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If you’re one of the millions of Americans who has outstanding debt, it can be helpful to better understand the difference between installment loans vs. revolving credit. Although debt can harm your credit, responsibly managing a mix of installment and revolving debt can help build your credit. Read on to learn more about installment loans vs. revolving credit and how to use them to your benefit.
Installment debt | Revolving credit | |
---|---|---|
Definition | A borrowed lump sum that is paid back over time on a set schedule | A line of credit that enables for spending up to a predetermined limit |
Examples | Mortgage, student loan, auto loan or personal loan | Credit cards and personal lines of credit |
Interest rates | Typically fixed when the loan is established | Usually variable, and often higher overall |
Payments | Consistent monthly payments on a set schedule | Payments vary based on spending |
Effect on credit score | May increase credit score due to improved mix of credit, payment history and length of credit | Tends to have a larger effect on credit score, and score increases are possible with responsible usage |
Revolving credit allows you to spend up to a certain limit. As you pay down your outstanding balance each month, you can re-borrow up to the credit limit. If you need to borrow more, you can request a credit limit increase. It not only gives you access to more funds, but when used responsibly, it can also help improve your credit by reducing your credit utilization ratio.
When you have a revolving credit account, you can pay the monthly minimum or choose to pay more. Many lenders charge interest, but some lines of credit come with introductory offers, like 0 percent interest for a certain amount of time.
One way revolving credit is different from installment credit is that your account stays open until you close it. As you continue to make your payments and don’t spend more than the limit, you can continue to use your revolving credit.
The biggest benefit of revolving credit is its flexibility, which can also be a downside. You can borrow up to your credit limit, but the ability to increase it may tempt you to overspend and get into debt. Below, we break down some of the additional pros and cons, starting with the benefits:
Some of the downsides to revolving credit accounts include:
Revolving credit accounts typically affect your credit score more. With the FICO® scoring model, your payment history accounts for 35 percent of your score, and your utilization accounts for 30 percent of your score.
Your credit utilization is the amount you owe vs. your max credit limit. To benefit from this, you should keep your utilization below 30 percent. This is based on the credit limit of all your revolving accounts minus the amount you owe.
For example, if you have two credit cards, one with a $5,000 limit and one with a $3,000 limit, your total limit is $8,000. To stay lower than 30 percent, you would never want to owe more than $2,400. If you opened up a new credit card with a limit of $10,000, you could then spend up to $5,400 (30 percent of $18,000).
An installment loan account allows you to borrow a lump sum of money and pay it back in installments. Unlike revolving credit accounts, you have a set amount of money to pay back with interest before the account closes.
There are various installment loans, and you may need additional funds. Rather than increasing the loan amount, you would need to apply for a new loan.
Although credit cards are the most common form of credit, it’s helpful to have at least one installment credit account. One aspect of your FICO® credit score is “credit mix,” which accounts for 10 percent of your overall credit score.
The following are some of the additional benefits:
Some of the downsides include:
Those who only open revolving credit accounts are missing out on the benefit of credit mix and improving their credit. Having installment credit accounts like auto or student loans can help improve your credit mix. Installment loans can also help with your credit history if they’re open for a long time, like when you get a home loan.
Similar to revolving credit accounts, you want to make your payments on time each month to improve your payment history. This is a positive signal of creditworthiness to future lenders.
Now that you understand what installment credit accounts are, it can be helpful to see some examples:
Personal loans are forms of installment credit as well, but you often won’t need to use the funds for a specific purpose. Many people use personal loans to pay for large purchases or expenses, consolidate their debt or pay for home repairs.
The most common forms of revolving credit accounts include:
Whether you’re hoping to open a revolving or installment credit account or both, the first step is to have good credit. Good credit not only improves your chances of getting approval but can also help you get lower interest rates, saving you thousands of dollars. To start working on your credit score, first find out what it is. Lexington Law Firm offers a free credit assessment, and if you have errors on your credit report, we provide additional services to challenge them on your behalf. To get started, sign up today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Source: lexingtonlaw.com
In today’s world, where urban living often means embracing smaller living spaces, maximizing every square foot becomes paramount. Whether you’re residing in a cozy apartment in Minneapolis, MN, a rental home in Overland Park, KS, or a compact studio in Springfield, MO, the art of space-saving is essential for creating a comfortable and functional environment. From clever storage solutions to strategic furniture arrangements, navigating limited square footage requires creativity and ingenuity. In this article, we’ll explore a myriad of practical tips and tricks to help you make the most out of your small space, allowing you to live large even in compact quarters.
Emer Gillespie, founder and director of modern and contemporary lighting store Spark & Bell,suggests utilizing built-in storage solutions such as recessed shelving, under-stair storage, and custom cabinets to fully optimize your space. This approach not only enhances functionality but also ensures a tidy and organized appearance, allowing you to make the most of every inch of your home or office.
“Built-in lighting is also key,” emphasizes Gillespie. “You can achieve this by either wiring it in behind the storage units or incorporating plug-and-switch lights. This approach eliminates the need to call in electricians for extensive rewiring, saving both time and money. By strategically placing lighting within your built-in storage, you can illuminate your space effectively without compromising on aesthetics or functionality.”
Prioritizing functionality is essential for crafting a practical living environment within limited space. Below, two furniture experts share insights on selecting the ideal pieces to optimize your home’s layout and functionality.
“One of the reasons why we love Danish furniture is its multi-function capabilities and ability to blend in with many styles,” says Jackie Williams, Furnish Me Vintage, offering restored and original mid-century modern and Danish furniture. “Integrate minimalist Danish furniture effortlessly with vintage or contemporary decor. Opt for a teak credenza, serving as both a sleek media center with ample storage and a chic addition to your space. Explore the versatility of expanding draw-leaf dining tables, seamlessly transitioning from compact daily use to expanded settings for gatherings. These tables also double as convenient work desks, ideal for home offices. Danish furniture excels in maximizing utility, offering ingenious solutions for space-constrained European homes.”
“To maximize space in your home, try employing the ‘floating furniture’ technique, which involves positioning furniture away from walls to establish a fluid, open layout,” suggests John Adams of Fine Furniture Los Angeles. “Additionally, it allows for versatile use of space, fosters creativity in layout design, and creates opportunities for focal points. Ultimately, incorporating this technique enhances the perceived spaciousness and livability of your home.”
While it may seem counterintuitive, excessive storage can sometimes lead to clutter if not strategically utilized. Jacqueline Chen, founder and interior designer at The Glade Design weighs in on how to appropriately incorporate storage solutions.
“Having lots of storage might not always be the best idea,” says Chen. “Instead of prioritizing quantity, consider the functionality and accessibility of your storage spaces. Evaluate your daily routines and movement patterns within your home to identify areas where storage would be most beneficial. Opt for storage solutions that align with these usage patterns, placing them in convenient locations to streamline organization and minimize clutter buildup.”
Ever find yourself overwhelmed by your closet? An overflowing one leads to frustration and inefficiency, adding clutter and disarray to your living space, which affects your overall well-being. We hear from several personal stylists on how to declutter and organize your closet effectively, reclaiming space and restoring a sense of order to your home.
“The simplest way to maximize space in your closet is to clear out your unworn items,” states personal style expert Elysha Lenkin. “Set aside 30 minutes to sort through your wardrobe, pulling out any pieces you haven’t worn for over a year. Move these pieces to the front to make them more visible. Every day, select one of these pieces and decide whether to wear it that day or clear it from your closet. This daily routine not only optimizes closet space, but also helps you reconnect with your clothes and curate a more functional wardrobe that contributes to preserving the additional space you’ve created.”
Gab, NYC-based and virtual personal stylist at Wardrobe Editor, advises starting with a cleanout when building an organization system around a smaller wardrobe. “Remove items that don’t fit, are damaged, or don’t make you feel good. Organize each category (tops, sweaters, jeans) together in a designated space, ensuring neatness by hanging or folding items uniformly. Store less-used or seasonal items in less accessible areas, prioritizing easy access for frequently worn pieces.”
“I advise all of my clients to only keep seasonally appropriate clothes in their closet,” shares image consultant and personal shopper Katherine Rose of Capsule Wardrobe Stylist. “This minimizes clutter and decision-making fatigue, allowing for seasonal wardrobe curation. Store out-of-season items in canvas garment bags in a designated storage space at home.”
“If you’re short on space, consider going through your wardrobe with a critical eye,” says Tara Williams, Certified Image Consultant/Personal Stylist at Style Elevation With Tara. “Most people only wear 20 percent of their wardrobe 80 percent of the time. That means a lot of clothes are taking up closet space and creating decision fatigue. Ask yourself the following questions when deciding whether to keep an item: Does this fit? Have I worn it in the last year? Does this represent who I am now, in this season of my life? Do I love it?”
“In compact living spaces, furnishing poses a unique challenge due to the diverse needs of everyday living,” explains David King, president and CEO of DōMA Home Furnishings in St. Petersburg, FL and Tampa, FL. “In a narrow living room, every piece of furniture matters. Opt for slender tables, wall sconces, and compact seating like tight-back sofas or club chairs to save floor space. Choose wall-mounted shelves and floating desks instead of bulky furniture. Divide the space with furniture, such as a smaller sofa in the center, flanked by a convertible console table and smaller dining chairs, creating a versatile and intimate area.”
Maximizing vertical space offers numerous benefits for organization and functionality within a room. Denise Allan, a Certified Professional Organizer at Simplify Experts in Seattle, WA, emphasizes the advantages of utilizing bookshelves.
“It is great to use your vertical space well with bookshelves,” shares Allan. “I prefer those with cabinet doors below and shelves above to avoid excessive visual clutter, minimize noise, and ease dusting. A golden rule of organizing is to not fill spaces, drawers, or cupboards over 80% full, you need some empty space to make retrieval of items easy.”
“Struggling with limited storage in a small bathroom?” asks Susan Stewart, owner and professional organizer at Perfectly Placed St. Louis, MO. “Utilize the back of the door with an organizing system like the Elfa from The Container Store, featuring versatile baskets perfect for towels, bath toys, and other essentials. You can find options in various sizes that offer customizable storage solutions to optimize your space.”
