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Talking Money

The only money tree you will ever see.

On this blog we’re going to talk about money and money related topics. Most people earn money. All people spend money. Many people spend more than they earn and that’s where this blog enters the discourse. We will discuss topics like:

  • Income
  • Spending
  • Debt
  • Borrowing
  • Tracking expenses
  • Budgeting
  • Saving
  • Investing
  • Interest
  • Rate of return
  • Frugality
  • Thrift

The purpose of this blog is to educate. My objective is to provide you with the knowledge you need so you don’t make the mistakes I made over the years. While my parents managed their money well, they never taught me how to do the same. Hence, the only way I learned was through the experience of making bad financial decisions.

The principles I will present are based on my actual experience … not theory. Some concepts follow tradition and common sense. Others are contrary to what some financial “experts” advocate.

Other than spending less than you earn, there is no single way to attain financial stability and well-being. You will need to pick and choose the financial actions that are suitable for you based on your circumstances and objectives. I will present the basics. You will need to adjust and expand upon the basics to develop a personalized plan of action that fits your lifestyle and objectives.

It’s never too soon or too late to get on the right path to financial stability and success. I didn’t get my financial head on straight until I was in my early forties. I sincerely hope that you get on the right path sooner than I did.

Thank you for visiting my blog. You are always welcome to comment or ask questions in the comment sections provided. I look forward to reading your comments and shared experiences.


“The more your money works for you, the less you have to work for money.”
― Idowu Koyenikan


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  • You will never see any advertisements on this website.
  • I will not endorse or recommend any company, product or service.
  • Occasionally, a company, product or service will be mentioned in a published article. The company, product or service mentioned is for informational purposes only. In no way should you consider that an endorsement or recommendation.

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Teaching Your Child the Value of Money

Photo by Karolina Grabowska from Pexels

Teaching your child the value of money starts when the child is young and goes until they are on their own. Make sure your child has a firm understanding of money, saving, debt and taxes growing up. This foundation will help them attain a stable financial future when your child is an adult.

Start Early

Teach Your Child the Value of Waiting 

Good spending habits are rooted in the ability to delay gratification. You wait for a month, for example, to buy a computer program you’ve been eyeing. Children begin to comprehend the concept of waiting between ages 3 and 5. This provides you with the opportunity to teach and show them how waiting factors into saving and spending.

Start with small steps. If a child is waiting in line to use a slide or a swing set at a public park, explain to them that part of life is learning to wait for the things we want.

Use the child’s allowance to teach him about waiting and spending. Find a reasonably priced toy, say around $10, that your child wants and tell him he will have to wait and save for the toy. Assuming you give your child $5 each week as an allowance, the child will need to wait 2 weeks before he can buy the toy. Once he has saved the required $10, take him to buy the toy.

Play Games that Focus on Money

Young children primarily learn by playing. There are a number of games you can engage in that will help teach them about money and spending.

The coin identification game is a great way to help kids match coins with their different values. Many young children choose nickels over dimes because the nickels are larger than the dimes. Teach your child how much each coin is worth and have them stack a series of coins from the most value to the least value.

Kids love to play store. Set up a variety of make-believe shops in your living room and allow your child to spend money on items. Teach your child the difference between reasonable and unreasonable prices. If, for example, a child’s bakery charges $5 for a doughnut, step in and explain that doughnuts in the real world sell for much less.

Oftentimes, children’s games involve money and spending. Monopoly and Life focus heavily on buying and spending. There are also a variety of computer and video games that teach addition and subtraction using money as examples.

Include Your Child in Some Basic Money Decisions

Allow your child to be a part of small financial decisions in the household. Introducing them to real life money situations, in addition to games, allows your child to see the impact money has on our day-to-day lives.

Clip coupons with your child. Even children who cannot read can take part in it as many coupons include pictures. Explain how coupons help save money and have your child identify coupons for items you buy frequently. When at the store, give your child the task of holding the envelope containing the coupons.

Give your child $2-$3 and allow her to make decisions shopping. As an example, your child can pick a fruit drink for the family that’s in the $4 price range.

Talk out loud when you’re shopping so your child understands the thinking process surrounding money. For example, “This store-brand peanut butter is $1 less than the name brand, so I’m going to buy the store brand instead.”

Elementary School Age Children

Explain the Difference Between Short-Term and Long-Term Money Goals

As children grow older, starting around age 6 or 7, their thinking becomes less based in the current moment. They’re able to think long term and comprehend more complex things. This provides you with the opportunity to teach children about the importance of long-term money issues.

Use a change jar to illustrate how money accrues overtime. Place spare change in a large glass jar and, after it’s full, take your child to the bank to exchange the coins for dollars. They can see how a collection of coins grew into a good sum of money.

Introduce a sensible, yet adequate, allowance, giving the child the opportunity to manage her own money. If a child wants a particular toy, tell her she’ll need to earn the money herself by saving all or a portion of her allowance to buy the toy.

When you can afford it, start a savings account for your child. Put $100 in the bank and get paper or online statements each month. This allows your child to see how interest grows each month and that the amount of money increases over time. You can even encourage your child to put a fraction of their weekly allowance into that savings account.

Have a Garage or Yard Sale

A great way to show children the value money has is to allow them to estimate how much their clothes, toys, books, and other possessions are worth. A garage or yard sale is a simple and easy way to convey the value of money in a factual manner.

Allow your child select items they no longer use and want to sell. Talk to him about how much he can reasonably charge for those items and have him sit with you next to the cash register as his items are purchased. Give him the money he earned to save and/or spend as he chooses.

You can also go to garage or yard sales in your area. Your child can see how buying items used (and in good condition) is much cheaper than going to the store and buying the item new. This will teach them how to be frugal about money throughout their life.

Have Your Child Save for Something She Wants

Help your child select a long-term money/financial goal, such as an expensive toy, video game, or electronic device. Teach her how to earn and save money for the item in a reasonable period of time.

Remind her of the goal as she makes other money decisions. If, for example, she wants to spend $1.50 on a bottle of Coke, remind her that the money she spends for the Coke could go towards saving for the video game she wants. Help her understand the difference between immediate wants, like a craving for a Coke, and long-term wants, like the video game she wants.

