Steven Calabrese

Now is the Time for Estate Planning

April 27, 2023 By quadcities Leave a Comment

If you do nothing, then the state gets to decide how your assets are divided after you pass on.

When should one begin to plan their estate? The answer is now. It is never too early in your life or financial journey to plan for a time when you will no longer be in control or around to manage your assets, your estate.

What makes up your estate? “An estate is everything comprising the net worth of an individual, including all land and real estate, possessions, financial securities, cash and other assets that the individual owns or has controlling interest in.”

Net worth is everything you own (assets) minus liabilities (mortgage, credit card debt, car loans, personal loans and student loans).

Begin Here

Take stock. Create an inventory of everything you own: home, car, boat, rare coin collection, jewelry and anything else that has either sentimental value or monetary value.

List them out and then decide to whom you want to leave these items. It can be anyone you want. No law or rule is required for you to follow. This is your decision and yours alone.

With your inventory in hand, we can now begin to protect your assets after you have moved on.

Beneficiaries

For most, naming beneficiaries is the most important strategy one can employ to ensure a transition to the people you want to leave assets. Name primary and secondary beneficiaries. Doing this will allow these assets to pass outside of any will.

One should name primary and secondary beneficiaries for bank accounts, retirement accounts, life insurance and any other assets that can transfer ownership by naming beneficiaries upon your death.

This is important because it keeps these assets out of your will and will not have to pass through probate when you pass on. These assets will pass directly to those you have named.

This can be a time-consuming task, as it will take time to accomplish and may require original documents, often notarized. Once you have accomplished this, make sure you keep records of your accounts along with the beneficiaries. You will want to keep this in a safe place with all your other important papers.

Consider naming a power of attorney. Doing this will allow someone to step in your shoes should you become unable to perform certain everyday functions. Be certain this is someone you can trust, as once they have the power of attorney, you have given them permission to conduct business on your behalf.

Who Needs a Will?

Everyone does. Currently, about 85% of Americans do not have a will. This can cause a mountain of issues for those you leave behind. A will decides who will get what assets that have not had a designated beneficiary assigned.

When you create your will, being very specific creates a level of clarity for those who survive you. Let everyone know that the rare coin collection goes to John and Mary gets the jewelry.

Another critical aspect is if you have minor children. This is where you provide for them should you and your spouse meet your demise. Here are things to consider: Who will take care of the kids? What will happen to provide for them financially? Include anything else you may be concerned about; for example, paying for college or perhaps a car.

Most common is to create a trust. Assuming you have provided for them via life insurance, you could have all the proceeds go into a trust, which will support their future financially. In addition, you will want to appoint a guardian. As part of the plan, make sure you discuss this with those you appoint to fulfill this responsibility. It is recommended that the guardian and trustee be different people.

An executor also will be needed. An executor is simply the individual you appoint to carry out your wishes. This can be anyone you want, such as a relative, an attorney or an accountant.

Every state is different, and a will must be in accordance with the laws of the state in which you reside. So, if you relocate from New York to Florida, your will in New York is no longer valid; you will need a will based on the laws of Florida.

Finally, some may want to consider putting all their assets into a trust. This should be reserved for those individuals with a high net worth. A trust can be more of a hassle than a benefit. If you put all your assets in a trust, you will likely need to get permission from the trustee to sell, move, or whatever else you may want to do. For example, if you put your house in a trust, you will need permission to sell it. Certainly, this is not a reason not to create a trust, but it may not be the best course for you.

Final Thoughts

If you do nothing, then the state gets to decide how your assets are divided after you pass on. If you love your loved ones, these simple strategies will make things clear. I, for one, would not trust the state to divide up my assets, let alone my kids.

There may be other strategies you want to explore, but for most folks, these are the basic essentials one should put in place. There may be tax issues to consider, depending upon the value of your estate. Seek expert advice.

Good luck, as many have issues coming to the realization that you are not going to be around forever.

You work hard for your money – make sure it stays your money!

Thanks for reading, hope you found this helpful. QCBN

By Steven Calabrese

Steven Calabrese, CPA is the CFO of Polara Health. He also is the owner-operator of a website known as thepersonalfinancewizard.com, where such topics as budgeting, investing, paying off debt and goal setting are discussed.

Risk Management: Protecting your Assets

March 31, 2023 By quadcities Leave a Comment

You work hard for your money. Make sure it stays your money!

As you progress through life and build your wealth, it becomes necessary to protect yourself, your family and your assets. The most common way to protect is to buy some form of insurance. When you buy insurance, you shift the risk to a third party and away from you. At different times in your life, it will be necessary to have different levels of protection. In some cases, being self-insured is an alternative.

Life Insurance

If you have anybody dependent upon you, life insurance is essential. The purpose of life insurance is to replace your income for your loved ones. As an example, if you make $50,000 per year, a policy of 10 times that amount would replace your income if invested with an average return of 10%. Always purchase term life insurance. It is the most cost-effective.

Homeowners

When you reach homeownership status, insuring that asset will be important. Purchasing a home is the single largest purchase many folks make in their lifetime. If you have a mortgage, the lender will require you to purchase insurance. Not for you, but for them.

Make sure you have adequate coverage, not just what the lender requires. Review the limits regularly to make sure you can replace what you have. In addition, you will want to insure the contents of your home and any rare collections you may own.

Renters should have a renter’s policy to cover the contents of their apartment. The landlord does not insure your personal belongings.

Auto

If you own a car, then it is certain you have purchased car insurance. It is required in all states. Make sure your limits are adequate. There are options for making this purchase. While the goal is to limit your risk, you may want to take on some risk in exchange for a premium reduction. As an example, a $500 deductible or a $1,000 deductible will have an impact on how much you pay. Explore your options.

Health

Health insurance is coverage that protects your well-being. This insurance will cover your expenses for health care. There are many types of coverage. Be sure to do your homework. Does a high deductible plan work best or will you be better off purchasing first-dollar coverage? Do you choose single coverage, spouse or other dependent coverage, or a family plan?

