I want your retirement to be awesome, I really do. Most of the inputs in getting you to an awesome retirement is going to be as a result of your actions, namely you turning your time and energy into money (otherwise known as work) and then turning some of that into capital (or savings, for the lay-person). From there we try to maximize it by growing it via investing and then, finally, keeping Uncle Sam at bay by legally limiting your tax liabilities. These two items are where many need assistance.
So to back up, how you save matters because taxes matter because taxes impact how much you actually get to spend (or give). Your decision on how to save and invest today could realistically impact your annual take-home income by 3%, 5%, 10%, or, with really careful planning, even more! If your income was otherwise going to be $60,000 in retirement and you can add 5% that ends up being an extra $3,000 for you to enrich your and/or other people's lives. Think about it, that's a nice weekly get-away to somewhere warm during the cold winter of January ... or ... April (sigh), every single year.
... you probably think of yourself as a rational person. You likely think that your decisions are based off of known facts and a logical reasoning process. You'd be wrong. Don't get me wrong, much of our decisions are informed by our logic but most of our decisions are a result of various inherent biases or norms. You react to hidden triggers as easily and often as everyone else, in all likelihood. I'm not trying to insult you here (I suffer from these behavioral ticks as well), just stating what we know to be true about human behaviors.
Imagine something ridiculously financially awful occurs. I mean something that devastates your finances. I'm not talking about a series of bad decisions and bad luck or lack of planning that leads to a situation of financial hardship but rather a singular event that causes you to liquidate everything you own just to get by. This event could be anything really but for the sake of this exercise let's say you get sued. Not just sued but sued in an epic fashion; again, to the extent that you are required to liquidate everything. Since this is a completely made up scenario, let's take it a step further and say that you need to sell everything immediately, pay off all your debts, and then see what you have left over.
Perhaps the most interesting part of personal finance, and especially retirement planning, is investing (which, of course, isn't actually interesting at all to most people). Most people, when the topic of financial planning or advising come up, think of choosing and managing investments before they think of life insurance or budgeting or tax-efficiency. This is completely understandable. Among other reasons we so often think of investing first ...
I like Dave Ramsey, I really do. If we were to make a short list of the most influential people in the world of personal finance in the last 50ish years he'd likely be in the top 5 and definitely in the top 10. Honestly, he has positively impacted a staggering number of lives and we should all be thankful for the work he's done.
With all that being said, there are areas of his "guidance" that are truly cringe-worthy ...
There are many ways to build wealth, some of them easy, some accidental, most require a lot of hard work and patience, many of the ways are worth it in the end. For all the ways to build wealth, there are also many wealth destroyers. Many of them are self-inflicted, some are not though, such as expenses, bad luck, and one of the two guarantees in life ... taxes. Though few will ever be able to completely (and legally) avoid taxes, there are ways that we can legally limit them. Some of those tactics need to be thought of years, even decades, in advance. One of these ways to limit taxation is choosing where, as in what type of account, to save and invest.
This week the House and the Senate both passed what is largely being hailed - for better or worse - as the biggest change in tax law since Reagan was in office, the Tax Cuts and Jobs Act (TCJA). There is no shortage of analysis, articles, op-eds, etc. in regards to this bill, and for good reason, as it will literally and directly impact almost every single person and company in the country.
It seems like I've been asked a lot lately - by clients, friends, colleagues, etc. - "What do you do? How do you save your money?" It's a good question, not because what I do is gospel and should be copied by all but because a.) it's a good thing, generally, to be transparent; especially when I ask others to be transparent with me and b.) it's a good thing to be kept in check, so I'm glad to have been asked.
So, I got to thinking, "I should really tell people what I do." This is important as those who know me know I can be a bit strong in my opinions regarding the importance of saving and the importance of saving intelligently and wisely, so I better be doing it myself! Additionally, there's the old saying about how the cobbler's kids go shoeless - in that the cobbler, who makes shoes for other people, largely ignores the practice for his own family. This is probably the case in too many professional's lives but I hope it never will be in mine. So here's what I'm doing now to make sure that's not the case.
Did you know that the financial cost of raising a child is estimated to be approximately $14k per year in the midwest, per this handy tool? If this number were to remain steady, the total cost to get a kid out of the house is $252,000!
...saving for retirement in any of the available options is about taxes, or at least choosing to save in one vehicle over another is about taxes. H.S.A.'s are the most tax-efficient of them all. And so this is is one of those items in financial planning that you can take to the bank. It's not a gray issue. If you have access to an H.S.A. you should absolutely seek to max it out, almost before putting money anywhere else....
John and Jane Doe came to Thinking Wealth (DeBoer Financial) as a referral in the late spring of 2017, seeking help on a very narrowly focused topic: Jane’s student loan situation. Specifically, she had (and still does have) roughly $145k of student loan debt, all of which was incurred in a graduate program. John and Jane just weren’t sure what route they should go in setting up either a repayment plan and/or whether they could get those loans forgiven somehow. They had done some research but the rules and options were, understandably, a bit overwhelming for them...