Welcome together, we're gonna explore our personal finances and figure out how to improve them. Whether you're just getting started in life on your finances, or you may already have a home and a car payment and you're struggling to get credit cards under control, or you again at a later start in life on saving for retirement, reduce debt increase. wealth.com is a podcast to educate those to improve personal finances, whether it's eliminating debt, or making smart investments. Mr. Chuck here, in this episode, I'm going to be talking about how to calculate your net worth and why you should know it. tax planning, estate planning, these are all personal finance categories that I haven't touched on yet. So that's going to get it done in this episode. Don't want to spend a whole lot of time on any one category because it'd be boring so I'm going to put them all in one, one big boring episode and reduce that increase wealth. Why did I name my podcasts that well because if you take reduce your debt, you're going to increase your well. So what is net worth and how you calculate it? I have this article from the simple dollar.com financial wellness, how to calculate your net worth, by Trent Hamm. There's planning on net worth calculators and software that can help you calculate your net worth. But to get the most of the numbers, you should really be really able to calculate net worth on your own. This requires some understanding of what net worth is. So let's start there. What does net worth mean? In a nutshell, your net worth is everything your own of significance your assets minus what you owe in debts, your liabilities. Assets include cash investment, your home, and other real estate, cars or anything else of value you own. Liabilities are what you owe on those assets, including car loans, mortgage, and student loan debt. net worth is a measure of your financial health because it basically basically says what you should have left over if you sold all your assets to pay all your debt. Every financial you moved and you make should be aimed at increasing your net worth. This means either increasing assets or decreasing liabilities and that's why reduce your debt is gonna increase your wealth, wealth and net worth. This one in the same thing. That's why I named my podcast that then there have a video here that you can listen to how the calculate net worth Well, it's fairly simple. You make a list of all your assets and their estimated value. So you just make a spreadsheet or piece of paper lists down everything that you own, including bank accounts, savings accounts, yours, retirement accounts, any children's Karla colleagues savings account that you have. You write them all down, you total it up. Step two, make a list of all your debt. And if you've been following a my podcast, and you set yourself up a budget he should know from month to month. Your outstanding balances on all your debt that includes all your credit card that your student loan debt, your car loan debt and your mortgage. On your house and your line of credit, he takes it to numbers, he take your assets, subtract from that your debt, and the end result is your net worth. So if you're younger, and you're just getting started out a life and you borrowed money to have a car, and you got a couple credit cards, and you got an outstanding balance on that credit cards, there is a good chance that you're going to have a negative net worth. And don't worry, a negative net worth generally comes around. Somebody who is younger in life hasn't been working that long and hasn't been able to save up any money or even to build up an emergency fund. And yes, an emergency fund will increase your net worth and there you go. There's a number one reason How can Make your network bigger. Well, the first thing is to reduce your spending and pay down your credit card debt. And we already covered that. Another thing would be if you own a home, the value of your home is going to go up in value over time, while your mortgage is going to go down and down and the balance is kind of go down over time. So you're gonna be adjusting that on both sides of the ledger, the value of the house going up and the amount you owe going down. As long as you don't keep refinancing and borrow more money. How often do you calculate your net worth member it tells you how you're doing in life and I say every three months or six months as if you already have a budget set up and you're working on a debt reduction plan and it's not going to happen overnight. So maybe once a quarter every three months or every six months. You figure out you just look at what you're mounting On your loans and look what you have subtract a difference. And that gives you compare it to a previous calculation you did three months ago or six months ago and see if your net worth went up. And that's how you can track what's going on. More network resources meant com net worth worked out, total money makeover. Next, I'm going to be talking about tax planning. I'm not going to spend a whole lot of time on it just like the net worth calculation. It's fairly simple and straightforward, but I'm not going to waste of time, but it needs to be covered. So you should have a general understanding of what it's about and what's going on tax planning. If you use a tax