By: Steven Porrello |
– First published on Aug. 28, 2023
If you locked into a certificate of deposit (CD) last year, you may be looking at today’s rates through watery eyes. Not only have CD rates exploded to levels we haven’t seen in decades, the Federal Reserve’s rate hiking campaign may push them even higher. That raises a compelling question for previous CD owners: Should you break a CD contract to lock into today’s jaw-dropping rates? Let’s take a look. Yes, if the interest you would earn is greater than the penalty you would pay Unless you have a no-penalty CD, your CD contract likely has a clause stipulating early withdrawal penalties. Often, the penalty for withdrawing early means forfeiting a portion of the interest you’ve earned, along with the closure of your CD account. In general, the longer your CD term, the more hefty the penalty. And yes, the penalty can exceed the amount of interest you’ve accumulated.That said, if the interest you forfeit is less than the interest to be gained on a new CD contract, it might be worthwhile to break your contract. Let’s look at an example. Let’s say you’ve deposited $5,000 into a 2-year CD with a rate of 2.50% and the penalty for withdrawing early is six months of forfeited interest, which would be $62.50. You’ve earned 13 months of interest, which is about $135.42. If you were to walk away now, you would be left with $72.92 after the penalty is deducted. You weren’t thinking about walking away, until you saw a 5.51% rate on a 12-month CD. At that rate, you would earn $275.50 after 12 months. That seems like a pretty good deal, but is it worth breaking up with your old CD? In this case, it would be worth breaking the old CD contract. If you keep your money in the old CD, you’d be left with $250 in interest after the CD term ended in 11 months. The new CD would earn you about $275, a difference of only $25. But if we add in the $72.92 from the old CD, you’d have $347.92, almost $100 more than if you had kept your old CD. Do the math for yourself Take a look at your CD contract and figure out if you’ll come out on top by closing a CD and opening a new one at today’s rates. If the difference between the forfeited interest and the interest you would earn is positive, then nine times out of 10 you’ll likely fare well breaking up with your old CD. The best CD rates right now come with short terms, such as 6 months or 1 year. But you might find a compelling rate on a long-term CD, such as: 3 years4 years5 years One thing to consider is that CD rates may or may not have peaked. The Fed is watching the economy carefully and isn’t afraid to raise rates if it thinks it will help it achieve its inflation goals. If the Fed raises rates again, CD rates would likely get a tiny bump. That’s not to suggest you should try to time the CD market and open one when rates hit their peak (whenever that is). But you may have some time to let your current CD accumulate interest — or perhaps even mature — before you close your account and pay the penalty. Either way, closing an old CD for a new one is certainly worth considering, especially if your old CD has a rock-bottom rate (like 1% or lower). Take a peek at today’s top-paying CDs and see if it’s worth breaking your contract for one.
You should have five to six times your annual income saved by age 50, according to most financial planners. So, if you earn $75,000 per year, this means you should ideally have $375,000 to $450,000 set aside in savings accounts, retirement accounts, brokerage accounts, and other liquid assets.Of course, like most topics in personal finance, there’s not a perfect rule for everyone. However, this is a good starting point to help you determine whether you’re on track for a financially secure retirement or not. Let’s take a look at why you might need more or less than this guideline, and what you can do if you’ve fallen behind.This isn’t a perfect rule for everyoneAs I mentioned, the “five to six times your income” rule isn’t perfect for every 50-year-old. You might need more or less in savings than the average American for numerous reasons.One major factor is your retirement goals. If you want to retire at age 55, you should probably have more than five times your salary saved before you’re 50, especially if you have ambitious plans to travel after you retire.Other streams of income can also play a big role. For example, if your job has a pension plan, and you’ll get monthly payments equal to a substantial portion of your income after you retire, your savings needs will naturally be lower than someone planning to rely exclusively on retirement savings.If you own many assets other than a savings account, it can also play a role. As a personal example, I own investment properties and have substantial equity in them, so this is a factor when determining how much I’ll need to retire comfortably.What should you do if you haven’t saved enough?The good news is that most people who are turning 50 are still 10-20 years away from retiring, so there’s time to have a big impact.The obvious answer is that if you don’t have enough in savings at 50, it’s time to start prioritizing retirement savings. The best places to set aside money are tax-advantaged retirement accounts such as IRAs, or employer-sponsored retirement plans like 401(k)s, where your money is free to grow and compound on a tax-deferred basis. All retirement accounts have special rules (known as catch-up contributions) that allow account owners 50 and older to set aside more money each year than younger savers.If you’re having a tough time finding enough money to contribute to your savings, it might be a smart idea to take a closer look at your budget and try to identify opportunities to cut expenses. One of my favorite exercises is going through the last couple of bank and credit card statements and highlighting any purchase you didn’t need to make. The point isn’t to shame you for spending money you didn’t need to spend, or even to get you to stop all unnecessary spending, but you might be surprised where you could cut back. As a personal example, a few years ago I did this and couldn’t believe how much my family spent on dining out. I even identified a couple of costly subscriptions I wasn’t using.The bottom line is that you still have time to get back on track by making budgeting, saving, and investing priorities. Seemingly small amounts of additional savings now could make a big difference in your quality of life after you retire.
