Money Management

Personal finance gurus often say that your emergency fund needs enough cash for three months (or more) of expenses. Let’s see if that’s realistic. [[{“value”:”

I’ve read it (and written it, and said it) so many times that I can hear it in my sleep. It’s become a semi-automatic pronouncement from personal finance gurus that “you need three to six months of emergency savings in the bank.” But is that true? How realistic is that three-to-six month figure, really? Have personal finance gurus been leading us astray?

Many Americans struggle to save. The typical American savings account balance (according to The Motley Fool Ascent’s research) is only $1,200. But even though most Americans do not have even three months’ worth of cash in the bank, they’re managing to keep paying bills and living life. Many Americans are living paycheck to paycheck, but they’re apparently getting by with less emergency savings.

So what actually is the ideal emergency savings fund? Why do people need emergency savings in the first place? Let’s look at the real reasons why you need some cash in the bank, and why this usual bit of “gospel truth” of personal finance advice might not fit the reality of most people’s lives.

Why you need an emergency savings fund

The No. 1 reason for having emergency savings is to help keep a roof over your head and cover your bills in case of a loss of income. If you lose your job, you might need a few months to find a new one. That’s why most personal finance gurus recommend keeping three to six months’ worth of expenses in the bank.

But here’s the thing: unless you have exceptionally bad luck in your career, most Americans have jobs. As of March 2024, the U.S. unemployment rate was only 3.8%. A strong job market means that most people can (hopefully) find a new job quickly after losing a job. And even if you get laid off, you will typically have unemployment benefits, or maybe even a severance package to cover some (or all) of your monthly budget.

Most people in America are never going to be in a situation where they suddenly have $0 of income for six whole months. Even if you can’t find a new job right away, even if your unemployment benefits run out, you can start a side hustle, start driving for ride-hailing apps, get a part-time job, or otherwise start making some extra cash until you find your next full-time paycheck.

Instead of stressing out because you don’t have three months’ or more of emergency cash in the bank, it’s time to consider a new approach.

The ideal minimum emergency savings fund: $2,467

Some recent research suggests that the ideal emergency savings fund is much lower than three to six months’ worth of expenses. Emily Gallagher, a professor of finance at the University of Colorado, co-authored a study in 2019 (“Rules of Thumb in Household Savings Decisions: Estimation Using Threshold Regression”) which found that the ideal emergency fund amount is only $2,467, or about one month of income for a lower-income household.

Through her research and analysis, Gallagher and her co-author found that this (smaller) emergency fund was an ideal amount to keep families from experiencing severe financial hardship. You might not need three months’ worth of cash in the bank. Just one month of income in the bank could be enough to fix your car, pay for a medical expense, and avoid falling behind on rent or other bills.

That $2,467 target has probably gotten larger in the past few years because of high inflation, but the point remains the same. An emergency savings fund doesn’t have to pay for your normal lifestyle for month after month. It just needs to be enough to keep your head above water until you get to a better place in life.

Bottom line

I don’t mean to sound blasé about the idea of unemployment and the risks of not having enough savings. But it’s just not realistic (and sounds condescending) for personal finance gurus to act like — of course! — everyone should be able to save thousands of dollars for emergencies. Most Americans don’t have $500 in the bank. This country is an expensive place to live.

Many Americans depleted their savings accounts during the last few years of rising prices and economic uncertainty. If you don’t have the perfect, ideal three to six months of emergency savings in the bank as recommended by personal finance gurus, don’t feel bad, and don’t beat yourself up about it. You’re not alone. Instead, aim for an emergency fund in the range of $2,500. That’s the minimum amount of emergency cash that people typically need to avoid the worst financial catastrophes, like getting evicted or losing the car that gets them to work.

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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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Rewards cards advertise their rewards as rates, so you need to do some math to see real numbers. Here’s how they play out. [[{“value”:”

I think one reason some folks don’t understand the value of rewards credit cards is because they’re given information in the wrong formats. It’s all fine and good to say you could earn 2%, 3%, or even 5% cash back — but what does that mean?!

For instance, when an issuer tells me I can earn 5% cash back on gas, it sounds great. But, in reality, I don’t have any idea of how much actual money that puts into my bank account. So, I thought it was time to fix that.

