Money Management

Are these free loans really free? 

Buy now, pay later (BNPL) options have become increasingly popular in recent years. According to the Consumer Financial Protection Bureau (CFPB), from 2019 to 2021, the number of BNPL loans from the top five U.S. lenders grew by 1,092%, from $2 billion to $24.2 billion. Why has this payment option grown so quickly?

These services allow shoppers to purchase an item or service upfront and then pay for it over time, typically with no interest. This type of financing option can be extremely helpful for those who need a bit of extra time to save up but don’t want to miss out on an opportunity or deal that might not be available much longer. But is BNPL too good to be true? Here’s how these programs work and what you need to know before signing up.

How does BNPL work?

In order to understand how BNPL works, you first need to know the basics of how credit works. When you sign up for a credit card, you make a promise to the lender that you will repay what they lent you within a certain amount of time with interest. With BNPL, this process is simplified and streamlined, as there are typically no interest charges or late fees associated with these services.

In addition, there is no credit check required with BNPL since withdrawals come directly from your bank account. Shoppers typically pay off their purchases in fixed installments over a set period of time that usually ranges from three to 12 months depending on the provider.

The pros of BNPL

Like any financial product, there are pros and cons that come along with using buy now, pay later options. On the one hand, it allows consumers access to items they may not otherwise be able to afford by breaking down payments into smaller chunks. This can also help buyers manage cash flow more effectively, as well as build their credit score if done responsibly.

The biggest benefits of BNPL plans is that many do not charge interest or late fees. You can be approved for a BNPL plan in seconds without a hard credit check, so applying won’t hurt your credit score. BNPL loans also have a flexible repayment plan, where you can spread out your payments over time.

The cons of BNPL

While there are some benefits to BNPL loans, according to one survey, 1 out of 4 (22%) Americans who have used BNPL have immediately regretted their decision, saying they wished they had not signed up for the plan. Why? In a study, the CFPB states that BNPL “is engineered to encourage consumers to purchase more and borrow more. As a result, borrowers can easily end up taking out several loans within a short time frame at multiple lenders or Buy Now, Pay Later debts may have effects on other debts.”

Nearly a third of BNPL users report that they have struggled to make the payments and in order to avoid defaulting on their plan, they had to skip paying an important bill. Defaulting on a BNPL plan can also lead to your credit score taking a hit. You also don’t get points, miles, or cash back like you might with a rewards credit card.

More BNPL plans are starting to charge late fees as well as interest. If shoppers are unable to complete their repayment plan, they could end up being charged late fees or even incur additional costs from their provider — which could lead them into debt if they’re not careful. While BNPL plans advertise that there are no fees, only 52% of those surveyed stated that their plan was completely free. Meanwhile, 14% said they paid a flat fee; 7% paid late fees; 8% paid interest of 30% APR or less; and 4% paid an APR higher than 30%, with the remainder not knowing how much interest they paid.

Are BNPL plans worth the risk?

When used responsibly, buy now, pay later options can be incredibly useful for managing cash flow and building credit scores while still allowing shoppers access to products they may not otherwise have been able to purchase upfront. It’s important for potential customers to understand the terms and conditions associated with each provider before signing up. This way they can make sure they’re comfortable with all aspects of the agreement before committing themselves financially. When used correctly and carefully, BNPL services can be an effective way for shoppers to get what they want without having to break their budget.

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You could reach this number if you save and invest consistently. 

Reaching $1 million in savings is a popular financial goal. To make it even more ambitious, you could aim to have that much by the time you’re 50. If you can do that, you’ll be in a comfortable financial position, and you may even be able to retire early.

Although this could be difficult, especially if you don’t have a high income, it’s more realistic than you might think. This quick guide will show you exactly how to have $1 million in the bank by age 50. We’ll start with how much you need to save per month, and then go over some wealth-building strategies to grow your money.

How much do you need to save to have $1 million by age 50?

The amount you need to save to have $1 million by age 50 depends on a few factors. The most important one is your age. When you start investing sooner, your money has more time to grow through compound interest. Compound interest is when you earn interest on top of the interest you’ve already earned.

Your annual return also makes a big difference. Earning 10% per year through the stock market is going to get you a lot farther than earning 2% or 3% through a bank account. And 10% per year is the average stock market return over the last 50 years.