If you and your family are in good health, a high-deductible plan would work best when you team it up with a Health Savings Account (HSA) or a Flexible Spending Account.

In addition to health insurance, you will want prescription drug coverage, along with dental and eye coverage.

If you are 65, Medicare will be the coverage you will purchase. There are choices here as well. Do you sign up for straight Medicare or do you go with an HMO? More choices, just make sure you do it by your 65th birthday or you will pay a penalty if you sign up late.

Umbrella

An umbrella policy will cover you for additional liability. This coverage will generally be in addition to the coverage you have with your homeowners and auto policy for liability coverage.

For example, if your liability coverage for your auto policy covers up to $100,000, an umbrella can increase that limit by a million.

As you build your wealth, this very affordable coverage will protect you should a claim arise.

Disability

This coverage will protect you should you become injured on the job. There are short-term and long-term coverages. What you buy will depend on what you do for a living. If your job is physical, such as construction, and you become injured, it is not likely you will be able to work, so you will want to have both short- and long-term coverage.

Many policies do not cover 100% of your wages, so understand what your benefit will be when you buy.

Long-Term Care

Long-term care coverage will cover you if the need to provide care arises when you will be in a nursing home. Many will need this service and coverage is available. The average cost of a nursing home is about $30,000 per year. The average time spent is about three years.

This coverage is best if purchased at age 60. The cost will be its most efficient at that age.

Malpractice

This coverage will insure against any potential liability that may arise from not performing to a specific level of service. This coverage is essential for doctors, nurses, lawyers and accountants, to name a few.

Limited Liability Company

LLC (Limited Liability Company) is a strategy that one can use to protect various assets. If you are a real estate investor, it may make sense to put various properties in an LLC. This will protect your other assets should an event occur.

As an example, if you had a real estate portfolio of $5 million, you may want to break down your assets into various LLCs. This will protect your assets if a case arose where only the assets in the LLC will be at risk. Assets outside that LLC will be protected separately.

Conclusion

The insurance market can be complicated. As always, do your homework. Do you need to purchase all of these coverages? Most likely no. Some of the answers will be determined by your overall financial well-being. Various coverages will be necessary at various times in one’s life.

The intent was to give you some direction as to the types of coverages available and what you will be protecting against. It is highly unlikely that you need to run out and buy coverages for everything discussed. Pick and choose where you can. Remember, the objective is to reduce your risk to yourself and your family.

Good luck!

You work hard for your money. Make sure it stays your money!

Thanks for reading. I hope you found this helpful. QCBN

By Steven Calabrese

Steven Calabrese, CPA, is the CFO of Polara Health. He is the owner-operator of a website known as thepersonalfinancewizard.com, where topics such as budgeting, investing, paying off debt and goal setting are discussed.

How to Plan for a Comfortable Retirement

February 22, 2023 By quadcities Leave a Comment

In retirement, a budget is more important than in pre-retirement as a guide to tell your money what to do.

When do you begin planning for retirement? Now is a good time to start. If you do not have a plan, it’s time to get started. The more time you have until retirement, the more wealth you can accumulate. We will present some options to consider.

Education

As we move into other finer aspects of preparing our long-term financial plan, we once again must understand all of our potential options. Preparing a long-term financial plan must include retirement planning, regardless of the amount of time until you hit retirement age. The retirement age will differ for everyone. The paramount question to ask yourself is: Did I do my homework?

Learn what you need to have a successful retirement. One’s age does not matter, except the further away from your retirement age, the more time you have to get your plan in order. Your plan will require periodic reviews to assess if you are on target. Adjustments must be made so that you can hit your goals and have a comfortable retirement.

What follows are some aspects you must address as you move closer to that magic age. This is not meant to be an all-inclusive list but a starting point for assessing where you are and where you want to go.

Budget

Thought you were done with developing a budget? In retirement, a budget is more important than in pre-retirement as a guide to tell your money what to do. If you need help putting together a budget, see our article “How to Create a Budget for Success” at https://www.quadcitiesbusinessnews.com/how-to-create-a-budget-for-success/.

If you operate with a budget, this will require you to make some adjustments. The first question to ask yourself is: What do I not need in retirement?

Do you have two cars? Will you still have two cars? Insurance will be less with one car. Repairs could also be less. If you are no longer commuting, gas will be less.

What about life insurance? Are you still going to carry some? Is it necessary?

Go through your budget and ask if this expense will continue or how will this be different. With your retirement budget hot off the press, we now know what you will need to have a nice, comfortable retirement. Will your income support the budget or do you need to cut some expenses? Perhaps additional income besides the ones you have planned in retirement may be necessary. Be diligent. Make changes as assumptions become clear.

Taxes

This is a tricky topic to navigate. Tax laws are always changing. Unfortunately, we can only address what we know. Different states have different laws regarding retirement income and social security. Be careful, as taxes can and will reduce your disposable income. Perhaps you live in a state that has no state income tax or one that does not tax retirement income.

Sales tax is another tax you may look to avoid. A few states do not have state sales tax. In addition, if you stop working, Social Security and Medicare tax will not be paid by you.

As you begin to draw on your retirement nest egg, certain portions will be taxed by the federal government. For example, any withdrawals from your traditional IRA, 401K, etc., will be taxed by the federal government. In addition, you will be required to take RMD (required mandatory distributions) from traditional tax-deferred retirement funds. Any funds in Roth retirement, along with the earnings, can be withdrawn tax-free. Any pension you receive will be taxable.

As you can see, taxes can and will have an impact on your planning as well as your potential income.

Home Purchase

How is home ownership part of a retirement plan? Very simply, if your mortgage goes away, your housing costs are reduced. The costs needed for maintenance, electricity, insurance and HOA fees now become your housing costs.

