Pop quiz! If I asked you, “Who invented the index fund?” what would your answer be? I’ll bet most of you don’t know and don’t care. But those who do care would probably answer, “John Bogle, founder of The Vanguard Group.” And that’s what I would have answered too until a few weeks ago.
But, it turns out, this answer is false.
Yes, Bogle founded the first publicly-available index fund. And yes, Bogle is responsible for popularizing and promoting index funds as the “common sense” investment answer for the average person. For this, he deserves much praise.
But Bogle did not invent index funds. In fact, for a long time he was opposed to the very idea of them!
Recently, while writing the investing lesson for my upcoming Audible course about the basics of financial independence, I found myself deep down a rabbit hole. What started as a simple Google search to verify that Bogle was indeed the creator of index funds led me to a “secret history” of which I’d been completely unaware.
In this article, I’ve done my best to assemble the bits and pieces I discovered while tracking down the origins of index funds. I’m sure I’ve made some mistakes here. (If you spot an error or know of additional info that should be included, drop me a line.)
Here then, is a brief history of index funds.
What are index funds? An index fund is a low-cost, low-maintenance mutual fund designed to follow the price fluctuations of a stock-market index, such as the S&P 500. They’re an excellent choice for the average investor.
The Case for an Unmanaged Investment Company
In the January 1960 issue of the Financial Analysts Journal, Edward Renshaw and Paul Feldstein published an article entitled, “The Case for an Unmanaged Investment Company.”
Here’s how the paper began:
“The problem of choice and supervision which originally created a need for investment companies has so mushroomed these institutions that today a case can be made for creating a new investment institution, what we have chosen to call an “unmanaged investment company” — in other words a company dedicated to the task of following a representative average.”
The fundamental problem facing individual investors in 1960 was that there were too many mutual-fund companies: over 250 of them. “Given so much choice,” the authors wrote, “it does not seem likely that the inexperienced investor or the person who lacks time and information to supervise his own portfolio will be any better able to choose a better than average portfolio of investment company stocks.”
Mutual funds (or “investment companies”) were created to make things easier for average people like you and me. They provided easy diversification, simplifying the entire investment process. Individual investors no longer had to build a portfolio of stocks. They could buy mutual fund shares instead, and the mutual-fund manager would take care of everything else. So convenient!
But with 250 funds to choose from in 1960, the paradox of choice was rearing its head once more. How could the average person know which fund to buy?
When this paper was published in 1960, there were approximately 250 mutual funds for investors to choose from. Today, there are nearly 10,000.
The solution suggested in this paper was an “unmanaged investment company”, one that didn’t try to beat the market but only tried to match it. “While investing in the Dow Jones Industrial average, for instance, would mean foregoing the possibility of doing better than average,” the authors wrote, “it would also mean tha the investor would be assured of never doing significantly worse.”
The paper also pointed out that an unmanaged fund would offer other benefits, including lower costs and psychological comfort.
The authors’ conclusion will sound familiar to anyone who has ever read an article or book praising the virtues of index funds.
“The evidence presented in this paper supports the view that the average investors in investment companies would be better off if a representative market average were followed. The perplexing question that must be raised is why has the unmanaged investment company not come into being?”
The Case for Mutual Fund Management
With the benefit of hindsight, we know that Renshaw and Feldstein were prescient. They were on to something. At the time, though, their idea seemed far-fetched. Rebuttals weren’t long in coming.
The May 1960 issue of the Financial Analysts Journal included a counter-point from John B. Armstrong, “the pen-name of a man who has spent many years in the security field and in the study and analysis of mutual funds.” Armstrong’s article — entitled “The Case for Mutual Fund Management” argued vehemently against the notion of unmanaged investment companies.
“Market averages can be a dangerous instrument for evaluating investment management results,” Armstrong wrote.
What’s more, he said, even if we were to grant the premise of the earlier paper — which he wasn’t prepared to do — “this argument appears to be fallacious on practical grounds.” The bookkeeping and logistics for maintaining an unmanaged mutual fund would be a nightmare. The costs would be high. And besides, the technology (in 1960) to run such a fund didn’t exist.
And besides, Armstrong said, “the idea of an ‘unmanaged fund’ has been tried before, and found unsuccessful.” In the early 1930s, a type of proto-index fund was popular for a short time (accounting for 80% of all mutual fund investments in 1931!) before being abandoned as “undesirable”.
“The careful and prudent Financial Analyst, moreover, realizes full well that investing is an art — not a science,” Armstrong concluded. For this reason — and many others — individual investors should be confident to buy into managed mutual funds.
So, just who was the author of this piece? Who was John B. Armstrong? His real name was John Bogle, and he was an assistant manager for Wellington Management Company. Bogle’s article was nominated for industry awards in 1960. People loved it.
The Secret History of Index Funds
Bogle may not have liked the idea of unmanaged investment companies, but other people did. A handful of visionaries saw the promise — but they couldn’t see how to put that promise into action. In his Investment News article about the secret history of index mutual funds, Stephen Mihm describes how the dream of an unmanaged fund became reality.
In 1964, mechanical engineer John Andrew McQuown took a job with Wells Fargo heading up the “Investment Decision Making Project”, an attempt to apply scientific principles to investing. (Remember: Just four years earlier, Bogle had written that “investing is an art — not a science”.) McQuown and his team — which included a slew of folks now famous in investing circles — spent years trying to puzzle out the science of investing. But they kept reaching dead ends.
After six years of work, the team’s biggest insight was this: Not a single professional portfolio manager could consistently beat the S&P 500.
As Mr. McQuown’s team hammered out ways of tracking the index without incurring heavy fees, another University of Chicago professor, Keith Shwayder, approached the team at Wells Fargo in the hopes they could create a portfolio that tracked the entire market. This wasn’t academic: Mr. Shwayder was part of the family that owned Samsonite Luggage, and he wanted to put $6 million of the company’s pension assets in a new index fund.
This was 1971. At first, the team at Wells Fargo crafted a fund that tracked all stocks traded on the New York Stock Exchange. This proved impractical — “a nightmare,” one team member later recalled — and eventually they created a fund that simply tracked the Standard & Poor’s 500. Two other institutional index funds popped up around this time: Batterymarch Financial Management; American National Bank. These other companies helped promote the idea of sampling: holding a selection of representative stocks in a particular index rather than every single stock.
Much to the surprise and dismay of skeptics, these early index funds worked. They did what they were designed to do. Big institutional investors such as Ford, Exxon, and AT&T began shifting pension money to index funds. But despite their promise, these new funds remained inaccessible to the average investor.
In the meantime, John Bogle had become even more enmeshed in the world of active fund management.
In a Forbes article about John Bogle’s epiphany, Rick Ferri writes that during the 1960s, Bogle bought into Go-Go investing, the aggressive pursuit of outsized gains. Eventually, he was promoted to CEO of Wellington Management as he led the company’s quest to make money through active trading.
The boom years soon passed, however, and the market sank into recession. Bogle lost his power and his position. He convinced Wellington Management to form a new company — The Vanguard Group — to handle day-to-day administrative tasks for the larger firm. In the beginning, Vanguard was explicitly not allowed to get into the mutual fund game.
About this time, Bogle dug deeper into unmanaged funds. He started to question his assumptions about the value of active management.
During the fifteen years since he’d argued “the case for mutual fund management”, Bogle had been an ardent, active fund manager. But in the mid-1970s, as he started Vanguard, he was analyzing mutual fund performance, and he came to the realization that “active funds underperformed the S&P 500 index on an average pre-tax margin by 1.5 percent. He also found that this shortfall was virtually identical to the costs incurred by fund investors during that period.”
This was Bogle’s a-ha moment.
Although Vanguard wasn’t allowed to manage its own mutual fund, Bogle found a loophole. He convinced the Wellington board to allow him to create an index fund, one that would be managed by an outside group of firms. On 31 December 1975, paperwork was filed with the S.E.C. to create the Vanguard First Index Investment Trust. Eight months later, on 31 August 1976, the world’s first public index fund was launched.
At the time, most investment professionals believed index funds were a foolish mistake. In fact, the First Index Investment Trust was derisively called “Bogle’s folly”. Nearly fifty years of history have proven otherwise. Warren Buffett – perhaps the world’s greatest investor – once said, “If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle.”
In reality, Bogle’s folly was ignoring the idea of index funds — even arguing against the idea — for fifteen years. (In another article for Forbes, Rick Ferri interviewed Bogle about what he was thinking back then.)
Now, it’s perfectly possible that this “secret history” isn’t so secret, that it’s well-known among educated investors. Perhaps I’ve simply been blind to this info. It’s certainly true that I haven’t read any of Bogle’s books, so maybe he wrote about this and I simply missed it. But I don’t think so.
I do know this, however: On blogs and in the mass media, Bogle is usually touted as the “inventor” of index funds, and that simply isn’t true. That’s too bad. I think the facts — “Bogle opposed index funds, then became their greatest champion” — are more compelling than the apocryphal stories we keep parroting.