Over time, we gather possessions that may outlive their usefulness, often without noticing the gradual clutter accumulating in our homes. It’s natural to hang onto items for their potential future utility. However, overlooking the clutter can take a toll on our mental well-being and our usable space. We hear from professional organizers on hacks to keep clutter at bay.
“You control your space, not the other way around, so choose to be picky about the things you own,” advises Kammy Lee, professional organizer at Organized By Kammy in Chicago, IL. “Avoid defaulting to accumulate ever-growing collections by using the ‘one-in, one-out’ rule, limiting once-a-year items (such as Halloween mugs and Valentine’s Day towels), and specialized purpose items (such as juicers, breadmakers). Let go of ‘someday’, ‘meh’, and ‘just in case’ items, and fill your space with only the things you truly need, use, and love.”
“The key to maximizing a small space is owning items you truly love and use,” explains Mary Ann, professional organizer at Find Your Gold. “Create a donation station — whether it’s a box, bin, or bag—and easily declutter as you go about your daily routine. Once it’s full, drop off donations, return items, pass along to friends, or prepare items for sale. Your donation station serves multiple purposes beyond just donations.”
“Your living space can instantly feel more organized if you commit to resetting it each evening,” explains Anne Lunsford, professional organizer at Simply Easy Organizing in North Carolina. “Tidy up your space by putting away stray items and completing kitchen tasks. Prepare for the next day by creating a to-do list and gathering the necessities for tomorrow. With consistency, this 5-10 minute routine will keep your space organized and cultivate positive habits that will spill over into other aspects of your life.”
By tidying up regularly, you prevent clutter from accumulating, making your space feel more spacious and organized. Additionally, a nightly reset allows you to start each day with a clean slate, reducing stress and promoting a sense of calm in your living environment. This routine also ensures that essential items are readily accessible, saving time and effort in your daily activities.
Jacqueline Chen of The Glade Design suggests incorporating bold colors sparingly, focusing on one or two key elements, while maintaining the majority of the palette in neutral tones.
“Picking items with similar colors can make a room feel larger than it actually is,” emphasizes Chen. “If you’re into bold colors, try limiting them to just one or two items, and keep the rest in neutral tones. This not only makes those bold items stand out, but it also creates the illusion of a bigger, tidier space.”
“The minimalist choice, in furniture and decoration, is fundamental if we are facing small spaces,” shares interior designer Sergio Nistico. “When it comes to furniture and decoration, prioritize essentials. Opt for a strategically placed, sizable painting over numerous small objects. Consider structural interventions like combining the kitchen with the living room to create larger usable spaces, complemented by a suitable color scheme. Choose furniture with dual functions, such as a breakfast table that doubles as a workspace, to maximize space efficiency.”
Give thoughtful consideration of every item’s purpose and value within your living environment while prioritizing functionality and ensuring that each object serves a specific need or brings joy to your life. Below are expert strategies from organizing and cleaning professionals to help you make intentional decisions about your belongings.
“You can maximize your space by being very mindful of what’s in it,” explains Brittany Overstreet, Owner and Lead Organizer at Organize with Brittany serving South Carolina. “Ideally, your horizontal surfaces like counters and dresser tops should only house items that you use daily while your display shelves should only contain items that have sentimental value. If possible, nothing should be touching your floor except furniture. Bonus! Picking up or cleaning will be so much easier when you have less to put away or clean around.”
“The key to maximizing your living space is to keep it simple,” states Cleany NYC. “Don’t try to cram too many items into your area, and focus on creating a clean, clutter-free environment. Designate zones for specific activities and keep items related to those activities within their respective areas. Implement a regular tidying routine, like dedicating 15 minutes each day to quickly clean and organize one part of your home, to keep clutter from building up. Additionally, adopt a digital mindset by scanning and storing documents and photos electronically, reducing the need for physical storage.”
Cleaning and decluttering are essential for small-space living because they help maximize the available space and create a more organized and functional environment. Here’s expert advice from professional house cleaners on the most effective methods for maintaining a tidy household.
“To maximize space in your living area, embrace a regular decluttering routine to keep unnecessary items at bay,” suggests Comforts Cleaning Services in Chula Vista, CA. “Utilize vertical storage solutions like shelves or wall-mounted organizers to free up floor space or incorporate multifunctional furniture pieces such as ottomans with hidden storage or sofa beds to optimize functionality without sacrificing space.”
“Integrate both cleaning and decluttering into your regular routine,” advises Poiette Noel
Owner/Executive Manager at No More Dust Maid Services in Baltimore, MD. “Start by setting a monthly schedule to sort through and remove items that are no longer needed or used. As you declutter, clean the newly freed-up spaces before rearranging remaining items, which can often uncover additional storage opportunities. Regularly cleaning and decluttering not only maintains a tidy environment but also enhances the perception of space, making your living area feel larger and more organized.”
It’s no secret that mirrors are versatile and practical decor elements that not only enhance the aesthetic appeal of a space but also serve functional purposes. Sarah Chapman, owner and designer of Sarah Lorraine Interiors, explains how mirrors also serve as versatile additions to small rooms.
“Mirrors are a powerful tool for enhancing the perception of space and brightness in small rooms,” shares Chapman. “Strategically placing mirrors across from windows allows them to capture and reflect natural light, effectively brightening up the space. This reflection creates an illusion of depth and openness, making the room appear larger and airier than it actually is. Additionally, mirrors can be used to reflect other sources of light, such as lamps or overhead fixtures, further amplifying the brightness in the room. Choosing mirrors with decorative frames or unique shapes can also add visual interest and style to the space while serving their practical purpose of expanding and illuminating the room.”
Jenny Neilson, principal designer at Neilson Design Studio, underscores the significance of strategic lighting in creating a warm and inviting atmosphere.
“Soft, intimate lighting, like lamps, cultivates a cozy space, in stark contrast to harsh overhead lighting’s impersonal glare,” explains Neilson. “Wall sconces and directional spotlights further enhance the atmosphere and visually expand the space, especially when paired with light-colored walls. These fixtures offer versatility, providing targeted illumination for tasks and highlighting focal points such as artwork or architectural features. By strategically placing lighting fixtures and avoiding harsh overhead lighting, you can create a welcoming environment that feels both comfortable and visually spacious.”
“It’s counterintuitive, but an appropriately scaled rug will pull your focus outward, away from individual pieces of furniture, creating a sense of expansiveness,” explains Naomi McCormick, Principal Designer at Naomi McCormick Design serving Philadelphia and New Jersey. “They’re also incredibly useful for breaking up an open, multi-purpose space because they help to visually anchor separate areas within the space. Another bonus: They’re one of the best ways to embrace and amplify the coziness of a smaller space by incorporating added color and texture.”
With thoughtful design choices, corners can transform from overlooked areas into useful space, contributing to a more functional and visually pleasing room. Spector Furniture in Ansonia, CT, highlights the importance of utilizing corners effectively.
“Corners often remain underutilized in rooms, presenting untapped potential for maximizing space efficiency,” explains Spector Furniture. “By strategically incorporating corner furniture pieces such as entertainment units and curios, you can fully utilize this valuable space while adding both functionality and visual interest to your room.
Navigating the challenges of small living spaces requires a combination of creativity, resourcefulness, and practicality. By implementing these tips and strategies, you can transform your space into a functional, inviting home that enhances both comfort and quality of life.
Source: apartmentguide.com
Treasury securities are like the rock-solid foundation of the financial world. In essence, they are IOUs that the U.S. government offers to investors in order to borrow money. There are various types, each with unique characteristics, including Treasury bonds, bills, and notes.
Since they are seen as extremely safe investments, those seeking financial stability frequently choose them. Let’s examine Treasury securities in more detail and see why they are important.
In essence, Treasury securities are loans made by investors to the United States government. Treasury bonds, Treasury bills, and Treasury notes are the three primary varieties. Purchasing one of these securities is equivalent to making a fixed-term loan to the government that may last anywhere from a few days to thirty years.
The government agrees to reimburse you for your initial investment (the principal) plus interest in exchange. The Treasury yield, which is this interest rate, is used as a standard by which other interest rates in the economy are measured. Because they are backed by the full faith and credit of the United States government, Treasury securities are typically considered to be among the safest investments available.
The United States government issues Treasury bonds, which are long-term debt instruments with maturities of ten years or longer. Purchasing a Treasury bond is akin to making a fixed-term loan to the government, typically for a duration of 20 or 30 years. In exchange, you get interest payments from the government every six months until the bond matures, at which time you are paid the bond’s whole face value.
Since the U.S. government backs Treasury bonds with its full faith and credit, they are among the safest investments available. Additionally, they are quite liquid, making it simple to buy and sell them on the open market. Investors looking for a dependable means of capital preservation and a consistent income source frequently utilize Treasury bonds.
The U.S. government issues both Treasury bonds and U.S. Savings Bonds, but there are a few significant distinctions between the two.
U.S. Savings Bonds normally have shorter periods, typically between 20 and 30 years, while Treasury bonds typically have longer maturities, ranging from 10 to 30 years. Interest on Treasury bonds is paid semi-annually, whereas interest on U.S. Savings Bonds is paid monthly and compounded semi-annually.
Another difference is that U.S. Savings Bonds are offered at a discount to face value and earn a fixed rate of interest over time, whereas Treasury bonds are sold at face value and pay a fixed interest rate.
While U.S. Savings Bonds are frequently bought by individuals as a means of saving for short- or medium-term financial goals, such as retirement or schooling expenses, Treasury bonds are typically purchased by institutional investors and individuals seeking long-term investment possibilities. Both kinds of bonds are offered by the U.S. government and are low-risk investment options, but they have different uses and meet various demands from investors.
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The United States government issues medium-term debt securities called Treasury notes, which have maturities of two to ten years. Essentially, investors who buy Treasury notes are making a fixed-term loan to the government. Until the note matures and the investor obtains the full face value of the note, the government pays them interest every six months in exchange.
Since they are backed by the full faith and credit of the United States government, Treasury notes are thought to be less risky than many other investment options. Investors seeking a compromise between the short-term flexibility of Treasury bills and the long-term stability of Treasury bonds frequently choose them.
In addition to the ease of buying and selling on the open market, Treasury notes are extremely liquid, which makes them a preferred option for investors looking to combine flexibility and security in their investment portfolios.
