Tag: investing

Your Net Worth…

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When you hear someone say, “what’s your net worth”?  Do you know what the definition of that question really is? AS to not assume, let us break it down to some basics… To calculate your net worth, add up all your “assets” first… If you own a house, what is the estimated current value, how much do you have in savings, as well as in retirement accounts, the value of your car… Let’s stick with the big-ticket items vs things like a diamond ring… Again, we are keeping it simple. The total dollar amount you get is what we call our “assets” for this conversation.

Now the fun part… You need to add up all your debts and subtract that from the asset total dollar amount you got.

 If you own a home and it’s valued at $500,000 BUT you still owe $200,000 on the mortgage… in the asset column under your home, the asset is valued at $300,000, because the bank “owns” $200,000 worth of that home.

If you have student loans, subtract that total amount, same with credit cards and any other debt/loans. If you paid $20,000 for your car and you still owe $10,00 just use the $10,000 vs the blue book value of the car, remember simple. Once you take your total assets subtract your total debt amount and this equals your “net worth.” Sometimes this number is a negative number… Don’t be scared… Its fixable.

 This article from Motley Fools gives a nice snapshot of the “average” Net Worth in the US by age, so you can see where you stand compared to others. Check out the whole article, it’s a good read!

Here’s the Average American’s Net Worth by Age in 2024 | The Motley Fool

For most things in life, average is OK, right? But there are some things in life where “average” is just that “average”. That does not mean it’s a good thing. Unfortunately, Americans do not seem to be good at saving, sad but true, just look at the numbers above. I would bet we used to be! Maybe we were not good at investing/saving because most people worked for companies with a pension.

Pensions are still out there, but they are always moving the needle. I know, because two family members have pensions. Still a great deal! But not like the old days… Maybe those number above scare me because I live in the northeast and its very pricey to live here. How do we encourage the younger generation that just saving a little extra in their retirement accounts in their 20’s makes a HUGE difference 30 years down the road, vs waiting till they are well into their 30’s. if you start in your 20’s the amount each month can be much lower than if you wait ten years.

They say the average car payment these days is over $700 per month for a new car and over $500 for a used car. The average credit card debt in the US is over $6500. Most people want a NEW house, or at least one that looks like the ones on HG TV! I do! Which is why I do not watch those shows… to depressing… ☹ We as Americans want instant gratification and want everyone to see how “successful” we are. Based on the numbers above I think it’s all a smoke and mirror show.

We all need to just squeeze a little more into the long-term investments so that we can take care of ourselves later in life. I am not saying we can’t have nice things but paying ourselves first with money into long term retirement accounts, and not OVER buying on the house and car will go a long way. Unless you plan on living in that nice new car in your older years??? 😊 Small changes make a big difference ten-twenty years down the road. Slow and steady and be aware of big purchases and make good decisions that are well thought out. We have all hade the car issues, the house issues…

What’s the goal here? Be above “average” on the Net Worth chart by just making small changes and nailing new good habits with automation and good decisions on the big stuff.

You got this! 😊

The Sweetness of a ROTH IRA

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The Sweetness of a ROTH IRA:

We all know we need to be putting money away for retirement. Most people just use their pension plan or their 401K plan at work. BUT if you are eligible for a ROTH IRA account, it’s worth having one! Does this make you a luck person? Well, I guess it depends on how you look at it. To be eligible, there are income limits.  If you file single for tax year 2024, your modified adjustable gross income needs to be under $161,000. Filing married that modified adjustable gross income needs to be under $240,000. IF you gross more than those amounts… Well then, you’re LUCKY! 😊

The Max amount per year you can contribute in 2024, is $7,000 per person if you are under the age of 50. If you are over 50 years old the max per person is $8,000. Check out the link from Schwab for more details.

Roth IRA Contribution Limits | Charles Schwab | Charles Schwab

What so great about having a ROTH? Do we need one if we contribute to our 401k plans?

I would say yes! Here is why. As we get older and decide we are ready to start taking money out of our retirement accounts to live on, we DO have to pay taxes on this money if it comes from a 401K, 403b, traditional IRA.  Really anything that is considered a PRE-TAX IRA. PRE-TAX means we have NOT paid any taxes on the money that got to hang out in those special accounts growing on compound interest. Uncle Sam wants his money! When we are retired, we still pay taxes on our income, for the most part anyway. Some states have some great tax breaks but let’s keep this conversation basic. Better to be pleasantly surprised at tax time in your retirement days, than surprised in a bad way.