By: Emma Newbery |
– First published on Aug. 7, 2023
Are SNAP benefits enough?A monthly payment of $973 for a household of four equates to around $8 per person per day. While SNAP benefits aren’t designed to cover everything, it isn’t easy to feed a family on around $2.66 per person per meal. Indeed, research from the Urban Institute showed that the maximum benefits often don’t cover a family’s food costs. “Amid inflation, SNAP benefits did not cover the cost of a meal in 99 percent of counties in 2022,” said the report.The new benefit amount — a monthly increase of $34 for a household of four — is roughly in line with cost-of-living increases measured by the Bureau of Labor Statistics (BLS). Its latest Consumer Price Index figures show that the cost of all items in June, 2023 was up 3% over the year before. However, inflation does not impact all aspects of life equally.The BLS data also shows that food at home increased by 5.7% year over year. The new SNAP benefits do not match this. Hypothetically, a 5.7% increase in benefits for a family of four would mean a new monthly payment of $992, rather than the planned $973.In addition, this year brought the end of the pandemic-era emergency food benefits throughout the country. According to CBPP calculations, this meant the average person received about $90 a month less in SNAP benefits. Even factoring in the increased SNAP benefit amount, many households have seen a significant drop in their food benefit amount, and the revised 2024 payments will do little to close this gap.How to make your SNAP benefits go furtherIt can take time and energy to provide healthy food for your family on a strict budget. The challenge is that in a busy household, time and energy are also limited resources. Even so, if you can carve out some time to plan your grocery-shopping trip, it can make a big difference.Here are some ways you might stretch your SNAP benefits a little:Use cash back apps and coupons: Look for cash back apps that work in stores that take your EBT card. You’ll usually need to download an app and then scan your receipt after you’ve been to the store. Pay attention to coupons, whether in store or online as these can often carry hefty discounts.Always shop with a list: Planning your food shopping is one of the best ways to reduce costs. Even more so if you use a cash back app or coupons. Check what offers are available on items you normally buy before you go shopping. Mark the items that qualify for rewards or discounts on your list, so you don’t miss them when you’re shopping.Look for double up programs: There are Double Up Food Bucks or other programs in various states that essentially give you two for one on all produce at participating farmers markets and stores. It’s a great way to get more fruit and vegetables for your SNAP dollars.Buy in bulk and batch cook: It isn’t always easy to find the extra cash for bulk buying when you’re eking out every cent. However, if you can manage it, you may be able to save both money and time. You might, for example, batch cook a stew and freeze portions for future meals.Unfortunately, food insecurity still impacts many American households. If you don’t have enough money to feed your family this month, look for additional help. Find out what food pantries and soup kitchens are operating in your area on which days, and whether you’ll need to present any documents. Call United Way at 211 for information about assistance programs in your area.
By: Christy Bieber |
– First published on Aug. 23, 2023
Costco is a beloved warehouse club for good reason. The deals that the store offers tend to help people spend less on their credit cards for basic necessities like groceries and household products. Plus, Costco’s Kirkland brand has many devoted fans because of its unique offerings and quality. But it also costs money to be a warehouse club member. And you need to make sure that paying the fees out of your bank account is worth it for you. The fees can be justified by saving on home essentials like pantry items and frozen food. But they can also be justified by the gas savings you can benefit from if you fill up your tank at the warehouse club.The big question you should answer, though, is how much gas you’d actually have to buy there for a membership to pay for itself. Here’s how you can figure that out. Will gas savings make your Costco membership worth it?There’s a very simple way to determine if you can justify a Costco membership just based on gas savings alone. You’ll need to determine how many times you’d have to fill up each month at Costco for the membership to pay for itself — and then ask yourself if you’re likely to hit the club’s gas station at that frequency. The least expensive Costco membership, called a Gold Star membership, costs $60 per year. You can figure out if your gas savings will cover that cost by doing the following calculation:$60 (for the membership fee) divided by the number of gallons in your gas tank times the amount that you save by shopping at Costco. Let’s take a look at some examples. Say that gas costs $3.87 per gallon (which is the current national average as of Aug. 16, 2023, according to AAA). Costco gas tends to be around $0.16 to $0.20 per gallon cheaper than what competitors offer. So, you might be able to get your gas for around $3.67 to $3.71 at Costco. And let’s say your car holds 14.5 gallons of gas. If you’re saving $0.20 per gallon and you put 14.5 gallons in your car at a time, you’d save $2.90 each time you filled up your tank. Divide this amount by the $60 annual membership cost to find that you would need to fill up your car about 21 times per year at Costco in order to break even for the membership fee. If you end up filling your car at Costco just twice a month, you’d more than cover the membership cost. Should you join Costco for the gas savings alone?Since most people fill up their tank more than twice per month, it may seem like an easy call to join Costco and assume the gas savings will justify the price. But you should also consider other factors, such as the following: Is it convenient for you to fill up at Costco? If you have to drive out of your way to get your gas there, it may not be worth it. You’d be wasting time, which has value, and would negate some of the savings due to the extra driving. Plus, you might not follow through on going there if it ends up being a hassle. Will you overspend at Costco in other ways? It does you little good to save a bit on gas if the club presents too great a temptation and you end up filling your cart with a giant tub of Cheetos you can’t finish before they go bad or splurging on a giant jigsaw puzzle you spotted on your way to the grocery aisle. Costco is very good at encouraging spending by making you feel like you’re getting a deal, by regularly moving items around so you have to walk through the whole store to find what you need, and by presenting limited-time deals to give you a sense you may miss out if you don’t buy. If you can’t control your spending, then not getting a membership eliminates that temptation. Now, if you can count on yourself to get gas there and you know you’ll spend responsibly, then there’s little reason not to get a membership when the fuel savings covers it — especially since you may find yourself also saving on other items as well. Just be sure that you think carefully about whether a membership really makes sense for you before you dive in.