In the financial world, the 10-year Treasury yield is very important since it is a key benchmark for other interest rates throughout the economy. The yield on a 10-year Treasury bond is the annual return that an investor can expect. As such, it reflects investor sentiment regarding future economic conditions, inflation expectations, and monetary policy outlook.
Variations in the yield on the 10-year Treasury note have the potential to impact not only corporate borrowing rates but also mortgage rates, vehicle loan rates, and consumer borrowing costs.
Additionally, it has an impact on the value of other financial assets since investors weigh their future returns against the comparatively safe yields of Treasury securities when valuing stocks and bonds. As a crucial indicator of general market mood and economic conditions, central banks and policymakers regularly monitor movements in the 10-year Treasury yield to assess the state of the economy and modify monetary policies accordingly.
The U.S. government issues Treasury bills, sometimes known as T-bills, which are short-term debt securities with maturities of one year or less.
In essence, investors who buy Treasury bills are making a short-term loan to the government. Treasury bills don’t pay interest on a regular basis like Treasury bonds and notes do. Rather, they are offered to investors at a price below face value, with the entire face amount due upon the bill’s maturity.
Since they are guaranteed by the full faith and credit of the United States government, Treasury bills tend to be considered some of the least-risky investments on the market. Because of their high liquidity and minimal risk, investors frequently utilize them as a short-term cash management tool or as a means of preserving capital.
Treasury notes are an essential part of the economy since they act as a base for a variety of financial transactions and as a benchmark for short-term interest rates.
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Investors can benefit from investing in Treasury securities because of their consistent yields and low relative risk. Treasury securities are attractive to people who value capital preservation over large returns, particularly those who are approaching retirement or want to protect their resources. Treasury securities are a popular choice among conservative investors and those with low risk tolerance.
To comply with regulations and reduce risk, institutional investors like banks, insurance firms, and pension funds also set aside a percentage of their portfolio allocation for Treasury securities. Treasury securities are crucial components of diverse investment portfolios and a key part of any investor’s financial plan who is looking for a dependable and safe choice.
There are both benefits and downsides to Treasury Investments:
• Low Relative Risk: Because they are backed by the full faith and credit of the United States government, Treasury securities tend to be less risky than other investment types.
• Guaranteed Yield: They give investors a steady source of income with a guaranteed rate of return – or, as close to a guarantee as an investor is likely going to find.
• Treasury securities are highly liquid, which allows investors flexibility as they can be quickly bought and sold on the secondary market.
• Low Yield: Treasury securities usually have lower yields when compared to alternative investment options like equities or corporate bonds.
• Interest Rate Risk: Interest rate fluctuations can have an impact on Treasury securities. The value of current Treasury securities may decline if interest rates rise.
• Inflation Risk: Although Treasury securities are generally low risk, they might not yield enough returns in the long run to beat inflation, which might reduce one’s purchasing power.
• Market Risk: While unlikely, there’s a chance that shifts in investor sentiment or market disruptions could have an impact on the price of Treasury securities.
Individuals can invest in Treasuries with relative ease and accessibility. Investors can buy Treasury securities straight from the U.S. Department of Treasury via website, TreasuryDirect.gov.
Investors can also purchase them via a financial institution, bank, or broker. Mutual funds and exchange-traded funds (ETFs) that contain Treasury securities in their portfolios are another way for people to indirectly invest in Treasury securities.
Bonds, bills, and notes issued by the U.S. government can be directly purchased by individuals by using TreasuryDirect.gov. Without going via a broker or other financial middleman, investors can purchase, manage, and redeem Treasury securities using this online platform.
Treasury auctions, in which the public is offered newly issued securities, can be attended by investors via TreasuryDirect.gov. Investors can enter these auctions with competitive or non-competitive bids to buy Treasury securities at fixed yields or interest rates.
Non-competitive bids accept the yield that is decided by the auction, whereas competitive bids indicate the desired yield. Investors can interact directly with the U.S. Treasury Department to purchase Treasury assets through an open and easily accessible process, giving them more power over their financial choices.
An additional way for investors to obtain these assets is by buying Treasury securities through a bank or broker. Treasury securities can be purchased and held alongside other financial products by investors through the investment services provided by numerous banks and brokerage firms. Financial experts can assist in customizing investing plans to meet the specific needs and objectives of each investor.
Purchasing through a bank or broker may provide access to a greater selection of investment options, including Treasury bills, notes, and bonds with different maturities and yields. Although there can be commissions or transaction costs associated with this approach, investors benefit from the ease of having all of their investment accounts combined into one location.
Purchasing Treasury securities via a bank or broker provides investors with ease, flexibility, and individualized assistance in creating a diverse investment portfolio.
Investors can buy Treasury Securities in a convenient way through ETFs and mutual funds that hold bonds, bills, and notes. Investors can benefit from professional management and experience choosing and overseeing Treasury securities within the fund’s portfolio by making an investment in these funds.
Mutual funds and ETFs provide liquidity, enabling investors to buy and sell shares on the open market at any time. Investors can easily modify their exposure to Treasury securities in response to shifting market conditions or investing goals.
Mutual funds and ETFs often have lower expense ratios than actively managed funds, so investing in Treasury securities using this method can be an affordable way to access a diverse portfolio of Treasury securities.
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Since they are subject to unique tax laws, investors looking for tax-efficient investment options may find Treasury bonds, bills, and notes appealing. State and local income taxes are not applicable to interest income collected on Treasury securities, but it is subject to federal income tax.
Taxation applies to any capital gains upon the selling of Treasury securities. An investor will have a capital gain that is liable to capital gains tax if they sell a Treasury asset for more money than they paid for it.
On the other hand, the investor can experience a capital loss if they sell the investment for less than what they paid for it. This loss can be applied to offset capital gains and lower their taxable income.
The U.S. Treasury offers a variety of securities in addition to Treasury bonds, bills, and notes. By basing the principal value of Treasury Inflation-Protected Securities (TIPS) on fluctuations in the Consumer Price Index (CPI), TIPS offer protection against inflation.
By guaranteeing a rate of return, this helps investors maintain their purchasing power over time. Investors are protected against interest rate risk by Floating Rate Notes (FRNs), which have variable interest rates that fluctuate based on changes in market interest rates.
The U.S. Treasury issues savings bonds such as Series I and Series EE that provide people with a convenient and secure long-term means of saving money. Series EE Savings Bonds pay a set rate of interest for a maximum of 30 years, while Series I Savings Bonds protect against inflation.
Treasury securities give investors a range of choices to achieve their financial objectives, including long-term savings, inflation protection, and income generation. In the ever-changing world of financial markets, investors can protect capital, reduce risk, and reach their goals through Treasury bonds, bills, notes, and other securities like TIPS and savings bonds.
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The U.S. Department of the Treasury issues debt obligations known as Treasury securities, which include Treasury bills, notes, and bonds. Because they are backed by the full faith and credit of the United States government, Treasury securities are among the safest investments.
Treasury Bills, Treasury Notes, Treasury Bonds, Treasury Inflation-Protected Securities (TIPS), and Floating Rate Notes (FRNs) are the five categories of marketable securities offered by the U.S. Treasury.
Because the U.S. government completely backs Treasury bonds, there is very little chance that they would default, making them a popular choice for investors looking to avoid risk. Investors need to be aware that interest rate risk exists even with U.S. government bonds.
Photo credit: iStock/Andrii Yalanskyi
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Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
SOIN0224013
Source: sofi.com
Now, Qatar Airways Privilege Club members can earn Avios without flying and also snag a fast track to elite status, thanks to the release of two new credit cards, issued by Cardless, a fintech company.
The Qatar Airways Privilege Club Visa Infinite Credit Card.
The Qatar Airways Privilege Club Visa Signature Credit Card.
Applications for the cards go live on May 7, 2024. Here’s what to expect.
Qatar Airways Privilege Club Visa Infinite Credit Card |
Qatar Airways Privilege Club Visa Signature Credit Card |
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Annual fee |
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Sign-up bonus |
Earn 50,000 Avios, including 25,000 Avios after the first transaction and 25,000 Avios after spending $5,000 in the first 90 days. |
Earn 40,000 Avios, including 20,000 Avios after the first transaction and 20,000 Avios after spending $3,000 in the first 90 days. |
Loyalty program points |
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Earn 2 Qpoints for every $2,000 spent on qualifying purchases. |
Earnings rates |
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Other perks |
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🤓Nerdy Tip
Prospective card applicants were able to join a waitlist in mid-April. If you joined that waitlist and apply within 30 days of the card applications going live, you’ll be eligible for an additional 5,000 bonus Avios on the Qatar Airways Privilege Club Visa Signature Credit Card or 10,000 bonus Avios on the Qatar Airways Privilege Club Visa Infinite Credit Card. These are in addition to the sign-up bonuses available to all applicants.
The one year of automatic elite status with each card has no spending requirement. Additional Qpoints earned by spending on the card can help members qualify for status in subsequent years.
Benefits of the Gold status earned with the Qatar Airways Privilege Club Visa Infinite Credit Card include a 75% tier bonus on earning Avios with eligible flights; priority check-in and boarding; complimentary lounge access and four guest lounge passes every year; a free extra baggage allowance; and complimentary preferred seat selection. Gold elite members will also receive all the benefits of Oneworld Sapphire tier elite status and collect Avios while flying on Oneworld member airlines.
Benefits of the Silver status earned with the Qatar Airways Privilege Club Visa Signature Credit Card include a 25% tier bonus on earning Avios with eligible flights; priority check-in and boarding; complimentary lounge access and two guest lounge passes every year; an extra baggage allowance; and 20% savings on preferred seat selection. Silver elite members will also receive all the benefits of Oneworld Ruby tier elite status and collect Avios while flying on Oneworld member airlines.
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Avios points earned on these cards can be redeemed for flights with Qatar Airways, but also Oneworld Alliance airlines such as Alaska Airlines and British Airways, as well as partner airlines, including JetBlue Airways. The rewards can also be transferred to other Avios-based rewards programs, such as British Airways and Iberia Airlines. That transfer ability and access to partner airlines make Avios extremely valuable for optimizers who don’t mind learning how to maximize the value of their rewards.
