February 21, 2023

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Good day. Can you guess what the average U.S. tax refund was in 2021? a. $1,200, b. $2,300, c. $3,200. Follow the wave 🌊 below for the answer.

The money topics for today are:

It's a "rolling" recession now
How much should you be saving for your age?
The home office tax deduction — things to know

ECONOMY

The New "Rolling" Recession

The U.S. economy has been draped in recession fears for over a year now. We even passed the "official recession" test when GDP fell for the 2nd straight quarter in Q2 of 2022.

And yet, there is no agreement that we're in one. There are enough conflicting realities to keep us from feeling like we're in the midst of a downturn — wages are up, unemployment is at its lowest since 1969, and retail sales remain mostly strong.

But despite these facts and figures, certain areas of the economy are still suffering, so what gives? The truth of the matter is we may never get a traditional recession out of this, but perhaps a "rolling" one.

A divided economy

The good: The Fed has managed to raise interest rates at a historic clip and bring inflation down. Save for slight dips in Nov & Dec, consumer spending has trended northward. Wages have continued to increase as workers demand higher pay, unemployment remains historically low with some caveats, and markets have been on the upswing alongside investor sentiment.
The headliner: But for all those areas that have weathered the storm, there are others that haven't. The first logical domino to fall was the housing market, and fall it did. Housing starts felt their first annual drop since '09, mortgage applications continue to fall, and prices in many municipalities are falling or holding steady at best.

Pain spreading: Manufacturing has taken a tumble as the Purchasing Managers Index (PMI) — a mainline indicator of factory productivity — has fallen for 5 straight months as a result of slumping export demand and a shift toward services. Elsewhere, tech companies are headlining the layoff heat as these previously expanding, often high-growth companies are forced to cut back. The result? Over 97,000 jobs have been lost in the sector last year alone, and it's on pace for even more pain in 2023.
Rippling effect: The ramifications of inflation, the rising cost of debt, lower budgets, falling stock prices, and a stifling environment are rolling their way through the economy, sector by sector — a sort of rippling effect, if you will.
Why does this happen? There's no single answer as to why the whole economy hasn't crumbled at once like in a traditional recession. The best explanation for this rolling recession is due to a lot of economic contradictions working to offset each other, keeping the house of cards from falling at once. Best case scenario: this trend continues, and we roll ourselves right back to normal.

Looking ahead

Economists expect US GDP growth in 2023 to slow to just 0.2% and pick back up to 1.7% in 2024. The White House is a bit more optimistic and anticipates that GDP growth will average 2% annually between 2024 and 2028.

In short, most estimates forecast our global and domestic growth slump to bottom out this year and then head north. Despite this, the ramifications felt by local sectors of the economy will be far from uniform.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

About Recessions

Investing Basics

6 mins

BUDGETING & SAVING

How Much Savings Should I Have For My Age?

Have you ever wondered how you stack up against others when it comes to saving money? It's never a usual topic people bring up in a conversation, and most of us will quickly admit we'd rather talk about religion and politics over money any day.

Comparing yourself to others your age in terms of how good or bad you are at saving money can serve as validation or a motivator. And while there is no such thing as being 'behind' as different lifestyles require different savings amounts, we were able to dig up a few stats and guidelines that could be enlightening for those of you looking for benchmarks.

Average U.S. savings balance by age

According to the Federal Reserve's Board Survey of Consumer Finances (SCF), the average savings balance by age group was as follows:

Age group:	Average savings balance:
Under 35	$11,200
35 - 44	$27,900
45 - 54	$48,200
55 - 64	$57,800
65 - 74	$60,400
75+	$55,600

And Fidelity recommends savers stash away 3x their annual salaries by the age of 40

So at a $50,000 salary, that's $150,000 saved. A saver who starts at age 22 with that $50,000 salary would need to save a little over $8,000 per year to achieve this by 40. That comes out to a bit over 16% of your annual gross income.

