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Apache is functioning normally

September 27, 2024 by Brett Tams

While there’s no official guideline on what makes a salary “good,” a $20,000 salary is not typically enough for a household to live comfortably in most parts of the United States. Certainly, each person’s situation is unique in terms of their assets and expenses, but an individual making $20K a year may have a hard time making ends meet. They might need to rely on assistance from family, friends, and/or the government to afford basic necessities.

A $20,000 salary puts a single person above the poverty threshold for 2024. An individual supporting themselves plus one or more people on $20K a year, however, will live below the poverty threshold. With the record-high inflation we’ve seen in recent years, affording basic needs on a $20,000 salary has become even more challenging.

So is $20K a year good? While a $20,000 salary averages out to more than the federal minimum wage of $7.25/hour for full-time work, it is likely not an adequate income for anyone living independently and especially those with a family. In this piece, we’ll cover:

• The current American median income.

• Is $20K a year good?

• A breakdown of a $20,000 salary.

• The best and worst places to live on $20,000.

• Tips for living on $20K a year.

Factors to Determine if a $20,000 Salary Is Good

A $20,000 salary will be challenging for anyone to live on, but a few factors may determine if it can be done — or if it’s impossible:

• Taxes: If you are filing singly, a $20,000 salary will put you at the 12% federal income tax bracket. You may owe additional taxes for your state, city, and/or school district. For the sake of example, assume a flat 15%. That means, although you make $20,000, you only bring home $17,000 after taxes.

• Family size: Single individuals without children can make $20,000 stretch more easily. Two or more people living off a $20,000 salary will face more challenges.

• Location: Money goes further in some places more than others. If you live in an area with a low cost of living, a $20,000 salary may be more manageable. But if you live in a popular city, $20,000 a year may not even cover rent.

• Debt: If you have debt, it can be more challenging to allocate your limited money to basic necessities and important financial goals, like building an emergency savings fund. If you are dealing with high-interest debt, you probably know how quickly this debt can grow when you are only paying the minimum amount due.

How Does a $20,000 Salary Compare to the American Median Income?

According to the most recent U.S. Census Bureau report, median household income was $80,610 in 2023. Keep in mind, though, that this number represents all households, which may include more than one earner. According to the Bureau of Labor Statistics, median weekly earnings for American workers was $1,117 in 2023, which comes out to $58,084.

Either way, $20,000 is far below either estimate for a median income. If you earn $20,000 and have a domestic partner or spouse who earns additional income, your salaries together might get you closer to the median income level.

$20,000 Salary Breakdown

Again, no judgment here: It’s not a matter of if a $20,000 salary is good or bad. To someone just out of high school, $20K a year might look like a good entry-level salary. But anyone who has handled monthly bills like rent and utilities will likely recognize that a $20,000 salary may be insufficient.

Here’s how a $20,000 annual salary breaks down:

• Monthly income: $1,666.66

• Biweekly paycheck: $769.23

• Weekly income: $384.62

• Daily income: $76.92 based on working 260 days a year

• Hourly income: $9.62 based on working 2,080 hours a year

These estimates do not account for taxes. In the example above, a $20,000 salary may shrink to $17,000 after Uncle Sam has taken his cut.

Recommended: Is Making $100K a Year Good?

Can You Live Individually on a $20,000 Income?

It is possible to live individually on a $20,000 income, but you will likely only be able to afford the items on your basic living expenses list if you aren’t able to supplement your income. Living comfortably — with easy access to good health care (including mental health), balanced nutrition, safe housing, and efficient transportation — may be far more challenging on $20,000 a year.

If you make $20,000 a year, you might be able to minimize monthly expenses by looking for government assistance, getting a roommate or moving in with family, cooking at home, and using an online bank account with a high interest rate and automatic savings features.

How Much Rent Can You Afford Living on a $20,000 Income?

Wondering how much you can afford to spend on rent? Researchers have long argued that you should spend no more than 30% of your income on housing. With rising inflation and increasing rent prices, however, that’s not always possible.

If you were to stick to the 30% rule (and forget about income taxes for the sake of the example), that means you can spend $6,000 a year on rent, or $500 a month. But the median cost of rent in the U.S. was $2,100 as of September 2024, according to Zillow. That’s about four times what you could afford on $20K a year.

To afford rent on a $20,000 salary, it’s a good idea to live in a place with a very low cost of living and to have one or more roommates who can help share living expenses of rent and utilities with you. Moving in with family is also a solution if you cannot afford rent on your salary.

Best Places to Live on a $20,000 Salary

If you are making $20,000 a year (or $9.62 an hour), it might be a good idea to explore cities and states with a low cost of living.

These are the five least expensive cities to live in for 2024-2025, per U.S. News:

• Fort Wayne, Indiana

• Huntsville, Alabama

• Wichita, Kansas

• Springfield, Missouri

• Davenport, Iowa

Living outside a city altogether is usually more affordable. Consider a rural location in one of these five cheapest states to live in:

• Arkansas

• Mississippi

• Alabama

• West Virginia

• South Dakota

Recommended: Typical Monthly Expenses for a Single Person

Worst Places to Live on a $20,000 Salary

On the flip side, there are some major cities that are exorbitantly expensive to live in. If possible, it’s a good idea to avoid living in the following locations when you are living on $20,000 a year:

• Hartford, Connecticut

• Los Angeles, California

• Miami, Florida

• New Haven, Connecticut

• New York City, New York

California cities clearly carry a high cost of living, but other states are also expensive. If you have a $20,000 annual salary, it’s a good idea to steer clear of any of the five most expensive states to live in:

• Hawaii

• New York

• California

• Massachusetts

• Oregon

Is a $20,000 Salary Considered Poverty?

A $20,000 salary is above the poverty line for an individual, but if you are a couple or a family of three or more people living on a $20,000 salary, the government considers you to be below the poverty line.

These numbers do not consider factors like variable cost of living. A localized poverty line could be more telling, especially if you live in a place with a high cost of living. If you are, say, living in a pricey city and earning $20,000 a year, you might be feeling the financial pinch more.

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Tips for Living on a $20,000 Budget

While advocating for a higher salary can infuse your line item budget with more funds, you can’t necessarily count on a raise. Taking other steps now may make it easier to live on your $20,000 salary.

Finding Out What Assistance You Qualify For

If you are making $20,000 or less, you may qualify for government assistance. Here are a few actions to consider taking:

• Work with the U.S. Department of Housing and Urban Development for assistance with rent, including the Section 8 program.

• Determine if you are eligible for assistance with grocery bills through the Supplemental Nutrition Assistance Program (SNAP).

• Research the Low Income Home Energy Assistance Program (LIHEAP) to help with utilities.

• See if you can lower your phone bill through the Lifeline Modernization Order .

• Find out if you are eligible for free or low-cost health coverage through Medicaid and the Children’s Health Insurance Program (CHIP).

Coming Up With a Housing Plan

If you do not qualify for rental assistance from the government, you may need to come up with another plan to avoid high rent costs. Roommates can be a good way to keep rent low.

Alternatively, family and friends may be willing to offer free lodging while you save money. While it can be hard to lean on others in this way, it can be a form of financial self-care to do so until you are able to be out on your own. If you do move in with a loved one, just remember to be helpful around the house and chip in with utilities and groceries if you’re able.

Cutting Costs

After reducing your largest cost (rent), it may be possible to reduce other costs in your budget. For example, a car payment, gas, and car insurance can be costly monthly expenses. If you live in an area with great public transportation or are comfortable walking and riding a bike, you may be able to get around without owning your own vehicle.

Other costs you might be able to cut include streaming services, gym memberships, and bills from dining out.

Getting on a Budget

After finding low-cost housing and trimming unnecessary expenses, it’s a good idea to make a monthly budget that accounts for your post-tax income and your monthly expenses.

Not sure how to budget on a $20K salary? Taking care of all necessary bills (housing, utilities, groceries) is the perfect first step. Once you’ve accounted for those monthly expenses, see how much you can allocate to paying down debt or building your savings.

Recommended: How to Save Money From Your Salary

Avoiding the Wrong Kinds of Debt

Taking on debt is often necessary — when buying a house, purchasing a car, or even going to college. But when you make a low salary and struggle to pay the bills, it can be tempting to take out a payday loan or overuse a high-interest credit card.

When possible, it’s a good idea to avoid high-interest loans. In fact, instead of taking on more credit card debt, you may be able to take control of your bad debt by applying for a debt consolidation loan. These are typically personal loans that charge an interest rate that may be significantly lower than your credit cards’ rates. You use the loan to pay off the cards and then you work to eliminate the personal loan.

You might also meet with a counselor from a nonprofit debt counseling organization like the National Foundation for Credit Counseling, or NFCC .

Recommended: Debt Repayment Strategies

Supplementing Your Basic Income

You might also consider ways to bring in more income to pump up your spending power. This could include seeing if additional hours are available at your primary workplace, as well as taking on a seasonal part-time job or starting a side hustle. These are all ways to use some of your leisure time to bump up your income.

The Takeaway

A $20,000 is usually not enough for a family to live on, and it may be difficult for individuals to get by on this salary too. It may be wise to research government assistance, look for roommates to lower housing costs, and build (and stick to) a monthly budget that prioritizes paying down debt and building emergency savings. These steps can help you live on a $20,000 annual income.

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FAQ

Can you live comfortably on $20,000 a year?

It can be difficult for an individual to live comfortably on $20,000 a year. With the right assistance from friends, family, and the government, however, it may be possible to meet basic needs. Families will face more challenges living off $20,000 a year.

What can I afford making $20K a year?

A $20,000 salary may leave room in your budget for the most basic expenses: rent, utilities, transportation, and groceries. Even then, getting government assistance and a roommate might be necessary for managing monthly expenses on $20K a year.

Is $20,000 a year middle class?

According to the most recent data from the Pew Research Center, middle class, middle-income households have incomes ranging from about $56,600 to $169,800. Thus, a family living on $20,000 is not middle class; it’s actually below the poverty level. While an individual earning $20,000 a year is not below the poverty line, they are still not considered middle class.

Photo credit: iStock/svetikd

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/27/2024. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

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Source: sofi.com

Apache is functioning normally

September 23, 2024 by Brett Tams

Distance learning can offer students the flexibility to balance coursework with working, taking care of family, and other responsibilities. The cheapest online colleges can help you minimize student loan debt while working toward a degree and career advancement.

Online colleges offer degrees across a wide range of academic disciplines. In 2022, around 26% of college students were taking online classes exclusively.

This guide will explore online college costs, the least expensive online colleges, and strategies to pay for an online degree.

Overview of Online College Costs

Whether studying in-person or online, college costs typically include more than just tuition.

Students taking online classes may have to pay technology fees and purchase books and materials depending on their area of study. The cost of an online degree can also vary by institution and in-state vs. out-of-state residency.

