Put this tactic to work when planning for your finances now and into the future. adriaticfoto / Shutterstock.com
Consumption smoothing is a financial planning concept developed and tested by economists. It refers to the somewhat aspirational idea that people strive to maintain a relatively stable and predictable standard of living over their lifetime through all phases of life.
I’m intentionally not chasing the highest CD rate available today, but there’s a big reason for that. Read on to find out what it is. [[{“value”:”
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If you’re like me, you get a little thrill every time you snag a great deal or save money. It’s a good feeling to sign a loan at 6.2% right before rates climb to 6.5%. Similarly, it feels awesome to stumble across a random supermarket sale that brings the cost of your favorite cereal down to $3.29 from the usual $4.99 per box.
Because I love getting the best deals in the context of financial products, I’ve been known to spend a lot of time researching certificate of deposit (CD) rates. I did that last year when I had some spare cash to put into a CD, and I’ve done it again this month.
During my research, I found some CD rates at a lesser-known bank that I’m pretty happy with. But I’m intentionally not chasing the highest rate this bank is offering for one big reason.
A bank I already have a CD at is currently offering a 5.05% APY on a 12-month CD, versus a 4.50% APY for a 60-month CD. Trust me when I say that I’m really tempted to take the 5.05% and run with it.
While you’ll find a number of 12-month CDs being offered at just above 5.00% today, I don’t expect that trend to last much longer. So I know that if I want a CD at over 5.00%, I have to act quickly, and I’m probably looking at a 12-month term or something in that vicinity. However, the 60-month CD at 4.50% makes a lot more sense for my personal situation, even though it comes with a lower rate.
Right now, I’m aggressively trying to save for college because that milestone is not so far away for my oldest child. Since I have most of my college savings in stocks, I want to put some money into cash in case the stock market performs poorly in the coming years and I don’t have time to ride out a downturn as tuition bills start to come due.
My aim is to put enough money into cash to cover two to three years of college tuition. This allows me that much time to ride out a stock market decline. It also explains why a 60-month CD at 4.50% makes more sense for me. I’d rather accept a slightly less competitive rate on my money but know that I’m still locking in a pretty decent rate for five full years. If I go with the 12-month CD, sure, I get 5.05% — for now. But what happens in a year from now? Since I’m looking at a five-year goal, it makes sense to have my CD’s term match that time frame.
It’s not easy to commit a chunk of money to a longer-term CD. But here’s the thing: The reason CD rates are so high right now is because interest rates are up in general following the Federal Reserve’s series of interest rate hikes that took place in 2022 and 2023.
The Fed is expected to start cutting rates later this year, though. Once a few of those rate cuts take hold, you may be hard-pressed to find a CD paying 4.50%, let alone 5.00%. So the way I see it, it also makes sense to open a 60-month CD now at a strong rate that’s not the highest because that same rate may not be available for many years once the Fed starts to make a move.
To put it another way, yes, I’ll lose out on a bit of interest in the next 12 months by choosing a 60-month CD over a 12-month CD. But all told, I’m confident I can earn more money in interest all-in with a 60-month CD than a series of five consecutive 12-month CDs based on where I think interest rates are going.
So again, if you’re like me and enjoy getting the best deals, you may want to look past the numbers on your screen and instead consider the big picture. Forgoing a 5.05% APY in favor of 4.50% might seem like you’re losing out at first. But in the long run, you could come out a serious winner.
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High costs of veterinary bills are causing pet owners to face mountains of “pet debt.” See how pet insurance can protect your bank account. [[{“value”:”
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Out-of-pocket healthcare costs aren’t just for people anymore — many American pet owners are unfortunately racking up some big “pet debts” for veterinary care. People love their pets and want to give them the best care possible. And veterinarians do heroic work of providing preventive care, treating pets’ chronic conditions and age-related diseases, and helping pets live longer lives.
