Albert Einstein once referred to compound interest as the 8th wonder of the world. Saying he who understands it earns it; he who doesn’t pays it. And he couldn’t have been more right. Today we’re going to be looking at the miracle that is compound interest and how can protect my retirement as it relates to the #1 killer of your wealth. Let’s get started. So the #1 wealth killer is debt. Yeah, I know, big shocker. But it’s really true and today we’re going to look at why that is.
The truth is, having too much debt can put a limit on your greatest wealth-building tool – your income. While it may be tempting to invest rather than pay off your debt, compound interest is a force to be reckoned with. In fact, I recently dedicated an entire video to its power. Financial advisors often use the example of Jane, who invests $100 per month ($1,200 per year) from the age of 18 to 25 and earns an average of 10% per year on her investments. By the time she stops investing at age 25, her nest egg will be worth just over $15,000.
However, before you start investing, it’s important to consider your debt load. Here are some reasons why paying off your debt first may be the smarter choice:
High-interest rates: Many forms of debt, such as credit card debt or personal loans, carry high-interest rates that can negate any potential investment gains.
Risk: Investing always carries some degree of risk, and if you have high levels of debt, taking on additional risk may not be advisable.
Stress: Debt can be a significant source of stress and anxiety, which can have negative impacts on your overall financial well-being.
Freedom: Paying off debt can give you a sense of freedom and control over your financial situation, allowing you to make better long-term decisions.
That being said, paying off debt doesn’t mean you can’t invest at all. Here are some steps you can take to balance debt repayment and investing:
Create a budget: Determine how much money you can allocate towards debt repayment and investing each month.
Focus on high-interest debt: Prioritize paying off high-interest debt first, as this will save you the most money in the long run.
Consider employer-matched retirement accounts: If your employer offers a retirement plan with a matching contribution, take advantage of it. This is essentially free money that can help you save for the future.
Seek professional advice: A financial advisor can help you create a personalized plan that takes your unique financial situation into account.
In conclusion, while compound interest is a powerful tool for building wealth, it’s important to consider your debt load before investing. Paying off high-interest debt should be a priority, but that doesn’t mean you can’t invest at all. By creating a budget, focusing on high-interest debt, taking advantage of employer-matched retirement accounts, and seeking professional advice, you can balance debt repayment and investing to achieve your financial goals.
Over the course of the next 45 years, those investments will continue to grow. Assuming that it continues to grow at an average annualized rate of 10% per year she will end up with $1.1 million in her portfolio at age 70. That’s all achieved with eight years of investing $100 a month. Jane becomes a millionaire by investing $9,600 of her own money. On the other hand, we have John. John doesn’t start investing at age 18. Instead, he starts at the age of 26 (just after Jane had finished all of her investing). He also invests $100 a month. However, unlike Jane, he does it from the age of 26 all the way until the age of 70. John invests $54,000 of his own money over the course of those years and ends up with a nest egg of just under $950,000. So John ends up with approximately $150,000 less than Jane. This is in spite of the fact that he invested six times more of his own money than she did.
It’s no secret that excessive debt can put a damper on your ability to build wealth using your most powerful tool – your income. While the concept of compound interest is widely known to be an effective way to grow your money over time, paying off debt may seem like a counterproductive move. However, it’s important to remember that not all investments are created equal, especially when you’re dealing with debt payments.
Let’s take a look at an example: Jane invests $100 a month for 7 years starting at 18 and ends up with a net worth of $1.1 million at the age of 70. Now, let’s say John starts investing $100 a month at the same age and earns an average of 10% per year, just like Jane. Even if John continues to invest until he’s 100 years old, Jane would still have more money than him, and her lead would only increase with time. In fact, at the age of 100, Jane would have $19.2 million to her name, while John would have $16.7 million. This just goes to show the power of compound interest, as famously called by Albert Einstein as the 8th Wonder of the world.
However, when it comes to investing, it’s important to consider the context of one’s financial situation. Comparing someone who is debt-free to someone who is not will not provide an accurate comparison. While Jane invested $100 a month for 7 years, John was dealing with debt payments and didn’t invest anything for those first 8 years. But what if John managed to free up an extra $200 a year, or less than $17 a month, by paying off his debts? In that case, he would come out ahead of Jane by the time they’re both 70. And if he freed up more money than that, he would pass Jane even earlier.
So, what’s the takeaway? While compound interest is undoubtedly a powerful tool, it’s important to also consider the impact of debt on one’s ability to invest. Paying off debt and freeing up funds for investment can ultimately lead to greater financial success in the long run.
And given the state of the average American debt situation, $17 a month in payments is a remarkably conservative estimate. According to articles in business insider,
CNBC, and Forbes the average American debt situation looks like this: About $9,000 in credit card debt which is
often split between several cards. $30,000 in student loan debt. And assuming a used vehicle was bought a little
over $21,000 on a car loan. That’s around $60,000 in total debt. If we assume 18% interest on the credit cards
and 4.5% interest on the other loans and terms of 5 and 10 years on the car loan and student
loan respectively, the minimum payments could be roughly $900 a month. Freeing up that much cashflow could make a
tremendous difference in the previous example. Let’s look back at John’s situation from before
and assume that his household’s debt situation was that of the average American. John uses his $100 a month of excess cash
flow to pay off these debts.