If you are entering retirement renting or paying a mortgage, then your costs will be higher. Eliminating your mortgage before retirement and not renting will increase your disposable income. Either way, this could have a big impact on the budget.

If you have been following and building your financial plan, then you should have this under control.

Investing

Planning for this time by funding your retirement accounts at a level of 15% of your income will afford you to have accumulated a handsome nest egg. Retirement is what you have been planning for over these years.

Where is your nest egg? Do you have a traditional, Roth, 401(k), 403(b), 457, or pension? Some may even have a taxable investment account.

It’s time to review your portfolio. Where are your funds invested? Do you want to continue with the same strategy that was used before your retirement? Alternatively, will you change strategies? The overall objective is for your money to last longer than you may live.

Social Security, Medicare

This is where things can get tricky. There are many different variables of which to be aware. At what age will you begin to collect Social Security? What is your FRA (full retirement age)? Hint: it is not 65. FRA is generally between 66 and 67, depending on your year of birth and if further changes to the law are not made.

Be aware that a married couple collecting under the primary wage earner will have some significant income adjustments should one of them pass on. A spouse can collect about half of what the primary earner collects. Upon the death of one partner, the other partner’s benefit would stop. Only the higher benefit will survive. For example, for a married couple collecting Social Security under the primary wage earner, earnings will collect the primary wage earner’s benefit plus about one-half for the spouse’s regardless of earnings. Upon the death of either spouse, the lower benefit will stop.

Medicare, on the other hand, is available at 65. This is important because if you miss the window to sign up, you may find yourself paying a penalty for the rest of your life. So, get this on your calendar and sign up in a timely manner. What type of plan will you sign up for? There are many choices, so begin your research several months before you become eligible.

Estate Planning

So, you spent your entire life planning for retirement, you have done everything right and are enjoying a nice, relaxing time in your twilight years. Now what? What will happen to your assets when you pass on? Who will inherit them?

Make sure you have a will. Make the will as explicit as you want. Who will be your executor? Who will get what assets? Decide now; please, do not ignore this because if you do, the state will decide. Name primary and secondary beneficiaries on all your accounts. This is an area often overlooked. If you love your loved ones, leave a will. A will is nothing more than your final instructions as to how you want your lifelong financial achievements distributed after you pass on.

Conclusion

You thought you would turn 65 and life would be simple. Think again. Some of the items discussed above will help you make your way through the retirement maze. As you begin to create your retirement plan, reach out for expert help.

If you have an investment advisor, tax advisor and attorney in your current brain trust, reach out to them to guide you through the technical pitfalls.

Good luck!

You work hard for your money, make sure it stays your money!

Thanks for reading. I hope you found this helpful. QCBN

By Steven Calabrese

Maximize Tax Savings with Health Benefits

January 24, 2023 By quadcities Leave a Comment

As you can see, learning a few simple tax tricks can save you a bundle by reducing your tax liability and putting more money in your pocket.

Many employer-sponsored health plans offer a variety of options all focused on reducing your tax liability. Health plan premiums are generally paid with pre-tax dollars, reducing your tax liability. The type of plan you choose can have other tax savings benefits.

Flexible Spending Account

A Flexible Spending Account (FSA) can be used to pay for dependent care as well as medical expenses. Contributions are made pre-tax, reducing your tax liability. If you plan on using it for dependent care, make certain your employer has set it up that way.

Contributions up to $5,000 per family/household can be made for dependent care. For 2023 contributions, up to $3,050 can be made for medical expenses. In addition, up to $610 maximum can be rolled over if your employer plan permits. Check with your HR team to determine specific rules for your employer-sponsored plan.

Dependent care is defined as a pre-tax benefit account used to pay for eligible dependent care services, such as preschool, summer day camp, before or after school programs and child or adult daycare.

In addition to savings on income taxed, you will also save on social security and Medicare tax.

The potential of a childcare tax credit also exists and varies by individual. Check with your tax professional to determine which may be the most advantageous.

The ability to estimate your costs is the most challenging because if you do not use all the funds, you will lose them. There may be an ability to roll over up to $610. This may vary by employer and, again, check with HR.

The rules specify that these limits are family limits. For example, if a husband and wife both have an FSA available, the limit is combined, rather than a separate limit for each spouse.

Again, do a little digging educate yourself and save some taxes.

Health Savings Account

A Health Savings Account (HSA) is similar to an FSA but has some additional benefits not available with an FSA. One important difference is any amounts not used can be rolled over and used in future years. The family limits apply here but the limits are higher.

The HSA limits for 2023 are $3,850 for a single individual and $7,750 for a family. An additional $1,000 is permitted as a catch-up contribution for those over age 55. Again, this is a family limit, a married couple would be capped at $7,750.

Any unused amounts are rolled over to be used at some point in the future. In addition, when your account reaches a certain amount, usually around $3,000, you will be eligible to invest the amount over that amount, essentially acting as a retirement account. These funds can be used in retirement.

All expenses must be for qualified medical expenses. The IRS allows you to deduct unreimbursed payments for preventative care, treatment, surgeries, dental and vision care, visits to psychologists and psychiatrists, prescription medications, appliances such as glasses, contacts, false teeth, and hearing aids, and expenses that you pay to travel for qualified medical care.

HSAs are only available with high deductible plans. It can be a way to fund your deductible and other out-of-pocket expenses.

Once you become eligible for Medicare, you are no longer eligible to fund an HSA. However, the premiums for Medicare can be made from your HSA. This benefit is available only for Medicare and other expenses during retirement. All expenses are paid from your account and are tax-free.

An HSA allows you to make contributions pre-tax, earnings grow tax-free and payments for qualified expenses are paid with these tax-free dollars. If you find that you do not need these funds, you can withdraw them penalty-free after age 59-and-a-half and pay the taxes on the withdrawal, similar to a traditional IRA.

Save More Money

As you can see, learning a few simple tax tricks can save you a bundle by reducing your tax liability and putting more money in your pocket.

