finance

Fact checked by Katharine Beer
Reviewed by Thomas Brock

As a financial advisor, it is your fiduciary responsibility to keep an eye on your client’s investments and be on the lookout for investments that might fail. Learn how to determine if a company is on the verge of bankruptcy or headed for some serious financial difficulties. It’s also a snap to learn how to analyze earnings as well.

Key Takeaways

• Financial specialists place a close eye on a company’s income and cash flows for signs of financial trouble.
• A company that consistently spends more than it brings in, or pays a large share of its income to service debt, could be in financial trouble.
• A sudden change in management or auditing firms could also hint at financial difficulty.

Dwindling Cash or Losses

Companies that lose money quarter after quarter burn through their cash fast. Be sure to review the company’s balance sheet and its cash flow statement to determine how the cash is being spent. Also, compare the current cash flows and cash holdings with the same period in the prior year to determine if there’s a trend.

If the company is burning through cash because of increases in investing activities, it might mean the company is investing in its future. However, if on the cash flow statement, the company is consuming cash in its operating activities as shown by a negative cash from operations, it might be a concern. Also, watch for large increases in cash because the company has sold long term assets which are reflected as cash inflows from investing activities. If they have done this, they have sold a revenue generating asset for short-term cash injections, but future cash flows may be weaker.

Companies should also have retained earnings, which is the money left over after earning a profit for a period. Effectively, RE is the savings account for corporations that accumulate profits over time to be used to reinvest back into the company, issue dividends, or buy back stock. If RE is not increasing or nonexistent, in the absence of dividends and buybacks, the company is either not profitable or barely getting by.

Important

The U.S. WARN Act requires companies of 100 or more employees to file a public notice 60 days before any mass layoff that affects 50 or more workers.

Interest Payments in Question

A company’s income statement will show what it pays to service its debt. Can the company keep losing money and still have enough left to make interest payments? Do the current revenue increases generate enough income to service the company’s debt?

There are metrics and ratios that measure a company’s ability to cover its debt obligations.

The interest coverage ratio, for instance, indicates how well a company’s earnings can cover its interest expenses. Analysts typically look for a ratio greater than 1.5x.

The current ratio (or cash ratio) is another calculation that aids in determining a company’s ability to pay short-term debt obligations. It is calculated by dividing current assets by current liabilities. A ratio higher than one indicates that a company will have a high chance of being able to pay off its debt, whereas, a ratio of less than one indicates that a company will not be able to pay off its debt. The acid-test ratio can also be used, the difference being its exclusion of inventory and prepaid accounts from current assets.

Switching Auditors

All public companies must have their books audited by an outside accounting firm. And while it is not uncommon for companies to switch firms from time to time, abrupt dismissal of an auditor or accounting firm for no apparent reason should raise red flags. It is usually a sign that there is a disagreement over how to book revenue or conflict with members of the management team. Neither is a good sign.

Also, review the auditor’s report which is included in the company’s annual report (the 10-K). Auditors are required to provide a report which concludes whether the information was presented fairly, and accurately describes the company’s financial status, at least to the best of their knowledge. However, if an auditor questions whether the company has the ability to continue “as a going concern” or notes some other discrepancy in accounting practices, specifically how it books revenue, that should also serve as a serious warning sign.

Dividend Cut

Companies that reduce, or eliminate, their dividend payments to shareholders are not necessarily on the verge of bankruptcy. However, when companies go through tough times, dividends are usually one of the first items to go. Management is not likely to cut a dividend unless it’s absolutely necessary since any cut is likely to send the company’s stock price down significantly. As a result, view any dividend cuts or the elimination of a dividend as a sign that difficult times lie ahead.

It’s important to consider other supporting evidence in determining whether a dividend cut is signaling dark times for a company. Namely, watch for declining or variable profitability, the dividend yield when compared to other companies in the same industry, and negative free cash flow. Wise investors are also cautious; make sure that your dividend is not at risk.

Important

Companies that trade on the stock market are required to publish information on their revenues, cash flows, and assets, and liabilities. These disclosures can help determine if the company is in financial trouble.

Top Management Defections

Typically, when things are heading seriously downhill for a company, senior members of the management team leave to take a job at a different company. In the meantime, current employees with less seniority will take the senior executives’ places. If management defections are steady, it’s seldom good news.

Big Insider Selling

The smart money investors, meaning institutional and executive holders of the stock, typically dump their shares ahead of a bankruptcy filing or really difficult times. Be on the lookout for insider selling.

However, during the normal course of business, some insiders may sell the stock from time to time. Essentially, you should pay attention to unusually large or frequent transactions, particularly those that occur in or around the time negative news is released.

Selling Flagship Products

If you were going through some tough times, you would probably tap your savings. And when you went through that, you would probably consider selling some of your assets to raise money. But you wouldn’t sell your personal mementos unless you had to. Well, the same logic applies to a company. So, if you see the company selling off a major division or product line in order to raise cash, watch out!

Cuts in Perks

Companies will seek to make deep cuts in their health benefits, pension plans, or other perks during difficult times. Deep and sudden cuts, particularly when they take place in conjunction with any of the other above-mentioned issues are a sign that trouble may lie ahead.

What Are the Warning Signs of a Corporate Bankruptcy?

There are several metrics you can watch to determine if a company may be headed towards bankruptcy. One of the most important is the current ratio—the value of the company’s assets compared to its liabilities. Debt levels and cash flows are also important signals, since a high debt level may make it difficult for the company to grow over time. If a company repeatedly fails to meet its debt or other financial obligations, it may be facing serious cash flow constraints.

What Are the Warning Signs of a Layoff?

Companies typically lay off workers when they expect a downturn or a cash crunch. They may also conduct layoffs to eliminate redundancies after an acquisition, or due to offshoring. At the level of individual workers, a sudden change in responsibilities or oversight could be a sign that management is preparing to lay off some employees. If a U.S. company has more than 100 employees, it must file a public notice 60 days before performing any mass layoff.

What Do You Do If You Get Laid Off?

The first thing to do after a layoff is to learn your rights. Check your employee handbook and contract (if you have one) to see if there are any required procedures for termination, including the payment of sick leave and time off. Your company may ask you to sign some paperwork—do not sign unless you have a clear understanding of your rights. Companies may sometimes ask for a non-disclosure agreement as an incentive for a severance payment, but they cannot require it, or withhold final payment for any reason. Finally, the last thing to do after a layoff is to file for unemployment.

The Bottom Line

It is not uncommon for companies to hit bumps in the road and have to tighten their belts. However, if a company is tightening that belt excessively, or if more than one of the above scenarios occurs, beware. Watch for these items to be in a news release or the annual prospectus.

Reviewed by JeFreda R. Brown

Investors have a love-hate relationship with stock ratings. On one hand, they are loved because they succinctly convey how an analyst feels about a stock. On the other hand, they are hated because they can often be a manipulative sales tool.

This article will look at the good, the bad, and the ugly sides of stock ratings.

Key Takeaways

• Stock ratings, such as buy or sell, are good because they offer a quick insight into a stock’s prospects.
• However, ratings are the perspective of one person or a group of people and do not factor in an individual’s risk tolerance.
• Ratings are valuable pieces of information for investors, but they must be used with care and in combination with other information.