Based on the numbers it would take him roughly
six years to become debt-free. This is assuming he did not work any extra
hours or sell anything to get out of debt faster. Once he was debt-free he would have almost
$1,000 a month left over to invest. If he starts the process of becoming debt-free
at the age of 18 when Jane was starting to invest he would have become debt-free by his
24th birthday. If he then turned around and started investing
the full $1,000 a month he would actually be further along in his investments by his
25th birthday then Jane was. Granted this is largely because he has invested
more money than Jane has at this point. Jane by her 25th birthday had only invested
$8,400. That’s quite a bit less than John’s $12,000
but think of the potential payoff of this down the road if John keepS investing that
He’ll also likely be able to lead a much
better lifestyle than Jane in the present due to his lower monthly expenses. Jane may eventually equal him in that regard
if she gets her debts paid off, but for those first several years after John is debt-free,
it is worth noting. Remember, compound interest is an incredibly
powerful mathematical force. But it can work just as hard against you as
it can for you. So it’s important to make sure that compound
interest is your ally in your finances, not your enemy. So with that being said how do we avoid this
killer of wealth? First, if you’re lucky enough to not have
any debt right now research some ways to ensure that you keep it that way.
If you’re planning to go to college look into
ESA or 529 plans. They are ways to start saving for college
while lowering your tax burden (which is always a nice perk). Also, look into scholarship opportunities
or PSEO. Don’t be afraid to have a summer job and work
during the school year part-time. For the record, this can also be a good option
in high school to give yourself a head start financially so long as it doesn’t take away
from your studies too much. Make sure that you always have an emergency
fund. It should contain three to six months worth
of expenses so that you don’t have to take on debt for those moments when life happens. Make sure you have insurance for those catastrophes
that you wouldn’t be able to cover with your savings. Catastrophic health emergencies are a good
candidate for this.
If you’re already in debt, learn about how
people have paid off their debts. Then choose the strategy that is most likely
to get you (and keep you) completely out of debt. Three of the most popular strategies are the
debt snowball, debt avalanche, and debt tsunami. I have done videos on all three of those and
they will be linked in the description. The debt snowball is the one made famous by
financial personalities such as Dave Ramsey. It has you order your debts from smallest
to largest balance and pay them off in that order regardless of the interest rates on
those debts. The plus side is the momentum you can build
up for yourself by quickly wiping out those bills. The downside is it isn’t the most mathematically
efficient way to get out of debt, all else being equal.
The debt avalanche is the more mathematically
efficient option if you can stick to it. It has you order your debts from highest to
lowest interest rate and pay them off in that order. This is regardless of the size of the loan
itself. The upside is the fact that you’ll be paying
less in interest. The downside is in some situations it may
take quite a while to get rid of that first bill. For those who are more motivated by seeing
the balances of the debts themselves going down this may not be much of an issue.
For those that are more motivated by the lowering
of bills, this could be an issue in some situations. The debt tsunami has you order your debts
from the most emotionally stressful to the least emotionally stressful and pay them off
in that order. In some cases, this could mean paying off
the largest balance that also has the lowest interest rate first. However in my experience that is not commonly
how it goes. Most of the people that I’ve seen use this
strategy tend to use it because there are personal loans between family or friends that
are causing a lot of stress in the relationship. The person with the debt uses the tsunami
to get rid of that loan first and then often switches to a different strategy such as the
snowball or avalanche. Which is another viable option for many people. There’s nothing stopping you from starting
with one strategy that will help get you going and then switching to another that will work
for you longer-term.
I know a lot of people who have started with
the snowball to get themselves some momentum and then switched to the avalanche once they
were on a roll so that they could save on interest. Another thing I would recommend looking into
is the power of the debt snowflake. If you haven’t heard, the debt snowflake is
a strategy where you find ways to free up money (or just happened to find the money)
that you can put towards your debt payoff strategy. The nice thing about it is it works well with
any of the other three strategies I mentioned. While by itself it isn’t game-changing it
does help your primary strategy do its job a little better. And as we know every little bit helps. If you need more motivation make sure to check
out Dave Ramsey’s YouTube channel and their debt-free screams playlist.
It’s filled with a lot of amazing stories
of people paying off loads of debt on various levels of income and getting to see their
relief when they are finally debt-free is very inspiring. You might also find their Turning Points playlist
interesting. It is essentially interviews of people who
have become debt-free talking about what made them decide to go through that process and
achieve that lifestyle. I’ll leave a link to both playlists in the
description as well..