Let’s say you invest in stocks and average a 10% annual return. Starting from zero, here’s how much you’d need to save per month depending on how old you are:

20 years old: $507 per month25 years old: $847 per month30 years old: $1,455 per month35 years old: $2,623 per month40 years old: $5,229 per month

As you can see, you don’t need to invest nearly as much when you start at a young age. That’s the power of compound interest.

These are all still lofty targets. Most 20-year-olds, for example, probably aren’t going to be able to spare $507 per month. What’s important is to invest as much as you can, as early as you can, so your money has more time to grow. Next, let’s look at some strategies to maximize the growth of your money.

Contribute to tax-advantaged retirement accounts

Retirement accounts allow you to save and invest money while also saving on taxes. There are a few popular types of retirement accounts:

401(k)sIndividual retirement accounts (IRAs)Roth IRAs

A 401(k) is an employer-sponsored retirement plan. You make contributions to it directly from your paycheck, up to an annual limit ($22,500 in 2023 for those under 50). Your 401(k) contributions reduce your taxable income, as you don’t pay taxes until you withdraw funds in retirement. Many employers match contributions up to a certain amount, helping your account balance grow more quickly.

IRAs are retirement accounts that you open yourself. The annual contribution limit is $6,500 in 2023 for those under 50, and it’s a combined limit across any IRAs you have. Traditional IRAs work like 401(k)s in that contributions reduce your taxable income, and you pay taxes when you make withdrawals. Roth IRAs are different in that contributions don’t reduce your taxable income, but withdrawals in retirement are tax-free.

One thing to note about retirement accounts is that there are penalties for withdrawals made before the age of 59 1/2. So, you can use these accounts to get to $1 million by 50, but you’ll need to wait to access that money without penalty.

Invest heavily in the stock market

The stock market is widely considered one of the most effective ways to build wealth. As mentioned above, the average annual return is about 10%. You’re unlikely to find another investment with such a high return and such a lengthy track record of success.

Your retirement accounts, as well as any individual brokerage accounts you have, will offer various investment options. For the most growth potential, you’ll want to have most of your money in stocks. Investing in bonds, on the other hand, is a more conservative option. While bonds work well for preserving wealth, stocks are better for building it.

Retirement plans and stock brokers typically have plenty of funds that invest in a large number of stocks. One of the best options is an S&P 500 index fund. This will track the performance of the 500 largest companies on U.S. stock exchanges. You’ll get a portfolio with all the largest U.S. companies in a single investment.

Putting it all together

To sum it up, if you want $1 million by age 50, invest as much as you can afford in stocks. It’s best to start doing this right away, because the younger you are when you start, the less you need to invest per month to reach $1 million.

You can invest your money in retirement accounts, including 401(k)s and IRAs, as well as brokerage accounts. Contribute to retirement accounts first because of the tax savings they offer. If your employer will match your contributions to a 401(k), make sure to max out your employer match, as it’s essentially free money.

If you follow those tips, and you invest in index funds, you’ll build wealth. Whether you get to $1 million by 50 will depend on how much you invest and the performance of the market. Either way, these are great habits to follow for long-term personal finance success.

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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.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Freeing up extra cash to put in savings may be easier than you think. 

Now is the perfect time of year to outline your personal finance goals for the year ahead. Are you hoping to set more money aside in savings? If so, you’re not alone. Extra savings could help you cover a costly purchase or an emergency expense in the future. It can be easier to reach your savings goals if you’re willing to use personal finance tools and make habit changes. Here are a few easy ways to save more money in 2023.

1. Start using budgeting apps

Many people don’t like the word “budget.” But following a budget doesn’t mean you have to live a boring life. You can prioritize what makes you happy and live a meaningful life while following a budget and honoring your financial goals. Budgeting apps make setting a budget and monitoring your spending habits easier. You can free up extra funds by reducing excessive spending.

2. Open a high-yield savings account

If you’re setting aside money, make sure you’re placing it in a high-yield savings account. If you’re keeping extra cash in a savings account with a low annual percentage yield (APY), you’re missing out on the chance to earn more interest. Many high-yield savings accounts have competitive rates right now, so switching accounts may be a good option. With a higher rate, your interest-earning potential is better — which increases your account balance.

3. Put your savings on autopilot

Are you forgetting to set aside money even though you have outlined your savings goals? You can set up automatic transfers so money is transferred from your checking account to your savings account automatically, as often as you’d like. By doing this, you’re committing to your goals, and ensuring you don’t fall behind on your savings journey.

