The $65,000 Roth IRA Mistake To Avoid
Jason 0 Comments Retire Wealthy Retirement Planning
– I've seen too many of you making some mistakes when it comes to investing in your Roth IRA. One of them could cost you $65,000 and the other one could cost you almost $500,000. You guys are seriously going to make my beard turn more gray than it already is if you don't knock it off. So let me show you what to watch out for, that way, you don't lose more money than you have to and I can save a few bucks on hair dye for a couple more years. A Roth IRA is a self-directed retirement account where you can contribute after tax dollars to be invested. Since the money going in is taxed, the growth of your investments are not taxed and the money withdrawal from the account are never taxed either, as long as you don't try to pull out some of the money before the age of 59.5. There is no such thing as a joint Roth IRA. So if you and your spouse want to contribute to one, then you'll have to do it individually, hence the name Individual Retirement Account.
If you both have enough earned income separately, then you can each invest up to the $6500 limit for the year. If one of you works and the other doesn't, but you file a joint tax return, then the person working can, of course, contribute to a Roth IRA and your spouse can contribute to a Spousal Roth IRA as well. Remember, these accounts are owned by the individual person and on paper, not co-owned by both people. I want to try to encourage you to max out your Roth IRA every single year, if possible, because if you don't do it for that year, then in the future you cannot go back and contribute for a previous year once that time limit has passed. A Roth IRA is one of those accounts where I would bend over backwards to make sure that I can put in the full amount allowed every single year.
In my order of operations for what to do with your money, I have maxing out a Roth IRA right after investing up to your employer match and HSA. That is how important this type of account is. The good news with this is that you actually have a timeframe of 16 months to contribute for each calendar year. So if we are in 2023 right now, then you have from January 1st, 2023, up until when taxes need to be filed for that year to contribute, which in this case, would be April 15th, 2024. That's how it is every single year, so ignore the actual dates in my example and pay more attention to the timeframes since the date taxes are due will change by a few days from year to year. Most brokerages will ask you which year you want to contribute to. For example, I personally invest using M1 Finance, which you can check out down in the description below, and also get a deposit bonus as well.
If I contributed to my Roth IRA through them right now, then they would ask if I wanted the money to go towards 2022 or 2023, since at the time of recording this, we haven't hit the date where taxes are due. This is great because it gives you some extra time beyond the current year to contribute Roth IRA money for that year. Before I tell you the next mistake that I see way too many people making, please help support my dog Molly by hitting that thumbs up button and sharing this video with anyone you think it would help. Once you deposit money into your Roth IRA, there's one more extremely important step you need to do that I see a ton of people missing, and that is actually investing the money.
I can't tell you how many people I've talked to over the years who just put money into the account assuming it would automatically grow, or knowing that they needed to invest the money, but just forgetting to do it because life happens, and things naturally slip out of our mind, only to check their account balance years later, realizing that it hasn't grown in value because they didn't invest the money. Stop the nonsense here and just set up auto investing within your investment account, and if you're waiting because you think that you can time the market to buy in at a lower price, you can't, because it's nearly impossible to do, so just to get the money invested right now. If you know how you want to invest the money, then great. If you don't, then I personally like the two fund portfolio for people who are in the accumulation phase of investing and in the three fund portfolio for when you're closer to retirement or in retirement.
I'll have a link to a playlist then I made just for you where I teach you about both of those portfolios down in the description below and above my head as well. When you contribute to a Roth IRA, all of your money is not locked up until 59.5. You can withdraw the contributions that you've made before that age without paying a penalty, but you cannot withdraw any of the gains within the account. For example, if you've contributed $6500 and the account has grown to $10,000, then you can withdraw the $6500 contribution, but you cannot touch the $3500 gain without paying a penalty until 59.5. I've gotta interject for a second to give my personal opinion on this.
While withdrawing money penalty-free is an option, I want to encourage you not to do this. To be brutally honest, I think that doing this is one of the dumbest, most irresponsible, short-sighted things that you can do. Withdrawing just $6500 worth of contributions would cost you $65,000 in future investment growth. So when any money is taken out of this account before retirement, think about how it's actually going to cost you 7,800 Chipotle burritos, or 65 new Apple iPhones, or anything else that you would buy for that amount of money. And yes, I am fully aware that you can do a penalty-free early withdrawal up to $10,000 before the age of 59.5 for a first time home purchase. But this is just as stupid as withdrawing your contributions early because that $10,000 is costing you over $100,000 in future investment growth when you pull that money out. Average annual home appreciation over the past 12 years has been 6.11%, and the US stock market has returned 12.27%. Leave your money in the freaking Roth IRA and go earn that $10,000 that you need to buy the home. Responsible investing takes time, like five or 10-plus years, and this money needs time to grow. The second you withdraw any of your contributions, you are cutting down that tree before it even has a chance to grow fruit.
Once you withdraw contributions from the past, you cannot replace that money in the future. I get that emergencies happen in life, so that's why you need to have money set aside in an emergency fund to pay for those things. Do not, under 99.999% of circumstances, use your Roth IRA money for anything other than when you retire. One thing I see way too many people doing is investing in a taxable brokerage account before they have their Roth IRA maxed out for the year. This is a huge mistake from a tax savings perspective for some of you because of how each account is taxed. With a Roth IRA, you invest with money that's already been taxed, so the money can grow tax-free and be withdrawn tax-free. With a taxable brokerage account, you are paying taxes for the ongoing dividend distributions every single year. Then you have to pay capital gains tax when you go to withdraw the money. Since the money within a Roth IRA will grow and can be withdrawn tax-free, realistically, you want this account to get as large as possible, but not at the expense of your personal risk tolerance.
You should not take on additional levels of risk by investing in more risky, unprofitable stocks that random YouTubers have been pumping over the past few years or actively manage funds to try to achieve higher returns. 99% of people, including myself, cannot handle investing in something with a high risk and potential, potential, high return. So don't even bother. The money in this account is for retirement, so is it really worth it to risk that 60-year-old's financial wellbeing because you decided to gamble with their money right now? I doubt it.
Some of you might be over the income limit to be able to contribute to a Roth IRA, or some of you will be at that point in the future as your income grows. You can still contribute to a Roth IRA to take advantage of the tax-free growth by doing a backdoor Roth. To simply explain the process, all you do is contribute to a traditional IRA. Do not invest the money yet. Then contact your brokerage to have them convert the money to a Roth IRA. Now, I have done it with M1 Finance before and it was extremely easy. It only took I think two or three days for the money to get into my Roth IRA. Only do this if it makes sense based on your current tax rates and future financial plans.
There's two things that you can do. if you are someone who thinks that you might be over the income limit, but you are not going to 100% know until the year is over. Number one, you can either wait until January of the following year, like we talked about in one of the previous mistakes that I mentioned, or number two, you can just contribute the money to a traditional IRA, then do a backdoor Roth within the year to get the money into the account so it can be invested. That way, if you are over the income limit, you've already done the backdoor Roth. If you're under the income limit, no big deal 'cause you had to pay taxes on that money that was going into the Roth IRA anyways. A question I get a lot is whether or not you can contribute to a Roth IRA on different brokerages.
