Money Management

One of the biggest perks of a VA loan may also be a huge drawback. Read on to learn what to consider with this kind of mortgage. [[{“value”:”

In February, the median existing home sale price was $384,500, according to the National Association of Realtors. That’s a 5.7% gain from a year prior.

Now most conventional mortgage lenders require at least a 5% down payment at closing. But for a home costing $384,500, that means having to come up with $19,225.

Even if you have, say, $20,000 in your savings account, that isn’t enough to purchase a home whose down payment comes to $19,225. In that case, you’re basically wiping out your cash reserves to buy a home, leaving yourself with almost no money left over for moving expenses, initial repairs, and general financial emergencies.

But what if there were a way to buy a home with no money down? If you’re a U.S. veteran, there may be. It’s called a VA loan, and not having to put money down at closing is one of the biggest perks. But while that might seem like a huge benefit, it can also be a major drawback.

When you put your finances at risk without even realizing it

If you earn a decent wage but don’t happen to have a lot of money in savings, then a VA loan could potentially be a good choice for you. In a nutshell, not having to put money down could get you into a home and allow you to start building equity in it. As long as you’re confident you can afford the ongoing monthly payments, you’ve got a pretty good opportunity to dive into homeownership without having to potentially wait years to save up a down payment.

But there’s a problem with putting no money down on a home — you’re starting off with zero equity. And if your financial situation changes for the worse and home values start to decline (in general or in your area), you could be in for a world of upheaval.

Let’s say you buy a $300,000 home with $0 down via a VA loan. Let’s also say that in a year from now, your income takes a hit so you can no longer afford your home. If your home’s value is up to, say, $330,000, you’re okay. You might have to deal with the hassle of moving, but you could conceivably sell your home for a high enough price to pay off your mortgage in full.

But what if your home’s value doesn’t rise by $30,000, but rather, falls by $30,000? It can happen. At that point, you’re underwater on your mortgage if you took out a $300,000 loan a year ago and your home is now only worth $270,000 (although you’ll have made 12 payments into your mortgage, most of those initial payments go toward the interest portion of your loan, not its principal).

So imagine you can’t sell your home for a high enough price to repay your lender in full. You’ll either need to get your lender to agree to a short sale, which could negatively affect your credit score, or come up with the difference yourself. And chances are, if you didn’t have home down payment funds a year ago, making up that difference will be difficult to impossible.

Think twice before taking out a VA loan

There are certain benefits to signing a VA loan aside from the no down payment feature. You may, for example, be able to qualify for a more attractive mortgage rate with a VA loan than with a conventional mortgage.

However, if you’re going to sign a VA loan, consider making some sort of down payment if your finances allow you to. That way, you at least start off with a bit of equity and potentially reduce your chance of winding up underwater on your mortgage.

You should be especially mindful of the risks of a loan that doesn’t require a down payment when housing prices are so elevated. Today’s prices may not be sustainable once mortgage rates come down and more homes hit the market, which is expected to happen. So be very careful about buying a home with no money down at a time when home prices have the potential to fall.

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Atop the mountain of issues a small business owner must oversee, payroll taxes is one of the most important. Find out why. [[{“value”:”

At one point, you probably put a great deal of time and thought into whether you wanted to start a business. Would it be fair to guess that payroll taxes were not the first thing you considered at that time? If so, that’s fair. You had (and have) a ton on your plate. However, every small business owner must understand what payroll taxes are, how they work, and what happens if they’re not paid.

What are payroll taxes?

As the name suggests, payroll taxes are deducted from an employee’s paycheck. It’s the employer who is responsible for making those deductions. Payroll taxes fund essential programs like Social Security and Medicare. Taxes deducted for Social Security (retirement benefits) and Medicare (disability benefits) are referred to as Federal Insurance Contributions Act taxes, or FICA.

The Federal Unemployment Tax Act (FUTA) requires American businesses to help fund programs and benefits for unemployed individuals. You do this by paying unemployment tax for each employee. Your payment goes toward funding your state’s Unemployment Insurance (UI) trust fund.

