Post # 16
I’ll echo the Dave Ramsey recommendation. He has a syndicated radio program and podcast and you would learn a ton of useful saving and investing lessons – as well as life lessons – just by becoming a regular listener.
I would highly recommend becoming debt free – including your eventual house – as early in life as possible. There is no greater sense of freedom in the world – your ability to tackle life’s unexpected surprises (make no mistake, there WILL be some) will be so much easier without the anchor of debt dragging you down.
I also recommend always taking advantage of your 401k’s (or similar) if you have them, even if you can only contribute a little in the beginning. Time is on your side to let this grow into a very healthy retirement account when you need it. I know that retirement is the last thing on your mind and probably even seems weird to consider at your age, but trust me……far too many people reach my age (old!) only to realize they waited too long. By then you will have lost a lot of compounding years that you may never be able to make up. Make paying yourself every month (saving) a habit, just like paying all of your other bills.
You sound like an intelligent, responsible person asking all of the right questions. Good for you – I wish you both the best!
Post # 17
winry12 : If he’s a 1099 contractor, as it sounds like from you saying he’s “his own business” and you’re writing off gas (you can no longer do that under TCJA if he’s on a W2, so I am going to assume it’s 1099), then are you remitting taxes yourself yet???? Although the requirement is to pay taxes quarterly, i STRONGLY recommend you remit the taxes monthly, you have to pay SE tax as well as income tax, so I generally recommend 25% to fed and then whatever your tax rate is to the state to my clients. If you havent been sending in taxes yourself you have WAY less money than you think, you may even be behind and literally owe the IRS thousands. (On $50k 1099 one could expect to conservatively owe $10k in tax)
An advantage here is you can open a SEP-IRA retirement plan. He can put in 25% of his net up to $56,000. Way better contribution limits than a solo-k, but you could also do a SEP. When you’re self employed you have a lot of options for saving.
Post # 18
First, don’t count your chickens before they hatch.
Second, ias a contractor, s he paying his estimated quarterly taxes? If not, y’all are in for a rude awakening
With him in sales in an industry that completely dries up in a recession, I would put away 18-24 months of savings before I did anything else.
Then, it all depends on your interest rate on the student loans. If high, you pay then off or refinance. If low and you can invest at a higher rate, then you invest.
Post # 19
winry12 : no problem! I think you guys got this!
Post # 20
Congrats, you are on the right track! It’s great that you and your fiancé are talking about this. Given the inconsistent salary your first step should be setting up the emergency fund of 3 mo salary/expenses. While you are doing that look into if either of you has an employer retirement savings match – that is free money and a guaranteed return. Then look at the interest on your debts and how long it would take to pay off. It sounds like you’ve considered your expenses, but if you haven’t already put them in an easy to update spreadsheet please do so as you can quickly update and see the impact of a good or bad month.
Post # 21
winry12 : I have a set salary and D.H. has a base + commission structure, so we’re in a similar boat as to not knowing exactly what he’ll make each year. When we do our budget, we always put in numbers as if he’s only going to make his base amount. Anything extra goes into savings; that way, we’re not relying on maybes. As for what to do specifically – I would always max out your retirement each year if you can afford to and aim to have 6 months in savings to start.
Post # 22
Getting a fiancial planner is a good idea. If either of you get retirement contributions matched get on that now. The amount you earn on it by starting now rather thsn in 30s will be a lot.
Definitely don’t spend hoping for the more money. You never know. I expected certain jumps that never happened because I lost my job and switched industries.
There’s many ways to pay debt. And generally experts say to prioritize secured debt (such as student loans) over unsecured debt ( credit card). Because student loans cannot be discharged if you ever had to file gor bankruptcy.
However I did the opposite of what was suggested because my credit card interest rate put me in the worst financial snowballing ever. I would have had to declare BK. So to avoid that I got a low interest rate loan to pay off mu credit cards. Not recommended unless you are doing it once and not racking up the CC debt again. I prioritized that and my medical bills bc my medical place would have not let me come back. So I was able to get a payment plan.
I lowered my monthly payment on my student loans to make this possible.
Then every month after bills were fully paid I saw what was extra and either put an extra 50 or 100 towards student loans. I had no interest on medical bills so I paid the lowest they’d letme.
