Here’s Why You Need to Know Your Net Worth

When you know your net worth, your life can improve in major ways.

It’s perhaps one of the most important financial numbers you should know, but many people aren’t even sure exactly what it is. If someone were to ask, would you know your net worth? Would you even know what the question meant? If you’ve never heard the term until today, fear not. Here’s everything you need to know about that pesky little number that is one of the best indicators of your overall financial health.

What Is Net Worth?

In its simplest terms, the phrase net worth refers to the overall value of your goods and possessions minus what you owe. In broader terms, your net worth is the total value of all of your assets. Take your possessions — how much you have in savings, retirement accounts, your home value, checking accounts, etc. Then, subtract your overall debt — credit cards, student loans, debt, etc. Hopefully, when you subtract what you owe from your possessions you get a positive number. The higher the number, the better.

How Can I Build My Net Worth?

A high net worth is a good thing and there are a few different ways to focus on building your net worth.

1. Tackle Debt

The main thing you can do to increase your net worth is to pay off your debt. High-interest credit card debt is a great place to start. If you have multiple cards with balances, consider paying off the smallest balance first. This way you’ll receive a little boost early in your debt payoff schedule to help bolster you through what you need to do to pay off the rest. (Check out more methods for paying down credit card debt.)

The longer you hold on to debt, the more you’re likely to pay in interest rates. There are a lot of strategies to take that might make paying off debt easier. Consolidating your loans into one place might help make your loans more manageable if you have more than one. It might even be possible to refinance to a lower interest rate. Check out all your options before deciding which one is best for your situation.

2. Make More Money

This is easier said than done, but another way to work on your net worth is to simply bring in more cash. Whether that’s asking for a raise at your current job or taking on a side gig to bring in a little extra pocket money, the more you can pad your income, the better your net worth will be.

3. Invest in Retirement

If you have an employer offering to match your 401K policy and you aren’t taking them up on it, you’re lowering your net worth. If you’re taking part in a company match or contributing to a retirement plan but haven’t re-evaluated it in a while, it’s time to reconsider how much you’re putting away, and it might be time to increase it. Remember, you don’t need to have a retirement plan through work to invest in your future, there are other IRA options are available as well.

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Here’s What You Need to Know About Getting a Mortgage With ‘Paper Losses’

If you're tax returns show a net loss, you may have a tough time getting a mortgage. Here's what you need to know.

You probably already know qualifying for a mortgage requires an acceptable credit score, sufficient assets and stable income. All of these show you can support a mortgage payment, plus other liabilities. But what if you have “paper losses” on your tax returns? The mortgage process can get a little trickier. Here’s what you need to know.

You Have Rental Income Losses

On almost every mortgage loan application this can come back to bite the borrower. This is because rental losses usually represent more expenses going out than there is revenue to cover the property. Lenders use a special Fannie Mae formula, which in most instances makes losses look even worse. This is because the expenses are added back into the mortgage payment, then deducted from it over a 24-month period.

It is important to note that, when purchasing a rental for the first time, some lenders use an exception basis. The exception they are going to use is 75% of the projected market rentals. This is to help offset the mortgage payment as long as you are specifically purchasing a rental property.

You Have a Schedule C

This is a biggie. No one wants to pay an excess amount of taxes, especially self-employed individuals. You may be aware taxation is higher for self-employed individuals. So it goes without saying: Every accountant wants to be a hero by saving you money when helping with your tax returns. They could, however, be doing this at the expense of you refinancing or buying a home.

Writing off all your expenses, or worse, showing negative income means the lender has less income to offset a proposed mortgage payment. Even if you own a home already, have excellent credit and have an impeccable payment history, it does not matter. The income on paper is what lenders look at.

You Have Entity Losses

The following scenario is a common one where borrowers pay themselves a W-2 wage along with a pay stub, at the expense of bleeding the company dry. This will become problematic, because there almost certainly will be lower income figures. The same income figures the borrower is trying to qualify with.

