Money Management

These areas don’t go by the federal minimum wage. 

Cost of living increases have made life difficult for many Americans this year, particularly those in lower-income households. If you’re already spending a large percentage of your budget on essentials, you have less insulation against spiraling prices. That’s particularly true for those earning minimum wage.

The federal minimum wage is $7.25 an hour, a figure that has not increased since 2009. If we factor in inflation, it would have had to grow to $10.20 to let people buy the same amount of goods and services today. In real terms, the current minimum wage has shrunk by almost 30% since it was set.

However, a number of states, counties, and cities have passed their own minimum wage rules that override federal requirements. Moreover, many will increase their minimum wages in 2023. Some are set to make the move at the start of the year and others will follow as the year progresses.

These 27 states will increase their minimum wages in 2023

According to a report by the National Employment Law Project (NELP), a record number of states and localities will increase their minimum wages next year. It will hit or exceed the $15 mark in California, Connecticut, Massachusetts, Washington State, and parts of New York.

Here’s how the 2023 minimum wage increases breakdown by state:

Alaska: Minimum wage set to rise to $10.85 by Jan. 1Arizona: Minimum wage set to rise to $13.85 by Jan. 1California: Minimum wage set to rise to $15.50 by Jan. 1Colorado: Minimum wage set to rise to $13.65 by Jan. 1Connecticut: Minimum wage set to rise to $15.00 by Jan 7Delaware: Minimum wage set to rise to $11.75 by Jan. 1Florida: Minimum wage set to rise to $12.00 by Sep. 30Illinois: Minimum wage set to rise to $13.00 by Jan. 1Maine: Minimum wage set to rise to $13.80 by Jan. 1Maryland: Minimum wage set to rise to $13.25 for large employers and $12.80 for small employers by Jan. 1Massachusetts: Minimum wage set to rise to $15.00 by Jan. 1Michigan: Minimum wage set to rise to $10.10 by Jan. 1 and then to $13.03 by Feb. 20.Minnesota: Minimum wage set to rise to $10.59 for large employers and $8.63 for small employers by Jan. 1Missouri: Minimum wage set to rise to $12.00 by Jan. 1Montana: Minimum wage set to rise to $9.95 by Jan. 1Nebraska: Minimum wage set to rise to $10.50 by Jan. 1Nevada: Minimum wage set to rise by Jan 7. It will be $11.25 in companies with no health insurance and $10.25 in companies with health insurance.New Jersey: Minimum wage set to rise to $14.00 for many employees by 2023. People doing seasonal or agricultural work will receive less, as will those working for smaller companies.New Mexico: Minimum wage set to rise to $12.00 by Jan. 1New York: Minimum wage is set to increase to $14.20 in Upstate New York at the end of 2022. It’s already $15.00 in New York City, Long Island, and Westchester County.Ohio: Minimum wage set to rise to $10.10 by Jan. 1Oregon: The state’s minimum wage has increased steadily since 2016. Wages depend on what part of the state you live in, and will increase in line with inflation in 2023.Rhode Island: Minimum wage set to rise to $13.00 by Jan. 1South Dakota: Minimum wage set to rise to $10.80 by Jan. 1Vermont: Minimum wage set to rise to $13.18 by Jan. 1Virginia: Minimum wage set to rise to $12.00 by Jan. 1Washington State: Minimum wage set to rise to $15.74 by Jan. 1

Minimum wage rules also depend on the type of job you do. For example, last year, President Biden issued an executive order requiring federal contractors to pay a $15 minimum wage. As the list above shows, some states have different requirements for smaller companies. There are also reductions in wage requirements for workers who earn extra money in tips.

Surviving on minimum wage

There’s a lot of politics around minimum wage debates. It was originally introduced to protect workers from exploitation, and some argue that the wage hasn’t kept up with cost-of-living increases. Others believe that many businesses wouldn’t be able to cover significantly higher wages, so a national minimum wage increase would lead to more unemployment.

Putting the politics aside, If you worked 40 hours a week at the federal minimum wage of $7.25, you’d earn about $15,000 a year. In a two-person household, that’s below the federal poverty line. Once you factor in taxes, housing, utilities, and food, there won’t be a lot (if anything) left in the bank for anything else.

That means it’s almost impossible to find cash to build more stable financial foundations. For example, many financial experts recommend saving as much as 20% of your income. This allows people to invest for their old age and build up emergency savings to cushion them against the unexpected. If you’re stretching your money just to pay for the basics, it’s not easy to build any kind of financial security in your savings account.

Bottom line

Minimum wage workers might be able to take on extra hours or find other ways to earn some additional cash. But ultimately, there are only so many hours in the day and there’s only so much people can do.

The increases being applied in many states will go some way to helping minimum wage workers, as do SNAP food benefits and other financial assistance. Nonetheless, lower-income workers are less likely to have a cushion against recession or other economic issues in 2023.

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Look at all this festive red tape! 

Within certain traveler circles, passports get ranked by how powerful they are. The measure? How many countries you can visit that won’t require a visa. U.S. passports tend to rank fairly highly as holders can head visa-free to 186 destinations.

