A new federal report suggests that, yes, inflation is still rising, but at a slower pace. The personal consumption expenditures price index or PCE, which measures inflation, rose 0.1% in March, compared to 0.3% in February, according to a Bureau of Economic Analysis report released Friday.
The PCE tracks the prices that U.S. consumers are paying for goods and services.
The BEA report also found:
On an annual basis, the PCE price index rose 4.2% in March. In February, that figure was 5.1%.
In the last 12 months, overall food prices rose 8%, and energy prices fell 9.8%.
Annually, the prices of goods increased 1.6%, while prices for services swelled 5.5%.
In March, disposable personal income rose 0.4%, or $71.7 billion.
The Federal Reserve,which will announce the latest Fed rate on Wednesday, uses core PCE as its preferred measure of inflation. That’s because core PCE excludes food and fuel — both of which can experience volatile price swings. So core PCE illustrates whether average inflation is rising or falling but those variables don’t sway it. Core PCE increased 0.3% both in March and February, according to the report.
The BEA calculates the PCE index using data from businesses and producers provided by the U.S. Census Bureau. The bureau estimates what goods and services were sold in a given period through trade surveys, economic censuses and quarterly reports. The BEA also factors in the gross domestic product or GDP.
Photo by Michael M. Santiago / Getty Images News via Getty Images.
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Most of us have heard it before — newly released data on the net worth of CEOs well into the millions, or even billions.
Take Jeff Bezos for example, whose net worth is estimated to be roughly $144 billion as of October 2022. As you may suspect, that’s certainly not representative of most Americans’ wealth. In fact, the average net worth by age in the United States is $746,820, though many argue that median net worth by age — which is $121,760 — paints a more useful picture.
So what is net worth? Net worth is a calculation used to gauge your overall financial health, but it’s a benchmark that tends to uncover more questions than answers. What does net worth mean, what factors determine its value, and what is a “good” net worth by age, anyway?
Here, we’ll unpack the average net worth by age in America, learn how to calculate your net worth, and reveal how to increase net worth so that you can set — and achieve — your personal finance goals.
Key Findings
The average net worth by age in America is $746,820.
The median net worth by age in America is $121,760.
Net worth is calculated by subtracting the total value of your debts from the total value of your assets.
Average Net Worth by Age
Age
Average Net Worth (Mean)
Younger than 35
$76,340
35–44
$437,770
45–54
$833,790
55–64
$1,176,520
65–74
$1,215,920
75 or Older
$958,450
Source: Federal Reserve
The average net worth by age in America is $746,820, according to the Federal Reserve’s 2020 Survey of Consumer Finances, which includes data from 2016 to 2019.
It may come as no surprise to learn that older Americans tend to have a greater average net worth than younger Americans. After all, their financial assets have had years — if not decades — to appreciate in value. Average net worth by age peaks somewhere between 65 and 74 years. This is also roughly the age when most Americans retire. At age 75 and older, when sources of income tend to be fixed, average net worth begins to decrease.
Median Net Worth By Age
Age
Median Net Worth
Younger than 35
$14,000
35–44
$91,110
45–54
$168,800
55–64
$213,150
65–74
$266,070
75 or Older
$254,900
Source: Federal Reserve
The median net worth by age in America is $121,760, approximately a 17 percent increase from the previous survey conducted in 2016. The median — or middle number in a set of data — is the halfway point between the largest and smallest net worth.
Median values tend to be less affected by outlier data points — like the net worth of billionaires — than averages. For that reason, some argue that median net worth offers a clearer picture of and benchmark for wealth in America.
What Does Net Worth Mean?
What is net worth, and what does it mean? Your net worth is your total assets minus your liabilities. In simple terms, it’s the cost of everything you own after subtracting your debts.
It can be dangerous to measure your financial health solely by what you earn, especially since you might not save or use your income towards investments. Your net worth will keep you in check, allowing you to be cognizant of your worth and how much you should be saving until you reach retirement.
What Net Worth is Considered “Rich?”
You may wonder what net worth qualifies as “wealthy” in America — and how far off you are. According to a 2022 survey, Americans consider an average net worth of $2.2 million to be “wealthy.” However, perception of wealth may look very different at the state and city levels, as average household income and cost of living tend to fluctuate dramatically based on geographic location.
For example, people who live in Denver say that an average net worth of $2.2 million is enough to be considered wealthy, whereas people in San Francisco say that you’d need more than double that amount —- an average net worth of $5.1 million.
How to Calculate Net Worth
1. Add Up Your Assets
The first step to calculating your net worth is adding up the total value of your assets. This includes the current market value of your investment accounts, retirement savings, home(s), vehicle(s), items of significant value (art, jewelry, furniture, etc.), and the cash value of your checking, savings accounts, and insurance policies.
2. Add Up Your Debts
Next, you’ll want to add up the total value of any debts you owe. This includes your mortgage(s), car loan(s), student loans, personal loans, credit card debt, and any other form of debt.
3. Subtract Your Debts From Your Assets
Once you subtract your debts from your assets, the resulting value is considered your personal net worth. Your total could result in a positive net worth or a negative net worth.
Don’t panic if you find yourself in the negative net worth category. It’s normal for young professionals fresh out of high school or college to have low or negative net worth, especially if they’re still paying down student loans, recently purchased a home, or are just starting a plan to build their savings.
What is a “Good” Net Worth By Age?
Your age plays a significant role in calculating your net worth, especially as you get closer to retirement age. To help you understand how you stack up, we took a look at the average and median net worth of every age group to reveal what you should aim for at each milestone.
Average Net Worth by Age 35
Your 30s should be mostly devoted to laying your financial foundation so that you can achieve your desired net worth by retirement. At this age, it’s important to set a budget for you and your family, and stick to it.
The Benchmark
The average net worth for families in the U.S. under the age of 35 is $76,340, where the median net worth is $14,000; a helpful reminder that the average can be easily distorted by a small percentage of the wealthiest Americans. With the average student loan debt at about $35,000 per person, it’s no wonder why people might have a lower net worth in their 30s.
How to Increase Net Worth
Your 30s are a perfect time to set yourself up for a bright financial future — even if your net worth is still relatively low. If you haven’t started already, consider contributing to your retirement at this point, especially if your employer offers a company match to your 401(k) or 403(b).
A goal to aim for is to have the equivalent of half your annual salary saved in your retirement account by the time you’re 30, but don’t worry if you’re not there yet. At this time in your life, it’s most common to focus on making progress on paying back your debt, which can lead you towards financial security.
Average Net Worth by Age 45
The Benchmark
The average net worth for American families ages 35 to 44 is $437,770, and the median net worth is $91,110. This demonstrates a natural progression as Americans begin to spend time in their careers, making higher salaries than those they earned fresh out of high school or college. They’ve had ten years at that point to pay down some debt, and perhaps save for the purchase of a first home.
How to Increase Net Worth
By the time that you’re in your 40s, your goal is to have a net worth of two times your annual salary. For example, if your salary is $75,000 in your 30s, you should aim to have a net worth of $150,000 by the time you’re 40 years old.