The simple answer is yes. This is how it would play out. You can contribute up to the max for one year on, say, M1 Finance. Then you can decide to contribute up to the max on fidelity the next year. Then you can contribute up to the max on Vanguard the following year. So by the end of that third year, you would have three different Roth IRAs with three different brokerages, and there is no problem with that. You can take it one step further. If you decide, hey, out of these three, I actually like M1 finance better than the other two, you can convert the Roth IRAs with Fidelity and Vanguard into your M1 Finance Roth IRA. You can also split up your contribution for the same year among different brokerages. So if for this year you want to say contribute $4,000 to an M1 Finance Roth IRA and the remaining $2,500 into a Fidelity Roth IRA, then you can do that without any problems.
The only thing you cannot do is try to game the system by saying contributing $6500 into an M1 Finance Roth IRA and $6500 into a Roth IRA with another brokerage. You cannot exceed the maximum amount allowed per year across all of your Roth IRAs on all of your brokerage accounts. Technically, you could do that since all of the brokerages aren't talking to each other to keep track of what you are contributing, so you have to self-manage this. I would highly, highly recommend making sure that you do not do this, whether it's on purpose or on accident. I don't know what the penalty is for this, but all I know is that you do not want to get caught trying to defraud the government in any way, shape, or form. Long-term investing is the name of the game with a Roth IRA. This money is for when you are in retirement, so make sure to take that into account when investing this money. No gambling it on stocks that random YouTubers are promoting. I think the two or three fund portfolio is perfect for your Roth IRA, which you can learn more about in these videos to your left.
There's a bunch of free stocks and resources down in the description below to help with all of your personal finance and investing needs. I'll see you in the next one, friends, go..
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5 Strategies To Grow Wealth with 0% TAX in Canada
Jason 0 Comments Retire Wealthy
happy New Year last kickoff this year with lots of great content in today's video I'm gonna show you five perfectly legit ways to grow well with zero percent tax in Canada so make sure you stick around [Music] hey welcome back my name is Thomas C Chen we have the most five star Google reviews and Life Insurance Vancouver and retirement planning so starting this year if you want to know more about tax free wealth for your retirement and to protect you and your family using solutions that Canadian Banks don't want you to know about make sure you hit the Subscribe button below and enjoy what I have for you that's always a say it's not how much you make is how much that you can keep this is especially true when we invest in Canada because CLA will always come in and ask for the share when you make a profit on the investment and let me show you two scenarios in the first scenario Henry will put ten thousand dollars a year for the next 15 years with a 10 rail return per year then after 15 years it will have around 350 000 safe and on the other hand where we have Tom doing the exact same saving but this time every year when you make a profit CLA will tax you at 30 percent so instead of getting a thousand dollar profit in the first year you only get seven hundred dollars as profits and you will get only 270 000 after 15 years that means eighty thousand dollars goes to the cra's pockets so I want to share five strategies and tools that can help you grow your saving with zero percent tax so you don't have to be Tom in my second scenario the first strategy is really simple and straightforward and you've probably heard of it before is to max out your tax-free savings account or known as tfsa the tax free saving account was first offered in 2009 as a way for Canadians adults to send money aside tax free within a tax free saving you can invest in stock market or you can put a sign in the savings account depending on your goal and risk tolerance and those savings can grow tax-free throughout your lifetime this means all interests dividends and capital gain earned in your tax re-saving are tax-free when withdrawn and because you earn 100 of the profit that will make the compounding growth very powerful for example if we save six thousand dollars a year for the next 30 Years with a 10 rail return per year then you will have 1.08 million dollars saved and because tax free saving is not a taxable income so you do not need to pay any taxes and also it won't affect your retirement benefit such as the OA security maximizing your tax free savings potential is the easiest way to ensure your money is always working for you and the great thing is if you forgot to contribute last year the room can be carried forward the best way is by enabling an automatic deposit into your account like putting a 500 a month automatically so you just set it and forget it and remember the earlier you contribute the more time your investment have to grow the two downsides that I found about tax receiving is one that you have a limit each year to how much you can contribute to your tax receiving and important that you stay within your contribution room otherwise you'll be taxed on that excess amount and this can be varied depending on how many years you stay in Canada and if you don't know what your limit is log into your CRA account online to check it the other slight disadvantage is because tax free saving is too flexible so sometimes when you need the money to go for a trip or needed to pay down the credit card bill it will be always the first pocket to reach in according to the CRA statistics the average saving inside of the tax receiving is around twenty thousand dollars that's only a quarter of the max saving that you can put in alright let's move on to the next strategy which is to utilize your principal residence we all know that real estate is a very crucial part in our asset portfolio the return is quite stable and promising and the long one it brings inflation you can rent it out to collect additional income or you can flip it for the appreciation when you sell your home there's a good chance you'll get more than what you pay for it therefore taxes in real estate is one of the most profitable Avenue for CRA if your investment property is worth more when you bought in the government requires you to pay the capital gain tax on the increase in value your principal residence however is a special exception according to the income tax act you can designate one property as your principal residence in any given year your principal residence has to be something you can actually live in not a shared storage container or vehicle it can be however a cottage a House Condo apartment in a duplex or building a trailer a mobile home or even a houseboat therefore say you bought a house with five hundred thousand dollars and after 30 years when you decide to sell to downsize it it grew to 1.5 million normally that one million dollar profit needs to be taxed but because it's your principal residence it's completely tax-free and now you can use it for retirement the first tax-free strategy is to use eligible dividend income from the blue chip stock portfolio first let's understand what is dividend first thing of dividend is a bonus given out by big companies every quarter or every year when you buy a certain stock say Royal Bank you become the shareholder of rollback so when Royal Bank makes money they will pay you a bonus now Raul bank is paying 1.32 every three months per unit you have say you have a thousand shares then you get paid 50 to 80 dollars per year and investors like dividend because even when the stock price goes down they still pay the similar dividend return alright back to the topic since dividend is extra profit isn't it taxable then yes Dividends are count as investment income and a January tax accordingly depending on your tax bracket however when we look closer there's one instance when we don't have to pay tax even when we have dividend income that's right it's possible for Canadians to receive around fifty thousand dollars dividend income and no need to pay any tax right now I'm using British Columbia as an example as you can see here if your sole income is dividend income pretty much you don't have to pay any tax up to 53 000.