Starting next year, however, there will be an extra hoop to jump through (and a new fee to pay) for at least 26 of those destinations. That’s when we’ll see the launch of the European Travel Information and Authorisation System (ETIAS).

ESTA, eTA — now ETIAS

ETIAS was announced back in 2016, and is finally going into effect in 2023. Under the new rules, travelers from “third-countries” — countries whose citizens don’t need a Schengen Visa — will be required to apply for an ETIAS before they can enter the Schengen zone.

But no, this isn’t a visa. In fact, it’s almost the opposite: a visa waiver.

If this sounds familiar, that’s because it already exists in both the U.S. and Canada. In the U.S., travelers from a Visa Waiver Program country must apply for an ESTA (Electronic System for Travel Authorization). Canada has the same rules for their eTA (Electronic Travel Authorization).

It’s hoped that the ETIAS will help improve border efficiency and reduce border wait times. It’s also intended to help E.U. immigration authorities better spot security threats and immigration issues. Oh, and funding — did we not mention the fee?

An ETIAS application will come with a 7 euro fee (that’s about $7.40 in USD right now), though it will be free for children under 18 and seniors over the age of 70. (For the curious, the U.S. ESTA comes with a $21 fee.)

How to apply for an ETIAS

If you have a trip planned for next year — perhaps because you put your travel rewards cards to good use — you’ll need to add an ETIAS application to your list. But don’t worry, it shouldn’t take very long. U.S. passport holders can apply for an ETIAS online, and it’s estimated the application will take about 20 minutes to complete.

The information you’ll need to provide includes all the standard identifying information — name, address, birthdate, etc. — as well as your passport information and the country you intend to visit first. You’ll also need to provide an email address and telephone number.

In addition to the typical information, your application will require you to answer ETIAS “background and eligibility questions.” These cover things like medical conditions, criminal history, and previous immigration history. (And yes, they’re comparable to the questions asked by similar programs like ESTA.)

Most applications should be processed within minutes. However, it’s suggested that you fill out your ETIAS application at least 72 hours before your trip to account for any potential issues.

Your ETIAS application will either be approved or denied. If it’s not approved, you can appeal, but if that doesn’t work out you will likely need to apply for a visa to enter the Schengen countries.

You only need to apply for the ETIAS once per trip, then you can freely move about the Schengen zone as you normally would. In other words, you won’t need a different ETIAS for each Schengen country you plan to visit in one trip.

One more thing for the checklist

Turning your credit card rewards into free travel is one of the best parts of the game. And Europe is a hugely popular destination for all kinds of travel hackers. While the ETIAS launch is yet another thing to add to your travel checklist, it’s not as bad as it could be. Folks from many countries can still enjoy their European vacation visa-free — there’s just one more step to the process.

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Given current economic conditions, it’s easy to see why. 

Some parents struggle when their grown children move out of the house and they become empty nesters. But new data from PropertyManagement.com reveals that fewer parents may be grappling with empty nest syndrome these days.

The reason? A growing number of young adults are opting to move back in with their parents.

In fact, this year alone, 1 out of every 8 millennials moved back home. And all told, a good 25% of millennials live with their parents.

Of course, it’s easy to see why so many young adults live under their parents’ roofs. Living costs have soared over the past 18 months as inflation levels have surged. And therefore, many millennials have moved back home in an attempt to save money and avoid financial struggles.

Then there’s the rising cost of rent to consider. Higher home values and mortgage rates have pushed many would-be buyers out of the real estate market over the past couple of years. And so that drove up demand for rentals, paving the way for landlords to charge higher rent. And why would any young adult want to spend a small fortune on rent where there’s a potentially free housing option available?

But while it’s easy to see why so many millennials are choosing to live at home, the question is, is that a good thing? To some degree, yet. But there are pitfalls those who move back home might run into.

The upside of moving back home

Living with your parents for a period of time could afford you the opportunity to sock away a lot of money. After all, if you’re not paying rent, and your parents aren’t asking you to chip in for utilities, you can take the money you would’ve spent on those items and put it into your savings account instead.

If you’re carrying debt, either in the form of a credit card balance or outstanding loan, moving back in with your parents might also allow you to chip away at that debt sooner. Plus, if you’re working remotely these days and aren’t leaving the house as often, you might appreciate sharing a home with other people who aren’t messy roommates.

The downside of moving back home

For some people, moving back home can feel akin to failing at adulthood. This isn’t to say that if you move in with your parents, you should feel that way. But you might end up feeling bad about your situation, even though there’s no reason to.

What’s more, when you share a living space with anyone, there’s always the potential to clash. Your parents might have certain opinions about your career, your significant other, and the things you do in your free time. If you’re living under their roof, that sort of gives them the right to voice those opinions.

Finally, while moving back home might help you save money, it could also make it harder to build up a credit history. Let’s say you graduated college recently and decide to live with your parents for a year or two. If, during that time, you don’t have any bills in your name, it could make it difficult to establish a credit history, which you’ll need if you want to apply for a credit card, loan, or place to live.

