The Tax Man is Waiting.

It has been a busy few weeks here but I hope to get back into the swing of posting regularly. Today I want to talk about something we all deal with whether we make six figures or live under the poverty line.  Taxes!

We all have to pay taxes. Some people pay a lot, some people pay very little as a result of income, some people pay significantly more as a result of high incomes or poor tax planning. There are a few things you can still do to help your taxes for 2016.

So what is your option to help with 2016?

Traditional IRA’s- You have until you file your taxes to contribute to a IRA for you and your spouse. That means if you and your spouse both had income last year you can contribute up to $5,500/ person for 2016. These contributions will come as a deduction on your 2016 income tax return. If you have any tax liability for 2016 you can reduce or eliminate them (yes eliminate them) through an IRA contribution as long as you have cash on hand to make the contribution.

It is too late to do a lot for 2016 but 2017 is only just beginning.  Did you know it may be possible for you to contribute up to $53,750 into tax advantaged accounts in certain instances? Now most people will never actually save that much this year but it is possible.

So where should you start?

  1. I would start with ensuring you are getting any match that your employer offers. An employer match is free money that it is an automatic 100% return on your savings. You will never beat that investment.
  2. Our family’s next step is contributing to our HSA. For us, this is a payroll deduction as our plan is linked to my employer health plan. I tested this for everyone so I could show how it worked out for us. A $160 monthly contribution to our HSA only cost us $95.24. That is a tax savings of $64.76 a month which is free money saved.
    1. This money can be used for a variety of medical expenses. Including doctor visits, prescription drugs, dental and vision care and so much more.
    2. Many accounts (including mine) have great investment options. This works like an extra retirement account but I get to use it to help build an emergency fund.
  3. My next stop is contributions to a Roth IRA. Once we eliminate our tax liabilities everything goes into a Roth. There are a variety of reasons for this that I will expand on in the future, but one trick is that we can pull this out in case of emergency without tax penalty. A bonus emergency fund.

I am not a financial adviser and I didn’t stay at a Holiday Inn express last night, but I have tested these things and they work. Don’t wait till this time next year to start to figure out your taxes. By starting now you can really save yourself money come next year. Just our HSA will save us $777.12 this year. And who doesn’t want an extra $777 this year?

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Your Most Valuable Resource

This website is devoted to finance and ideas related to personal finance. But it is critical that you realize that finance is just that personal. If you have a family, the pursuit of wealth, especially over many years and decades while neglecting your family is no way to live.

There was a time when I worked a lot of hours and had a difficult/impossible schedule for my family. I slept in my car overnight because by the time I drove home and then back to work in the morning I would have only gotten a few hours of sleep. I was paid well to do that but the toll it took on my family (my wife especially, but also my relationship with my kids) was not worth the money I made. Knowing what I know now even if I made double the income, I would not put my family in the same situation again.

We need to think about our resources differently. Money is a resource and an important one, but more important is the resource of time. You will never get back time with your family. If you have kids they will only be with you a brief window and your greatest impact on them is an even narrower window. Use that time well. We only have one income because the investment my wife makes in our kids is invaluable to us. There is no monetary value we could place on that investment. Has it occasionally had challenges? Certainly, but we make it work.

Frugality is critical to making this work in our family. My kids may not have a huge, fancy birthday party every year and they may not go to all the huge, fancy parties where they have to provide a huge, fancy gift. They are happy to spend time with each other (well lets be honest...sometimes they are happy to spend time together). They love doing stuff with mom and dad even if it is free. A local nature preserve with a picnic we pack at home has provided many days of fun. They enjoy occasionally eating out (always on kids eat free night) but I bet if you asked them grilling with daddy or cooking with mommy is right near the top of their list as well.

In summary, don’t waste away your life working. Money may come and go, but your time is never coming back. If you waste it now you will never get a second chance at the time you now have.

 

 

Think Differently About Your Money

think different

I am not normal. I think differently than most people. Myers Briggs says that 98% of people think differently than me and I am okay with that. I am a  hyper logical systematic thinker which can be helpful with regard to thinking.about money. I am not above emotions when it comes to my decision about money but I often see the rational, logical course and stick to it because honestly, it is most logical.

