finance

Reviewed by Margaret James

The HARP program helped borrowers who had mortgage loan balances that exceeded their property value by allowing them to refinance their loan—ideally, at a lower rate. However, this program expired at the end of 2018.

When interest rates fall, many homeowners will refinance their mortgage to lock in a lower interest rate, which can reduce a borrower’s monthly payment or allow a homeowner to build equity more quickly.

However, homeowners who typically have trouble refinancing are those with negative equity, meaning the mortgage exceeds the property value, securing the loan as collateral. In the third quarter of 2024, nearly one million homes were in negative equity.

In the past, borrowers with underwater mortgages could take advantage of lower interest rates by refinancing through the Home Affordable Refinance Program (HARP).

Discover the benefits that HARP provided to homeowners and available options for refinancing or modifying a mortgage.

Key Takeaways

• HARP was a government program designed to help underwater homeowners refinance mortgages at more attractive interest rates.
• The program started on April 1, 2009, and ended on December 31, 2018.
• By the end of Dec. 2018, HARP refinances totaled 3,494,395 since its inception in 2009.
• An option for distressed homeowners includes the Flex Modification program from Fannie Mae and Freddie Mac.

What Is the HARP Loan Program?

HARP was a government program established in April 2009 under the Federal Housing Finance Agency (FHFA) in response to the 2007-08 financial crisis. The idea was to help homeowners refinance loans on properties that were worth less than their outstanding mortgage. Approximately 3.45 million borrowers took advantage of the program.

HARP Loan-to-Value (LTV) Requirements

HARP aimed to help borrowers with a loan-to-value ratio (LTV) greater than 80%. Typically, these borrowers have trouble securing refinancing because of a lack of home equity, preventing them from benefiting from falling interest rates.

Originally, borrowers were eligible for HARP assistance if their LTV ratio was no greater than 105%. This cap was raised to 125% in July 2009, then lifted entirely in October 2011.

HARP by the Numbers

Between the program’s inception and February 2015, approximately 3.29 million mortgages were refinanced under HARP. Of these, 2.3 million had an LTV ratio of 80% to 105%. Over 567,000 mortgages had an LTV of 105% to 125%, while 421,522 loans had ratios greater than 125%.

HARP was originally scheduled to expire at the end of 2016, but the government extended the program by two years. By the end of Dec. 2018, HARP refinances totaled 3,494,395 since its inception in 2009.

What Were the Qualifying Criteria for a HARP Loan?

Homeowners were required to meet the following criteria to qualify for HARP:

• A basic requirement was a mortgage owned or guaranteed by Freddie Mac or Fannie Mae, closed on or before May 31, 2009.
• The original loan must have had an LTV ratio of at least 80%.
• Crucially, the borrower could not be delinquent on their mortgage payments. They could have no late payments over the past six months and no more than one 30-day late payment over the preceding 12 months.
• Borrowers needed to have a 660 minimum credit score.

The program didn’t actually lend money. Instead, HARP worked with lenders to offer refinancing. Homeowners could check with their current lender or access a HARP website to see if the lender participated in the program.

What Replaced the HARP Loan Program?

Although HARP has ended, Fannie Mae and Freddie Mac offer options for financially distressed borrowers to refinance or modify their loans.

Flex Modification

Fannie Mae and Freddie Mac offer a Flex Modification program for existing loans with past-due payments of more than 60 days. These are loan modification programs that help financially distressed borrowers lower their monthly payments by 20%.

The payment reduction can result from a series of steps that include:

• Reduction of loan’s interest rate (if eligible) 
• Loan term extension, such as 40 years versus the standard 30-year mortgage loan
• Forbearance of a portion of the loan principal (borrowed amount), which represents a temporary reduction or modification to the loan balance

Not all loan modifications may achieve the 20% payment reduction goal.

Freddie Mac High LTV Refinance

Freddie Mac offers borrowers a refinance with a 95% loan-to-value ratio (LTV) for a one-unit or single-family home. Borrowers can take a cash-out refinance but must have an 80% LTV.

Warning

Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report, either to the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).

How Did the HARP Loan Program Work?

The HARP mortgage program allowed borrowers with mortgage loan balances that exceeded their property values to refinance their loans at a lower interest rate. The government program began on April 1, 2009, and ended on December 31, 2018.

What Does It Mean When a Mortgage Is Underwater?

An underwater mortgage occurs when the loan balance exceeds the value of the home securing the loan as collateral. Borrowers can become underwater if the property value declines or the borrower withdraws too much of the home’s equity via a home equity loan, home equity line of credit (HELOC), or cash-out refinance.

What Are the Options for Financially Distressed Mortgage Loan Borrowers?

The Flex Modification program offered through Fannie Mae and Freddie Mac helps borrowers who have past-due payments of more than 60 days. The loan modification is designed to reduce the monthly mortgage payment by 20% by lowering the rate, extending the loan term, or forbearance, which temporarily reduces the loan balance.

The Bottom Line

Before HARP expired, the program helped millions of homeowners to refinance underwater mortgages. While HARP didn’t decrease the amount they owed, borrowers benefited from lower interest rates and monthly payments. Although HARP no longer exists, Fannie Mae and Freddie Mac offer programs for borrowers.

Reviewed by David Kindness
Fact checked by Michael Rosenston

What Is Other Comprehensive Income?

In corporate financial reporting and business accounting, other comprehensive income (OCI) includes revenues, expenses, gains, and losses that have yet to be realized and are excluded from net income on an income statement. OCI represents the balance between net income and comprehensive income.

A common example of OCI is a portfolio of bonds that have not yet matured and, consequently, haven’t been redeemed. Gains or losses from the changing value of the bonds cannot be fully determined until the time of their sale; the interim adjustments are thus recognized in other comprehensive income.

Key Takeaways

• In business accounting and corporate financial reporting, other comprehensive income (OCI) includes revenues, expenses, gains, and losses that have yet to be realized.
• The accounting treatment of other comprehensive income is established in the Statement of Financial Accounting Standards No. 220, entitled “Income Statement-Reporting Comprehensive Income,” which is maintained and updated by the Financial Accounting Standards Board.
• A bond portfolio is a prime example of an asset that may be considered OCI, as long as the business does not classify the underlying bonds as held-to-maturity.

Understanding Other Comprehensive Income

Corporate income can be broken down in a multitude of ways, which can mislead interested parties. To compensate for this, the Financial Accounting Standards Board (FASB) requires companies to use universal measurements to help provide investors and analysts with clear, easily accessible information on a company’s financial standing.

The Statement of Financial Accounting Standards No. 220, published by the FASB and entitled “Income Statement–Reporting Comprehensive Income,” reads that an entity shall report comprehensive income in a single continuous financial statement or in two separate but consecutive financial statements. It must also present its components in two sections: net income and other comprehensive income.

Accumulated other comprehensive income or loss is the accumulation of unrealized gains and losses attributed to line items listed on the income statement in other comprehensive income over time. For example, if Company XYZ had $1.5 million in other comprehensive income in the first quarter and $1.2 million in the second, it would have $2.7 million in accumulated other comprehensive income listed on its second quarter balance sheet in the shareholders’ equity section.

