Money Management

Even at 20 years old, it’s not too early to start setting financial goals. 

For those starting their 20s, financial goals often aren’t a priority. The early years of adulthood are an exciting time, and personal finance sometimes takes a backseat. But this is also the best time to set financial goals, because good decisions now can make you a lot of money in the years ahead.

At this stage of life, most people don’t have much disposable income, so you’re not expected to tuck away $10,000. It’s more about building a strong foundation. Here are five financial goals that will help you do that.

1. Save at least a month’s worth of living expenses

From time to time, unexpected money problems are going to pop up. Your job could cut your hours, or your car might break down, to give you a couple of common examples. Sometimes these things are impossible to predict, which is why every adult needs an emergency fund.

Your emergency fund is savings that you use to cover surprise expenses. The normal recommendation is to have three to six months of living expenses in your emergency savings, but that can be a lot to manage as a young adult.

To start, aim for an emergency fund with one month of living expenses. If your essentials, such as rent, groceries, and gas, cost $1,200 per month, then work on saving $1,200. And if you need to tap into that savings for an emergency, make sure to replenish it as soon as possible.

2. Follow a monthly spending plan

One of the best habits you can get into is planning how you’re going to spend your money. Many people, of all ages, fail to do this. They spend every dollar they make, or worse, they overspend and get themselves into unnecessary debt.

To make a monthly spending plan, start with your income. Then, divide that up into the following categories:

Essential expensesWants (your fun money)Savings/investments

For example, a popular type of budget is the 50/30/20 method. You spend 50% on essentials, 30% on things you want, and 20% on savings and investments.

If money is tight, you might need to put a much larger chunk of your income to essential expenses. That’s fine. What’s important is that you have a spending plan you follow. You can always adjust it later as your income increases.

3. Start a retirement fund

Retirement may seem like something you can start saving for later on, but if you can start now, you absolutely should. When you start while you’re young, you give your money more time to grow. And if you invest, your money can grow significantly.

This is easiest to understand with an example. Let’s compare two people, one who starts investing at 20 and another at 40. Both of them invest $100 per month and earn a 7% yearly return, which is realistic based on average stock market returns. Here’s how much each would have at a retirement age of 65:

The difference is that the investor who started at 20 earned much more compound interest. That’s when you earn interest on top of the interest you’ve already earned. Thanks to compound interest, their account grew by over $288,000. The investor who started at 40, on the other hand, earned about $36,000.

Retirement accounts are popular ways to invest, because they help you save on taxes. Here are a few options to consider:

IRAsRoth IRAs401(k)s

4. Get a credit card to build your credit score

Learning how to use credit is another smart thing to do while you’re young. Although some people have bad experiences with credit cards, they’re a useful financial tool if you don’t spend more than you can afford.

To get started, look for a credit card designed for consumers who are new to credit. Make sure to pick one that doesn’t have an annual fee, so you can use it without paying extra. Here are some cards that are good for building credit:

Starter credit cards for no credit historyStudent credit cards

Here’s the key to using your credit card — pay the bill on time and in full every month. If you do this, there won’t be any interest charges on your purchases. And by paying on time, you build your credit score. This can help you get approved for an apartment, pay lower interest rates on auto loans or mortgages, and possibly even get cheaper insurance rates.

5. Open a high-yield savings account

You need a safe place to keep your savings, which is why a good savings account is a must. If you have your money in one of the big banks right now, check how much interest they’re paying you compared to what the best high-yield savings accounts are offering.

What you’ll probably find is that high-yield accounts have much higher rates than what you’re getting. That’s because they’re available through online banks that don’t have physical branches. Since online banks don’t need to spend on bank branches, they can pay out higher interest rates. In some cases, they offer 10- to 20-times more than the national average.

Online banks are also just as secure as any other. They have the same FDIC insurance that covers up to $250,000 per eligible account. Your money will still be safe, and you’ll be earning a lot more interest.

It’s good to have financial goals at every stage of life. In your 20s, it’s all about getting off to a strong start. If you check off all five of those goals, you’ll set yourself up for success.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2024

If you’re using the wrong credit or debit card, it could be costing you serious money. Our expert loves this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.Lyle Daly 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.

 Read More 

You may want to get into the habit of using your credit card more frequently. 