I'm not going to talk too much detail once eligible or non-eligible just think of dividend paid by big blue ship companies at eligible dividend therefore they are eligible for extra tax credit again you need to fulfill two criterias to max out this strategy one is dividend income must be your sole income meaning no work income no other investment income no money in your rrsp the other one depending on what profits you're in as you can see if you live in BC or Ontario then you don't have to pay any investment tax but when you live in Nova Scotia or like Quebec then you have to pay 10 tax on the same fifty thousand dollar dividend income so make sure you talk to your accountant for that hey sorry for the interruption but I got a special announcement for you I will be hosting a live webinar next month where I'm gonna talk about stack efficient strategy what can we do during this market downturn and how to boost your wealth this year so many goodies here that you don't want to miss it there should be a link below where you can check out the details and I only offer it to the first hundred people so first come first serve base make sure to check it out alright back to the video but what if I Max on my tax free saving I don't plan to sell my principal residence and I have other income so rely only on dividend income doesn't work for me well not to worry because the next strategy is to use a life insurance policy but wait a second is it life insurance a monthly expenses that gives you beneficiary and lumps of payment after you die that's right however on top of that when we structure properly life insurance can provide tax shelter growth and a tax-free income as well this usually involved with a permanent life insurance plan with Savings in debt like a universal life insurance or a whole life insurance now after you see a decent size of saving in there you can choose to take it out which might trick attacks or you can choose to grow against it and unlike a bank loan or credit card which requires credit or income check borrowing money from your life insurance policy is a contractual guarantee meaning they have to lend it to you and you do not need to explain what you'll be using the money for the money can be used for anything from bills to vacations to fund your kids college or a financial emergency and since this is a loan which is not considered as taxable income there is no tax involved sure because it's a loan there's interest involved but the best part is you can control when you pay back the loan all the interest payment so in theory you can delay everything until the day that you die and upon death any outstanding loan balance including any accumulated interest is deducted from the death benefits with the remaining balance payout tax-free to your beneficiary so therefore the entire process is 100 tax-free this is very common to people who is a business owner or Canadians who max out that tax free saving and have multiple real estate they can enjoy the tax Charter growth access the saving when there's emergency or during the Market's downtime and provide enough Reserve to pay for the final tax bill should one pass away if you're a small business owner this one is for you when you've created a very successful practice client and staff will no longer be the top concern but now taxes and secession are the top priority what happens when you sell your business to someone else just like any other asset CLA will come in and tax you at the profit say John runs a chiropractic business and now he wants to let it go and sell it to someone else and based on the fair market value his business is now worth a million dollar because it starts off with nothing so as capital gain will be the full 1 million dollar and half of that which is 500 000 will be taxed and therefore he needs to pay around 250 000 for a sale however there's something called the lifetime capital gain exception or lcge which allows Canadians Incorporated small business owners to claim a deduction when selling the shares of the corporation that can effectively eliminate the taxes realized on the sale of the business as mentioned previously capital gains can include profits from the sale of a property but it can also include business shares stocks and mutual funds lcge allows you to keep the profit from qualifying sales up to nine hundred and thirteen thousand dollars in 2022 but for easy math I would say it's just close to one million dollars that means John doesn't have to pay any capital gain tax when it sells its practice so that he can use that extra money for retirement future investment or to create an Estates for inheritable purpose to qualify only an an official their relatives or partnership must own the business share for at least 24 months before claiming the lcge this requirement stops investors from buying and reselling small business share only for tax purpose furthermore a company must be owning at least 50 percent of its asset in active business Corporation inside Canada at the time of sale in addition all individuals who apply for an lcge must be residents of Canada for the entire tax year in which they claim the exemption so again talk to accountant for further details alright those are the five strategies I have for you but wait I want to throw in one more as bonus and is to invest in Blue Chip stocks for the long term as we know if we invest in a non-recious account like not in the rrsp OR tax receiving then we have to pay capital gain tax a profit but that's a capital loss as well and capital loss can be used to offset the capital gain tax liability by selling securities in a non-registered account at a loss if Capital laws exceed capital gains the lesser of three thousand dollars of the excess loss or the net capital loss can be deducted from the other income so let's say you earn a thousand dollar profit from selling stock a but lost a thousand dollars when you sell a different stock then your profits is effectively zero the profit and loss cancel each other out in that instance you won't have to pay any capital gain tax this is really useful especially 2022 is a bad year for stock market and 2023 could be the same so with this strategy you can rebalance your portfolio and still able to achieve its tax-free status if this sounds complicated work with a tax planner and investment advisor can help determine when and how to sell Securities to minimize gain and maximize the losses right now hey I hope I've given you some ideas on how you can reduce your taxes let me know which strategy you have implemented in the comment below and which one are new for you like I said before 2023 can be a charging year as well but I truly think there are lots of good opportunities to grow up to as long as the right planning so if your depth about your saving plans have a chat with my team and I and I wish you a fantastic 2023 and until next time
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Your Money Matters: How to plan for retirement if your job doesn’t offer a 401(k)
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
>> ALL RIGHT. THANKS SO MUCH FOR WELL, IN THE MIDDAY FIX, IF YOU'RE A NON-TRADITIONAL WORKER LIKE A FREELANCER, ENTREPRENEUR OR INFLUENCE ARE PLANNING FOR RETIREMENT IS A BIT MORE CHALLENGING THOSE JOBS TYPICALLY DON'T OFFER A 4, 1, K, BUT WE'VE GOT AN EXPERT HERE, RICHARD. SHE WAS A FINANCIAL LIFESTYLE EXPERT WITH FIRST CAPITAL WEALTH MANAGEMENT GROUP HERE WITH SOME TIPS ON HOW TO BUILD A RETIREMENT FUND. >> RICHARD, THANKS SO MUCH FOR JOINING US. IT'S GREAT TO HAVE YOU HERE. GOOD TO BE HERE. FOR HAVING ME. ABSOLUTELY. AND AS WE WERE JUST TALKING ABOUT, YOU KNOW, POST PANDEMIC, A LOT OF PEOPLE HAVE NOT GONE BACK TO THEIR TRADITIONAL JOBS AND ARE PROBABLY EXPERIENCING THE FREEDOM OF BEING THEIR OWN BOSS PER SE. BUT A LOT OF FUNDAMENTAL AND FOUNDATIONAL STRUCTURES THAT WERE IN PLACE TO HELP THEM SAVE ARE NOT THERE. SOME. CAN. HOW CAN WE HELP WELL, IT'S A BIG DEAL AND A LOT OF PEOPLE RIGHT NOW ARE STRUGGLING WITH THAT. >> AND THERE'S A THERE ARE ANSWERS TO IT. OBVIOUSLY, IF IF YOU'VE LEFT YOUR. PREVIOUS EMPLOYER, WHETHER BY CHOICE OR BY FORCE AND THERE'S MONEY ON THE TABLE.
I YEAR-OLD FOR ONE K ONE OF THE FIRST THINGS YOU WANT TO DO IS TAKE IT WITH YOU. MEAN, LITERALLY TAKE THE MONEY WITH YOU RIGHT BUT ROLL THAT YOUR OWN NEW. I WRITE YOU CAN DO THAT WITHOUT ANY COST OR ANY TAX LIABILITY AND THE COOL THING ABOUT IT IS IT KEEPS YOU IN THAT STRUCTURE, OK? BECAUSE YOU'VE GOT THE LIMITATIONS OF WHAT YOU CAN PUT IN PER YEAR, WHICH WAS SIMILAR TO WHEN YOU HAD A 4, ONE K AND YOUR OLD EMPLOYER.
BUT THE MOST IMPORTANT THING IS WHEN YOU IF YOU LEFT DURING THE PANDEMIC OR POST-PANDEMIC, WERE YOU AND YOU WALK AWAY FROM THAT ORGANIZATION AND TAKE THE MONEY WITH YOU BY ROLLING IT INTO A NEW HIGHER RATE OF YOUR OWN TO TRADITIONAL OR ROTH. IT DOESN'T MATTER. IT JUST DEPENDS ON THAT, SIR. THAT'S KIND OF A TAX QUESTION. AND SOME I RECOMMEND THAT A PERSON LOOK AT WHERE THEY ARE. THEY'RE GOING TO BE SELF EMPLOYED. THEN THEIR THEIR TAX BRACKETS CHANGING IMMEDIATELY. THEY'VE BEEN EMPLOYED AT A COMPANY AND NOW THEY'RE GOING TO BE SELF EMPLOYED. THEIR TAX BRACKETS AND ALL THAT WILL BE DIFFERENT. SO THEY NEED TO LOOK AT WHAT'S RIGHT FOR THEM.
