Knowing where to allocate your next dollar can be confusing for those looking to save and invest. There are many choices available. Just like building a house, it’s important to start with a strong financial foundation. Focus on the basics like budgeting and an emergency fund as you begin building your wealth.

Let’s break down each layer and explore why it matters.

Step 1. Emergency Reserve: Your Financial Safety Net

Before investing, it’s crucial to build an emergency fund as your safety net. Life happens: cars break down, kids get sick, jobs change. Without a cushion, these unexpected events can derail long-term financial goals.

We recommend saving three to six months’ worth of living expenses. You might save closer to three months’ worth of expenses if your household is dually employed with strong job stability, or closer to six months if you are a single filer, self-employed, or have dependents.

Parking these dollars in a money market or high-yield savings account can provide a modicum of interest while maintaining liquidity, so you can easily withdraw these funds, not if an emergency happens, but when.

 Step 2. Maximize Employer Match: Don’t Leave Free Money Behind

If your employer offers a match on retirement contributions, take full advantage. For example, if you elect 3% of your pay to go towards your retirement plan, your employer will contribute an additional 3% to your account that you wouldn’t receive otherwise.

Ensure you are contributing the minimum to receive the full match; otherwise, you’re leaving free money on the table.

Step 3. Pay Off High-Interest Debt (Interest Over 7%)

High-interest debt, especially credit cards, can erode wealth faster than investments can grow. The average credit card interest rate in 2025 is over 21% , making it a top priority to eliminate.

Paying off high-interest debt quickly is not only an immediate return on investment but will also provide additional cash flow and wiggle room in your budget.

This assumes that a diversified portfolio may earn 7.0% over the long term. Actual returns may be higher or lower. Generally, consider making additional payments on loans with a higher interest rate than your long-term expected investment return.

Step 4. Health Savings Account (HSA): Triple Tax Advantage

A Health Savings Account (HSA) is one of the most tax-advantaged saving tools. You can put money in tax-free, which can then use it tax-free for qualified medical expenses. Consider investing your HSA funds once you’ve built up a sufficient cash buffer for near-term medical expenses. This allows you to take full advantage of the triple tax benefit!

The 2025 annual HSA contribution limit (for all contributions made by both you and your employer) are $4,300 for individuals and $8,550 for family coverage. Additionally, individuals age 55 or older can contribute an extra $1,000.

Bonus: After age 65, funds can be used for non-medical expenses without penalty (though taxed as income), making HSAs a powerful retirement supplement.

A high-deductible health plan is needed to contribute to an HSA. This investment vehicle may not be the best choice for you if you have frequent medical expenses. Those taking Social Security benefits age 65 or older and those who are on Medicare are ineligible. Tax penalties apply for non-qualified distributions prior to age 65; consult IRA Publication 502 or your tax professional.

Step 5. Additional Defined Contribution Savings

Once you’ve maxed your employer match in your 401(k), consider contributing beyond the match percentage, as your cash flow and budget will allow.

Compound growth and tax deferral make these accounts ideal for long-term wealth building. A general rule of thumb is to aim for 15% of your income going toward retirement. The earlier you start, the more compound interest works in your favor.

In 2025, employees can contribute up to $23,500 to a 401(k), with an additional $7,500 catch-up for those 50 and older.

Roth 401(k) Option: Many plans offer a Roth 401(k) feature, allowing you to contribute after-tax dollars. While you don’t get a tax deduction up front, qualified withdrawals in retirement are tax-free. This can be a powerful strategy for younger savers or those expecting higher tax rates in retirement.

Step 6. Pay Down Lower-Interest Debt (Under 7%)

While not as urgent as high-interest debt, paying off loans under 7% still improves cash flow and reduces financial stress.

Step 7. IRA Contributions: Flexibility and Tax Benefits

You’ve paid off your debts, have a solid emergency fund, and are maxing out your 401(k) and HSA accounts. What’s next?

Traditional and Roth IRAs offer additional retirement savings options. In 2025, the contribution limit is $7,000, or $8,000 for those 50+. Income limits for deductibility and Roth eligibility have increased, making these accounts more accessible.

Roth IRAs allow for after-tax contributions with tax-free growth and withdrawals in retirement.

Income limits may apply for IRAs. If ineligible for these, consider a non-deductible IRA or an after-tax 401(k) contribution. Individual situations will vary; consult your tax professional.

Step 8. Taxable Accounts: For Flexibility and Liquidity

Finally, once all tax-advantaged accounts are maximized, taxable investment accounts provide flexibility. They’re ideal for goals that fall outside retirement, like early retirement, home purchases, or estate planning.

Our favorite part: there are no annual contribution limits and no penalties for withdrawal.

Final Thoughts

Saving wisely for your future doesn’t have to be complicated. By following a structured approach, you can make confident decisions about where to allocate your money, step by step, dollar by dollar.

Want help applying this to your own financial picture? Let’s talk!

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Disclosure:This content is for informational and educational purposes only and is not intended as investment, legal, or tax advice. The strategies and steps outlined—such as building an emergency fund, contributing to employer-sponsored plans, paying down debt, or using HSAs, IRAs, and taxable accounts—are general in nature and may not be appropriate for every individual. You should consult a qualified financial or tax professional before making decisions based on your personal circumstances. There is no guarantee that following any financial strategy will achieve your goals or protect against loss. References to interest rates, contribution limits, or tax rules reflect information available at the time of publication and may change. Past performance is not indicative of future results. Advisory services are offered through Human Investing, an SEC-registered investment adviser.

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If you’re receiving a settlement from a life-altering event, such as personal injury, property damage, or an employment dispute, know this: you're not alone, and it is normal to ask, “What now?”

This may be the most significant sum of money you’ve ever received. But it’s more than just a windfall. It’s a crossroad. What you do next can shape your financial peace for decades to come.

At our firm, we’ve guided many families through life transitions like this one. Here are five smart, grounded steps to help you avoid common pitfalls and build a future marked by clarity, confidence, and purpose.

Step 1: Pause and Protect

Your first move? Nothing, for now. It’s normal to want to take immediate action. But when it comes to significant financial decisions, taking a beat is often the wisest choice.

What to do:

• Park the funds in a safe, highly liquid account such as FDIC-insured high-yield savings or U.S. Treasury bills.

• Avoid large purchases, gifts, or new ventures for at least 90 days.

• Take time to think, grieve, and breathe.

What to watch out for:

• FDIC insurance has limits. Coverage is capped at $250,000 per depositor, per institution. Large dollar settlements need to be spread wisely or placed in programs with extended coverage.

• Be cautious of unsolicited “investment opportunities.” Scammers often target settlement recipients.

Smart alternative:

Beyond FDIC-insured accounts, another safe option is short-term U.S. Treasury securities. They are backed by the U.S. government, give you steady access to your money, and often provide competitive yields. The interest is also tax-free at the state and local level, which makes them a reliable choice for keeping your settlement secure.

Our take: The best first step is often no step at all. Create safety and space before making decisions.

Step 2: Build a Trusted Team

You don’t have to figure this out alone and you shouldn’t. A coordinated team can help you avoid costly mistakes and make confident, informed decisions.