An average driver can earn around $100 a year

To get a realistic look at how these cards perform, let’s crunch some numbers. According to AAA, the average cost of gas right now is $3.68 per gallon. And the EPA says the average vehicle gets 26 miles per gallon. Using those numbers, here’s what we get:

Typical drivers tend to cover between 10,000 and 15,000 miles a year, so you’re looking at earning $71 to $106 in extra cash each year if you use a top-earning card. And if you’re facing even longer commutes than average, that number could top $175 or more every year.

How to choose a gas rewards card

Pretty much every major credit card issuer has at least one rewards card with bonus rewards on gas. While this is great from a competition standpoint, it can make it a little challenging to pick the best card for you.

In general, the choice will be: Do you want the highest possible rate on gas, or do you want a card with competitive rates on gas and other useful categories?

The case for a dedicated gas rewards card

If you drive a ton of miles and fill up regularly, a dedicated gas credit card lets you focus on maximizing those rewards. You can simply find the card with the highest possible rate without worrying about what other perks or rewards the card may offer.

One thing to keep in mind here is whether you want to pay an annual fee. A few great gas cards actually require either a membership fee (Costco and Sam’s Club come to mind) or an annual card fee.

If you’re considering a card with a fee, be sure you know you’ll make back that fee in rewards (or other perks). Fees are only worth paying if they pay off in turn.

A multipurpose card

Folks who aren’t necessarily road warriors may prefer to find a credit card that has a good rewards rate on gas — while also offering a good (or great) return on their other top spending categories. This lets you cover at least two types of purchases with one card, ensuring you’re not using up wallet space with a card you rarely pull out.

So, for instance, you can find a card that offers a good return on both gas and groceries. I’ve even seen triple-threat cards that will provide bonus rewards on dining, travel, and gas.

Whatever you do, avoid gas station cards

When you’re out there looking for your perfect gas match, you may see some cobranded cards from popular gas station brands. It may seem counterintuitive, but avoid these!

Most gas station credit cards offer little more than a few cents off per gallon. This rarely competes with the cash back you can earn on a regular gas rewards credit card. Plus, the value actually decreases as gas prices go up, so you’ll earn less per gallon as prices rise.

Every once in a while, you’ll see a gas station store card with a decent welcome bonus and/or discount. This could be potentially worthwhile if you have a huge road trip or move coming up. But in all other cases, stick with a rewards credit card from a bank or credit union, not a gas station.

Fueling up our cars is a necessary expense in most of the country, so you may as well make the most of it — by letting it make the most for you, with a good gas rewards card.

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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.Brittney Myers has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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CDs are FDIC-insured and relatively risk free. But if you make any of these three errors, you could be missing out on bigger returns. Read on for more. [[{“value”:”

Certificates of deposit (CDs) are FDIC-insured and generally safer than investing in stocks and ETFs. What’s more, with CD rates hitting levels we haven’t seen in over two decades, you could earn a hefty amount of interest with one of today’s top-paying CDs.

That said, CDs aren’t totally risk free. While FDIC insurance will cover your deposits up to $250,000, you can make some common mistakes that hurt your CD earnings. You might know about early withdrawal penalties (which can cost you an arm and leg if you cash out your CD before it matures), but here are three other little-known errors that could cost you money.

1. Neglecting taxes

Like interest earned on other bank accounts, CD interest is taxed at both the federal and state level. If you have a short-term CD that matures in the same year you opened it, you’ll report your CD interest on your tax return for that year. Likewise, for long-term CDs, like those with 2-year terms, you’ll report the interest you earn each year, even if you didn’t withdraw or use it.

It’s important to set money aside to cover these taxes so you’re not left with a bigger tax bill than what you were expecting. Since CD interest is taxed at your ordinary tax rate, it would be prudent to set that percentage aside for tax purposes. For instance, if you’re in the 22% tax bracket, set aside 22% of your CD interest for taxes. Even if tax deductions and credits reduce your effective tax rate, you’ll still cover your bases.

Pro tip: Put the money you set aside for CD taxes into a high-yield savings account. That way, you can earn a little extra on money earmarked for taxes. Just be sure to factor in taxes for this interest, too, as savings accounts follow the same tax rules as CDs.