one of the most common retirement planning
questions people have is how much money can I pull from my portfolio every year and live on
in retirement and that's where the four percent rule comes in handy and it basically says that
if you can pull four percent or less from your Diversified portfolio invested in things like
stocks and bonds and live off of that amount while keeping the rest invested then there's
a good chance that your money is going to last 20 30 years or more and as a frame of reference
if you had a million dollars then four percent would be forty thousand dollars if you had
five hundred thousand dollars it would be twenty thousand dollars per year and it's not
set in stone it is based off a study that was done many years ago and has held up well over
time but there are instances where people as they get older could pull more or if they retire
early maybe they want to consider even doing less than that but it's a really good way to get
a frame of reference on looking at how much you've saved and what that can translate
into in retirement as far as income goes
– In this video, I'm
going to blow the lid off of the most common
mistake made in retirement and in the process bring
clarity to your next move if you carry a lot of debt. Coming up next on "Holy Schmidt." – Holy Schmidt! (object splats) – Recently, I ran into a friend of mine at a hotel lobby in Chicago. He's someone I hadn't seen in years, but someone that I had always
meant to keep in touch with, so it was great seeing him. We got on the subject
of debt and it was clear that he had read a lot of the
books out there on finance. He talked about good
debt, bad debt, no debt, an emergency fund, all of it. But the problem was, in the discussion, it was clear that he was
misapplying many of the concepts. He had read the words in the books, but he actually had not
applied them correctly. One particular point in the
conversation was very tense. He said to me he would rather have $50,000 in low-risk securities
and $30,000 in debt, even credit card debt, as
opposed to having just $20,000 invested in low-risk securities.
When I asked why he thought this, he used some strange
end-of-the-world example and said to me that, "If
we're all living in caves, and this is the end of the world, I would rather have $50,000
in cash than $20,000 in cash because the credit card companies would have a lot more to worry
about than little old me." (thunder claps) "Okay," I said, "But if you're living
life in the real world, you have real credit card companies that have debt collectors that go out, and they try to collect the debt. They actually put a judgment against you. And if you have a judgment against you, they can put a lien on your assets, particularly your checking account, at which point you won't have any cash because everything in there
will go to pay down your debt.
He looked totally confused.
So I help him translate. "If what you're saying is that you would rather pay your grocery bill than your credit card bill, I get it. That will last about a month, maybe two, before things start to go horribly wrong. But let's assume that you are
not being hunted by zombies. (zombies snarling) And you're not trying to determine what the best currency
is in the apocalypse. (knife sharpening) Debt is real, and it needs to be paid." Here's why you should have
no debt in retirement. By the way, if you have
debt, even a lot of debt, I've got you covered. There's another video
that I have, outstanding. I'll put a link in the
description below that you can use to get rid of your debt
very, very quickly. But I digress.
get back to this video. First, for those of you
who think like an investor, you'll know that the higher the return, the higher the risk, generally speaking. If for example, you invest
in US government securities, that means your investment is as safe as the US government itself, that is, if you hold your
bonds until maturity, and you don't sell them
in a choppy market. (cow bell ringing) But assuming you hold your
government investments until maturity, the five-year US government
note is currently paying (keyboard clicking) 3.39% as of five seconds
ago according to Bloomberg. On the other hand, if you invest in high-tech
Silicon Valley startups, your return could be
15, 20, 30, 50% or more, or you could lose it all. That's how high-risk investments work. But what if you could get
US government type risk and Silicon Valley type returns? (cash register rings) Well, that is the best of both worlds, and there's only one way
you can really do this, and that's to pay off your
outstanding credit card debt.
Let me explain. Imagine that you had $10,000 to invest, and you could either put it
towards a dividend paying stock that paid a 4% dividend. That would be a very good
dividend, by the way. Or you could use it to pay
down your credit card debt, and let's make the math
easy for this example. Let's assume that your credit card company only charges you 4% on your credit card, but whether you had a
4% dividend paying stock or you had a 4% credit card, your cash flow would look about the same. You would just use your dividends to pay off the interest
on your credit card. Of course, dividends are
actually paid semi-annually or annually, and credit card
payments are paid monthly.
But let's ignore that for just a moment because the point of this is not that. The point of this example is that if you had $400 of dividend income and you use that to pay off the
interest on your credit card or you didn't have $400 of
interest on your credit card, the cash flow would
look basically the same. Now, this is where people
get confused. (blows) Earning $400 of dividend
income is not better than avoiding $400 of expenses, and credit card companies don't charge 4%. In fact, they charge between
18 and 23% on average. In fact, the average according
to Wallet Hub is 19.07% as of today.
(whip whips) So your return on investment
is 19% in this example, not 4%, and it is as guaranteed as the government interest
on the government bonds, maybe even more so 'cause if you don't owe debt, you don't have to pay interest on debt. That's guaranteed. Is the dividend guaranteed? Nope. In fact, the company can
cut the dividend tomorrow, or they can go out of business, and you can lose all of your money. Now here is the sinister
part to all of this.
If you receive a $400 dividend, do you have to pay taxes on it? In most cases, unless it's in a Roth IRA, but if you avoid $400 of expenses, do you have to pay taxes on
the expenses that you avoid it? No. In almost every example,
you'll have more spendable cash if you avoid paying a dollar of expense rather than receiving a dollar of income. Now add a bunch of zeros onto that, and it becomes real money, which brings us to the next point. Even a modest improvement in cash flow improves your retirement
picture pretty dramatically.