Here’s a closer look at the main cost considerations for online colleges.

Recommended: Guide to Paying for College

Tuition and Fees for Online Programs

Like traditional college, tuition and fees account for most of the cost of attending online college.

Tuition usually varies based on enrollment status or, in other words, whether you’re a full-time vs. part-time student. Part-time students pay per credit hour, whereas full-time students taking 12 to 18 credits per semester may pay a flat rate.

Online programs may also include fees on top of tuition, such as a technology or distance learning fee, to access virtual resources and technical support services.

Cost Comparison: Online vs. On-Campus

Students considering studying online vs. on-campus may ask which is cheaper. In short, it depends on the institution, degree program, and location, but studying on campus tends to be more expensive.

For example, a first-year, in-state undergrad at Penn State’s University Park campus would pay $19,672 in tuition and fees for the 2024-2025 academic year. Meanwhile, an online undergraduate student would be charged $7,678 per semester, or $15,356 for the academic year.

Looking at tuition and fees is just part of the cost comparison. The total cost of attendance for studying on campus could include transportation expenses, room and board, and a meal plan — all costs that may not be incurred with the cheapest online colleges.

In-State vs. Out-of-State Online Tuition

The cost of online college can vary based on where you live.

At public institutions, students with in-state residency may benefit from subsidized tuition, even for online degree programs. However, most private schools do not differentiate tuition costs between in-state and out-of-state students.

Recommended: In-State Tuition: A Look at Establishing Residency

10 Affordable Online Colleges to Consider

Looking for the cheapest accredited online colleges? Here’s a short list of affordable online colleges to consider.

Institution	In-State Cost Per Credit Hour	Out-of-State Cost Per Credit Hour
University of North Carolina at Pembroke	$42	$208
University of Florida Online	$129	$553
University of Central Florida	$179	$716
Eastern New Mexico University	$298	$380
Great Basin College	$193	$255
Clayton State University	$5,780 (annual tuition)	$5,780 (annual tuition)
Western Governors University	$8,300 (average annual cost)	$8,300 (average annual cost)
University of Wisconsin – Madison	$500	$500
Kennesaw State University	$190 (plus $340 online learner fee per semester)	$190 (plus $340 online learner fee per semester)
University of West Florida	$219	$324 (Alabama residents) $648 (other non-Florida residents)

Factors Contributing to Lower Online College Costs

Why are online colleges cheapest for earning a degree? For starters, traditional colleges with in-person learning offer a range of experiences and infrastructure for students that online colleges don’t.

With online college, students have a much wider range of institutions and degree programs to choose from, increasing their options for an affordable education. Taking classes from home also avoids having to relocate and pay for moving costs.

Here are some additional factors contributing to lower online college costs.

No Campus Facilities or Housing

Dormitories, campus quads, athletic facilities, and many other facilities that define a quintessential college campus require a considerable budget to maintain. Besides tuition, students taking classes in-person may be required to pay for on-campus housing and meal plans for a portion of the full duration of their enrollment.

Meanwhile, students enrolled in online college are typically spared from paying housing and campus facility costs, including parking and recreation fees.

Recommended: Cheapest States to Go to College in the United States

Lower Administrative Overhead

Besides teaching faculty, traditional colleges require onsite staff to support student life on campus. This may include health services, campus events, dining services, and other areas related to student well-being.

With less support staff, online colleges have comparatively less overhead cost to meet the needs of their students.

Technology and Course Delivery Methods

Online colleges may charge additional technology fees for students enrolled in distance learning. However, online students could save on the cost of books and materials if primarily using digital resources for their coursework.

Taking classes online vs. in-person lectures can save on transportation costs, too, which average $1,360 annually for students who commute to college.

Flexible Scheduling and Self-Paced Options

Self-paced online programs allow students to watch lectures and complete assignments at their own speed. This approach can make it possible to take online classes while working or juggling family commitments, helping to pay for school and save on childcare costs.

Additional Cost-Saving Strategies

Though online college can be more affordable, students might consider other options for lowering costs.

Wondering how to pay for college? Here are some additional ways to reduce the cost of going to online college.

Transfer Credits and Prior Learning

Students who previously attended another institution could save on their online education by transferring credits. Transferring college credits usually involves an application fee or enrollment fee, but that’s still cheaper than taking the credit hours anew.

Financial Aid and Scholarships

Around 87% of college students receive some form of financial aid. Most colleges with free tuition or income-based tuition are in-person institutions, though students enrolled in online programs may qualify for financial aid and scholarships to help cover the cost of tuition.

When browsing online programs, keep in mind that colleges and universities must be accredited for students to be eligible for federal student aid, such as Pell Grants and federal student loans. Online students may also leverage private student loans and state and institutional financial aid in the form of scholarships or grants.

Already in the workforce? There are jobs that pay for your degree through scholarships or tuition reimbursement that could be a fit for your academic and professional goals.

Recommended: How to Complete the FAFSA Step by Step

Accelerated or Competency-Based Programs

An online competency-based or accelerated program is another option for students to learn at their own pace instead of following a set semester schedule.

Generally, students can choose when to take an assessment to demonstrate they’ve mastered a competency, potentially earning their degree faster and at a reduced cost.

The Takeaway

The cheapest online colleges can make earning a college degree more affordable. Besides the cost of tuition and fees, financial aid and long-term career goals are important considerations when comparing schools and degree programs.

To pay for your online education, you can use cash savings, grants, scholarships, and student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What is the cheapest accredited online college?

The cheapest accredited online college on our list is University of North Carolina at Pembroke. Note that the cheapest online college can differ based on a student’s chosen program, credit hours, and residency status.

Are cheap online degrees worth it?

A cheap online degree can offer a flexible and affordable path to higher education and career advancement. When evaluating online degrees, consider the program’s cost, curriculum, and reputation.

How can I maximize cost savings for an online degree?

You can save on online college by enrolling in a program offering cheaper in-state tuition or self-paced learning to earn a degree in less time.

Do employers value cheap online degrees?

Employers will value a cheap online degree the same as a traditional degree if it’s from an accredited institution and meets the same academic standards. Earning an online degree while working also demonstrates time management skills to potential employers.

Photo credit: iStock/DisobeyArt

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Source: sofi.com

Apache is functioning normally

September 21, 2024 by Brett Tams

If you’ve always dreamed of opening your own business, now may be the time. The entrepreneurial spirit is thriving in the U.S. as historic numbers of Americans start their own companies. In 2023, a record 5.5 million new business applications were filed, according to the U.S. Census Bureau. The trend started in 2020 during the pandemic and has accelerated ever since.

There are many reasons why new business is big business today. For some individuals, the allure of running their own enterprise is a motivation too strong to resist. Others see opportunity created by changing consumer tastes and needs. For yet other people, starting a business may be a way to start over after a job layoff.

Small businesses are the backbone of the U.S. economy, employing 46% of the workforce, according to the Small Business Administration (SBA). But of course, a new business needs to stay in business. And one of the key factors that can help determine its success: Location, location, location.

So then, where is the best place to start a business? In what cities can a new business not only find its footing but go on to flourish?

To discover the answer, SoFi looked at the 50 largest cities across the U.S. with populations of 500,000 or less, and ranked them on eight different criteria, including annual business applications, average cost of office space, unemployment rates, and cost of living. We assessed the criteria for each city on a 10-point scale for a possible total score of 80 points. (See below for the complete details about our methodology.)

What we found was that while businesses are starting nationwide, certain cities across the country seem to be particularly beneficial for new businesses. Read on to learn the 10 best cities to start a business in the U.S.

Key Points

As SoFi analyzed the data about each city, these important findings stood out:

• The South is a hotspot for new businesses. Three of the top 10 cities on our list are in Florida, and all score high in self employment. Plus, Florida has increasing numbers of businesses owned by underrepresented groups. Atlanta, the Number 3 city overall, has a large population of working age people and ranks high for new business applications.

• Cold-weather cities are offering new businesses a warm welcome. Minneapolis clinched the Number 2 spot on our list, and St. Paul, Minnesota and Madison, Wisconsin scored in the top 10. All three have large populations of working age people.

• Texas is poised to become a new-business powerhouse. The Lone Star State has 2 of the top 10 cities on the list — Plano and Irving. Younger people are gravitating to Texas, giving new businesses in these cities plenty of working age adults to employ.

Our Findings

Reviewing the entire list of cities in the SoFi analysis reveals some important, even surprising, information for aspiring business owners. For instance, Miami is the city with the most new business applications and highest level of self employment, while Witchita, Kansas, offers the best prices for office space, and Cleveland has the lowest cost of living.

Check out how other top cities rank when it comes to opening a new business.