Important

An unrealized gain or loss is when a hedging transaction, investment, or pension plan has increased or decreased in value, but there has been no sales transaction. Gains and losses are “realized” when there is a sale, which makes the value increase or decrease “real.”

Common Examples of Other Comprehensive Income

Any held investment classified as available for sale, which is not intended to be held until maturity, and isn’t a loan or a receivable, may be recognized as other comprehensive income.

Other examples of OCI include:

• The previously mentioned bond portfolio is included as long as the business does not classify the bonds as held-to-maturity. Any change in the value of the available-for-sale asset may be included.
• Foreign currency transactions can create gains or losses if the balance of a company’s currency holdings fluctuates, which they frequently do. But the only companies that truly need to pay attention to foreign currency-derived other comprehensive income are large firms that deal in many different currencies.
• Pension plans can also create other comprehensive income. If the value of the plan increases, the difference between the old and new values can be recognized as comprehensive, minus any distributions to pension recipients.
• Gains and losses on derivatives instruments that are designated as, and qualify as, cash flow hedges.

Where Does OCI Go On the Balance Sheet?

OCI is part of accumulated other comprehensive income, which is recorded on the balance sheet in the shareholders’ equity section.

What Is Included in Other Comprehensive Income?

OCI consists of revenues, expenses, gains, and losses that are unrealized and are excluded from net income.

What Is the Difference Between OCI and P&L?

Other comprehensive income is revenues, gains, and losses that are not yet recognized. Profit and loss is all revenues and expenses not included in OCI.

The Bottom Line

Other comprehensive income is an income statement line item that includes unrecognized gains and losses from a business’s financial activities. They include foreign currency translation adjustments, gains and losses associated with pension plans, gains or losses on derivatives designated as cash flow hedges, and more.

Classifying unrecognized gains and losses as other comprehensive income and subtracting them from net income helps a company demonstrate its financial position with transparency.

Reviewed by Natalya Yashina
Fact checked by Suzanne Kvilhaug

Private vs. Public Company: An Overview

A private company is held in private hands. The company is owned by its founders, management, and/or a group of private investors in most cases. The public isn’t privy to its business.

A public company is one that’s sold a portion of itself to the public via an initial public offering (IPO). Shareholders have a claim to part of the company’s assets and profits. Public disclosure of business and financial activities and performance is required of public companies.

Both private and public companies can contribute to the financial health and well-being of economies and nations through their business activities, employment opportunities, and building wealth.

Key Takeaways

• A private company is usually owned by its founders, management, and/or a group of private investors.
• Information about its operations and financial performance isn’t available to the public.
• A public company has sold a portion of itself to the public via an initial public offering (IPO).
• A public company usually trades on a public stock exchange after the IPO.
• The main advantage that public companies have over private companies is their ability to tap the financial markets for capital by selling stock (equity) or bonds (debt).

Private Companies

A popular misconception is that privately held companies are small and of little interest. Many big-name companies are privately held, however, including Mars, Cargill, Fidelity Investments, and Koch Industries.

Ownership

Private companies are owned by those who establish them and those who are invited to invest in them. The public at large can’t buy shares or otherwise invest in private companies at their discretion.

Privacy

They’re not owned by the public so private companies’ executives and management don’t have to answer to stockholders or provide any company information to the public. They aren’t required to file disclosure statements with the Securities and Exchange Commission (SEC).

Capital for growth

A private company can’t use public capital markets to raise funds when it needs money. It must turn to private funding. Private companies fund their growth with profits from operations and/or by borrowing money from banks, venture capitalists, or other types of investors.

A privately held company can’t rely on getting cash by selling stocks or bonds in public markets but it may still be able to sell a limited number of shares under Regulation D without registering with the SEC. Private companies can use shares of equity to attract investors in this way.

Note

It’s been said that private companies seek to minimize the tax bite while public companies look to increase profits for shareholders.

Public Companies

A public company is usually a very large business entity and is normally listed and traded on a public exchange. These exchanges require public companies to meet certain standards to continue trading publicly. The New York Stock Exchange requires that a public company maintain a market capitalization of $15 million.

Ownership

A public company’s stock shares can be bought and sold by people outside the company after the shares trade on public stock markets. The company is therefore owned by those within the organization who possess shares of company stock and by members of the general public. Members of the public who own shares have a stake in the company as a result. Company management can be influenced by their opinions regarding the company’s business.

Public disclosure

A public company is required to disclose certain business and financial information regularly to the public. This information includes annual reports, quarterly reports, and current reports such as 10-K, 10-Q, and 8-K forms that are filed with the SEC.

Important

Public companies are required to register and file company information with the SEC as part of its mission to protect investors, maintain fair, orderly, and efficient markets, and provide access to capital by companies and entrepreneurs.

Capital for growth

A significant advantage that publicly traded companies have is their ability to tap the financial markets for needed capital for expansion through mergers and acquisitions, for internal projects that can drive profits and growth, or for other needs. They do this by selling stock (equity) or bonds (debt).

A public company might issue bonds that investors purchase. Investors make loans to the company in this way. The company will have to repay these loans with interest but it won’t have to surrender any shares of ownership in the company to the investor.

Bonds can therefore be a good option for public companies that seek to raise money, especially in a depressed stock market. A company could also raise capital by selling additional shares, however. This may relieve the burden of repaying bonds.

Key Differences

Public and private companies are distinctly different in several ways.

Company ownership

Private companies are owned by their founders, executive management, and private investors. Public companies are owned by members of the public who purchase company stock as well as personnel within companies such as founders, managers, and employees who possess shares of company stock as a result of the IPO and purchases.

Public company shareholders who aren’t involved in the company in any way other than share ownership can have an impact on the management and operations of public companies because they’re entitled to a say.

Sources of capital

Private companies normally obtain needed capital from private sources such as their shareholding owners or private investors such as venture capitalists. They can also raise funds by taking loans from financial institutions.

Public companies obtain needed capital by selling shares in the public marketplace or by issuing debt. This makes capital easier to obtain for public companies compared to private companies.

Public disclosure

Public companies are required by the SEC to regularly inform shareholders and the public of their financial activities, business activities, and business results. They must file periodic reports and other materials with the government.

Private companies aren’t required to make their company information public or register with the SEC although legislation has been introduced in the U.S. Senate to require some to do so.

Welcome and unwelcome news about public companies is regularly reported by the press and other media. Private companies typically don’t experience such publicity.

