Money Management

It’s understandable, but it can be risky and expensive. 

If you’re currently a renter but long to buy a place to call your own, chances are, it’s needing to have a down payment that’s tripping you up the most in the process. When you sign a lease for a new rental situation, you’re likely to only be on the hook for a deposit equaling a month of rent, as well as possibly a cleaning or pet deposit. A down payment to secure a mortgage loan is going to amount to much more than that, especially when you consider that Q3 2022’s median home price in the U.S. was $454,900, per the Federal Reserve Bank of St. Louis.

If you happen to be buying a home for just that price, using an FHA mortgage loan and making the minimum required down payment of 3.5%, you’d be looking at a down payment of nearly $16,000. For a 20% down payment, the figure is almost $91,000. Depending on your salary and circumstances, it could take you years to save that 3.5%, let alone 20%.

According to the 2022 Profile of Home Buyers and Sellers by the National Association of Realtors (NAR), first-time home buyers made an average down payment of just 6% on their home purchase. This isn’t ideal, for a few key reasons.

RELATED: The Definitive Guide for First-Time Home Buyers

Mortgage insurance adds to your payments

It is a myth that you must make a 20% down payment to secure a mortgage loan, but it’s a myth with a basis in fact. That fact is that if you make a smaller down payment on a home you’re purchasing with a conventional mortgage loan, you’ll have to pay private mortgage insurance (PMI) until your loan balance falls below 80% of the home’s value. While lenders used to require a 20% down payment, now you can buy using a conventional loan with a down payment as small as 3%, depending on your credit score.

If you’re buying with an FHA loan (which is guaranteed by the Federal Housing Administration), your down payment requirement is 3.5% if your FICO Score is at least 580 (or 10% if it’s between 500 and 580). With these loans, if you put down less than 10%, you’ll pay mortgage insurance premiums (MIP) for the life of the loan (with a 10% down payment, it’s 11 years).

So while you may be able to secure a home loan with a down payment under 20%, you will end up paying more every month in the form of those mortgage insurance payments. Mortgage insurance is a protection for your lender in case you default on your loan. When you borrow more than 80% of the value of the home, the lender is taking on that risk, and mortgage insurance helps mitigate it. Ultimately, you’ll be looking at paying a percentage (often 0.5% to 1%) of the loan amount every month. On the $454,900 home mentioned above, that’s an extra $2,274.50 to $4,549 per year, or $189.54 to $379.08 per month, on top of your mortgage payment. That’s not a small amount of money.

You could end up underwater on your home

If you go into a home purchase with less money down, and property values take a hit, you could end up underwater on your mortgage. This is when you owe more on the mortgage loan than what the home is worth. On its face, this isn’t a problem if you can still afford your payments and aren’t intending to sell the home.

But if you lose your job and find yourself in the position of needing to get out from under the loan, you could be in trouble if you can’t sell for at least as much as you owe (not to mention that you’ll have to cover closing costs and pay real estate agents’ commissions). This isn’t ideal.

Try to put as much down as you can

If a 20% down payment is so far out of reach for you that it seems impossible, I certainly sympathize. And ultimately, if you want to become a homeowner, and are otherwise ready to do so (meaning your finances are in good shape and you have reckoned with all the expenses that go into homeownership), you can certainly buy with a smaller down payment. Just be aware of the extra costs you’ll need to pay in the form of mortgage insurance, and know that you’ll be taking a risk of ending up underwater.

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Buying furniture through Costco could be a good bet, but you’ll want to do your research first. 

The great thing about Costco is that you can shop for just about anything, whether it’s groceries, household cleaners, toys, apparel, or electronics. You can even buy your furniture at Costco should you so choose. And doing so might result in a lower credit card tab than you’d get elsewhere.

Not only that, but Costco often offers discounts on its furniture on top of its already low prices. So buying your new couch at Costco could be a huge money-saver. But while you might spend less on a couch at Costco, you might also take on some risk in the process.

