Finance Friday: Financial Resolutions

When I ask my clients, “So, what’s your 2019 resolution?” I get a lot of very similar responses, particularly with the uncertainty of the stock market as of late.  A lot of people are saying:

“I want to go on a financial diet.”

person holding piggy bank

BLLLEEECH.  “Diet.”  That dreaded word.  It makes it sound so… boring, and restrictive.  Yes?  Ok, so let’s rebrand it.  Let’s call it a “Financial Reawakening!!!”  No?  Too much?  Ok, well, whatever you want to call it, here’s what I suggest you consider doing right here, right now, in 2019, to improve your finances without feeling like you are sacrificing things and experiences that make you happy.

1.  Take a Good Look at Your Budget

I highly suggest you either use something like Mint.com (free!) or a good old-fashioned spreadsheet.  Whatever you use, the important thing is that you look honestly at what you are spending and why.

pexels-photo-870902.jpegStart asking yourself, “do I really need the gym membership/pet insurance/lawn service I’m paying $100 per month for?”  Or, “Am I really watching my cable or do I only watch Netflix/Hulu?”  See if you can cut out things that are monthly (re-occurring) expenses that aren’t really adding anything to your life, that you can afford to live without, or are costly services that you can manage to take on yourself.

2. Take Control

Speaking of re-occurring expenses, get a good handle on those.  I love Madison Reed hair color, but I haven’t ordered it.  Want to know why?  They want permission to bill me monthly and send me more on a regular basis.  As a financial advisor, I hate these auto-billings and reoccurring orders, unless it’s truly something I use every day and run out of on a regular basis if more doesn’t arrive at my doorstep.  Take back control.Cancel these auto-payments and take some time to understand what you really need, when, and order it yourself.  You’ll save yourself some money right there.

3. Start Small

Make some MINOR adjustments to start.  If you usually spend $500 per month on eating out at restaurants, cut it back to $450, then back to $400, and until you get to a point where you feel like you are still able to socialize and have a good time, but can still save money.  Do not say, “No, I can’t hang out.  I’m trying to spend less money.”  That’s a Debbie-Downer attitude that will spell out short-term budget success but long-term burn-out.  (And probably like zero friends.)

Don’t do it!

Have fun.  Go out.  Just be more budget-conscious when you do.  Maybe don’t order the surf and turf at dinner (every time) unless someone new you met on Bumble is treating you. 😉

4. Stop Boredom Shopping

No judgment, of course, but I see you – Yes YOU, the one reading this.  At the top of your web browser, there is that tab open to Amazon.  I challenge you to stay away from shopping online when you should be doing other things, like working, sleeping, or hey, catching up with your spouse about his or her day over a glass of wine (a budget-conscious varietal of course).

woman holding card while operating silver laptop
Stahhhhhp it!

It used to be that when exhausted, burned-out parents zoned out at the end of a long day, they’d just watch TV.  (I’m not saying that I personally did, of course, I’ve just heard from certain trustworthy parents that they binge-watched a few shows after the kids went to bed…) Ok, ok, Netflix is still in the rotation. But now, with the enormous growth in online shops, we also have retail therapy constantly at our fingertips, and with our “virtual wallet” we can easily order just about anything (did you know you can buy a hot tub on Amazon?!?!) at anytime without even looking at our debit card, let alone our account balances.  That can be a very dangerous habit.  Make a commitment to yourself that you won’t shop when you are bored or sleepless.

5. Understand Needs vs. Wants

Before making any purchase ask yourself:  “Is this a NEED to have, WANT to have or NICE to have item?”  If it’s a NEED to have, like new tires to safely drive your family vehicle, then by all means, go ahead and make that purchase. (These are almost always the least fun to spend our money on, FYI.  Chock it up to #adulting. Womp, womp.)

silhouette of man and child near white hyundai tucson suv during golden hour

If it’s a WANT to have, don’t deprive yourself, but don’t go crazy.  An example of this is a fancy latte.  You may arguably need a cup o’caffeine to perform your best at work after your kids wake you up at 3am, but you don’t need a Starbucks “double-shot, extra whip, no-fat, extra whatever” you could make a pot of coffee at home.  However, sometimes it just feels good enough to be a little #extra that you can justify spending a few more bucks. Make a commitment to treat yourself to these WANT-to-have items a few times a week, but not every day.  Finally, if it’s a NICE to have (like a boat, a motorcycle, or a Prada purse), don’t purchase it until you have no credit card debt and at least three months of expenses in a savings account. Sorry to break it to you, sailor. 

