Net Worth Update: May 2016

Happy May!  I hope April treated you well and tax day didn’t crush you like it crushed me!  Even though taxes came due, our net worth still went up $6,379.32!! I’ll take a $6K jump every month…

April Financial Breakdown

House: $383,728 – $321,484 $62,244.  I’m just using zillow.com as the baseline here.  They give their estimate for how much they think you’re home is worth.  I’m not saying it’s accurate but it’s a decent way to keep track without bringing an appraiser in every month to help you track your net worth. This month it said the value of my home went up $4,197.00.

My 401k: $18,689.37.  Right now 5% of my salary is going into my 401k via my employer. Nothing crazy here.  According to my account at personal capital, my portfolio only increased 1.79% over the course of April.

Pension Fund: $8,215.40.  I’m one of the few remaining workers in America that contribute to an employee pension fund and if I decide to stay with my employer and retire 24 years from now I will receive a pension.  I DO NOT PLAN ON DOING THIS!  I’m all about early retirement!!!

My Old 401k: $8,497.11.  This 401k is from an old employer.  I need to roll this over into a Roth IRA.  Hopefully I get to this very soon…


Wifey 401k: $4,682.47. Same situation as my 401k.  5% match from her employer.

Wifey Old 401k: $3,300. Also in the same situation as my old 401k.  We also need to roll this over to a Roth IRA very soon.

Car: $13,174.00.  Well, I don’t know what to say on this one.  According to kbb.com, the value of my car actually increased by $174 over the past month.  I won’t expect an increase on a vehicle ever again but it’s a nice surprise.

Jeep: $10,763.00.

Emergency Fund: $8,016.98.  The emergency fund took a hit this past month due to taxes.  I owed over $3k and was able to cash flow over $2k of it, but I had to dip into the emergency fund for just over $1,000 of it.

TOTAL NET WORTH: $137,582.33 (+$6,379.32)

So 2nd post of my net worth in the books.  I’m not expecting to see gains of over $6,000 for a while, especially since over $4,000 of it was due to gains on the value of my home.

Keep in mind, the first few years of beginning to build your net worth are slow but once you get some momentum it’ll shoot up faster than you can imagine!

**If you like talking about Money, Paying Off Debt, Building Your Net Worth and Retiring Early…This is the place for you!  Subscribe to receive emails of new blog posts, news, tips, and exclusive content!!!

How To Reduce Your Tax Bill?

I can’t stand tax season.  I know taxes are necessary to keep the country running but the last few years I’ve owed over $2,000 every April, which got me looking for ways to knock this down to $0.  While taking a look around I’ve come to the conclusion that I can either take a job that pays much less money or I could find a way to legally reduce my taxable income.  I chose the latter for obvious reasons…

So How Do I Reduce My Taxable Income?

PayYourTaxes

You have to itemize your deductions rather than take the standard deductions in order to take advantage of these write-offs:

  • Retirement Savings: Contributions made to a 401k are tax deferred contributions which means that your taxable income will be reduced by the amount you contribute (the limit is $18,000 for 2016). You can also deduct up to $5,500 in contributions to a traditional IRA ($6,500 if you’re 50 or over. And, if you’re self-employed, you can deduct up to $52,000 (or 25% of compensation) in SEP IRA contributions for 2014.
  • Flexible Spending Account: A FSA allows an employee to set aside a portion of earnings to pay for qualified expenses as established in the employers cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee’s pay into a FSA is not subject to payroll taxes, resulting in substantial payroll tax savings.
  • Paying for dependent care: According to IRS.gov. The dollar limit on the amount of the expenses you can use to figure the credit is $3,000 for the care of one qualifying individual or $6,000 for two or more qualifying individuals. The amount of your credit is between 20 and 35 percent of your allowable expenses. The percentage you use depends on the amount of your adjusted gross income.
  • If you’ve made certain energy-efficient home improvements: Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property. Credits are worth up to 30% of the cost, with no cap. This will expire in 2016.