2. Cashing in on your interest

While banks generally don’t let you withdraw your initial deposit without paying a penalty, some will let you cash in on the interest you’ve earned. Often, CD providers will credit the interest periodically to your account (for example, monthly or annually) after which you can transfer it to a checking account penalty-free.

Withdrawing CD interest early could help you meet your monthly budget or avoid liquidating your CD account early to cover an emergency expense. But since CDs grow by compound interest, any withdrawal will slightly reduce your CD’s stated APY. If you can help it, try to keep as much money in the pot as possible, so as to increase your overall returns.

3. Misunderstanding APY

CDs are advertised by their annual percentage yield (APY), which is how much interest your CD will generate within a year. This assumes you keep your CD contract intact (no early withdrawals) and also don’t withdraw interest (if your CD allows for it).

While APY can help you calculate your overall returns, be sure you understand that the returns are annualized. For example, if you deposit $10,000 into a 3-month CD with a 5.30% APY, you won’t earn $530 in interest. You would if your CD term was 12 months. But since it’s three months, you’ll generate roughly $130.

In addition to these three errors, you might also leave money on the table by neglecting to shop around for CDs before locking into one. The truth is, many CD rates aren’t as competitive as the issuing bank or financial institution makes them seem. True, the CD rate may be several times higher than the national average, but if it’s not also as high as other rates for that respective term, you could be missing out on more interest. Take a moment to compare top-paying CDs for different terms and lock into one that truly gives you the best bang for your buck.

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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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Buy a house now, don’t wait for Fed Chief Jerome Powell to cut the federal funds rate. Learn why it’ll be worth it. [[{“value”:”

You may be hearing rumblings that there are lower interest rates coming. If you’ve been waiting to purchase your first home, you may be sitting out of the market just to see what comes of it. After all, why miss out on a good discount, right?

If you’ve been waiting for actions by Jerome Powell to get started on your hunt for a house, you really have to stop waiting. There’s no good reason to wait, and a lot of good reasons to get out there and start touring homes.

1. The federal funds rate is not the same as mortgage interest rates

Although the federal funds rate, the rate that the Federal Reserve sets, can influence the cost of your mortgage, it doesn’t set the cost of your mortgage. Case in point, the federal funds rate reached its current point at 5.33% in August 2023. That’s where it’s been ever since. But, the interest rate for a 30-year fixed-rate mortgage has been anywhere from its height of 7.62% in October 2023 to its low during the same period of 6.64% in January 2024.

If you’re waiting for the Fed to drop rates, you’re waiting on the wrong thing. What you want to see is the 30-year fixed-rate mortgage rate dropping.

2. When mortgage rates start to drop, buyer activity will increase

Real estate agents across the country are reporting that while it’s still hard to buy a home right now, it’s nothing like it was a few years ago when rates were lower. Today, inventory has slightly improved and buyers have thinned out somewhat, giving a new buyer trying to get on the homeownership ladder a fighting chance. This is partially due to the psychological barrier created by the combination of a 6% to 7% mortgage interest rate and the promise that a rate cut is coming later this year.

Even though a rate cut has no direct effect on mortgage interest rates, they’ll certainly drop a little bit, the buyer floodgates will fly open, and the limited inventory problem that plagued the market in 2021 and 2022 will be back. Everybody will be trying to buy a house if they’ve been waiting.

It was very obvious when mortgage rates started to dance with 5.5% in summer 2022 that the buyers who didn’t have to buy right away decided to wait. The Mortgage Bankers Association of America’s Purchase Index, which is a measure of how many mortgage applications are received by lenders, dropped precipitously at that time and hasn’t recovered, even though mortgage interest rates have not changed significantly. The inverse will likely happen when those rates do finally fall.

3. More buyers, constrained supply mean prices will go up again

The problem with any reduction in the 30-year fixed-rate mortgage average in the near term is that it can’t drop enough. A whopping 93.13% of mortgage holders have a rate at or below 5.5%. And 83.63% of those have a rate under 4.5%. With the 30-year fixed-rate mortgage average at 6.64%, there would have to be a violent crash for the housing market to find 4.5% again any time soon, which means that mortgage holders will continue to stay in their homes for as long as they can.

