Money Management

Before adopting this system, here’s what you need to know. 

Finding an effective way to manage your money is very important. When you’re able to control what you spend your money on, you can use your hard-earned cash as wisely as possible. You can build up a bigger bank account balance, for example. You can also avoid credit card debt, while spending your money on things you value the most.

Unfortunately, discovering a money-management technique that works for you is easier said than done.

Finance expert Dave Ramsey has suggested one approach he says is “fantastic,” but it may not be the best one for everybody. Here’s what you need to know about it to decide if it’s right for you.

Ramsey’s recommendation for a money-management system

Ramsey says a money management technique called the “envelope system” is a “fantastic way to (literally) organize money.”

The envelope system, as the name suggests, involves dividing up your funds into different envelopes. Basically, you’d make your budget and allocate a certain amount of money to different spending categories such as groceries, gas, and clothing. You’d then get the cash allocated for each of these things and put it directly into the relevant envelope.

So, you might, for example, put $500 cash into your grocery envelope and $50 cash into your clothing envelope.

Ramsey is a big proponent of this approach for one key reason. “You can see, right in front of you, how much is left for groceries after that Aldi run,” Ramsey explained. “You’ll know if you can afford brunch and goat yoga with friends, because you’ve got the cash right in front of you.”

Will the envelope system work for you?

While Ramsey’s approach sounds great, there are a few practical problems with it.

For one thing, you have to get a hold of all the cash you need for each budget category up front and put it into the relevant envelope for the coming month. That’s sometimes easier said than done, as you’ll have to go take the money out of an ATM, and you need to be at least a month ahead on being able to cover all your expenses to fill your envelopes at the start of the month.

For another thing, you’d have to carry your envelopes with you whenever you’re going to make a particular kind of purchase — or remember exactly how much to take out of the envelope. If you stop to pick up some lettuce on the way home, for example, are you going to remember to take the $4.29 you paid for it out of your grocery envelope?

While there are apps that allow you to do the envelope system virtually, this approach would mean missing out on the tangible aspects of an envelope system that can make this money-management method work. You won’t be able to physically see the cash available to you, so it wouldn’t be much different than just using a spreadsheet to track your budget.

While you may be willing to live with these downsides if you really struggle with staying on budget, it’s worth thinking about them when deciding whether to embrace the envelope system in your own life.

You may find that this approach really does help keep you on track, in which case dealing with the hassle is worth it. But if it doesn’t work for you, there are plenty of other approaches to budgeting worth trying out, too.

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Flying with United is about to get less costly for families. 

United Airlines is making it easier for families to sit together for free. Some airlines sell economy airline tickets at a lower price, but charge additional seat selection fees. This can make it challenging for families with kids to ensure they’ll all be seated together unless they’re willing to spend more money. However, United recently announced a seating policy change that will help families save money.

The DOT asked airlines to implement policy changes

Many parents have complained about being unable to sit with their children without being forced to pay additional fees. Last year, the U.S. Department of Transportation (DOT) called on U.S. airlines to update their policies to ensure children could be seated next to accompanying adults at no extra cost. United listened. On Feb. 20, the airline announced its new family seating policy, which will make it easier for families to fly together.

What this news means for parents with young kids

United’s revised policy allows children under age 12 to sit next to an adult in their party at no extra cost. The airline’s brand-new seat map feature makes this change possible. United’s updated seat map tool will show available adjacent seats during the booking process.

Available free economy seats will be shown at time of booking. If needed, complimentary upgrades will be made available for preferred seats. If seats aren’t available before travel, United will allow customers to switch to a flight to the same destination with adjacent seats available in the same cabin. Customers won’t be charged a difference in fare price for this convenience.

Customers with children under 12 will immediately see more adjacent seat options when booking tickets. However, the complete policy change will begin in early March.

While this policy change applies to economy fare tickets (including Basic Economy), United Polaris®, United First Class®, and Economy Plus® remain separate products and are excluded from the family seating policy.

This is likely welcome news for parents with children. Travel is already expensive enough — families shouldn’t have to pay more money to sit together on a flight. This new policy could help families save money on extra fees and improve their flight experience.

Beware of extra fees charged by airlines

Unfortunately, it’s not uncommon for airline passengers to be charged extra fees during the checkout process. Travelers should take additional time to review all airline ticket terms when booking to ensure they understand all potential extra costs.

Airline fees can add up quickly. In addition to seat selection fees, some airlines may charge baggage fees, depending on the ticket type purchased. If you’re not careful, you could spend more than you plan the next time you take a trip. That’s why it’s essential to review all terms.

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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.Natasha Gabrielle 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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It always comes back to the math. 

