money

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.

Fact checked by Vikki Velasquez

Retiring at 45 with $500,000 is an ambitious goal. However, under the right conditions, it’s possible. If that is your intention, the sooner you start planning, the better.

Key Takeaways

• Retiring at 45 with $500,000 is possible but requires a well-planned financial strategy.
• To make it work, you need to keep a close eye on living expenses, especially healthcare costs.
• Safe withdrawal rates, like 4%, help ensure your portfolio lasts throughout retirement.
• You may need to supplement your retirement savings with passive or part-time income.
• Inflation and the tax efficiency of your portfolio also matter.

Step 1: Understanding Your Retirement Expenses

Let’s start on the expense side. In order to retire at 45 with $500,000, you have to understand what your monthly and ongoing expenses will be. A good starting point is to categorize expenses into fixed (e.g., rent, mortgage, property taxes) and variable (e.g., travel, entertainment, dining out).

Another thing to keep in mind is how expenses evolve over time. Healthcare costs tend to rise with age, and unexpected costs like home repairs may be more likely the longer they are delayed.

In 2022, the latest survey data is available, the Bureau of Labor Statistics found the total average household expenses for retirees was $54,975. Healthcare expenses were about $625/month, housing costs were about $932/month, and transportation costs were about $672/month.

Step 2: Understand the 4% Rule

The 4% rule is a commonly used guideline in retirement planning, suggesting that withdrawing 4% of your portfolio annually should provide financial security for at least 30 years. The guideline helps retirees understand the long-term implications of their drawdowns.

If applied to a $500,000 retirement balance, this would equate to a roughly $20,000 annual withdrawal. Looking back at Step 1, this would hardly cover half of the expenses of an average retiree. However, your expenses may be different. In addition, in the next step, we’ll look at ways to bridge any shortfalls.

Note

If you begin collecting Social Security at age 62, you’ll only be entitled to 70% of your benefit. If you wait until age 64, you’ll get 80%. If you wait until age 67, you’ll get 100%.

Step 3: Filling in Any Gaps/Shortfalls

Not all hope is lost if your expenses from Step 1 exceed the 4% rule guidance in Step 2. First, your portfolio can still grow in retirement. Let’s say you withdraw 4% of your $500,000 portfolio in your first year of retirement. If your portfolio generates a 10% market return, you’d end the year with $528,000. In theory, you’d be able to draw more next year, though these returns may not always be possible or guaranteed.

Another option is to consider other passive income opportunities. If you own your house, perhaps you can generate rental income. If you have specific talents, you can generate future royalties from intellectual properties. In this sense, you’d be retired but still collecting income to cover expenses from Step 1.

Yet another option is not a full-on retirement. Even earning a small amount can significantly improve your savings outcome. Assume a 3% inflation rate (which we’ll talk about later), a market that returns 7%, and a portfolio starting balance of $500,000. After 30 years:

• Withdrawing at a 6% rate would deplete the fund before 30 years. The “balance” at year 30 would be -$82,617.
• Withdrawing at a 4% rate would allow the fund to grow. The balance at year 30 would be $1,213,631.
• Withdrawing at a 2% rate would allow the fund to grow even more. The balance at year 30 would be $2,509,879.

A Note on Inflation

Inflation erodes purchasing power over time, meaning that a $500,000 retirement balance today won’t have the same value in 20 or 30 years. Discounted to its present value, $500,000 in 30 years is worth only about $206,000 in today’s dollars.

This is an underappreciated aspect of retirement planning. If you have a monthly expense of $100 today, that charge will be $134.39 ten years from now (assuming a 3% inflation rate). You need to be mindful of not only what your expenses will be but also how they increase year over year.

For instance, in 2024, due to a variety of reasons, the price of eggs rose 36.8%, much more than the 2.9% overall inflation from December 2023 to December 2024.

A Note on Tax Efficiency

Let’s also touch briefly on the tax efficiency, as not all $500,000 retirement balances are created equal. A Roth IRA is a tax-sheltered retirement vehicle that houses contributions that have already been taxed. Earnings grow tax-free, so very generally speaking, there’s usually no tax liability when withdrawing from that $500,000.

However, earnings are taxable in a traditional IRA. Let’s say half of your $500,000 is growth (not direct contributions) and your tax rate is 10%. This means $25,000 of your portfolio will go straight to taxes. Should your portfolio appreciate at all, those future earnings will also be taxable. Though retired, you may still be generating taxable income (under Step 3), bumping you into a higher tax bracket.