When you are managing a life-changing settlement, success is not only about making smart choices. It is about making coordinated choices. The best outcomes happen when professionals work together to support your full financial picture.

Who should be at your table:

• A fiduciary financial advisor to help design your long-term strategy, coordinate decisions, and ensure all the moving parts align with your goals.

• A CPA to clarify your tax liability and help reduce it when possible.

• An estate attorney to protect your assets and plan your legacy.

Why the fiduciary distinction matters:
Unlike brokers or sales-driven advisors, fiduciary financial advisors are legally and ethically obligated to put your interests first. They do not earn commissions from products. They earn trust by giving objective guidance based solely on what is best for you.

What to watch out for:

• Conflicted advice: If someone is recommending products they are also paid to sell, they are not held to a fiduciary standard.

• Lack of collaboration: A team that does not work together can create missed opportunities, inconsistent strategies, or unnecessary tax costs.

• Advice in isolation: Each professional plays a role, but without coordination important details can easily be overlooked.

Our take: A fiduciary advisor serves as your financial quarterback, bringing leadership, clarity, and coordination across your team. At our firm, we embrace that role with care and seriousness. We sit on the same side of the table as you, and every recommendation is grounded in what is best for you now and in the years ahead.

Step 3: Understand the Tax Picture

The more you keep, the more you can use for yourself, your family, and the legacy you want to build.

Not every dollar from a settlement is treated the same under the tax code. Some portions may be completely tax-free, while others could create a significant tax bill if not managed carefully. Knowing the rules up front helps you make smarter choices, avoid surprises, and keep more of your money working toward what matters most.

What to know:

• Compensation for property loss or personal injury is often not taxable

• Payments for emotional distress, lost income, or punitive damages are typically taxable

• Any investment gains after receiving the funds will be taxed

What to watch out for:

• Misclassifying different portions of the settlement, leading to avoidable taxes or penalties

• Underestimating your future tax bill, especially if you invest and grow the fund.

• Overlooking tax-smart giving strategies, such as donor-advised funds, that can lower taxes while increasing your impact

Our take:

A proactive tax strategy is not just about reducing what you owe. It is about maximizing what you keep so you can enjoy your life, provide for future generations, and give generously to the causes you care about. As fiduciary advisors, we work closely with your CPA or bring in trusted tax partners to help you make confident decisions that reflect your values and protect your wealth.

Step 4: Create a Life-Driven Financial Plan

The goal is not just to manage your money. The goal is to use it to create a life that feels meaningful, secure, and aligned with what matters most.

This settlement creates a powerful opportunity to pause and ask deeper questions:

• What does peace of mind actually look like for me?

• Where do I want to live and how do I want to live?

• How can I provide for loved ones or give generously without putting my own future at risk?

The right financial plan turns those answers into action.

What your plan should include:

• A strong emergency reserve for flexibility and resilience

• A clear approach to debt, housing, and insurance coverage

• Strategies for healthcare and long-term care needs as you age

• Defined goals for retirement income, giving, and legacy planning

What to watch out for:

• Lifestyle creep. Small upgrades can quickly become big ones, and without intention your wealth can disappear faster than you realize.

• Unspoken family expectations. Money can create tension if roles and boundaries are not clear.

• Analysis paralysis. Without a plan, it is easy to get stuck, make impulsive choices, or avoid decisions altogether.

Our take:
A thoughtful plan gives your dollars direction so they serve your values, your goals, and your future. We help clients design plans that are flexible, grounded in what matters most, and built to bring clarity and confidence to every decision.

Step 5: Invest With Intention

Once your immediate needs are secure and your goals are defined, it’s time to grow your wealth thoughtfully.

A settlement is more than a chance to invest. It is an opportunity to shape the next chapter of your life and legacy. With the right strategy, your wealth can support your lifestyle, create opportunities for the next generation, and give you the ability to be generous along the way.

What to do:

• Diversify across stocks, bonds, and other investments

• Match your strategy to your timeline, risk tolerance, and income needs

• Use tax-smart investment accounts like Roth IRAs, brokerage accounts, or 529 plans

• Stay disciplined and consistent rather than reacting to fear or headlines

What to watch out for:

• High-fee products or promises that sound too good to be true

• Concentrating too much wealth in real estate or a single business

• Making emotional investment choices (especially during market volatility)

Our take:

Investing done well is steady, strategic, and deeply personal. It is not always about chasing the highest return. It is about creating peace of mind and building a life that lasts. As fiduciary advisors, we help clients invest with intention so their money grows in line with their values, their freedom, and the legacy they want to leave.

You Have a Rare Opportunity

A settlement can mark a new beginning. With the right plan and trusted guidance, it can bring peace, purpose, and even lasting impact.

Our firm helps individuals and families navigate these transitions, whether your goal is to protect, grow, or give with intention.

If you or someone you love is receiving a settlement, we invite you to a complimentary 60-minute strategy session. Together we can design a plan that reflects your goals, tax picture, and values.

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Disclosure: This material is provided for informational and educational purposes only and should not be construed as tax, legal, or investment advice. Examples are hypothetical and for illustration purposes only; actual results will vary. Tax laws are subject to change, and their application may vary depending on individual circumstances. Clients should consult their own tax and legal advisors before making any charitable giving decisions. Advisory services offered through Human Investing, LLC, an SEC registered investment adviser.

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Cash has its place in any financial plan. However, holding too much cash or cash-like investments like a CD or a Money Market account can be one of the most overlooked risks when it comes to long-term planning. 

Inflation: The Hidden, Permanent Loss

Conventional wisdom says that if you want to preserve your dollars, keep them as cash. That level of caution may reduce short‑term volatility or avoid capital losses. But unbeknownst to many investors, cash is not as risk‑free as it seems. Holding too much cash over the long term can come at a high cost.

Inflation, which the Federal Reserve defines as “the increase in the prices of goods and services over time,”[1] remains the silent killer of purchasing power. In recent years, with supply‑chain disruptions, labor market shifts, and global commodity pressures, inflation’s impact has become more visible, more persistent.

Consider how quickly your money’s real value can erode based on varying inflation rates. While interest rates on many cash vehicles have risen from the near‑zero levels of early 2020s, they often still fail to fully offset the pace of inflation over time.

View fullsize

Table 1

Source: Ycharts

Markets Have Their Ups and Downs, but Cash Just Sits

For investors focused on the long term, the key isn’t only avoiding loss but preserving purchasing power. While the stock market may experience sharp short‑term drawdowns, historically it has not experienced a total and permanent loss of capital. Cash, on the other hand, can deliver a guaranteed negative return in real terms if inflation outpaces nominal returns.

Put another way: cash may feel safe, but it carries a hidden cost that many fail to account for.

Strategic Cash, Yes. Excessive Cash, No.

This is not a call to eliminate cash from your financial plan. A strategic cash cushion absolutely has its place—especially in today’s environment, where interest rates on savings and money‑market accounts have improved relative to recent past years. The right amount of liquid cash depends on your personal circumstances: income stability, stage of life, risk tolerance, liquidity needs. A commonly referenced target remains somewhere between 3 to 12 months of living expenses.