They also recommend that...

by 50, you should have 6 times your salary saved.
by 60, you should have 8 times your salary saved.
by 67, you should have 10 times your salary saved.

So how should you prioritize your savings?

There are two types of saving that hold priority over everything else: retirement and emergency funds. They serve two different purposes, one is an insurance policy while the other is a full income replacement strategy, and everyone's life has different needs.

So, here are some general rules to apply that can help:

✅ Establish an emergency fund of 3-6 months of expenses first, as a safety net.

✅ Put away 10-15% of your gross income at minimum for retirement planning, and more if you wish. The later you wait, the higher you'll need to adjust to meet your retirement goals.

✅ Contribute to your company's 401(k) or 403(b), especially if they offer an employer match. It may seem like a small percentage, but that free money compounds over decades. An employer match you aren't taking full advantage of is like not accepting free money.

✅ Based on your income, consider also opening an IRA or Roth IRA. Go for an IRA if you plan to withdraw the funds at a later date when your tax bracket is lower, and consider a Roth if you predict your tax burden will be higher in the future than it is now.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Saving for Retirement & Why It Matters

Retirement Planning

8 mins

MONEY TIP

The Home Office Deduction — Things To Know

A Gallup survey from 2022 showed that a whopping 80% of workers are now working either fully remotely or in some hybrid fashion. With remote work comes a remote office, and since it's tax season, it's only proper that we give a nod to the most infamous remote work tax deduction — the home office.

Home office deductions — what to know

Your employment status: Home office deductions are no longer available for those who work for an employer. To qualify for the deduction, you must be considered self-employed for tax purposes. However, you can still qualify if you have a side business on top of your W-2 income.
What qualifies: Although it's somewhat vaguely defined, your "home office" just needs to be an area set apart from the rest of your home where you regularly conduct work related to your business. So, an office, a table you use solely to work on, or even the corner of your basement could work. If you start or stop using the office during the year, the percentage of time that the home office is used will also be considered.
For homeowners: Homeowners may deduct a portion of both their real estate taxes and qualified mortgage interest, but not the principal. Because these expenses are already deductible without regard to the home office deduction, the advantage of the home office deduction is that it converts an itemized deduction into a more tax-advantaged business expense deduction.
For renters: This deduction can be a real tax break. Unlike a homeowner who can deduct their mortgage interest and certain taxes, the renter doesn't get any type of deduction for rent paid. But if a renter can qualify for the home office deduction, the portion of rent attributable to the business use of their home is deductible.
Calculating it: There are two ways of calculating your deduction: the simplified or the regular method. The simplified method is calculated at $5 per square foot of your home office and capped at $1,500. With the regular option, you deduct a portion of your annual rent or mortgage expense based on how much of your home the office takes up — an office consuming 10% of your home's square footage would mean deducting 10% of your housing expenses. You can use this form to calculate it exactly.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Tax Deductible or Not?

Taxes

8 mins

🌊 BY THE WAY

💰 Answer: about $3,200. The average tax refund in 2022 (for the 2021 tax year) was almost $3,200, a 14% jump from the prior year, according to IRS data (CBS)
❄️ Mortgage demand plummets to lowest 2023 level as rates rise for the second week — but experts predict cooling rental prices will eventually bring rates below 6% (YF)
💡 ICYMI. U.S. tax tips to help you prepare for April 18th (Finny)
⭐ The best places to live in the U.S. if you're looking for a minimalist lifestyle (digg)
☂️ Finny lesson of the day: Given the seemingly added risks these days, some of you have asked us about umbrella insurance. Simply put, it's extra insurance that provides protection beyond the limits & coverages you have with your other insurance policies. Refresh yourself on the basics:

What is Umbrella Insurance?

Insurance

7 mins

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Finny is a financial wellness platform. The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance, market trends and investing insights. The content team: Austin Payne, Carla Olson. Finny does not offer investment and stock advice.

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