Money Management

Starter homes are popular with first-time home buyers. Learn about the downsides of buying one and why you may want to keep renting instead. [[{“value”:”

It’s a tough market for home buyers. The average home price in the United States was $417,700 at the end of last year, according to home price data gathered by The Motley Fool Ascent. And it’s not just houses that are expensive, as mortgage rates are higher than they used to be, as well.

The solution some choose is a starter home. Instead of waiting for your dream home, you buy one that’s smaller and more affordable. When you’re ready, you sell it and upgrade.

It gets you out of renting and into the housing market. But if you’re planning to shop for a starter home, there are several reasons you may want to reconsider.

1. You won’t build much equity if you aren’t there long

One of the arguments for buying a starter home is that you’ll be trading in your rent payment to get a mortgage. You’ll be building home equity, so you’ll be able to make a profit when you’re ready to sell and get your dream home.

Except you’re not actually building much equity. During the early years of a mortgage, most of your payment goes toward the interest on the loan, not the principal. You pay much more toward paying loan costs than the home itself.

There’s no guarantee that you’ll make money when you sell your starter home, especially after fees. The less time you spend in your starter home, the more likely it is that you barely break even or potentially lose money.

2. Repairs and upgrades often cost more than they’re worth

Home buyers are more willing to compromise on starter homes. It’s not your forever home, after all, so it doesn’t need to check all the boxes. And you can always do some remodeling. It costs more upfront, but it will also increase your home’s value, so you’ll eventually get your money back when you sell. Right?

Unfortunately, home remodels usually aren’t the best investment. The 2023 Cost vs. Value Report by Remodeling compared the cost and increase in resale value for 23 remodeling projects across the United States. Only four out of 23 added more value than they cost on average.

Some of the most popular types of remodels are also some of the worst from a value perspective. For example, a major kitchen remodel at a midrange home costs an average of $77,939 nationwide. It only adds $32,574 in value.

3. It’s easy to get stuck in your starter home

Before you buy a starter home, you’ll probably expect to spend about five to seven years there. But life doesn’t always go according to plan.

Finding a new home, buying it, and selling your old one are all a hassle. Moving is no picnic, either. When you think about everything that’s involved, you might find yourself tempted to just spend another year in your starter home. And then another, and another.

You’ll also form ties to the place where you live. Even if you move into a starter home, you could still become a part of the local community. Maybe you make friends there, and your kids start going to school nearby. It often ends up more difficult to leave a starter home than people originally expect.

4. You may end up buying furniture twice

Every time you move into a new home, you need to furnish it. You can certainly keep using the same furniture, but there’s a good chance that you’ll need to buy at least some new pieces. You may have more space to fill in your new home than your old one. And some of your current furniture may not match the style of your new place.

So, if you get a starter home, you’ll most likely end up doing some furniture shopping for it. And you’ll do it again if you later move into your dream home. This is worth taking into consideration when deciding if a starter home is a smart financial decision.

5. You could do better financially by renting, investing, and waiting for the home you really want

If you’re eager to buy a home because you want to start building wealth, there is another way to do that. You could continue to rent and invest in stocks with the money you save (it’s cheaper to rent than to own a home in most major cities). The stock market is one of the most proven ways to build wealth, as it has an average return of about 10% per year.

This is what I’ve personally done. I may buy a home in the future, but I only want to do it if I’m sure I’ll stay long term. Because I’ve been renting and saving on homeownership costs, I’ve been able to invest a large portion of my income.

Think it through so you can make an informed decision

None of this is to say that a starter home is always a bad idea. It works for some people, but there are downsides and risks involved. It’s best to consider those first so you don’t make a decision you regret.

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Child care costs are too expensive for many families. Read on to find out how to help offset your costs. [[{“value”:”

Inflation has forced families to stretch their dollars further over the past two years. Rising food and housing costs have strained many Americans’ monthly budgets. And the increasing cost of child care puts even more pressure on many families.

Here’s how much American families are paying in child care, why costs have gone up, and a few suggestions on how to save on child care expenses.

Nearly half of parents spend $18,000 annually on child care

According to Care.com’s 2024 Cost of Care Report, 47% of parents spend more than $1,500 per month on child care — totaling more than $18,000 annually. These expenses include babysitting, daycare, sending their child to a family care center, or a nanny.

For some Americans, the cost of child care significantly impacts their finances within the first five years after having a child and continues to eat into their family budget. The report says families spend 24%, on average, of their household income on child care.

