Many people consider relocating when they retire to reduce their cost of living and make their savings last longer. When weighing the pros and cons of moving to another state, it’s important to consider the total tax burden there, including state and local taxes on retirement income, property tax, even sales tax. Some areas with a lower tax burden have a higher overall cost of living, which can cancel out any savings.
Below we look at the best states to retire in for taxes and how to tell if moving will be worth it.
• Several states, including Alaska, Florida, and Texas, do not tax 401(k) income, making them attractive for retirees.
• Mississippi, Tennessee, Wyoming, and others are among the most tax-friendly states for retirees.
• States like Hawaii, Massachusetts, and California have high living costs, which can offset tax benefits.
• Safety, healthcare access, family proximity, and lifestyle preferences are crucial in choosing a retirement destination.
• Lower taxes may not always outweigh the high cost of living in certain states.
Most Tax-Friendly States for Retirement
A number of states exempt Social Security income from state taxes. A smaller number offer a tax break on other retirement income, such as IRAs and 401(k) plans, private pensions, interest, dividends, and capital gains.
These are the 10 tax-friendly states for retirees, according to Kiplinger:
1. Mississippi
2. Tennessee
3. Wyoming
4. Nevada
5. Florida
6. South Dakota
7. Iowa
8. Pennsylvania
9. Alaska
10. Texas
But before you complete that change of address card, you’ll want to look at the bigger picture.
Factors to Consider When Choosing the Best State to Retire In
When choosing where to retire, it’s wise to first consider issues like safety, access to healthcare, distance to friends and family, or living near other people of retirement age.
Make a list of features that are important to you in a retirement locale, and consider whether any of them could indirectly impact your cost of living, such as being close to friends and family.
Then look at the total cost of living in an area: housing, food, transportation, cultural activities, and other expenses. These retirement expenses generally have a bigger impact on one’s lifestyle than taxes.
Finally, to determine whether a state is tax-friendly for retirees, look at the following:
Does the State Tax Social Security?
Generally, Social Security income is subject to federal tax. But some states also tax Social Security above a certain income threshold, while other states offer tax exemptions for individuals in lower tax brackets.
For the 2024 tax year, the states that tax some or all Social Security benefits are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
Does the State Tax Pensions?
Many states tax income from pensions, but 15 states do not. These states are: Alabama, Alaska, Florida, Hawaii, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.
And these 13 states do not tax income from 401(k) plans: Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Alaska, Florida, Nevada, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax.
Other Taxes That Affect Retirees
When choosing the best state for you to retire in, it’s a good idea to look into sales tax and property taxes too. States that don’t charge sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon. On the other hand, New Hampshire has very high property taxes, reducing the benefit of no sales tax.
Choosing the best state to retire in sometimes means making compromises. If safety and healthcare access are top priorities, for instance, you may not get your ideal weather. But for many retirees, a high cost of living is a deal-breaker.
Here are the 10 states with the highest annual cost of living, according to a 2024 analysis conducted by GOBankingRates:
As noted above, the best state to retire in will depend on an individual or couple’s budget, lifestyle, and values. But recent trends may help point you in the right direction.
These are the top 10 states that retirees are moving to, according to United Van Lines’ 2024 National Movers Study:
1. Delaware
2. Florida
3. South Carolina
4. Arizona
5. Mississippi
6. Nevada
7. North Carolina
8. Maine
9. Utah
10. New Hampshire
If cost of living is your sole concern, the following are the 10 least expensive states, according to Bankrate:
1. West Virginia
2. Oklahoma
3. Kansas
4. Alabama
5. Mississippi
6. Missouri
7. Arkansas
8. Iowa
9. Indiana
10. Tennessee
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States with the Lowest Tax Burden
An area’s total tax burden is the sum of all property taxes, sales taxes, excise taxes (which affect the price of goods), and individual income taxes. Below are the states with the lowest total tax burden for retirees. (On a budget? Tools like an online budget planner can help you monitor spending and make progress toward your financial goals.)
Rank
State
Total Tax Burden
1
Alaska
5.16%
2
Delaware
5.52%
3
Tennessee
6.18%
4
Wyoming
6.47%
5
Florida
6.82%
6
New Hampshire
6.85%
7
Alabama
7.36%
8
South Carolina
7.48%
9
South Dakota
7.86%
10
Georgia
7.98%
States With the Most Millionaires
One way to measure the overall desirability of an area is the number of millionaires who live there. After all, millionaires can afford to live in states that have high-quality healthcare, nice weather, and diverse cultural offerings. These are not the cheapest states in terms of cost of living or taxes, but their popularity may help non-millionaires reevaluate their must-haves vs. nice-to-haves.
Rank
State
% of Millionaire Households
1
New Jersey
9.76%
2
Maryland
9.72%
3
Connecticut
9.44%
4
Massachusetts
9.38%
5
Hawaii
9.20%
6
District of Columbia
9.12%
7
California
8.51%
8
New Hampshire
8.47%
9
Virginia
8.31%
10
Alaska
8.18%
Source: Statista
Does It Make Financial Sense to Relocate in Retirement?
For workers who already live in a state with moderate taxes, are near family, and have a lifestyle they enjoy and can afford, there may not be any compelling reason to move. But for those looking to make a change or lower their retirement expenses, it may make financial sense to relocate.
Just remember that housing, food, transportation, and other expenses usually have a bigger impact on one’s retirement lifestyle than taxes.
Pros and Cons of Relocating for Tax Benefits
Lower taxes alone may not be enough to motivate someone to pick up and move house. Other factors should also support the decision.
Pros of Relocating for Tax Benefits
• Potentially lower cost of living
• Discovering a community of like-minded retirees
• Possibly ticking off other boxes on your list
Cons of Relocating for Tax Benefits
• Other living costs may cancel out the tax benefits
• Moving costs are high, and the stress can be tough
• Need to find another home
The Takeaway
The best state to retire in for tax purposes depends on an individual’s budget, lifestyle, and values. Some states with lower taxes for retirees can have higher housing and transportation costs, canceling out any tax benefit. A financial advisor can help you decide if saving on taxes is worth the expense and trouble of relocating.