AND THAT'S WHERE THE TECH SECTOR ADVICE COMES INTO PLAY. SO EITHER ONE AS GOOD AS BUT TO YOUR POINT EARLIER, AS LONG AS YOU'RE PUTTING SOME STRUCTURE BACK IN AND SAVING. OKAY. AND THEN WHAT SOMEONE WHO IS SELF EMPLOYED OR A BUSINESS OWNER AND THEY DON'T HAVE. >> ANY EMPLOYEE SITS JUST JUST THEM, THOUGH. WELL, THERE'S A COUPLE OF OPTIONS THAT CAN DO A SOLO FOR ONE K THAT CAN DO WHAT'S CALLED THE SEP. AND EXCEPT IT'S GOT A COUPLE OF DIFFERENT GUIDELINES. BUT IN THE CASES OF THE SOLO FOR ONE K I A STRONG ADVOCATE OF THAT. IF YOU HAVE A SMALL BUSINESS AND IT'S JUST YOU AND MAYBE A SPOUSE WHO MAY QUALIFY. OKAY. IT'S A GREAT TOOL TO USE ON THAT. DOES HAVE YOU KNOW, LIMITATIONS IN TERMS OF HOW MUCH YOU CAN PUT AWAY FOR YEAR. BUT AGAIN, IT GOES BACK TO WHAT YOU WERE SAYING BEFORE. IT'S ABOUT THE MUSCLE MEMORY OF HAVING THE STRUCTURE AND YOU CAN CREATE THOSE ON YOUR BY CREATING A SOLO FOR ONE K. AND WOULD YOU SAY THAT FOR PEOPLE WHO ARE SELF EMPLOYED IN OUT HERE DOING THEIR OWN THING.
IS IT STILL POSSIBLE SAVE AS MUCH AS YOU WOULD, EVEN IF YOU WERE A PART OF A TRADITIONAL, YOU KNOW, WORKSPACE. SO HERE'S WHAT HAPPENS WHEN YOU WORK FOR BIG COMPANIES FOREIGN ORGANIZATION, WGN OR ANY OTHERS. AND THERE'S A 4, ONE K PLANS PART OF YOUR RETIREMENT PLANNING. YOU'RE CONTRIBUTING AND THE COMPANY IN MOST CASES, THEY'RE MATCHING TO SOME EXTENT. THAT GOES AWAY. WHEN YOU LEAVE IN TERMS OF THE COMPANY MATCHING BECAUSE NOW YOU'RE THE SO THAT'S WHERE IT'S REALLY CRITICALLY IMPORTANT TO MAKE SURE THAT YOU ARE STILL CONTRIBUTING AS LONG AS YOU CAN TO THAT MAXIMUM THAT YOU CAN CONTRIBUTE.
SO YES, THE SIMPLE ANSWER IS THERE'S STILL THAT OPPORTUNITY. IN FACT, IN SOME CASES, IT'S EVEN BETTER BECAUSE YOU HAVE MORE CONTROL AND YOU CAN USE SOME OF THE BOTH TAX DEFERRED AND TAX FREE TOOLS TO GET TO THAT POINT DOWN THE ROAD, OK? AND THEN WHY IS IT SO IMPORTANT? AS WE'RE TALKING ABOUT RETIREMENT SAVINGS? YOU KNOW, OBVIOUSLY THE SOONER YOU START THE BETTER. BUT FOR SOMEONE WHO SAYS IT'S JUST TOO LATE FOR ME, YOU KNOW, WOULD YOU EVER SAY THAT TO ANYBODY IN NOW? TOO LATE BECAUSE THERE'S A COUPLE WAYS THAT THAT WE LOOK AT IT. ONE IS IT'S NEVER TOO LATE FOR YOU TO START BECAUSE YOU ALWAYS CAN TAKE ADVANTAGE OF SOME OF THE AFTER TAX TOOLS TO USE. BUT IT'S NEVER TOO LATE FOR THOSE WHO CARE ABOUT BECAUSE AT THE END OF THE DAY, SAVINGS IS PASSES CAME. SO IF YOU'RE PUTTING MONEY AWAY, SOMEBODY IS GOING TO BENEFIT FROM THAT. IT MAY NOT DIRECTLY BE YOU, BUT IT MAY BE PART OF YOUR LEGACY. WE HAVE JUST UNDER A MINUTE LEFT. RICHARD, IS THERE ANY LESS POINTS TO BITS THAT YOU WANT TO, YOU KNOW, JUST GET ACROSS THE FOLKS BEFORE WE WRAP UP, WE'RE GOING TO YOUR ORIGINAL QUESTION AND YOUR SECONDARY QUESTION ABOUT CAN YOU DO IT? ARE YOU TOO OLD? YOU'RE NEVER TOO OLD.
START WHERE YOU ARE. MAKE SURE THAT YOU BASE IT ON YOUR BUDGET SO THAT YOU CAN CONTINUE TO DO IT. SO LIKE WORKING OUT AND, YOU KNOW, WE ALL KNOW THIS. YOU GET TO THAT PLAN ON THE LOSE WEIGHT, GET BETTER SHAPE AND YOU TRY TO DO TOO MUCH AT ONE TIME BECAUSE YOU DIDN'T LOOK AT YOUR BUDGET OF YOUR TIME. IN THIS CASE WHEN IT COMES YOUR FINANCIAL BUDGET, THE SAME THING APPLIES, START SAVING. LOOK AT YOUR BUDGET, DETERMINE WHAT YOU CAN DO AND THEN BE ABLE TO STICK TO IT. THAT'S PROBABLY MY BIGGEST TIP IS JUST JUST SAFE. ALWAYS SAY MY WIFE AND I TALK ABOUT THIS ALL THE TIME. ARE WE SAVING WE AS AS PROFESSIONALS TO THE SAME THING. SO TO THE CONSUMER JUST START WHERE YOU ARE AND THEN BE ABLE TO BUILD AND GO FORWARD. ALL RIGHT. ONE OF MY MODELS PENNIES ADD UP, SAY SURE.
ALL RIGHT. YES, THANKS SO MUCH, RICHARD. WE APPRECIATE YOU BEING ON THE SHOW. THANK YOU. CAN GET MORE INFORMATION AT FIRST SEE IG DOT COM OR FOLLOW THEM ON SOCIAL MEDIA. AGAIN, RICHER THANK YOU SO MUCH. WE APPRECIATE .
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Buffett on retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
FOR PEOPLE RIGHT NOW WHEN IT COMES TO SAVING . >> I THINK IT'S THE SAME THING THAT MAKES MOST SENSE FRANKLY ALL OF THE TIME, AND THAT IS TO CONSISTENTLY BUY AN S&P 500 LOW COST INDEX FUND. KEEP BUYING IT THROUGH THICK AND THIN, AND ESPECIALLY THROUGH THIN. BECAUSE THE TEMPTATIONS GET — WHEN YOU SEE BAD HEADLINES IN NEWSPAPERS, MAYBE TO SAY WELL MAYBE I SHOULD SKIP A YEAR OR SOMETHING. JUST KEEP BUYING. AMERICAN BUSINESS IS GOING TO DO FINE OVER TIME. SO YOU KNOW THE INVESTMENT UNIVERSE IS GOING TO DO VERY WELL. THE DOW JONES INDUSTRIAL AVERAGE WENT FROM 66 1,497 IN ONE CENTURY, AND SINCE THAT CENTURY HAS ENDED, IT'S MORE OR LESS DOUBLED AGAIN. AMERICAN BUSINESS IS G. THE TRICK IS NOT TO PICK THE RIGHT COMPANY, IT'S TO BE — BECAUSE MOST PEOPLE AREN'T EQUIPPED TO DO THAT. AND PLENTY OF TIMES I MAKE MISTAKES. THE TRICK IS TO ESSENTIALLY BUY ALL THE BIG COMPANIES THROUGH THE SFUND AND TO DO IT CONSISTENTLY, AND TO DO IT IN A VERY, VERY LOW COST WAY. BECAUSE COSTS REALLY MATTER. AND INVESTMENTS, IF RETURNS ARE GOING TO BE 7% OR 8% AND YOU ARE PAYING 1% THROUGH FEES, THAT MAKES AN ENORMOUS DIFFERENCE IN HOW MUCH MONEY YOU HAVE ON RETIREMENT.