Note: I don’t doubt that I have some errors in this piece — and that I’ve left things out. If you have corrections, please let me know so that I can revise the article accordingly.
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Financial planning and analysis (FP&A) is the process businesses use to prepare budgets, generate forecasts, analyze profitability and otherwise inform senior management decisions of how to implement the company’s strategy most effectively and efficiently. The FP&A functions can be accomplished by an individual or a team working alongside other finance professionals such as the controller and treasurer and reporting to the chief financial officer (CFO). While FP&A is often performed by people with an accounting background, it differs from accounting by focusing primarily on forward-looking information as opposed to historical data.
Typical members of an FP&A team include financial analysts and one or more FP&A managers charged with coordinating the work of the analysts. In larger organizations, a director or vice president of FP&A oversees the overall process and strategic direction and communicates with the CFO, CEO and members of the board of directors.
To fulfill its function of providing information and insight connecting corporate strategy and execution, FP&A performs a wide range of activities. These can be divided into a few broad categories including planning and budgeting, forecasting and management reporting.
The central output of the FP&A process consists of long- and short-term plans. The job requires using financial and operational data gathered from throughout the company. A key part of the FP&A process is collecting and combining a wide variety of figures from operations, sales, marketing and accounting departments to produce a unified view of the entire business that can guide strategy decisions by senior executives and board members.
Producing budgets is a big part of the FP&A planning function. Budgets describe expectations for the timing and amounts of arriving income, cash generation, disbursements to pay bills and debt reductions. Budgets may be monthly, quarterly and annually. Often FP&A creates a rolling budget for the following 12-month period that will be reviewed, adjusted and extended at the end of each quarter. FP&A also creates income statements and cash flow statements.
One of the performance reporting functions of FP&A is identifying variances when actual numbers reported by business units don’t match up to the budgeted amounts. In addition to identifying and quantifying variances, FP&A can offer recommendations for strategies that could be used to bring actual results in line with expectations.
Reports and forecasts from FP&A may be presented to the board of directors, to the CEO or other senior executives or to outside stakeholders such as lenders and investors. At a strategic level, decision makers use these analyses to choose how best to allocate the company’s resources.
Public companies reply on FP&A to provide shareholders and analysts with guidance on revenue and profits for upcoming quarters and fiscal years. The accuracy of the guidance supplied to the markets can have a sizable effect on stock prices.
Along with the ongoing responsibility to produce budgets, plans and forecasts, FP&A may also be called upon to support specific management decisions. For instance, it might analyze a merger or acquisition proposal to enable management to decide whether to pursue it or not. Other special projects delegated to FP&A could include analyzing internal incompatibilities and bottlenecks and making recommendations about how to improve the company’s processes.
Initiatives to find ways to trim costs and make a business more efficient are also likely to involve input from FP&A specialists. Because it is in constant communication with all areas of the company in order to gather data for its budgets and plans, FP&A is well suited to optimization efforts.
FP&A’s responsibilities could extend to nearly any department in the company, from operations to marketing to finance. For instance, FP&A may conduct internal audits, research markets or evaluate individual customer profitability. FP&A could also be called upon to provide risk management insights or assess the financial impact of tax policy decisions.
Financial planning and analysis involves gathering financial and other data from throughout a business’s various departments and using that to generate projections, forecasts and reports to help executives make optimum business decisions. Annual and quarterly budgets and forecasts, profit-and-loss statements, cash flow projections and similar decision-making tools are all produced by FP&A.
Tips for Small Business Owners
Financial planning and analysis is a job best handled by an experienced financial advisor. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
The 80/20 Rule can help businesses gain insight into issues and opportunities so they can respond more effectively and efficiently. By identifying elements contributing most to a given outcome, businesses can better target resources to remove obstacles and exploit openings.
Mark Henricks Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
Where More Young Residents Are Buying Homes – 2021 Study – SmartAsset
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The homeownership rate in America peaked at a little more than 69% in 2004 before falling to 63.7% in 2016, according to U.S. Census data. Despite the fact that it has rebounded to a little more than 65% in 2019 overall, only 36.4% of Americans younger than 35 own their homes. It may be easier in some places, though, for this young cohort to buy homes. To that end, SmartAsset crunched the numbers to find the cities where people younger than the age of 35 are most likely to own their own home – and to see where this number has gone up in recent years.
To find the cities where more under-35 residents are buying homes, we compared the homeownership rate for this demographic in 2009 with the homeownership rate in 2019 for 200 of the largest U.S. cities. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.
Young homeownership has decreased overall since 2009. While there are plenty of cities where homeownership among younger residents has increased, over the past decade the under-35 homeownership rate decreased by 3.71%, on average, across the 200 cities we analyzed.
Under-35 homeownership lags compared to that of older generations, particularly in large cities. Though some two-thirds of all Americans owned their homes in 2019, just one-fourth (26.15%) of residents younger than 35 did in the 200 cities we analyzed. Homeownership rates are particularly low for the under-35 set in America’s largest cities: of the 10 with the highest populations, nine are in the bottom half of the study for 2019 homeownership rate (only Phoenix cracks the top half at No. 67), and all 10 had decreasing homeownership rates from 2009 to 2019, with six out of 10 — Phoenix, San Jose, Philadelphia, Dallas, Houston, Chicago — ranking in the bottom half of the study for change in homeownership rate from 2009 to 2019.
1. Midland, TX
Midland, Texas has seen a 10-year increase of 17.11 percentage points in the homeownership rate among people younger than 35, the largest growth seen in this study. The total homeownership for that age cohort in 2019 was 52.42%, the fourth-highest rate we analyzed for that metric. Together, this makes Midland the top place where more young residents are buying homes.
2. Cape Coral, FL
The homeownership for younger Cape Coral, Florida residents in 2019 was 55.54%, the third-highest rate in the study for this metric. That’s an increase of 8.71 percentage points compared to 2009, the fourth-highest increase for this metric across all 200 cities we considered.
3. Joliet, IL
Joliet, Illinois, located about 30 miles southwest of Chicago, had a homeownership rate of 63.48% for under-35 residents in 2019, the highest rate of all the cities we studied. Joliet ranks ninth for the 10-year change in homeownership, increasing 5.48 percentage points from its 2009 rate of 58.00%.
4. Mesquite, TX
Mesquite, Texas is part of the Dallas metro area, and in 2019, the homeownership rate among residents younger than 35 was 45.46%. That ranks 11th in our study, but in 2009 the rate was just 35.47%, meaning the increase over 10 years was 9.99 percentage points, third place for this metric.
5. Bakersfield, CA
Bakersfield, in central California, ranks 20th for homeownership rate among younger people in 2019, at 39.75%. That’s a 10.01 percentage point increase over the 10-year period from 2009 to 2019, the second-highest jump for this metric in the study.
6. Aurora, CO (tied)
Aurora, Colorado ranks 15th for the 2019 homeownership rate among people younger than 35, at 42.28%. That is an increase of 5.29 percentage points from 2009, the 10th-largest jump we observed in the study.
6. Port St. Lucie, FL (tied)
Port St. Lucie, Florida has the fifth-highest homeownership rate among younger people in 2019, at 51.93%. It ranks 20th for its increase in that percentage from 2009, at 2.70 percentage points.
8. Gilbert, AZ
Gilbert, Arizona, located near Phoenix, has the eighth-highest homeownership rate among residents younger than 35, at 50.08%. That increased 2.69 percentage points since 2009, good enough for 21st place in that metric.
9. Fort Wayne, IN
Fort Wayne, Indiana ranked 17th in both of the metrics we measured for this study. The homeownership rate among those younger than 35 was 41.24% in 2019, a 3.32 percentage point increase over the previous 10 years.
10. Rancho Cucamonga, CA
The final city in the top 10 of this study is Rancho Cucamonga, California, which ranked 21st for under-35 homeownership in 2019, at 39.39%. That is a 3.77 percentage point jump since 2009, the 14th-biggest increase we observed across all 200 cities in the study.
Data and Methodology
To find the cities where more young Americans are buying homes, SmartAsset examined data for 200 of the largest cities in the U.S. We considered two metrics:
2019 homeownership rate for those under 35. This is the homeownership rate among 18- to 34-year-olds. Data comes from the U.S. Census Bureau’s 2019 1-year American Community Survey.
10-year change in homeownership rate for those under 35. This compares the homeownership rate among 18- to 34-year-olds in 2009 and 2019. Data comes from the U.S. Census Bureau’s 2009 and 2019 1-year American Community Surveys.
First, we ranked each city in both metrics. Then we found each city’s average ranking and used the average to determine a final score. The city with the highest average ranking received a score of 100. The city with the lowest average ranking received a score of 0.
Tips for Buying a Home
Never too old for some expert guidance. No matter what age you are, buying a home is a big step, and a financial advisor can help you get ready to take it. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
Meticulous mortgage management. Chances are you’ll need a mortgage to facilitate buying your home. Use SmartAsset’s free mortgage calculator to see what your monthly payments might be based on your financing rate and down payment.
Taxes don’t always have to be taxing. If you’re moving to one of the cities on this list, your tax burden might change. Use SmartAsset’s free income tax calculator to see what you’d owe the government each year if you pick up stakes and move.
