Money Management

The financial influencer makes an excellent argument for only using credit cards. 

Credit cards and debit cards are the most popular payment methods, but which is the better choice? Money expert Tori Dunlap recently covered this subject on an episode of her podcast, Financial Feminist.

Dunlap says she never uses a debit card and instead puts everything on her credit cards. While this may seem like a great way to end up in debt, it’s actually a smart strategy, as there are several advantages of credit cards over debit cards. Here’s why Dunlap prefers credit cards and if it’s a good idea to follow her approach.

Debit cards are not as secure as credit cards

Debit cards and credit cards both have fraud protections, but there are some key differences. Dunlap correctly points out that your debit card is directly connected to your bank account. Your credit card isn’t. That means a credit card offers a crucial extra layer of protection.

If someone steals your debit card or the card number and is able to use it, the money comes out of your bank account. You can report it as fraud and potentially get your money back, but it’s still a stressful situation. With a credit card, you don’t need to worry about this. If someone gets ahold of your credit card, all they can do is put charges on your bill. The card issuer will remove those charges when you dispute them as fraud.

Also, the amount of fraud you’re legally liable for with a debit card depends on how quickly you report your card lost or stolen. Most credit cards have zero liability guarantees, meaning you’re not liable for any fraudulent transactions.

Credit cards usually offer better rewards

Rewards are an area where credit cards have a huge advantage over debit cards. The best rewards credit cards offer outstanding value. You can find cards with sign-up bonuses worth $300 or more and that earn cash back or points on your purchases.

Dunlap says she puts everything she buys on her credit card. This is an easy way to max out your credit card rewards, and it’s a smart move, as long as you pay your bill in full every month. By paying your card’s full balance, you don’t get charged any interest.

Savvy cardholders often save hundreds and sometimes even thousands of dollars per year with credit card rewards. Although there are rewards debit card options, they don’t offer nearly as much value. They typically have much lower rewards rates without the bonus opportunities that credit cards offer.

It’s important to build credit

Dunlap says your credit score is like your “adulting GPA,” which is a great metaphor I’d never heard before. There are all kinds of situations where your credit score can come into play, including:

Buying a home or car: When you apply for a loan, the lender will check your credit.Renting an apartment: Most landlords require a credit check to decide if they’ll rent to you and how much of a security deposit they’ll require.Getting the best deal on insurance: In most states, insurance carriers can use your credit score to set your rates.

To build credit, you need to borrow money and pay it back, either through a credit card or loan. A credit card makes it easy to do that. You can simply use a credit card at least once per month, pay the bill by the due date, and your credit score will go up.

Using a debit card doesn’t improve your credit. Since you’re spending money directly from your bank account, you’re not borrowing money, which means this activity doesn’t affect your credit.

Tracking purchases is easier

The final reason that Dunlap likes credit cards is because they categorize your spending for you. While this is nice, it’s not that big a deal, for a couple of reasons.

First, every card issuer is different in regard to the tracking tools it offers. You might like the way your card issuer helps you track your spending, or you might never use this feature.

In addition, there are plenty of tools available to track spending, no matter which type of payment card you’re using. For example, many popular budgeting apps connect to all your financial accounts, including debit and credit cards.

Should you only use credit cards?

Dunlap added an important caveat to her advice — if you’re in credit card debt, then it’s definitely okay to use a debit card. In fact, that’s normally the better option in that situation, at least until you’ve paid off your credit card balances.

In addition, to benefit from credit cards, you need to use them like a debit card. That means only paying for purchases you can afford with the money in your bank account. Your spending should stay the same as before, only you pay with credit cards to reap their benefits.

If you’re not in credit card debt, and you’re confident you’ll always pay in full, then using credit cards for every purchase is highly recommended. It’s more secure, you’ll be able to earn rewards on your spending, and you’ll be building your credit.

Top credit card wipes out interest until 2024

If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR for up to 21 months! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read our full review for free and apply in just 2 minutes.

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 

Passive income for the win. 

As more and more people educate themselves on ways to live job-free, the idea of passive income is becoming increasingly popular. For folks interested in investing, this line of thinking inevitably leads to dividends.

Dividend payments can be an excellent way to live off your investments — without having to sell off shares and erode your principal. But how much do you really need to invest to make dividends a worthwhile income source? The answer is highly variable depending on the person. Let’s dive a little deeper.