The Good: Sound Bites Wanted

Today’s media, and investors, demand information in sound bites because our collective attention span is so short. Buy, sell, and hold ratings are effective because they quickly convey the bottom line to investors.

But the main reason why ratings are good is that they are the result of the reasoned and objective analysis of experienced professionals. It takes a lot of time and effort to analyze a company and to develop and maintain an earnings forecast. And, while different analysts may arrive at different conclusions, their ratings are efficient in summarizing their efforts. However, a rating is one person’s perspective, and it will not apply to every investor.

The Bad: One Size Does Not Fit All

While each rating succinctly conveys a recommendation, this rating is really a point on an investment spectrum. There are many other factors to consider, including the investor’s risk tolerance, time horizon, and objectives.

A stock might carry a certain risk, which may not fit the risk tolerance of the investor. Thus, a stock might be viewed differently by different investors.

The Stock Rating Spectrum

Ratings and perspectives change, too, and not necessarily at the same time or in the same direction. Now, let’s examine how things change by examining the history of AT&T Inc. (T) shares.

First, let’s examine how perspectives at one point in time matter. In the beginning (say, in the 1930s), AT&T was considered a widow-and-orphan stock, meaning it was a suitable investment for very risk-averse investors—the company was perceived as having little business risk because it had a product everybody needed (it was a monopoly), and it paid a dividend (income that was needed by the “widows to feed the orphans”). Consequently, AT&T stock was perceived as a safe investment, even if the risk of the overall market changed (due to depressions, recessions, or war).

At the same time, a more risk-tolerant investor would have viewed AT&T as a hold or sell because, compared to other more aggressive investments, it did not offer enough potential return. The more risk-tolerant investor wants rapid capital growth, not dividend income—risk-tolerant investors feel that the potential additional return justifies the added risk (of losing capital).

An older investor may agree that the riskier investment may yield a better return, but they do not want to make the aggressive investment (more risk-averse) because, as an older investor, they cannot afford the potential loss of capital.

Now, let’s look at how time changes everything. A company’s risk profile (specific risk) changes over time as the result of internal changes (e.g., management turnover, changing product lines, etc.), external changes (e.g., market risk caused by increased competition), or both.

AT&T’s specific risk changed while its breakup limited its product line to long-distance services—and while competition increased and regulations changed. And its specific risk changed even more dramatically during the dot-com boom in the 1990s: It became a tech stock and acquired a cable company. AT&T was no longer your father’s phone company, nor was it a widows-and-orphans stock. In fact, at this point, the tables turned. The conservative investor who would have bought AT&T in the 1940s probably considered it a sell in the late 1990s. And the more risk-tolerant investor who would not have bought AT&T in the 1940s most likely rated the stock a buy in the 1990s.

It is also important to understand how individual risk preferences change over time and how this change is reflected in their portfolios. As investors age, their risk tolerance changes. Young investors (in their 20s) can invest in riskier stocks because they have more time to make up for any losses in their portfolio and still have many years of future employment (and because the young tend to be more adventurous). This is called the life cycle theory of investing. It also explains why the older investor, despite agreeing that the riskier investment may offer a better return, cannot afford to risk their savings.

In 1989, for example, people in their mid-30s invested in startups like AOL because these companies were the “new” new thing. And if the bets failed, these investors still had many (about 30) years of employment ahead of them to generate income from salary and other investments. Now, almost 20 years later, those same investors cannot afford to place the same “bets” they placed when they were younger. They are nearer to the end of their working years (10 years from retirement) and thus have less time to make up for any bad investments.

The Ugly: A Substitute for Thinking

While the dilemma surrounding Wall Street ratings has been around since the first trade under the buttonwood tree, things have turned ugly with the revelation that some ratings do not reflect the true feelings of analysts. Investors are always shocked to find such illicit happenings could be occurring on Wall Street. But ratings, like stock prices, can be manipulated by unscrupulous people, and have been for a long time. The only difference is that this time, it happened to us.

But just because a few analysts have been dishonest does not mean that all analysts are. Their assumptions may turn out to be wrong, but this does not mean that they did not do their best to provide investors with thorough and independent analysis.

Investors must remember two things. First, most analysts do their best to find good investments, so ratings are, for the most part, useful. Second, legitimate ratings are valuable pieces of information that investors should consider, but they should not be the only tool in the investment decision-making process.

What Are Stock Ratings?

A stock rating is an assessment tool assigned by an analyst or rating agency to a stock. The rating assigned indicates the stock’s level of investment opportunity.

The rating system can also be used for bonds.

What Is an Investment Analyst?

An investment analyst is a financial professional who has expertise in evaluating financial and investment information, typically to make buy, sell, and hold recommendations for securities. Brokerage firms, investment advisors, and mutual fund companies hire investment analysts to prepare investment research for multiple purposes.

What Are Analysts’ Buy, Sell, and Hold Ratings?

• A buy rating is a recommendation to purchase a specific security, indicating they believe it is undervalued or has significant growth potential. The rating is also known as “strong buy” and “on the recommended list.”
• A sell rating is a recommendation to sell a security or to liquidate an asset, indicating they believe it is overvalued and likely to decline in price. The rating is also known as “strong sell.”
• A hold rating is a recommendation to neither buy nor sell a security, indicating they believe it is expected to perform with the market or at the same pace as comparable companies.

The Bottom Line

A rating is one person’s view based upon their perspective, risk tolerance, and current view of the market. This perspective may not be the same as yours.

The bottom line is that ratings are valuable pieces of information for investors, but they must be used with care and in combination with other information and analysis in order to make good investment decisions.

Reviewed by Eric Estevez

Accounts receivable turnover and inventory turnover are two important ratios used by analysts to measure how efficiently a firm is paying its bills, collecting cash from customers, and turning inventory into sales. These two ratios appear in the current assets category of a business’s balance sheet.

Key Takeaways

• Accounts receivable turnover indicates how effective a company is at collecting on debts owed to it.
• The inventory turnover ratio indicates how well a company turns inventory into sales.
• These ratios vary by industry; some require higher or lower levels to sustain operations.
• These ratios should be compared with industry averages, similar businesses, and periods of time to be useful to investors.

Accounts Receivable Turnover

Accounts receivable turnover, or A/R turnover, is calculated by dividing a firm’s sales by its accounts receivable. It is a measure of how efficiently a company can collect on the credit it extends to customers. A firm that is very good at collecting on its credit will have a higher accounts receivable turnover ratio. It is also important to compare a company’s ratio with its industry peers to gauge whether its ratio is on par.

Inventory Turnover

Inventory turnover measures how efficiently a company turns its inventory into sales. It is calculated by taking the cost of goods sold (COGS) and dividing it by average inventory. Sometimes, sales are used instead of COGS. Again, a higher number is better as it indicates that a company is quite efficient at selling off its inventory more often rather than storing it for longer periods because its products are not selling.

Analyzing inventory turnover helps an investor decide if a company is effectively managing its inventory.

