ReduceDebtIncreaseWealth.com. Welcome, Mr. Chuck here. With that the topic this week, I want to talk about taxes. Does your mortgage interest that interest you pay on your mortgage? Does that really help you on reducing your income taxes? When I was an accountant and I was doing a lot of income tax returns, I remember a client came in and he said, I have good news. I'm not gonna pay any taxes this year. And I say, Well, what do you do? I mean, did you go broke? Go out business what? quit working? No, I refinance my mortgage. I took out a lot of equity and I bought myself two new cars and I in why, and I said, Man, Why'd you do that? You just wasted a whole bunch of money because it doesn't really help you all that much. He said, Why is that? He goes, You know, I don't want to pay any taxes. I As well, even though you have a high mortgage debt, that's not such a good thing to do. So I just want to walk you through and tell you why. First of all, your mortgage interest deduction is an itemized deductions, and especially starting since 2018, as increase your standard deduction, the standard deduction is what the government automatically gives you, it automatically reduces your income down where you don't have to do anything. So if you're single, unmarried, no children anything, I'm gonna try to keep this as simple as possible. IRS itemized their standard deduction is $12,200. If you're married filing joint, and you know not over 65, not married and not blind or anything, your standard deduction is 24,400. So that's quite a bit of mortgage interest you have to have in order to exceed those limits. Because you're not going to get any additional tax benefit until you exceed 12,200, or 24,400. So you got your mortgage interest, you have real estate taxes, you have charitable contributions. If you have a lot of medical expenses that you actually pay for that's got a limit on it of seven and a half percent of your federal justice gross, that may or may not help and you maybe have some work related things that your employer doesn't pay back. And the trucking industry, that would be quite a bit because you can take the standard meal allowance for every day or you're out instead of the actual expense that you pay. So that adds up and a lot so for you truckers out there. So and So to give you an example what's really happening here, let's say you're single, or no married filing joint you and your spouse both work And you have a mortgage, I'm not saying a value house or anything, I'm just saying how mortgage you just got them what new mortgage 30 years at three and a quarter percent interest that may be a little low could be a little hide hands on what day you're checking. That means your monthly payment is 1300 $5. I'm rounding that. And your first year you're gonna pay $9,661 and mortgage interest. So you need 12,000 so you're almost $3,000 short about 20 $500 short. So the only way you're gonna exceed that is have a whole lot and real estate taxes. And I didn't really figure that out because I want to go big. Let's say that you're married filing joint and you have a $500,000 mortgage. 30 years three and a quarter percent same thing. Your monthly payment Is $2,176 that means your first year, you're going to pay $17,428 in interest, he still got to exceed 24,400. So that in itself is not happening. But if you pay $10,000 in real estate taxes, you're going to exceed that because now you're gonna have $27,429. So you exceeded the 24. So you exceeded the 24,000 by about $3,029, you're in a 30. I'm in the I assuming you're still left in a 35% income tax bracket. So you're gonna save $1,060 in income tax. So cost you $17,000 actually cost you $27,000. But you really can't get out of paying the real estate taxes. You can't reduce that too much. So you paid 17,000 in interest and you saved up Thousand $60 in income taxes, that's not a good investment. So if you even have 15,000 in real estate tax to be more realistic, you hit you go over the standard deduction by $1,029. And even at 35% tax rate, you're going to save 20 $800 in taxes. It doesn't most states, it doesn't affect your state, but it could, but I'm just talking federal here. So it's not $1 for dollar return on your investment. It's not a good way to reduce your taxes. You're much better off is to get a mortgage that you can afford as low as possible. lowest rate, short shortest terms, pay the least amount of interest and get that paid off. And your better tax strategy would be to put money in a 401k especially if you have an employer that's matching If a player's matching three or 5%, you should put in three or 5%, you should at least the minimum amount should be the match. Because the only thing you can't borrow money for is your retirement. I just thought I remind you. And remember, the key thing out there is, it's not really how much money you make, is how much you keep. So with that said, I'm gonna move on to my next topic, which are going to be a little bit different. This week, I'm going to talk about building wealth and how to do that. I know a lot of you if you just got started on my plan, he really hadn't made any progress yet. So just hang in there, keep at it. And remember, I'm gonna remind you know how much is in you check in and all time project you're spending forward as a father forward, you can project it, you know, the better off you're going to be. Plan ahead for those big expenses that come up. Especially the expenses you pay, maybe twice a year, or once a year. Insurance maybe, or if you're not paying insurance on a monthly basis, insurance, real estate taxes if you're paying it directly and don't have an escrow those big things that you're paying once or twice a year, if you're getting close to that date, you need to project forward to that. Make sure you don't run out of money, you don't want to come up