It’s common for people in their 40s to increase their net worth by investing in real estate and continuing to grow their retirement savings. Owning a home is an asset that could greatly increase your net worth since it can appreciate over time.
Average Net Worth by Age 55
By your 50s, you should begin to see significant progress made toward your net worth based on real estate investments, contributions to your retirement plan, and other investments. By the time you’re 50, your goal should be a net worth of four times your annual salary. For example, if you’re currently making $90,000 per year, your net worth should be at $360,000.
The Benchmark
The average net worth for Americans between the ages of 45 and 54 is $833,790, while the median net worth is $168,800.
How to Increase Net Worth
At this point, consider becoming more aggressive when it comes to building your net worth. To do this, consider maxing out your 401(k), meaning that you contribute as much as is legally allowed. And, if you haven’t already, this may be a good time to contribute to an IRA, an account that allows you to save for retirement with tax-free growth or on a tax-deferred basis.
If you have children, you may also want to consider contributing to a 529 college savings plan, a tax-advantaged savings plan for education costs, but make sure to prioritize your retirement first.
Average Net Worth by Age 65
In your 60s, your goal is to have a net worth of roughly six times your salary. For example, if your salary is $120,000, you should aim to have a net worth of $720,000. At this point in your life, your net worth will help you understand how much wealth you’ll have once it’s time to retire — and how early you can.
The Benchmark
The average net worth for Americans between the ages of 55 and 64 is $1,176,520, while the median net worth is $213,150, according to the most recent data from the Federal Reserve.
How to Increase Net Worth
To help you reach your goals, you may want to begin thinking about how you can lower your cost of living and capitalize on your investments. If you live in a house, but no longer need all of the space, could you consider downsizing? No need to make any immediate decisions, but with retirement only a few years away, you’ll want to begin looking at how you are going to benefit from your investments.
You’ll also want to consider purchasing disability insurance dependent on your health and genetics. If you’re unable to work during these final years leading up to retirement, disability insurance can help replace the income that you lost without decreasing your net worth.
Average Net Worth by Retirement
By the time you’re ready to retire, you should aim to have a net worth of roughly six times your annual salary.
While it’s impossible to know exactly how many years following retirement you’ll need to plan for, it’s one of the many reasons it’s so important to start saving as early as possible. It can even lead to some deferring retirement and working beyond the normal retirement age.
The Benchmark
The average net worth for Americans between the ages of 65 and 74 is $1,215,920, however, the median net worth is $266,070.
Use the resources that you built throughout your life to fund retirement. You’ll also want to consider what age you want to start receiving your Social Security since the longer you delay it, the more your monthly income will be.
How to Increase Net Worth
From investments to saving, there are many ways to increase your net worth. Once you calculate your current net worth, use these general tips to help set you up for success by the time you retire:
Cut Expenses: The less that you’re spending, the more that you’re growing your net worth. See if there are bills or spending habits that you can reduce. Even if it’s only a few dollars, you’d be surprised by how much that can add to your net worth over the years.
Reduce Debt: Your debt is what could be holding you back from growing your wealth, and with high interest rates, it could be taking longer than expected. Making higher monthly payments or consolidating payments could help reduce your debt faster.
Pay Off Your Mortgage: Owning a home can become your biggest asset, so paying it off will help increase your net worth.
Make Investments. It may not be ideal to just let your money sit in savings. Consider investing part of your paycheck with a goal to reap the benefits when you reach retirement age.
Max Out Retirement Contributions: Make the most of tax-advantaged retirement plans even in your lower-earning years. If you start investing now, your net worth may increase at a much faster pace.
Set Goals: It may sound simple, but it’s easy to become passive about investing in the future if you don’t have hard goals set in place. Create a plan as to how you’re going to grow your net worth over the next 10, 20, or even 30 years — and stick to it.
Once you make a plan to build your net worth, check in with yourself and calculate how you’re pacing against your goals on a regular basis. And, before making a big purchase or an investment, keep this number in mind to make sure you’re making the right financial move.
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I’ve been a full-time professional blogger for more than a year now. It has been a fantastic experience, a sort of dream come true. But blogging for dollars is not without its drawbacks. As I’ve shared before, I feel socially isolated. I spend most of my time in this office, writing about money.
Also, the income can be irregular. For some bloggers, it is very irregular. One month you might have record earnings — and the next you might experience your own personal financial crisis. Bloggers aren’t the only folks who struggle with the fluctuating incomes, of course. Many self-employed people face the same issue, as do those whose pay is tied to commission.
Creating a budget when your income fluctuates can be a frustrating experience. I am sure that each of us finds our own ways to cope. Today, I want to share the method that I’ve developed.
Projecting Income
Most articles I’ve read on this subject suggest basing your budget on your average monthly income from the past 12 (or six or three) months, but I don’t recommend that unless your income has wild swings — $12,000 one month and $0 the next. As this past year has demonstrated, incomes can and do decline. A prolonged decline wreaks havoc with the “average income” budgeting method.
When I project my cash flow, I base it on my minimum monthly income from the past 12 months. Using my minimum monthly income instead of my average monthly income gives me a safety buffer. And when you have an irregular income, a safety buffer is vital.
Note: If your income is variable, but you know that you will always make at least $X,XXX, then it makes sense to base your budget on $X,XXX. Anything you earn above this amount is gravy.
A Hypothetical Example
For the sake of illustration, I constructed a hypothetical example of the monthly income a freelance designer might have earned in 2008:
Hypothetical 2008 income
The “actual” column shows the designer’s actual income by month. The “average” column shows the average for the entire year. Using the standard advice, this designer would then construct her 2009 budget based on the average monthly income from 2008. Her 2009 budget would be $3,891.67 per month. But what if her income declined in 2009, as has happened to many freelancers? Here is a plausible scenario:
Hypothetical 2009 income
In this instance, the designer’s average monthly income for 2009 was $3,600, or nearly $300 less than she budgeted. And because her first few months were fantastic, she might have been tempted to splurge beyond her budget. That would have been a mistake. If, instead, she had constructed a budget based on her lowest month in 2008, she would have done okay.
Now, obviously I fabricated these numbers out of thin air in order to make a point. But based on recent conversations with a variety of people who earn irregular income (bloggers, designers, contractors, entrepreneurs), many folks are facing this sort of situation in 2009. Their incomes have dropped, and their budgets weren’t ready to cope with this.
Building a Budget
Projecting cash flow is only part of the battle. After finding a basis for my budget, I followed a simple system to manage my money. I recommend using two different bank accounts to make this work:
The first is your “business” account (without quotes for those of you who actually own businesses), which is where you deposit all of your income. My business account is a high-yield savings account with ING Direct. (You might use FNBO Direct or some other bank. Just choose something with a high interest rate.)
The second is your personal account, and it is from this that you will pay your ongoing expenses. There is no need to open a new account if you already have one that will work. I just use my existing credit union checking account.
Every month as you earn income, receive it (and leave it) in your business account. This is where you accumulate your cash. Because it’s in a high-yield account, it earns interest as it waits for you to use it.