>> AT THE ANNUAL MEETING FOR BERKSHIRE HATHAWAY THIS YEAR, YOU INTRODUCED A SPECIAL GUEST TO THE AUDIENCE OF 40,000 SHAREHOLDERS WHO WERE WATCHING. IT WAS JACK VOGEL. WHY DID YOU WANT TO RECOGNIZE JACK VOGEL? >> I THINK JACK VOGEL HAS DONE MORE FOR AMERICAN INVESTORS THAN ANY OTHER PERSON CONNECTED WITH WALL STREET OR T BECAUSE WITH A NUMBER OF OTHER PEOPLE WE CAME UP WITH THE IDEA, HE WASN'T THE SOLE THINKER BEHIND IT BUT HE WAS THE GUY WHO IMPLEMENTED IT AND CRUSADED FOR NOW TRILLIONS OF DOLLARS IN LOW COST INDEX FUNDS.
MOST PEOPLE ARE GOING TO HAVE BETTER LIVES, BETTER RETIREMENTS, THEIR KIDS ARE.
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Are Gold IRAs Worth It?
Jason 0 Comments Retire Wealthy Why Gold IRA
are gold iras worth it a gold ira can be a good option for investors who want to diversify their retirement accounts and also take advantage of the hedging benefits that the yellow metal offers against other financial assets like paper currency and stocks many financial experts recommend keeping five percent to ten percent of a portfolio in gold how to invest in a gold ira if you want to hold physical gold in an ira the first step is to open a self-directed ira styra one that you manage directly with a custodian the custodian is an irs approved financial institution bank trust company brokerage but many financial services and mutual fund companies who handle regular iras don't do the self-directed version you also need to select a precious metals dealer that will make the actual gold purchases for your ira your custodian may be able to recommend one keep in mind that not every self-directed ira custodian offers the same investment choices so make sure physical gold is one of their offerings before you open an account you can set up the stira as either a traditional ira tax-deductible contributions or a roth ira tax-free distributions the next step is to fund the account with a contribution subject to contribution limits of course a transfer or a rollover from a qualified plan such as 401k 403b or 457 plan after that you can select investments for the account and your custodian and metals dealer will complete the transactions on your behalf what's the difference between gold iras and physical gold gold iras enable investment in physical gold as an asset class rather than physical gold in the investors direct possession is a gold ira for seniors worth it if you're looking to invest your funds in a safe low-risk way gold iras can be a great way to do it not only can they protect your retirement savings from market swings seen with stocks and other common investments but they can offer the chance at a slow and steady growth too how does a gold ira for seniors work for seniors gold iras work much as they do for younger investors the only difference you can contribute more annually as a senior or anyone over the age of 50 you can contribute 1 000 more than those on the younger end for a comparison of the best gold ira companies visit https colon slash slash www.buldera401convesting.com gold ira company slash click link in the description below
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Why Retirement Income is so Important
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Canada is getting older in 1980 less than 2 A5 million Canadians were over the age of 65 around 9% of the Canadian population recently that number was over 7.3 million almost 19% of the population in 1980 the average 65-year-old could expect to reach 81 now the average 65-year-old can expect to reach 86 and there are almost 50% more Canadians aged 100 or older than there was two decades ago basically more Canadians are getting older and living longer which poses a significant challenge for retirement funding traditional retirement savings have relied on withdrawing from a fixed amount of capital with some cash flow from CPP OAS and fixed income Investments like bonds and gic's however as Canadians live longer they may expect significant costs down the road such as long-term care at the same time most of these fixed income Investments are paying at rates below current inflation levels and what about running out of capital some Canadians are faced with the difficult and complex choice of delaying retirement or going back to work compromising the retirement lifestyle dreams or passing on the cost of care to the Next Generation attractive and steady monthly income can help simplify things for retirees Harvest Equity income and enhanced Equity income ETFs pay consistent monthly income at rates above inflation they are RSP and riff eligible they hold portfolios of established companies that remain exposed to market growth High income from Harvest Equity income ETFs can help retirees offset their Rift payments supplement income and Live Well into retirement visit our website for more information on harvest income ETFs for retirement Harvest income happens [Music] here
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Warren Buffett: How To Turn $10,000 Into Millions (Simple Investment Strategy)
Jason 0 Comments Retire Wealthy Retirement Planning
you can't really fail at it unless you buy the wrong stock or just get excited at the wrong time and i would like to just spend just a couple of minutes uh giving you a little perspective uh on how you might think about about uh investments as opposed to the uh tendency to focus on what's happening today or even this minute as you go through and to help me in doing that i'd like to go back through a little personal history and uh and we will start i have here up here in new york times of march 12 1942 and i'm a little behind on my reading and if you go back to that time it it was about what just about three months um since we got involved in a war which uh we were losing at that point uh the newspaper headlines were filled with bad news from the pacific and i've taken just a couple of the headlines from the days preceding march 11th which i'll explain it's kind of a momentous day for me and so you can see these headlines we've got slide 2 up there i believe and uh we were in trouble big trouble in the pacific uh it was only going to be a couple months later that the philippines fell but here we were getting bad news we might go to slide three for march 9th uh uh i hope you can read the headlines anyway the price of the paper is three cents incidentally um the uh and uh uh let's see we've got march 10th up there a slide i'm i want to get to where there's advanced technology of slides i want to make sure i'm showing you the same thing that i'm seeing in front of me so anyway on march 10th uh when again the news was bad full clearing path to australia and it was like it the stock market had been reflecting this and i'd been watching a stock called city service preferred stock which had sold at 84 dollars the previous year it had sold at 55 the year before early in the in january two months earlier and now it was down to forty dollars on march 10th so that night despite these headlines i said to my dad i said i think i'd like to pull the trigger and i'd like you to uh buy me three three shares of city certified the next day and that was all i had i mean that was my capital accumulated uh uh over the previous five years or thereabouts and so my dad the next morning um bought three shares well let's take a look at what happened the next day let's go to the next slide please and it was not a good day the stock market the dow jones industrials broke 100 on the downside now they were down 2.28 as you see but that was the equivalent of about a 500 point drop now so i'm in school wondering what is going on of course uh incidentally you'll see on the left side of the chart the new york times put the dow jones industrial average below all the averages they calculated they had their own averages which have since disappeared but the dow jones has continued so the next day uh we can go to the next slide and you will see what happened the stock that was in 39 my dad bought my stock right away in the morning because i'd asked him to my three shares and uh so i paid the high for the day that 38 and a quarter uh was my tick which is the high for day and by the end of the day it was down to 37 uh which was really kind of characteristic of my timing in stocks that was going to appear in future years uh um but uh uh it was on the what was then called the new york curb exchange then became the american stock exchange but things even though the war until the battle of midway looked very bad and if you'll turn to the next slide please you'll see that the stock did rather well you can see where i bought at 38 and a quarter and then the stock went on actually to eventually be called by the city service company for over 200 dollars a share but this is not a happy story because if you go to the next page you will see that i well as they always say it seemed like a good idea at the time you know uh so i sold those i made five dollars on it it was it was again typical of behavior but when you watch you go down to 27 uh you know it looked pretty good to get that profit well what's the point of all this well we can leave behind the city service story and i would like you to again imagine yourself back on march 11th of 1942 and as i say things were looking bad in the european theater as well as what was going on in in the pacific but everybody in this country knew uh america was going to win the war i mean it it was you know we'd gotten blindsided but but we were we were going to win the war and and we knew that the american system had been working well since 1776.