Why Turnover Metrics Are Important

Investors researching businesses that extend credit or that have physical inventory will benefit from analyzing their accounts receivable and inventory turnover ratios. These turnover ratios should be compared with a company’s previous periods because they will not indicate much on their own.

Also, industry averages should be noted, as well as those of competitors and similar businesses, to gauge whether a business is doing better, is on par with, or is doing worse than others.

Accounts Receivable

Accounts receivable turnover is important when companies extend credit to clients for a purchase (note that clients can be other businesses). There are very few industries that operate only on cash; most companies have to deal with credit as well. However, certain businesses may heavily favor cash, such as smaller restaurants or retailers. Large retailers that sell consumables may have lower levels of receivables because many customers pay in cash, debit cards, or credit cards.

Accounts receivable turnover becomes particularly important in industries where credit is extended for a long period of time. This is because collecting outstanding credit can become difficult or take longer than expected, which is a concern for investors. A business that cannot collect on debts owed will face hardships.

One industry in which noting accounts receivable turnover is important is financial services. For instance, CIT Commercial Services (a First Citizens Bank subsidiary) extends credit to businesses and operates a unit that specializes in factoring. Factoring is a financial transaction where one business sells its accounts receivable to another, often at a discount, allowing those businesses to collect on their receivables. Selling accounts receivables, which are, after all, a current asset, can be considered a way to receive short-term financing. In some cases, it can help keep a struggling company in business—investors should note that this is also a ratio improvement tactic.

Inventory Turnover

A firm that doesn’t hold physical inventory benefits little from an analysis. An example of a company with little to no inventory is the travel firm Priceline. Priceline sells flights, hotels, and related travel services without holding any physical inventory itself. Instead, it collects commissions to facilitate travel service sales.

Inventory turnover measures how quickly a firm sells and replaces its inventory over a specific period. Retailers typically have a high volume of inventory turnover.

Supply chain management consists of analyzing and improving the flow of inventory throughout a firm’s working capital system. This supply chain can be analyzed by looking at inventory in different forms, including raw materials, work in progress, and inventory ready for sale.

Understanding inventory and how quickly it is turned into sales is especially important in the manufacturing industry. Auto components, automobile, building product manufacturers, and machinery and metals companies should all turn inventory over at a high rate.

What Is the Relationship Between Accounts Receivable and Inventory?

Inventory and accounts receivable are current assets on a company’s balance sheet. Accounts receivable list credit issued by a seller, and inventory is what is sold. If a customer buys inventory using credit issued by the seller, the seller would reduce its inventory account and increase its accounts receivable.

What Is a Good Accounts Receivable Ratio?

It depends on the industry, but a good ratio is generally on par with or better than industry averages.

What Is Inventory Receivable Turnover Ratio?

There is no inventory receivable turnover ratio, but there is an inventory turnover ratio that indicates how often a company sells and replenishes its inventory.

The Bottom Line

Accounts receivable turnover and inventory turnover are widely used measures for analyzing how efficiently a business manages its current assets. Investors interested in companies that hold inventory, like those in the consumer packaged goods sectors, should place significance on these turnover ratios.

Paid family leave provides workers with income when they’re unable to work due to the birth of a child, among other reasons. It goes hand-in-hand with paid medical leave. The programs offer wage replacement in cases of serious illness or taking care of a loved one who’s suffering from a serious illness as well.

The program is set to expire next year, and the IRS issued guidance for some 2025 transitional changes on January 15. Here’s what you need to know.

Key Takeaways

• The Paid Family and Medical Leave (PFML) Act expires on January 1, 2026, and the IRS has made some changes to accommodate the transition.
• The PFML Act allows employers to claim certain tax breaks when they pay qualified workers who are out on leave.
• Eligible employees can receive up to 12 weeks of paid family leave plus 12 weeks of paid medical leave during the year in which they apply.
• The payments you receive in 2025 will not be subject to withholding.

The programs are provided by states, not by the federal government. Internal Revenue Code (IRC) Section 45S, the Paid Family and Medical Leave (PFML) Act, provides the terms and rules for federal tax treatment of these payments. The Act was initiated on December 31, 2017 and is set to expire on January 1, 2026. Only about one in four (27%) of private sector workers had access to these programs as of May 2023.

The U.S. is the only one of 37 Organisation for Economic Cooperation and Development (OECD) member countries that doesn’t provide a program at the national level. The Internal Revenue Service (IRS) offers employers a tax credit for benefits and contributions made, however.

Changes in 2025

The IRS has indicated that its statement on January 15, 2025, was intended to provide “transition relief” as the PFML Act winds down to its January 1, 2026 expiration. According to the IRS, this relief “is intended to provide States and employers time to configure their reporting and other systems and to facilitate an orderly transition to compliance with those rules.”

The statement applies mostly to tax and reporting requirements for employers, but this provision is important if you’re an employee: “…a state or an employer is not required to withhold and pay associated taxes.” The payments you receive in 2025 should therefore not be subject to withholding. 

The 2025 standard contribution rate is 1% of the employee’s weekly wages. The weekly benefit amount is 80% of their average weekly wages. 

How Paid Family Leave Works

The PFML Act allows employers to claim family leave payments made to employees as an excise tax if the leave program is mandatory and required by their state. Employers can also claim a tax credit equal to a percentage of wages paid to an employee while they’re out on family leave.

Benefits received and employer contributions are considered taxable income that’s been paid to you if you’re an employee so you have to claim them on your tax return. You can deduct your contributions made to the program if you itemize your deductions on your tax return, however. Employer and employee contributions combined must be equal to a standard contribution rate that’s set by the PFML Act annually. It’s a percentage of the employee’s weekly pay.

Eligible employees can receive up to 12 weeks of paid family leave plus 12 weeks of paid medical leave during the year in which they apply. The yearly deadline begins with the application date. Employers must have a written policy in place that provides for at least two weeks of paid family and medical leave and the pay can’t be less than 50% of what they would have earned if they’d been working.

What’s Covered Under Family Leave?

Childbirth is covered under family care along with time off to care for the baby. Adoption and taking in a foster child are covered as well.

Medical leave is covered by the PFML Act. It includes leave for suffering a serious health condition and leave to care for a spouse, parent, or child who is suffering. Deployment-related leave from military service is also covered. 

Important

“Serious” is defined as a condition that requires hospitalization or ongoing treatment by a health care provider.

What This Means for You and Your Baby

You can’t claim both family leave benefits and medical leave benefits concurrently. You’re limited to one or the other if you suffer childbirth complications and must also care for your new baby. You must claim one or the other but you can claim one 12-week period after the first 12-week period has ended.

You must also have worked for your employer for one year or longer to qualify.

Additional or varying requirements and provisions may apply if your state of residence is one of the 13 that have passed family and medical leave legislation as of 2025. New York’s weekly wage cap is 67% of pay as of 2025 compared to 80% as provided for under the PFML Act and employees fully fund it.

The 13 states with family and medical leave policies are:

• California
• Colorado
• Connecticut
• Delaware
• Maine
• Massachusetts
• Maryland
• Minnesota
• New Jersey
• New York
• Oregon
• Rhode Island
• Washington

The District of Columbia has also passed family and medical leave legislation.

