Money Management

Be sure to put all of these on your list. 

Whether 2022 was a good year for you or not, at this point, it’s in everyone’s rearview mirror. And that means it’s time to focus on setting yourself up for financial success in 2023. With that in mind, here are some moves it pays to make early on in the year.

1. Assess your emergency fund

Do you have enough money in your savings account to cover at least three months’ worth of essential bills? If the answer is no, then ramping up should be a big goal for you in 2023. But you won’t know to do that until you take a look at your savings account and compare your balance to what it costs to pay your non-negotiable bills for three months.

Keep in mind that it might cost more now to cover three months of bills than it did in the past thanks to inflation. Furthermore, three months’ worth of expenses is really the minimum you should be aiming for in your emergency savings. So if you’ve managed to get to that point, great job — but also, don’t assume your savings efforts are done with.

2. Set up automatic transfers to savings

Whether you’re looking to ramp up your emergency fund or contribute steadily to an IRA account for retirement, the start of the year is a great time to put the process on autopilot. If you arrange for automatic transfers to a savings or retirement account, you’ll be more likely to meet your goals, since money will leave your checking account each month before you have an opportunity to spend it.

3. Map out a debt payoff plan

If you’re starting off 2023 with lingering debt from 2022, don’t beat yourself up. A lot of people are in that boat, largely due to inflation. And also, you may have incurred some debt in an effort to make the holidays special for the people you love.

But either way, now’s the time to figure out how you’ll shed your debt as quickly as possible. Maybe you’ll pick up a second job. And maybe you’ll do a balance transfer so you can consolidate your various credit card balances and make them easier to manage. If you make a plan, you’ll have something concrete to focus on — and that alone could help alleviate some of the stress that comes with carrying debt.

4. Refresh your budget

Maybe your salary is going up in 2023 — but some of your expenses may be doing the same. That’s why now’s a good time to take a look at your budget and make sure it’s up to date and accurate. And if you’ve never followed a budget before, it’s a great time to dive in. You can set up a budget using a spreadsheet to keep things simple, but it could also pay to dabble with different budgeting apps that make your expenses easy to track.

As you ease your way into 2023, spend a little time focusing on key financial matters like these. In the long run, you’ll be thankful you did.

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In home buying, as in all things, knowledge is power. 

If you’ve been following the housing market these last few years, you know I’m not exaggerating when I say it’s been wild. The buying frenzy of 2020 and 2021 was spurred by a combination of low interest rates and a desire to flee dense urban areas after the COVID-19 pandemic broke open in the U.S.

Unfortunately, this situation led to higher prices and lower inventory for anyone who had hopes to buy in 2022. And to add insult to injury, mortgage rates also more than doubled over the course of 2022. These conditions will likely persist well into 2023, making it a dodgy time to buy.

If you’re still hoping to get on the property ladder sooner rather than later, I sympathize. At this point, you may be feeling desperate and willing to try anything to get an offer accepted, especially if you can’t afford to pay cash for a home (and elevated prices and interest rates, plus the other drawbacks of paying cash, can make it a bad idea anyway). While some buyers waived certain contingencies in the process of buying a home these last few years in hopes of getting their offer accepted, waiving an inspection contingency (which would make it possible for you to terminate or renegotiate an offer on a home with known problems) is a terrible idea. Here’s why.

You want to know what you’re buying

A home inspection is your best shot of getting an honest assessment of the condition of a home, plain and simple. This is especially important since you’re planning to make a large commitment in the form of thousands of dollars paid upfront (your down payment and closing costs) and an agreement to pay many thousands more over the course of your mortgage loan. A home inspection is also your opportunity as a buyer to step back and come down to Earth regarding your feelings on a home. It may have been love at first sight, but things can look different in the stark light of reality — when you’re looking at a broken furnace on the coldest day of winter or a leaky roof during a huge thunderstorm.

You can still buy a home with known issues

All of this is not to say that if you get your prospective dream home inspected and the inspector turns up problems with it, you must therefore terminate your contract. Quite the opposite is true, in fact. If the home has issues, you end up with a platform to negotiate from. You might be able to lower your offer to compensate for the money you’ll have to put into fixing, say, that leaky roof. Or you can ask the seller to have the problems fixed.

