Debt Payoff Methods: 4 Strategies to Tackle Your Debt

Debt is a tricky thing and no one wants it but everyone has it because thats just what you have to do in order to have nice things. WRONG! First of all, we want to BE rich not LOOK rich so that mentality needs to check itself at the door. I’m a firm believer in saving for goals and paying in full. You need to have discipline in order to thrive. Saving is one way to reach for a goal and not acquire debt. Yes, saving may take a while to reach a major goal but in the end its worth it if you have zero debt. Your credit will be better and once you achieve that goal it will be so sweet. These two methods are just a couple examples of ways to tackle debt.

Snowball Method:

The snowball method is one way to pay off debt. You basically choose the loan or card with the smallest amount in debt and make the maximum payments you can. You will pay more in interest in the long run but if you thrive on accomplishing small goals then this is the method for you. This is my personal option because I am one of those people who really like crossing things off my list and when I can get the small debts out of the way first it makes me so excited. Financial stuff doesn’t have to be scary you just have to look for the positives in everything you do including your finances.

Avalanche Method:

The avalanche method is the second way to tackle debt. This is where you choose the loan or card with the highest interest rate and take that one down first. You will pay less in interest over time and its best for people who thrive on numbers over emotions. I see the benefits in using this method but like I said before, I enjoy small wins. This one definitely will make sense to a lot of people and its probably the smarter way to go if you want to pay less in the end.

Here are my 4 strategies to help you tackling debt:

  1. Make a budget and stick to it.

Creating a budget will change the game in regards to your financial wellness. A budget is an estimate of income and expenses for a set period of time. A budget allows you to gain feedback on areas of opportunity. It helps you check yourself and set up goals for short and long term. This is something that must be a priority. A budget is basically your financial plan for a defined period, often a month or one year. It may also include planned trips, major purchases, sales volumes and revenues, costs and expenses, assets, liabilities, and cash flows. This is a vital tool for any person who owns a small business.

2. Set realistic financial goals. If you can’t pay cash for it then don’t buy it.

Goals are everything. When dealing with money it’s smart to set short term and long term goals. Something to work towards is always a great motivator. When setting goals it’s a crucial thing to save money. Meaning, if you don’t have the money don’t spend the money. You’ll never reach your goals if you spend all the money you bring in each month. Budgets and financial goals go hand in hand. It lays the foundation to set you up for success. You will be able to crush your financial goals with a budget.

3. If you use a credit card, pay on time and more than the minimum payment.

Global credit card debt continues to rise. Make the minimum payment on every card, every month, but throw whatever extra money you have at the one with the lowest balance. When that one is paid off, take the money you were applying to it, add it to the minimum you were paying on the second card and pay it off. Keep going until all cards are paid. According to incharge.org, the average adult who doesn’t pay off the balance on credit cards each month, owes $7,527 on their credit cards. If there are two adults at home, that’s a little more than $15,000. If there are children in that house, there is usually an urgency to do something about it.

4. Always monitor your debt

Watch for a change in rates and fees and if possible contact the lender and see if you can lower your interest rates or if they would be willing to work with you. It never hurts to ask. The worst thing is they could say no. Checking in on your financial well-being should be a priority. Finances are very uncomfortable and a lot of people don’t like looking at that student loan payment or that debt that’s in collections. For me, its the dentist. I get that sick to my stomach feeling then I start shaking because I always think the worst is going to happen. When there is something that needs to get fixed I just don’t want to talk about it or know about it. Once I fix the issue though, I always feel better.

Free Gift

Check out the FREE video series on my 3 Keys to Unlocking Your Financial Freedom! This video series touches on Budgets, Tackling Debt, and Ways to Increase Income TODAY! I created this series for those of you who have been hit hard by COVID-19. I want you to know there is nothing you can’t accomplish and creating a plan of action is always a great starting point.

7 Principles for Financial Wellness

Strive to Thrive

These are my 7 principles to live by in order to make your finances work for you. I follow these on a daily basis and it has brought so much awareness to my finances. I talk about these principles in all of my programs and educate my clients on how to implement these steps into their lives. The results of utilizing these principles is like nothing else and if you put your finances as a priority and manage your monthly system its guaranteed to work for you. This is about discipline and creating a positive money mindset to achieve your ideal lifestyle.

Make a plan, create a budget

This is all about how to make S.M.A.R.T. goals. Specific. Measurable. Assignable. Relevant. Time-based. Create a list of your income so you can see what your actual income is per month on average. Create a list of expenses and put them into categories so you can get an idea of where your money is going. Create a realistic budget based on 3 months worth of your bank statements. You will be able to see your areas of opportunity within your budget and how to refine your needs to meet your projected budget. Every household or individual budget will be unique.

