Money Management

It actually can be done. 

When you invest in stocks, your goal is generally to make money. But ideally, that’s a long-term goal, and you’ll be holding your investments for a long time to achieve it.

Investors who hang onto the stocks in their brokerage accounts for a long time don’t just stand to benefit from share price appreciation, though. They can also, in some cases, avoid having to pay taxes on their gains entirely.

How capital gains taxes work

When you sell an asset at a price that’s higher than what you paid for it, you’re subject to capital gains taxes. So if you own a single share of stock you bought for $100, and its value increases to $250, you’re looking at $150 in capital gains.

From there, capital gains can be classified as short term or long term. Short-term capital gains taxes apply to investments you sell at a profit when you’ve only held them for a year or less. By contrast, if you hold an investment for at least a year and a day before selling it, you’ll be propelled into the long-term capital gains category. And that’s generally a more favorable one to land in.

The tax implications are huge

When you sell a stock at a profit that leaves you subject to short-term capital gains, you’re taxed at your ordinary income tax rate. So if your tax bracket has you paying 22% on ordinary income, that’s what you’ll pay on short-term capital gains, too.

Long-term capital gains come with lower tax rates. And the amount of tax you’ll pay will hinge on your income.

This year, if your income is between $44,625 and $492,300, you’ll be subject to the 15% long-term capital gains tax rate. And if your income exceeds $492,300, you’ll have to pay 20% in long-term capital gains tax.

But if your income is below $44,625, you won’t pay any taxes on long-term capital gains at all. And the savings there could be huge.

Sell your investments strategically

You may be inclined to sell some stocks at a profit the moment their value really starts to pick up. In doing so, though, you could end up liable for short-term capital gains taxes, which are going to cost you more than long-term capital gains taxes no matter what income bracket you fall into.

Of course, there’s another way to score tax-free gains on your investments, and it’s to invest in a Roth IRA. While your Roth IRA contributions won’t be tax-free, your investment gains will be yours to enjoy tax-free.

Once your income reaches $44,625, tax-free long-term capital gains are off the table. But in that case, you can snag some anyway by choosing a Roth IRA.

Roth 401(k) plans work the same exact way. If your employer offers a sponsored retirement plan with a Roth savings feature, it could pay to take advantage of it. Not every 401(k) has a Roth option, but if you like the idea of not having to pay taxes when you make money on your investments, it’s worth looking into one.

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Is it possible to reduce your spending at home? 

Cutting costs doesn’t have to be hard. In fact, if you can reduce the spending you do at home, it can make a big difference in how much cash you end up with in your bank account.

Dave Ramsey has a simple suggestion for cutting a key housing cost shared by most renters and homeowners alike. Here’s what the finance expert recommends.

Could this Dave Ramsey advice help you reduce your costs?

Ramsey suggested that if you want a simpler way to reduce your spending, you should consider going greener. “Make more energy-efficient life choices,” he advised.

Ramsey offered many specific examples of how you can do that, including:

Purchasing Energy Star-certified light bulbsShutting off lights when leaving a roomInstalling a programmable thermostat so you can more easily adjust your heat and A/C settingsOpting for cold water cycles instead of hot water cycles when you are washing your clothing

“Some of these are financial investments upfront,” Ramsey acknowledged. “But they all pay off in the end. Green changes like these can keep more green in your wallet.”

Is Ramsey right?

Ramsey’s advice here is a great suggestion both for people who own their own home as well as for people who are renters and who have to cover utility costs.

Electric bills are a big expense for most people. And, unlike your mortgage payment or your monthly rent, they can be easily changed with some basic behavioral modifications. While some of the steps you can take do require you to spend money before you can save it, as Ramsey acknowledged, other steps don’t cost you anything and can make a big difference in your monthly outflows.

For example, one way you can go greener is to keep your house a little bit colder in the winter and a little bit warmer in the summer. And, while Ramsey said you can install a programmable thermostat to do that, you don’t have to get that fancy (or spend the money upfront). You can just crank it up or down a degree. The benefit of going programmable, though, is that you can adjust the temperature even more when you’re sleeping or away at work, so it could pay off for some people.

You can also make more drastic changes, such as installing solar panels or new energy-efficient appliances. These modifications would usually only pay off if you’re planning to be in your house for a while (and are only an option for homeowners, not for renters). But, there are often federal and state tax breaks for making energy-efficient modifications to your home, and your utility company may offer rebates or incentives as well. You can check out EnergyStar.gov to find out if there are options to help you.

Ultimately, there’s nothing to lose and a lot to gain by going greener. You can feel good about your efforts to help the planet while also getting to keep more money in your pocketbook. Why not give it a try and see what modifications you can make?

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Prepare to start paying a lot more. 

For many people, housing is their largest monthly expense. This holds true whether they rent a home or own one.

Research from The Ascent found that the typical American spends an average of $1,885 on housing each month. But if you own a home, your costs might be even higher when you account for your mortgage loan and other expenses.

