Reviewed by Eric Estevez
Fact checked by Michael Logan

A company’s balance sheet, also known as a “statement of financial position,” reveals the firm’s assets, liabilities, and owners’ equity (net worth) at a specific point in time. The balance sheet, together with the income statement and cash flow statement, makes up the cornerstone of any company’s financial statements.

If you are a shareholder of a company or a potential investor, it is important to understand how the balance sheet is structured, how to read one, and the basics of how to analyze it.

Key Takeaways

• The balance sheet is a key financial statement that provides a snapshot of a company’s finances.
• The balance sheet is split into three sections: assets, liabilities, and owners’ equity.
• A balance sheet must balance out where assets = liabilities + owners’ equity.
• Assets and liabilities are split into long-term and short-term.
• Equity is the remainder value when liabilities are subtracted from assets.

How the Balance Sheet Works

The balance sheet is divided into three parts that, based on the following equation, must equal each other or balance each other out. The main formula behind a balance sheet is:

Assets = Liabilities + Shareholders’ Equity

This means that assets, or the means used to operate the company, are balanced by a company’s financial obligations, along with the equity investment brought into the company and its retained earnings.

Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets. Owners’ equity, referred to as shareholders’ equity, in a publicly traded company, is the amount of money initially invested into the company plus any retained earnings, and it represents a source of funding for the business.

Assets are at the top of a balance sheet, and below them are the company’s liabilities, and below that is shareholders’ equity. A balance sheet is also always in balance, where the value of the assets equals the combined value of the liabilities and shareholders’ equity.

Within each section, the assets and liabilities sections of the balance sheet are organized by how current the account is. So, for the asset side, the accounts are typically classified from most liquid to least liquid. For the liabilities side, the accounts are organized from short- to long-term borrowings and other obligations.

Important

It is important to note that a balance sheet is just a snapshot of the company’s financial position at a single point in time.

Types of Assets

Current (Short-Term) Assets

Current assets have a lifespan of one year or less, meaning they can be converted easily into cash. Such asset classes include cash and cash equivalents, accounts receivable, and inventory.

Cash, the most fundamental of current assets, also includes non-restricted bank accounts and checks. Cash equivalents are very safe assets that can be readily converted into cash; U.S. Treasuries are one such example.

Accounts receivable (AR) consist of the short-term obligations owed to the company by its clients. Companies often sell products or services to customers on credit; these obligations are held in the current assets account until they are paid off by the clients.

Lastly, inventory represents the company’s raw materials, work-in-progress goods, and finished goods. Depending on the company, the exact makeup of the inventory account will differ.

For example, a manufacturing firm will carry a large number of raw materials, while a retail firm carries none. The makeup of a retailer’s inventory typically consists of goods purchased from manufacturers and wholesalers.

Non-Current (Long-Term) Assets

Non-current assets are assets that are not turned into cash easily, are expected to be turned into cash within a year, and/or have a lifespan of more than a year. They can refer to tangible assets, such as machinery, computers, buildings, and land.

Non-current assets can also be intangible assets, such as goodwill, patents, or copyrights. While these assets are not physical in nature, they are often the resources that can make or break a company—the value of a brand name, for instance, should not be underestimated.

Depreciation is calculated and deducted from most of these assets, which represents the economic cost of the asset over its useful life.

Types of Liabilities

On the other side of the balance sheet are the liabilities. These are the financial obligations a company owes to outside parties. Like assets, they can be both current and long-term.

Current (Short-Term) Liabilities

Current liabilities are the company’s liabilities that will come due, or must be paid, within one year. This includes both shorter-term borrowings, such as accounts payable (AP), which are the bills and obligations that a company owes over the next 12 months (e.g., payment for purchases made on credit to vendors).

The current portion of longer-term borrowing, such as the latest interest payment on a 10-year loan, is also recorded as a current liability.

Non-Current (Long-Term) Liabilities

Long-term liabilities are debts and other non-debt financial obligations, which are due after a period of at least one year from the date of the balance sheet. For instance, a company may issue bonds that mature in several years’ time.

Shareholders’ Equity

Shareholders’ equity is the initial amount of money invested in a business. If at the end of the fiscal year, a company decides to reinvest its net earnings into the company (after taxes), these retained earnings will be transferred from the income statement onto the balance sheet and into the shareholders’ equity account.

This account represents a company’s total net worth. In order for the balance sheet to balance, total assets on one side have to equal total liabilities plus shareholders’ equity on the other side.

How to Read a Balance Sheet

Below is a corporate balance sheet for Walmart as of Jan. 31, 2025:

Source: Walmart, Inc.

As you can see from the balance sheet above, Walmart had a large cash position of $9 billion in 2025, and inventories valued at over $56.4 billion. This reflects the fact that Walmart is a big-box retailer with its many stores and online fulfillment centers stocked with thousands of items ready for sale.

On the liabilities side, Walmart has $58.7 billion in accounts payable, likely money owed to the vendors and suppliers of many of those goods. Subtracting total liabilities from total assets, Walmart had a large positive shareholders’ equity value, over $97.4 billion.

Analyzing a Balance Sheet With Ratios

With a greater understanding of a balance sheet and how it is constructed, we can review some techniques used to analyze the information contained within a balance sheet. The main technique is financial ratio analysis.

Financial ratio analysis uses formulas to gain insight into a company and its operations. For a balance sheet, using financial ratios (like the debt-to-equity (D/E) ratio) can provide a good sense of the company’s financial condition, along with its operational efficiency.

It is important to note that some ratios will need information from more than one financial statement, such as from the balance sheet and the income statement.

Looking at Walmart’s balance sheet above, we can see that the debt-to-equity ratio as of Jan. 31, 2025 was:

D/E = Total Liabilities / Total Shareholders’ Equity = $163.4 billion / $97.4 billion = 1.68.

The result means that WMT had $1.68 of debt for every dollar of equity value. Generally speaking, a D/E ratio under 2.0 is favorable.

Important ratios that use information from a balance sheet can be categorized as liquidity ratios, solvency ratios, financial strength ratios, and activity ratios. Liquidity and solvency ratios show how well a company can pay off its debts and obligations with existing assets.

Financial strength ratios, such as the working capital and debt-to-equity ratios, provide information on how well the company can meet its obligations and how the obligations are leveraged. These ratios can give investors an idea of how financially stable the company is and how the company finances itself.

Activity ratios focus mainly on current accounts to show how well the company manages its operating cycle (which includes receivables, inventory, and payables). These ratios can provide insight into the company’s operational efficiency.

Explain Like I’m 5

People are generally familiar with their own personal finances: what they own and what they owe. What you own, like your laptop, car, and house, are your assets. These are balanced against what you owe, such as your mortgage, loans, or credit card debt. The difference between the two is your net worth: what’s truly yours.

The balance sheet of a company works in the same way. It lists everything a company owns (assets), such as cash, equipment, and inventory, and balances that against everything it owes (liabilities), such as loans and unpaid bills to suppliers. The difference between assets and liabilities is shareholders’ equity, the owners’ stake in the company, which is the same idea as net worth.

The balance sheet provides a snapshot of a company’s financial condition at a specific moment. From it, people can understand a company’s financial health. If a company has more assets than liabilities, it is generally in a better financial condition. If the opposite is true, it may face financial difficulties.

Understanding the balance sheet enables investors, analysts, and managers to make informed decisions about investing and strategy.

How Will I Use This in Real Life?

Understanding what a balance sheet can tell you will help you in investing and making informed financial decisions. A company’s balance sheet will tell you if it is in a stable financial condition or struggling with debt. Based on other factors about the company, you can determine whether it’s a good investment or if you might lose your money.

Similarly, you can organize your own finances like a balance sheet to get a clear understanding of your own financial profile. This can help you with budgeting, planning for future expenses, and setting financial goals.

What Can You Tell From Looking at a Company’s Balance Sheet?

Balance sheets give an at-a-glance view of the assets and liabilities of the company and how they relate to one another. The balance sheet can help answer questions such as whether the company has a positive net worth, whether it has enough cash and short-term assets to cover its obligations, and whether the company is highly indebted relative to its peers. Fundamental analysis using financial ratios is also an important set of tools that draws its data directly from the balance sheet.

What Are the Main Things Found on a Balance Sheet?

The balance sheet includes information about a company’s assets and liabilities, and the shareholders’ equity that results. These things might include short-term assets, such as cash and accounts receivable, inventories, or long-term assets such as property, plant, and equipment (PP&E). Likewise, its liabilities may include short-term obligations such as accounts payable to vendors, or long-term liabilities such as bank loans or corporate bonds issued by the company.