For more tax-saving tips, please fine last month’s article at https://www.quadcitiesbusinessnews.com/how-to-minimize-taxes/

Begin to educate yourself, get professional help and save tax dollars.

Good luck!

You work hard for your money, make sure it stays your money! QCBN

By Steven Calabrese

Steven Calabrese, CPA, is the CFO of Polara Health. He also is the owner-operator of a website known as thepersonalfinancewizard.com. Such topics as budgeting, investing, paying off debt, and goal setting are discussed.

How to Minimize Taxes

December 28, 2022 By quadcities Leave a Comment

Begin to educate yourself, get professional help and save tax dollars.

This is not meant to be an all-in total tax guide, but rather some valuable high-level education on taxes to help you dig deeper and minimize your tax liability. As every situation is different, a tax expert should be consulted.

The best place to start is to begin to educate yourself as to how may be the best way to reduce your tax liability. Do you feel that you overpay? Do you do any tax planning? What is the potential impact of taxes on retirement? Investing? Estate planning? Do you know how much you are paying in taxes?

Taxes and Your Take-Home Pay

It’s that time of the year again to file your taxes. If you are expecting a refund, remember, this is not a gift. This is your money.

Eighty-five percent of American households live paycheck to paycheck. Perhaps you are living paycheck to paycheck making ends meet, borrowing on your credit card to put food on the table, then getting a tax refund. Think about this: If you are borrowing from your credit card and paying 18 to 24% and then getting a refund for overpaying your taxes, this is poor financial planning.

Here is the one thing you can do right now to increase your take-home pay and eliminate a tax refund or perhaps a potential tax liability. As your income is the number one wealth-building tool available to you, we need to make sure you maximize your take-home pay, whether you are self-employed or working for someone else.

This is a very simple tactic and the IRS actually has a calculator. I have been using this strategy for a number of years. My refund or liability to the government is always small. I just want to pay what I need to pay not any more or any less.

Here is a step-by-step guide to calculate your liability and have the proper tax withheld using the Tax withholding Calculator: https://thepersonalfinancewizard.com/tax-withholding-calculator/.

Real Estate
Buying a home is the largest purchase one will likely make during a lifetime. The American Dream is to own your own home. Many folks focus on this goal, but do they take advantage of the rules to maximize returns?

Price appreciation is one of the advantages of home ownership. This increase in value can be taxable if you do not handle it correctly. Gains from a potential sale could be deferred if you purchase another home for greater value. Even if you decide not to purchase another home, gains up to $500,000 for married couples could be exempt from taxes.

Retirement Planning
The most tax-efficient instrument to use for retirement wealth accumulation is a Roth IRA or 401k.

Why Roth? All contributions are made with after-tax dollars. It is these after-tax dollars that will then grow tax-free. Yes, you can accumulate your wealth tax-free. Is there a better way than tax-free?

Imagine if you contributed 15% of your income to a Roth for 20 years.

Wrapping Up
As you can see, learning a few simple tax tricks can save you a bundle. The tactics discussed above are just the beginning. There are other tactics that can save you more.

Begin to educate yourself, get professional help and save tax dollars.

Good luck!

You work hard for your money, make sure it stays your money!

Thanks for reading. I hope you found this helpful. QCBN

By Steven Calabrese

How to Invest and Grow your Wealth

November 27, 2022 By quadcities Leave a Comment

Take a deep breath. It is possible, if you plan properly.

How do you invest and grow your wealth with markets down and inflation up? Are you kidding? No, as a matter of fact this may very well be a perfect time. But we are in a bear market. Consider that stocks are on sale. Will they rebound? Let’s see what history tells us!

What is a Bear Market?

A bear market is defined as a decline in the market indexes of 20% or more. All the indexes are in bear market territory in 2022. The average bear market lasts about 388 days. Since 1928, we have had one about every four and a half years.

The S&P 500 is up 10.26% per year over the last 100 years. That includes 21 different bear markets with indexes down over 20%. Long-term results are positive, so do not panic and stay the course.

Do you have a course? What do you know about investing? What are you investing in? What are your goals for accumulating wealth? Do you have a strategy? With these questions in mind, let’s begin our journey into the world of investing.

Education

Yes, you need to educate yourself and learn about investing. Don’t give your money to anyone to invest for you, not even a professional. Learn about the markets. S&P 500, Dow, Russell, NASDAQ, Bond Market, real estate market, taxes and retirement planning.

They are linked together. You need to know what they are and how to invest in them. Your biggest wealth-building strategy is to get out of debt and invest your money to grow it to large sums. It can be done.

Hire a professional to help you on your journey. Do not blindly follow their advice. Make your own decisions based on what you know and what is recommended by the professional money manager. Make them teach you. Ask them why.

Stocks

What is a stock? It is often referred to as equity. This is ownership in a corporation, such as Apple (AAPL). If you purchase shares in AAPL, you become an owner of the company. If the stock pays dividends, then you will receive a return on that share. Dividends are often paid quarterly.

As a stockholder, you also take on risk as an owner. The value of the stock can go up and it can go down. Either way, you have risk. As discussed previously, there is a potential for a slow but steady rise in the value of the stock. Often the performance of the company, profitability, impacts its value.

Learn about the many different types of stocks: common stock, preferred stock and dividend-paying stock, to name a few.

Exchange Traded Funds

There are many different types of Exchange Traded Funds (ETFs) available for investing. Basically, these funds are a pool of investment instruments. ETFs are available for just about anything you may want to invest in. There are ETFs for bonds, stock industry sectors, commodities, currency and inverse. These are just some that are available. Currently, there are more than 3,000 ETFs listed in the United States.

Mutual Funds

These are pools of funds managed by an investment professional. They can be equities, debt or money market funds.

Further breaking this down, you can have an equity fund that only buys Large Cap stocks. Or, some might prefer socially responsible companies. This type of fund would only buy environmentally acceptable stocks.