How dividends work

When a company generates a profit, they have a few options of what to do with it. They can invest that profit back into the company, or they can pay out that profit. (Or, as is often the case, they can reinvest some and pay out some.)

For privately held companies, that profit would likely go to the owners of the company. In co-ops, the profit may be paid out to the members (who are technically the “owners”).

In a publicly traded company, that profit is often paid out to the shareholders. In this case, these payouts are called dividends.

If you’ve purchased stock in a company, you’re now a shareholder. So if that company pays dividends, you’re entitled to a portion of the profit based on how many shares you own.

Dividends can be paid out as cash (either as a digital deposit or as a check) or as additional shares of company stock. How often dividends are paid out varies by company, though quarterly payouts are most common.

Dividend yield

The dividend yield — the percentage of the share price paid out — can vary from company to company, and even from year to year for the same company. In general, larger, more mature companies pay out larger dividends than smaller, younger companies.

You can calculate a dividend’s yield with this simple formula:

Dividend Yield = Annual Dividends Per Share / Price Per Share

For example, if a particular stock has a price per share of $50 and pays $5 in dividends a year, its dividend yield would be: $5 / $50 = 10%.

Calculating your investment needs

To figure out how much dividend income you’ll need to live off of, you first need to figure out how much income you’re going to need each year. This will vary depending on your lifestyle wants and needs.

Remember: Most dividends are paid out quarterly, so you may not get regular monthly income unless you have a variety of dividend-paying stocks with staggered payout dates.

A good place to start is looking at your current income and expenses. If your current income is enough to sustain the lifestyle you want to live in retirement, then use that as your starting point. (Make sure you consider things that could impact your future expenses, like inflation and increasing medical costs as you age.)

Once you know how much income you need each year, you can simply divide that amount by the average dividend yield to get an idea of how much you need to invest.

For example, say I need to earn $50,000 a year to live comfortably and my average dividend yield is 5%. So, I would need to own $50,000 / 0.05 = $1 million worth of shares to meet my income needs. (Note that this is a bit oversimplified — there are also taxes to consider.)

Pro tip: Don’t forget that dividends can vary from year to year, or even quarter to quarter. You can’t just invest your money and then ignore it — you’ll want to keep an eye on your portfolio to ensure you’re always getting the best return for your money.

Building up to your goal

In my quick example above, I got a result of $1 million in investments. Now, that is a lot. That’s why it’s important to start saving and investing as soon as you can, so you can give yourself the best chance of reaching your goals.

And yes, some may even argue that $1 million alone would be enough to sustain a decent retirement (though inflation and rising cost of living would beg to differ). But the benefit of living off of dividends is that you don’t have to touch your principal investment to pay the bills.

This means you always have that nest egg of investments to rely upon in case you need it. Moreover, no one knows exactly how long they’re going to live — and, thus, how long they’re going to need their savings to last. If you can live off of dividend income alone, you can meet your needs more or less indefinitely.

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 

How to save for retirement on a tight budget. 

According to a recent Transamerica survey, more than half of Americans (51%) say they do not have enough money to save for retirement. As a result, 4 out of 10 Americans say they will continue working until age 70 or older and 57% state that even if they retire, they still plan on working. Close to 8 out 10 Americans believe working through old age will be the only way to make ends meet.

With the costs of rent, food, and utilities on the rise, it can be hard to find extra cash to put away for retirement. So how do you make sure you’re making your dollars count? Here are seven tips that can help you start saving more today.

1. Make a budget and track your spending

Even though people don’t like the “B” word (budgeting!), it is the most important step in saving. It helps you understand where your money is going each month. Luckily, there are budgeting apps to make it easier. Budgeting apps can import your transactions, then with a few clicks you can categorize them and end up with a detailed budget that includes all of your expenses and sources of income. Review this budget regularly so you can adjust when necessary. Regularly tracking your spending also helps ensure that you’re staying within your means and not overspending.

2. Cut back on small expenses

Sometimes the smallest expenses can add up quickly if left unchecked. Cut down on frivolous expenses, like eating out or ordering takeout, and buying clothes or other items you don’t need. You can use apps to help you with spending insights and to find deals. For example, Amazon’s Alexa app can help you save money while shopping. If you can’t cut back, look for cheaper alternatives. When shopping online, you can use browser extensions and other tools to help you save money. These small changes may seem insignificant at first glance, but they can really add up over time.