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FAQ
What are the 3 states that don’t tax retirement income?
Nine states don’t tax retirement plan income because they have no state income taxes at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Those states, along with Illinois, Iowa, Mississippi and Pennsylvania, don’t tax distributions from 401(k) plans, IRAs, or pensions. Alabama and Hawaii don’t tax pensions, but do tax distributions from 401(k) plans and IRAs.
Which state is the best state to live in for tax purposes?
Alaska has the lowest overall tax rates.
Which states do not tax your 401k when you retire?
Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax 401(k) plans when you retire.
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There’s no doubt about it, trying to live on minimum wage is no easy feat. This is especially the case with the cost of living consistently increasing while the federal minimum wage ($7.25 per hour) hasn’t budged since 2009. In fact, the federal minimum wage is worth nearly 30% less than it was 15 years ago, and close to 40% percent less than its peak value in 1968.
However, if you are making minimum wage, don’t despair. How to survive on minimum wage can be difficult, but it’s not impossible. The key is to keep track of your spending, cut costs where you can, and create — and stick to —a realistic monthly budget.
If you’re living on minimum wage, learn how you can stretch your dollars and even manage to sock some money away for that rainy day fund.
Key Points
• Living on minimum wage is challenging due to stagnant federal rates and rising living costs.
• Budgeting and tracking expenses are crucial for managing finances on a low income.
• Saving small amounts regularly can build a financial cushion over time.
• Government assistance programs can help cover essential costs like food and healthcare.
• Additional income through side jobs or higher-paying positions can alleviate financial strain.
What is Considered Minimum Wage?
The federal minimum wage, created by Congress in 1938 under the Fair Labor Standards Act (FLSA), establishes a base hourly rate at which employers are required to pay their employees. The current federal minimum wage is $7.25, and as noted earlier, that’s an amount that’s remained the same since 2009.
Many states, cities, and municipalities have realized the federal minimum wage is extremely low. They have therefore passed their own minimum wage laws, offering a higher amount, generally ranging from about $10 to $16 an hour. In addition, many companies (such as Amazon, Costco, Target, and Walgreens) have also enacted their own higher minimum wage, eclipsing the federal minimum wage.
In situations where an employee is subject to both federal and state minimum wage laws, the worker is entitled to the higher of the two minimum wages. For instance, Georgia’s basic minimum wage is $5.15 per hour, but since the federal rate is higher, employers must pay the federal wage of $7.25.
What about tipped employees, such as waitstaff? According to the U.S. Department of Labor, employers may pay the employee no less than $2.13 an hour in direct wages. There is a condition, though. If that amount plus the tips don’t add up to at least the federal minimum wage, the employer must make up the difference. In a number of states, the direct wage for tipped employees is higher than $2.13 per hour to help ensure a livable wage. Worth noting: When an employee is subject to both the federal and state wage laws, they are also entitled to the provisions providing the greater benefit.
Is Minimum Wage Livable?
The term living wage refers to the amount of earnings a person or family needs to cover basic expenses. These can include groceries, utility bills, housing, healthcare, transportation, and childcare. The goal of paying employees a livable wage is to prevent people from falling into poverty and allow them to have a decent, satisfactory standard of living.
Unfortunately, the cost of living in the U.S. has risen over the decades, especially during recent inflationary times, and the minimum wage has failed to keep up with the prices of goods and services. A full-time worker who earns the federal minimum wage has an income of $15,080 a year, which is right around the 2024 federal poverty line for an individual ($15,060), according to the U.S. Department of Health and Human Services. If that worker is a single parent with one child, they’re below the poverty line, which is $20,440 for a family of two. The bottom line: For most people, earning $7.25 an hour doesn’t cut it as providing a living wage. Even if you live in a state with a higher minimum wage, you may still struggle to maintain a modest standard of living.
17 Tips for Living on Minimum Wage
So, how to live on minimum wage? Here are 17 ways that can make it easier to survive on a minimum wage salary and even set aside some money for savings:
1. Evaluate Your Overall Spending
A first step to getting a hold on your finances is to know how much you’re bringing in per month versus how much is going out. One way to do this is to record all of your expenses. Begin tracking your spending for 30 days. Include everything, including the change you put in the tip jar at a coffee shop.
Doing so will give you an overview of exactly where your money is going and help you determine where you may need to make some cuts. Seeing a spending pattern may also pinpoint any causes of overspending, like not being able to say no to a restaurant invite when you really can’t afford it.
2. Create and Stick to a Budget
Having a budget provides you with a structure so you can organize your finances and live better within your means. When you’re not bringing home a lot of bacon, it’s vital to make sure you know exactly where your money is being spent each month. A line-item budget can help you track your spending in various categories and make adjustments as needed.
One common budgeting method to consider is the 50/30/20 rule. With this, you allocate 50% of your income to your needs (essentials), 30% for wants (nonessentials), and the remaining 20% towards savings. This guideline can help you manage your money better.
The thought of saving when you’re barely scraping by can seem impossible. But if you’re making minimum wage, even putting $5, $10, or $20 a paycheck towards savings can add up over time. You might even set up an automatic transfer from your checking account into a savings account a day or two after every payday. It’s as effortless as automatic bill payments and can help you build up a nest egg.
Doing so can also get you in the habit of saving and even help improve mental health. One University of Arizona study found people who save money report less psychological distress and have improved financial satisfaction.
4. Look Into Government Benefits
Another “how to survive on minimum wage” tip: Millions of low-wage earners in the U.S. qualify for federal and state government assistance benefits. This aid can help lower costs of food, healthcare, housing, and more for those surviving on minimum wage.
