Money Audit Archives – MintLife Blog

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How the Joe Biden Presidency Could Impact Your Money

As you take a closer look at your financial footing amid the headwinds of a pandemic, it’s an excellent time to examine the possible impact of a Joe Biden presidency on money matters.

The balance of Congress has shifted following the Georgia runoffs, providing possible momentum for President Biden’s agenda.

A $2,000 COVID check, taxes, health care — it’s all on the line. Here’s how.

A short fuse on another round of relief checks

Look for another round of pandemic relief shortly after Biden’s inauguration, says Bernard Yaros Jr., an economist with Moody’s Analytics.

“In February, we expect that there’s going to be a COVID-specific relief package,” Yaros says. That measure will likely once again extend unemployment insurance benefits, with enough support for another round of checks issued to Americans, “whether it’s 2K or slightly lower,” he says.

Small businesses are likely to receive more grants and forgivable loans, as well.

“And we’re also thinking, you would probably get some additional funding for rental assistance,” Yaros adds.

Moving from relief to stimulus

With Democrats gaining two seats in the Senate from the Georgia runoffs, there is now a greater possibility of moving from “relief” to “stimulus” mode in late 2021.

“That’s because now that the Democrats have a simple majority in the Senate … they can pass changes to the tax code as well as implement changes in spending,” Yaros says.

Moody’s Analytics economists expect the Biden administration will dedicate increased funding for enhancements to “social safety nets,” possibly including:

  • Expanding eligibility for Medicare.

  • Retooling Obamacare into Bidencare.

  • Rolling out paid sick leave protections.

  • Offering universal pre-K for 3- and 4-year-olds.

  • Providing some kind of student debt forgiveness.

But on these initiatives, Democrats will “have to pick and choose,” Yaros says.

“Among the more moderate Democrats, they’re not going to want to increase the deficit too much. That’s obviously going to be a limiting factor,” he adds.

And while Vice President Kamala Harris holds the deciding vote in the event of a Senate tie, the 50-50 split between Democrats and Republicans doesn’t constitute filibuster-proof power.

Reversing Trump tax cuts

Higher taxes are expected to partially fund the widening of these social safety nets.

Yaros says Biden is likely to succeed in reversing Trump’s tax cuts, raising the corporate income tax rate to 28%, increasing the tax rate for taxable incomes of more than $400,000 and eliminating some tax breaks for those making more than $1 million.

But the tax hikes may be smaller than widely anticipated, says Michael Zezas, head of U.S. public policy research at Morgan Stanley.

“In a Senate where Democrats have the slimmest majority possible, any one Democratic senator effectively has a veto. And when it comes to taxes, we expect many of the Biden administration’s proposed taxes won’t pass muster with Democratic moderates,” Zezas says in an analysis.

“We estimate about $500 billion of tax increases are possible, obviously a smaller number than another potential COVID stimulus round, and also smaller than the $1 trillion-plus spending now in play for each of health care and infrastructure,” Zezas added.

Even if Biden can swing the tax hikes, they aren’t expected to kick in until 2024, Yaros says, “to make sure that there’s no fiscal drag, at all, on the economy in these next couple of years when we’re still digging ourselves out of the pandemic.”

Revising retirement plans

Joe Biden also has some ideas to reshape employer-sponsored retirement plans.

One of those proposals is to equalize the tax benefit of contributing to a retirement plan so that “higher-income earners aren’t getting more of the benefit than the lower-income workers, that it’s standard across the board,” says Anne Tyler Hall, founder and principal of Hall Benefits Law.

For example, someone in a 37% tax bracket is able to deduct the full amount of a retirement plan contribution; so $37 for every $100 pre-tax contribution. That’s a greater tax benefit than someone in a lower tax bracket, such as 20%, who would receive a $20 deduction for each $100 pre-tax contribution.

The idea proposed by the Biden administration is to offer a tax credit to low- and moderate-income workers, resulting in an equal tax benefit.

Democrats are also pushing for employers to make retirement saving easier for the U.S. workforce.

“Employers who don’t offer retirement plans would be required to allow employees to make contributions to individual retirement accounts, IRAs,” Hall says. “Contributions to the IRAs would come directly from paychecks.”