Here's why. When you're living your life, the fun discretionary stuff usually comes from the last 5, 10, maybe even 20% of your monthly income. The average retiree who carries debt spends 38% of their income
to service that debt. Now imagine what you could
do with 38% more income, particularly noting that the
last part of your cash flow is what's used to pay
for all of the fun stuff. Then, and this is big, if you
have an extra 38% in income, this is a great margin of safety cushion in case something goes wrong. This happened to many of us recently. In 2022, the average retiree
lost between 15 and 20% of their account value if they had their assets
in a target-based fund, which is over 80% of retirees, by the way. If this was that type of year,
(warning bell alarms) and you didn't have that cushion, this would mean that you'd
have to continue to sell assets at a reduced price and
crystallize the losses just to sustain your life. But if you're like my friend
Rulph from the Chicago Hotel, you're going to use that extra cash flow to build your apocalypse fund.
The rest of us call it an
emergency fund, by the way, but whatever you wanna call it, it's something that you
can designate as extra cash in case the world changes
on you all of a sudden. Importantly though,
you're using your assets to pay down your debt, so
that's taking a step back, but that will allow you to
take multiple steps forward because you're not paying
high interest on that debt, and you have extra cash flow to rebuild your emergency
fund the right way. Next is just the effect of
having debt in your life and the effect it has on
your health and wellbeing. Let me explain. I am personally in the middle of several weeks of a very
challenging point in my life.
Now these challenges are good challenges because I'm pushing ahead on
projects that are important and the end result is that they will yield some incredible outcomes for both me and for other people. But it is really stressful,
as you can imagine. And while the outcome will be great, this is a lot harder than
just doing regular work. But here's the most important thing. At the end of these projects, there will be a lot of celebration (fireworks exploding)
both for me and for others. They will have a very
positive outcome at the end, but if the stress wasn't due to something that would conclude at a point
in time and conclude well, imagine having to deal
with that level of stress every single month. This is what I'm talking about. The debt holder is worrying
about how to afford life. It's not a carrot, it's a stick, and this worry goes on at the
end of every single month.
This can very quickly affect your physical and mental health. Next, this will improve your relationship with family and friends. Imagine being able to
spend more time and money on those that you love, your spouse, your kids, your friends, being able to go out more
often, do more things. Most relationships that end
end for one of a few reasons, money being one of the big ones. So if you're taking the
money issue off the table, or at least moving it to
the side a little bit, relationships tend to get better. We talked a lot about credit card debt and personal debt in this video, but the question always comes
up when talking about debt, what about mortgage debt? Well, there are two answers here. The first is the mathematical answer, and the other is the personal side answer. Mathematically, if you have a mortgage that's 3 or 4%, and
inflation is running at 6%, well, there is an argument to be made to keep that debt outstanding
as long as possible, but imagine how you would feel
if you had all of that debt from the mortgage
redirected into your life.
That's the personal side, and that's the side that most
people actually care about. If you like this video,
check out that video. It's a video on where retirees spend 80% of their income in retirement, and it's one of my most popular. This is Geoff Schmidt.
Thanks for watching..
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in today's presentation retirement part one why have a retirement plan we will discuss the benefits of offering a retirement plan for your child care business the information contained here has been prepared by civitas strategies and is not intended to constitute legal tax or financial advice the civitas strategies team has used reasonable efforts in collecting preparing and providing this information but does not guarantee its accuracy completeness adequacy or currency the publication and distribution of this information is not intended to create and receipt does not constitute an attorney client or any other advisory relationship reproduction of this information is expressly prohibited whether it is just for you as the sole owner or for a large center with many employees retirement is an increasingly critical benefit for child care businesses there are three key reasons to start your retirement plan having enough money to retire retaining your employees including yourself and keeping your hard-earned money having enough money to retire takes a great deal of saving Financial experts estimate that most individuals will need up to 80 percent of their pre-retirement income to maintain their standard of living once they stop working that means if you are making thirty five thousand dollars today you will need to have twenty eight thousand dollars a year every year from when you retire onward however the average benefit paid by the Social Security Administration is only fourteen thousand four hundred dollars a year leaving a large gap for many people to retire comfortably fastest way to get the savings you will need relies on compound interest where the money you make on your savings is reinvested here's how compound interest works let's say you decided to have one less Mill out a month and you put that fifty dollars into your retirement savings instead let's also assume you have six and a half percent interest rate which is the average for 2022 for retirement accounts in the first year you will have saved six hundred dollars and made 18.20 in interest now in the next year you have 618 dollars and 20 cents in savings your original six hundred dollars plus the interest of 18.20 and with interest and the monthly contributions you'll end the year with 1277.81 cents as this continues over 30 years you will have saved eighteen thousand dollars and accumulated thirty seven thousand three hundred eight dollars and ninety cents in interest for a total of fifty five thousand three hundred eight dollars and ninety cents because retirement savings is critical and can add up over time it can be a great tool for retaining your staff in a Morgan Stanley 2022 survey ninety three percent of employees consider retirement programs a draw as they decide where to work having a retirement Savings Program can help you keep the employees you have and attract new ones in this competitive labor market