Hawaii, renowned as a tropical paradise, showcases a diverse array of landscapes, from lush rainforests and cascading waterfalls to pristine beaches and volcanic landscapes. Its cities, such as Honolulu with its vibrant urban energy and Hilo as a gateway to the island’s natural wonders, offer residents unique and enriching living experiences. However, living in Hawaii comes with its own set of challenges. In this ApartmentGuide article, we’ll explore both the pros and cons of residing in the Aloha State, providing you with valuable insights to help you make informed decisions about living in Hawaii.
Renting in Hawaii snapshot
1. Pro: Rich cultural heritage
Hawaii’s rich cultural heritage is deeply rooted in its Polynesian, Asian, and Western influences, offering residents a diverse tapestry of traditions, arts, and cuisines. From ancient Hawaiian rituals and storytelling to vibrant festivals like the Merrie Monarch Hula Festival residents have ample opportunities to immerse themselves in the state’s unique cultural identity.
2. Con: High cost of living
Hawaii’s idyllic setting comes at a price, with the state consistently ranking among the highest in the nation for cost of living. From groceries to housing, residents face inflated prices due to the state’s reliance on imported goods and limited land availability. For example, cities like Honolulu experience high housing costs, with a median home price of $497,500 and average rent prices for a one-bedroom standing at $1,800.
3. Pro: Lush landscapes
Hawaii’s lush landscapes, characterized by verdant rainforests, cascading waterfalls, and volcanic craters, create a paradise-like environment for residents to explore and enjoy. Islands like Kauai, known as the “Garden Isle,” boast breathtaking natural beauty, with landmarks such as Waimea Canyon and the Na Pali Coast offering unparalleled vistas.
4. Con: Geographic isolation
Hawaii’s geographic isolation, situated thousands of miles away from the nearest continent, presents both pros and cons for residents. While the islands’ remote location offers a sense of escapism and tranquility, it also results in higher shipping costs for goods and limited access to certain resources. Residents may experience longer wait times for imported goods and face logistical challenges when traveling to and from the mainland.
5. Pro: Warm climate year-round
Hawaii’s warm tropical climate provides residents with pleasant temperatures and sunny skies throughout the year, creating an ideal environment for outdoor activities and leisure. Whether basking in the sun on Waikiki Beach, strolling through botanical gardens in Hilo, or hiking along the Kalalau Trail on Kauai’s rugged Napali Coast, residents can enjoy the outdoors year-round without the need for heavy winter clothing.
6. Con: Natural disaster risk
Living in Hawaii means residing in a region prone to various natural disasters, including hurricanes, volcanic eruptions, and tsunamis. The state’s volcanic activity, exemplified by Kilauea on the Big Island, poses ongoing risks to nearby communities, with lava flows and volcanic gases threatening homes and infrastructure. Additionally, Hawaii’s susceptibility to hurricanes during the Pacific hurricane season and the potential for seismic events underscore the need for evacuation plans.
7. Pro: Health and wellness
Hawaii’s emphasis on health and wellness is evident in its abundance of wellness retreats, yoga studios, and holistic healing practices, catering to residents seeking balance and rejuvenation. Additionally, the state’s natural beauty and outdoor lifestyle promote physical activity and mental well-being, with activities like surfing, yoga, and hiking popular among locals.
8. Con: Limited job market
Hawaii’s economy, heavily reliant on tourism and hospitality, results in a limited job market with fewer opportunities compared to mainland states. While industries like hospitality and retail dominate the job market, competition for positions can be fierce.
9. Pro: Outdoors recreation
Hawaii’s diverse landscapes offer a playground for outdoor enthusiasts, with various recreational activities to enjoy year-round. Residents can surf world-class waves on the North Shore of Oahu, snorkel with sea turtles in the crystal-clear waters of Molokini Crater, or embark on a scenic hike along the Kalalau Trail on the Na Pali Coast.
10. Con: Tourist crowds
Hawaii’s popularity as a tourist destination brings millions of visitors to the islands each year, contributing to overcrowding at popular attractions and beaches. Residents often contend with congested roads, crowded beaches, and difficulty finding parking in tourist hotspots like Waikiki and Lahaina. Additionally, the influx of tourists can lead to increased noise pollution, strain on local infrastructure, and disruptions to daily life for residents in affected areas.
11. Pro: Relaxed pace of life
Hawaii’s laid-back lifestyle and “island time” mentality encourage residents to embrace a relaxed pace of life, where stress is minimized, and priorities shift to enjoying life’s simple pleasures. From leisurely beach days to evening strolls along oceanfront promenades, residents savor moments of tranquility amidst the beauty of the islands.
12. Con: Limited shopping selection
Hawaii’s geographic isolation and small population result in a limited shopping selection, particularly for specialty goods and luxury items. Residents may find themselves with fewer choices and higher prices for certain products compared to mainland states. While larger cities like Honolulu offer more diverse shopping options, residents in rural areas may need to travel long distances or rely on online shopping for specific items not readily available locally.
Methodology : The population data is from the United States Census Bureau, walkable cities are from Walk Score, and rental data is from ApartmentGuide.
Discover methods to achieve financial harmony in relationships and why fiduciary advisors are often considered trustworthy.
Sara’s Corner: How can couples equitably share the mental load of managing finances? Can you trust fiduciary financial advisors? Hosts Sean Pyles and Sara Rathner begin with a discussion about the division of financial responsibilities among couples to help you understand how to create financial harmony in your relationship.
Today’s Money Question: Elizabeth Ayoola joins Sean to explain how you can choose a financial professional to work with, starting with an in-depth look at different types of fiduciaries including Certified Financial Planners (CFPs), financial coaches, and financial therapists. They discuss the nuances of fiduciary compensation structures and explain how you can advocate for yourself when selecting a financial advisor to work with.
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NerdWallet stories related to this episode:
Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
Do you know which financial advisors you can trust and which might just be looking to make a buck? Well, this episode will help you sort the good from the sketchy in the world of financial advice.
Sara Rathner:
Welcome to NerdWallet’s Smart Money Podcast, where we help you make smarter financial decisions one money question at a time. I’m Sara Rathner.
Sean Pyles:
And I’m Sean Pyles. This episode, we’re joined by our co-host Elizabeth Ayoola to answer a listener’s question about fiduciary financial advisors. Are they all they’re hyped up to be and how do they compare to other folks looking to make money from giving advice?
Sara Rathner:
I would say the answer to those questions are usually, and they’re better, but I don’t want to steal your and Elizabeth’s thunder.
Sean Pyles:
I appreciate the restraint, Sara, even though you did just say those things.
But anyway, before we get into that, we’re going to hang out for a bit in Sara’s Corner. This is a thing I just made up where we hear from Sara about something that she recently wrote. Sara’s Corner, it’s cozy here.
Sara Rathner:
I mean, I do keep a blanket on the back of my desk chair, so it is cozy here.
Sean Pyles:
Sounds nice.
Sara Rathner:
Yeah. My corner is cozy and also may be full of emotionally fraught conversations because I do really like to write about couples and money, so let’s bring on the fighting.
Sean Pyles:
Yeah, that’s a good combination, I’d say.
So Sara, you recently wrote an article about how couples can share the mental load of money management. So to start, what inspired you to write this article? Are you giving us a peek into the Rathner household?
Sara Rathner:
Maybe a little deep down, but honestly, it’s really about what my social media algorithms are serving up lately, besides baby sleep experts and a little bit of Zillow Gone Wild, which is an account I highly recommend. So fun. You never know when an indoor pool’s going to pop up.
There are quite a few people who are influencer-type personalities who discuss topics like the mental load and emotional labor within families and within households, and it got me thinking about something that causes a lot of fights about who’s handling what task, and that is, as always, money.
Sean Pyles:
So in your article, you write that “Couples can fall into unproductive patterns that can lead to conflict, resentment, and even willful ignorance.” And this goes beyond money in a lot of relationships, and I do feel like this is something that anyone who’s been in a long-term relationship can relate to. So can you give us an example of one of these unproductive patterns and how can they be damaging to a relationship?
Sara Rathner:
One source I interviewed talked about what they called a manager-follower dynamic where one person in the couple is in charge and they delegate tasks to their significant other, and that’s fine at work. At home, it could also be fine depending on the task, but sometimes it could get a little icky, and even if one person is handling 100% of a task, you are both benefiting equally from that labor.
Sean Pyles:
Yeah. That reminds me of friends I’ve talked with who have found themselves in relationships with partners who really want a parent more than an actual partner, and that can be exhausting to deal with.
Sara Rathner:
Yeah, it’s totally fine to divvy up a task and have one person kind of be like, “I’m the point person for this, so if you have any questions about it, come and ask me,” but you’re agreeing to that together. It’s not this automatic, “Well, I’m the more adulty adult here and you act like a child, so I’m going to be your parent.” That’s a really gross dynamic to have in any romantic relationship. If you are in that right now, I don’t know, reconsider.
Sean Pyles:
Yeah, it can really strip away the romance from that relationship.
Sara Rathner:
Yeah, there’s nothing romantic about constantly reminding your partner to pick up their damn socks already. Adults can put socks in hampers, I’m just saying.
Sean Pyles:
That’s very true. Well, the hard thing is that with money, this can be a really easy dynamic to slip into because one person might know more about managing money than the other, so they end up just taking on all the money tasks or they delegate specific tasks to their partner, and if only one person knows about the finances of the household, that can be a very risky situation for both parties in the relationship.
Sara Rathner:
Exactly. And again, it’s totally fine and totally normal for one of you to feel more confident dealing with money. Maybe you’ve just managed your money differently back when you were single, maybe you work in finance. That is normal, but it’s still both of your responsibility.
And the same source that told me about the manager-follower dynamic also said to me that like any task, money tasks are things that you can learn by doing. So even if you are the less confident one in your relationship when it comes to these kinds of responsibilities, you can still grow your skill set. You can learn by doing. And so as you go forward in the future, you can take on more and more tasks with confidence and not fall into that dynamic where you’re constantly relying on the other person to tell you what to do.
Sean Pyles:
Let’s turn to some solutions. You first suggest that couples approach money as equals, which sounds great. Is the idea here that no one person in the relationship should have more power over their finances than another?
Sara Rathner:
Absolutely. The dynamic where one person handles everything and the other person could not be bothered to know the passwords to any accounts is not good. That’s not a healthy dynamic. At best, it’s unfair. The division of labor is, in that case, is putting a lot of that work on only one person’s shoulders, and at worst, it could be a sign of financial abuse. Withholding your partner’s access to finances is sometimes a situation where you are dealing with abuse and that’s something to keep your eyes open about. But even if your partner is totally happy to hand off the work and know nothing of the household finances, they could end up in a really tough spot if your relationship ends, either through divorce or breaking up or even if the partner passes away.
Sean Pyles:
So it might be a good idea for couples that are living together, have a long-term relationship, and have somewhat intermingled finances to even know the logins to each other’s accounts. Is that something that you’ve explored too?
Sara Rathner:
Yeah, you could even use a password manager to do that because you can share passwords with each other very easily or you could be really lo-fi about it and just have a list stored in a secure place like a safe that you keep updated once a year. You definitely want to both be equal partners in access to the money even if you don’t necessarily divvy up those month-to-month or week-to-week tasks equally.
Sean Pyles:
Well, what about actually getting those money tasks done? How should couples determine who does what?
Sara Rathner:
Well, this is where the whole money date thing comes, and we talk about this a lot. Sit down, pour yourself the beverage of choice, a cup of tea, a glass of wine, and have a chat about what bills are due, what savings goals you have, which kid has outgrown their clothes and needs to go shopping because that’s also a financial thing, all those sorts of money-related responsibilities that you have coming up in the next week, the next month, even the next three months. And in that conversation, you can also divide up the tasks.
Sean Pyles:
And it can be helpful to have different types of meetings at different times. Maybe once a quarter you have a higher-level meeting where you think about where you want to be at the end of that quarter or at the end of the year. And then at the beginning of each month, you can think, “Okay, here are the things we need to get done this month,” and then maybe even on a weekly basis, you can think more tactically around, “Okay, we need to get a bunch of whatever thing at Costco this week and that’s going to be a bigger bite out of our grocery budget, so let’s make sure we make room for that,” just so you have different conversations at different levels as you are managing your finances together.
Sara Rathner:
Yes, and I like to think of it in terms of that timeframe. What has to be done in the next few days, what has to be done this month, and then what’s a longer-term conversation?
Sean Pyles:
Well, this reminds me a little bit about how my partner and I manage other household tasks like doing the dishes, for example. In general, in our household, whoever cooks dinner does not have to load the dishwasher, and if you load the dishwasher, you don’t have to unload the dishwasher when it’s clean. And for us, it really comes down to being about balance.
Sara Rathner:
Exactly. And by splitting up responsibilities this way, you’re also acknowledging the labor that the person who cooked is performing. You do the dishes because you respect the work it took for the other person to cook. And in my house, because we have the baby to wrangle, I do most of the cooking. While I am doing that, my husband is handling the child care because I don’t want to stop cooking to change a dirty diaper because that’s unsanitary. So in our home, it’s this acknowledgement of, “You are 100% dealing with a baby and I’m 100% dealing with the cooking, and we have to split this moment up in order for us to get dinner on the table.”
Sean Pyles:
Well, do you have any other advice for how couples, or I guess anyone co-managing a household together, can find a more harmonious way to manage their finances?
Sara Rathner:
So another thing is once you divvy up those tasks during that money date, another really important thing is owning tasks that you agree to take on from start to finish. And this is where we talk about weaponized incompetence and all those psychological phrases that get thrown around on social media when you say you’re going to do something and you don’t do it and you’re, “Eh, it’s too hard.” No, it’s not.
Sean Pyles:
Just do it.
Sara Rathner:
Right. If you show your partner that you’re going to agree to do something and then you don’t do it to an agreed upon level of completion, you’re showing them that they can’t trust you.
So in your money date, not only do you talk about the major overarching tasks that you both need to complete, but you can break them down into subtasks so it doesn’t feel quite so intimidating. So if you’re the one to step up to own a task, that means you take care of it from start to finish, and it doesn’t mean you can’t ask for help if you get stuck. You are still partners, but you are just the one spearheading everything.
Sean Pyles:
Well, Sara, thanks for sharing your insights. I like hanging out in this corner with you. It’s cozy.
Sara Rathner:
I’ll bring a second blanket for next time-
Sean Pyles:
Thank you.
Sara Rathner:
… so we could build a fort together.
Sean Pyles:
I love it. And listener, if you want to check out Sara’s article, you can find a link to it in this episode’s show notes.
And now let’s check in on this month’s Nerdy question, which was what’s the best thing you spent money on this month? Last week, we heard from a listener who spent money on a third opinion from a doctor ahead of a major surgery and was able to find a more effective and less invasive way to resolve their pain. So hooray for taking charge of your own healthcare.
Sara Rathner:
And here’s what another listener texted us. “Hello. My favorite purchase so far is a used grand piano. I paid $4,000 and $1,000 to move it to my apartment on the third floor, no elevator, but it’s the best money I spent.” Wow. “I practice more than four times a week and it’s worth every penny.”
Sean Pyles:
Ugh, I love that this listener is spending money on something that is both a creative outlet and also likely a very beautiful thing to just have in their apartment. And I’m not going to pretend like spending $5,000 is nothing, it’s a significant chunk of change, but I’m willing to bet that they will get some good use out of it and it might just end up that they put some family photos on it eventually after the novelty of having a piano wears off, but still, it’ll be nice to look at.
Sara Rathner:
Also, I’ll say that having lived in a third-floor walk-up apartment, can I just say how impressed I am that it’s possible to get a grand piano up there? Because that was not what the staircase was like in the apartment building I was living in. Maybe you could hoist it through a window?
Sean Pyles:
Yes, I think you do have to do that. You take out the window. Sometimes you have to get a permit from the city. It can easily be $1,000 or more depending on where you are.
Well, listeners, we have so loved hearing from you and all of the great things that you are doing with your money. So to share the best thing that you spent money on last month, text us or leave a voicemail on the Nerd hotline at 901-730-6373. That’s 901-730-NERD, or email us a voice memo at [email protected].
Sara Rathner:
And while you’re at it, send us your money questions too. It is quite literally our job to answer them and we love to hear what situations you’re mulling over. So please tell us and we’ll try and solve these problems together.
Sean Pyles:
Well, before we get into this episode’s money question, we have an exciting announcement. We are running another book giveaway sweepstakes ahead of our next Nerdy Book Club episode.
Sara Rathner:
Our next guest is Jake Cousineau, author of How to Adult: Personal Finance for the Real World, which 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 11:59 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.
Now let’s get into my conversation with our co-host, Elizabeth Ayoola, about whether fiduciaries are all they’re hyped up to be.
We’re back and answering your money questions to help you make smarter financial decisions. And this episode’s question comes from Ian, who wrote us an email. Here it is. “Hi, team. I hear fiduciaries being peddled like some kind of miracle cure for financial planning, but I’m curious how being a fiduciary actually works. What is the enforcement mechanism? Is there a licensing body, like for nurses or doctors? What makes a fiduciary more trustworthy than someone who is making a promise that they totally have your best interest in mind? Cheers, Ian.”