Most experts will tell you that investing is a long game. This seems to be particularly true for folks investing for retirement. Indeed, most advice tends to toe the line of more or less ignoring your portfolio on the day to day, with only some general maintenance to keep things balanced.

But there’s a point at which set-it-and-forget-it is no longer practical investing advice. For example, personal finance guru Suze Orman believes that if you’re invested in dividends — especially if you’re actively living off that income — you need to be a more active participant in what’s going on with your portfolio.

“It’s not enough for you to just invest your money and get your dividends,” Orman says, “…when the truth is you’re not getting as much from your money as you could be.”

Dividends change over time

As Orman points out, it’s all well and fine to make a few good decisions when you initially invest, but you can’t simply assume the return on your investment will stay the same indefinitely.

In her podcast, Orman gives an example of someone who invested in Chevron in 2020. At that time, she says, the return earned would be over 7%, based on the price of the stock and the amount paid out in dividends. However, that same investment now — after the stock price more than doubled — returns a much smaller percentage in dividends: 3.56%.

On the other hand, if that same investment were sold, then reinvested elsewhere — such as in a Treasury note or a stock with a higher dividend — that money could be used to generate higher returns. And in the face of still-high inflation and increasing cost of living, even a modest increase in return could make a big difference in your monthly budget, especially in retirement when you’re less likely to have other ways to boost your income.

As Orman says, “You have to get involved with your money and get the most out of it.”

Calculating your current yield

Rather than assuming you’re still getting a good return on your investments, Orman encourages all of her listeners to take stock of their current positions. Whether they have retirement accounts or just regular investment accounts, anyone with a dividend-yielding investment.

“I want you to figure out what your actual yield is right now,” she says. “What are they paying you in dividends? Divide that by the price of the stock right now. And you’ll get your dividend yield.”

If you’re not earning at your top potential, she suggests looking into other ways to boost your return. Orman is particularly optimistic about energy stocks. But, she says, you don’t have to take that route if it’s too risky. There are other options. The point is to ensure you’re getting the most from your money.

“Maybe these people don’t want to risk it in an energy stock, fine. So buy a certificate of deposit, buy a Treasury note,” she says. “But look at how your income could absolutely increase simply by you paying attention to: Has your money grown? Is it in dividend? Paying stocks? What is the current yield on that money?”

Keep your taxes in mind

One important thing to keep in mind if you’re following this advice is that there may be tax repercussions. That’s why Orman emphasizes that this strategy is best used in retirement accounts where there are fewer tax implications.

“Outside of a retirement account, you have to really take into consideration the tax ramifications before you do something like this strategy,” she says. “So, just don’t go doing it without consulting your CPA, and what it would mean to you tax-wise if you did it. This strategy is mainly to be used really in retirement accounts.”

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Biden’s tweet is an important one if you’re hoping for more stimulus money. 

Recently, President Biden sent out an important tweet for those hoping for a fourth stimulus check. Biden’s tweet addressed three major economic indicators affecting American families.

The president’s tweet highlighted the good news about these three economic data points, indicating that positive changes provided “welcome breathing room for American families.” Since there have been some recent developments that give people more money in their bank accounts, the chances of a stimulus check have been reduced.

However, if things were to turn around on these key issues, a fourth stimulus payment could become more likely in the future.

Here are three key economic indicators the president is watching closely

In his tweet, President Biden addressed gas prices, inflation, and real wages. Specifically, the president said “Gas prices are down from last year’s peak; inflation for grocery prices came down again last month; and real wages are up over the last seven months.”

With gas prices lower, Americans are paying less to fill up their tanks. Inflation, on the other hand, refers to the rising prices of goods and services. Inflation had hit a 40-year high over the past year or so, and the fact that the price increases are slowing down is a major boon to people who were struggling to pay for the basics at the grocery store. And real wages refer to inflation-adjusted wages. When real wages go up, this means that your buying power goes up, not just the amount of money in your paycheck.

Since people are making more and are able to spend less on two big budget items — food and gas — many people will find making ends meet easier, as the president has pointed out. This is great news.

But, because things are getting better financially for many people, this further reduces the incentive for President Biden to push for another stimulus check. And, it reduces the likelihood that lawmakers on the federal level would be able to come to consensus on providing another direct payment — especially since there wasn’t even bipartisan support for the last one, which was authorized by Democrats on a party-line basis when the economy was in worse shape.

Will there be another stimulus check?

If the news continues to be positive on gas prices, inflation, and wage growth, a fourth stimulus payment is very unlikely. But, if gas prices and grocery prices start to rise again or real wages fall, it’s possible President Biden will once again make offering stimulus relief a financial priority.

The fact the president is specifically tweeting about these three issues means they are on his radar. Changes to the economic data in these areas would be a cause for concern that could prompt further action to help Americans cope with rising costs.

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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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