Any negative income being reported on personal or corporate tax returns, will hurt your chances of qualifying for financing. As a result, one of these may be an offset, but they are not limited to the following:

  • Waiting until the following year – Depending on the severity of how much income loss there is, you may need to do a two-in-one. This means showing two years of income in one year. This is to offset the two year averaging lenders use when calculating your income.
  • Changing loan programs – This could be an array of different things, but it may mean going from a conventional mortgage to a FHA mortgage for example.
  • Investigating more – You might need to put more money down to purchase a home than you otherwise thought. You would do this if your income is lower than what your purchase price expectations are.
  • Paying off debt – Depending on your financial scenario, paying off consumer obligations is always a smart and healthy approach, and can improve your overall credit scores, even if it requires some of your cash. (You can check two of your credit scores free on Credit.com.)

What should you do if you know you want to qualify for financing and you currently have tax returns that contain losses? First and foremost, consult with your tax professional. Learn what your options are. Once armed with those options, talk to a lender skilled enough to help you understand how much financial power you may have in the marketplace.

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The Best & Worst Cities for Women’s Wage Equality

Here's where to live if you want equal pay for equal work.

Women continue to earn less than men across the board in the United States. In fact, except for women working in a few specific fields within specific communities, women still earn less than 80 cents for every dollar men make (and the wage gap only widens as women age). At the rate we’re going, women aren’t expected to achieve wage equality with men in this country until 2152 — another 135 years.

But some women’s earnings in some roles are equal or even surpassing those of their male coworkers (more on that in a minute), according to a recent analysis of U.S. Census data by Abodo, an apartment-locator website. Unfortunately, that’s not the case across the board. How much a woman makes compared to men doing the same job depends a lot on where she lives.

“For young millennials looking to launch their careers, or even for college students still planning their next move, being aware of the different factors influencing your future earnings is key, because even small discrepancies can have a huge impact on lifetime earnings,” said Sam Radbil, senior communications manager for Abodo. “For a woman pursuing a career in computers and math, for example, and assuming stable earnings, choosing to live in Milwaukee can mean earning $176,000 less than your male counterparts, while choosing Phoenix would mean $560,040 less over a 40-year career.”

Let’s start out looking at Abodo’s findings on the overall wage gap and the cities where it’s best and worst across industries. (You can check out the full report here.)

Nationally, the median income for women is $39,315, which is 78.9% of the national median income of $49,828 for men. Abodo looked at the Census Bureau’s 2015 American Community Survey five-year estimates for the median salaries of male and female full-time, year-round workers who were at least 16 years old and had earnings to find the greatest departure from that median. Abodo identified the 10 metropolitan areas with the largest and smallest wage gaps, as well as the five occupations with the largest and smallest wage gaps nationally.

First, the Cities With the Least Wage Disparity

1. Durham-Chapel Hill, North Carolina
Topping the chart for women wage earners across all occupational categories was Durham-Chapel Hill, North Carolina, where women earn an average of 92.6% of what their male counterparts do. It’s the only metro area where women’s overall median salaries across industries exceed 90% of men’s salaries, the study found.

2. Los Angeles-Long Beach-Anaheim, California
Women earn 89.5% what men earn.

3. Fresno, California
Women earn 88.8% of what men earn.

4. Deltona-Daytona Beach-Osmond Beach, Florida
Women earn 87.1% of what men earn.

5. McAllen-Edinburg-Mission, Nevada
Women earn 86.9% of what men earn.

6. Miami-Fort Lauderdale-West Palm Beach
Women earn 86.7% of what men earn.

7. Las Vegas-Henderson-Paradise, Nevada
Women earn 86.0% of what men earn.

8. North Port-Sarasota-Bradenton, Florida
Women earn 86.0% of what men earn.

9. New York-Newark-Jersey City, New York, New Jersey, Pennsylvania
Women earn 85.5% of what men earn.

10. Sacramento-Roseville-Arden-Arcade, California
Women earn 85.3% of what men earn.

On the flip side, the cities where women earn the smallest percentage median wage compared to men are led by Utah, where three of the top 10 cities are located. In fact, only one city located outside of Utah has a median wage for women that is less than 70% of what men earn.