If your child is old enough, consider letting her babysit to earn money in addition to the allowance you give her each week. This will allow her to learn that money is earned through work.

Preparing for Money Decisions in Adulthood

Have Your Child Enroll in a Class for Youth at Your Bank or Credit Union

Adolescence is a great time to teach children about banking and savings in a more complex manner. Many banks and credit unions provide classes to teach children about finance.

Check with your local bank or credit union. Many offer classes or seminars to teach young people the basics of managing money.

Your child can learn about compound interest rates using specific numbers and scenarios to show them that saving and investing money allows their money to grow over time. They can also learn how much money they need to save to purchase a big-ticket item or service using a specific number of years and an assumed, reasonable interest rate.

Talk with Your Child About the Cost of College

As your child enters high school, discuss college and costs of tuition, books and housing. This will teach your child how to invest financially in their future, increasing the likelihood of financial stability and long-term financial success.

Be honest with how much money you can personally contribute and how much will need to come from other sources. This way, your child will have realistic expectations when it comes to paying for their college education.

Talk about financial aid. Make sure your child understands the difference between free money and money that must be paid back. Start early when it comes to looking for scholarships, grants, and other avenues to free or reduced tuition.

Websites like College Scorecard can be used to explore the financial benefits of colleges. The site provides information on employment rates of alumni, the average student debt, and whether the money spent ultimately pays off.

Using the FASFA website, your child can estimate how much money they will receive in aid. This will give your child an early sense of what post graduation debt will look like, and how to go about paying off student loans.

Teach Your Child About Responsibly Using Credit Cards

Credit card debt is a serious problem in the United States. The average household owes over $7,000 to credit card companies. When your child turns 18, they’ll be old enough to take out their own credit cards and will likely be courted by credit card companies early in college. Talk to your child about credit card use throughout high school so they do not unknowingly start adulthood in crushing debt. Explain that you should only use a credit card if you can pay the balance in full each month.

Make sure your child knows that credit cards are for emergencies only, and they should not use a credit card for everyday purchases.

Talk about credit scores, and how maintaining a credit card responsibly can help boost their credit score over time. Make sure your child knows the long-term consequences of a poor credit score and how this affects being hired for a job, buying a house or car, and career prospects down the road.


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How to Teach Your Child About Money

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Money is an important aspect of our lives and it needs to be explained to children at an early age. Toddlers can learn what money is and you can use coins to help them in learning how to count.

As your child gets older, she can be taught more complex concepts like the value of money and how to pay for products and services. Once your child is a teenager she can learn how to open, fund and maintain a bank savings account and make money for herself by getting a job.

If you start teaching your child early in life, the money lessons you teach her will be remembered throughout her lifetime.

Teaching The Basics to Young Children

Use coins to teach 1- to 2-year-olds how to count. If you have a toddler who doesn’t know how to count, start off simple. Give him a coin and say, “This is 1 coin.” Then, give them another coin and say, “This is 2 coins.” Keep doing this until you have 5 or 6 coins. Have your toddler count the coins with you.

  • It will be helpful to emphasize the words “one” and “two” until your toddler can repeat the words back to you.
  • Be patient with your toddler. More than likely, it will take several teaching sessions for your child to start repeating the words.

Teach your 3- to 4-year-old child about coins based on color and size. Teach your child the names of coins, their size, and what color they are. Give your child a handful of coins and ask him to organize them into different piles in no particular order. Tell your child the names of the coins and see if he can point to the correct coin or repeat the name after you.

  • As an example, you can say, “This silver coin is a quarter, and it’s the largest of all the coins. Can you point to another quarter?”

Give your child a clear piggy bank to encourage saving. A piggy bank will teach your child how to start saving some of her money. Give her a clear jar instead of a porcelain piggy bank. Doing this will let her see the money accumulate. As she starts saving more coins, give her enthusiastic encouragement about saving some money.

  • You can say something like, “Wow! You’ve saved so many coins since I’ve last looked. Great job!”
  • You can give a child a piggy bank or savings jar at the age of 2 to 3.
  • Help your child use a coin machine to show your child how the coins she has saved will be exchanged for dollars.
  • It’s okay to allow your young child to buy things, but help her set a goal for saving money as well.

Read books to your child that teaches him about money. There are several informative and fun children’s books that will help educate your child about money. Search online for titles that you think your child would enjoy and buy them online or at your local bookstore. Then, read the book to him and explain any lessons he didn’t understand.

  • Examples include Money MadnessOnce Upon a Dime, and One Cent, Two Cents, Old Cent, New Cents.

Utilize Learning Opportunities for Older Children

Play “store” with your 4- to 5-year-old child to teach him about income. Once your child gets to be about 4-5 years old, you can set up pretend store or restaurant scenarios where you have to pay your child for products and services. Use fake or real money with the child to give him a lesson about working to bring in an income.

  • You can set up a fake McDonalds restaurant and have your child exchange play-dough hamburgers for money.

Teach your 4- to 6-year-old child about paying for things. Teach your child that she can’t take things from the store unless she pays for them first. She’ll be able to understand this concept somewhere between the ages of 4-6. If your child wants something, explain how much money it costs and whether you can buy it or not.

  • For instance, if the child picks up a candy bar at the grocery you can say something like, “We have to pay for that candy bar if you want it. Do you know how much it costs?”
  • You can also say, “Taking something from the store without paying is considered stealing and could get us in trouble!”
  • Ask your child questions before you buying something to get them thinking about how to save money, such as by asking, “That candy bar costs $0.50 less than this candy bar. Which candy bar do you think we should buy?”

Give your child choices based on price. If your child wants more than one thing, give him a choice between things that have a similar monetary value. This will start to make him more aware about the value of money and about how much things cost. It will also make him realize that money is limited and that sometimes he can’t have everything.

  • You can say something like, “You can get 2 pieces of candy that cost $5 or 1 toy that costs $5. Which do you want?”