So if you'll turn to the next slide i'd like you to imagine that at that time uh you had invested ten thousand dollars and you put that money in an index fund we didn't have index funds then but but you in effect bought the s p 500 now i would like you to think a while and don't do not change the slide here for a minute i'd like you to think about how much that 10 000 would now be worth if you just had one basic premise just like in buying a farm you buy it to hold throughout your lifetime an independent and you look to the output of the farm to determine whether you made a wise investment you look to the output of the apartment house to decide whether you made a wise investment if you buy an apartment small apartment house to hold for your life and let's say instead you decided to put the ten thousand dollars in and hold a piece of american business uh and never look at another stock quote never listen to another person give you advice or anything of the sort i want you to think how much money you might have now and now that you've got a number in your head let's go to the next slide and we'll get the answer you'd have 51 million dollars and you wouldn't have had to do anything you wouldn't have to understand accounting you wouldn't have to look at your quotations every day like i did that first day i'd already lost 3.75 by the time i came home from school uh all you had to do was figure that america was going to do well over time that we would overcome the current difficulties and that if america did well american business would do well you didn't have to pick out winning stocks you didn't have to pick out a winning time or anything of the sort you basically just had to make one investment decision in your life and that wasn't the only time to do it i mean i could go back and pick other times that uh would work out even greater gains but as you listen to the questions and answers we give today just remember that the over the overriding question is how is american business going to do over your investing lifetime uh i would like to make one other comment because it's it's a little bit interesting let's let's say you're taking that ten thousand dollars and you listen to the profits of doom and gloom around you and and you'll get that constantly throughout your life and instead you use the ten thousand dollars to buy gold now for your ten thousand dollars you would have been able to buy about 300 ounces of gold and while the businesses were reinvesting uh in more plants and new inventions came along you would go down every year into your look in your safe deposit box and you'd have your three ounce 100 ounces of gold and you could look at it and you could fondle it and you could i mean whatever you wanted to do with it but it didn't produce anything it was never going to produce anything and what would you have today you would have 300 ounces of gold just like you had in march of 1942 and it would be worth approximately four hundred thousand dollars so if you decided to go with a non-productive asset goal instead of a productive asset which actually was earning more money and reinvesting and paying dividends and maybe purchasing stock whatever it might be you would now have over 100 times uh the value of what you would have had with a non-productive asset in other words for every dollar you have made in american business you'd have less than a penny by of gain by buying in the store value which people tell you to run to every time you get scared by the headlines or something disorder it's it's just remarkable uh to me that we have operated in this country with the greatest tailwind at our back that you can imagine it's an investor's i mean you can't really fail at it unless you buy the wrong stock or just get excited at the wrong time but if you if you owned a cross-section of america and you put your money in consistently over the years there's just there's no comparison against owning something that's going to produce nothing and there frankly there's no comparison with trying to jump in and out of stocks and and pay investment advisors if you'd followed my advice incidentally or this retrospective advice which is always so easy to give uh if you'd follow that of course you're there's one problem buddy your your friendly stock broker would have starved to death i mean you know and you could have gone to the funeral to atone for their fate but the truth is you would have been better off doing this than than a very very very high percentage of investment professionals have done or people have done that are active that it's it's very hard to move around successfully and beat really what can be done uh with a very relaxed philosophy and you do not have to be you do not have to be you do not have to know as much about accounting or stock market terminology or whatever else it may be or what the fed is going to do next time and whether it's going to raise rates three times or four times or two times none of that counts at all really in a lifetime of investing what what counts is is having a a philosophy that you've that you stick with that you understand why you're in it and then you forget about doing things that you don't know how to do
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Day in the Life of a Wealth Management Analyst | JPMorgan Chase & Co.
Jason 0 Comments Retire Wealthy
[Music] hi i'm marcela i am currently a banker analyst in the jpmorgan private bank brazil team in the new york city office i work in the private banking team we help manage our clients wealth when we do like the most basic things that you know credit cards and helping with their daily needs as well as to section planning um structure and like complex lending operations what i like the most about my role clients recognize me they call me and you can have a conversation as if you've known them for years my manager is constantly giving me feedback being our voice giving us plenty of opportunities i did a presentation on my summer internship and this slide went to mary erdos the ceo of acid and wealth management she emailed me saying it was like a great deck and like i still have that email saved in my folder my day is intense busy and unpredictable practicing yoga helps you deal with these emotions in the sense of try to stay calm born and raised in sao paulo brazil i studied economics in the university of michigan in ann arbor i feel like i'm a really like extrovert individual advice i've been giving is feedback is always good even if it's bad networking is your number one tool are we good thank you [Music]
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Kevin O’Leary: Why Early Retirement Doesn’t Work
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
This whole idea of financial independence retire early doesn't work. Let me tell you why. It happened to me. On the sale of my first company, I achieved great liquidity and I thought to myself, "Hey. I'm 36. I can retire now." I retired for three years. I was bored out of my mind. Working is not just about money. People don't understand this very often until they stop working.
Work defines who you are. It provides a place where you're social with people. It gives you interaction with people all day long in an interesting way. It even helps you live longer and is very, very good for brain health. Staying stimulated is how people live into their 90s. I'm not kidding. So when am I retiring? Never. Never. I don't know where I'm going after I'm dead, but I'll be working when I get there too..
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10 Levels of Financial Independence And Early Retirement | How to Retire Early
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Long-term financial goals can sometimes seem so big that they feel almost unattainable especially when we’re just getting started on our road to financial independence. I and many others like me in the financially independent, retired early community have found it helpful to break down the goal of becoming financially independent into smaller and more manageable levels of financial independence. Not only because it makes it easier for us to track our progress, which in turns helps us to stay motivated throughout the process, but also because it helps us get over that initial hurdle of starting to chip away at this mountain of a task. In today’s video, I’m going to take you through what I consider to be the 10 levels of financial independence as well as give an example on how to go from the first level to the top level in your lifetime. Hey everyone Daniel here and welcome to Next Level Life a channel where you can learn about Investing, debt, retirement, and many other general financial education videos because the school's aren't going to do it for us.
So if any of those topics sound interesting to you or if you want to learn how to better handle your money and have more financial freedom be sure to hit that subscribe button and the bell next to my name to be notified every time I upload a video. And if you want to further support the growth of this channel you can check out some of the links I’ve left down in the description below which includes a 30-day free trial of Audible and 2 free audiobooks of your choice as well as a list of some books on money I’d recommend checking out, or you can share this video with a friend, and leave a comment below letting me know what topics you’d like me to cover in future videos.