When I look at mutual funds, I generally only seek those funds that have paid out net of fees above 10%. Their track record has to be at least 10 years. The longer the track record, the better. My favorite are those funds that pay more than 10% and have an 80-year track record.

Do your homework.

Bonds

Bonds are debt instruments. For example, your mortgage is debt. The holder of your mortgage may take several mortgages, package them together and then sell a bond at a fixed rate of interest.

There are many different types of bonds from corporate AAA rated to junk bonds. Municipal bonds are issued by a governmental agency such as a state or county government. Then, there are Treasury Bonds issued by the federal government.

As you can see, the risk varies from the most secure Treasury Bonds to junk bonds. The greater the risk, the higher the rate of return.

These instruments are known as fixed income because the interest rate to the borrower and lender is fixed.

Real Estate

Where do we begin with this asset class? How about we begin with personal home ownership. I know many are saying that this is beyond their financial ability. “Prices are too high; now, mortgage rates are at least double from where they were a couple of months ago and appear to be going higher. Not going to happen for me.”

Well, newsflash: real estate has gone up for more than 100 years. If you believe it will be less expensive next year, then wait. This is an area where you should move forward when you are ready. Prepare for a successful home ownership. Get on a budget, pay off all consumer debt and have an emergency fund.

Once these are in place, then go for it, and yes, a good solid down payment is necessary. Mortgage rates, while higher now, are not at all-time highs. They most likely will come down and you can refinance then.

As a pure investment-producing income, there are many possibilities. Do you want to invest in commercial real estate or do you prefer residential? It is up to you. Which are you comfortable with? How will you pay for it? Is financing an option? Again, do your homework. Educate yourself on the options available.

Taxes

This is everyone’s favorite topic, I am sure. Who knows the tax code? Who cares about the tax code?

Spend some time here and understand the potential impacts on your wealth building, as giving away more than you need or want to will impact your ability to grow your wealth.

The easy stuff is don’t pay more than you have to. Adjust your withholding to pay your taxes. Do not overpay. A tax refund is not a gift, it is your money. Keep it.

Here is a link to calculate how much you should pay: https://thepersonalfinancewizard.com/tax-withholding-calculator/.

This is only a small part. Once again, hire an expert. The greater your net worth, the more tax help you may need. Learn the tax impact of your transactions and what that means to your investment returns.

While none of us likes paying taxes, learn the game. It will save you a bundle.

Retirement Planning

You might say, “I will never be able to retire! I could never have as much money as I will need to retire. I currently have nothing saved for retirement.”

Take a deep breath. It is possible, if you plan properly. Instead of working toward an age, work toward accumulating enough to live off of. The first thing to do is to create a retirement budget. This budget needs to include anything and everything you plan on continuing into retirement. Then, add things that you want to do in retirement. Once your budget is built, you can then plan on what amount you will need to save to achieve your goals.

There are always numerous ways to achieve your dreams. Let’s assume for a moment that you have prepared a retirement budget. That budget says you need $65,000 per year. The Social Security average monthly payment was $1,614 per month, or $19,370 per year. Subtract that from your needed amount and you get $45,630 additional that you will need.

If you have a pension (these are rare these days, but some folks do), this would further reduce what additional amount you will need. How much will you need in retirement savings to achieve your goal?

Continuing with this example, if you need $45,630 and we assume a 10% return (per our discussion above) you will need about $450,000. How do you get there? The answer is not simple. More calculations.

As you save for retirement, there are a couple of things to do to position yourself for success. Begin saving for retirement as early in life as you can. The more time you have, the easier the lift. Then, get your contributions to 15% of your income as quickly as possible. Seek investment returns greater than 10%. This will move you toward your goal.

Conclusion

To wrap this up, there are many variables to consider when investing. The short answers are to learn as much as you can. What are your goals? Work toward them. Perhaps one goal is to read a book about investing. If you’re a beginner, read one on investing for beginners.

This is high-level information and you will find other possible solutions and investment vehicles.

Finally, do not do anything you do not understand. Do not do anything you are not comfortable with and will keep you up at night. Remember, this is your money and your life. You choose.

Good luck! You work hard for your money. Make sure it stays your money!

Thanks for reading. I hope you found this helpful. QCBN

By Steven Calabrese

Buying a Home

October 29, 2022 By quadcities Leave a Comment

You work hard for your money, make sure it stays your money!

Continuing to build our financial plan, we will now discuss an important aspect for you to become successful.

Buying a home is not as simple as you think. There are several options and variables that must be considered when buying a home. We will discuss them as we make our way through important decisions you will need to overcome.

Check the Current Climate

As we enter late fall 2022, the economic sentiment is not positive. We face inflation, rising interest rates, a down stock market and a real estate market that may be overheated. Will real estate continue to rise or will it crash? No one knows the answer for sure, but we will likely see some reduction but not a crash.

Should I buy it? Interest rates have begun to rise, will housing prices decline? Always buy when you are ready, not before. Interest rates and housing prices should not be a driving factor. It is always a goal to get a good price when you purchase. Recently, when a house went up for sale, there were several potential purchases, this is not the case now. It’s a slowing of the market.

When are You Ready to Buy a Home?

You are ready when you have a solid foundation: a solid budget month after month, completely out of debt – no credit card debt, car loans or leases, student loans and personal loans – a good emergency fund of at least three months of expenses, six is better, and a down payment of 20% to avoid PMI (private mortgage insurance). That’s when it’s time to go shopping. Do not overpay for a home.

Find a Real Estate Agent

A good real estate agent is imperative. They know the market and the potential to guide you through the process. They deal with the buying and selling of real estate. Find yourself a good one. If you are a buyer, they will save you money. If you are a seller, they will make you some money.