Tackle Debt

Get into a solid money mindset so you can acknowledge what you owe and get it organized so you can start tackling your debt. Examine your bills and see what we can get rid of. Explore all of your options in regards to decreasing your interest rates on debt that you may have. Create a clear plan to eliminate your debt and set a time-based goal to do so. This is where discipline comes in. You have to be strategic with your spending and saving when it comes to paying off debt. Open another savings account to put money to pay off debt specifically so it is out of sight out of mind. Debt is scary and no one wants it but some things are out of your control. If you want to take control back follow these principles.

Increase Income

Increasing income is easy. Your basic hobby can be turned into a thriving business nowadays. It just depends on how much time you have to put into it and how much passion and drive you have to do so. I have many universal strategies to generate more income and I can customize those strategies based on your unique lifestyle. This is an opportunity for you to get creative and come up with different ways to increase your income. You know you and you know what you are capable of. Reach for something out of your comfort zone and don’t take “no” for an answer. Everything is negotiable, even your current salary.

Live Below Your Means

Living below your means doesn’t sound very sexy, I know. Being resourceful is a talent that you should acquire. It will benefit you to try and cut back on certain luxuries if you are in a tight spot money wise. For example, stretching your grocery/eating out budget so that you account for every penny. Cooking at home is definitely cheaper than eating out. I know this because I was eating out close to 5 days a week about a year ago. I didn’t have the energy or want to cook at home. I was LAZY. By the end of the day I was not trying to cook dinner AND clean up the mess so Doordash sounded great every night. Until my money was dwindling and my belly was inflating. Frugal living isn’t about being stingy; it’s about being resourceful.

Question Whether You Need It Or Just Want It

I always say, question whether you need it or just want it. This is huge. This is something I have burned into my brain so that whenever I go to purchase something I check in with myself to make sure I am making a good money decision. Print out a bank statement, highlight every expense that was a “want” and calculate the total so you can then set a goal to put that exact amount into your savings accounts the following month. This will show you exactly how much you spend on things you don’t really need so you can then check in with your budget and make adjustments. You are the CEO of your finances and YOU need to make this a priority.

Invest & Save For Retirement

Investing and saving for your future is so important. THIS is something your future self will love you for. You should at least try and save for that future relaxing time. It pains me that society has burned it into our brains that a typical 9-5 job is how life is SUPPOSED to be when you are in charge of your life. If you don’t have the skills to do a job with flexible hours or be self employed, educate yourself. It’s never too late to learn. I personally try and read AT LEAST one book per month just to continue my education. Considering American schools, we didn’t learn too much about personal finance so I am constantly trying to grow my knowledge so I can be the best at what I do and serve with excellence. Look into stocks, craft a solid plan to start saving towards an emergency fund, and think about 401(k) options and retirement plans. If you need more guidance on this topic reach out.

Journal About Your Spending

This topic is one of my favorites for sure for the simple fact that it gets people out of their comfort zone. Journaling about your spending and how it makes you feel will open your eyes to emotions you never knew you had. This will help you check in with your spending habits and see what your spending triggers are. Some people can’t control their spending because it makes them feel better to do an impulse buy so they can suppress their feelings in another area of their life. This is where I want you to put everything out on the table and get down and dirty with your inner self. I want you to open up about anything and everything you have been avoiding in regards to your finances. Look into how overspending affects mental & physical health, learn how overspending impacts your relationships, find out how journaling alleviates stress & boosts mood, and strategize on priority financial problems. This week provides an opportunity for positive self-talk.

Free Gift

Check out the FREE video series on my 3 Keys to Unlocking Your Financial Freedom! This video series touches on Budgets, Tackling Debt, and Ways to Increase Income TODAY! I created this series for those of you who have been hit hard by COVID-19. I want you to know there is nothing you can’t accomplish and creating a plan of action is always a great starting point.

Budgets: Foundation for a Solid Budget

Accurate Spending Categories

You need to have accurate spending categories to see where your money is going each month and where your areas of opportunity are. Some people over spend in their grocery category or their misc purchase category. These categories will be very unique to you and what your life entails. My categories range from pet medications to my daughters school fees to utilities for my home. It just depends on what you have going on.

Accurate Income Projections

This requires you to print out bank statements from at least 3 months and go through your income to get an average income to put on your budget. Some months may vary with different circumstances. If you are doing a new budget system currently but you have been laid off due to COVID-19 that would be a circumstance where you have zero control. You do however have the opportunity to pick yourself up and generate income by any means necessary.

