Money Management

You don’t have to give your kids a fortune, but it might be nice to provide them with a tidy financial cushion.  

Very few people have a small pile of cash waiting for them as they move into the stressful new chapter of adulthood. What if you could change things up for your children? What if small, regular investments today could make life easier for them?

Here, we’re going to take a look at what would happen if you began investing on behalf of a child today.

Investment ideas

While there are many ways to invest, we’ll focus on these three.

1. 529 college savings plan at a glance

2. Custodial Account at a glance

3. Roth IRA for Kids at a glance

If you began investing today

The following table shows what would happen if you began investing $500 per month into one of these accounts. For the sake of this illustration, we’ll assume the investment earns an average annual return of 7%. We’ll also assume you stop investing on their behalf at age 18. In other words, if you begin investing for a 12-year-old, you would only make contributions for six years. Any other growth is strictly thanks to compound interest.

At $500 per month

If $500 a month is a little steep for you right now, let’s take another look – this time we’ll see how much you could put away for your child by contributing $200 per month.

At $200 per month

It’s up to you (and the state in which you reside) to decide when to hand the account over. At that point, your child could use it to pay for school, make a down payment on a house, reinvest all of it, or build a healthy emergency savings account.

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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.Dana George 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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There’s risk in carrying a HELOC balance you need to know about. 

When you need to borrow money, you generally have choices. You could run up a tab on your credit cards, but that could end up costing you a boatload of interest. You could also turn to a personal loan, but you’ll generally need pretty good credit to snag a competitive interest rate on one.

If you own a home you have equity in, you may have the option to borrow against it, whether via a home equity loan or line of credit (HELOC). HELOCs offer the advantage of being more flexible than home equity loans, simply because you’re not locked into borrowing a fixed amount.

Rather, with a HELOC, you get access to a line of credit you can draw from during a preset period of time. It may be five years, 10 years, or longer. If you take out a $20,000 HELOC but only need to borrow $10,000, you won’t have to pay interest on the remaining $10,000 you don’t touch. But you might also have the option to borrow that remaining $10,000 in a few years should that need arise.

Meanwhile, more than 405,000 borrowers turned to HELOCs during the third quarter of 2022, according to newly published data by TransUnion. But while HELOCs may be convenient, you could run into financial trouble in the course of paying yours off.

Your HELOC could end up costing you more than expected

It’s true that HELOCs give you a lot of flexibility in borrowing. But one major drawback associated with HELOCs is that their interest rates are generally variable, not fixed. And this means that the interest rate on your HELOC has the potential to climb over time.

In fact, you may have heard on the news that the Federal Reserve hiked up interest rates a lot in 2022. The Fed doesn’t set HELOC rates, or any consumer borrowing rates, for that matter. But when it raises its benchmark interest rate, the cost of consumer borrowing tends to rise across the board. So in the near term, you may find that the rate on your HELOC goes up.

That’s why now may be a good time to look at accelerating your HELOC payoff. If you’re able to get yourself onto a strict budget and cut back on some expenses, you might manage to pay off your HELOC sooner than expected, thereby saving yourself money on interest. In fact, the sooner you pay off your HELOC, the less interest you’re apt to accrue — regardless of whether rates continue to rise or not.

Don’t tap that HELOC more than you need to

Aside from the potential for your interest rate to rise, another drawback of HELOCs is you may be tempted to tap yours if the money is available to you. But that’s not necessarily a savvy choice.

Let’s say you want to go on vacation but don’t have money saved for one. If you still have $5,000 to tap via your HELOC, you may decide to access that money rather than skip out on a trip you want to take. But you really shouldn’t be borrowing money to fund things like a vacation, so if you haven’t completely drawn down your HELOC, pledge to only tap it for true emergencies, like needing to repair your car or fix your roof.

It’s not surprising to see that HELOC originations rose a lot last year. But if you took one out, do your part to manage it well and try to get it paid off as quickly as possible.

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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.
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The act is part of a deal between Speaker McCarthy (R-CA) and far-right Republicans. 

Taxes are one of the largest considerations in an American’s personal finances. But the United States tax code is widely regarded as one of the most complicated in the world. An American today may be subject to up to 12 different types of taxes across three main categories: taxes on what you earn, what you buy, and what you own. A proposal by House Republicans would change all of that. Dubbed the FairTax Act of 2023, the bill would replace a variety of federal taxes with a flat sales tax.

The FairTax Act

The bill calls for the repeal specifically of income tax, payroll tax, and estate and gift tax. In their place, a 30% tax would effectively apply to non-exempt sales across the nation. Under the bill, Americans can expect to pay 30% more at the grocery store, at the pump, and on rent. Notable exceptions to the sales tax include the sale of used property, and business or investment purchases.

RELATED: Best Tax Software

To help Americans shoulder the new tax burden, the bill calls for a “prebate” in the form of a monthly Family Consumption Allowance. The allowance, equal to 23% of the poverty threshold, would equate to $575 per month for a family of four. The allowance would be available for all citizens and many legal residents, regardless of income.