Questions about our study? Contact email@example.com.
Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
It’s amazing how things change when you have kids. Before kids, weekend getaways and trips were fairly easy. When we needed to take a break, I remember we could look at the calendar and twenty minutes later, have a few dates to run by work for time off. Even the destinations would already be top of mind and after looking for deals on travel sites and asking around, we’d settle with whatever had the best price. Pretty easy.
Fast forward a few years and now we’re parents of an eight-year-old and a four-year-old.
Those first few years with our little ones were honestly rough. We’re trying to coordinate between two jobs and one school schedule. It was tough finding the perfect time to take a week or so off. Once we had our dates, we’d then have to make sure that we could find a deal. Thankfully, we’ve gotten a little bit wiser. We found our footing and came up with our little system for timing our vacations and snagging some good savings.We’ve also found some spots that allow us to unwind without breaking the budget.
Affordable Family Vacations to Take This Fall
While school is back in season, that doesn’t mean you have to write off the rest of the year. You still have time to take one last getaway to recharge your battery, have some fun, and connect as a family.
To make things easy for you, I want to share a few of our favorite spots that both we and the kids enjoyed. The cherry on top? They’re also affordable spots!
Daytona Beach, Florida
If you’re looking to escape and have some beach time, then Florida is the way to go. However, staying in Orlando is not on the list if you’re looking for a chance to relax and actually save money.Instead, soak up some beach time before the weather gets too cold and hang out for a bit in Daytona Beach.
When we did our trip last October in Florida, it couldn’t have been more perfect. The weather was still warm, the large crowds of tourists were gone (along with the overpriced hotels), and there were plenty of things to do around.
Racing fans can enjoy the Daytona International Speedway or if you’re in the mood for stars, you can head over to MOA’s planetarium. And if your kids really want to visit the Magic Kingdom or Universal Studios, you can make it a more affordable day trip rather than blow your budget by spending your whole time there. We once went to Universal right after Thanksgiving and were able to skip waiting in line because it was so quiet.
Charleston, South Carolina
We took trips to Charleston for the last few Decembers and I have to say, we’ve enjoyed every one. While the temperatures have cooled down a bit, making beach time minimal, we still managed to be out and about. Throw on a jacket, wear your fall layers, and you’re all set to hit the town and enjoy some history and food.
You have to visit The Tavern at Rainbow Row. Besides being the oldest liquor store in the country, the vibe there is incredible. It’s small, but the selection is wide. Want to have an incredible lunch that’s still cheap? Try out The Blind Tiger. The truffle duck, bourbon bread pudding, buffalo cheese curds are delicious.
Asheville, North Carolina
One of our favorite low-key trips we’ve taken was a camping adventure with some friends just outside of Asheville. Being able to see the mountains shift into autumn colors was incredible.If you’re a photographer or love being outdoors, you have to take a trip here. It’s so peaceful and the views are amazing. For the parents, Asheville is the hot spot for fantastic food and a wide array of awesome breweries.
After spending your days enjoying the parks and maybe getting some tubing in, treat yourself and the kids to Double D’s Coffee and Dessert. It’s a cool double-decker bus in the city that’s also nearby Wicked Weed brewery.
Tuxedo, New York
If you absolutely love New York City but also relish some peace and relaxation that a more rural spot gives, then you should check out some of the small towns upstate.
I may be a little biased since I lived here for a few years, but fall is pretty much the best time to visit. You can truly have the best of both worlds with renting a spot in a town just outside the city. The Metro-North Railroad means you can take a train to New York City, allowing you to enjoy a scenic ride and skip put on the nightmare of driving in Manhattan.
Have your day trips to shop, visit the museums, and explore some of the best restaurants. You can then head back to your affordable getaway spot and enjoy some of the local events including celebrating autumn with exquisite apple cider.
Saving Up for Family Trips
While you hunt for the deals, you can start now saving up for your trip. You can create a vacation fund as separate savings to keep you motivated.
Using a tool like Mint makes it easy to track your progress and help you find ways to trim your budget a smidge so you have more money for fun during your trip. Knowing our money leaks allowed us to try some fun monthly challenges to sock away an extra couple hundred dollars. Keep your vacations debt-free also means there’s less stress as you don’t have to worry about a bill afterward. Double win in my book!
If you’re looking for tips, please check out my post on how to shift gears and become a savvy saver. It’s much easier than you think and you’ll be surprised at what you can accomplish in one month.
Your Take on Family Getaways
Wherever you go, I hope you have a wonderful time together. Now that you know my favorites, I’d love to hear about your spots. What have been some of your best vacations together?
Where would you live if you could work from anywhere? The idea of geographic independence had remained just that for many workers — an idea — until the pandemic offered an opportunity to try it in action. Many U.S. workers found themselves working from home in 2020, which actually turned out to be “work from anywhere,” giving them a firsthand taste of digital nomadism.
Now, as more companies promise ongoing flexible remote-working opportunities in 2021 and beyond, some employees are weighing the benefits, complexities and uncertainties of giving up a permanent home for good.
Yet there’s far more to becoming a digital nomad than packing your stuff into storage. From taxes to transportation, here are five factors to keep in mind before hitting the road as a U.S.-based nomad.
While domestic nomads don’t have to worry about overseas tax rules, they must still navigate the complex web of state income taxes. Since each state has its own independent rules, this can get overwhelming in a hurry.
“The general idea for freelancers is that states want to tax people based on where their butt is, doing work,” explains Adam Nubern, the founder of Nuventure CPA, which specializes in digital nomad taxation. “So if your butt is in Arizona doing work, then Arizona is more often than not going to want to tax you.”
Freelancers and others who earn self-employment income must either navigate these rules on their own or hire a professional to do so for them. And full-time employees earning W-2 income face another challenge: Pitching nomadism to their employers.
“Set expectations that your employer will not want to do this,” Nubern says. “They may have to file in each state you will be in. The complexity, especially for a small employer, can be a massive knowledge and compliance hurdle.”
For example, if you spend a tax year in six different states, your employer could be expected to file returns in each, navigating the reciprocal tax agreements between them. Some states even lack these agreements, so “they will not give a dollar-for-dollar tax credit for the amount you pay to the other state,” according to Nubern. In other words: You could get taxed twice.
2. Quality of life
Geographic independence is about much more than byzantine tax codes, of course. The big appeal of becoming a digital nomad is that it allows you to work where you want rather than live where you work. What makes for a high quality of life differs from person to person, but it’s important to start thinking about what matters most to you.
“I personally love staying in places that have great hiking and nature, right outside of the major U.S. cities,” says Julia Lipton, founder of venture capital fund Awesome People Ventures, who is approaching her four-year mark as a nomad. She cites Sausalito and Encinitas in California; Beacon, New York; and the Oregon coast as examples of beautiful locales not far from urban cores.
Consider listing several locations and scoring each across several criteria, including (based on your preferences):
Arts and culture.
And keep in mind that the stakes are much lower as a digital nomad. If you don’t enjoy a particular destination, you can always move on.
3. Cost of living
Geographic independence can, in theory, significantly reduce your cost of living. That’s why the “Silicon Valley exodus” has seen tech workers fleeing the expensive Bay Area for greener, more affordable pastures.
Yet for digital nomads, estimating the real cost of living requires more than simply adding up the cost in a particular area and dividing it by the time spent there. That’s because nomadism incurs additional costs, including:
Transportation within and between destinations.
Higher short-term lodging costs.
Higher food costs (if you eat out more).
Plus, unlike internationally traveling digital nomads who can leverage extremely low costs in other countries, U.S.-based nomads confront bigger financial hurdles.
“When I first started doing this, I was living in places like Thailand where for $500, I could live in a hut on the beach,” Lipton says. “In the U.S., especially because I like to be near my friends in expensive cities, it’s harder to make the math work.”
Cost-of-living calculators are helpful for determining the relative priciness of potential destinations (Hawaii is really expensive, as it turns out), but don’t capture the cost of moving around. One way to mitigate these costs is to move less: Stay in each destination for several months or seasons, rather than several weeks.
Another factor to consider: Some employers offer salaries based on location. So if you decide to move from the Bay Area to, say, Detroit, you could get a pay cut that offsets cost-of-living savings. Make sure you understand these policies before packing up.
Whether hopping between cities or between national parks, finding good, affordable housing poses one of the biggest challenges to domestic digital nomads. There’s no one solution to solving the housing riddle, but some potential strategies include:
Long-term vacation rentals.
Housesitting and swapping.
RV or van life.
These approaches are not mutually exclusive, and many nomads cycle among housing opportunities. Getting creative, combining strategies and thinking outside the box is the best way to avoid overpaying.
“I try to keep my monthly rent below $2,000. This means I have to be crafty and try to sublet local markets or make deals with people off of Airbnb,” Lipton says.
Getting around is obviously a big part of being a nomad, and it’s worth considering different strategies for how to handle it. Indeed, the means of transportation will determine where you can reasonably go.