The Bottom Line

Having a baby or adding a child to your family is a special time. But it can also bring a major disruption to your finances. If you live in one of the 13 states that provide paid family and medical leave, though, the IRS may have your back in 2025.

Comparing the loan interest saved versus investment gains

Reviewed by Caitlin Clarke
Fact checked by Jared Ecker

The best option for a windfall of cash might be to invest it if a realistic rate of return significantly outpaces the interest being paid on the mortgage. However, there are other factors to consider. The pros and cons of paying off a mortgage early depend on the borrower’s financial circumstances, the loan’s interest rate, and how close the individual is to retirement.

Consider the interest cost that could be saved by paying off a mortgage 10 years early compared to various investment returns earned by investing the money in the market.

Key Takeaways

• Whether paying off the mortgage early is a good choice can depend on your financial situation, the loan’s interest rate, and how close you are to retirement.
• Paying off a mortgage has its benefits, but consider other factors such as the tax deductibility of mortgage interest and low loan rates.
• Investing the money instead may generate higher returns than the loan’s interest cost, but markets also come with the risk of losses.

How Paying off a Home Affects Your Finances

Mortgage payments are made up of two components: interest on the loan and a principal amount that pays down the total outstanding balance. A $1,500 monthly payment might pay $500 toward interest. The other $1,000 will reduce the principal loan balance. Interest rates on a mortgage loan can vary depending on the economy and the borrower’s creditworthiness.

A loan payment schedule over a 30-year period is referred to as an amortization schedule. The payments for a fixed-rate mortgage loan mostly go toward interest in the early years. A larger portion of the loan payment is applied toward reducing the principal in later years.

Assume that you have a 30-year mortgage with a starting balance of $200,000 and a fixed interest rate of 3.50%. It would work out like this.

A larger portion of the fixed monthly payment goes toward paying interest during the first 10 years, but the percentage of the monthly payment that goes toward interest versus principal reverses as time goes on. More than $611 went toward principal while $286.64 went toward interest after 20 years. All but $2.61 of the last monthly payment went toward paying the principal balance.

The portion of the mortgage loan payment that’s applied to principal and interest changes over the years because the loan balance is higher in the early years and smaller in the later years. You’re paying interest on more of a balance in the early years. Less interest is owed as the monthly payments eventually reduce the outstanding loan.

How Much Interest Will You Save?

Some homeowners choose to pay off their mortgages early, and the benefits can vary depending on your financial circumstances. Retirees might want to reduce or eliminate their mortgage debts because they’re no longer earning employment income.

Let’s assume that a borrower has received an inheritance of $120,000. There are 10 years left on their mortgage. The original mortgage was $200,000 at a fixed interest rate over 30 years. This table shows what it would cost to pay off the loan 10 years early and how much interest would be saved based on three loan rates: 3.50%, 4.50%, or 5.50%.

The higher the interest rate, the larger the amount remaining on the loan will be with 10 years left on the mortgage.

Save Interest by Paying Off the Loan

The total interest cost for the 30-year loan would be $123,312 at the 3.50% interest rate. The borrower would save $20,270 by paying it off 10 years early.

Saving more than $20,000 in interest is significant, but the interest amount saved represents only 17% of the total interest cost for a 30-year loan: $103,042 in interest has already been paid in the loan’s first 20 years ($123,312 – $20,270), which accounts for 83% of the total interest over the life of the loan.

How Investing Affects Your Finances

It might be worth considering whether some or all of your money might be better off invested in the financial markets. The rate of return earned from investing might exceed the interest you’d pay on the mortgage over the final 10 years of the loan.

The “opportunity cost,” the foregone interest that could be earned in the market, should be considered. But many factors go into evaluating an investment, including the expected return and the risk associated with the investment. This table shows how much could be earned on $100,000 if the money was invested for 10 years based on four average rates of return: 2%, 5%, 7%, and 10%.

These investment gains were compounded. Interest was earned on the interest and no money was withdrawn during the 10-year period.

Investment Gains Vs. Loan Interest Saved

A homeowner would earn $22,019 based on an average rate of return of 2% if they invested $100,000 rather than use the money to pay down their mortgage in 10 years. There would be no material difference between investing the money versus paying off the 3.5% mortgage based on the $20,270 saved in interest from the earlier loan table.

But the homeowner would earn $62,889 if the average rate of return was 5% for the 10 years. This is more money than the interest saved in all three of the earlier loan scenarios whether the loan rate was 3.50% ($20,270), 4.50% ($28,411), or 5.50% ($37,618).

Important

The borrower would earn more than double the interest saved from paying the loan off early, even with using the 5.50% loan rate, with a 10-year rate of return of 7% or 10%.

Repaying their mortgage rather than investing the money not only saves the borrower the interest they would have paid on the mortgage, but it also frees up money that otherwise would have gone to monthly repayments. This money could also be invested with the same rate of return.

Different Investments Come With Different Risks

Each type of investment comes with its own risk. U.S. Treasury bonds would be considered low-risk investments because they’re guaranteed by the U.S. government if they’re held until their expiration date or maturity. But equities or stock investments have a higher risk of price fluctuations, called volatility, and this can lead to losses.

There’s a risk that some or all your money could be lost if you decide to invest your money in the market instead of paying off your mortgage 10 years early. You would still have to make 10 years of loan payments as a result if the investment loses money.

The stock market can provide sizable returns, but there’s also a risk of sizable losses. Just as taking on more risk can magnify investment gains, it can also lead to more losses so the market risk is a double-edged sword.

A 10% investment gain isn’t an easy goal to achieve, particularly after factoring in fees, taxes, and inflation. Investors should have realistic expectations as to what they can earn in the market.

What the Experts Have to Say

Advisor Insight

Mark Struthers, CFA, CFP
Sona Financial, LLC, Minneapolis, MN

A lot depends on the nature of the mortgage and your other assets. If it’s expensive debt (that is, with a high interest rate) and you already have some liquid assets like an emergency fund, then pay it off. If it’s cheap debt (a low interest rate) and you have a good history of staying within a budget, then maintaining the mortgage and investing might be an option.

Some people’s instinct is to get all debt off their plate, but you want to make sure you always have ready funds on hand to ride out a financial storm. So the best course is usually somewhere in between: If you need some liquidity or cash, then pay off a large chunk of the debt, and keep the rest for emergencies and investments. Just make sure you take an honest look at what you’ll spend and your risks.

What Is Compounding Interest?

Interest “compounds” when it earns interest. Say you invest $100. That money earns you $5 in interest over a period of time. You’ll be paid interest on $105 if you leave that investment untouched because the interest is compounded. Interest earned on interest can magnify investment gains. This should be compared to how much interest you’ll save if you pay off your mortgage.

How Does the Tax Deduction for Mortgage Interest Work?

The interest you pay on a mortgage loan of up to $750,000 is tax deductible on your federal return subject to numerous rules. The limit drops to $375,000 if you’re married and you file a separate tax return.