Categories for Irregular Spending

This means a category for random things that come up each month or new subscriptions you’re paying for. Typically your budget will come in close to what you project but there will be times where you overspend at Target on clothes when your budget only called for groceries. This means you have budgeted for these things in that irregular spending category to cover times like this where you purchase many different types of things with one type of budget. Like going to Target for groceries and buying clothing at the same time.

Tracking Cash Purchases

Tracking cash purchases might not seem like a big deal but it is crucial to keeping tabs on all your purchases. If you are really trying to keep a close eye on your transactions then I would recommend getting the Microsoft Office Lens app for your phone and taking a picture of all cash receipts and then putting them in a folder on your phone or the Google Drive for safe keeping. This is great especially for self employed individuals to keep track of cash purchases and business expenses for tax purposes.

Plan for Major Purchases

You must always keep a list of ongoing goals whether they are short term or long term so you can incorporate them into your budget each month. You should have accounts called “sinking funds” for these goals.

7 Sinking Funds to Include in Your Budget:

  1. Christmas
  2. Important Birthdays/Events
  3. Car Maintenance
  4. Home Repairs
  5. Pet Expenses
  6. Travel
  7. Medical Costs

4 Rules For a Successful Budget:

  1. Give every dollar a job
    • You’re the boss. When you earn money, you prioritize how you’ll use it.
  2. Embrace your true expenses
    • Turn large, less-frequent expenses into manageable, monthly bills.
  3. Roll with the punches
    • Be flexible and address overspending as it happens. No guilt necessary.
  4. Age your money
    • Consistently spend less than your earn, and be more than prepared for the future.

Those negative feelings associated with money will subside- the stress, anxiety, confusion, and shame gets replaced with confidence, calm, and even joy and excitement as you really start to feel in control of your money and tap into the potential of what it can do in your life.

7 Budgeting Basics For Small Business Owners

  1. Keep your small business finances out of your personal finances
    • This one is huge! Co-mingling business and personal money may seem easier, but it can lead to complications down the road. Keep a record of your business expenses to take advantage of available tax benefits. It also can be risky to use personal money to fund your business as it increases your personal liability. Person and business finances are equally important for success and keeping them separate will help.
  2. List your expenses
    • Next, you’ll need to know exactly how much your business is going to cost to run daily and monthly. List out all your expenses, rent, employees, supplies, services, etc. Make short-term and long-term projections with your income.
  3. Budget for your wants
    • If you’re planning ways to improve your business, be sure to budget for them, and save until you can afford them. If they are not necessary for your business to run well, there’s no need for you to go into debt.
  4. Know what to expect from your business income
    • Relying on your business to provide for your family takes some planning and knowing exactly how much money to expect each month. If you have no idea how to much money will come in, then there’s no way to budget and allocate your money to certain things.
  5. Set a savings goal for expansion or security
    • Start a savings plan for your business. In order to expand, hire more people, and provide security for your family, its important for small business owners to set aside small amounts of money to have long-term financial health. Small business owners often face difficulty saving money, since many have very tight budgets when they start. Saving from the beginning will help ensure you have some cushion in tough months.
  6. Look for areas where you can cut costs
    • Efficiency and frugality will help your small business succeed. I recommend taking inventory of your expenses every month and considering areas where you can cut costs, not with cutting quality. I’m not advising cutting corners, but there are ways to save money and run your business efficiently without affecting quality of your product or service.
  7. Be realistic
    • Make sure you have realistic expectations for your income and your expenses. Do your research, and don’t expand too quickly. Budgeting is essential for your small business success. Its important to keep your personal finances separate from your business finances so that you know exactly where your money is going and are able to easily provide documentation for your business taxes.

Durbin Bookkeeping Website

How Retirement Works

For most people, it’s like this: you reach a certain age and start thinking about spending your days on the golf course or on a beach. Then you look at your bank statement and freak out and think about taking on a second job instead. You should be doing less and less work as you are getting older. Retirement accounts let you do less work. All you have to do is start a retirement account NOW, which I’ll show you exactly how to do.

How do retirement accounts work:

Many people mistakenly think that retirement accounts are just places for you to save money until you’re 65. Actually, they offer you humungous benefits if you agree to save for a long-term horizon. Let’s compare regular (taxable) investing accounts with how retirement accounts work.

Regular Investing Accounts vs. Retirement Accounts:

Regular Investing Accounts: When you open up an account at ETrade or whatever, you’re generally opening p a regular investing account, which is also called a taxable account. This means that when you sell your stocks, you’ll pay taxes on your gains-and if you sell your stocks in less than a year, you’ll pay a huge amount (regular income-tax rates, like 15% or 30%).

Retirement Accounts: Retirement accounts, quite simply, give you huge tax/growth advantages in exchange for your promise to save and invest for the long term. Now, this doesn’t mean that you have to hold the same stock for 30 years. You can buy and sell shares of almost anything as often as you want. But with a few exceptions, you have to leave the money in your account until you get near retirement age.