From this money, pay yourself as if you were an employee. Your monthly salary is whatever you calculated as your monthly budget, your minimum monthly income from the past 12 months. On a set date each month, write yourself a paycheck. Leave the rest of the money in your business account. (Here’s more on the “virtual employer” concept.)
At I’ve Paid for This Twice Already, PT writes that “the key to budgeting with irregular income [is to] make it mimic regular income as much as possible.” I agree.
At the end of each year, three things happen.
First, you reset your salary. Based on the previous year’s numbers, your income might increase — or it might decrease.
Next, you use the “extra” money you have been accumulating in your business account to pay taxes. I could write an entire article on budgeting for taxes with an irregular income, but for now let’s just note that it is very important that you remember to account for them, especially if nobody else is withholding them from your paycheck.
Finally, if you have anything left after paying taxes, you pull this money out of the business account as personal income. It is, in essence, a year-end bonus. You can use it for whatever you see fit: debt reduction, long-term savings, a Mini Cooper.
Reading through this, my system seems complex. It’s not. It is actually very easy. To summarize: I base my budget on my lowest monthly income from the previous year. When money comes in, it sits in a high-yield savings account. Each month, I write myself a paycheck based on my budgeted amount. The rest of the money is saved to pay taxes. If there’s any left over at the end of the year, I get a bonus.
Note: The first year is difficult. You generally don’t have the ability to base your budget on averages or on the lowest income from the last 12 months. (I was able to do this because I’d been earning money before I quit to blog full-time.) Instead, you’ll have to use some other method to project your income. Whatever you do, remember: It is easier to deal with a budget surplus than it is to deal with a budget deficit!
Tips and Tricks
There are few other things that make living with an irregular income go more smoothly. The following tips and tricks build on the core personal finance skills we discuss often here at Get Rich Slowly:
Establish a foundation of thrift. The number one thing that helped me cope with an irregular income was adopting a lifestyle of thrift. I took steps to slash my spending. I decreased my recurring monthly expenses. I found cheap or free alternatives to the things I used to spend money on (Hulu instead of cable television, the public library instead of the bookstore, etc.).
Prioritize spending. Many of the budgeting guides I’ve read suggest creating a list of prioritized expenses. Financial guru Dave Ramsey, for example, recommends listing all of your expenses in order of importance. (“Importance, not urgency,” he says.) When you get paid, start at the top of the list and work down. This is an excellent method for those who are struggling to make ends meet.
Build a buffer of savings. Before I quit my “real” job to become a full-time blogger, I began to set aside a large sum of money as an emergency fund. I figured that if my income dropped below the minimum I needed to get by, I could tap the emergency fund to provide supplemental cash. With luck, I’d be able to ride out any rocky storms. (I’ve been fortunate to not have to do this.) When you have an irregular income, the bigger your emergency savings, the better.
Tap your business account only as needed. As money accumulates in your business account, you will be tempted to draw from this pool for fun and games. Don’t do it. Remind yourself that this money is for taxes — and for your monthly salary.
Resist lifestyle inflation — especially during the good months. Lynnae at Being Frugal writes: “One of the biggest downfalls of having a variable income is the tendency to overspend on good months. Believe me, I understand. Your money is stretched to the limits in the lean months, so on a good month, you’re tempted to spend a little bit more on fun stuff. But when the next lean month comes, there’s no extra money left to help ride it out.”
If possible, live off just one income. If you have an irregular income but you have a partner who makes steady money, explore the possibility of living solely on her income. Use your partner’s money to meet the necessities, and use yours to pay for savings and extras. This isn’t an option for most people; but if you can manage it, it is a great way to budget.
Do you have irregular income? If so, how do you budget for the fluctuations? Can you offer any additional tips? I am especially interested in tips for those who are just getting started with self-employment or variable incomes.
In my recent review of Pam Slim’s Escape from Cubicle Nation, Chett left the following comment:
I was talking with a good friend last week who is self-employed. I told him I envied his entrepreneurial spirit and the ability to “go it alone.” He told me he envied my work as a teacher and the set hours and guaranteed pay check and insurance. (I told him there was nothing “set” about the hours, so I guess we both misunderstood each others work.)
So many people dream of working for themselves and only find out the true benefits and heartaches after they make the leap. Take you for instance, what do you miss the most from the box factory in terms of security, or interaction? What bothered, (or motivated) you the most to drive you to self-employment and what have you learned about your decision over the past year and a half?
In the same thread, Caitlin wrote:
Every time I real an article like this I wonder if I’m really that unusual because I love my job. I’m a molecular biologist, and it’s just not something I could do on my own…I’ve had a small side business for over 5 years. In that time, interesting and educational though it was, I’ve learned that I don’t particularly want to run a business.
I am not one who believes that everyone should be an entrepreneur. I think there’s a sort of continuum: Some folks should absolutely work for somebody else, others should definitely work for themselves, and many should do a little of both.
Although I tend toward entrepreneurial endeavors, I don’t consider myself a die-hard entrepreneur. The best job I ever had was actually flipping burgers at McDonald’s when I was in high school. I’m not kidding. I loved that job. My fellow employees were smart and fun. Together, we made serving burgers and fries a game; we tried to do the best job we could. Our manager was great, and she fostered this attitude instead of stifling it with bureaucracy.
Since then, I’ve had jobs I loved and jobs I hated, and many that just paid the bills. I’ve also tried self-employment twice: once as a computer consultant, and now as a professional blogger.
Here are my responses to Chett’s specific questions:
What Do I Miss From the Box Factory?
I miss daily interaction with my family. My father began the business almost 25 years ago, and since then there have always been several family members involved with the daily operations. I also miss talking with my customers. As much as I disliked the actual sales portion of my job, I genuinely liked many of the customers I dealt with. I find myself wondering how Robert is doing, and whether Lance finished building his house.
There is almost no social aspect to the life of a professional blogger; I sit here alone in my office typing all day. While this is intellectually challenging, I miss seeing people and being a small part of their lives. This is one reason I’ve struggled with my restaurant spending over the past year. I often go out to lunch simply to be near other people. It’s also one reason I rented office space.
Note: Trent and I both discussed this loneliness on last Monday’s episode of The Personal Finance Hour. How bad does this loneliness get? Very bad. It’s Thursday afternoon as I write this. A couple of hours ago, I had a near panic attack from the loneliness. No joke. To cope, I came down to the coffee shop for a couple of hours.
What Motivated Me to Self-Employment?
There were a couple of things. First, I did not like my work at the box factory. I did not like sales. I wasn’t good at it, it didn’t interest me, and I found it frustrating.
Meanwhile, I wanted to write. I’ve always wanted to be a writer; I just never knew how to make money from this desire. When I stumbled into personal-finance blogging, I was startled to learn I could make an income from it. It seemed natural to make the leap to professional blogger once that income sustained at a level that could support me.
What Have I Learned About My Decision Over the Last Year-and-a-Half?
