Monthly Archives: February 2018

Financial Freedom, Investing

The greatest assets are people

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My father always says that America squanders its greatest asset: the people.

People are the greatest asset. Treat people with respect and it comes back to you.

“Karen, nothing is worth sacrificing your dignity and self-respect.” – Suzanne Somers in Step by Step (1991-1998)

The complete Step by Step series is currently streaming on Hulu for fans of the show, just fyi.

I learned this valuable lesson about respect many years ago when I was growing up. I was watching several different television shows, but a few stood out. They were ALF, Alvin and the Chipmunks, Amazing Stories, Family Matters, Mr. Belvedere, Punky Brewster and The A- team.

ALF 

Alf was a television show about an alien that aired on NBC from 1986-1990 and was also turned into an animated series twice; The Animated Series (1987-1988) and Alf Tales (1988-1989). From this show I learned to not judge people by what they look like, but by what’s on the inside, respect for others, and that it is not good to be petty.

ALVIN AND THE CHIPMUNKS

Alvin and the Chipmunks was an animated cartoon series that aired on NBC from 1983-1990. In the show, the boys learn life lessons that they pass on to the viewers. I remember that doing the right thing is its own reward and bullies never prosper in the long run. The very 1st episode entitled “The C-Team” aired on September 17, 1983.

In this first episode, the boys encounter bullies and they seek out Mr. T to ask for advice and help. Even though Mr. T was extremely busy, as in real life he was doing The A-Team live action and an animated cartoon series called Mister T (1983-1986), on the show he stopped what he was doing to help the Chipmunks. It taught me that an adult should take to the time to help and inspire children to do the right thing and there is value in teamwork.

AMAZING STORIES

Amazing Stories was an anthology series created by Steven Spielberg, that featured fantasy stories that aired on NBC for two seasons from 1985-1987. My absolute favorite episode is the one entitled “Gather Ye Acorns” and it starred Mark Hamill aka “Luke Skywalker” from “Star Wars” fame.

In this story, as a young boy, he decides to keep all his possessions as one day he was told they will make him a fortune. Little did he know it would take about 50 years or so to happen.

However, instead of giving into despair completely and hurting others, he took ownership of his decisions and even when he was down to his last dollar he still gifted a woman one of his most prized possessions given to him by his grandmother. He told her he would give her a beautiful vase for a beautiful lady. She offered to buy it from him after inquiring if he would sell it to her. This woman would end up writing him a check for $10,000. As the vase was a very rare one, and made during the 1930’s. His charm, attitude, and humility caused his darkest hour to turn into his greatest triumph.

If you are noticing a theme here with NBC cranking out and airing some great shows, you are not alone. NBC must be making a mint from all those residuals.

But I digress. Let’s get back to the subject at hand.

FAMILY MATTERS

Family Matters was a sitcom that ran for nine seasons from 1989-1998 on ABC and the last season on CBS. The show had many themes that kids and young adults deal with such as peer pressure, bullying, and drugs. The show is known for its nerdy breakout character Steve Urkel who would always show the audience that doing the right thing was always the right thing to do. He always stood up for the little guy, never gave into peer pressure or bullying of any kind, and always defended himself from anyone who would try to do him harm.

I learned this and that being smart could be an asset because Urkel was a science nerd and this helped him navigate the troubles in life, but he had a heart of gold and eventually won the heart of the woman he loved; Laura Winslow.

http://www.dailymotion.com/video/x399dug

MR. BELVEDERE

Mr. Belvedere was a sitcom that aired on ABC from 1985-1990 and ran for six seasons. The title character of the show was always helping the family he was employed for with various moral or ethical dilemmas. And at the end of every episode, he wrote in a journal the happenings of the day and the lessons he learned. This is part of what inspired me to write. I still keep a journal and to do list to this day. That’s how I am able to keep up with writing content for this blog. When I am inspired: I write it down.