Here’s how retirement accounts work, and where the magical benefits kick in. In a retirement account, you get big tax benefits. While 10% or 20% may not seem like much in a year, when you compound that over 30 years, it becomes a gigantic amount. In fact, start a retirement account next week and two things will happen: (1) You will be more financially prepared than 99% of your peers, and (2) you will be rich. If you start a retirement account in your early 20’s and you fund it regularly, you will be rich.

Understanding Your 401(k):

A 401(k) is a type of retirement account. If you work for a company, chances are you already have one offered to you. Here’s how it works: You put pre-tax money into the account, meaning you haven’t paid taxes on it yet. In regular, taxable investing accounts, you pay taxes on your income and then invest it. So for every $100 you make, you might actually only be able to invest $85 of it. 15% (or whatever, depending on your tax rate) goes to the tax man. There’s an extra benefit, too: Your company might offer a 401(k) match. For example, a 1:1 match up to $2,000 means that your company will match every dollar you invest up to $2,000, therefore, investing $2,000/year really means you’re investing $4,000/year. Basically, your money goes into an investing account where a professional investing company manages it. You can choose from a bunch of different investing options, like aggressive, mixed, international, etc. Don’t worry about switching jobs; if you leave your company later, you can take your 401(k) with you. And be aggressive with how much you contribute to your 401(k) because every dollar you invest now is worth many more times that in the future. The hardest part is making the first phone call to HR to get it set up.

401(k) Restrictions:

            The 401(k) isn’t tax-free. The government has to get its tax revenue sometime, so you’ll pay ordinary income tax on the money you withdraw around retirement age. You’re currently limited to putting $19,000/year in your 401(k). You’ll be charged a big penalty of 10% if you withdraw your money before you’re 59.5 years old.

401(k) Summary:

  • $19,000 annual limit
  • Pre-tax money
  • Company matches supercharge growth even more-this is free money you must take

Understanding your Roth IRA:

            A Roth IRA is another type of retirement account. Every person in their 20’s should have a Roth IRA. It’s simply the best deal I’ve found for long-term investing. A Roth IRA is different than a 401(k). A Roth uses after-tax dollars to give you an even better deal. With a Roth, you put in already taxed income into stocks, bonds, index funds-whatever- and you don’t pay when you withdraw it. Here’s how it works: When you make money every year, you have to pay taxes on it. With a Roth, you take this after-tax money, invest it, and pay no taxes when you withdraw it. If Roth IRA’s had been around in 1970 and you’d invested $10,000 in Southwest Airlines, you’d only have had to pay taxes on the initial $10,000 income. When you withdrew the money 30 years later, you wouldn’t have had to pay any taxes on it. Oh, and by the way, your $10,000 would have turned into $10 million. You pay taxes on the initial amount, but not the earnings. And over 30 years, that’s a stunningly good deal. The maximum you can contribute into your Roth IRA is $6,000 per year.

Roth IRA Restrictions:

You are penalized if you withdraw your earnings before you’re 59.5 years old. (Exception: You can withdraw your principal, or the amount you actually invested from your pocket, at any time, penalty free.) There are other exceptions for example, buying a home or for emergencies. There’s a maximum income of $137,000 to make full contributions to a Roth.

7 Retirement Options You Should Consider

WE’VE ALL HEARD THE warnings and are well aware that we should save more for retirement. The new year is a good time to resolve to find the best retirement plan to build wealth for the future. Uncle Sam wants you to save for retirement so much that the federal government has created a number of tax-advantaged retirement accounts, including popular choices such as the 401(k) and individual retirement account.

Types of retirement accounts to consider:

  • 401(k) or 403(b) offered by your employer
  • Solo 401(k)
  • SEP IRA
  • Simple IRA
  • IRA
  • Roth IRA
  • Health savings account (HSA)

For most people, especially young people, the best place to start is with the 401(k) program at work. This is a particularly enticing option if your employer matches a portion of your contribution. That’s essentially free money. “If you’re working at a company that offers a 401(k) and they match contributions, you should really save in that plan,” says Wei-Yin Hu, vice president of financial research at Financial Engines, an independent investment advisory firm in Sunnyvale, California. “It’s a great way to get a really good head start on building your retirement savings.”

If you’re self-employed, you have even more options, some of which allow significant tax savings. Exactly which retirement plan, or combination of accounts, is best depends on your personal financial situation. “There’s a category of people who are self-employed or own their own businesses and have more complicated choices to make,” Hu says.