There’s a difference between blogging as a hobby and blogging as a job. When you’re blogging as a hobby and the income is “extra” income, the process is fun. It’s a lark. But when you throw the switch and it becomes your sole means of making a living, some of that fun vanishes.
I still love what I do — no question — but sometimes I feel as if I’ve lost the spontaneity I used to have. That’s one reason I’m hoping to reduce my workload around here a little. I’d like to pursue other projects: write a book, dabble with other blogs, possibly promote financial literacy education.
There’s a lot of pressure when you are required to generate your own income. Sure, there’s pressure when you work for somebody else, too, but there’s also a sense of freedom. You’re not responsible for the daily decisions. And if you don’t like the job, you can leave. Plus, the actual source of income is not your responsibility.
I often think that working for somebody else is like renting an apartment; working for yourself is like owning your home. Both have their rewards, but they each have drawbacks, too.
Conclusion
As Caitlin mentions, not everyone is cut out to run a business. It just doesn’t interest them. My wife is a perfect example. Kris loves her job. It’s challenging and fulfilling, and she enjoys the interaction with her co-workers. She has no desire to strike out on her own.
As always, I think it’s important to do what works for you.
Now I’d love to hear from you. Have you ever been self-employed? Did you love it, or did you hate it? What prompted you to pursue entrepreneurship? What do you envy about those who work for somebody else? Or, if you work for somebody else, are you content with where you are, or do you envy about the self-employed? What is it that keeps you doing what you’re doing?
Save more, spend smarter, and make your money go further
Even as interest rates approach lows last seen in, oh, 50,000 BC, U.S. savings bonds are still a great deal.
I’m an obsessive fan of savings bonds, particularly Series I, or I-bonds, for short. Since I wrote about them last year, a few aspects of buying and giving them have changed, but the basic message hasn’t: if you aren’t buying savings bonds, you’re missing out on a safe, simple, and relatively high-yielding investment available to anyone with a social security number.
Let’s recap briefly what is so great about I-bonds:
– They pay an interest rate tied to the rate of inflation. You won’t lose purchasing power, and if you’re concerned about high inflation in the future, I-bonds will protect your savings. Most savings accounts, CDs, and other Treasury bonds pay less than the prevailing inflation rate. Right now, for example, I-bonds are paying 2.2% APY, which is more than almost any 5-year CD.
– Each person can buy up to $10,000 per year.
– You can set up an account in minutes and start buying I-bonds online at TreasuryDirect.gov.
– You can cash them in after one year or hold them for up to 30 years. (There’s a small penalty for redeeming I-bonds before 5 years.)
– I-bonds are tax-deferred and can be used for a child’s college education tax-free.
The way I always sum it up is: nobody regrets buying I-bonds.
The gift of aaaargh
The big change in bonds since last year: they got rid of paper savings bonds. If you’re buying bonds for yourself, no big deal. Buying online is easy — all you miss out on is the cool pictures of Einstein and Chief Joseph and Helen Keller.
If you want to give a savings bond as a gift, however, the process is about to get a little awkward, because the recipient of the gift has to have their own Treasury Direct (TD) account. For example, say I want to give my niece a $25 I-bond. I can buy the bond right away and keep it in the “Gift Box” section of my TD account. To transfer it to my niece, however, I have to:
– Call or email my brother and tell him to open a TD account for himself, then a subaccount for his daughter (oh, and another subaccount for his son, if I want to give him a bond, too).
– Have him give me the kid’s TD account number. Yes, it is safe to share your TD account number. No, this is not intuitive.
The Treasury has produced a YouTube video, complete with that reassuring “Welcome to your first day at work”-style voiceover, to explain how to give electronic savings bonds as gifts. Honestly, I would rather call my grandmother and ask her if she has any tech support questions for me.
Instead, I called Jerry Kelly, director of the Treasury’s Ready.Save.Grow campaign. His response, in short: Believe me, we know. “There are a lot of things we’re looking at to simplify the process,” said Kelly. “One of the things we keep in mind for simplicity is PayPal, or, for example, or iTunes. We want to get there eventually. It’s going to take us time.”
I asked Kelly whether anyone is using the gifting feature. “It’s certainly not as robust as paper was, and we knew that that would happen,” he replied.
This isn’t good enough for Mel Lindauer, a Forbes columnist, coauthor of The Bogleheads’ Guide to Investing, and a man even more into savings bonds than I am. “The answer is simple,” said Lindauer by email. “Bring back paper I-Bonds and give investors an option. Prior to the elimination of paper I-Bonds, investors overwhelmingly chose paper I-Bonds over TD.”
Stay safe out there
Lindauer ticked off a variety of objections to Treasury Direct, most damningly the fact that, unlike your bank’s website, TD doesn’t promise you’re off the hook in the event someone fraudulently cleans out your account.
“There is an element of truth to that,” said Kelly, but in over ten years and hundred of thousands of TD accounts, no customer has lost a dime to fraud. “We have had people who’ve had problems, but we have not held them accountable for it, because we haven’t deemed them to be negligent with their access information.” He mentioned the guy who put his Social Security number on the side of his truck. If someone did that with their TD password, “we probably would not have a whole lot of sympathy for them.”
And a TD account is not like a checking account: it’s designed to be easier to put money in than take it out. In order to steal my I-bonds, you’d not only need access to my password and my email account (TD sends a one-time passcode via email when you log in on a new computer), you’d then have to link my account to new bank account, which would leave an obvious trail.
In short, it would be even more work than convincing my brother to open a TD account for my niece. Please do not take this as a challenge.
To sum it up
– I-bonds are still an awesome, flexible, safe investment.
– The process for gifting them is too complicated, and no one blames you if you wait until they fix it.
– Buying them for yourself is a snap.
– I’m probably about to get a call from my grandmother asking if she can treat computer viruses with ibuprofen.
Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.
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If you’re looking for a high-yield savings account online with no added or unexpected fees, Varo delivers. Varo is an online bank launched in 2017. In 2020, it became the first consumer fintech granted a national bank charter, which means deposits are FDIC insured by the Federal Deposit Insurance Corporation and backed by Varo Bank, not a third-party bank.
Since 2020, SoFi also earned the same distinction as a nationally chartered bank.
Is Varo Bank safe?
Varo is currently valued at $1.9 billion, which is down from its 2021 valuation of $2.5 billion. However, recent reports say the neobank is seeking $50 million in funding. In 2022, reports had said the bank might run out of money by the end of the year. However, it is still in business and still offering record high APYs for its high-yield savings account and tons of other perks for account holders.
It’s important to remember that whatever happens, Varo Bank is FDIC insured up to federal limits of $250,000 per account holder, per account category. Joint accounts are insured for $500,000 per account category.
If finding a checking account and savings account with no minimum balance, no minimum deposit, no overdraft fees, no monthly fees, early direct deposit and cash back is important to you, then you might want to give Varo a chance.