Ranking	City	Walkability Score	Cost of Living Score	Office Space Cost Score	Household Income Score	Unemployment Score	New Business Score	Self-Employment Score	Working Age Score	Total Score
1	Miami, Florida	8.85	3.74	0.44	4.46	5.14	10.00	10.00	9.50	52.13
2	Minneapolis, Minnesota	8.16	4.55	4.60	6.21	4.73	3.17	9.71	10.00	51.13
3	Atlanta, Georgia	5.52	4.14	2.65	6.32	4.05	9.75	7.88	9.99	50.30
4	Plano, Texas	4.71	3.43	3.79	8.60	6.22	4.26	8.68	9.21	48.89
5	St. Louis, Missouri	7.59	5.45	5.27	4.31	4.73	3.55	8.22	9.36	48.48
6	St. Paul, Minnesota	8.16	4.85	5.36	5.69	5.27	2.50	6.98	9.25	48.06
7	Orlando, Florida	4.71	4.44	2.88	5.39	5.14	7.05	8.66	9.74	48.01
8	St. Petersburg, Florida	4.94	4.75	3.23	5.72	5.95	5.62	8.77	8.99	47.97
9	Madison, Wisconsin	5.75	4.19	5.10	6.09	7.30	2.31	6.61	9.99	47.34
10	Irving, Texas	5.17	4.60	5.36	6.24	5.81	4.57	5.90	9.31	46.97
11	Lincoln, Nebraska	5.06	5.05	5.79	5.52	6.62	1.94	7.60	9.14	46.71
12	New Orleans, Louisiana	6.67	4.65	4.71	5.10	2.97	5.32	7.85	9.04	46.30
13	Jersey City, New Jersey	10.00	2.78	0.00	7.41	5.00	3.89	7.35	9.86	46.29
14	Lubbock, Texas	4.48	5.35	5.49	4.78	6.35	2.36	8.09	9.34	46.25
15	Omaha, Nebraska	5.52	5.15	5.59	5.71	5.81	2.85	6.58	8.89	46.10
16	Pittsburgh, Pennsylvania	7.13	5.20	4.28	4.90	5.41	2.43	6.61	9.63	45.58
17	Lexington-Fayette, Kentucky	3.91	4.90	5.69	5.38	5.14	2.86	8.31	9.20	45.39
18	Colorado Springs, Colorado	4.14	3.99	4.94	6.43	5.00	4.11	7.61	9.10	45.32
19	Virginia Beach, Virginia	3.79	4.14	4.86	7.12	6.22	3.84	6.12	8.94	45.04
20	Arlington, Texas	4.37	4.70	5.26	5.83	5.14	3.58	6.44	9.21	44.52
21	Tulsa, Oklahoma	4.48	5.45	5.53	4.61	4.46	3.21	7.75	8.80	44.30
22	Gilbert, Arizona	3.33	3.33	2.71	9.37	6.08	3.83	6.65	8.85	44.16
23	Santa Ana, California	7.70	2.27	3.94	6.85	5.27	2.99	5.56	9.42	44.01
24	Reno, Nevada	4.60	3.79	4.41	6.64	5.14	3.55	6.72	9.10	43.95
25	Aurora, Colorado	4.94	3.84	4.40	6.40	5.14	3.77	6.19	9.24	43.91
26	Durham, North Carolina	3.45	4.70	3.63	6.08	5.54	3.61	7.41	9.44	43.85
27	Long Beach, California	8.39	2.07	2.18	6.43	4.05	3.46	7.59	9.60	43.77
28	Chandler, Arizona	4.02	3.59	4.40	8.08	5.81	3.83	4.79	9.20	43.72
29	Anaheim, California	6.44	1.82	4.70	7.20	5.27	2.99	5.88	9.24	43.55
30	Corpus Christi, Texas	4.60	5.25	6.11	5.21	5.14	1.94	6.37	8.85	43.47
31	Tampa, Florida	5.75	4.60	0.23	5.43	4.86	5.61	7.43	9.54	43.45
32	Buffalo, New York	7.70	5.66	6.01	3.76	3.92	2.02	4.90	9.04	43.00
33	Irvine, California	4.94	0.00	2.04	10.00	5.41	2.99	7.89	9.72	42.98
34	Oakland, California	8.62	0.81	0.03	7.68	4.46	2.43	9.40	9.44	42.86
35	Wichita, Kansas	4.02	5.35	6.45	4.94	5.00	2.50	5.75	8.78	42.79
36	Honolulu, Hawaii	7.59	0.66	2.98	6.73	6.35	2.46	7.24	8.74	42.74
37	Raleigh, North Carolina	3.56	4.39	2.40	6.40	5.95	3.95	6.32	9.69	42.65
38	Henderson, Nevada	3.45	4.04	3.55	6.94	4.32	4.45	7.21	8.33	42.29
39	Cincinnati, Ohio	5.63	5.20	6.06	4.00	3.38	3.28	5.20	9.50	42.25
40	Fort Wayne, Indiana	3.68	5.45	6.19	4.74	4.73	2.67	5.83	8.52	41.81
41	Greensboro, North Carolina	3.33	5.30	5.16	4.48	4.19	3.55	6.57	9.20	41.78
42	Anchorage, Alaska	3.56	3.38	2.40	7.79	5.27	2.83	7.05	9.14	41.42
43	Toledo, Ohio	5.29	5.61	6.28	3.69	2.70	2.75	6.25	8.72	41.29
44	Riverside, California	4.94	3.13	4.68	6.79	4.46	2.34	5.33	9.44	41.11
45	North Las Vegas, Nevada	3.91	4.55	4.50	5.84	3.24	4.45	4.11	9.04	39.63
46	Chula Vista, California	5.29	2.12	2.66	8.29	1.62	2.57	6.95	9.14	38.65
47	Cleveland, Ohio	6.55	5.81	5.63	3.03	0.00	3.77	4.87	8.98	38.64
48	Newark, New Jersey	8.74	4.24	3.11	3.78	1.22	4.45	3.89	9.11	38.53
49	Stockton, California	5.06	3.69	5.22	5.82	3.38	2.11	4.44	8.81	38.53
50	Bakersfield, California	4.25	3.89	5.39	6.00	3.51	1.73	4.57	8.61	37.97

The Top 10 Cities to Start Your Own Business

The best cities for new businesses tend to be in the South and Midwest, our research found. But no matter where they are located, each of the cities in our top 10 has attributes that make them great locations for aspiring business owners.

1. Miami, FL

Score: 52.13

This vibrant metropolis combines the perks of big-city life, such as an exciting food and nightlife scene and renowned museums and art galleries, with beautiful beaches and warm, sunny weather. Miami’s population has increased steadily in recent years, making it one of the fastest growing cities in the country. And tourists from around the world flock to this oceanside oasis. In short, there are endless opportunities — and customers — for new business owners in Miami.

In SoFi’s analysis, Miami received top scores for new business applications and the number of self-employed individuals. It also rated highly for walkability and its large working-age population. Not only that, prospective business owners in Miami may be able to take advantage of small business grants in Florida that can help with start-up costs.

2. Minneapolis, MN

Score: 51.13

With its friendly midwestern vibe and cosmopolitan charm, Minneapolis has been experiencing population growth since the pandemic. Despite the cold winters, residents say it offers a good quality of life, access to nature, sporting events, arts and culture, and more. The city is also seeing a surge in new housing and economic development.

In the SoFi study, Minneapolis received a top score for its large working-age population. It also got high marks for the number of self-employed residents and the city’s walkability. Another potential selling point for entrepreneurs: The state of Minnesota works to cultivate small businesses, offering assistance and partnerships through its Office of Small Business and Innovation.

3. Atlanta, GA

Score: 50.30

Atlanta is another one of the fastest-growing metro areas in the country, according to Census Bureau data. The city has seen a boom in businesses opening and relocating there, from major corporations to smaller companies. Atlanta’s lifestyle amenities have flourished as well, making the city a draw for its vibrant entertainment offerings, diverse restaurants, and sporting events.

It’s no wonder then that Atlanta has a robust population of working-age individuals, according to SoFi’s research. It also got a high score in our analysis for new business applications. For entrepreneurs, the city has support networks, incentives, and small business loans that make it an appealing place to set up shop.

4. Plano, TX

Score: 48.89

New businesses are popping up across Plano, making it a welcoming community for those ready to launch their own companies. Located less than 20 miles from Dallas, the city is a family-friendly place to live with easy access to a major metro area. People are drawn to Plano’s parks, cultural events, and restaurant offerings — something new business owners can both enjoy personally and benefit from professionally.

SoFi’s research found that Plano has a large working-age population and a high household income. It also ranks near the top of the list for self-employment. Plus, small business grants in Texas can make Plano a good choice for new business owners.

5. St. Louis, MO

Score: 48.48

Located on the Mississippi River and known for its iconic Arch, St. Louis is actively courting new businesses through incentive programs, tax credits, and enterprise zones. The city has a vibrant start-up scene, with business incubators and accelerators. St. Louis, which boasts a diverse culture, historic neighborhoods, and a fairly affordable cost of living, is a top area for job growth, according to recent data from the Federal Reserve Bank of St. Louis.

Indeed, SoFi’s report found that St. Louis gets high marks for its large working-age population, self-employment score, and household income.

6. St. Paul, MN

Score: 48.06

The state capital of Minnesota, and the other half of the famed “Twin Cities” (along with Minneapolis, the Number 2 city on our list), St. Paul is a mid-sized metropolis with a youthful vibe. There are a number of colleges and universities here, giving the city’s employers access to skilled graduates. In our research, the city ranked high for its large working-age population. In addition, St. Paul offers a number of resources for new businesses, including financial and technical assistance.

7. Orlando, FL

Score: 48.01

Home to Disney World and Universal Studios, among many other theme parks, Orlando is not only a coveted tourist destination but also a cosmopolitan city with a strong arts and cultural scene, good restaurants, and a bustling nightlife.

It also has a variety of employment opportunities to attract workers: Orlando is filled with big companies, such as AAA and Darden Restaurants, and it’s a growing technology hub. As a result, the city has a large working-age population, according to SoFi’s analysis. Orlando is welcoming to new businesses and offers many incentives to entrepreneurs.

8. St. Petersburg, FL

Score: 47.97

This Gulf Coast city is so beloved for its weather that it’s known as Sunshine City. St. Pete is appealing to employees and business owners alike for its working and lifestyle opportunities. Here, you’ll find pristine sand beaches and a walkable city with a dynamic business community. Companies like Raymond James and HSN are located in the city, as are a growing number of new businesses.

St. Petersburg has a booming working-age population and it scores high marks in self employment, the SoFi report found. It also offers tax benefits and incentives to new businesses.

9. Madison, WI

Score: 47.34

This state capital was recently rated the sixth best city in the U.S. to live in by U.S. News & World Report, thanks to its quality of life. Madison has a hot job market and it’s a hub for companies in technology, healthcare, and manufacturing. As a college town — the University of Wisconsin-Madison — it also has a diverse population and a dynamic downtown filled with boutiques, restaurants, bars, and coffee shops.

In SoFi’s report, the city rated highly for its working-age population. The unemployment rate in Madison is fairly low, which also makes it desirable. The city offers programs to help small businesses start and succeed, and there are small business grants in Wisconsin entrepreneurs can explore.

Recommended: Unemployment Rates by City

10. Irving, TX

Score: 46.97

Located near Dallas, Irving combines urban amenities with a suburban feel. It has many perks of city living, such as live music venues, ballet and symphony, art, movie theaters, and restaurants. For nature lovers, Irving has a number of rivers and lakes weaving through it, along with parks and nature trails.

Irving’s economy is strong — major corporations in industries such as technology, finance, and consumer goods are located there. SoFi’s research found that the city has a large working-age population, which can be beneficial to new business owners. Irving also offers incentives and resources for small businesses.

Tips for Small Business Owners

If you’re ready to start a small business, these are some important steps to take to help your venture become a success.

• Choose the right location for your business.
Do your research to pick an area that best suits your business needs. Consider whether the area has the type of customer you’re targeting, a robust workforce, and real estate and operating costs you can afford.

• Check out local resources, networks, and programs.
Does the location you’re considering offer incentives and tax credits for new and/or small businesses? The cities on our list do, as do many others. Be sure to check with the chamber of commerce, the city’s SBA office, if there is one, and local economic development centers and business incubators.

• Find the right financing.
The city or state may offer grants or funding for new businesses — do your homework to find out if they do. Also investigate grants and funding programs from the SBA.

As you’re seeking financing for your small business, you may also want to consider a loan to help get your venture off the ground.

When you’re looking for a loan for your new business, SoFi can help. On SoFi’s marketplace, you can shop top providers to access the capital you need. Find a personalized small business loan option today within minutes.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

With SoFi’s marketplace, it’s fast and easy to search for your small business financing options.