Even if the issues your inspector uncovers are mild, you still want to know. Maybe they’ll catch something that isn’t a problem now, but could be in the future. Think of a home inspection as a doctor making a house call. You get a report on the “health” of your possible future home, and can therefore plan accordingly that in a few years, you will likely need a new hot water heater, for example. This way, you get to start putting money aside in your emergency home maintenance fund.

Other ways to get an offer accepted

If you’re worried about getting your offer accepted in this market, there are other ways that don’t involve waiving your inspection contingency. Getting a mortgage pre-approval letter from your lender shows you’re a serious buyer with the finances to back up the offers you’re making. You might also offer more than the asking price, if you can afford it. Buying a home is likely to be the most expensive purchase you’ll ever make, so give yourself every chance of succeeding at homeownership — including paying a fair price for a home and being prepared for all your potential costs down the line.

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Everybody needs some money help sometimes. 

No one is born good with money. Some people are fortunate enough to grow up in families where money management is taught from an early age. Others of us only get the missives “credit cards are bad” and “renting is throwing money away” and not much beyond that, and so we struggle to gain a foothold, often losing sleep (and money) along the way.

If you need help managing your finances, credit counseling might be an option for you. There are multiple nonprofit agencies, such as the National Foundation for Credit Counseling (NFCC), that can match you with a credit counselor to help you get a handle on paying off debt, paying for school, or even buying a home. Here are a few ways this service can improve your financial life.

1. You’ll get a new perspective on your finances

You’re always immersed neck-deep in your money problems, so it can be difficult to get the full picture of how your income, expenses, debts, and money pain points work together. As the old saying goes, “It’s hard to see the forest for the trees.” But if you meet with a credit counselor, you get the gift of a different perspective — that of someone who doesn’t live your money reality.

You provide your financial information (in the form of pay stubs, credit card statements, and a list of your monthly expenses), and the counselor will be able to put together a budget for you and discuss ways you can improve your spending and saving habits.

2. You’ll learn about credit scores

One of the biggest jobs of a credit counselor is to help consumers understand and improve their credit scores. So if you are feeling lost when it comes to parsing those three-digit numbers and knowing how they affect your financial life, meeting with a counselor can work wonders. A credit report review involves pulling your credit reports (which, remember, are free to access weekly through the end of 2023) and going through them to find possible errors.

You can dispute mistakes on your credit report and have them removed, boosting your score in the process. A credit counselor will also offer tips for how to improve your credit and education on how having a better credit score can qualify you for better credit cards — and lower interest rates on loans.

3. You’ll get real help with your debt

Chances are, you’re interested in getting help from a credit counselor because you’re in debt and can’t see a way to climb out. Good news — credit counselors are an excellent resource for debt help. If you’re struggling to manage all your payments, you’ll be able to get on a debt management plan, wherein the nonprofit agency will contact your creditors to get your interest (or even your balances) lowered, and then you’ll make a monthly lump-sum payment to the agency, which pays your creditors on your behalf. This will make it much easier to manage debt payments going forward.

Is credit counseling right for you?

As you can see, there’s a lot a credit counselor can do for you. But is this service right for you? If you’re struggling to keep up with debt payments and can’t focus on your financial future for having to spend so much time worrying about the present, it’s likely a good idea to at least get in touch with a credit counseling agency. The Federal Trade Commission notes that you can check out any agency you’re considering with your state’s Attorney General and local consumer protection agency, to ensure the agency is legitimate. For example, credit counseling services that charge high fees for helping you may not be.

Life is too short to live in fear of your finances. If you’re under extreme stress due to debt and other money woes, look into getting help.

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Your purchase likely comes with other protections. 

To quote classic American cartoon character Homer J. Simpson, “Extended warranty?! How can I lose?” Well, with an extended warranty purchase, you’re most likely to lose money, and also potentially your precious time.

If you’re buying a new home appliance or consumer electronic item, such as a computer or a smartphone, you’ll likely be offered an extended warranty at an additional cost. Extended warranties are available on many items, but these are the most common situations to be asked to buy one. Not even Amazon shopping keeps you safe from this offer; I am routinely asked about purchasing one in the process of checking out at Amazon (and on a variety of items, most recently on a new power adapter I purchased for an external hard drive). Extended warranties differ from an existing manufacturer warranty (more on those below), by offering to cover your purchase against breakage or other damage for longer. Sounds good, right? Well, not necessarily.