For example, you could fly between cities, and then either rent a car or rely on public transportation at your destination. This maximizes flexibility in terms of where and when you travel, but limits the range of potential home bases to major cities. Or, you could drive between destinations, which solves the problem of getting around once you’re there, but will be difficult if you’re traveling far or trying to park in dense urban centers.
Again, it all comes down to preference.
“I travel by plane and pick places where I don’t need a car,” Lipton says. “Exploring by foot is one of my favorite activities, so I try to optimize for that.“
If you’re looking to escape into nature, you’ll want to have a vehicle (and find a way to get reliable internet service from the road). And keep in mind that you can mix and match these strategies as you go — there’s no need to lock yourself into a particular strategy until you find what works.
The bottom line
Location flexibility has suddenly become the new normal. Untethered to a specific office or city, many are considering uprooting themselves for good and traveling the country as digital nomads. This lifestyle affords many perks, as well as some potentially unforeseen financial consequences.
It’s all about finding the right balance of high quality of life with low cost of living while juggling tax rules and transportation options. It’s a challenge to get it all right, but part of the beauty of being a nomad is that you can take chances. If something doesn’t work: Move!
How to Maximize Your Rewards
You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2021, including those best for:
I hope this list of income-earning blogs inspires you and proves you can make money online through blogging.
15. Making Sense of Cents
Founder – Michelle Schroeder-Gardner Income – $146,498 per month.
Michelle Schroeder-Gardner started Making Sense of Cents to “help improve my finances, keep track of my progress and to help readers improve their finances along the way.”
Well, let’s see — how has Schroeder-Gardner done in these areas?
She’s certainly improved her finances, paying off over $38,000 in student loan debt in just 7 months while growing the site’s revenue year-over-year.
Schroeder-Gardner has transparently tracked her progress in her popular monthly income reports. She says the reports act as a journal for her and keeps her accountable, while also showing others that side income is possible.
And she’s also helping others with their finances by publishing thousands of how-to articles about earning more, saving more, and becoming financially fit. Making Sense of Cents’ primary income comes from affiliate marketing. You can see a complete breakdown of this profitable blog’s earnings here.
#14. Smart Passive Income
Founder – Pat Flynn Income – $152,276 per month.
Smart Passive Income (SPI) founder Pat Flynn is a beacon of light in the sometimes dark and shady internet marketing space.
Calling himself a “crash test dummy of online business,” Flynn transparently shows what’s working and what isn’t working in his business.
His site details his online business experiments and gives readers actionable blueprints to follow and outlines mistakes to avoid.
Flynn didn’t invent the online income report, but he certainly popularized them. He’s been publishing monthly income reports on the blog since 2008, detailing his income sources, revenue figures, as well as his expenses. It’s still one of the most trafficked pages on the site.
Flynn is a great example of a blogger who has successfully branched out into other areas as well.
In 2010, Flynn launched the Smart Passive Income Podcast which is routinely in iTunes top 10 Business podcasts. To date, the show has been downloaded an impressive 33 million times.
He also broadcasts Ask Pat, a Q and A online business podcast, and SPI TV for visual learners.
Flynn is now a Wall Street Journal best-selling author with 2016’s release of Will It Fly?.
And while his individual success has been plentiful and hard-earned, Flynn gives back by serving on the board of the non-profit Pencils of Promise, helping to build new schools for children in underprivileged regions around the world. SPI’s primary income comes from affiliate marketing, with other earnings from podcast sponsorship and products.
Founder – Gina Trapani Income – $154,000 per month
Lifehacker was founded in 2005 by Gina Trapani as part of the Gawker Media network.
From the start, Trapani acted as the sole contributor, writing 8 articles a day. Talk about blogging like a boss!
She impressively launched the site with an exclusive sponsorship from Sony, rumored to be 3 months for $75,000. Yeah, she’s a boss.
Lifehacker eventually added other contributors and the blog continued to grow in popularity.
As its motto claims, the site’s content is about “tips, tricks and downloads for getting things done.”
Trapani moved on from the company in 2009, and Nick Denton has run it ever since.
The site still churns out 18 articles a day, all designed to make you more productive. Lifehacker earns its most of its revenue from advertising and it’s been one of the top-earning blogs since it’s inception.
#12. Timothy Sykes
Founder – Timothy Sykes Income – $165,000 per month
Timothy Sykes is a multimillionaire stock trader who famously earned $4 million while day trading in college.
As a high school student, Sykes took $12,415 of his bar mitzvah gift money and turned it into $1.65 million by day trading penny stocks.
Not stopping there, Sykes has created a hedge fund and starred in the television program Wall Street Warriors. These days, Sykes documents his trades and strategy on his popular blog, TimothySykes.com. His top-earning blog offers a Millionaire Challenge and a successful subscription service where users can get real-time trading alerts and access a vast library of trading videos.
Founder – Collis Ta’eed, Cyan Ta’eed and Jun Rung Income – $175,000 per month
Collis Ta’eed, Cyan Ta’eed and Jun Rung founded Tut+ as a modest blog with tutorials on freelancing and Photoshop.
The site ultimately grew into a network of 15 educational blogs, helping people learn profitable online skills, from coding to videography.
At the center of it all remains Tuts+. In 2014, the group combined all 16 blogs into one central hub called Envato Tuts+.
Envato Tuts+ Premium, a subscription-based membership area offering video courses and ebooks, is the primary source of the site’s income. You can still find plenty of free content to learn creative skills and yes, they still have tutorials on freelancing and Photoshop.
Tuts+ is one of my favorite blogs and it’s inspiring to know it started as a hobby and developed naturally and organically into one of the highest-earning blogs online.
#10. Smashing Magazine
Founder – Sven Lennartz and Vitaly Friedman Income – $215,000 per month
Smashing Magazine is the superb creation of Sven Lennartz and Vitaly Friedman.
The blog debuted in 2006 with the goal of helping people with web design and web development interests.
Today, Smashing Magazine is a go-to site for anyone looking to acquire these lucrative skills, with an enormous amount of informative and actionable content.
Not surprisingly, the blog receives 5 million page views a month.
The site now hosts frequent web development conferences and full-day workshops all over the world, to help both professionals and amateurs improve their craft.
This top earning blog’s main income comes from their membership area, where users can learn from an impressive number of tutorials covering everything from coding, web design, mobile app development, UX design, graphics and WordPress.
Founder – John Lee Dumas Income – $223,000 per month
I’m convinced John Lee Dumas never sleeps.
He operates EOFire.com, short for Entrepreneurs on Fire, delivers a daily business podcast, and in recent years has published two best-selling journals — The Freedom Journal and The Mastery Journal.
But his bread and butter is the EOFire podcast, which is fantastic. In 2012, he noticed none of his favorite podcasts were podcasting daily, leaving him wanting more. So he launched his daily podcast interviewing entrepreneurs, and the rest, as they say, is history.
JLD, as he’s affectionately known, has now interviewed over 1600 entrepreneurs, including Tim Ferriss, Barbara Corcoran, Seth Godin and Gary Vaynerchuk.
In 2013, EOFire was named Best of iTunes.
His journals wrote the book (no pun intended) on how to run a successful crowdsourcing campaign. And through a partnership with Pencils of Promise, Dumas is parlaying the success of his journals into the creation of schools in underprivileged countries. You can see one of the schools Dumas made possible here. EOFire earned a gross income of $595,936 in February of 2016. That’s an incredible feat for one month and well-deserved for JLD.
It’s always good to see good people doing good work and succeeding.
Founder – Peter Rojas Income – $325,000 per month
Peter Rojas is so awesome he’s on this list twice.
Rojas created Gizmodo to cover technology, entertainment, politics, science and science fiction.
Gizmodo launched in 2002 as part of the Gawker Media network run by Nick Denton with Rojas as Editor in Chief. The blog quickly grew in popularity by partnering with a variety of international firms to deliver translated versions of its content in Europe.
When you visit the site’s home page, one of the first things you notice is an above-the-fold banner that is larger than most. As you scroll down, you’ll find Gizmodo does a great job of showing a lot of content with only a couple of display ads along the side, with one of them being the same advertiser found at the top of the page. When you finally scroll past all the content (there’s a lot!) and reach the bottom of the page, you’ll find another large banner just above the footer, and yes, the advertiser is the same as in the other two spots. Gizmodo’s home page has a great balance of being heavily content-focused but still being able to make a tidy profit with ads. The ads are unobtrusive but still get noticed, and because of the repetition, the advertiser gets noticed too. It’s a win-win advertising model for other sites to emulate.
#7. Perez Hilton
Founder – Perez Hilton Income – $575,000 per month
Perez Hilton is a great example of a successful blogger who capitalized on other opportunities outside of blogging. He’s also a television personality, nationally syndicated host of Radio Perez, and author of a children’s book.
But what he’s most famous for is his celebrity gossip blog PerezHilton.com. Millions visit his site every day to revel in his brand of snarky gossip entertainment. Hilton, born Mario Armondo Lavandeira Jr, started his blog as a hobby and decided to focus on Hollywood “because it was something I was inherently curious about, and fascinated with. And, let’s face it, celebrities — a lot of them — are crazy.”