We need to think about our personal finances like a CFO thinks about a corporation. Your house is a small business with profits (your  income) and losses (your expenses). If your expenses exceed your income you will soon find yourself in big trouble. For a family that means debt and enslavement to lenders. You agree to give up monthly cash flow, pay them more than you used, and if you are late they tell everyone else about it through the credit agencies so they will all look down at you as well.

You must make choices that will allow your family to succeed and that starts with ensuring your balance sheet is right. Your profits (income) must exceed your losses (expenses) each and every month. For a long time I tried to play games about how close we could get to the income line and inevitably we would go over. Something would come up or breakdown. I was thinking about it all wrong–and this is where you can learn from my mistakes.

Give yourself breathing room every month. Make sure you give every dollar a job but some of those jobs might be to go to work next month. Or for others saving to buy a car, pay for insurance, or simply to sit in an emergency fund to give you piece of mind. I want to be practical so I want to answer the question, “How much breathing room?” I would shoot for as much as you can spare. Will it really hurt you if you save an extra 5%? If you shoot for and budget for 20 or 25% and only hit 15% you just saved as much as most Americans do in 3 months. A lot of things can go wrong every month and you can still cover them if you have a 20% savings rate.

If you are running your financial life with margin built in over time you will become much more stable and have more peace. Your saving will be growing every month maybe even significantly in some months. If you have built margin and savings, then when opportunities to invest in something you love, but is cash only, or something breaks, you don’t freak out about how you will pay for it. You simply write a check. That’s it!

4 Steps to Reaching Your Financial Goals

This is part 2 of this article. To get caught up read part 1.

All right, who convinced their spouse to help come up with some goals? They were probably reluctant. If you were successful you probably have a few goals and it’s time to prioritize.

4 SIMPLE steps needed to achieving financial goals (because we all know that most people don’t achieve a majority of their goals):

  1. What’s most important? You are going to focus on this number one goal because, like multitasking, trying to accomplish too many goals at once will only cause you to achieve none of them.
  2. When do you want to have this done?
    1. The further away you set the deadline the more difficult it is to remain focused. It probably also means that it’s not that important to you.
    2. Be realistic, but don’t be a wimp. If you set an unrealistic goal you will never make it but if your goal is to save $5 a week, or “Well, maybe I will eat out less this month,” That is a sorry excuse for a goal.
    3. Tell someone about your goal. If only you know the goal, only you know if you fail. Public shaming (or accountability if you want to be nice about it) is a great way to get stuff done.
  3. Set up a schedule and automate the savings. Don’t let your emotions or Starbucks get in the way. If you are emotional or weak to temptations like Chickfila AUTOMATE your savings on the day you get paid.
    1. Use YNABIt rocks at this. You simply set your goal up as a category and fund it every month. You can set up a monthly funding goal or a goal to have a balance by a certain date. Either way it will remind you each month to fund the category. You never have to move the money. It simply sits in your checking account with your goal as its assigned job.
    2. Another option is to set up a savings account for your goal. Capital One 360  offers great interest rates and allows you to open as many accounts as you want. Also if you use the link above, you also get $25 for depositing $250. That is an instant 10% return on investment, for those of you keeping track.  As of March 2017, they are offering 0.75% interest–which, let’s be honest, is better then what you get at your bank.
  4. Achieve your goal and move on to the next one.  Don’t be lazy or take some time off–roll your savings from the first goal right into the next. There is no point in waiting.

Whether it is paying off a credit card, paying off a student loan, saving for an emergency fund, or maybe buying your next car for cash (I like this one), determine your goals and follow the 4 simple steps listed here to achieve them while others flounder around wondering why they can’t get anything done and why they always seem to be broke.

How can you reach your goals?

In this 2 part post I plan to outline a plan for how you CAN reach your financial goals and maybe even live the life of your dreams without having to spend countless hours at a job you hate.

First off I do not hate my job.  I love being able to connect with customers, help them find great products and solutions for their problems. This post isn’t about quitting your job, but rather achieving your goals whatever they are.

Before we get to planning how to reach your goals you need to determine what your goals are.

Questions you need to ask yourself and your spouse.