Private Company

• Normally not subject to SEC regulation

• Owned by founders and private investors

• Access to capital through owners, investors, and through private loans

• Not subject to public scrutiny

Public Company

• Must register with SEC and file regular financial reports

• Owned by those inside and outside the company who possess/buy shares

• Access to capital through public markets, such as stock and bond markets

• As shareholders, members of the public can vote and share opinions about company matters (which can also be publicized by media)

Examples of Private vs. Public Companies

The 10 largest private companies as of 2024 measured by revenue:

1. Cargill, $160 billion
2. Koch Industries, $125 billion
3. Publix Super Markets, $57.1 billion
4. Mars, $50 billion
5. H-E-B, $46.5 billion
6. Reyes Holdings, $40 billion
7. Enterprise Mobility, $38 billion
8. C&S Wholesale Grocers, $34 billion
9. Fidelity Investments, $28.2 billion
10. Southern Glazer’s Wine & Spirits, $26 billion

The 10 largest public companies as of April 2025 measured by market capitalization:

1. Apple, $2.97 trillion
2. Microsoft, $2.88 trillion
3. NVIDIA, $2.69 trillion
4. Amazon, $1.95 trillion
5. Alphabet (Google), $1.91 trillion
6. Saudi Aramco, $1.67 trillion
7. Meta Platforms (Facebook), $1.37 trillion
8. Berkshire Hathaway, $1.12 trillion
9. Broadcom, $844.5 billion
10. TSMC, $814.3 billion

Why Do Private Companies Go Public?

Private companies may go public because they want or need to raise capital and establish a source of future capital.

Can a Public Company Become Private?

Yes, provided that a shareholder vote supports such an action. The company must normally buy back or already own enough of its shares to control the voting for this move.

Is a Private or Public Company More Transparent?

Both types of companies can be transparent about what they do, their financial performance, and business results. A public company is required to regularly provide a wealth of information about itself to the SEC and the public at large, however. A private company need only be transparent with its private owners.

The Bottom Line

Private and public companies can contribute to the economic health and financial well-being of their communities, states, and nations. Both types of companies broadly operate businesses to earn revenue and make profits but they differ in ownership, public disclosure needs, government oversight, and access to capital.

Fact checked by Suzanne Kvilhaug
Reviewed by Khadija Khartit

A Roth 401(k) can be rolled over into an existing or new Roth IRA or Roth 401(k). The rules are complex, so you must ensure you understand the five-year holding period, age limitations, whether the rollover is a qualified or non-qualified distribution, and any tax implications if taxes are triggered.

Key Takeaways

• Roth accounts are funded with after-tax dollars, and they grow tax-exempt.
• A Roth 401(k) can be rolled over to a new or existing Roth IRA or Roth 401(k).
• Transferring to a Roth IRA is generally the most desirable option because it facilitates a wider range of investment options.
• It’s best to move the money into an existing Roth IRA account if you have one due to a five-year rule that governs qualified distributions.
• Moving the funds to another Roth 401(k) may provide favorable tax treatment if you plan to withdraw the transferred funds soon.

Roth Rules

Roth IRAs and 401(k)s allow you to withdraw your contributions without penalty at any time, but to withdraw earnings or pre-tax deferrals without penalty, you must have had the account open for a minimum of five years and be 59½ (called a qualified distribution).

It’s important to understand that when making a non-qualified distribution, a ratio is used to calculate how much of it is earnings, and how much is contribution. This ratio is calculated by dividing the amount you’ve contributed by the total amount in the account.

For instance, imagine you’ve contributed $40,000, and your account balance is $42,000. Your ratio is $40,000 ÷ $42,000 = 0.95. You take a $5,000 distribution, so you multiply that number by your ratio. The contribution portion of this distribution is $4,762 (rounded up), so $238 of this distribution is earnings and taxable if non-qualified.

Rollovers are generally not subject to taxes, as long as one of the following methods is used.

Your Roth 401(k) Rollover Options

Your choices for a Roth 401(k) rollover are limited to Roth accounts. For example, you can transfer the funds from the Roth 401(k) into a Roth IRA, or you can roll the old Roth 401(k) into a new Roth 401(k) if available.

There are three ways you can roll a Roth 401(k) over:

• A direct rollover: Your plan custodian can cut a check made out to the new account, which you take or send to the new account custodian without penalty.
• Trustee-to-trustee: The old account and new account custodians handle the transfer for you without penalty. This is also called a direct transfer.
• 60-day rollover: You can take the funds out of the account as a distribution to place them in a new plan. You have 60 days to complete the transfer. If you don’t deposit the funds in another qualified retirement account within that time, you’ll pay any necessary taxes and fines.

Funds held inside 401(k)s are often well-protected against some legal judgments and from creditors.

Considerations When Rolling Into a Roth IRA

Roth IRA contributions can be withdrawn tax-free and penalty-free at any time regardless of age, but the rules for distributions of earnings vary. A qualified distribution from a Roth IRA meets the five-year rule and is also made at or after age 59½, after death, as the result of a disability, or for a first-time home purchase. These qualified distributions are free of both taxes and penalties.

Withdrawals of earnings from the account will be subject to both selective income taxes and a penalty if these conditions aren’t met. Income taxes will be levied pro-rata on earnings on your contributions, and a 10% penalty may apply to part of the distribution if you take a non-qualified distribution.

Note

IRAs frequently come with more investment options than 401(k)s. Your options in a 401(k) can sometimes be limited to mutual funds or a few different exchange-traded funds (ETFs), depending on the custodian, while you generally have more choices with an IRA.

Funds rolled from a Roth 401(k) into an existing Roth IRA that meets the five-year holding period inherit the Roth IRA’s five-year clock. However, this is not true if funds from a Roth 401(k) are rolled over to a new Roth IRA.

For example, assume that you opened your Roth IRA in 2016. You worked for your employer from 2019 to 2023 and then resigned. A full distribution from your Roth 401(k) rolled into the Roth IRA meets the five-year rule for qualified distributions because the Roth IRA that you’re rolling the funds into has existed for more than five years.

Considerations When Rolling Into a Roth 401(k)

The specific distribution rules from the new account will vary by the plan if you roll your old Roth 401(k) into a new Roth 401(k). Your new employer’s human resources department should be able to assist with this.

Some basic conditions apply, however. The number of years the funds were in the old plan should count toward the five-year period for qualified distributions if you decide to roll the funds from your old Roth 401(k) over to your new Roth 401(k) through a trustee-to-trustee transfer. The first employer must contact the new employer regarding the employee contributions being rolled over and confirm the first year they were made.

The five-year period would start again if you only did a partial rollover to the new Roth 401(k). You don’t get credit for the period the funds were in your old Roth 401(k).

Important

Speak with your tax or financial advisor about what may be best for you before making a decision. You might end up leaving the Roth 401(k) in your previous employer’s plan, depending on your circumstances and that plan’s rules.

How Does a Roth 401(k) Rollover Work?

You can contact your retirement plan manager and request a rollover. They should give ou a few options for how you want it to work, such as cutting a check and sending to the new retirement account custodian, transferring the balance to the new custodian, or cutting a check to you for the funds, which you must deposit within 60 days. Additionally, you can only rollover into another Roth-type account.

Does the 5-Year Rule Apply to a Roth 401(k) Rollover?

Yes. There are special circumstances such as a disability or a hardship withdrawal (which might be taxed).

What Are the Restrictions on a Roth 401(k)?

You can only contribute up to $23,500 and total combined contributions from you and your employer cannot exceed $70,000 in 2025 ($69,000 in 2024). If you’re 50 or older, you can contribute an additional $7,500 annually in catch-up contributions.