What has changed is the urgency to evaluate how much is “too much.” Because holding large sums of cash for long periods means you're not just missing out on market upside, you're actively losing purchasing power.

Building a Plan that Combats Inflation

Inflation calls for a long‑term mindset. Building a diversified investment strategy with an appropriate allocation to equities, remains an essential component of any long‑term plan. While stocks bring volatility, they also offer the potential to grow real wealth.

Table 2

This graph is for illustrative purposes only. Past performance is no guarantee of future results. Data sources: Health Care Costs, CMS.gov; Portfolio returns, CFA Institute (SBBI®)

Given the evolving global landscape from geopolitical risks to climate‑related supply disruptions, the need for a resilient plan is greater than ever. That means considering:

• How much cash you truly need for near‑term expenses and emergencies.

• Where you’re holding that cash (e.g., high‑yield savings, short‑term bonds).

• The long‑term erosion of cash power versus incremental risk in growth assets.

• A regular review of your plan, as interest rates, inflation, and markets shift.

When Should I Hold Cash?

This is not to say someone ought to avoid holding cash altogether. Strategic cash cushions do have a significant place in a financial plan when considering both short-term and long-term financial decisions (see the barbell approach). There is no one size fits all plan. The amount someone should keep on hand should correspond with their living expenses, instability of income, stage of life, risk tolerance, etc. This amount is typically 3 to 12 months of living expenses. However, the permanent risk associated with holding too much should be evaluated, and if possible, mitigated. This starts with a deliberate and personalized plan concerning how much to hold and where to keep it. 

Decisions around cash are just as psychological as they are financial. For this reason, it can be helpful to enlist the help of a trusted partner like Human Investing who has your best interest in mind.   

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Sources

[1] Federal Reserve (2016). What is inflation and how does the Federal Reserve evaluate changes in the rate of inflation?

[2] Inflation Data source from 1/1/1926-12/31/2021: Ycharts.

[3] U.S. Centers for Medicare & Medicaid Services. “Projected | CMS.”

[4] CFA Institute (2021). Stocks, Bonds, Bills, and Inflation (SSBI®) Data.

Disclosure: Human Investing, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (SEC). The information provided in this blog is for educational and informational purposes only and does not constitute personalized investment advice. Human Investing does not consider your individual financial situation, investment objectives, or risk tolerance in the preparation of this content. Past performance of any investment, strategy, or market trend discussed herein is not indicative of future results. Readers are strongly encouraged to consult a qualified financial advisor or other professional before making any investment or financial decisions.
1996-2024 Bond Data from Bloomberg US Aggregate TR USD, Courtesy of Ycharts
1926-April 1996 Bond Data from the Ibbotson SBBI® US Intermediate Term Government TR USD, Courtesy of Morningstar Direct
1926-1936 Equity Return Data from the Ibbotson SBBI® US Large Stock TR USD, Courtesy of Morningstar Direct
1937-1989 Equity data from the S&P 500 TR, Courtesy of Morningstar Direct
1989-2024 Equity data from the S&P 500 TR, Courtesy of YchartsInflation Data from Ibbotson SBBI® Inflation Index, Courtesy of Morningstar Direct

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Looking to go on a “once in a lifetime” trip to Fiji? Remodel your kitchen? Buy a new car? If your employer plan allows it, you may be tempted to take out a loan from your 401(k) to help fund that major expense.

Before you do, let’s talk through what a 401k loan looks like today and why borrowing from your future self can cost far more than you expect.

The Details

If your 401(k) plan allows loans, you can technically borrow up to $50,000 or 50% of your owned retirement savings (vested balance), whichever is less. There’s no credit check, and repayments are automatically taken from your paycheck.

For 2025, the interest rate on a 401k loan is roughly 9.50% (Rate of Prime + 1%). That’s a high rate for borrowing from yourself, and it can add up quickly. While the interest you pay goes back into your account, it’s still your retirement money being used, which could slow long-term growth.

Even though it’s allowed, taking a loan from your 401(k) isn’t usually recommended: about 1 in 5 people with a 401(k) have a loan at any given time, but doing so can put your future financial security at risk.

The Dangerous Reality

Still sounds pretty good, right? Well… not so fast.

A 401(k) loan can come at a real cost and not just the money you pull out today. It’s the potential long-term growth and retirement dollars you lose out on by stepping out of the market and halting contributions.

Here’s what you need to understand:

You lose tax-advantaged growth
Loan repayments are made with after-tax dollars. Then you’ll likely pay tax again when withdrawing the funds in retirement. That double-tax effect makes the math harder to win.

You could face a tax bill and penalty if you change jobs
If you leave your employer before the loan is repaid, the remaining balance typically must be paid back by tax filing time. If not, the balance becomes taxable and if you are under 59½, you may face a 10% early withdrawal penalty.

Stopping contributions
Many borrowers pause contributions while repaying the loan. If your plan gives an employer match, that means you may miss out on free money.

Dollars stop compounding
The money you borrow no longer participates in the market. In periods of growth, missing out on compounding has long-term consequences.

A Real-Life Example

Say you make $75,000 a year and want to borrow $15,000 from your 401(k) to fund a big trip or home project. To make the loan payments easier, you pause your 401(k) contributions while you pay it back.

Let’s also assume you already have $50,000 saved in your 401(k) when you take this loan.

Here’s what happens:

• You normally save 7% of your pay ($5,250/year)

• Your employer matches another 3% ($2,250/year)

By stopping contributions for three years, you miss:

• $15,750 you would have put in

• $6,750 your employer would have matched

That’s $22,500 total that never gets invested.

Now let’s look at the long-term impact.

This graph is for illustration purposes only. It highlights the impact a loan has on an individual’s retirement balance and monthly retirement income after 30 years of investment growth during working years (assuming 7% annual market return and annual contributions of $7,500) and 30 years of income through retirement (assuming 4% rate of return). In this example an individual takes a $15k 401(k) loan from a $50k balance to pay down some bills and a finance a vacation.

If that $22,500 had been invested and grew at a reasonable long-term rate of 7% per year over 30 years it could grow to roughly $265,000 by retirement age.

That also means potentially $1,250 less per month during retirement all to fund something that might only last a week or two, today.

Options to Consider

For some people, a 401(k) loan may be a necessary tool for true emergencies. But for vacations, renovations, or lifestyle upgrades, think twice.

Here’s what to do instead:

• Build a dedicated savings fund for big trips or purchases

• Maintain an emergency reserve (3–6 months of expenses)

• Continue contributions if a loan is taken, especially if employer match is available

• Talk with your plan administrator or financial advisor to understand your plan’s rules

Borrowing from your retirement plan may feel easy, but the long-term cost can be steep. Give your future self the chance to enjoy a comfortable retirement without sacrificing peace of mind today.

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Disclosure: This material is for informational purposes only and is not intended to provide investment, tax, or legal advice. The examples provided are hypothetical and for illustration only. Actual results will vary. Retirement plan loans and withdrawals may have long-term effects on your savings and tax situation. Consider consulting a qualified financial professional before making decisions about your 401(k) or other retirement accounts.

Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Human Investing is an SEC-registered investment adviser. Registration does not imply any level of skill or training.