professional to prepare your taxes every year, they're most likely doing some type of tax planning for you. If they're giving you advice on to adjust your risk. That's tax planning. That's step one. You don't want to pay in more than what you owe. And you don't want to owe a whole lot of money when you file your return once a year and April of every year. If you're getting a refund no more than two or $3,000 every year and you're relying on that money, that's not good. You need to adjust your withholding down. your refund should be around $500 a year or less, zero would be best. And you can use that money to get additional money in every paycheck. You can use that money to pay off your credit card debt to build up your emergency fund. So you're just wasting it. You're just slowing down your goals by paying in way more than what you need to be paying in. So there's tax planning for beginners six tax strategy concepts to know The nerdwallet.com article taxes and tax planning. The first thing you need to know is your bracket. How key tax idea work, what records to keep and basic steps to shrink your tax bill. tax planning is an analysis and arrangement of a person's financial situation in order to maximize tax breaks and minimize tax liabilities and a legal in efficient manner. tax rules can be complicated, but taken some time to know and use them for your benefit can change how much you end up paying or getting back in April. Here are some key tax planning and tax strategy concepts to understand before you make your next money move, one tax planning starts with understanding your tax bracket. It really They can't plan for the future. I don't know where you are today. So the first tax planning tip is to get a grip on what your federal tax bracket you're in. And this is only referring to your federal return. And we're not talking anything about your state returns. They each should also tax plan at the state level. Also, the US the United States have a progressive tax system. That means people with higher taxable incomes are subject to higher tax rates, while people in lower taxable incomes are subject to lower tax rates. There are seven federal income tax brackets and 10% 12% 22% 24% and 32% and 35% and 37%. No matter which bracket you're in, you're probably won't pay that rate on your entire income. There are two reasons. And what they're saying here, if you got enough income, and you're in a 22% tax bracket, you're not paying taxes on a 22% on the entire amount of income, the first bracket of 10% as apply to a portion of your taxable income, then once you exceed that limit, then the 22 or the 12% is applied to the next portion of that of your income that falls within that bracket. And then once you exceed the 12% limit, then you're in a 22% bracket and then most people refer to the highest tax bracket when they're talking about what tax bracket they're in. Okay, and then it goes down and explains what I just said. And it gives you an example. And a tax brackets vary. The first one's stops at 9800 $75 and then the next one goes up to $40,125. And then you're in the 22% bracket and everything up to what your income and the example This was $50,000. Number two, the difference between tax deductions and tax credits is an important concept. tax reduction and tax credits may be the best part of preparing your tax return. Both reduce your tax bill but in very different ways. knowing the difference can create some efficient tax strategy that reduce your tax bill. tax deductions are specific expenses that you incur that you can subtract from your taxable income. They reduce how much of your income is subject to taxes tax credits are even better, they give you $1 for dollar reduction in your tax bill. a tax credit valued at $1,000, for instance, lowers your tax bill by $1,000. Assuming you have a tax liability greater than $1,000 tax deductions, our mortgage interest deduction, medical expenses, contributions made to your IRA or 401k, which is referred to as adjustment to your income, but it's still a tax deduction. So you take your gross income, you subtract money that you contribute to your retirement plan, and then you would subtract your mortgage interest your state and local income taxes. These are deductions that the feds are giving you, because you have to pay them to somebody else. And it's also a way they can think Courage people to buy homes. This note here on tax deductions. If you're paying $10,000 a mortgage interest, it's not gonna be $1 for dollar deduction and your income taxes, you're not going to lower your taxes by $10,000 you're going to really lower your taxable income by $10,000. So if you're in a 22% bracket, you're only going to get an assumed that the 10,000 years yet when you subtract that, from your income, you're still in a 22% bracket. The $10,000 is only gonna save you 22% of the 10,000 or $2,200. I would rather pay $5,000 in mortgage interest, and that worry about reducing my taxes by $2,200 a day A lot better to pay less mortgage interest than it would be to reduce your taxes. That's my opinion talk to any tax professional about that. And they'll probably tell you something similar to that difference between tax deductions and tax credits. tax deductions are Pacific expenses should occur that we already covered