short. You don't want to get too much in your savings account and come up short and have to transfer back. The idea here is only to transfer your discretionary income, that's extra money that you have the money that you don't need to spend today. Or in the next week. Put it aside and you're putting it aside so you can build up an emergency fund. The larger the emergency fund is, the better off you're going to be. Especially now that a lot of people out of work do this. Whoo Han Corona virus. Down going on across the United States and if it hasn't reached yet it will. I'm in Ohio it's gotten here it's not bad yet but it's getting worse and I'm not really affected through work because I'm a truck driver. And I don't really see too many people when I'm out working all the time. I try to avoid people. So as there's only a handful people that actually get close to but I'm being careful with that too. Because you never know project forward know what you're spending keep track of it, put the money in your savings, get your emergency fund built up, increase your you know, if you have retirement, if you can afford at all if you got to retirement through work, whatever it is simple IRA 401k if you work for the government, any any deferred comp that they have, you reduce your taxes also. And but the main thing is you want to save for that retirement and the next phase part I'm on to talk about building wealth and a little bit how to do it. But I'm not a financial planner. And I don't want to be a financial planner. So I'm just going to give you some of the basics. For those of you who are struggling to project your finances forward to figure out what you're going to owe and how much money you're going to have in your checking account moving forward from paycheck to paycheck, and a note again, the farther forward ahead you can project it, the better off you are. But if you're not computer savvy, don't have the time or don't want to take the time then I have a solution for you. I have a software I found a software that does that for you plus much, much more. So go to my website, Reduce Debt, Increase Wealth.com dot buzzsprout.com upper right hand corner, there's a little folder right next to the heart. Don't click the heart, click on the folder. It will take you to a website where you can watch some videos and learn more about this great software that I've been using. Since April of 2017, thank you for supporting the show. I like to move forward now and start talking about how you build your wealth other than by paying off debt. That's step one. Mostly, if you're just getting started, you're probably still struggling. This is just good information to keep in mind for the future. I have an article that kind of covers the investment part of it, or the investing part of it. So I'm going to go to that now. And I'm going to make comments at the end of it. This articles from bankrate.com Written by Kendall little best ways to invest your money in 2019. Investing can seem daunting to some, but it's an essential part of building wealth for retirement and many of life's financial goals. There's always going to be some risk involved with investing, but determine your risk tolerance and your time horizon can help you better plan for the future. To decide the best ways to invest your money, find an investment style and establish a set of goals you want to work towards what is investing and why when you invest you allocate your capital or money into stocks, bonds, funds, real estate or other types of investment, with the expectation that it will grow over time. That growth is vital to ensuring your money maintain spending power by outpacing forces like inflation. If all your capital simply sits in a checking or savings account for 40 years, it will have much less value when you take it out than it did go in in the trade off off that growth is risk. Generally the more growth potential your investment had, the riskier they are, every investor must balance risk versus reward. But if you choose your investment strategy wisely, historical data shows your likelihood of seeing gainful returns is high. How investing can grow your wealth. When is a good time to start investing? The short answer is now, the long answer. If you're not already investing, you're potentially missing out on thousands of dollars in compound interest that could be earned over time. The longer you wait, the less time your interest has to compound, meaning your earn less over time. If the same person waited just five more years and began investing at age 30. Their total and retirement savings would be reduced to just over $600,000 by age 65. There's always a risk of loss but to potential gains make investing a smart choice for even the most cautious customers. If you're already to begin investing this year, start by thinking about your investment goals and risk tolerance. Consider your time horizon. The most common reason people invest is to save for retirement, but everyone has a different goal. You may even want to invest for multiple goals at once. By taking all multiple investment accounts, you can invest in a retirement account while working to save for a down payment on a house or a college fund for your children, the terming your investment goals can help you decide how to allocate your assets based on your predicted time horizon long term. If you're interested in investing for a long term like retirement, you can likely afford to take on more risk with the heavy stock heavy portfolio. The start Mac will eventually go through downturns over time, but historical data shows that compound annual returns have averaged about 10% since 1928. While the market fluctuates each year, 40 years investing of your retirement can bring significant positive returns intermediate for those who start saving for retirement later in life. have