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As a leader at your company, you are provided a comprehensive range of benefits that help achieve your financial and retirement goals. However, things can go awry at tax time. The newer Metro and Multnomah County taxes, in addition to regular Federal and Oregon taxes, are becoming an increasing burden for executives to navigate. 

By implementing a proactive forward-looking tax strategy and payment plan, company leaders have a significant opportunity to improve their financial situation, relieve stress related to taxes, and reduce unwanted April surprises!

In this article, we’ll examine a few of the biggest reasons you could get hit with an unexpected tax bill and ways to navigate it differently.

Tax hit #1: Limiting your withholdings on supplemental pay

Many sources of compensation beyond salary (such as PSP, LTIP/PSU vests, RSU vests, and stock option exercises) are taxed as “supplemental pay.” This comes with a fixed tax withholding percentage, regardless of your tax bracket or withholding elections on your base salary. For example, the fixed withholding rates set by the government on supplemental pay is 22% Federal and 8% Oregon. The reality is most executives are in a much higher income tax bracket, sometimes as much as 17% higher than the amount withheld. This discrepancy leaves a significant gap in the amount of taxes that should have been withheld versus the actual amount that was withheld.

As an example, Charlotte an executive has $50K of RSUs that vested on September 1st. With all her income sources (salary, PSP, LTIP/PSU, RSUs) her total taxable income is $400K. The taxes automatically withheld on the $50K vested RSUs would be about $15K (22% Federal + 8% Oregon). However, her total income puts her in the 35% Federal tax bracket + roughly 10% Oregon bracket. This makes the withholding on her RSUs about $7,500 short ($50K x 15% short).

To get this paid in, she could use Quarterly Estimated Tax vouchers to submit the underpaid tax to the IRS and Oregon. Or, depending on her overall tax situation, she may be able to wait and pay the balance due with her tax return in April without incurring underpayment penalties and interest – although this determination may require a tax professional to run a detailed tax projection. For many people, being hit with a large bill all at once in April may not feel great and they may opt for Quarterly Estimated Payments instead.

If Charlotte doesn’t realize that her withholding was short until she files her tax return next April, she could face yet another surprise – 7 months of underpayment interest and penalties. Depending on her overall tax picture, the IRS and Oregon may have been accruing this since September. Yet another unwanted surprise for Charlotte.

Tax hit #2: Not withholding enough (or at all) for Multnomah County’s “Preschool for All” tax

The Preschool for All tax is 1.5% on taxable income over $125,000 for individuals or $200,000 for joint filers, with an additional 1.5% on taxable income over $250,000 for individuals or $400,000 for joint filers. The rate is currently scheduled to increase by 0.8% in future years. If you live or work in Multnomah County, you are likely subject to the “Preschool for All” tax that started in 2021.

Unfortunately, your company might not use payroll withholding to cover this tax, in which case you would be responsible to fully submit this tax on your own. Multnomah County expects these payments to be received quarterly to avoid interest and penalties. This can be submitted using vouchers or paying online.

We often see the most challenges for residents of Multnomah County who travel outside the county boundaries to work for an employer that does not currently have Preschool tax withholding options. Determining how much to pay and navigating this alone can be stressful. And for any late or underpaid tax, the county is quick to send notices in the mail. To reduce this headache, we recommend finding trusted advisors or tax professionals to serve as a guide to help you navigate complexities throughout the year.

Tax hit #3: A lack of coordination on how much to withhold for the Metro tax if you and your spouse both work

The Metro Supportive Housing Services tax (a.k.a. the Homeless tax) also began in 2021. It is a 1% tax on applicable income over $125,000 for single filers or $200,000 for joint filers.  If you don’t know whether your residence or your workplace is located within the Metro, you can look up the address here: Metro Link.

The challenges described above for the Preschool tax are similar for the Metro tax. Additional issues arise for families when each spouse works at a different company, and we see this frequently because the Metro area is larger. The income threshold for this tax is based on total household income. Since the spouses’ two different employers likely do not communicate with each other, there can be significant over or under withholding of these local taxes.

For example, Nike is located within the Metro boundary. If a Nike executive has income of $400K, Nike will start to withhold Metro tax once the executive’s income for the year is over $200K. Let’s say their spouse earns $90K by working for a different company, ABC Co., located across town but still within the Metro. Since this $90K alone is under the threshold, ABC Co. does not automatically withhold Metro tax. However, we know the total household income of $490K is over the threshold, which means all of the ABC Co. income is subject to Metro tax too. You see how this can create an issue? Unless the spouse realizes this and works with ABC Co.’s HR department to turn on withholding or diligently submits quarterly payments to the Metro on their own, the family may discover a balance of tax, penalties, and interest to pay in March/April right around a spring break vacation with their kids. Not fun!

In short, if you live or work in the Metro boundaries, it is important to be aware of the withholding options that your employer provides, and to be certain you are opted in or out accordingly.

Tax hit #4: Incorrectly reporting stock transactions and the complexity that comes with it

Up to this point, we’ve discussed withholdings on your salary and benefits. What about company stock that you own and decide to sell – what can go wrong there?      

When you sell company stock (whether you’re still at the company or have moved on), it is reported to you and to the IRS by the custodian (i.e. Fidelity, Schwab, Computershare) on a Form 1099. On this form, the custodian clearly reports the sale date, quantity, sales price, and name of the company’s stock that was sold. What is not so clear is the basis – the portion of sales proceeds that is not taxable because it has already been taxed on your W-2.

If the stock was acquired as part of your employee benefits package, this information is often buried within dozens of pages in the Form 1099. And these pages can be detailed, complex and confusing to read - especially as each custodian has a different template and the layout can change from year to year. We recommend seeking the help of a professional if you are unsure about your basis or how to report it. An experienced tax preparer sees MANY of these forms each season. They know where to look to find the basis of the company stock you sell, and how to translate that information accurately onto your tax return.

Without reporting the basis, or reporting it incorrectly, your taxable income could potentially be overstated significantly and you may accidentally pay more money to the IRS than is actually due. Fixing this after your tax return has been filed can require a time consuming process of preparing an amended return and waiting for the government to return your money. If you suspect you overpaid your taxes, you can always reach out to a tax professional to review your tax return. CPAs within our firm often provide this review to clients throughout the year as part of our financial planning services. 

While tax is a complex subject, it is only a piece of your unique financial picture. Planning appropriately for taxes should be done cooperatively with other parts of your financial plan, such as cash flow, retirement and estate planning. Done right, they’ll fit together like a perfect puzzle.  

Want to minimize the tax headache? A few Actions you can take now

Action #1:  Bring in experienced tax professionals.

Tax professionals can work with you to run “tax projections” to track how much you need to pay and monitor your April balance. These tax projections can be done any time throughout the year and can be refined near year-end to give you peace of mind and limit unwanted surprises.

If you’re looking for tax savings now or in retirement, we highly recommend proactive tax planning. A professional who is well-versed in your company’s benefits can use your tax projection to provide customized strategies to minimize your tax liabilities.

Action #2:  Talk with your financial planner.