The loan proceeds must be used to buy or build your main home or a second home, and you must itemize in order to claim this tax deduction. Itemizing isn’t always in a taxpayer’s best interest because they must forego claiming the standard deduction if they itemize. The standard deduction for their filing status can be more money coming off their taxable income than all their itemized deductions combined.

What Are Some Options Other Than Paying Off My Mortgage or Investing?

You might want to establish the security of an emergency fund to hedge against an ailing economy and to pay your mortgage should you experience financial distress. You might want to save for retirement instead, although this involves investing, too, such as in an IRA or 401(k). You could pay off credit card debt that carries a higher interest rate than your mortgage, particularly if your credit card balances are of a significant amount.

The Bottom Line

It’s important to consider the interest rate, the remaining balance, and how much interest will be saved before you decide to pay off a mortgage loan early. Borrowers can use a mortgage loan calculator to analyze the amortization schedule for their loans.

Another important thing to keep in mind is that mortgage interest is tax deductible for many homeowners. Interest paid reduces your taxable income at the end of the year.

Consult a financial planner and a tax advisor before deciding whether to pay off your mortgage early or invest that money. A professional can help you analyze your own personal situation and goals.

Using a home equity loan to buy another house is technically possible if your mortgage company allows it, but that doesn’t mean it’s necessarily advisable. Not only are you incurring more debt, you’re also borrowing against your original home, which means you could risk losing both houses if you’re unable to keep up with payments on the second one. That said, there are situations where using a home equity loan to buy another house could make sense.

Key Takeaways

• Home equity loans can provide you with a large lump sum that can potentially be used for a down payment on another home or to buy a property in cash.
• While home equity loans can unlock some of the value of your home, you still have to repay that loan, with interest and fees, so it’s not free money.
• Using a home equity loan to buy another house can put you at risk of losing both homes if you can’t keep up with payments.

Buying Another House With a Home Equity Loan

If you have a mortgage, you also typically have equity, which is the value of your home minus any debts on it. For example, if you have a $500,000 mortgage on a home valued at $1 million, you would then have $500,000 worth of equity. This amount can often be used as collateral for a home equity loan.

Not to be confused with a home equity line of credit (HELOC), which works more like a credit card, a home equity loan is a lump-sum loan that uses your home equity as collateral. If you can’t pay back the loan for whatever reason, the lender could take possession of your home.

Taking out a home equity loan may appeal to homeowners who want to unlock some of the value of their home without selling it. Typically, you can borrow a significant amount, as your mortgage and home equity loan can add up to around 80% of your home’s total value, depending on lender limits.

So you might consider using the funds from a home equity loan to make a big purchase, such as buying another house for an investment or vacation property. In some cases, you can even use that money to take out a new mortgage on another house, rather than having to buy it in cash, which can give you significant leverage. Using the example above, if you took out a home equity loan based on your $500,000 in equity, you could borrow $300,000 and use that as a 20% down payment on a $1.5 million home.

In some cases, such as when you can comfortably afford the mortgage payments on the new home and just need access to cash for the down payment, this maneuver can be effective. In others, however, using your equity as collateral may increase your exposure to risk and cost more than what’s prudent.

Pros and Cons of Using a Home Equity Loan to Buy Another House

Pros

• Provides access to large lump sum

• Lower borrowing costs than some financing methods

• Gives homeowners the ability to use equity without selling

Cons

• Creates foreclosure risk

• Interest rates are usually higher than for traditional mortgages

• Increases your total debt and monthly payments

Pros Explained

• Provides access to large lump sum: Coming up with the money for a down payment on a second home can take years, but a home equity loan can quickly unlock a large lump sum.
• Lower borrowing costs than some financing methods: While home equity loans usually have higher interest rates than traditional mortgages, these loans do tend to have lower rates than several other financing methods, such as personal loans or credit card advances.
• Gives homeowners the ability to use equity without selling: If your home has gone up in value significantly or you’ve paid down most of your mortgage, you could have a lot of equity. If you don’t want to sell your home yet, you can instead access that money with a home equity loan, though you’ll have to repay what you borrow.

Cons Explained

• Creates foreclosure risk: While it can feel great to unlock the equity in your first home, borrowing against it adds risk. If you can’t keep up with payments on a home equity loan, you could face foreclosure on both your houses.
• Interest rates are usually higher than for traditional mortgages: If you have sufficient savings for a down payment and can get approved for a traditional mortgage, then this may be the more affordable option in the long run, as home equity loans usually have the higher interest rates of the two.
• Increases your total debt and monthly payments: Taking out a home equity loan might unlock some of the equity in your home, but it’s not free money. You have to pay it back, with interest and fees, so it increases your debt and adds to your monthly expenses.

Important

Taking out a home equity loan means taking on new monthly payments. This could make budgeting stressful, especially if you’re still paying off your first mortgage.

Home Buying Alternatives

While it’s possible to use a home equity loan to buy another house, it’s not your only option. Some alternatives include:

Cash

Saving up to pay for a second home in cash—or at least to afford the down payment—allows you to keep the equity in your first home and avoid taking on as much debt.

Retirement Plan Savings

You might be able to use your retirement plan savings to buy a home outright or cover the down payment. However, you need to carefully consider whether this is a good option for you. It might make sense if you’re retired and have plenty of savings, but it might not be a wise move if you’re taking the money out pre-retirement and possibly paying penalties for early withdrawals.

Personal Loan

An unsecured personal loan usually has higher interest rates than a home equity loan, but one advantage is that you don’t have to put your home up as collateral, so there’s not as much at risk.

Cash-Out Refinance

A cash-out refinance replaces your first mortgage with a larger one, with the difference between the two amounts given to you as cash. However, you still have to repay this excess amount, plus interest and fees, and it changes the terms of your original mortgage. So this option might only make sense if you already have a good reason to refinance, such as if you have an opportunity to lower your original mortgage rate.

Home Equity Line of Credit (HELOC)

A HELOC is similar to a home equity loan in that you’re borrowing against the equity in your house, but a HELOC is a revolving credit line. So, with a HELOC, you don’t have to take out the full amount all at once; you might borrow money out for a down payment, for example, and then later take out more for maintenance.

Reverse Mortgage

For those ages 62 or older, one possibility could be taking out a reverse mortgage, which involves getting a lump sum loan that accrues interest but doesn’t require repayment until you leave the home. So this could be an option for seniors looking to buy a vacation home, for example, but be aware that this type of lending product eats into the equity of your first home and could be more expensive than it seems at first glance.

The Bottom Line

Just because getting a home equity loan can provide you with enough cash to buy another house doesn’t mean it’s necessarily the right decision for you. You need to be certain that you can handle the additional debt, rather than treating it like free money. That said, if you can comfortably afford repayments, it could be a good option for unlocking the equity in your home.

If you don’t repay student debt, you can suffer financial consequences

Choosing whether to pursue a higher education is no small decision. College can be expensive, and you may have to take out student loans to cover the costs. However, taking on too much student debt may lead to financial troubles if it becomes too much to handle. Below are nine ways student loan debt may adversely impact your financial health, which include making it harder to purchase a home, lowering your net worth, and hurting your credit score.