Elizabeth Ayoola:
This is a good question to ask, especially if you’re trusting someone with your money. And I really like this topic because I recently covered it in a paraplanner course I’m taking. Sean, I know you’re also in the deep waters of coursework since you’re studying to become a certified financial planner professional, which is a fiduciary role. So you’re going to answer Ian’s question so we can test your knowledge.
Sean Pyles:
That is right.
Elizabeth Ayoola:
Sean Pyles:
A fiduciary is just a fancy term for someone who has an obligation, usually a legal or professional obligation, to put their client’s interests before their own. A fiduciary can be a doctor caring for your health, a family member managing someone’s estate, or in this case, a financial professional who is managing the personal finances of their clients.
Elizabeth Ayoola:
Okay. So in summary, a fiduciary prioritizes you and not their pockets.
Sean Pyles:
That is the idea and the hope, but there’s a little more to it than that, and I really have to hand it to this listener because I appreciate their skepticism about what it means to be a fiduciary because they are touted as the gold standard among financial advisors.
I also think we need to zoom out a little bit and talk about what it means to be a financial advisor because the term “financial advisor” is not regulated. Anyone can call themselves a financial advisor, even the sketchiest, hustle-culture peddlers on TikTok.
Elizabeth Ayoola:
I actually think we could do an entire episode on that, Sean. Right now there’s so many people sharing financial advice, and I’m afraid that people might not be doing enough vetting before taking these people’s financial advice, or even realizing that all advice shared doesn’t have their best interests at heart.
Sean Pyles:
Yeah. And as a side note, I’m not a fan of imposter syndrome, but the personal finance space is one where maybe more people should feel imposter syndrome because there are just too many people online without qualifications or experience telling others what to do with their money.
Elizabeth Ayoola:
I second that. And the wrong advice could really lead to great financial chaos for people, so they should absolutely be scared of sharing inaccurate or misleading advice.
Sean Pyles:
Totally. And if I’m being completely honest with myself, part of why I’m pursuing the CFP certification is to quell my own occasional imposter syndrome because I, as a professional in the personal finance space, want to get as much information as I can and I want to be as qualified as I can be to help others, but that’s just me holding myself to a very high standard that I think maybe other people should hold themselves to as well.
Elizabeth Ayoola:
And that’s why I like you, Sean. Okay, obviously there’s other reasons I like you too, but that’s exactly why I’m doing my qualification also because I want to share accurate advice with people. And I love to answer my friends and family’s finances questions when I can, so I want to make sure I actually know what I’m talking about.
Anyway, so back to our listener’s question. Ian wants to know how being a fiduciary actually works in the financial planning space. CFPs are a fiduciary, so how does that actually work in practice, Sean?
Sean Pyles:
Yeah, that’s a good question because Ian asked about licensing to affirm that someone is a fiduciary, and in the personal finance space, that usually means getting a CFP certification, which is the gold standard of education and conduct in the financial planning space. So please indulge me as I give you a sip of the Kool-Aid that I’ve been drinking during my CFP coursework, and I’ll explain what it means to be a certified financial planner professional/fiduciary.
Elizabeth Ayoola:
Come on. Tell us, Sean.
Sean Pyles:
Okay. So part of becoming a certified financial planner involves intensive education, passing a difficult exam, but then once you are certified, you have to act according to the Code of Ethics and Standards of Conduct that are outlined by the CFP Board. And there are three parts to this fiduciary duty that is also outlined by the Standard of Conduct.
So first, there’s a duty of loyalty, which states that a CFP professional has to put their client’s interests ahead of their own, like we talked about before. They also have to avoid, disclose, and manage conflicts of interest, and they must only act in the financial interest of the client, not themselves or the firm that they work for. They also have a duty of care, which basically mandates that the CFP professional has to be competent and do their best to help their clients meet their financial goals. Also, they have a duty to follow client instructions, where a CFP professional has to abide by the terms of the engagement with their clients.
Elizabeth Ayoola:
Wow, that is a lot, but honestly, it would give me confidence as a client to know that someone jumped through all those hoops for me.
Sean Pyles:
Yeah, and that’s really just scratching the surface, too. And the Standard of Conduct is a big part of why being a CFP is a big deal in the personal finance space.
Elizabeth Ayoola:
But here’s the thing, Sean, our listener, and to be honest, me too, is also wondering about enforcement. So let’s say a CFP professional decides to prioritize them making an extra dollar over what’s best for the client, and I don’t know, let’s say they push them into an investment or some kind of insurance product that isn’t actually a good fit for the client. What happens then? Do they call the cops? What do we do?
Sean Pyles:
The police are not involved in this unfortunately, but there is an enforcement mechanism at the CFP Board. If someone suspects that a CFP isn’t living up to their fiduciary responsibilities, they can file a complaint with the board and the board will investigate, and there are a number of disciplinary actions that it could take, including stripping someone of their certification.
The thing is, the onus is typically on the clients to file the complaints, and that’s part of why hiring a financial professional, hiring a CFP doesn’t mean that you can totally sit back and ignore your money. You still have to be engaged and monitor what’s going on.
Elizabeth Ayoola:
For sure, I learned that the hard way, so I try to learn things here and there. But thanks for explaining that.
I do have another question though. How would the client even know if they aren’t financially savvy or if they have a sketchy history? Are there some telltale signs?
Sean Pyles:
Yeah, this is the really tricky part, right? You’re going to this financial professional because of their expertise, so they probably know more about this topic than you do, and that can make it hard to know if they are BSing you or maybe more likely to violate their ethical duty later on. There are a couple of things that you can do though.
Before you even hire a financial professional, do your due diligence and shop around. I would recommend talking with a few different financial advisors before you decide which one you want to work with long-term. You can think of it like dating in that way. You want to get to know them and feel that you can trust them. And then once you are in this vetting process, I would say turn to our old friend Google and dig into each planner that you’re considering a little bit, like you would anyone that you’re dating. Verify that they actually have the certification that they say they do, and look and see if they’ve had any disciplinary actions that have been marked against them publicly. Also, you can just Google around and see if they’ve done anything else that you find suspicious or weird that you just aren’t on board with.
Elizabeth Ayoola:
Wow. I love those tips, Sean. And I also must say, when you said, “Your old friend Google,” it just reminded me about how long I’ve been in a long-term relationship with Google, but the tip’s definitely way more important. So basically, you’re telling us to put our investigator hat on. So okay, what’s the other thing you think people should do?
Sean Pyles:
Okay, so this might sound a little bit squishy, but go with your gut. If you talk with someone enough, you can probably tell if they aren’t confident in their grasp of the information they’re presenting. And even if they are, you might find that they just have a different money philosophy from you, which can signal that you guys are not compatible. For example, I once worked with a financial planner who suggested that I could take a 401(k) loan to solve a short-term cashflow issue that I had. And I personally happened to think that taking a loan against my own retirement for a problem that was going to work itself out anyway was an exceptionally bad idea, so I decided to work with another financial planner instead from that point on.
Elizabeth Ayoola:
Wow, that advice does not sound good, especially if it was suggested before exploring other alternatives that may not set you back for retirement. And I do understand that some people have to take out a loan against their 401(k), and that’s the only option that they have, but the downside is it might set you back, but I’m glad you went with your gut.
Sean Pyles:
Right. It wasn’t right from my circumstances or how I like to manage my money, and that’s what the bottom line was for me.
Now, so far, Elizabeth, we’ve been talking a lot about CFPs because that really is going to be the primary type of fiduciary that a lot of people looking for financial planning will encounter, but I want to go back to the idea that there are a lot of other people out there giving personal finance advice.
Elizabeth Ayoola:
Mm-hmm. People on TikTok, your nosy friends who are always getting in your business, the people interrupting my YouTube videos with their long-winded ads.
Sean Pyles:
Yes, but also accredited financial coaches and certified financial therapists. Both of those are fiduciaries, but they have different standards of conduct and enforcement mechanisms.
Elizabeth, I know that you have some experience working with financial therapists, so can you give us the rundown on what they do and why someone might benefit from working with one?
Elizabeth Ayoola:
I do, I do have experience with that, Sean. I am a wellness fanatic, that’s just a personal note, so I love the topic of financial therapy and also financial wellness. So essentially a financial therapist can help investors understand their worries and their fears around money. They also help you identify the feelings and the beliefs that you have around your money and your habits. Another way to put it is they help you identify and eliminate your money blocks, which are things getting in the way of you achieving your financial goals.
Sean Pyles:
And financial coaches are somewhere between a CFP and a financial therapist. They help people meet their financial goals, and they might be better suited to help those who aren’t super high-net-worth, don’t have a lot of investable assets. Accredited financial coaches also have a specific focus on diversity, equity, and inclusion, which is really important in the personal finance space, considering the racial and gender financial inequity in this country.
Elizabeth Ayoola:
Absolutely. They’re doing good work and we have a lot of work to do to close the gap, but as a woman and a Black woman at that, I hope we see more progress in coming years.
Sean Pyles:
So we’ve just run through a few different types of fiduciary financial professionals, and here’s my bottom line: if you are getting individualized financial advice, it’s probably for the best if that person is also a fiduciary because you know that that is a stamp of credibility, and it goes way beyond a financial influencer on TikTok telling you to sign up for their class and then peddling some investment account from a company that’s really just bankrolling their lifestyle.
Elizabeth Ayoola:
1,000%. I know me personally, I’m at a point where I’m growing wealth and I’m trying to make the right investment choices so I can see positive growth in the coming years. On that note, I would definitely go to a fiduciary if I was stuck trying to make a tough financial decision.
Sean Pyles:
Yeah. At the least, when you are receiving financial advice from someone, whether in person, on social media, or even on a podcast, I think people should ask themselves three questions: what is this person’s qualifications, how are they getting paid, and why are they doing this?
Elizabeth Ayoola:
I definitely think more people should ask those questions. But Sean, say more about that money part because that’s a big piece of the puzzle too.
Sean Pyles:
Yeah. Well, in the financial planning space, there are three main ways that people are compensated beyond a base salary. They can be fee-only, fee-based, and commission-based.
So when you meet with a fee-only advisor, they might charge you an hourly fee or a fee based on a certain percentage of your assets that they’re managing, maybe 1 or 2%. That’s pretty common. And fee-based is really similar, but there is a key difference, and that is that this advisor might get a commission from products that they sell you, like an insurance product or a specific investment account. And commission-based is exactly that: the advisor makes their money from selling financial products. So you can probably imagine why the commission-based pay structure gives some people pause.
Elizabeth Ayoola:
For sure. And then even if the advisor is a fiduciary, being commission-based could muddy the waters a little bit.
Sean Pyles:
Yeah. And for those who are really concerned about any conflicts of interest in the financial advisor space, fee-only might be the route where they feel most comfortable.
Elizabeth Ayoola:
Well, Sean, thank you for this rundown of what it means to be a fiduciary. Your coursework is courseworking, and I can see the studying is paying off. Do you have any final words?
Sean Pyles:
Yeah. I’d say that if you want a financial professional to help you with your finances, vet them thoroughly, shop around, and remember that at the end of the day, you have to be your own best advocate to get what you want from your money.
Elizabeth Ayoola:
Absolutely. And that’s all we have for this episode. Sean, thank you for educating we the people. Remember, we are here for you and we want to hear your money questions to help you make smarter financial decisions, so turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected], and also visit nerdwallet.com/podcast for more information on this particular episode. And remember to follow, rate, and review us wherever you’re getting this podcast.
Sean Pyles:
This episode was produced by Tess Vigeland and me. Sara Brink mixed our audio. And a big thank you to NerdWallet’s editors for all their help.
And here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Elizabeth Ayoola:
And with that said, until next time, turn to the Nerds.
Do you want to learn how to move out at 18 with no credit, little money, or even no money? Here’s what you need to know. There are many reasons for why you may want to move out at a young age – perhaps you have a difficult home life, you want to move somewhere…
Do you want to learn how to move out at 18 with no credit, little money, or even no money? Here’s what you need to know.
There are many reasons for why you may want to move out at a young age – perhaps you have a difficult home life, you want to move somewhere new, or you just want your own space.
I moved out shortly after turning 18 (about a week or so after my 18th birthday) into a rental home, and while I was not prepared at all, I do think being prepared to move out at a young age is extremely helpful. I made many mistakes that led to many, many tears, money wasted, stress, and more.
Today, I want to help you avoid as many problems as you can.
After all, moving out at 18 years old (or any other young age) is already really hard, and there is such a huge learning curve.
Moving out when you turn 18 is a big step into becoming an adult. Even though it can be exciting, moving out for the first time needs to be planned carefully. Before you leave, it’s important to make a plan to make sure you can afford it and stay on your own.
This means finding a job, making a budget you can stick to, and saving money for unexpected costs.
How To Move Out at 18
Below are ways to move out at 18.
Recommended reading: Buying a House at 20 (How I did it)
Make a plan to move out at 18
I highly recommend having a plan if you want to move out at 18 years old.
Moving out at 18 is a big step, and making a plan will help everything go a little more smoothly.
You will want to think about things such as:
Where you will work
How you will pay your bills
If you will live with a roommate or on your own
What your budget will be like
What you’ll do if things get tough, such as if you can’t afford your rent
What you will do for health insurance and medical bills
And so much more.
I will be going further in-depth on many of these below.
Find ways to make money
If you are 18 and want to move out, then you will need to have a stable source of income, of course. There are many options for earning money, from traditional jobs to more flexible side hustles.
A full-time job typically gives you more hours and benefits like health insurance, which are helpful when you’re living on your own. If you have other things going on, a part-time job might be better because it offers more flexibility while still giving you money (but, you may not earn as much money). You can find job openings online, at job fairs, or on community bulletin boards. Jobs like delivering food can be either full-time or part-time, and companies tend to need people.
If you want to make more money, you can side hustle to make extra income – a way to make extra cash that you do alongside your main job. You could freelance by doing things like writing, teaching tutoring lessons, or designing graphics. Or, you could babysit for families nearby, walk dogs, or help people with tasks or errands. These little jobs can add up to a lot of money and give you the flexibility to work when you want.
When I was young and first moved out, I worked full-time at a retail store. I also eventually started a few side hustles (like blogging, freelance writing, and selling stuff online) so that I could pay off my student loans quickly. Living on your own is not easy, especially when you are young and your income is not that high – so side hustles may be needed so that you can make enough money to pay your bills.
Some helpful articles to read include:
Create a budget
When you’re ready to step out into the world at 18, you need a budget. I can’t think of any young adult who would not need a budget.
Budgets are great because they help you keep track of your money coming in and going out. With a monthly budget, you’ll know exactly how much you can spend on different things each month as it helps you see how much money you have and where you might need to cut back on spending.
A budget will help you to figure out if you can afford to live on your own, if you need to have roommates, or if you need to find a cheaper living arrangement.
Making a budget is easy. First, write down how much money you make each month from your job or other places. Then, write down what you need to spend money on each month, like:
monthly rent
food
phone bill
internet
car
fuel
utilities like electrical, water, trash, sewer, gas/propane
car insurance
medical/health
pet care
restaurants
cable, satellite, or any TV monthly subscriptions
household essential items, like toilet paper, trash bags, etc.
and some money for fun stuff too
Knowing your monthly expenses will help you to better manage your money so that you won’t go into credit card debt.
Recommended reading: The Complete Budgeting Guide: How To Create A Budget That Works
Save for the move (and open a bank account)
When you’re getting ready to move out at 18, saving money is obviously very important. If you can help it, I do not recommend moving out with no money saved.
Think about all the costs you’ll face – like rent, your first security deposit, food, and any unexpected things that pop up. You’ll want to tuck away money for this.
How much should you save to move out? A good rule is to save at least three to six months of living expenses. For example, if you spend $1,500 a month, aim to save between $4,500 and $9,000 before you head out on your own.
This will be your emergency fund. An emergency fund is money you save up for unexpected things that might happen. This could be paying bills if you lose your job or if your hours or pay get reduced. It could also cover unexpected expenses like a car repair, medical bill, or fixing a broken window.
An emergency isn’t something like buying a birthday present, a new TV, or going on vacation.
Having an emergency fund is smart because it can stop you from getting into debt you don’t need. Some people rely on their credit cards for emergencies, but that’s not a good plan.
I also recommend getting your own bank account for all of the money you save. It’s a safe place for your money, and it helps you track what you earn and spend. Plus, you’ll need it for things like direct deposit from jobs or paying bills online.
I personally use Marcus by Goldman Sachs for my savings account as they have a very high rate. You can get up to 5.50% at the time of this writing through a referral link bonus. According to this high-yield savings account calculator, if you have $10,000 saved, you could earn $550 with a high-yield savings account in a year. Whereas with normal banks, your earnings would only be $46.
Improve your credit score and history
When you’re moving out of your parents’ home, having a good credit score is super helpful. This is because your credit score and credit history may be used for things like getting approved for an apartment and getting signed up for utility bills.
If your credit score is low, then you may be denied an apartment and even have to pay large deposits to get signed up for utilities (like water and electric).