This profitable blog earns its revenue from advertising banners on the site.
Founder – Brian Clark Income – $1,000,000 per month
With Copyblogger, Brian Clark created an audience-focused content marketing machine.
In fact, Forbes recently called it “the most influential content marketing blog in the world.”
Copyblogger has been helping people write better, sell more, and get more traffic since 2006.
The site’s original tagline was “Internet Marketing For Smart People.” In other words, they’re not selling snake oil and get rich quick schemes.
Now the tagline is “Words That Work” and boy, do they ever. Clark and his team are outstanding at writing copy.
When I read they’re sales copy, I’m always compelled to buy. In fact, this site operates on their Genesis Framework and a StudioPress blog theme. Based on their audience research and communication, they’ve strategically added tools and platforms to help content marketers and digital entrepreneurs grow their businesses.
Founder – Pete Cashmore Income – $2,000,000 per month
Mashable was started in 2005 by Pete Cashmore, a 19-year-old who still lived at home with his parents in Scotland.
He began by documenting the latest news about social media and emerging Internet technologies.
His work resonated with lots of folks and Mashable became an immediate success, attracting 2 million readers within the first 18 months.
Mashable has come a long way since those early days. It’s no longer just Cashmore contributing Mashable’s content (they’re hiring!), and they are now headquartered in New York City. Mashable is positioned to be one of the top-earning blogs online for some time.
The blog is still growing with over 45 million readers a month and the content has expanded to cover business, entertainment and lifestyle and now offers 5 international editions.
Mashable’s income primarily comes from advertisements on the site.
Founder – Michael Arrington and Keith Teare Income – $2,500,000 per month
Michael Arrington and Keith Teare started TechCrunch in 2005 to cover technology industry news.
The blog has grown immensely and now features big-name columnists in the startup and venture capital industries.
AOL bought TechCrunch in 2005 for a rumored $25 to $40 million.. TechCrunch earns revenue from display advertising on the blog Specifically, they charge between $19.25 and $36.50 per CPM (Cost Per Thousand views).
According to the site, they receive 12 million visitors per month and 35 million page views per month. With such a high CPM, you can see how this top-earning blog makes its considerable income.
Founder – Rand Fishkin and Gillian Muessig Income – $3,300,000 per month
Moz is the go-to place for all things SEO. Search engine optimization pros check out Moz daily to see what’s happening in the space.
They also come to use their tools and resources to help them rank their sites and extend their visibility.
Rand Fishkin co-founded the site with Gillian Muessig, who happens to be his mother. The two initially operated a web design shop and Rand had to learn SEO to promote the business. He shared what he learned in SEO forums and quickly became known as an authority in the field.
Frustrated by the secretive world of SEO, they started SEOMoz in 2004 as a way to openly share the knowledge. In fact, the Moz part of their name is a direct nod to the open-source sharing philosophy made famous by the Mozilla Foundation and Dmoz Web directory project.
These days the profitable blog and community simply go by Moz, and Fishkin jokingly refers to his title as “Wizard of Moz.” Moz earned $42 million in 2016, primarily from its paid membership area, which offers valuable tools and services for the avid search engine marketers.
True to the name, Moz still offers numerous tools for free and even the membership area comes with a 30-day free trial.
Founder – Peter Rojas Income – $5,500,000 per month
We last saw Peter Rojas at #8 with Gizmodo and while that blog focuses on many topics, with Engadget, it’s all about tech.
Rojas created Engadget to give sound advice and detailed reviews on technology and consumer electronics. From the beginning, the site has employed numerous writers and editors to contribute to its content machine.
Engadget is now run by AOL, who acquired the blog in 2005. The lesson here is if you ever want to sell your blog, it’s best if it is a brand on its own and not a personal brand.
The company earns massive revenue from advertising on the site.
Founder – Arianna Huffington Income – $14,000,000 per month
In 2005, Arianna Huffington launched the Huffington Post with the goal of becoming a political counterpart to the popular Drudge Report. The blog provided a liberal view of politics and lifestyle and quickly gained a strong following.
The site has grown year after year and in 2011, Huffington sold the blog to AOL for $315,000.
Huffington received $21 million-plus stock options in the company as part of the sale and stayed on as Editor-in-Chief. She resigned from that post in August 2016, and now devotes her time to a new startup Thrive Global, a health and wellness site.
The site has rebranded and is now known simply as HuffPost.
It is the #1 most popular political blog according to a study by eBizMBA. Alexa Global, Compete and Quantcast.
The top-earning blog is an enormous success, earning $14,000,000 in revenue in 2016, and it is estimated to be worth $1 billion currently.
Sponsored advertising revenue provides the majority of HuffPost’s income. The site provides banners and other ads across it’s variety of channels.
What do you think?
I hope this list shows you what is possible and inspires you to follow your own path to the top.
As always I would love to hear your thoughts. Please leave a comment and let me know what you think
15 Top Earning Blogs Making Money Online Infographic
As always I would love to hear your thoughts. Please leave a comment and let me know what you think
As always I would love to hear your thoughts. Please leave a comment below. What did you think?
As more Americans turn to home cooking and entertaining, the functionality of a kitchen is more important than ever when choosing a home.
Over the past half-century, kitchens have become somewhat fetishized; a place to display high-tech appliances and high design cookware, a social hub for friends and family, and a continuation of home style that showcases elegance and considered design choices. Pare it back to basics, though, and today’s kitchen is still essentially what it always has been: a place to prepare food. And homeowners, spurred recently by stay-at-home orders, but also inspired by home-cooking television shows, health concerns and the rising expense of dining out, are increasingly relying on their kitchens in times when eating out is not an option, as well as using their kitchens as additional entertainment space; somewhere to try their hand at cooking for their friends and family. For house hunters who relish the opportunity to regularly entertain and prepare food for guests, it pays to know what to look for when assessing kitchen space during your house search—and the best person to ask is an expert.
Edouard Massih is a private chef and caterer in New York City. He hosts intimate dinners in his own home, giving local diners the experience of enjoying his food in a less formal, more personal way. Massih, who was born in Lebanon, found his love for cooking in his grandmother’s kitchen. Sharing food and creating community has always been the driving force behind Massih’s cooking, and he has discovered a way to do that in his own backyard—literally.
“I wanted to invite people into my backyard, because I had a very unique space in Brooklyn, and not a lot of people [in New York] get to have dinners in a backyard,” Massih says. To bring to life his vision of cooking for the community, Massih extensively renovated his Greenpoint backyard, creating a lush urban escape where guests can enjoy the exquisite food that he prepares in his own kitchen—each dish enhanced by a dash of his grandfather’s olive oil, all the way from Lebanon.
Having worked on his kitchen to ensure that it had everything that he needed to support his at-home dining experiences, Massih has the knowledge of both a professional chef and a home cook. We asked him for some tips to help aspiring culinary hosts to choose the right kitchen space, starting with the five kitchen elements that he finds to be indispensable. First, Massih says, is “the right fridge, or the right fridge space.” Part of taking the pressure off yourself when entertaining, he says, is making sure that you’re prepared in advance. “Entertaining is all about making it simple for yourself when people are there— being able to prep ahead and batching the drinks; having the pitchers of water ready in the fridge; and having everything ready to go. Maybe serve more cold stuff than hot. You can do a pasta salad and an orzo salad, and make it two hours in advance.”
Preparing food in advance, chilling drinks and ensuring that all of your produce is fresh all comes down to having the right fridge. And while interactive fridges with weather forecasts and recipe databases can be useful, the main thing is space—and plenty of it. If you want to get fancy, you could go for a hot-water dispenser and temperature-adjustable drawers, both of which assist in various cooking processes; just make sure that you have enough shelf space to hold all of the food and beverages that you’ve prepped for your guests.
Because you can’t make a lot of food without creating a lot of mess, Massih insists that having two sinks is vital: one dedicated to food prep, and one to cleanup. You can keep your prep equipment near your prep sink (think bowls, colanders, appliances), and dishes near the cleanup sink (which should ideally be close to the dishwasher). In addition, having two sinks creates more flexibility for multiple cooks, and streamlines the flow while you’re cooking.
The third must-have for Massih is “a lot of prep area—lots of counter space.” You need space for laying out, preparing and organizing ingredients, which most people consider when thinking about counter space; but if you’re planning on entertaining groups of diners, you also need enough counter space to plate all of the meals at once. Nobody wants to be balancing plates on top of kitchen stools because there’s not enough room for everything on the countertop.
Fourth for Massih is storage, in terms of both kitchen cabinets and a decent pantry. You want plenty of space, and also space that complements your cooking flow. Pots and pans should be as close to your stove as possible—either on a rack above or in a cabinet below—and serving utensils like spoons and tongs should be close to where you do your plating, to minimize the number of steps you have to take to collect your cooking tools, which helps with efficiency when you’re cooking for a group of people. A walk-in pantry is ideal, with various shelf sizes and storage options for appliances that are not in regular use. For chefs, there’s nothing worse than a cluttered cooktop.