All told, there are pros and cons to living at home. But if the former outweigh the latter, then it could make sense to move in with your parents for a period of time, especially if you’re trying to build savings or get on your feet financially. And besides, it’s hard to beat the comfort of living in the home you grew up in. So if that’s an option, it’s easy to see why you might be hard-pressed to give it up.

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It’s a scenario you really shouldn’t hope for — even if you’re eager to buy. 

There’s a reason buying a home has been such a struggle over the past year. Home prices are up on a national level. And mortgage rates are also up this year. When we combine both factors, it creates a real problem with affordability.

Now, there’s a chance home prices will drop in 2023 to a notable degree. This doesn’t mean we’re in for a housing market crash. That’s pretty unlikely due to the high level of equity so many owners have in their homes right now. But home prices could be driven downward if a recession hits in 2023. And while buyers would no doubt love to see a decline in property values, they shouldn’t hope for a recession just to achieve that outcome.

A recession could produce a world of pain

The reason home prices are up so much right now is that there are more people who want to buy homes than there are available homes. It’s your classic disconnect between supply and demand, and it explains why just about everything is more expensive right now — not just homes, but also, food, cars, and so forth.

If housing inventory were to pick up in 2023, it would likely drive home prices down. But the real estate market has been sorely lacking inventory for years, so we shouldn’t necessarily expect a huge increase in near-term housing supply. Instead, what might happen is that home prices come down in 2023 due to a drop in buyer demand. And a recession might fuel that.

Financial experts have been worried about a recession for months. The fear is that interest rate hikes on the part of the Federal Reserve will cause a pullback in consumer spending due to the high cost of borrowing. If consumer spending declines a lot, it could fuel a recession.

So far, consumer spending hasn’t shrunk. But some experts believe the reason is that consumers are sitting on leftover stimulus funds they have access to. Once that money runs out, consumer spending levels could fall, leading to a recession.

Meanwhile, if a recession hits, it could result in widespread unemployment. And that could push more buyers out of the market, thereby narrowing the gap between supply and demand even if real estate inventory holds steady.

Of course, on the one hand, that could end up being a good thing for buyers who are able to move forward with a home purchase — because less competition is clearly desirable. But a recession could have broad financial consequences — negative ones that trickle down in different ways. And so as desperate as some buyers might be to finally purchase a home, a 2023 recession is something no one should wish for.

Prepare for home prices to drop — a little

There’s a good chance home prices will drop naturally and gradually in 2023 even if a recession doesn’t strike. That could give buyers some relief — maybe not a ton, but some.

However, there’s a chance we’ll manage to avoid a recession, and that means home prices may not budge all that much. That’s something buyers will need to prepare for.

All told, buying a home is likely to still be expensive in 2023. Those moving forward with home-buying plans will need to make sure they can swing a mortgage loan given today’s housing prices and borrowing rates.

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Could you make an important retirement investing move right now? 

The stock market going down isn’t something that most people want to see happen. After all, if you have invested your money in a brokerage account to save for your future, you want to see your account balance climb — not fall.

But a down market could actually present an opportunity to make one money move that might potentially improve your financial situation over the long run. In fact, finance expert Suze Orman has advised that when stocks are performing poorly, it could be an ideal time to take a particular action with your retirement accounts.

Suze Orman says to consider this money move in a down market

According to Orman, a market downturn presents a great opportunity to do a Roth IRA conversion. This would mean taking money you have in a traditional tax-advantaged retirement account and moving it into a Roth account.

If you have a traditional 401(k) or a traditional IRA, these accounts allow you to make pre-tax contributions. However, you are going to be taxed on withdrawals when you take money out as a retiree.

Sometimes, it makes sense to convert your traditional account to a Roth one. This could be a smart move if you would prefer not to have to worry about taxes as a senior. But it helps to be strategic on timing if you’re going to do a conversion. And, as Orman explains, a market downturn is the ideal moment to act.

“That is the time if you were thinking about converting to convert because…when the markets are really high and your portfolio is worth more and you convert, you owe more income taxes because your portfolio is worth more.”

See, a Roth conversion is a taxable event. Because you contributed to a traditional IRA or 401(k) with pre-tax dollars, when you move the money over, you have to pay tax on the converted funds.

If your investment account balance has declined as a result of the down market, you may have a smaller balance in your 401(k) or IRA at this time. So, if you convert to a Roth now and end up moving less money over due to the fact your investments are down, your tax bill is not going to be as big.

Should you listen to Orman?

Orman’s advice on this issue is spot-on. A down market really can be the best time for a Roth conversion.

Of course, there are a lot of factors to consider in deciding whether to convert in the first place, including how soon you are going to need the money, what your conversion will do to your tax rate in the year you do it, whether you have the funds to pay taxes on the conversion, and whether you are likely to be in a higher or lower tax bracket as a retiree.

You should do your research carefully to decide if a Roth conversion is something that makes sense for you. But, if you’ve been thinking about making this move for a while — or if your research reveals that changing your account over is right for you — you should seriously consider following Orman’s advice and taking action to convert when your portfolio balance has fallen.

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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.
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