Here are some important things to know:
Understand credit utilization – This is all about how much credit you’re using compared to how much you have. Try to use less than 30% of your credit limit. Say your card has a $1,000 limit. Aim to spend no more than $300.
Always pay on time – You should pay every bill on time, every time. Even being a little late can hurt your credit score a LOT!
There are other ways to improve your credit, such as by getting a secured credit card or becoming an authorized user on a family member’s credit card.
Here are two really helpful articles I recommend reading:
I also recommend keeping an eye on your credit by checking your score and report. Sites offer free checks, and it’s good to know where you stand. That way, you can fix any mistakes fast.
Think about where you’ll live
When planning to move out at 18, picking where you’ll live is a huge step.
Here are some things to think about:
Think about who you’ll live with. Living by yourself can be expensive so sharing rent and other bills with roommates can save you money, but make sure you choose your roommates wisely. You’ll be sharing your space with them, so it’s important to pick people who are responsible and trustworthy (and will actually pay the bills!).
Try using online tools to compare different areas. You can check things like crime rates, public transportation options, and how close they are to places you need, like grocery stores.
Think about the cost. Can you pay the rent and utility bills every month? Make sure to include these costs in your budget. Sometimes, living a bit farther from popular areas can be cheaper.
For my first home, I rented a very small 400-square-foot home with no real bedroom. But, it was within my budget and next to my college (I lived a few miles away), and surprisingly affordable.
Talk to your parents
When you’re getting ready to move out at 18, it’s important to have a conversation with your parents. This might feel hard or even impossible, but remember that clear communication is important.
I recommend choosing a time to tell them when your parents aren’t too busy or stressed as having this conversation when everyone is relaxed can make it easier for everyone to talk openly.
I think it is also helpful to think about how your parents might feel. If you’re the first to leave the home, they might find it tough. Try to understand their perspective and mention that you’ll stay in touch and visit.
And, be ready to show them your plan. Your parents will want to know you’ve thought things through. If you’ve been saving money, let them know. Talk about your job and how you’re managing to support yourself. It’s good to tell them about the place you’re planning to move into and how you chose it.
How to move out of your parents if it isn’t safe
So, after reading the above, I know that some of you may not have a good home life. You may not feel safe telling your parents that you are moving out.
If that’s the case, then I recommend reading this section.
Sometimes, home isn’t the safe place that it’s supposed to be. If you’re in a tough situation and need to leave at 18 but can’t talk to your parents about it, you’re not alone.
Here’s what you can do:
Find an adult you trust – Look for someone you trust, like a teacher, counselor, or family friend. They can maybe give you support and help you figure out your options.
Plan ahead – Start thinking about where you’ll go and how you’ll support yourself. Look into shelters, transitional housing programs, or staying with a trusted friend or relative.
Know your rights – As you turn 18, you have rights. Learn about your options for housing, education, and employment because there may be resources available to help you.
Stay safe – If you’re in danger at home, prioritize your safety. Contact local authorities or organizations that can help you leave safely.
Take care of yourself – Moving out can be tough, but remember to take care of yourself emotionally and physically, such as by talking to friends, finding support groups, or talking to a counselor if you need to.
Leaving home at 18 without being able to talk to your parents is hard, but it’s not impossible. Reach out for help, make a plan, and remember that you deserve to live in a safe and supportive environment.
Get free stuff for your new home
One of the big challenges of moving out on your own is affording all of the different things that you need.
Luckily, there are ways to get things for free or really cheap.
Some of the top ways include:
Facebook Buy Nothing groups – This is my favorite place to start if you want to get things for free. These groups promote recycling and reusing items instead of throwing them away when you’re done with them. To begin, look for and join a local Buy Nothing group on Facebook. You can search for groups for your city. People list their free stuff all the time, such as furniture, electronics, clothes, and more. You can even make a post asking if anyone has something that you need.
Ask family and friends – Your family and friends might have extra stuff they’re willing to part with. They might even be happy to see it go to a good home – your new home!
Check online platforms – Websites like Craigslist, Freecycle, and Facebook Marketplace can be goldmines for free furniture. People often list items they want to get rid of quickly.
Visit thrift stores and yard sales – Thrift stores and yard sales sometimes offer “free bins” or low-cost items they want to get rid of fast.
Attend college move-out days – If you live near a university, go there on move-out day. Students tend to leave behind perfectly good furniture that’s yours for the taking.
Community centers and churches – These places often have bulletin boards with listings for free items.
Always be safe when arranging pickups, especially with strangers. Always bring a friend or let someone know where you’re going.
Helpful articles:
Handling utilities and bills
Dealing with utilities and bills is a big step in moving out. Utilities are services you need like water, electricity, gas, and the internet.
Before you move, call or visit the websites of local utility companies. You’ll need to set up accounts in your name. This might include a deposit fee, so be ready for that.
I recommend making a list of all your expected bills. Rent, electricity, water, internet, and maybe gas are usually the basics. Add them up to see how much you’ll spend each month.
After you move in, you will want to find out when each bill is due. It’s your job to pay them on time as paying late can lead to extra fees or even getting your services turned off. Some companies let you set up automatic payments, and this means the money comes out of your bank account on its own each month. This can make sure you’re always on time.
You will want to hold onto your bills and receipts. This way, if there’s ever a mistake with a bill, your records will help fix it.
You can save money by being smart about using your services. Turn off lights when you leave a room and unplug electronics that you’re not using. You might also shop around for better deals on services like the internet.
After you get your first set of bills, you will understand why your parents wanted to keep the air conditioning off or why they always asked you to turn the lights off – things can be expensive!
Also, remember that different times of the year will impact your bills. For example, your electric bill will most likely be a lot more expensive in the summer than it will be in the spring or fall.
Maintain your home (housekeeping)
Moving out at 18 means taking on the responsibility of housekeeping. You might be surprised how quickly your new home can become cluttered and get dirty.
Keeping your home nice starts with regular cleaning, and I recommend setting aside some time each day for tasks like washing dishes, making your bed, and tidying up the living area. This way, messes won’t pile up and become overwhelming.
Then, once a week, dedicate your time to deeper cleaning such as vacuuming, mopping floors, cleaning the bathroom, dusting, and doing laundry.
Housekeeping also requires tools and supplies, so you will want to plan your budget to include items like sponges, cleaners, and trash bags.
Make friends in your new community
Moving out at 18 is a big step, and making friends in your new community is important. It can make your new place feel like home. When you move, you might not know many people, but there are fun and simple ways to meet people.
Here are some tips:
Get to know your neighbors – Start with a smile and say hi to your neighbors.
Join local groups or classes – Look for groups that interest you. Love to paint? Find an art class. Enjoy cooking? Maybe there’s a cooking group nearby. Like rock climbing? Go to the local climbing gym. This way, you meet people who like what you like.
Visit community centers – Many towns have a community center. They have activities like sports, games, and events.
Making friends might take time, but it’s totally possible! Just be yourself and be open to talking to new people.
Balancing work and personal life
I’m guessing you will have a lot going on, between trying to work full-time and enjoying your life, and even possibly furthering your education.
I recommend trying to schedule your time so you don’t get too busy. Use a calendar or app to make sure you’ve got time for work, taking care of your place, and doing fun things too.
It’s okay to say no if you’re too busy. If you’re working a full-time job, you might not be able to hang out with your friends all the time. It’s all about finding a healthy balance between earning money and enjoying life. I had to say no to my friends many times because I was simply too busy. If your friends still live at home, it may be hard for them to understand this unless you explain your situation.
Plus, remember to take breaks. When you’re planning your week, set aside some time just for relaxing. Watching a movie, reading, or hanging out in the park are all great ways to unwind and give your mind a break.
Frequently Asked Questions
Below are common questions about how to move out at 18 years old with little money.
How can I move out fast at 18?
To move out quickly, focus on making a steady income and finding affordable housing. Create a budget to manage your expenses and look for immediate job openings or housing options. Saving as much money as you can right now is also super helpful.
How much money should I have saved by 18 to move out?
Aim to save at least 3 to 6 months of living expenses before moving out. This safety net can cover rent, groceries, and unexpected costs, giving you financial stability as you start on your own.
Can you move out at 18 while still in high school?
Yes, you can move out at 18 while in high school, but make sure you have a support system in place. Balancing school responsibilities with living independently can be very hard.
How to move out at 18 with strict parents?
When moving out at 18 with strict parents, communicate your plans clearly and respectfully. Prepare a well-thought-out plan to show them you’re serious and capable of managing your own life.
Can your parents not let you move out at 18?
When you turn 18, you’re legally an adult in most places, and you can decide to move out even if your parents don’t agree. However, it’s important to respect their opinion and explain your reasons. There are some places where you have to be older, so make sure you do your research.
Do I have to tell my parents I’m moving out?
While you’re not legally required to inform your parents in most places, it’s nice to talk about your decision with them, as transparent communication helps maintain a positive relationship after you leave.
Can I move out at 18 without parental consent?
Yes, in most places, at 18 you’re legally permitted to move out without parental consent. You will want to make sure this applies to your local area.
What things do you need when moving out of your parents’ house?
There are many things that you will need to move out of your parents’ house such as a bed, blanket, pillow, kitchen supplies, towels, a place to eat, a dresser, cleaning supplies, groceries, and more.
Is it realistic to move out at 18?
It is realistic to move out at 18 if you have a reliable income, a budget, and a plan for handling responsibilities. You will want to be as prepared as possible to move out at a young age because there will be many hurdles thrown your way, most likely.
How To Move Out At 18 – Summary
I hope you enjoyed this article on how to move out at 18 years old.
It’s really important to have a plan for a successful move when you are just 18 years old.
You’ll need to find ways to earn money regularly, like getting a job and even doing extra work on the side.
Having savings in the bank and an emergency fund will help you handle unexpected expenses without ruining your plans.
There are also many other things to think about, such as the cost of living, utility bills, your credit score, and more.
I moved out when I was just 18 years old, so I completely understand where you are coming from. I had no financial help from my parents and found and did everything on my own – from making money to finding a place to live, making all of my own meals, and more. It was hard, but it was what needed to be done.
Do you plan on moving out soon? Do you have any questions for me on how to move out at 18?
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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn how to utilize a tax advantaged 529 plan to help your or a friend’s children save for future education expenses.
This Week in Your Money: What are the risks of purchasing a home without an inspection? How can you plan for major expenses when healthcare providers can’t tell you how much their services will cost? Hosts Sean Pyles and Sara Rathner share their hot takes on unexpected financial challenges, with tips and tricks on handling surprise expenses, understanding the importance of home inspections, and dealing with healthcare industry inefficiencies.
Today’s Money Question: What are the benefits of a 529 college savings plan? Can you contribute to a friend’s 529 plan to support their child’s future? NerdWallet writer Elizabeth Ayoola joins Sean and Sara to discuss the essentials of 529 college savings plans. They discuss the types of educational expenses covered, the tax benefits associated with 529 plans, and the flexibility of choosing different state plans. They also answer a listener’s question about how to approach the sensitive topic of financial gifts for education with parents, sharing methods for contributing to a loved one’s 529 plan without overstepping boundaries. Then, they discuss the implications of the Secure Act 2.0 on 529 plans, methods for estimating necessary savings for a child’s education, and tactful ways to discuss educational contributions with parents.
Check out this episode on your favorite podcast platform, including:
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sara Rathner:
Hey Sean, has money ever made you mad?
Sean Pyles:
Yeah, it has, especially when I get a bill that I don’t expect to pay but have to anyway. So yeah, why?
Sara Rathner:
Yeah. Yeah, those surprise major expenses are a huge pain. I just had to replace my washing machine because the fun never stops in my house.
In this episode, we are going to let off a little steam about what makes us mad in the world of money.
Sean Pyles:
Welcome to NerdWallet’s Smart Money Podcast. Our job today is to help you be smarter with your money, one money question at a time. I’m Sean Pyles.
Sara Rathner:
And I’m Sara Rathner.
So listener, this show is all about you and your money questions. So, whatever financial decision you’re pondering, whatever’s making you mad about your money, let us know.
Sean Pyles:
Leave a voicemail or text the Nerd hotline at 901-730-6373. That’s 901-730-NERD. Or you can email your questions to podcast@nerdwallet com.
Sara Rathner:
In this episode, Sean and I answer a listener’s question about contributing to 529 accounts for your loved ones. But first, we’re going to yell into the void in our semi-regular Money Hot Takes segment.
Sean Pyles:
So here’s how this works. Sara and I just rail against whatever we feel like in the world of money. And let’s put, say, 100 seconds on the clock. That’s what? A second for every penny in a dollar. I don’t know, it’s just an arbitrary number really.
Sara Rathner:
That works for me. It’s a nice round number.
Sean Pyles:
All right, Sara, are you ready?
Sara Rathner:
Sean Pyles:
I’m starting my timer. Go.
Sara Rathner:
All right. I hate the trend where home buyers feel pressure to completely waive getting a home inspection before buying a property. That’s different from the type of waiver where you’ll still do the inspection, but then you’re assuming the cost of anything you find. It’s when you just do without the inspection entirely.
I live in a block of houses that are like 107 years old, and two houses on my block sold with waived inspections where the buyers had to put tens of thousands of dollars unexpectedly into problems in their house that they didn’t know about. I just had a neighbor text me asking for a roofer because the first time it rained since she moved in her house, it started raining on the inside of her house, which means that the seller just lived with that for however long before selling the house and passing the problem onto somebody else.
So especially if you’re a first-time home buyer, if you are going to drain your savings to buy your house, and then you’re not going to have much money left for repairs, be really careful about this. And as a society, can we just make inspections mandatory? That’s more consumer-friendly, honestly. People need to know what they’re getting into, and frankly, people should feel pressure to keep their houses well maintained before sale. There I said it.
Sean Pyles:
You’ve got 40 more seconds if you want to keep on railing.
Sara Rathner:
Oh man, I do? Well, if you haven’t bought a home yet, what’s nice about getting an inspector involved is they’ll look at all the major systems of the house, the appliances, the roof, all sorts of stuff, the electrical, the plumbing, and they will tell you the lifespan of some of those major things like a furnace or a boiler, your roof, your HVAC system. And even if something is going to go in the next year or two, at least you have this laundry list of things and when they’ll probably need to be replaced, and you can begin to budget for those replacements.
Sean Pyles:
Okay, that’s 100 seconds.
Sara Rathner:
Boom. All right, Sean, you got any reaction?
Sean Pyles:
Well, I totally feel that, because buying a house without knowing what’s wrong with it is very risky financially. Buying a house can be financially risky in and of itself, depending on how expensive the home is. But imagine getting into the house, it’s your first day, you’re super happy to be a homeowner, and then you realize, oh, it’s raining inside the house, or the crawl space is infested with termites. You don’t know what you’re getting into if you don’t have an inspection. And even if it may make you a more competitive buyer, it isn’t worth it, in my opinion, to get yourself into something like that because you just don’t understand the risks you could be taking on. And I’m all about mitigating risks as much as possible.
Sara Rathner:
All right, Sean, I have had my turn, and now it is your turn. I have set my timer for 100 seconds. And go.
Sean Pyles:
Okay. Today I am mad about industries that are designed to extract money from us while making our lives miserable or at least really frustrating. And I have one, maybe two, examples depending on how far 100 seconds takes me.
First step is healthcare. Americans spend far more on healthcare than other wealthy nations. Nearly 18% of our GDP in 2021 went to healthcare. And what are we getting for it? An incompetent extractive industry that exploits nearly everyone that engages with it. Among wealthy nations, the US has the highest rates of infant and maternal mortality and excess deaths, not to mention the daily indignities that come with trying to access healthcare.
I have a recent example that is a microcosm of these larger issues. I recently got a bill in the mail for some regular lab work, and the thing is, I have these labs done every few months, and they’re always covered by my insurance. But this time I got a surprise bill for nearly $200, and I’d already had an expensive month with some car repairs, and I was not excited about the prospect of an additional $200 to cover. So I called my doctor, and they said, “Oh yeah, the company that does the lab work just messed up. Oops, just disregard the bill.”
So if I hadn’t called my doctor, I would have been on the hook for this bill. This was a relatively small bill as far as medical bills go, and it was fairly easy for me to clear up. I’m obviously very fortunate in this case, but for so many people, especially those with chronic illnesses or complex medical conditions, the onslaught of navigating insurance, verifying that you’re being billed correctly and then somehow coming up with the money to cover bill after bill is just totally exhausting and can make achieving financial goals nearly impossible.
So why am I going on and on about things that we already know too much about?
Sara Rathner:
Just so you know, you’re over time.
Sean Pyles:
Oh, God. I’m going to keep going. I’m almost done.
Sara Rathner:
Keep going, Sean. Let’s do this.
Sean Pyles:
All right. I am going on and on about this because I think it’s important to remind people that it does not have to be this way. We are in an election year, people, so I don’t know, let’s try to do something about it.
Okay, Sara, how many seconds was that?
Sara Rathner:
Oh, well I stopped timing it the second it hit the clock, so that might’ve been just an extra 10 seconds, honestly.
Sean Pyles:
Okay. It’s hard to fit so much into such a small amount of time.