One very important note here: there are many eligibility rules for tax-advantaged account withdrawals. You likely won’t be able to pull earnings until 59½ years old, meaning you might have a roughly 15 year gap between when you retire and when a bulk of your savings may be available.

A Note on Medical Expenses

Even if you’re a very healthy 45-year-old, there are medical considerations to keep in mind. According to American House Senior Living:

• An individual between age 65 and 74 will spend an average of $13,000/year on healthcare.
• An individual between age 75 and 84 will spend an average of $23,000/year on healthcare.
• An individual 85 years old or greater will spend an average of $40,000/year on healthcare.

Perhaps partially due to inflation and partially due to needing generally more healthcare services in general, people are spending more on healthcare. A 2024 study by Fidelity revealed a 65-year old will spend twice as much on healthcare compared to what would have been spent in 2002.

The Bottom Line

Retiring at 45 with $500,000 is possible but requires careful planning. Start by knowing what your expenses will be and how they compare with the industry guidance of 4% annual drawdowns. You can also take steps to mitigate the impacts of inflation, increase the benefits of tax efficiency, and plan for escalating costs like healthcare costs.

Reviewed by Thomas Brock

There are a wide variety of markets in which one can invest money. The main markets are stocks (equities), bonds, forex (currency), physical assets, and derivatives.

Furthermore, within each of these types of markets, there can be even more specialty markets.

Key Takeaways

• The stock market allows investors to buy and sell shares of ownership in publicly traded companies.
• Governments, companies, and financial intermediaries use the debt market to issue debt instruments (including bonds) to raise capital.
• In the forex market, investors speculate on changes in the exchange rates between currencies.
• Physical asset investments are the purchase of assets such as metals, jewelry, real estate, and cattle.
• Derivatives are securities that derive their value from an underlying asset (stocks, interest rates, currencies, or physical assets).

Stocks

The market that is most familiar to the average investor is the stock market. This market allows investors to buy and sell shares of ownership in publicly traded companies.

Money is made in this market in two main ways. The first is through capital gains, in which the value of each share increases in value. The second is through dividends, in which companies pass on income to investors.

Bonds

The debt market is used by governments, companies, and financial intermediaries to issue debt instruments to raise capital. The debt issuers then make regular payments to debt holders in the form of coupon payments and, once the debt matures, pay back the principal on the debt.

The most common types of financial instruments issued in this market are:

• Bonds
• Bills such as Treasury bills (T-bills)
• Notes
• Certificates of deposit (CDs)

There are also more exotic types of debt, including mortgage-backed securities (MBS) and collateralized debt obligations (CDOs).

Foreign Exchange (Forex)

The forex market allows investors to speculate on changes in the exchange rates between currencies. Investors will purchase one currency by selling another in the hope that the currency they purchased goes up in value compared to the one they sold.

In this market, because the moves between currencies are generally small and investments are shorter-term, a lot of leverage is used. Some forex brokers allow leverage as high as 500:1, which means that you can control $500 for every $1 you invest.

Physical Assets

Investment in physical assets is essentially the purchase of assets such as metals, jewelry, real estate, cattle, and much more. In this market, investors hope that the price for which they can sell an asset is more than what they paid for it.

The risks and costs associated with this type of investment will differ with each type of physical asset. For example, there can be holding fees on gold, and if you own cattle, the cost of caring for them is considerable.

Derivatives

The last major type of investment is an expansion of all of the above types of markets. Derivatives are securities that derive their value from an underlying asset such as a stock, interest rate, currency, or physical asset.

Investors in these types of securities can go long or short on the underlying asset and can purchase either the right or obligation to purchase or sell it. As the value of the underlying asset changes, the value of the derivative changes as well.

The major types of derivatives are options, futures, or forwards.

What Are Some Values for Each Investment Option?

The market capitalization of U.S. stocks is expected to reach almost $55 billion in 2025. The United States issued $385.1 billion in long-term municipal bonds alone in 2023, the most recent data available. The foreign exchange (forex) market will be worth an estimated $838.54 billion in 2025. Total investment in physical assets is not available as a figure, but one report estimated global investment in real assets like infrastructure, natural resources, and real estate at around 25% of total investment portfolios in 2024. The global total value of derivatives outstanding was estimated at $729.8 trillion on June 30, 2024, the most recent data available.