Now, when you first buy a home, it’s important to make sure your costs will fit into your budget. But it’s also important to leave yourself with some wiggle room. That’s because your housing costs might increase quite a bit once you’ve settled into your new home. Here are a few reasons that might happen.

1. Your property taxes could rise

Property taxes are never set in stone. Yours could increase over time by virtue of your home’s value rising, even if you don’t make any improvements to your home. And if you do make notable improvements, such as finishing a basement, you can expect your property tax bill to increase — perhaps quite substantially.

2. Your homeowners insurance premiums could rise

Homeowners insurance protects you financially in the event of property damage. But the premium rate you’re quoted for your first year of coverage may not be what you end up paying long term.

First of all, the more claims you file against your policy, the more expensive you can expect it to get. But even if you don’t file a lot of claims yourself, if many homeowners in your area file claims and have the same insurance company, your costs could rise in time, too.

3. You might get stuck with a lot of repairs

Things that are glaringly wrong with your home when you buy it will generally be obvious to a seasoned home inspector. It’s those smaller repairs that have the potential to sneak up on you. And their costs can easily add up.

Plus, the longer you live in your home, the more things might break on you. Your heating system, for example, might be perfectly functional at the time of your home inspection, only to start failing three months later without warning.

Don’t max out your budget on mortgage costs

Your mortgage is the one housing expense of yours that probably won’t rise in time, assuming you’ve signed a fixed-rate loan. Rather, it’s your other expenses that have the potential to climb. That’s why it’s so important to not go overboard with your mortgage. That means you should aim to take on a monthly payment that isn’t at the top of your budget, so you have wiggle room for other costs that might rise.

In fact, as a general rule, your total housing costs should not exceed 30% of your income. But you may want to aim lower — like 20% to 25% of your income — to give yourself leeway in case your costs rise at a rapid clip. The more flexibility you’re able to give yourself, the less financial stress you’re apt to encounter as a homeowner through the years.

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A thousand miles seems pretty far, but they’ve got planes and trains and cars… 

As the saying goes, “Love conquers all.” While this is a romantic notion, it fails to account for all the very real expenses you might incur in the course of a relationship with someone in another state, another region, another country, or even on another continent. While there are degrees of long-distance relationships, if you’re hoping to travel to see your partner in person even occasionally, it’ll cost you money in various ways.

If your partner is within driving distance, you’ll be looking at costs for gas, auto maintenance, new tires, and general wear and tear on your vehicle. If they’re not, get ready to pay for plane tickets, baggage fees, and possibly even a passport, depending on where your sweetie is located. And in any case, you might end up running through your vacation time at work to keep the romance alive.

Despite the challenges and costs, 2021 data from dating app OkCupid showed that 2 million app users were open to long-distance dating (and adjusted their location preference settings accordingly). Here are a few tips and tricks to spend less while indulging your hopeless romantic side.

1. Save, save, and save some more

First things first, if you’re hoping to travel for love, it’s best to approach it with a plan and with a good high-yield savings account. The great thing about a savings account is that it gives you access to your cash anytime you need it. Some online-only banks are currently paying upwards of 4% APY on the cash stashed in savings accounts, meaning the money you add will grow over time.

Some accounts also let you create “buckets” or other separations within the account, so you can designate money for travel costs and set savings goals for yourself. If you’re hoping to save up enough to cover an overseas plane ticket in the near future, having the motivation and the right place to keep the cash can help a lot.

2. Rely on the right credit card

Credit cards can be an incredible financial tool in a variety of situations, and long-distance love is no exception. Making regular driving trips out of state? Consider applying for a card that offers gas rewards to help defray your fuel costs. If you’re looking at a lot of plane trips, there are airline credit cards to help you accrue miles for future flights.

The best general travel rewards credit cards offer ways to earn points toward other travel expenses, too. Plus, many offer robust travel projections and can be used in other countries without incurring foreign transaction fees. The right credit card can make all the difference for the financial side of a long-distance relationship.

3. Take good care of your car

If your partner is only driving-distance away, you may think you’re getting off lucky when it comes to expenses. I am here to dispel that misconception, as your costs will merely be different. The best thing you can do is to keep your car in the best shape possible. This means staying on top of regular maintenance, such as oil changes and tire rotations.

It also means having a look at your current auto insurance policy and seeing if it still meets your needs if you’re putting more miles on your car. Some auto insurers offer roadside assistance, but you might also think about signing up for a AAA membership if you think you’ll use the additional benefits AAA offers, such as savings on hotel stays.

4. Lean on flexible and remote work if you can

Finally, it’s worth noting that if your work is flexible, it will be easier and likely cheaper to fit a long-distance relationship into your finances. How so? If you work remotely, you might be able to work during some of the time you’re away from home visiting your partner. This might be especially important if you’re a freelancer or own a computer-based small business, as you don’t get paid vacation time the way a W-2 employee often does. If you’ve fallen for someone in another time zone, it’s a great opportunity to lean into being a newfangled digital nomad.