Varo Checking Account
When it comes to checking accounts, Varo has only one, simply called “the Varo Bank Account.” It is packed with features that you want from a top online bank, including:
Rewards Visa debit card
Early direct deposit
Free mobile deposit
Access to Zelle for P2P money transfers
No monthly fees
No minimum balance requirements
Plus, your Varo debit card gives you access to the nationwide network of 55,000 allpoint atms where you can access your money with no fees. Keep in mind, using out-of-network ATMs for withdrawals can result in a fee of $3 per transaction, plus any fees charged by the ATM owner.
You’ll also have no foreign transaction fees when you use your Varo debit card overseas. And if you happen to lose your card, there’s no replacement fee, as long as you ask for regular shipping through the U.S. Post Office.
Varo Savings Account
Varo often makes headlines for its high-yield savings account. The bank currently offers an annual percentage yield up to 5.0%. But you’ll start your Varo savings account with a 3.0% annual percentage yield and move up to 5.0% annual percentage yield the next month if you meet a few requirements.
If you receive direct deposits in either your Varo savings account or Varo checking account of $1,000 or more and end the month with a positive balance in both accounts, you’ll earn 5.0% on up to $5,000 of your savings account balance. Any part of your balance exceeding $5,000 will still receive the 3% APY on savings.
In addition to fee free ATM withdrawals and no monthly fee, your Varo savings account also comes with automatic savings tools that can help Varo customers manage money. and take advantage of the high interest rate your Varo account offers.
Save Your Pay
When you choose “Save Your Pay” with Varo Bank, you automatically transfer a percentage of any direct deposits straight into your savings account. Whether you are looking to “pay yourself first” by adding 10% of each check to your high-yield Savings with Varo or looking to bolster your emergency savings by adding 20% or more, Save Your Pay makes it easy – and automatic to have funds deposited into savings each time you get paid.
Save Your Change
Small change can lead to a bigger savings balance when you round up your purchases and put the difference in your Varo savings account. Set up this feature so that every time you make a debit purchase, the amount will be rounded to the nearest dollar, with the extra money placed in savings.
Other savings accounts through traditional banks, including Bank of America, also offer similar automatic savings tools. But few savings accounts deliver such a high APY as your Varo bank account.
Other Accounts and Services
Varo offers checking and savings accounts with no monthly maintenance fees, a high APY on savings, and an intuitive app to help you manage your account. It also has other programs to help consumers build their credit, cover emergency expenses, or catch up on bills. The following programs are available to users with an active Varo bank account.
Varo Advance
Varo Advance allows qualified customers to borrow up to $250 at a time and pay it back within 30 days from your Varo bank account when you get paid. You can avoid overdraft fees, buy what you need or pay bills, and avoid high interest charges. Any advances over $20 have fees associated.
Your cash advance account has no monthly subscription fees, and no late payment or return payment fees. Each cash advance, however, has a fee ranging from $0 (for advances of $20 or less) up to $15 for advances of $250.
Varo Believe
Varo Believe is a secured credit card with no minimum security deposit, no annual fee or interest charges, and no credit check to apply. If you are a Varo customer, you can apply for this secured account to build your credit.
Turn on Safe Pay to ensure you don’t miss a payment. You will pay your credit card from your Varo bank account balances.
On-time payments will be reported to the three major credit bureaus to build your payment history. You can even track your credit score in the Varo mobile app.
Varo Bank Best Features
There are so many great features about Varo Bank, it’s hard to pinpoint the best elements of Varo accounts. Here are some features that come up time and again in Varo Bank reviews.
Early Direct Deposits
Access direct deposit funds up to two days earlier than you could with a conventional bank. Varo releases qualifying direct deposits from your employers as soon as the bank receives them. Often, this is up to two days before the payer’s scheduled payment date.
How soon you receive direct deposit funds depends on when your employer releases the funds. Weekends and bank holidays could delay a deposit to the next business day. But you will typically get paid at least two days earlier than you would with a traditional bank.
You can also use your Varo checking account to receive tax refunds from the IRS or your state government agency through direct deposit. During the pandemic, many people had their government stimulus payments deposited directly into their Varo Bank checking accounts.
Cash Back Debit Card
Not many banks offer a cash back Visa debit card, but Varo Bank does. Earn up to 6% on purchases through select retailers online and in stores when you use Visa cash back card or your Varo secured credit card. Once your cash back balance reaches $5, the money will be accounted directly into your Varo checking account.
Zelle
Zelle allows you to send person to person payments easily with no fees. As one of more than 1,800 financial institutions in the Zelle network, Varo makes it easy to split checks at a restaurant, send money to family and friends, or receive funds directly into your Varo Bank account instantly.
Varo Bank App
The Varo mobile app puts all the functionality of the bank right at your fingertips. You can turn your Varo cards on and off with a simple click, apply for cash advances, and transfer money between your Varo bank accounts easily from your mobile phone.
Cash Deposits at Thousands of Locations Nationwide
If you want to make cash deposits into your Varo savings or checking accounts, you can do so at any Green Dot Network locations. You can deposit cash at the register at the following stores:
7-11
CVS
Dollar General
Family Dollar
Kroger
Rite Aid
Walgreens
Walmart
Stores charge a fee of up to $4.95 for cash deposits and up to $5.95 for a Green Dot MoneyPak. The MoneyPak is a prepaid card of $20 to $500 that you can link to your Varo Bank account. When you do, those funds will be deposited into your checking account.
Varo Pros
55,000 AllPoint ATMs (Fee-free)
Early Direct Deposit
Cash Back Debit Card
No monthly fees
No foreign transaction fees
Cash Advance options
No minimum deposit to open an account
No minimum balance requirements
Varo Cons
Must meet requirements to earn 5.0% APY
No brick-and-mortar branches
No money market account
Financial difficulties leave some concerned about the bank’s future
Limited customer service hours for phone support
Varo Fees
Varo doesn’t have many fees. The bank doesn’t charge monthly fees or overdraft fees. But the bank may decline transactions if you don’t have the funds to cover it.
Varo checking account fees include a $3 fee for withdrawals from ATMs outside the AllPoint network, and $2.50 per transaction if you withdraw money at a retailer using your Varo debit card. Additionally, if you make a cash deposit using a third party money transfer service, including wire transfers, you could pay up to $5.95 per transaction.
How does Varo Bank compare to other online banks?
More frequently today, online banks offer no monthly fee, no minimum deposit, and no minimum balance requirements. But it’s a little harder to find an online bank that offers cash back, a secured credit card with no minimum deposit for security, and cash advances with no interest charges.
Chime is one financial technology company that offers some of the same benefits as Varo with no monthly fee. How do they compare?
Varo vs. Chime
First, it’s good to know that Varo is a chartered bank, while Chime is a fintech backed by Bancorp Bank, NA and Stride Bank, NA, both Members FDIC. However, for security purposes, consumers should know that Chime offers the same protection as Varo. All accounts are insured up to $250,000, with joint accounts covered for up to $500,000.
Chime also has no monthly maintenance fees and no minimum deposit to open an account. Like Varo, you can access your direct deposit funds up to two days earlier than most conventional banks. Chime doesn’t offer cash advances, but with fee-free overdraft protection for up to $200 with the SpotMe program, you can make cash withdrawals or debit purchases even if your account is in the negative.