We know that for many company executives, setting aside additional tax payments from your monthly household cash flow can become stressful, especially since the amounts can be so inconsistent. If you’re feeling that stress, tell your financial planner – they’ll want to know so they can help you navigate it well and feel more confident going forward. 

One strategy we may suggest is the “Pay as You Receive” method, which calculates an estimated amount of taxes due from each type of supplemental income when it hits your bank account. Making tax payments at the time you receive the income- while you have the funds to do it- will leave your monthly cash flow separate and unaffected.

These estimated tax payments, when combined with your payroll withholding, should be equal to your anticipated tax bracket for the calendar year. This approach helps ensure that your total payment to the IRS, Oregon, Multnomah County, and Metro aligns with your overall tax obligations.

Action #3:  Find a team that has BOTH!

It is important to note that any tax payment and mitigation strategies should be part of a comprehensive financial plan that is tailored to your specific financial situation. If you’re considering a firm that can look at your full financial picture, we’d love to help. At our Lake Oswego office, our team has licensed CERTIFIED FINANCIAL PLANNER® professionals and Certified Public Accountants, and we constantly share knowledge with one another.

We’re here to talk you through local, state, and federal complexities and we want to help you get things right the first time. Our mission is to serve you faithfully and be there to guide you through your benefits packages as you advance in your career or make a move.

If you have questions about how to set up a proactive forward-looking tax strategy, please contact our team to learn more.

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Disclosures: The information provided in this communication is for informational and educational purposes only and should not be construed as investment advice, a recommendation, or an offer to buy or sell any securities. Market conditions can change at any time, and there is no assurance that any investment strategy will be successful. Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results.

Diversification does not guarantee a profit or protect against a loss in declining markets. Asset allocation and portfolio strategies do not ensure a profit or guarantee against loss.

This material is not intended to provide, and should not be relied upon for, tax advice. Please consult your tax advisor regarding your specific situation.

Scenarios discussed are hypothetical and for illustrative purposes only. They do not represent actual clients or outcomes and should not be interpreted as guarantees of future results.

The opinions expressed in this communication reflect our best judgment at the time of publication and are subject to change without notice. Any references to specific securities, asset classes, or financial strategies are for illustrative purposes only and should not be considered individualized recommendations.

Human Investing is a SEC Registered Investment Adviser. Registration as an investment adviser does not imply any level of skill or training and does not constitute an endorsement by the Commission. Please consult with your financial advisor to determine the appropriateness of any investment strategy based on your individual circumstances.

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Your bonus is not taxed more than regular income.

Have you ever noticed the discrepancy between the bonus payment that was communicated to you and the actual bonus payout? As an example, let’s say your employer announced that you will get a $5,000 bonus, but the upcoming paycheck is only $3,500. What happened?! The common and incorrect narrative is something along the lines of “Bonuses are taxed more than regular income!”

This is not true. Bonuses are taxed at the same rate as your regular income. Please keep reading if you would like to see an example.

Why do we think that bonuses are taxed more than regular income?

Probably because bonus payments are treated by the IRS as ‘supplemental income’, whereas your regular income is treated as ‘ordinary income’ by the IRS.

Supplement and ordinary income are taxed at the same rate. However, supplemental income (like bonuses, overtime pay, severance, and tips) require employers to withhold more taxes. Due to the tax withholding, it feels like bonuses are taxed more than regular pay. And yes, they do have more taxes withheld up front so it does impact your cash-flow.

Because we love round numbers, let’s look at an example of for someone that normally receives a $2,000 paycheck and a one-time $10,000 bonus.

$10,000 Example

January 5, 2025: Your employer informs you that you will receive a $10,000 bonus.

January 10, 2025: You receive your paycheck that includes your typical income and the bonus payment.

Your regular income of $2,000 was subject to the following tax withholdings:

15% - federal withholding selected on your W4 Form

8% - state of Oregon withholding tax

23% - total withholding (federal + Oregon)

Your take-home pay is $1,540.

Your bonus paycheck was subject to the following tax withholdings:

22% - federal requirement for ‘supplemental income’

8% - state of Oregon withholding tax

30% - total withholding (federal + Oregon)

Your take-home bonus payment is $7,000. As you can see in this example, the total tax withholding for the bonus payment is greater than the tax withholdings for typical paychecks.

Your tax withholdings are not the same thing as your tax payments.

As shown in the example above, $3,000 was withheld from the bonus payment. This is an upfront payment to the IRS, but it doesn’t mean that this person will actually pay $3,000 in taxes for this bonus At the time of filing their tax return, they may receive some of that money back (a tax refund) or they could end up owing more taxes if they have significant income during the year.

As illustrated above, supplemental income has a 22% tax withholding rate. However, most taxpayers have a lower effective tax rate than that which means they will receive money back from the IRS once they have filed their taxes. We have included an example below to help clarify this concept.

The taxes paid on bonuses are the same as taxes paid on ordinary income.

While tax withholdings are different for regular income and bonus payments, the actual tax rate you pay is the same. Once you file your tax return the actual taxes paid are trued up.

Here is an example of a single tax-payer making a salary of $48,000 a year and a $10,000 bonus. They would see $58,000 appear in box 1 of their W2 Form issued by their employer. The total combined income of $58,000 is then subject to income tax brackets.

The key point is their entire income of $58,000 is subject to the same income tax brackets and end up with the same tax treatment. The difference is only the amount withheld when the bonus is paid out. We know that the $10,000 bonus had 22% in federal tax withholdings, but we can also infer that this person’s effective tax rate is probably lower based on the progressive tax brackets shown in this image.

To be clear, the first $11,925 gets taxed at 10%. The next $36,550 (range is dollars above $11,926 and below $48,475) get taxed at 12%. The remaining $9,525 is taxed at 22%. We encourage you to read the blog post titled 2025 Tax Updates and A Refresh On How Tax Brackets Work if you want a detailed explanation of our progressive tax brackets.

Whether or not this person will receive a tax refund or owes more taxes at the time of filing their tax return depends on the rest of their financial landscape. We can save that information for another blog post.

Disclosure: This material is for informational and educational purposes only and should not be considered personalized tax, legal, or investment advice. You should consult your own qualified tax, legal, and financial professionals before making any decisions based on this information. Tax laws and regulations, including those related to bonuses and supplemental income, are subject to change and may vary depending on individual circumstances. The examples provided are hypothetical and intended to illustrate general tax concepts; they should not be relied upon to determine your actual tax liability. Investing and financial planning involve risk, including the possible loss of principal. Past performance does not guarantee future results. Advisory services are offered through Human Investing, LLC, an SEC-registered investment adviser.

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Don’t let time run out on these end-of-year tax plays. Not having a tax projection done can be a costly mistake. Besides giving you peace of mind in April, in order for you to pay the lowest percentage of taxes over your lifetime, you have to plan and utilize every opportunity. Sometimes this means paying more dollars in tax in the current year to seize and maximize that lower rate.

For Lower Income Tax Brackets

 While your income is low, it may make sense for you to realize more income now and better utilize your low tax rates. 