Shop for a Mortgage

When it’s time to shop for a mortgage, don’t go with the first one. Get at least three quotes. The objective is a 15-year, fixed-rate conventional mortgage costing no more than 25% of your take-home pay. This is to include any principal, interest, taxes, insurance and HOA fees.

Getting pre-qualified will help in your ability to negotiate with a seller.

It may be tempting to go with an adjustable rate mortgage, but I would tell you to stand clear unless you understand them, they can be complex. Understand the risk.

Eliminate Other Debt

All other debts must be eliminated. One, it will free up your cash flow. Two, mortgage lenders will review this other debt and determine what you can borrow on a mortgage.

The lenders look at all debt and determine how much overall you can borrow. That may be about 50% of your take-home pay, ouch! They will then deduct all non-mortgage debt and that will be the amount they will be willing to lend for a mortgage, which could be less than the 25%.

It is to your benefit to eliminate as much, if not all, of your non-mortgage debt and certainly do not take on any new debt.

Adding in Repairs, Maintenance

When you decide to purchase, one factor to take into consideration is what kind of repairs you will need to do when you move in. Are there things that may need immediate attention, such as a new roof or an HVAC system? If so, then you will need to budget some funds. Or are you potentially looking at upgrades, perhaps a new kitchen or bathroom?

What is Your Credit Score?

If you borrow money, you have a credit score. Your credit score is important in that it could help or hurt your ability to borrow for a mortgage. The higher your credit score, the more likely you are to get a more favorable rate. If your credit score is low, you may want to seek alternative methods.

Consider Taxes

Be aware that with a home comes property taxes. Tax rates vary but the better the school district, the higher the taxes you can expect to pay. Remember, as you buy, one question to get an answer to is how is the school district? A good school district has a direct impact on the value of your home.

The deduction for real estate taxes along with mortgage interest has all but gone away, so there are no factors for these to take into consideration.

Retirement Planning

Buying a home is part of your retirement plan? How can that be? If you follow the formula and take out a 15-year, fixed-rate mortgage, then the house should be paid for well before retirement.

As you enter retirement, having a paid-for house will reduce your living expenses dramatically. The only living expenses for housing would be property tax, insurance and any repairs and maintenance.

Risk Management

Of course, this is the part where we discuss homeowners insurance. This is required! Your mortgage lender will require it. On the other hand, this also protects you against any potential disaster. Make sure your coverages are adequate to cover rebuilding and you are insured for replacement value. Insure your content as well.

Estate Planning

The final piece is to make sure you make provisions for your loved ones. Make certain you have a will. Let everyone know who gets what. Who gets your house? If you have minor kids, you need to provide for them.

Conclusion

In the discussion above, a number of options and information were presented to help you make a more informed decision when you purchase your home. Include these in your plan and you will be successful. Learn as much as you can about each one of the items discussed. It will be to your advantage.

Good luck!

You work hard for your money, make sure it stays your money!

Thanks for reading. I hope you found this helpful. QCBN

By Steven Calabrese

Getting Educated About Financial Planning

October 1, 2022 By quadcities Leave a Comment

Think college is it? Not really; formal education is just the beginning. It’s time to learn about real life.

As we continue building our financial plan, we will now discuss a very important aspect for you to become successful. Education; yes, education. We will step out for you some things for you to consider.

I always laugh when I hear someone say, “I can’t wait to get out of school.” Really? If you are not always learning, then you will not meet any of your goals let alone your financial goals.

Learning is a lifetime journey. Whatever the method, whatever the experience. A wide variety of learning is necessary. School is only just scratching the surface.

Formal Training

Formal education of some sort is needed to get one started on a career path, as this is the very foundation of one’s ability to earn an income and live one’s life. Your fastest way to wealth is your income: what you earn and how you manage those earnings. Let’s build that education path for success.

High School

Let’s begin here. What happens when you graduate? What path shall you choose? College? Trade school? A full-time job? A business of your own? The entire world is yours for the taking, choose carefully. There is no right or wrong answer. What excites you?

This is where more education is needed. Research is likely necessary. With the use of the internet, you can uncover information on just about anything.

A Full-Time Job

This is a potential path one may take for several different reasons. Getting a full-time job to earn some cash to perhaps pursue another path is one reason. Or, perhaps you do not know what you want to do but think you may want to try something out and see if it is for you. You certainly have heard the story of the CEO who began in the mailroom and worked their way up. It can happen.

College

There’s a lot to consider here. First, how will it be paid? My advice is to stay away from student loans. They will drag you down. There are scholarships, and a job could help as well. Many organizations are willing to help pay. Hunt them down. Then, choosing a school will be important in the cost. A couple of years at a community college is an option to get things started.

What type of degree will you pursue? Will that degree set you on the career path that you wish? What is the potential return of any degree? In another words, if you get a certain degree, what is your earning potential? Where can you be in 10 years? Twenty years? What is your path to success?

Trade School

Do you like working with your hands? Maybe working as a plumber, electrician or carpenter is what you enjoy. A mechanic, welder or some other trade may suit you. Any of these can provide you with a good income.

How will you pay for these? Perhaps you can get a job in construction and maybe they will send you to a trade school. Be creative.

Own Your Own Business

Don’t want to work for someone else, want to call your own shots? Do you have an entrepreneurial spirit? What type of need will you fill? What value will you bring to potential customers?

Can you develop a business plan? If so, great. If not, more education is needed for you to learn how to write one. Perhaps this is where you want to end up after you have gone down one of the other paths outlined above.

Career Path Chosen, Now What?

You may think with your career on track, your education is complete! Think again. It has only just begun. Whatever your career choice, make sure it is something you enjoy and that you will do for a long time and your success will be beyond your imagination.

Now, let’s explore the real-life education you will need to be a success in your financial life.

Real-Life Education

Think college is it? Not really; formal education is just the beginning. It’s time to learn about real life. If you are all set in your career with a nice job, what’s next?

