NCVTV April Money Management Highlights!

NCVTV April Money Management Highlights!

Of course, April’s blog includes highlights from the latest NCVTV episodes.  Here are summaries from the April episodes.  To watch them all, and lots of other fun videos, check out my YouTube channel NCVTV.  You’ll be glad you did!

Episode 6 – The Tax Man Cometh

This episode is all about how we treat our tax refunds and how we can manage them better.  How many of us lay in wait for our tax refunds every year?  With e-filing and direct deposit, we can get our tax refunds as early as February, in some cases.  Then, it’s a frenzy of how fast can we spend it on paying down debt, like Christmas credit card bills that have been lingering for a couple of months or tuition for their college bound kids.

We all know how we get a refund, right?  We fill out the w-4 which tells our employer how much to send to uncle sam via our “pay as you go” tax system.  Most of us are cautious and have more withheld from our paycheck than we think we’ll need to pay in taxes.  This means every year at tax time, we get a refund because we’ve overpaid our tax bill during the course of the year.  When you overpay your tax withholding you create a non-interest bearing loan to the government for 12 months.  The only benefit you get out of it is a lump sum payout of money you already earned that you are free to spend as you see fit at the end of the year.  We mistakenly see this as a windfall when the truth is, it’s already our money that we’ve worked hard for, paid tax on and let someone keep without paying us a dime in interest for a full 12 months.  That’s not smart!  Now, my goal is to connect a couple of dots for you and show you how the concepts my financial management philosophy fit together to help you make more money for you, which includes managing your tax refund better.  And to remind you that a small action like exercising your self-discipline muscle can help you make your money work for you.

There are 2 things I want you to think about for tax planning purposes.  First of all, go back and review episode 2 of NCVTV, the episode where I talk about behavioral finance.  Remember that The reason we tend to not do the smart thing, or the reason we act against our own self interest, is because it’s so painful for us to actually write a check to the IRS and PAY them, rather than letting them take their cut and give us what’s left over in a lump sum payment.  The smart thing would be to reduce our withholdings and save the money in an interest bearing account and that takes discipline.

The second thing is that you should take a hard look at your withholdings and consider managing them differently.  Start by, considering whether or not you get a sizeable refund every year.  If you do, think about my favorite saying, people should be paying you interest NOT the other way around.  Think about how much of a tax refund you get every year.  Wouldn’t it be great if you could invest that money in an account that will grow at an average of 6% TAX FREE?  Where you could still access the funds if you needed them without penalties or fees? That, my friends, is a Roth IRA.  The beautiful thing about this kind of account is you fund it with after tax dollars meaning it grows tax free over time and all your withdrawals (once you reach the appropriate age) are tax free, too.

You could choose to invest that money in an account that REDUCES your overall taxable income and therefore, the total amount of tax you wind up having to pay Uncle Sam.  This is a pre-tax dollar account and there are 2 possibilities here, an employer sponsored 401(k) which sometimes comes with an employer match, (read free money), or a traditional IRA you set up yourself and contribute to it throughout the year.  The huge benefit of this is, the average rate of return over time is 6% AND you get to deduct your annual contribution on your taxes.  Let me say that a different way, it reduces your overall taxable income thus reducing the amount of income tax you pay.  I prefer a Roth IRA over a Traditional IRA for lots of reasons but, you can’t deny the wonderful benefits of saving money in an investment account that has a significantly higher rate of return than even a money market account.

 At the very least, make sure you are adjusting your withholding to hit the sweet spot which is just enough to pay your taxes but not so much that you’re treating your tax refund as a mandatory savings account, forcing us to save money with no interest payment that we’ll get as a lump sum every 12 months.  You would be better off getting paid that extra money throughout the year and using it to pay down your debt.  At the very least, I challenge you to consider your tax refund and think about how those funds could be used to pay off debt, saving you money on otherwise compounding interest.

To watch the episode, click here.

Episode 7 – The W-4 Conundrum

It’s not a crock pot.  Don’t just set it and forget it!

In this episode, we review the w-4 and talk about why we need to keep an eye on it.  The w-4 is officially our Employee’s Withholding Certificate.  This form tells your employer how much money to withhold from your paycheck to send to the government to pay your taxes.  You probably fill out one for the state you live in, too.  First, you should know if you don’t fill it out, you could wind up having the maximum amount possible taken from your check.  It’s important to make sure you fill it out correctly and change it when you need to.  Some people fill it out and don’t think about it again.  You can update your w-4 once a year or when something in your life changes that impacts your withholding allowance. 

You need to update your w-r if one of these five things change for you, marriage, kids, a change in pay (hopefully a raise), job change, divorce or the death of a spouse.  The change you make should take effect relatively quickly but, depending on how many months you have to go until tax time, the change in withholding could really hurt when it shows up in your paycheck.  So, when you are filling out your w-4, the most important thing is to pay close attention to the personal allowances worksheet and to follow the instructions carefully.  Keep this rule of thumb in mind, the higher your number of allowances, the lower the withholding. 

Keep this in mind while going through the worksheet, deciding whether or not you are “head of household” does not mean that you are king of your castle.  It means you are single and paying living expenses for a “qualifying person.”  Before you decide to file head of household, ask a tax professional to make sure your qualifying person really is a qualifying person.  Also, child tax credits can be tricky.  Remember, the lower your income and the fewer kids you have, the higher your child tax allowance.  This tax credit doesn’t last forever, either!