 

PUNKY BREWSTER

Punky Brewster was a sitcom about a young girl being raised by a foster parent named Henry than ran on NBC for 4 seasons from 1984-1986. The show as also turned into an animated series (as was the thing to do back in the 80’s and 90’s) called It’s Punky Brewster (1985-1986). I saw the difference a foster parent could make in a kid’s life. They had so much love for each other. It inspires me to this day to be gracious, kind, and generous to others because you can make a difference.

THE A-TEAM

The A-Team was a television series that ran for five seasons on NBC from (1983-1987). The A-Team were members of a fictional United Sates Special Forces unit. What I liked about the show was the teamwork and camaraderie between the characters and their integrity. Although the show was fiction, I still remember what the real United States Army Special Forces motto is: De Oppresso Liber, which is Latin for to liberate the oppressed. Basically, you help those in need who cannot help themselves.

So, if you decide to pursue wealth, it is best to make sure you know why you are doing it and what you want to accomplish.

You cannot just save money as it has to circulate so that the world keeps moving. Circulating does not mean spending, but that money should be managed properly, accounted for, and readily available for others to use. Investing is the way to do this.

For example, investing $100,000 into stocks that yield an 8% rate of return could net you $1,000,000 in 30 years without adding another cent. That’s right, a cool million bucks just for breathing and letting your money stay put!

Remember this, whatever you choose to do, whether it is about fame, money, acting, dancing, singing, or donating, nothing is worth sacrificing your dignity and self-respect.

I say choose wisely. And I pity the fool who chooses money over people. Sorry, had to say it.

Got any inspiring stories? Share them and comment here. You never know who you may inspire.

Celebrities and Money, Financial Freedom

More money more everything including problems

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More money does not mean you are free of problems. Money can make life easier, but it has a price.

You want fame? … Well, fame costs. And right here is where you start paying. With sweat. – Debbie Allen in Fame

“Stardom equals financial success and financial success equals security. I’ve spent too much of my life feeling insecure. I still have nightmares about being poor, of everything I own just vanishing away. Stardom means that can’t happen.” – Steve McQueen

“I think everybody should get rich and famous and do everything they ever dreamed of so they can see that it’s not the answer.” ― Jim Carrey

“What people don’t realize is that fame—whatever your worst experience in high school, when you were being bullied by those 10 kids in high school—fame is that, but on a global scale, where you’re being bullied by millions of people constantly.” – Megan Fox

People assume I’m out there having this great life, but money doesn’t erase the pain. When you’re young you barrel through life, making choices without thinking of the repercussions. A few years down the line, you wake up in a certain place and wonder how the hell you got there. – Jennifer Lopez

MONEY PROBLEMS

What’s the problem with money? The problem with earning more is that oftentimes followed precipitously by spending more.

Overspending can cause many problems such as stress, depressions and weight gain. It also leads to debt, poverty, and negative net worth’s.

Although, having vast sums of money can cause some headaches and of the same problems as stated above, money has many good uses as well.

For example, once you have it you are able to espouse love in numerous ways, such as paying for good health care, an excellent education, adequate housing and healthy food.

Money offers protection.

Especially, for the harshness of life. However, the reality is that money has no power until you use it. Power by itself is not good or evil. Money is not good or bad. It is what you do with it that gives it meaning.

It is all up to you.

They say be careful what you wish for. Especially, money. It can be a gift or a curse depending on the way you look at it.

I read a book called Winning the Money Game: Lessons Learned from the Financial Fouls of Pro Athletes by Adonal Foyle. He was a professional basketball player who describes the things he says while playing in the NBA in regards to how other athletes dealt with financial management or lack thereof.

He that said you should learn the basics of money and that you should rule your money or money will rule you. He saw many people lose homes, cars, wives, and careers.

In addition, he said you should audit anyone who comes into contact with your money. That includes family.

I cannot count the number of stories I have read about some celebrity losing millions to unscrupulous financial and business managers.

It’s a great way to keep accountants and others on their toes and let them know you are watching.

CASH RESERVES

Cash reserves are a must. Any individual with an income should put a money cushion aside for lean times because trust me they will come.

