Always pay your taxes. – Felix Dennis, British publishing entrepreneur
Former British publishing magnate, Felix Dennis, states the above-mentioned quote.
At the time of his death, he was estimated to be worth over $100 million dollars. He wrote these words in his 2006 book How to get rich. He said there is no getting around paying taxes and that if you try it is likely to lead to severe economic problems and consequences.
That being said, let us jump right in to the topic at hand. It was recently reported that R&B singer, Montell Jordan, famous for the 1995 hit “This Is How We Do It,” owed the IRS $1.7 million in back taxes.
Surprising because the song ruled the airwaves and was No 1 on the Billboard charts. Fast forward to some years later and we find out that an $11,000 tax debt that went unpaid ballooned to almost $2 million dollars. WTF!!!
Please understand my surprise and literal shock upon hearing this as this song is still played in film and on television today. He should be raking in millions in royalties from this song alone. However, it is not the case.
He sadly had to sell his publishing rights to pay his tax debt. He immediately signed the $600,000 check over the the IRS and had to file for bankruptcy. Apparently, an accountant did not pay his $11k in taxes due one year and he was being charged 11% per day by the IRS until it hit $1.7 million.
On a personal note, I make sure to review all my tax documents, file them myself, and make sure to pay every penny owed to the feds. I do not ever put my fate in someone else’s hands.
This is not how we financially do it!
I cannot stress this enough. You are in charge of your money. Period. Do not ever let anything pass by you that you do not read when it comes to your finances.
I have been a little busy. However, never fear your advisor to the financial underdog is here! Ha ha.
Let’s get to it.
The student loan pause has been extended. The Biden Administration has announced that the payment pause on federal student loans for 43 million students will extend through June 30, 2023. Payments will also not start until 60 days after, August 30, 2023.
This means the loan forgiveness first announced in August 2022 will have time to work its way through the Supreme Court (SCOTUS).
I'm confident that our student debt relief plan is legal. But it’s on hold because Republican officials want to block it.
That's why @SecCardona is extending the payment pause to no later than June 30, 2023, giving the Supreme Court time to hear the case in its current term. pic.twitter.com/873CurlHFZ
If you are a Pell grant recipient, that means $20,000 in loan forgiveness for you, if approved, and for all others $10,000, if you meet the eligibility criteria for forgiveness.
This is good news indeed, as it will give many Americans time to squirrel away funds for saving, beef up investments or additional savings accounts, and pay off debt.
My advice is always to start with an emergency fund of $2,500. Then work your way to three to six months of expenses. As debt is paid off, you can increase your savings and investments.
The 0% interest rate while loan payments are suspended is also an added bonus. That means if you owe an average of 6% on the median $38,000 of student loans, then you are saving $2,280 a year on interest. Even higher for those that owe more.
The three-year repayment pause has allowed Americans to save a collective of millions of dollars in unaccrued interest. Basically, the saving on interest has turned this into a form of loan forgiveness.
In addition, to the $10,000 or $20,000 loan forgiveness, if approved, would effectively turn those amounts into grants.
So keep your figures crossed and make this a wish on every star and birthday candle, if you are one of the ones that will get forgiveness as this will allow you to receive 100% loan forgiveness.
Without these estimated $300-$500 loans payments hanging over your head, you are now able to start saving for your future in the form a home down payment and socking money away in your 401(k).
And by the way, the IRS has now raised the 401(k) limit to $22,500 per year. If you were to max out your retirements account with this amount of money, with a historical stock market return since 1980 of 11.34%, you would basically be a millionaire in 16 years with a balance of $978,768.96.
Put every dollar to work that you possibly can.
The math tells you that being a millionaire is within your grasp.
Like the show, Win, Lose or Draw you must decide your fate.
Financial fate that is.
Are you a fiscal gentleman or lady that manages your money well? Let this post help you out!
I do not care what anyone says or tells you, but saving is important. Supremely important, in fact. Why? Because all things first start with having money; therefore, you must save some.
Want to buy a house? You have to have a down payment. Want to start a business? You need to have the funds to pay employees and the lease on the storefront. Want to invest in your favorite company? You have to be able to put money in the brokerage account. And the list goes on and on.
I’ll give you an example of why you need to save money.
Every year for my birthday, I like to buy stocks.
Generally, shares in a 500 index fund. However, if you are broke, then there is no way to make this ice cream dream a reality.
Instead of an exotic vacation, new toy, fancy new set of wheels, or expensive birthday cake, I prefer to buy myself a $3.50 cupcake. Wait…in providing full disclosure I paid tax on that cupcake, so it really cost me $3.85.
I actually had about $500-$5,000 that I could invest. So, where did that other $496.15 or 4,996.15 go? Toward earning me interest of course!
We cannot all be like the jeopardy champ that has won a mind boggling 28 times in a row. His total winnings are now at the $2 million-dollar mark. Incredible!