goals about a decade away. A diverse portfolio can help ensure returns while mitigating risk. Investing in a mix of assets through a low cost mutual fund, or an exchange traded fund ETF can help you see the best returns at risk level you might be more comfortable with. As you draw closer to the end of your enemy at a time horizon, you can switch the riskier stocks in your portfolio portfolio to safer investment. A target date fund will do this automatically. This type of investment often held in a mutual fund automatically adjust your asset mix to risk and risk as you approach the set target date. Short term. If you have a short term investment goes like saving for a down payment on a home or big vacation in a couple years. You should be a bit more cautious with your investment strategy. Safer investment strategies for short term investors often Include money market accounts and CDs, which they don't likely earn as much as mutual funds. ETFs are a great way to grow your money well insurance it stay safe. Determine your risk tolerance. Figuring out your investment horizon will also help inform your risk tolerance investor focus on short term goals or likely have a low risk tolerance then someone invest in for the retirement 40 years in the future. To mitigate your risk such as, and as general best practice. Don't put all your eggs in one basket. If your portfolio is heavy in stock diversify across different companies in industry, that way one sector downturn won't leave you too much of a loss. a mutual fund is the easy way to diversify. You can also many great risks with different types of investing, hauling a heavy mix of stocks and bonds and readjust the ratio of each or rebalancing as you Your approach retirement or your gold date can ensure your portfolio remains healthy. Where to invest your money. For most people, the easiest way to begin investing is through a retirement account. Depending on how you're employed or how much you want to invest, there are several retirement options. You should also consider the fees associated with retirement counts and the types of funds or assets you want each to hold. There's a few of the common retirement offerings one 401k. A 401k is an employer sponsored retirement plan. You may allocate a percentage of each paycheck into your 401k that will grow tax deferred until you're draw it from retirement. Many employers also offer contribution match up to a certain percentage in 2019. The maximum amount you contribute to your 401k is $19,000. If you're older, you may contribute an additional 6000 through catch up calm contributions to traditional IRA, like a 401k your contributions to that trick traditional IRA, go into account pre tax and our tax with earnings upon distribution. IRAs are not employer sponsored. Even if you already participate in an employer's retirement plan, you can still contribute up to $6,000 in a four IRA in 2019. If you're 50 or older, you can contribute up to 7003. Roth IRA. Unlike a 401k, or traditional IRA contributions you make to a Roth IRA are tax upfront, meaning they grow tax free and qualified distributions are not tax upon withdraw. Like I did it traditional IRA you may hold a Roth IRA in addition to your employer sponsored retirement plan, and contribute up to $6,000 in 2019, or up to $7,000 if eligible for catch up contributions contribution limits or combined limits for both types of IRAs mean you cannot contribute the max amount to both. Bank Rate guys can help determine if a traditional or Roth IRA is best for you. After maxing out your chosen IRA retirement accounts or if you're looking for more short term option, a brokerage account is another great way to invest your money. While you may choose to actively manage your funds, a passive index funds can provide returns while offering hands off management and lower fees. Look into different accounts with a management style and performance that works best for you. Here are a few to consider for mutual fund. a mutual fund is a managed portfolio that allocates investor capitals into a diversified mix of investments consisting of stocks, bonds and more. They may different based on risk performance fees and investment strategies. Mutual funds are popular vehicles for retirement counts five ETFs like mutual funds ETS allow you to invest in a range of stocks and bonds across companies and sectors. ETS are easily traded like individual stocks, but give investors to their first occasion of mutual funds. ETFs are generally considered more tax efficient than mutual funds and often come with lower minimums and fewer costs, making them a great option for beginner investors. Six money market funds money market funds are a type of mutual funds are made up of low risk investments like CDs and short term bonds. money market funds are considered safe investment and illiquid. liquidity makes them a great option for short term investments of five years or a lot or less. Choosing a broker. In today's world new investors often open an account simply by downloading an app or clicking on a website. familiarizing yourself with the types of investments that you are Before can help you choose the right broker or advisor. robo advisors, you've probably heard of popular robo advisors like acorn wealthfront and betterment, which are great resources for beginners and advanced. Investors alike. robo advisors are convenient, offer low fees and usually have lower minimums than traditional brokers. While each robo advisor varies, many allow you to simply choose your time horizon and risk tolerance and then create a portfolio for you that you can rebalance as your target date approach. Online brokers online brokers like e trade Ali invest and TD Ameritrade are easily accessible option for investors that want fewer costs than traditional advisors. But more but are more hands on