When in doubt, skip the boat. (Keep the flippy-floppies.)

6. Treat yo’self.

Did you just save $100/month for three months because you were doing these things?  If so, go get a $100 massage.  Yes, I realize that means you’re saving $100 less for the year, but this is about long-term success.  Did you save more than that this year?  $5k?  Go on a trip to Italy with a friend for $3k.

man riding on the motorcycle beside woman standing on the road

Treating yourself because you are making more sound financial decisions will reinforce this behavior and ensure it sticks.  And the longer you do this, the higher the chance is you will see REAL results.  Yes… just like a regular diet.  The rules are the same. Cheating never works and it takes longer than you’ll want. But it feels damn good when you succeed.

HAPPY NEW YEAR and sending my best for your Financial Reawakening!!!!

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Margo Cook is a Certified Financial Planner and mother of two on Maryland’s eastern shore.

How to Calculate the Value of a Stay At Home Parent in YOUR household

It’s that time of year, friends!  No, I’m not talking about back to school.  (Even though this post is related to it tangentially).

I’m talking about the time of year when you are staring down the barrel of kid-related expenses like daycare, parties and events, and kid-related transportation thinking, how on earth am I going to manage this with all of my other responsibilities?

arnold schwarzenegger muh s GIF

It’s usually this time of year where parents start to evaluate the economy of their home and think to themselves, does it make sense if both of us work outside of the home?  Should one of us stay home?  How will that impact us financially?  What costs will we be saving vs. take home after the fact?  How will all of this affect my sanity?

tired GIF

I’ll give you an example from a friend of mind, who submitted this question:

Dear Margo: Johnny has soccer twice a week, and Sarah has voice lessons and tai kwon do.  Suzy is 2 and still in daycare.  School lets out at 2:45 pm but husband and I can’t get out of work until 5 pm.  After school care has a cost, too.  Then, I get home after picking them all up and am scrambling to cook dinner.  Husband arrives shortly thereafter to help with homework.  The house is a mess but we are too tired to address it until the weekend.  Same with laundry.  Then, the weekends don’t feel enjoyable because we are too busy catching up with household items and shuffling around to sports games.  What’s the best way for me to figure out how our household budget would change if I decided to stay home instead of continuing to work outside of the home?

As most of you already know, I work outside of the home.  I also have the UTMOST respect for my friends who work inside of the home because I strongly believe that their day is phenomenally harder than mine.  After all, I can actually take a break from working to use the ladies room without worrying that the building is going to be set on fire or… something like the below occurring…

kids GIF by Cheezburger

But, back to the topic at hand: Salary.com estimated that the value of a stay-at-home mom in 2018 is $162,581.  While I think we all agree that stay-at-home parents are invaluable, completely priceless in fact. However, there is also a functional pricetag of this kind of career decision. And on that note, you might be thinking that number is kind of high… You probably wouldn’t hire a private butler or groundskeeper, right?

They are basing the value of the stay-at-home salary on expensive assistance like this that may not be in the cards for you depending on your individual situation.  So how can you figure out how your household would be financially affected if one of (presumably) two parents were to stay home.

pay me bitch better have my money GIF

So, if you are wrestling with this, and considering having one of you stay home, allow me to share my financial methodology to calculate the straight monetary value of a stay-at-home parent in your household.  (Also, notice I said stay-at-home PARENT not MOM because Salary.com needs to realize that these days, women are becoming primary breadwinner more and more often and may not be the one who sacrifices a salary to take care of the kids… But I digress.)