Sara Rathner:
You know what? Your rage is such that it cannot be fit into a tiny container and that is valid. It’s okay to let the rage out and give it some more space.
I agree with you. What’s annoying is, for example, this past year I had a baby, and that is expensive to the tune for me of $7,000 out of pocket after insurance. Hi. $7,000 is a lot of money, people.
And what was annoying about that, and this is something for anybody who maybe is facing a planned medical procedure like a surgery or childbirth or anything like that, or who takes medication for chronic illnesses, I tried to call the billing department at the hospital to talk to my insurance company to say, “Can you at least give me an idea of how much money I will be out?” I knew going into it that I would be having a C-section. So I could say, “I’m having a C-section, that means I have to work with an anesthesiologist, which is an extra expense. Can you tell me ballpark, even if you’re off by a grand, how much should I budget for this?” And everyone’s like, “We don’t know.” Shrug emoji.
Then the bills just fly in for months and you think you’re done. So you’re like, “Okay, we’re done paying for the hospital bill. Now we can put our money into other stuff.” And then you get another bill for like, $1,100.
Sean Pyles:
And you have to question, was this billed correctly? Was it coded correctly? You don’t know. And it just flies in the face of all the things that we try to talk about in the personal finance space, which is around anticipating big expenses, budgeting for it, saving up for it if you can. It’s impossible when you don’t know what you’re going to be paying.
Sara Rathner:
Right, and if you’re facing surgery, what, are you just going to not have anesthesia to save money? Do not recommend.
Sean Pyles:
That is not a money-saving tip that we would recommend. No.
Sara Rathner:
No, that’s a place where you should spend good money, get good and numb.
But really it is an extra expense. And that’s so, so frustrating because you are not only out a lot of money, but you’re feeling kind of vulnerable because you’ve just gone through some medical stuff, even if it’s just blood work or something, and you want to take good care of your health, and it’s sometimes financially impossible to do that.
Sean Pyles:
Yeah. Not to mention completely demoralizing.
Sara Rathner:
Yeah, and some people just don’t go to the doctor because of the cost, or the dentist. And then years later, they’re faced with really serious health issues because they’ve been neglecting their health because of the cost.
Sean Pyles:
Yeah. I don’t know, it’s really tough in this space to talk about medical expenses because at NerdWallet and in the personal finance realm, we try to give actionable advice, and a lot of the time the advice is reactive. If you get a medical bill, you do have to ensure that it’s coded correctly. Maybe try to work out a payment plan with your medical office if you can’t cover the bill in one go. But it’s so hard to be proactive like you were just describing and understand what you’re going to have to pay if you want a routine procedure like blood work or something more significant like having a baby, makes me want to yell into the void all day every day.
Sara Rathner:
Yeah. Well, we took more than 100 seconds about this. If you have a body, then this is something that affects you, and it is really hard to deal with those extra unexpected costs.
Sean Pyles:
All right, so that is what we are mad about this week, listener. I know there’s a lot to be mad about in the world of money, so do not keep it in. Let us hear what you’re mad about, and we might just share it on a future episode.
You can text your Money Hot Take to us or leave a voicemail on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. Or you can email it to podcast@nerdwallet com.
Sara Rathner:
All right, I don’t know about you, but my heart rate is starting to come down from all of that. Ooh, deep breaths, everyone. This episode’s money question is up next. So calm down too and stay with us.
Sean Pyles:
This episode’s money question comes from Lauren, who wrote us an email. Here it is.
“Hi nerdy Nerds. I’m not a parent. I’m never going to be a parent. Because of that, I have made it part of my financial plan to contribute to the 529 plans of kids around me. Because I don’t have nieces and nephews, I’m contributing toward the savings of my friend’s three-year-old. How much needs to go into a 529 starting at age two or three to cover a four-year private college?”
“I got the details on this kid’s 529 plan from his dad and started contributing about $100 a month. We didn’t talk about it. I intend to keep chipping in until the kid is done getting formal education 20 to 25 years from now. How do I talk to the parents? I want to understand if I’m helping enough without becoming privy to their private financial details. I also don’t want to make it seem like I have any vote whatsoever in how the kid charts an educational path. How do I broach this with the parents?”
Sara Rathner:
To help us answer this listener’s question, on this episode of the podcast, we are joined by NerdWallet writer Elizabeth Ayoola. Welcome.
Elizabeth Ayoola:
Hello, and hi.
Sean Pyles:
Elizabeth, so good to have you on.
So let’s start by setting some groundwork. Can you please describe what a 529 college savings plan is, how they work, and why they’re such a big deal?
Elizabeth Ayoola:
A 529 plan is a huge deal indeed to me anyway. I wish I had one when I went to college because I was left with a huge bill. But anyways.
529s are tax advantaged college savings plans, and they allow people to save and invest money for education expenses. So, with that said, the money gets to grow, and it gets to compound, which can mean beneficiaries have a nice education pot to pull from when they need the money. And for those who don’t know what compounding is, it’s essentially when your interest earns interest.
Sara Rathner:
It’s the eighth wonder of the world.
Elizabeth Ayoola:
Sara Rathner:
So you mentioned education expenses and that’s what the purpose of this account is, but what kinds of education expenses can you use a 529 to fund?
Elizabeth Ayoola:
Funds in a 529 account can be used to cover a vast range of qualified expenses, and that can range from tuition to computers and education related equipment. The expenses can also be used to pay for education needs of your beneficiaries. And the good thing that I like is that the beneficiaries can be in anywhere from kindergarten through grade 12. So that said, it’s not only for college students.
Sean Pyles:
Right, that is a really good point because people hear about 529 accounts, and they think they may be specifically for people going through a traditional four-year education, but people can also use the funds in the 529 college savings plan to cover things like trade schools too. So it really isn’t only for that traditional four-year higher education route.
Sara Rathner:
So earlier you mentioned that 529s are tax advantaged accounts. Can you talk a little bit about the tax treatment of them, and what should people know when they’re considering opening a 529?
Elizabeth Ayoola:
Well, one thing that I personally like about these accounts that some people don’t know also is that some states offer a tax deduction if you contribute to their plan. And when I say their plan, I mean the state that you live in. But there is no federal tax deduction for a 529 contribution. So it’s only at a state level. The tax deduction is usually capped. So no, you can’t just deduct your entire contribution. The deduction amount varies from state to state. So it’s best that you check in your state what the amount may be, if they offer it.
And a little bit off-topic, but I also like that the IRS doesn’t set a cap on your contributions to a 529 account, although some states do set a limit.
Sean Pyles:
And I’ll call out two other tax benefits of 529 college savings plans. The first is that investment growth in this account is tax-free, and second, distribution for qualified expenses like tuition or books are also tax-free.
Elizabeth, another important thing to know about 529 college savings plans is that each state has their own, and you don’t have to choose the 529 plan from the state that you live in. And this can all get a little bit confusing because there are so many states to choose from. So, at a high level, can you outline the main differences between a 529 from one state to the next, and how would someone go about choosing which state’s 529 plan to use?
Elizabeth Ayoola:
One of the major differences that people should know and a reason that people may cheat on their state’s 529 plan is lower fees. I personally have a 529 from a different state than my current home state for that very reason. So people should consider shopping around and comparing fees before opening an account. Ultimately, the goal should be to do some math and see whether the deductions and the credits that you’re going to get in the state that you live in are worth more than the lower fees that you could get in another state in the long term.
Also, note that you can open multiple 529 accounts. I have multiple 529 accounts. I recently opened a second one in my home state, Florida, because my son was awarded a grant and it could be transferred to a 529 account, but the catch was it had to be a Florida 529 plan.
Sara Rathner:
So 529s have some flexibility, which we talked about before, not just for four-year educations, but also for trade schools and for K to 12 expenses as well. And interestingly enough, 529s were just made even more flexible. Can you talk about recent changes around the ability to roll 529 funds into a Roth IRA, and what that means for folks who maybe aren’t considering going to college?
Elizabeth Ayoola:
The Secure Act 2.0 was recently passed, and if I can be honest, that’s what motivated me to open up my first 529 account, and I just opened it last year. I was always on the fence and only saved money in a brokerage account because I was afraid of what would happen if my son decided not to go to college in 15 years. He’s six, by the way.
I decided to get off the fence when the Secure Act 2.0 made it possible for people to roll at least a portion of the unused funds into a Roth account. However, you do have to wait until 15 years after you’ve opened the 529 account before you can roll those funds over. And you can also only roll up to a certain limit starting in 2024. It may be ideal to read the IRS’s rules, they have a lot of fine print around the conversion or speak to a finance professional about it.
I think Roths are also awesome because they aren’t subject to required minimum distributions and withdrawals. They’re also tax-free when you meet certain requirements like waiting until 59-1/2, amongst other rules.
Sara Rathner:
All right, well thank you for that great summary of the tax rules surrounding this new change. We just want to let you all know that we are not investing or tax professionals, and if you have any specific questions to your own situation, definitely consult a professional who can give you guidance.
Now let’s turn to the fun stuff. The math, Sean. I know that you are in the midst of your certified financial planner coursework. I have slogged through that myself. It is a lot. It is a lot of math.
Sean Pyles:
Sara Rathner:
And now that you know how to do it, I’m sure you’re eager to show off your chops. So are there any insights you can share that will help our listener figure out how much they need to save every month or every year to help their friends reach their savings goals?
Sean Pyles:
As a matter of fact, yes. And you’re right, I have been waiting for an opportunity to show off what I’ve been learning about because often I’m just doing calculations in silence and this is a time for me to be loud and proud about hitting buttons on a calculator. So let’s do it.
I’ll spare you and our listeners the specifics of the calculation, but I plugged the listener’s situation into a time value of money calculation and got a rough estimate for how much they will need to save.
Sara Rathner:
All right, drum roll. What’s the number?
Sean Pyles:
For our listener to meet the savings goal that they outlined in their question, remember, they want to save for four years of education at a private college starting now-ish and saving until the kid finishes school. They would need to save around $8,000 per year. Obviously, that’s a lot of money to contribute to a 529 account, no less for a kid who isn’t your own. And this is why 529s are often just part of the picture when it comes to paying for college, which usually includes some combination of scholarships, grants and loans and generous gifts from family friends.
Sara Rathner:
That is definitely more than a hundy a month.
Sean Pyles:
Yeah, that’s for sure.
All right, so all of that math out of the way, I want to talk about the other part of our listener’s question. They seem to be concerned about how much they should contribute and also how to talk about this with their friends. I am not a parent, so I would love to hear from both of you who are parents, how you would approach the situation if you had such a generous friend. Would you welcome the money, or say get out of my business? Or if you are going to accept this money, if you want to have this conversation with your friend, how would you want them to communicate that with you?
Elizabeth Ayoola:
Honestly, I would welcome the money, especially because I’m a single mama. So as a matter of fact, my friends always contribute to my son’s savings account in London for his birthdays or holidays and I really, really appreciate it. It can be a better gift to me than toys that stab me in the foot within a few days.
Sean Pyles:
Elizabeth Ayoola:
I would also appreciate a friend asking me what my savings goals are, so they know how to support that goal. However, I do think, for the sake of boundaries, I would like my friend to ask me my comfort level with the topic before they dive in and start trying to give advice.
I think it’s also important to note that not everyone is comfortable discussing money or financial goals. But with that said, here’s an example of maybe how somebody could say it. So you may say, “Hey, I want to help you reach John’s college savings goal. Are you comfortable discussing that target number you have in mind, and can you tell me how I can support that?” Or another option could be you saying, “Hey, would you like to do the math yourself and then let me know how I can support that goal?” So those are just a couple of options.
Sara Rathner:
Yeah, I mean, I’m not going to look a gift horse in the mouth. College is expensive now, and it’s only going to become even more expensive in the future. Even in-state tuition, where I live in Virginia, is often over $20,000 a year. That used to be the economical way to get a four-year degree, and now it’s also very, very expensive. So what’s it going to be like by the time my kid’s in college? I don’t know. A lot.
Sean Pyles:
I think we can confidently say more money.
Sara Rathner:
Confidently, we can say a whole lot more money.
I would want my friends to decide for themselves what they feel comfortable giving, because I don’t feel comfortable telling another person how they should allot their money because they have other competing financial goals and obligations. And I never want to tell another person what they can do with their money unless they specifically ask me to tell them what to do with their money, which nobody ever asks me.
Sean Pyles:
And you also don’t want to give the impression that your friends can’t look after their own family’s finances, right? That’s a bit of the awkwardness underlying the question, is you want to help someone that you care about and this child that you’re seeing grow up in the world, but you don’t want to impose your will upon them. It seems like our listener is being very thoughtful about that. And you don’t want to make it seem like you think they aren’t doing enough.
Sara Rathner:
Right, or you think their kids should go to a four-year private university because that’s what you value, but maybe the parents have other values that they want to impart upon their child as the kid grows up, and then the kid will go off and do their own thing as a young adult.
In my case, we have a 529 for our son. We have family members who’ve contributed money. They’ve just written checks to us, and then we deposit it into our account that is tied to our 529 and then deposit the money into the 529.
Ultimately, when you contribute, you do go through the account owners, and that’s oftentimes parent or guardians. You are going to have to communicate with them because they’re ultimately the gatekeeper of that account. They are the owners, and then the child is the beneficiary.
Sean Pyles:
That actually brings up something that I wanted to talk about, which is who would own this account? The listener could in theory open up a 529 account on their own for this kid. But long-term, it’s probably going to be easier if the parents are the owners of the account, because that way when the kid is eventually ready to go to college or trade school or what have you, the parent can be the one managing those distributions.
Personally, I know as a friend, as much as I love my friends and my friends’ kids, I don’t want to have to manage that down the road. So that’s something else that they should think about when they’re talking about this with their friends.
Sara Rathner:
I definitely agree with talking to the parents and ultimately contributing to an account that the parents or guardians are in charge of.
Sean Pyles:
Well, Elizabeth, do you have any final thoughts around 529s and helping your friend’s kids afford college?
Elizabeth Ayoola:
I think we have given some very juicy tips here and only two more things come to mind, which is one, while it’s noble to contribute to your friend’s kids or loved one’s kids’ 529 account, please take advantage of any state income tax deductions that you might be eligible for. The rules around this can be muddy. And I know the original listener who asked this question lives in a different state than where he’s contributing, but sometimes you’re able to get a deduction depending on the state that you live in. So if you can get money back, I mean, why not?
My second thing that I’ll say is that if your loved one doesn’t have a number in mind, guide them to a college savings calculator or run the numbers together over coffee if they’re open to doing that.
Sean Pyles:
Great. Well, thank you so much for coming on and talking with us.
Elizabeth Ayoola:
I loved it. Thank you for having me.
Sean Pyles:
And that is all we have for this episode. If you have a money question of your own, turn to the Nerds and call or text us your question at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected].
Visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate, and review us wherever you’re getting this podcast.
Sara Rathner:
This episode was produced by Sean Pyles and myself. Kevin Berry and Tess Vigeland helped with editing. Sara Brink mixed our audio. And a big thank you to NerdWallet’s editors for all of their help.
And here’s our brief disclaimer:
We are not financial or investment advisors. This 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.
The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn investment and tax strategies to help you achieve financial security and prepare for a prosperous retirement.
How can you balance saving for emergencies and investing for the future? What strategies can you employ to maximize your tax benefits and build a secure financial future? NerdWallet’s Kim Palmer and Alana Benson discuss investment strategies and tax planning to help you understand how to navigate your financial journey effectively. They begin with a discussion of investment strategies, with tips and tricks on understanding different investment accounts like 401(k)s and IRAs, leveraging compound interest, and the importance of starting investments early. Then, Alana discusses tax planning and filing in-depth, covering the intricacies of different tax forms like W-4s and W-2s, the significance of estimated taxes for freelancers, and strategies for managing capital gains taxes.
Kim and Alana delve into retirement planning and the challenges of active versus passive investing. They provide a framework for prioritizing your finances, emphasizing the creation of an emergency fund, taking advantage of employer 401(k) matches, and understanding the role of asset allocation based on age and risk tolerance. Additionally, they tackle the decision-making process in personal finance, such as choosing between paying off debt and investing, and the pros and cons of having a financial advisor.
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
Hey listener, we’ve got a special episode in store for you today. Our investing and tax Nerds recently hosted a webinar going deep into how you can level up your investing and tax strategy. So we packaged that up into a podcast episode for you. The Nerds talk about what you need to know about different investing accounts, how to get help with your taxes and more. So here’s the webinar.
Kim Palmer:
Welcome everyone. I am Kim Palmer. I’m a personal finance writer at NerdWallet where we help people make smart decisions. One important note, we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. NerdWallet Inc is not an investment advisor or broker and does not provide personal financial advisory services. Today we are excited to talk to you about the basics of investing and taxes and we think we have some helpful info to share with you. You can always find more at nerdwallet.com or on the NerdWallet app. Our goal today is to kick off a helpful discussion about investing and tax information and tools. Alana Benson writes about investing topics including stocks, funds, and ethical investing. And now I will hand it over to Alana.