The problem is that when money comes fast, which is true for athletes and lottery winners, it usually goes out that way as well. Before many have had time to adjust and learn the ropes of handling money.

If you own a home and want to build a fortune as a real estate mogul or landlord, then usually that comes with sweat equity (a fancy term for hard work and fixing up your property yourself).

You also need to set aside money for maintenance or vacancies. As every business needs capital.

Should you choose to pursue wealth, fame, fortune, and your dreams you better have a backup plan should all not go as you hoped. (Foyle was forced to retire due to an injury at the ripe old age of 35)

He started preparing financially many years’ prior and was on solid financial footing when the day came for him to stop earning paychecks from his career as a basketball player.

I advise everyone to do the same.

Foyle has started coaching and advising other young athletes about money as he saw a need and decided to help others and he continues to help people regardless of what has happened in his life.

No matter what you go through in this life do not lose your humility or your humanity.

Your friends and family are the ones that will help you in good times and bad.

Always treat people like gold.

They are the most important asset in the world.

Financial Freedom

Top 1% of income worldwide

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Top 1% of income in the world is easier to earn than you think.

“The only way to enjoy anything in this life is to earn it first.” – Ginger Rogers

So, you want money. Well, most people do. Lots of it.

However, what do you do once you have it.

According to one of the shark tank sharks Kevin O’Leary aka ‘Mr. Wonderful’, he says there are three basic rules for money “Don’t spend too much. Mostly save. Always invest.”

From what I have learned, the problem is most spend too much, save nothing, and never invest.

First, you have to learn that you do not make money, you earn it.

Second, start putting aside 10% of what you earn.

Lastly, learn how to invest it. This could be by just picking up a few books on investing at your local library.

Boom, you just made the impossible possible. You earned money and saved it. From what I have seen most people cannot even do that. Let alone invest. Investing is how the rich stay rich, but earning a good living is how they get rich.

You have to know where you stand financially (what you earn), gather your resources (savings) and then you can plant your feet (invest).

Or put it this way, gather your acorns (earn money), plant your seeds (save money), enjoy the harvest (earned interest on money invested).

So, where do most Americans stand.

Most Americans are in the top 1% of income globally

You are in the top 1% of income worldwide with an annual salary of…drum roll please…$34,000.

Yep. You read correctly.

A recent study has shown that you do not need to earn six figures to be considered top of the heap in terms of income.

That means if you are working an entry-level job earning $35,000 a year, you are in the top 1% of income in the world.

Pour yourself a glass.

You should celebrate landing that job.

Considerably, that the average income in America is $50,000, it is safe to say that more than 50% of Americans are at the top when it comes to salary on a global scale.

Since, average means 50% are higher or lower than $50,000 on the pay scale meter, this could equate to roughly 75% of Americans making at least $34,000 or more annually. If we divide 50 in half, as we know there is a wide range that could be making between $34,000 to $50,000 or above.

That means if you are American, it is likely that you are already a one percenter in regards to income.

It doesn’t matter if you’re a gym teacher or a celebrity. Your income is top in the world in America. Cheers!

The top wealthiest in the world

In regards to wealth, you only need to have less than $3,500 in assets to be amongst the wealthiest in the world or around $760,000 to be in the top percentile, per Credit Suisse.

The Federal Reserve stated a median American family has over $80,000 in net worth in 2013, where the average family had net assets of $535,000 or higher.

Therefore, if you have less than $10,000 in wealth; which is the bulk of the global population, then you still have more wealth than those unfortunate souls at the bottom of the economic pyramid.

Wealth acquired globally

However, even though it does not take much to be at the top of the global wealth pyramid the way wealth is obtained varies greatly.

For instance, in many high-income nations; the United States for one, there is a massive amount of debt.  Whereas in many European nations or middle and low income countries the debt is considerably lower.

The approximate four billion at the bottom of the economic pyramid may lack money, but they also do not have the resources to help them acquire crippling and debilitating debt with easy credit access.

Debt is a destroyer of wealth.