  1. What does a great life look like for us? Not necessarily a life of leisure but rather a life that you will love. Every other question will eventually flow back to this question.
  2. Where is that great life lived? There are potential jobs everywhere. Is it important to you and your spouse where you will live? To some people location doesn’t matter but if it does, start there. This is the hardest to solve, so start here.
  3. How important are things like travel, financial stability, time with family, enjoyment of work, family size, etc? This list could be limitless, so find out out what is most important and least important.
  4. How fast do you want to get to that life? How long are you going to wait to make that move? Take that trip? Find a job that fits your goals?
  5. What is your first step?  What is the plan? Develop one and start to execute it.

Only you can answer these questions for you or your family. Answers are as numerous as there are people who ask them. You and I may have the exact same situation and come to completely different answers. You can not sidestep this important step. You can work toward goals but if you are working toward someone else’s goals you may be ultimately getting nowhere.

Take some time. Sit down with your spouse. Go out on a date.Be clear on your goals and dreams. Next time, we will discuss the how of planning for your goals and dreams.

Is Cable Worth $17,000?

What do you pay for cable? Do you have Netflix, Hulu, Or Amazon Prime as well? If you were to tally up all your TV subscription based cost how much would it come to?

The national average now for cable is around $100. Here we average spend $o. We do have Amazon Prime which we will consider whether to renew in July when it expires, but we don’t pay for TV service thanks to an brother/uncle who covered Netflix for the year for our kids’ birthdays.

The math of $17,000

100/mo

10 years/120 months

7% compound interest (if you invest that money in your Roth IRA, that is tax free growth)

The total is $17,200 in 10 years. Is cable really worth it?

So what are your options? We have tried a number of different streaming players and found that Roku gives you the most streaming options. We also use Apple TV and I like it as well.

You don’t need cable. 100 channels–80 of which you don’t actually watch. Is it not worth sacrificing your future opportunities to travel, own a house, or give generously? Cut the cable, read a book, learn something new. You have a choice:  sacrifice saving, giving, and learning opportunities or watch the 200th episode of The Biggest Loser. It’s up to you.

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Emergency Funds

What is an emergency fund? How much should I have in my emergency fund? Where should I keep it?

What is an emergency fund?

It is simply cash that you have available in an account in case of an emergency. Emergencies can range from a car breakdown, a trip to the ER, a water heater going out, or maybe a water line breaks in the yard. The new iPhone coming out or a new outfit at the store are under no circumstances an emergency. You may feel like they are an emergency but don’t confuse passion and desire with necessity and need.

How much should I have?

This number can vary, but most advisors and bloggers would make the case for 3-6 months income and I would not argue.  I won’t argue with you if you want to have a year. I think you should really look at the next question if you are going to have that much available and maybe have a multi tiered approach. A survey from late 2015 found that over half (56%) of Americans had less than $1,000 in their checking and savings account combined. Nearly 25% have less than $100. That is crazy. No wonder so many people are so close to the edge of the cliff. Think about it:  It is likely that half the people in the restaurant while you are eating out, if they lost their income tonight, they would not have enough money to last a week.

We have an emergency fund of about 3 months at this point. I am pretty comfortable but I could see us moving to 6 month eventually. We have other priorities to accomplish first. The amount you have should be based on your comfort level. If you have never had an emergency fund, $1,000 would make you really comfortable. Job stability, comfort level, expenses, proximity for family support are all things that you should consider when determining how much you should have.

Where should you keep it?

An emergency fund is not an investment. It is a safeguard from disaster. Looking to maximize returns on this money is not the goal. We keep our money in a couple different places and I will explain why we do.

  1. Our checking account– We keep more than a month worth of money in our checking account. This means that unless something crazy happens we now have the money in checking to make all our budgeted purchases all month. No worrying if we can pay that bill before our next paycheck. (we could pay them all on the 1st if we wanted).
  2. HSA– We have about a month of expenses in our HSA. This is only for medical  expenses but for us this makes sense. We have five very active kids and this provides safety if there is an injury.
  3. Savings/Roth IRA– We keep just over a month of expenses in our Roth not invested in the stock market. I know people will scream about never taking money out of retirement but hear me out. We are not to point of maxxing out a Roth every year. This provides us extra retirement saving while still providing security. I will go into much more detail on this eventually but 2 quick points.
    1. Why does this work? All contributions to a Roth IRA are made after-tax. You were already taxed on this money and you will not be taxed if you withdraw it. Again you can withdraw contributions only without penalty or tax.
    2. This is our 3rd line of defense. I hope that the money that is there is there for good.  I hope that I never have to take it out and in time I can invest it more aggressively. It is already there so any interest or earnings are tax free.

