Money Management

Be careful where you park your pets if you’re splitting your time between states. 

We don’t just pay taxes at the federal level; state income taxes can come into play, too. And if you live in more than one state, you may be liable for more than one state tax bill.

Many people who split their time between different states will argue that they’re really only a resident of a single state — and it’s that state they’ll assume they should pay taxes to. But if you’re not careful, you may end up owing money to another state due to surprising factors — like where your dog lives.

When your dog makes the difference

A recent Yahoo Finance story shared the tax plight of Gregory Blatt, the former CEO of Match.com. New York went after Blatt for state income taxes even after he moved to Dallas, Texas, where he not only signed a lease for an apartment, but also purchased a car and established a dating life (a point that was brought up repeatedly in legal proceedings related to the matter).

But New York argued that Blatt was still a resident for one big reason: He not only still had an apartment there, but a dog living in Manhattan as well. Blatt countered that moving his senior dog to Dallas would have been difficult due to the area’s extreme heat. But he eventually relocated his dog to Texas to establish that as his home state.

A situation that could get complicated

Splitting one’s time between states was less common prior to the pandemic. But these days, remote work is a lot more popular. As such, more people are splitting their time between different states for a host of reasons, from escaping harsh weather to enjoying savings related to cost of living.

But if you’re someone who lives in two (or more) states, whether temporarily or on a long-term basis, it’s important that you understand what that means from a state income tax perspective. And what’s especially tricky is that each state establishes its own rules when it comes to what constitutes residency.

RELATED: Best Tax Software

In New York, for example, living there for more than six months makes you a resident of the state for tax purposes. But if you surrender your former license or live in Texas for 30 days, you become a resident there. Do both within the same year, and you could be looking at two state income tax bills.

That’s why it’s so important to consult a tax professional if you’re going to be living in more than one state. A professional can help you figure out which state(s) you owe money to, and just as importantly, develop strategies to reduce your tax liability.

For example, if you don’t want to be considered a resident of New York for tax purposes, you may decide to only live there for five months rather than six. Or, in some cases, getting a license, registering a vehicle, and buying auto insurance in one state might make that the state that gets to charge you income taxes.

Ultimately, when it comes to rules this complex, professionals know best. So if you’ll be splitting your time between states, make sure to consult one. And also, if you’re set on making one state your home over another for tax purposes, make sure to take your dog with you.

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Owning a home may be sweet, but it certainly isn’t cheap! 

Buying a new house can be super exciting.

It can also be super expensive.

Whether you’re getting a turn-key house you need to furnish, or rolling up your sleeves with a fixer-upper, chances are pretty good you’re going to be putting a small fortune on your credit cards after the keys hit your hand.

Choosing a credit card to cover all of your new home’s new expenses is about balancing your specific needs. Rewards are obviously a big part of the process, but don’t discount other benefits like interest-free intro offers. Here are some things to consider.

Maximizing rewards for maximum return

One of the best things about modern credit cards is that you can find a rewards card for nearly any type of purchase — including for many of the things you’ll be buying for your new home.

Of course, the downside to all those options? All those options.

Zeroing in on your rewards needs can be complicated, especially if you’ll be shopping in a variety of places. So, the first step is to make a list of your biggest expenses. For example, if you know you’ll be making some repairs or upgrades, you may want to put the hardware store at the top of your list.

Once you have a clear idea of which categories your expenses will fall into, you can start looking for a card that offers bonus rewards in the largest number of those categories. If you’re buying a house full of furniture while also putting down large utility deposits, for instance, a card that rewards both of those categories with bonus rewards would be ideal.

On the other hand, you may wind up with a list of expenses that don’t fit neatly into any card’s bonus categories. In that case, the best option may be a card with a good flat-rate on all purchases, such as a 2% cash back card. That way, you’re covered no matter where your needs take you.