Unless you’re a frequent flyer with Qatar Airways and you really value elite status, there are easier and more flexible ways to earn Avios. For example, the Chase Sapphire Preferred® Card earns Chase Ultimate Rewards® that can be transferred to a variety of Avios-based rewards programs, including the British Airways Executive Club, Aer Lingus AerClub and Iberia Plus. These programs all give you access to the Oneworld Alliance award chart, including Qatar Airways. New cardholders can also qualify for a bigger introductory offer: Earn 75,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That’s over $900 when you redeem through Chase Travel℠.
Source: nerdwallet.com
All eyes will once again turn to the Federal Reserve this week as they meet to discuss the next steps with interest rates and economic policy. Specifically, will they raise rates above their current 23-year high? Or will they keep them steady following a series of disappointing inflation reports at the start of 2024? After all, rate cuts that seemed promising at the beginning of the year now seem off the table, possibly for the rest of the year.
And while the Fed doesn’t directly dictate rates for loans like mortgages, personal loans and other borrowing products, what they ultimately decide will greatly affect what rate lenders are willing to offer. Homebuyers will then follow this week’s meeting carefully. After coping with the highest mortgage rates since 2000, buyers are looking for relief — or signs of rate relief to come.
To that point, many are wondering if mortgage rates will rise after this week’s Fed meeting. That’s what we will break down below.
See what mortgage rate you could lock in before a potential increase here now.
While no one knows with certainty what will happen after the Fed meeting, set for April 30 and May 1, the chances of a rate cut are minimal. Thanks to sticky inflation and a target inflation rate goal of 2%, more work must be done (the current inflation rate is 3.5%). So rate cuts look out for this week. While a rate hike is possible, it’s also unlikely to happen until more data about the fight against inflation becomes available.
With those scenarios accounted for, then, it’s likely that the Fed will keep its benchmark interest rate unchanged at a range between 5.25% and 5.50%. But what will that mean for mortgage rates?
It won’t be particularly positive. While a rate pause is better than a rate hike, even a hint at an extended pause — or the potential for rate hikes in the months to come — could cause mortgage rates to rise in anticipation. So what Fed chairman Jerome Powell says this week will go a long way toward cooling rates — or making them rise further. However, if homebuyers were hoping for a rate cut, as some were predicting at the end of 2023, that’s not likely to happen, at least for now.
See what mortgage rate you could secure before the Fed announces its rate decision.
While the sub-3% mortgage rates of 2020 are unlikely to return anytime soon (or ever again), that doesn’t mean homebuyers still can’t get a lower mortgage rate now. It will just require a bit more work and strategic planning. Here are three ways buyers can get a lower mortgage rate now:
The strong potential for mortgage rates to rise again this week, even if the Fed keeps rates unchanged, could be a motivating factor for buyers to lock in a rate now. That said, there are still effective ways to get a below-average rate, ranging from buying mortgage points to adjustable-rate mortgages to simply shopping around for the best rates and terms. None of these strategies will bring back the record-low mortgage rates of recent years, but they are all worth carefully considering until the Fed finally starts cutting rates again.
Source: cbsnews.com
Purchasing U.S. Treasury securities are often considered to be a dependable and less-risky way to increase income and grow wealth over time. Building a Treasury ladder can be a smart move for investors looking for a way to maximize profits while controlling interest rate risk. Investing in a Treasury ladder allows investors to spread out the risk and return associated with holding fixed-income securities by buying a sequence of securities with varying maturities.
In this article we delve into the complexities of U.S. Treasury ladders, going over their advantages, construction techniques, and things to think about for investors trying to assemble a reliable and well-rounded portfolio.
An investing strategy known as a “Treasury Bill ladder” involves buying a sequence of Treasury Bills with varying maturities. The United States government issues Treasury Bills, sometimes known as T-bills, which are short-term debt securities with maturities varying from a few days to a year. Investors can spread out the maturity dates of their investments by building a Treasury Bill ladder, which preserves liquidity and generates a consistent income stream.
With this approach, investors can benefit from fluctuating interest rates and make sure that a part of their portfolio is always maturing, giving them flexibility in terms of withdrawal or reinvestment. Treasury Bills are also regarded as some of the least-risky investment options.
A Treasury Bond ladder is similar to a Treasury Bill ladder in that it emphasizes longer-term investing and both involve staggering maturities. The United States government issues Treasury Bonds, which are long-term debt instruments with maturities ranging from 10 to 30 years.
A Treasury Bond ladder works similarly to a Treasury Bill ladder in that it distributes the risk and returns of investing in fixed-income securities by buying bonds with different maturities. Still, there are some significant distinctions between the two approaches. Because they are investments with a longer maturity period than Treasury Bills, Treasury Bonds usually provide greater yields.
Treasury Bond ladders are often favored by investors seeking higher income potential and are willing to accept the associated interest rate risk. Changes in interest rates may have an effect on the market value of Treasury Bonds. Notwithstanding these differences, Treasury Bill and Treasury Bond ladders are equally useful instruments for addressing the varied inclinations and goals of investors while controlling interest rate risk, producing income, and preserving portfolio diversification.
Several important factors must be taken into account while building a Treasury ladder in order to minimize risk and maximize returns.
The first stage is to decide on the ladder’s ideal configuration, which includes the number of rungs and the assets’ staggered maturities. The term “rungs” refers to the individual assets that make up the ladder; based on the investor’s investment horizon and preferences, these securities may include Treasury Bonds, Treasury Notes, or Treasury Bills. By ensuring that a part of the portfolio matures on a regular basis, staggered maturities offer liquidity and flexibility for withdrawal or reinvestment.
To maximize the performance of a Treasury ladder, investors should also take the yield curve and current interest rates into account. Longer-dated securities often provide greater yields in order to offset the duration and interest rate risk. Nonetheless, investors may decide to add assets with shorter maturities to increase liquidity or to capitalize on future changes in interest rates.
When choosing the Treasury securities to include in the ladder, investors should consider their time horizon, investing goals, and risk tolerance. While Treasury Notes and Bonds offer higher returns and are appropriate for longer-term investment objectives, Treasury Bills are best suited for investors with short-term liquidity needs or a conservative risk profile.
After the ladder is put in place, investors should keep a close eye on it, rebalance the portfolio as needed to preserve the intended asset allocation, and modify the ladder’s maturity structure in response to shifting market conditions.
*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
Buying T-Bills with varying maturities over a predetermined time frame, like a year, is an example of a T-Bill ladder.
An investor could, for example, build a three-rung T-Bill ladder, where each rung represents a T-Bill with a different maturity date. T-Bills that mature in three months, six months, and nine months, respectively, might be found on the first rung, second rung, and third rung.
By reinvesting the proceeds from each maturing T-Bill into new ones with longer maturities, the investor can preserve the ladder’s structure and create a steady flow of income. By delaying the maturity dates of their investments, this technique helps investors spread out their exposure to reinvestment risk while capturing changing interest rates over time.
An investor would receive interest income of $50 from the first T-Bill after three months, $100 from the second T-Bill after six months, and $150 from the third T-Bill after nine months, for instance, if they initially purchase $10,000 worth of T-Bills with staggered maturities of three, six, and nine months, and each T-Bill offers an annualized yield of 2%.
In order to preserve the ladder’s structure and gradually produce a consistent income stream, the investor may reinvest the principal and interest into further T-Bills upon maturity.
💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.
Purchasing Treasury Bills and Bonds is a simple process that may be carried out via a number of methods.
One popular way is via a brokerage account, where investors can buy Treasury securities through a broker-dealer. Or investors can buy directly from the U.S. Department of the Treasury. Treasury securities are easily accessible through a number of online brokerage platforms, enabling investors to buy and sell them with a few clicks.
Banks and other financial organizations that take part in Treasury auctions are another source for investors to purchase Treasury securities. Investors can place bids for the required quantity and yield at regular auctions held by the U.S. Department of the Treasury for Treasury securities, such as Treasury Bills, notes, and bonds.
Additionally, investors may purchase Treasury securities indirectly by investing in a diverse portfolio of Treasury securities through exchange-traded funds (ETFs) or mutual funds with a Treasury concentration. Investors can easily obtain exposure to Treasury securities through these products without having to buy individual bonds or bills.
Creating a Treasury ladder may have certain advantages for investors:
• Possible protection against inflation: Treasury Inflation-Protected Securities (TIPS) within the ladder may help safeguard against the erosive effects of inflation by adjusting the principal value in line with changes in the Consumer Price Index (CPI).
• Revenue and cash flow: Treasury securities offer a steady income stream in the form of interest payments, which can be especially attractive to retirees or those looking for consistent cash flow. In order to provide liquidity for reinvestment or other financial needs, staggered maturities create a steady stream of maturing securities.
• Diversification: Treasury ladders distribute assets across several Treasury security types and maturities, providing diversification and lowering total portfolio risk.
• Security and less risk: Because they pay principal and interest on time by the U.S. government, U.S. Treasury securities are among the least risky investments available.
Bond and Treasury bill ladders are typically regarded as low-risk investment techniques, but investors should be aware of certain potential risks.
Interest rate risk is one of the main risks connected to Treasury securities. Treasury securities’ market value can change inversely with changes in interest rates. This implies that the market value of current Treasury securities may decrease if interest rates rise, possibly resulting in a loss if the investor sells before maturity. On the other hand, investors who retain Treasury securities until maturity may benefit if interest rates decline and the market value of the securities rises.
Reinvestment risk is another thing to think about. Investors must reinvest the revenues from maturing assets into new securities because Treasury ladders feature staggered maturities. Investors may end up investing at lower rates if interest rates have dropped since the first investment, which might affect the ladder’s overall yield. On the other hand, investors might be able to reinvest at higher rates if interest rates have increased, which would raise the ladder’s total yield.
Even though Treasury securities are among the least risky investments available since they are backed by the full faith and credit of the United States government, there is always a small but constant risk of default. The purchase power of the principal and interest payments of Treasury inflation-protected securities (TIPS) can be impacted by changes in inflation, so investors should be aware that TIPS involve an inflation risk.
ETFs that specialize in Treasury securities allow investors to indirectly build up a Treasury ladder. Treasury-focused ETFs offer investors exposure to a variety of Treasury Bills, notes, and bonds by holding a diversified portfolio of Treasury securities with different maturities.
