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How My Relationship with Money Changed

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As I’ve gotten older, my relationship with money has changed. I’ve made mistakes, learned some things, and I found a new dynamic that works for me and suits my goals.

What I was taught

To be perfectly honest, my memory isn’t great, so if I was taught anything about money and how to handle it, I don’t recall it.

It wasn’t something that was openly discussed in our family. My folks took a fairly hands-off approach when it came to teaching us, besides our morals, character, and work ethic. Other than that, they let my siblings and I figure things out on our own.

Over this past year, as I’ve explored my upbringing I went through a phase of being angry with them for not being more hands-on, but after having an opportunity to really reflect, I’m incredibly grateful.

Because of their approach, I’m a very fast learner and a very good problem solver. I wouldn’t change a thing.

Past experiences

During the last two years of high school and a few years after, my buddies and I would always go get fast food, bring it back to one of our respective homes, and hang out.

Because of that, part of socializing I attributed to getting food, and as a result, spending money.

I also went through a period of “keeping up with the Joneses”, so I often spent money on things I didn’t need or I agreed to things I couldn’t afford because I didn’t want to be left out.

The last mistake I made was charging, darn near, everything when we went on our honeymoon. A very costly mistake at that.

What I learned

The lessons I learned I pretty remedial in terms of financial common sense, but it took making those mistakes in order to learn:

  • You don’t need to spend money to hang out with your people. Whether that’s food or entertainment. You can have a good time with the right company, no matter the circumstances.
  • Spending more than you ought to on material things in order appear to have the same social status as your peers is a recipe for disaster. To quote Dave Ramsey, “We buy things we don’t need with money we don’t have to impress people we don’t like.”
  • Stay within your means – I wanted to “do it up” on the honeymoon, so I spent WAY more than I should have. Had I known what I do now then, we would’ve planned things differently, and spent MUCH less.

Me and money now

My relationship with money has changed a lot over the last few years. I think as I’ve matured (and had a child) I’ve realized what is more important, and that spending on frivolous things, and gifts for that matter, is wasteful.

Money isn’t everything, but it’s an important tool. It’s a tool that deserves to be used in a thoughtful way.

I pay my bills, I pay down debt, I save, and set aside a little for fun. The money I save goes into three buckets: retirement savings, short-term savings, and emergency savings.

The short-term bucket is broken down further. Holiday spending, college savings, and experiences.

Spending money on experiences and precious time with my son has taken precedence over spending it on stuff.

He doesn’t get a lot of gifts from his mother or me (Santa) for Christmas, as he gets spoiled by the rest of our families.

More importantly, however, we would rather spend the money on things that create memories, which could include trips or a day at the zoo.

I’d rather him remember the time he spent with myself and others, rather than playing with toys. That’s what creates a happy, memorable childhood.

Related reading:

Psychology and Finance

Financial Mistakes to Avoid

My House and What Brought Me Here

Different Ways to Think About Your Finances

Roth IRA for Your Teen

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The Roth IRA was created in 1997 and since has grown in popularity as a retirement savings vehicle, outside of employer-sponsored plans.

In this article, we’re going to discuss the characteristics of a Roth IRA and how it can be effectively used by teens for retirement savings.

How it’ll be structured

Since the children opening the account will be minors, the Roth IRA will be opened as a Custodial account.

The custodian (often a parent, grandparent, or guardian) will open the account for the benefit of the minor.

As the custodian, you are in control of the account until the minor reaches “the age of majority (18 or 21 depending on which state you reside). I live in Wisconsin. The age of majority is 18.

*The custodian can’t withdraw, remove, or transfer funds from the account under any circumstances.

Once of age, the child is able to do as they wish with the funds. With the correct guidance, these funds can accumulate and compound over several decades. 

The benefit

Adults can contribute by “matching” the teen’s earned income. The teen has to have earned income in order to open the account and make contributions.

For example, your teen earns $5,000 during the year. Theoretically, they could contribute all of it to their Roth. To encourage their money-saving habits and to show them the benefit, you tell them to save $2,500 and you match with an additional $2,500.

This provides an immediate reward/incentive to the teen and also helps illustrate how most employer-sponsored plans function.

Not only is this great for saving money, but it also instills the habit of saving. In my opinion, that’s even more important.

Additionally, if the minor can’t make a contribution (didn’t make enough, etc.) the custodian can still make contributions on their behalf.