Lastly, Massih emphasizes the importance of, as he calls it, “legit trash.” “You want a trash can that’s near the sink or accessible around [where you’re working], and not one of those little tiny trash barrels that fits nothing,” he says. “Otherwise, every two minutes, you’ll have to take the trash out when you’re prepping.” Massih also spends a lot of time cooking in other people’s kitchens as part of his catering and private-chef business, and the one feature that he is always delighted to see is a back kitchen.
“What is really nice about some of [the private homes that I cook in] is they have a back kitchen, like the ‘help’ kitchen,” he says. “That really does help a lot. If I [had the resources], and I was looking for a house to entertain in a lot or to do a lot of dinners in, then that’s definitely something that I would look for. “A lot of these kitchens nowadays are very open-plan, because the idea of it is that it’s really fun. But it gets annoying when you’re [hosting] a formal dinner, and you can’t do dishes [or hide them away] while your guests are eating. Having a small back kitchen really helps, because then you can hide all of the stuff that you don’t want people to see.”
There’s nothing wrong with a kitchen as a style statement, and most people whose interests lie in kitchens will admit to some fetish-like reverence. Just keep practical concerns in mind, particularly when you have culinary aspirations; remember, you can have a waterfall countertop AND legit trash. That’s what we call the best of both worlds.
For more information on Edouard Massih and his home-style cooking, visit www.edouardmassih.com.
Financial emergencies happen to the best of us, which is why it’s always a good idea to set aside an emergency fund. But if you don’t have an emergency fund, it’s also possible to take out a cash advance loan to cover the expense.
However, this can be challenging for individuals with bad credit. You may have a hard time getting approved for a personal loan, and if you are approved, you may get stuck with terrible interest rates. This is why many people turn to cash advance loans.
A cash advance loan is a short-term loan that is meant to provide temporary relief from financial problems. This includes things like payday loans or cash advances from a credit card. This article will go over some of the best options available to you.
5 Short-Term Cash Advance Loans to Consider
Short-term loans are given in smaller amounts, and the loan term won’t be longer than a few months. These loans are easy to apply and qualify for, even if you have bad credit.
You’ll apply either online or in-person, and the application process is usually pretty quick. Once you’re approved, the lender will give you the cash, minus any fees. The fees for short-term loans are based on the amount you’re borrowing.
If you’re in a true emergency, need access to cash, and don’t want to take out a payday loan, it could make sense to get a cash advance loan. But you’ll want to make sure you compare lenders and understand the terms and conditions.
Short-term lenders tend to charge incredibly high fees that can trap you in a cycle of debt. There being said, if you need to take out a short-term loan, here are five options you can consider.
MoneyMutual is an online lending marketplace that connects borrowers with lenders across the country. You can apply for a cash advance loan of up to $2,500 and receive the funds within 24 hours. The online application process is quick and easy to complete.
The rates vary depending on a borrower’s credit score, but consumers with bad credit are welcome to apply. However, you will need a monthly income of at least $800, and MoneyMutual is not available to borrowers in New York.
Read our full review of MoneyMutual
CashUSA is another online lending marketplace that helps consumers with bad credit access cash advance loans from $500 to $10,000. APRs range from 5.99% to 35.99%, with repayment terms up to 72 months.
If you use CashUSA, the application process is easy, and you’ll receive a decision within minutes. The funds will be deposited in your bank account, and you can get your money in as little as one business day.
Read our full review of CashUSA
CashAdvance is a one-stop-shop for short-term cash advance loans. The company will connect you with its network of lenders and offers loans up to $1,000 or more. You can apply online. It’s very quick and easy.
To qualify for a loan through CashAdvance, you have to be at least 18-years-old and earn at least $1,000 per month after taxes. Your repayments will be automatically deducted from your checking account every month.
Read our full review of CashAdvance
Bad Credit Loans
Bad Credit Loans has been connecting borrowers to its network of lenders since 1998. You can apply for a loan between $500 and $5,000 and receive the funds as soon as the next business day. The interest rate ranges from 5.99% to 35.99%, depending on your creditworthiness.
It’s easy to apply for a loan and you have a good chance of being approved, even if you have bad credit.
Read our full review of BadCreditLoans.com
PersonalLoans.com is another lending network but unlike some marketplaces, it is available everywhere in the U.S. You can apply for a loan between $500 and $35,000, so this is a good option if you need a more substantial loan amount.
The interest rates range from 5.99% to 35.99%, based on creditworthiness. The application and approval processes are quick and you can receive the funds as soon as the next business day. However, if you’re looking to borrow a large sum of money, the approval process may take longer.
Read our full review of PersonalLoans.com
3 Credit Card Cash Advances to Consider
The installment loans above may require a credit check. If that doesn’t seem like the best option, you can also consider a credit card cash advance.
If you have the funds available on your credit card, this could be an easy option for you. However, not all credit cards allow cash advances, and those that do tend to charge very high fees. And once you’ve taken out the money, interest will start accruing immediately.
To receive the money, you can visit your local branch. If you’d rather make a cash withdrawal from an ATM, you’ll need to call the bank and set up a PIN. Listed below are three credit cards that may be good for cash advances.
PenFed Promise Visa Card
PenFed Credit Union issues this card. Borrowers with a fair credit score can qualify for this card and the APR range is 11.24% to 17.99%.
PenFed doesn’t charge cash advance fees on any of its cards, which is pretty uncommon. Most credit cards charge cash advance fees between 3% and 5%. It will charge interest on the amount you withdraw, though.
Capital One Platinum Credit Card
This card is easy to apply for and available to borrowers with less-than-ideal credit. The regular APR is 26.96%, which is on the high side, and it doesn’t offer an introductory APR.
But you will have access to cash advances, and the company charges a 3% cash advance fee. This isn’t as good as what PenFed offers, but it’s lower than some.
First Access Solid Black Visa Credit Card
The First Access Solid Black Visa card isn’t going to be your best option, but it is available to borrowers with a poor credit history. The APR is 34.99%, which is much higher than what other credit cards charge. But if you need to take out a cash advance, there are no cash advance fees other than the interest.
Things to Keep in Mind
Sometimes, financial emergencies are unavoidable and you’ll need to find a way to get through them. A short-term loan or cash advance can be a way to close the temporary gap in funds.
Just make sure you repay the loan and begin working on building up your savings. This will help you avoid getting into this situation again in the future. And here are a few things you should consider before borrowing money from anyone:
Have a plan for how you’ll repay the money
See how the Better Business Bureau rates the company you’re considering
Read the terms and conditions before agreeing to anything
Make sure you know exactly what fees you’ll end up paying on a cash advance
Do you have kids? Are there children in your life? Were you once a child? If you plan on helping pay for a child’s future education, then you’ll benefit from this complete guide to 529 plans. We’ll cover every detail of 529 plans, from the what/when/why basics to the more complex tax implications and investing ideas.
This article was 100% inspired by my Patrons. BetweenJack, Nathan, Remi, other kiddos in my life (and a few buns in the oven), there are a lot of young Best Interest readers out there. And one day, they’ll probably have some education expenses. That’s why their parents asked me to write about 529 plans this week.
What is a 529 Plan?
The 529 college savings plan is a tax-advantaged investment account meant specifically for education expenses. As of the passage of the Tax Cuts and Jobs Act (in 2017), 529 plans can be used for college costs, K-12 public school costs, or private and/or religious school tuition. If you will ever need to pay for your children’s education, then 529 plans are for you.
529 plans are named in a similar fashion as the famous 401(k). That is, the name comes from the specific U.S. tax code where the plan was written into law. It’s in Section 529 of Internal Revenue Code 26. Wow—that’s boring!
But it turns out that 529 plans are strange amalgam of federal rules and state rules. Let’s start breaking that down.
Taxes are important! 529 college savings plans provide tax advantages in a manner similar to Roth accounts (i.e. different than traditional 401(k) accounts). In a 529 plan, you pay all your normal taxes today. Your contributions to the 529 plan, therefore, are made with after-tax dollars.
Any investment you make within your 529 plan is then allowed to grow tax-free. Future withdrawals—used for qualified education expenses—are also tax-free. Pay now, save later.
But wait! Those are just the federal income tax benefits. Many individual states offer state tax benefits to people participating in 529 plans. As of this writing, 34 states and Washington D.C. offer these benefits. Of the 16 states not participating, nine of those don’t have any state income tax. The seven remaining states—California, Delaware, Hawaii, Kentucky, Maine, New Jersey, and North Carolina—all have state income taxes, yet do not offer income tax benefits to their 529 plan participants. Boo!
This makes 529 plans an oddity. There’s a Federal-level tax advantage that applies to everyone. And then there might be a state-level tax advantage depending on which state you use to setup your plan.
Two Types of 529 Plans
The most common 529 plan is the college savings program. The less common 529 is the prepaidtuition program.
The savings program can be thought of as a parallel to common retirement investing accounts. A person can put money into their 529 plan today. They can invest that money in a few different ways (details further in the article). At a later date, they can then use the full value of their account at any eligible institution—in state or out of state. The value of their 529 plan will be dependent on their investing choices and how those investments perform.