According to analysis from Spot Pet Insurance, emergency veterinary bills can cost more than $5,000 per visit, pet hospitalizations can cost more than $1,500, and lifesaving pet care can cost tens of thousands of dollars. If you don’t have pet insurance, the cost of caring for your furry friends could hit $50,000 or more.
Let’s look at a few real-life examples of how pet insurance can save you from “pet debt.”
Erin Mickles is the pet parent of Guinness, a friendly and adventurous dog who is sometimes prone to mischief. One time while on vacation out of state, Guinness ate a pair of underwear — leading to a few days of vomiting and thousands of dollars of emergency vet bills. In fact, during one year, Guinness racked up a total of $14,662 of veterinary bills.
Fortunately, Guinness’s owners had pet insurance with Spot Pet Insurance. Mickles and her husband got reimbursed for a total of $12,889 of those vet bills (about 88%). Pet insurance helps people focus on their pet’s recovery instead of worrying about having enough money in their checking account to cover their expenses.
Spot Pet Insurance offers up to 90% cash back on vet bills and lets you visit any vet in the U.S. or Canada — so even if you’re away from home, you can still be covered. Spot also offers a 100% coverage option.
Sadly, pets can suffer serious diseases and medical issues like cancer and respiratory conditions, and chronic health ailments like diabetes and kidney disease. Spot Pet Insurance research shows a few of the most expensive treatment costs for serious conditions and emergency vet visits for dogs and cats:
Not all vet bills are a one-time cost either. Some chronic ailments like kidney disease can be expensive every month, for years. The average monthly cost of treating kidney disease for a dog is $500, and it’s $300 per month for cats.
Pet insurance can help cover your pet for everything from regular vet checkups to treatment for the most serious and life-threatening conditions. And keep in mind that not every vet bill is within range of the average costs listed here — some pets have more complex conditions or require advanced treatment that can be even more expensive.
According to data provided to The Ascent by Spot Pet Insurance, some of the biggest vet bills that Spot covered in 2023 included:
$17,000 for an emergency stomach condition$33,000 for an emergency respiratory condition$51,000 for an emergency cancer treatment
Don’t let your personal finances be derailed by the potentially huge costs of caring for your pet. Pet insurance can protect you from thousands of dollars of veterinary bills, especially if your pet develops a chronic condition or needs emergency treatment. People love their cats and dogs, and veterinarians can do amazing things to keep your pets living healthy, happy lives. And you don’t have to pay for all the costs out of pocket. The best pet insurance companies can help.
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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.
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Retiring comfortably doesn’t have to mean parting with tons of money each month. Read on to see how modest contributions to your nest egg can go a long way. [[{“value”:”
Image source: Getty Images
If you’re like me, it’s hard to focus on retirement plan contributions when you’ve got loads of expenses that need to be dealt with now. I mean, sure, I’d love to throw thousands upon thousands of dollars into an individual retirement account (IRA) or 401(k) every year and retire with a boatload of money. But sorry — gotta pay the mortgage first, and put food on the table, pay for medication, and cover the zillion other costs associated with running a household.
You’re probably in the same boat. And if you have kids, forget it — you could probably retire on the amount you’re paying your daycare center if it weren’t for the fact that you’re trapped forking it over just so you can hold down a job.
I used to think that retiring with a decent chunk of money was impossible. But these days, I’m feeling more optimistic about retirement. The reason? I ran the numbers and realized that it actually doesn’t take a ton of money each month to build up a really nice nest egg over time. In fact, you may be surprised at how little money it takes to retire with $1 million to your name.
You’re probably not going to believe me at first when I tell you that you can retire as a millionaire on $116 a month. But trust me — the numbers work.
If you sock away $116 a month (which is just under $1,400 a year) over a 45-year period, you could wind up with $1 million if your invested savings deliver a 10% yearly return during that time. And if you’re wondering about that 10%, it isn’t a random assumption — it’s consistent with the stock market’s performance over the past 50 years.