Standard Roth Regulations

  • Contribution max (for 2019) is $6,000
  • Money grows tax-deferred
  • Money withdrawn is tax-free
  • 10% penalty if withdrawn prior to 59 ½, but there are exceptions
    • Medical expenses that exceed 10% of your adjusted gross income (AGI)
    • Health insurance
    • Disability
    • Qualified higher-education expenses
    • Death Distribution
    • First home purchase

For a more detailed list, click this link.

Comparing to other accounts

With regard to other custodial accounts, the Roth IRA is best for retirement savings. In terms of college savings, the 529 and the Coverdell ESA are far superior. If you’re looking for simplicity and flexibility, an UTMA/UGMA account will be your best bet.

Below is a brief explanation of each, followed by links to more detailed articles previously written.

  • 529 – A college savings plan that is exempt from federal taxes, if you use the funds to pay for qualified education-related expenses. Those expenses include tuition, books, room and board, computer equipment, and necessary supplies for students with special needs, as long as the student is attending at least half-time. (More on the 529)
  • Custodial IRA – Like the 529, the Coverdell ESA is an education savings vehicle for K-12 and secondary education. Coverdell ESA stands for Coverdell Education Savings Account. (More on the Coverdell ESA)
  • UTMA/UGMA – The UTMA and the UTMA are custodial accounts. An adult (the custodian) opens an account for the benefit of a minor. UTMA stands for Uniform Transfer to Minors Act. UGMA stands for Uniform Gift to Minors Act. The difference has to do with the age of majority, but more on that later. (More on UTMA/UGMA)

Conclusion

If you’re looking for an effective way to help your kids save for retirement, the Roth IRA is a great way to go. Please advise, that the child needs to have earned income in order to make contributions.

Related reading:

Why I Love the Roth IRA

How to Teach Your Kids About Money

How to Succeed this Year

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A New Year often brings lofty goals. I want to get in shape or I want to get that promotion, but how often are our yearly goals about our finances?

In this post, we’re going to talk about some of the things you can do to set yourself up for financial success this year.

Put your credit cards away

For the vast majority of people, credit cards hurt more than they help. If you’re financially responsible and pay off your balance right away, they’re an extraordinary tool. For everyone else, credit cards often come with financial pain.

Don’t close your credit card (more on that in this post, here). Take it/them out of your wallet and delete them from your “payment options” on Amazon and/or any other online retailers you frequently visit.

The easiest way to avoid temptation is to take it away. Avoid using your credit card(s) this year.

Pay yourself first

Before you spend a single dollar, set some money aside for yourself.

What you do with that savings will vary. Everyone should have an emergency fund. Ideally, 3-6 months’ worth of expenses.

At the very least, have $1,000 set aside for emergencies, and then build up from there.

Once the emergency fund is set, start building an account for short-medium term goals. A new car or a down payment, are two examples of short-medium term goals.

Last, but not least, you need to save for retirement. This should be its own line item on your budget (more on that below), but it’s something that requires intentional savings each month.

Savings

Your saving methodology, or how you save, deserves it’s own section because often times, we save after we spend.

We need to flip that around. You need to save BEFORE you spend. When you budget (make a spending plan), there are several line items.

What you pay, in order, should be necessities, savings, and then excess spending.

Additionally, your savings rate shouldn’t stay stagnant. It should constantly be adjusted. At the very least, on an annual basis.

Run the numbers. Do the math and figure out if you can spare another percentage of your salary, or another $5/month.

Invest in yourself

There’s no better way to improve your year than to improve yourself!

Put healthy habits into practice. Read, exercise, meditate, hang out with friends, go for a walk. The list is endless.

Some of those activities have compounding benefits. Walking is great exercise and is also meditative.

“An investment in knowledge pays the best interest” – Benjamin Franklin

Audit your spending

Figure out where all of your money is going. I typically look back three months, but Holiday shopping is there, so that will distort your spending a little.

If you can, audit October, November, and December, and remove any item that isn’t normal (i.e. gifts/presents).

Once you have a good grasp on how much you’re spending and where you can develop a budget.

Make a spending plan

My term for budget, as the word “budget” has negative connotations tied to it. Using your spending audit, create a spending plan.

  • List your necessary expenses – rent, utilities, groceries, travel, insurance, debt payments, savings
  • List discretionary spending – fun money. Give yourself an allowance here, but keep it reasonable.
  • Monthly income – What do you bring in each month.

Once you have these items listed (debits and credits, respectively) compare the two. The resulting number should be positive. Make adjustments accordingly.