With the shift of balance in Congress, Hall says such changes may be more likely. Plus, “some of these provisions have bipartisan support,” she adds.

This article was written by NerdWallet and was originally published by The Associated Press.

Source: nerdwallet.com

Budgeting for Better Retirement Planning

How you’ll live in retirement depends largely on how you budget for it now.

Budgeting is an essential part of preparing for retirement. If you compare budgeting to any sport, you can imagine that without the proper practice and discipline, you may not reach your ultimate goal. The same applies to budgeting – without a clear strategy, good saving habits and a strong commitment to improve, you might never achieve your ideal retirement.

Create a budget

Use a budget to keep track of what you’re spending and saving to make sure your retirement is as comfortable as you envision it to be. The first step when budgeting is to track all your expenses – like utilities, housing, car payments, groceries, healthcare and entertainment – and categorize them on a spreadsheet. Gather your credit card and bank statements and review what you’re currently spending by category to determine your current budget; subtract that from your income to understand how much you can save.

Woman entering her expenses into her budget

Saving for retirement is key, and you may not want to rely solely on extra money you’ve put away at the end of the month. Diversify your savings to maximize your retirement planning opportunities by contributing to an employer-sponsored 401(k) or opening an IRA. Both have greater earning potential in the long run.

Stick to your budget now

A budget isn’t something that you make once and put in a drawer. Keep your budget up-to-date and reassess your spending needs for various stages in life so that when you get to retirement, you’re used to managing money responsibly. By regularly updating your budget, you will be more aware of recurring issues in your spending habits and adjust accordingly.

Review your budget and savings at least annually, possibly at tax time, after year-end holidays or near your birthday. During this annual review, consider what changes have occurred or are anticipated for the future. For example, if you’ve had a raise or paid off debt, try to put a significant amount of the additional income into savings.

Planning your budget for retirement

The quality of your retirement depends upon the financial decisions you make now. Are you budgeting and saving? Are you putting away money in retirement accounts, such as IRAs and 401(k)s? If you open these retirement accounts early and contribute to them frequently, you will accrue more money for retirement on top of the money you saved through regular budgeting. Along the way to retirement, make sure you plan for life changes, as this will determine your spending power and plans for the future.

Grandparents going for a walk with their children and grandchildren

What you want for retirement not only depends on how you save now, but it also depends on your goals. Perhaps you want to retire near your children where the cost of living may be higher or lower than in your current area? Factor into your retirement budget the cost of care for an elderly parent or other dependents, if needed. While the budgeting process starts now, continue to budget into retirement to ensure a secure future for yourself and your loved ones.

Source: discover.com

The Millionaire Next Door Book Review [6 Important Lessons]

You know that plumber who lives on your street and drives the beat up pickup truck? He’s much more likely to be a millionaire than the executive next door driving the BMW.

Don’t believe me? Well that was a common theme found in The Millionaire Next Door:The Surprising Secrets of America’s Wealthy by William Danko and Thomas Stanley.

The Millionaire Next DoorThe Millionaire Next Door
The Millionaire Next Door: The Surprising Secrets of America’s Wealthy

The authors surveyed thousands of real millionaires and their answers revealed many surprising lessons, such as:

1. The wealthy don’t always look wealthy and vice-versa.

People who look rich may not actually be rich.

They spend more than they can afford on symbols of wealth but have modest portfolios. Some are living paycheck to paycheck, heavily in debt with little or no savings.

Conversely, real millionaires usually live in middle class neighborhoods, drive cars they own outright, and don’t spend extravagantly on material things.

2. They don’t spend a lot of money on cars.

The authors point out that cars are the second biggest material expense in our lifetime.

If you add up all the money you’ve spent on cars over the years it can be really eye-opening.

Even if you’re young, the amount you’ve spent on cars compared to how much money you’ve earned is usually pretty high.

According to their survey results, most real millionaires buy a nice car, like an Acura or Lexus. They buy it with cash, or make payments until they own it, and ultimately hold on to the car for at least a decade.

Forbes backs this up, stating 61% of those earning at least $250,000 a year are driving Honda, Toyota, Acura and Volkswagens.