Without having to buy individual assets, investors can obtain a comparable result to a Treasury ladder by investing in these ETFs.
When building a Treasury ladder, investors can benefit from a number of ETF features. They offer diversification over a wide array of Treasury securities, helping reduce credit risk as well as interest rate risk. Also, a wider range of investors can invest in ETFs since they usually have lower investment minimums than buying individual Treasury securities. ETFs also trade on stock exchanges, giving investors flexibility and liquidity to purchase and sell shares at any time during the trading day.
That’s not to say that ETFs don’t, generally, have some downsides, though. ETFs may experience tracking errors, for instance, and have associated trading costs. There may be other types of risk, too – just some things to keep in mind.
Treasury-focused ETFs frequently provide extra characteristics, such as improved yield strategies or inflation protection, to meet the unique requirements and preferences of investors. To make sure that ETFs match their investment goals and risk tolerance, investors should carefully consider the expense ratios and liquidity of the funds before making an investment.
💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
Building a Treasury ladder may be a tool for investors looking for a way to maximize profits while controlling interest rate risk. And, as noted, investing in a Treasury ladder allows investors to spread out the risk and return associated with holding fixed-income securities.
Overall, the combination of potential inflation protection, minimized interest-rate risk, reliable income, diversification benefits, and lower relative risk make building a Treasury ladder a compelling investment strategy for many investors, particularly those with a conservative risk tolerance or seeking stable returns over time.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
A T-Bill ladder distributes investments over a range of maturity dates, which helps investors diversify their holdings. It can aid in reducing interest rate risk.
Yes, you pay federal taxes on Treasury Bills at your marginal income tax rate, but state and local income taxes do not apply to them.
Depending on the length of term you desire, you can choose between Treasuries and a CD. Treasuries are a preferable option because rates are close enough for both one- to six-month and ten-year maturities. Right now, CDs are paying more for durations of one to five years, and the difference is significant enough to give them the advantage.
Photo credit: iStock/Yauhen Akulich
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If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.
[cd_ETFs]
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
SOIN0224009
Source: sofi.com
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Explore car buying in 2024, from Carvana’s process to the electric vehicle surge and how to maximize your car’s sale value.
Budgets Beyond the Numbers: How do you manage the emotional aspects of budgeting? What’s the car buying market like in 2024? Hosts Sean Pyles and Elizabeth Ayoola discuss personal budgeting and the future of car buying to help you understand how to navigate financial decisions with confidence. They begin with a discussion of budgeting “beyond the numbers,” with tips and tricks on categorizing expenses into their emotional impacts to make budgeting feel more personal.
Today’s Money Question: Is Carvana a good service? Should you buy an electric vehicle if you’re in the market for a new car? NerdWallet autos writer Shannon Bradley joins hosts Sean Pyles and Sara Rathner to delve deeper into the future of car purchases and the electric vehicle revolution. They explore the evolution of electric vehicles, the current state of the car market for both buyers and sellers, and strategies to get the best deal when selling your vehicle. The conversation aims to provide insights on choosing the right time to buy an electric car, understanding the market dynamics, and ensuring a smooth car selling experience.
Check out this episode on your favorite podcast platform, including:
NerdWallet stories related to this episode:
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
What’s in a budget? If you look at the 50/30/20 budget, you have your needs, wants along with extra debt payments and savings. But we all know a budget can be much more than that. We get into it this episode. Welcome to NerdWallet’s Smart Money Podcast, where we help you make smarter financial decisions, one money question at a time. I’m Sean Pyles.
Elizabeth Ayoola:
And I’m Elizabeth Ayoola.
Sean Pyles:
This episode we answer a couple listeners’ questions about car buying and selling, including what to know about the electric car market right now. But first, we’re exploring what’s really in a budget beyond the numbers and Elizabeth, this is something that you are especially interested in, right?
Elizabeth Ayoola:
I am, Sean, because budgeting gets a bad rep, but it can be fun too, especially when you have something you really want and are working towards, but it can be equally stressful. I’m not going to deny that.
Sean Pyles:
Totally. When people hear the word budget, they might just think about numbers in a spreadsheet or about restricting themselves from purchasing something that they want. Neither is really fun. And don’t get us wrong, we are still big proponents of having a budget and we think the 50/30/20 budget, where you have half of your income going towards needs, 30% going towards wants and 20% going towards extra debt, payments and savings, can be a really accessible and flexible framework for most people, but it doesn’t get to the more personal parts of our finances. So Elizabeth, you like getting into those deeper parts of a budget and you do this by breaking it into three general categories: something stressful, something exciting, and something confusing. Can you talk about why you are thinking about your budget in this way and what’s the purpose of each category?
Elizabeth Ayoola:
So I feel like by doing this, it gives our budget some personality, it creates some interesting conversation around our budgets. I think we all know that budgets can be monotonous, so breaking it up like this helps me stay engaged with my budget and also have something to feel excited about. You know what I’m saying, Sean? So the confusing one especially is a chance for me to challenge myself to untangle areas of my budget where I’m winging it or I’m just disorganized and usually I’m winging it or disorganized because I’m overwhelmed and don’t understand something.
Sean Pyles:
This reminds me of a game that I sometimes play with my friends called Rose, Thorn, and Bud. The rose is something good that happened to you, the thorn is as you might expect, something that’s a little bit thornier or unpleasant and the bud is something that is in progress or something that you are excited about. This is kind of like that, but for your finances, it’s a way to categorize items of your budget under broader themes, which can help you process them in that more personal and emotional way. Is that how you think about it too?
Elizabeth Ayoola:
Exactly. You just put it in a fancy way. Thank you, Sean.
Sean Pyles:
Thank you.
Elizabeth Ayoola:
And I also have a new game that I’m playing with my friends because I’m stealing your idea.
Sean Pyles:
Happy to hear it.
Elizabeth Ayoola:
As of recent, I’ve been asking them when I go on girlfriend dates, what’s one thing they hope happens this year? But I’m definitely going to swap it out for your idea.
Sean Pyles:
Oh, I love that. Well, to help our listeners understand this way of thinking about budgeting, Elizabeth, I would love to hear what you are finding stressful, exciting, and confusing in your budget right now?
Elizabeth Ayoola:
As a recovering over sharer, I am definitely going to share that. So let’s start with stressful. Start with the worst, a moving budget. So just please anybody rescue me on a red carpet and make sure you bring a margarita with you because moving is stressing me out. I’m trying to make the move as cost-effective as possible because it’s looking like I’m going to spend a couple of thousand dollars right now and that’s really hurting my feelings.
Sean Pyles:
Yeah, it’s a lot of money.
Elizabeth Ayoola:
So now let’s get into the exciting thing, a love sack. I don’t know if any of our listeners or you, Sean, have heard of love sacks before, but they’re essentially these giant beanbags and in my fantasy of living out the Bohemian dream in my household, I have something like a love sack where I can read books and watch Netflix and do whatever else I want to do on it. So I’ve wanted one for years, but they are pretty pricey. They can start around the $900 range and go up to a thousand dollars, but I am budgeting for that and I’m looking forward to it. The only thing I’m worried about is my son putting his Cheeto hands all over my stuff.
Sean Pyles:
That’s a fair concern. Also, you might want to wait to get that until after you’re moved because that would be just one other thing to haul across state lines.
Elizabeth Ayoola:
Oh fact, I’m definitely not buying that now, so I’m going to buy it once I move. So it’s also giving me more time to save towards it or to budget for it. Another exciting thing I’m also budgeting for is to go to Nigeria. So I am Nigerian for the listeners and I haven’t been since I had my son maybe like four or five years ago, and he’s been asking me to go. That’s kind of what inspired the trip, but it does cost a couple of thousand dollars, so I’m budgeting towards that as well, but excited. And lastly, what is confusing? Balancing business and personal budgets at the same time is very confusing for me right now.
So I’m trying to kind of figure out how much to put towards retirement saving because my expenses just keep changing and I’m also trying to ensure that I don’t commingle, which is when you’re mixing kind of your business finances with your personal because we don’t want the IRS to come knocking. So all these kind of things are just confusing and maybe a little bit stressful as well. Then lastly, my son is going to a private school in August, so my budget is going to change. I’m trying not to be hard on myself because I really like saving big chunks of money and him going to private school might mean I have to save less, but it’s all good.
Sean Pyles:
See, I feel like this really shows how your budget is being enacted to help you meet the short and long-term life goals that we talk about so much on Smart Money and also the various emotions that come with meeting your goals or trying to meet them and the compromises that are just inherent in this conversation you have with yourself and your finances. Also, Elizabeth, last week you said that you were financially boring, and I’m going to say that all of these things are interesting. I’m especially excited about your trip to Nigeria, so let me know how that goes. And also let me know where you land on your savings when your son starts private school.
Elizabeth Ayoola:
Of course, I’m going to share that with you guys, so watch out for that. It has been so long since we’ve been to Nigeria, so we’re looking forward to it. And private school, well all the listeners with kids know that kids swallow up your dollars, but I hope to get a good return on investment on this. So what are yours, Sean? Tell me about your things that are stressful, exciting, confusing.
Sean Pyles:
Okay, well this is where I reveal that I am actually boring. Something stressful is that I’m in the middle of a season of travel right now, which is not boring. It’s very exciting actually. But I went down to San Francisco for a concert a couple of weeks back and I’m about to fly out to the East coast to see some friends in New York and DC and it’s going to be great to see these friends and it was great to see San Francisco again where I lived for many years, but boy, oh boy, traveling is very expensive. It’s much more expensive than working from home day in day out and the adjustment from making my breakfast every morning and having my coffee and a nice little ritual for myself, going from that to spending $20 on the sandwich and a coffee every single morning is a little bit painful and a little bit stressful for my budget, but I’ll make it work.
And then something exciting, this might be a little bit premature because it’s not actually going to happen for nine months, but I’m getting relatively close to paying off my car. I’ve had this car loan since 2020 and I know I took a longer car loan than we typically recommend, but that’s just where my finances were at the time. And I’m kind of lucky to have a pretty affordable car payment. But I am also very excited about having that extra $350 that I pay for my car each month back in my budget, even though I will likely direct most of that into my car savings bucket. Confusing? To be honest, nothing is too confusing for me right now fortunately, but as ever, I am in this continual dialogue with myself and my ADHD impulses that tell me to buy random things that I sincerely do not need. And what’s helped me recently to shake myself from buying things online is just asking what do I expect this thing to do for me? And the answer is usually nothing meaningful. So that helps me break the spell.