Some of the most popular programs include Medicaid, the Children’s Health Insurance Program (CHIP), Supplemental Nutrition Assistance Program (SNAP), and the Temporary Assistance for Needy Families (TANF). To see what benefits you might qualify for, visit benefits.gov .
5. Save on Food
Obviously, minimizing dining out and ordering takeout will lower your food bill. Some other ideas:
• People and families living on minimum wage can qualify for SNAP (formerly known as food stamps) to help offset grocery costs.
• Consider shopping at less expensive supermarkets, using coupons, buying the store or generic brand, and if applicable, ask if the store has a customer club card so you can get additional discounts.
• Buying in bulk and stocking up on frozen foods and pantry staples such as bread, milk, eggs, peanut butter, pasta, beans, rice, tuna, and canned soups can help when money is particularly tight.
• Food banks or pantries can be another resource. You can search for one in your area at FeedingAmerica.org .
6. Find Additional Ways to Increase Your Income
If you are struggling to make ends meet, you might also think about how you could bring in more income.
• This might be the time to look for a higher-paying job or simply ask your boss for a raise.
• Investigate getting a side hustle on your off hours like driving for Uber, Lyft or delivering food for DoorDash, GrubHub, or Instacart. You could also consider house cleaning, babysitting, dog walking, or pet sitting for extra money.
• Have a marketable craft or hobby? Try selling your creations on Etsy or at a craft fair.
• If you have unwanted stuff that others might want, put it up for sale on Facebook Marketplace, eBay, or your community’s neighborhood group. A garage or yard sale can also bring in some bucks if you’ve got enough to peddle.
7. Lower Your Housing Costs
Housing is where Americans spend the largest share of their paycheck, according to the U.S. Bureau of Labor Statistics. With the prices to rent or own a home consistently rising across the country, this can be a major issue for those living on minimum wage.
According to a 2024 report by the National Low Income Housing Coalition, a full-time worker needs to earn an hourly wage of $26.74 to afford a modest one-bedroom rental home in the U.S.
If you’re paying more than you can afford for housing, there are ways to cut the costs.
• Consider downsizing to a smaller home or apartment, moving to a more affordable area in your town or city, getting a roommate, or living with a friend or family member while you save.
• Look into applying for affordable public housing in your area, specifically established for eligible low-income people. The U.S. Department of Housing and Urban Development (HUD) oversees public housing agencies in your state or city. You can find your local housing authority office at hud.gov or by calling 800-955-2232.
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8. Work Towards Reducing Your Debt
When you’re not bringing in a lot of money, it’s easy to accumulate debt, especially by using credit cards to get by until the next paycheck. This can leave you with high credit card bills due at the end of the month and increase the chance of a minimum payment you can’t afford. You can tackle the problem in a few ways:
• Consider a balance transfer onto one credit card with a zero or low-interest promotional rate. These can provide a period of time during which you can pay down debt before the interest rate rises.
• Seek out help from a reputable nonprofit organization such as the National Foundation for Credit Counseling (nfcc.org ), a professional credit counselor, or a financial planner who can help you create a plan to start tackling your debt.
9. Minimize Healthcare Costs
Healthcare can take a big bite out of a tight budget. These moves may help lower those expenses:
• Medicaid and the Children’s Health Insurance Program (CHIP) are among the government programs providing free or low-cost health care to some low-income families and individuals. To determine if you’re eligible, go to Healthcare.gov where you can also fill out an application.
• Work towards saving on prescription drug costs at participating pharmacies with a discount card or coupons offered by companies such as GoodRx, SingleCare, or America’s Pharmacy.
• Try a variety of free things you can do to stay healthier. Take a walk, ride your bike, pick up a basketball game, or do free workout videos on YouTube.
10. Look to Save on Transportation
Owning a car and maintaining it can be costly. Here, some ways to lower expenses:
• Consider the alternatives to car ownership, such as public transportation, carpooling, walking, or riding a bike.
• When you drive, try to limit extraneous trips to reduce mileage and wear and tear on your car.
• Save money on gas by comparison shopping at your local fuel stations.
• See if you can lower your car insurance payment with good driver discounts or by skipping extras that you don’t really need, like car rental coverage or emergency roadside assistance.
11. Make the Most of Tax Breaks
When it comes time to file your taxes, make sure you’re taking advantage of whatever tax credits and deductions are offered for low- to moderate-wage employees, such as the Earned Income Tax Credit, Child Tax Credit, or Child and Dependent Care Credit. If you qualify, you can use the credits to help reduce the amount of taxes you owe and possibly increase your refund.
When you start a new job as a regular employee, your employer will have you fill out a W-4 form to determine how much tax money should be withheld from your pay and sent to the IRS for you. This is determined by what your tax filing status is (single or married, for example) and whether you have any dependents.
If you choose to have too much money taken from each paycheck, yes, you’ll get it back in the form of a tax refund, but it might be more useful to have that extra money during the year. You can change or update the withholding information on your W-4 form with your employer at any time. What’s more, you should do so if you experience any type of personal life change, such as marriage, divorce, or having a child.
13. Mind Your Utility Usage
Americans pay, on average, $583 a month for utility costs, according to a study from Move.org. This can add up to half a minimum wage-earner’s monthly paycheck.
Fortunately, there are many ways to lower your utility bills that can help with the challenge of how to live on minimum wage.
• Switch to using more energy-efficient light bulbs and you can save on average $225 a year, recommends the U.S. Department of Energy.
• Avoid phantom energy usage: Turn off or unplug any appliances not in use; even those sitting idle still drain some energy from the outlet.
• Save up to 10% on heat and cooling costs by setting your thermostat seven to 10 degrees back from its normal setting for eight hours a day (such as when you are out at work).
• Switching to doing cold water washes can save on gas and electricity needed to heat water.
• If you need new appliances, opt for ENERGY STAR labeled machines that use less water and energy than standard ones.