Additionally, the bill would change the tax collection structure. Instead of the current system, where the IRS collects taxes on behalf of the federal government, each state would independently collect and transfer the proceeds to the Treasury. The proposal would then abolish the obsolete IRS by 2027.

Effects of the legislation

While the FairTax Act may appear to simplify the tax code, critics of the bill argue that, despite its name, the FairTax Act would shift tax burdens to lower-income taxpayers.

Economists generally agree that sales taxes are a regressive tax, meaning that they account for a larger percentage of a low earner’s income than they would for a high-income earner. The idea is that a low-income earner covering their basic necessities spends a much larger portion of their income on those expenses than a high earner would. Proportionally, a 30% tax on those goods and services would strain the income of the low-income earner much more than it would the high-income earner.

The current tax code is more progressive, in the context of taxes, meaning that it more equitably splits tax burdens across a wide variety of earners. Tax brackets effectively charge low income earners a lower rate than high income earners. Meanwhile, a variety of credits, including the standard credit, the earned income tax credit, and the child tax credit, can further reduce the tax liabilities of low-income earners. The FairTax Act proposes to do away with such measures.

Will it pass?

The short answer is no, at least not during this political cycle. Although the idea has garnered support from many prominent Republicans, a slim majority in the House would require the support of nearly every House Republican, many of whom are lukewarm on the idea. Even if the bill gained enough support to pass the House, the Democratic majority in the Senate is highly unlikely to approve the proposal. If the bill somehow beat long odds in Congress, the buck would stop with President Biden, who has said he would veto the bill.

But the idea of a rigid sales tax replacing our current tax code is not a new one, and likely will not be going away soon. The proposal first appeared in the Fair Tax Act of 1999, and seems to be popular among many Republicans, as the 23 co-sponsors to the 2023 bill can attest.

The FairTax Act of 2023 proposes radical changes to the federal tax code, which some experts consider to be unfair to low-income Americans. The bill is very unlikely to be signed into law this year, but the measure has garnered Republican support for over 20 years.

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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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Some of the items taking up space in your home may be worth selling. 

Everyday living costs have been higher than in years past. According to the U.S. Bureau of Labor Statistics, consumer prices for all items rose 6.5% from December 2021 to 2022. It’s no surprise that many households are struggling financially due to inflation. If you want to increase your income so you feel less financial strain, you may want to sell unwanted items around your home to bring in extra money. Here are a few ways to do that.

1. Local buy-and-sell groups

If you regularly use social media, don’t forget to join local buy-and-sell groups. These groups are a great way to sell unwanted items because you can find interested sellers nearby. Before posting your unwanted items, look at previous and existing listings to see what sells best. For better success, take quality photos and write clear product descriptions.

2. Craigslist

Even though it’s been around for a long time, Craigslist is still a popular resource for people looking to buy and sell furniture, clothes, and other goods. The nice thing about this service is it’s completely free. That means any profit you make from selling is all yours.

One thing worth noting is that Craigslist postings are organized by date, so it can be worthwhile to go into your existing listings and renew them every so often so your listing date is more recent and more people can see your posts. You can renew listings every 48 hours. Once 30 days pass, you can no longer renew an existing listing.

3. Poshmark

For app-friendly sellers, Poshmark is another option to consider — especially if you’re looking to sell clothing, shoes, purses, or similar items. The company, which also has a website, markets itself as a marketplace to buy and sell secondhand clothes, accessories, and home goods. You’ll list items and can then ship them to buyers when they sell.

Keep in mind that Poshmark will take a portion of your earnings for using its service. For sales under $15, the commission is $2.95. For sales of $15 or more, Poshmark will take 20% of your sale for the commission.

Poshmark charges a flat fee of $7.67 to buyers. However, you can choose to offer discounted or free shipping instead. If you do, make sure you account for shipping costs when setting your prices so you can maximize your earnings.

4. Facebook Marketplace

Facebook Marketplace is another place where you can list items for sale. You can sell items locally to people nearby, or you can sell items and ship them to buyers who don’t live in your area. However, make sure you consider the cost of shipping when you’re pricing any items that you plan to ship so you’re still able to profit from the sale.

Stay safe and practice extra caution

Selling unwanted items like clothing, furniture, and home goods can be an excellent way to bring in extra cash while reducing clutter around your home. But make sure you practice careful judgment during the sale process. Your safety is always the No. 1 priority.

You should always consider the safest way to meet with buyers. One way to practice good safety is to ask a friend or family member to be around while you meet with a buyer. Another option is to meet in a public place where other people will be, like a local coffee shop.

Additionally, consider how you will collect payment. If a potential buyer delays payment or acts strange, be wary. If it sounds like a scam, it probably is. Cash is likely the best payment option if you sell items locally to people you don’t know well. You can deposit the money into your checking account to boost your balance without risking a check bouncing.

If you’re struggling financially right now, please know that you’re not alone. Many people like you are looking for ways to boost their income and stretch their money further. Review these personal finance resources for more guidance.

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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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