Money Management

Don’t make these errors when you go to Costco. 

Costco can be a great place to shop because the low prices the warehouse club offers may enable you to keep more money in your bank account. Unfortunately, if you aren’t a smart Costco shopper, your efforts to save could backfire and perhaps even lead to you running up big credit card bills on unnecessary purchases.

Finance expert Dave Ramsey has identified two “rookie mistakes” that new Costco shoppers often make. Here’s what those errors are, along with some tips on how you can avoid making them.

1. Overbuying to avoid going back

The first mistake Ramsey identified is one that can lead to overspending. As Ramsey explained, this rookie error involves “stocking up on things to avoid making a return trip.” It’s especially likely to be an issue if you don’t live close to a Costco location.

The reality is, it can seem like when you go out of your way to make a special visit to Costco, that you should just load up your cart with everything you could conceivably need for the weeks or even months ahead. But, this can backfire if you end up not having time to use up everything you purchased before it goes bad.

To avoid this error, Ramsey suggests steering clear of purchases that could go bad quickly, such as fruits, vegetables, dairy products, condiments, and spices.

You can also think about your consumption habits to make sure you buy only enough to get you through until your next Costco trip. If you want to go to Costco every two months, for example, then assess how much of a particular item your family actually uses over an eight-week period and don’t purchase more than that amount.

2. Trying too hard to maximize your membership in a way that backfires

The second rookie mistake Ramsey identified involves buying things at Costco that you shouldn’t just to try to make the most of your membership. Specifically, he warns against “doing all your grocery shopping at the warehouse store so you ‘get your money’s worth’ out of your membership.”

This can be a big mistake many novices make, because not everything actually is cheaper at Costco. And it doesn’t help you reduce your spending costs — or cover your membership fee — if you’re buying items at the warehouse club you could have spent less on at the grocery store, the drugstore, or online.

Rather than assuming you’ll always get the best bargains at Costco, Ramsey suggests figuring out the unit price of everything you buy. You’d do that by dividing the total item cost by the number of items in the package or the unit weight. This gives you a generic number you can use to compare the larger size products you’ buy at Costco with smaller ones found elsewhere.

The good news is, both of these rookie errors are easy to avoid now that you know about them. Heed Ramsey’s advice and don’t make these mistakes that undermine your efforts to save money with your Costco membership.

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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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Here’s what you need to know before buying term life insurance. 

Life insurance is a vital purchase for anyone who doesn’t want to create hardship for surviving dependents.

Those who have loved ones who rely on their income will want to buy term life insurance coverage to make sure the bills can be paid if an untimely death causes that income to stop coming while it’s still needed. And people who provide services to loved ones, such as caring for kids or aging parents, will need to make sure there’s money to pay for those services in case of death.

But how much life insurance should actually be purchased? This can be a complicated question, but finance expert Dave Ramsey has a simple answer.

Ramsey recommends using this approach to setting a death benefit

There are two questions a life-insurance buyer must answer. These questions are:

How long should the coverage term be?How large should the death benefit be?

Ramsey recommends buying a policy that lasts for 15 to 20 years. He believes this is an appropriate length of time because, “That’s long enough to give the kids time to grow up and (fingers crossed) get out on their own (meaning they’re no longer dependent, they’re independent!). It also allows you and your spouse time to build enough wealth to self-insure.”

As for how much coverage to purchase, Ramsey also has a standard answer for that as well. He suggests purchasing a policy with a death benefit equal to 10 to 12 times income. So, a person who made $50,000 annually would need a policy equal to between $500,000 and $600,000.

The reason for this recommendation is because a policy of this size could be invested and produce a sufficient amount of funds to replace the income that was lost. “If you die, your family can invest the payout from your life insurance in good growth stock mutual funds with an average return of 10–12%. The growth of that investment alone could replace your salary for a long time. That gives your family a comfortable financial cushion while they grieve and recover from their loss.”

Is Ramsey right?

Ramsey’s advice is a good basic jumping-off point for people to get a rough idea of how much coverage they need. But it’s not necessarily the best advice for everyone to follow because their individual needs can be so different.

A person whose kids plan to go to expensive colleges, for example, may need a different amount of coverage than someone with no kids. Or, someone with a higher-earning spouse would have different needs than a person who is a sole breadwinner for a family of five.