Give your child an allowance for finishing chores. Set a list of chores that need to be completed around the house and give her a weekly or monthly allowance for completing these chores. Help your child think of things she wants to save for to help encourage and motivate her complete the chores. This will help her understand the value of money and the importance of saving money.

  • If your child doesn’t complete the chores, don’t give her the allowance.
  • Chores could include washing the dishes, walking the dog, taking out the garbage, cleaning the house, or helping siblings with homework.
  • You can say “I know you’ve been saving up for that new video game, great job. How much do you have so far?”
  • If you’re unsure of how much to give, consider giving them $1 per week for every year they’ve lived. So for example, if they are 9, give them $9 per week.

Educating Teenagers about Money

Explain compound interest to 11- to 14-year-olds. Start with whole numbers when explaining compound interest at first. Explain the principles of earning money by saving with a high-interest rate.

Use websites like https://www.investor.gov/ to calculate compounding interest over time. There, your child can make calculations on how much he would earn at different interest rates.

  • Say something like, “If you saved $10 a month until you were 22, you’d have $1,200 but if you waited for 5 years, you’d only have $600.”

Help your teenager get their first job. Search online with your teenager and suggest different opportunities that might benefit her. Businesses are also likely to hire around gift-giving holidays. Visit local businesses around the holidays and ask them if they are hiring. Once your teenager gets a job and starts earning her own money, she will better understand the value of money and the hard work that it takes to earn that money.

  • Help your teenager dress for the part and write her first resume. Walk her through the entire job-searching process as it can be overwhelming to her because she hasn’t done it before.


Teach him how to budget.
 Write down a list of your teen’s income and expenses every month and subtract the expenses from the income. This will give him a good idea of how much money he can spend after he gets paid. Review the budget with him and see where he can eliminate some expenses so he can save more money.

  • Creating a budget is also very beneficial if he has things he is paying for himself, like a monthly cell phone bill or car insurance.
  • If you notice that he is spending a lot on clothes or other things he doesn’t need, talk to him about the value of saving.
  • For example, if your teenager makes $150 per week at his job and his total weekly expenses are around $100, it means he only has $50 to save and use for things he wants.
  • You can create the budget in a spreadsheet instead of using pencil and paper.

Open a savings account with her so she can save some of the money she earns. Some banks and credit unions will only allow teenagers under 18 to open a bank account with an adult. Take her to the bank or credit union and talk to a representative about opening a joint account. This will provide a means for her to save money and will give you the opportunity to monitor how she is spending her money.

  • Once you set up the account, show her how to use any online banking features.
  • Walk her through setting up her pin number and using the ATM.
  • You can also set up an online savings account which typically has a higher interest rate.

Show him how to fill out his annual income taxes if he has a job. Explain what taxes are used for and the programs they fund. You should also fill out tax forms with him during tax time on websites like TurboTax, H&R Block or TaxSlayer. Guide him through the steps and explain everything to him as you do his taxes together.


Compare the cost of colleges to teach her about debt and credit.
 Look at colleges and compare tuition costs with her. Explain how the interest on loans will accrue the longer the loan isn’t fully paid. Warn her about the potential dangers of credit cards and how her credit score will affect her ability to purchase a car or house in the future.

  • Advise her that he should only get a credit card if he can pay it in full every month.

The task isn’t as daunting as it may seem because you have 12 years or more to teach and monitor your child’s habits of managing their money. However, it is vitally important to realize that your child will learn more from your actions than anything else. So, it’s important for you, as a parent, to set the right example.


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False Beliefs About Money

It’s easy to sabotage your own success when it comes to funding your financial future. Between ever-increasing bills, expenses and the buy-now culture in western civilization, it can be hard to put money aside for things like an emergency fund and retirement savings.

However, there is some good news. Saving and investing doesn’t have to be difficult and complicated. In fact, if you can change some of your beliefs about money, you’ll find yourself on the path to financial stability and success. Here’s a look at some of the most common self-defeating financial beliefs and how you can overcome them and achieve your financial goals and dreams.

You Don’t Have Any Extra Money

This is probably the most common excuse for not saving money. And for many families, it can certainly seem as if there isn’t extra money for things like savings, investments or paying off debt.

A simple rethinking of your finances can help you get beyond this hurdle. Instead of thinking of saving and investment as what you do with your money, make it a priority. As soon as you get your paycheck, take 5%, 10% or even 20% and deposit it directly to your savings and/or investments. Then, use the money that is left over for your monthly bills, expenses and discretionary spending.

This strategy is known as “paying yourself first,” and it’s an outstanding way to always make sure you have the extra money you need to save and invest.

Only Wealthy People Can Invest

Some people have the belief that investing is only for the wealthy and that the cards are stacked against them. But in reality, investing has never been more open to the average working-class family.

Between the no-commission investment houses, the financial news media, the rise of low-cost robo-advisors and the general availability of information on the internet, investing is no longer a “members-only” club. Many investment accounts and mutual funds have minimums of $1,000, $500 or less, offering access to nearly everyone.

The truth is that success in saving and investing comes from consistency, not from being wealthy to begin with.

Next time you think investing is just for rich people, remember this — if you invest $400 per month at a 7.5% average annual rate of return starting at age 25, you’ll have over $1.2 million at age 65.

Investing is Expensive

Some investments can be expensive. However, the simplest and the best investments are those that don’t cost much money at all.

Billionaire Warren Buffet has long encouraged everyday investors to simply use an S&P 500 Index Fund for the bulk of their investments. These types of funds track the daily movement of the U.S. stock market and have incredibly low expenses. The iShares Core S&P 500 ETF (IVV), for example, has an expense ratio of just 0.03% per year. That means for every $1,000 you invest, the fund only charges 30 cents per year!

Better yet, most big-name online brokerages, from Charles Schwab and Fidelity to Merrill Lynch and E-Trade, charge investors $0 commission on most equity and ETF trades. The bottom line is that there are plenty of ways to invest at an exceedingly low cost.

Making Minimum Payments Each Month on Your Credit Card Balance is All You Have to Do

When you get your credit card bill every month and make the minimum payment, you might feel like you are being responsible by paying your bills. However, if you only pay the minimum payment on what you owe, your debt will take months or even years longer to pay off, and the additional interest you will pay can be insanely high.