then robo advisors often allow depending on what you're looking for in an online broker, whether you value convenience educational tools, agreeable minimums or low Cost bank rates 2019 brokers review can help you find the best online broker for your needs. Financial Advisor. If you're have a more complicated perform very simple, there's simply one face to face interaction, a traditional financial advisor may be the best option. While you likely pay higher fees for an advisor, they can provide in depth management advice and guidance and even help you establish a more comprehensive overall financial plan. Bottom line, any new investors should look to begin by preparing for retirement in a tax advantaged account. Whether it's through an employer sponsored plan or an individual retirement account fun. Individual broker accounts can also be a great way for new investors to grow their money over time with the help of an advisor or online broker. Stocks and bond funds aren't only the ways to invest you may choose to invest in individual stocks, real estate peer to peer lending, crowdfunding or even gold whichever mixed investments you choose, your chances of success can be improved by diversifying your portfolio and aligning the investment you select with your own risk tolerance and a time horizons of your goals. And now for a few comments, I highly recommend if you have more than $25,000, to invest, to use a financial advisor, they are a fiduciary, which means they work for you, they're not working for themselves. They usually charge based on a percentage of your portfolio. So the better you do, the better they do. So with that said, that that's what I do. Now, as far as other ways, advisors or whatever, if you're just getting started and don't have a lot of money, a robo advisor is a good way to go. They generally you know, it's an app Download into your smartphone. It doesn't take a whole lot of money get started, some of them as low as $5. The one I use, they, you know, $5 and they buy fractions of shares of stock. There's a lot of information out there. They provide you a lot of educational information. And they give you strategies that are fairly sound and work well. But a drop mock stock market takes a really big drop. Doesn't matter what strategy you got, you just need to hang on tight and wait it out because it will go back up. With that said that the IRAs and Roth IRAs that they have in their deal, just might want to ask your tax advisor before you set one up if you have a 401k at work, I'm pretty sure there's limits. There's caps on how much you can contribute to IRA if you have a 401 k based on your income, so beware of that you don't want to be paying penalties to the IRS because that's just gonna not help you get your debt under control. But you know, one or the other right now, if you're struggling to pay down debt is probably a good way to go. You need to start saving, and you need to start getting that emergency fund build up, which should stay in a savings account. money market ain't gonna pay a much today. So just like a savings account, if you get more than two or 3000 then go online. I think I've said it before, look for a high yield savings account, which is basically an online bank that can afford to pay you more. Now investment to build wealth investment is one of the ways to go. There's other ways you can build your wealth. And you'll probably find articles because I have that says long term investment you know diversifying and having a strategy and based on your risk In age and whatever they're saying that's the slow road to wealth. And the other ways is to building wealth is you want to invest your money in time. Some of it takes more time some of it takes more money and to an activity that will give you residual income. And residual income is income that you earn by not having to do a whole lot after you get going. And one of the first things are the easiest ways to go is rental properties. go out and buy real estate. Real estate is in itself a good investment. But if it's a rental property, say a two family or four family, you rent it out and you can get somebody else to pay that mortgage for you. He just the trick is, he got to keep it rented out all the times. You got to keep maintenance up on it and you got to make the repair service. Be some headaches or not, but it over time, you can definitely make some money. Just look at what Trump did. That's, you know, rental property. That was his big thing. Yeah, a lot more expensive, bigger numbers, but the same thing. And I'm going to talk more about these different categories. And then you can have online sales, you can have an e commerce account is basically a website where you try to sell something, which adds a lot of work, you got to get it set up, you got to promote it, and whatever, but you know, it's open 24 seven, and if you watch the auction, places, you know, 24 seven yet, yes, a website is open 24 seven, but you got to keep it updated. You gotta, you know, do maintenance to it and that kind of stuff. You can also do like when I'm doing I'll not make any money yet or don't really plan on it, but you can do your own podcasts. If you know something about a good subject manner that other people are interested in. You can make videos So you can be an influencer or whatever they call it nowadays. And then you had the direct marketing companies where once you get set up to three years it could provide you with a residual income but I think you gotta still working at it. So that's all I have for today. Make sure you check out my website, Reduce Debt Increase Wealth.com dot buzzsprout.com new episodes are released weekly subscribed so you can follow Mr. Chuck's journey to reduce in debt and financial freedom as you do the same. If you liked this podcast, please share Transcribed by https://otter.ai