Does a Balance Sheet Always Balance?

Yes, the balance sheet will always balance since the entry for shareholders’ equity will always be the remainder or difference between a company’s total assets and its total liabilities. If a company’s assets are worth more than its liabilities, the result is positive net equity. If liabilities are larger than total net assets, then shareholders’ equity will be negative.

The Bottom Line

A balance sheet, along with the income and cash flow statement, is an important tool for investors to gain insight into a company and its operations. It is a snapshot at a single point in time of the company’s accounts, covering its assets, liabilities, and shareholders’ equity.

The purpose of a balance sheet is to give interested parties an idea of the company’s financial position, in addition to displaying what the company owns and owes. It is important that all investors know how to use, analyze, and read a balance sheet. A balance sheet may give insight or reason to invest in a stock.

It has to do with who is allowed to participate in the plan

Reviewed by David Kindness
Fact checked by Jiwon Ma

Two types of Internal Revenue Service (IRS)-sanctioned, tax-advantaged employee retirement savings plans are the 401(k) plan and the 457 plan.

These retirement savings accounts were each designed to serve as one leg of the famous three-legged stool of retirement: workplace pension, Social Security, and personal retirement savings. As employers have transitioned away from workplace pensions, however, personal retirement savings have increasingly come to serve as most people’s primary retirement plan, along with Social Security. (This can be a 401(k) or a 457, but it doesn’t have to be.)

Key Takeaways

• 401(k) plans and 457 plans are tax-advantaged retirement savings plans.
• 401(k) plans are offered by private employers, while 457 plans are offered by state and local governments and some nonprofits.
• The two plans are very similar, but because 457 plans are not governed by ERISA, some aspects, such as catch-up contributions, early withdrawals, and hardship distributions, are handled differently.

They share similar features. Like 401(k)s, 457 plans are funded via employee payroll deductions. A participant sets aside a percentage of their pretax salary to put into their retirement account. This money compounds without being taxed until it is withdrawn, typically in retirement.

That’s the traditional way—but now, many plans also offer a Roth option. With a Roth account, the contributions are taxed upfront, and—as long as the account has been open for at least five years and the participant is at least age 59½—any subsequent growth and withdrawals are not taxed.

Both plans also allow for early withdrawals in limited circumstances. (However, the qualifying circumstances for early withdrawal eligibility may be different.) And contributions to both plans qualify employees for a saver’s tax credit. It is also possible to take loans from both 401(k) and 457 plans.

Though 401(k) plans and 457 plans operate similarly, there are differences, including who is allowed to participate in each one.

401(k) Plans

401(k) plans are offered by private, for-profit employers and some nonprofit employers. They are the most common type of defined contribution retirement plans. Notably, 401(k) plans are considered qualified retirement plans and are therefore subject to the Employee Retirement Income Security Act (ERISA) of 1974.

Employers sponsoring 401(k) plans may make matching or non-elective contributions to the plan on behalf of eligible employees. Earnings in a 401(k) plan accrue on a tax-deferred basis. At the same time, 401(k) plans offer a menu of investment options that are prescreened by the sponsor, and participants choose how to invest their money.

The plans have an annual maximum contribution limit of $23,500 for 2025 ($23,000 for 2024). For employees age 50 or older, the plans contain a catch-up provision that allows you to contribute an additional $7,500 for 2024 and 2025.

Withdrawals from a 401(k) taken before age 59½ result in a 10% early withdrawal tax penalty. However, plan participants can make early withdrawals without a penalty from a 401(k) under financial hardship, which is defined by the plan.

Important

Contribution limits for all plans are increased every year to account for inflation.

457 Plans

457(b) plans are IRS-sanctioned, tax-advantaged employee retirement plans offered by state and local public employers and some nonprofit employers. They are some of the least common defined contribution retirement plans.

The annual maximum contribution limit for 457 plans is $23,500 for 2025 ($23,000 for 2024). For employees age 50 or older, the plans contain a catch-up provision that allows up to $7,500 in additional contributions for 2024 and 2025.

However, 457 plans are a type of non-qualified retirement plan: They are not governed by ERISA. As such, the Internal Revenue Service (IRS) does not assess an early withdrawal penalty for 457 plan participants who take money out before age 59½, though the amount taken is still subject to normal income taxes.

Notably, 457 plans feature a double-limit catch-up provision that 401(k) plans do not have. This provision is designed to allow participants who are nearing retirement to compensate for years in which they did not contribute to the plan but were eligible to do so. This provision allows an employee to contribute up to $47,000 to a plan for 2025. For 2024, it was up to $46,000.

With 457 accounts, hardship distributions are allowed after an “unforeseeable emergency,” which must be specifically laid out in the plan’s language.

Both public government 457 plans and nonprofit 457 plans allow independent contractors to participate.

Special Considerations

It is possible to contribute to both a 401(k) plan and a 457 plan at the same time. Many large government employers offer both plans. In such cases, the joint participant can contribute the maximum amounts to both.

What Is the Contribution Limit for a 401(k) Plan?

The contribution limit for a 401(k) plan is $23,500 in 2025 and $23,000 in 2024. For both tax years, those age 50 or older can contribute an additional $7,500.

Can I Contribute to Both a 401(k) and an IRA?

Yes, you can contribute to both a 401(k) and an individual retirement account (IRA)—either a traditional IRA or a Roth IRA. IRAs and 401(k)s are different types of plans. You can only contribute to a 401(k) if your employer offers one. Anyone can contribute to an IRA. Just ensure that you abide by the contribution limits.

How Do You Open an IRA?

Most banks and brokerage companies offer IRAs. You can simply inquire at your bank or brokerage or open one online at most financial institutions.

The Bottom Line

The 401(k) and the 457 are retirement plans offered by employers to their employees to save for retirement. They are similar in almost every way with a few distinctions, the primary one being that 401(k)s are offered by private employers while 457 plans are offered by local governments and some nonprofits.

If you have a question about what’s on offer, check with your employer or plan administrator.

You’re discussing a recent market dip in a social media investment forum when a message arrives. Someone claiming to represent a famous investor such as Bill Ackman or Cathie Wood has noticed your comments and offers to include you in an exclusive investment group where they trade tips on accumulating extraordinary returns. Their profile looks legit, complete with professional credentials and up-to-date market analysis. Soon, you’re in a private WhatsApp group with other “successful investors,” feeling like you’ve been specially selected for an insider opportunity.

However, it’s all part of an elaborate scam the Financial Industry Regulatory Authority (FINRA) says has been exploding across digital platforms.

Key Takeaways

• Imposter fraud has been taken to a new level as scammers imitating well-known investors are sliding into direct messages and social media feeds.
• According to recent U.S. Federal Trade Commission (FTC) data, Americans lost $12.5 billion to fraud and identity theft in 2024, with almost half that figure coming from investment scams.

Investment Scams Succeed More Now, Despite Warnings

According to the FTC, Americans lost $5.7 billion in 2024 to investment scams, a 24% increase from the previous year and a 50% jump over two years. Most concerning is that scammers are becoming even more effective. The percentage of people who reported losing money to fraud jumped dramatically, from 27% in 2023 to 38% in 2024, about a 40% increase in the success rate for scammers.

Thus, despite officials and financial experts warning numerous times about ID theft and fraud, scam artists have only become more successful in recent years. Marti DeLiema, assistant research professor at the University of Minnesota, Twin Cities, told a FINRA roundtable on fraud that she and her colleagues have found that most educational initiatives can only have so much impact. “Maybe the biggest limitation of consumer protection education is that it has … short-term effects,” she said.

One reason is simply that scam artists aren’t sitting still as people are educated about the previous generation of scams. “Fraud tactics are constantly changing,” Duygu Başaran Şahin, a researcher at the RAND Center for the Study of Aging, said in the same FINRA discussion. But there’s also something counterintuitive at work: “People with higher financial literacy and with more education were more likely to engage with scammers,” he said.

Also, according to the FTC, contrary to stereotypes, young people reported losing money to fraud more often than older people—44% were 20-29 years old, while only 24% were 70-79 years old.

Even experienced investors with market knowledge are often duped by the increasingly sophisticated techniques scammers employ. The examples abound: A construction company owner who regularly followed market trends losing half his savings, a Nashville couple with investment experience getting taken for $1.3 million. A February 2025 survey of 2,000 high-net-worth individuals by Saltus in the U.K. found that a third (33%) had been victims of fraud and other cybercrime.

