When The Pandemic Forced Young Adults To Move Back Home, They Got a Financial Education

“When we face a stressor, we tend to think more about the future,” says Brad Koontz, a financial psychologist and professor at Creighton University in Omaha, Neb. Young adults’ growing openness to discuss finances with their parents and peers, they say, reflects a kind of tribal response among people to the stress of the pandemic.

Here’s a look at what the adult children and parents of three families learned about money — and themselves — in their time of pandemic together. When the pandemic forced 23-year-old Hannah Froling to move into her parents’ townhouse in Southampton, NY in March 2020 to remotely finish her final semester of college, the financial clock began to tick.

Ms Frohling’s parents, Jennifer Schlueter and Matthew Froehling, set to move to their winter home in Florida during the fall of 2020, told her they would need to begin helping support the household in their absence. That means monthly payments of $500 for rent and $250 for family car use. They also set a deadline for Memorial Day 2022 for her to be out of the house. Ms Schlueter says she wanted to provide her daughter with a “soft landing” after the shocking experience of graduating in the middle of a pandemic. But she also wanted Ms Froling to transition to living independently, so the transfer deadline passed.

So, Ms. Froling got two waitress jobs and eventually began to rely on the savings lessons her parents took as they grew up. She has two income streams—cash tips and a regular paycheck that includes her hourly rate and credit card tips. She keeps the cash tips in a savings account and splits the paycheck between a checking account and an investment account linked to an S&P 500 index fund. She has saved about $10,000 since moving back home and started looking for apartments to rent on Long Island.

Saving and managing money doesn’t always come easily to Ms. Froling. While in college, he received an allowance from his parents at the beginning of each semester. “As a freshman, I’ll blow it in the first two months,” she says. So her parents, who both work in finance, seated her and helped her budget by outlining the necessities and luxuries in her spending habits.

But it’s been the past 18 months at home, and the closeness to her parents, which has allowed Ms Froling to be more proactive about her savings and investments, and to put all those lessons into practice. She says many of her money talks happen on family road trips. Her father helps her stay on top of the latest trends in investing and her mother shares strategies for how Ms. Froling can increase her savings and continue to build a foundation for moving out of the family home. Ms. Froling is taking it further by sharing these tips with her coworkers and encouraging some of them to open their own investment accounts.

“The lesson we want to teach her is that she can do this,” says Ms Schlueter, referencing the financial wisdom she is sharing with her daughter rather than just talking to her from being together during the pandemic. got the opportunity to do. via phone or text. That includes discussing expenses such as health and car insurance after Ms. Froling leaves home again.

Ms Froling says, while she often feels like her parents bother her about how much she’s saving, in the end she knows it’s best: “They don’t want me when I If I get out of here, it will fall flat on my face.”

breaking the money taboo

In November 2020, 27-year-old Rogelio Meza left his $1,500-a-month apartment in Austin, Texas, to move into his parents’ home in Laredo.

The move helped him work towards his goal of saving money and becoming a homeowner, says Mr. Meja, who works as a customer-experience manager for a solar-power company. It also allowed him to help his parents, who were battling the financial stress of the pandemic.

When the pandemic struck, her mother, Eudoxia Meja, who works as a cook, noticed that her hours had been cut in half. His father Juan Meja is handicapped and unable to work. Since living with his parents, little Mr. Majora has helped with grocery and utility bills, paying about $700 a month, which still allows him to take out money for a home down-payment. Is.

When he was growing up, Mr. Meja says, his family never talked about money. “Nobody really taught me how to save, nobody taught me about stock options or investment accounts, good versus bad debt.” He relied on friends who worked in finance to teach him about these things, and the conversation helped him understand where his money was going. Now, he says, he has passed on some of this knowledge to his parents.

One day, when an unusually large and overdue utility bill arrived in the mail, Mr. Majora turned it into an opportunity to start sharing his financial wisdom with his family.

“I was like, ‘Okay, let’s talk about it,’” he says, describing what led to several candid conversations about money with his parents. Indeed, after that initial exchange, he basically became the family financial advisor. Mr. Meja helped his parents calculate how much they were spending on groceries and how much they actually needed each month. He also discovered that he had $3,000 in credit-card debt and advised him to use his stimulus money to aggressively pay it off. Using a combination of direct payments from their mother’s wages, incentives and unemployment benefits, they were able to pay off their utility bills and credit-card debt in just a few weeks.

Thereafter, Mr. Meja set up a savings account for her mother and advised her to put forward 20% of her salary into the account. He also plans to help his parents open an investment account and teach them how to grow their money over time. He says being able to pay off his debt gave his parents a new starting point.

Mr. Meja has learned a few things during his stint at home as well. He says that the time he spent with his parents opened his eyes to how little he needed to be happy. For example, before reuniting with his mother and father, he often ordered takeout for lunch and dinner. But the home-cooked food he eats at home, he says, especially his mother’s enchiladas has inspired him to start cooking for himself.