Alana Benson:
Thanks Kim. Hi everyone. Thank you for joining us today. So before we start, I just want to say a couple of things that often get forgotten when we’re talking about investing. So first, investing usually comes second to some other goals. If you’re having a hard time paying for necessities or you don’t have an emergency fund, it’s really important to focus on those things before we even start worrying about investing. Second, instead of scrimping, try to increase your income. So I didn’t start investing until I was in my late 20s, and that’s because one, I didn’t work at NerdWallet yet, so I literally didn’t know anything. And two, I was making around $25,000 a year, so I didn’t have much expendable income. And when you don’t have extra income, it’s really hard to prioritize investing and it just might not even be a good idea to do that.
When I started making more money, it was suddenly a lot more possible for me to invest for retirement. So if it’s possible for you and you want to be investing more, look for jobs that will pay you more or look into side hustles, but cutting back on your streaming services probably will not save you enough money for retirement. And finally, if you don’t have the money to invest now, that’s totally fine. Some people have serious money anxieties and others just don’t have the cash. Whatever your reason is, don’t stress too much about it. Just keep learning and when you’re able to, you can start investing. So why do we invest? What is the point of all this? And the answer is that it’s because we like money and that’s okay. There’s no shame in admitting it, I like money, most people like money. It’s because money isn’t just money. It’s not like Scrooge McDuck diving into pools of money and buying Maseratis. It’s not that.
It’s about not being stressed about your money all the time and it’s about being able to buy everything that you need and some stuff that you want comfortably without having money stress take up all of your energy. Money allows us to thrive instead of just survive and investing helps you make more money than you could ever possibly make just by working at a job. So okay, what actually is investing? This whole process is very strange. Okay. Investing is the process of money that you already have making additional money for you. And this works through what’s called compound interest. Compound interest means that your gains get a little bit bigger every year and that’s also why starting when you’re younger gives you a huge advantage and more money in the long run. So for example, you just start at that little number one in the box up there. Say you buy an investment for $100, if it goes up the average stock market return of 10%, it could then be worth $110, meaning that you’ve made $10.
Then that $10 that you earned also starts earning compound interest on top of the $100 you initially invested. That doesn’t sound like much of a profit, but imagine if you were doing it with way larger amounts of money over a way longer period of time. Now that 10% is an annualized rate, which means that you’re not going to get 10% every single year. In all likelihood, some years you’re going to finish up, some years you’ll finish down. But over the course of decades when you average all that out, you tend to get about 10%. The way you actually start investing is through an investing account. And there’s a couple of different types, but the type of investment account you have is actually really, really important because a lot of them have some pretty significant tax benefits that you want to take advantage of. So you’ve got your 401(k)s and these are offered through your employer. You add money to it and sometimes your employer matches it. So it’s basically free money. If you have a 401(k), you’ll likely choose your investments from a pre-selected list or a fund that will automatically adjust itself over time.
So this means 401(k)s are typically very hands off. IRAs on the other hand are investment accounts that you open up yourself. IRAs can be opened online through brokerages and actually at a lot of large banks, they also do that. So it’s likely you can open up an investment account just through your bank. Unlike with a 401(k), IRAs you’ll have to choose your own investments in those accounts. You may have heard about a thing called a Roth IRA or a Roth 401(k) and it’s good if you know the difference. So with a Roth, you pay taxes on your money now just like any other money that you earn and then the money you have invested inside that account grows tax-free and you can take it out tax-free in retirement. With a traditional IRA or 401(k), the money you contribute today is pre-tax.
So that is you get to deduct it from your income taxes this year. So it’s like a nice little treat this year, but then when you cash it out in retirement, you’ll owe income taxes on it. This is really, really important. I’ve seen a lot of people make this mistake. Your investment account is not an investment, so a Roth IRA, a 401(k), not an investment. So if you have a Roth IRA, that’s great, but that doesn’t mean you’re actually invested in anything. So you fund your investment account and then you buy investments from there. But I’ve heard of people opening a Roth IRA, putting in a bunch of money and then wondering why it didn’t grow over the last 10 years. So you have to purchase investments for your money to actually grow and if you don’t do it, you’ll miss out on all of those years of growth, so very important.
And there’s a couple different types of investments that you can choose from once you open and fund your investment account. So you’ve got stocks, I’m sure everyone’s heard of that, these are shares of ownership in companies and the way you make money from them is if they go up in value and some pay you a cut of the company’s profits on a regular basis. Then you’ve got bonds. This is when you loan money to companies or the government and they pay you interest. Funds, now these are very exciting because they’re basically just baskets of stocks and bonds that you buy all at once. So a fund is still a stock or bond based investment depending on the type of fund that you get. And there’s a lot of different kinds such as index funds or exchange traded funds and mutual funds, but they’re all collections of investments that you buy at one time.
And I think funds are pretty awesome because if you own a stock and that company goes out of business, you lose all of your money. But if you invest in a fund that covers 100 stocks and that same stock goes out of business, your investment is buoyed up by the other 99 companies. So again, all of these investments, stocks, bonds and funds, you buy them from your investment account and then you own them in there. All right, so let’s talk about the stock market, it’s this weird nebulous term that’s hard to understand. But the stock market is just where people buy and sell investments, but now people just trade investments online. So the stock market is made up of several what are called market indexes. Now these are basically just predetermined lists of companies and the performance of that overall list can tell us a lot about the health of the US economy.
So for example, the S&P 500, something you probably have all heard of, that’s just the list of 500 of the largest publicly traded companies in the US and it includes companies like Apple and Amazon. So when we say the stock market is down today, that means that on average most of those companies aren’t doing well. And you can’t invest in the literal stock market, but you can invest in funds that include all the same investments. So these are called index funds because they track a market index. So again, if you have an S&P 500 index fund, it should perform pretty closely to how the S&P 500 itself is actually performing. The S&P 500 goes up 10% a year on average and 6.5% after inflation. And this is just an average, so some years the market goes up more, some years it goes down less, but when done well, investing can potentially mean doubling your money every few years for doing basically nothing, which is my favorite way of earning money, by doing nothing. It’s great.
So let’s talk strategy. This is all about the way that you invest, when you put your money in and when you take your money out. So passive investing is where you buy that S&P 500 index fund and you keep adding money into it until you retire. It’s very boring, but it’s effective. So it can give you that 10% return on average over the long haul, but a lot of people want to make more than that 10%, and they do so by actively buying and selling stocks, crypto options and other high risk investments. They try to predict when they’ll be low, then they buy them and then they turn around and try to sell them when they’re high. So these people are called active traders or day traders. Only 20% of active traders make money over a six-month period. That is not a lot of people.
There have been a lot of studies over the years that show that active investing is a way less lucrative fashion than boring old passive investing with that index fund. Plus active investing is a lot more work, you have to do all kinds of research and you keep an eye on the markets and you can hypothetically earn more by actively trading versus passively earning the same amount as that historical return of 10%. But most people end up making less when they actually try it, and that’s because people are really bad at predicting things. And in order to make money on the overall stock market over the long term, you have to be really good at predicting things all the time. So maybe you make it big on one stock, but the odds of that happening again and again are very low. So let’s put all of this information together, the accounts, the actual investments and the strategy.
Here’s how financial advisors suggest you prioritize your money when you’re starting to invest. So the first thing you want to do is you’re not actually going to invest at all. The first thing is that you’re going to have an emergency fund. So this is money that you won’t actually put in the stock market, and that’s because when your money is invested, its value can change day by day. So say you have $1,000 and you want to use it for an emergency fund, but you invest it, when you have to fix something on your car suddenly, you go to check your money and its value could be $600 instead of $1,000 and that’s not good. If you put it in a high yield savings account, you can access that money at any time without risking its value. Plus right now the interest rates are really high.
So your money could be earning 4 to 5% just by sitting there. So next, you want to get that 401(k) match if it’s available to you because it’s free money. After that, it’s a good idea to look into IRAs. Both IRAs and 401(k)s have what’s called a contribution limit, which is just the maximum amount of money you can put in each of them every year. If you’re able to max out an IRA, then it’s a good call to move back to your 401(k). And the reason you switch around like that is because of the way the tax benefit works. So it’s likely more beneficial to invest in an IRA over a 401(k) if you’ve already gotten your match, if you have to choose between the two. Then if you max out your 401(k), you can move to a standard brokerage account. And this is not a list of everything you have to be doing right now.
You might be thinking, “Whoa, maxing out an IRA is $6,500, I cannot afford that”, and that is totally fine. So I like to picture it as a waterfall. So when you fill up your emergency fund, then you can start working on getting that 401(k) match. Only after that bucket is full should you then move on to investing in an IRA and so on. And wherever you’re at in your bucket filling journey is okay. It’s just nice to know what to do next when you’re ready for it. So we already talked about what accounts to invest from and the investments you can buy, but then do you just start buying a bunch of index funds or stocks or bonds? How do you know how much of each investment to get? And that is all about risk tolerance. And to understand that we have to understand how risk works over time.
If you’re investing for retirement and you’re in your 20s now, that means you have a ton of time for your investments to grow and then drop dramatically and then rise back up. So financial advisors would say you can afford to take on a bit more risk, AKA invest in riskier investments, because you have time for your investments to bounce back. Now, if you’re investing for your retirement and you’re 65, you don’t want to risk all the money you’ve been investing for years and years because you’re going to actually need to use it to pay for stuff in retirement pretty soon, so you want to protect it. And figuring out how much of each investment you should have is a fancy term called asset allocation, but it just means how much of your portfolio is in which of these investments.
And age is just a number, but typically when you’re younger, you may be able to afford to take more risk because you have more time for the stock market highs and lows to even out. So stocks, and okay, remember index funds and mutual funds are often made up of stocks so those count too, but those tend to carry more risk than investments like bonds. And an example of a 20-year-old’s investment portfolio, which includes all of your accounts so your 401(k), your Roth IRA, all of that together, that could be 100% stocks. And that’s fairly risky, but those 20 year olds are not going to retire for a long time. Now, a 65-year-old might have way more bonds because they don’t want to risk all that money they’ve earned over time. And one thing some investors do to mitigate risk is to slowly shift their asset allocation from high risk investments to low risk investments over time.
And again, I’m not a financial advisor and this is not personalized investment advice, but how much of each investment it’s good to have will usually depend on how much risk you are willing to take. And an investment portfolio can be really simple or really complicated. So you could have that one S&P 500 index fund and you purchase it from a Roth IRA, and that’s just all you do. Just if you want to keep it really simple or you can make it more complicated. So maybe you explore several stock-based funds such as international stocks and healthcare stocks and technology stocks, and you could invest in those types through a fund. So instead of buying 30 technology stocks, you just have one technology stock fund, then a small slice in bonds, and then an even smaller slice is crypto or other high risk investments. Though financial advisors have varying opinions on the safety of crypto.
So keep in mind, this is just an example and not necessarily what you should do personally, but it is really helpful to look up asset allocation portfolios through an online brokerage and see what they recommend for your specific age and when you plan on retiring. You can also talk with a financial advisor who can help guide you through those decisions. And investing is great because it can help you earn wealth, which you could spend on a boat, but more than likely one of your biggest investing goals will be retirement. And the sad truth is that in some things like retirement, they just cost so much that you’ll probably never afford them just by putting money in a savings account. And that’s why we say we have to invest for retirement. And the truth is that most people just aren’t saving enough for retirement.
So you’ll probably have a lot of expenses and you have to pay for that in retirement and some of it’s necessary like food or housing or medical care and some of it is travel or bucket list stuff, but you may not be working anymore or at least not as much as you were. And once you factor in inflation, it’s likely that a dollar today will be worth way less when you’re in retirement. And saving for retirement has gotten even more difficult because you can’t necessarily afford to live on social security. Medicare doesn’t always pay for your health needs and pensions aren’t really as common as they used to be. And because of all this, it’s really important to start investing for retirement sooner rather than later.
And if you’re early in your career, it might seem silly to worry about retiring right now, but if you start investing sooner, you actually spend less on retirement than if you start investing later in life overall and that’s because of compound interest. So our retirement calculator shows that if you start putting away $100 per month, that could grow to nearly $400,000 in 35 years. And it’s always good to know how much you should be trying to invest. When you have a long-term goal in mind, you want to know what that number is. So a retirement calculator can be a big help to figure that out, including NerdWallet’s retirement calculator. No shame, I’m going to plug it, but some financial advisors recommend saving 15% of your pre-tax income for retirement. So okay, let’s break that down. What does that look like?
So if you make $100,000 a year, again just because easy math, that would be $15,000 annually that you’re trying to save for retirement. But if you had a 5% match on your 401(k), you’d already be saving $10,000 a year between the $5,000 you make and the $5,000 your employer puts in. And then if you contributed another $5,000 to your Roth IRA, you’d already meet your target goal of saving $15,000 a year for retirement. You should also think about how much you can make during those peak earning years. If you’re younger, what career are you looking to have? You can look up what those wages tend to look like on a site like Glassdoor or ask someone in your life who is in that career path, and maybe do that tactfully because you’re asking about money. But figuring out what you want to be when you grow up may not be something you want to think about right now.
But to be honest, I studied English in college and no one told me about my job prospects. I figured that I would have to write a super famous book or be a teacher and you don’t have to have everything figured out now, but it doesn’t hurt to see how much a potential field could earn and figure out what careers are open to you. And just keep in mind that relationship between your earnings and investing like we talked about in the beginning. And if you’re later in your career, it is harder to take advantage of compound interest, but some of those investment accounts have those catch up contributions that we talked about so you’re able to contribute more after a certain age. Thank you all so much for listening to me talk very fast for a long time, and now I will hand it back over to Kim to talk about taxes. Thanks so much.
Kim Palmer:
Great, thank you so much, Alana. That was great. Someone actually asked in a pre-submitted question, “Why do I have to pay taxes?” Well, here is why. Taxes are used to pay for a lot of different things like clean water, roads, schools, healthcare, and the military. And your tax return is due every year in mid-April to the IRS. We’ll talk a little bit later about what to do if you need an extension, but in general that is the deadline. But first, let’s back up a little bit. When you file taxes, there is so much paperwork. One really important one is the W-4. That is the document that your employer asks you to fill out when you start a new job. And it plays a really big role in telling your employer how much in taxes to take out of each paycheck. It asks you things like your filing status, dependents, how much tax to withhold, and if you get a really big tax bill or a big refund, then you might want to go back and revisit your W-4 just to make sure you’re withholding enough but not too much.
There’s also the W-2, which is a document that your employer sends you to summarize how much in total they took out of your paycheck the previous year, and you’ll need to reference all those numbers when you file your tax return. If you are self-employed or you work a side hustle, then taxes won’t be automatically withheld from your paycheck, and that means you might have to pay something called estimated taxes, which is typically four times a year. In January, you’ll get something called a 1099 form that outlines how much money any company paid you, and then you’ll use that information when you file your return. And then finally, the 1040 is the main form you use when you file taxes, and we’ll drop a link in the chat for more about that. Okay, so you have all of your forms set. How do you actually file your taxes?
You can do it yourself through the IRS. You can use an online tax prep software or you can use a tax professional like an accountant or a tax preparer. If you do it on your own, you can either use paper forms or get access to brand name tax prep software through an IRS service called Free File. But it’s important to know that only people who make below a certain income qualify for the Free File program. If you use tax software like TurboTax, H&R Block or NerdWallet Taxes powered by Column Tax, many of these providers use a Q&A style to help you do your taxes and some even offer paid upgrades that connect you directly to a tax professional. If your finances are really complicated and you want some extra help, then you can also work with a tax preparer such as a certified public accountant.
You do want to make sure to ask them lots of questions and check their credentials before you agree to share your financial information. And you also want to check to see if they have a prepared tax identification number, which is an ID that’s required for anyone who files tax returns for compensation. The US does not have a flat tax system, and that means that portions of your income can be taxed at different rates. There are currently seven tax rates for federal income taxes that run from 10% to 37%. And which tax rate applies to you depends on your income and your filing status. So you might hear people say, “I’m in the 12% bracket” or “I’m in the 22% bracket”, but being in a tax bracket doesn’t mean you pay that tax rate on everything you make. And in reality, people’s income can fall into several different tax brackets depending on how much they make.
Portions or chunks of your income are taxed at different rates and some of those different taxes are then added together. So for example, some of your income could be taxed at a rate of 10%, another chunk could be at 12%. The more you make, the higher the tax rate might be on some of your income. And depending on the state where you pay your income taxes, you might pay a flat rate or a progressive rate similar to the federal structure. A small handful of states have no state income tax. If you want to pay less, you can look for tax breaks. Tax credits and tax deductions are two tools that can help you potentially minimize your tax bill, but they do work in different ways. Tax deductions reduce your taxable income. As a simplified example, a $25,000 tax deduction on $100,000 of taxable income means that only $75,000 of that income will get taxed.
Tax credits directly reduce your tax bill by the value of their credit. So this means if you owe $2,000 in taxes and you’re eligible for a $1,000 tax credit, you’ll end up owing $1,000. Tax credits tend to be more valuable because they have the potential to pack a bigger punch, so you definitely want to try to take all the tax credits you qualify for, and you could even get money back if a credit is refundable. Common tax credits include the earned income tax credit, the child tax credit, the lifetime learning credit, and the American opportunity credit and savers credit.