How Wall Street Guru Scams Operate

So, it’s not just the elderly, naive, or inexperienced who are taken in. What’s more, guru impersonation scams are often as carefully staged as any Broadway production. The first step typically involves identity theft, as scammers create convincing online impersonations of well-known financial figures like Bill Ackman, Cathie Wood, or even Warren Buffett. These fake profiles appear on platforms where potential victims already spend time discussing investments. The scammers might begin to engage the target by commenting on market trends or offering general advice.

Once they’ve established basic credibility, scammers move the conversation to private messaging groups on platforms like WhatsApp or Telegram. Once there, the targets witness what appears to be a community of successful investors sharing tips on earning substantial profits. In reality, most or all of these “members” are fake accounts operated by the scammers. These manufactured success stories build a sense of FOMO (fear of missing out) that drives victims to participate, while the scammers pepper in mainstream advice to develop and keep credibility.

As trust deepens, the scam takes the exploitative turn it was always headed for. The targets are encouraged to invest in low-priced, low-volume stocks, often penny stocks, on foreign exchanges where prices are more easily manipulated. This follows the classic “pump-and-dump” pattern, where fraudsters manipulate stock prices through misleading promotional campaigns.

The Bottom Line

Investment scams continue to evolve at an alarming pace, and with the help of AI, fraudsters are becoming more sophisticated at creating their bogus scenarios, while cryptocurrencies help make their ill-gotten earnings untraceable afterward.

Meanwhile, we’re ever more accessible to them. “Fraudsters can get us with emails, texts, social media, even phone calls still 24/7,” said Gary Mottola, research director for the FINRA Foundation. “The odds [of getting duped] have increased dramatically with technology [that] the fraudsters [can use to dupe the unwitting].”

Fact checked by Stella Osoba

After emerging under the hashtag #NoBuy on TikTok in 2024, a growing counter-movement to relentless consumerism has formed under the banner “No-Buy 2025.” Taking off from a mix of economic pessimism, environmental concerns, and academic insights on overconsumption, this movement is challenging the culture of perpetual buying and spending.

David Tenerelli, a certified financial planner at Values Added Financial Planning, told Investopedia that most people are facing “systemic headwinds” financially because of major spikes in college and housing costs, inflation more generally, and the significant economic shocks of the past two decades.

Within this context, it’s no surprise that what began as a minimalism movement among Gen-Z on social media like TikTok and Reddit Inc. (RDDT) has evolved into a broader social phenomenon, with participants pledging to limit their spending to only essential items throughout the year while avoiding discretionary purchases entirely.

Key Takeaways

• “No Buy 2025” (with some practicing “Low Buy 2025”) is a call to pause unnecessary spending amid growing economic pressure and environmental concerns.
• While the goals behind the movement can be both practical and noble, there could be unintended consequences for some, including eventual splurging.

What’s Driving the ‘No-Buy’ Pledges

The No-Buy 2025 challenge has resonated particularly with younger generations, given their economic anxiety. Consumer confidence is much lower than in the pre-pandemic period. Then there’s the “proliferation of social media and the resulting widespread status orientation, overconsumption, and the mental health challenges” that can result, Tenerelli said.

The movement offers a shift away from this overconsumption, with some participants mentioning climate change and global inequities as among the reasons for taking the pledge. “No-Buy” participants say they’ve also discovered the fun of free activities like visiting parks and libraries, as well as using items that fell by the wayside when they were constantly shopping.

Note

Many participants report that the challenge isn’t about saving for a specific goal but making sure they can afford basic necessities like groceries and household items in an increasingly expensive economy.

10 Tips for ‘No-Buy 2025’

Tenerelli suggested a good way to get started is to identify and define your values, all to better align your spending with them. You can also help yourself succeed by checking your spending and making it as concrete as possible.

“Where are you spending your money—really, each dollar? And then start to translate your purchases into actual hours worked, and determine whether each purchase is worth it in terms of fulfillment, nourishment, and value,” he said.

Here are ways you might find more success once you’ve decided to take the pledge:

1. Define clear, personalized rules: Decide which categories are off-limits (clothing, beauty products, home decor) and which are allowed.
2. Create a “why” document: Document the values or motivations behind taking the pledge and hold yourself accountable. Review these when temptation strikes.
3. Find an accountability partner: Connect with others attempting the challenge or join online communities like r/nobuy (67.5K+ members) to get help with your struggles and share your victories.
4. Track your progress: A calendar with stickers, a spreadsheet that calculates savings, or a dedicated journal to document your progress will all do.
5. Delete shopping apps and unsubscribe from retail emails: Get rid of the spending triggers from your digital environment.
6. “Shop your stash”: Before you buy something, inventory what you own—do you need it?
7. Use a waiting period: For any non-essential purchase, add it to a list with the date. Revisit it after 30 days and see if you still want it.
8. Replace shopping with free activities: Develop hobbies that don’t require spending, like hiking, reading library books, or “shopping” your own closet for new outfit combinations.
9. Redirect savings immediately: Move money you would have spent into a separate high-yield savings account, CD, or investment portfolio to prevent it from being spent too easily.
10. Practice mindful consumption: When you need to buy something, do your research, buy quality items that last, and ensure they align with your values and long-term needs.

Wallets Closed, Eyes Open: Potential Drawbacks

The No-Buy 2025 movement could have drawbacks, both personally and economically. Overly restrictive spending rules might backfire with eventual “spending binges” that exceed what would have been spent otherwise. An all-or-nothing approach can create unhealthy relationships with money, replacing overconsumption with obsessive austerity.

Some people may feel socially isolated when they can’t join friends and family for activities that involve spending, which can be a problem for important relationships. Some participants could develop anxiety around any spending, even on necessities, making a more balanced approach of mindful consumption potentially more sustainable for many.

Lastly, there are the broader economic effects: Consumer spending accounts for nearly 70% of U.S. GDP, and widespread adoption of no-buy principles would affect employment in the retail and service sectors and tax revenues for local and state governments. Small businesses, which often operate on thin margins and depend on steady customers, may be particularly vulnerable.

The Bottom Line

“No Buy 2025” is more than just a call for cutting one’s spending—it is a reflective campaign urging consumers to consider the long-term implications of their buying habits on the environment, social equity, and their financial stability. While there are potential drawbacks, getting “on track for a more sustainable relationship with money,” Tenerelli said, can help you see it’s not an end in itself, but a “tool for achieving a deeper life satisfaction.”

Reviewed by Marguerita Cheng
Fact checked by David Rubin

Registered Retirement Savings vs. Registered Pension: an Overview

Registered retirement savings plans (RRSP) and registered pension plans (RPP) are both retirement savings plans that are registered with the Canada Revenue Agency (CRA). RRSPs are individual retirement plans, while RPPs are plans established by companies to provide pensions to their employees. The two plans are comparable to defined-contribution savings plans and defined-benefit pension plans in the United States.

Key Takeaways

• Registered retirement savings plans (RRSP) and registered pension plans (RPP) are Canadian retirement vehicles.
• An RRSP is a retirement savings and investment account for individuals, including employees and the self-employed.
• An RPP is an employee pension plan, funded by either the employer and the employee or in some cases, just the employer.
• The two plans are similar to defined-contribution savings plans and defined-benefit pension plans that are offered in the United States.
• Money is generally deposited pre-tax, and investment income grows tax-free, but tax is paid upon distribution.

Registered Retirement Savings Plan

A registered retirement savings plan is a retirement savings and investment account for employees and self-employed people in Canada. Contributions are made before taxes, but distributions are taxed at the marginal rate. If someone is taxed at a rate of 30% and they contribute $1,000 to an RRSP, the entire sum is applied to the account. In contrast, if the individual took those funds in wages, they would pay $300 in income taxes.

Individuals are allowed to contribute up to 18% of their earned income annually to their RRSP, up to an annually adjusted cap ($32,490 for the 2025 tax year and $33,810 for 2026).

You can find your maximum deduction limit on your latest notice of assessment or on Form T1028, Your RRSP Information. However, if your taxable income has changed from the previous tax year, your contribution limit has also changed.

If you have not made maximum contributions in previous years, however, you may add the value of contributions that were allowed but not made to your current year’s allowance. As a result, your maximum contribution limit may be higher than the listed contribution limit for a given year.

Important

If you contribute more than the annual allowed maximum amount, the extra contribution is considered excess. Excess contributions may be taxed at a rate of 1% per month.

