Money Management

Did you save less in 2022 than you did last year? 

During the COVID-19 pandemic, Americans were saving more money. In fact, savings account balances grew substantially during these difficult times, despite the fact many people faced unemployment and serious worries about their health.

In 2022, however, savings account balances actually fell, according to the Northwestern Mutual Planning and Progress Study. While the average amount of personal savings in 2021 was $73,000, that average fell to just $62,000 in 2022.

There are several reasons why people may be saving less this year, but here are a few of the most likely explanations for this decline in savings.

There’s more opportunities to spend money

During the COVID-19 pandemic, many businesses were shut down and you couldn’t really travel so spending less happened naturally. Now, of course, there are ample opportunities to shell out cash for hobbies, entertainment, and vacations again.

Of course, you absolutely don’t want to go back to the dark days of not being able to go most places. But if you’ve found yourself spending a ton more cash than you did during the height of the pandemic, it can be worth tracking your spending for a while to see if the things you’re buying are worth it or if you’d be better off trying to set more of that money aside for long-term goals.

Inflation means prices are higher

Prices are a lot higher this year than they were in 2020 or 2021 because inflation has surged. While it’s natural for costs to increase over time, there’s been a very rapid and substantial increase in the cost of key necessities including groceries, gas, and heating/cooling costs.

A number of factors contributed to high inflation, including increased demand once the pandemic began to wane, supply chain issues limiting supply, and a surplus of funds in the economy due to stimulus checks. Unfortunately, most of these factors are beyond your control and you can’t do much about the fact prices are higher.

What you can do, however, is consider less-expensive substitutes. For example, switching to plant-based meals a few times a week instead of always buying expensive cuts of meat could help you avoid seeing your own savings decline.

Less stimulus money was available

Finally, the last big issue that could have made it harder for people to save as much in 2022 is the fact that stimulus money was either more limited or unavailable entirely.

During the past few years, American families received a lot of help from Uncle Sam in order to cope with the economic ramifications of the COVID-19 pandemic. This included, in some cases, direct payments for each family member including minor children. So, some people — and especially parents — ended up with thousands of dollars coming in from the government.

The federal government hasn’t provided any stimulus funds this year, though. And only a limited number of states have moved to offer additional financial relief. Without this bonus help from the government, there’s often less money available to save.

Despite these three justifications why personal savings balances have fallen, it’s best to try to turn things around if you’ve saved less this year. There are still options out there to reduce spending even as the pandemic starts to wane, and many are worth looking into so you can end up with a hefty bank balance that offers the security you deserve.

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Should you care about the value of your property? 

My husband and I own our own home. I have no idea what my house is worth. I don’t keep up with details on my local real estate market, I never check my online estimated value, and I wouldn’t be interested in learning what an appraiser has to say about my home’s market value.

It may seem odd not to care about what a home is worth, since a house is typically a very valuable asset. But there are a few very good reasons why focusing on my property’s value isn’t something I’m interested in.

I don’t view my home as an investment

The biggest reason why I don’t care what my house is worth is because I don’t see it as an investment — it’s a place where I live. I’m hoping to stay in my house for the rest of my life, so I won’t be cashing in on the property by selling it.

Since I’m not trying to make money from it, I’m not concerned about what I could sell it for now or in the future. I’m also making sure I have plenty of other more liquid investments by buying stocks in a brokerage firm so I won’t want or need to sell my house to support myself as a retiree (or to provide an inheritance for my kids).

I won’t be tapping into my home equity

I am also not interested in what my home is worth because I don’t plan to take any equity out of my home.

If I was thinking about taking a home equity loan to pay down debt or to cover big purchases, then I would be more concerned about how much my house was worth relative to what I owed. Knowing how much my home was worth would matter a lot in this situation because my home’s value would determine how much I would be allowed to borrow.

I wouldn’t even consider taking a home equity loan out, though, because I want to be able to keep living in my house forever. With a home equity loan, the house would act as collateral for the debt so if something went wrong, I could face a risk of foreclosure.

I would never take a chance on borrowing against my house — and potentially losing it if I couldn’t make payments. So, since a home equity loan is off the table, it really doesn’t matter to me if my home is worth a ton of money because there’s no way for me to access that cash.

I know I’m not underwater on my home

Finally, the last reason why I don’t care how much my house is worth is because I know I do not owe more on my mortgage than I could sell it for if I absolutely had to. I made a large down payment and have been paying steadily on my loan for years, so there’s no way I’m underwater.

If I was, I would be more concerned about finding out what my house was worth relative to what I owe because I could have trouble refinancing or selling in an emergency situation.

If you think you’ll sell or borrow against your home soon, then you may need to care a lot more about your home’s value than I do. But if you’re going to be staying put for the long term, then your home’s current value may not matter a whole lot to you either.