  1. First, start by creating a monthly budget using excel if you haven’t already.  Start with your “Fixed Expenses.”  Think of your fixed expenses in the following way:  These are the expenses that do not change on a month-to-month basis, and that likely would stay the same no matter whether one of you or both of you were working (unless you downsized your home).  Below is a form for you to follow, if you’d like.
FIXED EXPENSES
Monthly Annual
Housing
    Mortgage P & I/ RENT 0 0
    Home Equity Loans 0 0
    Property Taxes (Front Ft) 0
    Real Estate Taxes 0 0
     HOA/Condo Dues 0
Total Housing 0 0
Insurance
    Life 0 0
    Disability 0 0
    Medical Premiums 0 0
    Long Term Care 0 0
    Homeowners 0 0
    Automobile 0 0
    Umbrella 0 0
    Other 0
Total Insurance 0 0
Consumer Debt
    Auto Loans 0 0
    Term Loans 0
    Credit Cards (Fixed Pmts) 0
    Education Loans 0 0
    Other 0
Total Consumer Debt 0 0
Savings
    Retirement Plans (A) 0 0
    Retirement Plans (B) 0 0
    Pension 0
    Other Tax-Deferred/Tax-Free 0 0
    Other Taxable Savings 0
Total Savings 0 0
Other Fixed Expenses
Other 0
Other 0
Other 0
Other 0
Other 0
Total Other Fixed 0 0
Total Fixed Expenses 0 0

2. Next comes estimating your Variable Expenses if both of you were to work outside of the home.  (I’ve included some sample costs for folks living in Maryland, since that is where I reside, as an example.  However, you’ll want to be realistic about how much you spend.)

It’s very important in this section that you estimate:

  1. Cost of before-care and/or after-care from school/daycare if necessary
  2. Cost of someone to pick your kids up from school and watch them at home OR cost of after-school-care for your kids until you can pick them up from work
  3. Cost of someone coming to clean your house at least once a month (because if both of you work, you deserve to spend on this service, believe me).
  4. Cost of someone handling yard work for you (because, see above)
  5. Higher cost of meals out because I’ve found in practice that when two parents work, they generally spend more on meals out due to schedules, prep and tiredness.
  6. Higher cost of cleaning/tailoring because you likely have double the professional clothes to keep clean.
  7. Higher cost of professional fees related to any assistance you would need other than those I have detailed here (like a plumber, gutter cleaner, etc.)
  8. Higher cost of gas because you would have to drive to and from your workplace in addition to transporting kids around
  9. And of course… the COST OF DAYCARE.  I put this in capital letters because if you have a child who is younger than school age, this can be the highest cost you experience when having both parents work outside of the home.
VARIABLE EXPENSES MONTHLY (Adults) MONTHLY (Dependents) *MD Averages
Age 25-40 41-60
Food 2 adults, 2 children
   Groceries  $  $ $250 $350
   Meals out  $  $ $250 $400
Clothing
    Purchases $ $ $125 $225
    Cleaning/Tailoring $ $ $10 $20
Household
    Maintenance/Repairs $ $ $50 $80
    Furnishings (Purchases) $ $ $200 $150
    Services (cleaning/ lawn) $ $ $30 $50
Utilities
    Oil, Gas, Electric $ $ $225 $250
    Phone/Internet/Cable $ $ $130 $180
    Water & Sewer $ $ $55 $70
    Home Security $ $ $50 $50
    Other- $ $
Recreation
    Vacations $ $
    Entertainment $ $ $200 $300
    Subscriptions $ $ $10 $20
    Sport/Hobbies/Activities $ $ $50 $100
    Membership Dues $ $
Personal Items
    Gifts to family $ $
    Charitable Donations $ $
    Tobacco/Alcohol $ $ $100 $150
    Pet Care $ $ $30 $30
    Personal Care $ $ $50 $75
    Professional Fees $ $
   Other $ $
Education
    Private Schools $ $
    College $ $
    Professional Education $ $
Health Care
   Prescriptions/Vitamins $ $ $20 $40
   Medical-Out of Pocket $ $ $80 $160
   Dental $ $
   Other $ $
Transportation
    Gas $ $
    Repairs/Maintenance $ $ $50 $75
    Commute/Parking $ $
    Other $ $
    Other $ $
SubTotal  $                              –  $                              –
Misc Expenses**
Variable Exp. Total $0 $0

3. Ok, once you have all of this in your spreadsheet, now comes the next step.  I want you to create a *separate* Variable Expense Sheet imagining if one of you were to stay home.  You’re going to reduce and/or eliminate many of the costs listed above, like eating out, daycare, etc.