While you may feel like making payments beyond the minimum on your credit card debt is flushing that money down the drain. In reality, it’s likely one of the best investments you can possibly make.

Most credit cards charge double-digit interest rates of 15% or more. When you pay that debt off, it’s like you are earning that same double-digit return on the money you use to pay it off. The sooner you can pay off your high-cost debt, the faster you will be on the road to financial stability and prosperity.

Believing You Have To Keep Up With the Joneses

Another aspect of human nature that sabotages your financial success is the irresistible impulse to “keep up with the Joneses.” While not every act in your financial life may be a response to what your friends, family and neighbors are up to, the fact of the matter is that people tend to move in similar socioeconomic circles. They tend to match the spending habits and behaviors of those they hang around with.

While you may not feel the need to buy a new Mercedes to “impress” anyone. But, if everyone on your block and in your circle of friends drives a luxury car, it’s hard to drive a 15-year-old car … even though it looks and runs good.

If you are struggling to pay your bills and never seem to have enough money to save, you shouldn’t feel the compulsive need to “keep up with the Joneses.”

Put together a financial plan that works for you and stick to it. Otherwise, you’ll always find yourself running to keep up financially … year after year.


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Poverty and Housing

Let’s take a look at poverty and its effect on housing. But before we go any further, it is necessary to understand that there are two types of poverty:

  • Extreme (absolute) poverty
  • Relative poverty

Extreme poverty is the complete lack of the means necessary to meet basic personal needs, such as food, clothing, and housing.

Relative poverty is having a low income relative to others in their city, county, state, province region or country.

The United Nations Development Program’s definition of poverty recognizes that poverty cannot be measured by income alone. Instead, it takes a multi-dimensional approach, accounting for health, education and standard of living, including access to clean water, sanitation, electricity and quality of housing because of the foundational role each plays in allowing families to lead a decent life.

People living in poverty are not necessarily who you think

A family can fall into poverty for many reasons — medical emergencies, crop failures, sudden unemployment. In the United States, two out of five households don’t have enough savings to get through a financial emergency.

Affordable housing can be hard to find

In many regions of the world, the number of low-income households far exceeds the affordable housing units available. In the United States, for every 100 renter households classified as extremely low-income, just 35 rental units are both available and affordable.

A full-time job is not be enough for many families to afford a decent place to live

Nowhere in the United States can a worker earning the federal or prevailing state minimum wage rent a two-bedroom apartment without having to pay more than 30% of their income.

In fact, a minimum wage worker must clock nearly 127 hours per week, more than three full-time jobs, to afford a two-bedroom rental, or 103 hours per week, more than 2.5 full-time jobs, to afford a one-bedroom, according to the National Low Income Housing Coalition.

Having a house or apartment doesn’t mean you aren’t living in poverty

According to Harvard University’s Joint Center for Housing Studies, nearly 38 million American households — 31.5% of all households — are paying more than 30% of their incomes on housing, forcing them to maintain a nearly impossible balance by making difficult and life-altering decisions about food, transportation and health. Meanwhile, one in six households are paying more than half of their income on housing.

Insecure tenure, or the threat of eviction, is a reality for many depriving people of even the most basic physical, economic and psychological security of adequate shelter. More than 20% of the world’s population struggles, on a daily basis, to stay in houses or on land where they live.

Poverty perpetuates, but so does homeownership

A safe, decent, affordable place to live can make a tangible difference in the life of a family. Homeownership has long been the primary way for families to build wealth

Homeownership also offers stability because monthly mortgage payments are predictable whereas rents can increase year after year. 

A stable home is important for academic achievement. Children who change schools as their families move in search of more affordable housing can struggle to keep up academically.

Quality housing means better health

The quality of housing has major implications on people’s health. A home with mold, rodents and pests can trigger or cause chronic respiratory conditions, including asthma. 

Overcrowded, sub-standard housing poses a risk to the health and physical well-being of families and their neighbors and facilitates the spread of infectious diseases, such as tuberculosis, hepatitis, dengue fever, pneumonia, cholera and malaria, according to the World Health Organization. 

This is especially true when confronted with outbreaks of new contagious viruses and germs – like COVID-19 – that require people to shelter at home for long periods of time. 

It’s clear that the poor and those living in poverty struggle with suitable housing. Let’s support government and non-government programs that address the housing challenges of those with a low income.

We are judged by how we treat the helpless and the poor.


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Saving for Retirement Without an Employer-Sponsored 401(k)

This post is intended for readers in the United States.

There are ways to save money for your retirement when you don’t have access to an employer-sponsored 401(k). Let’s take a look at a few of the most popular.

Traditional IRA

The Traditional IRA was the first individual retirement plan which came into existence when the Employee Retirement Income Security Act of 1974 was passed by Congress. The purpose of these plans was to allow a worker, who was not covered by a pension or 401k plan, to accumulate tax-advantaged savings for retirement.

The purpose of a Traditional IRA is to permit you to:

  • Make contributions to a saving account, or mutual fund or brokerage account, and take a current tax deduction for the amount of contribution.

Since you get a tax deduction, the IRS wants to make sure that you are using this plan for retirement saving, and not as a place to stash tax-deferred assets. So, there are some rules and limitations.

Eligibility Rules

There are only two rules which determine if you are eligible to open a Traditional IRA.

  • The first rule is that you must be under age 70 ½ at the end of the year in which you make a contribution.
  • The second rule is that you receive some form of earned income. This income can be from salary, commissions, or any form of payment that you receive from performing work. Earned income does not include interest income, dividends or any other passive type of payment.

Earned Income Limits

Once you have determined if you are eligible to open an IRA, then you need to look at the income limits to determine if you can actually make a tax-deductible contribution.

If you do not satisfy these limits, you can still make a contribution, but you cannot take a tax deduction for that amount of your contribution(s).

You also have an issue if you are covered under another pension, profit sharing or 401k plan. If you are, then you must satisfy a different and lower set of income limits.

See IRS rules for details.

