Deciding for something is a great thing, which a trader takes every day for his work. A trader needs to see several tools to make an informed decision before buying or selling a stock. [Read more…]
Down Payment or Investment Opportunities?
The current dilemma I am having is whether to stash my savings for a down payment on a house or contribute to my Roth so I have cash available for buying opportunities.
I’m pinching pennies, and I’m saving money wherever I can so that cash is accessible when I need it. I just don’t know what to do with it.
Do I put it towards a down payment or set it aside for investment opportunities. Like most things in life, the answer will lie somewhere in the middle.
Down payment
I’ve mentioned in prior reflections that I’m renting right now.
I’m renting because I got divorced and exhausted all of my savings on the down payment for my house. That house is currently being rented by another family, and my ex-wife and I still own it.
That’ll help build equity into the house so we receive more if/when we decide to sell, which is good.
I’m happy with my current living arrangements. I like the place. I like the neighborhood. My commute to work is 2 minutes, and I’m close to all of my family and friends. All good things.
The only bad part is I have no outdoor space to call my own. I have no yard.
I’m trying to frame it positively by saying that I’m not spending my time on yard work, and instead, have more time to spend with my son/work on myself when he’s not here. These are both very good things.
However, I want to give my son a space to play. A place to put a jungle gym and a sandbox. A place where he can just run around and have fun.
I want to give him that because he deserves it. I want to use my savings for a down payment on a house so we can have a place to call our own.
Investment opportunities
Here’s the second part of my dilemma. I see a lot of chances to put my money to work in the market.
I’m able to play the long game because of my investment philosophy and my training. The best investors I have long-term time horizons.
What I mean to say is I can see past the present and I have an idea of what my investments can do over the long term, and the [possible] reward for investing now can’t be ignored.
That’s why I’m having a difficult time deciding what to do.
What will I do?
As a parent, you want to give your kids everything. I want to have a place we can call our own.
At the same time, I know how valuable it is to start saving and investing early so I can take advantage of compounding returns.
So here’s what I’m thinking. I’m going to develop a “savings plan”. I’ll take the dollar amount for an ideal down payment and how far in the future (in terms of years) when I’ll want to use it.
I’m thinking of $25,000 for a down payment and four years until I’ll use it. I’ll, then, divide $25k by 48 to get my monthly savings goal. Anything over that number I’ll put in my Roth.
That’ll take care of saving for a house and for retirement.
My Last Reflection:
My Experience with Life Insurance
Related reading:
What is Time Horizon and Risk Tolerance?
My Life and How I Manage Stress
My House and What Brought Me Here
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com
How is Passive Income Taxed?
A lot has been said about passive income.
“If you don’t find a way to make money while you sleep, you will work until you die.” ~ Warren Buffett
“The key to financial freedom and great wealth is a person’s ability or skill to convert earned income into passive income and/or portfolio income.” ~ Robert Kiyosaki
With the above quotes in mind, there is a particular area of passive income that is rarely talked about…taxes.
How is it taxed? Are there particular income streams that are taxed differently than others? How do you optimize so you’re taxed favorably? We’ll cover all of that in the following article.
What is Passive Income?
As defined by the IRS, passive income is either net rental income or income from a business in which the taxpayer does not materially participate.
There are several different kinds.
Forms of Passive Income
- Real estate – If you own a property, be it a single-family home, duplex, or apartment complex, the rent you collect from tenants is considered rental income.
- Limited partnerships – As a limited partner, your only responsibility is the capital you invested. The general partner manages the day-to-day activities of the business and has unlimited liability in terms of the debt taken on by the business. You receive income as a percentage of the company revenues (percentage based on your percentage of ownership).
- Some portfolio income – speak with a tax professional on this subject, as the IRS isn’t quite clear on whether portfolio income is taxed as passive or not.
- Peer-to-peer lending – Individuals lending to individuals. If you’re looking for passive income, you lend money to someone, charge them interest, and then collect that interest.
- Equipment leasing – buy a piece of equipment and rent it out. Pretty straightforward.
Material Participation
- 500+ hours of activity per year towards the “business” to which the income is received
- Up to 100 hours of participation per year and at least as much as anyone else participating in the activity
Taxes
Passive income is taxed in a couple of different ways. First off, passive income losses can only offset “actual” passive income.
Capital gains
- Short-term – Taxed at your ordinary income tax rate. For 2020, the rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
- Long-term – Gains from “investments” held for over one year. The tax rates for long-term gains are 0%, 15%, and 20%.
