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.
Greetings to all you wealth-building enthusiasts out there!
We are in the homestretch of the New Year.
New Year’s Eve 2022 is a mere two days away.
Let your 2023 resolutions start to take shape and begin shortly. However, let us have a few moments of reflection over the last year shall we.
A recently elected Congressman, Maxwell Alejandro Frost, had a rent application rejected weeks ahead of being sworn in. He is unable to afford an apartment in Washington DC, as the median rent is $2,395, due to his bad credit.
Just applied to an apartment in DC where I told the guy that my credit was really bad. He said I’d be fine. Got denied, lost the apartment, and the application fee.
This ain’t meant for people who don’t already have money.
Frost had to quit his job to be a full-time candidate. Seven days a week, 10-12 hours a day. He is couch surfing with friends until he can again have access to a livable wage after driving for Uber did not leave him enough to pay all of his bills. Thus, the reason for his bad credit.
He is far from alone in this situation. In 2018, Alexandria Ocasio-Cortez (AOC) couldn’t find an apartment in DC. She didn’t have the money.
At the height of COVID, more than 100 members of Congress are sleeping in their taxpayer-funded Congressional offices in 2020.
Let us provide some context here.
While rank and file members of the U.S. Congress make a decent salary ($174,000 a year), they don’t receive a per diem. Meaning they have to pay for everything out of their own pockets while some, other members do receive a per diem that can be used for housing. If you think this is unfair or strange, consider that for most of the period between 1789 and 1855, the only compensation senators and representatives received was a $6 per diem.
The fact that housing has become so unaffordable is just insane. I wrote a blog post about how I used a Roth IRA to buy property. However, not everyone has access to these means. Especially, if you have no retirement accounts to begin with.
Many officials were screaming poverty at the time they were seen working in their offices by day and converting them into bedrooms at night.
When the rent becomes so high that those helping write the laws are sleeping on couches, we need to address the matter of housing affordability.
Why not have communal living spaces? Similar to college dorms. This is far better than sleeping on a cot in your office.
What about building micro apartments? Enough space for a bed, couch, bathroom, small kitchen, and closet in about 500-600 square feet.
There has to be some affordable solutions out there. I had to do some thinking outside the box to start buying property with my Roth. Maybe that is what we need. Some out of the box solutions for long-term housing problems.
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.
Buy land, they aren’t making anymore of it. – Mark Twain
I am a firm believer in the learning curve. A learning curve is the rate of a person’s progress in gaining experience or new skills. Through time and experience will your ever-increasing knowledge and skills grow to help you make better and wiser decisions. That includes not only in your personal life, but in your financial life as well.
This post was inspired on an episode from the television series Supergirl (2015-2021). In an early Season One episode, two or three, Supergirl (Kara Danvers played by actress Melissa Benoist) is having a talk with her boss, Cat Grant, at her job with the company CatCo.
See the events of that exchange below.
Cat penned an article for the Tribune on Supergirl’s blunder at the port and ordered Kara to get it ready for posting. Kara wondered why Cat was constantly criticizing Supergirl, claiming that Superman never faced such heavy backlash. Cat expressed that women need to work twice as hard as men to succeed, pointing out that Supergirl, despite her good intentions, is still a novice; she left Flight 237 in the bay after saving it and now caused an oil spill while trying to prevent a fire. Since Supergirl’s job is a learning curve, Cat advised her to start with smaller targets and work her way up, similar to how the latter rose through the ranks at the Daily Planet.
Put simply, no one starts in at the top. You have to work your way there. Wealth building requires the same.
You have to learn to manage one dollar before you can manage one million. You start small and work your way up. Then it hit me. You can use one wealth building tool to help you build another. They are both levers that can be used to help you scale up your wealth.
It is like the S meaning on Supergirl’s costume. It is the family crest for the House of El; it means Stronger Together.
Both your Roth IRA and home investment can help you build wealth faster. They are both stronger together.