What Are Some Safe Investments Among Each Investment Option?

Low-risk investments among stocks, bonds, forex, physical assets, and derivatives include preferred stock, CDs, Treasury securities (T-bills, T-notes, and Treasury Inflation-Protected Securities or TIPS), AAA investment-grade bonds, bond funds, and municipal bonds.

Which Investment Usually Has the Highest Returns: Stocks, Bonds, Forex, Physical Assets, or Derivatives?

The U.S. stock market is considered the source of the greatest returns for investors. It has outperformed all other types of investments over the past century. However, it’s important to note that those high returns depend on a long investment time horizon, as shorter investment periods carry greater risk due to the higher volatility of stock prices.

The Bottom Line

When choosing whether to invest in stocks, bonds, forex, physical assets, or derivatives, or some combination of them, the most important factor is your risk tolerance. As noted above, stocks generally carry the highest returns but come with higher risk. Bonds are traditionally considered more conservative with lower returns. Forex, physical assets, and derivatives can vary in risk depending on your investment strategy and market conditions.

Always do your research before picking your investments, and consider meeting with a financial advisor to determine the best mix for your situation.

Pay inequality has gradually lessened, but biases delay progress

Reviewed by Michelle P. Scott
Fact checked by Pete Rathburn

Women have not been paid equitably for their work, relative to men’s pay, for over a century. Laws have been passed in the U.S. prohibiting this type of discrimination, which has led to progress in closing the gender wage gap between men and women. But the results haven’t been equally felt by all women.

A substantial race-based income inequality exists in the U.S. primarily as a result of the intersectionality between the gender wage gap and wage gaps by race. LGBTQ+ people also face pay gaps.

These issues have come to the fore in early 2025 because several of President Donald Trump’s executive orders call for the dismantling of diversity, equity, and inclusion (DEI) programs in the public and private sectors.

Key Takeaways

• Women have typically earned less than men for doing the same type of work.
• Women of color, regardless of education, are often channeled to lower-paying jobs compared with White women operating at a similar skill level.
• LGBTQ+ individuals must also contend with the gender wage gap, in addition to facing a pay gap for their gender identity and/or sexual orientation.
• Though laws have been passed to address the gender wage gap, many factors and biases continue to enable its existence.

The Gender Wage Gap: A Long History

The wage gap between men and women has a long history. Those who know about Rosie the Riveter are likely well aware that during World War II, American women entered the workforce en masse, often into traditionally male-dominated fields, as men left to fight overseas. But this wasn’t the first great American war for which women stepped up to attend to needs on the home front.

During World War I many women took over for the men who fought in the “Great War.” When these new workers realized they were going to be paid less than a man for the same labor, several strikes ensued. During WWII demands for wage equality returned in force, with trade unions and women’s organizations becoming more heavily involved.

It took some 20 years for these demands to bear fruit with actual laws. The first was the Equal Pay Act of 1963, which included the requirement that men and women receive the same pay for “substantially equal” work in the same workplace. A year later Title VII of the Civil Rights Act of 1964 expanded on this legislative groundwork by banning compensation discrimination due to “race, color, religion, sex, and national origin.”

However, it took 46 years—and a Supreme Court dissent by Supreme Court Justice Ruth Bader Ginsburg—before the passage of the Lilly Ledbetter Fair Pay Act in 2009, which provided that every discriminatory paycheck, not merely the employer’s initial pay decision, constituted a new discriminatory act for which the worker could file a claim and recover up to two prior years’ worth of back pay.

Understanding the Wage Gap

According to the “Cambridge Dictionary,” a wage gap is “the difference between the average pay of two different groups of people.” The gender pay gap, as defined by the Organisation for Economic Co-operation and Development, is “the difference between median earnings of men and women relative to median earnings of men.”

According to the latest U.S. Census data, women on average earned less than 83 cents for every dollar earned on average by men in 2023. That’s a 17-cent difference with a notable impact. Working women collectively earned nearly $1.7 trillion less than men in 2023, according to the National Partnership for Women & Families, which analyzed Census Bureau data.

Gender wage gaps can be attributed to a multitude of often-overlapping elements. For instance, although differences in education or geographic location do contribute to wage inequality, gendered pay gaps still persist in their absence. Additionally, many of the potential contributing factors that might seem independent of a worker’s gender—such as differences in experience or hours worked—can be the results of societal gender bias.