Even more concerning is that more than one-third of families are tapping their savings account to pay for child care. Unfortunately, there isn’t an end in sight for the high costs.

Government programs enacted during the pandemic to help parents with child care costs officially ended in September of last year, which could put an additional strain on families this year. About 54% of parents expect to spend $600 or more in child care per month than last year, which could mean a $7,200 increase in expenses compared to 2023.

Here’s what’s driving child care costs higher for parents, according to the report:

InflationChild care centers increasing their ratesThe end of government-sponsored child care funding programs

How to help lower your child care costs

About 37% of parents say child care costs are among their top three financial concerns. If you’re having trouble fitting the rising expense into your budget, here are a few money-saving suggestions.

1. Open a dependent care flexible spending account (FSA)

One of the best things parents can do to help them with their child care expenses is to open a dependent care FSA. These tax-advantaged accounts let you put up to $5,000 in pre-tax dollars into the account. The money is then used for approved child care expenses and lowers your taxable income for the year. Just remember that you’ll have to spend all of the money in the account before the end of the year, or you’ll lose it.

2. Consider need-based child care assistance

Many states have child care assistance programs for parents.​​ These can be vouchers, certificates, subsidies, or even free child care programs like Early Head Start or state-funded pre-kindergarten. You can learn more about these programs and how to qualify at ChildCare.gov.

3. Claim the Child and Dependent Care tax credit

Some parents may be able to claim this tax credit, which lowers their tax bill based on qualifying child care expenses. With it, you can claim 20% to 30% of your child care expenses, up to $3,000 for one child or $6,000 for two or more children.

4. Consider alternative working options

For some families, having one parent stay home is cheaper than paying for child care. According to a recent report from Motherly, 25% of Gen Z and millennial mothers were a stay-at-home parent in 2023, and of those, 42% said they chose to do so to spend more time with their kids or because child care was too expensive. Many dads stay at home as well and no matter which parent is at home, finding a work-from-home position can help with finances. If you’re trying to balance child care costs with work, you may want to consider gig work that allows you to do both.

Child care costs probably won’t come down any time soon, so taking the time to consider how your family will cover the expenses is more important than ever. Taking advantage of available state-funded programs may be a good start.

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Is our economy really in such strong shape? One financial expert thinks consumers need to be cautious. Read on to learn more. [[{“value”:”

The U.S. economy seems to be in a pretty good place. Unemployment is low and March’s jobs report well exceeded economists’ expectations.

Despite that, one financial expert isn’t convinced that things are totally rosy. But should you heed his rather ominous warning?

JPMorgan CEO still thinks things could take a turn for the worse

In an April 12 press release, JPMorgan CEO Jamie Dimon was quick to warn investors that while the economy seems strong and stable now, things could change in short order. “Looking ahead, we remain alert to a number of significant uncertain forces,” he wrote.

Dimon pointed to geopolitical tensions and stubborn inflation as factors that could lead to unfavorable economic conditions. And he also said the chances of conditions souring are “higher than other people think.”

Should you be worried about a recession?

Dimon’s warning about an economic decline might initially cause you to panic. But it’s important to take that warning with a proverbial grain of salt.

This isn’t the first time Dimon has warned of negative economic activity. And he’s been wrong in the past.

In late 2022, Dimon said the U.S. economy was headed toward something worse than a recession. But lo and behold, more than 18 months later, economic conditions are quite favorable.

What’s more, Dimon acknowledges that U.S. consumers are sitting on excess money in savings accounts and have access to a thriving labor market. So he was quick to acknowledge that, “Even if we go into recession, {consumers are} in pretty good shape.” However, he did caution that lower earners may be running out of money, and quickly.

Don’t panic, but be prepared

Dimon may have a lot of financial knowledge, but he doesn’t have a crystal ball. So it’s hard to know whether the chances of a recession are, indeed, higher than people might think.

Even if we manage to avoid a near-term recession, at some point in time, economic conditions are likely to sour. It’s important to be prepared for a recession at all times.

That means ideally having enough money in savings to cover three full months of living expenses at a minimum to get through a period of unemployment should that come to be. If you’re nowhere close, make boosting your emergency fund your priority. Consider your existing budget to decide how much to save.

Also, do your best to shed high-interest debt while you’re still gainfully employed. The sooner you do, the less money you’ll throw away on interest, leaving more available for your savings. Also, that way, should you lose your job, you won’t have another expensive monthly payment hanging over your head.