Registered Pension Plan

A registered pension plan (RPP) is a trust that provides an employee with pension benefits after they retire. RPPs are registered with the Canada Revenue Agency. An RPP can be funded by an employer or an employer in conjunction with an employee. Funds are contributed to the pension for a number of years until the recipient of the pension reaches retirement age, or leaves the company.

Contributions to the plans are tax-deductible for the employee and employer. The contributions and any gains on the assets are tax-deferred and therefore taxed when the money is withdrawn. 

Taxation on RRSPs and RPPs

Contributions to both RRSPs and registered pension plans are not taxed for Canadian residents (those living abroad may face local taxes). Individuals and their employers may both contribute to RPPs, and neither’s contributions are taxed.

Money earned within both RRSPs and RPPs is not subject to income or capital gains taxes as long as the funds remain in the accounts. However, earnings from both plans are taxed as income when withdrawn or paid.

Special Considerations

Maximum contributions on RPPs vary based on which type of RPP is being used. There are two types of RPPs: defined benefit RPPs and money purchase RPPs. In defined benefit plans, the pension amount is known and does not change, but the contribution amount varies. These plans do not have a yearly maximum contribution limit.

Money purchase or defined contribution plans do not have a set or predictable pension amount, but employees know how much they are expected to contribute.

A practical walkthrough of individual tax-planning essentials

Fact checked by Vikki Velasquez

Filing taxes can be tough, even for highly educated Americans. In a Tax Foundation poll designed to gauge tax literacy, 55% of respondents with postgraduate degrees showed only beginner-level tax knowledge. Another 43% demonstrated intermediate knowledge, and only around 2% answered well enough to be considered proficient.

This guide will walk you through essential tax fundamentals to help you understand how to maximize your tax return, covering everything from filing statuses and tax deductions to tax credits and advanced strategies.

Key Takeaways

• You may be eligible for more than one filing status; compare them and choose the one that results in the lowest tax liability.
• You can reduce your taxable income by claiming deductions, like the standard deduction and retirement contributions. 
• Tax credits reduce your tax bill and are generally more valuable than deductions, though not all tax credits can generate a refund.
• Adjust your tax withholding or quarterly tax estimates to avoid grossly underpaying or overpaying during the year.
• Advanced tax strategies can help maximize your return, and a tax professional can help you implement them effectively.

Optimize Your Filing Status

Your filing status can have a significant impact on your tax return. For example, it affects your tax bracket, the size of your standard deduction, and your eligibility for certain tax credits.

Here are the five filing statuses the Internal Revenue Service (IRS) recognizes:

• Single: The default status for a taxpayer who is unmarried, divorced, or legally separated from their former spouse.
• Married filing jointly: The filing status for a married couple submitting one tax return that details both spouses’ annual activities.
• Married filing separately: The filing status for a married individual filing a tax return for themselves separate from their spouse.
• Head of household: A filing status for single taxpayers who have paid more than half the cost of maintaining a household for themselves and a qualifying person who lived in the home for at least half the year.
• Qualifying surviving spouse: A filing status for a taxpayer with a dependent child whose spouse died during one of the last two years.

While you can’t freely choose your filing status, you may be eligible for more than one, in which case you should choose the one that maximizes your tax refund, or at least minimizes your tax liability.

For example, married individuals can choose to file jointly or separately. Filing jointly often results in lower taxes because it can help you maximize certain tax credits, like the Child and Dependent Care Credit.

However, filing separately can make more sense in specific circumstances, such as when there’s an uneven income distribution between spouses or when one has significant itemized deductions.

Tip

Not sure which filing statuses you qualify for? Use the IRS Interactive Tax Assistant tool to determine your eligibility.

Maximize Your Tax Deductions

Tax deductions reduce your taxable income, which is the amount IRS and state tax agencies use to calculate how much you owe. While they don’t lower your tax bill dollar-for-dollar like tax credits, maximizing your tax deductions is still essential for optimizing your tax return.

Tax deductions fall into several categories, and the ones you can take depend on factors like your income sources and expenses. Here’s how the main types work.

Standard or Itemized Deductions

Every taxpayer must choose between taking the standard deduction or itemized deductions each year. You can always claim either, but you can’t take both.

The standard deduction is the simpler, more common option. It lets you subtract a fixed amount from your income based on your filing status. Here are the standard deduction amounts for tax years 2024 and 2025:

Standard Income Tax Deductions: 2024 & 2025
Filing Status	2024 Standard Deduction	2025 Standard Deduction
Single	$14,600	$15,000
Married filing separately	$14,600	$15,000
Head of household	$21,900	$22,500
Married filing jointly or qualifying widow(er)	$29,200	$30,000

Itemizing only makes sense if your deductible expenses exceed the standard deduction. For example, if you’re a single filer and paid $20,000 in eligible expenses during tax year 2024, you would probably benefit from itemizing rather than taking a $14,600 standard deduction.

Some examples of itemized deductions available through 2025 due to the passage of the Tax Cuts and Job Act (TCJA) include state and local taxes (SALT) up to $10,000, charitable contributions, and out-of-pocket medical expenses over 7.5% of your adjusted gross income (AGI).

Note

Under 15% of taxpayers itemized deductions instead of claiming the standard deduction for tax year 2022, according to the most recent IRS data.

Above-the-Line Deductions

Also known as adjustments to income, above-the-line deductions are available whether you take the standard deduction or itemize. These deductions reduce both your taxable income and your AGI, which can help you maximize other deductions and tax credits.

Typically, the most significant above-the-line deductions come from contributions to tax-advantaged accounts, such as:

• Traditional 401(k) plans
• Traditional individual retirement accounts (IRAs)
• Health savings accounts (HSAs)

Important

Contributions to Roth retirement accounts like Roth IRAs don’t generate above-the-line deductions, but they offer tax-free withdrawals in retirement.

For example, employees could contribute up to $23,000 to their 401(k) for 2024. Taxpayers age 50 or older also qualify for $7,500 in catch-up contributions, resulting in a maximum contribution limit of $30,500 for the year.

If you were to earn $75,000 in 2024 and take the standard deduction as a single filer, you would owe about $8,341 in federal income taxes. However, if you claimed $25,000 in above-the-line deductions for retirement contributions, you’d reduce your taxable income to $50,000 and your federal income taxes to roughly $4,016.

Tip

Some other potential above-the-line deductions include student loan interest, teacher expenses, early withdrawal penalties, and alimony payments.

Business Deductions 

If you’re self-employed, even through a part-time side hustle, you can deduct qualified business expenses from your business income. The IRS requires that these expenses be ordinary (common and accepted in your industry) and necessary (helpful and appropriate for your business).

As a result, allowable deductions vary by business type, but they often include:

• Home office expenses
• Business vehicle costs
• Marketing and advertising
• Office supplies and equipment
• Professional services, like legal or tax help

Take Advantage of Tax Credits

While deductions reduce your taxable income, tax credits reduce your actual tax bill. That means a $1,000 tax credit lowers your tax liability by $1,000. As a result, tax credits are generally more valuable than deductions.

There are two main types of tax credits:

• Nonrefundable credits can reduce your taxes to zero but won’t generate a tax refund even if they exceed the amount you owe.
• Refundable credits can reduce your tax liability below zero, resulting in a refund if the amount is greater than the taxes you owe.

Important

Some tax credits may be partially refundable and partially nonrefundable, such as the American Opportunity Credit.

Tax credits typically have more specific eligibility criteria than tax deductions. For example, they may require you to meet certain income thresholds, have a specific filing status, or claim a qualifying dependent.

Here are some of the most notable federal tax credits to consider pursuing:

• Saver’s Credit: A refundable tax credit to a qualified retirement plan worth 10%–50% of your contributions, up to a maximum of $1,000 for single filers ($2,000 for married couples) in 2024. Income must be below $38,250 for single filers and below $76,500 for married couples.
• Child Tax Credit (CTC): A partially refundable tax credit for those with qualifying children under age 17. It’s worth $2,000 per child, with up to $1,700 refundable in 2024. The CTC starts phasing out at $200,000 in income for single filers and $400,000 for married couples.
• Premium Tax Credit: A refundable tax credit for those who purchase health insurance through the Health Insurance Marketplace. Typically, your income must be between 100% and 400% of the federal poverty line for your family size to qualify. 

Consider Adjusting Your Tax Withholding

If you’re a W-2 employee, your employer withholds taxes from your paychecks based on the information you provide on your Form W-4. Withholding more increases your odds of receiving a refund, while withholding less raises the risk of owing and triggering underpayment penalties.