Traditional gender role expectations establish housekeeping and parenting as the primary responsibilities of women, which can leave them with fewer hours available to work and less industry experience than men. Benefits such as paid family leave and affordable childcare encourage mothers to return to work. But as of 2023 only 27% of civilian workers had access to employer-sponsored paid family leave. Additionally, persistent income inequality based on factors other than gender can limit which groups of women are able to afford services such as childcare.

Intersection of Race and Gender

The 17-cent wage gap isn’t experienced equally by all women; some women make even less as a result of additional discrimination against other demographic characteristics. In the fourth quarter of 2024, for example, Black and Latino/Latina women both had lower weekly median incomes than White women, with Latino/Latina women earning the least of any group. But Asian women had a higher weekly median income than White, Black, and Latino/Latina women for this period. They also earned more than White men, though women across all four of these racial groups earned less than men of their same race.

This wasn’t always the case. Between 2000 and mid-2019, although Asian women earned more than all other women, they had a lower weekly median income than White men. Asian men were the only demographic to earn more than White men in both the fourth quarter of 2024 and from 2000 to 2021.

These statistics, however, rely on average values and don’t paint an exact picture. For example, not all Asian American women earn more than White men: In 2022, for every dollar earned by White men, Filipino American women earned 79 cents, Native Hawaiian women earned 61 cents, Tongan American women earned 52 cents, and Nepali American women earned 48 cents.

Gendered Opportunity Gaps

Education reformers refer to an opportunity gap as “the ways in which race, ethnicity, socioeconomic status, English proficiency, community wealth, familial situations, or other factors contribute to or perpetuate lower educational aspirations, achievement, and attainment for certain groups of students.” Outside of the education field, the same basic concept also applies to the obstacles workers face as a result of their demographic characteristics.

Teachers and other kinds of mentors often point to the importance of networking, which provides participants with a kind of social capital (i.e, a positive product of human interaction for a person’s career). Having friends, family members, or other social connections in high places typically makes securing job opportunities much easier. Because this social capital isn’t evenly distributed, it creates an opportunity gap.

Myriad other factors contribute to the overall opportunity gap. One of the more prominent is what’s known as “occupational segregation,” which is “a group’s overrepresentation or underrepresentation in certain jobs or fields of work,” as the Washington Center for Equitable Growth puts it. In 2020 the Center found that fields dominated by men tend to be higher-paying ones, regardless of skill or education level, a finding that was echoed in a 2024 study by the Federal Reserve Bank of Philadelphia.

Meanwhile, societal pressure and structural sexism may influence the career paths that some women take. In particular, Black and Latino/Latina women, regardless of education, are often concentrated in lower-paying jobs compared with White women operating at a similar skill level. For instance, a 2021 study by the Pew Research Center indicates that most women of color continue to have much lower representation in lucrative STEM careers.

In addition, sexism and misogyny still exist in the job market. Even though the Equal Pay Act made gender-based discrimination illegal, it can still be commonplace. Employers may continue to discriminate by relying on a person’s salary history during hiring, which perpetuates pay disparities. To thwart discrimination, 21 states in recent years have banned the practice of employers asking job candidates about their salary history.

If you believe that you are being paid less than your coworkers because of your race, color, religion, sex, national origin, age, or disability, you can file a complaint with the U.S. Equal Employment Opportunity Commission (EEOC). The complaint process is detailed on the agency’s website.

Transgender and Nonbinary Wage Gap

In addition to facing discrimination for their gender identity and/or sexual orientation, LGBTQ+ individuals may also contend with wage gaps for their identities. The intersection of these two socioeconomic divides can result in unique circumstances for workers outside the gender binary. For instance, the Human Rights Campaign reports that transgender men and women made 70 cents and 60 cents, respectively, for every dollar the “typical worker” (e.g., the median wage for all workers in the United States) earns. Additionally, a 2008 study found that the average earnings for transgender women fell by approximately 32% after transitioning. Conversely, the average earnings for transgender men actually increased post-transition, albeit only by 1.5%.

Several transgender men in the same 2008 study reported gaining additional authority and respect at work following their transition. Other researchers found that transgender women had trouble maintaining employment, with more recent data indicating that many leave high-paying jobs for lower-paying ones due to workplace discrimination. Some transgender men, however, have reported having trouble being accepted at work, particularly if they lacked an “undisputed masculine appearance.”

