Money Management

Public college is generally more affordable. 

College is expensive. It cost me over $70,000 to earn a bachelor’s degree at a California state university — and of all the schools that accepted my application, that was my cheapest option. I borrowed money for school, and my family pitched in to help me cover the total cost of tuition and housing.

The National Center for Education Statistics (NCES) claims college costs continue to rise faster than inflation. In 2020-2021, the average sticker price for a 4-year private university (tuition only) was $32,825. But 10 years prior, it was only $22,677.

The nonprofit College Board provided the average 2022-2023 sticker price for just one year of university, including tuition and fees and room and board:

Public two-year in-state: $13,470Public four-year in-state: $23,250Public four-year out-of-state: $40,550Private four-year: $53,430

Yeesh. Talk about sticker shock.

Don’t panic. Federal aid and private scholarships can shrink the cost of college. And then there are ways to save on housing. Living at home can substantially lower the total cost of earning a degree.

That said, if history is any indication, costs for traditional higher education will continue to rise. With that in mind, let’s conduct a hypothetical thought experiment to calculate how long it might take someone to save for college today.

A hypothetical

Let’s aim high. Say we want to 100% cover the average cost of attending college at a private four-year university. That’s about $54,000 per year, for a total of $216,000 over four years. Yes, we are excluding any potential financial aid.

To calculate how long it might take someone to save $216,000 for the entire private four-year university experience, let’s assume the following:

They dollar-cost-average into the S&P 500.They deposit $7,000 per year (the median U.S. income is about $70,000)Their investment earns a 14.8% return (the historical market average over the past decade, which is definitely on the optimistic side going forward).

In that case, it would take someone about 12 years to save for college. However, the sticker price of tuition and room and board will probably be even higher 12 years from now.

Fun fact: It would take the same person only eight years to save $96,000 for a public in-state four-year college. Public colleges can be way cheaper than private. Don’t discount them!

Here are two places to stash your college savings: a 529 savings plan and a high-yield savings account. The former offers potentially higher returns; the latter is more stable.

Save through a 529 plan

A 529 plan is a tax-advantaged investment account designed to help you save for college expenses. A 529 savings account works a lot like a retirement plan. One significant advantage is that withdrawals are tax-free.

For example, if you invest $10,000 and earn $3,000 profit in capital gains, you don’t have to pay taxes on those earnings. The caveat is that you must spend earnings on education expenses.

Save through a high-yield savings account

You can stash away money in a savings account. Your potential returns are low, but you won’t be at the mercy of a volatile market. The best high-yield savings accounts offer savers the highest possible returns on investment.

How much should you save?

Use a college cost calculator to estimate what you’ll need to cover tuition. Students can borrow to cover the rest. An alternative is slowly paying one’s way through college, possibly by staggering classes, earning an online degree, or working part-time.

Regardless, the earlier you start saving up for tuition, the better. It gives your money more time to compound in a tax-advantaged 529 plan or a high-yield savings account.

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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.Cole Tretheway 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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There’s no time like the present to start making your 2023 travel plans. 

After a couple of shaky years due to COVID-19, travel demand bounced back in a big way in 2022. Early indications are that it could go even higher in 2023. Americans recently rated their travel excitement an eight out of 10, according to a survey by Destination Analysts. That’s the highest it has been in three years. And 41% described their level of excitement as a full 10 out of 10.

People aren’t just excited about the idea of traveling, either. They’re locking in their travel plans now. A whopping 84% of American travelers told Destination Analysts they have existing trip plans, and one-third are likely to travel internationally this year. To top it off, 17% of survey respondents had made reservations or purchased tickets in the last week.

If you’re interested in traveling soon, it’s a good idea to start planning and potentially even booking ASAP. You don’t want to wait too long and find that everything’s sold out or that prices have gone through the roof. Here’s what you can do to make your travel plans and prepare financially for a trip this year.

Decide what type of travel you’re interested in

The great thing about travel is that there’s so many ways to do it, depending on your personality and what kind of trip you want. You could spend a week relaxing on the beach while staying at a luxury resort. You could backpack and stay at hostels every night. You could go on a safari and see all kinds of wildlife.

Start your travel planning by imagining what you want your next trip to be like. This will help you figure out important aspects of it, like potential destinations, what type of accommodations to look for, and how much to budget.

