Money Management

It’s a good guideline to follow. 

Today’s society is becoming increasingly cashless. A recent report from the Pew Research Center found that in 2022, 41% of consumers didn’t make any purchases using cash. Rather, they relied on a combination of credit cards, debit cards, and payment apps. In 2018, only 29% of people said the same.

But even if you’re someone who prefers not to walk around with a bulging wallet, it still pays to keep some cash on hand for situations where electronic payments aren’t accepted. And while there’s no magic number to dictate how much cash to keep in your wallet, there are some general guidelines you can follow.

The right amount of cash to carry around

You never know when you might encounter a situation where you’re forced to pay for a purchase in cash — even if you’re normally able to use a credit or debit card. Let’s say you’re buying groceries when your supermarket’s credit or debit card reading system suddenly goes down. At that point, your supermarket may have no choice but to limit purchases to those paid for with cash (or checks — but if you don’t carry cash in your wallet, then chances are, you probably don’t write a lot of checks either).

Plus, some businesses don’t accept credit cards at all. Imagine how frustrating or embarrassing it would be to show up for a date with no cash in your wallet, only to find that the restaurant you’re meeting at is cash only. Suddenly, you’ll either need to bail on your date temporarily to find a bank and use its ATM, or abandon the restaurant, which could make for an awkward moment, to say the least.

That’s why it’s a good idea to keep some cash in your wallet. And you may want to make a habit of carrying around $100.

Is this somewhat of an arbitrary suggestion? Yes. That’s because you could just as easily make the case to carry around $80 or $120.

But the logic here is that $100 in cash is probably enough to cover a larger purchase, like a shopping cart full of food or a meal at a reasonably priced eatery. And it also doesn’t leave you excessively vulnerable to financial losses — such as if you were to lose your wallet and the cash tucked away inside it.

Plus, let’s face it — hitting the ATM all the time can be annoying. If you load your wallet with $100, you won’t have to run to the bank every time your child needs $5 for a school trip or you need $2 for a parking lot attendant.

If you tend to blow cash, carry less

The recommendation to keep $100 in cash on hand is for people who are generally pretty disciplined about spending their money. If you can admit that you’re not so good at that, then it pays to limit yourself to a smaller amount of cash in your wallet — somewhere in the ballpark of $40 or $50.

Another option? Leave a $20 bill in your wallet, but store another $80 or so in cash in a secure place at home, like a safe. That way, you’ll have some cash on hand for an emergency, but you’ll lower the risk of spending it on something that isn’t so important.

Carrying cash is something that many of us are no longer used to doing. But it’s a good idea to have a modest amount of cash in your wallet at all times — just in case.

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Anyone buying life insurance should consider this to purchase the right policy. 

When buying life insurance, there are multiple different policy options out there that consumers will need to decide between. They will also need to determine how much coverage to buy so they can decide how large the death benefit needs to be.

It can be complicated to pick between different kinds of insurance, such as term life or whole life. And setting the amount of the death benefit is a complex process as well. The good news is, finance expert Dave Ramsey has an important piece of advice about life insurance that can simplify efforts to get covered.

Ramsey says this should be the focus when buying life insurance

Ramsey said the key thing to think about when buying life insurance is to stay focused on the underlying purpose of the policy or the ways in which life insurance can help. And there’s really only one goal of getting covered, according to the finance guru.

“Life insurance has one job, and one job only: to replace your income when you’re gone,” Ramsey explained. “That’s it.”

By clearly defining the “job” of a life insurance policy, Ramsey can help consumers both decide on a policy type and determine the amount of coverage they should purchase.

How does this advice help consumers decide on a policy?

Ramsey’s advice to would-be life insurance policyholders is important because it clarifies what insurance is and is not.

Whole life insurance, for example, doesn’t just replace income for the policyholder. The premiums are pretty high for whole life policies because they are sold as investments that acquire a cash value. They also offer lifetime coverage.

The problem with these policies is that life insurance isn’t meant to be an investment and it isn’t a very good one, since whole life policies usually come with more fees and lower returns than most other investments do. And most people don’t earn an income forever, so they don’t need lifetime coverage.

This is why Ramsey recommends term life policies rather than whole life coverage. These policies cost far less and they fulfill their one role very well — they replace income for a set period of time when it is needed.

Ramsey’s advice also clarifies how much term life coverage to buy — enough to replace the policyholder’s income. He suggests getting a policy equal to 10 to 12 times what the policyholder is earning, which is a simple and effective way to estimate an appropriate coverage amount.

There are also other approaches that take debt payoff and children’s educational costs into account, but the main purpose of these formulas is also to make sure loved ones don’t suffer without the income the deceased would have brought in.

Ultimately, consumers who focus on the underlying goal of life insurance as a method of income replacement don’t have to struggle to decide what kind of insurance to get or how much. As long as a policy accomplishes this “one job” and does so at an affordable premium, the policy is likely a good one that will meet their needs.

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Could you be on the hook for your spouse’s credit card debt?  

Financial advisor Suze Orman shared a strong warning on a recent episode of her podcast. She implored couples to sign a prenuptial agreement before getting married to avoid being liable for their spouse’s debt in the event of a divorce. Specifically, she recommended a prenup stating that “you are not responsible for any debt incurred after the marriage takes place.”