The prepaid program is a little different. This plan is only offered by certain states (currently only 10 are accepting new applicants) and even by some individual colleges/universities. The prepaid program permits citizens to buy tuition credits at today’s tuition rates. Those credits can then be used in the future at in-state universities. However, using these credits outside of the state they were bought in can result in not getting full value.
You don’t choose investments in the prepaid program. You just buy credit’s today that can be redeemed in the future.
The savings program is universal, flexible, and grows based on your investments.
The prepaid program is not offered everywhere, works best at in-state universities, and grows based on how quickly tuition is changing (i.e. the difference between today’s tuition rate and the future tuition rate when you use the credit.)
Example: a prepaid credit would have cost ~$13,000 for one year of tuition in 2000. That credit would have been worth ~$24,000 of value if used in 2018. (Source)
What are “Qualified Education Expenses?”
You can only spend your 529 plan dollars on “qualified education expenses.” Turns out, just about anything associated with education costs can be paid for using 529 plan funds. Qualified education expenses include:
Room and board (as long as the beneficiary attends school at least half-time). Off-campus housing is even covered, as long as it’s less than on-campus housing.
Student loans and student loan interest were added to this list in 2019, but there’s a lifetime limit of $10,000 per person.
How Do You “Invest” Your 529 Plan Funds?
529 savings plans do more than save. Their real power is as a college investment plan. So, how can you “invest” this tax-advantaged money?
There’s a two-part answer to how your 529 plan funds are invested. The first part is that only savings plans can be invested, not prepaid plans. The second part is that it depends on what state you’re in.
For example, let’s look at my state: New York. It offers both age-based options and individual portfolios.
The age-based option places your 529 plan on one of three tracks: aggressive, moderate, or conservative. As your child ages, the portfolio will automatically re-balance based on the track you’ve chosen.
The aggressive option will hold more stocks for longer into your child’s life—higher risk, higher rewards. The conservative option will skew towards bonds and short-term reserves. In all cases, the goal is to provide some level of growth in early years, and some level of stability in later years.
The individual portfolios are similar to the age-based option, but do not automatically re-balance. There are aggressive and conservative and middle-ground choices. Thankfully, you can move funds from one portfolio to another up to twice per year. This allowed rebalancing is how you can achieve the correct risk posture.
Advantages & Disadvantages of Using a 529 Plan
The advantages of using the 529 as a college investing plan are clear. First, there’s the tax-advantaged nature of it, likely saving you tens of thousands of dollars. Another benefit is the aforementioned ease of investing using a low-maintenance, age-based investing accounts. Most states offer them.
Other advantages include the high maximum contribution limit (ranging by state, from a low of $235K to a high of $529K), the reasonable financial aid treatment, and, of course, the flexibility.
If your child doesn’t end up using their 529 plan, you can transfer it to another relative. If you don’t like your state’s 529 offering, you can open an account in a different state. You can even use your 529 plan to pay for primary education at a private school or a religious school.
But the 529 plan isn’t perfect. There are disadvantages too.
For example, the prepaid 529 plan involves a considerable up-front cost—in the realm of $100,000 over four years. That’s a lot of money. Also, your proactive saving today ends up affecting your child’s financial aid package in the future. It feels a bit like a punishment for being responsible. That ain’t right!
Of course, a 529 plan is not a normal investing account. If you don’t use the money for educational purposes, you will face a penalty. And if you want to hand-pick your 529 investments? Well, you can’t do that. Similar to many 401(k) programs, your state’s 529 program probably only offers a few different fund choices.
529 Plan FAQ
Here are some of the most common questions about 529 education savings plans. And I even provide answers!
How do I open a 529 plan?
Virtually all states now have online portals that allow you to open 529 plans from the comfort of your home. A few online forms and email messages is all it takes.
Can I contribute to someone else’s 529?
You sure can! If you have a niece or nephew or grandchild or simply a friend, you can make a third-party contribution to their 529 plan. You don’t have to be their parent, their relative, or the person who opened the account.
Investing in someone else’s knowledge is a terrific gift.
Does a 529 plan affect financial aid?
Short answer: yes, but it’s better than how many other assets affect financial aid.
Longer answer: yes, having a 529 plan will likely reduce the amount of financial aid a student receives. The first $10,000 in a 529 plan is not part of the Expected Family Contribution (EFC) equation. It’s not “counted against you.” After that $10,000, remaining 529 plan funds are counted in the EFC equation, but cap at 5.46% of the parental assets (many other assets are capped higher, e.g. at 20%).
Similarly, 529 plan distributions are not included in the “base year income” calculations in the FAFSA application. This is another benefit in terms of financial aid.
Finally, 529 plan funds owned by non-parents (e.g. grandparents) are not part of the FAFSA EFC equation. This is great! The downside occurs when the non-parent actually withdraws the funds on behalf of the student. At that time, 50% of those funds count as “student income,” thus lowering the student’s eligibility for aid.
Are there contribution limits?
Kinda sorta. It’s a little complicated.
There is no official annual contribution limit into a 529 plan. But, you should know that 529 contributions are considered “completed gifts” in federal tax law, and that those gifts are capped at $15,000 per year in 2020 and 2021.
After $15,000 of contributions in one year, the remainder must be reported to the IRS against the taxpayer’s (not the student’s) lifetime estate and gift tax exemption.
Additionally, each state has the option of limiting the total 529 plan balances for a particular beneficiary. My state (NY) caps this limit at $520,000. That’s easily high enough to pay for 4 years of college at current prices.
Another state-based limit involves how much income tax savings a contributor can claim per year. In New York, for example, only the first $5,000 (or $10,000 if a married couple) are eligible for income tax savings.
Can I use my state’s 529 plan in another state? Do I need to create 529 plans in multiple states?
Yes, you can use your state’s 529 plan in another state. And mostly likely no, you do not need to create 529 plans in multiple states.
First, I recommend scrolling up to the savings program vs. prepaid program description. Savings programs are universal and transferrable. My 529 savings plan could pay for tuition in any other state, and even some other countries.
But prepaid tuition accounts typically have limitations in how they transfer. Prepaid accounts typically apply in full to in-state, state-sponsored schools. They might not apply in full to out-of-state and/or private schools.
What if my kid is Lebron James and doesn’t go to college? Can I get my money back?
It’s a great question. And the answer is yes, there are multiple ways to recoup your money if the beneficiary doesn’t end up using it for education savings.
First, you can avoid all penalties by changing the beneficiary of the funds. You can switch to another qualifying family member. Instead of paying for Lebron’s college, you can switch those funds to his siblings, to a future grandchild, or even to yourself (if you wanted to go back to school).
What if you just want you money back? The contributions that you initially made come back to you tax-free and penalty-free. After all, you already paid taxes on those. Any earnings you’ve made on those contributions are subject to normal income tax, and then a 10% federal penalty tax.
The 10% penalty is waived in certain situations, such as the beneficiary receiving a tax-free scholarship or attending a U.S. military academy.
And remember those state income tax breaks we discussed earlier? Those tax breaks might get recaptured (oh no!) if you end up taking non-qualified distributions from your 529 plan.
Long story short: try to the keep the funds in a 529 plan, especially is someone in your family might benefit from them someday. Otherwise, you’ll pay some taxes and penalties.
It’s time to don my robe and give a speech. Keep on learning, you readers, for:
An investment in knowledge pays the best interest
Oh snap! Yes, that is how the blog got its name. Giving others the gift of education is a wonderful thing, and 529 plans are one way the U.S. government allows you to do so.
If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.
This article—just like every other—is supported by readers like you.
for 2021, the contribution limit is $19,500. You can also make a “catch up” contribution if you’re 50 or older. That adds another $6,500 to the contribution. If your employer has a matching contribution, it turns into a serious wealth accumulation scheme.
For example, let’s say you make the full $19,500 contribution. But you’re 50 years old, so you can add another $6,500. That’s $26,000 coming from you.Your employer has a 50% match, and contributes another $9,750, and you’re already fully vested in the plan. That brings your total contribution for the full year up to $35,750.
That’s the kind of money that early retirement dreams are made of. It’s also why 401(k) plans are so popular.
Additional Limits for Highly Compensated Employees
As attractive as that looks, there are serious limits on the plan if you fall under the category of highly compensated employee, or “HCE” for short.The thresholds defining you as an HCE are probably lower than you think. I’m going to give the definition in the next section, but suffice it to say that if you fall into this category your 401(k) plan suddenly isn’t as generous.
In the simplest terms, contributions made by HCE’s can’t be excessive when compared to those of non-HCE’s. For example, if the average plan contribution by non-HCE’s is 4%, then the most an HCE can contribute is 6%. We’ll get into why that is in a bit.
But if you make $150,000, and you’re planning to max out your contribution at $19,500, you may find that you can only contribute $9,000. That’s 6% of your $150,000 salary. This is how the HCE provisions can limit 401(k) plan contributions by highly compensated employees. If you’re determined to be an HCE after the fact – like after you’ve made a full 401(k) contribution for the year – the contribution will have to be reclassified.