The 2022 U.S. Transgender Survey found that more than one third (34%) of transgender individuals were experiencing poverty. It also found that 11% of respondents who had a job in the previous year were fired or forced to resign, lost the job, or were laid off due to their gender identity or expression. And the unemployment rate among the survey respondents was 18%.

The Human Rights Campaign also found that nonbinary, genderqueer, genderfluid, and two-spirit workers made 70 cents for every dollar the typical worker earns. In terms of the opportunity gap, a 2016 study found that nonbinary individuals assigned male at birth typically faced hiring discrimination, while those assigned female at birth more often experienced discriminatory treatment within their workplaces. Additionally, nonbinary people as a whole were more likely to have been denied a promotion, though they generally have fared better than transgender women.

Note

Research on the pay gap LGBTQ+ Americans face is relatively scarce, particularly when it comes to addressing diversity within the community, which is due in part to a lack of federally-collected data. The 2020 Census, for example, was the first U.S. Census Bureau survey to collect data on same-sex couples, but it only did so on those living together. This was the only question that addressed the LGBTQ+ demographic.

The Effect of Sexual Harassment

Although inappropriate sexual remarks and physical advances in the workplace are prohibited by Title VII of the Civil Rights Act, much like the wage gap itself, sexual harassment is still commonplace. Though experiencing it isn’t exclusive to women, it disproportionally affects them. The U.S. Equal Employment Opportunity Commission found that approximately 83.7% of the 6,201 sexual harassment charges filed in 2022 were filed by women, compared with 16.3% filed by men.

Sexual harassment can not only emotionally harm a woman, it may also negatively impact her earnings. For instance, a fact sheet published in 2023 by the National Partnership for Women & Families found that women in workplaces where sexual harassment isn’t reported may be less comfortable negotiating salaries and raises. Incidents of sexual harassment in the workplace often go unreported due to fears of retaliation, termination, or inaction. In a 2018 Morning Consult survey, 46% of women who reported sexual harassment to their bosses or human resources departments were dissatisfied with the results.

Sexual harassment can affect job performance, workplace advancement, and career choices. Women who experience it in the workplace often report heightened anxiety and depression, which can affect productivity and overall performance. According to a 2019 report from the American Association of University Women, 38% of surveyed women experiencing workplace sexual harassment reported that it contributed to their decision to leave a job early, while a 2018 New America study found that it could push women out of entire industries, amplifying occupational segregation.

Additionally, women of color, LGBTQ+ women, and women with disabilities may face both greater financial consequences and an increased risk of retaliation, doubt, victim-blaming, and other prejudiced responses for reporting sexual harassment.

Gender Gaps on a Global Scale

Each year the World Economic Forum studies and indexes worldwide gender-based disparities as part of its annual Global Gender Gap Report. In addition to its overall assessment of wage and opportunity gaps, the 2024 Global Gender Gap Index comprises four comprehensive subindexes, each measuring a different type of gender disparity across 146 countries. These include:

• Economic participation and opportunity: This index measures wage equality between women and men for similar work, plus the difference in estimated earned income, labor force participation, and the number of professional and technical workers as well as legislators, senior officials, and managers between men and women. The economic participation and opportunity gap is the second largest, at 39.5%.
• Educational attainment: This index measures the difference in net primary, secondary, and tertiary enrollment rates as well as literacy rates between women and men. The educational attainment gap is the second smallest, at 5.1%.
• Health and survival: This index measures the difference in healthy life expectancy between women and men as well as the sex ratio at birth. The health and survival gap is the closest to closing, with only 4.0% remaining.
• Political empowerment: This index measures the difference between the number of women and men in parliament seats and at the ministerial level, as well as the number of years women have served as heads of state over the past five decades. The political empowerment gap is the farthest from closing, with 77.5% still remaining.

31.5%

The percentage of the overall global gender gap that has yet to be closed as of 2024.

Outside of topics that have already been covered in this article, these subindexes measure several additional gender discrepancies that aren’t always considered when discussing the wage gap, despite the socioeconomic impact they can have on the personal level and conditions that enable discriminatory income differences. For example, if women are denied a higher quality of healthcare, it may impact their ability to work should they become sick or injured. Additionally, it could prove difficult to enact effective legislative changes to reduce an income gap if those with political power benefit from the current status quo.

Although each country is given its own score, the global average values make it easier to quantify how the more abstract opportunity gaps have changed over time. Since 2006, the shift in political empowerment has jumped 8.3%. The only index that has declined in the same period is the health and survival index (-0.2 points).