Key Takeaways

• Defaulting on your student loans may lower your credit score and lead to wage garnishment.
• Student loan debt can result in a higher debt-to-income (DTI) ratio, making it more difficult to qualify for other types of loans.
• Too much student loan debt may prevent you from saving money or investing in your future.

Delaying or Forgoing Grad School

One of the biggest benefits of having a graduate degree is potentially gaining access to higher salaries. For example, the National Association of Colleges and Employers Winter 2025 Salary Survey found that the projected starting salary for graduates with a bachelor’s degree in engineering is $78,731, while those with a master’s degree in engineering can expect to earn $94,086.

A higher salary would be great in the long term. However, if you’ve already taken on a large amount of debt to put yourself through school once, you might find that taking on additional debt to pursue a graduate degree isn’t something you can afford. As a result, you may have to delay going to grad school or skip it entirely.

When taking out a student loan, compare interest rates to see which type of loan will have a payment that best fits your budget.

Difficulty Purchasing a Home

If you have a large student loan payment that’s eating up a good chunk of your take-home pay, you may find it difficult to save for a down payment in order to get approved for a mortgage.

When you apply for a mortgage, lenders typically check your debt-to-income (DTI) ratio, which represents your total monthly debt payments to your gross monthly income. If you have a high DTI ratio, which can result from having too much existing debt, it may be more difficult to get approved for a loan.

Difficulty Renting a Home

If you have student loan payments, renting an apartment may also be a challenge, especially if you reside in an area where the cost of living is high. Landlords typically run a credit check on prospective tenants to determine whether they’ll be able to afford a monthly rent payment on top of their existing debt. As such, carrying too much debt may result in your rental application being denied.

Decreased Net Worth

Your net worth is calculated by subtracting your liabilities, such as outstanding credit card balances or a mortgage, from your assets, including cash and investments. Student loan debt is considered a liability, meaning it decreases your overall net worth until you’re able to pay it off.

Career Goals Impeded

Student loan debt may adversely impact your career goals. For example, if you carry student loan debt, you may need to prioritize a career with higher pay to afford your monthly payments, rather than working in a different field you’re more passionate about.

Adverse Impacts to Your Credit Score

As with any other type of debt, student loan debt is factored into your credit score. If you’re unable to make your student loan payments on time, it may adversely affect your FICO score, a common metric used to determine your creditworthiness. A lower credit score may mean you pose a higher credit risk, which lowers your creditworthiness in the eyes of lenders and makes it harder to get approved for other lending products, such as mortgages and auto loans.

Additionally, lenders typically charge higher interest rates when you have a lower credit score, meaning you may pay more in interest payments over the life of your loan.

Job Disqualification

Employers may request a background check as part of the job application process. Sometimes,  this can include a credit check, especially if you’re applying for a job in the financial industry.

Under the Fair Credit Reporting Act (FCRA), an employer may obtain a copy of your credit report with your written permission. While your credit report doesn’t reveal your credit score, your employer may be able to see any outstanding student loan debt, in addition to bankruptcies, tax liens, and more. You’ll want to be prepared with explanations as to how you’ll repay your debts, as otherwise the negative information in your credit report may disqualify you from a job opportunity.

Fund Seizure

If you have federally held student loans that are past due for 270 days or more, you’re considered to be in default. Defaulting on your student loans means that the federal government can seize your funds, which may include your tax refunds and future Social Security payments. You could also have up to 15% of your wages garnished until your debts are repaid.

High Risk of Default

Defaulting on your student loans can have other serious financial consequences. A default may lower your credit score and wreak further financial havoc on your life. Plus, if you default on your federal student loans, you won’t be able to take out additional federal loans.

The Bottom Line

Student loan debt shouldn’t be taken lightly. It’s crucial to understand how debt repayment can affect your finances and have a plan to feasibly repay your debt in a timely fashion. Consider your salary prospects for your chosen field carefully before deciding to take out student loans.

Managing student loan debt in 2025 could be especially tough for federal borrowers. Interest rates are near-record highs and Income-Driven Repayment (IDR) plans are in flux. A Consumer Financial Protection Bureau (CFPB) survey revealed that 63% of borrowers said they had experienced difficulty making their student loan payments.

Furthermore, the legality of the new SAVE plan is in court; if struck down, borrowers will need to switch to a more expensive option. Changing plans could increase payments, as updated income documentation might raise monthly bills. And though borrowers can join other IDR plans, current litigation has limited the processing of forgiven loans to just one plan: the Income-Based Repayment (IBR) plan.

During these uncertain times, many feel stressed about the state of their student loans. Here’s my advice.

Key Takeaways

• Federal student loans are undergoing significant changes in 2025, with updates to repayment plans and income-based options.
• Borrowers may be forced to switch repayment plans, which could result in higher monthly payments. 
• Income-driven repayment (IDR) plans are still in flux, and borrowers should know that switching plans may impact their payment amount and long-term forgiveness eligibility.
• Helping clients navigate their choices can provide value, reduce stress, and ultimately save money in the long run.

What I’m Telling My Clients

There are a few steps I’m telling clients with significant federal loans to take:

1. Check Eligibility for IDR Plans

There are currently three IDR plans from which borrowers can choose: Income-Based Repayment, Pay As You Earn, and Income Contingent Repayment. Each plan’s payment is based on a different percentage of income, and the repayment periods before remaining loans are forgiven also vary. The disbursement date of a borrower’s loans can also make a borrower ineligible for certain plans.

2. Calculate Your Payment

Borrowers can input their Adjusted Gross Income (AGI) into calculators available on studentaid.gov to find their payments under IDR plans and traditional options like the standard plan, which pays off loans in full. If an IDR plan is the only feasible option for their budget, they should pursue it.

Tip

Calculate federal student loan repayment options with the Federal Student Aid simulator.

3. Weigh the Benefits of Refinancing

If the loan is paid in full, it should be paid under the most favorable terms. Private lenders may offer more competitive rates, and thankfully, they often show borrowers potential refinancing rates without requiring a hard pull of their credit. Most private student loans also have no origination fees or closing costs, meaning borrowers can refinance multiple times if it benefits them to do so.

The Bottom Line

The coming months may bring confusion and higher costs for student loan borrowers. With rising interest rates and changes to repayment plans, it’s important for clients to stay informed. By helping clients stay proactive and updated on these changes, advisors can guide them through the shifting landscape and find the most cost-effective repayment strategies that suit their needs.

Reviewed by Julius Mansa
Fact checked by Suzanne Kvilhaug

Home staging has become a “must-do” for many sellers, and 81% of buyer’s agents say it makes it easier for prospective buyers to visualize the property as a future home. Staged homes also have historically sold faster and for more money than those that aren’t staged.

Let’s look at the benefits of staging, the costs of having a company stage your home, and why many sellers believe it is worth the cost.

Key Takeaways

• Home staging is the curated furnishing and prepping of a home that is for sale on the real estate market.
• The goal of home staging is to create a believable, clean, attractive living space that buyers can envision living in.
• Proponents say that staging a home can increase a home’s selling price and the likelihood that it will sell quickly.
• You will have to pay the stager as well as pay for the rental of furnishings and home accents while the house remains unsold.
• You can stage your home yourself or rely on some feedback from your real estate agent.