Now obviously these ideas of the levels of financial independence are not solely my own nor are they very new as there are many articles and blog posts that have covered this topic already and have done so for many years. So consider this more of a summary of many of the ideas expressed in those articles and if you want to learn more about the topic feel free to check out some of the articles for yourself. I’ve left some links in the description. With that out of the way, let’s get started. Okay so real quick the 10 levels of financial Independence are Level 0 Financial dependence, level 1 Financial solvency, level 2 Financial stability, level 3 debt Freedom, level four coasting Financial Independence (also sometimes known as freedom from employer), level 5 Financial Security, level six Financial flexibility, level 7 Financial independence, level eight Financial Freedom, and finally level 9 Financial abundance. The levels are usually defined as something like the following: Level 0 – Financial dependency is when your debt payments and other living expenses are greater than your own income.
This means that you are in one way or another dependent on someone or something else to help you pay for your bills or if you happen to be a kid and don't actually have any bills you need someone else, usually your parents, to pay to put food on the table and keep the lights on and have a roof over your head. This is the level that all of us start out on and it is referred to as level 0 because as a financial dependent you obviously have no Financial Independence. Level 1 – Financial solvency is when you are current on all your debt payments and you can meet your financial commitments and your other living expenses without any outside help. Level 2 – Financial stability is usually defined as when you have built some sort of emergency fund in addition to being financially solvent. Level 3 – Is again debt freedom and it's defined differently depending on who you ask. For some, it is being completely debt-free, mortgage and everything.
For others, it's being just free of the high-interest debts like credit cards but you still might have a mortgage or other debts like student loans. And for some others, it is paying off all of your debts except for the mortgage but your credit cards and student loans or car loans all that stuff is all paid off. Level 4 – Coasting Financial Independence also sometimes known as freedom from the employer, Barista Financial Independence, or Agency in blogs and other mediums. I personally like the idea of it being coasting Financial Independence so that's what I'm going to be using in this video but know that some people refer to it by one of those other titles but the idea is the same. You have reached the level of coasting Financial Independence when you could, if you wanted to, step down from a job that may be higher-paying but may also be either less satisfying or more stressful or both into a new job that is lower paying but more enjoyable or less stressful or both.
This is because in the early years of your career or just thought most recent years you have managed to save a very decent sum of money that would be able to provide for the later years of your retirement after it has grown even if you don't put much more in. Therefore all you need to do is make enough money to get you to age 60 or 65 or 70 or whatever your numbers work out to be when that amount of money you've already invested will be able to fund your lifestyle because it's been given enough time to grow. So in a sense, you've worked really really hard and been very frugal in the first few years so that you can coast into your retirement. I have gone into more detail on the various types of financial Independence in a previous video which I'll leave Linked In the description if you're interested in learning more.
Level 5 – Financial Security is effectively when your cash flow from wealth such as you are investments has grown to large enough that it can provide for your annual basic survival expenses. Now I say survival expenses because I do differentiate that from living expenses survival expenses are just the basic things you need to survive Food, Water, Shelter, some form of transportation, clothing and probably insurance. This does not include things like Netflix subscriptions or cable bills or things like that it is purely survival expenses. So this may not be exactly the ideal spot to retire and I certainly wouldn't want to retire at this point but it is an important level to keep in mind because it does give you… well security. If you were to get fired today and you were on level 5 you would be okay you could survive until you found another job. This is essentially the first level that really gives you I guess that piece of mind even if the lifestyle should you have chosen to live it may not be the most lavish.
Level 6 – Financial flexibility is similar to Financial Security just one step up. It is when you have the ability to live off of your current cash flow from your wealth assuming that you have a flexible spending plan that adjusts for up and downs in the market. So if the markets up 20% one year you're able to spend a little bit more but if the market is down 20% the next year then you don't spend quite as much. I’ve seen it defined many different ways so it could vary depending on who you ask, but the one that I personally like the most is that it is roughly half of your full financial independence goal, or roughly about 12.5x your current annual expenses if you follow the 4% rule to get an idea of how much money you need to retire like I’ve explained in previous videos.
So it isn't quite Financial Independence yet but it's close. Level 7 – Is financial Independence and it's usually based on the 4% rule which I have covered in a previous video. You can follow the 4% rule when you have saved roughly 25x your annual expenses. The vast majority of the time this will be enough money to allow you to maintain your current lifestyle in retirement and as a result, you can be considered financially independent. And some articles end it right there but I think there are a couple of levels that are a bit higher than that that are worth considering even if some of us may decide to not ever try to achieve them because being at level 7 allows them to do what they wanted all along. So let's talk about those other levels. Level 8 – Is Financial Freedom which I've often seen defined as the cash flow from your Investments is greater than financial Independence and a few more life goals.
Life goals, of course, will differ for everybody but this is could be something like taking a trip or two overseas or moving to a new place you've always wanted to live but haven't had quite enough money to live there up till now or whatever the case may be for you like I said it's different for everybody. Level 9 – Is financial abundance and this is quite simply just that the cash flow from your Investments is more than you will ever need.
You could spend it if you really wanted to but it would actually take some effort. And the stuff from level 8 doesn't really cut into it much at all. So you could up those goals even more and still have more cash flow left over at the end of the year. This also probably has a slightly different definition for each person depending on who you ask, but I like to think of it as roughly 3x your financial freedom number because this would allow you to experience a horrible bear market where your investments go down by 50% and still has 1.5x the amount that you would need to maintain the lifestyle you lead when you reach level 8.
To me, that means that it is likely more than you will ever need, but again that one is strictly my own opinion on the matter. So those are the 10 levels of financial Independence, now let's walk through a hypothetical example of how someone could go from Level 0 to being financially independent in a single lifetime. John and Jane are recently married couple each making $20 an hour at age 23 or $83,200 a year between them assuming no overtime. They manage this because they are not only good hard-working people but got great grades in school and we're selective about the job that they decided to pursue. Obviously just like everyone else they would have started off as Financial dependents and as they were going through college they would have been building up student loans that they would not have had the money to pay off (assuming of course that they didn't earn enough money while in school to keep up with the rising debt).
In all they have credit card debt, two car payments and the student loans which have balances of $5,000, $35,000, and $60,000 respectively, but since they got their jobs they are no longer financially dependent and their incomes have allowed them to become current on all their debt payments without the help of others. In addition to the regular monthly debt payments, their annual expenses are $48,000 a year. So they are currently in level one Financial solvency and trying to figure out a way to move to level 2 Financial stability. In order to do that they need to figure out a way to build up an emergency fund.
Now if they're following the 10 levels system to a T then they would look to build a 3 to 6-month emergency fund of their survival expenses. However, this is not the only way to approach it say if you were to follow Dave Ramsey 7 baby steps you would start off with just a $1,000 starter emergency fund and then get right onto attacking your debts. And other Financial systems and plans may have you approached it an entirely different way.
Either way is perfectly fine because the 10 levels system is not meant to be a financial formula per say it's more there to give us some sort of guidepost so that we can better track our progress towards achieving Financial Independence. But for the purposes of this video, I am going to assume that they follow the 10 levels in order so we are going to be building up a full emergency fund. In order to find how much of an emergency fund they will need we will need to know how much money they need to survive not necessarily on their current level of expenses while they have jobs but purely on Survival expenses which are basically your four walls of your financial house or in other words food shelter including utilities Basic clothing and some form of transportation as well as the insurances that are related to that assuming there are any.