Getting a tax refund may feel satisfying, but it means you’ve effectively given the government an interest-free loan. Ideally, you should aim to break even at the end of the year, minimizing both your refund and your risk of owing.

Consider revisiting your W-4 form to fine-tune your withholding, especially if you significantly under- or over-withheld last year, experience a change in filing status, or get a new dependent. The IRS Tax Withholding Estimator can help inform your efforts.

Tip

If you’re self-employed, you can achieve a similar effect by adjusting your quarterly estimated tax payments. To avoid penalties, make sure you pay at least 100% of your previous year’s tax liability (110% if your income exceeds $150,000) or 90% of your current year’s tax liability.

Explore Advanced Tax Strategies

Once you’ve covered the fundamentals, you can explore more advanced tax strategies to further increase your savings. However, some strategies don’t apply to every situation, and others may carry added risk.

Here are some advanced tax strategies to consider:

• Tax loss harvesting: If you have investments in taxable accounts that have lost value, you can sell them to offset capital gains from assets that have increased in value. However, you must avoid repurchasing substantially identical investments for at least 30 days to avoid triggering the wash sale rule.
• Tax-efficient investing: The account you hold an investment in can affect how much you pay in taxes. For example, placing high-dividend stocks in tax-deferred accounts—like a 401(k) or IRA—is often beneficial to shield the income they generate from taxation.
• Income and expense timing: Your taxes may benefit from collecting income or paying deductible expenses sooner or later. For example, if you’ve already had multiple medical procedures during the year, paying any outstanding bills before year-end could help you exceed the threshold for deducting medical expenses and make itemizing more worthwhile.

Seek Professional Tax Advice

The more complex your tax situation, the more beneficial professional guidance becomes. A tax expert, such as a certified public accountant, can help ensure you maximize your deductions, claim all available tax credits, and develop a sophisticated long-term tax strategy.

To find a quality advisor, ask for referrals from your network or search online for the best local tax professionals in your area. To screen potential candidates, read through reviews from previous customers and use free consultations to gauge their suitability for yourself.

Tip

If you’re self-employed, any fee you pay for tax preparation or strategic advice is a deductible business expense.

Do You Get a Bigger Tax Refund if You Make Less Money?

How much money you make doesn’t directly determine your tax refund. Your tax refund is the difference between what you paid in taxes throughout the year and what you actually owed. Lower-income individuals may qualify for certain refundable tax credits easier than those with higher incomes, but whether that results in a bigger tax refund depends on other factors.

Is It Better To Owe Taxes or Get a Refund?

Whether it’s better to owe taxes or get a refund depends on your preferences and circumstances, but a generally reasonable goal is to come as close to breaking even as possible. You don’t want to give the government too big of an interest-free loan, but you don’t want to risk incurring underpayment penalties either.

Can I Write Off Business Losses on My Personal Taxes?

If you’re a sole proprietor, you can net your business losses against your other personal income. If you own an LLC, S corporation, or partnership, you can write off your share of the losses on your personal return. However, if you own a C corporation, any losses stay within the business and aren’t deductible from your personal taxes.

The Bottom Line 

Maximizing your tax return can be complex, but it’s easier when you take it step-by-step. Start by choosing the most favorable filing status, then claim every credit and deduction you qualify for. Avoid paying too much or too little in taxes during the year by adjusting your withholding or estimated payments. When you’re ready for more advanced strategies, consult a tax professional to make sure you execute them correctly.

Reviewed by Julius Mansa
Fact checked by Yarilet Perez

You’re a twentysomething and are considering buying a place. Maybe you moved back in with your parents to save for a down payment—or you’re living in a rental that gobbles up a huge chunk of your first grown-up paycheck, and you don’t feel that you have anything to show for it. Unless Mom and Dad are rich, or your great-aunt left you a trust fund, or you’re a brand-new internet mogul, you probably won’t be able to buy a home without taking on some debt.

That’s when it’s time to consider a mortgage—likely to be the biggest debt that you ever take on in your life. Acquiring a mortgage, especially this early in your life, ties up a lot of your money in a single investment. It also ties you down and makes it less easy to relocate. On the other hand, it means that you’re starting to build up equity in a home, earning tax deductions, and boosting your credit history.

Key Takeaways

• Getting a mortgage in your 20s allows you to start building equity in a home, provides tax deductions, and can boost your credit score. 
• The mortgage process, however, is long and thorough, requiring pay stubs, bank statements, and proof of assets. Pre-approval helps to make twentysomethings more appealing homebuyers to sellers. 
• Twentysomethings need to have enough credit history to qualify for a mortgage, which means handling debt responsibly early on and making timely student loan payments. 
• Borrowers in their 20s may find it easier to get a mortgage through the Federal Housing Administration (FHA) or the U.S. Department of Veterans Affairs (VA).

What Is a Mortgage?

In simple terms, a mortgage is a loan used to buy a home where the property serves as collateral. Mortgages are the primary way that most people buy homes and also can be used to purchase investment properties. The total outstanding mortgage debt in the United States was approximately $12.61 trillion through the 4th quarter of 2024.

A mortgage is a type of secured debt, meaning that if you fail to pay what’s owed, then you risk losing your collateral. This typically happens through the foreclosure process, in which a lender seeks to take back the home to recover unpaid mortgage debt.

Like other loans, mortgages have an interest rate and an annual percentage rate (APR). There also are fees involved in getting a mortgage, including origination fees and closing costs. Lenders typically expect homebuyers to make a down payment toward their home loan, though the amount required can depend on the type of mortgage.

Note

Twentysomething homebuyers can help with their down payment through down payment gifts from family members, but these must be properly documented.

How to Get a Mortgage: A Step-by-Step Guide

Unlike opening a credit card or taking on an auto loan, the mortgage application process is long and thorough. Therefore, it helps to understand what steps are involved and what’s expected if you’re planning to buy a home in your 20s.

Estimate What You Can Afford

Before you apply for a mortgage, it’s important to understand what you can realistically afford to pay. This includes estimating both the upfront and ongoing costs of buying a home in your 20s. Using a mortgage calculator is a good resource to budget these costs. It can help you estimate monthly payments, down payment requirements, and closing costs to get a better sense of what you can afford.

The main costs of homebuying and homeownership include:

• Home appraisal fees.
• Inspection fees.
• Down payment.
• Closing costs.
• Monthly mortgage payments, including private mortgage insurance (PMI) if you’re required to pay it.
• Homeowners insurance, property taxes, and possibly homeowners association (HOA) fees; these may be escrowed into the mortgage payment.
• Basic maintenance and upkeep.
• Home repairs and renovations.

One of the biggest hurdles for first-time homebuyers is the down payment. You’ll need a down payment of at least 20% to avoid PMI on a conventional home loan. PMI premiums offer protection to the lender in case you default; they can’t be removed until you reach 20% equity in the home. This will add to your home’s monthly carrying costs.

Organize Your Documents

You will need several pieces of information to apply for a mortgage. Before going in, be ready with your Social Security number, your most recent pay stubs, documentation of all your debts, and three months’ worth of bank account statements and any other proof of assets, such as a brokerage account or a 401(k) at work.

If you’re self-employed, you may need additional documentation. For instance, a lender might ask to see your tax returns from the previous two years. You also may need to provide an up-to-date cash flow statement and/or letters from one or more freelance clients attesting to the fact that you’re an independent contractor.

Compare Mortgage Options

Mortgage loans are not all the same, and it’s important to understand what type of mortgage might be best when buying a home in your 20s. You can start by looking into conventional loans, which are backed by Fannie Mae or Freddie Mac. These loans typically require 20% down to avoid PMI.

Inportant

Upfront fees on Fannie Mae and Freddie Mac home loans changed in May 2023. Fees were increased for homebuyers with higher credit scores, such as 740 or higher, while they were decreased for homebuyers with lower credit scores, such as those below 640. Another change: Your down payment will influence what your fee is. The higher your down payment, the lower your fees, although it will still depend on your credit score. Fannie Mae provides the Loan-Level Price Adjustments on its website.

Next, you could consider Federal Housing Administration (FHA) loans. Loans through the FHA generally require smaller down payments and make it much easier for borrowers to refinance and transfer ownership. You also may be able to qualify for an FHA loan with a lower credit score than what might be required for a conventional loan.

There’s also the U.S. Department of Veterans Affairs Home Loans guaranty service, which is perfect for twentysomethings returning from military service. VA home loans make it much easier for veterans to buy and afford a home; many of its loans require no down payment. The home you choose, however, will be subject to a rigorous inspection.