By: Emma Newbery |
– First published on Aug. 26, 2023
Discount stores like Dollar Tree can be great ways to save money on your groceries, particularly if you’re able to make them part of a two-stop shop. But they don’t always offer the best value or the best quality. The trick is knowing what to buy — and what not to buy. Not only can some items in dollar stores be more expensive, but some things are worth paying slightly more for.Here are four products I’d never buy at Dollar Tree.1. ToothpasteDollar stores often change the package sizes to keep the price per item low, so it’s important to look at the price per ounce when making comparisons. For example, buying toothpaste at Dollar Tree does not make financial sense. A 2.4 ounce tube of Crest Fresh Mint Baking Soda & Peroxide Whitening toothpaste cost $1.25 at Dollar Tree online. That works out at $0.52 per ounce. You can get a 5.7 ounce tube of the same stuff for $2.12 at Walmart, which is just $0.37 per ounce. 2. BatteriesYou can buy a pack of four alkaline AA batteries or six so-called “Super Heavy Duty” AA batteries for $1.25 at Dollar Tree online. Getting four — or even six — batteries for $1.25 feels like a bargain. That is, until they run out shortly after you’ve started to use them. According to calculations by Wired, dollar store batteries have about a third of the energy of big brand ones. Or worse, they leak and ruin the gadget, toy, or whatever else they’re powering. Even worse? One of the reviews on Dollar Tree’s website says the battery exploded: “Terrible product plan to sue as it exploded and got battery acid in my wife’s eyes.” Another complained they ruined a $125 toy, saying, “Exploded in my son’s fisher price smart house toy. I opened the toy to replace the batteries to find all four batteries leaking battery acid and disintegrated one of the connectors.” I love a good deal, but no amount of savings could make me risk exploding batteries. 3. Vitamins and supplementsIf you buy over-the-counter medicines at Dollar Tree, they’ll almost certainly be FDA-approved, even generic brands. These can be good value. However, vitamins and supplements are a different matter — according to Consumer Reports, there’s less regulation around these products. Unless they carry an independent stamp of approval, such as NSF International or U.S. Pharmacopeia, you may not be buying the supplements you think you are. Personally, I prefer to get nutrients at the source by eating more fruit and vegetables when I can, but that’s not always feasible. I often struggle to get enough iron and I’ve tried discount iron supplements, with varying degrees of success. These days, I’d rather stock up on the slightly more expensive iron tablets when they’re on discount. The dollar store versions sometimes upset my stomach and I’m not even confident I’m getting an iron boost.4. Laundry detergentBuying tiny bottles of laundry detergent rarely works out cheaper than buying a bigger bottle in another store. To give you an idea, Dollar Tree online charges $1.25 for an 8-fluid-ounce bottle of Tide laundry detergent. Walmart online charges $15.94 for a 115-fluid-ounce bottle. That’s $0.16 per fl oz, compared to Walmart’s $0.14 per fluid ounce. At the time of writing, Walgreens sells a 92-fluid-ounce bottle for 12.99, with an additional $3 coupon saving. That works out at about $0.11 per fluid ounce, which is significantly less than Dollar Tree. It may only seem like a couple of cents on each fluid ounce, but it can add up to several more loads of washing. Now, perhaps your budget only stretches to $1.25 for laundry detergent right now, in which case the Dollar Tree bottle may be the right choice. But it’s worth watching for coupons or offers on cash back apps to see if you can get a decent deal on a bigger bottle. You might ask a friend or family member to go halves on a bigger bottle so you can both save. Bottom lineSaving money on your groceries can translate into more cash in your bank account for other things. Don’t assume that everything in Dollar Tree is automatically a better value — sometimes you will get better deals in other stores. And sometimes it’s worth paying more for a product that will last or do the job you want it to do.