It was hard. But because I was in so much debt I had no choice.
Then when things started to get paid off I added more and more to savings. And I paid off one of my school debts (took 11 years) i used that payment towards savings. I pretended like I never paid it off. Now medical is paid, CC debt is a year away from paid. Then I have onemore school to pay off.
It takes work and discipline but its doable. Also do not carry a credit card balance over. The interest on that can ruin you so fast. Mine snowballed after I lost a job and paid medical and car repairs with it along with some dumb purchases on my part.
So I did a lotof wrong but you needtp tailor it to your situation.
Post # 23
winry12 : make sure you contribute to your retirement to at least pick up any match your employers offer, more if you can swing it. Then set up an emergency fund, then pay down the student loans aggressively, then start investing any extra.
Post # 24
1. You need a CPA who can help your Fiance tax plan and understand what deductions (like mileage) he can take as a self-employed person. A good CPA can also help determine whether he would benefit tax-wise from organizing into a LLC or other type of tax entity. As others have said, if he has not been paying quarterly taxes to the IRS, he is going to have a huge shock next April. Don’t wait until then to find a CPA.
2. Financial Planner. Not someone who sells financial products but someone you pay by the hour who will listen to your long-term goals and help you put together a financial plan to achieve those goals.
Post # 25
Never count your chicken before they hatch. I remember reading once that when it comes to money it’s best to have a pessimistic mindset of it because then you wouldn’t be screwed over if something bad happens. So as tempting as it is to be excited regarding to a possibility of $150k income… until that money is in your account and all your expenses are paid off then I would consider the worst case scenario, which is living off only on the lowest income.
Depending on your financial goals you have many options available for you. If you are saving for retirement then you can utilize online calculators to figure out how much you need to save, and how much you should put aside each month/year. If you are planning to buy a house then you can look into real estate and figure out how much you need to save for a down payment and how much mortgage you are comfortable with carrying while living off on the lowest income. Cause honestly, life sucks and unfortunately there’s always a possibility that one person will be unemployed at one point.
Also you should consider looking into savings account offered by your country. Canada offers TFSA and RRSPs, which are taxed differently, penalized differently, and also have their limits. Each has their own benefit that can you use to meet your financial goals. I believe the same is for US 401K – but I don’t know anything about the US accounts.
As for loans… pay off the loan with the highest interest rate as fast as you can. If your repayment plan hasn’t started yet then I suggest you try cutting down your expenses to paying off you loans faster.
Also, another bee mentioned this as well… keep money aside for the possibility of owing on his income tax – unless if he’s taxed proper by a third party.
Post # 26
Thank you every one for the suggestions! Since many of you suggested Dave Ramsey we looked him up on youtube last night and he was very educational, we then downloaded the Every Dollar budgeting app and sat together going through every single purchase we made in October, categorized it and created a working budget for November only using the money we have and actually giving each dollar a “job”. Something Dave Ramsey said really hit home when we were doing this, disorganization leads to impulsive spending which leads to waste, it was 100% true for us!
Like I said we aren’t big shoppers in the sense of buying “stuff” but holy cow we were THROWING AWAY money on take out! Like too embarassing to write here kind of amounts. We also didn’t realize we’ve been getting charged around $100 a month just in withdrawal fees from our account which is ridiculous and such an easy fix! Gowing through our accounts so thoroughly was terrible and amazing at the same time and opened our eyes to what we really spend, we realized both of us have a subscription to Amazon Prime… we don’t both need that. Lots of that kind of stuff. Before this, since we haven’t been struggling, we’ve just been willfully ignorant to our spending habits, mostly because the thought of organizing our finances was such an overwhelming task.
We have a plan in place now, we are going to update our account every night with purchases we’ve made through the day and keep ourselves accountable. Organization really makes all the difference in the world!
My fiance has also booked an appointement with a financial planner who will help him with his taxes and direct him with things like what he needs to keep a record of, what he needs to save to submit at tax time, etc… We live in Canada so I don’t believe he’s behind with the tax payments people have been mentioning because no one at his work has said anything about quarterly payments, the only recommendation his fellow reps have made were to keep at least $5000 on hand in case he needs to pay taxes.