You may want to consult an accountant or engage a financial planner to discuss the best strategy. Not only do you need to figure out which kind of account to use, you also need to pick a financial services company to handle your accounts, unless your employer picks one for you, and then choose investments. If you can’t afford a financial advisor, see what free advice is offered by the company that holds your money. Be aware that all accounts come with fees, and higher fees can eat into your returns. “If you have a very long-time horizon, you can afford to take some risk for higher growth,” Hu says. But you want to select “the right funds so your exposure to the market is diversified.”

More people are being offered something that they may not recognize as a retirement savings tool: a health savings account. These accounts are only available to those with a high-deductible health insurance policy. Not only can a health savings account lower the cost of your insurance plan, it can also help boost your retirement savings. “What a lot of folks don’t realize is both of these tools can help you save for retirement,” says Steve Christenson, executive vice president of Ascensus in Brainerd, Minnesota.

You can use the money in your HSA for doctor visits, contact lenses and medications not covered by insurance. But that’s not your only option. You can also pay those expenses out of pocket and leave the money in your HSA to grow. If at some point you need money, you can be reimbursed for past expenses. “Essentially, those dollars grow on a tax-deferred basis,” Christenson says. “It can actually turn itself into a very good retirement account.”

The Internal Revenue Service has its own set of complex rules for each type of retirement account. Some tax breaks are only available to people at certain income levels.

All these retirement accounts provide a tax incentive to retirement savers. Some accounts allow you to defer paying tax on your contributions until retirement, while others accept after-tax dollars and no tax is due at withdrawal. If you withdraw money before you reach age 59 1/2, in most cases you will have to pay a 10 percent penalty in addition to regular income tax.

Here are seven types of retirement savings accounts to consider:

401(k) or 403(b) Offered by Your Employer

For most people, a 401(k) plan is the easiest and best place to start investing for retirement. The money is withheld through payroll deduction, and you can save up to $19,000 of your pre-tax income in 2019 ($25,000 if you are 50 or older). If you leave your job, you can roll the account over into a new employer’s 401(k) or your own IRA. A 401(k) is usually offered by a for-profit company, while teachers and other employees of nonprofits may be offered a 403(b) instead.

Solo 401(k)

A sole proprietor can set up an individual 401(k) and make contributions as both the employee and employer, up to a total of $56,000 in 2019 (or $62,000 for someone 50 or over).

SEP IRA

SEP stands for simplified employee pension, and this kind of account is used primarily by the self-employed or small business owners. As the employer, you can contribute up to 25 percent of your income or $56,000 in 2019, whichever is less. These accounts are easier to set up than a solo 401(k). If the business has employees, the employer must contribute for all who meet certain requirements.

Simple IRA

This plan allows small employers (fewer than 100 employees) to set up IRAs with less paperwork. Employers must either match employee contributions or make unmatched contributions. An employee can contribute up to $13,000 in 2019, with an extra $3,000 allowed for those over 50.

IRA

You can contribute up to $6,000 a year to an IRA ($7,000 if you’re 50 or older). The money grows tax-deferred until you take withdrawals. You can contribute to both an IRA and a 401(k), but if you’re covered by a retirement plan at work, you can’t deduct your IRA contributions from your taxable income if you earn more than $74,000 (for single filers) or $123,000 (married filing jointly) in 2019. After earning $64,000 and $103,000, respectively, you get only a partial deduction. If you’re not covered by a retirement plan at work, you get the full deduction no matter what your income, unless you file jointly with a spouse who has a retirement plan at work.

Roth IRA

With a Roth IRA, you are contributing after-tax dollars, and you get no tax deduction for your contribution. However, the money you earn grows tax-free, and you pay no tax on withdrawals after you reach age 59 1/2. Plus, unlike with regular IRAs, there are no mandatory withdrawals after age 70 1/2. You can also withdraw the amount you contributed (but not your investment earnings) at any time with no penalty and no taxes due, which is not the case with traditional IRAs. To contribute to a Roth IRA, you must make less than $137,000 (if you’re single) or $203,000 (if you’re married filing jointly) in 2019. If your income is more than $122,000 (single) or $193,000 (married filing jointly), your allowed contribution is reduced. You can contribute to both a Roth IRA and a traditional IRA, but the contribution limits apply to your total deposits. Some people who make too much to contribute to a Roth IRA contribute to a conventional IRA and convert it into a Roth later.

Health savings account

Those with certain high-deductible health insurance plans can save money tax-free in an HSA. You can contribute up to $3,500 a year for an individual or $7,000 for a family. If you’re 55 or older, you can contribute $1,000 more. You can withdraw money from your account to pay allowable medical expenses, including copays and items such as eyeglasses. If you don’t spend the money, it rolls over indefinitely. Once you’re 65, you can withdraw money for any reason without penalty, but you have to pay income taxes on money you withdraw. Or, you can use it for retiree medical expenses tax-free. If you withdraw the money before you’re 65 for any reason besides medical expenses, you have to pay taxes and a 20 percent penalty. But as long as you save your receipts, you can withdraw money to reimburse yourself for expenses you paid years ago. If you don’t need the money for medical expenses, you can invest it as you would other retirement savings.