The Bottom Line

The rules for rolling over funds to a Roth 401(k) are complicated. Be sure to fully investigate the tax and other implications before you decide how to handle these funds after you leave the company whose plan held them—it’s best to consult a tax professional or advisor before rolling over your plan to make sure you’re not triggering unnecessary tax events.

Reviewed by Pamela Rodriguez

Planning your future often requires turning to a financial adviser whom you can trust as a fiduciary for guidance on personal investing, college trusts, income tax preparation, insurance, retirement planning, or estate planning.

Most financial advisers strive to help their clients invest their money in areas that generate rich returns because they themselves tend to accrue commission on the positive returns. The more money financial advisers can make for their clients, the more money they are able to make for themselves.

However, there are certain practices that some financial advisers may partake in that can effectively cheat their clients. If you are worried that your financial advisor may be ripping you off, here are some warning signs to look for when trusting your financial adviser with your money.

Key Takeaways

• Planning your future often requires turning to a financial adviser whom you can trust as a fiduciary for guidance on personal investing, college trusts, income tax preparation, insurance, retirement planning, or estate planning.
• If you are worried that your financial advisor may be ripping you off, there are some warning signs to look for when trusting your financial adviser with your money.
• Ensure all the statements you receive from the custodian have only your name appearing on the account.
• If your financial adviser tells you of an investment that offers you a high return with low risk, and you instead notice your returns are staying pretty consistent, your investment could be tied into a Ponzi scheme, which generates returns for former investors by using the funds from newer investors.

1. Commingling Names on the Title of the Account

If your financial adviser commingles or adjoins their name, alongside yours, on the title of your investment account, it grants them unrestricted authority to use the funds at their discretion.

Ensure all the statements you receive from the custodian have only your name appearing on the account. The code of ethics for the Certified Financial Planner (CFP) Board of Standards, Inc. outlines commingling as a violation of the Securities and Exchange Commission’s (SEC) Code and Practice Standards, whereby any violation warrants disciplinary action such as potential revocation for the certificate holder to use the CFP certification marks after their name.

2. Churning on Your Account

If on your statement, you notice a large number of trades occurring or an increase in transactions on your account without any substantial increase in value, your financial adviser could be churning on your account.

A financial adviser, or specifically a broker, does this to increase their own commissions as they are usually paid whenever they buy and sell a security. A way to avoid churning on your account is to open a wrap account where a flat fee is charged periodically instead of one based on trade transactions.

3. Scamming

If your financial adviser tells you of an investment that offers you a high return with low risk, and you instead notice your returns are staying pretty consistent, your investment could be tied into a Ponzi scheme, which generates returns for former investors by using the funds from newer investors.

Moreover, Ponzi schemes are often a part of affinity fraud, which entails inflicting the scam upon members of certain groups, such as an ethnic community, religious community, or older adults. To avoid this, confirm that your investments and financial advisers and their respective firms are registered with the SEC (since the majority of Ponzi scheme investments involve unregistered firms).

Seek out financial advisors or planners with designations such as certified financial planner (CFP), chartered financial analyst (CFA), or chartered financial consultant (ChFC).

4. Embezzling

If your financial adviser insists you play a minimal role in your investments and let them deal with the “burden” of your account, since it is their job, they likely want to obtain from you a power of attorney to act on your behalf for decisions involving your investments.

This opens up great risk for the safety of your assets since your financial adviser is then able to legally trade upon your securities and move the return or the security itself into any account they choose.

To your greater detriment, your adviser could also transfer your money into their personal accounts, and although this act is illegal, it is costly and timely for you to pursue after the fact.

To avoid this happening, never grant power of attorney to your adviser. If you must, however, stipulate in a power of attorney agreement that upon granting power of attorney, your financial adviser is only permitted to trade your securities without notifying you but never permitted to draw upon returns or move assets from their original accounts.

To protect your investments, be cautious when entrusting your money to others. Always validate your financial adviser’s credentials, background, and ethics record.

What Exactly Does a Financial Advisor Do?

There are a few responsibilities that financial advisors have. They will provide investment management services, helping you find the right investments for your risk profile and devising an investment strategy; debt management services, to help you pay down your debt and avoid accumulating future debt; retirement planning; estate planning; tax planning; college savings planning, and budgeting.

How Do Financial Advisors Get Paid?

The payment structure for financial advisors can vary but they earn money either through commissions or fees. Advisors are either kept on retainer while others work per deal or hourly. Some charge per transaction or an hourly fee while others may charge a percentage of the total assets they manage for you.

Is It Worth Paying for a Financial Advisor?

Whether or not it is worth having a financial advisor will depend on the individual and is a personal decision. Financial advisors can be helpful if your financial profile is complex. For example, if you have multiple income streams, own a few houses, are expecting an inheritance, and are saving for a few kids to go to college, a financial advisor could help you manage it all.

The Bottom Line

There is always going to be inherent risk in trusting your money with another person. Financial advisors are meant to take care of your money but it doesn’t mean each and everyone will always have your best interest at heart. Pay attention to the above signs regarding your financial advisor to know if your hard-earned money is in good hands.

Here’s how to grow your business economically

Fact checked by Amanda Jackson
Reviewed by David Kindness

When you don’t have a big budget, marketing can be challenging, but there’s plenty a small business owner can do to attract and maintain a customer base. The rise in digital marketing has made it easier for small business owners to find a way to create a presence and attract buyers.

Advertising your business or product is about more than just having your company name and number on the side of your work vehicles. When you build a business, the first thing you want to secure is a customer base. Then, with a decent printer, a phone, and an internet-connected device, you can create a reasonably extensive advertising campaign without paying for digital space. Here are seven small business marketing techniques you can use to boost your business.

Key Takeaways

• Small businesses don’t have the advertising budget of larger rivals, but there are inexpensive ways to build a customer base.
• Hitting the pavement with flyers distributed door to door (where allowed) and placing posters strategically can help get the word out.
• Follow up with customers after the first round of ads to reinforce the initial message, and don’t fear cold calls—they can be effective.
• Value additions, such as discounts or freebies for repeat customers, are a big boon once the business is up and running.
• Referrals—both from customer to customer and business to business—are also important.
• Prioritize digital marketing, including traditional websites and social media.

Before You Start Marketing

Before your business starts marketing a product, it helps to think about the type of person you want to reach with your promotional materials. Once you have your ideal customer, you’ll have a wide choice of marketing methods. Most of these are low-cost or no-cost tactics (sometimes called guerrilla marketing). You may use different ones at different stages of your business cycle—or you may utilize them all at once from your business’s inception.

1. Flyers

This is the carpet-bombing method of cheap advertising. You find an area where you would like to do business and distribute flyers to all the mailboxes within reach. Your flyer should be brief and to the point, highlighting the services you offer or products you sell and providing contact information. Offering a free appraisal, coupon, or discount can help attract your first customers.

Flyers shouldn’t be mistaken for posters. Flyers are more informative, listing services or products provided, contact information, addresses, and specialties.

2. Posters

Most supermarkets, public spaces, and malls offer free bulletin board space for announcements and advertisements. This method is hit-or-miss, but you should try to make your poster visible and have removable tabs that the customers can present for a discount.