• Get rid of any streaming channels you don’t watch and/or downsize to a more basic cable plan.
• If you’re having trouble making payments, call your utility companies and see if you can negotiate rates or be put on a financial assistance payment plan.
14. Take advantage of any Employer-Sponsored Benefits
Make sure you use any plans your employer offers, such as health insurance, retirement accounts like a 401(k), daycare services, or paid time off. These things can be priceless to any employee but especially if you’re surviving on minimum wage.
15. Look for Cheap or No Cost Things to do
Living on a low-income salary doesn’t mean you have to sit home and give up on fun. But instead of pricey entertainment and eating out, consider these ideas:
• Check to see if any museums have a day where admission is free.
• Grab a slice of pizza with a friend for a cheapie lunch.
• Take a walk or bike ride; visit the library to check out free books and DVDs.
• Host a potluck gathering with friends.
16. Check Out Your Local “Buy Nothing” Groups
Neighborhood “buy nothing” groups, where people post things they want to give away, have become popular. These community networks can be a great way to get clothing, food, toys, appliances, and furniture absolutely free.
Not sure where to start? Visit BuyNothingProject.org or search Facebook to see if there’s a buy nothing group near you.
Living on a minimum wage income can be a constant source of anxiety and stress. But think about thriving rather than just surviving on minimum wage. Be sure to practice self-care. There are lots of low-cost or free ways to reward yourself, from camping out to treating yourself to a fancy coffee to finding free live music in your area.
The Importance of Having a Savings Account
When you’re living paycheck to paycheck, saving money can feel like an impossibility. But opening a high-yield savings account can be a wise move. It’s a place where your money can securely grow over time, thanks to the interest it earns. It’s also a place that may be less tempting to tap into than your checking account, and it’s less risky than, say, investing in the stock market.
You can save for a specific financial goal, such as moving to a bigger apartment, or let it build as a nest egg for the future. Another reason it’s important to have some savings? You need an emergency fund for life’s unexpected and expensive moments, such as having a sick pet, needing a car repair, or suddenly losing your job.
Financial experts generally advise having at least three to six months’ worth of living expenses socked away. This cash can help prevent your using credit cards or money in your checking account slated for bills when an urgent need crops up.
Can You Open a Bank Account While Earning Minimum Wage?
Yes. You don’t have to have a high-paying job in order to open a bank account. Anyone in the U.S. who is 18 years old or older can open a bank account on their own, and that includes people who are unemployed or have no income at all.
It’s important to know that many traditional banks require you to make a minimum deposit when opening a bank account, which can be anywhere between $25 and $100. However, some banks, especially online banks, will allow you to open an account with no minimum balance required.
What to Look for in a Bank on a Minimum Wage Salary
If you earn a minimum wage, you’ll likely want a bank that doesn’t have a lot of hurdles to opening an account or charge a lot of fees. Look for these features:
• No extra fees: Some banks tack on extra fees for different reasons, such as using an ATM not in their network, overdraft fees for having to cover for insufficient funds, or a monthly maintenance or service fee. Look for a bank that doesn’t charge these fees.
• Interest-bearing account: A bank account that allows you to earn money on your deposits can only help your money grow. Many banks don’t pay interest on checking accounts and may only pay a sliver of a percentage on savings. Shop around for a better annual percentage yield (APY).
• No monthly minimum balance requirements: Many banks charge a monthly fee if you don’t keep a minimum balance in your account. Search for one without any rules on how much money you’re required to have in there.
• Low-to-no minimum deposit requirements: You may find some banks have a minimum amount of money you have to deposit in order to open an account. It could be as low as $10. However, you can also find banks that don’t require any deposit at all to start an account.
The Takeaway
People who live on a minimum-wage salary can benefit from creating and sticking to a budget, finding ways to cut costs, knowing about financial assistance programs, and finding a trusted banking partner that charges low or no fees and pays an above-average APY on your deposits.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.
FAQ
Is minimum wage a liveable salary?
It can be, depending on where you live, your expenses, and how much of a minimum wage you’re earning. Many states, cities, and even companies offer a higher minimum wage than the federal wage of $7.25, making it easier for people to survive. That said, in some parts of the country, you would need to earn more than triple the federal minimum wage to afford a one-bedroom rental.
What are some tips for lowering expenses when earning minimum wage?
Housing, transportation, and food are the biggest expenses for the average American household. Some ways you can lower these costs include downsizing your housing situation or getting a roommate, limiting restaurant meals, cutting grocery costs, and opting for public transportation. In addition, it can be worthwhile to research local and federal programs that can help you lower expenses and get more for your money, from Supplemental Nutrition Assistance Program (SNAP) to Medicaid.
Can you open a bank account when earning minimum wage?
Yes, you can, but it’s wise to shop around for a bank that doesn’t charge any excess fees or require a monthly minimum balance requirement. Also look for ones that pay a competitive annual percentage yield (APY) on your savings and possibly your checking balance as well.
SoFi members with direct deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
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When it comes to maintaining a strong financial plan and healthy financial behaviors, our brains can sometimes work against us. Behavioral biases, mental traps, and neural wirings can all get in the way of setting and meeting financial goals.
Consider recency bias, which is the tendency for people to look to recent events to make decisions about the future. Just because a stock has skyrocketed recently, that doesn’t mean its upward trajectory will last forever. In fact, jumping into the market during a rally could mean you end up buying when prices are high, right before investors bail and prices fall.
Another mental tendency to consider: ego depletion. It’s the idea that people can only exert their willpower for a limited time, and after that, it’s harder to practice self-control. If you have an important financial decision to make, it may make sense to wait until you are no longer feeling depleted.
Here’s a closer look into the ego depletion theory, what it could mean for your finances, and how to overcome it.
What Is Ego Depletion?