However, we cannot base our financial futures on being able to answer in what year was the Louisiana purchase; 1803. Oops…I meant to say, What is 1803?
We need our money to work for us while we are sleeping.
I know the cast of Friends is still raking it in, but they are from a different time. When studios had to pay to play. That is, pay these actors on the back-end with royalties in order to get them to commit to playing the same characters for a decade or more. That is 12-15 hour days spend on a studio back lot that you cannot get back.
So I say kudos to them and the casts of the recently ended The Big Bang Theory and Game of Thrones. However, we all can’t be Starks or Dr. Sheldon Cooper, Dr. Leonard Hofstadter, Dr. Koothrappali, or Howard no Dr. in front. Just Howard. 🤣
You must save because you do not know when the next check will stop coming in. Let’s examine this further shall we? In one of my posts, I wrote about why Academy Award Winner Halle Berry saves so much.
Because if you play spin the bottle with your finances, then it tends to land on BROKE!
It is no secret that here in the good old US of A many high school and college graduates know nothing about finances. However, here at Greenbacks Magnet we aim to change all that.
That is why I write cautionary money tales like today’s post.
For more cautionary money woes and tales, you can check out more stories on my website.
So let me give you some examples of why not to depend on big paychecks, royalties, or sequin jumpsuits.
A DIME ISN’T WORTH A NICKEL It was recently reported on May 14, 2019 that Brian May said that Queen hasn’t made any money from Bohemian Rhapsody. Now that’s a head scratcher. The film went on to gross over $900 million at the box office and its star, Rami Malek, with his performance as Freddie Mercury earned him the Oscar for Best Actor.
What do you gotta do to earn a few coins? Invent the wheel. Or in this case, invent music!
In yet another tale of musicians and money, David Lee Roth of Van Halen fame said the following in a December 2018 interview, “up until 18 months ago, I was making pennies in royalty on a $20 Van Halen record.” In addition, Roth stated, “I got butchered 40 years ago. I made over a billion dollars for Warner Bros. I watched my whole fortune walk off into another man’s pocket.”
However, now that he is no longer under a recording contract and owns his own business he is, and I quote, “I’m a free motherfucker!”
This is sad and confusing to say the least. I would be a disgruntled employee too if I sold millions of albums, t-shirts, spandex leotards, and headbands only to receive pennies on the dollar!
Check out how other musicians made fame and kept their fortune.
This reminds me of what I read in Pat Benatar’s book, she stated that she made her record label $75 million dollars and she felt used, abused, and thrown away.
After reading her book, I knew I better make sure to fund my retirement account like no tomorrow. When you see people work that hard for so many years talk about getting the shaft, then you know us regular folks in the salt mines better get it together.
Don’t even get me started on all the celebrities that owe the IRS! It just goes to show you that saving money has to be a part of your financial freedom equation.
There is no financial independence when you have debt obligations. More cannot go out than is coming in.
WE ALL MUST FACE THE MUSIC
Here’s the thing. We ALL are going to stop working someday. It is simply up to you to decide what you want to and ow you want to live.
You may think that adults should know how to manage their money. However, if you never learned how to balance $100 in your checking account, then how on earth is someone supposed to earn and build a million bucks!
I work under the impression and assumption that if most people can manage $1,000, then they can manage $100,000 or more.
If I still have not convinced you to save, then just let me share this last story with you. If you saw The New Edition Story, then you know kids get ripped off too! Recording a hit album netted these kids $500 and a VCR! They decided to start taking more control of their money and their financial destiny. And you should too!
Therefore, I have chosen to be the master or mistress of my fate like Elvira is Mistress of the Dark.
I own my image, whatever I do, my mistakes and my money.
I am Mistress of the Greenbacks Magnet. I’m ready for my financial close-up like the same way model and actress Cassie poses for a shoot.
If some company goes belly up and decides not to pay out it pension, then plan to make other arrangements. I don’t want to be left holding the bag for my retirement after giving my youth to some company who tells me to invest in their stock while at the same time cashing out their own chips like Enron.
That is why I save and invest.
I increase my goals EVERY SINGLE YEAR!
Doesn’t matter if every goal doesn’t get hit, I still have something to aim at.
This is what I have decided for my future. Here’s my financial close-up. 😉
Here is a peak behind my financial savings curtains.
Ladies and Gentleman, I give you Greenbacks Magnet savings goals:
2018: $13,333
2019: $14,000
2020: $15,000
2021: $16,000
2022: $17,000
2023: $18,000
2024: $20,000
2025: $25,000
As you can see, my ultimate goal is to save $25,000 per year. That would net me $100,000 every 4 years! It is all about planning and discipline.
I do not care if your goal is to be able to make rent next month or buy a private plane next year.
Whatever you do, win, lose or save; make a goal and stick to it.
“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.