What Is Staging? 

Home staging is a marketing strategy that temporarily refits your home with furniture, art, and other décor to make the visual space more appealing to prospective buyers. The goal of staging is to flatter the property, accentuate the strengths of the home, and help interested parties visualize themselves living in the space.

Good staging companies strive to make over a property without being obvious. A high-quality staging job is beautiful without being obvious, as the intent isn’t to deceive a buyer or have an interested party feel like a staging job is attempting to hide a home’s flaws.

Staging is also practical, as it allows other people to see spaces and how they may be used. Using furniture and property that you don’t own, staging companies can demonstrate how awkward spaces can be best used, what pieces go well in what areas, and how to most efficiently lay out a room.

How Home Staging Works

Home staging isn’t putting a bunch of fancy furniture in your home. It’s a deliberate marketing strategy with specific objectives that drive higher real estate prices. Home staging may be more appropriate for home sellers who think they may benefit from any of the following improvements. Home staging:

• Makes your home look clean and organized
• Strives to make rooms look bigger
• Makes your home feel more welcoming
• Uses maximum space, adding functionality to each room and corner
• Modernizes your living space through new, creative furnishings
• Depersonalizes your home and attempts to have the buyer imagine themselves in the space

Home staging companies often have a number of requirements and clauses in their contracts. Make sure you’re aware of whether they require all utilities to be connected, what notification periods are needed, and what cleanliness requirements they have prior to staging.

Benefits of Staging

Sellers often pursue home staging for several specific benefits. For one, staging makes it easier for potential buyers to see themselves in the home. Instead of having an empty space, staged homes have dining rooms, bedrooms, and other personal settings arranged for buyers to see and imagine themselves in.

Staged houses also have the benefit of appearing clean. Staging companies own a plethora of furniture and goods, and they often ensure all property is maintained and looks professional. A staged home reduces clutter, removes personal items of the seller, and likely involves cleaner furniture than what the seller owns.

A stager can help with your online listing, too, as 96% of home buyers use the internet during their home search. That means your home had better show really well online. Staging and photos by a professional can help create a beautiful digital marketing portfolio that entices buyers without needing them to visit the physical space.

Staging is used to demonstrate that a home is move-in ready. By showing that the house can be set up and livable, staged homes are often more appealing to buyers, as they may come across as needing less repair or maintenance.

How Staging Affects Time on Market

The Real Estate Staging Association (RESA) has a staging savings calculator that lets you figure out how much time and money (mortgage payments, carrying costs, months on market when not staged, staging fee, etc.) you save if you stage your home before listing it.

The organization found that homes that hadn’t been staged before listing sat on the market for an average of 143 days. Once these homes were staged, they sold in 40 days. In addition, homes that were staged pre-listing averaged just 23 days on the market. Though every market and property is different, a home is more likely to sell faster if it is staged.

Note

Timelines will vary greatly between markets, especially during busier or slower seasons. In general, an average home can be staged in one to two days. It’s advised to contact a stager at least two to three weeks prior to a listing to ensure ideal inventory is on hand for your home.

How Staging Affects Sale Price

Staging a home also affects the sale price. According to the National Association of Realtors (NAR), 20% of buyers’ agents said that home staging raised the dollar value offered by between 1% and 5% compared with homes that hadn’t been staged. Fourteen percent of agents believe home staging increased the dollar value offer between 6% and 10%.

Downsides to Staging

The obvious downside to home staging is the cost. It’s important to note that whatever you spend, you are incurring an optional expense that isn’t mandatory to sell your home.

You may encounter the issue of needing to store your belongings in preparation of a stage. Staging companies will often require that your items be removed before the temporary furniture is brought in. If you’re not quite at the stage of having a new home lined up, you may be forced to expedite packing and incur additional costs to have your goods held off-site.

While staging may mask or cover some of your home’s flaws, it doesn’t fix them. In addition, it may even call attention to deficits of your home, depending on how it’s staged. For example, you may have used furniture to cover poor paint jobs or scratches on the walls or floor. Staging companies often use a minimalist approach that may not cover all of the blemishes you once hid.

Staging often gets your house off the market faster. However, it also takes longer to get staged homes onto the market. In addition to removing all your belongings, coordinating with a staging company takes planning. You may also decide to undertake repair and maintenance based on how a staged product will appear.

The Cost of Staging

The cost to stage a home is very specific to geographical location and individual real estate markets. In addition, staging expenses will vary throughout the year, as companies will be more in demand during the peak selling season. While you might be able to secure a contract, you may be faced with being charged a premium.

According to HomeAdvisor, the national average home staging cost is $1,776. Homeowners typically pay between $784 and $2,812, though full furniture rentals for extended periods can cost at least $2,000 per month.

Warning

Home staging can be done while you are still living in the house. However, you may be contractually obligated to keep your home clean and be responsible for any damage to the temporary furnishings while you’re temporarily occupying the space.

Ways You Can Stage Your Home

Consider the design skills, time, and energy that staging will require and be realistic about whether you could undertake the task yourself. Professional companies have expertise and inventory, but many sellers design the layout of their home themselves and use the furniture they already own.

According to a 2023 NAR report, staging the living room was found to be most important for buyers (39%), followed by the primary bedroom (36%), and the kitchen (30%). 

You also can opt for your real estate agent to help stage your home, though it’s traditionally not within their role to do so. Your real estate agent is motivated to sell your home as quickly as possible for as much as possible, they so may have recommendations based on what they’ve seen work on other listings.

Unlike some professions, there is no official licensing entity and no licensing exam for staging. Just about anyone can call themselves a stager, so the best way to find a good one is to get referrals from a seller you know who has used and found success with a particular stager, or from your broker. A good broker will have connections to good stagers. 

What Is the Process of Staging a Home?

If you hire a staging company, the company usually will require you to remove your belongings from the property. They often will take a tour of your property, take measurements, and work with your real estate agent to get information about your home. The company will then deliver furniture and high-end accessories to your home, stage your property, and remove the furnishings at the end of your agreed-upon contract.

Is Home Staging Worth It?

For many, home staging results in a higher selling price and a quicker home sale. There are downsides to home staging, such as creating more work prior to listing and ancillary costs like storing your property, but these downsides are often outweighed by the benefits of staging.

Is It Better to Sell a Home Staged or Empty?

Every market and property will have different strategies. In general, it is often best to stage a home to maximize bid prices. If you are looking to sell a property quickly, be mindful that there is considerable planning and coordinating required before listing and staging, so selling a home empty may be best in some situations.

How Can I Stage My Own Home?

Should you choose to stage your own home, it’s most often advised that you begin by simply cleaning and de-cluttering your space. This includes performing cosmetic repairs and maintenance on both the interior and exterior of your home. Remove personal items that make it more difficult for buyers to envision themselves living in your home. Consider borrowing furniture from friends or family.

The Bottom Line

The staging by a professional—someone who has a great track record in the business—can result in a higher selling price for your home. For many, having a professional bring in their expertise and furnishings leads to a more successful home-selling experience and often makes the cost of staging pay off with a higher selling price.