The concept of ego depletion hinges on the idea that our willpower reserves are finite, and when we exert self-control for too long, we use up those reserves. Once those are depleted, it is harder to exert self-control, and we’re more likely to make poor decisions.
The term was coined by American social psychologist Roy Baumeister in the late 1990s, though the idea of ego depletion has become popular in recent years. This may be in part because it makes sense intuitively. For example, the experience of eating a healthy breakfast and lunch only to get home from work and eat a bag of chips for dinner is pretty easy to relate to.
However, not everyone agrees with the concept of ego depletion. Some scientists report a lack of consistent data to support the idea. Instead, they have found that motivation is not finite. Rather, it can be subjective, and there are ways to increase it. That can be a good thing as you begin to set long-term financial goals.
If you’re looking to build your long-term financial plan, a money tracker app can help. The SoFi app connects all of your accounts in one convenient dashboard. From there, you can see all of your balances, spending breakdowns, and credit score monitoring. Plus, you can get other valuable financial insights.
Causes of Ego Depletion
There are a variety of factors that may play a role in ego depletion.
• Low blood sugar. If you haven’t eaten and your blood sugar has dropped, it may be more difficult to exert willpower.
• Emotional distress. Temptations may be harder to resist if you’re experiencing a state of mental anguish.
• Unfamiliar tasks. If you are doing something for the first time, you may need to exert more mental energy, which can lead to ego depletion.
• Lack of choice. If you are forced to do a task not of your choosing, you may be more likely to become depleted.
• Illusory fatigue. If you think that a task will be mentally tiring, you may experience ego depletion faster. In other words, ego depletion happens more often when you expect it to. If you think a task won’t tax you too much, you may be able to exert more self-control.
• Cognitive dissonance. Situations in which you do or say something that contradicts your beliefs can tire you out and diminish your self-control.
• Variable heart rate. Those who experience variable heart rate have been found to have less self-control.
The Effect of Ego Depletion on Your Finances
If tasks that require self-control weaken your willpower, you may be less likely to make good decisions when you experience ego fatigue. When it comes to your finances, for instance, you may be more likely to spend money on things that you can’t afford.
Ego depletion could also mean you’re less equipped to make important decisions, such as how to invest your money. For example, if the market is experiencing a downturn, you may find yourself more prone to panicking and potentially pulling out your money. But in doing so, you’ll lock in losses and potentially miss out on a subsequent upswing.
Ego depletion could also mean you miss important deadlines, such as deadlines for funding your 401(k) or IRAs, or tax deadlines.
Lack of sleep makes self-control difficult. Sleep counteracts fatigue and helps reset your willpower reserves, so practice good sleep hygiene. Go to bed at a consistent time. Make sure your bedroom is quiet, relaxing, and dark. Avoid large meals, caffeine, and alcohol before bed.
Manage Stress
Managing stress can help you address the causes of ego depletion as well as its effects. Consider strategies such as deep breathing, mindfulness exercises, eating healthy, and consistent exercise.
Set Goals
Clear financial objectives and the steps you need to reach them can help overcome ego depletion. Consider using SMART goals, or goals that are specific, measurable, achievable, relevant, and time-bound. With these in place, you’ll know what you need to do to accomplish your objectives, and you’ll also be less likely to make moves that stray from your plan.
Plan for the Long Term
Long-term financial plans take your goals, risk tolerance and time horizon into consideration. They are built to account for the natural cycles of volatility. With a long-term plan to refer to, you may be less likely to make rash decisions in the short term, such as panic selling when markets are down or buying when market prices are peaking and may be nearing a fall.
There are a variety of tools out there that can help you set and meet your goals and make financial freedom a reality. It’s worth shopping around to find the ones that work best for you and you’re more likely to stick with.
One to consider: a spending app, which can help you set up a budget, categorize and track spending, make bill payments on time, and track your credit score.
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The Takeaway
The idea of ego depletion centers around the idea that when we exert self-control for too long, we use up our willpower reserves and are more likely to make poor decisions. Learning the causes of ego depletion is a first step in helping you head off rash financial decisions that may work against you. If you recognize that your willpower is fading, take a breather. And when in doubt, refer back to your long-term financial goals and plan.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
See exactly how your money comes and goes at a glance.
FAQ
What is the cause of ego depletion?
Ego depletion can be caused by a number of factors, such as emotional distress, fatigue, low blood sugar, or unfamiliar tasks.
What is an example of ego depletion?
An example of ego depletion might be spending the day hard at work and then coming home, sitting on the couch, and turning on the television instead of pursuing other healthier activities, such as going to the gym.
How do you deal with ego depletion?
There are a number of strategies to combat ego depletion, such as getting enough rest, managing stress, and setting and sticking to long-term goals.
Photo credit: iStock/Delmaine Donson
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If you’re considering buying a fixer-upper, you’re likely doing so, at least in part, because purchasing a home continues to be expensive. Post-pandemic, prices are still climbing, with a 4.7% uptick in November 2024 versus a year earlier. Adding to the high cost of homeownership is the fact that mortgage rates went from historic lows a few years ago to an average of 7.08% for a 30-year loan as of January 2025.
These economic factors are among the reasons why many people are drawn to fixer-uppers. They hope to find a lower-priced house that can be rehabbed, giving them a piece of the American Dream for less. Are you among their ranks? Here, learn more so you can make an informed buying decision.
Key Points
• Renovating a fixer-upper isn’t necessarily a bargain. A thorough home inspection is crucial to identify what issues are present and budget for them.
• The initial purchase price of the home is typically lower, but renovation costs can be unpredictable and vary by location.
• It’s wise to budget for overages, typically 10% to 25%, to cover unexpected expenses and delays.
• Common renovation projects include kitchen and bathroom remodels, and roof replacements, with costs varying widely but extending into the five-figure range.
• Financing options include larger mortgages to reserve cash, home improvement loans, and HELOCs, depending on your financial situation.