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If you owe money, you may want to read this.  

Being in debt can be expensive and annoying. You’ll be stuck paying financing charges to creditors, which is money you can’t use for stuff that’s more fun. And the fact you have to keep making payments every month for months or even years to come can be a huge hassle — especially if you’re paying back debt for vacations long over or stuff you no longer use.

Whether you owe money to credit cards, personal loans, or other lenders, there are steps you can take to make payoff faster and easier. In fact, if you want to make a bigger dent in your debt in 2023, these techniques can help you make that happen.

1. Get mad at your debt

It may seem like strange advice, but try to work up some anger at the fact you have this debt that’s holding you back from other things. If you get yourself angry at paying all of these financing charges, this can be a great motivator to get really serious about debt payback.

After all, if you feel like you’re sticking it to your creditors every time you send in a big extra payment and cost them a little bit of interest, you’re going to be much more motivated to make the sacrifices necessary to do that.

If you can funnel your anger at the wasted funds into action and make it feel like a huge victory every time you deprive your creditor of interest charges, you will make a lot more progress on your debt sooner than you expected.

In fact, you may just find yourself excited to skip a meal out or cut back on entertainment expenses just so you can deprive MasterCard of those precious extra dollars it was hoping to make from you.

2. Refinance your loans

Reducing the financing charges that you have to pay is another great way to pay down your debt quicker. Every single dollar of interest you can save is more money that goes toward paying your loan balance off faster.

If you have high-interest debt, getting a personal loan at a lower rate and using the loan proceeds to pay off your costlier loans is going to make your life a lot easier. You’ll have one new loan at a more favorable rate that you can focus on paying back.

3. Treat debt payoff like a job

You wouldn’t go into work without a plan for how to do your job effectively, so don’t try to get your debt paid off without being serious about how you approach the task.

You can research different payoff techniques, such as the debt snowball versus debt avalanche and decide which approach works best for you.

You can also make a commitment to do at least something each day to try to pay off your balance — whether that’s looking into refinancing, cutting a coupon to save some cash on groceries that you can then divert toward your debt, or making a big batch meal to slash your grocery costs and redirect that money to loan paydown.

4. Consider bringing in some extra income

Finally, earning more money and putting it directly toward your loans could make a huge difference in how quickly you become debt-free. The more extra cash you can earn, the more quickly and easily you can eliminate your credit balance.

Give as many of these four techniques a try as you can and you should end 2023 owing a whole lot less than when you started the year.

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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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Avalanche and Mastercard. The Motley Fool has a disclosure policy.

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It’s advice worth heeding. 

You’ll often hear that if you want to be wealthy, your best bet is to put money you’re not using to work by investing it. In fact, financial guru Suze Orman is a big proponent of investing. She often tells people to not only put money into quality assets, but to aim to hold those assets for a long time.

But while investing is definitely a key wealth-building tool, there are certain funds of yours you don’t want to invest. In fact, in a recent podcast episode, Orman cautioned listeners against investing money that falls into one specific category.

Be careful with the funds you invest

If you have money you don’t expect to need for many years, then it absolutely pays to put that money to work by investing it. But Orman says one thing you don’t want to do is invest money you might need within a year.

So, let’s say you’re saving up to buy a home and think it might take another 12 months to finish accumulating enough funds for a down payment. You may be tempted to stick your existing down payment funds into a brokerage account and see if you can snag a higher return on that cash than what you’re getting in your savings account. But that’s a bad idea.

Similarly, you might have money you’ve saved up as your emergency fund. While you’re not guaranteed to need that money within a year, you could end up needing it within a year if something goes wrong, whether it relates to your home, your car, your health, or your job. So that’s money you should also avoid investing.

Why does Orman insist on this rule? It’s simple.

The stock market is known to be volatile. In fact, a lot of people are now seeing lower brokerage account and IRA account balances than they had at the start of the year due to broad market turbulence.

If you’re investing on a long-term basis, situations like this don’t have to be stressful, because if you don’t go off and sell assets at a lower price than what you paid for them, you won’t lose any money. But if you’re looking at a one-year window, you may be forced to take a loss on investments to free up your money.

So, let’s say you have $15,000 earmarked for emergency bills. If you put that $15,000 into a brokerage account, it might only be worth $13,000 six months later.

But what if you then encounter a major home repair that will cost $15,000 to address? If you have to liquidate your brokerage account when its value is down, you’ll lock in a $2,000 loss. And that’s really not what you want.

It’s okay to leave some money in savings

You might earn two, three, or four times the return on your money in a brokerage account than in a savings account. But in a savings account, your principal is protected, whereas invested assets can lose value at any time.