A financial plan isn’t something that’s set in stone. It’s a living organism that’s constantly changing.

Be generous

If there’s one thing that’s been proven (time and again) it’s that helping other people makes you feel good. However, the reason for being generous shouldn’t be the dopamine rush that follows, it’s to help someone/something that needs it.

Whether that’s a stranger at the store or a cause that you strongly identify with, do what’s right. Live to serve.

Holiday Savings

Start saving now! December sneaks up quickly, and before you know it, you’re spending hundreds of dollars on things you didn’t budget for.

Save a little bit each day, week, or month. Whatever you’re comfortable. I encourage you to figure out what you think you’ll need for the Holidays and break it down.

Discern what is manageable for you and put it into practice.

Related Reading:

Holiday Spending and Saving

Your Go-To Budget Guide

How to Cut Your Spending

My Goals for 2020

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Now that we’ve turned the calendar to another year, another decade, it’s time to figure out what goals we would like to set.

Specifically, in this post, I’m going to go over the goals that I’m setting for myself, why I’m setting that goal, and how I’m going to put a system in place to achieve that goal.

What are my goals for 2020?

  • Get out of debt – Bought a house in 2019 and bit off more than I could chew. Other life events have also thrown a wrench in my financial planning.
  • Save for retirement – I’ve put my savings on hold for the time being due to poor financial decisions that led to the debt, etc.
  • Incorporate a meditation practice – I’ve harped on it and studies show how much it helps. I need to do this.
  • Journal every day – When I remember to journal, those are generally good days. I need to do this consistently.
  • Read every day – Reading can only help me, so why wouldn’t I do it more? I’ll learn something new and it’s shown to provide some meditative benefits.
  • Spend more dedicated time with my son – I’ve found myself over the last month or so having my phone out more than normal. I mean, I’ve had quite a lot going on with work and mentally, but that’s no excuse. He deserves better.
  • Exercise regularly – it’s good for my body and my mind. It’s a must.

Typically, when you’re setting goals, you should be very specific. You’ll notice, that I wasn’t. I get more granular with my goals in the systems section.

My systems

Getting out of debt and saving for retirement we can lump into one system, as they both revolve around finances and me reigning in my spending.

Until April, this will be incredibly challenging, as I am currently paying my mortgage on my house and the rent for my apartment.

So until I get my house rented (I have tenants set to move in, in April), I’m kind of stuck. Once that happens, however, I’ll have the debt repayment pedal down to the floor.

Simultaneously, I’ll contribute $20 per month to my retirement account, just to get in the habit of doing it again. Start small, enforce the habit, then increase the dollar amount.

Meditation

Of my goals, incorporating meditation practice should be relatively easy. I know my preferred style – I’m not one to sit pretzel-legged on a cushion. I lay down on the floor, on my back, which some relaxing music playing.

The hard part is a) making the time for it and b) doing it consistently. To start, I’m going to set my alarm for 5 minutes earlier than normal.

5 minutes might not seem like a lot, but if I wake up 5 minutes earlier, that gives me 5 minutes to meditate. If I do that consistently for the next, say three weeks, those extra 5 minutes won’t seem that, and I can scale it to 10 minutes.

As I noted in last week’s article, when forming a habit, you have to start small and then scale up.

Reading

Reading every day. This is a must-do for me. It’s good for my mind, it’s good for my soul, it’s good for everything. I have a great many books on my list, but they will all fall into a specific genre – finance, philosophy, religion, or biographies.

The first one will help with work. The last three will help with life.

Every day, before bed, I’m going to read for 15 minutes. That’s my starting point. Once I get into the habit, the amount of time I read will increase.

Spending time with my son

Spend more dedicated time with my son. This is an easy one. Just stay off my gosh darn phone.

Keep it in my room or in the kitchen. Not in my pocket, where I can easily access it. Put the ringer on and leave it alone.

If it’s an emergency, someone will call and I will hear it.

This will also eliminate a distraction, so if he goes to bed for the night, I can immediately pick up a book without getting sucked into the social media black hole.

Exercise

Exercising every day. I read recently in a book about the Dalai Lama that exercising your mind is more important than exercising your body, so I’ve put that on the back burner.

I have a pull-up bar in the doorway to my bathroom and I do 5 pull-ups every time I go in, but that’s not enough dedicated, consistent time for exercise.

I think doing it in the morning makes the most sense. I’m too tired in the evenings to exercise. The question is, do I do this before or after meditation?

Probably after, as I need my mind at ease when I meditate.