As far as his parents are concerned, they say that talking about money is no longer a taboo in their family, and they will continue to seek financial advice from their son. He plans to move back to Austin in November and complete the purchase of an apartment in the city at that time.

a new perspective

Edgar Mendoza was living the high life in Chicago. The 41-year-old was paying about $3,000 a month for a downtown apartment. He often dined out and had courtside seats at basketball games.

But when the lockdown began, he began to re-evaluate his habits, limiting his activities and his spending. “What Covid taught me is no, I don’t need all that,” says Mr. Mendoza, who deals in sales and invests in startups. In January, he packed his belongings and moved to McAllister, Mont., to be with his mother and stepfather. And he doesn’t plan to leave anytime soon.

Living in Montana with his family, Mr. Mendoza says, he has reinforced the frugal lifestyle he grew up with. When he was young, he says, his mother, Maria Platt, used to tell him to “watch his money.” Now, he saves his money and invests it in places where it can grow.

Ms Platt says she is proud of the progress she has seen in her son and how she has embraced the lessons she has taught him. The family cooks together and they rarely eat out. Mr Mendoza says he is not being asked to pay the rent, but he buys all the groceries.

“He’s changed a lot,” Ms Pratt says of her son. “He used to spend money like crazy. I would talk to him and he’s like, ‘Mom, you’re right about this and you’re right about that.’ Now, in his view, he is motivated to support the family in the long run, and this has prompted him to refocus on his spending habits.

Mr. Mendoza says seeing his mother come home exhausted from work and budgeting his Social Security benefits has made him see his financial future in a new light. It has forced him to think more realistically about what retirement can be like. “When you see that you love someone… it hits you really hard,” he says. “I don’t want it to be me.”

Ms Pratt says her son still has to work on his financial habits. They sometimes forget to buy their groceries and eat food already in the family’s fridge, she says. She would also like to watch him learn to cook.

“I told him that if you make good money, save it,” she says. “I’m not going to live forever…….

By: Taylor Nakagawa

Taylor Nakagawa hails from Chicago, Illinois and earned a master’s degree from the Missouri School of Journalism in 2017. As part of the Audience Voice team, Taylor is focused on experimenting with new story formats to create a healthy environment for community engagement.

Source: When the Pandemic Forced Young Adults to Move Back Home, They Got a Financial Education – WSJ

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Related Contents:

What Is Financial Infidelity?

Being transparent about money matters is critical in partnerships and marriage. Here’s how to spot financial infidelity — and rectify it. When Melissa Houston and her husband first got married, they had a financial plan and laid out some joint money goals. “We knew what we were saving for and how we should spend money,” she says.

But as the years went by, Houston found herself emotionally spending, dropping $1K to $2K on weekend trips with her friends, as well as shelling out thousands on home renovations and random impulse buys. “I was using credit to cover my expenses and hid that from him,” she recalls. “As the boxes came in the mail, he asked me what was going on, and I assured him we had the money.”

Eventually, Houston told her husband the truth. She had been hiding her spending from him and had gotten the family into a financial hole. It put a giant strain on her marriage, and she is still working to gain back her husband’s trust. The duo has since gone back to their previous ways of openly discussing money. Houston is honest about her spending and runs big purchases by her partner instead of buying them behind his back.

What Houston and her husband experienced was financial infidelity. “Simply put, financial infidelity is when your spouse lies to you or keeps details about financial transactions and financial assets hidden from you,” says Sandra Radna, an attorney and the author of You’re Getting Divorced … Now What? You could be on the receiving end of financial infidelity, or you could be the one committing it, like Houston was. Either way, financial infidelity can be incredibly toxic to a marriage and is something that you should work to avoid at all costs.

What does financial infidelity look like?

Financial infidelity could be everything from declining to reveal some of your credit card purchases or other debts to your partner to stashing a portion of your paycheck into an account that your partner doesn’t know about, and making large purchases without consulting your significant other.

“We see financial infidelity occur in some really common ways, like not mentioning how much you spent on your credit card, or when one person makes a large purchase without telling their partner,” says Lauren Silbert, the vice president of personal finance with the Balance. This type of infidelity, she explains, can also occur when one person is keeping a secret account or hoarding cash or other valuables without the other person knowing.

“Another instance is the higher-earning spouse actually hiding how much money they make, keeping the majority of it for themselves, without their partner ever knowing it existed,” Silbert adds. It’s important to build a foundation of open communication and trust when it comes to dealing with financial infidelity.

The dangers of financial infidelity

Financial infidelity can break the trust in your marriage. “Arguably, the most important part of any relationship is trust,” explains Radna. She stresses that if one of the people in the relationship is not honest about what is happening in your joint financial lives, it’s a huge breach and is difficult to overcome.

“It begs the question ‘If you are lying about that, what else are you lying about?’” Radna says. And in her experience, for some couples the emotional aftermath of financial infidelity is insurmountable and can be a definite cause of divorce.

