Money Management

It’s great to have emergency savings. But here are a few signs that you may have gone overboard. [[{“value”:”

Last year, SecureSave reported that 63% of Americans could not cover an unexpected $500 emergency expense by tapping their savings accounts. And if you’re someone with less than $500 to your name, you may have to start seriously rethinking your spending to give your cash reserves a boost.

But what if you’re in the opposite boat? What if your emergency fund is more than complete, so much so that you’re confident you could handle any surprise expense that were to come your way?

Clearly, that’s a great position to be in. But having too much money in your emergency fund is also a problem. And here are a few signs that you may be at that point.

1. You have more than a year’s worth of expenses in the bank

Most people can get away with saving enough money to cover three to six months of bills in their emergency funds. But if you’re self-employed, own a business, or have a very unique job that’s hard to replace, then it could pay to save beyond six months’ worth of expenses. However, if you’re sitting on more than a year’s worth of cash, you’re probably doing yourself a disservice.

It’s true that savings accounts are paying pretty generously today. But the 4% interest rate or higher you might snag now isn’t the norm. Over time, your savings might pay you more like 2% on your money, whereas if you were to invest your excess cash in the stock market, you might get a 10% return on your money, since that’s in line with the market’s average over the long term.

In fact, let’s say your essential monthly bills come to $4,000, and you have a $60,000 emergency fund. That’s probably $12,000 more in emergency savings than you need even if you’re being very conservative and aiming for a 12-month fund.

If you were to earn 2% on that $12,000 over the next 20 years, you’d grow that $12,000 into a little under $18,000. If you were to invest it and earn 10% annually, in 20 years, your $12,000 would be worth almost $81,000.

2. You have a minimal IRA or 401(k) balance

Your emergency savings should absolutely take priority over your long-term savings. But it’s important to fund an IRA or 401(k) for retirement consistently so you have funds to cover your living expenses as a senior. If you have more than a year’s worth of bills in your emergency fund and, say, $3,000 in your IRA at age 35, it may be time to remove some money from your savings and put it into your IRA instead.

To be clear, you need to have earned income to fund an IRA. But let’s say you’re earning a $60,000 salary this year and are 35 years old. This means you can put up to $7,000 into an IRA in 2024. And it’s OK to take that $7,000 out of your savings and transfer it over as long as you earn the equivalent of that sum or more.

3. You keep putting off the same financial goals despite earning more than you spend

Maybe you’re hoping to swap your apartment for a condo of your own that you can build equity in and customize to your taste. Or maybe you want to upgrade your barely-functioning car to a more reliable vehicle.

These are expenses you have to save for. But if you’ve been banking money for many years and are nowhere close to your goals, then it may be time to rethink your emergency fund.

If you spend $4,000 a month on essential costs and have a job you could probably replace within six months if you got laid off, then you may not need a $36,000 or $48,000 emergency fund. Instead, you may be just fine to take some of that cash and use it to meet the goals you’ve been putting on the back burner.

It’s definitely a smart, savvy thing to have a fully loaded emergency fund. But there are different ways to define what that means. And in some cases, you may be just fine having enough cash to cover six months of expenses without going beyond that point.

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Maximizing your pension is key to a more comfortable retirement. Here’s how to stretch your funds further. [[{“value”:”

Navigating retirement alone can be both challenging and exhilarating. With the freedom to design a life that fits their desires, single retirees have a golden opportunity to stretch their pensions and enjoy their newfound leisure time.

From budgeting wisely to maximizing benefits like Social Security, here are some crucial strategies to ensure your pension and savings provide an enjoyable retirement.

1. Master budgeting

First and foremost, a meticulous budget is essential for managing your fixed income in retirement. Begin by listing all your expenses and categorize them into essentials (housing, food, healthcare, etc.) and non-essentials (travel, hobbies, etc.).

Utilize budgeting frameworks, such as the 50/30/20 rule (adjusted to fit retirement needs), to allocate income efficiently. The 50/30/20 rule is a budgeting method that allocates after-tax income into three categories: 50% for essentials like rent and groceries, 30% for discretionary items like entertainment, and 20% for savings and debt repayment. This approach helps manage finances by balancing necessary expenses, personal desires, and financial goals.