Methodology

To determine the best cities to start a business, SoFi looked at the largest 50 cities across the U.S. with populations of 500,000 or less. (“Population” refers to the city proper and is separate from surrounding urban areas.) SoFi analyzed eight key contributing factors, each assessed on a 10-point scale, in each city for an overall potential score of 80. These factors included:

Walkability

Walkability was determined by reviewing statistics from Walk Score, which were given on a scale of zero to 100. The higher the Walk Score, the higher a city’s walkability score.

Cost of Living

Using Area Vibes, SoFi reviewed the cost of living score — an index score compared to the national average. The lower the cost of living score in a city, the better the score we assigned.

Average Cost of Office Space

Using LoopNet, SoFi assessed all 50 cities using the following filters:

• Type of space needed: office, retail, or restaurant

• Number of employees: 10 (which equaled 1250 to 4000 sq. ft. of space)

SoFi averaged the price per square foot per year for the newest 10 results in each city. The higher the average cost, the lower the score.

Median Household Income

Using Data USA, SoFi assessed the median household income for each city. The higher the median income, the higher the score.

Unemployment Rates

Using Area Vibes, SoFi assessed the unemployment rate for each city. The lower the unemployment rate, the better the score.

Annual Business Applications

Using Census Burea data SoFi calculated the percentage of people who applied for a small business loan in the county where each city is located. The higher the percentage of new business applications, the higher the score.

Percentage of Self-Employed People

Using Census Burea data, SoFi calculated the percentage of people in each city who had self-employment income. The higher the percentage, the higher the score.

Working-Age Population

Using Census Burea data, SoFi calculated the percentage of people in each city who were between the ages of 15 and 64. The higher the percentage, the higher the score.

SoFi’s marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSMB-Q324-018

Source: sofi.com

Apache is functioning normally

September 21, 2024 by Brett Tams

Once your small business starts earning a profit, you have to decide if you should distribute those profits to yourself (and any other owners) or reinvest them back into the business.

While it can be tempting to pocket your company’s profits, funneling at least some of that money back into the business is worth considering.

For one, reinvesting can help improve the company or expand operations, leading to even higher profits down the line. For another, reinvested money is generally considered a business expense, which means you likely won’t have to pay income taxes on it.

Read on for a closer look at why you may want to reinvest a percentage of your profits back into your business, how this can impact your business taxes, and ways you might use profits to help expedite business growth.

What Constitutes a Business Profit?

Profit is the money a business pulls in after accounting for all expenses. Any profits earned funnel back to business owners, who can choose to either keep it as earnings, distribute it to shareholders as dividends, or reinvest it back into the business.

Whether you own a small dog grooming business or a multinational corporation, the main goal of any business is to earn money. Thus, a business’s performance is based on profitability. For accounting purposes, companies will often report gross profit, operating profit, and net profit (the “bottom line”).

Recommended: How to Read Financial Statements: The Basics

What Are Businesses Taxed On?

Any profits that aren’t reinvested in a business are typically taxed as income. How that tax is paid depends on the structure of the business.

Most small businesses are pass-through entities, which means that the gains or losses are passed through to the owners on their personal income tax returns. Corporations, on the other hand, pay a flat tax on business profits.

Recommended: 10 Steps to Starting a Small Business

Types of Business Taxes

When we refer to “taxes” for a business, we’re actually using an umbrella term for many different types of taxes a business may have to pay. Let’s take a closer look.

Income Taxes

Income taxes are based on the net income of your business for the tax year. Net income is the same thing as profit (income minus expenses). If you share a business with others, the net income is divided among the owners based on your business agreement. Most small businesses pay both federal and state income taxes.

Estimated Taxes

Employees have taxes withheld from their paychecks, but as the owner of your business, no one is withholding taxes from the money you take out of the business.

Instead, you need to file estimated taxes throughout the year based on the income you have earned up to that point in the year. Typically, federal and state estimated tax payments are due on April 15, June 15, September 15, and January 15 for the previous tax year.

Self-Employment Tax

Employees generally have Social Security and Medicare taxes withheld from their paychecks. If you are a self-employed business owner, however, you must calculate and pay your own Medicare and Social Security tax through self-employment taxes.

Excise and Sales Taxes

Depending on which state you operate in and what type of goods or service you sell, you may need to set up a system to collect sales tax from your customers and report and pay that tax to your state.

You may also need to pay federal and local excise taxes. An excise tax is a legislated tax on specific goods or services, such as fuel, tobacco, and alcohol.

Payroll Taxes

If you have employees, you must withhold payroll taxes from their paychecks and pay applicable federal, state, and local taxes. The taxes usually withheld from employee paychecks include FICA (Medicare and Social Security taxes) and federal, state, and local income taxes. Employers and employees each pay half of the FICA tax.

Recommended: 3-Year Business Plan Structure

How to Reduce Taxable Income

As a business owner, there are many strategies you can use to reduce the portion of your business income (or profits) that can be taxed. Here are some you may want to consider.

Reinvesting Business Profits Into the Business

Reinvesting means retaining net profits (the income left over after all operating costs and overhead are paid) and investing them in activities or expenses that can help increase the value of the business. As a business expense, reinvested income generally isn’t taxable.

You may, however, want to reinvest only a portion of your profits and look for other ways to infuse capital into the business, such as applying for a small business loan. Interest paid on business loans is typically tax deductible as a business expense.

Finding Deductions

There are numerous business tax deductions you may qualify for and, when you add them all up, they can amount to a significant reduction in your taxable business income. Here are some of the most common small business deductions:

• Inventory

• Business property rent

• Startup costs

• Utilities

• Company vehicle expenses

• Insurance

• Rent and depreciation on equipment and machinery

• Office supplies

• Furniture

• Advertising and marketing

• Business entertainment

• Travel expenses

• Interest paid on all types of small business loans

Tax Audits

As a small business owner, it makes financial sense to explore all your options for reducing your tax bill. However, when it comes to deductions, you need to be careful. It’s particularly important, for example, to keep your business and personal expenses separate. If your deductions look suspicious to the IRS, the agency could potentially audit your business.

Investing in Employees

One great way to reduce your company’s taxable income is to invest in your employees. Generally speaking, any wages, bonuses, or other compensation you pay your workers in a given year are tax deductible as a business expense. That includes any fringe benefits you offer — such as gifts, health plans, and employee discounts — as well.

Rewarding your workforce can do more than lower your tax liability, however. It can also help boost their morale, increase productivity, attract the top talent, and grow your business.

Choosing Purchases and Investments Wisely

While it’s clearly important to invest in your business, the question remains: Where should you focus your funds? Here are a few purchases and investments you may want to consider.

• Equipment: It can be smart to reinvest profits into new machinery and equipment as your current assets age and become expensive to maintain. Upgrading equipment can increase efficiency and help you stay on the cutting edge of your industry.

• Software: Investing in software, such as payroll and accounting software, can help streamline tedious tasks and free you up to focus on more important matters, such as growing your business.

• Inventory: In some cases, using business profits to buy more inventory can be a smart business move. If you often sell out of popular products, for example, beefing up inventory can help you capture sales you’ve been missing out on.

• More marketing: You might consider hiring a marketing professional or agency to help create buzz about your business, improve search rankings, and expand your customer base.

Recommended: Business Cash Management, Explained

Tax Planning Strategies

One of the best ways to make your business tax efficient is to pay attention to tax credits and not just deductions.

Tax credits are particularly valuable because, unlike deductions, which reduce your taxable income, credits reduce your tax bill on a dollar-for-dollar basis. For example, if your small business owes $25,000 in taxes, a $5,000 tax credit means you can subtract $5,000 from your tax bill and only owe $20,000.

There are a number of tax credits your business might qualify for, including:

• Credit for Small-Business Health Insurance Premiums

• Employer Credit for Paid Family and Medical Leave

• Work Opportunity Credit

• Credit for Increasing Research Activities

• Disabled Access Credit

• Credit for Employer-Provided Childcare Facilities and Services

• New markets credit

The Takeaway

It takes hard work to establish and grow your business. Once you’re able to cover all your expenses, pay yourself a salary, and still have money left on the table, it may be time to consider putting that extra money into your business.

Reinvestment means pouring a percentage of your company’s profits back into your business. It can be a great way to increase the value of your company and to help your company grow. What’s more, reinvesting can reduce your business tax liability at the end of the year, for the ultimate win-win.

With SoFi’s marketplace, it’s fast and easy to search for your small business financing options.

FAQ

How much is a small business able to make before paying taxes?

A small business generally must pay taxes on any profit it earns, but the specific amount before paying taxes depends on deductions, credits, and the business structure. For self-employed individuals, income over $400 is subject to self-employment tax, while other tax obligations vary by income and state laws.

What does the 20% business tax deduction do?

The 20% business tax deduction, part of the Qualified Business Income (QBI) deduction, allows eligible small businesses to deduct up to 20% of their qualified business income from their taxable income. This reduces their overall tax liability, promoting business growth and investment.

What is a business write-off?

A business write-off is a tax deduction that allows businesses to subtract certain eligible expenses from their taxable income. Common write-offs include operating costs, rent, supplies, meals, startup expenses, employee salaries, and more. These deductions reduce the overall tax liability by lowering the business’s reported income.

Can you invest business profits to avoid taxes?

Yes, you can reinvest business profits into the company to reduce taxable income, but you cannot avoid taxes as a small business owner. While reinvesting can lower taxes, it doesn’t fully eliminate tax obligations, as profits are still subject to applicable tax laws and limits.

Photo credit: iStock/Andrii Yalanskyi

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q324-032

Source: sofi.com

Apache is functioning normally

September 20, 2024 by Brett Tams

Loud budgeting is a money-saving trend that is encouraging people to be honest with others about their finances and feel okay about saying “No” to expensive invitations.

The concept was first introduced by TikTok content creator and comedian Lukas Battle in late 2023 as an alternative to “quiet luxury” and involves talking openly — or loudly — about your financial goals and spending limits to those around you. Since Battle first coined the term, TikTok has been deluged with videos extolling the benefits of loud budgeting and how to do it.

Is it time to get on the loud budgeting bandwagon? Maybe. While you can’t trust all the financial advice you get on social media, many finance experts say that loud budgeting is rooted in a time-honored financial principle — that people should make spending decisions based on their budgets and savings goals, rather than peer pressure or FOMO.

Here’s a closer look at what loud budgeting is and how to incorporate this approach into your own life.

Key Points

• Loud budgeting, a concept introduced by TikTok creator and comedian Lukas Battle in late 2023, encourages transparency about financial goals and spending limits.

• Benefits of loud budgeting may include: reduced financial stress, avoiding overspending due to peer pressure, building an enhanced support system, and reaching financial goals.

• It can be implemented by determining priorities, building a basic budget, and being honest with those around you about your budget.

• Budgeting tools, such as those provided by your bank or apps that track or permit you to share your spending and savings goals, can assist with loud budgeting.