I know you hear that a lot in the news, but here’s the why of it. Let’s say that I have a house that was priced at $200,000 when I bought it with a 4% mortgage. That makes my principal and interest payment $859.35. But like so many people with these mortgage rates, my area has seen an across the board value increase of 40%, so my home and those just like it are now worth $280,000. Even if I bring $80,000 to closing as a down payment — that’s all my appreciation — my house payment for the same house at 6.64% is now $1,282.61.

I am now paying $5,079.12 per year extra to live in a house very similar to the one I just sold. (Let’s stop for a chart break)

What if I instead bought down to maintain my payment?

As you can see in the table below, doing so, if it’s even possible in my market, is a huge step down, not a small one. That house is worth 30% less than the one I chose to buy initially — it’s 30% less neighborhood, or square footage, or finishes. That’s a big change to my lifestyle, so there’s no way I’m letting go of the home I have now for the same payment.

My advice: buy now, before everyone else does

It’ll be a rush to the finish line if you wait to buy on the hope rates drop because supply will remain locked up for some time to come, and frankly, prices are only going to go up more when rates do drop. Buy now, beat the rush, and make your life easier.

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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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There are thousands of savings accounts out there. Focus on these five criteria to find the best one for you. [[{“value”:”

We’ve come a long way from the days of hurrying to deposit paychecks at our local bank before it closes. So many banking transactions are now just a smartphone and an internet connection away. But modern banking isn’t without its challenges.

With so many institutions competing for our attention, it’s easy to feel paralyzed sifting through all the choices. Even deciding which factors are most important can feel overwhelming. But if you focus on the following five things, you can’t go wrong.

1. FDIC insurance

Federal Deposit Insurance Corporation (FDIC) insurance protects your money up to $250,000 per person, per account type, per bank in the event of bank failure. Basically, if your bank mismanages its funds and goes under, you won’t lose your hard-earned cash.

Nearly all savings accounts in the U.S. have FDIC insurance, but it doesn’t hurt to verify that for the account you’re considering so you know your money will be safe there. Usually, the bank will have a little notice in the footer of every page saying it’s FDIC-insured. You can also go to the FDIC’s website and look the bank up there.

One note for those working with credit unions: FDIC insurance is only for banks, but don’t panic. Credit unions have something similar called National Credit Union Administration (NCUA) insurance. This provides the same protection as FDIC insurance.

2. Competitive APY

A savings account’s annual percentage yield (APY) is usually its biggest draw. This determines how much interest you earn on your money over time. A higher APY means more money for you.

APYs fluctuate over time depending on how the Federal Reserve changes the federal funds rate. Right now, the best APYs are around 5%, which is high. If you earned this rate for a full year on a $10,000 balance, you’d make $500. That’s much better than the 0.01% that many brick-and-mortar banks offer. That would only earn you $1 on your $10,000 balance after a year.

Interest rates are expected to fall later this year, so what’s considered a competitive APY will change, too. If you have a savings account you’re considering, compare its rates to some of the best high-yield savings accounts out there to see if it’s competitive. Or start with a list of great high-yield accounts if you want to be sure you’re getting a good deal.

3. No maintenance fee

Maintenance fees are monthly fees you pay to own your savings account. They’re more common with brick-and-mortar banks who use these fees to offset the cost of maintaining all their branches. Often, there’s an option to waive them, perhaps by maintaining a certain minimum balance. Those who can’t do that could pay up to $30 per month. This could be more than you earn in interest, depending on the account’s APY and your balance.

Fortunately, most high-yield savings accounts don’t charge these fees today. Usually, a bank will advertise its lack of fees on the savings account page of its website. But if you’re not sure whether there’s a maintenance fee, a quick peek at the fee schedule on the bank’s website or a call to customer support should help you figure it out.

4. Good online and mobile tools

Most people handle their daily banking activities online these days because it’s easier than visiting a branch. Nearly all banks and credit unions enable you to set up direct deposit, transfer funds, and pay bills through an online account or mobile app. Ease of use varies, though.

It’s worth taking a few minutes to check out the user reviews for the bank’s mobile app before opening an account with it. In particular, look for recurring issues, like glitches or limited features. Decide if you can live with these shortcomings. If not, explore some other options.

5. Easy access to funds

Savings accounts keep your money close at hand, but they’re not intended to be as accessible as checking accounts. Checking accounts are for day-to-day spending, but money you keep in savings accounts is ideally supposed to stay there a while.