Shop Around for a Home Loan

Just like all mortgages aren’t alike, all lenders also are not the same. It’s important to shop around for different mortgage options so you can compare interest rates and fees. A difference of even half a percentage point could substantially increase or decrease the amount of interest that you pay for a mortgage over the life of the loan.

Also, consider getting pre-approved for a mortgage. This process involves having a mortgage lender review your finances and make you a conditional offer for a loan. Pre-approval can make it easier to have your offer accepted when you try to buy a home, which could be especially crucial if you’re the youngest bidder. 

Note

If pre-approval requires a hard credit check, that could impact your credit score.

When Is the Right Time to Buy?

Figuring out when to take out a mortgage is one of the biggest questions. Here are some factors to consider when deciding when to take out a mortgage.

Where Will You Be in 5 Years? 

A mortgage is a long-term commitment, typically spread out over 30 years. If you think you’ll move frequently for work or plan to relocate in the next few years, then you probably don’t want to take out a mortgage just yet. One reason is the closing costs you have to pay each time you buy a home; you don’t want to keep accumulating those if you can avoid it.

How Much Real Estate Can You Afford? 

What would you do if you lost your job or had to take many weeks off due to a medical emergency? Would you be able to find another job or get support from your spouse’s income? Can you handle monthly mortgage payments on top of other bills and student loans? Refer to a mortgage calculator to get some idea of your future monthly payments, then measure them against what you pay now and what your resources are.

Important

Tax breaks help reduce the effective cost of a mortgage, where mortgage interest paid is tax deductible. 

What Are Your Long-Term Goals? 

If you hope to raise kids in your future home, check out the area for its schools, crime rates, and extracurricular activities. If you’re buying a home as an investment to sell in a few years, is the area growing so that the value of the home is likely to increase?

Answering the tough questions will help you determine which type of mortgage is best for you, which can include a fixed-rate or adjustable-rate mortgage.

A fixed-rate mortgage is one in which the interest rate of the mortgage stays the same for the life of the loan.

An adjustable-rate mortgage (ARM) is one in which the interest rate changes at a set period according to a specified formula, generally tied to some kind of economic indicator. You might pay less interest in some years and more in other years. These generally offer lower interest rates initially than fixed loans and might be beneficial if you plan to sell the home relatively soon.

Pros and Cons of Homeownership in Your 20s

Buying a home in your 20s can make sense if it saves you money compared to paying rent and if you’re looking for a long-term investment. The longer you plan to stay in the home, the longer your timeframe for gaining equity as your home’s value increases.

If you choose a fixed-rate mortgage, then your payments will remain consistent for the life of the loan, rather than being subject to price hikes the same way you might be as a renter. You’ll be able to customize the property according to your tastes and make improvements or renovations as you see fit. And you’ll get the benefits of a tax deduction for mortgage interest while you’re paying on the loan. Of course, there are some potential downsides to consider.

Pros

• May cost less than rent

• Builds equity

• Positive impact on credit

Cons

• Upfront costs

• Mortgage approval required

• Adds to debt

Pros Explained

• May cost less than rent: Owning a home could be less expensive than renting, and a fixed-rate mortgage could offer stability and predictability with payments.
• Builds equity: The younger you are, the longer you have to build equity in the home as the property’s value increases.
• Positive impact on credit: Paying a mortgage on time each month could help to improve your credit score and make it easier to qualify for other types of credit.

Cons Explained

• Upfront costs: You may not recoup your down payment or closing costs in the form of monthly savings if you don’t stay in the home for the long term.
• Mortgage approval required: Qualifying for a mortgage as a twentysomething can be challenging if neither your credit history nor your work history is solid.
• Adds to debt: Having student loan debt, credit cards, or other debts could make meeting monthly mortgage payments more difficult.

Making a Mortgage More Affordable

There are a handful of ways to reduce the price tag associated with a mortgage. The first is tax breaks, where the interest you pay on your mortgage is tax deductible. You’ll need to itemize your deductions to take advantage of this tax break.

You can also reduce your mortgage costs by paying 20% or more as a down payment. The more you put down, the less you have to borrow, which can reduce your monthly mortgage payment. Improving your credit score can also help if it allows you to qualify for a lower mortgage interest rate.

Lenders will scrutinize your credit score and history, which may be problematic for twentysomethings who have little to no borrowing history. This is where having student loan debt actually helps you. If you’re making your payments on time, then you’ll likely have a good enough credit score for banks to feel comfortable lending to you. Generally, the better your credit score is, the lower your interest rates will be.

Tip

Refinancing student loan debt could help to reduce your interest rate and lower your monthly payment, making a mortgage more affordable.

What Is PMI?

Private mortgage insurance typically is required if your down payment is less than 20%. Borrowers see you as riskier if you have limited equity in the home, so they require the insurance as a means of protection against defaulting on the loan. Expect to pay $30–$70 for every $100,000 borrowed.

What Is Pre-Approval?

If you are pre-approved for a mortgage, this means a lending institution already has done a thorough check of your credit history, income, and more. The institution will provide you with a letter estimating how much you can borrow. This letter lets sellers know you are serious and already have a head start on the process.

What Costs Are Part of Home Ownership?

Even if your mortgage payment is less than what you were paying for rent, that’s not where your expenses stop. In addition to insurance and property taxes, upkeep of the home also is your responsibility. The roof is leaking? Maybe you need a plumber or an electrician? It’s no longer as simple as calling the landlord or building superintendent. You need to take care of those costs.

The Bottom Line

Homeownership can seem like a daunting prospect, especially as you’re starting your career and still paying off your student loans. Think long and hard before you take out a mortgage; it’s a serious financial commitment that will follow you until you either sell the property or pay it off decades from now. But if you’re ready to stay in one place for a while, then buying the right home can be financially and emotionally rewarding.

The entrepreneurial spirit is alive and well among today’s youth, and many of them are turning their dreams of business ownership into a reality. According to the Global Entrepreneurship Monitor 2023/2024 United States Report, young adults between the ages of 18 and 24 are launching businesses at higher rates than their older peers.

Some don’t even wait that long—in fact, these 10 remarkable young entrepreneurs all started their ventures before age 21, proving that you don’t need a college diploma to make it as a successful entrepreneur. From e-commerce and tech to education and social impact, these founders have truly “made it” in their respective fields and offer their advice for budding young entrepreneurs.

Key Takeaways

• A young entrepreneur is a child or young adult who identifies and seizes an opportunity to start their own business.
• There is no age requirement for being an entrepreneur, although children under 18 may need guidance or co-signing from a trusted adult.
• The 10 entrepreneurs featured all started their companies before age 21, showcasing their curiosity, drive, and action-oriented mindset.

Meet 10 Successful Young Entrepreneurs

Research from Junior Achievement and Ernst & Young LLP (EY) found that 41% of teens are open to pursuing entrepreneurship over a traditional job, and among current business owners, 13% got their start at age 18 or younger.

Many of the young entrepreneurs below fall into that camp and have continued on their path of success in the years that followed, thanks to great ideas, unwavering determination, and support and guidance from the right mentors.

Deni Darenberg

Deni Darenberg founded dogAdvisor at just 16 years old, providing dog owners with valuable advice to support their four-legged friends. Since its creation, the company has released over 100 expertly written and highly-skimmable articles, helping more than 1,600 dog owners weekly. 

Beyond its articles, the company has expanded its offerings, adopting an AI chatbot named Max to support dog owners with emergency guidance. Notably, Darenberg’s company won the UK Business Awards’ Most Innovative Pet Product category in 2024.

For young entrepreneurs looking to pursue their ideas, Darenburg suggests the following:

“Find a niche on a topic you love, work on it tirelessly until you build something that’s really worth people’s time, and enjoy your journey,” Darenburg said.

Fonzi Coleman

14-year-old Alphonse “Fonzi” Coleman started his eco-friendly candle business, Bubbles and Blaze. What started as a homeschool project became a successful venture, earning over $3,000 in sales with his coconut soy wax candles.

Coleman attributes the “why” behind his vegan candle business, Bubbles and Blaze, to his mother, for whom he wanted to create healthier, better-smelling, and more affordable candles. 

Driven by his passion for sustainability—all Bubbles and Blaze candles are poured in hand-made, reusable concrete vessels—and creativity, Coleman’s ideas have led to great success. His 100% coconut soy wax candles have sold nationwide and have helpe him build professional connections along the way. He’s also been recognized with an entrepreneurship scholarship, which provided a $750 award.