4. So… What’s the monthly differential between your variable expenses if you stay home versus go to work outside of the home?  Now, take this number and increase it by the amount you’d pay in taxes on your income.

Hang in there, it’s about to get math-y

design desk display eyewear
Photo by energepic.com on Pexels.com

For example:

Let’s say the differential (how much more you spend working vs not working) is $2000/month.  This is $24,000/year.  However, if you live in Maryland and have both state income taxes (of about 5%) and federal income taxes (or about 28%), take home of $24,000 per year is the equivalent of a job that pays about $35,000 per year. You can make excel do this calculation with these numbers for you by typing:

= your differential yearly salary/(1-tax rate as a decimal) or with our numbers =24,000/(1-0.33) which gives you the 35,000

But… we’re not done yet.  Let’s say if you stop working, your family’s Federal tax bracket moves down – from 28% to 25%.  Let’s assume your spouse makes about $100,000 in income.  So, you are also saving about $3,000 per year in taxes from your spouse’s salary by not working (3% less on $100,000).  So, for argument’s sake, we’ll say it’s now $38,000 per year.  (You can find the federal tax brackets for 2018 here.)

Now, let’s say you make $55,000 per year at your current job and you are considering staying home.  In our sample scenario, the difference between $55,000 and $38,000 is $17,000.  However, $5,440 is taxes (total of 32% combined federal and state), so let’s subtract that out, too.

So, in our case, $11,560 is how much more you take home working outside of the home compared to staying at home.  That translates to a little less than $1,000 per month.

This is less than you may have thought, right?

Image result for surprised gif

5. Now comes the hard part.  The part that is difficult, if not impossible, to quantify:  How do you FEEL about staying home?  Sit and close your eyes and truly imagine yourself working inside of the home.  This sounds cheesy, but it really does work.  Try to tune into the feeling in your gut.  Are you confident, happy and less stressed by staying home?

For some, staying home helps their mental health.  For others, staying home is bad for their mental health.  This is a very personal decision that only you can make.  For example, does staying home with your kids make you feel like this?:

mental health funny gif GIF

There is no shame in admitting that you aren’t cut out to handle working inside of the home.  It’s hard work, y’all.  Really, really hard work.

Finally, as yourself how you would feel if you had $1000 per month less to spend on vacations, gifts, personal care, professional fees, entertainment and the like.   (Don’t forget that there are LOADS of side hustles you can pick up if necessary, and I am not just talking about the ones you see all over social media.  Photography.  Consulting.  Tutoring.)  So this $1,000 may be able to be made up some other way that still allows you to be at home.

Most of all, remember that nothing is permanent.  Working outside of the home doesn’t have to be permanent.  Working inside of the home doesn’t have to be permanent either.

Image result for encourage mint

Trust yourself, and share the #financialfacts with your partner so you can make a decision together about the best set up for YOU.

Wishing you good fortune!

Margo

HEADSHOT

Margo is a financial planner and investment advisor, software developer, mother of 2, and wife.  She also is a nonprofit consultant, so if she can manage a side hustle, so can you.

At Home with Christiana: Quick Style Fixes

While this is the Home Renovation and DIY section of our blog, there are many reasons and different stages in our lives where we may not have the ability to take on major home renovation projects. Be it time or budget constraints, or simply living in a rental where making permanent changes isn’t an option, sometimes the dirty work just has to wait.  This post is a nod to some of my favorite, time-tested quick style fixes for the home in times or situations like these. Big style, little effort. No sledgehammers, no permits, no construction loans required. Promise.

brown wooden center table

These simple tricks of the trade are great tools to make a temporary house feel like home, stage a home for sale, tap into design trends without commitment, or bring style into your home without investing a lot of time and money. 