So instead of waking up 5 minutes earlier, I’ll start by waking up 20 minutes earlier. Dedicated 15 of those minutes to exercise and the remaining 5 for meditation.

Related reading:

A Systematic Approach to Goals

Worthy Goals for You to Set and Crush

How Do You Set Financial Goals?

A Systematic Approach to Goals

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With 2020 staring us in the face, it’s time to review goal setting and the systems you can put in place in order to reach those goals.

“A goal without a plan is just a wish.” – Antoine de Saint-Exupery

That said, let’s look at systematic ways to approach goal setting and actionable tools you can use to smash those goals.

How to begin

  1. Large/Lifetime goals – These are things you want to accomplish throughout your life. They can be philanthropic, health, financial, etc. Figure these out first.
  2. Short-term – Now that you have your long-term/lifetime goals determined, you can break them down into shorter-term goals. Consider these stepping stones, and a lot of these will change as you age. For example, your philanthropic goals. There may be causes you care deeply about now, but that can change.
  3. Actionable steps – Once you have your lifetime goals broken down into manageable targets, it’s time to create steps to get there and I’ll illustrate that using the three examples above.
    1. Philanthropic – Research causes and charities. Pick the ones you most identify with. Review your budget to find out how much you can give. Do a little more research to find out if your donations are tax-deductible (most, if not all, should be).
    2. Health – Establish the specific reason you want to be healthier (for yourself, your partner, your kids, grandkids, etc.). Research a diet that could work for you. Research an exercise regimen that could work for you. Consult experts (i.e. nutritionist and personal trainer).
    3. Financial – Create a budget/spending plan. Cut expenses. Save for emergencies. Insure you and your belongings. Save for retirement.

Here are a few articles I’ve written in the past about financial goals:

Worthy Goals For You To Set And Crush

How Do You Set Financial Goals?

Systems

We can think of systems as the sub-category of actionable steps. A routine is another word for it. When it comes to goals and habits, you can’t rely on will power. You have put a plan in place to do the work for you.

Take exercising for example. You need to create low barriers for yourself. Wear your gym clothes to bed or have your bag packed the night before.

If you go to the gym, put your bag and your keys in a place where you have to pass them to get to your car.

If you exercise at home, have your routine and your equipment laid out and ready for you.

Habits

When it comes to creating habits, James Clear, the author of Atomic Habits, likes to break down the habit into bite-sized pieces.

For example, if your saving for a down payment, go to your banking app and transfer $1 from checking to savings every morning (or whatever amount is realistic for you).

When that becomes second nature, bump it up a dollar a day.

Another thing that James says is, “People ask me all of the time, how many days does it take to create a habit? My answer, all of them because if you stop doing it for one day, it’s no longer a habit.”

External versus Internal

This section is speaking specifically to mental health versus other goals. You could also consider physical health as an internal goal, but for this article internal relates to mental health.

There are several things you can do to work on your mental health. See a therapist, exercise, and start a journal. Those three are low-barrier, easy things you can implement into your day to help.

Meditation, medication, and other forms of mindfulness training/practice can also help. There’s a podcast that I listen to regularly called “10% Happier” that will help you with establishing a meditation practice.

Do some research about this. Meditation can and will take many different forms, and not each modality will be right for you. Some may find that magic mushrooms from a magic mushroom dispensary can help them to relax, whilst reading has also proven to have meditative benefits.

Financial Goals

It really is up to the individual as to what they consider, short, medium, and long-term, but my definitions are as follows: Short-term – less than 3 years. Medium-term – 3-15. Long-term – 15+.

My definitions are almost entirely based on the investability of those assets for that specific time period.

  • Short-term – Emergencies, a new car, what have you. This is money you will need soon, so risking it in the stock market is out of the question. High-yield savings accounts should be your go-to in this scenario.
  • Medium-term – Things like down payments for a house or sending your kid to college. What you’re saving for will dictate the vehicle that you use. If it’s saving for college, a 529 or a Coverdell ESA should do the trick. If it’s for a down payment, your best bet is usually a taxable brokerage account, as there are no fees for early withdrawal.
  • Long-term – This should be strictly focused on retirement. Assets should be in a retirement account(s) and invested (investment selection should be based on risk tolerance and time horizon).

Once you’ve established your short, medium, and long-term goals you can break them down into actionable steps as we talked about earlier.

Wrapping it up

Each New Year brings about resolutions that we hope to achieve. Whether it’s getting in shape or paying down debt, your barometer for success should be progress and consistency.