The Cities With the Greatest Wage Disparity

1. Provo, Utah
Women earn 63.1% of what men earn.

2. Baton Rouge, Louisiana
Women earn 68.1% of what men earn.

3. Ogden-Clearfield, Utah
Women earn 68.9% of what men earn.

4. Wichita, Kansas
Women earn 72.1% of what men earn.

5. Youngstown-Warren-Boardman, Ohio-Pennsylvania
Women earn 73.1% of what men earn.

6. Salt Lake City
Women earn 73.4% of what men earn.

7. Augusta-Richmond County, Georgia
Women earn 73.4% of what men earn.

8. Colorado Springs, Colorado
Women earn 73.6% of what men earn.

9. Detroit-Warren-Dearborn, Michigan
Women earn 73.6% of what men earn.

10. Bridgeport-Stamford-Norwalk, Connecticut
Women earn 74.4% of what men earn.

Wage Disparity by Field

Abodo found only two major fields where women earned more — community and social services (see the green chart below), and construction and extraction jobs (see the blue chart below. Even then, women earned more only in certain cities.

wage disparity

Click image to view larger.

As Radbil explains: “Construction and extraction is one of the rare fields in our study in which women occasionally out-earned their male counterparts — at least in a specific set of cities and positions,” Radbil said. “As laborers, managers and first-line supervisors, women’s wages still lag. But in certain roles, such as helpers for construction and extraction, or service unit operators, women are seemingly leaps and bounds ahead. However, this field has the lowest percentage of female workers — just 2.4%. With numbers so low, it’s much easier for a few high-earning outliers to bolster the numbers when it comes down to specific jobs and cities.

wage disparity

Click image to view larger.

“And the reverse is also true: Construction and extraction jobs have a wide spectrum for earnings, and also contains some of the lowest lows for female workers. For example, the city with the best construction earnings ratio is Memphis, Tennessee, with $1.21 on a man’s dollar, while the worst is Milwaukee, with just 63 cents, which is the second-lowest earning ratio for any occupation our study found. All in all, however, female construction and extraction workers still earn 88 cents to a man’s dollar, for the third-highest earning ratio.”

The Largest Wage Gap Goes To…

One employment category was found to have an especially large wage gap: the legal field, where women make only 51.8% as much as men. Part of the discrepancy stems from the widely variable salaries in the legal field. Judges earn much more than paralegals, for example. But it doesn’t explain why more men work in the higher earning jobs. It also can’t explain why female lawyers earn just 78.2% on the dollar.

If you aren’t being paid the same as your peers, regardless of their gender, or just aren’t being paid what you’re worth, you might want to consider asking for a raise. It can be tough, but these tips on how to ask for a raise can make it easier.

If that’s not an option for you but you need to find some way to improve your financial circumstances — whether it’s to qualify for a mortgage, get a better rate on your credit card or just make saving for the future easier — here are 50 ways to give your finances a fresh start.

Keep in mind, one of the most prudent financial moves you can make is to keep your credit in good standing. If you don’t know where your credit stands, or if you know you could improve your credit scores, checking your credit regularly is a good idea. You can get your two absolutely free credit scores right here on Credit.com.

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4 Questions to Ask Before Buying a Rental Property

This quick review can help you figure out if you've got what it takes and, if not, how you can get it.

If you’re obsessed with HGTV, remodeling and regularly use phrases like “reclaimed wood” and “farmhouse feel,” you’ve probably kicked around the idea of buying investment property. The popular TV niche has given birth to a group of people who are motivated to improve their incomes with do-it-yourself projects and tenants in tow.

While it may seem simple and fulfilling on the small screen, buying rental property carries the same risks as purchasing your primary home. The following questions are some you’ll want to answer as you consider possible investment strategies.