Contribution Limits

The 2021 annual contribution limit for a traditional IRA is $6,000 or $7,000 if you are age 50 or older. You cannot contribute more than your actual compensation.

These limits also apply to both spouses together. Each spouse could open his or her own IRA, but the total of the contributions cannot exceed the limits shown above.

Traditional IRA Withdrawals

You can make withdrawals without penalty after you reach age 59 ½. But you will have to pay ordinary income tax on the amount withdrawn, including your own contributions. This is because you took a tax deduction for your contributions when they were deposited.

If you make a withdrawal before age 59 ½, the IRS imposes a 10% penalty on the amount you take out, unless you an exception applies. These exceptions are the taking of a withdrawal due to death, disability, and certain education expenses.

You are required to start taking minimum withdrawals once you reach age 70 ½. If you do not start minimum withdrawals by this age, the IRS will hit you with a 50% additional penalty on the amounts not withdrawn. This is one of the stiffest penalties found in the tax law, and is intended to stop taxpayers from extending their tax deferrals indefinitely.

Roth IRA

A Roth IRA is an individual retirement account (IRA) that allows qualified withdrawals on a tax-free basis provided certain conditions are satisfied.

Roth IRAs are similar to traditional IRAs, with the biggest distinction between the two being how they’re taxed.

  • Roth IRAs are funded with after-tax dollars; the contributions are not tax-deductible.
  • But once you start withdrawing funds, the money is tax-free.

Roth IRAs are best if you think your taxes will be higher in your retirement years than they are today.

Earned Income Limits

You can’t contribute to a Roth IRA if you earn too much money. In 2021, the limit for singles is $140,000. For married couples, the limit is $208,000.

Contribution Limits

In 2021, the contribution limit is $6,000 a year unless you are age 50 or older—in which case, you can deposit up to $7,000.

Roth IRA Withdrawals (Qualified)

At any time, you may withdraw contributions from your Roth IRA, both tax- and penalty-free. If you take out only an amount equal to the sum you’ve put in, the distribution is not considered taxable income and is not subject to penalty, regardless of your age or how long it has been in the account. In IRS-speak, this is known as a qualified distribution.

However, there’s a catch when it comes to withdrawing account earnings—any returns the account has generated. For distribution of account earnings to be qualified, it must occur at least five years after the Roth IRA owner established and funded his/her first Roth IRA, and the distribution must occur under at least one of the following conditions:

  • The Roth IRA holder is at least age 59½ when the distribution occurs.
  • The distributed assets are used toward the purchase—or to build or rebuild—a first home for the Roth IRA holder or a qualified family member (the IRA owner’s spouse, a child of the IRA owner and/or of the IRA owner’s spouse, a grandchild of the IRA owner and/or of their spouse, a parent or other ancestor of the IRA owner and/or of their spouse). This is limited to $10,000 per lifetime.
  • The distribution occurs after the Roth IRA holder becomes disabled.
  • The assets are distributed to the beneficiary of the Roth IRA holder after the Roth IRA holder’s death.

The 5-Year Rule

Withdrawal of earnings may be subject to taxes and/or a 10% penalty, depending on your age and whether you’ve met the 5-year rule. Here’s a quick summary.

If you meet the 5-year rule:

  • Under 59½: Earnings are subject to taxes and penalties. You may be able to avoid taxes and penalties if you use the money for a first-time home purchase (a $10,000-lifetime limit applies), if you have a permanent disability, or if you pass away (and your beneficiary takes the distribution). 
  • Age 59½ and older: No taxes or penalties. 

If you do not meet the 5-year rule:

  • Under 59½: Earnings are subject to taxes and penalties. You may be able to avoid the penalty (but not the taxes) if you use the money for a first-time home purchase (a $10,000-lifetime limit applies), qualified education expenses, unreimbursed medical expenses, if you have a permanent disability, or if you pass away (and your beneficiary takes the distribution). 
  • 59½ and older: Earnings are subject to taxes but not penalties.

Roth IRA Withdrawals (Non-Qualified)

A withdrawal of earnings that do not meet the above requirements is considered a non-qualified distribution and may be subject to income tax and/or a 10% early distribution penalty. There may be exceptions, however, if the funds are used:

  • For unreimbursed medical expenses. If the distribution is used to pay unreimbursed medical expenses for amounts that exceed 10% of the individual’s adjusted gross income (AGI) for the year of the distribution.
  • To pay medical insurance. If the individual has lost his or her job.
  • For qualified higher-education expenses. If the distribution goes toward qualified higher-education expenses of the Roth IRA owner and/or his or her dependents. These qualified education expenses are tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution and must be used in the year of the withdrawal.
  • For childbirth or adoption expenses. Up to $5,000, if made within one year of the event.

There is yet another loophole for earnings: If you withdraw only the amount of your contributions made within the current tax year—including any earnings on those contributions—they are treated as if they were never made. If you contribute $5,000 in the current year and those funds generate $500 in earnings, you can withdraw the full $5,500 tax-free and penalty-free if the distribution is taken before your tax filing due date.

Taxable Investment/Savings Account(s)

You don’t need a tax-advantaged retirement account to set money aside for the future. It’s possible for anyone to open a taxable investment account and begin growing a portfolio.

A taxable investment account offers fewer tax advantages than a retirement account. However, you don’t have to worry about early withdrawal penalties and other restrictions to accessing your money when you need it.

Solo 401(k)

Self-employed workers often have a lot more freedom than their traditionally employed counterparts, but they face specific challenges. One of the biggest is the lack of an employer-sponsored retirement account.

When you’re self-employed, the burden of saving enough rests entirely on your shoulders, but a solo 401(k) can make meeting that challenge easier. It’s similar to an employer-sponsored 401(k), but it’s specifically designed for the self-employed. Here’s what you need to know about it.

Benefits of a Solo 401(k)

The important advantage of a solo 401(k) is the opportunity to choose the type of plan and the investment options that work best for you. Traditionally employed workers are limited to what their company offers, which might not be what’s best for you. When you’re the boss, you select how you’re going to invest your funds based on your risk tolerance. You also get to decide which type of 401(k) provides you the best tax advantages.