Like many people, I carry a debit card in my wallet. While my debit card provides a convenient way to pay for purchases, I prefer using credit cards for most purchases due to their many benefits. Keep reading to find out why I use my debit card only a few times a year.

1. You can earn rewards on credit card spending

Most debit cards don’t offer rewards. If they do, they’re typically minimal. On the other hand, most rewards credit cards provide attractive rewards rates. Whether I’m earning cash back or points I can redeem for free hotel stays and flights, these rewards are valuable. Since I’m prioritizing earning more credit card rewards, I use my debit card minimally.

2. You get better fraud protection with credit cards

Whether you use debit or credit cards, fraud can and does happen. If you want to protect yourself more effectively, using a credit card is a good idea. Fraud protection isn’t the same for credit cards and debit cards.

The Fair Credit Billing Act (FCBA) grants consumers the right to dispute unauthorized credit card charges. The FCBA states that consumers have a maximum liability of $50 for unauthorized credit card transactions. If you report your card as lost or stolen before fraud occurs, your liability is $0. Additionally, most of the best credit cards offer $0 fraud liability.

Regulations are different when it comes to unauthorized bank account charges. Unless debit card fraud is reported quickly, you may be liable for purchases you didn’t make. Your maximum liability depends on how quickly you report your debit card as lost or stolen. It pays to act fast.

The Electronic Funds Transfer Act (EFTA) outlines rules regarding consumer liability for unauthorized bank charges. Here’s an explanation:

You’re not liable for any unauthorized charges if you report your debit card as lost or stolen before a fraudulent charge occurs.If you report your debit card as lost or stolen within two business days of an unauthorized charge, your maximum liability is $50.If you report your debit card as lost or stolen within 60 days of an unauthorized charge, but after two days, you’re liable for up to $500.You’re fully responsible for the charges if you report your debit card as lost or stolen beyond 60 days from when the unauthorized charge occurred.

As you can see, using a credit card has advantages and could help you save money and hassle if you fall victim to fraud.

3. You can build credit by using credit cards

Your credit score gives creditors a look at your financial health. By having a good credit score, you may be able to take advantage of better opportunities, like getting approved for a loan with a lower interest rate. But it takes work to build your credit and increase your credit score.

One way to build your credit is using credit cards for everyday purchases. Good habits like paying your credit card bills on time every month can help you increase your credit score.

Using your debit card won’t improve your credit. That’s because you’re using the money in your bank account to pay for purchases instead of using money that was lent to you and showing that you can pay back your debts. Don’t miss out on this perk of credit cards if you want to build your credit.

4. You miss out on other valuable perks

Some credit cards include benefits like purchase protection, extended warranty protection, and travel benefits like trip delay and trip cancellation insurance. You won’t find these perks included with a standard debit card. If you want access to valuable perks like these, you may want to start using a credit card for your everyday spending needs.

Your debit card allows you to use the money in your checking account to cover a purchase. But using a debit card for every purchase may not be the right move. Instead, consider using credit cards for the majority of your purchases. This can be a great choice if you pay your entire credit card balance in full and don’t take on expensive credit card debt.

These savings accounts are FDIC insured and could earn you more than 17x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 17x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2022.

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.

 Read More 

Looking for a New Year’s resolution? Try this. 

You may not think about your credit score too often, but it probably affects you more than you realize. It determines which credit cards you can get and how much you can borrow from a bank, which can influence your entire monthly budget. So it’s a pretty big deal.

Having a high credit score can make your life a lot easier, but getting there takes patience and a strategy. Here are three of the best things you can do to improve your credit in 2023.

1. Pay your bills on time

Payment history is the single biggest factor influencing your credit score, and regularly paying your bills on time is the best thing you can do to raise your credit score or keep it high. Even a single late payment can drop your score significantly, and this stays on your report for seven years. So you want to avoid this whenever possible.

Keep track of your payment due dates, and if you can, set up automatic payments so you don’t have to remember to make them. If you don’t think you’re going to be able to make a payment on time, reach out to your lender to see what options it can offer you.

2. Stick to using 30% of your credit limit or less when possible

The second biggest factor influencing your credit score is your credit utilization ratio. This is the ratio between how much credit you have available to you each month and how much you actually use. For example, if you charged $1,000 per month to a card with a $5,000 limit, your credit utilization ratio for that card would be 20%.

Lenders generally like to see credit utilization ratios under 30%. Anything higher could indicate that the person needs a lot of borrowed money to sustain their lifestyle, and therefore, could be at a higher risk of default.