The major fortunes in America have been made in land. – John D. Rockefeller
Buying a home takes money. You generally need money for two items: Down payment and closing costs. You can use funds from your Roth IRA to do this.
Roth IRA withdrawal rules allow you to take out up to $10,000 earnings tax and penalty-free as long as you use them for a first-time home purchase and you first contributed to a Roth account at least five years ago.
Normally you would need to wait until you are age 59 1/2 to start withdrawing funds. If you withdraw money from the account before age 59 1/2, you will typically have to pay a 10% penalty on the amount withdrawn. The distribution will also be subject to taxes. However, there are certain circumstances in which you might be able to take out funds from the account before reaching age 59 1/2 and not incur penalties.
One exception to the early withdrawal penalty is for the purchase of a first home. To be considered a first-time homebuyer, you cannot have owned a primary residence at any time during the previous two years.
This $10,000 exception is available for every individual, so a married couple can withdraw $10,000 from each of their IRAs for a total of $20,000 that can be used for a down payment.
In addition to purchasing your own home, you may qualify to help others buy their first house. IRA owners can withdraw funds penalty-free to help their first-time home buying children, grandchildren or parents purchase a home. Sweet!
However, $10,000 is the lifetime maximum for first-time homebuyer withdrawals. Therefore, the total of your withdrawals must remain under the $10,000 mark to avoid the early withdrawal penalty.
Many of you out there may say why not a traditional IRA. There is a method to my madness. Bear with me.
The reason for using a Roth versus Traditional IRA is that while there will not be a penalty on early IRA distributions for a first home purchase, you can expect to pay taxes on the amount withdrawn when using a traditional IRA.
For example, if you are in the 22% tax bracket, a $10,000 withdrawal for a home purchase will lead to $2,200 in taxes. For a couple in the 24% tax bracket who withdraws $20,000, the taxes due would come to $4,800.
However, this is not the case for the Roth because you have already paid taxes on that money so you owe no income taxes on money that is withdrawn for a first time home purchase.
So if you are all in on this plan, then let’s get down to business.
Ninety percent of all millionaires become so through owning real estate. – Andrew Carnegie
The rules for using a Roth IRA rather than a traditional IRA are slightly different. You can withdraw any contributions (not earnings) at any time from your Roth IRA before retirement age without penalties as long as the account is at least five years old. You will be able to withdraw any amount up to the total amount you contributed without being subject to taxes.
In addition to your Roth IRA contributions, you might opt to take out some of the earnings in the Roth IRA. You can withdraw an additional $10,000 from the earnings under the first-time homebuyer exemption.
This is where the withdrawal exception comes into play. You may withdraw a combination of both contributions and earnings or just earnings to use toward your home purchase.
Just remember that if you are only using earnings the cap is $10,000. Any penny above that will trigger the 10% penalty in a traditional IRA or just the the income taxes in a Roth IRA.
You can always take out funds above the $10,000 threshold if you are taking out contributions only or in addition to earnings.
Again, simple math can help you build wealth.
We don’t have to be smarter than the rest. We have to be more disciplined than the rest. – Warren Buffett
My method of using the Roth IRA early withdrawal exception.
First, I did some research and found out that if you qualify as a first-time homebuyer, you can withdraw up to $10,000 from your traditional IRA and use the money to buy, build, or rebuild a home.
Second, I learned that with a Roth IRA, you can withdraw your contributions tax- and penalty-free at any time, for any reason, as long as you have held the account for at least five years.
This got me thinking. At the time, I was renting. I had opened up a Roth IRA more than five years ago. I had been squirreling away cash in it since opening it up with T Rowe Price starting with $50 dollars a month.
I also opened up a second Roth IRA with another brokerage at another time as not to mess with the good thing I had going with the first one as you could no longer open a Roth IRA with T Rowe and continue with an automatic contribution of $50 per month.