Meaning that someone who lives on $5 a day in other parts of the world and has managed to save up $3,500 in assets is wealthier than a Manhattan doctor pulling in $500,000 annually, spending $510,000 a year; which is minus (-) $10,000 more than they earn, and carrying student loans of $250,000.

The doctor would have a net worth in the negative (-) $250,000 and climbing higher in debt. Sinking further below the wealth distribution chart with every year.

Unless they pay off the debt and stopping spending more than they earn, they will never experience true wealth or the freedom that comes with it.

You just have to do the numbers.

More going out than coming in and no savings = debt.

More coming in than going out and keeping it = wealth.

Ultimately, only you can decide which category you want to be in.

Budgeting, Financial Freedom, Saving

Dom Perignon taste on a Budweiser budget

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“A budget is telling your money where to go instead of wondering where it went.” ― Dave Ramsey

Most people out there have probably heard of the saying “champagne taste on a beer budget,” and that is exactly the kind of behavior I have been seeing more and more of lately.

It is not that I have a problem with nice things.

Quite the opposite.

In fact, I like to buy high quality and first-class items. This can include anything from airline tickets to a nice vacation. However, you have to be able to afford it.

You must therefore follow this advice: “Act your wage.” ― Dave Ramsey

Therefore, if you can only afford Bud Light instead of Rosé, then go for the beer.

If you are familiar with the Suze Orman show, she had a segment called “Can you afford it?”

Basically, people would call in and ask if they could afford to buy whatever item was the hot new thing that year.

Suze Orman would require certain criteria like a six plus month emergency fund, a job, income, and a realistic way to pay for the item either outright or over a reasonable period of time.

It was very engaging. By far, the most popular part of the show.

Let’s see if this post can bring back some of those feelings tonight.

If you can’t afford champagne, then it is perfectly acceptable to buy sparkling wine.  Just make sure when you pay for it, that you use cash and not plastic or it will not matter how much you think you are saving, if you are paying interest on it. Then beer can turn into the price of champagne.

Interest over time makes any purchase more expensive.

For example, buying a pair of jeans that cost $50 on plastic at a 25% interest rate could turn into a $500 pair if you pay the minimum payment over 5 years. That wasn’t on the price tag!

It seems that if you pay cash you are protected against this type of price inflation. Especially, if you get a 0% deal (teaser rate) and then do not pay it off and are charged interest retroactively from the date of purchase.

So, be very wary when it comes to credit cards. They will give one to anybody with a pulse.

In Elizabeth Warren’s books, The Two-Income Trap and All Your Worth, she discusses how even with two-income earners Americans are still struggling with debt, filing for bankruptcy in record numbers, and still unable to afford housing and higher education for their families.

Credit, in large quantities, is trapping people in an eternal debtor’s prison.

In the book Maxed Out, author James Scurlock talks about how having access to easy credit at young ages (college kids) is ruining people’s financial future before it even begins.

Starting out in a hole due to student loans and credit card debt means playing a constant game of catch up and struggling to get by.

Curtailing spending and only buying what you need and can afford are the only ways to stop this phenomenon of being maxed out.

Therefore, we budget.

However, “A budget tells us what we can’t afford, but it doesn’t keep us from buying it.” – William Feather.

Below I will provide some fictitious examples of how it all goes down similar to the show.

So, let’s go back to the infamous Suze Orman question of “Can you afford it?”

What do you want to buy?

So, let’s say I get some tweets from followers asking if they should make a purchase. Let’s go.

Thank you for tweeting Greenbacks Magnet (GBM for short). What do you want to buy?

FOLLOWER: I would like to purchase a brand new Lexus RC 300 priced at $43,305. My birthday is coming up and I have never had a new car only used. Growing up, my parents said buy new. Why inherit someone else’s problems? I have always wanted one.

GBM: Ok. Show me the money.

FOLLOWER: I have $15,000 in savings, no credit card debt, $10,000 in student loans, no mortgage, no auto or personal loans and $55,000 in my retirement accounts. My after-tax income is $4,150 monthly. My expenses are $3,300 per month.

