3 Tips to Help You Start Investing on Any Budget
Now more than ever, automatic investing — or “robo-advisory" — tools are just a few clicks away and will help you do your part to close the gender investing gap. Acorns, Wealthfront, and Betterment are just a few of the new investment apps that democratize investments by offering an easy onboarding process for new and aspiring investors, squashing the myth that you need a bank account with a string of zeros to enter the market in the first place. That era is over — today, all spare change is welcome!
Whether you're looking to increase your savings by a few bucks or a few Benjamins, there are a few strategies to think about before you dip your toes in the water and invest smarter as you build your financial portfolio.
Start by Figuring Out Where You Stand
Begin by asking yourself where you stand today. Do you have student loan or credit card debt? If so, knowing the interest rates and structure of those loans will be helpful in understanding whether or not it makes sense to prioritize paying down debt before starting an investment account.
For example, if you have a credit card with a running balance and higher interest rate, it will likely make more sense to dedicate income to paying off that debt before investing. The average credit card interest rate of 16 percent is far greater than the average seven percent return on investment — so making the choice that will put your hard-earned money to highest and best use is generally the right choice.
Review Your Financial Goals
There's no time like the present to jot down both short- and long-term goals. Understanding what kind of savings goals you want to set and track for yourself — such as an emergency fund or that next dream vacation — will help you understand what you can realistically afford to allocate toward investing. In general, the stock market is a solid long-term investment strategy: It's where you can put the money you're comfortable stashing away for at least five years. But if you're interested in a different kind of investment, such as buying a home, the market might not be the best near-term priority. Identifying what you need your money to do for you (and by when) is helpful before getting started.
Make It Easy
Investing in the stock market is a slow and steady race that generally takes some discipline — not only in setting money aside, but also avoiding any emotional decisions as the stock market goes up and down (as it naturally will). Consider automatic investing tools or online advisory services, such as LearnVest and Ellevest, which will help you navigate what makes the most sense for you. If it's easy, it's likely to become a long-term habit that will build financial wealth.
And if mobile apps and online tools aren't your cup of tea, and you're ready to get serious about investing, consider working with a certified financial planner or an investment advisor, who can walk you through the steps above and stick with you as you reach various financial goals and life milestones — whether that means a wedding, new condo, career, baby, or all of the above!
Investing is not a one-size-fits-all pursuit. As with most money-related challenges, it boils down to where you are and where you want to go financially. This can be as much of a lifestyle decision as a financial decision, so it's important to take the time at the outset to check in with yourself in these key areas. It can make all the difference when it comes to sticking with the right investment strategy and making your money work its hardest — and smartest — for you.
How are you saving for big purchases and future plans? Tweet us your suggestions @BritandCo!
(Photos via Getty)
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Welcome to Selfmade Finance School, our new money series with Block Advisors to help small business owners with their tax, bookkeeping, and payroll needs year-round. This week, we explore the tax implications of bringing family members into your business.
The question for today is this: Does hiring your family members make sense for your business? Let me be clear. This is not a piece about whether hiring your family members makes sense for your relationships with those family members. As someone who is part of a family business, I could fill up a lot more than 600 words on my opinions about that. For today's purposes, we focus on whether it makes sense from an overall "good business and tax implication" perspective. As it turns out, there is a decent amount of tax nuance when it comes to employing your family. Let's break it down based on relationship to the employee:
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Spouses Who Are In Business Together
Personally, if I had to be in business with my husband, it would not go well. However, many couples build viable, strong businesses together and I say, good for them! Depending on how you have your business entity structured, it will make a big difference on the tax treatment of you and your spouse working as partners. Because a business jointly owned and operated by a married couple is generally treated as a partnership for Federal tax purposes, the spouses must comply with filing and record keeping requirements imposed on partnerships and their partners. The election to file two Schedule C (Form 1040) forms, (one for each spouse) permits certain married co-owners to avoid filing partnership returns, provided that each spouse separately reports a share of all the businesses' items of income, gain, loss, deduction, and credit. Under the election, both spouses will be subject to self-employment tax and on net earnings from self-employment and receive credit for Social Security earnings.
One Spouse Employs Another
If you have a dynamic where your spouse is an employee of your business, then your spouse's wages are subject to income tax withholding, Social Security and Medicare taxes. If you are self-employed (not a corporation or a partnership), your spouse's pay does not have to be included in your federal unemployment tax account (FUTA) contributions and payments. However, if your business is a corporation or a partnership you must include that spouse's pay in your unemployment tax contribution calculation.
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You Employ Your Child
First, let's be clear. I work in my family business, but I am an adult, so I am treated just like a normal employee. However, if you, for example, run a family restaurant and want to hire your children under 18 to work for you, there are some tax benefits. But first, you should check with your state for rules on how many hours minors can work (in non-agricultural jobs) and reference the Fair Labor Standards Act for information on limitations on the kinds of work children can perform.
"This is an often overlooked or under-utilized strategy. Paying your children for true services they provide in your business can be a powerful tax-saving tool," says Cathi Reed, Block Advisors Regional Director. "If you are a sole-proprietorship or single member LLC, and the child is less than 18 years of age, the business is not required to withhold FICA or payroll taxes. The child can use his or her standard deduction against income you pay."
You Hire Your Parent
Oh dear. If you are brave enough to do this, know that you will need to pay Social Security and Medicare taxes on your parent's wages and make the appropriate withholdings, but you don't have to pay unemployment taxes. Now all you have to do is convince your parent that you are the boss. Have fun with that!
Is Hiring Family Members Worth It For The Tax Benefits?
"There are some positive tax advantages to hiring family members. It's important to treat a family member like any other employee. Hiring your children can result in substantial savings for businesses. Make sure your child has real, age-appropriate work to do and a reasonable pay rate, comparable to other employees. Consult with a Block Advisors small business certified tax pro to ensure that you are complying with all requirements," advises Reed. "Block Advisors, a team within H&R Block, is dedicated to meeting the tax, bookkeeping and payroll needs of small business owners year-round. To start working with the tax experts at Block Advisors, visit blockadvisors.com."
In my opinion, you should not hire a family member solely because of the tax benefits. You should always hire based on whether that person is right for the job and keep in mind how this hire could materially impact your relationship with that person and others in your family. Finally, as I mentioned, make sure you have a tax professional on your team when making these determinations. As you can see, things can get a little tricky!
*All details were sourced from IRS.gov and blockadvisors.com