There can be significant financial repercussions as well, since, when you’re married, your partner’s debt becomes your debt. “It could also impact your credit score,” explains Ben Reynolds, the CEO and founder of Sure Dividend.

In order to avoid the repercussions of financial infidelity from occurring, it’s important to be open about your financial goals, purchases, and spending habits with your spouse. Here are some tips to keep financial infidelity at bay.

Be up front from the start

The way that you start your marriage can really set the tone for how you both talk about money. “I recommend that both parties leave everything on the table from the beginning,” says Jayden Doye, a certified public accountant and the owner of Prestige Accounting Solutions in Sandy Springs, Georgia. “They should lay out all of their assets and debts and discuss financial goals.

” Doye has seen too many couples enter into relationships with financial secrets, hiding student loans, debt, and spending habits from each other. Getting on the same page from the beginning and discussing your debt, making a plan for your spending, and working together on this can keep financial infidelity from ever occurring.

Victoria Lowell, founder of Empowered Worth and a certified divorce financial analyst and college finance counselor, agrees. “Couples need to start discussing money and finances very early on, and definitely before moving in together or marrying,” she says, noting that she often coaches clients with premarital financial counseling, which her clients find extremely beneficial.

Make money discussions routine

“Communication is the key,” says Ted Rossman, a senior industry analyst with Creditcards.com. “Most people have a hard time talking about money, but we need to get over that hurdle,” he adds. Rossman suggests scheduling regular money check-ins with your partner. “They don’t have to be long or formal. Perhaps once a month, go through upcoming bills and recent expenses and make sure you’re on track,” he says.

In addition to expenses, talk about your goals as well. This, says Rossman, can be really freeing and can reframe the discussion in a very positive way. “Do you want to buy a home in a couple years? Retire early? Send your kids to college? Identifying your money goals and values and working towards them together is so important and strengthens a relationship,” Rossman explains.

If you have been hiding things surrounding money from your partner, it’ll be easier to handle the sooner you tell the truth.

Start small

Money conversations may seem daunting at first, but it all starts with building trust and safety around money, says Silbert. She says to start with some “gentler money talks. For example, don’t try to make tough decisions right away. Instead, share about how your parents handled money. Talk about your experiences with financial institutions. Tell each other what item or experience has always represented true luxury in your mind.

And so on.” As the safety grows, then move on to harder conversations. These, explains Silbert, are usually the ones that have more opportunities for disagreement or discomfort. And when having these conversations, it’s important to approach them with an open mind and to create a judgment-free zone.

Come clean if you’ve been hiding things from your partner

The longer you conceal money and spending habits from your partner, the more damage you are likely to cause to your relationship and your finances. To heal from financial infidelity, the offending partner needs to come forward. Carrie Krawiec, a licensed marriage and family therapist at Birmingham Maple Clinic in Troy, Michigan, shares her three steps for admitting to financial infidelity:

  1. Sincerely apologize.
  2. Take responsibility without excuses.
  3. Take all steps and measures to make sure the behavior doesn’t repeat itself.

“When the first three are done, there should be acknowledgment by the wounded party that one to three have been sufficiently met,” she explains.

Bring in a third party

It can be beneficial to schedule meetings with a financial adviser who can help you draw up money goals as a couple and get you thinking about a long-term financial strategy. A couple’s counselor can also assist partners with working through any conflicts that they may be having about everyday spending.

And it’s especially important to get help when you’re working through a bout of financial infidelity in your marriage, as this can be hard to navigate alone. “I strongly suggest that couples who are facing this seek counseling,” suggests Lowell, who notes that a marriage therapist or financial coach can help partners open up the dialogue to discuss their philosophy about money, debt, and so forth.

Source: What Is Financial Infidelity?

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Related Contents:

Financial Infidelity: The Things we Buy, the Lies we Tell

Financial Infidelity is Rampant

Financial Infidelity’ is Pretty Common

Your Cheatin’ Wallet

How Infidelity Causes Post Traumatic Stress Disorder

How Infidelity Causes Post Traumatic Stress Disorder | Psychology Today

Healing From Infidelity

How To Follow The 50-30-20 Budgeting Strategy

This story is part of CNBC Make It’s One-Minute Money Hacks series, which provides easy, straightforward tips and tricks to help you understand your finances and take control of your money.

Managing your finances and setting a monthly budget can be challenging. But if you’re overwhelmed with where to start, the 50-30-20 strategy can simplify the process. The plan divides your income into three broad categories: necessities, wants, and savings and investments. Here’s a closer look at each.

50% of your paycheck should go toward things you need

This category includes all of your essential costs, such as rent, mortgage payments, food, utilities, health insurance, debt payments and car payments. If your necessary expenses take up more than half of your income, you may need to cut costs or dip into your wants fund.

20% of your paycheck should go toward savings and investments

This category includes liquid savings, like an emergency fund; retirement savings, such as a 401(k) or Roth IRA; and any other investments, such as a brokerage account. Experts typically recommend aiming to have enough cash in your emergency fund to cover between three and six months worth of living expenses.