Elizabeth Ayoola:
Oh, I love that. And I can relate with you re ADHD. I think in a previous episode I told y’all that I was emotional buying and I’m so glad to update y’all that that has stopped.
Sean Pyles:
Oh, congratulations.
Elizabeth Ayoola:
Thank you. No more random Zara shops every other week. So I’ve been doing pretty good and I can understand what you’re saying, re travel because I have lots of upcoming trips as well and it’s so expensive. But Sean, I’m excited about the car. $350 a month sounds really good to do something else with. And that’s about how much my payment is too. So I’m going to tap into your excitement and hopefully I will be there next year.
Sean Pyles:
Manifesting that for us, yes. Well listener, I hope this exercise has helped you think about your own budget in a new way. Before we get into this episode’s money question segment, let’s check in on our nerdy question of the month, which is what is your weird money habit, behavior, or principle that you live by?
Elizabeth Ayoola:
Here’s one weird money habit that a listener texted us. I just listened to your podcast of a person with dozens of credit cards. I’m one of those individuals too. To be clear though, the only balances I carry are those on temporary 0% promo offers and ones that are paid off monthly. My system is to carry five to six cards in my wallet and rotate them, then return those cards to the bottom of my home credit card stack. Another side gig hobby I do is entering sweepstakes online daily. It’s an easy but exciting activity that can lead to surprise winnings at any given time. My biggest win to date is $24,000 minus taxes, of course. That’s a large chunk of cash.
Sean Pyles:
Oh, that’s an interesting one. Thanks for sharing that. So listener, let us know: what is your weird money habit? Do you only use cash for all of your transactions or are you a hardcore credit card point maximizer?
Elizabeth Ayoola:
Or maybe you have 10 billion bank accounts like Sean. Okay, he just has 10. It’s not 10 billion, it’s just 10.
Sean Pyles:
I didn’t really think that was weird until recently. I was talking with a friend who was considering getting her very first high yield savings account, and she looked at me like I had two heads when I mentioned that I have 10 accounts. So maybe that’s also a good way to think about this. What is something that you do with your finances that seems maybe totally normal to you, but everyone else around you thinks is a little bit off? We want to know.
Elizabeth Ayoola:
Yes, we do. So tell us your weird money habit by texting us or leaving a voicemail on the Nerd hotline at (901) 730-6373. That’s (901) 730-N-E-R-D. Or you can email us a voice memo at [email protected].
Sean Pyles:
And while you’re at it, send us your money questions too. We know how confusing money can be and we want to help you make smarter financial decisions. And a quick reminder that we are running another book giveaway sweepstakes ahead of our Nerdy Book Club episode.
Elizabeth Ayoola:
Our next club guest is Jake Cousineau, author of How to Adult: Personal Finance for the Real World. The book offers tips to young people on how to get started with managing their money.
Sean Pyles:
To enter for a chance to win our book giveaway, send an email to [email protected] with the subject ‘book sweepstakes’ during the sweepstakes period. Entries must be received by 1159 P.M. Pacific Time on May 17th. Include the following information: your first and last name, email address, zip code, and phone number. For more information, please visit our official sweepstakes rules page. All right, now let’s get into this episode’s money question segment with our co-host, Sara Rathner, after a quick break, stay with us.
We’re back and answering your money questions to help you make smarter financial decisions. This episode we’re taking on a couple questions about cars, how to buy and sell them, and how electric vehicles fit in. And we’re joined by NerdWallet autos writer Shannon Bradley to help us navigate the winding roads of car buying in 2024. Shannon, welcome back to Smart Money.
Shannon Bradley:
Thanks for having me back. Let’s get to the first listener’s question. This comes from a voicemail.
Listener Voicemail:
Hello. The reason I’m calling is we were wondering what do you think about the company Carvana? We’re thinking about selling our vehicle to them because if we maybe try to sell it at a car dealership or something, we’re not really thinking that we’re going to get a good deal for it. But we don’t know as far as us selling a vehicle to them, not us purchasing one from them, if they’re reputable with regards to that. We’ve never used them.
Sean Pyles:
So Shannon, can you start by giving us a quick explanation of how Carvana works?
Shannon Bradley:
Yeah. Carvana is an online only car retailer and they sell and buy used cars only. They also take trade-ins. And based upon the listener’s question, I think the most important thing is that you can request an offer for your car right on the Carvana website as long as it’s a 1992 model or newer. And it’s a pretty simple process. They’re going to ask you for your 17 digit vehicle identification number, more commonly known as your VIN, or your license plate number. They’re going to ask you for mileage, the vehicle condition, vehicle options, and then if you have a loan or a lease on the car, they’ll ask you for information about that too.
Sara Rathner:
So other than Carvana’s iconic car vending machines that you see dotting the landscape in different cities, what makes it different from going to a dealership or to CarMax?
Shannon Bradley:
Well, let’s talk about CarMax first. CarMax is an online retailer too, and they’re very similar to Carvana. I think one of the biggest differences when you sell your car between the two is how you get your car to the retailer. With Carvana, you can finalize the entire sale remotely. They will come to your house, they’ll pick up your car, do the inspection there. You do have to be within one of their service areas, and there could be a small fee depending upon how far you are from their hub. CarMax, on the other hand, they offer pickup, but only at limited locations in four states.
So more than likely you’re going to have to take your car to a CarMax store for inspection. And depending upon where you live, that could be quite a distance. So if you compare these types of online retailers to a dealership, I think two of the biggest differences are convenience and being able to negotiate what’s offered for your car. Again, with Carvana, you can potentially complete the entire process of selling your car right from your home, but when you get an offer from Carvana or CarMax, it’s not negotiable. Whereas if you sell to a dealership, you can attempt to negotiate that offer.
Sean Pyles:
So car buying and selling is a notoriously frustrating process. Are there any common complaints about how Carvana handles this process that maybe are distinct from other ways of buying and selling a car?
Shannon Bradley:
On the selling side, I’m not aware of too many complaints. In fact, it was kind of funny, over the weekend I had a friend on Facebook ask this very question, and so I was monitoring responses of people and they were saying that it was a fast and easy process to sell their car to Carvana. On the buying side, I think the thing is, you have to remember that when you buy a car from Carvana, you can’t test drive it, you can’t inspect it. And on occasion, I’ve heard of people receiving a car that they didn’t feel really matched what was represented online. But I think the thing to keep in mind there is that Carvana offers a seven-day money-back guarantee with a limit of 400 miles. So when you get your car, just take that time to really test drive it and get a very thorough inspection done.
Sean Pyles:
So people go with Carvana because it seems like a really easy way to buy or sell a car and you can potentially just have the car dropped off at your front door. But that doesn’t mean that you still don’t have to do your due diligence and then get that inspection to make sure the car is as good as they are telling you it is.
Shannon Bradley:
Yes, exactly. They will allow you to, I think return up to three vehicles. There is some leeway there. And then the other thing that I was just going to mention, because I think a lot of people have heard about this because there was a lot of media coverage about it. This was in late 2022, early 2023, there was an issue with Carvana buyers. They would buy a car, they didn’t get their title in a timely manner, and so they couldn’t even register and drive the cars. And that’s something that our autos team has been monitoring. It doesn’t seem to be the issue that it has a year ago, but we still recommend for people to ask for proof of title. It’s just given that there were issues a year and a half ago, it’s just not a bad idea to do that.
Sara Rathner:
So our listener, like so many others, is interested in getting a good deal when selling their car. Do we know if places like Carvana offer better or worse deals than other places where you can sell your car?
Shannon Bradley:
Well, when you compare Carvana to CarMax, I’d say that’s kind of a toss-up. I think a lot depends on the vehicle you’re selling. Is it one that the retailer needs in their inventory at that time? And if it is, they may be more inclined to make you a better offer, but that’s why it’s so important to get more than one offer. And then you asked about dealerships. Traditionally you can get more selling your car to an individual, but of course that’s not going to be as easy as selling to someone who’s going to come right to your door and pick it up or even being able to go to the dealership down the road, but dealerships, their offers tend to be the lowest. But again, it depends on the car that you’re selling. Right now we’re seeing that both new and used cars are low inventory for Toyota. So if you have a type of car that a dealer is really needing on their lot, you may be able to negotiate a better deal.
Sean Pyles:
So the car market has been on a wild ride over the past few years, really since the pandemic began. So what is the car market looking like right now both for buyers and sellers?
Shannon Bradley:
Well, I would say wild ride is kind of an understatement. As someone who’s been covering the car market for the last three years, it has been a wild ride. It is not back to where it was before the pandemic. But from a car buyer aspect, several things are improving. For one, inventory is returning to normal. And actually you have some auto manufacturers who have overshot and are overstocked and those particular manufacturers, they’re starting to offer incentives again. We’re hearing you may be able to negotiate below the manufacturer’s suggested retail price, which was really unheard of during the pandemic. And then on the downside, we all know how vehicle prices are still high. I think actually this morning I saw that the average transaction price for a new vehicle is still at $47,000. That’s not small change by any means.
Sean Pyles:
No, it’s a lot of money.
Shannon Bradley:
But you can find deals out there, especially if you’re flexible about what you’re buying. And then leasing has some good deals. And if you buy or lease an EV right now, you could qualify for the federal tax credit of up to $7,500 on top of the other incentives that are out there.
Sara Rathner:
So how about sellers in the current climate? How are things looking for people who are selling their car right now?
Shannon Bradley:
Well, I would say they’re not faring quite as well as the buyers. Depends on what you’re selling, but if you recall, during the pandemic the vehicle shortage meant that individuals were actually selling their cars for a lot more than they paid for them. And with car supplies returning to normal for most manufacturers, selling isn’t what it was during the pandemic. You shouldn’t anticipate a huge profit like we were seeing in the past several years, but you should expect to receive a fair price and you can do that by researching the current market value of your car.
Sean Pyles:
So how can people get the most money for their vehicle?