Like Varo, Chime offers a secured credit card, called the Credit Builder Visa. It has no annual fee, interest charges, or security deposit required and no credit check is needed to apply.
Where Varo really shines is its high APY on savings. Chime doesn’t offer any options for savings accounts or money market accounts to earn interest on the cash you keep with Chime.
Varo Bank Reviews
Varo Bank earns high marks from personal finance website reviewers and also consumer review sites. Varo received an average of 3.4 stars on TrustPilot, with 76% 5-star reviews. Varo mobile banking apps in the App Store and the Google Play store earned 4.9 and 4.7 stars, respectively.
Some of the reviews claiming horrible customer service noted that their account was closed without warning. Often, this relates to extra-vigilant fraud protection.
The good reviews outnumber the bad on TrustPilot and personal finance websites. For instance, one Varo review said the chat support is “very prompt” and “always friendly.” Another Varo Bank review on ConsumerAffairs.com called the online bank: “an amazing company and very good bank as long as you Yourselves do what is needed. Pay things on time, follow instructions and do the best you can.”
Varo FAQs
Find out everything else you need to know about Varo bank accounts.
Does Varo have branches?
As an online only bank, Varo does not have branches for in-person service. However, Varo customers gain access to 55,000 AllPoint ATMs. You can withdraw money, check balances, and deposit cash
What happens if someone steals my card or card information?
If someone steals your card or you realize someone has your debit or credit card information, you will want to lock your card immediately in the Varo app. This prevents any purchases or withdrawals until you unlock the card. You should also do this if you’ve misplaced or lost your card.
Your direct deposit, ACH transfers and online bill payments will still process if your card is locked.
Once you’ve locked your card, reach out to Varo customer support through the Chat function in the app. Notify the representative that your card has been lost or stolen and you’d like to order a replacement card.
If you notice fraudulent charges on your account, you can reach out via Chat or call customer support at 877-377-VARO, Monday through Friday from 8 AM to 4:30 PM Mountain Time to dispute the charge.
How do I open an account?
You can find Varo Bank’s website at Varomoney.com. Click the purple “Open Account” button in the top right of the screen, choose the account you’d like to open, and apply for an account. There is no credit check required.
You will need a cellphone to open an account, as Varo may verify your personal information or account information via text messages.
Are checking and savings the only accounts Varo offers?
Varo offers a checking account, a savings account, a secured credit card (Varo Believe) and Varo Advance. Varo Advance allows you to use your Varo direct deposits and timely repayments to allow you to borrow up to $250 in cash advances. You pay it back within 15 to 30 days with no interest charges. You’ll pay a fee for every Advance over $20, up to $15 for a $250 advance.
Is Varo FDIC insured?
As a nationally chartered bank, Varo is FDIC insured up to $250,000 per account holder, per account category.
Interest Rate for Series I Savings Bonds Falls to 4.3%. Here’s What it Means
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Gone are the days of series I savings bonds paying almost 7% in interest. The U.S. Treasury announced Friday that the inflation-protected bonds would start paying investors 4.3% on May 1, down from the 6.89% that they’ve paid out over the last six months.
Since they were first introduced in 1998, series I savings bonds – also known as I bonds – have helped investors keep pace with inflation. They’ve especially come in handy in recent years, as inflation has reached levels not seen since the early-1980s. Here’s what you need to know about I bonds and Friday’s interest rate adjustment.
A financial advisor can help you determine whether I bonds or other inflation-protected securities are right for your portfolio. Find an advisor today.
About I Bond Interest Rates
An I bond’s interest rate is calculated using two separate rates – a fixed rate and an inflation rate. While the former stays the same for the duration of the bond, the inflation rate changes every six months. That’s because the latter is linked to the Consumer Price Index for all Urban Consumers (CPI-U).
As a result, when inflation increases, like it has in recent years, I bonds pay out more interest. When inflation falls, they pay out less.
On Friday, the Treasury raised the fixed interest rate for I bonds from 0.40% to 0.90% but dropped the semiannual inflation rate to 1.69%. This resulted in a combined interest rate of 4.3% for newly issued bonds.
Keep in mind that an I bond’s combined rate is calculated in two steps. First, the fixed rate is added to double the semiannual inflation rate. Next, the fixed rate gets multiplied by the semi-annual inflation rate. The two sums are then added together, resulting in the combined interest rate of an I bond. Here’s the formula:
[Fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]
What Falling Rates Mean
As inflation has climbed in recent years – peaking at 9.1% in summer 2022 – so did I bond interest rates. But as inflation continues to fall, the same will happen for I bond yields.
Friday’s rate adjustment comes one year after I bonds were paying investors a whopping 9.62%. In November, the Treasury raised the fixed rate from 0% to 0.40% but lowered the inflation rate to 3.24%. That brought the combined rate down to 6.89%.
While Friday’s adjustment results in lower overall interest rates, the fixed rate is now at its highest point since November 2007 (1.20%). Keep in mind that if the inflation rate increases again in another six months, those who purchase I bonds now will stand to benefit because their bonds will continue to pay out 0.90% in fixed interest plus the higher interest rate.
Bottom Line
Series I savings bonds or I bonds are inflation-protected debt securities issued by the U.S. Treasury. The bonds, which were previously paying 6.89%, will begin paying out 4.3% on May 1, the Treasury announced Friday. However, those who buy I bonds now will lock in a 0.90% fixed rate – the highest it’s been since 2007.
Tips for Managing Inflation
Treasury Inflation-Protected Securities (TIPS) are another low-risk investment that can help soften the blow of inflation. Instead of the interest rate rising and falling with inflation, the principal of a TIPS bond increases with inflation. This differentiates TIPS from I bonds, whose interest rate is linked to inflation.
A financial advisor can help you invest in I bonds, TIPS and other assets to protect your portfolio from rampant inflation. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Patrick Villanova, CEPF®
Patrick Villanova is a writer for SmartAsset, covering a variety of personal finance topics, including retirement and investing. Before joining SmartAsset, Patrick worked as an editor at The Jersey Journal. His work has also appeared on NJ.com and in The Star-Ledger. Patrick is a graduate of the University of New Hampshire, where he studied English and developed his love of writing. In his free time, he enjoys hiking, trying out new recipes in the kitchen and watching his beloved New York sports teams. A New Jersey native, he currently lives in Jersey City.
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When it comes to the active vs. passive investing debate, to me, it’s a no-brainer: I’m a passive guy.
My entire portfolio consists of a couple of broad-market stock index funds and a bond fund. I don’t own any individual stocks and zero funds that try to beat the market. I stay invested in good times and bad and I ignore my portfolio as much as possible, except for annual rebalancing. (In practice, this means I look at it once a week. Thanks a lot, Mint.)
I invest this way not (just) because I’m lazy, but because I believe the evidence is overwhelming that a passive approach will outperform the vast majority of active investing strategies over time. Yes, over any given period, some active funds will outperform by a little and a select few will outperform by a lot — they’ll sail through a bear market smelling like honey.