The excess will be refunded to you, and not retained within the plan. An important tax deduction will be lost. Here’s another little wrinkle…an HCE isn’t always obvious. The IRS has what’s known as family attribution, which means you can be determined to be an HCE by blood. An employee who’s a spouse, child, grandparent or parent of someone who is a 5% (or greater) owner of the business, is automatically considered to be a 5% (or greater) owner. Let’s dig down a little deeper…
What Determines a Highly Compensated Employee?
The IRS defines a highly compensated employee as one who…
Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or
For the preceding year, received compensation from the business of more than $130,000, and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.
Boiled down then, there are three numbers to be aware of:
$130,000 (income), AND
20% (as in, you are in the 20% highest paid people in your company).
Right away, I think I know what’s going through your mind: $130,000 is highly compensated?
I know, right? In much of the country, particularly the big coastal cities, like New York and San Francisco, that’s barely enough to get by. But this is just where the IRS drew the line, and we’re stuck with it. If I were to guess, I’d say the base is probably a number set years ago, and it’s never been adequately updated.
The whole purpose of highly compensated employee 401(k) (HCE 401(k)) is to prevent higher paid workers from getting most of the benefit from employer-sponsored retirement plans. After all, the higher your income, the more you can pay into the retirement plan. An employee being paid $150,000 per year can contribute a lot more than someone making $50,000. The IRS regulation is designed to reduce this imbalance.
I may be guilty of giving you more information here than you want to know. But this gets down to the mechanics of the whole HCE thing. If you’re an employee, you don’t have to worry about this – your employer will perform these tests. But it might be important if you are the owner of a small business, and need to actually perform the test yourself.
If you don’t have an appetite for the technical, feel free to skip over this section. To make sure all goes according to regulation, the IRS requires that employers perform non-discrimination tests annually. 401(k) plans must be tested to make sure the contributions made for lower paid employees are “proportional” to those made for owners and managers who fit under the category of highly compensated employees.
ADP and ACP Tests
There are two types of tests: Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP).
ADP measures elective deferrals, which includes both pretax and Roth deferrals, exclusive of catch-up contributions, of both highly compensated employees and non-HCEs. Using this method, the participants’ elective deferrals are divided by their compensation, which produces the actual deferral ratio (ADR). as calculated for both HCEs and non-HCE employees. (Stay with me now!)
The ADP test is met if the ADP for eligible highly compensated employees doesn’t exceed one of:
125% of the ADP for non-HCEs, OR
The lesser of 1) 200% of the ADP for non-HCEs, or 2) the ADP for the non-HCEs, plus 2%.
The ACP test is met if the ACP for highly compensated employees doesn’t exceed the greater of:
125% of the ACP for non-HCEs, OR
The lesser of 1) 200% of the ACP for the group of non-HCEs, or 2) the ACP of non-HCEs, plus 2%.
Are you still with me???
The 2% Rule
Notice that on each test, there’s the provision of “plus 2%”. That’s significant. The average 401(k) contributions of HCEs in the plan cannot exceed those of non-HCEs by more than 2%. In addition, collective contributions by HCE’s cannot be more than twice the percentage of non-HCE’s contributions.
One of the biggest problems with non-discrimination tests is that the results can be exaggerated if non-HCEs make relatively small percentage contributions, or if few participate in the plan. As a highly compensated employee, you might max out your contributions every year.
But employees who earn more modest incomes may go for minimal contributions. That can skew the results of the testing. Unfortunately, there’s no easy way around that problem.
What Happens if Your 401(k) Plan Fails the Test?
This is where the situation gets a bit ugly. The test can be performed within 2 ½ months into the new year (March 15) to make the determination. They’ll then have to take action to correct it within the calendar year. If the plan fails the test, your excess contribution will be returned to you. You’ll lose the tax deduction, but you’ll get your money back and life will go on.
There’s a bit of a complication here too. The excess contribution to the plan during the last tax year will be refunded the following year as taxable income to the HCE. That means that when you get your excess contribution refund, you’ll need to put money aside to cover the tax liability.
Better yet, make an estimated tax payment to avoid penalties and interest. That’ll be important if the excess refunded is many thousands of dollars. What happens if the problem isn’t identified and corrected within that time frame? It gets really ugly.
The 401(k) plan’s cash or deferred arrangement will no longer be qualified, and the entire plan may lose its tax-qualified status.
There’s a bit more to this, but I’m not going to go any further. This is just to give you an idea as to how serious the IRS is about an HCE 401(k). If you are a small business owner, and there’s even a slight chance you might be bumping up against HCE limits, consult with a CPA.
Manage Your 401(k) with Blooom
Even though you will encounter contribution limits to your 401(k) if you meet the criteria above, you can still benefit from contributing to one. While multiple robo-advisors can help you manage your 401(k), Blooom is the only platform built solely around 401(k)s, meaning they do it really well.
Blooom allows for rebalancing your portfolio, keeping your stock to bond ratio in check, researching market trends, avoiding hidden fees, and getting you your match.
Your employer never has to play a part in the process. You also get access to living breathing financial advisors, even though Blooom is a robo-advisor. All of these services come at the cost of $10 a month, with no minimum balance requirement. Your contributions may be capped due to your earnings, but with Blooom you can rest easy knowing you aren’t losing money elsewhere.
If you’re a highly compensated employee, are there any strategies to reduce the impact? Yes – none as good as being able to make a full tax-deductible 401(k) contribution, but they can minimize the damage.
Make nondeductible 401(k) contributions. You can still make contributions, you’ll just lose the tax deduction. That isn’t a complete disaster though. Those contributions will still generate tax-deferred investment income.
Make a 401(k) catch-up contribution. 401(k) catch-up provisions aren’t restricted by highly compensated employee rules. This offers potential relief – providing you’re 50 or older. 401(k) plans come with a catch-up provision of $6,500 if you’re 50 or older. If you’re considered to be highly compensated, you can still make this contribution.
Have your spouse max-out his or her retirement contribution. That is, if they’re not also considered a highly compensated employee.
Set up a Health Savings Account (HSA). This isn’t a retirement plan, but it will provide tax-deferred savings. That will help you build up a plan to pay health costs in your retirement years. For 2021 you can contribute up to7,200 (married) or $3,600 (single). You get a tax break on your contribution.
Save money in taxable accounts. Naturally, some sort of tax-sheltered savings plan is always preferred, especially if you’re seriously limited in your 401(k) plan. But this option should never be ignored. If you’re a highly compensated employee, but your retirement contributions are limited, you’ll need to do something to make up the difference.
Saving money in taxable accounts is a solid strategy. There are no limits on how much you can contribute. And even though you don’t get a tax break on the contributions or the investment earnings, you’ll be able to take money out as you need it, without having to worry about paying taxes on it.
3 Ways to Make an IRA Contribution
An even simpler option is just to make an IRA contribution. There’s nothing fancy here, but if you’re a highly compensated employee, never overlook the obvious. There are three ways you can do this:
Make a contribution to a traditional IRA.
Virtually anyone at any income level can make a contribution. But the tax deduction for a contribution – if you’re already covered by an employer plan – phases out at $125,000 for married couples, in $76,000 for single filers. But if HCE status limits your 401(k) contributions, this will be a way to take advantage of tax deferral of investment income.
Contributions aren’t nearly as generous as they are for 401(k) plans, at just $6,000 per year (or $7,000 if you’re 50 or older), but every little bit helps.
Make a contribution to a Roth IRA.
You can make a contribution if your income doesn’t exceed $140,000 (single), or $208,000 (married). There’s no tax deduction with Roth IRA conversions, but you will have a deferral of investment income. Best of all, once you retire, withdrawals can be taken tax-free.
Make a non-deductible traditional IRA contribution, then do a Roth conversion.
If you do, you can avoid the tax liability of the conversion. But you’ll be converting tax-deferred savings into tax-free with the Roth. One of the biggest benefits of this strategy is that there’s no income limit. Even if your income exceeds the thresholds above, you can make a nondeductible contribution to a traditional IRA, and then convert it to a Roth IRA.
Final Thoughts on 401k Limits for Highly Compensated Employees
If you’re an employee of a large organization, your employer has probably figured out how to avoid the HCE problem. It’s more of an issue for smaller employers. If you are the employer, this is a situation you’ll need to monitor closely. Your plan administrator should be able to help.
There are two of the ways to fix the problem:
You can offer a safe harbor 401(k) plan, which is not subject to the discrimination tests.
Otherwise, you can provide a generous employer match. The match can boost employee participation in the plan to well over 50%, which often fixes the HCE problem.
But if you’re a highly compensated employee in a small company, you won’t know it’s a problem until you get notification from your employer. That will come in the form of a return of what is determined to be your excess contribution and a potential tax bill as a result.
Are you considered to be a highly compensated employee, or have you been in the past? Did you get hit with a refund and a subsequent tax bill? What are you or your employer doing to fix the problem?
Good Financial Cents, and author of the personal finance book Soldier of Finance. Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.