Are you in a better place than you were on January 1st? Do you have more saved? Are you still committed to the goals you set in the first place?

Yes. It feels great to set a target and hit it, but as far as I’m concerned, if you’re better than you were yesterday, that’s all that matters.

Take it one day at a time and keep your eyes on the prize. You got this!

Related Reading:

How to Set Long & Short-Term Goals (And Reach Them Too!)

401k Withdrawal Taxes and Penalties

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The 401k has grown in popularity over the last couple of decades because pensions have all but vanished; as a result, strategies around taking withdrawals and how to limit taxes and penalties are extremely prevalent.

In this article, we’re going to discuss the common penalties and taxes, and some of the strategies you can deploy to reduce them.

When a penalty typically applies

In almost all cases, a penalty applies if you withdraw from your account before the age of 59 ½. This is a 10% tax penalty. (Be advised: All withdrawals are subject to ordinary income taxes)

There is also a tax penalty if you fail to withdraw your Required Minimum Distribution (RMD). This applies to individuals over the age of 70 ½. This penalty, however, is 50% of the amount you should’ve withdrawn.

There are several exceptions, however.

Additionally, with the new Secure Act, there have changes to required minimum distributions, contributions, and others. For more information, click here.

When you are exempt from penalty

  • Withdrawal after 59 ½
  • Left employer after 55
  • Left employment in public safety after 50
  • Death distributions: your beneficiary is able to take distributions without penalty, regardless of their age
  • Totally and permanently disabled as defined by the IRS
  • 72t rule – Agree to withdraw the same amount for a fixed period of five years or until you turn 59 ½, whichever is greater.
  • Unreimbursed medical expenses: You’re allotted to withdraw the unreimbursed medical expenses minus 10% of your adjusted gross income
  • If you over contribute to your retirement plan for the year, you’re allowed to withdraw the excess without incurring a penalty.
  • IRS Tax Levies
  • Divorce: Depending on your state and how you settle the divorce with your former spouse, he/she can withdraw their respective portion without penalty
  • Roth conversion: you pay taxes on the conversion, but there is no 10% tax penalty

*All exceptions may have certain requirements that need to be met to qualify for the exemption. Please check with your 401k Plan Administrator and Financial Advisor regarding your personal situation.

Taxes

With regard to tax-saving strategies on 401k withdrawals, there are no short-cuts or exceptions like there was for the penalty section.

The best way to save money on taxes when taking distributions is to be strategic.

If the expense you are withdrawing for is something that can be planned ahead of time, determine your current tax bracket, figure out how much you’ll need at that future date, and withdraw slowly over time (how much you withdraw depends on how soon you’ll need it).

For example, if you are in the 22% tax bracket, are $10,000 from going into the next bracket, and need $40,000 for a down payment in 4 years, then withdraw just under $10k each year.

This assumes that your income and tax bracket will stay the same.

Another way to go about it is to utilize Roth conversions. If the intention is to minimize or eliminate your tax liability for retirement, do a Roth conversion every year. Just be mindful of where you are in your current bracket, so you aren’t bumped into the next one.

In this example, however, it can be counter-intuitive because in most cases, your tax bracket in retirement is lower than it was while you are working. This is commonsense, though. You’re making less, so logically you would be in a lower bracket.

With regard to taxes, it comes down to math. If you need to withdraw from your 401k, crunch the numbers and figure out how you can do that while limiting your tax exposure.

Related reading:

How to Save Money Effectively

Business Retirement Plan Guide

*Be advised – Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Living with Anxiety and Depression

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A few weeks ago, I wrote a post about my personal experiences with anxiety and depression, and how those mental illnesses affect your finances. (See article here)

This week, I’d like to talk about what it’s like living with these two illnesses. Before I do, however, I’d like to show a graphic from Anxiety.org that sum the symptoms pretty well.

The most challenging part about having anxiety and depression is that no day is the same.

Sometimes, I can’t even tell they’re there. Although, to be honest, those days are very few and far between.

Other days, my anxiety is in overdrive, which is exhausting. I’m jittery, constantly worrying about things that I needn’t worry about, and I have a big ball of negative energy that’s ever present in my stomach.

I have to say, though, the days when my depression is dominant are the toughest. The only thing I want to do these days is stay in bed and sleep.

Isolate myself from everyone, and just deal with it alone. Which is counter intuitive because social interaction is one thing that helps the most.

Recent changes

My medication changed. I don’t know if I noted it in that prior post I alluded to earlier, but my previous prescription wasn’t doing the job.