4. Negotiate your bills to lower your monthly spending

Following a budget can be helpful if you’re hoping to free up extra money for savings. But another way to free up some of your money is to negotiate your bills. There are some bills that can be negotiated, and if you’re unsure, it’s always worthwhile to ask. For example, your internet service provider may be able to give you a lower promotional rate if you ask nicely. Take the money that you save by doing this and put it in your savings account.

5. Get rid of subscriptions you’re not using

Whether streaming apps or other monthly subscriptions, paying for services you’re not using is like throwing money down the drain. If you want to reach your savings goals in 2023, pausing or canceling subscriptions you’re not using frequently is a good move. Another option is to rotate your subscriptions so you’re not paying for them all at once. You’ll have more money to save.

6. Increase your savings contributions

If you’ve already been setting aside money in your savings account, that’s excellent news. You’re well on your way toward achieving your goals. But if you have loftier savings goals for the year ahead, it’s a good idea to increase your savings contributions, so you’re saving more.

It doesn’t have to be a lot. Even a slight increase can make a significant difference. For example, if you increase your contributions by $150 a month, you’ll have an extra $1,800 set aside for the year, which doesn’t include any additional interest you will earn.

Setting new financial goals for the upcoming year is a great way to set yourself up for success. If you want to save more money, consider implementing some of the above suggestions so that 12 months from now, you can feel proud when looking at your savings account balance.

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You may be surprised to find which grocery store is most beloved among Gen Xers. 

Picking the right grocery store can be a hard choice. First and foremost you want a store that has reasonable prices so you aren’t giving your credit cards too much of a workout when you shop for groceries. You likely also want a big selection of food products, including some tasty treats. Other things, like free samples or a large selection of organic products, may also be important to you depending on your shopping preferences.

Fortunately, there are lots of different grocery chains out there, so there’s a store to suit everyone. And some of those stores, like Trader Joe’s, tend to have very devoted fans thanks to unique features they offer, such as low prices or special house-brand products.

When it comes to grocery store preferences, members of different generations also tend to look for different things in their shops. Gen Xers, for example, have some favorite shops that differ from either baby boomers or millennials.

So, what is the favorite grocery store chain among Gen Xers? The answer may surprise you.

This store tops the list of Gen X’s favorite place to get groceries

According to a recent YouGov poll, Kroger is the most popular grocery store among Gen Xers in the third quarter of 2022.

Kroger is a regional grocery store, but is available in 35 states across the U.S., which makes it one of the larger grocery store providers. The company has close to 2,800 stores and it has earned the appreciation of Gen Xers for several reasons.

Kroger’s private label products are one reason the store is so popular, as these account for more than a quarter of the store’s sales and they offer customers the chance to shop at discounted prices. The Kroger Plus Card is also a highly rated loyalty program that lets consumers save on groceries as well as gas.

The store’s large organic section, top-notch customer service, and well-stocked shelves are also features that store customers tout as reasons why they love the brand.

All of these factors could help explain why Kroger had a 62% popularity rating among Gen Xers on the YouGov poll (with the popularity percentage referring to how many members of this generation had a positive view of the store brand.

This 62% rating was higher than other popular stores including Trader Joe’s, which enjoyed a 55% popularity rating, and Whole Foods, which had a 50% popularity rating.

Gen Xers are not the only ones who love Kroger either, with baby boomers also reporting a 64% popularity rating — making Kroger the most popular store among them as well. Millennials, on the other hand, prefer 7-Eleven, Trader Joe’s, and Aldi to Kroger, with Kroger coming in a distant fourth on the popularity scale.

Finding the best grocery store for you

If you have a Kroger near you, you may want to try out this Gen Xers’ paradise for your own groceries if you haven’t already. But, ultimately, finding the best store for you is going to depend on your buying habits.

You can compare prices at stores near you on the items you buy the most, and compare the quality of discounted house-brand products as well, in order to find the best place to buy your groceries. It may take a little time, but eventually you’ll find a store that offers most or even all of what you look for in a grocery store.

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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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You need to cash those bonds out carefully. 

You may be in a place where you need money, whether to purchase a car, update your home, or use to cover everyday bills. Now you could go out and borrow the money you need. But doing so means signing up to pay interest. And if you have money tied up in investments, it could make more sense to liquidate some of your holdings before taking on a loan that comes with a hefty interest rate attached to it.