We are in the process of moving our accounts to Fidelity. They offer a checking account, Roth IRA, an HSA, and tons more. I like the ability to transfer money within Fidelity in a single day and I am not tempted by seeing a larger balance in various accounts. I spend based on my YNAB categories. I also have no need to go into my personal bank in over 2 years. I am entirely comfortable with an online bank at this point. They also reimburse all ATM fees so if I need cash it won’t cost me anything to get it.

Are you part of the majority of Americans who have less than $1,000 in the bank? Or, you have a year worth of expenses in savings? Wherever you fall in between find a level you are comfortable with. If you are not comfortable with where you are, start saving. Skip eating out the entire month. How much could you save? I bet it is more than you think.

Comment in the notes what the goal is for your emergency fund.

Meal Planning on a Budget

How many different types of meals does your family typically eat in a month? Do you eat the same thing every week or never eat the same thing?

For us we try to have consistency and flexibility at the same time.  Today is grocery shopping day and last night we planned our meals for the week and typed up our grocery list (we type our list every week in a spreadsheet of sorts).

Every day of the week we have a theme. One of the reasons we do this is because it allows us to buy in advance knowing what we will be using in the coming weeks. It also helps us know how old our leftovers are, if we’re fortunate enough to have any.

Examples straight from our meal plan are

Monday- Pasta (we keep 2 different sauces, pasta, mushrooms, peppers and onions in the pantry to mix it up each week)

Tuesday- Mexican (tacos, enchiladas, fajitas, Mexican casserole,  all with either beef or chicken) this is a favorite in our house

Wednesday- Breakfast or Soup

Thursday- Asian night (stir fry, keema matar, chicken and veggie korma, curry, teriyaki or cashew chicken, etc.)

Friday- Pizza and movie night

Saturday- We are in transition right now on this day. Last week we had cereal and oatmeal and the kids loved it. We use this as a day to remember people less fortunate than we are.

Sunday- On Sunday we usually have some sort of fancy or family favorite meal. We call it “Celebration Sunday.”

That’s it for our weekly meals.  We keep it pretty simple but flexible.  If I see a great deal on something like Rotel I know that every Tuesday we have the opportunity to use it so I can stock up. Same goes with pasta and many other items.  We don’t often eat out and rarely plan to eat out.  We will sometimes order pizza but typically we just get Aldi deli pizza. They are big, cheap and delicious (can’t beat $10 for a family of 7).

I set up our list in categories of the store. When I get to the dairy part of Aldi I simply park my cart and have my 6 year old helper load the cart with all the items I am getting that day. Same goes with canned goods or really everything else.  I group items that way I don’t have to go back and forth. I have attached a picture of our list for this week. It is fancy for some but works great for me. I have a good idea what things cost so I don’t really track that as much. If I did I could probably save even more…maybe I will start.

 

How to Spend Your Tax Refund

For some people March and April can be a painful time financially.  If you have to pay additional money in taxes it isn’t much fun.  On the other hand, for those of you who get a refund due to over payment or simply not making enough income you will end up getting a refund.

Today I want to give you a list of a few things you might consider doing with your refund instead of wasting it on meaningless spending.

  1. Start or finish your emergency fund.  Depending on the size of your refund you might be able to add to an emergency fund or at least get one started.
  2. Age your money a little. We talked about how I love YNAB a tax refund would be a great way to get a couple weeks or even a month ahead on expenses.
  3. Invest it in an IRA. If you don’t have a significant tax liability I would recommend a Roth IRA. The money grows tax free and you can always withdraw what you contribute tax free.
  4. Pay off some debt. If you still have debt hanging around, a tax refund is a great way to clear some up some of that debt and save some interest.
  5. Learn something new. Have you wanted to learn more about a topic like personal finance, cooking, minimalism, or any host of other topics? Use your refund to pick up a few resources or take a class on that topic and get learning.

If you get a refund make sure that you have a plan and execute the plan.  If you let it sit there and don’t have a plan, it will end up slipping away.

We got a refund and chose to do a little of everything. We bumped up our emergency fund, put some into aging our money and we are going to have a nice dining room table built by a friend. (Ours is a little small for our family size).