What Is the Gender Pay Gap in 2024?

As of 2024, on average, women earn less than 83 cents for every dollar made by men. The gender pay gap has improved by 8 cents since 2015.

Why Is the Gender Pay Gap so Large?

While several laws have been passed that made gender-based pay discrimination illegal in the U.S., there are multiple factors that have allowed this type of wage gap to endure, such as conscious and unconscious discrimination and bias in hiring and pay decisions, higher rates of part-time work for women, and women and men working in different industries and jobs, with female-dominated industries and careers attracting lower wages.

What Country Has the Lowest Gender Pay Gap?

While no country has achieved full gender parity, as of 2024 Iceland’s economy (at 93.5%) has the lowest pay gap by gender and is the only one that has closed over 90% of its pay gap. It has led the Global Gender Gap Index for a decade and a half.

The Bottom Line

Although the gender wage gap has narrowed over the years, it will never completely close without coordinated efforts that address the many factors and biases that continue to enable its existence. Companies have to get involved in this by ensuring that all employees are being paid a fair wage for their labor and the workplace itself is a safe environment for all women.

Reviewed by Eric Estevez

To deleverage means to reduce the amount of debt that a company carries, usually by taking major steps quickly. It is the opposite of leverage, which refers to taking on debt to fund business goals.

Deleveraging is a term that comes to the forefront during and after times of economic turmoil, whether that’s a downturn, an all-out recession, or a depression. It can also occur due to company mismanagement.

It applies to businesses (and people) that try to clean up their balance sheets by reducing their debt. Thus, it can be very useful and important to U.S. corporations. Governments can also become involved in deleveraging.

What else does deleveraging mean to corporate America? To explain, it helps to start with leverage.

Key Takeaways

• Deleveraging occurs when a firm reduces its financial leverage (debt) by raising capital, selling off assets, and/or cutting spending where necessary.
• Deleveraging strengthens balance sheets because it rids a company of certain financial liabilities.
• Firms with so-called toxic debt can face a substantial blow to their balance sheets if the market for those fixed-income investments collapses. 
• When deleveraging affects the economy, the government may step in to buy assets and put a floor under prices, or to encourage spending. 
• Investors may be alarmed when a company has to deleverage because they may believe it failed to grow enough to pay its obligations.

What Is Leverage?

Leverage has become an integral aspect of our society. The term refers to borrowing money and using it to increase the possibility of a return.

Businesses use leverage to finance their operations, fund expansions, and pay for research and development (R&D).

By borrowing money to obtain capital rather than issuing more stock, businesses can pay their bills without diluting shareholders’ equity.

For example, if a company formed with an investment of $5 million from investors, the equity in the company is $5 million. This is money the company uses to operate.

If the company then borrows $20 million, the company now has $25 million to use as needed. It could invest in capital budgeting projects and other opportunities to increase value for the fixed number of shareholders.

Operating and Financial Leverage

There are two main types of leverage: operating leverage and financial leverage. Operating and financial leverage make income and profits more sensitive to business cycles.

This can be a good thing during periods of economic expansion and a bad thing during economic contraction. That’s because leverage equals debt which equals interest payments.

Interest payments can be handled well during healthy economic periods. But if the economy weakens and a company makes less revenue, interest payments owed to creditors could be hard to make.

What Is Deleveraging?

The old adage “everything in moderation” applies perfectly to the concept of leverage.

If companies incur too much leverage, or debt, they can run into trouble because of the excessive interest payments they face. That’s when deleveraging—getting rid of debt—comes into play.

Deleveraging occurs when a firm executes a strategy to pay off any or all existing debts.

To deleverage, a company can raise capital that it then uses to wipe off the debt from its balance sheet. Or it can sell assets to raise the money. It can also reduce its spending and apply the savings to its debt. But, as noted below, reducing spending may entail difficult choices and affect the lives of employees.

However, without deleveraging, an entity could default on its debt, as the financial burden may become unbearable.

Pros and Cons

For businesses, deleveraging has positive and negative aspects. On the one hand, deleveraging strengthens balance sheets by removing liabilities. And it can improve the financial ratios that investors use to gauge the financial health of a company.

Also, lenders will like what they see and be more likely to lend to the deleveraged company in the future.

It is a sound course of action to get a company back on track toward growth without owing too much money, if any.