Instead of using a generic formula like 10 to 12 times income, it’s best to consider the specifics using an approach called the DIME Formula. This approach involves purchasing sufficient coverage to:

Pay off debtReplace income for the required length of time (ideally, using a more realistic estimate of how much returns investments can reasonably produce — which is probably close to 7% to 8%)Repay the mortgage balance on a family homeCover educational costs for children.

That’s where DIME comes from — debt, income, mortgage, education. Taking this personal approach can help policyholders customize their coverage — as can considering exactly how long loved ones will rely on their earnings when deciding on a term length.

So, while Ramsey’s advice can help estimate coverage, these other alternatives are a better way of deciding on a coverage term and just how big the death benefit should be.

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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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Installment loans offer financial flexibility. 

There are many ways to borrow money. If you have a credit card that you use to pay for expenses, you’re borrowing money from the credit card issuer. When you make your monthly payments, you’re repaying that loan. Credit cards are an example of revolving credit, which is when you have a line of credit you can use many times over.

But another common type of credit is installment credit. If you’re borrowing money this way, sometimes you’re using the money for a specific purpose (such as to buy a home, in the case of a mortgage loan). This is a secured loan. There are also unsecured installment loans, which include personal loans. You can use the funds from a personal loan for whatever you want. With this type of credit, you’re paying the money back over time, in installments. Here’s how these loans can impact your finances, for good and for ill.

Pro No. 1: You can finance a large purchase

Installment loans give you the change to make a large purchase and pay it off over time. This could make buying a car or home possible for you if you don’t earn enough money or have enough savings to pay for it outright. While recent home price gains have made it harder for the average American to buy a home, at least having access to a mortgage loan means that it is still possible for some. The median home sale price in Q4 2022 was $467,700, according to the Federal Reserve Bank of St. Louis. That’s a lot of money to save up for an all-cash home purchase.

Pro No. 2: They’re an opportunity to improve your credit

Installment loans give you the chance to build your credit. How so? Your payment history makes up 35% of your credit score, and if you resolve to make every single payment on your installment loan on time and in full, your credit will improve over time. This is one of the easiest ways to increase that three-digit number that impacts so much of your financial life.

Pro No. 3: The payment amount stays the same (generally)

Revolving credit, like your credit card, doesn’t offer fixed payments or fixed interest rates. Your payment on an installment loan, however, does generally stay the same month after month. This makes it much easier to budget for those payments. The exception here is if you’ve signed on for an adjustable-rate mortgage, in which case your interest rate will change, meaning your payments will change too.

Con No. 1: You’re locked in for the length of the loan

It’s not all sunshine and roses with installment loans. One thing to keep in mind is that when you get one, you’re locking yourself in for the length (and amount) of the loan term. If you’ve agreed to borrow, say, $10,000, and to pay it back over a term of five years, you’ve committed to make those payments. And none of us have any idea what life has in store for us, be it good or bad. Anything that happens over that five-year period could impact your ability to pay back the loan.

Con No. 2: If you miss payments, it could hurt your credit score

If you have difficulty making the payments (say, because you are laid off from your job and don’t have enough cash savings to keep up with your bills until you get a new one), your credit score could be at risk. Remember our discussion above about how making on-time payments can improve your score? The converse of this is also true, and if you pay late or skip payments altogether, your lender could send the debt to collections and your credit score will take a big hit.

Con No. 3: You may be subject to prepayment penalties

If your finances improve during the loan term, you may be thinking that you can just rush to pay off the loan sooner (which would also save you on interest). But watch out! Some lenders charge prepayment penalties to make up for the loss of revenue from you avoiding paying additional interest. It’s important to read the fine print on your installment loan (or ask the lender) to make sure you won’t incur these fees if you get out from under your debt early.

Installment loans can be a win for your finances and your life — but they can also have a negative impact, depending on how they’re managed. Armed with this information about installment loans, you’re now ready to finance your next big purchase or even get a loan to start your own business.

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Do Sethi’s words apply to your situation? 

Financial anxiety is common among Americans at all income levels. It’s not just people with lots of credit card debt who worry about their financial state. Some middle class and even wealthy individuals compare themselves to those with more money in their bank accounts than they have and still experience financial insecurity because of it.

Finance expert Ramit Sethi has a theory on why that’s the case. He thinks people actually like to feel anxious about money for one simple reason.

Do people actually want to be anxious about their finances?

So, why do people like worrying about money? “Deep down, a lot of people love feeling anxious about money because it’s all they’ve ever known,” Sethi said.