remember this also includes yourself if you are the sole owner and employee you need a retirement plan too and many child care providers have been tempted to leave the profession for other jobs with retirement benefits by providing yourself with the benefits you need you can stay in child care and prepare for your future a key benefit of business retirement accounts is the opportunity for business contributions or matches where the child care business makes additional retirement contributions or matches employee contributions to the employee's retirement as we will discuss further in the next section most plans allow or even require companies to provide some contribution to the employee's retirement these contributions can be a set amount a percentage of the employees compensation or a match which means that the employer will contribute the same amount that the employee contributes often up to a certain percentage for example an employer may offer to match the money contributed to a retirement account up to three percent of the employees salary this could mean that for a person earning thirty thousand dollars a year and contributing nine hundred dollars annually which would be three percent their employer would also contribute or match the nine hundred dollars increasing the total contribution to eighteen hundred dollars this match is essentially free money for the employee and is an incentive for employee retention since they are getting additional funds beyond their regular compensation however the money is oftentimes not available until the employee is vested vesting is the time it takes for the business portion of the retirement account to be fully owned by the employee and can vary from business to business es can choose for employees to become vested upon hire or require that they are employed for a certain amount of time up to six years to become vested for example let's say you make a six hundred dollar contribution in 2022 and you have a three-year vesting schedule typically that would mean if the employee left your business at the end of 2023 they would only have one-third or two hundred dollars the rest would return to the business because in this case they would be considered partially listed if they left at the end of 2024 still only partially vested two-thirds or four hundred dollars would follow them it wouldn't be until the end of 2025 that they would have the full six hundred dollars if they changed jobs as at that point they would be fully vested implementing a vesting period can also encourage employees to remain employed at your child care business so that they are able to access a hundred percent of the employer contributions to their retirement most business contributions are on average 4.3 percent of the employee's annual salary however there are a few additional considerations first you should check what other child care providers are offering in the area a retirement contribution is like any other form of employee compensation you want to keep up with or even surpass the other businesses in the area so employees don't leave turnover can be costly an estimated 1.5 to 2 times an employee's salary according to LinkedIn when you factor in the time needed to recruit and hire for the open position overtime hours needed from other employees to feel the Lost capacity and the time and cost of onboarding regularly checking on the retirement Plans offered by other area providers can help you keep your staff and reduce the cost of turnover second the majority of employers in the U.S if their retirement plan allows it opt to require matching and vesting a match means that an employer will contribute only if the employee makes one as well typically matches are 50 percent of the employee's contribution to a certain level for example let's assume an employer has a 50 percent match for up to three percent of the total salary if an employee makes thirty five thousand dollars and contributes three percent of their salary for retirement that is one thousand fifty dollars the employer will only contribute 525 dollars further employer contributions are often vested where possible vesting is the amount of time it takes for an employee to entirely own an employer match or contribution to their retirement usually this is based on how long they continue to work for the business as an incentive to stay in our example above if the employee had to wait three years to be vested and left after two years they may just get a portion of the employer contribution so maybe 75 percent of the 525 dollars through regular contributions and compound interest this becomes a great incentive for employees to stay with your business finally you can keep more of your profit through retirement savings between the tax benefits and potential credits from the federal government there are savings for employers and employees There's an opportunity to save in three ways contributions your business makes to the plan and the cost of maintaining it are deductible even if it is just for yourself retirement plans are tax favored and retirement contributions can get you tax credits contributions your business makes to the plan and the cost of maintaining it even if it is just for yourself or deductible this will cut the amount of Revenue taxed by your business which also lands on the personal income tax return retirement plans are taxed favored that means that the government gives you tax benefits to encourage you to save some retirement uses pre-tax money this means that the money you put in now is taken out of your income so it isn't taxed today however whatever money you make in the account over the increased value of the investment will be taxed so for example the five thousand dollars you invest in a SEP IRA today won't be taxed but the additional fourteen thousand three hundred and fifty dollars you may gain over the next 20 years in investments will be when you retire retirement contributions can get you tax credits specifically the Savers credit and the retirement plan startup costs tax credit the Savers credit is a non-refundable credit available to adults over the age of 18 who are not dependents of someone else or students the program will give you a credit worth up to fifty percent of your contributions to your retirement up to one thousand dollars in credits if you are married and have an adjusted gross income less than seventy three thousand dollars you are a head of household making less than fifty four thousand seven hundred and fifty dollars or single and making less than thirty six thousand five hundred dollars remember your adjusted gross income is typically less than your total income so even if your salary is higher than the limit you may still qualify the retirement plan startup cost tax credit is open to employers who have retirement plans that include W-2 employees who are not owners the credit was just updated in December of 2022.