An inspiration to young entrepreneurs everywhere, Coleman has proven that you’re never too young to pursue your dreams.

“Don’t wait to be older— just start with what you have and keep going,” he said.

Archika Dogra

In 2017, high school student Archika Dogra set out to promote STEM education as a way to counter educational inequity. Focusing on social good, Dogra founded Innoverge, a global network that supports over 11,000 underrepresented youths through partnerships with community centers, libraries, and schools.

Today, the nonprofit’s impact spans over 14 countries, offering more than 450 free STEM and humanities-focused programs—including curricula covering ethics in neuroscience—to students in grades K-8.

Since Innoverge’s inception, Dogra has continued her education at Princeton University as a computer science graduate. Additionally, she’s received accolades from numerous organizations, including The Hershey Company and Disney, garnering over $15,000 in grants and sponsorships, and was named on the Forbes 30 Under 30 List in 2024.

Dogra’s best advice for accelerating your entrepreneurial journey as a young person is to surround yourself with extraordinary people. 

“My sense of what was possible was constantly expanding thanks to the remarkable people I was meeting over the years,” Dogra said. “Looking back, I’m deeply grateful to the mentors who opened doors I never knew existed and the friends who were generous enough to expand my worldview.”

Esan Durrani

At just 18, Esan Durrani co-founded StudyFetch, an AI-powered study tool. This advanced AI study tool has contributed to improved student performance for users across K-12 and universities.

Thanks in large part to Durrani’s efforts, StudyFetch has amassed nearly four million registered users, including students, educators, and institutions, and boosted its social media to reach billions organically. The program has also made its way into classrooms, with integrations in educational institutions and nationwide pilot programs in development. 

Durrani shared this bit of wisdom with his young business-minded counterparts: 

“Your product will never be perfect, so be happy with the idea that it will always get better,” Durrani said.

Andrew Glantz

CEO and founder of GiftAMeal, Andrew Glantz, built his cause-marketing platform at the age of 20 to help alleviate food insecurity.

Since its founding, GiftAMeal has donated more than 2 million meals to over 130 food banks through partnerships with over 1,000 national restaurants, ranging from quick service to full-service.

Through its “food for photos” concept, Glantz and his business have earned major recognition. Accolades include first place at the Global Impact Awards, Hospitality Technology’s Industry Hero Award, and the grand prize in Amazon’s 2023 Small Business Grant.

To fellow young entrepreneurs, Glantz encourages embracing resilience and adaptability while staying true to their values, as this fuels passion and leads to lasting results. 

“The path to building a successful business is rarely linear, and the key is to stay committed to your mission while being flexible enough to pivot when challenges arise,” Glantz said.

Both Dogra and Glantz cite strong mentors as a driving force in their entrepreneurial success. Young entrepreneurs should seek mentors who challenge their thinking while encouraging them to pursue their vision and goals.

Bunim Laskin

Bunim Laskin founded Swimply, a peer-to-peer marketplace for renting private swimming pools, at just 19.

Laskin developed the idea for Swimply from his own experiences as a teenager in Lakewood, New Jersey, where he negotiated for use of his neighbor’s pool in exchange for assistance with maintenance costs. After bootstrapping the earliest iteration of the platform in 2018, Laskin raised over $51 million in funding over three rounds, drawing the attention and backing of investors like Norwest Venture Partners and GGV Capital.

The platform has listings across thousands of U.S. cities and international markets, and has expanded to include related verticals like private tennis and pickleball courts.

Laskin advises young entrepreneurs to start where you are, with what you have.

“When I launched Swimply, I didn’t have a fancy MBA or deep pockets. What I did have was a problem, a simple idea, and the drive to do something about it,” Laskin said. “That’s where every great business [starts]—not with perfection, but with permission to try.”

Grace Leger

Grace Leger discovered her passion for injury rehabilitation massage while facing multiple injuries throughout her teenage running career. After receiving her License in Massage Therapy from Boulder Massage Therapy Institute in 2022, Leger launched her own practice—Elite Massage and Injury Rehab in Boulder, Colorado—in 2023.

Elite Massage and Injury Rehab focuses on injury rehabilitation and chronic pain management, with complementary services like cupping and deep-tissue massage. Leger also shares educational content with an audience of nearly 900,000 viewers across TikTok, Instagram, and Facebook, providing tips on at-home muscle release.

Having launched her practice at just 20 years old, Leger often finds herself as the youngest in the room. Though this is a daunting experience, she hasn’t let it stop her from achieving her goals.

“It’s normal to be scared. I’m scared about 50% of the time—especially when facing older people in business,” said Leger. “Give yourself a pep talk. Stay grounded and confident in your business, even if you don’t feel it all the time.”

Joosep Seitam

Joosep Seitam co-founded Icecartel, an e-commerce shopping platform for men’s jewelry, at 19. The store has gained a strong reputation in its six years of operation thanks to its high-end premade and custom offerings, consisting of Moissanites and natural diamonds. 

Icecartel has seen especially impressive growth in the past two years, reaching six-figure revenue and building a loyal, global customer base. Seitam has passed along his secrets of success to other fashion brands, helping them scale through brand positioning and consumer psychology.

“Branding is bigger than you think,” said Seitam. “A good brand lets you connect emotionally with your audience.”

Caitie Sfingi

While most agencies launch after their founders have gained years of experience in the working world, Merakite has a different starting point: the college dorm room.

Caitie Sfingi and her twin sister Maggie co-founded their software design and development agency in 2017, while both were still in school—Caitie studied design and media ethics at Stanford, while Maggie studied data science and consumer behavior at the University of Southern California. Today, Merakite boasts clients ranging from early-stage startups to Fortune 500 companies, specializing in software-as-a-service (SaaS platforms), AI-powered tools, and online communities.

Sfingi advises aspiring young entrepreneurs to begin before they feel ready, in whatever free time they can find.

“The biggest advantage of being a young entrepreneur is that you have a huge runway, which means not a lot to lose and everything to gain,” Sfingi said. “The sooner you start building, the more you get to learn, change, and grow.”

Zach Yadegari

Zach Yadegari’s skill and passion for tech and entrepreneurship were apparent from a young age. After learning coding at the age of seven, Yadegari went on to launch Totally Science—a gaming website that was successfully sold for a six-figure sum—while he was a freshman in high school.

At 17, Yadegari continued his entrepreneurial journey by co-founding Cal AI, a nutrition-tracking app that uses AI-powered image recognition to calculate calories and nutrients. Within just 10 months, the company reached over 3.3 million downloads and $30 million in annual recurring revenue.

Now 18, the young CEO has proven the success of his own philosophy to entrepreneurship: Act now.

“Don’t wait to take a class. Don’t wait for permission. Get started,” advised Yadegari. “It doesn’t matter if you don’t know what you are doing. Figure it out on the fly.”

The Bottom Line

The stories of these young business owners are a reminder that entrepreneurship isn’t about waiting for the perfect moment. It’s about starting where you are, learning as you go, and staying open to feedback, mentors, and change. From building strong brands to embracing failure as part of the process, these founders prove that with focus and action, you can create something meaningful and profitable, regardless of your age or life experience.

Reviewed by Amy Drury
Fact checked by Michael Rosenston

While it may sound boring or esoteric, financial accounting plays a key role that allows businesses to keep track of all their financial transactions. It is the process in which companies record and report the pieces of financial data that go in and out of its business operations that allow both company managers and outside investors and analysts to understand the company’s health and make informed decisions.

Key Takeaways

• Financial accounting involves recording, summarizing, and reporting the stream of transactions and economic activity resulting from business operations over a period of time. 
• Governed by a standard set of practices, financial accounting’s end product is a set of official company financial statements including the balance sheet and income statement.
• These financial statements are then used by company managers, investors, analysts, lenders, and other stakeholders to make informed decisions.

Standards and Best Practices

There are a series of accounting principles that companies must adhere to in their financial accounting. Publicly traded companies in the United States must follow the generally accepted accounting principles (GAAP), a common set of standards and best practice that accountants follow when they crunch their numbers and complete financial statements.

Companies outside the U.S. generally follow other international standards that vary by region and country. But, regardless of which set of standards is followed, there are three main areas where financial accounting helps with decision-making:

1. It provides investors with a baseline of analysis for—and comparison between—the financial health of securities-issuing corporations.
2. It helps creditors assess the solvency, liquidity, and creditworthiness of businesses.
3. Along with its cousin, managerial accounting, it helps businesses make decisions about how to allocate scarce resources.

