Money Management

It’s a decision that could leave you short of your goals. 

Any money you expect to use within the next few years should be kept in the bank, where you can access it at any time. And if you’ve built up an emergency fund for unplanned expenses (which is something everyone should have), that money should sit in a savings account.

But when it comes to money you don’t expect to tap for many years, investing is your best bet, whether you do so in an IRA for retirement or in a taxable brokerage account. Investing your money gives you the opportunity to grow it into a larger sum. And the sooner you begin investing, the more time you’ll have to generate returns and grow wealth.

But it’s important to assemble a mix of investments carefully. And that means sticking to one key rule that financial guru Suze Orman is a big proponent of.

Make sure you understand where you’re putting your money

In a recent podcast, Orman said she doesn’t like to invest in assets she doesn’t understand. And that’s a really smart approach to take.

If you don’t understand how a given asset works, you won’t be in a good position to assess its value. And that could lead you to make poor decisions.

So, let’s say you’re interested in loading up your brokerage accounts with stocks. You might understand what stocks are and how they work — meaning, you own shares of a company that can rise or fall in value and, in some cases, collect dividend payments for being a shareholder.

But it’s also important to understand how the businesses behind the stocks you’re buying work — meaning, how those businesses make their money. If that’s something you can’t wrap your head around, you should focus on stocks whose business models are more clear to you.

Along these lines, a lot of people have jumped on the cryptocurrency bandwagon over the past few years because it’s grown to be a more popular investment. But if you don’t understand how cryptocurrency works or how it’s traded, then you really shouldn’t be buying it. Similarly, if you don’t understand the factors that influence the value of crypto (or that have the potential to do that in the future), then it’s probably not a great buy for you, even if it’s trendy.

You can educate yourself, but to a point

If there are aspects of investing you don’t understand, it always pays to make an effort to educate yourself. Many brokerage accounts have educational resources you can look at to increase your investing knowledge, so that’s a good place to start.

But ultimately, if there’s a given company or asset class you just can’t seem to understand, then it’s better to pass on it — even if everyone you know seems to be buying it. Assets that are popular aren’t automatically a sound choice, especially if you’re investing for the purpose of being able to retire securely. You’re better off following Suze Orman’s lead and limiting yourself to investments that don’t make your head spin.

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It’s a concept that could work wonders for your finances. 

If your goal is to simply find a safe place to keep the money you’re socking away for future goals, then you may be inclined to keep your money in a regular old savings account. That way, your principal contributions are protected (up to $250,000 per depositor at an FDIC-insured bank), and you won’t see your balance shrink unless you actively take a withdrawal.

But if you’d rather grow your money into a larger sum over time, then investing it is your best bet. And the sooner you start investing, the more wealth you stand to accumulate.

Why so? It’s all because of a concept called compounding. And it’s something you should aim to take advantage of.

Let your money work for you

Compound interest is the concept of earning interest on interest. Let’s say you put $100 into a savings account and that balance grows to $105 by virtue of earning interest. From there, you’ll be able to accrue interest on not just your initial $100, but rather, on $105.

It’s a concept that can work for you or against you. In the context of credit card debt, interest that compounds against you will cost you money. In the context of savings, it can make you richer. And in the context of investing, it can make you a lot richer.

Now, let’s get one thing out of the way. When you buy stocks in a brokerage account and they gain value over time, you’re not getting compound interest. Rather, you’re getting the option to take advantage of compounded returns, since stocks don’t pay interest like bonds and savings accounts do. But all told, compounding could really work to your benefit, especially if you give yourself a long investment window.

In fact, recently, real estate and financial expert Graham Stephan tweeted a quote from Albert Einstein: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” And you’re definitely better off being on the “earns it” side of things.

Compounding can work to your benefit

Let’s say you invest $500 a month in a brokerage account over a 20-year period. All told, you’re sinking $120,000 into your account, which is a lot of money. But if your investments during that time generate an average annual 8% return, which is below the stock market’s average, you’ll end up with about $275,000. All told, that’s a gain of $155,000. And compounding is what helps make that possible.

But watch what happens if you shrink your investment window to 10 years. You’ll end up putting in $60,000 in that case, but you’ll only end up with $87,000. That’s a $27,000 gain — not a negligible sum, but not nearly as impressive as a gain of $155,000.