Make each location a different color to get an idea from the tabs where the most leads are generated. If one area is producing most of your leads, you can better target your campaign (flyers, ads in local media catering to those areas, etc.)

Posters should feature appealing images and catchy, memorable phrasing so viewers will recall it when they’re wondering where to go for whatever it is they need that you’re offering.

Traditional marketing methods like radio, print advertising, and billboards shouldn’t be overlooked. The more channels you use, the more exposure you have.

3. Value Additions

Value additions (or value-ads) are powerful selling points for any product or service. On the surface, value additions are very similar to coupons and free appraisals, but they aim to increase customer satisfaction and widen the gap between you and the competition.

Common value additions typically include:

• Guarantees
• Discounts for repeat customers
• Point cards
• Referral rewards

The deciding factor for a customer choosing between two similar shops might be a point card or preferred customer card. You don’t have to promise the moon to add value—instead, point out something that the customer may not realize about your product or service. It’s important to highlight the value additions when creating your advertising materials.

4. Referral Networks

Referral networks can be invaluable to a business. Referrals can be encouraged through discounts or other rewards per referral. However, referral networks also include business-to-business referrals. If you have ever found yourself saying, “We don’t do/sell that here, but X down the street does,” you might want to introduce yourself to X’s owner and talk to them about a referral quid pro quo.

When dealing with white-collar professions, this network is even stronger. For example, a lawyer might refer you to an accountant; in turn, the accountant might refer you to a financial planner, who could refer you to a broker. In each situation, the person stakes their professional reputation on the referral.

Regardless of your business type, make sure you create a referral network that has the same outlook and commitment to quality that you do.

Note

If you are too busy to take a job, throw it to your competition. You will often find the favor returned, plus it can be bad for your reputation if a customer has to wait too long for a service.

5. Follow-ups

Advertising can help attract customers, but what you do after they come in can often be a much stronger marketing tool. Follow-up questionnaires are one of the best sources of feedback on how your ad campaign is going. Questions you could ask include:

• Why did the customer choose your business?
• Where did they hear about it?
• Which other companies had they considered?
• What produced the most customer satisfaction?
• What was the least satisfying aspect?

Also, if your job involves going to the customer, make sure to slip a flyer into nearby mailboxes, as people who live in the same area often have similar needs and interests.

6. Cold Calls

Unpleasant? Important? Yes, and yes.

Cold calling—whether over the phone or door to door—is a baptism by fire for many small businesses. It forces you to sell yourself as well as your business.

Over the phone, you don’t have the benefit of a smile or face-to-face conversation—a phone is a license for some people to be as caustic and abrupt as possible (we are all guilty of this at one time or another). However, cold calling does make you think on your feet and encourages creativity and adaptability when facing potential customers. It also is a quick way to get your name out there and can drum up business.

Warm calls are an alternative to cold calls. You make calls to people you have already met or introduced yourself to through social events, email campaigns, or other activities.

7. Online Marketing

The importance of the internet in building a successful business cannot be overstated. The internet makes it possible to reach a massive audience from anywhere and generate interest in your business, potentially without spending a cent.

No company (even a local café) should be without, at the very least, a website with vital details such as location and hours. You need a point of access for everyone who searches the internet first when they want to make a buying decision.

You may also need:

• A social media presence: Facebook, Instagram, TikTok, X platform (formerly Twitter), LinkedIn, Pinterest, etc.
• A content management system (CMS): WordPress, Hubspot, Joomla, or Drupal
• Search engine optimization (SEO) skills: Optimizing your content for searches, internal and external linking, title tags, alt tags, and headings

All this digital dexterity may feel intimidating at first. However, publishing technology has evolved to the point where an open-source content management system can meet all these needs.

Important

The social media platforms that offer marketers the highest return on investment (ROI) are Facebook and Instagram, according to HubSpot.

How to Identify Your Value Proposition, Audience, and Goals

Before you begin printing and distributing your materials, it’s best to figure out who your audience is and how to make your product or services valuable to them. Then, set realistic and attainable goals for your business and marketing endeavors.

Value Proposition

A value proposition is a reason a customer should buy a product or service from you instead of the competition. Consider what your target audience needs from you rather than what your product has. These needs are usually called benefits, whereas a product’s physical properties or what it does are called features. You can still highlight features, but they should be backed up with a benefit that aligns with your audience’s needs.

Critical to selling your product or services is identifying what you offer that others do not (or that they don’t do very well). To establish your value proposition, compare what you’re offering to the competition’s product or service. Identify their features and benefits and compare them to yours, then make a note of the areas where you excel.

Your top value proposition should be unique to your offering and make it appealing to your audience. For example, imagine you have a coffee shop and bistro. It’s a trendy convenience found in many towns and cities, so you’ll have to analyze your competitors and use your imagination to discover the one thing that makes you stand out.

Say you’ve perfected bread recipes from around the world, like pão de queijo (a gluten-free Brazilian bread made from tapioca flour and cheese) or aish baladi (an Egyptian bread), and import coffee from the countries where those breads are baked and eaten. You may have a competitive advantage and an excellent value proposition—you offer products no other café in town does.

Audience

You’ll need to identify who your audience is. If you didn’t design your product or service for a specific demographic, you’ll need to do some research to determine which type of people to target. Audience is key to marketing. If you’re targeting one demographic that doesn’t have a large presence in your area, you may not be too successful unless you’re an online retailer.

You’ll need to identify who you want to sell to the most and ensure your product or service caters to them. For example, if you like the idea of a global café with bread and coffee from around the world, you’ll need a customer base to sell it to.

You could start talking to people and listening to their coffee concerns. Find out their ages and average incomes, see what they’d like, and ask what current issues they have in getting the coffee and the experience they want. Learn as much about them as possible—spending habits, needs, income levels, hobbies, or anything else that might provide insights into what might attract them.

Once you define your audience and what they need, you can figure out the message you’re going to send.

Goals

One of the best ways to accomplish something is to set a goal. However, you don’t want to set one goal—you should set an end goal and several small attainable goals that contribute to the final goal.

Set up a timeline and dates when you’d like to complete the small goals. This way, you have small steps to guide you and a way to measure your progress and success.

Marketing Channels

The internet, and the various technologies and platforms using it, gives businesses enormous marketing opportunities. Here are the top marketing channels used; it’s likely you’ve heard of or been exposed to them.

Search Engine Optimization

Search engine optimization (SEO) is top dog when it comes to marketing. It involves structuring your website and content so that it ranks as high as possible on Google search engine results pages.

Google uses a technique called web crawling that finds web pages to add to its index. When creating or adjusting your webpage or site for SEO, there are several factors to consider, such as following Google’s best practices and spam policies.

Content Marketing

Content marketing is a technique used to promote interest in your brand without explicitly promoting a product or service. You’ll find examples of this on many companies’ websites where a blog or article discusses a topic and how the company relates to it or works to help people do something. Generally, there is a call to action toward the end of the article, like “if you need help with XYZ, contact us today” or something similar.