Shannon Bradley:
Well, I go back to research. Research is key. If I was selling my car right now, I definitely wouldn’t put all of my eggs in one basket. If you get only one offer, which is something a lot of people do, they just don’t want to take the time to get more than one offer, you won’t ever know if there was a better offer out there. And the thing is, nowadays, it’s easy to do your research. You have online pricing guides where you can find estimates like Edmunds or Kelley Blue Book. And as we’ve been discussing, you can request actual offers from sites like Carvana, CarMax or TrueCar. And there’s not any cost or obligation to do that. Something we recently launched at NerdWallet, we can also make an offer on your car. We now have NerdWallet Automotive and you can find that when you Google NerdWallet buy my car.
Sean Pyles:
Alrighty. Well now let’s turn to the next question, which comes from a listener’s text message. They wrote, what is the fuel of the future? I’ve been researching about buying a new car and they’re saying that cars in the future are going to be electric, but if there’s a new fuel of the future, should I just wait until the new fuel comes out or just buy an electric car now? So Shannon, if you don’t mind, please bring out your crystal ball or industry research and tell us is there a new fuel of the future or does it seem like electric vehicles are the automotive energy of the coming years?
Shannon Bradley:
Well, we’re hearing a lot about research of different alternative fuels like natural gas, propane, or hydrogen fuel cells, which is really just another way of generating electricity. But these are all really in their early stages of development and adoption. So while I think development of various ways to lower vehicle emissions will definitely continue, my crystal ball says that in the near future, the emphasis will still be on EVs.
Sara Rathner:
And is that because EVs have just been around longer and have an advantage in the market over these other fuel types?
Shannon Bradley:
Yes, Sarah, it is. Many people don’t realize that the first electric vehicles were actually introduced in the late 1800s, then they kind of fell by the wayside and interest renewed in the 1970s. So it’s actually taken a long time for us to reach a point where electricity is accepted as a fuel source as it’s becoming today. According to Kelley Blue Book, EVs represent the fastest growing car sales category, and last year nearly 1.2 million U.S. vehicle buyers went electric. We don’t expect that pace to slow down with federal and state legislation as well as so many car makers devoting many resources to the transition to EVs. I just don’t see a quick pivot to other fuel sources that are going to take more time to build that infrastructure and to build that adoption rate.
Sean Pyles:
So the EV market has been developing rapidly over the past few years, but many anxieties that would-be buyers might have around electric vehicles like range, affordability, finding chargers are pretty persistent. Have any of these issues gotten better?
Shannon Bradley:
They have gotten better. For comparison, before 2016, when you’re looking at range, the median range of a new EV was below 100 miles and the top performing option couldn’t travel 300 miles without a charge. Today you can buy an EV that has a 250-mile range for less than $40,000 and the high-end models can have a range of more than 400 miles per charge. When you’re talking about the charging infrastructure, that’s improving too. We now have about 60,000 charging stations across the country, and that’s more than twice the number that we had five years ago. And there are a lot of incentives out there to help with installing home chargers, like from some auto manufacturers or your local electric company.
Sara Rathner:
What about the price of these cars? EVs are generally more expensive than gas powered cars. Is this changing?
Shannon Bradley:
That’s improving too. I think the Tesla price drops have driven other car makers to follow suit. There are a lot of EV incentives out there to help reduce the cost. As I said earlier, you could qualify for the federal tax credit of up to $7,500 and that can usually be stacked with other incentives from car manufacturers, state and local government and electric companies. The U.S. Department of Energy actually has a site, you can find it by searching alternative fuels U.S. Department of Energy, that has a database where you can research all of the various incentives that are available. Late last year, I talked to someone who was an EV buyer in California and he used multiple incentives to knock $8,000 off the price of a Chevy Bolt. And then right now there are a lot of EV leasing deals, and that’s a great option if you’re someone who just isn’t sure that you want to go ahead and buy an EV right now.
Sean Pyles:
Okay. So Shannon, I have to ask you, as a consumer and also someone who writes about this stuff a lot, how are you thinking about electric vehicles? Have you made the jump or are you planning to?
Shannon Bradley:
I haven’t made the leap yet, but it isn’t because I don’t want one. I’m pretty frugal with my money and I bought a gas-powered car right before the pandemic, so I was able to buy it before car prices skyrocketed. And I’m in a fortunate position right now where I’m no longer supporting children. I was receiving, like everyone, stimulus funds during COVID, so I was able to pay down that car and I actually don’t have a car payment right now. I am environmentally conscious. So I think that eventually I will buy or lease an EV, but for right now, I’m enjoying taking a vacation from car payments and putting that money into my retirement savings.
Sean Pyles:
Well, that does sound like a very smart financial decision. I’ll say that. Well, Shannon, thank you so much for joining us on Smart Money.
Shannon Bradley:
Well, thanks for having me.
Sean Pyles:
And that is all we have for this episode. Remember, listener, we are here for you and your money questions. So if you have anything that you want the Nerds to help you out with, call us or text us on the Nerd hotline at (901) 730-6373. That’s (901) 730-N-E-R-D. You can also email us at [email protected]. Also visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you’re getting this podcast. This episode was produced by Tess Vigeland who also helped with editing. Sara Brink mixed our audio. And a big thank you to NerdWallet’s editors for all their help.
Sara Rathner:
And here’s our brief disclaimer, we’re not financial or investment advisors. The nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles:
And with that said, until next time, turn to the Nerds.
Source: nerdwallet.com
Housing experts say mortgage rates are likely to hover in the 7 percent range in May, amid elevated inflation that is keeping the Federal Reserve from reducing borrowing costs.
The high cost of home loans may keep buyers at bay as they await the decline of rates before they can make the leap toward homeownership.
Read more: Find the Lowest Rates From Top Mortgage Lenders
The Federal Reserve raised interest rates starting in March 2022 to its current two-decade high of 5.25 to 5.5 percent, a move geared to fight soaring inflation. This contributed to the push-up of borrowing costs, including for home loans. Inflation is still struggling to cool down to the 2 percent central bank target, which has forced policymakers to retain the high interest rate environment.
The 30-year fixed rate, for the week ending April 19, rose for the third week in a row to 7.24 percent—the highest level since November 2023.
Economic data, particularly around inflation, have come in higher than expected over the last few weeks. In March, inflation jumped to 3.5 percent on a yearly basis, up from 3.2 percent the prior month.
Unless inflation surprises in the coming weeks, mortgage rates are likely to stay in the 7 to 7.5 percent range, according to Realtor.com’s chief economist Danielle Hale. Fed policymakers are set to conclude their latest meeting on May 1, and they are unlikely to change their current stance on rates.
“Of all the data, I think that the inflation, specifically the [Consumer Price Index] out May 15, will have the biggest impact,” Hale told Newsweek. “Inflation and labor market data has come in higher and hotter than expected. This change in the data, which is driving a change in the outlook, has pushed interest rates, including mortgage rates, higher across the board.”
Read more: How to Get a Mortgage
High mortgage rates will depress buyers’ ability to buy homes.
“I expect homebuyers to approach the housing market more tepidly, and sales will reflect that trend,” Hale told Newsweek.
Orphe Divounguy, a senior economist at Zillow Home Loans, echoed Hale’s perspective on what will drive mortgage rates as inflation remains elevated.
“The fact that government borrowing remains high relative to demand for U.S. Treasury bonds is likely to continue to push yields—which mortgage rates follow—elevated,” he told Newsweek. “Looking into May, we can expect more rate volatility as investors and the Fed wait for more conclusive evidence of a return to low, stable and more predictable inflation.”
Buyers are still likely to be waiting for rates to fall but the key to the trajectory of rates will be how inflation performs over the coming months, said Holden Lewis, a home and mortgage expert at NerdWallet.
“Inflation remains stubbornly above the Fed’s target of 2 [percent], and mortgage rates won’t fall significantly until the inflation rate consistently drops for multiple months in a row,” Lewis told Newsweek. “Potential home buyers are holding back and waiting for mortgage rates to decline. The slowdown in home sales will allow the inventory of unsold homes to increase. That won’t stop home prices from going up, but it might slow down the pace of home price increases this summer.”
In May, policymakers from the Fed will reveal their latest rate decision and provide insights on the trajectory of borrowing costs. Also in May, the CPI inflation data reading for April will give insight into how prices are performing, which will give a signal to how rates might unfold over the next few weeks.
For the housing market, one silver lining may come from buyers who have to acquire homes due to personal situations.
Read more: How to Buy a House if You Have Bad Credit
“Purchases are likely to be dominated by movers who feel like they don’t have a choice to wait out higher rates, but rather, they have to move now for personal reasons,” Hale said.
Zillow’s Divounguy suggested that with mortgage rates expected to stay high, lower-priced homes could see escalated competition.
“We continue to expect significant competition this spring, especially for attractive listings on the lower end of the price range. New construction homes are selling well too; they’re available, and builders are offering financial incentives—such as rate buydowns and covering closing costs—to potential home buyers,” he said. “Remember, higher rates mean the home price a buyer can afford is lower, so if you’re shopping for a home in the mid-tier or lower, it’s best to assume you’ll run into some competition.”
Hale suggested that sellers, who can also be buyers, enter the housing market.
“With 80 [percent] of potential sellers having thought about selling for 1 to 3 years, it could be that higher rates are less of a deterrent this year than in the recent past,” she said.
The perspective from lenders appears to be that the 10-year treasury yields, currently at around 4.7 percent, will drop in the coming weeks to 4 percent and narrow the difference between mortgage rates and treasury rates.
“We expect the spread will tighten further by the end of 2024. The combination implies a 30-year fixed mortgage rate mostly unchanged in the coming weeks but eventually moving closer to 6.5 percent by the end of 2024,” Joel Kan, Mortgage Bankers Association’s deputy chief economist, told Newsweek.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
Having children brings many joys. But for women, it can also have a financial dark side. Becoming a mother often results in a loss of pay and opportunities for career advancement, a phenomenon known as the motherhood penalty. In fact, women experience a 60% decrease in income compared to men in the decade after their first child is born, according to PricewaterhouseCoopers’ 2023 Women in Work Index.