Home Buying

If you want to buy a house, you need to learn about real estate, mortgages and all other home-buying tricks of the trade. When considering home repairs, how are your skills? Can you make the simple repairs?

Budgeting

We discussed budgeting in an earlier article. You can read it here, (https://www.quadcitiesbusinessnews.com/how-to-create-a-budget-for-success/). This is another life skill. if you do not budget, you will not likely be successful in financial planning.

Retirement Planning

Get a jump on retirement planning. Learn about 401Ks, 403Bs, IRAs, Roth IRAs and other tax-saving retirement instruments. Should you use tax deferral or tax-free strategies? How much should you fund? What about funding an HSA? Then, there is the education about Social Security and Medicare. The learning keeps on coming. Early retirement planning will ensure a comfortable retirement.

Taxes

Everyone’s favorite topic is taxes. We all need to pay our taxes, unfortunately. Learn enough to only pay what you owe. Never overpay. Don’t let the government hold your money. Remember, a tax refund is not a gift from the government, it is your money. It’s better to have it in your pocket than theirs.

Investing

What will you do with your money? How will you make it grow? What do you know about investing? More learning. A key to growing your wealth is getting your money to work for you. Where will you invest? What level of risk will you take? Will you be able to sleep at night?

Risk Management

Now that you have a solid financial plan, you need to protect your assets. How much insurance do you need and what types? Using insurance will protect both your family and your assets. Life, disability, health, auto, homeowners, renters and an umbrella policy may be in your cards. What do you need? What assets do you need to protect?

Estate Planning

Creating a solid financial plan will allow you to achieve success. What will you do with your wealth? You cannot take it with you, so more planning is necessary. What will you leave to whom? Did you name beneficiaries on all your assets? Do you have a will? Have you reviewed your intentions with your loved ones? Don’t make this a treasure hunt, tell them where the treasure is buried.

Wrapping It Up

In the final analysis, education is an important ingredient to one’s financial success. If you thought you were done once you got your formal education or training, you can now see that it was only the beginning. Use paid experts in the disciplines you do not understand or need help navigating. Make sure they teach you, not tell you. It is your money and your life. You need to make the decisions.

Good luck!

You work hard for your money make sure it stays your money! QCBN

By Steven Calabrese

Steven Calabrese, CPA, is the CFO of Polara Health. He also is the owner/operator of a website known as thebiweeklyadvisor.com, where topics such as budgeting, investing, paying off debt and goal setting are discussed.

How Proper Debt Management Will Make You Wealthy, Part II

August 26, 2022 By quadcities Leave a Comment

Stay focused. You can do it. Millions have. Imagine what life would be like without debt!

In last month’s column, we discussed the different kinds of debt. In this column, Part II of our discussion on eliminating debt, we will explore how to create a foundation for building wealth. If you missed Part I, you can read it here: https://www.quadcitiesbusinessnews.com/how-proper-debt-management-will-make-you-wealthy/.

Get Mad

The first step for eliminating debt is getting mad. You must get mad at the banks, credit card companies and yourself. Paying them all that interest is working for them, not for you. Keep in mind that it was you who created this mess, not them, so be angry at that person in the mirror. The good news is that person in the mirror can also fix this problem. All you need is a plan.

Create the Plan

The first thing you must create is a budget. A budget will be the key to your success. Once you have created a budget, it will show you where your money is going. Hopefully, you have more income than expenses.

If not, you have more work to achieve. Review the expenses. What can you eliminate? Scale it down to the essentials. Get rid of those subscriptions, tighten up on that double latte and stop eating out. Get down to bare bones.

An alternative is to add extra income. Perhaps a second or third job. A good, solid budget may take a few months. Don’t give up and get persistent. It can be done.

The goal here is to create as much extra cash as you can to eliminate your debt as quickly as possible.

Attacking your Debt

The goal is to eliminate your debt in 24 months. This will require sacrifice and focus!

Let’s review the numbers. The average payments for credit cards, student loans and the car is $1,100. The combined balance owed is $69,900. That comes to about $2,900 per month, an extra $1,800 per month for 24 months. How can you achieve that? What should you do first?

Sell Stuff

Look around. Certainly there is stuff lying around that you thought you needed but now it collects dust. It’s time for a yard sale or perhaps you can sell on eBay or Facebook. Raise cash and clean it all out. Then put it all against your debt.

What about your car? An asset that loses value every day. It’s time to get rid of that. If you can sell that for what you owe, that is a big chunk of your debt. Replace it with something reliable to get you from point A to point B. You do not need to impress anyone. The reality is that perhaps in today’s used car market you could get more than what you owe.

If you did get more, you could put that with the money you raised from selling stuff to get a low-cost, reliable car.

And now, guess what? You have reduced your outstanding debt to $43,740 and eliminated a car payment of $600. Again, the goal is to be debt-free in 24 months, which is $1,822 per month. Only $722 additional per month is a bit more manageable.

Now we are getting the ball rolling.

The Rest of the Plan

This is the part where the rubber hits the road. It’s time to dig in. Create a list of all your debt. The amount you owe and the minimum payments per month.

There are two methods I like. The snowball method and the high payment snowball. Both are based on the concept of building momentum. Eliminate one debt and then the next until they are all paid.

Snowball

The snowball method is straightforward. Take the list of debts that you made earlier and order them from the lowest to the highest outstanding balance. Begin paying off the smallest balance first. Do not be concerned with the interest rate, as it will not have a significant impact on getting your debt paid off.

As you begin to pay off the smallest balance, it is imperative that you pay more than the minimum balance. This will get the balance paid off. The objective is to get it done fast. Continue to make the minimum payment on all the other debt.

Once you have paid off the smallest debt and move on to the next smallest, use the amount you were paying on the first debt and add it to the second debt minimum payment. Get that paid off as quickly as possible. Then, continue onto the next debt using the amount you were paying on the second debt and add it to the minimum payment of the third debt.

Continue to do this until you have paid off all your debt.