You may be hesitant to invest your retirement savings in stocks due to the risks involved. But here’s the thing — if you don’t go heavy on stocks, you might see a much lower return in your retirement portfolio, leaving you with less money to cover your expenses later in life.
And remember, the 10% return above accounts for years of stellar stock market performance as well as major downturns. So if you’re investing for retirement over a 45-year period, you have plenty of time to ride out market declines and come out a winner.
It’s more than feasible to end up with a 45-year savings window for retirement purposes if you begin funding an IRA or 401(k) in your early 20s. That has you retiring by your late 60s. But what if you’re 29, or 37, or 43, and you’ve yet to set aside so much as a dollar for retirement? Even in that situation, you’re not doomed.
Sure, you’re going to have to part with more than $116 a month if your goal is to have your savings reach the $1 million mark by your late 60s. But if you go heavy on stocks, you’re not talking about giving up half your paycheck by any means.
In fact, here’s the monthly savings amount it will take to retire by age 67 with $1 million, depending on when you start.
So there you have it. Retiring as a millionaire is possible even if you’re unable to set $10,000 a year or more aside for your future. And the sooner you start saving, the less money it’ll take on a monthly basis to reach that $1 million goal.
But make sure a stock investing strategy is part of your plan. Otherwise, you may have to relinquish a lot more of your hard-earned money over the years to reach the $1 million mark.
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
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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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Thinking of opening a Roth IRA? Read on for some important info about how these accounts work. [[{“value”:”
Image source: Getty Images
Some people prefer to save for retirement in a traditional individual retirement account (IRA) because of the upfront tax break on contributions. Roth IRAs don’t give you that same tax break on the money you put into your account.
Rather, Roth IRAs are funded with after-tax dollars. But unlike traditional IRAs, you never have to pay taxes on investment gains with a Roth IRA. And withdrawals from a Roth IRA are tax-free, too. That’s huge because many retirees find that money is tighter once they’re on a fixed income, so getting to keep every penny you withdraw could make your financial situation a lot less stressful.
But if you’re interested in investing with a Roth IRA, it’s important to be aware of how these accounts work. Here are three rules to keep on your radar.
The fact that Roth IRAs let you grow your money tax-free is a beautiful thing. Let’s say you contribute $10,000 to a Roth IRA that grows into $110,000 over time. That means you get to walk away with a $100,000 gain without paying the IRS a dime of it.
However, you should know that you need to have earned income to fund a Roth IRA. You can’t, for example, put your Christmas money into one of these accounts as a teenager and start growing tax-free wealth. You can, however, put earnings from a summertime job into a Roth IRA, up to the allowable limit set by the IRS each year. In 2024, that limit is $7,000 if you’re under age 50 or $8,000 if you’re 50 or older.
You might think that once you reach retirement age, Roth IRA contributions are off the table. But not so. There are no age limits for funding a Roth IRA, so as long as you meet the earned income requirement, you can contribute to one of these accounts in your 80s if you do choose to do so.
To be clear, though, Social Security benefits do not count as earned income for the purpose of funding an IRA — Roth or traditional. But if you collect those benefits while holding down a part-time job, you can contribute your job-related earnings up to the annual allowable limit.
As mentioned earlier, Roth IRAs do not give you a tax break on the money you put in. Because of this, the IRS won’t tax or penalize you for removing your principal contributions prior to age 59 1/2. With a traditional IRA, funds removed prior to age 59 1/2 generally trigger an early withdrawal penalty.
However, if you remove Roth IRA funds before age 59 1/2, you may be subject to taxes on the gains portion of your account (not the principal) if your account is less than five years old. So you’ll need to manage your early withdrawals carefully.
Of course, it’s a good idea to try to leave your Roth IRA funds intact until retirement so you’re not shorting yourself on money you might need later in life. But if an emergency expense pops up, you have the option to remove Roth IRA funds early without automatic penalties.
Roth IRAs are an extremely useful and flexible retirement savings tool. If you’re interested in using one, spend some time reading the rules so you can make the most of your account.
