Money Management

Stick to your long-term withdrawal plan. 

Dividend stocks make up an essential part of many retirement portfolios. They offer a steady revenue stream that folks can reinvest through their stock brokerage. Or, retirees can cash out dividends to pay living expenses.

But the stock market is unpredictable. Sometimes, these income sources dry up. Many companies, including Disney, froze dividends during the pandemic. Right now, macro events like supply chain issues and Fed rate hikes have the stock market in a tizzy.

That leaves retirees in a pickle. Do they keep their frozen stock in the hopes the company thaws payments later on? Or do they sell the stock and put their money to use elsewhere?

In a recent Woman & Money podcast episode, financial guru Suze Orman offered retirees advice on what to do in this situation.

Suze Orman’s advice

Orman says, “If a stock has stopped offering dividends, in most cases…something has gone wrong.”

But retirees shouldn’t necessarily go ahead and yank their money out of the market. Orman recommends retirees first consider the following:

Did you buy the stock for the dividend? Do you have the stock in a retirement account?

Orman believes if you bought the stock for the dividend, the path forward is simple: Sell the stock. She believes it’s a red flag when a company stops paying its dividend. She also believes the same holds true for a company that lowers its dividend. The company may have fallen on hard times.

However, retirees should play it smart. That means taking into account any taxes they may be required to pay upon selling a stock. For example, 401k(s) and Roth IRAs don’t make retirees pay capital gains tax for selling stock, but non-retirement accounts do.

Ultimately, Orman doesn’t feel comfortable owning non-dividend stocks in retirement. After all, even dividend stocks that perform poorly offer investors steady income.

Diversify investments

Retirees don’t want to worry about income drying up. Diversification keeps portfolios stable. You can invest in a diversified dividend ETF to keep revenue flowing even when the stock market is down.

For example, say you own an ETF with 20 companies, and one company falls on hard times so it stops offering a dividend. No big deal — you still have money coming in from the other 19 companies. The best ETF brokers charge you $0 for commissions for funds like this.

The market has been volatile, especially recently. Retirees should assess their risk tolerance when considering whether to keep a stock that has stopped paying dividends. One way to do this is by creating a budget that tallies up total income and expenses so you know exactly how much you’re relying on dividends to fund your retirement.

What else should retirees consider?

If the stock market is down, think twice about withdrawing money from your brokerage account. The market declines frequently, but it has always eventually rebounded to new highs. Rather than withdraw money as cash, consider reallocating it to other dividend stocks in your portfolio.

When in doubt, review your retirement withdrawal strategy to ensure you stick to your long-term retirement plan. The best thing to do is to make measured decisions and follow your long-term financial roadmap, adjusting as necessary.

A retirement withdrawal strategy ensures you don’t run out of money too early into retirement. And knowing what to do with your dividends ahead of time helps you make the best decisions.

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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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It’s good advice worth following. 

Buying a home is a huge undertaking. You’re not just saving money to put down on a piece of property — you’re committing to maintaining that property for what could be years on end. As such, it’s important to make sure you’re truly ready to buy a home. And to that end, it pays to listen to financial guru Ramit Sethi, who says these are the three steps needed to become a homeowner.

Step 1: Be aware of the myths and propaganda

Sethi insists that to buy a home, you first need to get to the bottom of certain myths:

Renting a house means you’re just paying your landlord’s mortgage

Not exactly. First of all, your landlord has costs to cover aside from just a mortgage loan. But you’re not paying a landlord’s bills by renting, you’re addressing a need of yours — housing. And there’s nothing wrong with that.

If you’re paying rent, you’re throwing money away

When you buy yourself dinner because you’re hungry, are you throwing money away? You’re not getting any long-term financial benefit from that meal, but you’re filling your belly with food. There’s value there, just as there’s value to paying money for putting a roof over your head.

Home prices will keep rising

In the long run, maybe. But the real estate market can also crash and flip-flop, so buying a home isn’t something you should do for the express purpose of getting rich. If that’s your goal, build a portfolio of assets in a brokerage account instead.

Buying a house is always a great financial investment

A home is more of an expense than an investment — or at least that’s how you should look at it. You might make money on the eventual sale of your home, but you’ll have sunk a lot of money into it through the years.

Once you bust these myths, you’ll be in a better position to move forward with a home purchase.

Step 2: Figure out if buying a house will make you happy

Sethi insists that buying a home is a financial decision as well as a lifestyle decision. So make sure you’re looking to buy for the right reason, like wanting stability or a certain school district for your kids.

You should also know that buying a home doesn’t always mean building wealth. So this, says Sethi, should not be part of your decision process. Rather, you should buy a home because it’s truly what you want.

