Money Management

It really depends on your situation. 

Buying a home is challenging these days — namely because home prices are up on a national level. That means if your goal is to make a 20% down payment, you’ll need to save up a lot more cash than you would’ve needed a few years ago.

If you’re in the process of saving for a home, you may be eager to expedite things so you can stop renting and start owning as soon as possible. And you may be inclined to do what you can to earn a higher return on your money to achieve that goal.

Now, one thing you should know is that investing your home down payment funds in a brokerage account is generally not a great idea. When you invest, you run the risk of losing money, which could hinder your home-buying plans rather than make them a reality sooner.

But what about CDs? The upside of putting money into a CD is that you’ll generally snag a higher interest rate on your cash than you will in a regular savings account.

But is locking up your home down payment funds in a CD a wise idea? Or will it backfire on you?

How soon do you think you’ll need that cash?

The benefit of saving in a CD is scoring a higher interest rate on your cash. But in exchange for that higher rate, you’re making a commitment to keeping your money tied up for a preset period of time. And if you cash out a CD before it comes due, you’ll risk being penalized to the tune of a few months of interest. That could be a huge setback if you’re trying to meet a big financial goal, like buying a home.

That’s why locking up your down payment funds in a CD can be risky. If you open a CD and then want to make an offer on a home before it comes due, you’ll risk being penalized — or, you’ll end up having to delay your home purchase to avoid a penalty, thereby potentially missing out on a huge opportunity.

With that said, keeping your home down payment funds in a CD isn’t necessarily a bad idea. But it really depends on where you are in the savings process.

Let’s say you’re hoping to save $50,000 to make a 20% down payment on a $250,000 home. If you’ve been saving for a year and have accumulated $15,000 so far, that’s great progress. But it also means you’re probably not looking at buying a home this year. So in that case, if you were to put your $15,000 into a 12-month CD, you might snag a better interest rate on your money without taking on a ton of risk.

But let’s say you’ve amassed $40,000 of the $50,000 you’re aiming for. If so, there’s a chance you’ll have enough cash to put down on a home at some point within the next year. And so you probably don’t want to limit your options or open yourself up to penalties by opening a CD.

A regular savings account is not a bad choice

You might earn more money in a CD than a savings account. But savings accounts today are actually paying pretty generously. So if the idea of putting down payment funds into a CD just doesn’t sit well with you, don’t do it. Instead, stick to a regular savings account, which won’t impose restrictions and will give you full access to your money at any time.

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It’s not just a matter of not having to deal with crowds. 

When the pandemic first hit, many consumers halted the practice of shopping in stores and took to shopping online instead. That way, they could get the things they needed without having to put their health at risk.

At this point, most people in decent health aren’t staying away from public places. But many are still doing a lot of their shopping online after having adopted that habit in 2020.

Now, the reality is that there are many benefits to shopping mostly online instead of in stores. For one thing, there’s the matter of not having to deal with crowds or wait in long lines to check out. Instead, you can take your time browsing and then, when you’re ready to complete a purchase, enter your credit card details and be done in what could be a couple of minutes or less.

Plus, shopping online could save you money on gas. This especially holds true if you live in an area where there aren’t many stores in close proximity to your home.

But that’s not the only way shopping online might save you money. Due to a recent trend, it could pay to stick to online shopping in the coming months in particular.

You might snag even more bargains

In December, the cost of online goods dropped, reports Adobe Analytics, as retailers offered up deep discounts to entice consumers to shop. In fact, online prices have declined for four months in a row. And if that trend continues, it means shopping online might lead to notable savings.

It’s worth noting that in recent months, the rate of inflation has fallen as well. So a drop in online prices could be tied into that. But still, a decline in online prices is a positive thing for consumers, many of whom are cash-strapped due to a general uptick in living costs.

How to shop online without going overboard

The danger of shopping online is that you’re not handing over actual cash for your purchases. As such, it can be easy to lose track of what you’re buying if you don’t check your credit card balance regularly.

If you’re going to do most of your shopping online, keep a running tab somewhere, whether it’s a spreadsheet or a written list. Consult that list every pay period to help ensure you don’t end up in debt.

At the same time, it’s generally a good idea to limit your online purchases to needs, and only spend money on wants if you’re absolutely certain you can afford them. And also, pay attention to shipping costs. While many retailers offer shipping at no extra cost, some retailers still charge for shipping. In some cases, you’ll be looking at a flat fee. In other cases, the cost of shipping might hinge on the total value of your order.