Costco furniture could be a mixed bag

At a time when so many people are consistently raiding their savings accounts to cope with inflation, it may be tempting to save a few hundred dollars on furniture by turning to Costco. But doing so could mean buying a brand you’re not familiar with. And that alone can be risky.

Costco has a number of couches for sale online at competitive prices. There’s a Harstine leather sofa being sold for $1,099.99 right now, and that includes delivery, setup, and removal of your old sofa.

That’s a good price. But have you heard of the brand in question? If not, you may be taking a risk, even though the item seems to have good reviews on Costco’s site.

Meanwhile, if you head over to Raymour & Flanigan, a well-known furniture store, and enter “leather sofa” in the search box, you’ll see a host of products at different price ranges, some of which are comparable to the aforementioned Costco sofa.

In fact, Raymour & Flanigan’s Luca Sofa is on sale right now for $1,169.95. And while there’s a separate delivery fee of $159.99, all told, you’re still not paying so much more for a sofa from a well-known furniture store compared to the aforementioned Costco option.

Now, Costco is known for a lot of things, like offering the largest jars of mayo you might find and the most competitively priced lunchtime combo in town. But it’s not really known as a source for quality furniture.

This doesn’t mean the furniture Costco has on offer isn’t high in quality. But other than online reviews, it’s a little hard to know.

Of course, just because a store like Raymour & Flanigan is known for furniture doesn’t mean every item it sells is wonderful. But chances are, it does a pretty good job of offering quality furniture since that’s the core of its business. If it made lousy furniture, it probably wouldn’t stay in business.

When it comes to furniture, your best bet is to try before you buy

Another drawback of buying furniture at Costco? You may not have many options at your local warehouse club store. But if you’re buying something like a couch, it’s best to test out different models at different price points before making a decision. At an actual furniture store, you can do that. At Costco, not so much.

Remember, buying furniture isn’t the same thing as buying paper towels in bulk. With furniture, you’re making an investment in something that will hopefully last for many years. So before you rush to buy your new couch at Costco because you find the price point appealing, you may want to at least look elsewhere to get a better comparison.

Saving money is a good thing. But you may come across a couch for $1,200 that’s worlds more comfortable than a Costco couch that’s $100 cheaper. And in that situation, paying the higher price could be worthwhile.

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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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Americans had many financial regrets last year, but one stood far above the rest. 

For many people, 2022 was a challenging year financially. That’s to be expected when inflation hits record highs and there’s near-constant talk of a recession. Recent research has shown that a large portion of Americans aren’t feeling great about the state of their finances.

Nearly one-third (32%) of Americans said they experienced financial regrets in 2022, according to a Forbes Advisor poll. They also selected their top three regrets, and while there were quite a few mentioned, there was one that ranked far above the rest.

Americans’ biggest financial regrets of 2022

The biggest financial regret that Americans had in 2022 was not saving more money. Among Americans who had financial regrets, 56% mentioned not saving enough. Here were the top five most common regrets:

Not saving more money: 56%Spending above their means: 37%Took on too much credit card debt: 29%Didn’t make a budget or track spending: 22%Paid bills late: 14%

It’s understandable why the biggest regret, by far, was savings-related. Saving money is one of the most important financial habits, and it’s the key factor in many money goals. If you want to build an emergency fund, set aside money for a down payment on a home, or put away money for retirement, your progress will largely depend on how much you can save.

On the bright side, 43% of Americans are feeling optimistic and think their finances will improve in 2023. Only 15% believe their finances will get worse.

How to save more money in 2023

If you wish you had saved more last year, you’re not alone. But 2022 is over, so it’s best to put that year’s financial regrets behind you. Focus on saving more in 2023, because that’s a positive change you can control.