For 2024, the FUTA tax rate is 6% on the first $7,000 from each employee’s yearly wages. That means no employer should have to pay more than $420 annually per employee ($7,000 x 0.06).

The bottom line cost

Here’s how much each party pays toward FICA:

Payroll tax for Social Security: The employee pays 6.2% of their income and the employer contributes another 6.2%Payroll tax for Medicare: The employee pays 1.45% and the employer contributes an additional 1.45%In total, the total FICA contribution is 15.3% of an employee’s annual income.

The contribution toward Social Security is required only on the first $168,600 of income. There is no wage limit for Medicare contributions. However, once annual wages and tips exceed $200,000, you must withhold a 0.9% additional Medicare tax. This additional tax is only imposed on the employee.

Is it difficult to figure payroll taxes?

Payroll software is certainly the fastest way to make the correct deductions, but the math is not difficult. Here’s a quick breakdown of how it’s done:

Find the employee’s gross income for the pay period. Gross income is the amount they earned before any deductions are made. Put this number aside, because you won’t need it again until step No. 5.Now, work only with employee wages that are subject to payroll taxes. For example, contributions to most retirement plans and health benefits paid on behalf of an employee are not typically subject to payroll taxes. Let’s say an employee earned $3,000 this pay period, but $100 went towards health benefits and another $300 went into their retirement plan. That would leave you with $2,600 of taxable income ($3,000﹣$400).Based on that number, calculate how much should be deducted for Social Security and Medicare taxes. To make this calculation, multiply the employee’s taxable income by 7.65%. For example, if an employee’s taxable income is $2,600, multiply that amount by 7.65%. $198.90 is the employee’s portion of FICA taxes.Using an employee’s W-4 information, figure out how much their federal income tax is. If your small business is in a state with an income tax, also figure out how much those taxes are. Taxes vary by state, so you’ll need to find out how much state taxes are.Subtract federal and state taxes, Social Security, and Medicare, employee health plan coverage, retirement plan contributions, and any other deductions from their gross income.

This is your employee’s net pay.

If bookkeeping is not your jam, you may want to hire someone to take care of the time-consuming tasks for you, once you have the money in your business bank account to do so without straining your budget.

What happens if a business owner fails to pay payroll taxes?

If you’re unable to pay employment taxes when they’re due, it’s likely that you’ll receive a notice from the IRS with a monetary penalty attached. If the taxes due remain unpaid and the IRS determines that you’re willfully withholding taxes due, it can place a lien on your business assets or file criminal charges.

Paying taxes on time takes discipline, but it’s made easier by never commingling business and personal funds. That means you should have a checking account for business and a personal account. You need a savings account for your business and one for your everyday life.

Unless you’re operating a charitable organization, there’s nowhere to hide from taxes, payroll and otherwise. As long as you factor them into your business plan, though, you should be good to go.

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Buying a home as a veteran comes with special considerations and a few potential pitfalls. Read on to find out how to avoid them. [[{“value”:”

If you’re a U.S. veteran in need of a mortgage, you may be wondering what options you have. While you could always apply for a conventional mortgage, you may want to consider a VA loan.

With a VA loan, you’re able to buy a home with no down payment. You may also be eligible for a more competitive mortgage rate on a VA loan.

But in the course of applying for your mortgage, there are certain blunders you might fall victim to. Here are three you should definitely do your best to avoid.

1. Not understanding how a VA loan funding fee works

While a VA loan doesn’t require a down payment, there are costs involved that you’ll incur. When you sign a VA loan, you’re required to pay a funding fee that’s calculated as a percentage of your mortgage amount.

The amount of the fee will depend on whether it’s your first time using a VA loan and if you’re making a down payment on a home. If it’s your first time using the VA loan program, your funding fee will be 2.15% if your down payment is under 5%. If it’s your first use and your down payment is 5% or more, your funding fee is 1.5%. And if it’s your first use and your down payment is 10% or more, your funding fee is reduced to 1.25%.

If you’re looking at your second VA loan (or a subsequent loan to that), your funding fee will be 3.3% with a down payment of less than 5%. Otherwise, you’ll follow the fee schedule just listed — 1.5% for a down payment of 5% or more, and 1.25% for a down payment of 10% or more.