Retirement Plans For the Self-Employed

I am self-employed and I thought other self-employed people might like this little spreadsheet I created. It breaks things down into regular lingo verses financial talk. I really like how much info it gives you and the categories each one are in.

I personally have a SEP IRA. I use Meryl Edge for my investments and I love their customer service. I am the type of person to question everything and every time I have had a question they are very prompt in returning my emails and very concise when explaining things to me. I am so happy with my choice.

 SEP IRASolo 401(k)/Solo Roth 401 (k)SIMPLE IRAPayroll Deduction IRAProfit Sharing
Best forSelf-employed people; employers with one or more employeesSelf-employed people with no employees other than a spouseSelf-employed people; businesses with up to 100 employeesSelf-employed people; employers with one or more employeesSelf-employed people; employers with one or more employees
Funded byEmployer; individual, if self-employedSelf or qualified spouseEmployee deferrals; employer contributionsEmployee, via payroll deductionEmployers, at their discretion; might be linked with employer’s workplace retirement plan
2018/2019 EMPLOYEE contribution limitsContributions for employees made solely by employer (or sole proprietor); limit of 25% of net self-employment income, to a maximum of $56,000 Lesser of $19,000 or $25,000 for those age 50 and older and 100% of earned income$13,000; $16,000 for those age 50 or older Based on employee’s IRA eligibility; maximum of $6,000; $7,000 for those age 50 and olderBased on employee’s IRA eligibility; maximum of $6,000, or $7,000 for those age 50 or older
2018/2019 EMPLOYER contributionsThe lesser of up to 25% of compensation or $56,000 As both an employee (of yourself) and employer, up to $56,000, or $62,000 with catchup contribution Mandatory matching contribution of up to 3% of an employee’s compensation or fixed contribution of 2%N/AThe lesser of up to 25% of employee compensation or $56,000
Taxes on contributions and earningsContributions and investment income are tax deferred; earnings grow tax-deferredContributions and investment income in a traditional Solo 401(k) are tax deferred; contributions to a Solo Roth 401(k) are taxable; earnings grow tax-freeContributions and investment income are tax-deferred; earnings grow tax-deferredContributions to a traditional IRA might be deductible; contributions to a Roth are taxable; earnings grow tax-deferredNo taxes on contributions; earnings grow tax-deferred
Taxes on withdrawals after age 59 1/2Taxed at ordinary ratesTraditional Solo 401(k) withdrawals are taxed at ordinary rates; Solo Roth 401(k) withdrawals aren’t taxedTaxed at ordinary ratesTraditional withdrawals are taxed at ordinary rates; Roth withdrawals aren’t taxedTaxed at ordinary rates
ProsSimpler for employers to set up than Solo 401(k)s; employers get tax deductions on contributionsAllows small business owners to make both employee and employer contributions for themselves; has higher contribution limits than some other plansEmployees can contribute up to 100% of compensation, up to limitEasy to set up and maintain; no minimum employee coverage requirementsEmployee might be able to borrow penalty-free from vested balance before retirement age (although borrowed amounts are subject to income tax)
ConsLower contribution limits for sole proprietor than a Solo 401(k); doesn’t allow catchup contributions; employer contributions are discretionaryMore complicated to set up than a SEP IRA; only allows withdrawals before age 59 1/2 for disability or plan termination25% penalty on distributions made before age 59 1/2 and within the first two years of the plan; no loans allowedEmployees subject to Roth and traditional IRA eligibility requirementsVesting period is generally required; no diversification, tied to employer earnings
Good to knowThere is a different calculation to determine allowable SEP contributions if you’re both the employer and employee   Employer contributions might be subject to vesting termsDistribution rules penalize rollovers to another account within the first two years of plan ownership; a SEP IRA or 401(k) might be better for the self-employedThe employer chooses the providerContributions are at employer’s discretion and can vary based on salary and job level

Wants vs Needs

With any budget, you have your categories that label what your spending your money on. Within those categories you’ll be able to see your areas of opportunity. I have an activity that I have all of my clients do at the very beginning of working together. This activity shows my clients how much they are spending just on their WANTS.

You need three months worth of bank statements. You will then highlight all of the “wants” you purchased. Add up all of those “wants.” The total is how much you spent on just things you WANT. This is to check in with yourself.

How much did you spend?