if a business has 100 or fewer employees this credit covers up to five thousand dollars in administrative costs for the first three years of a new 401K 403 b profit sharing SEP IRA or simple IRA plan additionally businesses was with less than 50 employees can get a credit of up to one thousand dollars per employee in the first year of the plan for contributions they make for employees who earn less than one hundred thousand dollars this credit continues for three more years with the credit decreasing by 25 percent in each subsequent year so if you had an employee making thirty two thousand dollars a year and you contributed one thousand dollars a year to their retirement over five years you would get a total credit of two thousand and five hundred dollars let's look at two examples of how these savings can benefit you kashana is a family care business owner and sole proprietor who made thirty eight thousand dollars over the course of the year she put two thousand dollars into a simple retirement account we will cover the types of plans later in part two of this guide the two thousand dollars will save her three times over first she will save 15.3 percent in self-employment tax and 12 percent in income tax for a total of five hundred forty six dollars second she qualifies for the Savers credit so she gets a tax credit for 50 percent of the contribution in this case kashana has two thousand dollars for her retirement and after the money saved and the credits the cost to her was only 454 dollars Estelle has a center with 15 employees and she decided to use some of her stimulus money to start a 401k her business is an LLC that declared to be treated as an S corporation so the profit goes on to her personal tax return which is taxed in the 22 percent bracket still contributes at five percent of the salary of each employee one thousand five hundred sixty dollars per employee for a total of twenty three thousand four hundred dollars between the fees and the cost of her time to set up and have her bookkeeper help her with the 401K she paid 2 550 dollars between her contribution to the retirement and the administrative cause Estelle paid a total of twenty five thousand nine hundred fifty dollars however Estelle was able to save money in three ways first since the 401K is new she gets 100 percent of her administrative costs back that's two thousand five hundred fifty dollars second since our employees make less than one hundred thousand dollars she can get up to a thousand dollars for her contributions per employee for a total of fifteen thousand dollars this is a total of seventeen thousand five hundred fifty dollars in tax credits third she gets the deduction for the contributions and administrative costs which saves her another five thousand seven hundred nine dollars all in all Estelle's benefit cost her twenty five thousand nine hundred fifty dollars but she saved or received credits for a total of twenty three thousand two hundred fifty nine so she really only spent two thousand six hundred and ninety one dollars plus a stale can share information on the Savers credit for her employees so they will receive their tax credit and greater benefit setting up a retirement plan through your business will help you and your employees prepare for a successful retirement provide additional retention incentives and help you save money in the long run to learn more about selecting a retirement plan see retirement part two how do I choose the right retirement plan thank you for joining me as I mentioned stay tuned for part two of this guide and if in the meantime you are interested and other helpful resources information or guides visit childcare.texas.gov to find these on various topics in both English and Spanish there you can also sign up and register for free one-on-one business coachingRead More
I just remember, like,
wondering how I was going to make it through the
next month. Like had a degree, no
job, student loan debt hanging over my head,
credit card debt hanging over my head. And
January 1st came and I was like, I will never
be in this position again. And that's when I
started researching ways to budget and I found
cash budgeting. I started budgeting at
the beginning of the year and started throwing it
on social media to keep myself accountable. I started the business
after my tiktoks went viral. I was like, okay,
well, people are actually interested in this
because finances come off really boring to me and
for some reason people were engaging.
internet will be receiving $20. My name is Jasmine
Taylor. I'm 31 from Amarillo, Texas, and my
business brought in over $800,000 last year. You implement cash
stuffing with it by budgeting the money
literally and physically with the cash. So that
means you start to budget with whatever your
paycheck number is and you give every dollar a
place down to zero. The first product we
sold was just a simple budget binder so you
could buy a binder, pick your cover, add your
name, and then choose six categories. And then we
moved on to adding in different savings
challenges. This one's pretty cute with the
piggies and the wallets, and I also like fries
before guys, we are out of stock a lot and out
of stock on our website doesn't mean that we're
out of stock in our warehouse. We stock enough items
that we can pack and ship out that same week. People are literally
waiting on the site at midnight on Saturday
night like waiting for the restock. Last week,
our $1,500 savings challenge sold out in
like six minutes.
I honestly didn't have
any expectations. I just went into it
hoping that I would make my money back. But I had
no idea. Even to this day,
sometimes I wake up and I'm like, What is
happening? I believe that my mindset changed in
December of 2020. I had just got through
Christmas and my sister died probably four years
previous, so I've been full time taking care of
my niece that works with me now. I was working at
the freestanding emergency room and then
I lost that job actually over the holidays. When you finally get
access to money, at least in my circumstance,
everything I wanted, I wanted to buy it. I have
bipolar disorder. So at the beginning of
my journey, I understood that a lot of my impulse
spending was tied to that.
I started tracking my
expenses and being really diligent about budgeting
and cash stuffing. I was not only able to
change my finances, but I was able to change my
mindset and my relationship with money. I have a bill checking
account. Right? So in that
checking account, there's already next month's
bills. So when you see me cash
stuffing on camera, that's for the next
month. So the first day of the
month, I go and deposit everything I've cashed
up into the bill account. And as the month goes
on, everything is direct deposited. The first
time I had been able to save $1,000, like I'd
never been able to hold on to $1,000. It really empowered me
more than anything else was. Okay, well, you did
that. What else can we do? It went crazy viral. And I was like, well,
I'll be back tomorrow with another one. I knew the stimulus
check was coming and I literally just went for
it. And so I went and bought
me a cricut and I bought the supplies for the
cricut, the mats and stuff like that.
put the rest into inventory, into
purchasing my Shopify plan for the next couple
of months, some shipping supplies and that's it. It was pretty much gone. So in February of 2022,
I realized we needed help. We were working
like 18, 19 hour days trying to get custom
orders out, and we were burnt out. And it got to
the point where I couldn't hardly restock
the site because we couldn't keep up with
the orders. Right now I have three
contracted employees and they do crafting, so
they help me make envelopes. They help
make savings challenges as well as one of the
ladies comes here and she helps me pack orders
because we're now packing 700 – 800 orders a week
and it is pretty tedious. For example, our
customers can pick the cover that they want and
then they customize the envelopes inside to fit
their needs. So different people
choose different titles. You can pick the color,
the font on the envelopes. Monday
through Friday I pretty much come in admin,
catch up on anything that's happening that's
crazy that I need to fix.