In this case, I'm going to assume that their survival expenses are right around $3,000 a month. Which means that in order to get a 3-month emergency fund they would need $9,000 in order to get a six-month emergency fund they would need to save $18,000. Both John and Jane feel that their jobs are pretty darn secure and the market is doing fairly well so it's not likely at least in the near-term that they would get laid off because the company has to downsize so they decide together that they are comfortable with having just a 3-month emergency fund of $9,000. So with $83,200 a year in income, $48,000 a year and expenses, plus minimum monthly payments of $100 on the credit card which is 2% of the balance, $550.78 on the car loans, and $621.83 on the student loans they will have approximately $1,660.72 a month left over to start building their emergency fund.
However, both John and Jane have been looking into their finances and researching a lot lately and they become fired up at the possibility of becoming financially independent while they're still young. So they want to see if there's a way that they can speed this whole process up. And as it turns out thankfully there are many. After taking a look at the options they decide that they're going to work as much overtime as they possibly can (for the sake of Simplicity I'm going to assume that they manage to work on average 5 hours per week of overtime which will increase their monthly income by about $1,300 a month, meaning that instead of $1,660 a month they will have $2,960 a month left over) and they're going to sell both of their cars and buy some nice used cars with cash to help knock down some of that initial debt. After putting out a couple of ads online they managed to find buyers for each of their cars that is willing to give them $15,000.
So they take that $30,000 and use $5,000 of it to pay off the credit card balance and another $10,000 to buy a couple of used cars from someone that they know takes good care of their Vehicles whether that be a family friend or just a mechanic that they Trust. The remaining $15,000 is thrown at their car loans. This means that the credit card loan is fully paid off and therefore the hundred-dollar minimum payment is no longer needed. So John and Jane start throwing $3,060 per month into their emergency fund and get it fully funded in 3 months with a little bit left over at the end of the third month to throw out their car loan. Over the course of those first three months, they managed to bring the car loans balances down to $18,423 thanks in large part to the $15,000 that they threw at it in the first month after selling the cars and also making the minimum payments in the first three months. Now that their emergency fund is fully funded however they're able to throw that $3,060 a month in addition to the $550 a month minimum payment at the car loan and get it paid off in 6 months flat.
So a mere nine months into their Journey John and Jane not only have a fully funded emergency fund but they also have paid off both of their car loans. Now there are just the student loans to tackle. And thanks to the fact that they've been making minimum payments on them for 9 months and the fact that they had a little over $3,000 at the end of the ninth month after paying off their car loans their student loans now have a balance of $53,263. John and Jane follow the same pattern that they did with the car loans throwing the $3,600+ which is what they now have left over at the end of every month because they no longer had a $550 car payment to make and they managed to get their student loans paid off in full in 13 months. So John and Jane have managed to become debt free and have a fully funded emergency fund in 22 months.
They have now reached level three and because of that they now have over $4,200 a month left over to start investing. This brings us to level four coasting Financial Independence. Let's assume that John and Jane want to retire by the age of 65. That means that whatever they put in now needs to be enough to grow to a point where it can support their lifestyle in retirement by the time they're 65. If we assume a rate of return on an average in the market of about 10% before inflation and an inflation rate of about 3% per year on average then we can get a rough estimate of how much John and Jane need to put away in order to achieve a state of coasting Financial Independence. In this case, since they're 24 about to be 25 they will have somewhere in the neighborhood of 39 or 40 years to let the money grow before needing to take any of it out. If their expenses were $48,000 a year at age 23 then 42 years later if we assume a 3% rate of inflation they would need a tad bit over $166,000 each year to live on.
Again assuming we follow the 4% rule to figure out how much they need once they fully retire to be financially independent that means that they would have to have at least $4.15 million invested in the market by the time they turn 65. In their case, they would need about $110,000 saved up give or take in order to achieve coasting Financial Independence and because they're able to save about $4,233 a month now that they’re debt free, they’re able to hit that goal in 2 years flat.
Meaning that in theory, they would be able to step down from their jobs to a more rewarding less stressful but probably lower-paying job just 3 years and 10 months into their financial Journey. That is incredible! But like I said coasting Financial Independence wasn't their end goal. They wanted to be fully Financial Independent so they keep working and investing for now. The next level is level 5 Financial Security which is achieved when your cash flow from your Investments is greater than your annual survival expenses which remember is $3,000 a month or $36,000 a year in John and James case. Because they are debt-free, are making good money at their jobs, and being intentional with their finances they Achieve Financial Security in a little over 4 years with over $367,000 in their portfolio.
It is been a mere 87 months or 7 years and 3 months since they began their financial Journey. John and Jane are 30 years old and they are able to get by on their Investments alone. In theory, they could retire now, it wouldn't be the most glamorous retirement and it wasn't their goal but it is an option they have. They don't have to worry about losing their jobs anymore because even if both of them lost their jobs today they would be able to make it long enough to either find a new job or some other source of income. This is really the first level where you start to get that piece of mind when it comes to money at least in my opinion. Next is financial flexibility which as I mentioned earlier in the video has many definitions depending on who you ask but for the purposes of this video, I'm assuming that it is roughly 12.5x your current annual expenses which for John and Jane would be roughly $600,000 or about $855,000 if you account for inflation. This means that they would Achieve Financial flexibility 9 years and 8 months into their Journey not accounting for inflation or about 11 years and 9 months if we do account for inflation.
John and Jane continue investing through all the highs and lows of the markets until they reach Financial Independence exactly 14 years into their financial Journey assuming we don't account for inflation or 18 years and 3 months if we do. So you might be wondering why did I split up the accounting for inflation time frames and the not accounting for inflation time frames should we always be accounting for inflation? Well technically yes but the reason I split them up is because in my experience taking this journey myself as well as seeing others take it, this journey changes how you view a lot of things and more often than not those changes lead to you valuing things such as freedom of mobility and location and freedom of time to be able to spend with the people you love more and valuing more material things that cost possibly a lot of money less and less. That's not to say that everybody becomes minimalist going through this journey, I'm not saying that at all but I have seen a lot of people who have gone through this journey become closer to minimalist than they were when they started the journey as they find out more and more things that they used to buy just don’t provide enough value or happiness for them to be worth the purchase.
They find better uses for their money and time and as a result, they generally tend to spend less. Which means that even though inflation is technically increasing your expenses by making every dollar less and less valuable over time, if you're also decreasing your expenses because what you value is changing it may even out or in some cases, you may even see your regular expenses going down year-over-year as you continue through this journey. So that's why I split them up. And, before I go, I do want to mention that based on what I've seen on various articles and forums some people really like to have even more goals to chase as they go through this journey than what I've laid out today in this video so if that's something that would help you feel free to break down these levels even further then I have today this is obviously just the list that I used and what worked for me, but you could take it even further.
For example, Debt Freedom could be broken down into three separate stages: One where you are free from all high-interest debt, a second where you are free from all debts except for the house (if you have one), and a third where you are totally debt-free. You could tackle the coasting Financial Independence level in a similar way breaking it down into two stages: One where are you have invested enough to survive in retirement and a second where you have invested enough in order to maintain your current lifestyle, adjusting for inflation of course, in retirement.
And the financial independence level could also be broken down into three stages: Stage one would be where you are at a survivable level of financial Independence, stage 2 would be where you have achieved leanfire status, and stage 3 would be where you have achieved full Financial Independence on your current lifestyle assuming that it is above the leanfire level. So what do you guys think of this 10 levels system of tracking our progress to financial Independence? Do any of you use a similar system to track your progress? If so, what is it and what level, step, or stage are you guys currently on? Let me know in the comments section below. But that'll do it for me today once again if you enjoyed this video be sure to subscribe and hit that Bell next to my name so that you'll be notified of all my future uploads.
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