All right, I alluded to this at the beginning, but what happens if you’re not going to be ready by mid-April? What do you do? If you know you won’t be able to file on time before tax day, you can file for a free extension with the IRS and that gives you until mid-October to file your return. But you want to make sure that at least 90% of what you think you’ll owe in April is covered by an estimated tax payment or your withholdings. Otherwise, the IRS can hit you with a penalty for late payment. The failure to pay penalty is really no joke. It’s 0.5% of your unpaid taxes each month your payment is late plus interest. If you file late and you did not file an extension, you could also get hit with a failure to file penalty, which is 5% of your unpaid taxes each month that your payment is late. There is some good-ish news, if you file late but you don’t owe anything, you won’t get penalized but that doesn’t mean you’re not still obligated to file.
If you don’t, the IRS could file a return on your behalf and you might miss out on a refund if you’re owed one. And if your tax bill is so high that you can’t pay it off, you do have options. You can set up a long-term or short-term payment plan with the IRS.
I know that was a whole lot of information and taxes can seem scary, but we break down lots of popular tax questions and terms on nerdwallet.com. We have some time to address some pre-submitted questions from the audience ranging from about Roth IRAs to the pros and cons of having a financial advisor. And I do want to give a reminder here as we answer these questions that we are not tax or investing advisors. We are writers who focus on these fields and what we say is not investing or tax advice. So with that said, let’s dive into these questions. A question that came to us in an email was: how do you choose between paying off credit card debt and investing in saving for emergencies?
I really love this question because I think it speaks to some of the biggest challenges of personal finance, navigating these choices. And the answer is it’s really up to you. Many financial advisors say that the first step is to create a starter emergency fund, and you can read more in our article that we’ll link to, Should I Pay Off Debt Or Save? And you’ll see most people think about saving $500 to $1,000 first and then after that to consider contributing enough to a workplace retirement plan if they have access to one, and then contributing 3% to 5% of income to an IRA or a Roth IRA. And then financial advisors say people can consider focusing on paying off high interest debt and amp up investing efforts once they have paid that off. And now Alana, I’ll turn over to you. Perhaps you can answer the questions about Roth IRAs.
Alana Benson:
Absolutely. So a couple folks were wondering, before we went over everything, what a Roth IRA is and how does it work and when is it worth it to open one? So we already covered this a little bit, but again, it’s an individual retirement account and it lets you contribute money that you’ve already paid taxes on. So think about when you get your paycheck. That money has already had taxes taken out of it. So once you hit age 59 and a half and you have held the Roth IRA for at least five years, you can withdraw your contributions and any earnings, which is a fancy word for money that you earn from investing, without paying taxes again. And whether it’s worth it is up to you, especially if you’re trying to decide between a Roth IRA and a traditional IRA because it’s about when you pay those taxes and if you have a traditional IRA, you do get that tax break right now.
So that’s a personal decision. But you can also take out money tax-free from your Roth IRA later in life. So if that’s something that you are really trying to parse out, it might be good to talk to a financial advisor because they can help you with that question. We had two other questions. The first one is: how do you calculate how much money to put in your Roth IRA if you make over the maximum amount? So we didn’t actually cover this, so Roth IRAs do have income limits, but there is something called a Backdoor Roth that lets you contribute money first to a traditional IRA, pay taxes on it and then roll that money into a Roth IRA. And then our last question is: what are the pros and cons of having a financial advisor and how do you find one?
This is such a good question. The pros and cons really depend on your situation. The catchall term ‘financial advisor’ is used to describe a wide variety of people and services, including investment managers, financial consultants, financial planners. First and foremost, you always want to verify a financial professional because financial advisor doesn’t require people to be vetted. Certain things like a certified financial planner or a CFP, those actually have a very high level of education and have a certification that you can verify online. So anyone that you are talking about money with, you want to make sure that you are vetting them. And some of these people can just talk to you about your finances and some of them can actually manage your investments for you if you want that. Financial advisors, depending on the kind that you choose, can be pretty expensive. A robo-advisor is like an AI version of a financial advisor.
You just set up an account for one and then they charge you a pretty modest fee. And based on your age and your risk tolerance, it will manage your investments for you. An online financial advisor can offer more services and you can actually talk to a human being, but those do tend to cost a little bit more. And then you could go to an in-person financial advisor, depending on their credentials, that might cost even more, but sometimes it’s really nice to talk to somebody that you know and you can grow that relationship with them over time.
Kim Palmer:
Great. Thank you, Alana. And I think, actually, I can squeeze in one more question that we received. How do taxes work with investment accounts? How much do we set aside so we aren’t surprised by a tax bill? Which is a great question. If you’re selling stocks from a brokerage investment account, then you should be aware of three words, capital gains taxes. Those are the taxes you’ll pay when you sell assets for profit. Assets that you have owned for more than a year are subject to long-term capital gains tax, and the capital gains tax rate is 0%, 15% or 20% on most assets. Capital gains taxes on assets held for a year or less are subject to short-term capital gains. If you regularly trade stocks or other investments, you might be subject to short-term capital gains.
Those profits are taxed as ordinary income based on your tax brackets, which we went over before. Your final tax bill depends on a number of different factors. If you don’t want to be surprised, estimate what you’ll owe using tools such as a tax calculator or IRS worksheets. If needed, consider setting aside enough to cover the tax bill or paying estimated taxes and as always, your specific situation will differ and we are not tax professionals. We hope that you enjoyed this webinar and learned something today. If you’d like to get even more clarity on your finances and continue learning with NerdWallet, consider signing up for an account with us at nerdwallet.com. Thank you so much for joining us.
Sean Pyles: And that’s all we have for this episode. To send the Nerds your money questions, call or text us on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected]. Here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. This webinar episode was produced by Alikay Wood, Sheri Gordon, and me. We had editing help from Liz Weston, Sara Brink mixed our audio, and a big thank you to NerdWallet’s editors for all their help. And with that said, until next time, turn the Nerds.
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Master self-employment taxes and avoid common tax mistakes with expert strategies for managing your finances year-round.
How do self-employed taxes work? What are some common tax mistakes self-employed people make? And can you really write off payments on a luxury vehicle if you use it for work purposes? Hosts Sean Pyles and Elizabeth Ayoola discuss the intricacies of self-employment taxes and strategies for financial success and IRS compliance to help you understand how to navigate tax season as an independent worker.
CPA and financial strategist Krystal Todd joins them to delve further into the details of self-employment taxes, with tips and tricks on budgeting for personal and professional life, the importance of making quarterly tax payments, and whether to DIY taxes or hire a professional. They also discuss strategies like depreciating assets, the benefits of hiring family members, and navigating the complexities of tax deductions.
Plus: financial strategies for handling unexpected income and managing self-employment taxes, the importance of setting aside funds for unexpected expenses, and the advantages of timing revenue recognition and prepaying expenses for tax benefits.
Check out this episode on your favorite podcast platform, including:
NerdWallet stories related to this episode:
Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
As Ben Franklin himself said, in this world, nothing is certain except death and taxes. Taxes, as we all know, can be wildly confusing, and that goes double when an employer isn’t there to help.
Krystal Todd:
We need quarterly payments just of you estimating how much you think you’ll be paying in taxes, and then at the end of the year when you actually file your taxes, they’ll make adjustments based on whatever credits and deductions you’re eligible for, what you’ve already paid, and then you’ll see what you net.
Sean Pyles:
Welcome to NerdWallet’s Smart Money Podcast. I’m Sean Pyles.
Elizabeth Ayoola:
And I’m Elizabeth Ayoola.
Sean Pyles:
Today we bring you episode two of our nerdy deep dive into self-employment. In our last episode, we talked about the importance of budgeting when you’re working for yourself. Obviously here at Smart Money we think it’s a good idea for everyone to budget, but especially if you’re self-employed, you’re going to need to budget for both your personal life and your professional life.
So in this episode, we’re going to answer the most important tax questions self-employed people have, like how do self-employed taxes even work? Is it better to DIY your taxes or hire a pro? And can you really write off payments on a luxury vehicle if you use it for work purposes? Welcome to tax season.
Elizabeth Ayoola:
Womp womp. My favorite part of tax season is when it’s over. Thankfully, I’m getting better at taxes every year and I’m also learning to outsource. Shout out to my tax person. Anyways, yes, it’s February and it’s tax time for all of us. And if you’re a gig worker, freelancer, contractor, or other solo entrepreneur, you need to make sure that you’re doing all the heavy lifting an employer would usually do for you. And you have to do that to avoid mistakes and IRS penalties. Hopefully those who aren’t new to self-employment have withheld enough quarterly taxes throughout the year so they’re not hit with an IRS penalty. New listeners who are about to dip their toes into self-employment are about to learn about how self-employed taxes work.
Sean Pyles:
Yeah, that is no bueno. I know people who, when they started freelancing, had no idea that they were supposed to be paying taxes all year long quarterly instead of saving up for a big payment at the end of the year. The IRS does not look kindly on that, even if it ends up that you overpaid. And by people here, I am absolutely referring to myself because I once found myself in a world of tax hurt back when I was a contractor, and that is a lesson I shall not soon forget.
Elizabeth Ayoola:
It’s good to know I’m not alone, Sean, because I’ve been there too and it wasn’t fine.
Sean Pyles:
Elizabeth Ayoola:
It hurts. It’s a heartbreak.
Sean Pyles:
All right, well, we want to hear what you think too, listeners. To share your ideas and questions around self-employment with us, leave us a voicemail or text the Nerd Hotline at 901-730-6373. That’s 901-730-NERD. Or email a voice memo to [email protected].
So Elizabeth, who are we hearing from today?
Elizabeth Ayoola:
Today we’re going to be chatting with Krystal Todd. She happens to be a certified public accountant, a financial strategist, a money mentor and an entrepreneur. Her resume puts her in a good position to give us the juicy details we need on self-employed taxes.
Sean Pyles:
That’s coming up in a moment. Stay with us.
Elizabeth Ayoola:
Hi Krystal. Thank you for coming onto the podcast.
Krystal Todd:
Yes, thank you so much for having me. Really excited to talk taxes. This is my bread and butter. I love talking about anything money, really.
Elizabeth Ayoola:
No, I’m with you. I’m not going to lie, I do not love taxes, but I do love to understand taxes because I don’t want to pay the IRS more than I have to pay them.
Krystal Todd:
Oh, no. That’s why I’m here.
Elizabeth Ayoola:
Another tax year is upon us, and I think this information is going to be super helpful. So with that said, I’m going to jump straight into the first question I have for you, which is how do self-employed taxes work? And I know this is a big question, but I know I learned the hard way about self-employed taxes and I learned that they’re higher than what you pay when you’re working a traditional job with an employer.
So I want you to tell us why self-employed taxes are higher, especially when the government seems to provide so many incentives for small business owners.
Krystal Todd:
So it’s a double whammy because not only is it higher because we’re paying both sides of the employer tax, but we also have to pay it ourselves. So if you’re coming from a W-2 world into self-employment world, normally in W-2 world, it’s all handled for you. The biggest difference is that you’re having to have full control over paying your taxes, paying quarterly, whereas a W-2, you’re paying every paycheck. It doesn’t feel like that, but that’s what’s going on. And then the self-employment tax. So typically with your W-2 employee, you’ll pay half that piece and then your employer pays half of it, but because you’re self-employed, you are the employee and the employer, so you’re paying 15% in taxes.
Elizabeth Ayoola:
That 15%, I remember the first time I saw it and whipped out my calculator and I was like, “Wait, what? This was a chunk of money.” So I was a little unpleasantly shocked by that number.
Krystal Todd:
Yeah, there is a way to get around it.
Elizabeth Ayoola:
Tell me, tell me.
Krystal Todd:
If you’re just starting out, maybe it wouldn’t be most beneficial. It does depend, and of course you have to always throw a disclaimer out there. Everyone’s situation is different. I’m a CPA, but not your personal CPA, so take everything I’m saying as little seeds of wisdom to go research.
When you’re first starting out, maybe you don’t have your EIN, which is just basically your social security for your business, employee identification number. So it’s like your social security number but for your business, because businesses are their own entity. But when you’re first starting out, maybe you’re not doing all of that. So if you’re in the sole proprietor category, which means you’re just working for yourself, you hired yourself, maybe the next level up is LLC, limited liability company. So you’ve gone ahead and filed for that LLC so you have some protection, but you’re still going to be paying a lot of taxes.
It’s not until you get into the S Corp. And of course there’s a couple of qualifications there, but once you get into S Corp, you can actually pay yourself as a W-2 employee in your business. And then that’s how you circumvent that self-employed tax because even though it’s your business, you’re an employee of the business so it looks like a W-2. And the benefit of that too is especially if you’re self-employed, and I know some people have felt me on this, if you’re trying to get a loan for a car, once they see you’re self-employed, guns are blazing, right? They’re ready to ask you all types of questions. You have to provide so much information. As an S Corp, if you’re paying yourself, you’re going to receive a W-2 from your business so they don’t have to know it’s your business. They just see W-2 and no questions asked. There are some benefits to having an S Corp for sure.
Elizabeth Ayoola:
By the way, for everyone listening, we’re going to go a lot deeper into the different business structures in a subsequent episode, so don’t worry. We’re going to touch on that some more.
So now back to taxes. I know estimated taxes are something that I now do. Didn’t do before, but I remember when I was first researching self-employment taxes, that came up a lot. But I thought, “Hey, I can just pay it in one lump sum,” and I didn’t really dig deeper to read all of the fine details. Can you explain to us what estimated taxes are and how exactly it worked?
Krystal Todd:
Of course. So as I mentioned previously, as a W-2 employee, you’re paying taxes every single pay period. So you don’t necessarily have to worry about that, but as a self-employed individual, you’re not paying any taxes. So what the government has said is, “You’re not off the hook.” You’re not going to pay just one time at the end of the year. We need quarterly payments just of you estimating how much you think you’ll be paying in taxes, and then at the end of the year when you actually file your taxes, they’ll make adjustments based on whatever credits and deductions you’re eligible for, what you’ve already paid, and then you’ll see what you net.
So it’s crucial to pay quarterly taxes, and you can use things out there that help you track your expenses and your income and can even help you calculate that too, so you don’t have to necessarily do it all on your own.
Elizabeth Ayoola:
Absolutely. So tell us, when are the self-employed taxes due and what happens if you don’t pay them?
Krystal Todd:
Yes, they’re quarterly. If you don’t pay them quarterly or they realize that you haven’t paid enough, you will get fined. You don’t have to end up in jail if it was a legitimate accident, so you’ll be fine, but you will get penalized and it can be a little costly. So definitely make sure that you are just getting that done ahead of time. It’s a fresh new year, so new opportunities to make sure we’re staying on target.
Elizabeth Ayoola:
Yes. And for those who maybe are listening and unfortunately missed out on paying quarterly taxes and maybe in April are going to end up being hit with a bill, are there any options in terms of how they can pay it if they don’t have that lump sum cash?
Krystal Todd:
It depends on your situation. Sometimes the IRS will say, “No, you need to make this payment,” and sometimes they’ll work with you depending on the amount. So it does depend on your circumstances.
Elizabeth Ayoola:
What was this I heard about that you can sometimes do a payment plan with the IRS. So is this true?
Krystal Todd:
Yeah, no, it’s true. It’s true. I think it just depends on, like I said, your circumstances. Maybe there’s situations where if you had issues before, they’re a little bit more strict on you, but you can make payments.
Elizabeth Ayoola:
So now we want to get into the mistakes so other people can learn from those mistakes. So what are some common mistakes that you see clients make when it comes to paying their self-employed taxes? So for me, for example, I just wasn’t good at bookkeeping initially. I had my money in too many different accounts, so it was overwhelming when tax season came around to see what my deductions were and just basically my income. So as a CPA, tell us maybe two or three common mistakes you see people make.
Krystal Todd:
The common mistake by far is not making sure that they’re taking all the deductions and credits that they’re actually eligible for. So ultimately, a lot of people will think about taxes as a January through April situation, but it’s a year-round thing. Tax planning is almost more important than actually tax preparation. You want to think about the whole year and ways you can save money, different things you could probably invest in to bring your taxes down. So missing out on tax planning and then trying to just rush everything towards the end of the year is by far the biggest mistake. I’ll see people scrambling for receipts, looking back, and a lot of times if you’re just starting out, typically maybe they won’t have a separate business account as well.
Depreciation is the biggest one that I think people miss out on, not only for things like Airbnb in your home, but also your car. If you’re doing Uber or Lyft, you can get credit for the wear and tear on your car. If you have a computer or any devices that you have, those things are also depreciable or you can actually fully deduct them in certain cases. I definitely think that you should be empowered and doing it yourself, but if your taxes are getting complicated, you’d want to make sure that you’re leaning on a tax professional who will catch those expenses because a lot of people are paying too much.
Elizabeth Ayoola:
Thanks for sharing all of those incredible ways that people can reduce their taxes. Can you tell me about some other deductions or ways that people can reduce their self-employed taxes?