  • Paying for college: The American Opportunity Credit takes up to $2,500 off your tax bill per year for four years if you’ve paid eligible costs towards a post-secondary degree program.
  • Student loans: You can deduct up to $2,500 in interest, though benefits begin to phase out for joint filers with modified adjusted gross income over $120,000 ($60,000 for singles).
  • Save for your kid’s college education:  You can save up to $2,000 tax-free every year through an ESA (Education Savings Account).  This can reduce your taxable income by up to $2,000.
  • Health savings account as part of a high-deductible health insurance plan: Families with qualified plans can deduct up to $6,500 ($3,300 for singles) in contributions made to HSAs. The money can be rolled over to other years and used for a range of qualified expenses.
  • Expenses related to moving or a job search: If you moved more than 50 miles for a job within a year of starting a new job, you can deduct expenses related to the move, including mileage, lodging, moving services and supplies.
  • Mortgage Interest: You can deduct interest on your primary residence and a second home that is used primarily for personal use.
  • Points on a mortgage: If you can deduct all of the interest on your mortgage, you may be able to deduct all of the points paid on the mortgage. If your acquisition debt exceeds $1 million or your home equity debt exceeds $100,000, you cannot deduct all the interest on your mortgage and you cannot deduct all your points.
  • If you paid taxes: Odd as it seems, you can deduct certain taxes, including property tax on your primary residence, vehicles (depending on the state), and state and local income taxes.
  • If you gave money to charity: You can deduct your charitable contributions every year but make sure you save the documentation proving that you donated to a charity and how much you donated.  For those of you that tithe to a church, it also counts.

What are some ways you use to lower your tax bill?


*These are just some ideas to help you reduce your taxable income and get the most out of your deductibles.  I’d like to point out that I’m NOT a tax professional or tax attorney so please consult with one if you have any questions related to taxes.

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Net Worth Update: $131,203.01

Welcome to April everybody!  I hope March treated you well and you were able to take advantage of a market that wasn’t losing money.  The S&P 500 increased 3.98% over the last 30 days.  It wasn’t a great month for investments but at least it wasn’t like January!

Since this is my first post on my net worth updates, I’m just going to list everything out and I won’t really have any detailed explanations about what’s going on like I will in future net worth posts.  You can also see in the “My Net Worth” excel pic that there is nothing there for “last month.”  That’s because this is the first month I’ve started using it.

I’m currently not investing in any 401k’s or other investments.  I do have balances in 401k’s but the only changes in those investments are from my employers contributions and the ups and downs of the market.  Right now I’m in Step 3 and I’m just building up an emergency fund of 6 months worth of expenses.

So, here we go…

April Financial Breakdown

House: $379,531 – $322,085 $57,446.  I’m just using zillow.com as the baseline here.  They give their estimate for how much they think you’re home is worth.  I’m not saying it’s accurate but it’s a decent way to keep track without bringing an appraiser in every month to help you track your net worth.

My 401k: $17,660.16.  Right now 5% of my salary is going into my 401k via my employer.

Pension Fund: $7,975.  I’m one of the few remaining workers in America that contribute to a pension fund and if I decide to stay with my employer and retire 24 years from now I will receive a pension.  I DO NOT PLAN ON DOING THIS!  I’m all about early retirement!!!

My Old 401k: $7,991.85.  This 401k is from an old employer.  I need to roll this over into a Roth IRA.  Hopefully I get to this very soon…


Wifey 401k: $3,779. Same situation as my 401k.  5% match from her employer.

Wifey Old 401k: $3,300. Also in the same situation as my old 401k.  We also need to roll this over to a Roth IRA very soon.

Car: $13,000.  I know, I know.  Many people don’t like counting the value of vehicles towards their net worth for whatever reason they choose, but I do because I could easily sell my car and have $13,000 in cash if I needed it.

Jeep: $11,000.  Same here…

Emergency Fund: $9,051.  I’m sad to say that I do not have my 6 month emergency fund saved up yet.  But, we’re working on it and will hopefully be where we need to be in the next 6 months or so.  GOAL? $20,000 right now.