We go to the back pack
orders, unbox inventory and we do that until 8
or 9 and then I come up here and if I'm going to
do lives or whatever, I do those if I need to
film YouTube content, I'll do that. Saturdays
and Sundays we all come in and we heavily pack
orders. A lot of the income that
I was making. I was very diligent
about throwing it towards debt. I invest some in
my future and the form of a 401K, pay my bills
with it, give myself spending money and put
some towards savings challenges.
So the same
stuff that I teach my audience I still use in
my daily life. We don't have an issue
bringing in customers. Our issue is honestly
that we can't fulfill more orders. We are shooting for $1
million at the end of 2023 and we are going to
get it. I'm believing that we're
going to get there. I've never had a problem
betting on myself.
You've got to be willing
to bet on yourself. If you don't how can you
expect anybody else to?.
Money has always been like a love affair, too
sweet if you're smart enough not to get caught. But if you also make one small mistake, it could
turn sour quickly when your partner discovers your infidelity. Just like money, if you're smart with
it, you'll enjoy the benefits of always being in a stable position in your life. Mistakes, no matter
how minor, could lead to the destruction of the wealth you worked so hard to create. Here are some
of the things you probably didn't know that are destroying your wealth.
11. Gambling The number one rule in gambling is that
the game is always in favor of the house. No matter how close you feel you are about to win,
please resist the urge because it is just a scheme to milk money from you. You might be playing on
the slot machines or card games, and you are on a winning streak. In the long term, the house will
It’s a well-planned illusion while at the casino, as they want to have you there for as long
as they can. They will offer free refreshments and the environment itself will trick you with its
nonexistent natural light, making you unable to tell the time. Our addicted brothers and sisters
lose more in the gambling dens, ranging from about 55-90 thousand dollars each year. That’s enough to
start a business that will sustain your lifestyle! 10. Cars
These raving beasts are a sight to behold, and it's even better when you own one or two of
them. However, don't be too quick to spend your money on acquire such an asset.
This is because
it comes with a lot of baggage that will surely destroy your wealth. Why? Well, buying a new
car will have you paying extra monthly or yearly charges to maintain it. This ranges from
car insurance, car payments, finance charges, and down payments. And we haven't even included
the amount of fuel you need to run your errands daily and the parking fee.
This will add up to
roughly $450 a month on top of the 35,000 used to purchase the car if it was new. Maybe you
thought that it would be a smart move to buy a used car instead of a new one, which would have
cost 20,000 dollars. Sure, you saved a few bucks, but the fact is that you just bought yourself
a liability that depreciates every single day. The stats show that a new car depreciates 15%
in the first year of driving it. Thereafter, it decreases a further 15% each year. So, if you
wanted to sell the same car three years later, you'd only get $10,000-18,000 for it. Now that car
dealership isn't looking all that enticing, right? 9. Debt
Don't get me wrong. Debt isn't always the enemy, as it can help salvage a failing business, or even
create an outstanding income-generating stream if well thought through.
I'm talking about student
loan debt and credit card debt. These two are the most well-known American dream slayers, with up
to 1.6 trillion in student debt alone in the U.S. Stay away from the fascination of going to a more
prestigious university than you can afford. It forces you into debt that will take a good amount
of time to pay off, instead of opting for a local university that will take you in for a cheaper
price. You could also look into getting grants and student scholarships. Coupled with student
loans, a majority of students find themselves deep in credit card debt after spending their
entire college years purchasing on credit the things they can't afford with cash. These debts
are carried to adulthood, leaving many shackled to massive debt. Despite getting a handsome
paycheck at the end of the month, many end up broke because a large portion of that income is
spent on repaying all the debt they have accrued. 8.
Alan Greenspan once said that the biggest problem in today's generation and
economy is the lack of financial literacy. It's no wonder many people are finding themselves deep
in debt and stagnant despite having well-paying jobs. No person is interested in learning about
money management. They'd rather just wing it when it comes to their finances, not knowing that
financial knowledge is powerful. We simply think that we can duplicate what other people
are doing, and our money bags will be fuller. Sorry to be the one to tell you this, but your
finances are as unique to you as your fingerprint. There is no ‘one shoe fits all’.
You have to learn
to balance what you spend on versus how much you earn. to come up with the most workable budget
for you. Learn about accounting and investing. This kind of knowledge will be beneficial in
the long run. Whereas a lack of it will destroy your wealth more than you acquired it.
7. Fashion Gucci bags, Louboutin shoes, a Rolex watch all
to try to make a good first impression. Stop it, please, you don't need to have the
most expensive suit in the room to make an impression. All you need is a
normal-looking one that's crisp and clean. Brush your teeth and maintain a good hygiene
season with some charisma and personality. You'll have everyone in the event looking
for an opportunity to interact with you.