Does spending that money on random stuff you don’t really need make you feel a certain type of way? Would you rather spend it on something more responsible?

Are you in debt? Could you have paid off some debt with the amount you spent on “wants?”

Do you have short term or long term goals?

Do you have a retirement fund?

Do you like having “things” instead of going on trips for an experience seeing the world?

These questions are to help you see the difference between wants vs needs. Needs should be a priority and if they aren’t you need more discipline in your life. Money management is a mindset. If you are not in the proper money mindset, you can kiss all your extra money goodbye. Which ever type of person you are, whether you’re a money hoarder or an emotional spender, you need to have a balance with your finances. You can’t keep all the money in an account somewhere untouched and expect to have it grow or make you less stressed. You also can’t go around making it rain either. Balance, discipline, and consistency is key in financial wellness.

If you are in need of some financial advice check out my Taxes, Bookkeeping & Financial Wellness Facebook Group!

7 Retirement Rules to Live By

Rule No. 1: Have a plan — and Follow it

You absolutely need a plan — otherwise you’re leaving things up to chance, which is never a good idea. Take the time to figure out how much money you’ll need to live on in retirement and how you’ll save it.

One rule of thumb is that you’ll need 80% of your pre-retirement income in retirement, but you should do your own calculations. You can also work backwards, using the 4% rule of thumb, which tells us you can safely withdraw 4% of your nest egg in your first year of retirement, and adjust upward for inflation thereafter. Many people wind up spending far more money in retirement than they did working, due to pricey retirement activities or unexpected health conditions, which don’t come cheap.

Try this simple online compounding calculator to jumpstart your planning. Start by putting in your expected investment growth rate for the interest rate, and try out different savings levels. For example, if you start with $10,000, you save $10,000 each year in a tax-advantaged retirement account, and you expect it to grow an average of 8% annually, over 20 years, you’ll end up with about $540,000. Try different scenarios that are realistic for you and keep track of a few estimates to create a range to shoot for. The 8% growth comes in when you invest your savings in the stock market wisely, combined with the power of compounding.

Remember that your money might need to last a long time if you’re lucky to live longer than average, so plan conservatively. If you retire at 62, for example, and then you live to 100, you’re retired for 38 years. Don’t assume that you’ll be able to retire exactly when you want to, either. According to the 2016 Retirement Confidence Survey, 46% of retirees left the workforce earlier than planned, with 55% citing health problems or a disability as the reason and 24% citing changes at work such as a downsizing or workplace closure.

Rule No. 2: Save aggressively and invest effectively

There’s a good chance that you, like most Americans, are behind in your retirement savings. Of Americans aged 55 or older, 28% have less than $25,000 saved, according to the the 2018 Retirement Confidence Survey. Younger folks are in worse shape — more than half have less than $10,000 socked away — but fortunately, they have plenty of time to gain ground. As long as you have a few years before you retire, there’s still time to significantly improve your financial condition by your retire date.

Start by maxing out your IRA contribution each year (most of us can contribute $6,000 for 2019, and those aged 50 or older can contribute $7,000) — and try to max out your 401(k) contribution, too (with 2019 contribution limits of $19,000 for most folks and $25,000 for those 50 or older).

The below table shows how much a lump sum accumulates over various periods when your investments grow by an average of 8% annually. (The stock market has averaged annual gains of close to 10% over long periods, but over your specific period, it could be much less, or more.)

Growing at 8% for$10,000 invested annually$15,000 invested annually$20,000 invested annually
5 years$63,359$95,039$126,719
10 years$156,455$234,682$312,910
15 years$293,243$439,864$586,486
20 years$494,229$741,344$988,458
25 years$789,544$1.2 million$1.6 million
30 years$1.2 million$1.8 million$2.4 million

The 4% rule is flawed, but it is helpful in figuring out how well your savings will serve you in retirement. It suggests withdrawing 4% of your nest egg in your first year of retirement and then adjusting for inflation in subsequent years. Here’s how much income various-sized nest eggs will generate in year one:

Nest Egg4% First-Year Withdrawal
$250,000$10,000
$300,000$12,000
$400,000$16,000
$500,000$20,000
$600,000$24,000
$750,000$30,000
$1 million$40,000

How should you invest your dollars? For most people, it’s best to just stick with an inexpensive broad-market index fund like one tied to the S&P 500 index, that will deliver roughly the same returns of the overall stock market. Index funds have tended to outperform managed stock mutual funds over long periods, so don’t allow yourself to be enticed by a sweet-talking mutual fund pusher.

Rule No. 3: Tend to your physical and mental health

Planning for retirement and living well in it might seem to be largely about money — saving enough, keeping it allocated properly, spending the right amount, and not running out of money. Those are indeed important considerations, but there are other important components of retirement — such as your health, both physical and mental.