1. Roth 401K and Roth IRA contributions: Contributing to a Roth 401k or Roth IRA may cost you more in taxes today, but it allows those dollars to grow tax-free. If you can do this early in your career and give your retirement dollars a long time to grow, the tax savings will be enormous.

2. 0% federal tax on capital gains: Many people are unaware that the IRS actually allows for a 0% tax on capital gains (Example: Gain from sale of stock). If your taxable income is below $48,350 Single $96,700 Married-Filed-Jointly in 2025, you may want to realize additional gains this year by selling stock to take advantage of these low rates. Keep in mind you may still need to pay state & local taxes on these sales but selling at the 0% federal tax bracket is an opportunity you can’t afford to pass up.

3. Lower your tax bracket when your income is low in retirement: Sometimes this situation occurs not when you are starting your career but when you are ending it. In the years between retirement and age 73, when Required Minimum Distributions start, there are opportunities to take advantage of these low tax brackets as well.

4. Lower your tax withholdings in January: If you are getting a large refund, adjust your withholdings on your paycheck for the next year. Adjusting early in the year keeps more money in your pocket each month. Do not give the IRS an interest-free loan.

For Middle Income Tax Brackets

As you start making more money and entering higher tax brackets, this is the time to start looking for deductions. 

1. Maximize your employee benefits: Have you maximized your employee benefits such as retirement contributions (including catch-up for those age 50+, and an extra catch-up for those age 60-63), H.S.A. contributions (including catch-up for those age 55+), and other benefits? When you are a W-2 employee, the best place to look for deductions is at work. Many companies will also offer some sort of match on retirement contributions. By not putting enough or anything into your workplace retirement plan, you may be leaving money on the table.

2. Tax loss harvesting: One place you might go looking for additional deductions is your brokerage account. While no one likes to lose money on their investments, Capital losses can offset up to $3,000 of ordinary income each year. If your income is high you may want to harvest losses for two reasons:

   1. Taking losses now allows you to put off paying tax in favor of paying down the road when it might be cheaper, potentially 0% or 15% federally.

   2. To stay out of the 20% highest capital gains bracket $533,400 Single, $600,050 Married-Filed-Jointly for 2025).

3. Non-Deductible IRA contribution: If you are already doing the items above and want to put more away for retirement, you might consider funding a non-deductible IRA. You (and your spouse) can put up to $7,000 (for 2025) into an IRA each year. This puts after-tax dollars into an IRA which could later be converted to a Roth IRA, which can grow tax-free. Keep in mind that the IRS views all of your IRAs as one IRA. Any distribution or conversion must be done proportionally to your taxable and non-taxable balances. If you have taxable amounts in your IRA, you may owe tax on any conversions.

4. Raise your tax withholdings in January: If you owed a lot in April last year, it may be an indicator that you need to adjust your withholdings for the coming year or make estimated payments. The IRS requires you to pay the tax due at least quarterly. January is a good time to adjust your withholdings because you have the entire year for the changes to take effect. This means you can make the smallest change to your net pay and still yield the desired effect at year-end.

For Higher Income Tax Brackets

When you find yourself with a surplus of money, living generously may yield additional tax savings.

1. Charitable contributions using stocks: While contributing to charity generally does not save you more than you spend on your taxes, if you have the heart to give there are efficient tax strategies that can allow your donation to go further. As changes to itemized deductions have vastly limited the amount of benefit many people can get from making charitable contributions, with careful planning, there are ways you may still save big.

   1. Contributing long-term appreciated stock may allow you to gain a charitable contribution for the fair market value of the stock and never pay the capital tax from the sale.

   2. Utilizing a donor-advised fund may allow you to bunch several years of donations into a single year. This could allow you to take larger deductions over several years.

   3. If you are over age 70.5 and not itemizing your deductions it may make sense for you to donate straight out of your IRA with a Qualified Charitable Distribution. These donations get paid straight from your IRA and are not taxed.

2. $19,000 gifts to your children: If you are planning to transfer a large estate to your children upon your death it may make sense for you to utilize the annual gift limits and give each year to potentially lower taxes on your estate. These gift limits are annual and adjust with inflation. Current limits are $19,000 per year per individual. This means a husband and wife could give $19,000 each to a child for a total of $38,000. If that child is married, they could also give their child’s spouse the same amount without filing a tax return.

   To be clear, you can give all the way up to your lifetime limit in a given year without paying taxes, but giving more than $19,000 requires you to file a gift tax return and reduce your lifetime estate.

When it comes to taxes, Benjamin Franklin said it best when he said “failing to plan is planning to fail”. If you have not done so already, get your tax plan going before the end of the year. 

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Disclosures: Human Investing is a SEC Registered Investment Adviser. Registration as an investment adviser does not imply any level of skill or training and does not constitute an endorsement by the Commission. Please consult with your financial advisor to determine the appropriateness of any investment strategy based on your individual circumstances.

This material is not intended to provide, and should not be relied upon for, tax advice. Please consult your tax advisor regarding your specific situation.

The information provided in this communication is for informational and educational purposes only and should not be construed as investment advice, a recommendation, or an offer to buy or sell any securities. Market conditions can change at any time, and there is no assurance that any investment strategy will be successful. Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results.

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If you are looking for the best way to save for your kids’ future college expenses there isn’t necessarily a “one size fits all” solution. In fact there are a number of choices available, each with their own list of benefits and features. The 529 plan is probably the most common and well known option. Similar to a Roth IRA, a 529 plan offers tax-free growth as well as tax free withdrawals as long as the money is used for higher education expenses. This isn’t limited to major 4-year universities either. Most 2-year schools, community colleges, and trade schools qualify under the program.

In addition to tax free growth and tax free withdrawals, if you use your home-state sponsored plan (such as the Oregon College Savings Plan), your contributions may be deductible against your state income tax. These features make the 529 plan very attractive for those who want to maximize their savings for college.

More flexibility than before

One of the traditional drawbacks of a 529 plan was the limited flexibility in how the funds could be used. Previously, if a child did not attend college or received a scholarship, parents might have faced a 10% penalty and income tax on earnings when withdrawing the money for non-qualified expenses. However, recent changes have made 529 plans more flexible. For example, up to $10,000 per year can now be used for K–12 tuition, and up to $10,000 (lifetime) can be used to repay student loans. Most notably, starting in 2024, unused 529 funds—up to $35,000—can be rolled over into a Roth IRA for the beneficiary, provided certain conditions are met. These changes make 529 plans a more versatile option, though parents who want maximum flexibility for non-education-related expenses may still consider alternative methods.

For ultimate flexibility a parent can use a traditional brokerage account and invest the money for growth just like a 529 plan. With this option, you give up the tax benefits of the 529, but there are no restrictions on how the money is used and for whom. If the money is managed in a tax efficient manner, this can be a great alternative for many families.

Alternate saving options

One more option is a UTMA or UGMA account. These stand for Uniform Transfer to Minors Act and Uniform Gift to Minors Act. These accounts offer a middle ground between the two prior choices. On one hand, the money doesn’t have to be used for college expenses, but the account does have to be used for the benefit of the child only. There are also some tax benefits to these accounts as some of the growth may be taxed at the child’s tax rate, which is typically lower than the parent’s rate.