Big purchases = big bonuses

Besides ensuring you’ve picked the best categories to maximize your rewards, it’s a good idea to look at sign-up bonuses, too. This can be especially great if you have some large purchases that won’t fit into a bonus category.

Basically, sign-up bonuses give you a lump sum of cash back or points when you meet a set spending requirement in a certain amount of time (90 days is typical). The larger the bonus, the bigger that spending requirement tends to be.

Since buying a new house can involve all kinds of fairly large purchases — the price of renting a moving truck alone can reach four figures — you can potentially go for big bonuses you would normally struggle to meet.

If you want an easy way to recoup some expenses, focus on cash back bonuses. If you want to plan ahead for a nice vacation to de-stress after moving and/or renovating, a travel rewards card with a nice bonus could get you a free trip to a quiet beach.

No interest in interest fees

Speaking of large purchases…If you already tapped deep into your savings to get through the home buying fees, then you’re likely looking for ways to save now that you’re a homeowner. While rewards and sign-up bonuses can help, what might be the most useful is a long intro APR offer.

Normally, if you carry a balance on your credit cards — that is, if you don’t pay in full each month — you’re charged interest on that balance. And since credit cards tend to have very high interest rates, those fees can get expensive very quickly.

That’s where the intro 0% APR offers come in handy. Many cards come with some type of introductory offer that gives you a 0% interest rate for a set period of time. For instance, a card with a 12-month intro APR offer won’t charge you interest on your purchases for the first 12 billing cycles.

The key benefit to these deals is they let you pay off your purchases over time, since you won’t need to worry about accruing any interest fees.

Avoid deferred interest

One thing to note about no-interest deals is to make sure you read the fine print, specifically noting what happens when the intro offer expires.

With a regular 0% APR card, you’re only charged interest on any balance that remains once the promotional period ends. However, there are some cards — I’m looking at you, store credit cards — that instead use deferred interest.

With deferred interest financing, you only pay 0% interest if you pay your balance in full before the end of the promotional period. If any balance remains, you’ll be charged interest on the entire balance. Only use deferred interest financing if you’re 100% certain you can pay off the full amount before the promotional period ends.

New cards after, not before

Regardless of which new card you decide to open, there’s one important thing to keep in mind: your mortgage loan.

You should avoid opening any new credit cards while you’re still in the home-buying process. Any big changes to your credit profile could negatively impact your home financing. It’s generally recommended to avoid opening any new credit cards in the six months before you buy a house.

Additionally, after everything is said and done, don’t forget that you’ve just taken on a huge debt. That new financial burden will likely impact your credit scores, as well as dictate how much money you have to pay off other debts. Both of these will influence a credit card issuer’s decision on whether to approve your application for a new card, as well as what type of credit limit to grant 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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Don’t let gloomy predictions stop you from building wealth. 

It isn’t easy to invest when headlines are filled with predictions of economic doom and warnings that the sky is about to fall in. But a recession shouldn’t stop you from building wealth, depending on your financial situation. Here are three reasons to keep investing, even amid warnings of a recession.

Investing during a recession

One common way to define a recession is as two consecutive quarters of decline in a country’s gross domestic product (GDP). Recessions often mean a drop in stock prices and increased unemployment, and people may hesitate to buy stocks as a result. It’s often harder to borrow money during economic downturns, too.

There’s one important thing you should know about recessions: They are a normal part of economic cycles and they always pass, eventually. That means if your emergency savings are in good shape and you’re investing for the long term, it likely makes sense to continue to contribute to your brokerage account.

1. Historically, the stock market has always recovered

There are no guarantees when it comes to investing, but over the past 30 years, the S&P 500 has delivered average compound returns of over 10%. Not only that, but the stock market has always recovered from crashes. As an investor, there are two conclusions we can draw from this:

Stock prices should come back up — even if they get worse before they get better.A recession can be an opportunity to pick up quality equities at lower prices.