Content marketing establishes expertise and gives potential customers a brand to remember.

Email Marketing

It’s been predicted that more than 4.85 billion people will have an email address by 2027. To gain access to this ocean of people, you’ll need an email marketing application. You can find hundreds of email marketing applications that will allow you to create email marketing campaigns.

Social Media Marketing

We’ve all seen advertisements on our social media pages that seem to target us by what we’ve been shopping for. It’s no secret that using social media increases brand exposure and generates interest, so it is in a small business’s best interest to, at a minimum, create a social media profile for itself and begin posting content.

Influencer Marketing

Influencers are people with a large viewer and follower base on their platform of choice. For instance, someone who regularly posts content on Instagram could have millions of followers. This person then becomes an influence in the lives of their followers—giving businesses another exposure outlet.

Chances are you’ve seen someone talking about a product or service on their social media platform; they’ve been sponsored by a company to talk about that business’s services. Influencers can help you generate tons of interest.

What Is Small Business Marketing?

Small business marketing is creating a campaign for your small business to generate interest and a consumer base. It involves using traditional and modern marketing techniques to develop a marketing campaign.

Which Marketing Is Best for Small Business?

The most effective marketing combines social media, networking, and traditional methods like flyers, posters, and cold calling. However, social media advertising reaches the most people the fastest.

How Can I Promote My Small Business?

Social media is the quickest method for promoting your business. For the promotion itself, you can offer discounts for referrals, promotional pricing, participate in events in your community, or anything else you can think of. Technology has created many more channels you can use, but it’s up to you to figure out how to exploit them.

The Bottom Line

More than likely, you will find that the conversion rate on marketing is very low. Even the most successful campaigns measure leads (and converted sales from those leads) in the 10% to 20% range. This helps to shatter any illusions about instant success, but it is also an opportunity for improvement. Consider that if you convert 0.5% of 1 million leads to sales, you’ve got 5,000 sales.

The more exposure you have, the more leads you can generate and convert. Ultimately, this turns into sales, profits, and growth.

Reviewed by Ebony Howard
Fact checked by David Rubin

Tornadoes, floods, and hurricanes. In addition to being devastating natural disasters, these events have another common denominator: the property damage they cause can be deducted from federal income taxes. If your home, vehicle, or household items and possessions are damaged or destroyed as the result of a qualifying event that the IRS considers “sudden, unexpected, or unusual”—including natural disasters—you may be able to write a portion of the loss off of your federal income tax.

Before you begin to imagine recouping the entire value of your loss, realize that there are limits. You will need to file an insurance claim (if you carry coverage), and your benefit payout will be factored in. If you have homeowner’s or renter’s insurance and file a timely claim to be reimbursed for the loss, the amount that you are reimbursed by your insurance company will be subtracted from the amount you can deduct from your taxes, upon approval. If you choose not to file a claim, you can only deduct the loss that was not covered by your insurance policy.

Qualifying Events

If you have personal property that has sustained damage—or has been completely destroyed—by any of the following three categories of events, you may be able to deduct a portion of your loss from your federal income tax bill:

1. Property damaged or destroyed by an act of nature, which includes floods, fires, earthquakes, landslides, storms, tsunamis, volcanic eruptions, and windstorms.
2. Theft or vandalism, including burglaries, extortion, embezzlement, robbery, and fraud.
3. Accidents, riots, terrorist attacks.

Unless your loss is due to a disaster and the president has declared your community a federal disaster area, you will need to deduct your loss the year that it occurred. If you live in a presidentially declared disaster area, you can deduct the loss on your federal income tax return for the year after the event.

Qualifying for Tax Relief

If you have been affected by a natural disaster recently, visit the IRS website to see if you qualify for tax relief. The site states that individuals in certain states affected by recent events qualify for tax relief. 

Figuring Out Your Potential Financial Write-Off

If you’ve determined that your loss is covered under a “qualifying event, ” and you’ve filed a claim with your insurance company, you’ll want to know how much, exactly, you could recoup by writing off your loss. To calculate that amount, you will first need to collect all related paperwork to substantiate and monetize property loss and/or repair costs.

To determine the value of your destroyed, damaged, or stolen item(s):

1. Figure out the original amount of the item/property.
2. Estimate the value of the item now (after the event). The difference is the decrease in the item’s fair market value (FMV).
3. Choose the smaller amount of either (1) or (2) above.
4. Subtract any insurance reimbursements you may have received from the number you came up with in (3).

If you’ve had several items stolen or damaged/destroyed as a result of a qualifying event, you will need to determine the loss on each item and then add those losses to come up with a total loss amount.

The number you come up with in (4) is the amount of your loss. Now that you’ve calculated the loss value, you can determine how much of that amount you can deduct from your taxes. If the casualty or theft affected personal use property (meaning not for business use) there are two limits to how much you can deduct:

1. Subtract $500 for each item that was damaged, destroyed, or stolen.
2. If your loss was due to theft or natural disaster in a non-presidentially declared area, you’ll need to subtract an additional 10% based on your adjusted gross income (AGI).

Your AGI is your total income minus qualifying deductions (not itemized deductions, i.e., mortgage interest, property taxes, charitable contributions, etc.). To calculate your AGI, first add up your gross income which includes:

• wages/salary
• dividends
• capital gains
• taxable interest
• IRA and/or pension or annuity distributions
• alimony
• unemployment compensation
• business income (or loss)
• farm income (or loss)
• rental real estate, royalties, partnerships, S corporations, trusts, etc.
• taxable Social Security benefits
• other income

Then subtract IRA contributions, student loan interest, tuition and fees deductions, educator expenses, health savings account deductions, half of the self-employment tax, contributions to health insurance, penalty for early withdrawal from savings, qualified retirement plans (i.e., IRA, SEP, SIMPLE, etc.), paid alimony, and moving expenses. There are also qualifying deductions for educator expenses, domestic production activities, and for certain business expenses of reservists, performing artists, and fee-based government officials. The resulting number is your AGI.

In order to support your claim, you should locate, if possible, before and after photos of the lost/damaged/destroyed items, receipts, canceled checks, deeds, and, if necessary, professional appraisals. A professional appraisal can provide you with an accurate estimate of the value of your items and serve as evidence for your insurance claims, and the appraisal fee can be deducted from your taxes. (For more, check out: Tax Tips for The Individual Investor.)

Need Help?

If you need assistance determining your potential write-off, consult with a tax preparation professional, or use the IRS.gov website to get answers to questions. The IRS Publication 584 Casualty, Disaster, and Theft Loss Workbook can help you determine your eligibility for a deduction, and your state income tax department can provide guidance on federal and state guidelines.

In a letter to Berkshire Hathaway Inc. (BRK.A) shareholders, legendary investor Warren Buffett once posed a deceptively simple question: “If you plan to eat hamburgers throughout your life (and are not a cattle producer), should you wish for higher or lower prices for beef?” The answer is lower, of course. Yet, according to Buffett, this question cuts to the heart of how investors should also think about markets and investing.