A ROTH is money you put in an account that you have from a say, payroll check and instead of putting in in your savings account you put it in a ROTH IRA account. This account grows TAX FREE, with COMPOUND interest, and you NEVER pay a tax on it!!!! Did you get the word NEVER!!!! How SWEET is that! That’s our reward for not being high earners but let’s take the win here!!!

When it comes time to use any of our money in retirement it’s nice to have three buckets to pull from. This is where a tax accountant comes in handy.  But let’s deal with that WHEN we/you get to that point, as those pesky tax laws change all the time.

Bottom line, IF you have money in say a 401K, and a ROTH, and Social Security, this could help you have 3 spots to pull money out of each month and keep the taxes pay much lower.

Seems like a good idea to me! You do not need to max out these accounts every year either to make an impact on your bottom line 20-30 years down the road. Think about it and get on a ROTH IRA calculator to see if that motivates you to take some action. This simple calculator from Bankrate is great! Roth IRA Calculator | Bankrate

 If you do pull the trigger, or already have a ROTH, make sure the “assets are allocated” based on your risk tolerance, and don’t leave it in CASH.  CASH does not grow. You got this!

What does it mean to be financially literate?

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We hear this term a lot these days. In general, most people are fairly “educated”. In the US a person can get a free education till the 12th grade, which in most states you have till your 21st birthday, to complete. Which is fair. Beyond that age… Well that’s a different topic all together.

MOST people are “literate” when they leave school, in general, or at least we hope so.

But school does not make us financially literate, not even a little. I thought school was supposed to prepare us for the real world. Yet it does not teach us ANYTHING about real adulting.

Did they teach you how to balance a checkbook in math class? NO! Yet they told us we needed algebra!  Understanding how a mortgage works or carrying a large balance on a credit card, or what compound interest is, would have been helpful back in those early days, instead of finding out the hard way. That’s how most of us start to figure things out. 

Not to mention how much simpler life was before the internet and you could not see how “great” everyone else’s life “IS” or appears to be. Banks did not just say, hey you make $50,000 a year, you DESERVE this $500,000 house, and we are going to give you the money for it, even though you only have $15,000 (aka 3%) to put down.

What always drove me crazy about this “low down payment’ thing, is HOW will you afford the monthly payments, IF you could barely save the down payment? Then the banks started making people pay PMI. Which was such a joke, because they made YOU the buyer insure your own loan in case you defaulted. NO risk for the banks. People were getting mortgages that had NO idea what they were signing up for. The bank or mortgage company is NOT the one that should tell you how much you can afford for a house, this is something WE should know/decide, as it’s different for everyone. But most people just go with “the bank said we qualify for more than we asked for!” Let’s get the bigger house! After all the bank said we could! The bank is running a business, they don’t care about you. No, they don’t teach us this in school either.

Same deal with credit cards. You get close to your max on a credit card, and you make at least your min. payment, They UP your limit. They want you to carry a balance, it’s good for their business.

These basic things are not taught in school, they are not discussed in most homes, well unless you are wealthy. The wealthy people DO talk to their kids about money, so they grow up in most cases knowing more than the rest of us. And those are just the basic things, never mind that scary word… “investing”! Rich people stuff, right?

The average midclass person looks at investing like it’s a form of gambling. Again, not the wealthy people, that is how they got wealthy!

When it comes down to it most people ARE NOT financially literate, and we need to change that.

Check out these stats from Moneyzine in the attached article.

US Financial Literacy Statistics 2024: Key Demographics & Cost (moneyzine.com)

 Our kids deserve to be educated and make better decisions early on in life vs learning the hard way which ends up wasting so much money that they will work so hard for.  There are many ways to get a better understanding about how money works these days. We have the internet, books, podcast….

As adults we have the power to be more educated about money, so we can make it less tabu for our kids. If the kids are of high school age or older, hey you can do it together! Be honest and upfront and tell them, we are going to learn together! 😊 You got this! Dig in, one topic at a time that you want to know more about. You might find you dig the subject! 😊

Talking to our kids about money

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Talking to our kids about money…

There is extensive evidence on how people’s emotions and feelings around money are shaped by the actions we see, hear, and feel pertaining to money when we are kids. Our fears, our habits and our anxiety around money usually comes from experiences we had as children. No pressure here on us parents! Like our job as parents is not hard enough! Ok so let’s break it down.  Perhaps we need to put some rules in place like trying not to argue about money in front of the kids when they are young? Easier said then done…

When money is tight, it’s stressful, and the kid’s associate money with a tense situation and learn to “fear” money or think they just need more money and it will all be ok, right? As adults we know this is not always true. More money does not make all the problems go away, if the habits don’t change and we spend more than we make.