3. Take advantage of employer match programs

If offered by your employer, sign up for an employer match program where it will match a portion of the money you put away into savings each month — often as much as 50%. That’s free money just waiting for you, so don’t leave it on the table!

4. Invest in low-cost index funds

Index funds are mutual funds that track a specific set of stocks or bonds in an index such as the S&P 500 or Dow Jones Industrial Average (DJIA). They typically have lower fees than other types of investments, too. This means more money stays in your pocket, rather than going toward fund management fees.

5. Put extra income toward retirement savings

If you receive unexpected additional income, such as tax refunds or bonus checks from work, consider putting it directly into your retirement account rather than spending it right away on something else — even if it’s just $100. This could help jumpstart your retirement savings and give you peace of mind knowing there’s something waiting for you down the road.

6. Automate contributions to a retirement account

Set up automatic contributions from each paycheck into a 401(k) plan or IRA account so that money is taken out before it has time to get spent elsewhere — this makes it easier to stay disciplined about saving. Automating contributions also ensures you won’t miss any deadlines and if the funds go straight to your account, you won’t be tempted to spend it.

7. Look for side hustles to boost income

Look for creative ways to boost income. While there are various opportunities available, the key is becoming an expert at finding the right ones that match your skill set, interests, and availability. You might try freelance writing, developing websites, or teaching classes online or through institutions locally. Perhaps you’d be great at tutoring students in subjects you excel in, taking surveys, or marketing products and services on platforms. The point is, there are so many options that can help you earn more now and well into your retirement season.

Saving for retirement doesn’t need to be an impossible task — even if money is tight right now. Start small by understanding where every dollar goes each month and cutting back on unnecessary expenses, taking advantage of employer match programs, and more. With these simple tips, anyone can start building a nest egg for a happy retirement — no matter your current financial situation.

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 

It’s a really important step to take. 

If the idea of buying a new construction home sounds good to you, you’re not alone. A 2021 survey by the National Association of Home Builders found that 60% of buyers would prefer a newly built home over an existing one. And it’s pretty easy to see why.

When you buy new construction, you get the benefit of moving into a home in pristine condition. You might also, in some cases, get to customize certain features of your home. For example, some builders might let you have a say in the type of flooring you get. Others might let you get even more involved in the construction process, to the point where you’re able to dictate how many bedrooms and bathrooms your home has.

But if you’re going to buy new construction, it’s important to sign up to work with a builder who’s reliable and trustworthy. And if you don’t research your builder, you might end up sorely regretting your decision.

You can’t afford to take chances

The process of buying a new construction home is somewhat similar to that of buying an existing home. You make an offer, and if it’s accepted, you sign a contract, apply for a mortgage loan, and wait for your loan to close.

But there’s another big hurdle you’ll need to jump in the course of buying new construction — waiting for your home to actually get built. If you’re buying new construction in the sense that you have a completed home that’s yet to be occupied, you’re not taking the same risk as someone who’s buying a newly built home that’s still in the construction phase. But in that latter situation, vetting your builder is something you absolutely must do.

First of all, the last thing you want is to spend your life savings on a poorly built home. But if your builder has a reputation for cutting corners and producing inferior work, then that’s a risk you’ll end up taking.

Secondly, you want to make sure your builder isn’t experiencing financial difficulties. If that’s the case, it could delay the construction of your home, which could not only upend your life, but cost you money in different ways. And if your builder is forced to bail on your home midway through due to running out of money, you could really end up in a sorry situation.

An important step worth taking

Digging into your builder’s finances and reputation may seem invasive. But it’s an important step to take. So if you’re ready to enter into a new construction contract, before you do, ask your builder to disclose their financials so you can make sure they’re on solid ground. And also, ask for references from previous buyers who have worked with your builder before.

Another good bet? Take a look at some of the homes your builder has completed. If they appear to be well constructed, that’s something you can take comfort in.

All told, there’s lots to be gained by purchasing a new construction home. But make sure you don’t get stuck with a builder who might do shoddy work or leave you high and dry.

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.The Motley Fool has a disclosure policy.

 Read More