1. What Are Your Financial Goals?

Are you hoping to earn extra monthly income, or do you view rental property as an attractive long-term investment? Being clear about your expectations is crucial to nailing down whether investment property is a wise choice. According to Mark Ferguson, Realtor, real estate investor and voice of InvestFourMore.com, many buyers fail to think beyond square footage.

“The biggest mistakes I see are investing in a property that loses money while hoping for appreciation, paying all cash for properties when you don’t have to and trying to manage (properties) yourself without skills or time,” Ferguson said.

It’s a good idea to make a list of short- and long-term goals as well as deal-breakers for any investment you choose. Creating rules will help you stay focused.

2. Can You Afford Extra Expenses?

Maintaining rental property takes work and extra cash, and while it’s tempting to focus on the best-case scenario, you shouldn’t discount the hefty expense of rental property taxes, association dues, management, maintenance and repairs. It’s possible to cut expenses by taking on a few handy projects yourself, but it won’t eclipse the costs entirely.

It’s wise to build a reserve fund in anticipation of your property’s needs according to Scott Trench, real estate broker and vice president of operations at BiggerPockets.com. “If you have $10,000, or even $20,000-plus in a bank account set aside for reserves, you can buy your way out of many problems associated with small rental properties,” Trench said.

With that in mind, you may want to consider building an emergency fund for your business investments in addition to your personal savings account. Separating your expenses is necessary for tax purposes, and you’ll need two accounts to maintain personal and professional independence.

3. Which Real Estate Market Is Right For You?

Although analysts predict a healthy rental market in 2017, value is still subjective, and you might consider looking outside your ZIP code to see if there are better buying options elsewhere.

“Certain metropolitan areas are most attractive to the country’s largest population groups—millennials and boomers — and are growing much faster than others,” said Alex Cohen, commercial specialist for CORE, a real estate brokerage firm based in New York City.

“Some of these markets have relatively low land and housing construction costs like Dallas and Houston. But other markets, particularly on the coasts, have much higher land and construction costs, which means less housing will be built in these metros,” Cohen said. “The flip side of this phenomenon is that in these housing-supply-constrained markets, values of homes and rents are likely to rise faster than in the rest of the country.”

While some experts suggest buying in up-and-coming locations, others swear that a good deal can lead to better returns and the ability to expand. “My 16 rentals have increased my net worth by over $1 million dollars through appreciation and buying cheap to begin with,” Ferguson said.

It’s a good idea to research all your options — from foreclosures to new construction — to determine which property could produce the best income and overall bang for your buck. Don’t be afraid to venture beyond your own backyard.

4. Are Your Finances & Credit In Good Shape?

If you are a homeowner, you may feel like a pro when it comes to applying for a mortgage, closing the deal and upgrading your property. While you may have some valuable experience, buying investment property comes with its own set of rules. Unlike purchasing your primary home, most rental mortgages require a larger down payment with a few exceptions.

“The way to minimize the additional costs — particularly higher down payment requirements of an investment property — is to take out an FHA loan, for which a down payment of as low as 3.5% of the purchase price may be possible,” Cohen said. “FHA loans are available to investors in properties with up to four units, as long as the borrower’s primary residence will be one of the apartment units.”

Not familiar with the Federal Housing Administration? You can find our full explainer on FHA loans here.

If you don’t plan to live in the rental property, you’ll need to secure a standard mortgage loan with a host of federal requirements that include financial reserves based on property value and the number of rentals you own, assets required to close and creditworthiness.

The latter requirement is perhaps the most important factor in securing an affordable investment. A high score will help you find the best interest rates and save money long before you decide to buy a rental home. It’s a good idea to order free copies of your TransUnion, Experian and Equifax reports from AnnualCreditReport.com to review your information. Highlight any negative items or errors that may be affecting your scores and consult with an expert about the best way to take action. You can also view two of your credit scores for free, updated every 14 days, on Credit.com.

Remember, whether you’re hitting up the housing market to invest or find your dream home, there are plenty of things you’ll want to do to get ready ahead of your search. Fortunately, we got a 50-step checklist for house hunters right here.