So how do we fix this? We know we need to slow our roll, create budgets, and cut back on the non-essential items… Ya, Ya, Ya…We all know what we NEED to do.

The issue is how do we not create kids that have fears or bad habits around money?

Money does NEED to be discussed and it should not be hidden from the kids. They do not need all the details of course but we do want them to appreciate money, respect money and understand the “value” of money. We also need to teach them money is earned as well, which I think makes it have more “value”.  When you “work” for your “cash” and you think you want a new toy or something, usually that toy is taken better care of when the kids pay for it themselves. Trust me, I have witnessed it firsthand with my own child over the years.  I’m not saying they have to work for ALL their toys. 😊These are the things our parents probably did with most of us as well. Sometimes as parents we “give” too much to the kids, even if we don’t have the money. It’s OK to sometimes say NO, or not at this time.  We don’t need the kids to think there is no money, just that money is not like a faucet that has an endless flow of money.  Social media has played a role in kids thinking they need to have what everyone else has! You can just say NO.

Maybe it’s Ok to show the kids the bills, like the electric bill and why we shut lights off when leaving the room.  Opening a savings account for your children say between the ages of 7-12 or so is always fun. Make sure they are with you when you set up the account and the rule is they MUST put 15% of any money they earn or are given as a gift, into the account first. Then they can do what they want with the rest. This will help them get in the habit of “paying themselves first”. Not a bad idea to also encourage them to donate some of that money to a charity here and there.  Once the kids are in high school or have a “paying” job, lets play it safe and for this conversation, they have a W-2 job working part time, you could consider opening a custodial ROTH IRA for the child. Keep in mind once they are 18 or 21, depending on your state laws, it’s their IRA now, so do go over the rules with them in detail. Custodial Roth IRA: Your guide to Roth IRAs for kids | Fidelity

Once they start high school. And college is on the horizon, you MUST talk about money! College is expensive! Even state schools can run as high as $35,000 per year! As parents we want to do everything for our kids, including paying for college. But it’s not always possible and this again is a time when it’s OK to say NO to some things. Maybe it’s NO to the most expensive college they picked, due to little or no aid. The budget is important here. If college debt is going to be more than what they will earn the first year out, might want to re-think the school choice…. Student loans are ok but keep it LOW! Show then the online calculators and how interest calculates! It’s 4 years of their lives, do they want to pay for it for 10+ years. Student Loan Calculator | Bankrate

 If we talk to the kids throughout their lives about money and make it an open conversation maybe when it comes to large expenses like college, it will be an easier conversation? Discuss not spending more than you make, discuss paying yourself first, aka the 15% in the savings account, discuss investing and retirement accounts, show them your retirement account statements… Let’s talk money with our kids!

Common money problems for most of us…and the pay gap.

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If you google financial issues to see if you have “company” with whatever financial issue you personally may be dealing with… Good chance you have company! One of “the issues” that seems to be on every list, is a low income/the need to make more money. It’s actually the first topic on the list from a survey provided by SoFi.

7 Common Money Issues People Face | SoFi

These days it feels like everyone has or seems to need a side hustle.  Is it really because everyone can’t manger their money and not live below their means? Sure, there is some of that, but sometimes I talk to people and can not believe how low their salary is! I know people that have 40 years of experience doing a particular job and I KNOW they make less than someone doing the same job, and they are only 30 years old! What’s wrong with this?  There is no transparence in most companies, and we KNOW the guys still get paid more than most woman in most situations.  The pay gap is very real, and that gap can vary  by state. This article from Business Insider is eye opening. Pay Gap by State: How Much Women Earn Compared to Men (businessinsider.com)

As woman everything seems to be stacked against us… We make less money overall, we are in most cases the primary care givers for children, and or ageing parents, which may result in lost time at work or working part time. Woman also live longer, so NEED more money for retirement.

The ONE thing that IS equal is the cost of college! If woman make approx. 20% less than men in general, then tuition should be 20% less for woman, right!? Ok just me going a tangent there… But a valid point!