Defining a Fixer-Upper
What exactly is a fixer-upper? It’s a home that’s in need of significant work. In many cases, these are older houses with much deferred maintenance or simply a lot of dated, well-worn features.
A fixer-upper might be a home from 100 years ago with an insufficient electrical and heating system, as well as a roof in need of replacement. Or it could be an apartment with a very old kitchen and bathrooms needing an overhaul. These residences might be livable, but they require an infusion of cash and work to make them comfortable by today’s standards.
Initial Purchase Price vs. Renovation Costs
If you’re thinking about buying a fixer-upper, it’s important to look carefully at the initial purchase price versus renovation costs. Granted, the price of the home is likely to be cheaper than that of a brand new home. The Federal Reserve Bank of St. Louis, for instance, found that the median price for an existing home was $388,000 vs. $420,800 for a new home in the most recent year reviewed, so buying an older home can already save you cash.
However, pricing renovation costs can be tricky. Among your considerations:
• You will have to finance both the purchase of the property and the renovations. You may need to get a home loan and then access additional funds for the renovation.
• Whether you are planning on doing the work yourself or hiring professionals, issues can often be uncovered as you go. Perhaps a bathroom you thought was fine as-is actually has deteriorating plumbing. Or maybe in the kitchen, the parts you need to repair the aging refrigerator are no longer available. These kinds of discoveries can blow your budget.
• The location of your home will likely impact prices. Those in a small town, for instance, will probably pay less to get the work done than someone who lives in a pricey suburb of, say, San Francisco or New York.
• You are likely aware that supply-chain issues can impact your renovation. As the saying goes, time is money. These kinds of delays can throw a wrench in your plans and lead you to spend more as you find ways to finish the job.
• Don’t forget to think about whether you can stay on-premises during the remodeling process or if you will need to find temporary housing as your property is renovated.
As you contemplate these factors, it’s wise to do a full home inspection of a fixer-upper property, walk through with a contractor or two if you are planning on delegating the work, and draw up a budget to see how renovation costs will add to the initial purchase price.
Evaluating Renovation Expenses
Here’s a closer look at three common fixer-upper remodeling projects, with current costs.
Kitchen Remodel Costs
According to Angi, the home improvement site, the average cost of a kitchen remodel in 2025 is almost $27,000, but there’s a huge range of prices possible, including up to twice that amount or more.
The three elements that contribute most to the cost are the countertops, cabinets, and flooring. The more you lean into custom and luxury options, the higher the price will go. Also, the size of the kitchen will count as well, with bigger being more expensive, and the degree of dilapidation can matter, too.
Bathroom Renovation Costs
The average bathroom renovation ranges from $6,000 for smaller-scale fixes, such as primarily cosmetic updates, to $30,000 for a complete gut do-over, with the average price tag coming in at $12,115 in 2025, according to Angi. A big expense can be moving the plumbing lines. If you can keep the layout as-is, you could save up to 50%.
Roof Replacement Costs
A roof should typically last two to three decades on a home — or longer, if you choose the right material. The average cost for replacing a roof is about $9,511, but that will vary with the size of the home and the material you choose.
For instance, if you opt for a premium product, like natural slate, you’ll find that the average costs for a 1,500-square-foot roof can be $45,000 in 2025.
It’s crucial to add up all the costs of potential renovations before you buy a fixer-upper house. You don’t want the dream of owning your own home to cloud your judgment about the work that’s needed. If you don’t do a deep dive on pricing before you buy, you may end up in your own version of The Money Pit movie.
Consider the following:
• Assess the upfront cost of the home, and add up all potential material and labor needs — think both big and small, like plumbers, electricians, carpenters, all the way down to any new doorknobs you’ll buy along the way. Then, subtract that from the home’s renovated market value. Would this still be a profitable venture and a wise investment?
• Keep in mind that the impact of inflation can push prices higher than what you believe they will cost during the time you are renovating.
• It’s important to allow room in your budget and your timeline for overages. It’s not uncommon for home renovations to cost more and take longer than anticipated. It’s wise to have a cushion in your budget, at least 10% but preferably 20% to 25% to cover additional costs. Add wiggle room in your timing, too.
• Lastly, as noted above, think about whether you will be able to occupy the home as it’s renovated. If you’ll be without heat or air conditioning, bathrooms, and/or a functional kitchen, you may have to pay to live elsewhere for a period of time.
These considerations can seem overwhelming, but remember, your goal is to bring out your home’s maximum potential, whether for you to enjoy or to capitalize on via a future sale.
You have a few options for how to finance the renovation of a fixer-upper:
• You could put less money down and take out a larger mortgage. This would allow you to have some cash on hand to pay for the remodeling.
• You can buy the house and then take out a home improvement loan, which is a kind of personal loan used to finance your home projects. You get a lump sum and pay it back over time with interest,
• An alternative to a personal loan would be to purchase the fixer-upper and then apply for a home equity line of credit, or HELOC. These are revolving lines of credit that may offer attractive terms (low interest, long repayment). However, keep in mind you are using your home’s equity as collateral. You typically need 15% to 20% equity in your home to qualify.
• Another option is a home equity loan vs. a HELOC. The difference is that a home equity loan typically distributes a lump sum of money, which is repaid in installments over a period of time.
If you are considering buying a fixer-upper, a key decision is whether to do the work yourself or hire professionals to complete the job. Making that decision involves keeping the following in mind:
• Timing: It’s important to look at the timeline of your project. Would you have the bandwidth to get the work done yourself? Or, thinking about the other option, can you find a qualified professional who is available to start when needed?
• Skill level: Be honest. Are you confident that you have the skills needed to get the job completed and in a way that you’ll be happy with? Can you tackle retiling a bathroom or adding a home addition? Renovations aren’t for novices, and errors can be costly and possibly dangerous.