So, how can you make that happen? Here are five tips to boost your savings this year:

Set clear savings goals. Vague goals like “I want to save more money” rarely get good results. You’re much more likely to succeed if you set clear short- and long-term goals. For example, your short-term goal could be saving $150 per month, and your long-term goal could be saving $1,800 in a year.Make sure you have a high-yield savings account. Online banks have raised their interest rates quite a bit, and some now offer APYs of 3.5%, 4.0%, or more. Having a savings account with a high interest rate means your money will grow faster, and this could also serve as motivation to save more.Set up automatic transfers to your savings. It’s much easier to save money consistently when you’ve automated it. Decide on an amount you can afford to save, and then set up a regular transfer from the account where you receive your paycheck.Manage your money with a budgeting app. If you aren’t using one already, a budgeting app could help you track spending and see where you can cut back. Some budgeting apps connect to your bank accounts and credit cards, so this is also a convenient way to have all your financial accounts in one place.Work on increasing your income. Reducing spending can work, but only to a certain extent. Over the long haul, the best way to save more money is to earn more money. Brainstorm ways you could do that, such as getting a promotion, job hunting, or trying a side hustle.

Saving more money is challenging. It takes both hard work and a good savings strategy to succeed at it. Just keep in mind that it gets a lot easier once saving more turns into a habit for you. And if you make saving a priority for you now, you may not have any financial regrets at the end of 2023.

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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.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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While Costco’s produce prices are certainly competitive, you might spend less elsewhere. 

My family eats a lot of fruits and vegetables. That’s a good thing from a nutritional standpoint, but from a cost perspective, it can be tricky. That’s because produce tends to be expensive.

Now, I’ve always made a point to shop at Costco for the majority of my produce. Doing so often results in a lower credit card tab than what I’d end up with at the supermarket.

But recently, I decided to stop into Aldi to see what its selection of produce and prices looked like. And I can honestly say that my mind was a bit blown. Not only did Aldi have a nice selection, but I found multiple items at a lower price point than what Costco had to offer.

It pays to look outside of Costco

The tricky thing about shopping at Aldi is that its selection isn’t always consistent. A friend of mine who shops there often recently told me that while Aldi is her go-to supermarket, she sometimes needs to look elsewhere for produce because they don’t always have everything in stock at once. Still, if you’re looking to grow your savings account balance this year, you may want to head to Aldi over Costco the next time you need to buy fruits and vegetables.

My family eats a lot of cucumbers. Aldi had large seedless ones for $1.25 apiece. At Costco, I was looking at $2 per cucumber ($5.99 for a three-pack). Now to be fair, Costco’s were organic, which likely drove up the price. But that was also the only option for cucumbers there.

Meanwhile, my daughter is constantly asking for pineapple, and even though I’m more apt to buy it during the summer, I try to indulge her when the price is cheap enough. Recently, my local Aldi had pineapples for $1.99. At Costco, they were $2.69.

Finally, Aldi had a three-pound bag of mandarins for $2.69, or $0.90 a pound. Costco, meanwhile, had an eight-pound bag of oranges for $8.79, or $1.09 per pound. And while oranges and mandarins aren’t the exact same product, they’re pretty close.

Compare your choices if you’re looking to save on produce

Clearly, it’s possible to find cheaper produce at Aldi than at Costco. But will this be the case for every item, and in every area? Not necessarily.

I want to make it very clear that Costco prices vary by store and region, so while my local warehouse club may have had oranges for $1.09 a pound recently, another Costco might have had them for $0.89. And also, the selection at Costco as well as Aldi can vary depending on where you’re located.

That’s why you can’t assume that Aldi will be your cheapest bet for produce. But if you’re willing to put in the time to comparison-shop, you should get your answer.

In my case, that was pretty easy, since I have an Aldi and a Costco right next to each other. If these two stores are across town from one another in your area, then you may not have the luxury to pop into one and then the other, review prices, and make your purchases.

But either way, food is probably a large expense in your budget, as it is in mine. So it pays to compare your choices when it’s reasonable to do so.

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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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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