Because of the pay gap, women are starting more businesses, and hopefully investing more, to equal the playing field. Woman typically do better at investing they say because we are more patience and will allow the funds to grow and not panic and sell if the market goes down. That might be true, but I also think woman have a full plate most days and do not have time to look at their long term accounts every day, and we know what the term “long term” means. 😊Women have more patience and are willing to “educate” themselves on topics they have an interest in. But when it comes to “investing” people (not just woman) feel intimidated. It’s not intimidating, let’s not over think it. If you have a 401K AND you have “allocated your assets” then you’re investing! What does it mean to “asset allocate”? It simply means you have “picked” how you will divide up the money you are setting aside each month in that 401K.  Maybe you have some in a fund called “Large Cap” and some in “Small Cap” Or “international funds, or Index funds…. Just do NOT leave it in cash! Also do NOT ASSUME the “company”, as in the company you work for or the company that the 401K is with is” asset allocating”  for you! This is on you! But again, do not panic here. Get online and access your 401K account and log in. Find something that gets you to a spot that allows you to allocate the “funds” to “buy”. There are usually RISK assessment questions as well as questions like your age and the age you want to retire. Then the “robo” advisor will allocate your assets. That’s it! You are investing, yes you are an investor! 😊  Look at you, doing big girl stuff! Look at these allocations maybe once a year, you may or may not have to do anything with it.  The market will go up and down, which means your account could go lower than the month before. If the market in general is down, that will be the case for all of us. Remember this is a marathon, this growing your money game we are playing here. IF the market is down, and you still have extra cash in your budget, UP your contributions each month or even if it’s a ONE time shot with extra money. Hey, the Stock market is having a SALE!!! 😊 Good Luck!

Tax Time!

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Here we go… It’s that time of the year again, tax season.  The pressure of rounding up all the information we need to make sure we are taking all the deductions allowed. I personally rely on a professional to fill the forms in. Well, in all honesty that person is also pretty much family, so the fee is very reasonable.  The standard deductions for 2023 (so filing in 2024) filling single is $13,850 and $27,700 filling jointly or $20,800 for head of household. If you are over the age of 65, you may be eligible for more but should consult a professional.

When filing you either take that standard deduction, say the $27,700 or you itemize. Whichever number is higher usually works best. If you have a large mortgage payment with a high interest rate and other allowed deductions, you could exceed the $27,700 amount. NerdWallet has some great tips in this article on possible deductions for  2023. 22 Popular Tax Deductions and Tax Breaks for 2023-2024 – NerdWallet.

And who knew you could file your simple tax return with NerdWalled for just $50! Check it out if this could be a fit for you! The above link will take you there.

IF you find yourself having to PAY taxes this year, and you do not have a basic IRA account, maybe it makes sense to open one? If you only have a 401k and still owe taxes, it’s too late to add more money there, BUT you should have until April 15th to add money to a traditional IRA for the 2023 tax year. (Max $6500 if under the age of 50) This article from US News will give you the guildlines. IRA Contribution Limits for 2023 (usnews.com)

Keep in mind IF you do this because let’s say you owe $2000 this year, and you put $2000 in an IRA, it balances out? Not necessarily.  Plug in the numbers and see what tax bracket you need to be in for it to be a benefit for this filing. It may or may not be a “thing” for you this year but should be a push for you to UP your 401k contribution ASAP, as to not get stuck on that side next year.

Taxes and the lack of time to grow your money seem to be the biggest hinders to growing wealth. They say we should have at least two buckets for long-term growth accounts.

  1. Traditional retirement accounts, like an employer 401K, 457, 403b…. These a tax deferred account, so it lowers your taxable income. If you make $50,000 a year and put $10,000 a year in your 401K (does NOT included the employer match) then you are taxed as IF you only made $40,000 a year. That’s a basic outline. The money grows with compound interest for many years, and you pay a tax on that money years down the road on what ever amount you take out each year.
  2. ROTH IRA or ROTH 401K (If you are lucky to have one) With a ROTH IRA, you have already paid taxes on this money, and it can grow with compound interest, and you NEVER pay taxes on any of that money!!! There are income level caps to be able to contribute to a ROTH IRA. If you do a ROTH 401K, you pay the tax first and then it goes into the account to grow with compound interest and the same rules apply. But do check the rules and understand them.

Check out the link from Investopedia, which does a great job to beak it all down in simple terms. Roth 401(k) vs. Roth IRA: What’s the Difference? (investopedia.com)

Taxes are no fun, and it seems like some of the rules on what’s a deduction and what is not is always changing. Fun fact. Many years ago, Ok like 30 years ago.😊 you could write off the interest on a personal credit card and a car loan! Not anymore, and yet there is a higher percent of people with credit cards and the average credit card debt in the US is thousands of dollars.  It’s a good idea to just have a place that you keep all your receipts in one spot. Things like medical bills that were not covered by insurance, home repairs, property tax bills, excise taxes bills, homeowners’ insurance bills…. You name it.