Consider this: A 2014 MassMutual survey found that 10% of retirees were surprised to find themselves lonely, bored, with a lost sense of purpose, and/or depressed in retirement. So plan to stay active and social in retirement, too. Being physically active can keep your bones and heart strong, while being socially active keeps you mentally and physically healthier and could even keep dementia at bay. Think about getting a part-time job, a side hustle, joining a club, or taking up a new hobby. It’s not a bad idea to start looking into possibilities well before you retire.

Rule No. 4: Don’t forget healthcare costs

Speaking of health, don’t forget to factor healthcare costs into your planning. A 65-year-old couple retiring in 2019 will spend, on average, a total of $285,000 out of pocket on healthcare, according to Fidelity, of course, that’s an average so you’ll probably spend more or less.

Rule No. 5: Remember your RMDs

If you have any money in traditional IRAs or 401(k)s, remember to take your required minimum distributions (RMDs) at the right time — when you reach age 70 1/2.

If you fail to take these annual withdrawals on time, you’ll face a hefty penalty — 50% of the sum you should have withdrawn as your RMD. These are annual deadlines, so set yourself a reminder on the calendar each year so you never forget.

Rule No. 6: Don’t cash out, and don’t exit completely from stocks

If you’re thinking that once you approach or enter retirement, you’ll need to sell all your stocks and buy bonds or just move that money into CDs, think again. Yes, it can make sense to keep a portion of your retirement war chest in a “safer” place than the stock market. But remember, for funds you won’t need for at least five or ten years, the stock market is one of the best ways to grow that money. If you have 20 or more years of retirement ahead of you, a big chunk of your nest egg can keep growing for more years before being moved. You might reduce your risk by favoring stable, established blue chip stocks, including dividend payers, instead of would-be highfliers.

Learn what a bond ladder is and be smart about aligning your portfolio allocation with your timeline. Meanwhile, don’t cash out retirement accounts early. That stops the money from growing more, and it can mean penalties and taxes, too. Many people cash out when they change jobs, a move that short-changes their financial future.

Rule No. 7: Be smart about Social Security

Finally, the last important retirement rule: Find out how much money you can expect to receive from Social Security and incorporate this monthly income source into your retirement planning.

First, visit to the Social Security website to set up a “my social Security” account. Here, you can view records of your past earnings and estimates of your future benefits. The average monthly Social Security retirement benefit was recently $1,467, or about $17,600 annually, while the maximum  monthly benefit for those retiring at their full retirement age (FRA) in 2019 is $2,861 — $34,000 for the year. If those sums seem too small to sustain your retirement, remember that if your earnings are above average, you’ll collect bigger checks, and there are ways to increase your Social Security benefits, too.

The more you read up on retirement issues and the better you plan for your financial future, the more comfortable and low-stress your golden years are likely to be.

The $16,728 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. 

For more info and financial advice feel free to drop in on my Taxes, Bookkeeping, and Financial Wellness Facebook Group!

Creative Ways to Increase Income

Know Your Worth

Times are tough right now during a global pandemic and you are not the only one trying to increase your income. Know your worth. You are worthy of money. Repeat that to yourself right now. Just because times are tough now doesn’t mean they always will be. It is up to you to get off that couch and look for new beginnings or new opportunities. There are new challenges now of course but that just means we adapt to the changes. I’m going to give you some creative ways to increase your income TODAY!

Sell Stuff Online

Everyone has a closet filled with clothes they bought a decade ago, unless you are a minimalist then you have nothing. Move along… Anyway, Like I was saying… Everyone has junk laying around that they can easily create an eBay account or poshmark account to sell these items on. There are many other sites you can utilize to sell things on for cheap.

  1. Ebay
  2. Poshmark
  3. Amazon
  4. Craigslist
  5. ThredUp
  6. Facebook Marketplace
  7. Offerup
  8. Letgo
  9. Cash4Books
  10. Decluttr

Other ways to generate more income include:

  1. Rent a room
  2. Drive people around
  3. Deliver food
  4. slicethepie.com—- Review unsigned artists and get paid for it
  5. Negotiate salary

Popular Side Hustles:

  1. Driver
  2. Coach
  3. Sales Rep
  4. Virtual Assistant
  5. Blogger
  6. Freelancer

Everyone is capable of increasing their income. You just have to get creative and start with a plan. Planning doesn’t come naturally to some people but it might be worth it to try. If you have been laid off and can’t even fathom driving people around why not dive deeper and consider turning a hobby that you really enjoy into a new small business. If it’s crafting you enjoy why not channel your feelings and emotions into creativity and open an Etsy shop to sell these items. There is always a way, you just have to find what works for you.