Highest Payment Snowball

This is similar to the snowball process described above with a minor change. Instead of the smallest debt, you start with the highest payment. Pay extra on the highest payment amount. Get it paid off, then roll onto the next highest. Continue to do this until you have mastered all your outstanding debt.

The theory is that by starting with the highest minimum payment you will have more to pay as you move through the lower payments, getting those lower ones paid faster.

Wrapping It Up

Millions of families have eliminated their debt. Either one of the methods discussed above will get you headed in the right direction to become debt-free. This is the next step in your journey to becoming wealthy.

While I have laid out a plan for you, it is just a plan. The rest is up to you. Stay focused. You can do it. Millions have. Imagine what life would be like without debt!

What can you do with the money you were using to pay debt?

Good luck! You work hard for your money, make sure it stays your money!

Thanks for reading, I hope you found this helpful. QCBN

By Steven Calabrese, CPA

How Proper Debt Management Will Make You Wealthy

July 28, 2022 By quadcities Leave a Comment

Getting your debt paid off is a major step in beginning to build your wealth.

Several debt management strategies can be implemented that will put you on the path to accumulating wealth. I would like to take a look at several types of debt and begin to dissect them. Finally, I will make a recommendation as to one possible way to attack your debt.

How Much Debt Do Folks Have?

While the total outstanding debt on a national basis is a record $15.84 trillion, including mortgages, here is a list of the average amounts of outstanding debt by age group, excluding mortgage balances:

Gen Z (18-23) $9,593
Millennials (24-39) $78,396
Gen X (40-55) $135,841
Baby Boomers (56-74) $96,984
Silent Generation (75 and over) $40,925

Leading Types of Debt

What types of debt do folks owe? Here is a list, with the average outstanding balance for the big three.

Credit card debt $6,569
Student loans $37,172
Auto Loans $26,162

Then, there is a family loan, personal loan, 401K (retirement) loan, HELOC (home equity line of credit), mortgage and payday loan.

If you believe loans are good because we are using other people’s money, I would say that’s wrong, because there is no good debt. All debt is bad. Take a look at your bank’s headquarters building and know that you paid for it.

About 25% of the population has no debt outside of mortgage debt. About 53% say that eliminating debt is a priority.

Why So Much Debt?

We live in a time when we all want everything now. Why wait? If you can have that new car, you get it. The average car payment is $648 for a new car and $503 for a used car, according to Experian. These payments range anywhere from three to seven years. When folks look at the car, they do not ask if they can afford the car, but ask if they can afford the payment. That’s not the right thinking.

Having a student loan, which is an epidemic across the country, is not even considered a loan by many who have this outstanding debt. The average loan payment is $393, according to the Federal Reserve. Many have not considered alternative ways to pay for a degree. They also do not ask the question, “Am I going to get a return for my investment?”

Credit card debt is a national favorite, with the average monthly minimum payment of $110 for a balance of about $5,525, taking a whopping six years to clear the balance. Many folks have resorted to supplementing their income by using their credit card for purchasing gas and food. Then, of course, there is impulse buying. Please keep it up, because it’s good for my Amazon stock.

How much of this sounds like you?

Auto payment $600, student loan payment $390 and credit card payment $110. Add that up and it comes to $1,100. What could you do with an additional $1,100 per month?

How about investing as one possible alternative?

How Much are Payments Costing You?

If you clean up your act and get these debts paid off, you could then invest the $1,100. If we assume you invest monthly $1,100 for the next seven years at a modest 7% return it will grow to about $118,000 before taxes.

Now, think about that! You can pay the banks for that new car, pay your student loans for an eternity, keep that buying up on credit cards and make bankers rich. Or, you can eliminate your debt and put yourself on a journey to accumulate wealth.

Eliminate Debt

All of this sounds great, but it’s easier said than done. Yes, very true: Good things in life do not come easy. You must work at it.

Here is a very simple formula to achieve this goal.

Create a budget. Put every dollar you earn into a category and give it a home. Live on less than you make.

Take a hard look at your budget. Do you have everything? Does it include debt payments? Does your income exceed your total expenses? If so, great! if not, maybe you need to create additional income. Can you eliminate some expenses? Are they all necessary?

Now, list out your debt, the amount you owe and monthly payments. Put your items in order from the smallest to largest amounts based on the balance owed.

Create a Plan
Now, freeze all debt. Do not add one single penny. The bad habits must be stopped. This is a critical step.

With the list of debts in hand, begin to pay them off. Begin with the smallest debt first, working your way through each debt until all are paid off.

With your budget done, you know what your needs are to pay all your bills. Now ask yourself what you need to do to begin to double or perhaps triple pay the lowest debt. The key is to get this first debt paid off as quickly as you can. Cut the budget to bare bones. Maybe get a second job or sell some of those impulse things you bought. Make sure you are keeping up with the minimum payments for all the other debt.

Once you have the first one paid off, then roll the payment from the first debt to the second debt, getting that paid off as quickly as you can. Continue to roll payments until you have gotten through each debt. Before you know it, all your debt will have gone away.

I think you get the idea.

Now What?

Getting your debt paid off is a major step in beginning to build your wealth. Now, begin to invest those payments that you do not have to make that make the banks rich. Make yourself rich instead!

Apply some discipline to create some short-term pain for the long-term benefit. Want to become a millionaire? This is the key. Go for it.

Conclusion

Debt management is debt elimination. Stay aware from debt consolidation because it does not get your debt paid, it just moves it. And yes, getting your mortgage paid off is also a goal. The sooner you can be 100% debt-free, the quicker you can build wealth.

So, get started.

Next month, we will discuss in more detail how to create an exact plan and a couple of alternative ways to become debt-free. This was high level, but you should be able to begin putting things in place.

Good luck! You work hard for your money. Make sure it stays your money!

Thanks for reading; I hope you found this helpful. QCBN

By Steven Calabrese

Steven Calabrese

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