It’s hard to be far away from someone you love. But it is possible to make the most of the time you get together and also save some money along the way. It’s not romantic, but keeping your finances top of mind can help you afford that long-distance love affair.

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It’s important to know you’re not out of options. 

Although the U.S. jobs market is generally strong, a number of major companies have already announced layoffs this year. Meanwhile, a recent SecureSave survey found that 67% of Americans don’t have the money on hand to cover an unexpected $400 expense. If you’re in a similar situation and have little to no money in your savings account, then you may be counting on unemployment benefits to help you pay your bills after losing a job.

Generally, you’re entitled to unemployment benefits when you lose a job through no fault of your own. So if your company runs into financial difficulties and needs to slash 20% of its staff, and you happen to land in that 20%, you may be entitled to unemployment benefits through your state or the state you were employed in, if it’s different from your home state.

But it’s possible for an unemployment benefits claim to be denied. And if that happens to you, you should know that you’re not automatically out of options.

Why might your unemployment claim get denied?

There are different reasons why your unemployment claim might get rejected. First, a simple error on your application could result in a denial, so you’ll want to review your details carefully before submitting a claim.

Otherwise, you may be denied unemployment benefits because you’ve failed to meet your state’s earnings requirements. You’ll usually need to have worked for a certain period of time or have earned a certain amount of money within that period of time to be eligible for jobless benefits, and the specifics vary by state.

You should also expect to be denied unemployment benefits if you’ve left your job voluntarily, including accepting a voluntary buyout from your employer. Furthermore, unemployment benefits are for people who lose their jobs due to circumstances beyond their control. If you’ve been fired for misconduct, poor performance, or violating the terms of your employment agreement (such as not reporting for work during your scheduled hours or failing to report to an office when you’re required to show up in person), that could lead to an unemployment claim rejection.

Finally, your unemployment claim may be denied if there’s evidence that you’ve refused to accept a suitable job.

What to do if your unemployment claim is denied

Your state won’t just deny your jobless claim and stay quiet about it. Rather, you’ll receive a notice explaining why your claim for unemployment benefits has been rejected. From there, you can review the reason. If you feel that you’re still entitled to unemployment benefits, you can appeal your denial.

The appeal process can vary depending on the state you live in. You may be required to show up for a hearing to argue your case. You may also need to gather evidence in support of your argument.

Unemployment benefits can be a lifeline when you lose your job unexpectedly. But unfortunately, they’re not guaranteed. If you don’t meet the right criteria, your claim could be denied, leaving you to scramble and rack up credit card debt in the absence of an income. So it’s important to build up some emergency savings so that if you lose your job and aren’t eligible for unemployment, you’re not totally left in the lurch.

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It pays to spread your money around. 

It’s important to save for retirement, because trying to live on Social Security alone might prove disastrous. As of early this year, the average senior on Social Security was collecting just $1,827 a month.

If you’re decades away from retirement, you can bet that the average monthly benefit will increase over time due to inflation. But even so, generally speaking, Social Security will only replace about 40% of your pre-retirement income. And retirees tend to need around twice that much income to cover all of their bills — hence the need to save.

When it comes to building a retirement nest egg, there are different savings accounts you can look at. And you’ll often hear that putting money into an IRA account is a great choice.

A traditional IRA allows you to snag a tax break on the money you put in. So if you contribute $3,000 to an IRA this year, that’s $3,000 of income the IRS won’t be able to tax you on. Traditional IRAs can also be invested for added growth, but investment gains in your account will be tax-deferred. That means you won’t be taxed year after year, but rather, when you take withdrawals during retirement.

But while IRAs may be loaded with tax benefits, keeping all of your retirement savings in one actually isn’t a great idea. That’s because you might run into an issue if you decide to retire early.

You need options

Some people struggle to retire on time and end up having to extend their careers. But if you save diligently and consistently, you might land in a position where you’re able to retire in your 50s.

But having all of your money tied up in a traditional IRA could be problematic in that scenario. That’s because IRAs penalize you for taking withdrawals prior to age 59½. And the penalty you’ll face is 10% of the sum you withdraw.

So, let’s say you have enough savings by age 57 to retire comfortably. If you withdraw $40,000 the year you turn 57 to cover your expenses, you’ll be penalized $4,000 simply for accessing your money early. That’s not a penalty you want.

That’s why you may not want to keep all of your retirement savings in an IRA. Rather, you may want to keep a portion in a taxable brokerage account you invest in. A regular brokerage account won’t give you any tax benefits, but it will give you more flexibility in that you can access your money penalty-free whenever you want.

Don’t let your plans get thrown off-course

Retiring early has many benefits, like being able to pursue hobbies and travel at a time when you’re still in good physical shape. But the last thing you want is to not be able to retire early simply because you can’t access your money penalty-free. So in the course of saving for retirement, make it a point to spread your assets around a bit, even if it means giving up some tax breaks along the way.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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