That’s why it’s in your best interest to start investing from as young an age as possible. Compounding really is a fantastic tool. And the longer you give yourself to benefit from it, the wealthier you stand to become.

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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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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You may not like the answer. 

If you’re tired of seeing the word “recession” all over the news, you’re no doubt in good company. But the reality is that it’s important to gear up for a potential economic downturn in 2023.

For months on end, economists have been sounding recession warnings. And while some have scaled back those warnings modestly, the general consensus is that economic conditions are likely to worsen at some point this year.

And if you’re wondering how that could be when the economy seems solid now, well, it’s simple. Borrowing money has gotten more expensive due to interest rate hikes from the Federal Reserve. And while consumer spending hasn’t yet declined to a notable degree because of that, many experts are convinced the reason spending has held steady is due to Americans having leftover stimulus funds in their bank accounts.

Once that money runs out, though, consumer spending could drop to a notable degree and fuel a recession. The question is: How bad might a 2023 recession really be?

A range of possibilities

In any given recession, there’s the chance that things will blow over quickly and that the downturn in question will be short-lived. There’s also the chance that a given recession will be painful and prolonged.

Unfortunately, it’s hard to know which end of the spectrum we’ll be looking at if a recession strikes in 2023. But a good bet may be to gear up for the worst-case scenario — not to be pessimistic, but to be prepared.

So, let’s say a recession hits in mid-2023 and it lasts a solid year. Let’s also assume that unemployment levels start to soar as a result, and that there’s no stimulus aid for anyone to fall back on. That’s probably a pretty accurate description of what the worst-case scenario might look like.

Preparing for that could boil down to loading up your emergency fund with extra cash. In fact, in the wake of the pandemic, many financial experts have advised people to boost their savings so they’re able to cover a full year’s worth of bills. The old convention was to sock away enough money in savings to cover three to six months’ worth of expenses. If you make an effort to grow your savings so you can pay for a full year of expenses, you’ll put yourself in a solid position to get through a really bad recession.

It also helps to work on boosting your job skills so your employer has a harder time letting you go if things get bad. And also, the more skills you have, the more marketable you might be if you need to find a new job.

But the reality is that you can be a skilled, knowledgeable employee and still struggle to find work if the unemployment situation gets really extreme. And so while growing your job skills certainly isn’t a bad thing, the most important move right now is to focus on boosting your savings account balance.

We can still hope for the best

An extended recession is a pretty tough thing to think about. And to be clear, we’re not necessarily headed there. In fact, there’s no reason not to be hopeful that a near-term recession will be mild and easy to recover from. But it’s also important to prepare for the opposite scenario, just in case.

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With a modest amount of effort, you could close out the month $100 richer. 

Let’s face it — saving money is not such an easy thing to do. If it were, we’d all have many thousands of dollars in our savings accounts. But while you may not manage to boost your cash reserves by thousands of dollars in a single month, saving $100 is a far more reasonable and attainable goal.

Now you may be thinking, “What’s the point of saving an extra $100? How much will it really do for me?” But actually, it could do more than you think.

There’s been talk of a recession striking the economy in 2023. And while that’s not guaranteed to happen, if it does, it could result in a major uptick in unemployment. And if you lose your job, you’ll be really grateful for every dollar in your savings account at that point. With that in mind, here are a few relatively easy ways to boost your savings by $100 this month.

1. Cook all of your own meals

Cooking every meal you consume at home this month instead of dining out or ordering takeout could save you $100 or a lot more, depending on your habits. But if you commonly dine out or order in once a week, replacing those meals with home-cooked ones could leave you $100 richer at the end of January.

Furthermore, cooking more could give you an opportunity to experiment with new recipes and discover foods you love. And if you made a New Year’s resolution to eat healthier, skipping restaurant meals and takeout could lend to that goal.

2. Have a series of hibernation weekends

Unless you live in a part of the country where winters are mild, January is a pretty good month to hunker down, lay low, and avoid the cold. And if you decide you’ll spend your weekends at home rather than going out, you could easily end up with an extra $100 by the time the month is up.