Because of this, you probably won’t find check-writing capabilities with a savings account, and ATM cards, while becoming more common, are still rare. Some banks also charge customers if they make more than six monthly withdrawals from their savings account. This used to be federal law, but the government waived it during the pandemic. Some institutions have kept it in place anyway or modified it slightly to allow a few more free monthly transactions.

These rules may not bother you, but it’s worth understanding how the bank limits your access to your cash anyway. Contact the bank with any questions and review its fee schedule so you understand what it can charge you for.

Focusing on the five things discussed above may not help you narrow down your choices to a single savings account, but it should help weed out the weaker choices. Choose a few of the remaining contenders and do a deep dive into their features. Then, choose one you like and fill out the online application.

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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.Kailey Hagen 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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Costco members can get extra value out of these amazing $20 buys. Check out the full list here. [[{“value”:”

An annual Costco membership ($60) grants you access to an airplane-hanger stocked with tubs of butter, giant crab legs, cheap (but delicious) rotisserie chickens, and this giant Crocodile water slide thingy for your kids. Indeed, as we get closer to summer, Costco is starting to stock some new products, some of which are already on sale. If you’re looking for something new to try at Costco, here are five amazing buys under $20.

1. LaCroix Sparkling Water

Price: $8.99

Just in time for the warm weather, this 24-pack of LaCroix has three summer-y flavors, including hibiscus, limoncello, and watermelon (or pasteque). The per-can price for this is $0.38, which beats Amazon’s price ($0.50) for just the limoncello. Since the regular price is $11.49, I’d stock up on this while you can still save money.

2. Outdoor blanket

Price: $18.99

This outdoor blanket measures 60″ in width and 72″ in length (five by six feet) and can be packed into a small carrying case. It comes in four different designs — bears, sun, lights, and stripes — and is perfect for camping, picnicking, or pretty much any contact with grass or dirt. Better yet, the blanket is currently discounted to a super low price. You can find the same package blanket on Amazon for $33.95.

3. Swedish dishcloths

Price: $16.99 (online; may be cheaper in-store)

Swedish dishcloths are ultra-absorbent and can last as long as 15 rolls of paper towels, according to Business Insider. This 12-piece set of Swedish dishcloths from Costco comes in a few cool designs, like mushrooms and fruits. To be fair, you can find cheaper Swedish dishcloths from Walmart, including a 12-pack of bird-designs for $15.99. But if you buy these Costco dishcloths at your local warehouse, you’ll get a cheaper price than what’s found online.

4. Men’s flip flops

Price: $18.99

The Flojos Men’s Flip Flop comes in sizes 8 to 13 and sport two dark colors, black and brown. The price is pretty low for this particular brand, as Amazon sells the same flip flops and sizes for $24.99. Flojos Ladies’ Flip Flops are also reasonably priced at $16.99. What’s more, you can save even more on both flip flops by mixing and matching with other clothes at Costco. If you spend $50 on eligible clothes, you can save $15 total, while those who spend at least $100 get $35 off.

5. Mixing bowls (set of eight)

Price: $19.99 (online)

For the entire month of May, you can get a $10 discount on the MIU Stainless Steel Mixing Bowl with Graters Set of 8, bringing the price down to $19.99. The four bowls are nestable and dishwasher safe. What’s really neat is you can put a grater on the lid and sprinkle cheese over salads. This could save you some mess if you, like me, tend to toss grated cheese over the counter and floor like a burst piñata.

All in all, if you’re looking for budget-friendly deals under $20, Costco has plenty to offer. If you can, I’d recommend using a Visa card that earns 2% back, like Costco’s own credit card. This 2% becomes 4% when you pair it with a Costco Executive membership. Don’t forget to check Costco’s website every now and then to see what members-only savings events might be going on, especially as we approach summer holidays like Memorial Day.

Top credit card to use at Costco (and everywhere else!)

If you’re shopping with a debit card, you could be missing out on hundreds or even thousands of dollars each year. These versatile credit cards offer huge rewards everywhere, including Costco, and are rated the best cards of 2024 by our experts because they offer hefty sign-up bonuses and outstanding cash rewards. Plus, you’ll save on credit card interest because all of these recommendations include a competitive 0% interest period.

Click here to read our expert recommendations for free!

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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, Visa, and Walmart. The Motley Fool has a disclosure policy.

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