Some also suggest building up your emergency savings first, then concentrating on long-term investments. And if you have access to a 401(k) account through your employer, it can be a great way to save a portion of your income pre-tax.

30% of your paycheck should go toward things you want

This final category includes anything that isn’t considered an essential cost, such as travel, subscriptions, dining out, shopping and fun. This category can also include luxury upgrades: If you purchase a nicer car instead of a less expensive one, for example, that dips into your wants category.

There isn’t a one-size-fits-all approach to money management, but the 50-30-20 plan can be a good place to start if you’re new to budgeting and are wondering how to divide up your income.

Nadine El-Bawab

By: Nadine El-Bawab / @nadineelbawab

Source: How to follow the 50-30-20 budgeting strategy

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Critics:

While that may not be realistic, there are some simple things you can do right now to improve your money situation. Try these five steps for successfully managing your personal finances. Another bonus? If you stick to these five tips, your financial problems may start to diminish, and you can start reaping the rewards of lower debt, saving for the future, and a solid credit score.

Take some time to write specific, long-term financial goals. You may want to take a month-long trip to Europe, buy an investment property, or retire early. All of these goals will affect how you plan your finances. For example, your goal to retire early is dependent on how well you save your money now. Other goals, including home ownership, starting a family, moving, or changing careers, will all be affected by how you manage your finances.

Once you have written down your financial goals, prioritize them. This organizational process ensures that you are paying the most attention to the ones that are of the highest importance to you. You can also list them in the order you want to achieve them, but a long-term goal like saving for retirement requires you to work towards it while also working on your other goals.

Below are some tips on how to get clear on your financial goals:

  • Set long-term goals like getting out of debt, buying a home, or retiring early. These goals are separate from your short-term goals such as saving for a nice date night.
  • Set short-term goals, like following a budget, decreasing your spending, paying down, or not using your credit cards.
  • Prioritize your goals to help you create a financial plan.

Contents:

Meet the middle-aged millennial: Homeowner, debt-burdened and turning 40

This simple money hack could help you boost your retirement savings by $20,000 or more

Making a few easy changes could help you save money on your next grocery bill

Buying a new car? Here’s how to figure out what you can afford

Remove these 7 things from your resume ‘ASAP,’ says CEO who has read more than 1,000 resumes this year

In 1999, Warren Buffett was asked what you should do to get as rich as him—his advice still applies today

Want to be better at small talk? An ex-FBI agent reveals the method he uses to get people to open up

Self-made billionaire Thomas Tull on becoming rich, and how Warren Buffett changed his thinking

5 Questions That Impress Hiring Managers

The interview has gone well. You presented your skills effectively and had a good exchange with everyone you met. You even made them laugh. Now, comes the dreaded final question.

Do you have any questions for us?

Well, sure. Were you really truthful about what it’s like to work here? Who’s the biggest office gossip? What am I going to love and/or hate about this company? But those aren’t things you can typically blurt out in an interview.

Instead, you’ll want to use this time to ask some questions that may both impress hiring managers and reveal important information. When you go for your next interview, keep these five questions in your pocket:

Do you see any major changes in the position or workplace in the coming year?

This may be a difficult question to answer in the COVID-19 era, but it may give you insight into what the company is thinking about the future, says Jon Hill, CEO and chairman of the Energists, an executive search and recruiting firm. “Many companies are in a period of transition and uncertainty as the pandemic continues, so it’s smart to get a read on how that might affect you if you’re hired. You don’t want to go in expecting long-term remote work only to find out you’ll be going into the office come summer,” he says. The question also shows you’re thinking long-term and plan to stay with the company through the changes.

What can I do to really “win” at this job?

Who wouldn’t want to hear this question from a candidate? It shows that you want to get a peek behind the curtain at what it takes to succeed at the firm. Interviewee questions such as this give interviewers a look at the candidate’s drive and potential for success, says Jennifer Morehead, CEO of Flex HR, an HR outsourcing firm. “The questions that interviewees ask are often more indicative of their success than their canned answers to questions. I really do think that interviewee questions can really set a candidate apart from the rest,” she says. To put it another way: What will “success” look like in this role?

If you were to leave this company, what would be the reason?

It’s a little bold, but when asked of a potential manager, it’s a powerful question that will reveal two key things, says Microsoft senior security program manager Teddy Phillips. First, it lets you see the interviewer’s future ambitions, and it also gives you insight into whether this person’s ambitions can be met at this company, he says.

“This allows the interviewee to dig on the ‘why’ or ‘why not’ to give them further insight on if this is an environment to grow their career. Hiring managers respect deep questions that make us think and deliver insightful answers,” he says.

What growth opportunities does the organization offer?

Immediately, this question shows the hiring manager that you’re thinking about how you can develop within the company. “Hiring is costly for organizations, so if they hire someone who is just looking for a paycheck until they jump to their next best opportunity, it costs the company time and money. Asking about the future and growth opportunities shows the employer that you are willing to invest in the organization on a longer-term basis,” says career strategist and coach Nancy Spivey. It also lets the hiring manager know that you’re success-driven and goal-oriented.

