Money Management

Decide based on your money goals and timeline. 

Do you have a little extra cash lying around these days? If you’ve got, say, $1,000 extra hanging out in your checking account, you should know that it pays to move it out of there and into an account where it will grow.

Ideally, your checking account is the place to keep cash you need in the near term, such as for paying your bills. If you keep money for the future there, it will lose value thanks to our old friend inflation. When it comes to earning more money on your money, you have options. What if you invested it?

You could open a brokerage account and buy ETFs (exchange-traded funds) or shares of individual stocks, for example. Or you could opt for a tax-advantaged retirement account, such as an IRA. This way, you could reduce your taxable income by $1,000 for the year you fund the account (you would have to pay taxes on your withdrawals in retirement, however). If you’d rather pay taxes upfront on that $1,000, go with a Roth IRA account instead. These aren’t your only choices for that $1,000, however. You could put it into a bank account that earns interest.

Bank account options

Your options for your $1,000 include:

Certificates of deposit (CDs)Money market accountsSavings accounts

There are different rules for different accounts (for example, if you decide to open a CD, you won’t be able to withdraw your money without penalty for a certain period of time that you choose).

The easiest interest-earning account to manage is a savings account. With one of these, you’ll earn interest (and the best high-yield savings accounts are earning upwards of 3% APY right now), and can withdraw your money pretty much at will, without risking the penalty of closing a CD account before the term is up.

Consider your goals and your timeline

The best way to decide where to put that $1,000 is to consider what you’re hoping to do with the money. Is it going to form the start of retirement savings for you (and therefore have decades to grow)? Is it the beginning of a down payment for a home? Or is it going to become your new emergency fund, waiting in the wings for when you have a surprise bill you can’t pay for with your regular earnings?

If you’re intending to grow your $1,000 into a comfortable retirement, you’ll earn much more return on the investment over the next few decades than you would if you opted for a savings account. After all, the S&P 500 gained value in 40 years out of the last 50. Its average annualized return was 9.4%. However, the market can fluctuate wildly over the short term, which is why it’s best to invest money over the long term (such as for retirement).

If your $1,000 is for a home purchase or an emergency fund (or some other shorter-term need), it’s a better idea to opt for that high-yield savings account. Why? For starters, your money will be protected. Choose a bank that is FDIC-insured, and in the event of bank failure, your money (up to $250,000 per eligible account) will be returned to you. This is not the case for money in a brokerage account. You’ll also enjoy earning interest on your $1,000, and it won’t be dependent on the performance of the larger stock market. If you open a savings account earning 3% APY, you’ll make $30.42 on your $1,000 in the first year.

You’re not going to find a high-yield savings account offering you 9.4% back, of course — but remember you can only reasonably hope to earn that much in the market over a period of many years. In the short term, money in a brokerage account could lose value, so it’s not a good idea to put money into one if you know you’ll need it soon. Opt for a good high-yield savings account instead.

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It’s in your best interest to improve your credit score as much as possible before seeking mortgage pre-approval. 

There’s so much to consider if you’re trying to become a homeowner. What neighborhood should you choose? How many bedrooms do you need? But I’d argue that it’s important to focus on numbers before thinking about these details. Specifically, it’s a good idea to consider your credit score, because the mortgage lenders you talk to definitely will. If this is your first time buying a home, you might wonder what score you should shoot for. Here’s what you need to know.

A bare minimum that may not be

As far as pinpointing a typical credit score requirement goes, 620 is a number you’ll hear thrown around often. This is because 620 is considered the bare minimum FICO® Score for a conventional mortgage loan. Conventional mortgage loans account for 70% of mortgages, and they are the most common offering from lenders of all kinds (banks, credit unions, and online lenders). They’re called “conventional” because they’re not backed by government assistance.

While 620 is considered the bare minimum, if you’re hoping to get a better interest rate, you’ll want to go in with a higher score — generally at least 700. And different lenders have different requirements as well, so don’t assume your 620 credit score will be sufficient for all lenders.

But what if your credit score isn’t so high?

Government-backed mortgages have different requirements

If your credit score isn’t so strong and you qualify for a government-backed mortgage, it’s worth considering your options here.