Finally, make a point to keep your job skills current and maintain strong relationships with the people in your professional network. You never know when you might have to call in a favor.

And if you feel there are skills that could make you a more valuable asset to an employer, make an effort to build them. That could spell the difference between losing a job during a period of downsizing or remaining employed. Or, in the event of a layoff, having extra skills could make you a lot more employable.

There’s definitely no need to lose sleep over Dimon’s latest musings. But do try your best to set yourself up to withstand a recession — whether that happens within the next year or far into the future.

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Having access to more credit can be a mixed bag. Read on to learn more. [[{“value”:”

I was talking to a friend recently who told me that one of her credit card issuers had increased her spending limit to $60,000. My first thought was, “Yikes! That’s a lot of charges to potentially rack up.”

Of course, my friend is highly unlikely to use her $60,000 credit limit in full. But it got me thinking about the pros and cons of having access to more credit than you need. Here’s why that could be a good thing, but also, a very bad one.

Pro No. 1: Your credit score might benefit

One big factor that goes into calculating your credit score is your credit utilization ratio. That ratio measures the amount of your available credit you’re using at once. And the lower that ratio, the more your credit score can benefit.

Now as you might imagine, keeping your credit card balances low is a good way to maintain a lower utilization ratio. But another way to achieve that same goal is to have a higher credit limit than you need.

Let’s say you owe $10,000 in credit card charges but have a $20,000 credit limit across your various cards. That puts you at 50% utilization, which isn’t great from a credit score perspective.

However, with a $60,000 credit limit, your $10,000 balance puts you at about 17% utilization, which is actually good for your score, despite $10,000 being a lot of money to owe on a credit card in general. So if your credit limit increases but your balance doesn’t, your score stands to benefit.

Pro No. 2: You have a backup option in the event of a financial emergency

In an ideal world, you’ll be able to tap your emergency savings when a surprise bill lands in your lap. But if you encounter a truly astronomical expense out of the blue, your emergency fund may not cut it. In that case, having access to extra credit could serve as your backup plan — even though it’s not an optimal one, as it could mean racking up scores of interest on that debt.

Con No. 1: You may be tempted to spend more

The more spending power your credit cards give you, the more tempted you might be to use it. Let’s say you have a $20,000 credit limit across your cards but the monthly bills you charge normally amount to $5,000. Well, it takes a lot of willpower in that situation to only rack up $5,000 worth of charges month after month.

If you use your higher credit limit to spend more, you could end up costing yourself a lot of money in interest. You can also damage your credit score by eventually driving your utilization into unfavorable territory.

Con No. 2: Your credit score might be dinged for opening too many accounts in short order

You may end up with access to more credit than you need by applying for a number of new cards in short order. But actually, that very practice itself has the potential to drag your credit score down.

Each time you apply for credit, a hard inquiry is done on your credit report. A single hard inquiry will usually result in about a five- to 10-point credit score drop, so a single one isn’t so bad. But three or four hard inquiries within a short time frame could cause more damage.

All told, it’s not automatically a bad thing to have access to more credit than you need. But you’ll have to be mindful of your spending and avoid taking advantage of your higher spending limit.

And if you don’t trust yourself to do so — say, because you’ve landed in debt due to overspending in the past — then don’t chase a higher spending limit. If your credit card issuer offers to increase your limit, say no. Or, at the very least, don’t ask for a credit limit increase if you don’t want that temptation to exist.

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It’s possible to negotiate your tax debt with the IRS, but trying it rarely works. Here’s what you need to know about the process. [[{“value”:”

If you filed your tax return and were expecting a refund but found out that you owe money instead, your first instinct may have been to scream, curse, or cry just a little. And while you may be resigned to having to empty your savings account (assuming you even have the money), you may be wondering if it’s possible to get the IRS to forgive your debt or accept a reduced amount.

Well, in some cases, yes. Under rare circumstances, the IRS will accept what’s known as an offer in compromise, which is an agreement that settles a tax bill for less than the full amount owed.

To be clear, for most people, an offer in compromise won’t work. But here are the three scenarios in which an offer in compromise might fly.

1. There’s doubt as to whether you owe the tax

If there’s a big question as to whether you really owe the tax the IRS says you do, then you might get away with an offer in compromise. Usually, there needs to be a thorough investigation into the matter before the IRS is willing to go this route. And much of the time, there’s really not a question — either you owe money to the IRS or you don’t.