Now the investments you have might range from individual stocks to exchange-traded funds (ETFs) to bonds. And within the latter category, you may own some I bonds.

Most investments are fairly flexible when it comes to cashing out. But I bonds aren’t as flexible. And so it’s important to know the rules if you’re looking to redeem your I bonds, take the money, and run with it.

How cashing out I bonds works

You’re technically allowed to cash out I bonds once you’ve held them for a full year after purchasing them. But if you cash out I bonds prior to having held them for five years, you’ll be penalized to the tune of your last three months’ worth of interest.

Whether that’s a big deal or not depends on how much I bonds are paying. Right now, I bonds are paying close to 7% through April of 2023 thanks to higher inflation levels. That’s a really generous rate. And if you have a larger sum of bonds, losing out on three months of interest is something you may not want to do.

Cashing out I bonds may be your best bet

As much as you might dislike the idea of giving up interest, if you have to liquidate an investment to free up cash, it could be more beneficial to redeem I bonds than to cash out stocks or ETFs in a brokerage account right now. The reason?

The stock market has lost a lot of value this year, so chances are, if you sell off individual stocks or ETFs, you’re looking at taking losses. If you sell your I bonds before having held them for five years, you’ll lose some interest. But that loss may be negligible compared to the loss you might take by unloading stocks or other more volatile assets when they’re way down.

One major perk of buying I bonds is that you’re getting government-backed securities. So the face value of your I bonds is set up to hold steady even during periods when the value of a given stock might plunge from $100 a share to $50 a share.

As such, cashing out I bonds may be your least financially painful option right now. And if you’ve held those bonds for five years already, you won’t even face a penalty at all.

Of course, if you cash out I bonds and take the money now, you’ll lose out on the chance to keep cash invested in an asset that’s stable and currently paying a generous amount of interest. But even so, liquidating stocks could be a financially catastrophic move right now due to the state of the market. So what you lose by cashing out I bonds, you might gain by being able to leave your stock holdings alone until they’re able to recover.

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All of these could go a long way. 

What can a higher credit score do for you in the new year? A lot, actually.

Not only might a higher credit score make it possible to qualify for the best credit card offers out there (you know, the ones with those amazing rewards programs), but it might also make it so you’re eligible for the lowest borrowing rates available. And if you’re planning to apply for a larger loan, like a mortgage, in 2023, shaving even a tiny bit off of your loan’s interest rate could result in a bunch of savings over time.

Now you should know that credit scores range from 300 to 850, and that once your score reaches the 800 mark, you’re pretty much set when it comes to borrowing options. In other words, with a credit score of 800 or above, you’re in a very strong position to not only qualify for a loan, but to snag a competitive interest rate on it. So there’s no need to stress yourself out to raise your score from, say, an 820 to an 840.

But trying to raise your score from a 750 to an 800 makes sense, as does trying to take a score in the mid- or upper 600s and get it into the 700s range. And here are a few ways to go about that.

1. Pay all bills on time

Your payment history carries more weight than any other individual factor when calculating your credit score. So if you’re able to pay every bill you receive in 2023 on time, you might see your credit score improve in the course of the year.

2. Lower your credit utilization ratio

If you have no idea what a credit utilization ratio is, you’re probably not alone. And it’s not a super complicated concept. It’s basically a measure of how much of your available credit you’re using at once. If you have a total spending limit of $10,000 across your different credit cards, and you’re carrying a $4,000 balance all-in, that puts your utilization at 40%.

A credit utilization ratio above 30%, however, can bring down your credit score. So to lower that ratio, you have a couple of options.

First, you could pay off some existing credit card debt. But if you don’t have the money to do so, you can instead try getting your total credit card limit raised.

The latter may be an easier route to take, but be careful. If you raise your total spending limit but keep charging more expenses against it, you’re not going to get ahead. Rather, your goal should be to raise your spending limit but make sure your total balance doesn’t grow.

3. Correct errors on your credit report

Your credit report might contain an error you don’t know about. And that error could be dragging your credit score down.

If you can’t remember the last time you checked your credit report, or if you know for a fact that you’ve never done so, add that to your list of early 2023 tasks. Credit reports are actually free on a weekly basis in 2023, so if you spot an error and work to get it fixed, you’ll have an easy time pulling your credit report to follow up.

A higher credit score could make you a stronger borrowing candidate in 2023. And these moves could be your ticket to a higher score well before the end of 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.The Motley Fool has a disclosure policy.

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