Is there anything else I can share to put me at the top of your list?

This one-two punch of a question shows that you’re interested in the job and invites the interviewee to ask any lingering questions. “Depending on how the interview is going and depending on how well you’re getting along with the interviewer, I regularly recommend to people to make it known that you love the place and what you’re hearing and would love the job,” says executive and career coach Lauren Cohen. It’s a strong question on which to end the interview.

“The best interview questions serve two functions,” Hill says. First, they give you useful insight into the position’s more demanding aspects and whether you’re qualified to meet those demands. Second, they show the interviewer that you’re already thinking practically about how you’ll perform in the position, an encouraging thing to see from a candidate. When you can ask relevant questions, you can impress the hiring manager and get the information you need to make the best decisions about your next career move.

By:  Gwen Moran

Source: 5 questions that impress hiring managers

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  • Klehe, Ute-Christine; Latham, Gary P. (June 2005). “The Predictive and Incremental Validity of the Situational and Patterned Behavior Description Interviews for Teamplaying Behavior”. International Journal of Selection and Assessment. 13 (2): 108–115. doi:10.1111/j.0965-075x.2005.00305.x. S2CID 145083955.
  • Chuang, Aichia; Sackett, Paul R. (1 January 2005). “The Perceived Importance of Person-Job Fit and Person-Organization Fit Between and within Interview Stages”. Social Behavior and Personality. 33 (3): 209–226. doi:10.2224/sbp.2005.33.3.209.
  • Kristof-Brown, Amy L. (September 2000). “Perceived Applicant Fit: Distinguishing Between Recruiters’ Perceptions of Person-Job and Person-Organization Fit”. Personnel Psychology. 53 (3): 643–671. doi:10.1111/j.1744-6570.2000.tb00217.x.
  • Kutcher, Eugene J.; Bragger, Jennifer D.; Masco, Jamie L. (September 2013). “How Interviewees Consider Content and Context Cues to Person-Organization Fit: Interviewee Person-Organization Fit”. International Journal of Selection and Assessment. 21 (3): 294–308. doi:10.1111/ijsa.12039. S2CID 143277060.
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  • Vivian Chen, Chun-Hsi; Lee, Hsu-Mei; Yvonne Yeh, Ying-Jung (September 2008). “The Antecedent and Consequence of Person-Organization Fit: Ingratiation, similarity, hiring recommendations and job offer”. International Journal of Selection and Assessment. 16 (3): 210–219. doi:10.1111/j.1468-2389.2008.00427.x. S2CID 144973573.
  • Dipboye, R. L., & Macan, T. (1988). A process view of the selection-recruitment interview. In R.Schuler, V.Huber, & S.Youngblood (Eds.), Readings in personnel and human resource management (pp. 217–232). New York: West.
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Dipboye, Robert L. (October 1982). “Self-Fulfilling Prophecies in the Selection-Recruitment Interview”. The Academy of Management Review. 7 (4): 579–586. doi:10.2307/257224. JSTOR 257224.

Was Your PPP Loan Less Than $50,000? Life Just Got (A Little Bit) Easier

On March 27, 2020, Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Securities (CARES) Act, a $2.3 trillion relief package designed to help individuals and businesses weather the economic damage caused by the COVID-19 pandemic.

The headliner of the CARES Act was the creation of the PPP, a new loan program under Section 7(a) of the Small Business Act designed to put nearly $600 billion into the hands of small businesses for use in paying employee wages and other critical expenses throughout the pandemic.

The reason over two million businesses rushed to the bank to grab a PPP loan, however, was not because they were eager to saddle their struggling enterprises with more debt. Rather, the idea was that these PPP loans were loans in name only; once a borrower received the funds, the amount spent over the next 8 (now 24!) weeks on payroll, mortgage interest, rent and utilities would be eligible to be completely forgiven. Recommended For You

By late May, however, many borrowers were nearing the end of their 8-week periods, only to find that a number of barriers continued to prevent them from reaching full employment, and thus, achieving full forgiveness of their PPP loans. As a result, on June 5, 2020, Congress passed the Paycheck Protection Program Flexibility Act of 2020, which made several dramatic changes to the legislative text of the CARES Act.

In recent weeks, as Congress has worked towards yet another round of COVID-19 stimulus, there has been talk about even more tweaks being made to the PPP process, but the reality is, at this point, borrowers don’t want more, they want less.

Allow me to explain. Many PPP borrowers are through or nearing the end of their “covered period,” as discussed more fully below. It is now time for them to apply for forgiveness. But when these borrower’s are forced to address the endless morass of poorly-defined terms, ever-changing requirements, and collection of complicated calculations that make up the forgiveness process, they are routinely left with a raging case of buyer’s remorse.

As a result, most borrower’s don’t want more changes to the PPP loan program, they just want to be told that their debt will all magically go away, as they hoped it would when they rushed to borrow it. Or stated another way, they want to hear that their debt will be forgiven without having to pay more to their accountants to compute the forgivable amount than they borrowed in the first place.