If you are worried about buying stocks only for the market to fall further, consider dollar cost averaging. It essentially means investing the same amount of money at regular intervals, and can mitigate some of the risk of market turbulence. For example, you might invest $500 on the first day of every month, no matter what else is going on. It takes a lot of the emotion out of investing and means you’re not so exposed if prices fall shortly after you buy. You may already practice dollar cost averaging if you make regular contributions to your 401(k) or IRA.

2. You can manage the amount of risk you take on

Investing always involves risk management, but even more so when there may be an economic downturn on the horizon. Look at your portfolio and consider whether you’re comfortable with your exposure. One great way to manage risk is to build a diversified portfolio with a mix of different types of assets, including stocks, bonds, commodities, and real estate. If you own a mix of assets, poor performance in one area is less likely to derail your financial security.

It’s also important to look for diversification within each asset. Rather than only focusing on, say, tech stocks, a balanced portfolio would give you exposure to a mix of sectors. If you don’t have the time (or inclination) to research individual equities, look into index funds or ETFs (exchange-traded funds). These can give you exposure to a good mix of high-quality companies in one fell swoop.

The amount of risk you’re willing to take on will depend a lot on your personal situation. Someone who is nearing retirement will likely be more cautious than someone who’s just starting out in their career. Even so, for most investors, a recession is not the right time to buy risky stocks. The stock market overall should recover, but individual companies may fail. Stick to less speculative investments for now.

3. It’s almost impossible to time the market

When financial experts are telling us we could be in for more stock market pain, there’s an understandable temptation to hold off on investments so that you can buy when prices are lower. The trouble is that it’s almost impossible to catch the absolute bottom. Moreover, we don’t know what will happen in the coming year.

We’re coming out of an unprecedented global pandemic, and it has skewed many of the indicators economists use to predict what might happen next. Sure, some people think stocks will fall further. But others say we can still avoid a recession and that the economic difficulties are already priced in. Don’t try to buy at the absolute bottom. A better bet is to consistently invest over time and look for quality assets that you believe will perform well in the long term.

When you shouldn’t invest — whether there’s a recession or not

There are some solid arguments for making consistent investments in your future. Indeed, it’s the way many self-made millionaires built their wealth. However, it won’t be the right move for everybody, especially if the economy worsens. Here are some scenarios where it makes sense to hold off:

You will need the cash in the short term. Investing is a long-term game, so if you think you’ll need that money in the coming, say, five years, don’t put it in the stock market. Instead, look for a safer place to put that cash, such as a high-yield savings account.You carry high-interest debt. If you’re carrying a balance on your credit card, pay this off before you buy stocks. The average APR on a credit card is around 15% to 20%, which is higher than the returns you might get on many investments.You don’t have an emergency fund. Having three to six months or more of emergency savings means you won’t have to take on debt or sell your investments (potentially at a loss) if something unexpected happens. Whether it’s a job loss or medical emergency, it’s important to be prepared.

Bottom line

The decision to invest depends as much on your financial situation as it does on market conditions. Investing can help build wealth, and recessions can offer opportunities to buy while prices are low. But if you carry debt or don’t have emergency savings, prioritize these over any stock market investments. That way you can invest further down the road from a position of financial strength.

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HOAs can be expensive, but is the price worth it? 

I had long vowed never to live in a neighborhood with a homeowners association. However, I changed my mind a few years ago and ended up buying a property in an HOA neighborhood.

While monthly HOA payments add an extra obligation on top of a mortgage payment, my husband and I liked the amenities on offer in our neighborhood. We also wanted to live in an area where almost every place has an HOA, so we had very limited options if we didn’t buy in an association neighborhood.

Once we moved in, we started paying our monthly dues. And, in 2023, those dues went up. I don’t actually mind the cost increase, though, and there’s a simple reason why.

Here’s why I’m OK With an HOA payment increase

I was OK with the fact that our HOA dues went up this year because we are getting more for our money.