Step 3: Run the numbers

Even if you’re not buying a home with an investment mindset, it’s important to make sure you can afford to own a home. To that end, it’s good to stick to the 30% rule — keeping your monthly housing costs to 30% of your take-home pay or less.

This doesn’t just include your mortgage payment, though. It should also include added costs like property taxes and homeowners insurance. Run the numbers before you start a search for a home so you know what you can swing.

Buying a home isn’t a decision to take lightly. Follow these steps so you don’t end up regretting your choice.

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It might seem like the easiest way to save, but it’s not necessarily the best way. 

For the past few years, my kids have been getting some of their birthday and holiday gifts in cash form. Now, we’re not talking about huge sums of money — rather, $25 here and $50 there. But from the moment they started getting that money, my husband and I have made a point to teach them to put their cash into their savings accounts.

Of course, this is often met with resistance, at least from my 8-year-old twins. My 11-year-old is more on board with the idea of keeping money in an actual bank.

But the way my daughters see it, they like to actually watch their savings grow. And keeping bills in a piggy bank lends to that.

I understand their logic. And it’s one some adults might follow, too. But while you may find it easier to keep your savings in actual cash, putting your money into the bank is a far better bet.

The upside of keeping your money in a savings account

Let’s say you’re trying to meet a savings goal, so you buy a large jar and fill it with bills whenever you have the opportunity. It can be really motivating to watch that jar getting all filled up. And so it’s easy to see why some people might prefer to keep their savings in actual cash that they can see and touch when they want to.

But putting your money into a savings account is a much better bet for a few reasons. First, when you keep physical cash around, you never know when it might get lost or stolen. You might, for example, take some bills out of your cash jar to count them, only to accidentally drop a $20 behind your dresser.

In the case of my daughters, I don’t really trust them not to lose physical bills. With adults, losing physical cash is less likely. But it could happen. However, if you have $300 and you put it into the bank and don’t take a withdrawal, your money won’t get lost.

Of course, to make sure your money is really protected, you’ll need to check to see if your bank is FDIC-insured. You can use this tool to do so.

Plus, when you keep your money in a savings account, you get to earn interest on it. And that could allow it to grow into a larger sum over time.

There are many high-yield savings accounts paying over 4% interest these days. So let’s say you put $1,000 into a savings account and snag a 4% interest rate on it. After a year, you’ll have earned an extra $40. If you keep that cash in a jar in your bedroom, you won’t earn anything extra on it.

A different way to motivate yourself

It’s easy to see why watching your savings grow can be appealing. But if you put your money into a savings account, you can always check your balance weekly, monthly, or at whatever schedule works best for you and track your progress that way.

Another good bet? Set up an automatic transfer from your checking account to your savings at the start of each month. That’s a great way to help ensure you stay on track with your savings goals.

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When there’s economic turmoil, credit card companies tighten their purse strings. 

Every credit card has a credit limit, which is the maximum amount you can spend on it. You may already know that if you want more spending power, you can request a credit limit increase. But not everyone realizes that card issuers also can and do lower credit limits.

Recently, some consumers have reported getting notices about their credit limits being reviewed and potentially decreased. If you received a letter like this, or if you logged in and noticed your credit limit was suddenly lower, you’re probably wondering what’s going on. Here’s why this happens and how it could affect you financially.

Why card issuers lower credit limits

There are a few reasons why a card issuer would start cutting credit limits. One is economic uncertainty, which is applicable right now. Inflation has been high and many experts are expecting a recession. Because this increases the chances that people won’t be able to pay their credit card bills, card issuers lower credit limits to reduce their exposure. They did the same in the early days of the COVID-19 pandemic.

Here are the other typical reasons why a credit card company would cut your credit limit:

You appear to be in financial trouble. If you’re missing payments or your credit score drops, your card issuer could see you as a higher risk and reconsider the amount of credit it’s extending to you.You don’t use much of your credit limit. Card issuers can only extend so much credit to consumers. If you don’t use much of your credit, the card issuer may decide it’s better off reallocating some of that credit to a new client.

Credit card companies can lower your credit limit without notice, unless it’s due to adverse information on your credit history. For example, if you miss a payment and your card issuer decides to cut your credit limit for that, it would need to notify you. On the other hand, if your card issuer cuts your credit because of a down economy, it doesn’t need to notify you.

How a lower credit limit affects you

A lower credit limit means you can’t spend as much on your credit card, but this may not actually have much of an impact on you. When card issuers cut credit limits due to the economy, they generally still try to leave you plenty of spending power.

Let’s say you have a $20,000 credit limit, but you never have a balance of more than $2,000. Your card issuer probably wouldn’t cut your credit limit to $3,000. It’d be more likely to reduce your limit to $10,000 or $15,000, so you still have more than enough to cover what you normally spend.