I’ve been on my new dose for two weeks now. My doc gave me two medications. One to treat my depression and another to treat my anxiety.

So far, so good. My depression isn’t gone by any means, but it’s definitely reduced. Though, I will say, there are days when it flares up due to certain triggers.

My anxiety is, somewhat, better. The biggest positive is that I’m sleeping better, which is vitally important.

The biggest drawback I’ve noticed is something I didn’t expect.

A temper was passed down to be, and sometimes, it’s really bad. Over the past year or so, my depression has been so prominent that it’s muted my anger.

Guess what? The new medication is doing its job and the anger is making its way back.

So what do I do? Change my medications again? Or do I learn techniques to manage my anger? Techniques that will allow me to feel my emotions without feeling controlled by them.

Yes is my answer.

Meditation, relaxation, and exercise. The two former I’m incorporating into my morning routine. The latter will take place in the evening.

My new morning routine will go as follows: (all while listening to relaxing chillstep)

  1. Wake up 45 minutes before I have to get ready (shower, shave, change, leave)
  2. Start with 5 minutes with my neck/head tension reliever
  3. 10 minutes in my inversion table
  4. 15 minutes of meditation
  5. 15 minutes of Tai chi
  6. Turn on some classic 90s/00s hits to get ready to

My exercise routine changes everyday. At least 30 minutes each day.

Day 1 – Elliptical

Day 2 – Stretch

Day 3 – Pull-ups and lunges

Day 4 – Stretch

Day 5 – Resistance bands and jumping jacks

Day 6 – Stretch

I haven’t done enough to take my mental health into my own hands. Sure, I’m seeing a therapist and I’m taking prescription medication, but that’s not enough.

I need to move my body and relax my mind.

I’m also reading a book about the Dalai Lama right now, and it’s quite interesting. It’s giving me a different perspective on how I can go about my day and the mentality I can incorporate into my daily life.

How it affects my finances

Depends on the day. If it’s a depression day, not too much. Like I said, I want to isolate myself on these days and I generally won’t buy things to make me feel better.

If it’s an anxiety-ridden day, that’s a different story. Food is my go-to when my anxiety is running high. That negatively affects my  finances.

Bottom line, just make sure you are taking care of yourself. Whatever that looks like for you. Also, make sure you have a “person”. Someone you can vent to. Someone that checks on you.

Read More:

Choosing a Bed: Sleep Number vs Tempurpedic

Retirement Planning for Freelancers

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As the employment pool thins, there’s a growing section of the population filling in the gaps – freelancers.

In this article, we’ll explain what freelancers are, the tech they can utilize, how they can budget, and how they save for retirement.

Let’s dive in.

What’s the Gig Economy?

Essentially, the Gig Economy is a group or sector of individuals that work as independent contractors, and/or classify themselves as self-employed.

Typically, these workers are made up of freelancers and contractors, as I mentioned. Freelancers don’t work for an organization. They work for themselves.

They set their own rates, hours, and services/products that they offer.

Many of these individuals, take advantage of different apps, programs, or organizations that subcontract a lot of their work out. Many of these are listed below.

Apps and Programs

The two most popular apps/programs used by freelancers to find work are Upwork and Fiverr.

With these two apps, an individual can create a profile and list the services they offer, qualifications, hourly rate, service location (geographically, where they can/will work), among other things.

There are, however, several companies that utilize the services and flexibility of freelancers. They include but aren’t limited to Uber, Lyft, Grubhub, and Doordash. 

There are many others currently in use, with new ones seemingly popping up every day.

All that said, because freelancers and individual contractors work for themselves, they usually don’t get benefits. Additionally, they don’t have a set schedule, so their income often varies, week to week.

How to budget

As I alluded to, income received for freelancers isn’t consistent. What’s more, they often have business expenses and taxes to think about. How you budget, will differ from your typical W-2 employee.

  1. First, find out how much you must bring in to meet your necessary expenses. This includes rent, transportation, food, utilities, and other bills. Bare minimum what you need to earn each month.
  2. Now you need to figure out what your average month looks like, in terms of business expenses. This can include travel, lodging, website, gear, etc. What is classified as a business expense can vary depending on what you do and how good your accountant is.
  3. Okay. We have your expenses taken care of, now we have to focus on income. We established you need enough to pay for necessary expenses, but I should’ve included the cost of doing business.
    1. Equipment
    2. Marketing
    3. Website (domain license, etc.)
  4. Another variable that can’t go unmentioned is your taxes. When you’re a freelancer or an independent contractor, your income normally isn’t taxed. That means you’ll either need to set savings aside to pay your taxes, or you’ll have to pay quarterlies.
  5. Last thing. As mentioned, your income will vary, so you need to plan for that. Using your budget, determine what you need to bring in each month (keep a LITTLE extra for fun) and save the rest.
    1. The extra savings are designated for down months, but could also be used for taxes and/or retirement.