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10 Places That Can Boost Your Child’s Future Income (& 10 That Won’t)

Where you raise your kids matters. Here are 10 counties shown to raise the earnings of kids who grow up there, and 10 counties to avoid.

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5 Ways Being an Airbnb Host Can Cost You Money

should-i-host-on-airbnb

If you’ve ever wanted to make a little extra money on the side by listing your sofa, spare bedroom, guest house or even whole house on a service like Airbnb, you’ve probably wondered just how much money you could make.

After all, there are all those stories of people paying their monthly mortgage payments or annual tax bills through their rental income. What a great way to put an asset you already have to good use, right?

Yes, if your situation is right for the opportunity. When managed properly, these rentals can end up bringing in more than a traditional monthly rent can, though it does require significantly more work due to the constant turnover of renters.

As with any business, though, there are risks that could end up undermining any money-making opportunity your spare sleeping spot might afford. That’s why it’s a good idea to exercise caution and do your due diligence before jumping in.

Here are five things that could end up costing you money as an Airbnb host.

1. Higher Insurance Premiums

Yes, it’s true that Airbnb provides Host Protection Insurance, providing primary liability coverage for up to $1 million per occurrence in the event of a third-party claim of bodily injury or property damage related to an Airbnb stay. But that doesn’t mean you’re not going to need to alert your homeowners insurer that you’re operating as a rental property, even on a part-time basis.

For example, I have a guest house that I considered making available on Airbnb and I talked to my insurer about how that would impact my coverage. In a nutshell, my premiums would have doubled, significantly impacting any income I would’ve made from listing on Airbnb. I decided it wasn’t worth the hassle. Now, sure, I could’ve chosen not to tell my insurer about the rentals and just contact Airbnb with any claims, but that left me feeling very exposed when it came to, well, a lot of things.

As Galen Hayesis, president of El Sobrante, California-based Hayes Insurance, recently wrote for PropertyCasualty360.com, the coverage leaves a lot of gaps for homeowners:

  • Coverage is limited to $1 million per occurrence, $2 million per location. The policy aggregate is $10 million for all insured locations in the U.S. Shared limits are not your friend.

  • Coverage is in excess of any other available coverage. The host must submit the claim to his homeowners insurance and the claim must be denied by that company before Airbnb’s insurance will pay. Presumably, the homeowners insurance may also be cancelled for business use.

  • The summary document lists these other “key” exclusions: (1) intentional acts (of the host or any other insured party), (2) loss of earnings, (3) personal and advertising injury, (4) fungi or bacteria, (5) Chinese drywall, (6) communicable diseases (7) acts of terrorism, (8) product liability, (9) pollution, (10) asbestos, or lead or silica, and (11) insured vs. insured (i.e., host sues Airbnb or vice versa).

  • The coverage is limited to an actual stay, not a booking. No show — no coverage. Overstay or early arrival? No coverage.

“What if a guest breaks into the host’s gun safe, steals guns and goes on a crime spree? Is there coverage for the host from any ensuing lawsuits? Probably not,” Hayesis wrote. “Vacation rental websites like Airbnb are doing their best to protect themselves by offering what looks like insurance to their hosts. But hosts are shouldering a lot of risks with limited protection. So before you sign up or rent your home again, you may want to think twice. The bottom line appears more red than green.”

Airbnb did not respond to Credit.com’s request for comment, but does provide the following on the Airbnb website:

Here are some examples of what the Host Protection Insurance program should cover:

  • A guest breaks their wrist after slipping on the rug and brings a claim for the injury against the host.
  • A guest is working out on the treadmill in the gym of the apartment building.
  • The treadmill breaks and the guest is injured when they fall off. They bring a claim for the injury against the host and the landlord.
  • A guest accidentally drops their suitcase on a third party’s foot in the building lobby. The third party brings a claim for the injury against the host and the landlord of the host’s building.