Do not scoff or turn your nose up at investing small sums of money. Over the years dealing with both accounts and after regular and sporadic contributions over time my T Rowe account grew to over $10,000 as did my other one. I had well over $25,000 in both not counting my 401(k), Rollover IRA, or other cash and investments.
I was skeptical about moving forward at first with this decision to buy property. My first. Then, I thought about what Wayne Gretzy and Michael Jordan said, “You miss 100% of every shot you don’t take.”
This quote helped me as well. Progress always involves risk. You can’t steal 2nd base and keep your foot on 1st.– Fred Wilcox
Therefore, I went for it.
I started by combining both accounts. Then, I cashed out $13,000 of of my Roth IRA.
The first $3,000 was in contributions and the additional $10,000 was in earnings. After, using the funds for closing costs and a small part of it for renovations, I ending up paying taxes on a tiny portion. The grand total: $238.
I was shocked! I couldn’t believe it. I felt like I should have taken the plunge long ago.
Alas, we cannot look backwards, we can only go forward. Within a few months of me owning the property it had increased in value by $14,000. That is more than what I withdrew to get the place.
And owning gave me such a sense of peace. That right there is priceless. I decided to do some updates and renovations to feel better about the space I was in. It took some hard work and time, but it was worth it in the end.
I got inspiration from several places. I knew I wanted the feel of how I always felt every time I walked into a Restoration Hardware.
Restoration Hardware Front Entrance
I got the idea to base my bathroom feel and design on the Marriott and Caesar’s Palace in Vegas. Clean lines, white, simple and elegant. I also went with frosted sliding shower doors that you could not see through.
Caesar’s Palace Las VegasJW Marriott
My bedroom is my center and place of peace. I call it my home base. I also always have a mini home office in my bedroom as I like to roll out of bed in my pajamas and write, work and check the stock quotes.
Houzz design
And I love an organized closet. I got inspiration for mine from the Container Store. Although, mine does not look like this, I did make sure it was organized with all of my suits, shoes, and sweaters together like in the picture below.
The Container Store Custom Closet Design
Lastly, the heart of the home. The kitchen was inspired by honey + lime. Stainless steel appliances and organized kitchen cabinets make life easier. Again, although my kitchen does not look like this, it was done with something like the picture shown in mind.
honey + lime kitchen design
Every time I think back and ask myself if I made the right decision I think of this quote from FDR.
Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world. – Franklin D. Roosevelt
After reading about a couple earning half a million dollars, I could not believe they did not have anything saved for retirement. Especially considering the couple were ages 65 and 59.
You don’t just start in at the top making that kind of money. Oh no. You have to toil in the salt mines for YEARS to make that kind of dough!
All their money is tied up in their home. They have a home worth a million dollars but a stock portfolio worth $0.
That is the type conundrum that just baffles those that are way lower on the income scale.
That would mean making $500,00 for just four years, they have earned $2 million dollars and not ONE RED CENT went to their retirement accounts.
I didn’t read anything about owning any vacation or rental property, old savings bonds, having a few shares in Apple stock, nada.
This couple is burning through money faster than those kids were buying chocolate bars in Willy Wonka. And if you saw the 1971 movie, you saw what pandemonium that was.
I mean where is the money going?
There has to be some sort of financial household accountability and management. Once all the expenses are tracked, you can look for ways to cut. At this income level, I find it hard to believe they do not have a financial advisor or accountant.
This couple could save a small fortune, if they sold their home, ate out less, and sold the pricey cars.
THE STRUGGLE IS REALLY NONEXISTENT
As soon as they earn the money, its spent. We have a serious cash flow problem here. We gotta stop the bleeding. This is a sinking financial ship and we have to plug those leaks. There has to be ways to save.
The couple own a home that will be paid for in 7 years, and at this time is worth around $1.4 million. They stated, “If we sold it tomorrow, we could net $1 million in equity. Home prices are going up faster , so it would be difficult to find a home for less than $750,000 (if we were lucky).”