• Budget: As you budget after buying a house, do you have money to hire professionals? If you don’t have deep pockets, you may feel your only option is to DIY the project. But, as noted above, there are ways to access funding to get the job done right, such as different types of home improvement loans, if hiring out winds up being the best decision.
As home prices continue to rise, a fixer-upper can offer good value for some home shoppers, whether they want to renovate the home themselves or hire professionals to complete the work. However, it’s important to evaluate your costs upfront to make sure you can handle both the purchase of the property and then financing the updates to make your renovation dreams come true.
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FAQ
What should I avoid when buying a fixer-upper?
When buying a fixer-upper, don’t be blinded by the property’s potential or guesstimate costs. It’s important to have a full inspection and be aware of such big-ticket expenses as structural damage, outdated plumbing and electrical systems, and any environmental issues (such as mold).
Is it cheaper to build or to buy a fixer-upper?
While a fixer-upper is typically cheaper than a home that’s ready for move-in, it’s hard to generalize whether it’s cheaper to build or buy a fixer-upper. Constructing a simple house in an area where land and labor are affordable could be a wise move, while building in a pricier area on, say, a challenging sloped lot could ratchet up expenses. Similarly, some fixer-uppers require little investment to make them livable, while others require a long and in-depth overhaul. Doing your research and running the numbers can usually provide guidance.
What is the most expensive part of remodeling a house?
Typically, the most expensive part of remodeling a house is renovating the kitchen and bathrooms. These rooms often require pricey appliances and fixtures, custom cabinetry, and the work of plumbers and electricians.
Photo credit: Stocksy/Karina Sharpe
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With the rise of environmental and climate-related concerns, more people are becoming familiar with the term greenwashing — which is when a company markets itself as more sustainable or environmentally friendly than it actually is.
Greenwashing impacts investors and consumers alike because it’s designed to mislead people through a variety of means, including: the use of vague terminology or false labels; making claims about green actions or outcomes that can’t be verified (or are found to be deceptive); using false or misleading research and data.
The term greenwashing is derived from the notion of whitewashing, which is when a company or individual conceals wrongdoings by presenting a cleaned-up, but deceptive version of their actions.
Key Points
• Greenwashing is when a company markets itself as more sustainable or eco-friendly than it is.
• Companies may engage in greenwashing to attract consumers, employees, or investors.
• Greenwashing can also be an attempt to avoid stringent or costly regulations.
• Common greenwashing techniques include misleading labels, vague or meaningless terminology, a deceptive use of data, and more.
• It’s vital for investors, as well as consumers, to look beyond an organization’s eco-friendly claims to verify whether they are adhering to ESG standards.
Types of Greenwashing
For some companies, greenwashing is a means to attract consumer and investor dollars. According to the 2023 Business of Sustainability Index, 68% of consumers said they’re willing to spend more money for environmentally friendly products.
But some companies engage in greenwashing to appear compliant with environmental regulations, which can be stringent and come with hefty penalties — especially now that some countries, like the EU. and U.K., are adopting anti-greenwashing laws.
Before you buy products marketed as sustainable or eco-friendly, or invest in a green company that makes similar claims, it may help to know the different types of greenwashing.
• Greenwashing a polluting product: Companies may attempt to improve the branding of a product by making it seem more environmentally friendly without actually changing much or anything about it.
• False associations: Brands can make it seem like they are endorsed by a third party when they really aren’t, or the third party is simply their own subsidiary.
• Green products from a polluting company: A company might make a product that has a lower environmental impact, such as an electric vehicle, but manufacture it in a way that creates significant waste and greenhouse gas emissions nonetheless.
Again, because socially responsible investing has grown so rapidly, and many companies want to attract the attention of investors and consumers with a green sensibility, there is commensurate growth on the greenwashing side, so it pays to be cautious when making choices.
💡 Quick Tip: How do you decide if a certain online trading platform or app is right for you? Ideally, the online investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.
Example of Greenwashing
Greenwashing is increasingly on the radar of regulatory bodies that protect consumers and investors. But some watchdog organizations lack the resources to hold companies to account. A few examples of what would be considered greenwashing are described on the U.S. Federal Trade Commission (FTC) website:
• A company labels a trash bag they are selling as “recyclable.” Although this may be true, it’s unlikely that a bag full of trash will be emptied and then recycled on its own. This label makes the product appear to have an environmental benefit, but in reality it doesn’t.
• In another example, a company labels a product as having 50% more recycled content than a previous product did. This makes it sound like a significant amount, but in fact the company may have increased the recycled content from 2% to only 3%, so in reality there has been hardly any change.
• A company labels a product as “recyclable” but they don’t say specifically whether all parts of it are recyclable, just some parts, or just the packaging.
Other real-world examples include: An oil company that’s known for environmental negligence releases advertisements that state their dedication to a carbon-free future — or companies promising to do environmental cleanups, but failing to actually follow through on those promises.
Although in the short term greenwashing might benefit a company if it leads to more people buying their products, the risk is that a revelation of greenwashing practices could quickly and negatively outweigh those gains.
The Impact on Consumers
If consumers catch on that a company is engaging in greenwashing, rather than adhering to ESG standards, there could be a public relations backlash. Consumers may feel duped, and may express their discovery of a company’s contrary claims in various ways: with other consumers, on social media, writing to elected officials, contacting the Better Business Bureau.
Depending on the scale, and the level of consumer awareness, this has the potential to damage a company’s reputation and trustworthiness, and cause consumers to turn to other brands.
In addition, companies that get caught greenwashing can also face legal ramifications for their misleading claims. And investors interested in true impact investing may take their business elsewhere.
The Impact on the Environment
In the long term, the biggest negative consequence is the actual environmental impact of manufacturing and other business practices that are not, in fact, green or sustainable. By using green claims to bolster their business goals, yet not living up to actual sustainability standards, companies not only add to environmental damage, they hinder efforts to create sustainable products and reach other socially responsible goals.