FHA loans

If you’re a first-time home buyer without strong credit or a large down payment, an FHA loan might just be what you’re looking for. They’re easier to qualify for, requiring a credit score of 580 with a 3.5% down payment. If your credit score is less than 580, but at least 500, you’ll need a down payment of at least 10%. These loans are guaranteed by the Federal Housing Administration.

VA loans

If you’re a current or former service member (or a surviving spouse), you may qualify for a mortgage loan backed by the Department of Veterans Affairs (VA). VA loans technically have no minimum credit score requirement, but it’s best to have at least a 620 (and the higher your credit, the greater your chances of approval). Plus, you may not have to make any down payment at all for a VA loan.

USDA loans

If you live in a qualifying rural or suburban area and your income is below a certain threshold, a USDA mortgage loan could be just the ticket. It’s recommended you have a score of at least 640 to qualify for this loan, which is backed by the U.S. Department of Agriculture and is designed to help borrowers with lower incomes who may struggle to get approved by conventional lenders.

Other factors matter

It isn’t just your credit score that a mortgage lender focuses on. The amount of money you have for a down payment, your income, and your assets will also matter for your approval. Each of the above types of mortgage loans has a different requirement for a down payment, but ultimately, the more money you can put down, the better you will look in the eyes of the lender (and the better off you’ll be at avoiding being underwater on your loan).

Plus, if you can avoid having to pay mortgage insurance by making a larger down payment, you’ll save money on your payments. Buying and owning a home is expensive — but you have options for whether you’d prefer to spend more upfront (in the form of a larger down payment) or over time (via mortgage insurance and a higher interest rate from your lender).

Improve your score with these tips

If you have some time before you plunge into a home search, try the following to improve your credit score:

Go through your credit report: You can get free weekly credit reports through the end of 2023, so pull your reports with the three major credit bureaus and spend some time checking for errors and old delinquencies that should have fallen off your report. You can have them removed for a score boost.Improve your payment history: Payment history makes up 35% of your credit score, so if you’ve been lax in the past, now is your chance to buckle down and pay your creditors on time every month. Setting up auto-pay could help here.Pay off debt: While you certainly don’t have to be debt free to buy a home, the more debt you can pay off (especially in the form of high-interest debt like credit cards), the better your finances will look to a lender.

It pays to do some financial legwork and become a stronger buyer ahead of seeking a mortgage loan. Even if you’ve got a 620 credit score now and intend to apply for a conventional loan, improving your score will open doors to better interest rates and a wider variety of lenders competing for your business.

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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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Here’s a way to make lemonade out of lemons. 

There’s just no getting around it — life is expensive. If you’ve ever had an unplanned bill or other financial emergency pop up, you know how stressful it can be to have to shell out a pile of money to take care of it — and that’s assuming you have the money to cover the expense.

A survey last year found that only 40% of Americans had the cash on hand to cover a $400 surprise expense. This isn’t ideal, and if you can count yourself among the 60% who do, you may still grumble at having to dip into your emergency fund to pay for an unplanned bill.

There is one way to make paying, say, a car repair bill slightly less terrible, however. Here’s why you might consider paying the tab with a good credit card (and then paying off that charge before you’re charged interest).

Earn cash back or points

This is really one of the best reasons to use credit cards to pay for your expenses — the opportunity to earn rewards on your purchases. Whether your top spending category is grocery shopping, gas, dining out, streaming services, or something else, chances are, there’s a credit card out there with rewards that will benefit you. And if you like to travel, using your travel credit card to pay for your unexpected bill will mean more points for more free hotel stays, flights, and more.

Improve your credit

Charging regular expenses (or irregular ones, in the case of our unplanned bill) on your credit card and then paying it off on time every month is a good way to build your credit. In fact, whether you’re new to credit cards or rebuilding your credit after some missteps, this is one of the easiest things you can do to increase your score. Payment history makes up 35% of your credit score, so the more on-time payments you can make, the better.