GBM Email reply: It’s great that your expenses are lower than your income by $850 so that you are able to save, but you could knock out the student loans and then have no debt. You have a 4 month emergency fund. I prefer to see 9 months ($29,700) as that is how long it takes the average person to find a new job (including me). Check out out my post How to build an emergency fund.

A car at that price of $43,305 will cost $676 per month at a 3.9% interest rate over six years. That will bring your monthly expenses up to $3,976 and decrease your net saving from a respectable $850 to $174. That is too close to the financial edge.

I want you to start putting more money toward retirement such as $200 more per month or whatever gets you to 20%. A car is not going to feed or house you it will only get you from Point A to B. You should also consider setting aside enough for a 20% down payment on a home as I know you are not going to want to rent forever.

Setting aside 4% of the purchase price of a home for 5 years will net you the 20% down payment. If you can beef up the 401k by $200 per month, pay off the $10,000 in student loans, start setting aside 4% for a home down payment, and get a 9 month emergency fund then you can get your car, but not before.  Until then, keep taking Lyft.

Next follower. Thank you for tweeting Greenbacks Magnet (GBM for short). What do you want to buy?

FOLLOWER: I would like to buy a Sony PlayStation 4 at $300. I am 20 years old and currently a college student, but I am working part-time. I have a game system, but the PS4 has more of the games I want to play and is cheaper than a new Xbox One X.

GBM: Ok. Show me the money.

FOLLOWER: I have $1,200 in savings, no student loans as I go to college online which is cheaper than traditional and stay at home, no credit cards, no 401(k) and a car note of $150 per month. My after-tax income is $600 monthly and my expenses are $350 per month.

GBM tweet: It’s awesome that your expenses are lower than your income by $250 so that you are able to save, always a plus, but I would like to see you open a Roth IRA. You are so young that this money could compound for like 40 years! Your future self will thank you.

GBM 2nd tweet: You can contribute $50 per month just to start in a Roth IRA. I do prefer to see a 9 month rainy day savings ($3,150). Since you have so few expenses, and live at home with virtually no debt other than a car note you could simply take the money from savings. Have fun!

Next follower. Thank you for tweeting Greenbacks Magnet (GBM for short). What do you want to buy?

FOLLOWER: My name is Lucy and I am 13 years old. I would like to buy an Apple watch for $219. I like it because it’s so cool and fun. A lot of my friends have it and I want one of my own.

GBM: Ok. Show me the money.

FOLLOWER: I have no debt. I have savings of $5oo from birthday money and saving my allowance. I get an allowance of $80 a month. I have no expenses.

GBM: Well, it is nice to see you saving. You could just take the money from savings as you have no expenses. I just want you to continue the habit of saving. You can afford it.

Less stress with a budget

You can see from the examples above that saving makes all the difference.

The more control you have over your money; the more control you have over your life.

Hope you enjoyed this walk down memory lane with me.

Now remember this: People first, then money, then things – Suze Orman

My motto is this: Always remember that cash is the best option. Cash is king. – Miriam Joy, author of financial freedom blog Greenbacks Magnet

Financial Freedom

Patience is the key to wealth

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The key to everything is patience. You get the chicken by hatching the egg, not by smashing it. – Arnold H. Glasow

I read that the average age of a millionaire is 62.

That means most will not reach the millionaire milestone until after age 50.

Therefore, you will need to treat your working years as golden nuggets of knowledge and labor in which each year of work gets deposited into your wealth accumulation bank.

If you start your 401(k) at the age of 25 and invest consistently, this would require that you save and invest for a minimum of 26 years to reach the millionaire ranking through this vehicle alone.

A $1-million-dollar nest egg can generate $50,000 of income on a 5% return.

Since, $50,000 is around the average earnings of many workers, a $1-million-dollar money bucket keeps raining enough dollars on you to walk away from work if you are earning this much or less.

As long as you only spend the interest, and not the principal.