Some examples of what the Host Protection Insurance program doesn’t cover:

  • Intentional acts where liability isn’t the result of an accident.
  • Accusations of slander or defamation of character.
  • Property issues (ex: mold, bed bugs, asbestos, pollution). Auto accidents (ex: vehicle collisions).

2. Turned Down for a Mortgage or Other Home Financing

Banks also are closely scrutinizing how properties are being used when it comes to writing new mortgages and even refinancing. The issue is primarily about how to classify loans for homeowners hosting through Airbnb and other services Are they a primary residence? An investment property? Both? Mortgages on investment properties have traditionally been viewed as riskier.

One example is Brad Severtson, a resident of Seattle whom the Wall Street Journal recently profiled. Severtson had reportedly earned about $30,000 in 2015 renting out a cottage in his backyard. The Journal reported that he thought the extra income would work in his favor when he wanted to refinance a home-equity line of credit.

“The bank turned him down, saying it didn’t allow home-equity lines of credit on properties in which the homeowner is operating a business, including Airbnb,” the Journal reported.

3. Higher Taxes

Yep, if you’re making rental income, you’re going to be expected to pay taxes on it. Airbnb says on its website “as a host, your earnings may be subject to U.S. income taxes. To assist with U.S. tax compliance, we may collect your taxpayer information. Even if you’re not a U.S. taxpayer, we may still require certain information from you.”

There are some exceptions to keep in mind, though.

According to the Internal Revenue Service, if you use your home or vacation property as a personal residence and rent it for fewer than 15 days in a calendar year, you do not have to claim that income on your personal taxes. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.

Likewise, if you rent your home or vacation property to others that you also use as a personal residence, limitations may apply to the rental expenses you can deduct, according to the IRS. You are considered to use a dwelling unit as a personal residence if you use it for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days you rent it to others at a fair rental price.

It is possible that you will use more than one dwelling unit as a personal residence during the year. For example, if you live in your main home for 11 months, your home is a dwelling unit used as a personal residence. If you live in your vacation home for the other 30 days of the year, your vacation home is also a dwelling unit used as a personal residence, unless you rent your vacation home to others at a fair rental value for 300 or more days during the year.

4. Losing Your Lease

If you have a landlord and want to host on Airbnb, the very first thing you should do is talk to your landlord and get their permission to advertise your sofa, your spare bedroom or the whole property. And get it in writing.

There are literally hundreds of horror stories of folks not talking to their landlords, only to be sued or have their leases terminated as a result.

5. Being Cited for City Ordinance Violations

Many cities have restrictions about hosting on sites like Airbnb, whether you are a homeowner or a renter. That’s why it’s a good idea to first check on the Airbnb site about what regulations may apply and then follow up with your local government. The last thing you want is to be cited for being in violation of local ordinances.

As Airbnb states on its site, “When deciding whether to become an Airbnb host, it’s important for you to understand the laws in your city. As a platform and marketplace, we don’t provide legal advice, but we do want to give you some useful links that may help you better understand laws and regulations in your town, city, county, or state.”

Remember, making a little extra money from a side gig is a great way to boost your savings abilities or help pay off any debts you might owe (you can see how your debt is impacting your credit by getting your free credit report summary on Credit.com). But, as this list, shows, it’s wise to do your research first. What might seem like a great opportunity can end up costing you big time. So, do your homework before your foray into renting your space and make sure your home can actually work for you.

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U.S. Household Incomes Are Up 5.2 Percent — Here’s Why You Might Not Feel Any Richer

Young mixed race family having fun on their summer vacation outdoors

The Good News

The real median household income for Americans increased 5.2 percent to $56,516 in 2015, the U.S. Census Bureau reported Tuesday. This marks the first annual rise in household income since pre-recession 2007.

Rising incomes led to a significant drop in household poverty rate as well — a decline of 1.2 percent, or 3.5 million fewer Americans. This is the largest annual percentage point drop in poverty since 1999. (The income threshold for poverty is $28,995 in annual income for a family of 5.) Today, roughly 43.1 million people live in poverty.