Retirement plans available

Essentially, there are five retirement plans available for freelancers (depending on business structure, employees, income, etc.). I’ll link to an in-depth guide of all plans available for businesses, but here’s that list of five.

  1. Traditional IRA – Available to anyone. Income limits can constrict the tax advantages, but everyone is able to open a Traditional IRA.
  2. Roth IRA – This is not available to everyone. Income limits vary depending on marital status, so here’s a link to the IRS site for specific information.
  3. SIMPLE IRA – Tax treatment of a SIMPLE is similar to the Traditional IRA. This plan, however, is designed for small businesses.
  4. SEP IRA – I’ll echo my last point about tax treatment; very similar to a Traditional IRA. Contributions are made by the employer, no matter how many are employed by the company. The contribution limits for this plan are much higher, however.
  5. Solo 401k – Almost exactly the same as your standard 401(k), with two distinctions. One, it’s designed for one individual; two, you are allowed one employee on the plan (I know I contradicted myself)…your spouse.

Business Retirement Plan Guide

Talk with experts

You can do all the research in the world, but you still need to talk to someone that does this every day.

In your contact list, you should have a financial advisor (Hi there!), an accountant that specializes in one-person businesses, and an attorney.

Your financial advisor can assist you with budgeting, saving, and selecting a retirement plan. Your account can help with tax filings and deductions. Your attorney can determine what business structure is best for you, disclaimers, and other documents to CYA.

Related Reading:

Ways to increase your wealth

My house and what brought me here

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In today’s article, I’m going to discuss the current dilemma with my house, the choices I made that got me here, and how I see things playing out over the next few years.

Background information

Let’s go way back to 2014. That year, I proposed to my then-girlfriend. After we were engaged, I moved in with her.

A smallish, one bedroom, one bathroom apartment, but affordable. After about 6 months of that, we moved to a different apartment. Different city.

This one was 2 bedrooms, 1 ½ bathrooms, but 50% more for rent. The majority of the cost, in my opinion, was due to location.

Our first apartment was in a suburb of Milwaukee, Wisconsin. The second one was in Milwaukee, in a sought after neighborhood. At the time, this seemed like a fun choice. We’d experience life downtown in a bigger city (Milwaukee is small compared to actual BIG cities).

Fast forward 9 months. We were looking to get a puppy, but our landlord wouldn’t accept a pet younger than 1 year of age. Add that onto poor management and several plumbing issues, we’d had enough.

Time to move

Found a sub-lessor for the remaining three months on our lease, and moved in with my folks.

We decided that was the best choice because we wanted to buy, and living with them costing very little rent was the easiest, and fastest, way to save for a down payment.

Three months with them and we saved enough for a small down payment (FHA mortgage requires just 3.5% down).

March of 2016 is when we bought our first house. 3 bedrooms, 2 bathrooms. Perfect for the two of us. However, the city we lived in didn’t have good schools, so we knew (as we wanted kids) that living here would be temporary.

The plan was to live in this house (located in West Allis, Wisconsin) for 4-5 years until our child started school. Then we would move to a different city with better schools.

Moving again

Fast forward to late spring of 2018. One day, I was browsing on Realtor and found a house in the suburbs.

I liked what I saw, liked the city, and the price. I showed my wife and we agreed to take a look at it. Obviously, this was quite a few years before our planned move.

We looked at the house and loved it. We loved it so much that we submitted an offer in the car on our way back from looking at it.

We moved into that house (located in Oconomowoc, Wisconsin) in July of 2018, and that kind of brings us to today.

Real quick. I wanted to briefly explain the decision to move so far ahead of schedule. I knew our budget would be tight with the increased mortgage payment, but I was looking far ahead. The schools were better, the neighborhood was safer, and it would’ve been a great place to raise a family.

Current housing woes

As I’ve noted before, I’m in the middle of a divorce. Part of that divorce is selling our house. As you can imagine, having lived there for only one year, there wasn’t any equity built up.