Unfortunately, it’s impossible to know ahead of time which will be the winning funds and you might end up selecting one of the big losers. Oh, and index funds cost less. That means more money for me and less for a money manager.
As Rick Ferri puts it in his book The Power of Passive Investing, “There’s only a low probability that any fund will achieve superior returns. While it’s possible, it’s not probable.”
Or take it from author Bill Bernstein: “The debate between active and passive management is like the debate between astrology and astronomy,” he said in a recent interview.
As you can tell, I’m convinced of the superiority of index funds and passive investing to the point of smugness, so I thought it would be good for me to talk with someone who fundamentally disagrees. Jerry Webman is the chief economist at OppenheimerFunds and author of the new investing guide MoneyShift: How to Prosper from What You Can’t Control. He dedicates an entire chapter of his new book to building an intelligent argument against my style of investing, and the book is witty and engaging.
Webman and I didn’t have time to hash out the entire classic active/passive investing debate, so I wanted to focus on one of his favorite topics: emerging markets. These markets now account for about one-quarter of the stock market wealth outside the U.S., and we both agree that it’s important for a portfolio to own stocks from emerging economies like Brazil, India, and China. We disagree about the best way to do it, though.
An emerging discussion
MoneyShift argues that most investors, including index fund investors, are missing out on buying opportunities in emerging markets. “Emerging markets is one of the places where it’s easiest to make the case for bottom-up active management,” Webman told me. “You really do have many companies that are not carefully followed, maybe not well-understood, and a careful manager takes the time to figure out what the real market for the company is, and how they fit with the regulatory environment in which they have to work, which might not be fully evolved.”
“It would be foolish to surrender the emerging markets portion of your portfolio to a dumb index fund,” Webman argued. “I want somebody who’s taking a really careful look at it,” he said. “There’s a lot more value to be added by someone who’ll go and do the research in less-understood and less-invested markets.”
To put it another way, it’s hard to learn anything new about an S&P 500 company. Those are the 500 biggest U.S. companies — everyone has heard of them and thousands of analysts scrutinize them all day long.
But who’s keeping an eye on, say, the Peruvian stock market? One manager who takes the time to understand Peru and how to read annual reports from its companies might be able to make a ton of money from insights that would be totally lost on a U.S. stock analyst.
This argument seems intuitively correct. However, I remembered the same argument being made about investing in small companies (aka: “small-caps”) in the United States: the market was less efficient, there was less public information about the companies and the stocks traded less heavily, which meant more opportunities for active managers to make money.
But it didn’t actually work out that way. As Standard & Poor’s put it, “over the last decade, SPIVA has consistently shown that indexing works as well for U.S. small-caps as it does for U.S. large-caps.” SPIVA is Standard & Poor’s Indices vs Active Funds scorecard, which twice a year compares the performance of passive index funds with actively managed funds.
More on that in a moment…
Webman said there are important differences between U.S. small-caps and emerging market companies: In the US, “you do have financial reporting that’s well-established. You have good protection for minority shareholders and you have all of the things that you might not have in an emerging market company.”
I wondered whether SPIVA could help answer this question: in emerging markets, is it better to own a dumb passive index fund that buys all the companies it can, good and bad, or to turn your money over to an expert manager who carefully researches and selects the best companies from each country?
The answer
Well, it’s not even close. Over the five-year period ending in December 2011, only 17% of actively managed emerging markets funds outperformed their benchmark index. Since an index fund hugs the benchmark index as closely as possible, buying the index fund would have put you near the top of the heap. This is typical: it’s difficult to find any five-year period in any investment category where the index fund didn’t trounce most of the competition.
Webman is skeptical of this kind of raw statistical analysis. “I worry about looking at averages,” he said. “It turns out a lot of so-called active managers aren’t so active. And it does look like results are better for active managers who really actively manage their portfolios.” He added that just looking at the number of funds that outperformed doesn’t tell you how much money outperformed. Maybe those few winning funds are actually the biggest funds, which means the average active investor is doing just fine.
Again, this argument sounds reasonable: who cares if most funds don’t beat the index? As long as I can identify a fund that will, I’m golden.
Unfortunately, there’s no evidence that there’s any way to identify the best performers ahead of time, aside from sheer luck. SPIVA also measures performance persistence and the results are appalling. “Very few funds manage to repeat top-half or top-quartile performance consistently,” says the report, which some consider an understatement. For example, in U.S. small-cap funds, less than 4% of funds stayed in the top category five years in a row. They didn’t look at emerging markets funds, but there’s no reason to expect a different result.
High bias
Let’s stipulate that everyone involved in this conversation is biased. Jerry Webman is an executive at a Wall Street firm that sells actively managed mutual funds, S&P is in the business of selling indexes, and I have my life savings in passively managed index funds and am unlikely to go out dragging the river for convincing evidence that I’m investing like an idiot.
If you think Webman is right and I’m wrong, however, I’d like to hear about it.
And let me give Webman the last word: “I think what makes markets is, we’re all going to look at several different kinds of conflicting evidence and come to different conclusions.” I couldn’t agree more.
Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.
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Few concepts have had as great an impact on my family’s financial decision-making as learning how to calculate our real hourly wage. The concept was introduced by (or at least popularized by) the amazing book, Your Money or Your Life. This book has had a dramatic influence over our financial turn-around (just as it did for J.D.).
The authors focus early in the book on ensuring that readers are aware of the true costs associated with their jobs and incomes — including accounting for the time we spend on activities that are often forgotten.
When Courtney and I first sat down to figure out just how many different expenses were associated with our income opportunities, it was an eye-opening experience. It unveiled a new layer of consciousness towards both our work and our spending. In one case we shifted from, “I make $42,000 per year” to “That really only results in $22,000 net after all expenses are considered.”
The hardest part of figuring your real hourly wage is accounting for those sneaky costs (in both time and money) that eat away at your income streams. Your Money or Your Life does a great job of listing sample expenses, from which we adapted a customized list that I still keep updated to compare opportunities.
Here are the adjusted categories we use to figure our own real hourly wages:
Time – Alright, so this seems like a generic way to kick things off, but stay with me. For each of the other categories on this list we immediately asked ourselves, “What’s the extra time associated with this?” While this isn’t a monetary cost itself, putting Time at the top of our list was a reminder to remember to always take this into consideration.
Taxes – Taxes come next on our list because they’re easy to remember. It’s common for people to think of “take-home pay” or “how much after tax” when thinking about income. If you’re an employee in the U.S., this usually means federal, state, and local (in some places) income taxes, as well as social security and medicare. These numbers are easy to find on paystubs.
Foundation expenses – This was what Courtney and I called anything that wasn’t complete tangible (as in the later categories), but that was required for our work. Courtney had her teaching license fees, union dues, and education conferences. I had my share of real-estate certifications, union dues, broker fees, and sales training. We also included childcare expenses, and more recent visa fees in this category.
