reimbursement, rideshare coverage, and more.

How can you tell if you have too much coverage?

Overinsurance happens when the amount of insurance coverage you have is more than what you actually need. Your auto insurance premiums are “use or lose.” This means you will not get the premiums back regardless of use, so overinsuring a vehicle can lead to unnecessary costs. To determine if you’re overinsured, review your current auto coverage. Look at policy amounts, premiums, and covered risks to decide if your coverage is adequate or if you have more than you need.

For example, if the value of your vehicle has decreased since the last time you purchased coverage, then it may no longer make sense to pay for higher levels of collision or comprehensive coverage. These coverages are based on the value of your vehicle. Similarly, if there have been changes in your lifestyle or personal circumstances (such as getting married or having children), then those changes should also be reflected in your policy accordingly. You should also look into any discounts offered by insurers, such as safe driver discounts or student discounts. Qualifying for these can help you further reduce your costs.

Consider factors such as how often you drive and where you drive when deciding on a policy that best suits your needs. Many people are working from home, are in school, or do not drive as much as they used to. In this case, getting a pay-per-mile auto insurance policy may save more than $1,000 per year. You can also choose a lower premium in exchange for a higher deductible. That means you’ll pay more out of pocket if you have a policy claim. Consider opting out of certain add-ons or extras, such as roadside assistance or rental car reimbursement.

Research different companies and compare their policy options before making a decision. This way, you can find one with adequate coverage at an affordable price point. In an ideal situation, you have enough coverage to cover your assets. It’s important to find a balance between being properly protected and not spending more money than necessary on car insurance premiums each month. By understanding exactly how much protection is enough, you’ll be able to avoid paying for services that aren’t necessary for your current situation.

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Before you follow Dave Ramsey’s advice, see what economists think you should do instead. 

When it comes to personal finance advice, there aren’t many people more famous than Dave Ramsey. His radio show is in the top 20 in terms of popularity, according to YouGovAmerica. That’s for all types of radio shows, too, not just personal finance. He has also written multiple bestsellers.

But just because someone’s popular doesn’t mean you should blindly follow their advice. Some of Ramsey’s money rules aren’t necessarily the best approach for everyone, and can go against what economists would recommend. Here are three areas where economists disagree with Ramsey, based on information from a research paper by James J. Choi, professor of finance at Yale University.

1. Pay off your debt with the smallest balance first

Ramsey recommends using the debt snowball method to pay off debt, where you prioritize accounts with smaller balances. Here’s the step-by-step process provided on his website:

List your debts from smallest to largest.Make minimum payments on all debts except the smallest.Pay as much as possible on your smallest debt.Repeat until each debt is paid in full.

Economists, meanwhile, recommend that you prioritize your highest-interest debt. This is known as the debt avalanche method. You’d follow the same steps outlined above, except instead of paying as much as possible on your smallest debt, you’d pay as much as possible on your debt with the highest interest rate.

In terms of efficiency, Ramsey’s method doesn’t make sense here. The debt avalanche is faster and saves you more money on interest than the debt snowball. To demonstrate that, let’s say you have the following on your credit cards:

A $1,000 balance with an 18% APR and a $30 minimum paymentA $4,000 balance with a 20% APR and a $110 minimum paymentA $10,000 balance with a 24% APR and a $300 minimum payment

Let’s also assume you can pay a total of $500 per month toward your debt. Here’s how your results would compare using each debt repayment method:

By prioritizing your highest-interest debt, you’d save $376 and get out of debt a month earlier. So, why is Ramsey so adamant about the debt snowball? As he puts it, “debt isn’t a math problem, it’s a behavior problem.”

Ramsey believes the key to eliminating debt is changing your financial behaviors, and you’re a lot more likely to do that when you see results. With the debt snowball method, you get your first “win” (paying off an account) as quickly as possible. That could help you stay motivated in a way you wouldn’t using the debt avalanche.

Both methods have their advantages, and there’s no right or wrong option for every single person. The best method to pay off debt is the one you can stick to until your debt is gone. Choose either the debt snowball or the debt avalanche, depending on which one you like, but follow the plan until you’re debt-free.

2. Get a fixed-rate mortgage

When buying a home, Ramsey advises his audience to get a fixed-rate mortgage. He recommends this option because your interest rate will be locked in for the life of your mortgage, so you don’t need to worry if interest rates increase. Ramsey’s not a fan of adjustable-rate mortgages (ARMs), and an article on his site even calls them a “terrible idea.”

Anyone who remembers the financial crisis from 2007 to 2009 probably has an idea of the dangers of ARMs. Your interest rate can increase with this type of mortgage, making it more expensive. If your monthly payments go up and you can’t afford them, you’re at risk of defaulting.

You might be surprised to learn that economists recommend getting an ARM unless interest rates are low. Here are the reasons why:

ARMs normally have lower interest rates than fixed-rate mortgages.That’s because interest rates on ARMs are pegged to short-term interest rates. Interest rates on fixed-rate mortgages are pegged to long-term interest rates and have a premium.Short-term interest rates tend to fall more than long-term interest rates during a recession.If interest rates fall, interest rates for ARMs will decrease on their own. Borrowers with fixed-rate mortgages would need to refinance to get a lower interest rate in this situation.

A fixed-rate mortgage is safer in the sense you don’t need to worry about your interest rate and monthly payment going up. But Ramsey’s warning about ARMs is, like much of his advice, too extreme and one-size-fits-all.

If interest rates are low, then locking in a fixed-rate mortgage is a great idea. But if interest rates are high, like they are right now, consider following economists’ advice to get an ARM.