NOW, WAIT IT UP 

In order to get to this badge of honor, financially speaking, you will have to learn the art of waiting.

Waiting to buy a home.

Waiting to buy a new car.

Waiting to start a family.

You see what I mean.

Nothing comes without first understanding how to manage your time.

Patience is key.

Think of patience and investing like the letter and the stamp. One does not work without the other.

Consider the postage stamp: its usefulness consists in the ability to stick to one thing till it gets there. – Josh Billings

Life is complex. Situations may arise that will make it harder for you to reach your financial goals.

Remember this: It’s not the situation, but whether we react (negative) or respond (positive) to the situation that’s important. –Zig Ziglar

In my experience, optimism, truth, and positivity attract money to you.

Warren Buffest said, “The Stock Market is designed to transfer money from the Active to the Patient.”

We may all get the same 24 hours, but what we do with it is what matters the most.

Consider this quote. Everyday is a bank account, and time is our currency. No one is rich, no one is poor, we’ve got 24 hours each. – Christopher Rice

Therefore, manage your time wisely.

You do not have to move so fast. Slow down and focus. Distractions do not yield results only focusing does and that takes patience.

STOCKING UP ON STOCKS

The stock market has averaged returns of at least 9% over the last 90 years (1928-2016).

The shorter the time your money is invested so too are the amount of the returns.

You need a longer time horizon to invest to reap any rewards.

Here are some questions and answers when it comes to investing in the stock market.

Why should I buy stocks?

“If you don’t play you can’t win.”– Judith McNaught

How do I decide if I should invest in the stock market?

If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes. – Warren Buffet

How do I decide what stocks to buy?

When buying shares, ask yourself, would you buy the whole company? – Rene Rivkin

How long should you hold a stock?

“Our favorite holding period is forever.” – Warren Buffett

Don’t you have to be really smart to invest in the stock market?

Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it. – Peter Lynch

Aren’t stocks risky?

“The biggest risk is not taking any risk… In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”– Mark Zuckerberg

Ask yourself, what is my risk level?

If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks. – John Bogle

Should I avoid stocks?

Why not go out on a limb? Isn’t that where the fruit is? – Frank Scully

Where should I invest my money?

“Consistently buy an S&P 500 low-cost index fund.”-  Warren Buffett

What should I do once I invest money?

Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. – Paul Samuelson

Check out books by quoted authors here on Amazon.

 

I say this when it ultimately comes down to investing or not investing; if you feel you can only afford to lose $5, then that is your risk level. When you pass that mark, whatever it is, it’s gambling.

And nothing is riskier than doing nothing except gambling.

Buffet once called a bad period the “Financial Pearl Harbor” during a terrible time in the market.  Guess what? He still held on to the bulk of his portfolio and is one the richest investors in the world.

So understand that you have to pursue wealth.

It is not simply going to come to you.

You have to do something.

As in life, you have to give to get.

Winston Churchill said, “We make a living by what we get, but we make a life by what we give.”

Think like this: If your ship doesn’t come in, swim out to meet it! – Jonathan Winters

And remember this: “A ship in harbour is safe, but that is not what ships are built for.” – William G.T. Shedd

So know this, it’s not what you make, it’s what you keep.

When it comes to investing, just do your research, do your best, and have fun.

Bankruptcy, Financial Freedom, Retirement

Do not cash out your retirement accounts

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“Don’t put your retirement on a credit card.” – Suze Orman

I recently read in the news that a guy emptied out his 401(k) to have enough cash to go see Super Bowl LII. That’s insane.

That is the financial equivalent of throwing all your money in a trash can, pouring gasoline on it, lighting a match, throwing it in, and setting it on fire.

The only time you should cash out is when you hit it big in Vegas at the poker table. Otherwise, just walk away and don’t do it.

They say poker is not about knowing how to play the game, “It’s about playing the other guy.” – Sam Winchester, Supernatural (Season 5 episode 7)

You can buy the whole Supernatural series on Amazon.

Well, in this case the other guy is the IRS. Since, the rules have recently changed you better make sure you learn them as there is no playing the feds.