Make a Gallery Wall

For those big, empty walls in your home, a gallery wall can make a big impact and really personalize your space without making any permanent changes or dropping any serious dinero.  Use your own photos, or print some cool stock images that speak to you. You can download some beautiful botanical prints for free from Botanicus.org.

art black and white decoration design

I love the clean, simple look of black and white photos in matching frames. Or for a more colorful look, I love coordinating images to create a theme for a space, as below.

apartment bed bedroom chair

Improve Aesthetics with Lighting

Shed some light on your situation. Literally. I mean “wow this room is so great and dark” said no one, ever. Dark rooms feel smaller. Period.

bed bedroom comfort contemporary

Adding lamps to a space can not only brighten it, but add an instant element of style to it as well. Rental properties, in particular, often lack quality lighting (think harsh, fluorescent lights) and softer light from accent lamps can provide a nice alternative.

Rule of thumb for table lamps: Always, always, buy a PAIR. Even if you only need one lamp at the time of purchase, someday you will, without fail, need two and you will hate yourself for not buying the pair while you could. Trust me.

Play with Pillows

Let me start by saying that I have a definite love/hate relationship with throw pillows. In the sense that I hate how much I love them.

brown and grey leather sofa with throw pillows

Like, I recognize how completely frivolous and unnecessary they are. I do. Remember that pillow scene in Along Came Polly?

amazingunsunglamprey-size_restricted

I want to embrace that minimalist “who-needs-throw-pillows” mentality in theory. But in reality… pretty, soft throw pillows got me like…

Because really, comfort is a thing. Fluff has never, that I am aware of, ever made anything less comfortable. And from a design perspective, throw pillows can totally change the look of a piece of furniture and/or update accent colors in a room for a fraction of the time and money required to replace large furniture pieces or paint walls.

ashtray book cushion decoration

You can easily change them when you’re tired of them, or even swap them out seasonally if you’re so inclined. Major pointer for pillows: Unless you are buying for staging purposes only, spend the money for pillows with removable, washable covers.

Bring the Green in

Indoor plants are another quick and simple way to warm and bring style to a space. (And I’m talking REAL plants here folks, none of your granny’s faux flower arrangements) With the added benefits of purifying your air, plants are a design multi-tasker for making your home both prettier and cleaner. A few personal favorites are the fiddleleaf fig, palms, succulents, and orchids. The fiddleleaf fig (shown below) is having a major style moment as of late, but is also a notoriously slow and finicky grower.

green indoor plant in a room

Orchids are a design classic often written off as pricey or difficult to maintain but at around $15 for a medium sized plant, which should last you a few months at minimum (even if you kill it) I would argue they are more cost-effective than buying cut bouquets. I’ve had a few re-bloom for 3-5 years, which is like $5 a year. Definitely less than most fancy design items, and I swear that maintaining them is as easy as just watering less than usual houseplants. (You can find straightforward orchid tips from the pros here.)

candles contemporary decoration furniture

For the non-plant people out there, succulents are the lowest maintenance way to bring the green in. (Bonus points if you coordinate your plants and your pillows.)

photo of plants on the table

Temporary Wallpaper

Temporary wallpaper is a great non-permanent alternative to traditional wallcoverings and is a quick way for renters and commitment-phobes alike to tap into the current wallpaper trend. Put it on an accent wall, on stair treads, in a closet, on a door, in cabinets or on shelves, and make a statement with it.

wallpaper uo
Expressive Palm Removable Wallpaper, Urban Outfitters

Available in a variety of price points and design styles from mainstream retailers like Amazon, Wayfair, and Target. (Fixer Upper fans check out the shiplap print from Home Depot!)