Krystal Todd:
Yeah, so a really neat one is making sure you hire your family in any capacity that you can. Now, of course, there’s some caveats here. You have to make sure you’re paying them a reasonable wage. So if they’re just an administrator, you can’t pay them multiple six figures. It has to be reasonable, but to the extent that it’s reasonable, you can actually hire them on. And I especially love this with kids.
So as an example of my own life, I hire my daughter and she’ll help me with my videos, she’ll help me with setup. She helps me with product development, and she’s been featured in a few of my videos online. So I will pay her. She’s a 1099 worker, so it’s not a W-2, so it’s simple. I just have to give her a check, and what I love about that is that I get to reduce my taxes, and this is more like W-2, but either way, we all get a standard deduction.
If I pay my child up to the standard deduction amount, which was just a little over $13,000 for 2023. If I pay her $13,000, I get to reduce my taxable income by that same $13,000. She pays no taxes on it because of the standard deduction, which basically is the IRS giving you some credits for having a kid or just whatever else is happening in life. They say, “Here’s just one flat rate. You just take that.” So she doesn’t pay taxes on that, and then I can put it into a custodial IRA for her and it’ll grow tax-free because it’s Roth. You’re saving money, they’re not paying any taxes, I mean, that’s a really good tax loophole there.
Elizabeth Ayoola:
For sure, for sure. And speaking of which, since we’re on the topic of deductions, I know sometimes people go a little over the top with these deductions, forgetting that the IRS does audit people. I know recently I’ve seen something floating around on social media about being able to buy a Mercedes Benz, also known as G-Wagon, and write it off using your taxes. And the rules for this are really complicated, so make sure to work with the CPA if you’re thinking about doing it. So is this true? And if it is, what is the catch?
Krystal Todd:
There are some caveats. It must be used in business. You can’t just buy a G-Wagon, you never drive in it. If you’re a realtor, for example, that might make sense. You have an image. If you’re a realtor, you’re selling million-dollar homes, you want to look the part. That might make sense. But if you’re a content creator working at home, you never go in the car to do anything, you cannot do that. In the eyes of the IRS that is illegal, so you have to make sure that it’s being used for business use. It doesn’t have to be exclusively, but if it is half business, half personal, you’ll have to adjust your taxes to account for that.
Elizabeth Ayoola:
So sorry to get into the nitty-gritty, but when you say business use, someone might say, “Oh, I have a meeting, I don’t know, once a month, and I’m driving it to my meeting.” A content creator. Does the IRS get into the details of how frequently you’re using the car?
Krystal Todd:
Yes, and the location. So if you’re driving from your home to a meeting, that doesn’t count. It’s only if you’re going from, let’s say, your primary job to your second job. Then that could actually be considered a deductible expense. So yeah, they’re very particular about what you’re using it for, where you’re driving from, and if you get audited, you better be prepared.
Elizabeth Ayoola:
So can you tell us, on that note, some major red flags or even myths that you hear of when it comes to tax deductions?
Krystal Todd:
Yes. I think that people think they could just deduct anything because it’s eligible. The government makes you go through hoops, especially after the Tax Cuts and Jobs Act where the standard deduction was doubled. They’re really trying hard to make you just take the standard deduction and just take that and go.
If you’re saying, “No, I’ve had more than $13,000 worth of expenses,” you might have. That doesn’t mean they’re all going to be eligible. So for example, for health costs that you’ve spent, maybe you spent $10,000 in health expenses for this year, but the government does not give you dollar for dollar, and if you take that, it has to be itemized. So you might do all this work trying to itemize your deductions and you were better off taking the standard deduction because they make you go through a lot of different hoops. There’s percentages, there’s phase-outs if you’re making a certain amount of money. So it’s super, super nuanced, and just circling back to what we talked about earlier as far as DIY goes, if you’re in that situation, unless you’re going to really put the effort into research, you probably are better off just getting someone who already has done this before and they’re comfortable with it because of all those different nuanced requirements that they have.
Elizabeth Ayoola:
So in the spirit of… Well, I don’t want to say in the spirit of getting audited because I don’t think anyone wants to get audited, but just in case, give us some bookkeeping tips. I’m still refining my bookkeeping because it’s just not my strong area, but what are some bookkeeping tips so that if the IRS comes knocking, people are ready?
Krystal Todd:
I strongly suggest getting software. If you have a software, you’re able to attach receipts directly to it. They’ll organize it for you. If you’re not someone who’s too familiar with income statements and cash flows and all of that, they prepare those documents for you. That by far has dramatically changed my business. And also having separate accounts. You can’t even imagine how many people will dig through their personal account looking for business expenses. Even if you’re just starting out, from the decision you’ve made to take this business seriously, please get your EIN so you can open up your business bank account, and that way everything is just flowing through one account. Lean on these different tools that will organize it for you and just be sure to keep receipts.
I would say you should be at least monthly. All these billion-dollar corporations, I mean, they’re doing things very frequently, but every single month we are balancing the books, we are going over our expenses and then we’re tax planning. So many people wait until the end of the year and then it just becomes a hassle. So to the extent that you can, get it done monthly. That is the best advice I have so you’re not stressing yourself out during these times.
Elizabeth Ayoola:
We’re in a very tech-savvy age, so how are digital receipts? So every time maybe you make a purchase or whatever, just keeping a digital file of your stuff.
Krystal Todd:
Yes, absolutely. And let’s say maybe you’re not ready for the software. That’s what I was doing when I first started out and I wasn’t too sure. Just a simple folder in your computer would work. Document everything in the moment as it happens, that way nothing is slipping through the cracks and you should be in good shape.
Elizabeth Ayoola:
So the last question I have, because in this series we’re trying to cover people who also have how they can manage your finances when they have inconsistent income. So for someone who has inconsistent income throughout the year, maybe they don’t make as much during the beginning of the year, but let’s say halfway through the year they land a huge contract.
How do they budget then for self-employed taxes or estimated taxes, rather? Because I know that’s based on how much you think you’re going to make, but you don’t always know. So maybe you’ve been underpaying for the first half of the year and then the end of the year comes. How do you manage that?
Krystal Todd:
I always say be as conservative as possible. It’s kind of like a dual opinion I have here because on one end, you don’t want to give the government an interest-free loan. That’s essentially what you’re doing when you get a tax refund. But on the other end, you also don’t want to deal with owing money, maybe being penalized and then having to pay that next year. So to the extent that you can, I would say be as conservative as possible when it comes to paying your taxes. Again, there’s different software that’ll help you establish what you should be paying. When you get that windfall, you weren’t really expecting it, right? So I like to live off of my most conservative amount of money.
So let’s say maybe it’s $10,000 a month. If I made $20,000 a month, I will ignore that $10,000 and put it to the side just because you’ll have that extra cushion to keep you protected in the event that you have a windfall you don’t expect. That happened to me last year, actually. I had quite the windfall and I wasn’t expecting it, but I had practiced what I preach and I had some money to the side, so it was okay. So whenever you get those large sums of money, pretend like you didn’t. Just live conservatively and then once a year is done, once you calculate your taxes and you pay it, then you can enjoy the rest. So it’s delayed gratification.
Elizabeth Ayoola:
Oh, I like that as a way of looking at it. And one day when I was complaining about my taxes, I remember someone saying, “The brighter side of that is that you made more money.” So we welcome a windfall, we just have to prepare for those windfalls.
Krystal Todd:
This is a little bit more technical, but something that I love because this again happened to me last year. Let’s say seasonality is something that your company is affected by. Maybe you get a big windfall of purchases or something at the end of the year. In certain circumstances, it might be best to ask them to pay you next year, right?
If you are a cash-basis type of accounting, you won’t get taxed unless you actually receive the money. So maybe you did make that revenue, but if you can have it pushed off to the next year because you didn’t expect that windfall and you don’t want to necessarily deal with the influx of the money you have to pay for those taxes, maybe you can have your customers pay you January 1st or January 2nd. That way you’re not going to be affected by that surprise, and that’s 100% legal. You can delay that or you can bring forward some expenses too.
This only works if, again, you are a cash basis, but if you want to pay something off for the whole year, you’ll be able to deduct that even if the whole year hasn’t actually happened yet. So there’s different ways towards the end of the year to try to get some last minute things in just to further insulate yourself.
Elizabeth Ayoola:
Love that. Those are some really, really good tips and a reminder of why it’s good to talk to CPAs. Do you have any final words of wisdom or anything that people might not be thinking about relating to self-employed taxes that you want to share?
Krystal Todd:
Yes. You are the driver. A lot of times people will shy away from it because it is intimidating, but in the age of information that we’re in right now, there is an influx of free information online. This is an example of one of them. Don’t be paralyzed by fear. Really lean into it because the difference between small business, and I really don’t use that word lightly because no matter if you’re small or big, you have to do the same exact stuff. So why even identify with your revenue or the size of your company? But a business is a business, and these larger companies become larger because they are hands-on and they’re very proactive with how they’re managing their money.
So I suggest that you do so too and do not be afraid of delegation. I, in other areas of life, have not delegated, and that is what comes back to haunt you. So you don’t have to do it all on your own. There are free resources, there are paid resources. Definitely make sure you’re just taking advantage of what you can take advantage of and you’re planning so that you can not be surprised with tax bills at the end of the year.
Elizabeth Ayoola:
Yes, absolutely. Echoing what Krystal said, you do not have to do it alone, and that is something that has made taxes a lot less daunting for me. Thank you, thank you, thank you, Krystal. This was so informative. I have learned so many new things that I’m going to apply when it comes time to do my self-employed taxes, so thank you. Thank you for coming.
Krystal Todd:
You’re so welcome. Thank you for having me, and good luck everybody in this tax season.
Sean Pyles:
Elizabeth, I never thought I’d say this, but that was actually a super interesting conversation about taxes. I am someone who was a planner in all aspects of my life, and like Krystal said, planning ahead with your taxes is so key whether you’re finding deductions, hiring your family, or making quarterly tax payments, but also there is a big difference between planning and scheming. I’m so glad that you guys talked about that viral G-Wagon tax hack because I have seen that so many times on TikTok. I have been really worried about people getting themselves into a world of trouble with their taxes.
Elizabeth Ayoola:
I’m telling you, on the journey of self-employment, I have realized that there are some things that are not too good to be true, but other things are too good to be true, and I think that’s one of them.
So while taxes can be a snooze fest, I think learning about ways to save and avoid penalties will always grab my attention. I love all the tax saving strategies that Krystal shared, and also the deduction red flags to look out for. I mean, for me, this episode was also a reminder about how important it is to talk to a tax professional who has extensive knowledge, and that’s even if you’re a DIY type person.
I feel more confident about filing my self-employed taxes now because of all the information we just got. But Sean, before we go, I do want to mention one development that we didn’t address with Krystal.
Sean Pyles:
What is that?
Elizabeth Ayoola:
Well, starting this year, there’s a new law called the Corporate Transparency Act. And what that says is that anyone with an official business designation, especially a one or two-person LLC, is going to want to be aware of.
This is an effort to stem money laundering and tax evasion in the small business category, and basically you have to file some extra paperwork with the Treasury Department called a Beneficial Ownership Information Report. If you don’t do that, you could be fined $500 and possibly get up to two years jail time, and don’t nobody want two years jail time.
Sean Pyles:
Elizabeth Ayoola:
Nobody. So definitely talk to your tax accountant and or your business attorney about that.
Sean Pyles:
Yourself included, Elizabeth. I do not want you to go to jail, so please get this done.
Well, thanks for that information. Elizabeth, please tell us what’s coming up in episode three of this series.
Elizabeth Ayoola:
Sean, we are all about getting to retirement here on Smart Money, but saving for it can often be an extra challenge when you are self-employed. We’re going to walk listeners through their options and how to make sure you’re planning for the future, even while you’re going into business for yourself.
Ayesha Selden:
If I can get to 10%, a double-digit percentage of my pay, of my gross pay, my pre-tax pay, I’m in the right ballpark. If you are self-employed, then the onus is on you, of course, to put in everything into your own personal retirement plan.
Elizabeth Ayoola:
For now, that’s all we have for this episode. Do you have a money question of your own? If you do, turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected]. You can also visit nerdwallet.com/podcast for more information on this particular episode. And remember to follow, rate, and review us wherever you’re getting this podcast.
Sean Pyles:
This episode was produced by Tess Vigeland. I helped with editing, Courtney Neidel helped with fact checking, Sara Brink mixed our audio, and a big thank you to NerdWallet’s editors for all their help.
Elizabeth Ayoola:
And here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes, and it may not apply to your specific circumstances.
Sean Pyles:
And with that said, until next time, turn to the Nerds.
You may have a preconception about moving to Omaha. But once you’re in the city, it exceeds expectations and is a place you don’t want to leave.
Omahans enjoy outstanding attractions, such as the Henry Doorly Zoo and Aquarium, considered one of the top zoos in the world. With nearly 130 acres of indoor and outdoor exhibits, the zoo claims to have the world’s largest indoor desert dome and the top indoor rain forest in North America. The African Grasslands and Asian Highlands feature animals in natural settings.
The Durham Museum showcases Omaha’s history, such as its early days as a railroad center and the site of the 1898 World’s Fair, a.k.a. Trans-Mississippi Expedition. Outdoor attractions include Fontenelle Forest, with more than 15 miles of natural trails among the bluffs overlooking the Missouri River, as well as the downtown riverfront, which is home to the Bob Kerrey Pedestrian Bridge, one of the longest bridges connecting two states as Nebraska and Iowa meet in the middle of the river.
Omaha’s culinary scene rivals that of many bigger cities in the U.S. With several James Beard Foundation-nominated chefs, you’ll find restaurants featuring fresh handmade dishes from around the world. Farm-to-table dining is popular, with restaurants like The Grey Plume, Dante and Au Courant leading the way. It’s hard to taste better Italian dishes than you’ll find at Lo Sole Mio or Malara’s. South Omaha is ripe with authentic Mexican eateries.
While the city doesn’t have any major league sport, it’s an amateur sports mecca. From the College World Series in June to hosting multiple U.S. Olympics trials, including swimming and curling events, Omaha attracts hundreds of thousands of fans to the area. Omaha is also home to the Storm Chasers, the top minor league baseball team for the Kansas City Royals.
Keep on reading to see if moving to Omaha is a fit, and why you’ll love to live there and strive to keep it “America’s best-kept secret.”
Omaha overview
Omaha is home to four of Forbes Top 500 companies, led by Berkshire-Hathaway. With local billionaire Warren Buffett at the helm, Berkshire-Hathaway is among the top five companies by Forbes. Other top Forbes companies include Union Pacific (No. 141), Mutual of Omaha (337) and Kiewit Corp. (339).
While enjoying major economic success, Omaha maintains a Midwestern small-town feel, where it’s common for people to say hi as they see you on the street and hold the door for you when entering buildings.
While experiencing growth and development in neighborhoods across the city, the Omaha cost of living continues to remain strong, along with steady job growth.
Population: 478,192
Population density (People per square mile): 3,217.9
Median income: $59,266
Studio average rent: $864
One-bedroom average rent: $946
Two-bedroom average rent: $1,173
Cost of Living index: 93.4
Popular neighborhoods in Omaha
Moving to Omaha offers you a chance to explore the city’s history, culture and diversity. While west and southwest Omaha offers the feel of suburbia, Omaha’s most popular neighborhoods remain the oldest and most upscale.
From the riverfront to midtown, you’ll find a mix of older and contemporary apartments and condominiums to call home, while also enjoying easy access to culture, parks, vintage shops and a fun nightlife scene, featuring outstanding eateries and bars.
Old Market: Old Market is the heartbeat of Omaha. The nine-block area hosts one of the Midwest’s longest-running farmers markets each summer and fall. The entertainment district is family-friendly during the day, with restaurants, shops and galleries open, before becoming an adult-centric neighborhood at night, as couples dine out and then hit bars and clubs, creating a fun, party atmosphere.
Benson: One of Omaha’s oldest neighborhoods, Benson is an eclectic mix of art galleries, coffee shops, craft breweries and restaurants. Toss in vintage and unique clothing shops, and you’ve found the city’s “Hipster” area. During “First Fridays,” galleries and other businesses stay open later on the first Friday of each month, along with entertainment and even food trucks lining the streets.
Midtown: Popular with young professionals moving to Omaha, Midtown is a mix of contemporary apartments and condos with older homes. The Midtown Crossing entertainment district is home to some of the best restaurants in Omaha, as well as unique retail outlets. Midtown is the site of the Jazz on the Green festival each summer.
Dundee: Considered Omaha’s first suburb, Dundee is home to classic apartments, as well as modern outlets. With fantastic local eateries, such as Ahmad’s Persian Café, Saddle Creek Breakfast Club and J. Coco, calling the area home, it’s one of the city’s best dining areas. It’s also home to Warren Buffett, whose house in Happy Hollow borders the neighborhood.
Blackstone: Nestled between Midtown and Dundee, Blackstone is one of Omaha’s newest entertainment districts. Heavy on restaurants and bars, such as Noli’s Pizzeria and Butterfish, it also offers excellent spots to relax and enjoy a treat or coffee at Coneflower Creamery and Archetype Coffee.