Figure out where you want to go

If you’re like many travelers, you already have a destination (or five) in mind. But sometimes it can be hard to decide on a place, especially if there are a lot of areas you’d like to visit. Here are a few ways to choose:

Start with a region, and narrow it down from there. For example, you start by choosing Western Europe, and then narrow it down to Germany, and then decide on Frankfurt.Go where the deals are. Look for low-cost flights and hotels and see what’s available. Also, sign up for alerts with a booking website for notifications of discount travel offers.Find an event that interests you. You could pick a film festival, a concert, or a sporting event, and build your trip around that.Phone a friend. Ask a friend or family member who likes to travel for recommendations.

Start saving up dollars — and travel points

Travel can be expensive. Destination Analysts’s most recent survey found that Americans were expecting to spend an average of $4,407 on leisure travel, almost $500 more than they were at the end of 2022.

You don’t need to be rich to travel, and there are options to fit most budgets. But the more financial flexibility you have, the easier it is to book the travel you want. If travel is important to you, then make it one of your financial priorities. Set up a savings account to be your travel fund, and deposit some money there every month.

It’s also a good idea to pay for your purchases with travel rewards credit cards. That way, you can earn points or miles on your everyday spending. These travel rewards can help you save big on airfare, hotel stays, and other travel expenses. For example, I saved $7,500 on hotels last year during a trip to New York. All I had to do was pay with points from my credit cards.

Lots of people will be traveling this year, and you could be one of them. It doesn’t need to be complicated to plan a trip, either. Spend some time considering what you want most out of your next travel experience and which destinations you’d like to visit. As you do that, get ready financially by saving regularly and using credit cards that earn travel rewards. From there, it’s simply a matter of making reservations and taking your trip.

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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.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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Don’t jump on the bandwagon and take part in a trend that could leave you regretting your home purchase. 

When you buy a property, you want to make smart decisions about what home you purchase and what type of mortgage you get. Unfortunately, Dave Ramsey has warned that a number of buyers are falling victim to a risky real estate trend that could end up coming back to bite them.

Ramsey is absolutely right that this trend is a dangerous one, so you should make absolutely sure you’re avoiding it when you purchase a home of your own.

This is the real estate trend Ramsey warns about

The dangerous real estate trend Ramsey has warned about has to do with your down payment. This is the money you put down on a property before the bank lends you the rest. Unfortunately, some buyers are not actually putting anything down at all because there is a loophole that allows them to avoid it.

“Another risky real estate trend to avoid is taking out a personal loan to fund a down payment,” Ramsey said.

Buyers may be tempted to do this if they’re hoping to get into a house quicker. Since almost all mortgage lenders require you to put something down on a home, borrowing money from elsewhere can allow you to technically meet this requirement (in some circumstances), even when you aren’t actually fulfilling the spirit of the down payment mandate.

“That’s the same as buying a home with 0% down,” Ramsey said, referring to the process of using a down payment loan. “You borrow the entire cost of the house—except this way you borrow it from two different companies at two different interest rates (which means twice as many headaches).”

Here’s why a down payment loan is such a bad idea

Down payment loans can seem like a shortcut to homeownership, but they are a fast track to financial disaster.

If you do not put any of your own money down on a property, then you face a huge risk of not being able to resell your house for enough money to pay your mortgage and all your closing costs. This is true even if property values go up, if you have to sell in the short term. And if property values go down, you could find yourself in a really bad situation.

If you sold your home for close to what you paid for it a few years after buying, you’d have real estate commission and closing costs to pay on top of repaying your mortgage — and your down payment loan, if you had one. With real estate commissions alone typically coming in at around 6%, you’d be in real trouble if you put nothing down.

Ramsey also warns that your down payment loan will just make your housing costs more expensive, thus making it harder to do other things with your money. “Buying a house with anything less will keep you from reaching other financial goals because you’ll have to pay too much extra in interest and fees.”

Finally, the last hurdle is that borrowing for your down payment isn’t allowed with many lenders. That means you may not be able to go through with this plan if your lender discovers where the down payment money came from (which they will when they review your financial statements). And, if you can find a lender that permits this, you should be wary of their business practices.

Ultimately, you should listen to Ramsey’s advice, avoid down payment loans, and aim to come up with money of your own to make a down payment before you move forward with homeownership.

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Make sure to read this before buying auto insurance.  

When buying auto insurance, drivers have to decide how much coverage they want. One option available is to purchase minimum coverage car insurance. This would mean buying only the insurance that the state requires.