In summary, if you want the best plan to purely maximize college savings, a 529 is the best option. If you still want to provide savings for your kids, but aren’t 100% certain if you’ll need access to those funds down the road, then the other choices can be managed in a way to provide a very similar benefit, while providing additional flexibility.

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The IRS has announced inflation-adjustments and tax code updates for the 2025 tax year. While change may be modest for many households, being aware of the updates can help you with budgeting, planning, and tax-optimization.

What has changed?

The standard deduction amounts have increased for the 2025 tax year.

Additionally, taxpayers who are 65 or older and/or blind may claim an extra standard deduction amount. These increases mean more of your income is shielded from taxation upfront.

Federal income tax brackets continue to be the seven-rate structure.

Note: These are for taxable income (i.e., gross income minus deductions). Items like the standard deduction and any adjustments reduce your taxable income.

What does this mean for you?

For many households, these adjustments yield some benefit — fewer dollars of your income get taxed, and more income is taxed at the lower rates — but they typically aren’t game-changing by themselves.

Portions of Your Income Get Taxed at Different Rates

Because the U.S. uses a progressive tax system, each portion of your taxable income is taxed at the rate for the bracket into which it falls.

For example, a Single filers first $11,925 is taxed at 10%, then the next tier is taxed at 12%, then 22%, etc., as your taxable income rises.

If you can shift income (or deductions) so that more income falls into the lower brackets, you reduce your overall tax burden.

Why the Increase in Standard Deduction & Bracket Thresholds Matters

• A higher standard deduction means less of your income is subject to taxation, which is good.

• A “bracket creep” adjustment (thresholds rising) means you’re less likely to be nudged into a higher tax rate solely because of inflation, which is good.

• The increases are modest in the context of pay raises, cost-of-living increases, and other tax changes (e.g., credits, deductions) so changes to your particular situation may be small.

Final Thoughts

The 2025 tax year brings meaningful updates: a higher standard deduction and higher thresholds mean more of your income avoids higher taxation. But savvy tax planning is still useful, especially if your income is growing, you have complex sources of income, or you have major deductions. Use these updated numbers as a baseline for your planning and then dig into the details with your CPA or advisor.

Disclosure: The information provided in this article is for educational purposes only and should not be interpreted as personalized tax, legal, accounting, or financial advice. While efforts have been made to ensure accuracy, tax laws and regulations are subject to change and may vary based on individual circumstances. Human Investing is an SEC-registered investment advisor; registration does not imply a certain level of skill or training. Before making any financial or tax-related decisions, please consult with a qualified tax professional, CPA, attorney, or financial advisor who understands your individual situation.

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As the person who manages most of the financial decisions in your household, it's natural to want to ensure your spouse is financially secure if you're no longer around. The financial burden on a widow can be overwhelming, especially with the lesser-known tax implications that often follow the death of a spouse. By planning ahead, you can safeguard your spouse from unnecessary financial stress.

Taking a few proactive steps now can help shield your spouse from these challenges and give them peace of mind. This guide will walk you through the financial implications of losing a spouse and what you can do today to ensure you preserve your assets for their well-being.

There are two common tax shocks you want to get ahead of:

Tax shock #1: The “survivor's penalty”

After a spouse dies, the widow is often left facing what’s called the "survivor’s penalty," which refers to higher taxes that result from a change in filing status. While you may currently file taxes jointly as a married couple, your spouse would be required to file as a single taxpayer after your death. This change can increase their tax bill substantially.

Here’s why this matters:

• Higher Marginal Tax Brackets: After your passing, your spouse’s income could fall into a higher tax bracket due to the narrower brackets for single filers compared to married couples.

• Reduced Standard Deduction: In 2024, the standard deduction for married couples filing jointly will be $29,200, but for single filers, it will be just $14,600. This reduction will increase the amount of income subject to taxes.

Looking ahead, it’s important to note that individual tax brackets are set to revert to pre-2018 levels in 2026, further increasing the tax burden on your spouse if you’re no longer here.

Tax shock #2: Hefty taxes on IRA distributions

If your spouse inherits your retirement accounts, such as an IRA, they’ll also face higher taxes due to Required Minimum Distributions (RMDs). These distributions are considered ordinary income, and combined with their new single filing status, could push them into an even higher tax bracket! The larger your IRA, the bigger this tax burden becomes.

What may seem like a well-planned nest egg now could become a source of financial strain later on due to taxes. By understanding this, you can take steps now to lessen the impact on your spouse’s financial future.

Firsthand example from a retired couple

When Spouse #1 and Spouse #2 file jointly, both receive Social Security and must take Required Minimum Distributions (RMDs) from their retirement accounts. Let’s look at their income and tax bill while filing as Married Filing Jointly (MFJ):

Now, if Spouse #1 passes, Spouse #2 becomes the sole taxpayer, facing a shift to the Single filing status. Spouse #2 is still required to take the same RMD amount as the beneficiary of the retirement accounts and claims Spouse #1’s higher Social Security benefit under the survivor benefit rules. However, Spouse #2 cannot receive both Social Security payments, so Spouse 2’s income is reduced. Here’s what their tax situation would look like:

Despite an almost 16% drop in income, Spouse #2's tax bill increases by over 30%, showing the impact of the survivor’s penalty on income and tax liability.

This example highlights why it’s essential to plan ahead to help lessen the financial burden on surviving spouses.

Four strategies to protect your spouse from a heavy tax burden

Fortunately, there are several strategies you can use to reduce the tax burden on your spouse in the future:

1. Complete Tax Projections: To best plan for the future and make calculated decisions, it’s necessary to understand your expected lifetime tax bill. A comprehensive tax projection will identify your current and future tax rates, potential gaps, and overall lifetime tax obligations. This helps you make informed decisions today.

2. Partial Roth IRA Conversions: Converting part of your traditional IRA into a Roth IRA over time can help reduce the tax impact on your spouse later. While you’ll pay taxes on the conversion now, the Roth IRA’s future growth will be tax-free, meaning less taxable income for your spouse when they inherit it.

3. Take Advantage of the Step-Up in Basis: For non-retirement investments, your spouse can benefit from a "step-up in basis." This allows the cost basis of assets to reset to their value at the time of your death, potentially eliminating capital gains taxes if they were to sell those assets. Understanding this advantage can save your spouse from an unexpected tax bill down the road.

4. Naming Non-Spouse Beneficiaries: Another option to reduce taxes is to name non-spouse beneficiaries for some of your retirement accounts, such as your children and grandchildren. While this can lessen the tax burden for your spouse, it’s essential that these non-spouse beneficiaries understand the new withdrawal rules set by the SECURE Act. This law requires that non-spouse beneficiaries fully distribute inherited IRA funds within 10 years, which could trigger substantial tax liabilities for them if not carefully planned. Additionally, consider adding a qualified charity as a beneficiary to your IRA for a tax-free transfer gift.

You can start planning ahead with your spouse now

Planning for your spouse's financial future can be an impactful gift. While it may be uncomfortable to think about what happens if you're no longer here, taking proactive steps now will ease your spouse’s transition during a difficult time. Here are a few key actions to consider:

Have Regular Financial Discussions: Make sure your spouse understands your financial plan, knows how to manage accounts, and is familiar with where to find important documents.