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
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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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If you’re a freelancer, you’re a small business owner. Take a look as we outline four avoidable banking errors freelancers sometimes make. [[{“value”:”
Image source: Getty Images
For some, the idea of striking out on their own is absolutely unappealing. But for more than 76 million of us, freelancing is the dream. It’s how we make our living while doing what we love. That said, there are pitfalls all freelancers should avoid, including these four banking missteps.
When you start freelancing, it’s easy to forget that any job you’re paid for is considered a business, and taxes will be due. After all, most freelancers take on jobs they enjoy, and it’s natural to associate enjoyment with a hobby.
One of the first things all business owners should do is set up an account separate from their personal checking account. A checking account dedicated solely to business makes it easier to track income and expenses. While it should not be your only bookkeeping method, a separate business account is useful when paying taxes and seeking business-related tax deductions.
Failing to set up separate accounts increases the odds that you’ll pull money from your business income to cover personal expenses. While it’s fine to transfer money earned to a personal account, it should only be done after taxes and other withholdings are deducted. Otherwise, you may find yourself short on cash when taxes come due.
Tip: While you’re setting up a bank account for your freelance business, take time to decide how you’re going to track income and expenses. Your method can be as simple as filing a copy of paid invoices in one file and receipts for the bills you’ve paid in another. Or you could take advantage of one of the many excellent small business accounting software programs. Accounting software makes it easy to find the information you need when you need it.
Approximately 300 words in, and we’ve already mentioned taxes twice. That’s because taxes are one of the primary concerns many freelancers have. What you want to avoid is receiving a tax bill because you failed to pay taxes on your income or you underpaid the taxes owed. The easiest way to avoid that pain is to stay on top of taxes throughout the year.
If you collect money through a payment platform like Venmo or sell on a marketplace such as PayPal, eBay, or Etsy, your income is now reported to the IRS. In other words, if you earn it, the IRS will know.
According to the IRS, anyone earning over $400 in net self-employment income must file an annual tax return. Self-employed taxpayers (like you) must also make estimated quarterly tax payments. Fortunately, it’s not hard to do. Here’s how:
Go through your invoices or check your accounting software to see how much you earned that quarter. Quarters are as follows: January to March, April to June, July to September, and October to December.Use one of the many self-employment tax calculators available online to determine how much you owe in relation to how much you earned that quarter. Don’t forget to figure out how much you owe in estimated taxes to your state. You can find estimated state tax calculators online, as well.The IRS offers several ways to pay your estimated federal taxes. Choose the method that works best for you. Check the Department of Revenue website for your state to learn how to pay those quarterly taxes. Each state has its own portal and method of payment.
While paying taxes is not fun, it is an essential part of living the freelancer’s life.
One of the biggest roadblocks freelancers face is forgetting they’re business owners. That may mean they never create a business plan that can help determine if their business is financially sustainable. As a business owner, you must also set financial goals, create a budget, and come up with a marketing strategy.
It may sound intimidating, but you don’t have to do everything at once, and you’re sure to learn on the job.
As a business owner, you must also plan for the “what ifs.” For example, do you have money put away in savings to cover emergency situations? Does your business require customers to come into your home? If so, do you have the appropriate level of homeowners insurance to cover any injuries they may suffer while there?
You may be short-changing yourself if you don’t shop around to find the best bank or credit union for your small business. That’s because all banks are not created equal.
Some offer a higher rate on products like certificates of deposit (CDs) and money market accounts (MMAs). Some charge ridiculous fees that chip away at your profits. Some may be banks you’ve never heard of, like some of the online banks currently offering the highest interest rates on accounts. The point is, you owe it to yourself to find a bank that doesn’t nickel and dime you or your business.
There’s no denying that freelancing for the first time involves a learning curve. However, once you’ve got it down, there’s no stopping you or your business.
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to 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.Dana George has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Etsy and PayPal. The Motley Fool recommends the following options: short June 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
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