2. The tax debt isn’t payable

The IRS may agree to an offer in compromise if you’re not able to pay the tax debt it’s looking to recoup. Let’s say you’ve sustained an injury that may not allow you to return to a job for many years, if at all. In a situation like that, it can be argued that it’s not reasonable to ask you to pay that tax debt, so the IRS might write it off or agree to less.

3. Payment of the tax will constitute a major and unfair hardship

The final scenario where an offer in compromise might work is if you can prove (based on your financial circumstances) that having to pay your tax debt will cause an undue burden on you. But to be clear, the IRS says that for it to accept an offer in compromise, it needs to be that “requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.”

What to do if you owe the IRS money and can’t pay

If you file your tax return and discover you owe the IRS money, don’t assume that you’ll be able to negotiate your tax debt down. That rarely works. Instead, if you don’t have the savings to pay in full, sign up for an installment agreement that has you paying off your tax bill over time.

It’s really important to sign up for one of these rather than simply send the IRS money at random when you can. If you’re on a payment plan and you make your scheduled payments, you’ll be considered current, which will generally stop the IRS from going after your wages to get repaid. If you don’t take that step, the IRS might think you’re blowing off your tax bill, and seek to garnish your wages instead.

If you are thinking of doing an offer in compromise to deal with a big tax bill, talk to a tax professional before you start spinning your wheels. They may be in a good position to know whether you should bother going this route or not.

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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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When it comes to Costco, never say never. Read on for one writer’s reasons for rethinking her stance on joining the warehouse club. [[{“value”:”

Here I go again, eating crow on the internet. After deciding that a Costco membership isn’t in the cards for me, and writing about it, I’m currently reconsidering. My life is set to change in a major way in 2024, which means joining Costco might make more sense than I originally thought. Here’s why I’m thinking about a Costco membership after all.

1. I’ll have more storage space soon

After more than two years of dreaming, planning, paying off debt, and saving for a down payment, I’m finally buying a house in 2024. I don’t have a tremendous amount of storage space in my current rental, so it hasn’t been very Costco-friendly to live here — after all, Costco is best known as a purveyor of bulk food and household supplies.

Since I have a household of one human and three cats, it’s unlikely that I’ll be taking advantage of Costco’s deals on fresh produce and dairy products even after I move into a house. However, I am planning to get a second refrigerator or possibly a chest freezer for my basement, which opens the door to deals on frozen food from Costco.

That basement will also offer me more space to store bulk non-perishable items, like toilet paper, paper towels, and laundry detergent. Not only does bulk-buying save time, but it can save you money too. Speaking of laundry detergent, when I checked prices for Tide Pods at both Costco and my local grocery store, I found that the price per pod at Costco is significantly less — $0.29 vs. $0.43. Wow!

2. I’m really curious about Costco Travel

I’ve written about my colleagues’ experiences with Costco Travel, and everything I’ve learned about it suggests that the travel packages offered might be worth the price of a membership to access.

Traditionally, I haven’t had a lot of money available in my budget for travel, and as such, tended to be more of a road tripper. But looking at the available Costco packages for destinations such as Greece and Fiji has me dreaming of saving up the cash and letting someone else handle all the planning for me. If the money I save on a Costco vacation adds up to more than $60 (and this seems likely), a membership will have paid for itself.

One potential problem

My two big reasons for contemplating a Costco membership are pretty compelling, but one big hurdle remains. I don’t live especially close to a Costco location — my closest one is about 50 miles away. This means I can’t just run over there whenever I want, there would have to be some degree of planning involved. As such, I don’t expect to visit Costco often, and would likely target a trip every other month or so.

The city with the closest Costco is also home to other stores I like to visit when I can, like Trader Joe’s. And some of my favorite restaurants are there, too. So I can plan my Costco run around that, and make a day of it. The trick will be getting to Costco at the optimum time to avoid the bulk of the crowds, because that will truly be the worst part of shopping Costco for me.

Thankfully, joining Costco isn’t a financial risk for me — or indeed, for anyone. A basic membership costs just $60 per year, and if I absorb that credit card hit and it turns out not to be worth it for me, I can lean on Costco’s exemplary return policy. Costco will cancel and refund a membership fee at any time if you’re not satisfied. With a policy like that, I feel better about contemplating a Costco membership later this year. Is joining Costco right for you? Consider exploring all it has to offer to make that call.

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This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, 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.The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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