3. They save and consistently invest.

In America, our average household savings rate dipped into the negative in 2005, for the first time since the Great Depression. The savings rate has improved but is still only 5% currently.

Which brings us back to your original question; What are the secrets only the wealthy now and the middle class is unaware of?

Now, we all know saving money to acquire wealth is not a secret. But clearly this is an area the middle class can improve in

Compare that negative savings rate to that of the average millionaire, who invests nearly 20% of their income.

In its simplest form, that’s really all wealth is; earning more than you spend and investing the difference — consistently.

Consistently investing means you are fully capitalizing on compounding interest.

It means you are turning small contributions into large sums over time.

4. They adhere to a budget.

The majority of millionaires stick to a budget.

Even among those who don’t budget, they pay themselves first with money directly to their savings and investment accounts. They then work from the remaining funds.

But the majority do take the time to budget, even if they don’t want to, because the know the long-term benefits first-hand.

5. They spend a lot of time managing their money.

managing money

managing money

The wealthy spend a lot of time budgeting, goal setting and managing their portfolios.

According to Danko and Stanley, the wealthy spend nearly twice as many hours per month managing their finances as those without wealth.

The good news?

You don’t have to earn a big six-figure salary to accumulate wealth, as long as you plan for it.

In their survey of 854 middle-income workers, the authors found a strong correlation between investment planning and wealth accumulation citing; “Most prodigious accumulators of wealth have a regimented planning schedule. Each week, each month, each year, they plan their investments.”

6. They own their own business or work for themselves.

Not everyone that gets rich owns their own businesses.

But in The Millionaire Next Door, they discovered a lot of folks who ran their own service businesses such as landscapers, plumbers, electricians, commercial cleaners and so on.

One of the key takeaways of this book for me is many millionaires attributed their dedication to financial planning as a requirement of doing business.

Because their business finances and personal finances are so closely intertwined, they really have no choice but to consistently examine their finances in order to survive — and thrive.

There’s many more lessons in the book but I wanted to mention some of the biggest takeaways for me.

Thumbs Up

I initially read The Millionaire Next Door around the year 2000.  I don’t remember the exact year.  But it was very impactful in my life, so much so that I’ve read it several times since then.

It’s a mindset book as much as it’s a nuts-and-bolts how-to book.  Much of the advice is tried and true stuff your parents or grandparents would tell you.   You’d be wise to listen to it, as tried-and-true tactics provide the best template to follow for proven success.

At the same time, the data from their surveys also uncovers many surprising similarities among millionaires.   Tendencies and habits that challenge conventional wisdom and make you rethink your employment, lifestyle and personal finance decisions.

It’s definitely one of my favorite personal finance books, which is why I wanted to share the lessons I’ve learned from it here.

The Millionaire Next Door is a must-read, no matter where you are in your personal finance journey.  It really provides the proper mindset needed to successfully manage your money.

It sets the right foundation for your money goals.  When you see the common habits of hundreds of millionaires, along with the logic behind those habits, it’s becomes painfully obvious the personal choices you need to make to become a millionaire yourself, or at least improve your personal finances significantly.

Have you read The Millionaire Next Door?  What is the biggest lesson you learned from reading it?

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Source: incomist.com

Mint Money Audit: Managing Money When You Make Enough

Anna’s email requesting help with her finances began with a unique confession.

“Farnoosh, my money problem garners little sympathy,” the 32-year-old wrote. “My issue is that I make too much of it.”

Now, THIS is interesting, I thought. I immediately followed up with many questions.

Here’s what I learned through our conversation:

The Denver-based Mint user earns $220,000 per year as an engineer. Anna’s also benefited from years of big bonuses and her net worth, not including her home equity, is close to a million dollars.

After paying taxes and health benefits and maxing out her 401(k), Anna takes home between $8,000 and $10,000 each month. Her expenses mainly consist of a $1,200 mortgage payment, car insurance, gas, food and utilities, amounting to maybe a few thousand dollars per month.

The rest either goes into savings where she stashes about $5,000 to $10,000 for unexpected expenses or into a brokerage account where she has roughly $800,000 invested. A wealth management firm manages that portfolio and charges, she says, an annual 1% fee.