On the other hand, deleveraging isn’t always pretty. To pay off its debt, a company needs extra cash. So it may have to lay off workers, close plants, slash R&D budgets, and sell assets. It may have to sell some part of its business at a less than optimal price.

Investors can become concerned about a company that failed to achieve enough growth to pay what it owed. And such efforts could affect the price of a company’s stock.

Important

Leverage and deleveraging both can be good for corporate America. Careful leveraging can provide funds needed to grow a business that aren’t obtained by diluting shareholder ownership. Deleveraging and paying off debt that’s become to much too handle supports the financial health of a company and appeals to investors.

Wall Street’s Response to Deleveraging

Wall Street generally greets successful deleveraging with a warm embrace. Announcements of massive layoffs can send corporate costs falling and share prices rising.

However, deleveraging doesn’t always go as planned. When the need to raise capital to reduce debt levels forces firms to sell off assets they don’t wish to sell at fire sale prices, the price of a company’s shares generally suffers in the short run.

In addition, when investors learn that a company has debts that it has become unable pay, they may decide that the company isn’t a good investment and sell their shares.

Toxic Debt and Deleveraging

Toxic debt is any debt that has little chance of being repaid (both principal and interest).

The inability to sell or service debt can result in business failure. Firms that hold toxic debt in the form of fixed-income securities issued by failing companies can face a substantial blow to their balance sheets as the market for those investments collapses.

Such was the case for firms holding the debt of the investment banking firm Lehman Brothers prior to its 2008 collapse.

The Deleverage Process for Banks

Banks are required to have a specific percentage of their assets held in reserve to help cover their obligations to creditors, including depositors that may make withdrawal requests.

They are also required to maintain certain ratios of capital to debt. To do so, banks deleverage when they fear that the loans they made will not be repaid or when the value of assets they hold declines.

When banks are concerned about getting repaid, as during the financial crisis, they slow down their lending. When lending slows, consumers can’t borrow money, so they are less able to buy products and services from businesses.

Similarly, businesses can’t borrow to expand, so hiring slows and some companies are forced to sell assets at a discount to repay existing bank loans.

The Deleverage Effect on Security Prices

If many banks deleverage at the same time, stock prices fall as companies that can no longer borrow from the banks are revalued based on the price of assets that they are trying to sell at a discount.

Debt markets may potentially crash as investors become reluctant to hold the bonds from troubled companies or to buy investments into which debt is packaged.

The Government and Deleveraging

When deleveraging creates a downward spiral in the economy, the government may be forced to step in. Governments take on leverage to buy assets and put a floor under prices, or to encourage spending.

For example, the government might:

• Buy mortgage-backed securities (MBS) to prop up housing prices and encourage bank lending
• Issue government-backed guarantees to prop up the value of certain securities
• Take financial positions in failing companies
• Provide tax rebates directly to consumers
• Subsidize the purchase of appliances or automobiles through tax credits

The Federal Reserve (Fed) can also lower the federal funds rate to make it less expensive for banks to borrow money from each other, push down interest rates, and encourage banks to lend to consumers and businesses.

Does Deleverage Apply to Individuals?

It can. If an individual borrows money that at some point they have trouble paying back, they may be forced to sell assets to raise funds to pay off large chunks of that debt, if not the entire amount at one time. Before selling one or more assets, they may also try spending less each month and apply the savings to their debt payments.

Is Deleveraging Good or Bad?

In general, it’s good if it is undertaken to alleviate a burdensome amount of debt, is successful at doing so, and prevents an even worse situation (such as bankruptcy). However, it’s important for a company to assess the factors that got it to the point where it had to deleverage.

Is Deleveraging an Extreme Measure?

Yes, a company that finds itself unable to make payments on the money it has borrowed usually has to take extreme steps to right its situation. The company must quickly come up with cash to pay off its debts. That can mean taking major steps such as selling company assets at fire sale prices, laying off workers, and issuing more shares of stock.

The Bottom Line

Deleveraging by corporations and other businesses involves executing a strategy to raise funds rapidly to pay off debt that has become burdensome.

In times of financial crises, the government may have to step up to buy certain amounts of this debt. But it can’t do so without restraint, as government debt must eventually be repaid by taxpayers.

Broadly speaking, it’s a good idea for the financial health of companies and the economy that the responsible parties in business and the government implement internal controls and policies to prevent future downward spirals and the need for deleveraging.