Investing Decisions

Fundamental analysis depends heavily on the accounting data that is recorded on a company’s financial statements, including the balance sheet, income statement, and cash flow statement.. Each of the financial statements for publicly traded companies is created and reported according to the financial accounting standards set forth by the Financial Accounting Standard Board (FASB) and submitted to the Securities and Exchange Commission (SEC).

Investors and analysts use the information from financial statements to make decisions about the valuation and creditworthiness of a company, allowing them to set price targets and determine if a stock’s price is fairly valued or not. Without the information provided by financial accounting, investors would have less understanding of the historical, current, and prospective financial health of stock and bond issuers. The requirements set forth by the FASB create consistency in the timing and style of financial accounts, which means investors are less likely to be subject to accounting information that has been filtered based on a firm’s current condition.

Lending Decisions

Financial accounting is also a key for creditors, from banks to bondholders. Because financial statements outline all its assets as well as the short- and long-term debt, lenders get a better sense of a company’s creditworthiness.

A number of common accounting ratios creditors rely on, such as the debt-to-equity (D/E) ratio and times interest earned ratio, are derived entirely from a company’s financial statements. Even for privately-owned businesses that do not necessarily follow the requirements of the FASB, no lending institution assumes the liability of a large business loan without critical information provided by financial accounting techniques.

Ultimately, a lender really wants to know just how much risk is involved when lending a company money, which can be determined by reviewing the company’s financial accounting. Once this level of risk is determined, the lender will also be able to outline exactly how much to lend and at what interest rates through the process of underwriting the loan.

Corporate Governance

Reliable accounting serves a practical function not only for outside investors and lenders but also for the internal workings of the firms themselves.

The most obvious benefit for businesses to refer to their financial accounting is to meet the legal and regulatory obligations outlined for (public) firms. Companies must be honest and transparent about their financial activities and the data reported must be accurate and regularly updated.

Beyond the regulatory and compliance hurdles financial accounting moreover helps companies optimize their day-to-day operations and identify the types of projects that could provide growth opportunities in the future. Financial accounting helps managers create budgets, understand public perception, track efficiency, analyze product performance, and develop short- and long-term strategies, among several other decisions aided by accounting figures.

The Bottom Line

Financial accounting is a way for businesses to keep track of their operations, but also to provide a snapshot of their financial health. By providing data through a variety of statements including the balance sheet and income statement, a company can give investors and lenders more power in their decision-making.

Using a Roth IRA to retire early

Fact checked by Skylar Clarine
Reviewed by Ebony Howard

If you are following a Financial Independence, Retire Early (FIRE) plan, you are likely already aware of the importance of minimizing your spending and maximizing your savings. However, it’s also important to consider the tax that you will pay when you withdraw these savings in retirement—and that’s where a Roth individual retirement account (Roth IRA) comes in.

Roth IRAs are similar to traditional IRAs, with the biggest difference between the two being how they are taxed. Roth IRAs are funded with after-tax dollars; this means that the contributions are not tax-deductible. Once you start withdrawing funds, the money is tax-free. Traditional IRA deposits are made with pretax dollars; you generally get a tax deduction on your contribution and pay income tax when you withdraw the money from the account during your retirement years.

In this article, we’ll look at how Roth IRAs can fit into your FIRE plan.

Key Takeaways

• Money invested in traditional pretax retirement accounts like a 401(k) can be converted into an investment in a Roth IRA.
• This allows FIRE investors to access their retirement savings in early retirement tax free as long they stay within the rules.
• Roth IRAs also can be used as a source of emergency income in early retirement or as a way of passing on wealth to your heirs.

Roth Conversions

There’s nothing wrong with using a Roth IRA in the standard way, even if you have a FIRE plan. Roth IRAs can be a good vehicle for long-term investments that you can then withdraw, tax-free, in retirement. If you plan to retire early, you can withdraw your contributions to a Roth IRA before you are 59½ years old, but you must wait until after that age to withdraw your investment earnings. Otherwise, you will pay an early withdrawal penalty.

There are some general advantages to Roth IRAs for FIRE investors. These are a consequence of the main differences between Roth IRAs and standard IRAs. With a Roth IRA:

• Contributions are not tax deductible.
• Contributions can be withdrawn anytime tax- and penalty-free.
• Both investment earnings and contributions can be withdrawn tax- and penalty-free as long as you are at least age 59½ and your Roth IRA is at least five years old.  

There are other exceptions for taking money out of a Roth IRA, such as using them to pay for a first-time home purchase or qualifying educational expenses. However, for the purpose of early retirement, the three points above are the most important.

The other factor to consider for FIRE investors is that money originally invested in regular retirement accounts—traditional IRAs, and 401(k) or 403(b) plans—can be moved into a Roth IRA. This is called a Roth IRA conversion. Contributions to these accounts are generally tax-free, and since Roth IRAs allow you to withdraw tax free, you get the best of both worlds. You can contribute to your regular IRA tax-free while you are working, and withdraw this money from your Roth IRA tax-free, even in early retirement.

That’s not to say that Roth conversions are free. You will have to pay ordinary income tax on any retirement savings transferred into a Roth IRA in the year of conversion.

For example, if you move $40,000 from an old 401(k) plan into a Roth IRA, and you’re in the 12% tax bracket in 2024, the first $11,600 gets taxed at 10% and the remaining $28,600 at 12%. As a result, you’ll pay $4,568 in federal income tax on the $40,000 converted, as shown below:

• 10% at $11,600 = $1,160
• 12% at $28,400 = $3,408
• Total tax = $4,568 or ($1,160 + $3,408)

However, those on a FIRE plan generally will have a number of years in early retirement (before they reach age 60), during which they may have a low income and consequently be in a low tax bracket. During these years, you can convert money into your Roth IRA and build a stream of tax-free income for your later retirement years.

Important

Since Roth IRA contributions are not tax deductible, they can be withdrawn tax-free at any time as long as you’ve had your Roth IRA for five years. That means even before you turn age 59½.

Roth IRAs in Early Retirement

When FIRE investors talk about Roth IRAs, it’s generally with regard to the type of Roth conversions that we’ve described above. However, Roth IRAs have some other advantages for FIRE investors, even without a conversion strategy.

For example, a Roth IRA can act as an effective (and tax-efficient) contingency or emergency fund. Because Roth contributions can be withdrawn without penalty (again, not the gains, only your original contributions), they can be used to cover a year when your other investments haven’t grown as they should or if you come up against an unexpected expense.

Similarly, Roth IRA withdrawals can be used as a source of additional cash flow that doesn’t impact taxes or healthcare premiums. FIRE investors will generally optimize their income to stay either under a particular tax bracket or within a particular range for healthcare premium purposes. Accessing some other types of retirement funds—selling shares of taxable accounts or taking a 401(k) distribution if you’re over age 59½ but under age 65 and not yet on Medicare—triggers taxable events. Taking your contributions out of a Roth account doesn’t trigger anything.

Finally, Roth IRAs are a good way to build your legacy. If part of your FIRE plan involves passing on wealth to your children (or grandchildren or great-grandchildren), Roth IRAs are a good vehicle for this. That’s because, unlike some other retirement accounts, Roth IRAs don’t have any required minimum distributions during the life of the owner—so the money in them can keep growing tax free.

What Are the Best Roth Individual Retirement Account (Roth IRA) Investments?

The best investments for Roth individual retirement accounts (Roth IRAs) are similar whether you are following a Financial Independence, Retire Early (FIRE) plan or a regular retirement plan. Good options include income-oriented stocks, growth stocks, and indirect and/or direct real estate investments.

Is a Roth IRA Good for FIRE?

Yes. Roth IRAs can form a valuable part of a FIRE strategy—as a long-term investment vehicle, a source of emergency funds, or part of a Roth IRA conversion ladder.

Is it Better to Invest in a Roth IRA or a 401(k)?

In many cases, a Roth IRA can be a better choice than a 401(k) retirement plan, as it offers a flexible investment vehicle with greater tax benefits—especially if you think that you’ll be in a higher tax bracket later in life.

The Bottom Line

Most FIRE investors think of Roth IRAs in the context of a Roth ladder: a chain of Roth conversions that can allow you to access your traditional retirement dollars tax-free in early retirement. However, Roth IRAs also have some other advantages for those on a FIRE plan, acting as a source of emergency income in retirement or as a way of passing on wealth to your heirs.

Just make sure that you understand the complexities of Roth IRAs—especially the distribution rules—before you build them into your FIRE plan.