That’s why it’s essential to stick to Orman’s rule and not invest money you need, or might need, within a year. You’re better off accepting a lower return on that cash than running the risk of losing a large chunk of it.

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The quick answer? It depends which option you’re looking at. 

Many Americans have big plans for 2023. Some are looking to boost their savings balance. Others are looking to get out of debt. And two-thirds of Americans are planning to buy a home, sell one, or refinance a mortgage in 2023, according to the latest BMO Real Financial Progress Index. But given the state of the housing market and where mortgage rates are sitting, a lot of people with these plans may not end up being successful.

The problem with buying in 2023

We’re looking at starting off 2023 with continuing low real estate inventory and elevated home prices. And until housing inventory picks up in a meaningful way, property prices are likely to remain high. That could make for a very challenging situation for home buyers.

Not only are home values up, but mortgage rates are more than twice as high as they were a year ago. So those who attempt to purchase a home risk getting in over their heads financially.

The problem with refinancing in 2023

The benefit of refinancing a mortgage is getting to lock in a lower interest rate and reap savings. But given where mortgage rates are sitting right now, many buyers aren’t in a position to lower the interest rate on their home loans.

A lot of people rushed to refinance their mortgages loans in 2020 when rates began to plummet. So anyone in that boat is unlikely to snag a better rate in 2023.

Now it may be that some people who signed a mortgage in 2022, once rates were higher, wish to refinance in the new year. But there are closing costs that come into play in the course of a mortgage refinance. And so generally speaking, it only makes sense to refinance a home loan when there’s the chance to lower its interest rate by about 1% or more.

We could see lower mortgage rates at some point in 2023, but the days of borrowing at 3% are probably over, at least for the foreseeable future. And so those who look into refinancing their home loans may find that it just doesn’t pay.

What about selling a home?

While home buyers and would-be mortgage refinancers may want to reconsider their plans for 2023, those looking to sell a home may be on the right track. Although higher mortgage rates have narrowed the buyer pool modestly, the demand for homes still exceeds the available supply. And so sellers who list a home in 2023 might benefit from a major lack of competition.

That said, those selling a home and buying a new one with a mortgage will need to proceed with caution. What they gain in the form of a higher sale price, they might lose in the form of a higher interest rate on a new mortgage they have to take out.

All told, 2023 could be a very interesting year for the housing market. But those looking to buy a home or refinance a mortgage may find that doing so isn’t the savviest move.

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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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Life doesn’t always turn out as planned — especially in real estate.  

A few years ago, my husband and I spent months tracking down a perfect lot. Our plan was to get a mortgage and build a new home on the lot for our family. We found one with a private lake, near Disney World, on 15 acres, and we were super excited to go forward with the process.

Last week, we listed the lot for sale — even though we’d spent quite a lot of time getting permits and doing a custom design with an architect. Rather than building, we’re going to buy an existing home instead. Here’s why we made that choice.

Building can come with unexpected complications

The biggest reason why we’ve opted to sell our lot is that the permit process reminded us just how many unexpected complications can arise during the process of constructing a home.

With an existing house, you know what you’re dealing with when you move in because the house is already there. That’s not the case when you’re building. When we built a home in the past, we ran into a host of issues, such as difficulty getting water flow in our well so we had to drill much deeper than planned.

We had already gone through a long challenge with getting the initial permits to build our property, and we talked to others in the neighborhood who had trouble with various aspects of the construction process, ranging from getting high-speed internet hooked up to getting permission from the electric company to turn on service.

With two young kids and busy jobs, we decided we just aren’t up for dealing with the possible complications that could arise from jumping into a building project with so much uncertainty.

A custom build will take more time than we want it to

Another big issue is that we found out it would take quite a long time for a custom builder to actually construct our home. There’s a few reasons for that, including permitting backlogs, continued supply chain issues, and the complexities involved with our large lot and its location.

We don’t want to put our life on hold and have to wait to live in our perfect house for years while it is constructed. We’d rather just be able to buy a house that we will be happy in and move in much more quickly.

Our life circumstances have changed since we bought the land

Finally, our life has changed since we bought the land and we no longer have the same priorities. One of our dogs — the one whose bark necessitated acreage — passed away unexpectedly from cancer last year and so we no longer need as much buffer space as we did. We added an extra child to our family as well. So, now we’re looking for different things in a home.

For all of these reasons, we’ve decided that we will pass up the new build and just buy instead. The entire process just shows why it can be hard to anticipate what your future needs will be when it comes to purchasing a home — so be sure to look at the big picture, and don’t buy any type of property that it would be impossible for you to break even on if you have to sell it sooner than planned.

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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.Christy Bieber 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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