• Loud budgeting doesn’t have to entail disclosing financial or personal details — it can be as simple as sharing your financial goal and/or limits.

The Psychology of Loud Budgeting

When it comes to maintaining close ties to friends and family, it can be hard to decline an invitation to a catch-up dinner, reunion weekend, or destination wedding — even if you’re not comfortable with the cost. So, you might grudgingly say “Yes,” and figure you’ll deal with the financial fallout later. Or, you might say “No,” but make up a fake reason why you can’t be there. Neither option is ideal.

Loud budgeting offers an alternative solution — bowing out while being honest about your money concerns. It’s based on the premise that staying close and connected with people you care about doesn’t have to cost a lot. Often, it just takes one member of the group to say “No,” and suggest a way to bring down the cost of a social outing or gathering.

Recommended: 7 Tips for Living on a Budget

Benefits of Practicing Loud Budgeting

While loud budgeting isn’t for everyone, it has a number of benefits. Here are some to consider.

Reduced Financial Stress

Money worries can be a significant source of stress. Loud budgeting can immediately take some of the pressure off by making it acceptable to opt out of social plans that will cause you to spend more than you can afford. Over time, loud budgeting can help you grow the balance in your bank account, pay down debt, and achieve your goals — all of which can improve your financial well-being.

Improved Financial Transparency

While talking about money has long been considered taboo and can even trigger shame, loud budgeting aims to reduce the stigma around having financial limitations. Instead, it advocates being transparent about your budget and why you’re choosing not to spend your hard-earned cash on something. By starting the conversation, loud budgeters may also encourage others in their circle to be more authentic and honest about their finances.

Enhanced Support System

Not everyone will necessarily be receptive and understanding when you get loud with your budget. But there is also a good chance that you will get support from others who (unbeknownst to you) are in the same financial boat. This can help you build a community of people working towards similar financial goals. Your community can help hold you accountable to your plan. You can also share tips and experiences and cheer each other on when you achieve success, such as reaching a savings goal.

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How To Implement Loud Budgeting in Your Life

If you’re interested in trying out this Gen Z budgeting trend, here are some tips for how to incorporate loud budgeting into your life.

Determine Your Priorities

Budgeting (loudly or quietly) is about making sure your spending aligns with your priorities. So a great first step is to sit down and lay out some specific and achievable financial goals, along with a timeframe for when you want to reach them. For example, maybe you want to pay off your credit cards in the next six months or put a down payment on a home in one year. Knowing what you want to accomplish gives you the “why” behind your loud budget and helps you stick to your plan.

Build a Basic Budget

Before you can get loud about your budget, you actually need to make a budget. To do so, you might start by looking at what’s coming in each month (on average) and what’s going out each month (on average). If your total monthly spending is higher than your total monthly income — or it’s about the same (meaning you’re not saving anything) — you’ll need to adjust accordingly.

There are all kinds of budgets, but one simple framework to consider is the 50/30/20 rule. This entails allocating 50% of your monthly take-home income to needs, 30% to wants, and 20% to saving and paying more than the minimum on your debts.

Once you come up with a basic budget, it’s a good idea to track your spending (there are budgeting apps that make this easy) to see how well you’re sticking with the plan and, if necessary, make some tweaks to your budget.

Be Honest With Others

Once you have a clear sense of your budget, priorities, and savings goals, don’t be afraid to share this information with friends and family. While you don’t have to delve into the intricate details of your finances every time you decline a social invitation, you can say that you’re trying to spend less and be better about managing your money. You might also talk about some specific goals you’re trying to achieve. Being honest in this way can help make it easier to decline costly invites and keep you accountable to your plans.

Suggest Alternatives

When someone in your circle suggests an outing that doesn’t work with your budget, consider suggesting alternative options. For example, if you can’t swing an expensive brunch, you might suggest a picnic in the park. Or if your friend group wants to spend the afternoon shopping, see if you can entice them to go hiking instead. The idea is to find some simple, wallet-friendly ways to have fun and stay connected without sacrificing your financial health.

Find Allies

Sticking to a budget can be a lot easier when you have a supportive community — or even just one or two allies — who are on the same financial page. If you can’t find any good budgeting buddies in your circle, you might search the #loudbudgeting hashtag on your social media channels to find others who are blazing the same path. This can help you build a community of people who can hold you accountable and cheer you on as you hit your goals.

Recommended: 7 Different Types of Budgeting Methods

The Takeaway

Loud budgeting promotes being more honest about your financial circumstances and goals, rather than accepting expensive invites out of fear of being a wet blanket and then dealing with the aftermath. While it can be challenging to speak your truth, being vocal about your budget can strengthen your connections and help you stay committed to your financial health — not just while it’s the latest trend on social media, but throughout your adult life.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.50% APY on SoFi Checking and Savings.

FAQ

How can I start loud budgeting without oversharing?

While loud budgeting involves being open about your financial situation, you don’t have to share sensitive details about your finances with everyone you know. Rather than lay out the specifics of your income and monthly bills, you can simply say that you are working toward a particular goal (like paying off your student loans or saving for a home) and trying to be more responsible about spending, saving, and managing your money. That can help explain why you are declining invitations to, say, pricey meals out or weekends away.

Does loud budgeting work for all income levels?

Yes, loud budgeting can be effective for all income levels, as it primarily involves being open about your financial goals and priorities with those close to you. While higher earners may be focused on wealth building and investment strategies, lower-income loud budgeters might share how they are working towards being free of credit card debt, building an emergency fund, or saving for a down payment on a home.

What apps or tools can help with loud budgeting?

Any budgeting app that helps you make better spending decisions can assist you with loud budgeting. Even better if the app allows you to track and share your progress with others. You might consider the tools your bank offers for budgeting. Other options include YNAB (You Need a Budget), which can help you create a plan for every dollar you earn; Goodbudget, which digitizes the “envelope system” of budgeting and allows you to share your budget categories with family or friends, or Honeydue,which helps couples sync bank accounts, credit cards, and more for easier viewing of your financial picture.

Photo credit: iStock/Jacob Wackerhausen

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBNK-Q324-036

Source: sofi.com

Apache is functioning normally

September 19, 2024 by Brett Tams

A small, steady amount of inflation is a sign of a healthy economy. But when prices rise too much too quickly, it lessens purchasing power, straining consumers and businesses.

Fortunately, the Federal Reserve (aka, “the Fed”) has a tool in its back pocket that can help tamp down inflation — the federal funds rate. By raising this benchmark rate, the government influences other interest rates, including rates for consumer and business loans. This makes borrowing more expensive and can help cool the economy, bringing inflation under control.

That said, raising interest rates doesn’t lower the pace of price increases overnight. There are also some risks involved in raising the federal funds rate too aggressively. Here’s a closer look at how interest rates and inflation interact.

Key Points

• To help control inflation, the Federal Reserve may raise the federal fund rate, which typically raises the interest rates offered by financial institutions.

• Raising interest rates makes borrowing more expensive, which tends to reduce consumer and business spending.

• Higher interest rates also encourage saving, since consumers will typically see higher interest rates on their savings accounts.

• It can take time for the Fed’s interest rate hikes to effectively ease the price of goods and services, and there are other factors that can affect pricing.

• Potential downsides to rising interest rates may include an economic slowdown, increased unemployment, and an increase in the cost of financing government debt.

The Relationship Between Interest Rates and Inflation

Inflation is generally defined as a sustained increase in the price of goods and services consumers regularly buy. While the inflation rate can be measured in a number of different ways, the Fed typically uses the Personal Consumption Expenditures Index (PCE) as its main measure of inflation. The PCE tracks changes in consumer spending on a wide range of goods and services.

The Fed has a stated goal of keeping inflation around 2% each year, as measured by the annual increase of the PCE index. To control inflation, the Fed will often take steps to influence interest rates. When interest rates are high, it costs more for consumers to use credit cards and take out mortgages and car loans. As a result, they typically start spending less. When demand for goods and services falls, it puts pressure on businesses to lower prices. Higher interest rates also help reduce spending by encouraging saving, as consumers benefit from higher yields on savings accounts.

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Mechanisms of Interest Rate Increases

In the U.S., decisions on monetary policy are made by the Federal Open Market Committee (FOMC), which is made up of the Board of Governors of the Federal Reserve as well as five of the presidents of the 12 Federal Reserve banks. Congress has mandated the Fed to set monetary policy so as to promote maximum employment and stable inflation (generally around 2% annually).

The members of the FOMC meet regularly to discuss monetary policy, viewing various economic indicators such as the employment rate, inflation rate, and current interest rates. Based on these market factors, they set the country’s target interest rate, known as the federal funds interest rate (also known as the federal funds target rate).

The federal funds rate acts as a reference for the interest rates big commercial banks charge each other for the overnight loans. A change in the rate that banks charge each other for loans impacts other market rates (like the prime rate) and, consequently, interest rates offered by banks and other financial institutions to consumers and businesses.

Effects of Higher Interest Rates on the Economy

When the Fed raises interest rates, it can have a number of effects on the economy, including:

• Reduced household spending. When interest rates on credit cards go up, consumers generally spend less on their cards. In order to afford credit card payments that now may be higher, they might also cut overall spending on goods and services.

• Slowdown in home sales. Higher rates on mortgages make it more expensive to buy a home. As a result, many consumers may decide to continue renting and hold off on purchasing a home.

• Sluggish business growth. When the cost of financing goes up, businesses may decide to hold off making large purchases or other investments in expansion and growth.

• Increased saving. Higher interest rates on savings accounts, especially high-yield savings accounts, incentivize saving, since account holders will earn a higher return on their balances.

• More foreign investment. Higher interest rates can attract foreign investors looking for better returns on their investments, which can increase demand for U.S. currency.

Recommended: APY vs Interest Rate

How Higher Rates Combat Inflation

When the federal funds rate rises, it sets off a ripple of effects in the U.S. economy. It makes it more expensive for commercial banks to borrow from each other, more expensive for businesses to finance large projects, and more expensive for consumers to get mortgages and other types of loans. This ultimately leads to less borrowing, less spending, more saving (thanks to good interest rates on bank accounts), and less overall money in circulation. Altogether, this tends to have a cooling effect on the economy, which helps to lower inflation.

It’s important to keep in mind, however, that the impacts of monetary policy set by the Fed are generally not swift. It can take upwards of 12 months for a rate hike to wend its way through the economy and actually ease prices. It’s also important to keep in mind that there are many things that impact inflation — from supply chains to labor costs to consumer demand. Interest rates are only one influencing factor.

Recommended: 10 Ways To Save Money Fast

Potential Drawbacks of Raising Interest Rates

While raising interest rates can be an effective tool for fighting inflation, it is not without its drawbacks. Here’s a look at some of the potential downsides of raising interest rates.