So let’s say you’re signing your first VA loan and are buying a $300,000 home you’re mortgaging completely — meaning, you’re putting no money down. Your VA funding fee will come to 2.15% of $300,000, or $6,450. And while you will generally have the option to roll your funding fee into your loan rather than have to come up with the money at closing, it’s an expense you should be aware of.

2. Not checking your credit score prior to applying

There are no specific credit score requirements for VA loans. Each lender can ultimately determine what score it finds acceptable.

But if your credit score isn’t so favorable, you may be denied a VA loan. Or, you might get stuck with a higher mortgage rate that leads to more expensive monthly payments.

That’s why it’s so important to check your credit score before applying for a mortgage. And if your score needs work, try to boost it prior to your home loan application.

One potentially quick way to raise your credit score is to review your credit report for errors. Correcting a mistake that reflects poorly on your borrowing history could put your score in much higher territory.

3. Not shopping around for different rates

If it’s your first time applying for a mortgage, you may get an offer on your first go-round. But as exciting as that is, don’t rush to accept the first loan offer you get. Instead, shop around.

RELATED: Best VA Loan Lenders

You never know when one lender may be willing to offer you a more competitive interest rate on a mortgage than another. So contact a few different mortgage lenders to compare your choices.

But try to do your rate shopping within a couple of weeks. Normally, each time you apply for a loan, a hard inquiry is done on your credit report. And for each of those inquiries, your score usually drops by about five to 10 points.

However, if you apply for multiple mortgages within a two-week period, they’ll generally be regarded as a single application for hard inquiry and credit scoring purposes. To put it another way, if you rate-shop quickly, you might have only one five- to 10-point hit to your credit score — not five or six.

It’s natural to fall into the above traps in the course of applying for a mortgage. But do your best to avoid them so you can walk away with the best deal possible and steer clear of added costs that throw your home-buying budget off course.

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Baby gear gets expensive quickly. Here’s a quick primer on what’s OK to buy used and what isn’t. [[{“value”:”

My youngest child is fast approaching the end of her infancy, and I’ve begun looking for new homes for the baby gear she’s outgrown. In the process, I’ve had a lot of questions about which baby items are safe to sell or give away and which I should dispose of in another way.

Many soon-to-be parents face similar questions when trying to get the baby gear they need at an affordable price. So I did some digging on behalf of all of us. Here are nine pieces of baby gear it’s OK to buy used and seven you definitely want to buy new.

Nine baby items you can buy used

Here are nine things you can buy used for your baby to save a little extra cash:

1. Clothes

Your baby will go through a lot of clothes quickly, so it’s understandable that you wouldn’t want to drain your bank account by buying everything new. Fortunately, it’s totally fine to buy used baby clothes. Just make sure you wash them before putting them on your baby.

2. Baby wraps and carriers

Wraps and carriers make it possible to carry your baby while freeing your hands to do other household tasks. These are usually safe to buy used as long as there are no obvious signs of wear that could cause the baby to fall out. Always follow the manufacturer’s guidelines regarding the child’s weight and height before placing them in the carrier.

3. Cloth diapers

Cloth diapers are safe to buy used if you’re comfortable doing so. Just make sure to wash them thoroughly before putting them on your child.

4. Toys

Wooden and plastic baby toys are OK to buy secondhand as long as they haven’t been recalled due to safety issues. You may want to do some research online to confirm this before buying the toy.

5. Swings, bouncy seats, and activity centers

Similar to toys, these items are safe to get secondhand as long as they haven’t been recalled. If the item has safety straps, inspect these carefully to make sure they aren’t broken or fraying.

6. Bath seats

Infants use bath seats for such a short time that it’s often not worth it to buy these new. It’s safe to buy them used as long as there aren’t any signs of damage or mold.

7. Changing table

Your baby isn’t going to be spending time on the changing table when you’re not around, so safety isn’t as much of an issue here as it is with some other baby products. As long as the changing table appears stable and has working safety straps, it’s fine to buy it secondhand.