One word: move.
Drop the financial anchor that is your home and move on. Is this home really worth you living today with nothing?
Take the $1 million in equity and but a modest $300,000 home with cash, then pay off any other debt you owe and start maxing put your retirement accounts. Keep a minimum $100,000 cash high yield savings account and start investing the rest.
If the couple does this, they could stash away $22,500 in a 401(k) and $7,000 in a spousal IRA for 7 years and have over $300,000 with the stock market average return of 10%.
If they can max out two 401k’s, then that would be the equivalent to investing $45,000 per year. Using the same factors as above, that would net the couple a col almost half-a-million ($500k) in retirement savings.
“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” —John Quincy Adams
Stocks are down and housing prices are up. We have seen a shift in way consumers are spending. Mortgages are in. High-priced stocks are out.
Although the stock market has had an astounding run since the Pandemic began in March 2020, it is the acquisition of housing has most Americans chomping at the bit.
The US has minted more than half the world’s new millionaires over the last few years as investments in equities and tech stocks propelled assets higher. Real estate, is generally considered to be a more stable investment than volatile stocks or fluctuation cryptocurrencies and is a tangible asset. Real estate investing has also created 90% of the world’s millionaires.
However, not too far behind is stocks as nearly 70% of their wealth gains over the past year and a half have come from market gains. The wealthiest 1% know this. That is why they own 89% of all US stocks.
Those at the top of the economic food chain know the wealth comes from the owning of assets. The top 1% own a lot of stock my friends. And those at the bottom of the economic pyramid own so little. Meaning they are not keeping up with the rise of inflation and their purchasing power is steadily decreasing.
The dollar in their pocket is worth less now than it was yesterday. This means you are able to afford less at the grocery market and to purchase other consumer goods. For example, the cost of a pound of brisket was listed as $9 a pound. My sister sent me a screenshot of a 9.67 pound of brisket in her grocery store. The cost: $87.
I am sure somewhere my grandmother is looking down upon us and thinking that the family may very well have to turn vegetarian or severely cut back on meat consumption. I know grandma, I know.
According to Pew Research, the Consumer Price Index, the most widely followed inflation gauge, increased 7.0% from December 2020 to December 2021 – its highest rate in nearly 40 years. Families are spending $30 more per week at the local grocery store or farmer’s market. An increase in prices also mean less that is being invested and saved.
The price of lumber has increased by 288% making the cost of homes go up by an average of $36,000. The average new car price is now $47,000. As of 2021, the average monthly car payment in the US is $575 for new vehicles and $430 for used vehicles.
When I put these numbers in my compound interest calculator, it informs me that if I can invest either one of these amounts monthly for 30 years, I can become a millionaire. Therefore, I have come to the conclusion that new cars are wealth stealers and must be avoided at all costs. Rejecting new cars has made me richer. Things have gotten so far out of whack for the average household that people have begun to put groceries and gas on credit! This an absolute no-no. Building wealth requires cash.
Even if using OPM – other people’s money – you still have to bring some cash to the table to invest in index funds or put a down payment on a home. You must have capital to work with if you want to build wealth.
And companies are all too happy to part you from this wealth whether you have some or not. Case in point, I recently looked up the Kelley Blue Book value of my car. I just wanted to know what it was worth. Little did I know that this information gets sent over to local car dealerships who within mere seconds of me inquiring started sending me a barrage of solicitations for my business to put me into a new car.
I know very well that the average car payment is over $500.
These salespeople are looking to increase their monthly sales quota. I continue to get offers to get me into a new car by email, phone and text over the next week.
At this point, my Spider-sense is tingling. Why are folks still calling me after a week? I get it. Business is all about sales. They make fat commissions of us folks once we sign on the dotted line.
I prefer to keep my money where it is; in my pocket.