You might also run into a situation where you can snag free shipping for meeting a certain threshold — for example, $25 on Amazon (assuming you don’t have a Prime membership, in which case there’s no minimum for free shipping). Be careful here, too. If you’re constantly spending an additional $5 here and $10 there to get free shipping, you may not end up saving much or any money.

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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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Maurie Backman has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.

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Don’t ignore a mistake on your credit report — even a seemingly minor one. 

Checking your credit report is something you should aim to do every few months. In fact, this year, credit reports are free for consumers on a weekly basis, so it pays to take advantage of that opportunity and access yours as needed.

Now in the course of reviewing your credit report, you might come across information that doesn’t look right. And if you find an error, you’ll be in good company. A Federal Trade Commission study conducted years back found that a good 25% of consumers identified errors on their credit reports. That’s not a small percentage.

In some cases, a credit report error is just that — an error. And often, reaching out to the credit bureau behind the report in question will lead to a fairly swift resolution.

But in some cases, the information you see on your credit report that doesn’t look right may not be an innocent mistake. Rather, it may be a warning that you’ve fallen victim to financial fraud.

When a mistake is really a major problem

Criminals have gotten savvier when it comes to accessing consumer data and stealing their identities. So in the course of checking your credit report, you may come across an open credit card account or line of credit you’re convinced you never opened.

In some cases, that could be a mistake. Maybe someone with a very similar Social Security number to yours opened that account, and a credit bureau accidentally associated it with your Social Security number. That’s certainly possible.

But what may have really happened is that a criminal got a hold of your personal financial information, used it to open a credit card or line of credit in your name, and is now in the process of racking up charges on your dime. That’s certainly a situation you’ll want to get ahead of — and put a stop to.

And that’s why it’s so important to not only review your credit report on a regular basis, but also, pay attention to any details that seem off. In this situation, what you’d want to do is start by contacting the credit bureau in question to investigate.

You should also contact the issuing credit card company or financial institution and see what they say happened. If the credit card company or financial institution at hand confirms that you’re looking at an error, you can follow up with the credit bureau itself. But if the credit card company or financial institution sees an account in your name using your Social Security number, you’ll need to work with them to rectify the problem.

Pay close attention to the details

Reading your credit report may not be the most fun way to spend an evening, but it’s an important step to take every few months. And even a lengthy credit report shouldn’t take more than a few minutes to review.

In some cases, a credit report mistake may be a simple error the associated bureau can correct. But it’s always good to investigate and follow up.

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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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Do you find yourself identifying with rich or broke people? 

Some people become rich due to good luck and others become broke due to bad luck. But, in many situations, decisions that you make throughout your life will impact whether you end up wealthy or struggling.

Finance expert Dave Ramsey is a firm believer in the idea that your money mindset can have a huge effect on your ultimate net worth. Specifically, Ramsey thinks that rich and poor people approach one particular type of decision in a very different way — and that these differing approaches have a meaningful impact on whether you end up financially successful.

This makes all the difference in your financial success

According to Ramsey, a big difference between rich people and poor people comes down to the question they ask before they make a decision about whether to buy something or not.

“Rich people ask ‘How much?'” he said. “Broke people ask ‘How much down, and how much a month?'”

Obviously, these two questions are focused on different things. The first question, which looks at total cost, gives you the chance to assess whether the purchase is really worth it when you take the big picture into account. It’s also the question you would ask if you were going to pay for the item without borrowing, since you’d need to know the total price if you were going to pay it all at once.

The second question, though, is one you’d ask if you’re looking to finance a purchase you can’t afford to pay for all at once. And while there are times when taking out a personal loan to buy something can make sense, even in that situation, you’d still want to be focused on whether the total cost was worth it, rather than just on whether you could afford the monthly payments.

If you’re asking how much you’d have to put down and how much you’d need to pay each month, you’re likely not considering what committing to buy is going to do to your overall financial situation. You could find yourself stretching to purchase something that really, ultimately is too expensive for you and committing to monthly payments that last way too long in order to do that. And that’s not a good way to grow wealth.

“Don’t buy things you don’t need with money you don’t have to impress people you don’t even like,” Ramsey said.

Is Ramsey right?

Ramsey is absolutely right that a focus on the monthly payment alone isn’t the right way to make a borrowing decision.

Committing to a monthly payment for a long period of time can hinder your ability to do other important things with your money — like saving money for your future. And you could end up spending far more over time than what the item is actually worth to you.

You should ideally avoid borrowing for anything that doesn’t go up in value or isn’t absolutely necessary, so start asking the right question before you make a purchasing choice if you want to end up rich instead of broke.

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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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