Commuting/Transportation – This was the next most tangible category for us to consider. The key is to estimate what percentage of vehicle use is for commuting purposes. You can then apply this to gas, oil, maintenance, insurance, parking, and tolls. Your Money or Your Life also suggests counting traffic tickets, vehicle depreciation, and lease/interest payments. Even if you don’t drive, you’ll likely have some public or alternative transportation costs in here.
Tangible work materials – These were usually physical items that we had to buy and maintain. Out of college, I worked in a factory where I had to purchase ear-plugs and safety glasses (although I was given hardhat). Some people have to provide their own tools, office supplies, or teaching materials. This also includes our fancy cell phones that we justify as “for work,” briefcases, laptops, and other gear/gadgets.
Clothing – We broke this into two sub-categories. First, there are jobs that require uniforms, special shoes, and/or a certain type of specific non-uniform dress (like the Italian restaurant I where I waited tables). On the other hand are the jobs where we buy professional clothes out of a desire to meet a social standard. Think suits and ties, fancy blouses, and trips to the dry cleaners. If you wouldn’t regularly wear it on your days off, it should be included.
Grooming – We used this to include products like make-up, fancy cologne, special haircuts, and jewelry/accessories. Again, it’s important to only include that which you don’t use or wear regularly outside work.
Food/Drink – This is self-explanatory, but contains eating out, snacks throughout the day, and even food purchased after work hours if it’s because you “had too hard of a day at work” to cook dinner. I noticed a lot of my increase in food costs was from eating out for “business” meetings and every Friday when the whole office would go out together. Work-related coffee habits can wrack up some damage fast, too (trust me I know).
Stress – As we began the list, we end it with a general category. The authors of Your Money or Your Life spend a lot of time covering the idea that any time/money that is invested as part of a release, escape, or an unwinding from work should be counted against your income. Some people release through video games or television, while others end up splurging on larger items like spontaneous vacations or larger toys to get away from work. The book even suggests counting increased sick time as a result of stress-related illness!
Look, I know this is a lot to think about. But this exercise isn’t meant to discourage. Just the opposite! Remember, there are usually other benefits to your income, as well. This post only features one side of the coin.
However, figuring your real hourly wage is an awesome tool when trying to compare two income opportunities that aren’t similar to begin with. It may help encourage you to start a part-time business or may simply remind you of just how beneficial your current employment really is.
If you haven’t run your own numbers, I’d strongly recommend it. It worked wonders for us!
What sneaky expenses have you caught eating away at your income?
By Peter Anderson9 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited August 24, 2020.
The Roth IRA is probably my favorite investment vehicles, and it’s something I’ve written about pretty extensively here on this site. When I started hearing stories from folks recently about how a lot of people have never even heard of the Roth IRA, I was a little bit shocked. Maybe I shouldn’t have been.
Jeff Rose of GoodFinancialCents.com recently gave a talk to a group of graduating seniors at his alma-mater about investing and retirement. While he was there he took an informal poll and asked who knew what a Roth IRA is. Out of 50 people attending, not a single one knew what a Roth IRA was. For Jeff that moment was a bit of an ephiphany, and he decided to start the Roth IRA Movement. The Roth IRA Movement is a group of 140+ bloggers and personal finance journalists all coming together today to write about the Roth IRA, and to get others to start thinking about saving for retirement.
I decided to pitch in and give 10 reasons why the Roth IRA should be your retirement account of choice.
10 Reasons To Love The Roth IRA
There are probably a million and one reasons to love the Roth IRA, but for the sake of brevity, here are my top 10.
Tax free withdrawals at retirement: The IRA and the 401(k) allow you to add funds to your account before the money gets taxed. That’s great because it allows you to reduce your taxable income, and lowers your taxes now. The Roth IRA has a great benefit as well, however. You pay taxes on your income now and fund your Roth IRA, and then you get to take your contributions and earnings out without paying taxes at retirement. Who doesn’t love tax-free money at retirement?
Withdraw contributions at any time: When you contribute money to your Roth IRA, you can withdraw those contributions without penalty or taxes at any time (not so with earnings). While I wouldn’t suggest doing that as it can short-circuit your gains, it is nice to know that if an emergency arises and your emergency fund doesn’t cover it, this may be an option.
No age limit for a Roth IRA: There isn’t an age limit to have a Roth IRA, so even your children can have one! As long as you or your child have earned income, and you’re below certain income thresholds, most likely you will qualify to contribute to a Roth IRA.
Good way to diversify tax treatment: As mentioned earlier in this post Roth IRA withdrawals at retirement are tax free. By contributing to an IRA (pre-tax) and Roth IRA (post-tax) you can diversify your situation when it comes to taxes. That can be especially important if you’re unsure how your tax rates will compare – now versus at retirement. Hedge your bets and contribute some to each.
High income limits: The income limits for contributing to a Roth IRA are relatively high, so most people will be able to contribute. The limits are $193,000 if you’re married filing jointly, or $131,000 if you’re single, head of household, or married filing separately and did not live with your spouse for any part of the year.
Perfect for procrastinators like me: The Roth IRA account type allows people to contribute to their Roth IRA right up until tax day of the following year. So for example, if I wanted to start a Roth IRA and fund it for 2014, I could do that right up until April 15th, 2015, the day that taxes are due for 2014.
You can use it to save for college or a home without penalties: You can take contributions out of a Roth IRA to pay for college expenses, without incurring any penalties. While it isn’t always a good idea to short circuit gains in your account by taking money out, if you do run into the situation where you need to, you won’t be subject to the normal early withdrawal penalties and taxes. Withdrawing earnings would still be subject to taxes, but no penalties. For first time homebuyers, you can withdraw up to $10,000 tax free from your Roth IRA contributions and earnings, just be aware of all the fine print on withdrawing for a home purchase.
The Roth IRA can secure your golden years: If you want to be secure in retirement you need to start saving, and start now! The Roth IRA is a great way to get started because you can invest in smaller increments – which will add up to much larger dollar amounts by the time you retire.
A Roth IRA will usually have more investment options than your company 401k: One great thing about the Roth IRA is that they’re flexible. You can invest in what you want through the Roth IRA. Company 401ks aren’t always as flexible as you’re held hostage to whatever plan administrator your company chooses, and
Easy to open a Roth IRA: Opening a Roth IRA is really easy. Companies like Vanguard, Betterment, Wealthfront or Axos Invest have made the signup process to get started with a Roth extremely easy. In many instances it will only take a few minutes to open an account. Depending on your investment strategy choosing your investments may take a bit longer, but it isn’t as complicated as some people might think. Just choose where you’ll open the account, fund the account, and choose your investments.
Those are a few of the reasons why I love the Roth IRA, and why I think you should give the Roth a look as well.
Have you started your Roth IRA yet? If not, what’s holding you back? Tell us your thoughts in the comments.
Roth IRA Contribution Limits
Year
Age 49 and Below
Age 50 and Above
2002-2004
$3,000
$3,500
2005
$4,000
$4,500
2006-2007
$4,000
$5,000
2008-2012
$5,000
$6,000
2013-2018
$5,500
$6,500
2019-2022
$6,000
$7,000
2023
$6,500
$7,500
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