• Economic slowdown: As borrowing becomes more expensive, businesses may delay expansion or cut back on hiring, leading to slower job creation. Consumer spending may also decline, resulting in reduced demand for goods and services. Over time, this can lead to a slowdown in gross domestic product (GDP) growth, potentially tipping the economy into recession.

• A rise in unemployment: As businesses face higher borrowing costs, they may reduce their workforce or halt new hiring to cut expenses. Industries that rely heavily on borrowing, such as construction and real estate, can potentially see significant job losses as investment slows.

• Rise in the government debt costs: When interest rates rise, the cost of servicing the U.S. government’s debt also increases. Higher interest costs can strain the government’s budget and reduce the funds available for other important programs, such as healthcare, education, and infrastructure.

The Takeaway

Raising interest rates is a powerful tool used by the Federal Reserve, the central bank of the U.S., to control inflation, particularly in an overheating economy. By making borrowing more expensive and encouraging saving, higher interest rates reduce consumer spending and business investments, which can help cool demand and bring inflation under control.

However, this approach is not without its downsides, as it can lead to slower economic growth, increased unemployment, and higher government debt costs.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.50% APY on SoFi Checking and Savings.

FAQ

How quickly do interest rate hikes affect inflation?

The effects of interest rate hikes on inflation can take at least 12 months to materialize. Central banks raise rates to reduce borrowing and spending, which in turn lowers demand for goods and services, along with prices. However, it takes time for this chain of events to ripple through the economy. On top of that, inflation is influenced by numerous other factors (including global supply chains, energy prices, and labor markets), which can also delay the impact of rate hikes.

Can raising interest rates cause a recession?

Yes, raising interest rates too aggressively can potentially cause a recession. Higher interest rates increase the cost of borrowing for consumers and businesses, which can reduce spending and investment. If rates rise too quickly or remain elevated for too long, the economy may slow significantly, leading to reduced consumer demand, lower business activity, and ultimately job losses. If economic output contracts for two consecutive quarters, it generally indicates a recession.

What happens to savings accounts when interest rates rise?

When interest rates rise, savings account holders typically benefit from higher returns. In response to rising benchmark rates set by the Federal Reserve, many (though not all) banks and credit unions will increase the interest rates they offer on savings accounts This can make saving more attractive than spending.

Photo credit: iStock/PixelsEffect

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBNK-Q324-013

Source: sofi.com

Apache is functioning normally

September 18, 2024 by Brett Tams

The reverse budgeting method is an approach that prioritizes savings. Budgets typically start by looking at monthly bills and expenses and allocating whatever is left over to saving. Reverse budgeting turns this approach on its head — it considers savings first and spending second.

Also known as the “pay yourself first” method, reverse budgeting starts by allocating a certain amount of your monthly income to your savings goals (such as retirement or an emergency fund). Whatever is left over after that is how much you have to spend. Essentially, it involves pretending that your paycheck is smaller than it actually is.

If your top goal is saving or you’ve tried budgeting in the past without complete success, the reverse budget might be for you. Here’s what reverse budgeting means and how it works.

Key Points

• Reverse budgeting prioritizes savings by allocating a portion of income to savings goals first, then spending the remainder on other expenses.

• Reverse budgeting simplifies budgeting since you can focus on saving a predetermined amount and then spend the rest as needed or desired.

• The reverse budgeting method can help achieve financial goals faster and allows guilt-free spending within remaining income limits.

• Reverse budgeting may not be ideal for those with high-interest debt or irregular income.

• Automating savings and periodically reassessing the budget are key steps to making reverse budgeting work effectively.

Reverse Budgeting Explained

The reverse budgeting method prioritizes setting money aside for your savings and investing goals. This might include building an emergency fund, saving for a new car or down payment on a house, or investing for retirement. Once that money has been set aside, the rest of your income can be used to cover your living expenses.

Reverse budgeting usually involves setting up automatic contributions to savings, typically on payday. As a result, the money leaves your bank account before you get a chance to spend it. That’s why this method is also known as the “pay yourself first” approach.

How Reverse Budgeting Differs from Traditional Budgeting

Making a budget typically involves listing all of your monthly expenses and assigning a portion of income to each category (e.g., housing, groceries, transportation). The goal is to ensure that expenses don’t exceed income, and any leftover funds can be saved or invested. This approach often requires meticulous tracking and discipline to avoid overspending in any category.

By contrast, reverse budgeting starts by looking at your financial goals and the things you want to save for. It helps you determine how much you need to put aside each month to accomplish them. You then subtract that sum from your monthly pay; what’s left is how much you have to spend on everything else.

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Steps to Create a Reverse Budget

Creating a reverse budget tends to be less complicated than setting up other types of budgets. It doesn’t require establishing spending categories and totals for how much you will spend on each. That said, there are a few steps involved. Here’s a look at how to do a reverse budget.

1. Assess Your Spending

To know how to set your savings goals, you’ll need to get a general sense of your current cash flow. You can do this by pulling the last few months of financial statements, then adding up how much is coming in and going each month on average. You might also want to make a list of your essential monthly expenses, as well as how much you tend to spend each month on nonessentials.

This type of spending audit will give you a clear picture of your spending patterns. It can also help you identify any discretionary spending you may be able to reduce to accommodate your savings goals. There are also budgeting apps that can do a lot of this work for you. Start by seeing what your financial institution offers that could help with this process.

2. Identifying Your Savings Goals

Next, you’ll want to think about your savings goals. These might include building an emergency fund, saving for a down payment on a house, doing a home renovation, going on a vacation, paying for a wedding, contributing to retirement accounts, or any other financial objectives.

You’ll likely want to set your savings goals in terms of dollars as well as the timeframe within which you want to work.

3. Allocate Income to Savings

Once you’ve identified your savings goals, you might pick just a couple to start with. For each, as noted, you’ll have determined how much money you’ll need, along with a realistic timeline for reaching the goal. With that information in mind, you can then allocate a portion of your income to each goal.

For example, if you want to save $5,000 for an emergency fund over the next year, you would need to save approximately $417 per month.

As you go through this step, you’ll want to be realistic about how much you can afford to siphon off your paycheck for savings. It’s important to have enough spending money left over to cover your bills and also have some fun.

Recommended: 10 Most Common Budgeting Mistakes

4. Automate Your Saving

To ensure consistency and reduce the temptation to spend your savings, it’s a good idea to automate the saving process. If you have a 401(k) at work, you can do this by letting your employer know how much of your paycheck to put into your retirement account.

For shorter-term goals, consider setting up an automatic transfer from your checking account to a savings account for the same day each month, ideally right after you get paid. Some employers even allow you to split up your direct deposit into two different bank accounts.

5. Make Adjustments as Needed

Once you’re living on your reverse budget, you may find that you don’t have enough wiggle room to comfortably cover your bills and everyday spending. Or you might realize that you can afford to put more money towards savings and, in turn, reach your goals faster. Either way, it’s important to periodically reassess your reverse budget and, if necessary, make some adjustments in your savings rate.

This is especially important as your life circumstances and financial goals change. If you get a raise, for example, consider increasing your savings rate (this can help you avoid lifestyle creep). Conversely, if you encounter unexpected expenses, you may need to temporarily reduce your savings rate to accommodate these costs.

Pros and Cons of Reverse Budgeting

As with any financial strategy, reverse budgeting has its advantages and disadvantages. Understanding these pros and cons can help you determine if this method is right for you.

Pros of Reverse Budgeting

First, consider the upsides of reverse budgeting:

• It can help you reach your goals faster: One of the main advantages of reverse budgeting is that it takes savings right off the top of your paycheck. This can help you build an emergency fund, save for a major purchase, or invest for retirement more quickly than traditional budgeting methods.

• Low maintenance: Reverse budgeting simplifies the budgeting process. Instead of meticulously tracking every expense category, you focus on saving a predetermined amount and spend the remainder as you see fit. This low-maintenance approach can be particularly appealing for those who find traditional budgeting too time-consuming and/or restrictive.

• Spending without guilt: With reverse budgeting, you can enjoy spending within the limits of your remaining income. Since your savings goals are already met, you have the freedom to spend on discretionary items without worrying that you are derailing your future progress.

In these ways, the reverse budgeting method can help you prioritize savings and achieve financial security.

Recommended: The Most Important Components of a Successful Budget

Cons of Reverse Budgeting

Next, keep these potential downsides of reverse budgeting in mind:

• It could lead to overspending: Since reverse budgeting doesn’t require setting up spending categories and strict spending limits for each one, you could end up overspending on certain things. Then, you might have to dip into savings to cover the shortfall.

• You might be better off focusing on debt: If you have high-interest debt, paying down those balances could provide a better return on investment than saving or investing. If this is the case, a more traditional budgeting approach that prioritizes debt repayment might be more effective.

• Not ideal for people with variable income: Reverse budgeting generally depends on earning a set amount of money each month. For people with variable income, such as freelancers or those with seasonal work schedules, maintaining a fixed savings rate could be challenging.

The Takeaway

Reverse budgeting, also known as the “pay yourself first” method, prioritizes saving and simplifies the entire budgeting process. By automating saving, it also reduces the chance that you’ll spend money today that you were intending to set aside for the future. However, reverse budgeting may not be the best approach if you have a lot of high-interest debt or your income fluctuates. You might be better off with another budgeting technique.

Choosing the right banking partner can also help you budget more effectively.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.50% APY on SoFi Checking and Savings.

FAQ

How does reverse budgeting help with saving money?

Reverse budgeting helps with saving money by prioritizing savings over expenditures. With this approach, you allocate a set percentage or amount of your income to savings first and then use the remaining amount to cover your expenses. This ensures that you don’t spend money you were planning to use for future goals.

Can reverse budgeting work for irregular income?

Reverse budgeting can be challenging for those with irregular income, such as gig workers. Here’s why: It relies on setting aside a certain amount of money into savings each month — before other expenses are paid. If your income fluctuates significantly, it may be difficult to meet your savings goal monthly.

However, you may be able to make it work by taking a flexible approach. For example, you might set a minimum savings rate based on your lowest expected income and then, during higher-income months, increase your savings contributions. Building an emergency fund can also help smooth out the fluctuations.

Is reverse budgeting suitable for paying off debt?

Reverse budgeting isn’t ideal for paying off debt, since it focuses on saving first, which can divert funds from debt repayment. If you have significant high-interest debt, prioritizing debt repayment might provide better financial benefits in the long run compared to the returns from savings or investments.

However, you might consider a hybrid approach — allocating a portion of your income to debt repayment and another to savings, ensuring you address both goals.

Photo credit: iStock/Goodboy Picture Company

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBNK-Q324-035

Source: sofi.com

Apache is functioning normally

September 14, 2024 by Brett Tams

Calculating how much you may owe in taxes means keeping track of a lot of different numbers and terms. One of the most important numbers is taxable income: the amount of money on which you have to pay income tax.