It’s important to note that it’s best to pay off your entire card balance every month to avoid being charged interest and keep your credit utilization ratio low. If the credit card you’re using has an introductory 0% APR offer attached to it, you can carry a balance forward for the duration of that 0% period, but I’d caution you to approach this with care. Don’t trust that the card issuer’s minimum required payments will add up to you paying off the entire balance before you’re charged interest — do the math yourself to figure out your own minimum payments so that balance is $0 before your APR rises from 0%.

Make a sign-up bonus

Finally, if you’ve just acquired a new credit card when your emergency expense pops up, you have an opportunity to earn a sign-up bonus, if the card offers one. A sign-up bonus is a special offer for new cardholders, wherein if you spend a certain amount on the card within a set period of time (often a few months), you’ll be given cash back or points by the card issuer. This can definitely be a way to squeeze a little money back out of your unplanned bill (and possibly even more, if the card you’re using is a cash back credit card and you’ll earn a small percentage of your money back, too).

If a cost you didn’t plan for just landed in your lap, consider putting it on your trusty credit card. While you may not enjoy having to pull money out of your emergency fund or savings account to then pay off the credit card, at least you will have gotten a little lemonade out of a financial lemon.

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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 planning to start banking abroad, here’s what you need to know first. 

Remote work is in, and many remote workers are choosing to move internationally. If you live in another country, whether it’s because you work remotely or you retired abroad, you could benefit by opening an offshore bank account.

Your U.S. bank accounts and credit cards are fine for going somewhere on vacation. When you’re actually living in a foreign country, having a bank account there often makes life much easier. For example, some rental agencies might only accept bank account transfers. A local bank account could also be a good way to get cash at ATMs fee-free. And those are just a few of the many reasons to open an offshore account.

I live abroad in Colombia and have an offshore bank account, so I have first-hand experience with this subject. As I learned, opening a bank account in another country can be a lot different than what it’s like in the United States. If you’re thinking of getting a foreign bank account, here are the most important things to keep in mind.

1. It will probably take longer than you’re used to

It’s not a huge chore to open a bank account abroad, but it will likely be more complicated than doing so in the United States. You’ll need to provide your passport or another identity document, and potentially proof of address, as well. There could be quite a bit of paperwork involved, and you may get asked some questions you’re not used to. For example, the bank might want to know where the funds you plan to deposit are coming from.

Also, there’s a good chance you’ll need to visit a bank branch in person to open an account. Many banks don’t allow foreign citizens to open an account online. Make sure to look up all the requirements before you go in so you can get your account set up in one visit.

2. Don’t expect the same features

In the United States, you have access to lots of quality banking options. There are plenty of checking accounts with no fees and minimum balance requirements available. There are also quite a few online banks offering high-yield savings accounts, which have competitive interest rates.

In other countries, it varies. Interest rates may be higher or lower than what U.S. banks offer. Keep in mind that a high interest rate doesn’t necessarily mean you’re getting a great deal. If the national currency is unstable, or the country is going through rapid inflation, then you could still end up losing money even after factoring in the interest you earn.

Fees are another area where it varies from country to country and from bank to bank. In some countries, your best option could be a bank account with a small monthly fee.

3. You need to file a form with the IRS if you have over $10,000 in foreign accounts

Offshore bank accounts are often associated with shady activity, such as tax evasion. It’s actually normal and completely legal to have an offshore account. But if the value of your foreign accounts exceeds $10,000 at any time during the year, then you need to file a Report of Foreign Bank and Financial Accounts (FBAR).

The FBAR is an annual report that’s due the following year on April 15. If you don’t meet that date, you’re allowed an automatic extension until Oct. 15. If you don’t file at all, there can be civil and criminal penalties.

It’s important to reiterate that the requirement to file an FBAR is when you have over $10,000 in foreign accounts. It doesn’t all need to be in a single account. If you have $7,000 in one offshore bank account and $4,000 in another, then you need to file an FBAR.

Banking isn’t too different in most of the world. There’s a bit of a learning curve to banking in another country, but once you find and open an account, it won’t take long to get familiar with it. Other than that, you’ll just need to decide how much money to keep abroad and file paperwork with the IRS if necessary.

These savings accounts are FDIC insured and could earn you 13x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 13x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

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.Citigroup 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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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