Implementing budget tools or apps to monitor spending helps pinpoint areas where cuts are possible, saving money for more enjoyable pursuits. Small savings on regular expenses can significantly enhance the flexibility of your personal finances.

2. Optimize your Social Security benefits

A significant aspect of retirement planning is deciding when to start taking Social Security benefits. You can begin receiving benefits as early as age 62, but delaying your claim can be financially advantageous. For each year you delay beyond your full retirement age (FRA) until age 70, your monthly benefit increases by 8%. This can substantially boost your lifetime earnings from Social Security, providing more cushion for your later years.

Consult a financial advisor to analyze the best time to start your benefits, especially considering your health, expected longevity, and financial needs. This decision can greatly impact your overall retirement strategy.

3. Downsize your lifestyle

Consider the benefits of downsizing your living space. Moving to a smaller home or apartment can significantly cut monthly expenditures like utilities, maintenance, and property taxes. Plus, selling a larger home can release equity, increasing your financial reserves.

Decluttering by selling items you no longer need also adds a financial boost and simplifies your lifestyle. Use online platforms such as eBay, Craigslist, and Facebook Marketplace to sell possessions, turning clutter into extra cash that can help manage unexpected expenses or fund leisure activities.

4. Utilize senior discounts

Don’t overlook the plethora of discounts available to seniors. From travel and leisure to dining and retail, using these discounts can make a significant difference in how far your pension stretches. Always inquire about senior discounts, as they may not always be advertised.

Joining organizations like AARP can provide access to a host of exclusive deals on insurance, healthcare, and travel tailored specifically for seniors, which can further optimize your spending.

5. Invest in your health

Maintaining good health is a vital investment. By keeping active and eating well, you can reduce future healthcare costs. Regular health check-ups and being proactive about medical issues can also prevent more significant expenses later. Review your health insurance annually to ensure it still meets your needs, especially as Medicare and similar programs allow plan adjustments based on health changes. Opting for the right plan can save a considerable amount of money.

Retirement is a phase filled with potential for personal growth, relaxation, and pursuit of interests. By smartly managing your finances, optimizing your Social Security benefits, and maintaining your health, you can ensure a stable and fulfilling retirement. Embrace these strategies to maximize your resources and enjoy the freedom retirement brings.

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Spending up to the limit on any credit card is never a good idea. Read on for the particulars of doing so with a business credit card. [[{“value”:”

Opening a small business credit card can be a smart move for nearly any business owner. These cards can help you cover business expenses and pay them off over time, keep your business expenses separate from your personal ones, and even let you benefit from cash back or rewards on your spending.

But what if you spend up to your credit limit (also known as maxing out the card)? Nothing good. Let’s take a closer look.

You could damage your business’s credit score — or even your personal one

You might not have dug into the intricacies of credit scores before, but you should know that the amount of credit you’re using relative to the amount you have (also known as your credit utilization ratio) is a pretty significant piece of the puzzle. It makes up 30% of your FICO® Score (the most commonly used consumer credit score). The recommendation is that you keep your credit utilization ratio below 30% — so on a credit card with a $10,000 limit, you should be using no more than $3,000 of it at any given time. Using 100% of that limit is therefore bad.

Maxing out the card could impact either your business’s credit score (yes, it has its own), your personal credit score, or both, depending on the card issuer’s policies. Sometimes, business credit card issuers also report card use behavior to consumer credit bureaus. So a maxed-out card has the potential to negatively impact your personal finances, too.

You might be on the hook for fees

Some business credit cards work a bit differently than regular consumer credit cards — they’re instead designated as “pay in full” cards. This means you’re not allowed to carry a balance forward while only making a minimum payment every month.

Instead, you have to pay off the entire balance every month or you get a fee tacked on, often around 2.99% on top of your balance. If you’ve maxed out a card with a credit limit of $10,000, that’s an additional almost $300 on top of your balance. You might find your debt spiraling out of control with an additional fee every month.