8. Diaper pail

Diaper pails are great for masking the scent of all those dirty diapers. And there’s really no reason you can’t pick one up used if you want to.

9. Play yard

Play yards are typically safe to buy used as long as they have no obvious damage and they haven’t been recalled. Look up the play yard model online before buying to see if it has any reported safety issues.

Seven things you probably don’t want to buy secondhand

If you’re looking to splurge on new baby items, these seven things are a great place to start.

1. Car seats

Many don’t realize this, but car seats have an expiration date on them. Most are only good for six to 10 years. Beyond this point, they may not be capable of keeping your baby safe in a crash. That, and the fact that you usually can’t be sure of a used car seat’s accident history, means it’s usually best to buy your infant’s car seat new.

2. Cribs

Crib safety regulations have changed a lot over the past few decades. Generally, it’s best to buy newer cribs that you know are up to the latest safety standards. If you decide to buy used, only purchase models manufactured in 2011 or later and avoid cribs with drop sides at all costs.

3. Crib mattresses

A lot of parents aren’t comfortable buying a used mattress that another child has been puking and peeing on for their new baby. But there’s another reason to buy new mattresses. Some research suggests that used crib mattresses may increase the risk of sudden infant death syndrome (SIDS), though the relationship isn’t well understood right now.

4. Breast pumps

Breast milk can carry bacteria and viruses that can get stuck in the pumps. Just changing the tubes is often insufficient, as bacteria can get stuck inside the pump’s internal components as well. Plus, as the pump’s motor wears out, it can become more inefficient. You may even receive a free pump from your health insurance plan.

5. Strollers

Not all used strollers are bad, but you want one that was manufactured after Sept. 10, 2015. That’s when a new federal safety standard went into effect. If you decide to buy a used stroller anyway, try to find out when it was made and inspect it carefully for damages.

6. High chairs

Similar to strollers, a new high chair safety regulation went into effect in 2019. If you’re not able to buy a new high chair, at least make sure the used model you choose was manufactured in or after 2019.

7. Bottles and pacifiers

This one might be pretty obvious, but these are things your baby is putting in their mouth. Though you might try to clean them, chances are, you probably won’t be able to remove all lingering bacteria. It’s best to buy these things new.

Ultimately, you have to go with what’s best for your family and your budget. Just make sure you keep your child’s safety in mind and carefully look over any used items for signs of problems before you buy.

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Annual inflation in March was higher than expected. Read on to learn how this might affect CD rates. [[{“value”:”

Just when you thought hot inflation had finally cooled off, out jumps some indication that the Federal Reserve may not have won the fight just yet.

The Consumer Price Index, a broad measure of how average consumer prices change for a variety of goods and services, rose 3.5% year over year in March, a 0.3% increase from February (when it was 3.2%). Rampant inflation was why the Federal Reserve hiked its federal funds rate to its highest level in over two decades, indirectly pushing rates on CDs and savings accounts higher.

Although it’s been a headache for the Federal Reserve, March inflation poses a question for savers: Could new inflation data help push the best CD rates even higher? It’s possible. Let’s take a look at the question in more detail.

What higher March inflation could mean for CDs

First off, no, inflation data alone won’t push national CD rates higher. At the very least, March inflation data could prevent CD rates from dropping any further, which has been their direction since policymakers began predicting rate cuts for the summer.

That said, rising inflation could influence CD rates if the central bank decided to increase its federal funds rate in response to it.

That would run against the inflationary narrative up until now, which has predicted three rate cuts in 2024. But another increase isn’t off the table yet. In fact, in early April, Federal Reserve Governor Michelle Bowman said she would support increasing the federal funds rate, if it appeared that inflation had reversed course.

While it isn’t clear if inflation has rebounded, the prospect of a rate increase is certainly less outlandish with March prices increasing. Even Fed Chair Jerome Powell recently admitted at a policy forum that it’s likely going to take longer than expected to get inflation back down to an ideal range.

That doesn’t mean the central bank will reverse course and start hiking rates. If anything, it just shows how quickly the conversation can change.

Could CD rates still drop in 2024?

Yes, it’s certainly still possible that CD rates could drop in 2024.