Companies rely on clean water and air, quality soil, viable supply chains, and a stable climate to operate. A thriving economy requires a healthy planet, and greenwashing ultimately doesn’t support either.
The Impact on Investors
Just as many consumers are seeking a clearer understanding of the environmental claims of various products and consumer goods, investors are looking for ways to vet the claims of financial companies that offer ESG-focused securities, like exchange-traded funds (ETFs) and mutual funds.
This has led some organizations to develop ESG frameworks, in order to provide investors with a way to assess companies’ ESG progress, and use accepted standards and metrics to compare one company to another. Companies that make ESG claims for their investment products can come under regulatory scrutiny, and may face substantial fines.
How to Spot Greenwashing
Many greenwashing tactics can be convincing. Here’s what to look out for when purchasing a product, or investing in a company that claims to embrace sustainability or ESG investing strategies (i.e., environmental, social, and governance practices):
• Vague language: Labels such as “eco-conscious,” “clean,” or “100% sustainable” don’t actually mean anything in terms of a company’s manufacturing processes or adherence to environmental criteria. Be sure to research ESG standards that reflect actual environmental practices.
• Natural imagery: If a polluting company uses marketing images of flowers, trees, beaches, and so forth, they may be trying to appear more environmentally friendly than they really are. Be sure to check whether the company or product lives up to the advertising.
• Fabricated data: Companies might fund research that will provide “results” that make them look better, or make data up completely. In some cases, it’s easy to vet company research or data via the company website or by doing an internet search.
• Grand claims: Some companies may pledge to reduce carbon emissions or announce a net-zero policy (or another ambitious goal), with little to back up the claim.
How to Avoid Greenwashing
Whether purchasing products or investing in companies, if you are looking for the most sustainable options, there are a few ways to avoid greenwashing.
1. Look for Clear and Transparent Language
If a brand makes sustainability claims, look for specifics such as certifications, verifiable third-party endorsements, industry credentials, and details about exactly what the brand is doing.
2. Evaluate the Data
If a brand uses statistics and numbers to back up its sustainability claims, make sure the numbers are backed up with credible data.
3. Compare Similar Products
A company may make sustainability claims when in fact their product has basically the same environmental impact as a competitor’s. Compare ingredients, packaging, and manufacturing information to see whether one product is really better than another.
4. Look Beyond the Final Product
Even if a company is improving the impact of its products, it may not be addressing the waste and emissions associated with its operations or supply chain. If this is the case, they may be just making changes for marketing purposes. Check out a company’s website and/or follow watchdog groups to learn how much effort is going into sustainability at the corporate level.
5. Look for Goals and Timelines
If a company is truly implementing a comprehensive sustainability plan, it would include measurable goals and timelines. Ideally those would be available to investors and consumers on a public forum such as the company website, in the interest of transparency.
6. Verify Ingredients and Materials
Some terminology and product labels can be misleading. For instance, a company might say that their product is made from organic cotton or recycled plastic, when in fact only a small percentage of the cotton or plastic is organic or recycled and the rest is not.
The FDA has no guidelines for what the term “natural” means, and according to the USDA the term simply means that a product is “minimally processed” with “no artificial ingredients.”
Greenwashing vs. Green Marketing
Although greenwashing is when a company attempts to cover up their bad practices, there is nothing wrong with a company telling the story of its environmental initiatives, and the steps it’s taking to produce products more sustainably.
That’s green marketing at its best and most transparent.
How to Recognize Green Marketing
Actual green marketing may include:
• Certifications and endorsements from established regulatory organizations
• Clearly labeled manufacturing processes
• Recyclable, compostable, or biodegradable materials (but watch out for these labels, sometimes a product can actually only be composted or biodegrade in very specific conditions that aren’t realistic).
• Products free from toxic chemicals
• Use of renewable energy
• The use of transportation measures such as EVs
• Purchase of carbon offsets for any unavoidable emissions
• In-office programs and measures such as renewable energy, LEED certified buildings, on-site composting, or elimination of single use plastic
• Doesn’t use too much packaging, and ideally avoids plastic packaging
• Circularity programs that allow consumers to send back the product for repair or reuse
• High-quality manufacturing made to last rather than one-time or short-term use
• Fair trade and ethical labor practices
• Environmental programs outside the company, such as donations or volunteer efforts
Greenwashing Regulations
There are currently no laws in place to prevent greenwashing practices in the U.S. The FTC does have a set of Green Guides, which are not mandatory, but can help companies avoid falling into greenwashing territory.
Globally, the outlook for anti-greenwashing measures is somewhat more robust. The last couple of years have seen a rise in anti-greenwashing policies or preliminary taskforces in various countries around the world.
• The EU Green Claims Directive is a new law that was approved by the European Parliament in 2024, and is now being enacted by member states, with a September 2026 target date for implementation.
• In the U.K., the Green Claims Code is a set of principles that businesses must adhere to, or face regulatory consequences.
The Takeaway
Greenwashing is a marketing tactic some companies use to align themselves with the growing consumer and investor desire for sustainable products and investments. It’s related to the concept of “whitewashing,” which means covering up the truth with a positive-sounding story.
Investors committed to sustainability can look for red flags of greenwashing before deciding whether to invest.
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FAQ
What is ESG greenwashing?
ESG greenwashing is the practice of using marketing tactics to exaggerate an organization’s environmental, social, or governance efforts in order to attract customers, employees, investors, or positive media attention.
What are the three most common kinds of greenwashing?
Three common types of greenwashing are the use of environmental imagery, misleading labels and language, and hidden tradeoffs where the company emphasizes one sustainable aspect of a product — while still engaging in environmentally damaging practices.
What is the role of regulations in combatting greenwashing?
Ideally, regulations against greenwashing practices will deter companies from false and misleading practices. Regulations can establish standards that result in clearcut penalties in the case of greenwashing violations. As of early 2025, there are only a few anti-greenwashing regulations in effect, worldwide.
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