Sometimes, lowering your credit utilization ratio is as simple as charging less to your credit cards each month. But there are other ways to do this as well. You could request a credit limit increase or open a new credit card to increase your available credit. Or you could pay your credit card bill twice per month. Credit bureaus only report your balance once per month, so this will make it appear as if you’ve only charged half as much to your card.

3. Don’t open or close credit cards at random

Applying for new credit can help your credit score because, as discussed above, this decreases your credit utilization ratio. But that’s only if you get approved. Most credit card issuers do a hard credit check on your report before they approve you for a new card or a credit limit increase. This can drop your score by a few points. And if you’re denied, you’ve just hurt your credit for no reason.

It’s generally best to wait at least six months since you last applied for new credit before trying again. Ideally, you also want a history of on-time payments and a steady income to increase your odds of being approved.

You also need to be careful about closing credit cards because this can raise your credit utilization ratio. It may reduce your average account age too, which can also hurt your score. That’s why it’s usually best to leave your old credit cards open unless they charge an annual fee.

These aren’t the only steps you can take to improve your credit score, but if you stick with them, you’ll probably notice a difference after a few months. The most important thing is to be consistent. Credit scores are designed to provide a long-term look at how you handle borrowed money, so it takes time to make significant changes.

Top credit card wipes out interest until 2024

If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR for up to 21 months! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read our full review for free and apply in just 2 minutes.

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.

 Read More 

Check these off your list for a successful year as an investor. 

Many people use the start of a new year as an opportunity to get their financial house in order. And so if you have money in a brokerage account, it’s the perfect time to give that account some extra attention. Here are a few key moves to make in that regard.

1. Check up on your balance

Checking your brokerage account balance isn’t something you should do on a daily or even weekly basis. But it’s a good idea to have a sense of what your portfolio is worth. So if you haven’t peeked lately, take the time to note what your balance looks like.

That said, don’t panic if you’re not so thrilled with the number you see on screen. A lot of people lost money on investments in 2022 because the stock market had a rough year. So if your portfolio is now worth less than it was a year ago, it doesn’t mean you made poor investment decisions or did anything wrong. And it doesn’t automatically mean you need to make changes to your investments, either.

2. See if your assets are evenly balanced

It’s generally not a good idea to invest heavily in one specific asset, or one specific sector of the market, at the exclusion of others. Rather, your goal should be to have a diversified portfolio. Doing so could help you not only grow wealth, but minimize your risks during periods of market volatility.

The start of the year is a great time to see how your assets are spread out. If you see that you’re heavily invested in one type of stock, you may want to do some rebalancing. (Granted, it’s usually better to rebalance during periods when stock values are up, not down, but if your portfolio desperately needs an adjustment, it may be worth making one now.)

3. Decide how much you want to invest each month

The beginning of the year is a good time to commit to investing regularly. Take a look at your budget and figure out how much money you can afford to part with for investment purposes. And then make sure to stick to that budget so you’re able to stay on track with your investment goals.

4. Figure out if your brokerage account should take priority over your IRA

The upside of investing in a brokerage account is that your money isn’t restricted. You can cash out assets at any time without being penalized (you may be subject to capital gains taxes if you sell investments at a profit, but that’s not a penalty).

IRAs, on the other hand, come with strict rules that penalize you for removing funds prior to age 59 1/2. That’s because these accounts are supposed to be earmarked for retirement, and the IRS wants to motivate savers to leave their money alone until they’re older.

But IRAs also come with tax benefits that regular brokerage accounts don’t. For example, with a traditional IRA, your contributions are tax-free. Put $5,000 into one of these accounts, and that’s $5,000 of income the IRS won’t tax you on. So if you’ve only been funding a traditional brokerage account and not an IRA, you may want to reconsider for 2023.

It’s always a good idea to carve out time to focus on your brokerage account. Do so at the start of 2023 so you can set yourself up for success.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

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.

 Read More 

You may want to put your plans on pause. 

There are certain benefits you get to enjoy when you own a home instead of renting one. For one thing, you don’t have to follow the rules a landlord sets. Want a giant dog? That’s your call. Also, there are tax benefits to owning a home, like getting to deduct the interest you pay on your mortgage.