Real Estate
- 1031 exchange – take capital gains from selling a property and use it to buy another property. Then, you don’t have to pay taxes on those gains.
- Tax write-offs – You can write off depreciation, money spent on the property, and amortization (interest on a mortgage).
- 20% “safe harbor” deduction if your income is below a certain threshold. I’ll link to a resource for more information about this one (see here).
Taxes are anything, but simple. Please speak with a qualified tax professional.
Related Reading:
How to Pay Taxes on 1099 Income
Why Financial Literacy is Important
Could Refinancing Save You Money?
How to Manage Your Side Income
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com
My Experience with Life Insurance
Life insurance is necessary. Sure, you can make the argument that a single person with no children probably doesn’t need it, but I disagree.
No, they don’t have anyone to support, but someone will have to pay for the funeral and burial arrangements. Get a little bit as a courtesy to the person responsible for your remains.
In this article, I’m going to share my personal feelings on life insurance, as well as my current circumstances with my own policy/estate planning.
Life Insurance
As I said in the beginning, life insurance is a necessity. However, the purpose of the policy and the type of policy will differ from person to person.
This makes sense, right? Everyone is different, with different circumstances and points-of-view, so their insurance policy should be tailored to meet their needs.
With that in mind, my personal opinion with regard to life insurance is that it should only be an insurance product. There are several different types of life insurance (i.e. whole life, universal life, variable life, etc.).
Each serves a purpose and has unique advantages and disadvantages.
You might think that one or several of those products are the bee’s knees, and I’m not saying any of those are good or bad. As I stated, life insurance should just be about insurance. My desired life insurance product is term insurance.
It’s bare-bones coverage. You select the term you want to be covered for and the death benefit. That’s it.
Insurance and Investing
Term insurance is much less expensive than the other products out there. The intention behind this is to compare term insurance to your typical whole life product.
Specifically, compare the monthly premium of the two. Whatever the difference is, contribute that to an investment or retirement account.
Be advised: This is not a recommendation for best practice, just my personal opinion.
This strategy will not suit everyone. Whole life can be a great way to diversify your holdings if you’re a wealthy individual. Retirement accounts have contribution limits. A whole life policy could be another “bucket” of retirement savings.
My Current Setup
When I found out I was going to be a dad, I got life insurance. Specifically, I got a 30-year term policy with a $300,000 death benefit. That still exists and I’m still paying for it.
I would like to get some more so I can set my son up if anything were to ever happen, but first, I need to make some changes.
Since I got divorced in February, I need to do some creative estate planning because my son is only 2-years-old. I can’t directly leave him the money because he’s a minor.
I need to see an estate attorney, once things return to normal, to set up a trust. I’m doing it this way because I can set up a guardian for my son and someone to take control of the money if I were to pass away.
There are several other nuances to estate planning that I have yet to experience, so I’ll be sure to give an update once everything is all said and done.
My Last Reflection:
How My Finances Changed with Covid
Related Reading:
Ultimate Estate Planning Guide
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com
Exactly What Does Free After Rebate Mean, Anyway?
If you’ve ever wondered what “free after rebate” means you’re definitely not alone.
Rebates are promotions used by retailers or manufacturers that give costumers a discount after they purchase a product. Sounds backwards right?
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.
How to Properly Vet EHR Companies to Choose the Best One for Your Practice
According to Clinician Today, in 2017, there were more than 1,000 EHR vendors offering systems to medical practices. With so many options, it can be confusing and exhausting trying to find the one that’s right for you.
You may not have even started your search for EHR companies and already feel overwhelmed.
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.
5 Questions You Should Ask Your Financial Advisor Now
The coronavirus pandemic shook the financial lives of many. The stock markets took major tumbles, and unemployment claims reached the 40 million mark. Which is creating a lot of uncertainty. Financial planning during tumultuous times is always challenging. Adding to it, the COVID-19 situation and the instability of the current economy. Trying to figure out what to do for your personal financial health is even harder. Luckily, financial advisors can help you navigate these seemingly treacherous waters. However, you do need to make sure you ask the right questions, ensuring you get the information you need. If you are scheduling a meeting, here are five questions you should ask your financial advisor now.
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.
How To Get Your Freelancing Finances In Order
There is a definite shift in the career market away from 9-5 office workers and those that choose to branch out on their own as freelancers. With over 57 million freelancers already hanging out their shingles, that number is expected to grow substantially in the next decade. With the recent coronavirus pandemic requiring many employees to work from home; the way that we get back to work could be a very different kind of “normal”. [Read more…]
Why Insurance Is Important Now More Than Ever
Insurance companies have always been great helpers for many individuals and companies over the years. But during the COVID-19 outbreak, even these companies took the toll. [Read more…]
Mistakes to Avoid in Retirement
In many finance websites, blogs, and articles, a lot has been said about how to prepare for retirement, but I believe there hasn’t been enough written about what to do when you get there. More specifically, there’s a lack of content about mistake, or mistakes, to avoid.