that tax credits are better. Yeah. Okay. Taking the standard deduction versus itemize. When I said that your mortgage interest your state and local taxes, medical expenses, charitable contributions, those are itemized deductions that you can do either or you can take the standard deduction, which the government gives you and everybody gets that as a minimum deduction. Or you can take an itemized deduction, if you can come up with more than what the standard deduction would be. So you take the greater of either or not both the standard deduction if you can't exceed it, or itemized deduction if you can exceed the standard deduction. As your mortgage gets paid down or you refinance a mortgage into such a low interest rate, you're not paying all that interest on your mortgage. Over time, that standard deduction is gonna become bigger and easier to do, and then you won't be able to itemize. So that's what happened to me. What does itemize me and pay instead of taking the standard deduction, you itemize your tax return which means taking all the individual tax deduction that you qualify for one by one and it goes through number four, being aware of popular tax deductions and credits. There's a lot of them depending on your age, adopting a child college education, loss on stocks with the sale capital locks charitable contribution and child dependent care credit, which also include senior citizens if you're taking care of a parent. Child Tax Credit elderly, disabled or an income credit home office expenses Lifetime Learning credit, medical expense, mortgage property tax, residential energy tax credit, savers credit, that credit is generally what the government is trying to steer people to do. So they come up with a tax credit for it for say two years or five years or a period of time. And then after that expires and you can't take it no more. Keeping the tax records knowing number five knowing what tax records to keep keep in tax returns and document you use to complete them as critical if you're ever audited. Typically the IRS has three years to decide whether to audit your return. So keep your records for at least three years. It should also hang on to tax records for three years if you file a claim for a credit or refund after you filed your original return. That's three years after you filed an amended return. Keep records longer in certain case. Any of these circumstances apply the IRS has a longer limit on auditing you six years if you underreport your income by more than 25% in seven years if you wrote off the loss from a worthless security and definitely if you committed tax fraud, or if he didn't file a tax return. And my pass history has been an account accounting and doing taxes. People who generally don't find tax return and generally don't have any records. So seven years if you have a stock that became worthless and you write it off as a bad debt, a bad investment, then seven years from the year that you filed that return tax strategies to shelter income or cut your tax bill, tweak your W four tells your employer how much withhold from your paycheck your employer remit to tax the IRS on your behalf and we talked about that earlier. If you're getting a big huge refund and you shouldn't be prepare a new w four have less withheld and he could put money into any retirement plan a 401k and Ira and that's gonna be an adjustment to income which will reduce your income taxes so that money you're not you're deferring your tax payment on that money in a retirement account. 529 accounts For savings for your children's college, flexible spending account. All this is depending if your employer has these options for you, you have a health care savings account, which is good. If you're say 50 years old and you're going to retire in the next 15 years, and your employer offers a health savings account, you can maximize what you're allowed to put in there and every year and don't use it and carry it forward and then retire you'll have money that you can use for your medical expenses. That is tax free. If they're offering you an account, or it's a use it or lose it. That's a very important question to ask. If your HR person is Tonya we have this for you. Number one question is, if I don't use it this year, when I can't make the contributions to It, can I carry that forward? And definitely, if the answer is no as name not be a good thing for you to do, unless you know you have medical expenses and exceeding them out, you're gonna put in there. You don't want to put money into account to defer your taxes. And then at the end of the year, lose it because he didn't use it and that would be a waste of money. So that's all I have with tax planning. And again, as I said earlier, if you have somebody preparing your taxes, they are probably already helping you do this and you may not be aware of it. So that's where I would start. Go online. Do yourself some research on the internet, get a better knowledge of what taxes are all about. If you know nothing about taxes, go to irs.gov and you can read they got publications on all kinds of stuff. You can read all about it and get a better understanding of what your taxes are all about. Next up, I'm going to be talking about estate planning. And it's not a state tax planning and estate planning. You may not have, your