Well today, borrowers finally got some good news. Or should I say, a narrow class of PPP borrowers got some good news. The SBA released a streamlined application — Form 3508S — designed specifically for those who borrowed less than $50,000.

Form 3508S
Form 3508S Nitti

A quick perusal of the instructions to the form makes clear that for this class of borrowers, forgiveness will still not be automatic. So where’s the good news? Several of the issues that make the standard application for forgiveness so confusing and time-consuming have now been removed for these small borrowers. Specifically, a borrower of a PPP loan of less than $50,000 is no longer required to reduce the amount eligible for forgiveness if the borrower:

  1. Reduces the salary or hourly wage of an employee (who earned less than $100,000 in 2019) during the “covered period” following the borrowing relative to the first quarter of 2020, or
  2. Reduces full-time equivalent employees (FTEs) during the covered period relative to a base period.

Stated in another way, a borrower of a PPP loan of less than $50,000 may apparently slash salary and fire FTEs with impunity. And while this new reality may run completely contrary to the initial intent of the PPP, it’s welcome relief to those tasked with applying for forgiveness.

Aside from those very important changes, the application process remains largely the same. A borrower must still do the math and compute the amount eligible for forgiveness; the difference, however, is that small borrowers are no longer required to show their math. Be warned, however: the instructions make clear that the SBA may request from the borrower support for their computation at any time.

Since you’ve read this far, perhaps it’s best that we (briefly) review the process of asking for forgiveness. If you’re not eligible to file on a Form 3508S — and must instead use the Form 3508 — please read these step-by-step instructions.

Getting Started

It all begins on the date the loan was received (or does it?) The borrower must then determine the amount spent on four classes of permitted expenses — payroll costs, mortgage interest, rent, and utilities — that are paid OR incurred throughout the “covered period,” a timeframe that has only grown more confusing since the passage of the CARES Act.

Covered Period

Courtesy of the June 5 legislation, the “covered period” can now be as many as FOUR different periods. The default setting is that the covered period is the 24-week period beginning on the date you received the loan disbursement. 

If you received your loan prior to June 5, 2020, however, you may elect to use the 8-week covered period provided by the CARES Act. Presumably, you would only do this if you 1) spent all of your PPP loan on eligible costs within the 8-week window, 2) did not reduce any salary or headcount during the 8-week period, and 3) are eager to move on from the PPP process and never speak of it again.

In computing payroll costs — and ONLY payroll costs — eligible for forgiveness, you are also permitted to choose an “alternative payroll covered period,” which is the 24-week (168 day) period beginning on the first day of the first pay period following the disbursement date, allowing a business to neatly align its covered period with the beginning of a pay period. Thus, if you received your PPP loan on April 20, 2020, and the first day of your next pay period is April 26, 2020, you may elect to count the payroll costs — and only the payroll costs — for the 24-week period beginning April 26, 2020, rather than the 24-week period beginning April 20, 2020.

Obviously, if you elect to use the 8-week covered period, you simply adjust the language above to suit a 56-day period rather than a 168-day period.

Paid or Incurred

Only costs “paid or incurred” during your appropriate covered period are eligible for forgiveness. Payroll costs are paid on the day the paychecks are distributed or the borrower originates an ACH credit transaction. Thus, you could have received PPP loans on April 26 and immediately paid – as part of your regular payroll process – wages that had been earned by the employees for the previous two weeks, and now include the amounts in the forgiveness calculation because the amounts had been PAID within the covered period.

Payroll costs are incurred on the day they are earned, and will be forgivable as long as they are paid no later than the next regular payroll date after the end of the covered period. Thus, if you covered period ends on November 1st, payroll incurred prior to that date, but paid AFTER that date, will be forgiven provided it is paid on its first regular due date after November 1st.

The rules for non-payroll costs are identical, except the “alternative payroll covered period” is not available. In order for costs such as mortgage interest, rent and utilities to qualify for forgiveness, these expenses must either be: 1) paid DURING the 24-week covered period, or 2) incurred during the 24-week period, and paid by its next regular due date, even if that due date is outside the 24-week period.

Once again, it would appear that by allowing all payments made DURING the period to be eligible for forgiveness, borrowers are permitted to pay rent, interest, or utilities related to periods prior to the 24-week period and have those expenses forgiven.

Payroll Costs

Payroll costs are the first, and largest, of the four classes of forgivable costs. It is a class, however, with four subclasses of its own: cash compensation, health care costs, retirement plan costs, and certain state and local taxes on employee compensation. The forgivable amounts for each subclass depend on whether they are being paid to an employee, an “owner-employee,” or a self-employed taxpayer.