Reviewed by Amy Soricelli

Globalization continues to reveal how interconnected and important business relationships across nations can be. These relationships usually involve different languages.

Shifts in economic strength can determine which languages are essential to know to engage in and capitalize on international business opportunities.

Though it may be difficult to project exactly how learning a second language might impact your earnings, there is little doubt that speaking more than your native tongue can help to improve your employability.

Here are eight languages that can play pivotal roles in domestic and/or international business dealings.

What You Need to Know

• Fluency in two or more languages can broaden your income-earning potential.
• Spanish is the second-most commonly spoken language in the U.S., after English.
• With China’s standing in global trade, Mandarin could be an asset to job-seekers.
• Knowing American Sign Language (ASL) could enlarge the customer base of any business.
• Russian and Arabic are valuable languages to know since relations between the U.S. and those regions are often in flux and a clear understanding and communication of needs and goals is indispensable.

1. Spanish

Spanish is the second-most commonly spoken language after English in the United States. In fact, it’s the most popular second language that’s taught in the U.S.

For this reason, your ability to speak Spanish could be a valuable asset for your job search at any company (and in various industries) in the U.S. whether or not it serves the Spanish-speaking community exclusively or as part of its overall customer base.

Supply and demand apply. If you’re in the running for a job and up against a large number of people who can also speak Spanish, your resume probably won’t stand out if that’s your only point of differentiation.

So build on the other assets you bring to the table, such as an interest in and ability to strengthen cultural, social, and business ties between people.

Depending upon your career goals, Spanish is definitely a solid second language to learn in North America, due to the populations of North, Central and South America that speak and use it regularly.

2. French

As many Canadians know, a large number of people who speak French reside in North America and in nations and territories worldwide.

Parts of Canada use French as the primary language of communication. For this reason, Canadians and job seekers in the nearby U.S. might wish to become proficient in French. since it is a requirement of many jobs within the Canadian government.

Additionally, France is a key player within the eurozone, with many representatives of the country holding key positions within the International Monetary Fund (IMF), the United Nations, NATO, UNESCO and a number of other international organizations.

3. Mandarin

China is one of the world’s largest trading nations and, in fact, usually tops the list. As a result, the demand for Chinese-speaking businesspeople has grown.

Therefore, learning the language could set you apart from other job applicants for a variety of jobs in a choice selection of industries, including government work.

Mandarin is the official and most widely spoken language in China, though there are a number of other Chinese dialects that are also spoken within the country.

In addition, Mandarin is one of the official languages of the United Nations.

Note

Research revealed that 40% of employees who speak more than one language felt that having the ability to speak a foreign language contributed to their success at getting a job. In addition, they earned 19% more than employees who spoke just one language.

4. Arabic

As interaction between the Middle East and the rest of the world grows, and the region’s economic strength becomes more apparent, the demand for Arabic language skills has increased. The upheaval in the region also requires clear communication between countries.

Arabic is one of the six official languages of the United Nations and is the native language of over 25 countries and semi-autonomous regions.

There is a shortage of people in North America who can speak Arabic, so skills in this language are in short supply while the demand for proficiency grows.

Fluency in Arabic would be a highly valuable skill whether you seek work in the private sector or the government.

5. American Sign Language

Research shows that as many as 37.5 million people in the U.S. age 18 and above suffer from some degree of hearing loss.

Based on this figure alone as well as on the idea of communicating on an everyday basis with those with such loss, learning American Sign Language, or ASL, could prove to be a useful skill to add to your resume.

In addition, though, earning ASL could open up job opportunities as an interpreter in business or government work.

And it may simply provide you with an important edge when applying to a company that makes a strong effort to support minority groups within the workforce.

6. Russian

It is estimated that there are 258 million people worldwide who speak Russian. Though the majority of them may live within Russian borders, there are many who do not.

Other Russian-language speakers reside within many former Soviet republics, such as Ukraine, Latvia and Kazakhstan.

Russia’s economy continues to grow and strengthen. It has become increasingly involved in international trade, making this an appealing language to those pursuing careers in international business.

Russia’s land is rich with resources that many organizations worldwide seek to reap the benefits of. So relationships with the country need to be initiated, fostered, or strengthened.

Take note of the country’s challenges, such as international sanctions imposed for various reasons, including human rights abuses and Russia’s invasion of Ukraine in 2022.

But business relations can always improve and in the meantime, the essential need to communicate for business, governmental, and humanitarian reasons remains.

Note

Just 10% of people in the U.S. speak a language other than English proficiently. As of 2022 in the EU, in addition to their native languages, approximately 75% of working-age adults spoke at least one foreign language (and up to three).

7. German

Despite periods of weakness, the German economy historically has been one of the strongest and most stable within the European Union.

So the ability to speak German provides a significant advantage to anyone wanting to pursue international business within the eurozone. Additionally, German is the most widely spoken language within Europe.

Not only is Germany one of the most populated countries within Europe, there are also large numbers of German-speaking people in the nearby nations of Austria, Belgium, Denmark, Holland, Liechtenstein, Luxembourg and Switzerland.

8. Portuguese

Although demand for fluency in Portuguese may not currently match that for Spanish, the need for this language is certainly growing.

Portuguese is the official language of Brazil, a developing nation within South America. Broadly speaking, the international community’s economic interest in Brazil (and South America’s other developing and emerging economies) continues to grow. This has fueled the increasing demand for Portuguese speakers.

In fact, having the ability to speak Portuguese may provide a greater benefit than Spanish, since there are fewer individuals who speak it fluently.

Where Do I Go to Learn a Foreign Language?

Some people may prefer in-person instruction. Others may feel that online courses work best for them. Search for language schools in your geographic area or online. Colleges and high schools also may offer classes to adults. If you travel abroad, consider taking language courses in the country where your language of interest is spoken. It can be a valuable way to get an immersive language learning experience. Online language platforms such as Rosetta Stone, Babbel, and Duolingo are highly rated and may offer a convenient learning option.

Can Knowing a Foreign Language Get Me a Government Job?

It can certainly give you an advantage as a job seeker. Government at the federal, state, and local levels requires multilingual workers. An interest in international affairs could open up greater job potential because such jobs are offered in many states. One recruiting site states that the average Foreign Affairs Specialist salary per year in the U.S. is $95,411, as of Feb. 20, 2025.

What Types of Government Roles Are Available for People Who Speak Foreign Languages?

There is demand for people in diplomatic, administrative, sales, marketing, tech, and various other roles who can serve in foreign consulates, support trade negotiations for U.S. states or the federal government, function as translators, take civilian jobs in the military, and aid intelligence agencies.

The Bottom Line

Learning a second language is sure to provide you with one or more benefits in the workplace. At the very least, it can give you an edge in the minds of hiring managers and recruiters alike.

When selecting a second language to learn, carefully consider exactly what it is that you hope to gain from your effort.

Is the language intended to help you to get a job in international business? Do you want to retire and work overseas? Do you aspire to become an interpreter, or does your nation require a second language to work in government?

Let the answers to these questions guide your choice.