That doesn’t mean you have to resign yourself to being bored or isolated, though. Get hooked on a new TV series or podcast, and load up on great reads from your local library. Also, invite friends over for potluck dinners, movie nights, or board game tournaments so you have a steady stream of company.

3. Return or sell unwanted holidays gifts

If you’re sitting on gifts you received in December that really aren’t your taste, you may have the option to swap them for cash. Now in some cases, if you take an item back to the store, the most you’ll get is store credit. And you can’t put store credit in the bank. But if you’re willing to make the effort to sell items you don’t want or need, you can pocket the cash and add to your savings.

An extra $100 in savings may not seem like such a big deal. But if you save $100 every month this year, you’ll be $1,200 richer by the time 2023 wraps up. And so it pays to take these steps to get into a nice savings pattern in January.

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Your wallet — and your pet — could thank you for making this investment. 

A few decades ago, most people didn’t even know pet insurance existed. Now, it’s pretty common and even pet owners who don’t have policies are wondering if they should get one. It can reduce out-of-pocket costs when visiting the vet, but it comes with costs of its own. Here are a few things that pet owners should keep in mind when deciding whether to invest in a policy for 2023.

What are the benefits of pet insurance?

Pet insurance works similarly to health insurance for humans. It helps cover some of the out-of-pocket costs when a dog or cat needs treatment for illnesses or injuries. Some policies also cover wellness visits, vaccines, prescription food, and more.

This can help reduce the owner’s risk of large out-of-pocket bills, which is more important than ever right now. Veterinary prices have spiked 10% in the last year, according to AP, and they weren’t cheap to begin with. A single emergency could amount to thousands of dollars, especially if the pet has to stay at the vet overnight.

For those without pet insurance, they either need to find a way to pay for these costs themselves or sometimes make the painful decision to put down their pet in order to spare them further suffering.

A pet insurance policy can make these unexpected expenses easier to fit into a budget because the insurer will pay for a large chunk of the bills if the condition is covered under the policy terms.

What do pet insurance policies cost?

Pet insurance policy costs vary depending on several factors, including:

SpeciesBreedAgeLocationPolicy type

In general, dogs are more expensive to insure than cats and older pets are more expensive than younger pets. Breeds that are prone to health issues may also cost more to insure, and those who live where veterinary care is more expensive will pay more as well. We’ll look at policy types in a little more detail below.

A typical pet insurance policy has a premium, deductible, and a copay. The premium is the monthly cost the owner pays to keep the policy in force. Owners can get an estimate of this by getting quotes from pet insurers.

Once they’ve settled on a policy they like, they can choose their deductible and copay options. Deductibles usually range between $100 and $1,000. This is how much the owner will pay themselves for veterinary care each year before the insurer pays anything.

Copays are usually 10%, 20%, or 30%. That’s the percentage of the bill that the owner must pay even after they’ve met their deductible. Companies may not write their copays as seen here. They often talk about “reimbursement levels,” which are the rates that the insurer pays. But it amounts to the same thing. The remainder represents the owner’s copay. For example, a policy with a 70% reimbursement level has a 30% copay.

How to choose a pet insurance policy

Pet owners who are interested in purchasing a pet insurance policy for 2023 should start by comparing quotes from several top pet insurers to see which offers the most coverage at the most reasonable price.

Many companies offer a choice of two main plan types: accident-only and comprehensive. Accident-only covers things like broken bones or a sharp object stuck in a paw. But it doesn’t cover things like cancer. Those who want help with chronic illnesses as well as injuries will need to invest in a comprehensive policy, but these will cost more.

A lot of companies also offer optional wellness packages. Coverage options vary by plan, but they often include things like coverage for routine checkups and vaccinations. Some even cover alternative therapies like acupuncture or chiropractic care. It’s usually possible to add this coverage to either an accident-only or a comprehensive plan.

In addition to looking at quotes, it doesn’t hurt to check into the reputation of the company. And owners who have questions about what’s covered shouldn’t hesitate to reach out to the insurer. They may also be able to find a sample policy for review on the company’s website.

Pet owners should use all of this information to help them choose the policy that’s best for their budget and their furry friend’s health. Hopefully, pets don’t wind up needing their insurance, but you never know. A little preparedness could make caring for your pet a lot easier on your budget.

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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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