Many factors contribute to the motherhood penalty, and not every woman experiences it in the same way. Understanding the motherhood penalty can help women — and their families — sidestep this financial setback.
If you want to avoid the motherhood penalty and keep your budget on track, it pays to know your enemy. According to a 2023 article published in the scientific journal PNAS, women’s diminished earnings after the birth of a child is driven by both a reduction in employment and by lower earnings for those who remain employed. Let’s look at each of these factors.
Despite the fact that women today have achieved historic levels of education and are working at senior levels in the corporate world, they are still more likely than men to cut back on their working hours or stop working altogether after a baby is born. Some women may choose jobs that allow for more flexibility in hours even if those roles pay less.
Discrimination is a more insidious factor: Women make up nearly half of all U.S. workers and do the bulk of consumer spending, yet some hiring managers still believe that women’s earnings are not as critical as men’s for household support. (A quick look at any parent’s money tracker app would reveal just how untrue this stereotype is.) When two women are similarly qualified for a job, the one without children tends to earn more than the one who has kids. And when men and women hold similar positions, fatherhood seems to confer a salary advantage in many occupations.
Recommended: The Highest-Paying Jobs in the US
Dual-income households have been the norm among married couples for decades, and most households composed of married couples with children have two working parents, according to 2023 data from the Bureau of Labor Statistics. Families with two healthy incomes are most likely to be able to afford a home, and to be able to cover other large expenses, including the cost of kids. (A 2022 report from the Brookings Institution suggests that the average middle-income family today will spend more than $310,000 to raise a child to age 17.)
But the motherhood penalty takes an especially hard toll on families led by women. According to the 2023 Census, 21% of U.S. children are growing up in a household led by a single mother, who often has no other source of income than her own earnings. The motherhood penalty may contribute to the fact that nearly 30% of single-parent families are living below the federal poverty level.
As noted above, the unspoken ideas that women belong at home caring for their children, or that women are not vital contributors to their family finances, continue to be a driver of the motherhood penalty. This is despite the fact that households where two parents work outside the home is now the norm in the U.S.
But there is another troubling scenario. Women may leave their job because childcare costs more than they earn. The cost of caring for an infant in a childcare center averages $15,417 per year per child. In big cities, the number climbs even higher: Washington, D.C. averages $24,243, for example. And even when women don’t stop working, they may scale back their hours, or take more flexible but less well-paid positions.
The motherhood penalty is unfair, and one additional factor adds to the unfairness: In households with two working parents, where each parent earns roughly the same amount, women still spend more time on caregiving responsibilities than men do — 12.2 hours per week on average, compared with 9 hours for men, according to a 2023 Pew Research Center report. Women also spend 4.6 hours doing housework to men’s 2 hours. Women’s work may be valued less, but as the old saying goes, it’s never done.
Recommended: Pros and Cons of Salary vs Hourly Pay
So what can women do to safeguard their finances from the motherhood penalty?
Consider your career choice. Women can begin to protect their financial future while they are still contemplating a career path. Some research suggests that the motherhood penalty disappears for mothers who work in business and post-secondary education. And in STEM careers, and fields such as medicine and law, mothers actually appear to earn more than women who don’t have kids.
Stand up for fair earnings. Exercise your right to be fairly compensated with every step you take in the working world. Applying for a job? Do your research to learn what is a good entry-level salary. Offered a position? Learn how to ask for a signing bonus — with unemployment relatively low, employers in industries from retail to engineering may pay you to come on board.
Change jobs. Women may be less likely to change jobs after becoming mothers, as switching jobs can be stressful and time off is often allotted based on seniority. Yet changing jobs is one way to bump up your salary. When you do switch, make sure you understand what is a competitive pay rate. A growing number of states, including California, Colorado, and New York, have passed pay transparency laws that require employers to post salary ranges when they advertise job openings.
Don’t share your status. It’s unlikely that you’ll be asked during a job interview if you have caregiving responsibilities, as doing so may violate federal and state laws. But many women casually disclose that they are parents during the interview process without thinking twice about it. Avoid talking about your personal life when interviewing for a job and consider that many employers examine applicants’ social media feeds during their screening process.
Advocate for fair pay and families. Research suggests that moms in women-dominated and low-paid professions face the greatest motherhood penalty. To help promote equitable pay that can sustain families, you can support raising the minimum wage. Lifting your voice in favor of government support for affordable childcare and for mandatory paid parental/caregiver leave can also help ensure that women who want to stay in the workforce after having a child can afford to do so.
Despite the fact that women are working outside the home in historic numbers, the motherhood penalty still exacts a perilous price for many women and their families. Acknowledging that women are financially penalized for becoming parents is a first step in fighting back against the stereotyping and discrimination that is often at the root of this problem.
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The motherhood penalty refers to the fact that women’s earnings suffer after they have children, sometimes due to discrimination in hiring or the awarding of promotions, and sometimes because women scale back on work or stop working altogether after having a child.
The motherhood penalty results in lower earnings, and because future earnings are often based on current salary, the diminishment in income often persists as a woman progresses up the ladder.
A primary way to avoid the motherhood penalty is to know your worth. Do your research on salary before taking a job, and reevaluate your salary at least yearly by looking at comparable positions.
Photo credit: iStock/Pekic
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Source: sofi.com
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Buying a home doesn’t necessarily require a large down payment. The conventional wisdom is that you need 20 percent down, but in reality, you don’t have to save that much. In fact, there are no-down payment mortgage options. Here’s what you need to know about these types of loans.
A no-down payment mortgage is a home loan that allows you to finance 100 percent of the home’s purchase price without having to put any money down at closing. Zero-down mortgages can be particularly beneficial for those buying a home for the first time or with limited savings.
The easiest way to avoid a down payment is to qualify for one of the two no-down payment mortgage programs backed by the government: a USDA or a VA loan.
The U.S. Department of Agriculture (USDA) backs USDA home loans, a mortgage guarantee program for those buying a home in designated rural areas. There are many areas you might not consider “rural” that do qualify under USDA guidelines, so be sure to check your eligibility on the USDA website. USDA loans don’t require a down payment, but borrowers must meet credit and income requirements to qualify.
Although there’s no down payment with a USDA loan, there is an upfront guarantee fee of 1 percent of the principal loan amount, as well as an annual fee of 0.35 percent, which borrowers can roll into the cost of the mortgage. While you won’t pay any money initially if you choose to roll these fees into the loan, keep in mind that it adds to the total balance and will accrue interest over the loan term, which means you’ll pay more overall.
If you’re a military service member, veteran or surviving spouse, you could be eligible for a VA loan guaranteed by the U.S. Department of Veterans Affairs (VA) with no money down. There is no mortgage insurance requirement with this loan. However, like a USDA loan, you do have to pay an upfront funding fee, which can be rolled into the mortgage. The funding fee ranges from 1.25 percent to 3.3 percent of the loan amount. You can reduce the funding fee by making a down payment.
Another perk: VA loan lenders often offer more competitive rates for these products, which helps you save money over the life of the loan.
Compare: Current VA loan rates
In addition to government-backed loans, you might be able to explore:
If you don’t qualify for one of the no-money-down home loan options, you might still be able to buy a home with the next best thing: a low-down payment mortgage.
Insured by the Federal Housing Administration (FHA), an FHA loan requires only 3.5 percent down with a credit score as low as 580. (If you have a credit score between 500 and 579, you might be able to qualify with a higher down payment of 10 percent.) It’s a popular option for homebuyers with less-than-perfect credit and not a lot of savings. Like other government-insured programs, FHA loans are offered by private mortgage lenders, so you might also have to meet a lender’s criteria to qualify. Additionally, you’ll have to pay for FHA mortgage insurance, which adds to your monthly payment and the cost of the loan. You’ll pay these premiums for as long as you have the mortgage, in most cases.
Compare: Current FHA loan rates
Available through many mortgage lenders, the HomeReady program is a conventional loan backed by Fannie Mae. The down payment requirement on a HomeReady loan is just 3 percent. While you’ll have to pay mortgage insurance to compensate for the low down payment, it’s often at a lower price tag compared to other conventional loans.
Backed by Freddie Mac, Home Possible is a similar mortgage program to HomeReady, with a 3 percent down payment and mortgage insurance requirements.
Freddie Mac also offers a 3 percent down mortgage option for first-time homebuyers who qualify through its HomeOne program. The main difference between this loan program and Freddie’s Home Possible mortgage is that a HomeOne mortgage does not impose income limits.
Some lenders are now offering mortgage programs for borrowers who qualify that only require a 1 percent down payment. Some examples include Rocket Mortgage’s ONE+ program and United Wholesale Mortgage’s Conventional 1% Down program. For these programs, the lender pays 2 percent of the required 3 percent down payment for a HomeReady or Home Possible loan — or up to a maximum contribution that varies by lender and loan size — and you only need to provide the remaining 1 percent.
A Conventional 97 mortgage is another Fannie and Freddie program that only requires a 3 percent down payment. You might pay more for private mortgage insurance (PMI) with this type of loan, but your payment depends on your financial profile. You can also request to cancel PMI when you reach 20 percent equity in your home.
The Good Neighbor Next Door (GNND) program is for borrowers who work in select public service professions — teachers, firefighters, law enforcement and emergency medical technicians — and are planning to buy a home in a qualifying area.
The program, sponsored by the U.S. Department of Housing and Urban Development (HUD), provides a discount of up to 50 percent on a home with a down payment of just $100. The borrower must qualify for a first mortgage, and the discounted portion of the home comes in the form of another loan. If the borrower continues to meet program requirements, the second mortgage won’t have to be repaid.
The ability to buy a home with no or very little money down can be appealing, but there are drawbacks, too.
Deciding whether to go for a no-down payment mortgage depends largely on your financial circumstances and goals. Here are a couple of scenarios when a zero-down mortgage might be a good idea:
The Department of Veteran Affairs and the U.S. Department of Agriculture DA don’t set a minimum credit score requirement for, respectively, their no-money-down VA and USDA loans. However, most lenders offering these loans do, and they’d want them to be at least in the “fair” range: 620 for VA loans, 640 for USDA loans. Because you’re not bringing any cash to the table, and financing virtually all of your mortgage, the lender has to be extra-reassured that you pay your debts fully and on time.
Source: bankrate.com