Here’s what to know about taxable income, how to calculate it and some basic strategies for reducing it.

What is taxable income?

According to the IRS, most income is taxable unless it is tax-exempt by law

. Taxable income can take the form of earned income, such as wages and salaries, as well as unearned income, such as profits from the sale of investments or property.

Some common types of taxable income include, but are not limited to:

Employment income (i.e., wages reported on Form W-2).
Freelance or independent contractor income reported on Form 1099.
Rental income.
Business income.
Investment income, including capital gains, dividends and interest.
Benefit payments such as distributions from traditional retirement plans, unemployment benefits and Social Security payments (depending on income).
Some types of canceled debt (the amount forgiven is treated as income).
Alimony payments (for the beneficiary).
Tax refunds and rebates.
Gambling winnings.

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Taxable income vs. nontaxable income

There are certain types of income that are federally nontaxable by law. A nonexhaustive list of types of nontaxable income generally includes:

Life insurance payouts.
Qualified Roth IRA and Roth 401(k) distributions.
Health savings account (HSA) withdrawals for qualified medical expenses.
Employer-provided insurance benefits.
Most municipal bond interest.

Gifts are something of a special case: They are not taxable income for the recipient, but the giver may be subject to gift tax if they’ve exceeded their lifetime gift tax exclusion.

🤓Nerdy Tip

Certain kinds of nontaxable income, such as municipal bond interest, may not be taxed but can be included in the calculation of modified adjusted gross income (MAGI), a number that helps the IRS determine whether you’re eligible for certain tax credits or benefits.

How to calculate taxable income

Determining your taxable income starts with knowing your gross income, which is the sum of all the money you received throughout the year. You’ll then have to figure out which of the five tax statuses apply to you. Choosing the right one is important because your status dictates your tax brackets and rates, which tax benefits you may be eligible for and how much you may be able to subtract from your income via certain deductions.

Once you have your gross income, you’ll need to figure out what your adjusted gross income (AGI) is. Your AGI is equal to your gross income minus certain “above-the-line” deductions that are available to all taxpayers.

Some examples of above-the-line deductions:

Contributions to traditional IRAs and 401(k)s.
Student loan interest payments.
Alimony payments (for the payer).

After this, taxpayers can further reduce their taxable income in one of two ways — via the standard deduction or itemizing. Most taxpayers claim the standard deduction, a preset amount of money they can subtract from their AGI. For tax year 2024 (taxes filed in 2025), it will be $14,600 for single filers, $21,900 for those filing as head of household and $29,200 for married couples filing jointly.

Itemized deductions, on the other hand, are deductions you can take for specific IRS-approved expenses. If a taxpayer has enough of these expenses that the value exceeds what they would get through the standard deduction, they can consider this option.

What’s left over after this process is your taxable income.

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How to reduce taxable income

You can reduce your taxable income by contributing to certain tax-advantaged accounts or by claiming additional deductions.

For example, if a 401(k) account is available to you via an employer, you can contribute up to $23,000 of your income ($30,500 for those 50 and older) in 2024 to this retirement savings vehicle. This, in turn, would lower your taxable income by $23,000 if you contributed the maximum amount. Even if you’re not a W-2 worker, there are plenty of self-employment retirement accounts available with similar tax advantages.

Another option for reducing your taxable income is to consider itemizing. This deduction strategy might be a good fit for taxpayers who have enough specialty deductions to make passing up the standard deduction worthwhile. Some of the most well-known itemized deductions include:

Taxable income: Final takeaway

In short, taxable income is equal to adjusted gross income (AGI) minus standard or itemized deductions. Here is a slightly more detailed formula:

Taxable income = gross income – (nontaxable income + above-the-line deductions + standard deduction or itemized deductions).

If this feels too hard to do by hand, don’t worry. There’s a variety of tax-filing software out there that can make these calculations easier.

Source: nerdwallet.com

Apache is functioning normally

September 13, 2024 by Brett Tams

AmEx is sending notification on the statements that the cards which come with a $10/$15/$25 Uber credit will require putting the balance of the Uber ride/meal on an AmEx card in order to use the credit.

Previously it was just a credit to your Uber account, and you could pay the balance with any card you choose. Beginning November 8, 2024, you’ll have to select the AmEx card as the payment option for the balance to cover the overage above the $10/$15 credit amount.

Hopefully it’ll still be possible to use multiple Uber credits on one ride/order when paying with an Amex card for the balance. We’ll see. Hopefully you can still use your Uber gift card balance for the ride and have the Amex card as the backup payment method (?).

Hat tip to r/amex

Source: doctorofcredit.com

Apache is functioning normally

September 12, 2024 by Brett Tams

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Learn expert tips and tricks for saving money on holiday travel booking, from the best time to book to when you should use rewards points.

When should you book your holiday travel? How can you save money on travel during the busiest travel season? Hosts Sean Pyles and Meghan Coyle talk to travel rewards Nerd Sam Kemmis about how to save money when booking holiday travel, with tips and tricks on using companion fares, the optimal time to book holiday flights, and understanding the fine print of airline programs. They also discuss the challenges and benefits of standby flights, the value of subscribing to flight deal newsletters, and the advantages of using credit card points and transferring them to partner airlines. By exploring these topics, the hosts aim to provide listeners with actionable advice to make holiday travel more affordable and less stressful.

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:

Over the river and through the woods, to Grandmother’s house we go. And if you don’t want that to break the bank, have we got an episode for you — and Grandma. Today, tips and tricks for saving money on holiday travel booking.

Sam Kemmis:

Because changing and canceling flights for most airlines is a lot easier now than it used to be, and there aren’t as many change and cancellation fees, that actually is a pretty good strategy.

Sean Pyles:

Welcome to NerdWallet’s Smart Money podcast. I’m Sean Pyles.

Meghan Coyle:

And I’m Meghan Coyle.

Sean Pyles:

And this is episode two of our Nerdy deep dive into holiday travel and the costs therein. And Meghan, I know you and I are both in the camp of avoiding holiday travel if at all possible. As much as we love our families, sometimes the hassle of getting to them just isn’t worth a wing and a leg of, you know… turkey.

Meghan Coyle:

Yeah. I heard what you did there, Sean. As we know, plenty of people do brave the crowds and the lines and the delays to see their loved ones over the holidays, so we are here to help smooth that process as best we can, especially when it comes to what you’re spending on that travel.

Sean Pyles:

The holidays are infamous for higher prices, especially on airfares, and there are definitely ways to save money if you’re willing to be a little flexible.

Meghan Coyle:

Sean Pyles:

Ooh, I love secrets, and we’re going to share lots of them today. So listener, perk up your ears like you’re listening for sleigh bells in the distance because we’re going to drop a lot of insider knowledge on you today. It’s our holiday gift to you.

Meghan Coyle:

That’s right, wrapped up all pretty and nice.

Sean Pyles:

We want to hear what you think too, listeners. To share your ideas and experiences around holiday travel with us—the good, the bad, and the insanity—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 Meghan, who are we hearing from today?

Meghan Coyle:

Today, our guest is our Nerdy colleague, Sam Kemmis, and we’re going to explore all the ways you can save yourself some cash when you’re booking holiday travel, and you don’t necessarily need to redeem your points to do it.

Sean Pyles:

That’s coming up in a moment. Stay with us.

Meghan Coyle:

Hey, Sam. So great to have you back on the show.

Sam Kemmis:

It’s so great to be here.

Meghan Coyle:

What are your travel plans for the holidays?

Sam Kemmis:

They’re not the most exciting, but I’m going to go home to Montana, where I’m from, with my kids to see family.

Meghan Coyle:

Aw, that sounds really sweet.

Sam Kemmis:

Meghan Coyle:

Is it going to be cold there?

Sam Kemmis:

Oh, yeah. It’s always cold. I always go for the cold snap. It always gets into the negative temperatures while we’re there.

Meghan Coyle:

Sam Kemmis:

This is always the question, and I wish I had that silver bullet where I’m like, “Here’s the one weird trick to saving money on holiday travel,” but the truth is it’s hard to do. But I do have a few tricks up my sleeve. So one of them is using companion fares. My partner and I both have the Alaska companion fare, which is great because we have two kids, and it lets us book a second ticket for just a little over $100 no matter how much the first ticket costs. Because you’re spending the same amount on that second ticket no matter what, the more expensive your first ticket is, the more value you’re getting from it. Holiday travel tends to be pretty expensive, so I usually save that companion fare for the holiday so I can kind of maximize that difference between the $100 and whatever I end up paying for the actual fare.

Meghan Coyle:

So it’s kind of like you’re almost using your companion fare as a kid discount, a child discount on your airfare for the holidays.

Sam Kemmis:

I wish my oldest was still young enough that I could put her on my lap. That’s the real discount for the holidays. In a pinch, I use companion fares. Alaska has a great one, but there’s also one from Delta. Southwest has its sort of famous one. There are some companion fare options out there.

Meghan Coyle:

And tell us how Alaska’s companion fare works. I believe you get that through a credit card, is that right?

Sam Kemmis:

Yes. You get it through its co-branded credit card and you get one of them to use every year.

Meghan Coyle:

Is this an annual tradition of yours to use the companion fare on the holidays?

Sam Kemmis:

Yeah, I guess it is becoming one as my kids get older. It used to be I would try to just book the most ludicrous flight that would still qualify with stopovers and multi-cities and going to Costa Rica and whatever I could do. But for one thing, Alaska has sort of changed the terms of it so it’s not so easy to do that. And now, yeah, not as exciting and my most expensive trip is usually home for the holidays.

Meghan Coyle:

Makes sense. Yeah. And I know some of the other companion fares have different terms and things like that, but Southwest’s companion pass lets you get flights for a discount for the entire year, so the holidays are also a great time to use that for a really high value.

Sam Kemmis:

Just no blackout dates on those, as far as I know.

Meghan Coyle:

That’s what we’re looking for for holiday travel because the travel companies know that these are such high demand times. You have to be really careful with the deals. Let’s talk about when you book your holiday travel. Have you done that already?

Sam Kemmis:

I have not. I have learned from covering this beat for so long that it’s actually usually better to wait until the fall to book, and maybe even a little later in the fall. So that’s easy for me because I’m a procrastinator, but I know there are a lot of people who want to book as early as possible. But the data show that booking months in advance doesn’t actually save you money. One piece of data I got from Google Flights that they shared with me showed that the lowest prices for the holidays usually happen between 80 and 20 days before departure, so about one to two months before departure, and that’s true for both Thanksgiving and the December holidays. If I’m booking for Christmas, that will put it somewhere in October, likely, that I’m booking. That’s a rule of thumb, but every year is different. It could be that if you wait until that 20-day cutoff that prices will actually go up, or that may be when prices are actually lowest. Just like anything that revolves around supply and demand, there’s no way to really play the market. Booking way in advance is usually not a great idea.