Solo 401(k)s come in two varieties: traditional and Roth. Traditional solo 401(k)s are tax-deferred. You make contributions with pre-tax dollars, and these reduce your taxable income for the year. But then you must pay taxes on your solo 401(k) distributions in retirement. It’s a smart play for those who think they’re earning more money right now than they’ll be spending annually in retirement. Delaying taxes until your income is lower will help you hold on to more of your hard-earned money.

Roth solo 401(k)s work the other way. You pay taxes on your contributions this year, but the money grows tax-free afterward. When you withdraw the funds in retirement, you get to keep it all for yourself. This is a better choice for those who think they’re earning about the same as or less than what they expect to spend annually in retirement. In this case, paying taxes now will cost you a smaller percentage of your income than waiting.

In exchange for these tax benefits, the government usually doesn’t allow you to withdraw your solo 401(k) funds before 59 1/2, unless you use the money for a qualifying exception, like a first-home purchase or a large medical expense. You can withdraw Roth solo 401(k) contributions at any time, however, as long as you’ve had the account for at least five years. Withdrawing money without a qualifying reason before 59 1/2, on the other hand, results in a 10% early withdrawal penalty.

Contribution Limits for a Solo 401(k)

For 2021, self-employed workers may contribute up to $58,000 to a solo 401(k), or $64,500 if 50 or older. This is a lot higher than what traditional employees can contribute to a 401(k) because self-employed workers can make employer contributions as well.

The employee contribution is $19,500 in 2021 or $26,000 if you’re 50 or older. This is the same amount traditionally employed workers are allowed to contribute to their 401(k)s.

The employer contribution is up to 25% of your net self-employment income, which is defined as all your self-employment earnings minus business expenses, half your self-employment tax, and money you contributed to your solo 401(k) for your employee contribution. For example, if you earned $100,000 in net self-employment income, you could make an employer contribution of up to $25,000 to your solo 401(k).

Your maximum contribution is the lesser of the annual contribution limit, discussed above, or your employee contribution plus 25% of your net self-employment income. So you cannot contribute more than $58,000 in 2021, even if your employer contribution would allow for it, and you cannot exceed your maximum employee and employer contributions for the year, even if you haven’t hit the annual limit.

SEP IRA

A SEP IRA stands for Simplified Employer Pension Individual Retirement Account plan, or SEP in short form. This type of plan was created for small business owners and self-employed workers.

These plans were established to allow the small business owner or self-employed worker to set up an easy way to have a retirement plan without all the paperwork and various contribution thresholds found in qualified pension and 401(k) plans.

Qualified retirement plans are designed for larger employers who have more than 100 employees. The paperwork and accounting requirements for these plans is enough to discourage a small employer from setting up a retirement plan. The SEP solves that problem by making the reporting requirements very simple and not overly burdensome. In fact, normally the custodian you choose for the individual accounts will do the paperwork for you and each covered employee.

How a SEP Works

The SEP works like a group of Traditional IRA’s. Each eligible employee opens a SEP IRA for himself at an institution of his choosing. You, as employer put annual contributions into each employee’s account. Your employees make no contributions into the account. Thereafter, the employee has full control over the account, including what investments will be made with the money.

All employees must receive the same percentage of income into their accounts. You cannot give one employee a contribution of 1% of income, and another employee 3% of income. These amounts are always 100% vested, meaning the employees cannot forfeit any amount for any reason.

You also open an account for yourself, as an employee, and make the same contribution percentage into your own account.

You do not have to make the same contribution each year. You can decide at the end of each year how much to contribute to all the accounts, as long as all eligible employees receive the same percentage of income.

All contributions made by you, as the employer, are tax-deductible.

Eligible Employees

Employers must include employees if they meet the following three requirements:

  1. Be 21+ years old
  2. Have at least three years of service out of the last five years
  3. Have earned at least $450 in compensation from your employer for the year.

Contribution Limits

The IRS increased 2021 contribution limits for self-employed persons who contribute to a SEP IRA to $58,000.

SEP IRA Withdrawals

The withdrawal rules are the same as under a Traditional IRA. You or your employees can take out money at any time. The withdrawal is taxable as ordinary income to the employee since none of the assets have been taxed yet.

If you make the withdrawal before age 59 ½, an additional 10% penalty is imposed on the amount withdrawn, unless you come under one of the exceptions.

The 10% penalty will not be imposed if it is done due to one of the following reasons:

  • Medical Expenses – The penalty won’t be imposed if your uninsured medical expenses are over 7.5% of your adjusted gross income.
  • Medical Insurance premiums – If you lose your job at work, receive unemployment payments, and buy medical insurance for your family, the penalty won’t apply.
  • Disability – The penalty won not apply if you can’t do any work due to physical or mental problems.
  • IRA Beneficiaries – If you should die before 59 1/2, your IRA can be taken out by your beneficiaries without penalty.
  • Education Expenses – If you pay the cost of higher education during the year, the withdrawal will not be subject to the 10% tax penalty.
  • First Time Homeowner – You can take an early withdrawal from an IRA to purchase, or build your first home. The withdrawals are limited to $10,000.
  • Rollover to another Qualified Plan – If your withdrawal is rolled into another qualifying IRA, then it is not subject to the 10% early withdrawal penalty.
  • Annuity withdrawals – the penalty won’t apply if your withdrawals are made as part of a series of equal payments. The payments must be made over at least the later of 5 years or age 59 ½.

SIMPLE IRA

A SIMPLE (Savings Incentive Match Plan for Employees) IRA is a retirement plan that allows employees of small businesses to make tax-deferred contributions to the plan.

Who Can Participate

Self-employed individuals, small-business owners, and any business with 100 or fewer employees that doesn’t have another type of retirement plan.

Employer Contribution Limits

Option 1
Dollar-for-dollar match of employee contributions up to 3% of each employee’s compensation (which can be reduced to as low as 1% in any 2 out of 5 years).

Option 2
Contribute 2% of each employee’s compensation. Maximum compensation used to determine this contribution is $290,000 for the 2021 tax year.

Contributions are tax-deductible and are required every year.