The “hamburger quiz” illustrates Buffett’s gift for making complex financial concepts accessible through everyday analogies. His point was clear: just as consumers should prefer lower prices for items they buy regularly, long-term investors should try to see market declines as opportunities, not disasters. We discuss why below—and it’s not about timing the market.

Key Takeaways

• In a letter to shareholders, Warren Buffett once asked if they would prefer their hamburgers to be cheap or expensive.
• If you answer “cheap,” he argues, you should also prefer lower-priced stocks.
• While not a perfect analogy, the insight holds that market downturns should be seen as opportunities.

The Hamburger Principle Applied to Markets

Buffett’s analogy connects our understanding of consumer behavior to counterintuitive market psychology. We instantly recognize that lower beef prices benefit hamburger consumers. Yet when stock prices fall, most investors tend to panic rather than scope out the bargains.

He continues with another metaphor: “Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.”

However, Buffett says many investors have the wrong answer when faced with their own version of the hamburger test. “Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the ‘hamburgers’ they will soon be buying.”

Many investors regularly check their portfolio , feeling better or worse as markets rise and fall. Fighting this natural response demands both intellectual understanding of Buffett’s principles and emotional resilience.

Eating vs. Investing

There are, of course, fundamental differences between consuming and investing, with each having entirely different purposes and the means for doing so.

Consumption goods like hamburgers provide immediate utility but no future return. Their value is realized through use, with nothing left over. Even a car, which can last for many years, steadily loses value and eventually becomes worthless, except maybe for some residual scrap value.

Meanwhile, investing sacrifices the ability to consume today since you’re putting that money into a portfolio to generate future returns. The purpose, then, is to create more wealth over time. In short, consumption is about the present; investing is about the future.

When you buy a hamburger, your concern ends with a full stomach. But with investments, timing matters tremendously. Market declines only benefit you if prices eventually recover during your investment horizon.

Retirees or those short on cash might need to sell off their investments to pay the bills. Thus, when the market declines, that’s a real problem, not an opportunity.

Warning

While Buffett’s hamburger principle highlights the opportunity in market downturns, it doesn’t mean you should try to time the market. Instead, you can use strategies like dollar-cost averaging—investing fixed amounts regularly no matter the market conditions—to naturally capitalize on price dips.

The Psychology of Sell-offs

The hamburger analogy does help focus attention on the psychological reality of watching markets decline. Even long-term investors can struggle to maintain perspective when their portfolio values plummet. Buffett’s message thus directly challenges how most people instinctively respond to downturns.

“Smile when you read a headline that says ‘Investors lose as market falls,'” he told Berkshire Hathaway’s shareholders. “Edit it in your mind to ‘Disinvestors lose as market falls—but investors gain.'”

The Bottom Line

The hamburger quiz teaches people to treat market downturns as buying opportunities. The challenge it highlights grows more difficult when market declines persist for extended periods. While Buffett’s hamburger principle remains insightful, the emotional toll of multiyear bear markets tests even disciplined investors’ resolve.

Reviewed by Andy Smith
Fact checked by Suzanne Kvilhaug

Principles-Based vs. Rules-Based Accounting: An Overview

All public U.S. companies are required to prepare their financial statements as set out by the Financial Accounting Standards Board (FASB), whose standards are generally rules-based.

FASB develops detailed rules and standards in establishing its accounting practices and methods. The law requires U.S. companies to adhere to these accounting standards when reporting their financial statements.

Most companies in other countries, however, do not use the standards as determined by FASB but rather use the accounting principles issued by the International Accounting Standards (IAS).

Key Takeaways

• U.S. companies follow a strict rules-based system (GAAP), while most other countries use a flexible principles-based system (IFRS).
• Princples-based accounting gives companies more freedom to interpret accounting standards, which is better suited for unique situations but also risks less transparency.
• Rules-based accounting ensures consistency and comparability but can lead to rigid and complex practices and even manipulation.
• There is no universal accounting system in place, which complicates the process of comparing global companies and raises concerns of accuracy and honesty.

Principles-Based Accounting

Principles-based accounting seems to be the most popular accounting method around the globe. Most countries opt for a principles-based system, as it is often better to adjust accounting principles to a company’s transactions rather than adjusting a company’s operations to accounting rules.

The International Financial Reporting Standards (IFRS) system—the most common international accounting standard—is not a rules-based system. The IFRS states that a company’s financial statements must be understandable, readable, comparable, and relevant to current financial transactions.

Rules-Based Accounting

Rules-based accounting is a standardized process of reporting financial statements. The generally accepted accounting principles (GAAP) system is the rules-based accounting method used in the United States. Companies and their accountants must adhere to the rules when they compile their financial statements. These allow investors an easy way to compare the financial information of different companies.

There are 10 principles of the rules-based GAAP accounting system:

1. Regularity
2. Consistency
3. Sincerity with an accurate representation of the company’s financial situation
4. Permanence of methods
5. No expectation of compensation
6. Prudence with no semblance of speculation
7. Continuity
8. Dividing entries across appropriate periods of time
9. Full disclosure in all financial reporting
10. Good faith and honesty in all transactions

The GAAP method is used when a company releases its financial statements to the public. It covers a number of things, such as revenue recognition, balance sheet classification, and how outstanding shares are measured.

Companies and accountants that do not follow GAAP standards could be brought to court if their judgments and reporting of the financial statements were incorrect.

Applications of Both Methods

The fundamental advantage of principles-based accounting is that its broad guidelines can be practical for a variety of circumstances. Precise requirements can sometimes compel managers to manipulate the statements to fit what is compulsory.

On the other hand, when there are strict rules that need to be followed, like those in the U.S. GAAP system, the possibility of lawsuits is diminished. Having a set of rules (rules-based accounting) can increase accuracy and reduce the ambiguity that can trigger aggressive reporting decisions by management.

Compliance with GAAP helps to ensure transparency in the financial reporting process by standardizing the various methods, terminology, definitions, and financial ratios. For example, GAAP allows investors to compare the financial statements of two companies by having standardized reporting methods.

Companies must formulate their balance sheet, income statement, and cash flow statement in the same manner so that they can be more easily evaluated. Changes in the way a business compiles and reports its financials can be costly and time-consuming.

If companies were able to report their financial numbers in any manner they chose, investors would be open to risk. Without a rules-based accounting system, companies could report only the numbers that made them appear financially successful while avoiding reporting any negative news or losses.

Note

In the U.S., private companies can technically use IFRS, but this is not a common practice.

Problems With Both Systems

The main problem is that no one accounting method has been universally adopted. There are 168 jurisdictions that use IFRS as their accounting standards, while the U.S. uses the rules-based GAAP method.

As a result, investments, acquisitions, and mergers may require a different lens when comparing international competitors such as Exxon and BP, which use different accounting methods.

Critics of principles-based accounting systems say they can give companies far too much freedom and do not prescribe transparency. They believe that because companies do not have to follow specific rules that have been set out, their reporting may provide an inaccurate picture of their financial health.

In the case of rules-based methods like GAAP, complex rules can cause unnecessary complications in the preparation of financial statements. Having strict rules means that accountants may try to make their companies more profitable than they actually are because of the responsibility to their shareholders.