Of course, none of this matters if you’re single, live by yourself and only have 1 job.  In that scenario, you’ll have the most withholding possible taken out of your pay.  If that’s the case, make sure you are being accurate with your deductions so you are paying the amount of tax you should be paying.  To do that you can check out the deduction and adjustment worksheet on page 2 of the w-4.  Uncle Sam will not pay you interest so don’t loan him any more money than you need to!

To watch the episode, click here.

Episode 8 – Congratulations, you failed!

In some ways, I think this is the most important episode of NCVTV to date.  This episode is all about failure and, more specifically what do when you’ve made a financial mistake or failed to manage your money well.  As I’ve mentioned before, I don’t come from a wealthy family and I wasn’t always good at managing money.  I’ve made plenty of financial mistakes in the past.  However, experience, and more importantly failure, is a powerful teacher.  There’s nothing like forking over your hard earned money to pay for a speeding ticket, for example, when I totally could have avoided if I had just given myself a little more time to get where I was going.  When I decided to get my finances under control so I didn’t have to work at thankless jobs or continue living at home, I began to learn about the value of failure, how to appreciate it and how to harness it.

The first step in appreciating and using failure to your advantage is to not beat yourself up about it over and over again.  You know, you are a human being and if you are older than 2 you need to just face the facts that you will fail.  You’re gonna fail and that’s that.  We all fail.  Every one of us.  Human beings by their nature are flawed. 

Step 2, The key to surviving these mistakes is how you move forward after they happen.  You can start by learning how to recognize your failure for what it is, a teaching moment.  Okay, so I failed, my bad.  Now, what can I learn from the experience?  This is simple stuff but it can make a huge difference in not just your finances but in every area of your life.  This also ties into a concept that I have been preaching for years and that is SMALL ACTIONS MATTER.  The smallest possible action you can take to help you get your finances on track is to be present in your life.  Be aware, be mindful and then be grateful for what you have and see how your life begins to change.

Step 3, plan for failure.  Now, when I say you need to plan for failure, I don’t mean walk around with your glass half empty expecting everything to go wrong.  What I mean is protect your downside. 

Step 4 – always remember that no matter how bad it seems or how old you are, you can always move forward in a positive way after a big money mistake.  For example, you may have waited until you are 45 to start saving for retirement. 

My final word on this to remind you that you may have made a mistake or failed but that isn’t who you are, it’s just what happened to you.  Don’t assume that mistake or failure is your identity. 

To watch the episode, click here.

Episode 9 – Your Budget Can Be Your Coffee Can

Are you that person who has never made a budget and you really don’t want to start budgeting because to you, it’s worse than dieting?  If so, this episode is for you!  Now, I know from experience that I can spend all day every day yapping about how to set up a budget and it wouldn’t do anyone a bit of good if the audience wasn’t ready for it.

A very important part of my money management philosophy is the idea that personal finance isn’t one size fits all.  I’ve come to realize that just like everyone of us is unique, so are our personal finances.  The goal for you should be to decide what you want your life to look like and to make it happen in such a way that your money supports that vision.  Whether that is having 6 kids or traveling the world while living out of a suitcase.  No matter what, your job needs to be figuring out how to budget so you can make that happen. 

Only about 1/3 of American households have budgets and stick to them.  What this tells me is 2/3s of Americans are acting directly contrary to their best interests.  Go back and check out episode 2 which is about behavioral finance, if you want to understand this phenomenon a little better.  If your money mindset is off, you’ll never get your finances under control.

 There are a lot of moving parts about your money mindset that you can change to help you get your personal finances on track.  It can be challenging to work on figuring out your relationship with money.  I know what I’m talking about here because, having been raised very poor, it took me a lot of years to figure out my money mindset.  Because I’ve been there and done that, I have a good idea how to go about getting your mindset under control so you can get down to making a budget.  Here’s how to start:

Practice gratitude.  Every time you start getting freaked out about your finances, stop and give yourself a mental shake.  Then find something to be grateful for.  Everyone has something to be grateful for, no matter how small.

Next, think about why you are stressed about money and ask yourself “why questions.”  Why do you feel like you don’t have enough money?  What can you learn from your current financial situation?  And keep asking why questions until you figure out what the real issue is and that’s where you can make progress in changing your mindset. 

Once you’ve figured out why your money mindset has been off.  It’s time to reset it.  This is the good part, the fun part where you get to think about what you want to do with your life.  What would make you happiest and how to use your money to help you on that quest.  No matter what, there are always steps you can take now to make your vision a reality.  If you have 6 kids and live in a mobile home but want to travel the world, you may not be able to do it tomorrow but, someday your kids will grow up and you can begin planning right now for that day.  If you don’t believe me, google Liz Gilbert coffee can story and then think about this statement, your budget can be your coffee can. 

At the end of the day, budgeting is not rocket science.  It really isn’t.  Eventually, I realized the reason we don’t budget is all in our head.  I really should have known that all along because of my history with money.  Hopefully, this post can help you fast track your money mindset so you can start working on your coffee can budget.  Remember, I did it and you can, too!

To watch the episode, click here.

And that is that!  A highlight of all the NCVTV episodes for April 2017.  Make sure you check them out on my YouTube channel!  I’ll see you there!

Sincerely,

Joy Alford-Brand

Your Dollar Lama