Our dues cover things like landscaping services, as well as internet and cable TV. The neighborhood decided to upgrade the internet to a faster speed this year, so we’ll be benefitting from that.

Our neighborhood also already has a small waterpark, but it’s building a bigger one with several new slides and a new pool that will be a very short walk from our house. My son loves the existing slides and splash pad, and the new one will be a whole lot more exciting for him once it’s finished.

Since we’re getting some great added benefits from living in our neighborhood, we don’t mind the fact that we will have to pay slightly more each month for these new offerings. In fact, gaining access to the new swimming area alone is well worth the higher price we’re going to be paying since it means we’ll be able to more easily entertain our kids without having to go and spend money elsewhere.

Rising dues is a risk of an HOA neighborhood

While I don’t mind that my neighborhood raised my monthly fees this year, the fact is that this could easily be a problem for some homeowners. In fact, several of my neighbors have complained about the rising costs putting stress on their budgets. And others are worried that if the monthly payments get too high, it will be harder to find a buyer.

The sad reality is, we didn’t really have a choice about our dues going up. While there was a vote about whether to increase costs and change the services on offer, everyone in the neighborhood was bound by the outcome once it passed — even if they voted against the cost increase.

This is a big risk of living in a neighborhood where you have to pay a monthly HOA fee. You could get hit with rising costs you aren’t happy to pay for. It’s important to think this through — and find out the rules for when and how fee increases can occur over time — before buying a house in an area where there is an association, especially if you’re buying a home at the top of your home-buying budget.

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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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Consumers may be in for a longer stretch of higher costs. 

Last week, the Consumer Price Index, which measures changes in the cost of consumer goods, rose 0.5% from December to January. And that was a piece of jarring news in its own right.

But now, another measure of inflation is telling us that the problem of higher living costs is not about to go away. And that means consumers could see their credit card balances climb in the coming months as they struggle to make ends meet.

Businesses are paying more for goods

In January, the Producer Price Index, which measures what suppliers are charging businesses, rose 0.7% from December. That increase represents the largest monthly gain since June of 2022.

When it costs businesses more money to procure inventory, they tend to pass that cost along to consumers. And so a higher reading from the Producer Price Index means that in the coming months, consumers might end up paying more for everything from groceries to apparel to household goods. And that’s clearly not a great thing given how so many people have been struggling for over a year.

Will stimulus aid come to the rescue?

Last year, a number of states dipped into their budgets and issued stimulus funds to residents to help them cope with inflation. But there was no aid to be had from the federal government.

Even though the problem of inflation still very much exists, at this point, we shouldn’t expect lawmakers at the federal level to send stimulus checks into Americans’ bank accounts. For one thing, stimulus aid is really only justifiable when the broad economy needs a boost. But the fact that inflation is soaring is actually an indication that the economy is healthy, even though that may seem counterintuitive.

The whole reason inflation is surging is that the demand for consumer goods has outpaced the available supply. And strong demand for goods indicates that consumers have money to spend. As such, we’re unlikely to see a federal stimulus round go out anytime soon.

In fact, a round of stimulus checks is apt to only make the problem of inflation worse. For living costs to come down, consumers need to cut back on spending to some degree — enough to narrow the gap between supply and demand. But if they’re given an extra payday, they’re likely to go out and spend that money rather than save it, thereby extending the problem of inflation.

So where does that leave those people who are barely scraping by right now due to inflation? Unfortunately, in a pretty bad spot. But all isn’t lost.

Today’s labor market is nice and robust, and jobs are plentiful. Those struggling to keep up with their bills can try to seek out better-paying jobs to make their expenses more manageable. The gig economy is booming, too, so there’s plenty of opportunity to pick up work on the side of a main job.

This isn’t to say that juggling a second job, or a series of gigs, is an easy thing to do. But unfortunately, it looks like inflation isn’t slowing down. So for the time being, cash-strapped consumers may need to be willing to sacrifice more of their downtime to stay afloat financially.

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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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