Cash Compensation

The CARES Act provides that the amounts spent on “payroll costs” during the 24-week covered period are eligible for forgiveness. Including in payroll costs are certain compensation amounts; specifically, the sum of payments of any compensation with respect to employees that is a:

  • Salary, wage, commission, or similar compensation;
  • Payment of cash tip or equivalent;
  • Payment for vacation, parental, family, medical, or sick leave; or
  • Allowance for dismissal or separation.

Compensation does not include, however:

  •  The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period. As a result, in no situation can you have forgiven more than $46,154 (24/52 * $100,000) in payroll costs for any one employee. If you elect to use the 8-week covered period, the compensation paid to any one employee that is eligible for forgiveness cannot exceed $15,384 (8/52 * $100,000).
  • Any compensation of an employee whose principal place of residence is outside of the United States;
  • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–127); or
  • Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

Additional limitations apply to self-employed taxpayers and “owner-employees.”

For a self-employed taxpayer with no employees, full forgiveness should be guaranteed as a result of the mechanics governing the initial borrowing and subsequent forgiveness. A self-employed taxpayer with no employees was entitled to borrow 2.5/12 of the self-employment income from the taxpayer’s 2019 Form Schedule C. Not coincidentally, after the passage of the PPP Flexibility Act, self-employed taxpayers with no employees will have forgiven 2.5/12 of the self-employment income from the taxpayer’s 2019 Form Schedule C. Because these two amounts will be the same, full forgiveness is guaranteed.

The rules are more complicated for “owner-employees,” only recently defined as one who owns 5% or more of the stock of a C or S corporation. Here, two limitations apply. First, the maximum compensation cost for 2020 is capped at 2.5 months of an annualized $100,000 salary, or $20,833 (or $15,384 for a borrower using the 8-week covered period). Compare this to the $46,152 an employee can be paid throughout the covered period.

Then, the forgivable amount is further limited to 2.5 months of the 2019 compensation of the owner-employee. This will prevent an owner from increasing their compensation during the covered period to maximize forgiveness by limiting the amount included in the forgivable amount to 10/52 of the owner’s compensation for 2019.

Non-Cash Compensation Payroll Costs

In addition to cash compensation, a borrower may have forgiven the sum of the following three expenses:

  1. Payment required for the provisions of group health care benefits, including insurance premiums;
  2. Payment of any retirement benefit; or
  3. Payment of State or local tax assessed on the compensation of employees.

For employees with no ownership interest, these amounts are in ADDITION TO the annualized compensation cap of $100,000. Thus, an employee could have up to $46,152 of compensation forgiven, as well as amounts allocable to that employee reflecting his or her share of health costs, retirement benefits, or state and local taxes.

For an owner-employee of a C corporation, all three costs are allowable in addition to the applicable cap. For an S corporation shareholder, however, no costs attributable to health care costs are forgivable, while the remaining two costs are forgivable in ADDITION TO the applicable cap. For a self-employed taxpayer, NONE of the costs are allowable.

Non-Payroll Costs

As a reminder, in addition to payroll costs, the CARES Act permits forgiveness for three other classes of expenses paid during the covered period.

  • Any payment of interest on any covered mortgage obligation (not including any prepayment of or payment of principal on a covered mortgage obligation). The term “covered mortgage obligation” means any indebtedness or debt instrument incurred in the ordinary course of business that is a liability of the borrower, is a mortgage on real or personal property, and was incurred before February 15, 2020,
  •  Any payment on any covered rent obligation. The term “covered rent obligation” means rent obligated under a leasing agreement in force before February 15, 2020 (recent rules were adding limiting rent expense to a related landlord), and
  • Any covered utility payment. The term “covered utility payment” means payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

As we discussed in our “paid or incurred” section, it appears mortgage interest owed in arrears can be paid during the covered period and be forgiven, and mortgage interest incurred DURING the covered period but paid before or on the next scheduled due date will also be forgivable, even if that date is after the end of the covered period.

Putting it All Together

If you borrowed less than $50,000, you are still required to sum up the total costs outlined above and compute the amount of your forgiveness. Unlike those who borrowed MORE than that amount, however, your total amount eligible for forgiveness is not subject to reduction if you reduced salaries or headcount. So you’ve got that going for you. Which is nice.

Once you’ve summed your forgivable costs, the amount you report on the Form 3508S as your “forgiveness amount” is the lesser of three numbers:

  1. The sum of your forgivable costs,
  2. The principal of the loan, and
  3. The payroll costs — and ONLY the payroll costs — divided by 60%. This guarantees that no more than 40% of the forgiven amount will be attributable to the three classes of non-payroll costs.

Interestingly, on the standard Form 3508, the instructions provide that the final forgiveness amount is to be reduced by any Economic Injury Disaster Loan advance received by the taxpayer (up to $10,000). The instructions to Form 3508S, however, contain no such requirement.

Once you’ve gotten to this point, the application becomes MUCH less daunting than the standard Form 3508. No Schedule A. No worksheet to Schedule A. No FTE reduction quotient. Instead, you do all the math behind the scenes and drop the end result in the section titled “Forgiveness Amount.”