You’ll owe large payments

The payments you’ll owe on your maxed-out card may be pretty high. According to Experian, minimum payments are calculated as a flat percentage of your balance or a percentage along with the cost of interest and fees. Let’s say your card with a $10,000 limit charges 4% of the balance as a minimum payment — that gives you a $400 minimum payment. That’s a significant amount of money to cough up every month. If your card charges interest and fees alongside a percentage, that percentage will likely be lower (perhaps 1%).

But if the card has an interest rate of 22.63% (the average rate on accounts charging interest as of February 2024, according to the Federal Reserve Bank of St. Louis), you’re still looking at high payments and a long payoff time. Let’s say you pay $500 per month toward your $10,000 balance. It’ll take you 25 months to pay it off, and you’ll pay $2,672 in interest over that time period.

RELATED: Credit Card Interest Calculator

You might struggle to cover your expenses

Finally, if you’ve charged up to the limit on your business credit card, you might be stuck without a way to pay for needed supplies because you won’t be able to make any more charges on the card. While it’s a good idea to have cash in reserve before you start a business (and yes, your business really should have an emergency fund), everyone’s circumstances are different. If you had to launch your business with little or no cash saved up, your credit card is likely a vital part of the financial picture, and no longer being able to use it to pay for your expenses could be a real hardship.

In short, it’s not a great idea to max out your business credit card because none of the consequences are good. If you’re struggling with your business’s cash flow, look into getting your clients to pay their unpaid invoices or see if there are spending areas you can cut back on. Managing a small business isn’t easy, and if managing the financial side of it is giving you problems, you are surely not alone.

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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 recommends Flow. The Motley Fool has a disclosure policy.

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You can passively earn money with a CD. Read on to find out how much $10,000 could become. [[{“value”:”

Certificates of deposit (CDs) have become popular places for investors to put some of their cash lately, thanks to their generous annual percentage yields (APYs). CDs are currently paying yields of 5.00% or higher.

If you’ve got a large sum of money, like $10,000, a CD is a safe place to let it grow. Here’s how much your money could earn, and a few things to know before you open a CD.

How much you can make with $10,000 in a CD

How much you earn from your CD depends on the amount you deposit, the CD’s APY, and the term length. Let’s assume you have $10,000 to invest and are considering a few CD options with different CD rates and term lengths.

Here’s how much you can make with $10,000 in a CD with a 5.00% APY:

$500 in interest in one year$1,025 in interest in two years$2,762 in interest in five years

If, on the other hand, you invest $10,000 in a CD with a 4.00% APY, you’ll earn:

$400 in interest in one year$816 in interest in two years$2,166 in interest in five years

These are impressive earnings, considering you don’t have to do anything to get this return besides opening an account and leaving your money in it.

What happens if you withdraw some money early?

CD rates are generally guaranteed. But if you withdraw money from the CD before the term length is up, you’ll be charged a fee, which will lower the overall percentage you earn from your CD.

For example, let’s assume you put $10,000 into a 2-year CD paying 5.00%. But after one year, you have a financial emergency and take your money out. In this scenario, you’d have to pay a penalty fee of about $122, and your effective CD rate would drop to 3.78%.

Keep your money in the account for the full term to avoid penalty fees and earn the full CD rate.

Banks can charge different fees, but most will charge 90 days of simple interest on the amount withdrawn for CDs of two years or less. For CDs longer than two years, you’ll typically be charged 180 days of simple interest.

Tip: No-penalty CDs are available, but they usually pay a lower rate than traditional CDs.

When CDs make sense

CDs are a great investment if you can get a high APY and you’re looking for a stable place to put your money.

With a (nearly) guaranteed APY, CDs can be an excellent place to earn interest that outpaces inflation. For example, a CD could be a good option if you’re near retirement and want a safe place to let your cash grow and don’t mind it being locked away.

Just don’t put any money into a CD you might need for an emergency. If you want a high-yield account that still gives you easy access to your cash, choose a high-yield savings account instead. Savings account APYs are not locked in, unlike with a CD — they are variable. But in exchange, you can withdraw your money anytime without fees.

But if you don’t mind having your money tied up for the CD term length, and want a guaranteed rate (as long as you don’t withdraw money early), opening a CD may make a lot of sense.

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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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