We can all attest to doing all this clingy,
dressing just to keep up with the Jones. But we end up looking rich outside while
our bank accounts are screaming for help. It costs more to buy a 200$ bag that you carry
only once instead of buying one versatile one. 6. Eating out
Did you know that you probably spend around $3,000 a year just on
take-out? That's five times the amount you'd have spent if you'd cooked the food yourself.
get me started on the amount of time you wasted waiting for your delivery to get to you. Or how
long it takes to pick up the delivery yourself. You'd be saving a good amount of cash every month
by cooking your meals at home. You can stash this money away in your emergency fund for a rainy day.
Doing this not only saves you money, but allows you the opportunity to have a hot meal every day.
You can watch how many calories you're eating. You can even personalize your meals as much as you
want without the worry that the restaurant will forget to add extra gravy again.
it's healthier to make that dinner yourself. Don't fall into this money trap and have your
wealth robbed from you as you sit by and watch. 5. Wrong relationship
Being in the wrong relationship might just cost you a fortune in your finances.
Up until today, you probably didn’t know, but statistics prove that the average man
spends close to 120,000 dollars on dates. A wedding costs about $34,000 to plan, with
an additional $6,000 for an engagement ring. Can you imagine spending this much only to
be hit with divorce papers? Quite expensive, don’t you think? A survey carried out has shown
that millennials getting into marriage secure themselves by signing a prenup in case things fall
In that case, they’ll walk out of someone’s life with something in their pocket. I don’t know
whom it might concern, but you better be keen when getting into relationships because the wrong
relationship will not only cost you emotional grief but will also dent your wealth. The
average marriage that works out in the US is 50%, so it’s important you know this before venturing
into it blindly. This means that if you flip a coin, you’ll be able to predict whether your
marriage will work out or not. In the case that things don’t work out for you, it costs an
average of 13,000 dollars to facilitate a divorce, not forgetting other expenses such as alimony
and child support that would be on your back. Without a doubt, we better invest smartly to
avoid these blunders that will destroy our wealth. 4.
Shopping has turned into a famous trend all over the world where once someone makes
some small amount of money, all that runs through their mind is how they’ll swing by the mall and
shop till they drop. We should be very precise in our shopping and it would be better if we tagged
along with a shopping list to avoid the temptation of overspending. A close look at this will help
realize how much money is lost in thrift shops and shopping malls. All these shopping sprees
eventually lead to debt, and even more debt if you aren’t keen enough.
Can you believe that
the average credit card debt stands at $57,008? 3. No emergency fund
Living without an emergency fund is like going hiking and choosing not
to carry an extra bottle of water. because the instructor said that you'd be back
from the hike in 6 hours. Only for you to end up dehydrated because your only water bottle fell off
a cliff. The point here is, life is unpredictable, it's so important to have an emergency fund ready.
There isn't a standard amount of money you need to keep for any emergencies. Some say that you
need to have saved triple your monthly income while specifying a certain amount. However, we
are sure that not having an emergency fund will leave you broke in the event of an accident or
calamity. You'll be forced to pay out of pocket or max out your credit to shelter yourself.
will, in turn, lead to several financial strains unfolding in your life. You'll be left wondering
where your whole salary is disappearing to. 2. Alcohol
Some claim that a little wine every day does more good than harm. But have you ever
sat down to think about the financial implications that are associated with drinking? You're lucky
if you drink just a little, because heavy drinkers are suffering out there. In 2018 alone, people
have already downed more than 6.3 gallons of beer and 900 million gallons of wine. Do the math, and
you'll be stunned. Even more shocking is that the wealthy and those who are well educated are the
ones partaking in this joyous affair. Be smart to avoid this other money trap, because we've
all heard those stories. The ones who were once at the peak of their careers, both in title and
income, end up losing their jobs because they go out drinking way too much.
to work or even delivering inaccurate reports such a waste of good talent don’t you think?
1. Jewellery. Hip-hop has a firm grip on the dress code we
wear, as well as the bling and glamour that adorns our outfits. You’ll see little to none of
these celebrities without some dope iced-out chain or a gorgeous Rolex watch worth millions. Take a
look at Lil Wayne. For instance, he owns a pinkie ring worth two thousand dollars and Rick Ross’s
custom-made chain worth 1.5 million dollars! Practically speaking, owning such things may
destabilize your wealth. Did you know that jewellery is a depreciating asset? Probably not,
so next time you invest millions in jewellery, you better take a moment to critically assess
your decision. Even if you purchase top-shelf jewellery, it won’t bring back as much as you
invested, even if you resell it after a day. Jewellery is merely a status symbol that
you really won’t need to spend cash on. At the end of the day, the amount of wealth
you are worth is not calculated by the gold chain on your neck.
Be smart. One
last question before we wrap up: What will you do when you are given ten thousand
dollars in cash? Let us know down below. Well folks, thank you so much for watching.
If you enjoyed the video, give it a thumbs-up, and if you’re new here, welcome and
subscribe for more content like this. With that said, have a great
day, and see you in the next one..