Example of Accounting Manipulation

Enron was a major energy company in the 1990s. In 2001, Enron shareholders lost $74 billion in value after the company’s executives used fraudulent accounting practices to overstate revenue while hiding debt in its subsidiaries.

When Enron declared bankruptcy, it was the largest U.S. bankruptcy at that time, with $63 billion in assets. The company’s collapse sent shockwaves throughout the financial markets, leading to a wave of additional regulations.

When contemplating which accounting method is best, make certain that the information provided in the financial statements is relevant, reliable, and comparable across reporting periods and entities. Although there are benefits to principles-based accounting, it is recognized that the method may need to be modified to make it more effective and efficient.

What Is the Difference Between IFRS and GAAP?

Both International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP) are accounting frameworks that instruct companies on how they should report their financials. IFRS is used in most countries around the world, while GAAP is mainly used in the U.S. The primary difference between the two is that GAAP is a rules-based system that provides specific instructions on how reporting should be done. IFRS, on the other hand, is a principles-based system, allowing for more flexibility in accounting interpretation.

Why Does Most of the World Use IFRS?

The majority of countries in the world use International Financial Reporting Standards (IFRS) for their accounting. There are many reasons for this, all with the core goal of making accounting easily translatable across regions. Using IFRS simplifies cross-border business for companies and investors by providing a common accounting language.

This is increasingly important in a globalized world where companies operate in multiple regions. Additionally, many international bodies, such as the G20, World Bank, and International Monetary Fund, support the use of IFRS. Another key point is that IFRS, a principles-based method of accounting, is seen as more modern than traditional rules-based accounting standards, like GAAP.

Why Use IFRS Instead of GAAP?

International Financial Reporting Standards (IFRS) is used more than generally accepted accounting principles (GAAP) because it is required in more countries while GAAP is primarily used in the U.S. Because it’s used in more countries, IFRS makes accounting much easier for companies that operate in different jurisdictions and want to attract a wide assortment of international investors. Additionally, IFRS is more flexible, making financial reporting less complex than GAAP and better-suited in representing specific businesses with their unique characteristics.

The Bottom Line

Principles-based accounting, like IFRS, offers flexibility, while rules-based systems like GAAP provide consistency and clear standards. Each has its drawbacks; too much freedom can lead to manipulation, and too many rules can make reporting complicated. The best approach ensures financial reports are clear, accurate, and easy to compare.

Fact checked by Vikki Velasquez

Dreaming of a retirement filled with sunny days, scenic views, and an active lifestyle? Lake Havasu City, AZ, offers exactly that without breaking the bank. Located on the east side of the iconic Lake Havasu, it’s the largest city in Mohave County, with a population of nearly 60,000 and a median age of 53.

Known as “Arizona’s Playground,” Lake Havasu City offers affordable lakefront living, diverse recreation, accessible healthcare, and a vibrant social scene. Let’s explore exactly what makes Lake Havasu City an ideal retirement destination.

Key Takeaways

• Lake Havasu City offers a lower cost of living than many parts of Arizona and the U.S., allowing retirees to enjoy a comfortable lifestyle on a fixed income.
• The city’s lakefront location and desert landscape provide endless opportunities for outdoor recreation, making it ideal for active retirees.
• With historic landmarks, a thriving art scene, and cultural activities, retirees will find plenty to explore.
• Lake Havasu’s strong sense of community and frequent social events ensure retirees remain connected.
• With accessible healthcare, convenient public transportation, and a major airport nearby, the city is a practical retirement option.

Cost of Living in Lake Havasu City, AZ

Affordability is one of the primary factors to consider when choosing a retirement destination, especially for those on a fixed income. Lake Havasu City stands out for its cost of living, which is lower than both Arizona and national averages in key areas such as housing and food.

If you’re interested in homebuying, Lake Havasu City may offer significant savings. Between 2019 and 2023, the median home value in Mohave County averaged $253,200, while the median sales price for the nation averaged $419,200 (the most recent data available). Monthly housing costs tell a similarly promising story, with the median Mohave County resident paying $914, more than 32% lower than the national median of $1,358.

Food expenses in the city are also noticeably more affordable than in many other locations. According to the latest data, the median monthly food cost in Mohave County is just $617, which is $215 lower than the national average of $832.

Note

Given that housing and food are consistently the two highest expenses for retirees—accounting for 35% and 13% of the average annual expenditures for people over 65 in 2023—these savings can have a significant impact.

Healthcare and Accessibility

Access to quality healthcare is essential for retirees, who often require regular medical care. With 391 healthcare establishments and nine hospitals in Mohave County, Lake Havasu City more than satisfies this need. Local retirees can find appropriate medical facilities without having to travel too far, whether they need routine checkups or more specialized treatment.

Reliable transportation is also crucial for retirees, whether for running errands or attending medical appointments. While monthly transportation costs in Mohave County are slightly higher than the national average—$1,199 compared to $1,098 in 2023—Lake Havasu City also offers plenty of affordable and accessible public transportation options.

In addition to standard public bus transportation, that includes shared shuttle services with flexible routes. For example, Lake Havasu City Direct Public Transit provides on-demand rides Monday through Friday between 6:30 AM and 5:00 PM. Seniors and disabled individuals can also reserve dedicated Paratransit trips between 9:00 AM and 5:00 PM. All rides cost $3.00 each way, making it a highly cost-effective option.

If you ever need to travel long-distance, whether for advanced medical care or personal reasons, Harry Reid International Airport (LAS) is 151 miles away, offering connecting flights to many major destinations.

The combination of accessible healthcare, reliable public transportation, and proximity to a major airport can help Lake Havasu City retirees stay independent and well-connected.

Lifestyle and Recreational Activities

If you enjoy an active outdoor lifestyle, Lake Havasu City offers year-round potential for adventure. Lake Havasu itself provides endless opportunities for boating, fishing, and water sports, while the surrounding desert landscape—home to 18 different city and state parks—is perfect for hiking, ATV riding, and exploring.

Beyond outdoor recreation, Lake Havasu City boasts multiple iconic attractions. The London Bridge, relocated from England in the 1960s, is a beloved historical landmark. Meanwhile, the Havasu National Wildlife Refuge is ideal for birdwatchers, home to 318 species, including endangered ones like the Bell’s vireo.

If you’re drawn more to arts and culture, Mohave County features 62 different artistic establishments, including everything from galleries and museums to live music venues. The local community hosts regular events, like the Annual London Bridge Days Parade, creating plenty of social opportunities for retirees moving to the city or looking for new friends.

The Bottom Line

Lake Havasu City is a compelling choice for those seeking an affordable but fulfilling retirement destination. With the county’s housing and food costs well below average, you can easily enjoy a comfortable lifestyle on a fixed income. In addition, its public transportation options and proximity to a major airport make travel readily accessible.

The city’s rich blend of outdoor adventures, cultural attractions, and artistic institutions provide a healthy mix of recreational opportunities. Combined with a vibrant local community that hosts plenty of social events, Lake Havasu City is the perfect place to settle down and enjoy your retirement years to the fullest.