But while you may be eager to purchase a home in 2023, housing market and economic conditions are making it a less-than-ideal time. And so here are a few reasons to consider holding off.

1. Home prices are still up

Although home price gains have slowed in recent months, property values are still up nationally. This means you’re looking at paying a higher price than normal for pretty much any property you buy (there may be limited exceptions in markets that are cooling at a faster pace).

Now it’s generally not a good idea to overpay for, well, anything you buy. But overpaying for a home can be particularly dangerous. What if your circumstances change and you need to move in a couple of years? If you pay $450,000 for a home that would normally sell for $400,000, and then get stuck having to sell it a few years later, you might lose money.

2. Borrowing rates are up

While home prices have been elevated for quite some time, last year, buyers at least got a reprieve from a mortgage rate perspective. But this year, borrowing costs are way up.

In fact, right now, you’re looking at paying twice the interest rate on a mortgage as you would’ve back in late 2021. And when you combine higher mortgage rates with higher home prices, you run into a situation where you’re looking at spending an uncomfortably large amount of money on housing.

3. A recession could hit

For much of the second half of 2022, economists have cautioned that a recession could strike in 2023. And taking on a large expense like a home could be a dangerous thing in light of that.

Granted, you’re not guaranteed to lose your job if a recession strikes. And also, a recession isn’t a sure thing. But you may not want to take the risk of buying a home at a time when so many experts seem convinced that economic conditions are about to worsen. This especially holds true if you’ll be stretching your budget to purchase a home due to higher prices and borrowing rates.

Sometimes, it pays to wait

It’s easy to see why you wouldn’t want to put off homeownership if you’ve been saving for it and feel ready to take that leap. But based on the state of the housing market and the potential for an economic downturn, it could pay to keep renting in 2023 and avoid taking on the expense of a home.

Waiting will also allow you to build up a larger savings account balance, whether for a larger down payment or emergencies in general. And that could really work to your advantage once you do dive into homeownership.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

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.

 Read More 

These are all worth employing. 

Once the new year kicks off, you might get busy trying to figure out how you’ll tackle your resolutions — things like boosting your savings balance and exercising on a regular basis. You may not be focused on taxes just yet, especially with the filing deadline not being until April.

But even if you’re not ready to start thinking about taxes in January, you’re probably eager to pay the IRS less money in 2023 than you did in 2022 if you can legally pull that off. And if you employ these strategies, you may find that it’s a possibility.

1. Max out savings plans that come with a tax break

It’s a smart idea to keep cash in a savings account so it can earn interest, and to invest in a brokerage account so you can grow wealth. But these accounts don’t offer any tax benefits.

On the other hand, if you make a point to save for retirement in a traditional IRA account or 401(k) plan, you can benefit from a few different tax breaks. First, the money you put in will exempt a portion of your income from taxes. So let’s say you make a $5,000 IRA contribution in 2023. That’s $5,000 of earnings the IRS won’t be able to touch.

Furthermore, if you earn money in an IRA or 401(k) through investment gains, you won’t owe capital gains tax on those earnings. Rather, those taxes will be deferred until retirement, so you won’t have to worry about them in 2023. Gains in a brokerage account, by contrast, are taxed the year you earn them.

2. Take losses in your brokerage account to offset gains and ordinary income

Maybe you have a stock in your brokerage account that hasn’t done well since you bought it. Unloading that stock at a loss could work to your benefit from a tax standpoint.

First of all, you can use losses in your brokerage account to offset capital gains. But if you don’t have capital gains to offset, or if your loss exceeds your gains in a given year, you can take that loss and use it to offset up to $3,000 of regular income. So either way, you lower your IRS bill.

3. Invest in tools for your small business or freelance gig

If you own a small business, are self-employed, or have a side hustle you do on a freelance basis, you may be thinking of purchasing tools or equipment to improve your efficiency. Doing so could serve as a tax write-off, so if you have reason to believe that your income will increase in 2023, then that’s a good year to make those accounting purchases and take the associated deductions.

Start planning early

Although January may not be the most popular time to focus on tax-related matters, the sooner you establish a strategy for slashing your tax bill, the better. These moves could pave the way to a lower tax liability in 2023 — and more money for you to bank instead.

Our picks for best tax software

Our independent analysts pored over the perks and user reviews for the most popular tax provider services to land on the best-in-class picks to file your taxes. Get started by reviewing our list of the best tax software.

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.

 Read More