state may not owe taxes. But if you are living now and you own anything, when you pass away, whether it's an accident or a health issue or whatever, when you die, there will there will be a state. Believe it or not, you have an estate and I got this from estate planning calm and you should read it in its entirety and I'm going to go over the basic. In fact, nearly everyone does. Your estate is comprised of everything you Your car home or other real estate, checking savings investments, life insurance, furniture, personal professional, no matter how large or how modest, everyone has an estate and something in common. You can or cannot take it with you when you die. When that happens, and it is a win and not an F, you probably want to control how the things are giving to people or organize organizations that you care most about. To ensure your wishes are carried out you need to provide instructions, stating whom you want to receive some of yours, what you want them to receive and when they are to receive it. You will of course want this to happen with the least amount paid in taxes and legal fees and court costs. So if you don't have any estate planning at all, it's gonna go to probate court. I'm gonna be public information and it can be bogged down for a long period of time. In fact, they're going to make your wait at least six months if not longer. So if you have money in a checking account that's in your name only, that's going to be tied up for six months before it can go to your, whoever you want it to go, whether it's your wife, or children or whatever. What is estate planning making a plan in advance and naming who you want to receive the things you own after you die. However, good estate planning as much more than that it should also include instructions for passing your values religion, education, hard work, etc. In addition to your viable include instructions for your care if you become disabled before you die. Name a guardian and an inheritance manager for minor children and provide for family members with special needs without disrupting government benefits. provide for loved ones who might be irresponsible with money who may need future protection from creditors or divorce. Include life insurance to provide your family at death disability income insurance to replace your income if you cannot work due to illness or injury, and long term care insurance to help pay for your care in case of extended injury or illness. provide for transfer your business at your retirement, disability or death. Minimize taxes, court costs and unnecessary legal fees have been been ongoing progress is not a one time event your plan should be reviewed and updated as your family and financial situation and laws change over your lifetime. estate planning is for everybody. Too many people don't plan if you don't have it. Plan your stay has one for you, but you probably won't like it. And the state plan begins with a will or living trust or at least a will. Living Trust if you have a considerable amount of property and things of value. plan in your state will help you organize your records and correct titles and beneficiary designations. estate planning doesn't have to be expensive. The best time to plan your state is now the best benefit is peace of mind. If you're married the state, most states have common law. If you're married, and you pass away, your spouse is automatically gonna, your assets is going to automatically pass to your spouse. But again, if you don't have a will, it's got to go to probate court and the judge determines that anybody can contest it. Let's say that you are married, but separated and working on a divorce and have a new girlfriend and you tell the new girlfriend if I die you get everything. But you're not legally divorced yet. It's going to be contested in court, put it in writing, and you have a better case to get and what you want your assets to go when you pass away, whether it's a sad or long term illness. So there's a lot there. And estate planning also includes state tax planning is not included here. And the the limits are so high most people are not subject to it at the federal level. And even at the state level. Headed there's not much to worry about for most average person That if you have millions and billions of dollars, then you definitely would have estate tax planning and you definitely would have a lot of estate planning them. And there's a lot of tools to use to get the job done as they say. Starting with my next episode, I'm going to concentrate more on helping people reduce their debt. The primary purpose of creating this podcast is to help people reduce their debt. And as I go through the process myself, which I'm pretty much almost done with it, but I'm gonna pass off pass along my knowledge on how and what I did to help others who are struggling like I was. That's the end of another episode. I hope you found it useful. And if you'd like to share this episode with your friends, please do so. I'm open for any suggestions for improvement or for information. You'd like to talk about in future episodes, he can go to my Facebook page and leave me a message more than glad to comply. To find my Facebook page go to reduce debt increase wealth.com and click on the Facebook icon to go to my Facebook website.