As shown, there are several retirement plan choices if you do not have access to an employer-sponsored 401(k) retirement plan.

This post is for informational purposes only. It is not intended to provide financial advice or any recommendations.

Consult your financial advisor or broker for more information and to help you select the retirement plan that is best for you based on your circumstances and goals.


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15 Budget Cuts Without Deprivation

“Too many people spend money they haven’t earned,
to buy things they don’t want,
to impress people they don’t like.”

― Will Rogers


Why aren’t you able to save the amount of money you know you need to save?

While there are many reasons, one of the primary reasons is that your money is going towards products and services that aren’t really necessary … and some are not even utilized. Like other areas of your life, spending for an unnecessary or a non-utilized product or service has become a habit that needs to be broken.

Let’s take a look at some expenses you can cut from your monthly budget without feeling deprived. While some may seem minor, cutting out just a few of these can free up thousands of dollars a year that you can put into your savings account.

Late Fees

Few things are more aggravating than being hit with a late fee on a monthly utility bill because you forgot to pay it. Let’s face it, it’s so easy to misplace or forget about a particular bill, whether it’s sent to you via the postal service or by email.

You can easily solve the problem by gathering all your monthly recurring charges (utility bills, credit card payments, auto loan payment, mortgage payment, etc.) and putting them on autopay.

You’re still going to have to monitor bills when the amount due changes each month. The first time you have your water or electricity turned off because you forgot to pay the bill will make you a believer of autopay.

Magazine Subscriptions

Magazines offer a media form that can’t be replicated. However, you may be able to read the latest issues for free.

You almost certainly know that your public library subscribes to a large variety of magazines, from mainstream interests to the obscure. The library may also allow you to download e-versions of magazines. Visit your library’s website to find out.

If you subscribe to Amazon Prime or Apple News+, free online magazines are a benefit of your subscription.

Rental Car Insurance

Driving a rental car often means you’re driving in a different city, on strange streets and highways, heading to places where you don’t regularly drive. Accidents can happen … and do happen. So, when you pick up the rental car, you may buy the extra insurance offered by the rental car company.

However, that “insurance” isn’t really insurance — it’s a collision damage waiver. You may not need to buy the collision damage waiver if you have adequate insurance on a car you own. Check with your car insurance agent or company to make sure.

Additionally, your credit card may already have you covered as long as you pay for the rental car with your credit card. Check with the issuer of your credit card to for details.

Bottled Water

Why are you paying for something you can get at home at a fraction of the cost?

Carry a high-quality, leakproof reusable water bottle with you whenever possible. Best of all, you can usually find a place to refill it at no charge.

Car Washes

There are times when a professional car wash is the right thing to do. If your young child gets sick all over the car seat, or the pitcher of fruit punch you were bringing to the beach sloshes all over the floor, take it to the pros.

But for regular cleaning, you may save big by just washing your car in your own driveway. These tips from the car-repair chain Meineke make it clear just how easy washing your car at home can be.

Warehouse Club Membership

Warehouse clubs are so enticing, and at different times in your life, they may make sense. If you regularly host large parties, then buying a large package of napkins might be saving you big bucks.

However, many people acquire a Costco, Sam’s Club or similar warehouse store membership and rarely or never use it. This is a waste of money. If you’re one of those people, it’s time to cancel your membership.

For normal family needs, buying things on sale or using a coupon at your local supermarket, hardware store, appliance center or department store will serve your need to save money.

Food Delivery

It’s easy to see why so many tired, hungry Americans use food-delivery services. That’s especially true during the pandemic, when we try to bring our favorite restaurants to our homes rather than taking the risk of being infected at the restaurant itself.

But chew on this: Delivery fees and tips really add up. So, try cutting back on or eliminate food delivery fees. Cook at home as much as you can, which is healthier and cheaper anyway. Make preparing meals a family event. Families that work together have closer relationships.

Brand-Name Products

One of the greatest marketing schemes ever is convincing shoppers to buy a product simply because of the advertised brand name on the label. This is obvious at supermarkets like Walmart, where the company’s Equate labeled products are displayed next to more colorfully wrapped famous-brands products.

The laundry detergent and fruit punch look the same, but the prices of Walmart branded products are almost always cheaper. Ignore brand names where you can, and you’ll almost always save big.

Gym Membership

During the coronavirus pandemic, many people have learned that working out in a gym — which seems like a good thing — comes with some risks. Not only is it difficult to remain socially distanced, you are in an atmosphere where people are breathing hard and potentially spreading the virus.

Now might be the perfect opportunity to give up your gym membership and find other ways to get and stay fit. Maybe working out at home, with inexpensive weights or yoga DVDs, is a cheaper and safer option.

If you dream of professional-style gym equipment at home, check for-sale websites like Facebook Marketplace or Craigslist. You may find that other exercisers have abandoned their fitness plans and are trying to sell — or give away — the very equipment you pay to use at the gym.

Auto Club Membership

A membership in AAA, once known as the American Automobile Association, can be a lifesaver for some drivers. Need a tow in the middle of nowhere? Pulling out your AAA card and calling for help is as hassle-free as it gets.

But there may be other ways you can enjoy those benefits offered by AAA. Your car insurance may include towing coverage. Check with your auto insurance agent or company for details.

AAA has other benefits. Many people appreciate their hotel and travel discounts. Take a look at your own needs and at any other organizations you may belong to that might offer similar benefits. AARP, for example, offers travel discounts.

Gift Wrapping

The biggest gift-wrap season of the year is Christmas. Do you usually spend money on gift wrap paper, bows and tags? In 2021, give yourself all that cash back. Your family and friends will still enjoy your thoughtful presents, and be assured that almost no one will miss the expensive, wasted wrapping paper.

You can wrap gifts in plenty of creative, no-cost items from a newspaper to magazine pages and even old maps and wallpaper.

Premium Gas

While electric vehicles are becoming more widely available, most of us have a car that necessitates gasoline. But you need to be careful at the pump. If your car doesn’t require premium gas, choosing that option is just a waste of money.