We placed the house on the market in the middle of October. We started out asking $239,000 and didn’t hear much of anything for about a week.

We dropped the asking price by $10,000 to $229,000. Officially, we received our first offer on 12/2/19 (I’m writing this on 12/3/2019).

Their offer came in at $215,000 cash. Quite a bit lower, so we countered back with our full asking price.

They countered today at $225,000 and we accepted that.

Here’s the problem. We bought the house for $239,000 and we’re selling it (pending inspection and further negotiation) for $225,000. Again, we put 3.5% down. Still, we have $230,000 left on the mortgage.

That brings in a short sell situation. This means we will have to cut a check to the title company for the difference to clear the title.

You’re probably thinking $5,000 isn’t too bad. Hold on. We still have to factor in closing costs, which include the realtor’s commission. A rough estimate puts the check we’ll have to write around $15,000/$16,000. Ouch.

Lessons learned

Nobody has a crystal ball. Did I know I’d have to sell the house a year after buying it? No. Do I wish I would’ve done things differently? Sometimes, but I try to look at every situation as a learning experience.

I take the good and the bad. My son took his first steps in the Oconomowoc house. He had a lot more space to run and play. He had a fenced-in backyard. It was perfect for him and for us. I wouldn’t take that back.

Do I wish we would’ve stayed in the one-bedroom, one-bathroom apartment until we were ready to buy? Absolutely.

That would’ve given us so much more time to save. Figuring we would’ve lived there for one full year before buying the West Allis house, and the rent was roughly $400 cheaper than the Milwaukee apartment. That’s an easy $4,000.

Not to mention the commute would’ve been shorter. Insurance would’ve been cheaper. Heck, even our grocery bill would’ve been less.

They’re all learning experiences. Those lessons sting right now, but I’ll learn from it and hopefully, you’ll learn from me.

Related Reading:

Where Your Property Goes When You Die

When Are You Ready To Buy A Home

Appreciating Versus Depreciating Assets

Debt Collectors With Attitude

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Debt collectors and debt collection agencies are a real pain! They’re persistent, and sometimes, they can be downright mean.

However, there are still laws that govern them. If you come in contact with an aggressive debt collector, here’s what you have to know.

Also, if you want to pay off your debt but you are financially broke, you can consider getting a personal loan.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) is the law that governs what third-party debt collectors can and can’t do.

Things they can’t do include calling before 8 am and after 9 pm based on your time zone, call you at work, harass, oppress, or abuse you, lie to you, threaten you with jail time, conceal their identity, disregarding a written request from you to cease contact or dispute a debt.

Debt collectors also can’t reveal any personal information about your debt to people, except your spouse or your guardian (if you’re a minor).

Mail correspondence can’t show that the mailer is from a debt collector. Also, if you hire an attorney and the collector has your attorney’s contact information, they must correspond with your legal counsel, not you.

If the aggressive debt collector violates any of the parameters set by the FDCPA, you have one year from the date of the violation to file a complaint. You can do that by using the online form, here, or by calling (855) 411-2372.

Take notes

If it ever gets to the point where you file a complaint or sue the aggressive debt collector, copious notes will help you make your case.

Get as many details as possible. Time, date, name of the collector, the agency they work for, the debt they are calling about, etc.

Hang up or don’t answer

If the call is from a number you don’t recognize, don’t answer. If the call was important, they’ll leave a message.

Typically, debt collectors are dialing for dollars (calling A LOT), so they typically won’t leave messages. If they do, listen to it and do your research to confirm if it’s legit or not.

In a lot of cases, consumers don’t know what they’re rights are. Even though collectors must abide by the laws set forth in the FDCPA, they might not if they think they’re speaking with an uninformed individual.

If they start badgering you, use aggressive language, or violate the law in any other manner, just hang up the phone.

Write a letter

You can write a letter to a debt collector for two reasons.

One, asking them to stop. They HAVE to stop if you put it in writing. Two, dispute the debt. If you believe that the debt they are trying to collect is fraudulent or not yours, write a letter to dispute it.

Cool heads prevail

Debt collectors are ruthless. Their objective is to get as much out of you as possible before they sell the remaining portion of your debt to the next collector in line.

It’s human nature to get worked up or downright pissed off in this situation, but getting angry won’t help you.

Collectors have been conditioned to withstand a verbal thrashing from consumers. Staying calm will keep your blood pressure down and help you think straight.

Related reading:

What To Do About Debt Collectors

What You Need To Know About Bankruptcy

Why Financial Literacy Is Important