With an ARM, you’ll start off with a lower interest rate than you would’ve gotten from a fixed-rate mortgage. The tradeoff is that if interest rates rise, so will the rate on your ARM, which wouldn’t be the case if you had a fixed rate. But there are a few things to mention about this:

The interest rate on an ARM is locked for an initial period of time. This depends on your mortgage, but five, seven, and 10 years are all common options.After that initial period, the interest rate on an ARM can normally only be adjusted once per year.ARMs usually have both yearly and lifetime adjustment caps.

3. Put 15% of your income toward retirement

Ramsey has a money management system called the “7 Baby Steps.” Under this system, you start by focusing on your emergency fund and all non-mortgage debt. Once you’ve paid off all non-mortgage debt and saved three to six months of living expenses in your emergency fund, you start investing 15% of your income toward retirement. That’s his advice regardless of your age and income.

Economists recommend something entirely different called consumption smoothing. That refers to adjusting your savings rate and spending over time to optimize your quality of life.

Here’s the part that surprises a lot of people: Economists generally recommend a low or even negative savings rate while you’re young. Yes, that could mean taking on debt as a young adult. Economists recommend a high savings rate in midlife.

Their logic is that young adults often don’t make much money, so trying to stay debt-free and invest 15% of your income could negatively impact your quality of life. By midlife, you should have a much higher income, so a savings rate of 15% or more will be much easier to handle. With this approach, you’re effectively trying to maintain a reasonable standard of living throughout your adult life, instead of suffering while you’re young to have more money saved later.

The big problem with the economists’ advice is that financial habits can be hard to break. It’s not easy to go from spending all your money to saving and investing a portion of it. Even for young adults without much extra money, it’s a good idea to save at least a small amount of it. You can still use most of your money to lead an enjoyable life. Just set aside some of your income to save and/or invest every month. The amount you choose is up to you.

Do what works best for you

Ramsey and economists don’t always see eye to eye, but they each make valid points. That’s why it’s important to compare advice from multiple sources for big decisions. You can compare arguments and figure out which option is best for you.

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If any of these apply to you, it might be time to reassess your credit card spending. 

Are you spending too much money on credit cards? Obviously, there isn’t a one-size-fits-all number that is “too much.” It all depends on your income, other financial obligations, and how your credit card usage affects your life.

With that in mind, here are seven common warning signs of problem credit card usage. While not all of these are likely to apply to any single credit card user, even one or two that fit your situation can be a good indication that it’s time to reassess your credit card habits.

1. You’re getting rejected for balance transfers

One of the most effective ways to pay down credit card debt is to take advantage of a 0% APR balance transfer offer, either through one of your existing credit cards or by opening a new account offering a promotional rate.

However, one of the criteria that a credit card company looks at when you apply for a new account is your existing debt relative to your income. And if the company offering the balance transfer deal thinks your debts are too high, it can reject your application — even if your credit score is good.

2. You are at (or near) your spending limit

Experts say you should aim to keep your credit card balances below 30% of your limits to prevent adverse effects on your credit score, but this isn’t a hard limit. In some cases, it can be financially practical to use more of your credit limit, like if you consolidate several credit card balances to a 0% APR balance transfer card. But if you find yourself regularly pushing up against your credit limits in the course of everyday spending, it can be a sign that your spending habits are unhealthy.

3. The minimum payments are getting tough to keep up with

Ideally, you’ll be able to pay all of your credit card balances off before the end of your billing cycle, thereby never paying any interest. Of course, with the average American owing nearly $5,600 on their credit cards, this clearly doesn’t happen all the time. If you carry a manageable credit card balance from time to time, it’s not necessarily a big deal — but if you find yourself struggling to keep up with even the minimum payments, it’s a sign your credit card usage isn’t sustainable.

4. You have no idea how much you owe

To be fair, I’m a Certified Financial Planner®, and I couldn’t tell you the exact amount I owe on my credit cards right now, so don’t worry if you can’t either. However, you should be able to give a ballpark figure of your credit card debt, such as “about $2,000.” If you can’t do that, it’s a good sign you aren’t budgeting when it comes to your credit card spending, and that is an easy way to let your spending get out of control.

5. You hide your credit card spending

According to a study by Bread Financial, 30% of men and 19% of women say they’ve hid credit card balances from their spouses. And to be fair, it can be tough to admit that you’ve let your spending get out of hand, or that you spent more than you had agreed on your credit cards. But this can be a slippery slope, as 76% of couples who have dealt with it say it harmed their relationships.

6. You have more credit cards than you can keep track of

The average American has four credit cards, and there can be situations where it makes sense to have a few more. But there are few situations where it makes good financial sense to have a double-digit number of open credit card accounts.

One sign that you have too many credit cards? You start having trouble keeping track of due dates, and forget you charged certain purchases on a specific card.

7. Your credit card debt affects your financial life in other ways

Last, but certainly not least, if your credit card debt (or payment obligations) is the reason you can’t do other things you want to do financially, it can be a sign that you need to reassess your credit card usage. For example, if you want to buy a home, but your credit card payments are the factor that makes your debt-to-income (DTI) ratio too high, it’s a sign you need to prioritize paying off your credit cards.

The bottom line

To be perfectly clear, just because any one (or more) of these apply to you, it doesn’t necessarily mean that you are abusing your credit cards. For example, there could be some good reasons to use the bulk of your credit card’s limit.

Having said that, if you think more than one or two of the items on this list describes your credit card usage, it could be a good idea to take a step back and assess whether your credit card habits are healthy or not.

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