This is not a game of craps where you just shoot the dice. This is for real.

Your future self is depending on you to do the right thing in the present.

The economy is still getting its act together, but in the meantime you still have responsibilities. I get it.

Millions are people are struggling with debt.

Americans owe about 2 trillion in credit card and student loan debt.

Many are just trying to keep their head above water.

Be forewarned, that even if you have good intentions, cashing out to pay college tuition costs for the kids or grandkids is a big no, no too.

YOU CANNOT FINANCE RETIREMENT

You cannot finance retirement, but your kids can finance their education. Just limit what you borrow.

I know someone living on a fixed income. She was short paying her property taxes because she owed over $25,000 in credit card debt!

And she was scared she would lose her home if she did not pay. She was shaking and crying it was so bad.

I gave her the part where she came up short. You see, she gave me a place to stay many (16) years ago. I had not forgotten. And I never forget a favor.

The good you do can definitely come back to you full circle.

I had a chance to repay her for her kindness and I took it.

Full disclosure: she is an 86-year-old grandmother who got into debt helping her grandkids.

I am not saying not to help your kids. Just be mindful what can happen if you do and you are not financially able or prepared.

Here is what I want you to know.

CASHING OUT A 401(k) IS EXPENSIVE

Cashing out means the following:

  • Paying a 10% federal tax penalty on the money you withdraw
  • Every penny is taxed as ordinary income (negating any pre-tax gains)
  • Any 401(k) loan money you repay is going to get taxed again
  • Every dime you take out is unable to earn interest for the future
  • Present pleasure will not erase future pain and problems when the money is not there to help
  • Every dollar is unable to turn into two from compounding over the years

I know people will switch jobs or attempt to stave off bankruptcy, but I am telling you this is not the way to do it.

Just like there is a way to structure your leaving a job, there is a way to structure how you repay your debts.

Did you know your retirement accounts are protected from creditors?

There’s a little tidbit many creditors will not likely tell you. Well, I am letting you in on the recipe of the secret sauce.

You can learn even more about money and debt by reading any of the books listed in this post and purchasing or renting from the library.

If you cash out, that money is up for grabs. You are all in and could lose to the house.

The decks are stacked against you in this standoff with the banks as you have nothing left to bargain with once you have exhausted all your resources.

That is why it is best to put down no more than 20% on a down payment on a home.

If you decide to do more, like, say 35%, and the market tanks, you could lose your shirt and every dime you put into the property!

That’s too much skin in the game.

ALWAYS PLAY TO WIN

You could also lose your home, literally as well.

Once the money is cashed out, it’s gone forever.

If you cash out to pay off credit cards, medical bills, or back mortgage payments then that’s all folks.

The money is spent. You can’t get it back. And if something else goes wrong, then it’s game over.

All of those things can actually be discharged and wiped away in bankruptcy.

You are; however, still responsible for child support, alimony, back taxes, fines, penalties, and restitution you owe for breaking the law and student loans.

So, you could cash out, pay the credit cards and mortgage, and still get into financial hot water again should a medical or some other type of emergency arise.

You are far better off going ahead with a bankruptcy than breaking the 401(k) piggy bank.

That is, if you truly can’t afford to make the payments and pay your debts.

When your financial back is against the wall a bankruptcy may be your best course of action not cashing out your retirement.

A chapter 13 bankruptcy can possibly even help protect the equity you have in your home.

The money in your retirement account is protected from bankruptcy.

That means if you have $1 million in your 401(k) and go into personal bankruptcy due to owing $100,000 in medical bills the banks and courts can’t touch it.

When you cash out you are likely to pay 35% of the balance of the funds you withdraw.

There is even a possibly after the taxes and penalties are paid, you will not have enough left over to pay the debts you wanted to pay off!

All that work and you still get the short end of the stick.

When the chips are down, just leave them on the table and walk out. Do not add in more chips!

Whatever you decide, make sure cashing out is the last Hail Mary pass in your financial playbook.