Soften your Surroundings

Quality flooring is another element that is often lacking in rental properties and is generally difficult to install in homes without major expense and time. Area rugs provide a quick and easy way to add style to a space and cover less than desirable flooring.

white and tan english bulldog lying on black rug

Soften tile and vinyl floors wherever you can with rugs. Heck, I’ve even used area rugs over carpeted floors to define spaces and well, just to cover up ugly carpet. General rules for rugs: don’t float a rug in the middle of a room. Always buy a rug big enough that it reaches your furniture. If that’s not in your budget, I’m a big fan of layering smaller plush rugs over a more affordable natural fiber (jute) rug for a clean look with softness where it counts. Apartment Therapy breaks down how to layer rugs with style here.

Window coverings

Let’s be real. Curtains are about as fun to shop for as socks. They’re not exciting, but they’re style necessities. Vertical blinds never helped noooobody. The short and simple truth of window coverings: buy the best you can afford, and hang them as high as you can. You won’t regret it.

architecture chairs contemporary curtain

That’s it. A quick and dirty on the quickest style fixes in my book. What are your favorite ways to add style to your space? And what style problems do you need solved on the cheap and easy? Shout out!

Cheers to happy homes!

fullsizeoutput_658Christiana is a Navy wife and mother of 3, attorney and former realtor, world traveler, home renovator and decorator, yogi, fitness enthusiast, and recipe and fine wine explorer. (Photo credit: Tara Liebeck Photography)

Money Mondays: 3 Types of Accounts You Should Open Now to Save for Retirement

Happy Monday, Friends!

Today, I’d like to talk about retirement.  Every time I think about having this conversation with my clients, I think about this one young man I spoke with not too long ago.  We were talking about managing his debt, and he said, “When the bills come in the mail, I swerve them.”

“Swerve them?” I asked, clearly feeling older and older by the second since I wasn’t up to date on the lingo.  “Yeah, I swerve them.  You know, I don’t open them and just put them in the trash.”  We laughed and laughed and laughed.  (And then of course we talked about how avoiding you debt doesn’t make it go away – it actually makes worse, and then we came up with a plan.  But I digress.)

The reason I think about this young man and this conversation in particular is that a lot of people I meet also avoid thinking about/saving for retirement.  It could be for a myriad of reasons – lack of understanding or fear being two main ones.  (Example: “I don’t have time to figure this out so I’ve just been avoiding it!”)  But the point, my friends, is that “swerving” your retirement, by not saving enough & in the right way, is just as damaging in the long-term as avoiding your bills.

I’m sure you’ve all seen/heard these commercials from big banks where they tell you that people who start to save really early magically have millions in their retirement accounts. Well, it’s not that easy, but those ads did get something very important right:  The earlier you start, even with small amounts of money, the quicker it builds and the easier it is to get to your retirement goal.  It’s a little more complicated than that, though.  Because it’s not just about timing of the saving or how much you save – it’s about HOW you save it.

In that spirit, today we are going to address the 3 Accounts You Should Open and Contribute To NOW to Be Retirement-Ready Later.

achievement-bar-business-chart-40140.jpeg

1. Pre-tax Retirement Account:  This is a 401k or 403b (Depending on the type of company you work for).  If you don’t work for a company that offers a retirement account, you should open an IRA.  Contributions to any of these three accounts are with your income BEFORE it is taxed.  This means, you get paid, you (automatically) put money in this account and you don’t get taxed on it this calendar year.  When do you get taxed?  Later when you take it out.  You should put in at least the amount that is matched by your employer if you have an employer that offers a match.  Your employer’s match is a contribution they make to YOUR retirement account that’s free money to you that you otherwise wouldn’t get.

Here’s when people make a big mistake – Some people don’t contribute enough to get the full match.  Here’s when some people make another big mistake – they ONLY contribute to this type of account and think it’s enough for retirement.  However, that’s not ideal.  Why?  Remember when I said that it’s pre-tax money, so when you take it out you get taxed?  This is important.  In retirement, if all you have is a pre-tax retirement savings account, every time you use that money, you pay income taxes on it.  That’s why you also want to have the next two kinds of accounts.