Also don’t worry everyone, I’m not trying to count our chickens before they hatch, I’m not making plans with any money we haven’t made yet, I’m just recognizing the pretty strong possibility that next year we will be bringing in a lot more than we imagined as a household and I wanted to start preparing myself so that if that happens, I will be able to use that money properly. I’m not counting on it for anything in particular, and I do recognize that we might not bring in anything close to that, but if we do I want to maximize how we save/invest/pay debt, do I put it into a TFSA or RRSP, which is better etc…
dgirl715 : LilliV : sweatergal007 : missinthecity : lablover214 : zl27 : bpositive : cart : hellonursenola :
Post # 27
You’re on a great track and making smart decisions that will pay off more than you realize!!! Happy for you – way to go! winry12 :
Post # 28
winry12 : It really depends on your financial goals and what your plans are for your money. Do you need flexibility to access it whenever? Or do you think you can lock it in until you retire? I’m not sure how much you know about each account but overall:
– TFSA: money invested in this account after-tax and any interest earned will not be taxed. So if you invest $63.5k and earn an interest of $2000, then that $65.5k is not subjected to any tax. The contribution limit is $63.5k as of 2009, and each year you have an additional contribution allowance (eg. $6000 in 2020, bringing a total of $69.5k in 2020). You can withdraw the money any time with no penalty, except unless if you reinvest over your limit within the same year (eg. you take out $63.5k and then reinvest $63.5k in the same year).
– RRSP: money in this account is pre-tax and will be taxed when you take it out, idealistically, you retire (because this is meant for your retirement and your income is idealistically at the lowest income tax bracket). So if the money you invested is after-tax, then it can go against any money owing on your income tax and reduce your tax owing (if you have any). So say if your fiancé owes, I dunno, $1000 on taxes then he can invest into his RRSP account $XXX amount of money to reduce how much he will need to pay in tax. The contribution limit is 18% of income earned, to a max of $26.5k. If you withdraw before retirement you can be penalized with a couple exceptions like buying a home for the first time (but you’ll need to repay it within a certain time frame).
All the accounts can be used in investment. Whether it’s GICs, mutual funds, stocks, etc. You can open multiple TFSAs and RRSPs and diversify your investment types… or you can have just invest in one thing that you feel comfortable with. It really depends on you and what your comfortable with. Overall, find something that works for you.
Personally, I like the flexibility so I max out my TFSA first because I can access the money any time without an penalty. I only contribute to my RRSP if I calculate that I will owe taxes, and also if my employer will match my contribution to RRSP. If you have kids you can also invest in their RESP accounts as well for their future education. Otherwise any excessive savings can be invested in typical savings accounts… however any interest earned is subjected to taxes.
I’m not a financial expert in any way. Majority of what I’ve written is based on my own knowledge and it’s always best to verify it against government sources.
Post # 29
$5k for taxes? Are they high? He needs to keep 20-30% aside depending on his annual income. Next year it might even be 33%.
And after this year, he has to pay quarterly.
Post # 30
Read The Millionaire Next Door and another book called Personal Finance for Dummies.
How many savings accounts? Two. OK if they are at the same bank. Keep between $2,000 and $10,000 in one savings account, as a cushion against unforseen expenses. Gradually build up about $40,000 in the second one. This is also an emergency fund, but separate from the other savings account, so that you aren’t as tempted to dip into it.
Should you be investing? ABSOLUTELY. The younger you are when you start investing, the more the miracle of compound interest will work for you.
Where should you invest? In retirement accounts (because of the tax benefits). Not through a bank. NEVER. Through a no-load mutual fund like the kind Vanguard has to offer. Look at their balance funds and index funds. Through 401K’s or deferred compensation plans offered by your employers.
Now my next suggestion may sound way out there, but if you can do it, or at least attempt, it will greatly benefit your financial well-being. Live off one income and save and invest the other. That way, if one of you becomes disabled or gets laid off, you will be able to survive financially.
Live below your means, spend less than you make.
Be extremely careful about taking advise from professionals about your money. Many will steer you toward bad investments that make a nice commission for them. Start educating yourself about money.
If you are going to buy a house, buy a two-familty house and rent out the second unit so that your tenants pay the mortgage.
That’s my two cents. Congratulations.