Don’t start celebrating yet. Progress has been made, but the real median household income is still about 1.6 percent away from catching up with its 2007 levels and even farther — about 2.4 percent —from its 1999 peak.

But Not All Groups Are Doing Well

Income inequality. Income inequality remained stubbornly stagnant in 2015. The Census Bureau measures income inequality on a scale of 0 to 1 (1 meaning perfect income equality) to measure the extent to which income is distributed among the population. In 2015, the U.S. scored a 0.479, showing no significant over the year prior.

The gender wage gap. Women continue to earn about 80 cents to every $1 a man earns, however the real median earnings for women increased 2.7 percent compared to a 1.5 percent rise for men compared to a year ago.

census earnings by sex gender

Asian-American households. Of all race groups, Asian households had the highest median income in 2015 at $77,166, although the group experienced no significant change in income.

Non-Hispanic whites see significant income growth. Real median income of non-Hispanic Whites rose 4.4 percent to $62,950. African-American households saw median incomes rise 4.1% to an average of $36,898. This is the first rise in income for non-Hispanic Black and White households since 2007.  Hispanic-origin incomes rose 6.1 percent to $45,148, the first annual increase since 2013.Census Median household income 2015

Noncitizen income rises sharply. The median income of households maintained by a noncitizen rose the most — by 10.5 percent — although it’s the lowest amount by nativity at $45,137. The real median income of households managed by foreign-born people rose 5.3 percent to $54.295, while that of households maintained by a native-born person rose 4.4 percent to $57,173. Naturalized citizens didn’t see a significant change in household income at $61,982.

Why You May Not Feel Any Richer

It may be hard to hear the jingle of extra cash in your pocket. Public policy think tank American Enterprise Institute reports the consumer price index — the average measure of consumer prices —  jumped about 55% since 1996. The largest increases were in big ticket items: housing, food, medical care, childcare, but you may feel the rise even more if you’re in school.

The average price of college tuition and textbooks rose the most — by a staggering 197% and 207% respectively. Next to that, a 5.2% bump in median income over the past year is meager.

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The Upper Middle Class Has More Than Doubled Since 1979

income_inequality

The upper middle class in the United States has more than doubled since 1979, according to a new Urban Institute report, “The Growing Size and Incomes of the Upper Middle Class” by Stephen J. Rose

The report shows that the upper middle class made up 12.9% of the United States population in 1979 and had grown to 29.4% of the population in 2014.

“Indeed, a massive shift has occurred in the center of gravity of the economy,” Rose wrote.

Meanwhile, the rich and upper middle class were found to account for 63% of all incomes in 2014 (52% upper middle class and 11% upper class), compared to just 30% in 1979. During that same period, middle class incomes shrunk to 26% (which was the class that reigned supreme in 1979, accounting for more than 46% of all incomes).

The study found that growth in the rich and upper middle class and the declining proportion of the population in the middle and lower classes, indicate widespread economic growth that was not distributed equally.

“On average, incomes grew 53% over the period,” Rose wrote. “If the growth had been equally distributed, then the shift upward would have been much greater. At the extremes, the proportion of the poor and near-poor population would have dropped to 12.8%, and the proportion that is rich would have barely increased (to only 0.5% of the population) because the growth among the near-rich with even growth would have been much less than what happened with uneven growth.”

Methodology

For the study’s purposes, lower, middle, upper-middle and upper class incomes were based upon three-person families making below $30,000, below $100,000, up to $349,999 and above $350,000 respectively.

The study used 1979 as a starting point because “it was the last business cycle peak before income inequality grew dramatically in the first half of the 1980s,” and “the year 2014 was chosen as the study’s end point because it was the most recent year for which income data were available.” The study also examined whether the size of the upper middle class changed dramatically after the slow growth from
2000 to 2007, followed by the deep recession of 2007.
Rose examined data from the Annual Socioeconomic Supplement to the March Current Population Survey (CPS), which collects information monthly from 50,000 to 75,000 households and is used to determine the monthly unemployment rate.