1. Extended warranties are expensive

Warranty Week newsletter noted in 2017 that extended warranties were then a $40 billion per year business. This is a lot of money to spend to protect new manufactured goods, surely most of which will be in good working order for at least the first part of their useful lives (and likely for the period of time the item is covered under the warranty anyway). If you’re already springing for a new clothes dryer, do you really want to tack on an extra charge for a service that may not be needed? Plus, the cost to just pay for a repair is likely less than the warranty will end up costing you, according to Consumer Reports.

2. Extended warranty coverage may not be applicable in all situations

Extended warranties don’t cover everything that could potentially go wrong with your new purchase, and if you’re considering purchasing one, it’s a good idea to really dig into that fine print to see what exactly it’ll cover. As noted by the Federal Trade Commission, extended warranties might also have specific requirements for maintenance or care of the item, and if it breaks, the company may be able to blame that on you using or maintaining it improperly, and then deny coverage.

3. Your purchase likely comes with a manufacturer’s warranty

Most appliances and electronics, small and large, automatically come with at least a limited manufacturer’s warranty. It seems as if every toaster or vacuum I buy has warranty information right in the box, or sometimes printed in the back of the user manual. According to Consumer Reports, these warranties usually last about 90 days, and even beyond that period, you still may not be out of luck. It’s good customer service to honor a warranty past expiration, and many companies like the boost this move can give their brand (especially in these days of social media, where you can tweet at a manufacturer directly in a public space).

4. Your credit card may protect you

The final reason you don’t need an extended warranty is linked to the payment method you used for the purchase. If you used a credit card for it, you may have what amounts to an extra warranty through the card issuer. Credit card protection often outlasts the manufacturer’s warranty, so read the fine print for this cardholder benefit, which may cover an item that breaks, is stolen, or has another mishap. The best credit cards out there come with great perks that you may not be aware of, and it pays to use them when you can to save money and a headache.

5. The retailer may take the item back

If all else fails, if it’s been a short amount of time since you bought the item and it breaks, you may even be able to get your money back from the retailer that sold it to you. Return policies vary, but a lot of retailers will stand behind the products they sell. Costco is an example of one of these stand-up retailers.

Still thinking about that extended warranty? In addition to the above reasons you likely don’t need it, remember that you can save the money you would’ve spent on it in your emergency fund, in case your new oven or dryer needs a repair. Otherwise, using the right credit card to buy a reputable product from a good retailer can go a long way to ensure you don’t need an extended warranty.

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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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The DIME formula can help you determine the right amount of life insurance coverage. 

When it comes to life insurance, there’s no one-size-fits-all approach. Every individual has different needs and different reasons for getting a policy. This is especially true for those aged 50 and older, as the amount of coverage they may need can vary greatly depending on their lifestyle and financial situation. So how much life insurance does a 50-year-old need? Let’s look at the factors to consider when selecting your life insurance policy.

Determine your needs

Before you can determine the optimal level of coverage for your life insurance policy, you need to figure out what it is you need from a policy in the first place. Do you plan to leave money behind for your loved ones after you die? Are there any debts that will be left unpaid should something happen to you? Will your spouse or partner still need income if you are no longer around? These are all questions that should be considered when deciding how much coverage you should get.

It is also important to consider other factors when deciding how much life insurance a 50-year-old should have. These include your current lifestyle, future goals such as retirement planning or starting a business, and whether you want to leave a legacy behind.

One rule of thumb is to multiply your annual income by 10 and add it to all your debts. If someone has debts equaling $250,000 and a salary of $50,000 a year, using this rule of thumb means multiplying that salary by 10 to get $500,000, then adding the $250,000 in debt to get a $750,000 policy.

Use the DIME formula

For a more individualized calculation, you can use the DIME formula. The total amount is a good starting point to determine how much life insurance you need. This involves adding up:

Debt: Total outstanding bills plus the cost of final expensesIncome: The number of years of income to replace (including the loss of labor a non-working spouse performs)Mortgage: The outstanding balance of a home mortgageEducation: The estimated future education costs for children

Generally speaking, it is important to have enough coverage to cover any debts or mortgages after death, as well as provide for any dependents who may be left behind. This can include spouses, children, parents, and other family members who may rely on the deceased’s income.