Work with a Fiduciary Financial Advisor: A financial advisor can help you develop a plan tailored to your family’s situation. By understanding your overall financial situation, an advisor can provide guidance now and assist your spouse when you're no longer there. They can also help with tax projections, Roth conversions, beneficiary updates, and staying ahead of tax law changes.

Create a Clear, Organized Estate Plan: Ensure your estate plan is up to date, including wills, trusts, health care directives, power of attorney, and beneficiary designations. This will help prevent unnecessary complications for your spouse during an already challenging time.

Be Proactive About Taxes: By planning for your spouse’s future tax obligations, you can reduce the “survivor’s penalty” and give your spouse more financial security.

You’ve worked hard to provide for your family, and planning for your spouse’s financial future if something happens to you is a vital part of that legacy. While it may seem difficult to know the "right" time to prepare, we can't predict the future. Whether you're already in retirement or facing a serious diagnosis, projecting out scenarios can make all the difference for your spouse’s security.

Don’t wait until it’s too late—start planning now to protect your loved one from unnecessary financial strain.

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Bonds are a fundamental piece of most investment portfolios, and the basics of bonds can confound even seasoned investors. When testing financial literacy through 5 core questions, bonds are frequently the topic that most commonly trips people up (try the quiz here). We want to make it easier for you to grasp the basics of bonds, whether you're new to investing or just want a quick review.

lend money to companies or the government

At its core, a bond is a type of loan. It's usually issued by governments or companies that need to borrow money. When you buy a bond, you're essentially lending money to the issuer. As the bondholder, you receive interest payments from the borrower.

Bonds are generally considered less risky than stocks, because if the borrower faces bankruptcy bondholders get paid before stockholders. However, the return on bonds is typically lower than stocks, and there's a risk that the borrower might not be able to pay back the debt.

key terms related to getting paid back

The principal value is the amount being borrowed by the issuer. Typically bonds trade in $1,000 increments.

The maturity date is the date the bond will return the principal value (aka face value) to bondholders.

You also receive interest when you lend money. The interest received is usually based on the Coupon rate, which is the interest payments paid to bondholders. Typically as a percentage of face value paid annually. For example, if you have $1,000 of a bond with a coupon rate of 5%, you will receive $50 in interest payments every year until the bond matures. Upon maturity, you will get the $1,000 principal back.

Credit rating is like a credit score for a government or company, indicating how likely they are to make payments. A higher credit rating indicates a higher chance of the issuer making payments.

Imagine if Disney needed to raise money via bonds

When a bond is first issued, the issuer sets the terms like the coupon rate and maturity date. The reality is that interest rates and credit risk (how likely the issuer is to payoff the bond) change after the bond is issued, which causes the bond price to fluctuate.

Imagine if Disney issues bonds paying 5% interest, the current market rate.

You purchase a bond for $1,000, and you get a $50 coupon payment from Mickey Mouse every year until the bond matures.

If interest rates go up, this isn’t good for your bondS

If interest rates rise next year to say 8%, and Disney issues new bonds, they will probably issue them at the new interest rate.

Your neighbor Laura decides to buy $1,000 of the new bonds, and she gets an $80 coupon from Mickey Mouse every year.

Because interest rates rose, the value of your bond paying $50/year goes down in value, less than the $1,000 you purchased it for because the $1,000 could buy Laura’s bond paying $80/month.

The reverse if also true. If rates had fallen to 3%, Laura’s bond would only pay her $30, and your $50/month bond would be worth more than $1,000. This is why when interest rates rise, bond prices fall.

Think of a teeter-totter: When one side’s down (interest rates), the other side must go up (bond prices).

When your bond is trading below $1,000, it is trading at a discount, typically with a coupon rate lower than current interest rates. If your bond is trading above $1,000 it is trading at a premium, typically with a coupon rate higher than current interest rates.

Timing bond returns

Remember that the bond market is full of smart people looking to try and make money. As a result, all similar bonds are priced so they provide similar returns. For example, if you see a 2 year bond with a 5% coupon, and a 2 year bond with a 3% coupon, the price of the 3% coupon bond will be so much lower than the 5% coupon bond and you will end up making just as much money either way. This is called the yield, or coupon + price return on a bond. Keep in mind if there are differences in bonds (i.e. higher or lower credit risk, time to maturity, other terms of the loan), that can cause differences in yield too.

When should I own bonds?

Long term equities tend to produce higher returns than bonds. However, these equity returns involve higher risk, and some people can’t afford to wait to make their money back. Bonds are an important ballast to ensure you can sleep at night, keeping a portion of your portfolio safe. Bonds can also provide a reliable source of cash flow that can be more reliable than stock dividends.

Finding the right bond for you

Like stocks, there are different bonds. Sovereign bonds (issued by governments) tend to be less risky, providing lower returns because of the lower credit risk. On the other hand, corporate bonds (issued by companies) provide higher returns, with an increased danger of losses due to companies going bankrupt.

At Human Investing, we provide individual treasury ladders for clients. US Treasuries are broadly considered one of the safest investments in the world. By owning individual bonds, you know you will get your principal returned upon maturity. The liquidity of treasuries also allows for flexibility if funds are needed sooner than anticipated.

Alternatively bond funds can be an excellent solution for clients, particularly those seeking growth. By investing in a bond fund, you gain exposure to a diversified range of bonds, enabling you to take on credit risk more effectively than as an individual investor. Much like owning a stock index fund, owning so many different companies debt means even if a few go bankrupt, they are such a small piece of your portfolio you will be okay.

Still have questions, or want to talk to an advisor? Reach out to us at hi@humaninvesting.com, or 503-905-3100.

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All too often generations of students stumble through the college planning process. With college costs on the perpetual rise, it is critical to start the planning process early.

Whether you are a beginner to the college planning journey or refining an existing strategy, here’s a visual guide of some critical to-dos for students and impactful strategies for parents depending on your unique situation.

The FAFSA is a financial unlock for college students

The FAFSA is an application for federal student aid such as federal grants, work-study funds, and loans. It’s the largest source of aid to help you pay for college or career school. To qualify, the FAFSA considers the impact of income and assets from January 1 of your sophomore year of high school until December 31 of your junior year of college (assuming a student goes straight from high school to college). For a high school senior filling out the FAFSA in 2023 and graduating in the spring of 2024, you are looking at your prior-prior year’s tax return in 2021.

The FAFSA application window opens as early as October 1st and closes by June 30th of the year you receive aid (depending on the institution’s deadline). However, in 2023, FAFSA will not be available until sometime in December due to the FAFSA Simplification Act, reshaping the entire system. Details about this significant reform can be found in this article.

Follow our yearly timeline to make things a little less stressful

For high school students planning ahead for college, we’ve summarized the major considerations and to-do items. Download the PDF here to print and hang on your fridge.

We can help with education planning

College involves time, money, and emotions. By dedicating effort, you will spare yourself unnecessary stress later. Amidst all the school visits, tests, test planning, be deliberate and have a plan. If you have any questions or would like to speak with one of our advisors, please reach out to me here.

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