How Your Income Affects Your Credit

Income is not typically part of your credit reports or credit scores, but people often have to include that information when applying for a new line of credit. And, while getting a bigger paycheck can help you afford the things you need (and want), it is still a good idea to live within your means. By not doing so, you may be faced with credit card debt, which is something that can affect your credit. (To see where your credit currently stands, you can view your free credit report summary, updated each month, on Credit.com.)

If you discover your credit scores aren’t where you’d like them to be, there are steps you can take to improve your credit scores, like paying down high credit card balances and avoiding applying for new lines of credit until your scores rebound.

[Offer: Your credit score may be low due to credit errors. If that’s the case, you can tackle your credit reports to improve your credit score with help from Lexington Law. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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Do I Have to Pay Taxes for the Money I Make on Airbnb?

pay_taxes_on_rental_income

Q. I rent my apartment using AirBnb. Do I need to report this rent as income? And if I do, can I take extra deductions because it’s a rental situation?
— Sometimes landlord

A. Here’s the lowdown on rental income.

Income received from the rental of your personal residence generally is subject to federal income tax, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton, New Jersey.

He said rental expenses can be deducted against the rental income, but must be allocated by the number of days the home is for personal use and the number of days the property is rented.

Hook offered this example: If you rent your primary residence for 36 days during the year, you can deduct 10% of the electric bill (36/365 days) against the rental income.

“Your rental expenses cannot exceed the gross rental income reduced by the rental portion of the mortgage interest, real estate taxes, casualty losses, advertising and realtor commissions,” Hook said. “Expenses such as electric, as well as gas, home insurance, landscaping, etc. which would otherwise not be deductible are deductible for the days the property is rented.”

Finally, Hook said, there is an IRS rule that if you rent your personal residence for less than 15 days during the year that you do not have to report the rental income. But in that case, you can’t deduct the rental expenses.

(Editor’s note: If you are interested in buying a house for rental income or otherwise, it’s important to know how much mortgage you can afford. You can start by pulling your credit reports and credit scores. You can get your credit reports for free once a year from each of the three credit reporting agencies, and you can monitor your credit score using a free tool like Credit.com’s Free Credit Report Card. You can also use Credit.com’s mortgage calculator to determine how much a particular home might cost you.)

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The Wage Gap Really Widens When Women Hit This Age

wage-gap

It’s no secret that women often make less money than men, but a new study discovered there’s a certain age when that problem escalates.

According to a gender equity report from Visier, a workforce analytics firm, the gender wage gap in America widens around age 32. The study found this is the time when women are earning 90% of men’s wages. That number decreases to 82% in just eight short years — by age 40.

“Every CEO should be looking at gender equity,” John Schwarz, Visier founder and CEO, said in a press release. “Countless studies have shown the equal economic contribution women make in the workforce, yet companies have struggled to achieve the goal of equity in compensation.”

According to Visier’s study, which used information from its database of 165,000 U.S. employees from 31 companies, the age of 32 is a time when men typically start being promoted to managerial positions and earning an average wage two times the wage of non-managers. This is also when many women leave the workforce, take time off for maternity leave or even face discrimination in promotion decisions.

The study points out that paying women and men equally for the same position is integral to closing the gender wage gap. But so is fixing what the study calls “the manager divide” by having a stronger representation of women in managerial roles, which could reduce the wage gap to 10% across all age groups, the report said.

How Income Affects Your Credit

No matter how much you earn or your role, your paycheck won’t directly affect your credit scores. But having more money coming in can make it easier to pay credit card debt or other bills you may have. This can help you maintain a strong payment history, which is a major factor in establishing your credit scores. (To find out how your spending and payment habits are affecting your credit, you can see two of your free credit scores, updated each month, on Credit.com.)

If you aren’t happy with what you see, there are ways you can work on improving your credit score. This can include paying down debt and disputing any errors you find on your credit reports.

[Offer: If you need help fixing errors on your credit report, Lexington Law could help you meet your goals. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

 

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