In this article, we’ll explore several mistakes to avoid when you reach this milestone.
Spend beyond your means
This seems obvious, but once the psychological barrier of spending versus savings is breached, people (not everyone) develop this mentality of “I saved for 40 years for this moment, why shouldn’t I enjoy it?”
You should enjoy it. You worked your butt off for it, right? There are strategic ways to do this, however. The mistake is going gangbusters right away.
- Create a budget/spending plan – Your budget in retirement will be different than your budget before retirement. Create line items for everything, and get real granular with your discretionary spending (i.e. sub line items to breakdown where the discretionary spending is actually going).
- Plan for healthcare – Healthcare costs, generally speaking, will be your largest expense in retirement. Plan accordingly.
- Income strategy – More than likely, you’ll have a few different income sources (social security, pension, retirement distributions, etc.). Create a line item for each source.
- Senior discounts – Take advantage of every single one. There might be a psychological hesitation with this, as it forces you to come to terms with your age/where you are in life
- Spoil grandkids – Every grandparent wants to spoil their grandkids to death, but it must be done within reason. Get creative and be strategic about when and how much.
Make Quick Decisions
Another mistake is making quick decisions. Don’t do it. Any decision you classify as BIG needs to be well thought out. This could be anything like moving, downsizing, vacations, or eliminating a vehicle.
I would argue that any decision about an expense that’s not in your budget/spending plan, should be thought about for several days. My rule of thumb is a week. By then, the euphoria of such a purchase has gone away, then you think more logically about it.
Investing Aggressively
Over the years, a big mistake clients make is the desire to invest more aggressively than they should. Oftentimes, this is to compensate for an inadequate savings rate during their working years or a significant market pullback that hurt their portfolio.
While capital appreciation is still an investment objective in retirement, it’s no longer the primary goal.
This primary goal should be capital preservation. Limiting losses on what you have. This has less to do with time and more to do with your decreasing ability to go out and make more money. Allocate your portfolios accordingly.
Ignoring Estate Planning
Estate planning is a key ingredient to your financial planning recipe. It mustn’t be ignored. Every debt and asset you have needs to be accounted for, listed, and given a task for when you pass.
Deciding to organise your estate can be a difficult mental barrier for some. However, finding a wills and estate attorney you can trust is necessary to ensure your estate is well taken care of, both for your own peace of mind but also any loved ones.
Isolating Yourself
Your social life is more important than ever. Countless studies show that people with strong relationships outlive those that don’t. So the mistake here is not making your social life a priority.
Join a community, volunteer, retain, and nourish friendships. Whatever flavor of social life sounds desirable, make it a priority.
Letting Yourself Go
Taking care of your mind and body is always important, but especially now. It will keep you healthy, therefore, lowering your healthcare expenditures, but it’s also another way for you to meet people.
Go for walks with neighbors and/or friends. Join a gym. Many of which have reduced rates for seniors. Additionally, many health insurance companies have “silver sneaker” programs that offer inexpensive services and programs for seniors.
Expecting it to be easy
This is a BIG life change and the transition will not be easy.
Not only will you shift from saving to spending, but those social connections you developed over your working years can reduce in frequency and strength.
Go easy on yourself and be patient.
Taking Social Security too early
Unfortunately, there are situations and scenarios where taking Social Security Income (SSI) distributions early is necessary. However, for those of you where this does not apply, speak with a trusted advisor about optimizing your SSI strategy.
Getting Swindled
Scammers adapted. They’re smart and they know how to target susceptible people. Unfortunately, elderly individuals are inherently more at risk than the general population.
Any email, phone call, or text that you receive (unsolicited, of course) should be greeted with a fair amount of skepticism. Don’t willingly give out any pertinent information (name, DOB, social security number, etc.).
Doing it alone
A BIG mistake people make is thinking they can plan by themselves. It would behoove you tremendously to consult with several experts. Estate attorneys and financial advisors should be at the top of this list.
Do your research, check online reviews, and get testimonials from trusted contacts. Having capable professionals in your corner could set you up for success and put your mind at ease.
Related reading:
Why Your Will Should Be Up To Date
Moving: Another State, Another Country
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com
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