Cable TV

Many people are ‘cutting the cable’ for TV service. There are a multitude of streaming services and other ways to get video entertainment other than a $100+ per month cable bill that includes channels you neither asked for nor watch.

Many viewers have held off on cutting the cable for one reason: live TV programming. That’s become easier to get these days. With live-streaming TV, you may be able to ditch your cable service and save money.

Several services are likely to be more affordable than your current cable choice. They include:

Landline Telephone

In this era of omnipresent cellphones, are you still clinging to a landline? Rethink whether that’s really needed.

It could be when cell reception in some areas can still be iffy, or if you have children who are occasionally home alone without a mobile phone.

But many reasons once touted by landline lovers are no longer valid.

Paper Towels

It is highly unlikely that you can give up paper towels entirely. With pets and kids, they’re just too handy. But when you’re at home, using cloth rags instead of paper towels is like having eternally reusable paper towels. Over a year, this will save you a bundle.

Everyone’s needs and lifestyles are different. Even so, I’m sure there are a few of these dollar-eating expenses you can do without and not experience any real pain to your way of living. And in many cases, it’s simply a matter of changing a habit.


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Expenses Not to Cut When Your Finances Are Tight

After the holidays and as a new year begins, reconciling your finances often means taking a critical look at how much more money you spent in contrast to the income you actually brought home. Tightening your financial belt is often an essential step, or simply a way to get your finances stabilized and save toward financial goals for the new year.

If your financial plan includes cutting expenses in the new year, you may be unsure about where to start. While there may be some obvious expenses you can cut back, here are a few expenses you should not cut.

Car Insurance

Car insurance may seem like an unneeded expense, especially if you’re a good driver with an excellent driving record. However, not only is car insurance usually mandated by law, what you’d have to pay out of pocket if you did get into an accident in both physical damages to your car and/or another’s car, and possibly injuries to someone else, would be much more than what you pay every month for your car insurance.

Tip: If you are driving less due to the pandemic, your insurance company might offer you a reduced rate. Check with your insurance agent or insurance company for details.

Health Insurance

When money is tight, you might be tempted to whittle down the high cost of health insurance. This is not a good idea. You might save a little money in the short term, but it could cost you dearly in the long term. Nearly 66% of bankruptcies are filed over medical expenses.

If something should happen to you or a family member, the medical expenses could be astronomically high. A better option is to consider changing plans to a plan that costs less money every month. Though this typically means you will have a higher deductible, at least you’ll know the most you’ll have to pay in a worst-case scenario.

Cellphone

Many people have rid themselves of landlines. A cellphone is the only phone they use. According to a study by The National Interest, only 40% of American households still have landlines. Even if you have a landline, cellphones are more than a way to communicate — you can use it to do your banking, shopping, reading, listening to music and browsing the internet. What you can do when times are financially tight is to negotiate with your service provider for a lower cost plan. You can also switch to a new service if you’re not under a contract.

Internet Service

While you may not call the internet a necessity, now more than ever many of us work and go to school from home. The internet has become a lifeline in our work, socialization and entertainment. We are living in a digital age so not having access to the internet can impair such things as banking, staying in touch with distant friends and family, and enabling online shopping. If your budget allows, it’s worth keeping your internet service. What you can do, however, is negotiate with your internet provider for a different plan that costs less.

Paying Off Debt

Debt is an expense that increases if you don’t pay it — most credit cards and loans have an interest rate that accumulates rapidly. Making a minimum payment that doesn’t touch the interest rate will only haunt you in the long run when your debt swells to a level that becomes unmanageable. Work on paying off your credit cards with the highest interest rate first.

Eating Healthy Food

Healthy eating can be difficult when finances are tight. While it’s OK to buy the somewhat less healthy version of products you eat regularly. There are ways to afford healthy food all year. As an example, you might not be able to afford all organic foods, but you can focus on buying the organic foods that are on the Environmental Working Group’s “Dirty Dozen,” such as spinach and strawberries. Other ways to save are using coupons, buying products on sale, buying in bulk and limiting waste by making sure you eat up all leftovers.

While there are areas of spending that you will want to reduce or terminate when you are in a financial bind, you don’t want to cut out things that will put you further behind in the long term.


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A Little Bit Often Adds Up to a Lot

Are you having a difficulty saving money? If you answered yes; I will show you a way that makes it easy.

Most people know they need to save money. Yet, many people simply don’t have the mental strength and self-discipline to stick with it once they start. After all, putting away $50 this week isn’t nearly as much fun as an evening out with friends.

I’m not going to argue with that. Saving money in the early stages seems like deprivation with no reward. Saving money isn’t much fun if you haven’t developed the habit of doing it, and you haven’t done it long enough to reap the financial rewards.

I want to make it easy for you to save money. It will not require a great sacrifice or a major change in your lifestyle. I want to show you that saving a little bit often will add up to a lot.

Easy Steps to Start Saving

  1. Empty your pocket or purse of its coins
  2. Count out $1.75 and put the rest back in your pocket or purse
  3. Put your $1.75 into a ‘savings jar’ (any container will work)

Developing the Habit

Follow Steps 1 – 3 above every day for a year. The purpose of doing this daily is to mentally create the framework needed for you to develop a habit of putting money aside for future needs instead of financing those needs for money through debt.

After you have followed these steps for a year, you will have accumulated $1,003.75. These steps clearly demonstrate that saving money frequently, even if it’s a small amount, will add up to a lot over time without having to make any major changes to your life.

When was the last time you saved $1,000 in a year? For far too many people, it will be the first time in their life. That is something to get excited about and to be proud of.

The amount you accumulated after one year is a good start to building your Emergency Fund equaling 3 – 6 months of your net (bring home) income from working. Put your money in a savings account at a bank or credit union so the money you saved will start earning more money. As your money grows beyond what you need for an Emergency Fund, you can start investing so your money will grow even more.

This is the ‘secret’ of successful savers. They learned the value of developing the habit of saving some money … and doing it frequently. Nearly all successful savers started small. But once they could see the benefit of financial security; they got excited and increased their deposits to match their financial goals.

There is no greater sense of financial stability and security than when your money is earning more money than you earn from working.


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