2. Post-tax Retirement Account:  This is called a Roth account.  It comes in many forms – Roth 401k, Roth 403b, Roth IRA. The important thing to know about this account that it is a retirement savings account that grows tax-free, but you are taxed before you put the money in.  So, if you are in a high tax-bracket, it’s not an ideal time to make a contribution to a Roth account.  However, if you are in a moderate to low tax-bracket, you should be contributing to this account.  When you take the money out once you are in retirement, you are able to remove it tax-free.  (This is because you already paid taxes on it when you made your contribution!)  You did hear that right  – You pay taxes on it, put it in the retirement account, it grows tax free, and then you take it out tax free.  So, when you are in retirement and you need to access cash, you can access this cash without paying taxes on it.  This is one way to help mitigate taxes in retirement.  If you can, try to put a chunk of money into your Roth automatically every month just like you do for your Pre-tax Retirement Account.

3. Taxable Account:  This is a regular non-retirement savings account, but unlike your savings account at your bank, this is a brokerage account that allows you to invest the money you deposit.  You can usually set this up at your bank or at another place like Charles Schwab, TD Ameritrade, or Fidelity.  Every month, you should be saving what you can into this account, and depending on your age and timeframe for need of the money, investing it appropriately.  There are lots of professionals out there that can help you with this at a very affordable rate.  Similar to the Roth, you can access this money in retirement without paying income taxes on it.  The only drawback to this account?  It is subject to capital gains taxes every year based on trading in the account.  So, if you sell a bunch of highly appreciated stock in the account one year and realize that gain, you’ll need to pay taxes on it that year.

However, that’s great news, because it means you made cash!!

bald-eagle-portrait-white-tailed-eagle-adler-38998.jpeg

Do you see a theme here?  You WILL pay taxes – Uncle Sam will get his chunk of flesh from you whether it’s now or later.  For the post-tax retirement account and taxable account, you are paying taxes now but not later.  For the pre-tax retirement account you are paying taxes later but not now.  So, it’s a game of tax brackets and hedging your bets. You want to have access to various types of accounts in retirement so you can minimize the amount of taxes you will need to pay in retirement and keep yourself in the lowest tax bracket possible in retirement.

I know what you are thinking: “But, Margo, I live paycheck to paycheck.  I can’t save for retirement!” Let’s unpack that a bit together.

Everyone can look at their spending habits and identify the difference between things that are “need-to-have,” “want-to-have,” and “nice-to-have.”  Need-to-haves are things you can’t live without.  Want-to-have’s are things that you want but aren’t too extravagant – like a cup of expensive coffee every now and then.  Nice-to-have’s are like motorcycles and $500 purses.  You should not be spending money on Nice-to-have’s until you already are saving a chunk every month into the three accounts I mention herein.  You shouldn’t deprive yourself of the Want-to-have’s, within reason, but I can guarantee you can look through your spending habits and eliminate a few small things and use that money, no matter how much it is, to save for retirement.  Whatever you can put in each account is great – AND don’t forget, I want you to be putting in at least the match of your employer, if they offer one, if you have a 401k or 403b.

When I am at cocktail parties, I am often asked, “So, Margo, how much does the average person need to save to be ready for retirement?”  I always say the same thing: It’s impossible for me to tell you how much you need to save for retirement because I have no idea what it costs to be you.   The point of retiring is to have a chance to enjoy your life.  So how can I tell you how much you need in order to enjoy your life if I don’t know what a month in your life looks like and/or what it costs?  There is no “average person” when it comes to spending.  Do you spend the same way as your next door neighbor?  Do you have a boat?  Do you want to travel?  Do you have an expensive hobby?  Do you want to sell everything and move to an island?  Would I want my financial advisor to assume I am the same as the “average person” in my geographic area/age group and then base my savings off of those assumptions?  The answer to that is NO.

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So, go see a financial advisor to figure out how much you need to save.  If you can’t make that happen, in the very least, save based on the capability of your budget until you can see a financial advisor.

Follow us and Tune in next Monday for the follow up to this discussion: How are financial advisors paid?  And how do you find one you can trust within your budget?

me and kidsMargo is a married mom of 2 and financial adviser in the Annapolis area.