Types of policies

Once you have established how much coverage is needed, it’s time to decide which type of life insurance policy is best suited for your needs. There are two main types of policies available; term life and whole life policies. Term life policies provide coverage for a predetermined length of time, after which the policy expires unless renewed by the insured individual. Whole life policies provide lifelong coverage, but usually come with higher premiums than term policies do.

Calculate your premiums

The final step in determining how much life insurance a 50-year-old needs is to calculate the cost of their premiums. Premiums are based on many factors such as age, health status, and lifestyle habits such as smoking or drinking alcohol, so it’s important to take all these into consideration when calculating your premiums. Generally speaking, younger individuals will pay lower premiums than older individuals, so it’s important to shop around for rates if possible.

Figuring out how much life insurance a 50-year-old needs can be a daunting task, but it doesn’t have to be! The key is to determine what kind of coverage is necessary, choose an appropriate type of policy, and calculate your premiums accordingly. With this information in hand, you’ll be able to find an affordable policy that meets all your needs without breaking the bank. By doing some research and shopping around for rates, you should be able to find the right policy at the right price.

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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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Yes, I am excited to spend this much money. 

I have a complicated history with homeownership. On the one hand, I did buy a house once before, and it ended in a short sale. But on the other hand, I’ve spent most of my life as a renter, and constantly moving due to my family, school, and work. It’s my hope to buy another house in 2024, as I really like the city I’m living in now (and I work remotely, so it doesn’t matter where I live). After getting out of debt in 2022, I’ve begun saving money for a down payment, closing costs, and all the other expenses of homeownership.

But unlike a lot of people who aspire to become homeowners alongside a spouse or partner (and with the financial help they provide), I’ll be getting a mortgage alone. And I’m actually very happy about it. Here’s why.

I won’t have to consider anyone else’s finances

It absolutely thrills me that I only have to worry about my own finances and getting them in the best possible shape to buy. I made some major changes in 2022. In addition to paying off debt, I also started meeting regularly with a financial planner. I increased my income (a welcome development following a career change in 2021). And I seriously drilled down on monitoring my credit score (and watching it improve as I paid off debt).

All of this was a lot of work, and I’m proud of how well I’ve done. I pulled my financial skeletons out of the closet and held them up to the light. I’m so glad I don’t have to worry about someone else’s credit history, and about bugging them to go through their credit report with a fine-toothed comb and stop making late payments or have errors removed. Remember, when you get a mortgage with another person, the lender will focus on the lowest credit score. After all I’ve done to get ready to buy, it’s a relief I only need to worry about my own stats.

I get to choose the home

In addition to only worrying about my own finances, I get to choose the house I’m buying, too. While I will be the only person on the mortgage and title, I have a partner who lives in my city and spends a lot of time at my home, so I can have a second opinion to consider, if I so choose. And while I will appreciate having the extra input, nothing says I have to listen to it.

Ultimately, it comes down to the features I want and need. I can also make my own priority list, which is a smart move, as it’s unlikely I’ll be able to find (or afford) the absolute perfect house for me. Buying a house is often a series of compromises. Since I work remotely, I’ll be looking for a home with enough bedrooms to ensure I can make one of them my home office. I love to cook and entertain, so I’ll be prioritizing an updated kitchen. My cats love watching the local wildlife (and I cannot live without natural light), so well-positioned windows are a must. And I live in an area with severe winter weather, so having a garage to keep my car in will add to my peace of mind.

I get to ensure repairs and maintenance tasks get done right

Owning a home is expensive, and I’m steeling myself to foot the bill for repairs and maintenance costs (along with saving money for it). In my long experience of being a renter all over the country, landlords can be hit or miss when it comes to actually taking care of their properties. I’ve certainly spent a lot of time and my own money at Home Depot, despite being a renter, and I’m familiar with the maintenance a home needs.

While no one enjoys spending buckets of money fixing a roof or replacing a hot water heater, I’m actually excited to be the one to pick up the phone and call someone to take care of problems (or potentially tackle them myself). No more waiting weeks for a leaky kitchen sink to be fixed.

While I will be paying the costs of homeownership (the many, many costs) out of only my bank account, I’m still happy I’ll be buying a house solo for all these reasons. No one can predict how the housing market will look when I’m ready, but by getting my finances in order and realistically considering how much money I’ll have to spend, I hope to be in the best possible position when it’s time.

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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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