In most cases, at least in my state you can not deduct things like home repairs on a single-family home. But what if you decide to sell your home? Might be a different story that year.  I personally, keep a decorative shoe box for the “paper” stuff and TRY to remember to print an e-receipts I have. This way everything is in one spot and takes less time to organize what my “tax guy” needs or does not need.

They say we don’t really want to be getting big refunds, that we shoot for close to Zero so more of our money stays in our pocket through out the year. I get that, BUT I also do NOT want to see I owe Uncle Sam money! Again, this gets back to our behaviors and mind sets. If you are someone that wants to live on the edge and has money set aside incase you owe taxes, go for it! I am more comfortable with getting close enough and getting a refund! 😊 Its like Christmas in the Spring and I earmark that money for something specific or put it in savings for a bigger project like a home repair. Do whatever works best for your personality and needs but try to look back next year and say you learned something positive about how you file your taxes or that you did something positive with your return, if you are getting one.

Happy tax season!!!

Your Work Retirement Plan

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Are you really invested in your works retirement plan???

I know what you’re thinking, of course I am! If you have a 401K, hopefully you see a line item on your pay stub, with the amount or per cent you requested be taken out each paycheck.  These days some of us only have a paperless copy of our pay stub.  So here is why I asked. Last week I happened to be talking to two family members that both work in education. In the state we live in educators do NOT pay into social security, they pay into the state pension plan. Which is 11% of their pay right now. There are only 6 states that follow this plan. In the conversation I asked if they both also take advantage of the 403b retirement plan option? They both said yes. But as we got talking and they pulled up their online pay stubs, I said show me where the 403b is taken out? Well to both of their surprise it was not actually being taken out at all!

One of them had changed districts and filled in all the paperwork and asked everything get shifted over where the same company handled both school districts. Simple and easy right?

Here was the problem, the person on the other end never did anything, plus it is now a different HR/Payroll, because it’s a new school. It’s up to us to make sure the paperwork is in place and that the HR/payroll team is doing what you asked it to do!

One of the people only lost a little time, but the other lost 20 years! The other person also just never even thought of funding it monthly, and only relied on the pension, like the good old days.

Thirty years ago, there were more companies and jobs that offered a “Pension”. Here is the thing, people talk about social security and how there will never be anything left for most of us to collect. Who really knows???  Thirty years ago, if you had a job that offered a pension, people would say you were set for life! Well things started to change in 1978 when they passed the Revenue Act section 401K, which allowed employees to defer the taxes on the funds going into these accounts. Plus, these accounts can grow with compound interest. The law went into effect on January 1, 1980. That’s not that long ago.

Since the 1980’s, fewer private companies have offered a pension and for the people I know working in state jobs that do still offer a pension, they are always moving the mark! EX: The teachers I know were told years ago… Stay 30 years and you get your full pension! NICE, right? What if you started at 22 right out of school. Technically you are eligible for the full pension at 52!

 Not anymore, now they have moved the mark. You need 30 years PLUS you need to be 65 years old. WHAT?!  OK, maybe you just LOVE your job, and you think you will always LOVE your job… But what if after 25 years you’re burnt out and need a change? Now you’re in to deep… Or at least that’s what people say. But what if you let your “pension” money just sit there till your 65 and you do a different job, because you not only have the “pension” money, which is say 40% of your pay, vs 80%, you also have $500,000 in your 403b account still growing tax deferred! Might make it easier to make a change…. Plus your new job, probably has a 401K plan!

 Don’t get me wrong, I think it’s great if you have this benefit! I wish I did! BUT, if you’re young and starting out I think you really need to also put some money in your 403b or 457 retirement plans. It’s never going to hurt you! Even if it’s only $100.00 a month, it’s like $75.00 a month out of your check, because its tax deferred.

The lesson here is, FIRST LOOK AT YOUR PAYSTUBS, do not assume anything. You are responsible for making sure these things get done! There is NO Retirement babysitter checking on you. Once you know the account is being funded, make sure it’s not sitting there in CASH. Talk to the “advisor” of the plan, yes there will be one and have them help you allocate the funds. The term you hear is “asset allocation”. They can help you or if the plan has a ROBO advice, that works too. The online robo advisor will ask you some “risk” tolerance questions, and timelines. Then it will allocate the funds appropriately.  Nothing scarry here… Just taking charge of your stuff! You got this!