While it can be cheaper to stick with minimum coverage car insurance only, the reality is that this could be a big mistake. Here’s the truth about what a minimum coverage policy would mean for motorists.

The problem with minimum coverage insurance

While it may seem reasonable to assume the state would require enough coverage to provide sufficient protection from losses, this is not actually the case. In most places, the minimum required coverage does very little to provide meaningful protection for the driver’s assets.

Most states require only liability insurance. This is coverage that would pay for the damages sustained by other people who the policyholder hurts. Bodily injury liability would pay for medical bills and injury-related costs if the policyholder caused a car crash that hurt others. And property damage liability would pay for property the policyholder damaged that belonged to other people.

If a policyholder wants any of their own losses paid for, they would need other protections like collision coverage and comprehensive coverage.

Some states require personal injury protection (PIP), which would pay for the policyholder’s own medical bills and partial lost wages no matter who was actually at fault for the collision occurring. But, only a minority of states mandate this, and it still wouldn’t help the policyholder pay to repair or replace their vehicle if they were involved in an accident.

Not only would minimum coverage leave a driver paying out-of-pocket to fix their car or buy a new one, but it also usually falls short of protecting their assets if they hurt others. The minimum liability coverage required could be very low and injuries regularly result in more costs. A driver could find himself being forced to pay out of pocket for additional costs that crash victims experience that exceed policy limits.

How much insurance should drivers buy?

Drivers should not opt for just the minimum coverage, but instead should make sure they get a sufficient amount of insurance so their assets are not at risk.

For most motorists, this means buying collision coverage to pay for damage to their own car if they cause a crash while driving it. Comprehensive coverage, which pays for things like theft or hail or fire damage, should also be added onto policies for most people. And, if liability limits are low — as they usually are — drivers should opt for higher policy limits.

For example, in a state that requires $25,000 per person and $50,000 per accident in bodily injury liability, a policyholder might instead want to opt for a policy that pays $100,000 per person and $300,000 per accident or more.

Ultimately, it doesn’t cost that much more to buy full coverage auto than to buy minimum required coverage — and it’s well worth the extra asset protection that a more comprehensive auto insurance policy can provide.

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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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Buying a used vehicle could save you a lot of money. 

There’s a reason many consumers prefer new cars to used ones. There’s something to be said for getting to drive away in a vehicle in perfect condition that’s loaded with all sorts of cool new features.

But if money is tight these days, which is the case for many consumers due to persistent inflation, then you may want to consider going the used car route instead. In fact, now’s actually a pretty good time to be looking at a used car.

Used car prices are down

As of Dec. 31, 2022, CoPilot’s Return to Normal Index found that used car prices are not only dropping consistently, but are dropping at a record-breaking pace. That month, used cars were listed at an average price of $30,899, representing the sixth consecutive month of prices dropping.

Meanwhile, in January, the Consumer Price Index found that used car prices were down 11.6% on an annual basis. So all told, it may be a good time to go out and look for a used car rather than a new one.

In fact, for some added context, Kelley Blue Book reported that as of November, the average new car sold for $48,681. So clearly, buying a used car will mean shelling out a lot less money.

Is a used car a better choice for you?

If money has been tight in your world, then it could pay to opt for a used vehicle over a new one. For one thing, spending less on a car should mean having a smaller monthly auto loan payment to work into your budget. At a time when you may be juggling many expenses, that’s a good thing.

Also, you may find that a used car is less expensive to insure than a new one. One factor that goes into the cost of your auto insurance is the cost of fixing or replacing your car if it’s damaged. If you buy a used car with a value of $20,000, that’s a less expensive vehicle to replace than one costing $45,000.

Along these lines, if you end up needing to repair your car, that bill may be lower for you with a used car. The reason? Used cars may have older parts that don’t cost as much to replace as newer cars with more expensive components.

As an example, more new cars are starting to build cameras into the passenger-side mirror. Many older cars don’t have that. But because of that feature, replacing a mirror with a camera could be three or four times more expensive than replacing a standard mirror.

All told, it’s easy to see why new cars appeal to so many drivers. But remember, new vehicles lose value the moment you drive them off the lot. So if you’re really just looking to fulfill a need — having transportation — then you may want to stick to a used car this year, especially since prices are down among previously owned vehicles and are still higher for cars that are brand new.

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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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