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The price of that brevity, however, is increased representations. You will now have to state on the application, among other representations, that:

Form 3508S reps
reps Nitti

But that’s it. Enter your general information at the top, and drop your application in the mail or send it through the ol’ interwebs. Unless the SBA decides to kick the tires, within a few months you should hear back on your forgiveness, take a deep breath, and revel in the knowledge that you’ll never have to think about the PPP again. Follow me on Twitter

Tony Nitti

Tony Nitti

I am a Tax Partner with RubinBrown in Aspen, Colorado. I am a CPA licensed in Colorado and New Jersey, and hold a Masters in Taxation from the University of Denver. My specialty is corporate and partnership taxation, with an emphasis on complex mergers and acquisitions structuring. W In my free time, I enjoy driving around in a van with my dog Maci, solving mysteries. I have been known to finish the New York Times Sunday crossword puzzle in less than 7 minutes, only to go back and do it again using only synonyms. I invented wool, but am so modest I allow sheep to take the credit. Dabbling in the culinary arts, I have won every Chili Cook-Off I ever entered, and several I haven’t. Lastly, and perhaps most notably, I once sang the national anthem at a World Series baseball game, though I was not in the vicinity of the microphone at the time.

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Kura Sushi Returns $6 Million Paycheck Protection Loan. Will Other Restaurant Chains Follow?

Kura Sushi, the U.S. restaurant chain that is majority owned by a Japanese company, said on Wednesday that it would be returning the $5.98 million loan it recently received through the federal government’s Paycheck Protection Program.

Kura Sushi is the second publicly traded restaurant chain to return money it received from the emergency small business financial effort being run by the Small Business Administration. Shake Shack said earlier this week that the burger chain would be giving back the $10 million it secured through the program.

The move by Kura Sushi will likely put more pressure on other restaurant chains and larger enterprises that have received funding through the Paycheck Protection Program.

On Tuesday, Treasury Secretary Steven Mnuchin expresses satisfaction that Shake Shack was returning its emergency loan proceeds and urged other larger publicly traded companies to follow its lead. He said that the SBA would be issuing new guidance on the certifications that borrowers made under the program, suggesting some companies may find themselves in a position of breaching the certification.

“There is a certification that people are making and I ask people just make sure the intent of this was for business that needed the money … the intent of this money was not for big public companies that have access to capital,” Mnuchin said. “If you pay back the loan right away you won’t have liability to the SBA and to Treasury but there are severe consequences for people who don’t attest properly to this certification.”

The $349 billion Paycheck Protection Program ran out of money last week before many small businesses in America were able to tap it for emergency funding. The funds that Kura Sushi and Shake Shack are returning cannot be used to make new small business loans unless Congress authorizes new funds for the Paycheck Protection Program. The Senate on Tuesday approved a $484 billion package that would replenish the program and the House is expected to take up the legislation on Thursday.

The small business emergency funding program offers two-year loans of up to $10 million, with the principal forgivable if the proceeds are largely used for payroll and to keep people employed. While the loans are meant for small business with fewer than 500 employees, some restaurant chains that did not employ more than 500 people at a single location were allowed to obtain the loans.

Some of the public companies that were able to tap the program had market capitalizations greater than $100 million and seemed to have other financing options. Shake Shack, for example, conducted a $150 million share offering on Friday. Other restaurant chains that received funding from the program include J. Alexander’s Holdings, which obtained two separate loans totaling $15.1 million, and Ruth’s Hospitality Group  RUTH , which operates the Ruth’s Chris Steak House chain and got $20 million through two different subsidiaries.

Kura Sushi had $30 million of cash and cash equivalents on hand as of the end of February, Securities & Exchange Commission filings show. Kura Sushi, which is based in Irvine, Calif., was established in 2008 as a subsidiary of a Japanese sushi restaurant chain that goes by the same name. Kura Sushi is listed on the Nasdaq NDAQ and operates 23 restaurants across five states. Its initial Japanese parent company still owns more than 50% of the company.

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I am a senior editor at Forbes who likes digging into Wall Street, hedge funds and private equity firms, looking for both the good and the bad. I also focus on the intersection of business and the law.

Source: Kura Sushi Returns $6 Million Paycheck Protection Loan. Will Other Restaurant Chains Follow?

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I got some requests making Kaitenzushi(conveyor belt sushi) video. So I went to Kura Sushi. It’s my favorite Kaitenzushi. Kura sushi provides not only sushi but also ramen, burger, desserts and so on. You can enjoy Bikkurapon!(plate slot system) too. If you come to Japan, please enjoy Kura. ※I got a filming permit. Thank Kura Sushi for your understanding and cooperation. #japanesestuffchannel, #sushi, #kurasushi

Here’s What You Should Know About Your Paycheck — TIME

What is one of the first things you do when you start a job? You take out the calculator, work out what you think you can spend each month on rent, food, and internet, plan accordingly—and then you get your first paycheck. The number it shows most likely isn’t the same number you expected. In…

via Here’s What You Should Know About Your Paycheck — TIME

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