In spite of March inflation, many policymakers are still confident that the next rate decision will be a cut, not a hike. The question for them is when they’ll cut rates, not if. While it initially seemed likely that the first cut would happen this summer, we’ll have to see what April inflation brings to make a more accurate prediction.

Since many Fed policymakers are still confident they’ll drop rates in the near future, it only makes sense that banks would respond by slowly lowering rates in anticipation. In fact, I’ve already seen a few CD providers cut rates on their most lucrative offers. The cuts have been subtle — no more than a few percentage points — but it’s been the clearest indicator that CD rates could be trending downward.

If you think CD rates are going to keep decreasing, now might be a great time to lock in a rate. On the other hand, if you think CD rates might reverse course, you could open a high-yield savings account. Many have rates on par with the best CDs. And since you can withdraw money freely, you could move savings into a CD when you feel more confident locking in a rate.

All in all, it’s impossible to predict where CD rates will be a few months from now. Ultimately, your decision to open one should be based on your financial goals, not whether rates will climb higher. If you’ve assessed the risks of CDs — like early withdrawal penalties — and you’re sure it’s the right type of account for your money, now is a good time to open one. Take a look at some of today’s top-paying CDs and consider combining them with savings accounts if you want more flexibility.

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Bad investing advice could cost you big time. Read on to learn about some advice this writer thankfully strayed from. [[{“value”:”

Investing was not the sort of thing that hit my radar until I graduated college and started working full-time. During college, every dollar I earned either went into my savings account or was used to cover my tuition bills to minimize my educational debt.

Thankfully, though, I paid off those loans pretty quickly as a young adult, and from there, I was able to start focusing on investing. Only some poor advice led me astray for a few years, and I’m still kicking myself for following it.

When you let fear get in the way

In my early 20s, I met up with a childhood friend who’s a few years older than me, and we got to talking about financial matters. He told me about some bonds he had put money into and how he wouldn’t touch the stock market with a 10-foot pole.

For some reason, his words stuck with me, so once I reached the point of having some money to invest, I, too, chose bonds because I didn’t want to take the risk of putting my hard-earned savings into the stock market. I knew stocks were way more volatile, and the idea of losing money just didn’t sit well with me.

To this day, I regret missing out on a few years of stock gains in my portfolio. I thankfully realized the error of my ways a long time ago and have been a stock investor since. But it wasn’t smart of me to listen to one person’s advice — someone who’s by no means a financial expert — and follow it without doing my research.

Since then, I’ve done my research. And one thing I can tell you is that over the past 50 years, the stock market’s average annual return has been 10%.

Except the stock market didn’t do that well every year during that half-century period. In fact, since 1972, the stock had three separate years when it saw losses of more than 20%. But in spite of that, it managed to reward investors who stuck with it with a 10% average return on their money.

There’s a big risk you take when you don’t invest in stocks

I know a lot of people who are risk-averse in general — not just in the context of investing. And to them, the idea of buying stocks is so scary that they pretty much refuse to do it. But when you invest too conservatively, you take on a different risk — the risk of a shortfall in the context of your financial goals.

Let’s say you’re saving for retirement in an IRA and you contribute $300 a month over a 30-year period. With a conservative portfolio, you might get a 6% average annual return on your money, leaving you with $285,000.

Now that’s a decent sum of money in its own right. But with a stock-heavy portfolio and a 10% average annual return, you’d be looking at $592,000 instead. That’s more than twice as much.

In fact, it was the fear of not meeting my financial goals that helped me get over my fear of owning stocks. And so if you’re worried about the risks involved, make sure you’re saving over a long period of time so you can ride out the market’s downturns. And also, make sure to maintain a diverse mix of stocks for added protection. These moves won’t eliminate your risk, but they’ll help mitigate it.

Finally, be careful about who you take investing advice from. The friend who warned me against buying stocks had the best of intentions, but he wasn’t an expert and is sort of a naturally nervous person to begin with, so I should’ve done more of my own research initially. The next time you get investing advice, whether it pertains to a general asset class or a specific company, dig deeper on your own and seek out other sources of information to make sure you’re not being led astray.

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