The pros of moving to Omaha
Omaha offers people excellent attractions, restaurants, outdoor activities and a sports scene that makes other cities jealous. With plans to expand the riverfront, downtown Omaha will rank as one of the most beautiful and fun areas in the Midwest. Here are three reasons why you’ll enjoy moving to Omaha.
Excellent employment opportunities
With one of the lowest unemployment rates in the United States at less than 5 percent, Omaha is home to major leaders in healthcare, transportation, agriculture and insurance. Several people moving to Omaha are with companies, such as Union Pacific, Pacific Life and Aflac.
Tech companies are finding their way to Omaha, with the city earning the nickname “Silicon Prairie,” as Facebook and Google are among companies opening data centers in the area.
Enjoy the commute
Nicknamed the “15-minute City,” Omaha is easy to get around. The commute is actually about 20 minutes, as the city grows and expands its boundary westward. Regardless, the main thoroughfares, such as Dodge, Maple, Pacific and Center streets, run east-west, while the interstate system continues to add lanes to ease morning and afternoon commute issues.
The cost of living is a huge plus
With a cost of living index rating of 93.4, among the best in the United States, moving to Omaha benefits you financially. Everything tends to cost less here than in other cities of similar size, such as groceries, utilities, rent and gasoline. You can enjoy an evening out on the town without worrying about mortgaging the farm.
The cons of moving to Omaha
While Omaha enjoys economic success, the city faces challenges to keep its young professionals in the area, among other issues. Here are three areas of concern when considering moving to Omaha.
Lack of diversity
Whites make up about 66 percent of the population, while the African American community is the largest ethnic minority, accounting for about 12 percent of the city’s population. Hispanics make up about 11 percent, while Asian Americans and Native Americans account for about four percent.
While Omaha hasn’t experienced racial tensions like other cities, people have targeted minorities as a way of gaining political power, including focusing on undocumented workers or perceived high crime rates. Minority residents have protested unfair treatment by law enforcement and the court system.
Public transportation is a challenge
Omaha is a car city. Without a vehicle, you’ll be challenged to easily get around town. While Uber and Lyft are successful in Omaha, the city’s public transportation system is lacking for many residents.
With bus routes that run east-west, focusing on stops toward downtown, the Metro Transit system doesn’t run 24/7, which impacts people who prefer using public transportation. The new ORBT route runs from the Westroads Mall to downtown, but again, it’s not designed for 24/7 service.
Winter can be severe
Winters in Omaha are hit-or-miss — it may snow a lot or just a few inches. However, when it gets cold and snowy, traffic comes to a standstill. Literally. You’ll find parking lots on some of the main routes, because, as people joke, “two inches of snow shuts down the city.” Snow removal is an annual challenge, as well as the potholes that come with the winter season.
How to get started on your move to Omaha
Omaha’s attractions, culinary scene, sports community and commute are winning factors to consider when it comes to moving to Omaha. Regardless of the neighborhood you choose to call home, you’ll only be minutes from most major attractions, parks and restaurants.
To assist with your move as you pack up to head to the Big O, visit our Moving Center to get free quotes and more information about planning your move. Also check out available apartments for rent and homes for sale – you can’t move if you don’t have a place to live, after all.
Rent prices are based on a rolling weighted average from Apartment Guide and Rent.’s multifamily rental property inventory of one-bedroom apartments. Data was pulled in December 2020 and goes back for one year. We use a weighted average formula that more accurately represents price availability for each individual unit type and reduces the influence of seasonality on rent prices in specific markets.
Population and income numbers are from the U.S. Census Bureau.
Cost of living data comes from the Council for Community and Economic Research.
The rent information included in this article is used for illustrative purposes only. The data contained herein do not constitute financial advice or a pricing guarantee for any apartment.
Tim is an Omaha-based freelance writer, online content creator and author who loves exploring the Midwest and beyond. In addition to writing The Walking Tourists travel blog, he has co-authored three books with his wife, Lisa: 100 Things to Do in Omaha Before You Die, Unique Eats and Eateries of Omaha, and 100 Things to Do in Nebraska Before You Die. Tim is a dad to two daughters and three cat sons. He is an avid sports fan, primarily enjoying football and hockey.
The Adirondack Mountains are a gorgeous outdoor wonderland, attracting tourists from all over the world. The park covers 20% of New York state (3x larger than Yellowstone!). Perhaps the “ADK’s” most extraordinary natural resources are the 46 “High Peaks” in the park’s northeast corner.
Friend-of-the-blog/pod Tyler led me on one of my first High Peak adventures (hey Tyler, thanks for reading!). We conquered the Dix Range, summiting four peaks in one day, trudging ~15 miles through the mountainous woods over 11 hours
Hiking is Hard Work
It was a draining day. I drank more water than expected and chafed in…uncomfortable…ways. I ate dinner for two that night and slept like a baby and learned many applicable lessons for my next hike.
For example, during our rest breaks at the summits, I observed the other hikers around us. What were they doing that I wasn’t? Some were fit and lean, others a bit overweight. Some had expensive gear, others had gym shorts and sneakers. The pros drank from Nalgene bottles and ate rehydrated meals. The amateurs had Poland Spring bottles and Nutrigrain bars.
All shapes and sizes. There was a broad spectrum between the expertly prepared and the woefully inexperienced. Yet all of these hikers had reached the top. And hopefully they all got back to the bottom, too.
Are You Prepared?
More preparedness requires more research, more time, and more money. But it provides a higher probability of summiting the mountain(s), a more straightforward path, and the mental confidence of knowing you’re prepared.
Less preparedness is easier upfront. But is it easy in the long run? Likely not. “A stitch, in time, saves nine,” as Ben Franklin said. This idea rhymes with the concept of, “Hard choices, easy life. Easy choices, hard life.”
Where do you want to fall on the spectrum of preparedness? That’s totally your call. There is no correct answer in general, but only a correct answer for you.
You’ll hopefully reach “the summit” either way. But your preparedness provides flexibility in how easy or hard that journey will be.
Retirement Works the Same Way
In my experience running The Best Interest and working professionally in financial planning, retirement preparedness works the same way. I received a perfect example last week via email from a blog reader, Jon…
Hi Jesse, my wife and I are 56 and 58 years old, respectively, and on the verge of retirement, I hope. We have about $2M in Traditional accounts, $510K in Roth accounts, and $430K in taxable accounts. 95% of that money is invested in diversified stocks. We’ll both receive significant Social Security benefits (north of $3K/month each at age 67). We live within our means…last year our total outflow of money was just shy of $90,000. Do you think we’re ready to retire? Can we chat with you about retirement readiness?
Jon (and Eva)
Some quick math: Jon and Eva have $2.9M in assets to support an $90,000 annual lifestyle. They’re at less than a 3% annual withdrawal rate, and we haven’t even accounted for their Social Security income. They are more than set!
Do Jon and Eva need professional help? I don’t see how.
Could Jon and Eva benefitfrom professional help? I’m positive.
It’s like my adventure in the Dix Range. I conquered the mountains! I didn’t need to be more prepared. But I could have (and should have) done many things differently to make my day more manageable and eliminate the probability of failure.
Many of us don’t need intervention. But it would undoubtedly help.
Questions for Jon and Eva
I find it hard to imagine a scenario where Jon and Eva live a failed financial retirement, regardless of professional advice. They’re on course to “summit the mountain.” Still, many critical financial questions come to my mind:
They’re retiring before 59.5 (the age of normal IRA distributions). What’s their plan for funding those intervening years?
Fof 99%+ of people on the verge of retirement, a portfolio of 95% stocks is inappropriate. Red flag!
In general, how do they plan on balancing withdrawals from their Roth accounts (no tax), their Traditional accounts (fully taxable as Income), and the taxable accounts (with capital gains)? Done poorly, they’ll “leak” money to taxes.
Are they sure waiting until 67 is the optimal Social Security move for both of them? It usually isn’t.
What’s their healthcare plan before Medicare?
Do they have any significant financial goals beyond “live our normal lifestyle?” Are they prepared to fund those goals?
And many more.There are lots of puzzle pieces to retirement and many ways to arrange them.
I’m sure Jon and Eva have answers. However, my experience with similar families is that their answers are rarely optimized. While it’s terrific that they’re better off than most, there’s still room for optimization – and therefore, room for dollars saved and dollars earned.
If they were hikers, they’d be in peak physical shape (peak?!) with plenty of water. I can’t see them failing to get up the mountain. But did they bring a map and compass, just in case? Are they aware those cotton underpants are going to get very uncomfortable? Or that the trailhead parking lot is “by reservation only?”
They’ll reach the summit regardless. But their day will be more annoying than it needed to be. Who wants that?!
Is Preparedness Worth It?
Just as I wrote earlier, I’m asking Jon and Eva,
“Where do you want to fall on the spectrum of preparedness? That’s totally your call. There is no right answer in general, but only a right answer for you.”
Based only on Jon’s short email, I have plenty of questions for them. They could use a sanity check (or more) for retirement preparedness.
But preparedness costs money, time, energy, etc. Do they want to incur those costs to get more prepared? Will they see enough benefit from those costs, or are they beyond the point of diminishing returns?
Perhaps they’re ready to hit the trail as is. They’ll reach their retirement goals regardless. But they might have more annoying financial moments than needed. Who wants that?!
Thank you for reading! If you enjoyed this article, join 7500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
Want to learn more about The Best Interest’s back story? Read here.
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The Adirondack Mountains are a gorgeous outdoor wonderland, attracting tourists from all over the world. The park covers 20% of New York state (3x larger than Yellowstone!). Perhaps the “ADK’s” most extraordinary natural resources are the 46 “High Peaks” in the park’s northeast corner.
Friend-of-the-blog/pod Tyler led me on one of my first High Peak adventures (hey Tyler, thanks for reading!). We conquered the Dix Range, summiting four peaks in one day, trudging ~15 miles through the mountainous woods over 11 hours
Hiking is Hard Work
It was a draining day. I drank more water than expected and chafed in…uncomfortable…ways. I ate dinner for two that night and slept like a baby and learned many applicable lessons for my next hike.
For example, during our rest breaks at the summits, I observed the other hikers around us. What were they doing that I wasn’t? Some were fit and lean, others a bit overweight. Some had expensive gear, others had gym shorts and sneakers. The pros drank from Nalgene bottles and ate rehydrated meals. The amateurs had Poland Spring bottles and Nutrigrain bars.
All shapes and sizes. There was a broad spectrum between the expertly prepared and the woefully inexperienced. Yet all of these hikers had reached the top. And hopefully they all got back to the bottom, too.
Are You Prepared?
More preparedness requires more research, more time, and more money. But it provides a higher probability of summiting the mountain(s), a more straightforward path, and the mental confidence of knowing you’re prepared.
Less preparedness is easier upfront. But is it easy in the long run? Likely not. “A stitch, in time, saves nine,” as Ben Franklin said. This idea rhymes with the concept of, “Hard choices, easy life. Easy choices, hard life.”
Where do you want to fall on the spectrum of preparedness? That’s totally your call. There is no correct answer in general, but only a correct answer for you.
You’ll hopefully reach “the summit” either way. But your preparedness provides flexibility in how easy or hard that journey will be.
Retirement Works the Same Way
In my experience running The Best Interest and working professionally in financial planning, retirement preparedness works the same way. I received a perfect example last week via email from a blog reader, Jon…
Hi Jesse, my wife and I are 56 and 58 years old, respectively, and on the verge of retirement, I hope. We have about $2M in Traditional accounts, $510K in Roth accounts, and $430K in taxable accounts. 95% of that money is invested in diversified stocks. We’ll both receive significant Social Security benefits (north of $3K/month each at age 67). We live within our means…last year our total outflow of money was just shy of $90,000. Do you think we’re ready to retire? Can we chat with you about retirement readiness?
Jon (and Eva)
Some quick math: Jon and Eva have $2.9M in assets to support an $90,000 annual lifestyle. They’re at less than a 3% annual withdrawal rate, and we haven’t even accounted for their Social Security income. They are more than set!
Do Jon and Eva need professional help? I don’t see how.
Could Jon and Eva benefitfrom professional help? I’m positive.
It’s like my adventure in the Dix Range. I conquered the mountains! I didn’t need to be more prepared. But I could have (and should have) done many things differently to make my day more manageable and eliminate the probability of failure.
Many of us don’t need intervention. But it would undoubtedly help.
Questions for Jon and Eva
I find it hard to imagine a scenario where Jon and Eva live a failed financial retirement, regardless of professional advice. They’re on course to “summit the mountain.” Still, many critical financial questions come to my mind:
They’re retiring before 59.5 (the age of normal IRA distributions). What’s their plan for funding those intervening years?
Fof 99%+ of people on the verge of retirement, a portfolio of 95% stocks is inappropriate. Red flag!
In general, how do they plan on balancing withdrawals from their Roth accounts (no tax), their Traditional accounts (fully taxable as Income), and the taxable accounts (with capital gains)? Done poorly, they’ll “leak” money to taxes.
Are they sure waiting until 67 is the optimal Social Security move for both of them? It usually isn’t.
What’s their healthcare plan before Medicare?
Do they have any significant financial goals beyond “live our normal lifestyle?” Are they prepared to fund those goals?
And many more.There are lots of puzzle pieces to retirement and many ways to arrange them.
I’m sure Jon and Eva have answers. However, my experience with similar families is that their answers are rarely optimized. While it’s terrific that they’re better off than most, there’s still room for optimization – and therefore, room for dollars saved and dollars earned.
If they were hikers, they’d be in peak physical shape (peak?!) with plenty of water. I can’t see them failing to get up the mountain. But did they bring a map and compass, just in case? Are they aware those cotton underpants are going to get very uncomfortable? Or that the trailhead parking lot is “by reservation only?”
They’ll reach the summit regardless. But their day will be more annoying than it needed to be. Who wants that?!
Is Preparedness Worth It?
Just as I wrote earlier, I’m asking Jon and Eva,
“Where do you want to fall on the spectrum of preparedness? That’s totally your call. There is no right answer in general, but only a right answer for you.”
Based only on Jon’s short email, I have plenty of questions for them. They could use a sanity check (or more) for retirement preparedness.
But preparedness costs money, time, energy, etc. Do they want to incur those costs to get more prepared? Will they see enough benefit from those costs, or are they beyond the point of diminishing returns?
Perhaps they’re ready to hit the trail as is. They’ll reach their retirement goals regardless. But they might have more annoying financial moments than needed. Who wants that?!
Thank you for reading! If you enjoyed this article, join 7500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
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Molly Armando closed 25 real estate deals in the last 12 months, and she hasn’t even hit her two-year mark in the industry! On today’s podcast, Molly shares the steps it took to start a successful real estate business and her plans to scale it moving forward. Shelby and Molly also discuss the marketing side of real estate, including why agents may not want to focus on just one strategy. Other topics touched on include real estate referrals, time blocking, and communicating with clients.
Listen to today’s show and learn:
What Molly Armando did before real estate [2:03
The steps it takes to get a real estate business started [6:38]
Ways to win business as a new Realtor [11:44]
Getting the most out of a real estate CRM [16:17]
Why real estate agents must time block [18:48]
How to mitigate interruptions when working other tasks [24:35]
Why communication is key in real estate [26:53]
What to expect when creating real estate content [29:37]
The keys to starting out successfully in real estate [32:44]
Molly’s contract-to-close process [32:59]
Molly Armando’s plans and goals for the future [35:51]
The importance of asking for referrals with every transaction [36:50]
The Real Estate Rockstars Mastermind and Tom Ferry events [37:57]
Where to find and follow Molly Armando [39:16]
Molly Armando
Molly Armando was born and raised in Dartmouth, Massachusetts and has stayed in love with the state’s Southcoast area ever since. As “The Southcoast Realtor” with Residential Properties Ltd., Rhode Island’s largest and most successful independent real estate company, clients rely on her native knowledge and unwavering commitment. Her year-to-date sales numbers have reached $12,011,065 with $3,100,500 pending as of October 2023, earning her a place as the #6 individual agent at Residential Properties out of 245, putting her in the top 3% of the company. She began her professional life at various digital marketing software companies, building a top-to-bottom approach to client success. Her background in business and digital advertising makes her an expert in marketing trends and sales strategy at its most cutting-edge. These capabilities serve only one purpose – to get results for her buyers and sellers. She lives by a simple yet powerful motto: “My goal is to help you reach yours.”
She is a leader throughout the Southcoast and deeply committed to giving back to her community. Residing with her family in South Dartmouth, Molly is recognized as the visionary behind the town’s annual Padanaram Buoy Tree, drawing visitors from all over New England. The Buoy Tree is made up of over 600 decorated buoys with 50 of the best entries auctioned off for local charities. This unique event has received wide acclaim and publicity, highlighted in publications such as The Boston Globe. She is also the founder of both the Dartmouth Mom’s Group and the Padanaram Community Coalition. Her professional memberships include the National Association of Realtors® (NAR), the Massachusetts Association of Realtors® (MAR), and the Realtors® Association of Southeastern Massachusetts (RASEM).
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