TOTAL NET WORTH: $131,203.01

So there it is.  My first post on my net worth.  It’s obviously not where I want it to be right now but when I’m done building a solid foundation I will be able to invest a lot of money and build my net worth much faster than I can right now.

The first few years of beginning to build your net worth are slow but once you get some momentum it’ll shoot up faster than you can imagine!

**If you like talking about Money, Paying Off Debt, Building Your Net Worth and Retiring Early…This is the place for you!  Subscribe to receive emails of new blog posts, news, tips, and exclusive content!!!

 

 

How Much Should You Invest In Your 401K?

You’ve figured out how to budget, destroyed all of your debt, and built up a solid emergency fund with up to 6 months’ worth of expenses.  You’ve arrived, and now comes the fun part!  It’s time to finally start building some serious momentum and investing in retirement.

According to a recent survey conducted by the Employee Benefit Research Institute, 57% of working Americans have less than $25,000 saved for retirement.  This includes 28% of the individuals who had less than $1,000 and 17% who had between $1,000 and $9,999.  But guess what?  You’re already ahead of the majority of Americans, and you haven’t even started saving for retirement yet.  You’ve set a solid foundation for your financial house and now you can finally begin growing your net worth.

Not many people can embrace the idea of cutting back their lifestyles and becoming disciplined enough to sprint through the first 3 steps of our plan with a focus on the future.  Give yourself a huge pat on the back!  You’ve settled for the basics and lived frugally to accomplish a goal…you want to get rich.  Anytime you want to accomplish something big in your life, you need a plan to make it happen.  You have OUR plan; let’s get started!

Simple is Effective!

Right now, you want to invest 15% of your overall income into your 401K sponsored by your employer and if your employer doesn’t have a 401k you should invest in a Roth IRA.  I want you to invest in your 401K first because it is important to take advantage of every tax advantaged account the U.S. Government gives you (This will help lower your taxable income and hopefully get you into a lower tax bracket).  You’re allowed to invest a MAXIMUM of $18,000 in your 401K during 2016.  *This DOES NOT include your employer match!* Your employer match is gravy on top of your $18,000.  If 15% of your income happens to be more than $18,000 you can look into contributing the rest into a Roth IRA.  The maximum contribution for a Roth is $5,500.  Contribute until you hit 15%.

Many of you may be asking, “We just paid off all of our debt and we’re only investing 15%?  And the answer is yes, we are only investing 15% of your income because we want to make sure that you have money left over to pay off your house QUICKLY!  Once that house is paid off you’ll be able to invest A LOT of money and build some serious wealth.  We’ll talk about this in Step 6.

Time + Compound Interest= FREEDOM!

Now you just have to be patient.  Continue making your contributions whether the stock market is up or down and let time work its magic.

I also want you to understand that no matter what, do not take your money out until you’re retired.  If you do, you lose the power of compound interest.

Anyone Can Retire Rich

Hypothetically, if you start investing at 30 years old and you have a household income equivalent to the national average of approximately $50,000, you can retire a millionaire.  Here’s how:

  • You start with $0 in savings but contribute 15% of your income for 35 years.  15% is $625 a month.
  • Assuming an average compounding interest rate of 8% per year you’ll have $1.396 million dollars at the end of 35 years.
  • If you happen to average a 10% interest rate over the course of 35 years you will end up with $2.236 million
  • What if you only have 25 years to invest?  No problem, you’ll be fine.  You’ll still have over $800,000 and that doesn’t include what your house is worth.

Do you think 10% is impossible to achieve?  It’s not.  The stock market has averaged a growth rate of just about 12%.  There are plenty of mutual funds that can be found with a track record of 12% average growth.  Sure they have down years but they have more positive years.  The down years are an example of why you shouldn’t sell.  When stocks are dropping in value you want to buy MORE!  Realistically, I like to plan on an 8% return. If it’s more? I’ll be surprised and happy.  If it’s less?  I won’t be too far off.

P.S. Have any questions?  Leave a comment/reply below and I’ll get back to you as soon as possible.

*If you like talking about Money, Paying Off Debt, Building Your Net Worth and Retiring Early…This is the place for you!  Subscribe to receive emails of new blog posts!!!