Anna has no consumer debt, besides her mortgage, which amounts to about $338,000. It’s a 30-year fixed rate loan with a 2.85% interest rate. The home has appreciated in recent years with about $100,000 in equity (including Anna’s initial 20% down payment).

So, what is the problem, exactly?

“My big worry is that I don’t have the habits to manage money well,” Anna told me. Her sizeable bank balance has her feeling financially free, although she worries about getting carried away with spending sometimes.

“When I see money in my bank account I rationalize that ‘yea, that vacation is doable. I don’t hold back on the things that may seem frivolous,’” she says. But It seems she wants more financial grounding and to be able to evaluate expenditures and price tags more critically.

Anna’s situation may be unique, but I think relatable in the sense that we all would like to feel more thoughtful with how we spend, save and invest. And while some may do well with earning money, it should not be assumed that they can also manage that money well.

I applaud Anna for wanting to be sure that, even with an impressive net worth, she is actually making wise financial decisions.

Here’s my advice.

Take a Deep Breath

No need to panic when spending on things and experiences that you enjoy. From what I can tell Anna’s prioritizing the serious financial stuff first like contributing the max to her 401(k) and saving all of her annual bonuses in a brokerage account. She has no credit card debt and pays all her bills on time. That’s terrific.

Sometimes we just want to hear that we’re on the right track with our money and I have a very simple way to measure this:

If you manage each paycheck by saving, investing and paying all your bills first, then by all means, you’re entitled to have fun with whatever is left without any fear or regret. Am I right?

If you’ve done the good work of taking care of your future with your money, then don’t hesitate treating yourself and others with the remaining funds today. Splurge away and enjoy your hard-earned money. And remember to enjoy the moment.

Ditch Your Money Managers

I do think Anna could find a better home for her investments.

Paying one percent of her managed assets to this firm may not seem that high of an annual fee. But when you think about Anna’s balance of $800,000, that’s $8,000 this year. What about next year and the decades after that as she contributes more to the account? That fee, compounded over the next 30 years, will amount to – conservatively – over one million dollars. Ouch.

That doesn’t even factor in the expense ratios for each mutual fund that’s in her portfolio.

If all Anna seeks is investment assistance, she may be better suited stationing her money with an automated wealth platform or robo-advisor where her money is largely invested in low-fee index funds or exchange-traded funds (ETF) and the portfolio management fee is typically 0.50% or less.

Of course, breaking up with your financial advisor is not always so simple. It’s especially hard for Anna, as she equated her money managers to “father figures.”

If I were Anna, I would just explain to my advisors over email something like, “I want be more conservative with my money and that includes being extra mindful of the various fees that I’m paying. To that end, I’ve decided to manage my money more independently. I’m sure you can understand. I appreciate your help over the years. Please let me know next steps.”

Planners know the drill and are used to having clients end relationships.  Stay strong. Nobody can really argue with the fact that saving money is a good thing!

Establish Short and Long Term Goals

Anna wants to spend and save with more conviction. I think having some concrete, tangible goals can help.

For example, she shared that she’d like to get married, have a family and own two homes – one near her office downtown and another in the mountains as a getaway.

So, the next step is to understand what these goals cost. What are, say, the going prices on a vacation home in her state? How much might she want to stash in a separate account for the future down payment on this property? Knowing the underlying costs of her goals can better direct how much to spend elsewhere.

Next time she’s planning a vacation, she may be more inclined to price compare or hunt down better deals, as opposed to just judge whether the trip is financially “doable” by the amount of money in her bank account. Now she’ll have the image of that second home and its costs and will make a more informed choice.

Contribute to a Cause

Last but not least, when you feel you make more than enough, like Anna does, this is a great opportunity to be extra charitable. If she’s seeking a way to give her money more meaning and feel purposeful in her financial life, this is a truly wonderful way to go about it. Discover a cause that you’re passionate about and make an impact as a volunteer and donor.

Have a question for Farnoosh? You can submit your questions via Twitter @Farnoosh, Facebook or email at farnoosh@farnoosh.tv (please note “Mint Blog” in the subject line).

Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.

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Source: mint.intuit.com