Because of this, he explained that a lot of people aren’t actually able to enjoy it when they have finally become financially secure. “I will spend my entire life to accumulate lots of money, but when I do, I will constantly downplay it and compare myself to the ‘really’ rich because I’m just middle class,” Sethi explained is the mindset that many people have.

Unfortunately, this can make it really difficult for people to ever actually feel comfortable with what they have — even if they are lucky enough to get to a point when they have money in the bank that can meet their needs.

It can also affect financial goal setting and people’s willingness and ability to work towards financial independence, especially because, as Sethi explained, we have contradictory views about money in this country because “we love rich people, but we also hate them.”

How can you overcome financial anxiety?

If you are anxious about money, it’s important to understand both whether that anxiety is founded and what you can do about it.

If you have a lot of fixed expenses taking up a good portion of your income, or if your job is insecure and you don’t know how you’d pay the bills if you lost it, then there are different steps to take to overcome financial anxiety compared with if you’re someone who does have plenty of money but just still can’t feel comfortable because you grew up with financial anxiety or experienced it earlier over the course of your life.

If you are still at the point where you’re trying to build wealth, the best way to overcome financial anxiety is to take the steps you need to actually become more secure. This could mean cutting down on some big expenses (like housing costs) to give yourself some breathing room. Simply giving up lattes or trying to cut a little bit of fun from your budget isn’t going to be the best approach because this lifestyle is hard to sustain and can leave you constantly feeling anxious as you deprive yourself of things you enjoy to try to make ends meet.

If you’ve already done the hard work to start building wealth, though, the important thing to overcome anxiety is to decide what you need to feel like you have enough — and stop comparing yourself to others because there will always be people out there with more. But if you have enough to meet your own needs now and in the future, your anxiety may not be serving you well and can prevent you from enjoying the fruits of your labor.

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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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Debating about when to get life insurance? Read this Dave Ramsey advice. 

Deciding when to buy life insurance can be complicated.

Some people would prefer not to have premiums coming out of their bank account when they’re young and don’t have dependents yet, so they end up putting off buying a policy. But, while this may seem to make sense on the surface, finance expert Dave Ramsey believes putting off getting covered really isn’t the right approach. In fact, Ramsey says it “really does pay to get it now instead of later,” referring to the purchase of term life insurance.

Here’s why Ramsey believes buying coverage ASAP is the best approach.

This is why Ramsey says to get covered now

According to Ramsey, buying term life insurance coverage now rather than putting it off can end up saving policyholders a lot of money over time.

“​Term life insurance rates are mainly based on two factors — your health and your age,” Ramsey explained. “Age plays such a big role in setting your rate that estimating how much you’ll pay for coverage is pretty easy based on that alone.”

Since it’s much cheaper to purchase coverage at a young age, Ramsey believes there’s no reason to put off purchasing coverage. That’s especially true since health conditions can arise unexpectedly and cause premiums to skyrocket, so it’s best to put a policy in place before some kind of medical problem unexpectedly comes up.

Ramsey also believes it’s smart to get covered right away because putting it off can lead to unnecessary stress and potential financial disaster should something happen before a policy is actually in place.

“There’s no reason to put off getting coverage and having the peace of mind that goes with knowing your family’s taken care of,” the Ramsey Solutions blog reads.

Is Ramsey right?

Ramsey is 100% right that the sooner a person buys term life insurance coverage, the better. Delaying the purchase of a policy creates an unnecessary risk and there’s a very real chance that a person could unexpectedly die without coverage if they wait — or could be priced out of buying coverage in the future due to health problems that develop or due to their advancing age.

When buying coverage at a younger age, though, it is important to make sure the term policy lasts long enough. A term life insurance policy pays a death benefit only if the policyholder dies during the coverage term. And the purpose of this payout is to provide for loved ones who are still reliant on the policyholder for income and services.

If a young person buys a policy and they aren’t yet married or plan to be soon, or if a young person buys a policy shortly before having kids, they’ll want to make sure they opt for a coverage term that will see their spouse through for as long as the money would be needed. This may mean opting for a 30-year term instead of a 10-year or 20-year policy.

Even a longer-term policy can be cost-effective if purchased when young, so follow Ramsey’s suggestion and get coverage in place right now. This is good advice, as no one is getting any younger so term life policies will always get costlier by the day.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

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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