Meghan Coyle:

Okay, that makes me feel a lot better because I haven’t even started thinking about it yet.

Sam Kemmis:

I know. It’s like 95 degrees here. It’s hard to imagine.

Meghan Coyle:

I know we’re talking a bit early about holiday plans, and one thing I wanted to float out there is that you could book something now and kind of lock in a lower rate, and then you might be able to rebook it or change it or cancel it if something happens, your travel plans change, or even the price goes down. Can you talk a little bit about that and why that might be a good option for the holiday travel?

Sam Kemmis:

Yeah, because changing and canceling flights for most airlines is a lot easier now than it used to be, and there aren’t as many change and cancellation fees, that actually is a pretty good strategy. If you’re just one of those people that doesn’t want to wait and you see a decent price right now, you can always book it now and, like you said, either change the ticket when you see a better price and you might get a refund on that difference, or just cancel your ticket outright and rebook the lower price. So that’s not a bad idea.

You want to be a little careful, though, to make sure that you’re actually booking a refundable flight. And that doesn’t mean a fully refundable fare, but usually basic economy flights and flights with budget airlines like Spirit and Frontier do not have full cancelability. They won’t offer a full refund, especially those basic economy tickets. You want to watch out booking those. You probably won’t be able to get your money back. The same thing applies for hotels. Hotels are usually a lot easier. They’re usually much more flexible in terms of letting you rebook and even cancel last-minute. You can always book some hotel rooms in advance as long as you’re checking that fine print and making sure that you can cancel it later.

Meghan Coyle:

Something I used to do in college as well was I would take advantage of same-day changes and standby to help save a bit of money on holiday travel. I’ll tell you how this worked and then you can tell me if that was a good strategy or not to use.

Sam Kemmis:

Yeah, I want to hear about this.

Meghan Coyle:

I went to school out of state, so I had to fly home for the holidays. The cheapest flights were usually these super early morning, 6:00 AM flights, or maybe they would have some stops or I would take the red eye. I mean, these were just awful flights I was booking. But if you look into some of the same-day change policies and standby policies, you might actually be able to sometimes call your airline ahead of time, like the day before, or even look in the app and see if there was any availability on a better flight. As long as your departure airport and your arrival airport didn’t change and you were still taking off on the same calendar day, you can save a lot of money by just taking any of those extra seats on a better-timed flight. Something I would do is I would book maybe the earliest flight back on the Friday after Thanksgiving, and then I wouldn’t actually get up at 6:00 AM after eating tons of turkey the day before. I would just check on Thanksgiving and change it, sometimes for free if you have elite status, or there’s some type of policy that’ll let you change for free, or I would pay a pretty nominal fee, like $75, and fly back at a much more normal time. What did you think about that strategy?

Sam Kemmis:

That’s not bad, and I’ve definitely done things like that. I think it’s for sure a good college student strategy because it works as long as you’re pretty flexible on what actually ends up happening. You can have this great plan and, “Oh, I’m going to change it to a better flight,” and there may just not be better flights available. Or you could sort of go on standby, that fills up, and then you’ve got to get over to your actual flight or onto another standby. You could kind of end up in this purgatory where you’re not on any flight.

Meghan Coyle:

Sam Kemmis:

Obviously, I’m speaking in generalities because every airline is going to have different policies for this.

Meghan Coyle:

Sam Kemmis:

I love it. I love that kind of thing. I’ve done that with red eyes where I’ve booked a red eye that’s way cheaper and then just said, “Oh. Actually, could I just fly a normal flight?” and it works out. Totally a possibility if you’re willing to put in a little extra uncertainty work.

Meghan Coyle:

That’s a good call out. And probably wouldn’t work if you have multiple people traveling, like your family, so that would make it a bit more difficult.

Sam Kemmis:

Yeah, I think my kids would break up with me.

Meghan Coyle:

So where should people look for deals, whether on hotels or airlines, for holiday travel?

Sam Kemmis:

Airline deals themselves can be tough for the holidays. You might see airlines promote different sales, but usually those have blackout dates that are actually around the holidays. And so unless you’re willing to fly quite far off from the holiday itself, that’s probably not going to apply. That said, it might be worth subscribing to some flight deal newsletters or social media accounts. You can find those on Instagram or TikTok, and email newsletters are all over the place. And every once in a while, those will have deals around the holidays, especially internationally, especially around Thanksgiving. Because other places don’t celebrate our Thanksgiving, you can find deals around then for sure. Hotels also might have some deals around the holidays depending on how popular that particular property is around that particular holiday, so it’s worth going to the hotel’s website to see if they have any packages that might be a good deal.

Meghan Coyle:

I know we talked about this earlier in the episode—your credit card can come in handy for saving cash on travel purchases. Yours was through a companion fare through your Alaska co-branded card. What are some other situations where you should maybe look at your credit card and see how it can save you cash for holiday travel?

Sam Kemmis:

There’s a few options. One is using your credit card points. The most obvious way to do that is through the booking portal that the credit card has, so Chase Travel or AmEx Travel, whatever it is. Then you’re basically using the points for a fixed value, so you’re essentially buying cash tickets and using the points to pay for those cash tickets. If you’ve got a big pile of points and you want to use them up and you’re going to book a flight anyway, that’s not a bad way to do it. But there is another way to do it, which is to transfer those credit card points to a partner airline, and then book award travel through the partner airline. For instance, you might transfer them to American Airlines and then book using miles through American. So I say that’s another option. We’ve looked into the data and have seen that those bookings don’t usually offer a better cent-per-point value than booking at any other time, but they’re also not much worse. If a flight is twice as expensive as it normally is around the holidays, it will probably be about twice as expensive using miles. So again, there’s no free lunch here, there’s no way to game the system, but you might be able to find a little bit more value by transferring those credit card points to an airline and then booking through the airline.

Meghan Coyle:

Okay. Yeah, that makes sense. And you could also do half points, half cash in a lot of cases if you’re booking through the portal, right? So that might be a way to save some cash as well.

Sam Kemmis:

Yeah, it’s all relative. Do we call our credit card points cash? Are they their own thing? What is it?

Meghan Coyle:

Now we’re getting super nerdy. Are they cash?

Sam Kemmis:

Yeah. Yeah. Sometimes, also, your credit card might have cash back offers on certain hotels or other travel opportunities. Chase offers or AmEx offers might give you 10% back on a statement credit, so you could add that offer to your travel card before you book. Some travel credit cards offer statement credits on travel purchases either booked through the issuer’s travel portal or booked directly with a certain airline or a hotel. That’s a way to offset both the airline cost and the hotel cost.

Meghan Coyle:

Okay. Now let’s make it a little bit spicy. Let’s say you don’t have to go home for the holidays. You want to use that time off to go somewhere else. What are some good ways to save money on this type of holiday travel that’s more like a vacation?

Sam Kemmis:

One option is to go international. Like I said, other countries aren’t necessarily celebrating Thanksgiving. Some don’t celebrate Christmas or the same holidays in December. It might be worth looking at some of those countries to see if there’s some cheaper flight options. And then you can always check out Google Flights or Skyscanner search tools and put in “Anywhere” for the destination. Just be like, “Surprise me,” and just see what’s cheap.

Meghan Coyle:

I love that. You could end up literally anywhere for the holidays. Any other tips for saving on holiday travel without using your points?

Sam Kemmis:

I plug this all the time. I’m always promoting selling your family on doing Thanksgiving the week before or after actual Thanksgiving because…

Meghan Coyle:

Oh, yeah. I remember you wrote an article about this.

Sam Kemmis:

I did, and nobody ever cares and nobody ever bites, but I’m going to say it again. If you just convince your family to do it the week after, airfare will be half as expensive. There will be so much availability for vacation rentals, anything you need, and it still feels like the holiday. It doesn’t really matter as long as you all agree. Then you could extend that out to anything and be like, “Is anything real? Is everything arbitrary? Is it all just in our minds?”

Meghan Coyle:

And with that, we’ll leave everyone with a lot of existential questions.

Sam Kemmis:

That’s right.

Meghan Coyle:

Well, Sam, I know it’s a couple of months away, but I hope you have a great holiday season, or let’s just say a great fall/autumn season, and thanks so much for helping us out today.

Sam Kemmis:

My pleasure.

Sean Pyles:

As ever, I am impressed by how far a little flexibility can go when it comes to saving money on travel. And I say that as someone who is totally inflexible with my travel plans and therefore will never save money like you described doing in college, Meghan. That might be another reason why traveling around the holidays is not my thing.

Meghan Coyle:

I’ll say I did a lot of crazy things as a college student to save money. I remember going to these hour-long talks about the economy so I could get a free Chipotle burrito, and then it turned out it wasn’t even a whole burrito. That tells you how much my time was worth back then. One hour equals half a Chipotle burrito. But back to holiday travel, flexibility is really the key to getting deals on travel at any time of the year.

Sean Pyles:

Yeah. This is really something that I’ve taken to heart, which is that if you’re going to travel for the holidays, try to do it on the days when other people don’t. I mean, if you travel on the holiday itself, sure, you might miss out on some meal prep and maybe some games in the backyard if it’s not snowing where you are, but the hassles you’ll avoid just might be worth it. Now of course, that might not work if you have to deal with layovers or you’re going, say, from the West Coast to the East Coast and the time change makes it untenable. But if you don’t have those factors, why not? I’m sure the captains and flight attendants would love to have your company on the actual holidays.

Meghan Coyle:

Yes. And a hearty, “happy Thanksgiving” is always welcome when you have to work the holiday. And just think of the money and potential annoyances you’re saving by traveling the day of. If you can swing it, why not?

Sean Pyles:

All right. Well, our series continues next week. Meghan, what have you got in store for episode three?

Meghan Coyle:

Well, Sean, I would venture a guess that the biggest worry people have about traveling for the holidays is probably a flight getting canceled or maybe a road getting iced over so you can’t get somewhere. But a close second would be your luggage, all your stuff, the stuff you’d need to look and feel great at your destination, not to mention the presents. You lose that and, well, sad face. We’re going to have some tips and advice for getting your stuff from one place to another without losing your mind or your money.

Jessie Beck:

Once you add on the cost of paying to have a carry-on bag on that basic economy ticket, you might as well just get an economy ticket and be able to be a little bit more flexible. I think that’s the most important thing for me. If I did have to make a last-minute change, I can do that penalty-free.

Sean Pyles:

For now, that’s all we have for this episode. Do you have a money question of your own? 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 remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

Meghan Coyle:

This episode was produced by Tess Vigeland, Sean helped with editing, Claire Tsosie helped with fact-checking, and a big thank you to NerdWallet’s editors for all their help.

Sean Pyles:

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.

Meghan Coyle:

And with that said, until next time, turn to the Nerds.

Source: nerdwallet.com