This was in response to a caller who got stuck with her ex-husband’s debt after he filed bankruptcy. As Orman explained it, spouses are liable for each other’s credit card debt, even on individual accounts.

While Orman brought up an important point, she isn’t entirely correct here. If you’re planning to get married, or you already are, here’s what you need to know about spousal credit card debt.

Are you responsible for your spouse’s credit card debt?

There are situations where you can be held liable for credit card debt your spouse incurred during your marriage. Here’s when this can happen, according to legal encyclopedia Nolo:

You live in a community property state. In states with community property laws, both spouses are equally liable for debts incurred during a marriage, regardless of whose name is on the account.You’re a cosigner on the credit card account. Any time you cosign on a credit card, you accept liability for the debt if the cardholder doesn’t pay it back. That applies whether you’re cosigning for a spouse, child, or friend.It’s a joint credit card account. Both cardholders are responsible for joint accounts. Joint credit cards are rare, as most card issuers don’t offer them anymore.The debt is assigned to you in a divorce proceeding. A judge could assign a debt obligation to you if they believe the debt is your responsibility.

To clarify, Orman was off-base in her explanation of this. She said that when you apply for a credit card, even as an individual, the application asks if you’re married. If you say yes, there’s fine print stating your spouse will also be liable for your debt on the credit card. I looked at some online credit card applications to double check, and they didn’t ask if I was married, nor did they have this fine print.

If you don’t cosign on your spouse’s credit card or get a joint credit card with them, then liability on that debt will likely depend on where you live. In a community property state, you’re equally responsible. Most states are common law states, where you’re not responsible for credit cards that are only under your spouse’s name.

Can a prenup protect you from spousal debt?

A prenup can help protect you from spousal debt, particularly in community property states where it would otherwise be shared between you both. As Orman suggested, you and your partner could set up a prenup with a debt clause stating that if you divorce, neither party is liable for debts created by the other person.

You can also designate which property belongs to each spouse. If property is jointly held, creditors could come after it for debts incurred by either spouse. If you’ve designated separate property in a prenup, then creditors would only be able to collect from property owned by the spouse who incurred the debt.

Note that a prenup doesn’t guarantee protection. It’s important to recognize that a prenup is a private contract between two people, you and your spouse. “Third-party creditors do not have to abide by the allocation of debts made by a couple in their private contract — the prenup,” Laurie Israel, a family and marital law attorney, told The Cut.

Still, if you get divorced, a prenup could ensure you aren’t held responsible for your spouse’s debt. It will depend on the circumstances of your case, but a prenup usually can’t hurt.

Deciding if a prenup is right for you

Prenups can be a touchy subject. While some people have strong opinions for or against getting a prenup, it’s ultimately a decision for you and your partner to make together.

There are ways a prenup can protect you and your partner. You can stipulate that neither is responsible for the other’s debts, and you can each put in writing your respective assets. By the way, if you’re already married without a prenup, there is the option of a postnuptial agreement, or postnup.

Orman believes a prenup is a must so that you’re not liable for your spouse’s debt. That may be true, but it’s far more important for you and your partner to be on the same page financially. Make sure you both have open communication about money, any debts you have, and how you’ll use credit cards. Ideally, you two will pay your credit cards in full every month and avoid this type of debt entirely.

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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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Don’t fall into these traps. 

It’s fair to say that personal loans have become a pretty popular way for U.S. consumers to borrow money. On a national level, personal loan balances reached $222 billion as of 2022’s fourth quarter, according to recent data from TransUnion.

If you have a need to borrow money, you may be inclined to take out a personal loan. But if it’s your first time exploring this option, then it’s imperative that you do your best to avoid these big mistakes.

1. Not figuring out if your monthly payments fit into your budget

Maybe you want to borrow $10,000 to renovate your basement. Or maybe you need cash to tackle a few smaller needs in short order, like fixing your car and replacing some furniture. You might have a good sense of how much you need or want to borrow. But are you certain you can afford the monthly payments that come with borrowing that sum?

Falling behind on a personal loan could have negative financial consequences. It could wreck your credit score and make it difficult to get approved for a loan for many years. So before you take one out, crunch the numbers to make sure those payments really work for your finances.

2. Not shopping around

If your credit score is great, you may find that the first lender you talk to approves your personal loan application. But before you enter into that agreement, take the time to shop around with different lenders to see what rates they have to offer. You may find that the third or fourth lender you talk to has a better deal to give you than the first.

3. Not comparing rates with a home equity loan

If you rent your home rather than own it, then you may find that a personal loan is your most economical borrowing option from an interest rate perspective. But if you own a home, it pays to compare the rate you can get on a personal loan to what you qualify for with a home equity loan.

Home equity loan lenders take on less risk than lenders that give out personal loans. The reason? Personal loans are unsecured, so if you fall behind on your payments, there’s no specific asset your lender can go after to get repaid. With a home equity loan, that loan is secured by your property itself. If you fall behind on your payments, in an extreme situation, your lender could force the sale of your home and get repaid that way.

Because home equity loans can be less risky than personal loans, you may find that the former leads to a lower interest rate on the sum you borrow. The result? Savings for you.

Personal loans can be very convenient. They allow you to borrow money for any purpose and they often close quickly. But before you take one out, make sure to crunch the numbers on your monthly payments, shop around, and see if a home equity loan is a better choice for you.

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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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