Just for kicks, I decide to look up the cost of food, housing and cars from the last 30 years.
After doing all of this research, I have come to the conclusion that the future is going to be expensive.
Therefore, it is unwise to use credit for present consumption with yet unearned future dollars.
We can prepare for the increases in living expenses by investing our dollars today. Don’t believe me. Just take a look at all the charts I provide in this article.
Numbers don’t lie.
The constant outflow of discretionary dollars on basic cost of living has consistently gone up. The cost of homes, education, cars, gas, and food are going through the roof!
I truly feel that incomes have not kept pace with the cost of homes and education. Equity may have increased, but so has the cost of homes.
In 1976, the cost of Harvard University tuition was $3,740. In 2019, it was $54,002. How can they justify it? It is almost like that owl in the how do we get to the center of a Tootsie Pop commercial: the world may never know.
This is a mystery that I do not even think Scooby-Doo and the gang could solve no matter how many Scooby snacks Velma has in her back pocket.
I do not say these things to scare you. I am merely your jedi money guide on this journey. I want you to invest.
Own your primary residence and buy those index funds.
As the stock market goes down, buy the dip. Buy low. Get those high returns to sell high.
I did this back in 2013 when I bought shares of Apple (AAPL) for $258. The stock went on to split twice. Once for a 4-for-1 basis on August 28, 2020, a 7-for-1 basis on June 9, 2014. Prior to each split the stock was trading well over $500. It was $656 in 2014 and $656 in 2020.
It went from a billion-dollar company to a $2 trillion-dollar one. At the time of this writing, it is hovering around a $3 trillion-dollar market cap. Off a small one-time investment, I made tens of thousands of dollars.
And that small home that was purchased years ago. It has increased in value over $100k. The equity has gone up by over $100,000 and counting. That is why we invest my friends. So we can keep earning money in our sleep. Our money can work without taking vacations or sick leave. We can’t.
So here is your homework for this evening. I want you to find a home you would like to buy and a stock you would like to purchase. Figure out how much of a down payment or initial but in you will need. Divide this amount by how long you think it will take you to save up these funds.
For example, the VTSAX has a minimum initial investment of $3k. You decide you want to but this investment in a year. Therefore, you divide $3,000/12 months = $250. That is how much you must save every month to but this index fund. Doing the math will allow you to slowly build your dreams.
Let us not forget the wisdom of one of the greatest investors of all time: Warren Buffet. He reminded us that American living standards advanced seven fold in the 1900s, while the Dow rose from 66 to over 11,000. The Dow now stands at 34,934.27 today in 2022. “The model has worked well for America. If you look at all these disparate businesses, such as if you looked at the Dow Jones as a single entity… (though it rotated)… but going from 66 to 11,000 is doing something right. Owning a group of good business isn’t a bad plan.” Yes, owning is good for your pocketbook in the long run. Now I want you to go out and get some assets.
But before you do here is some more Buffet wisdom, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” And lastly, “The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.” Patience is key. It will take you to the promised land of financial independence.
When I read the tea leaves on the stock market, I see it rising to 100,000.
Why you ask? A little research.
The Dow Jones industrial average index (DJIA) opened in 2018 just shy of 25,000 on Jan. 2, and a little over two weeks later it already had topped 26,000. The DJIA would need to rise by 20% to hit 30,000. We did that. As reported by Kigplinger, the DJIA has enjoyed an annualized increase of 7.33% since 1950, based on Yahoo Finance historical data. Therefore, the DJIA will double every 10 years (9.82 years, to be exact). If we continue at our 1950-2017 pace, the DJIA index will double, or hit 50,000, in 10 years.
If a $100,000 in the market at a 10% return will net you $1,000,000 in 30 years, then you can become a multi-millionaire with help of the stock market. And that excludes housing equity. So get out there and start putting your dollars to work.
Millionaires know that you get rich by saving $20 bucks at a time.