The bigger issue is that a lower credit limit can negatively affect your credit score. That’s because one factor in your credit score is the ratio between your card balances and your credit limits. This is called your credit utilization ratio. A lower utilization ratio is better, and a popular rule of thumb is to keep yours below 30%.

If your credit limit gets cut, your credit utilization will increase. Imagine you have a card with a $5,000 balance and a $20,000 credit limit. Your credit utilization would be 25%, which is a good number for your credit. Then, your card issuer decides to cut your credit limit to $10,000, pushing your utilization to 50%. That would lower your credit score.

Your credit utilization will stay low if you always pay your credit cards in full, which is a smart financial habit. But if you’re carrying balances on your credit cards, then lower credit limits could have an impact.

What to do if your card issuer cuts your credit limit

If your card issuer notifies you about plans to review or decrease your credit limit, first see if there’s a way to opt out. Some card issuers include a phone number you can call to opt out and keep your credit limit. Read the notice thoroughly to check if you have this option.

If you can’t opt out, or if your card issuer reduced your credit limit without notice, contact customer service. You can find the number on the back of your credit card. Let them know that having enough credit for your financial needs is important to you, and ask them to restore your previous credit limit.

This may or may not work. As mentioned above, credit limits are issued at the discretion of the card issuer and can be changed at any time. What you can do regardless is use your card regularly, pay the bill on time, and request a credit limit increase a few months down the road.

Another option, if you want to have more available credit, is to open a new credit card. For a better chance of a high limit, check out high limit credit cards. Although your credit limit depends in large part on your credit history and income, high limit cards are known for above-average limits.

Although it may seem alarming to have your credit limit reduced, this is a normal occurrence during a down economy. Get in touch with the card issuer to try and avoid it if you can. But if not, just keep your new credit limit in mind so that your credit utilization doesn’t get too high.

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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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You don’t want to end up with a home that doesn’t suit your needs. 

About 10 years ago, friends of mine bought a cute but somewhat small three-bedroom house before having kids. They figured it would be a good place to raise a family because they were planning on two children, and a three-bedroom house would allow for enough space.

Only their second child turned out to be twins. And opposite-gender twins at that, which wasn’t an issue at first, but is getting to be an issue now.

See, my friends don’t want their oldest child to have to share a room with a younger sibling. But they also can’t really keep their opposite-gender twins in the same room now that they’re getting older. And since their home doesn’t have a basement, there’s really no way to carve out an additional bedroom.

And speaking of not having a basement, not only are my friends short a bedroom, but they sorely lack storage space. And so all told, I’ve heard them utter phrases along the lines of “We should’ve waited to buy a house until after having kids” many times over in my day.

If you’re looking to buy a home, but you also know that kids are part of your plans, then you may want to consider holding off until you’re done having children. Otherwise, you might struggle with a lack of space, or you might end up with a home that just doesn’t suit your lifestyle all that well.

Kids are a big factor

When you’re part of a couple, it can be somewhat easy to control the amount of stuff you keep in your home. But kids tend to come with a lot of stuff at different ages.

When they’re super little, your living space is apt to be filled with pack-and-plays, changing tables, and diaper pails. When they reach the toddler years, you can ditch most of that gear, but you’ll need to replace it with toys that tend to be larger in nature — think kitchen sets and play mats and other obtrusive items to keep them occupied.

In fact, it really isn’t until kids get a bit older that their stuff starts to take up less space. And even then, that’s not guaranteed. Case in point: My kids insist on having a giant foosball table in our basement, as well as several wrestling mats (to be fair, they all practice martial arts, so that’s justifiable, but those mats take up a lot of floor space).

So all told, if you buy a home before having kids, you might end up with a living space that lacks storage in a serious way. And that could mean constantly having to step over and around things on a daily basis, which isn’t such a comfortable way to live.

But that’s not the only issue you might encounter if you buy a home before having kids. You might realize that you’ve chosen a block that tends to get a lot of traffic. That may not bother you when it’s just you and a partner. But if the idea of your kids never being able to play ball or ride bikes in the street doesn’t sit well with you, then that’s something to take into consideration.

Waiting could pay off

Had my friends realized there would be a third child in their family, they would have purchased a larger home from the start. Now, they’re settled into their neighborhood, their kids are used to the schools, and it’s hard for them to leave. So chances are, they’ll just have to deal with a lack of space for the foreseeable future.

If you’re currently childless but plan to have kids, you may want to hold off on signing a mortgage loan until your family grows. Only then might you realize what sort of setup you truly need.

And if you don’t want to hold off on buying a home, at least talk to friends with kids and ask for home-buying tips. They may be able to offer some insight that spares you from buying a home that isn’t child-friendly, or that’s unlikely to suit your needs once you expand your family.

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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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