Category: Saving money

CARES Act: Stimulus Checks

NOTE: Updated April 16, 2020 as a result of new information available.

As a result of the CARES Act, which became law on March 27, 2020, most Americans will receive stimulus checks.

Single taxpayers will get $1,200; married taxpayers will get $2,400; and for each child under the age of 17 parents will get $500.

Of course, there are some stipulations.

  • College students who are claimed as dependents on their parents tax return will not get a check.
  • College students who live on their own and are NOT claimed as dependents will get a check.
  • Even though the checks are being sent now, they are treated like a tax refund for 2020. More on this provision below.
  • Money will be direct deposited based on most recent filing direct deposit number, or mailed to the most recent address the IRS has on file.
  • You must have a Social Security Number to qualify, not a Taxpayer Identification Number (TIN).
  • There are income phase-outs. More information below.

Direct deposit started to go out April 11, and checks will start near the end of April. It is estimated that the checks could take until September to all be sent.

If you are not required to file and you do not want to wait for a check, you can fill out a form on the IRS website to give them direct deposit information. You can also check on the status of your check on the IRS Get My Payment page.

Income-Phase Outs

Single filers who earn between $75,000 – $99,000 will get a reduced amount. For every $100 earned over $75,000 their check will be reduced by $5. Here are some numbers for :

YOUR INCOMEYOUR CHECK
$75,000$1,200
$80,000$950
$85,000$750
$90,000$450
$95,000$200
$99,000+$0
Married filers who earn between $150,000 – $198,000 will get a reduced amount. For every $100 earned over $150,000 their check will be reduced by $5. Here are numbers for married filers:

YOUR INCOMEYOUR CHECK
$150,000$2,400
$160,000$1,900
$170,000$1,400
$180,000$900
$190,000$400
$198,000+$0

Payments will be increased by $500 multiplied by the number of children in the home.

Examples:

  • A married couple earns $125,000 and has 4 children ages 18, 15, 7, and 4. This couple will get:
    • $2,400
    • $500 x 3 (one child does not qualify because they are too old): $1,500
    • Total: $3,900
    • NOTE: The 18-year old is most likely claimed as a dependent on the couple’s tax return, which means that neither the child nor the parents get a check.
  • A single filer earns $40,000 and has one child. He or she will get:
    • $1,200
    • $500
    • Total: $1,700

Tax Return for 2020

The money will be paid out based on 2019 taxes, or if 2019 taxes have not been filed yet, on 2018 taxes. This will have an adverse effect on taxpayers who earned high incomes in 2018 or 2019, but are no longer earning as much because they have been laid off or had hours reduced due to the Coronavirus shutdown. Let’s say that a single taxpayer earned $85,000 in 2019. They will get a check for $700 now. If they lost their job in 2020 and earned $40,000 in 2020, they will get the other $500 when they file their 2020 taxes (which will be due April of 2021).

There are also going to be many children that will be born during 2020, but the parents will not get the $500 until they will their 2020 taxes.

What about the taxpayer who qualifies now for a larger check, but they have a child that turns 17 in 2020, or they get divorced, or they are earning more in 2020? They will get to keep the extra amount and not have to pay it back when they file their 2020 taxes.

Here’s an example:

Martha has one child, Missy, who turned 17 on January 1, 2020. Martha will get a check for $1,200 for herself and $500 for Missy, for a total of $1,700. Technically she should only get $1,200 since Missy turned 17 on January 1. Martha will not have to pay the $500 back when she files her 2020 taxes.

Debt Collection Issues

If you owe back taxes or student loans you will still get a check. If you owe back child support you will not get a check.

A big concern is for the 1/3 of Americans that are in collections for credit card, medical, or private student loan debts. The law does not shield the payments from private debt collectors. While I am strongly in favor of paying off your debts, this is not the time to be taking the stimulus money from those who are most in need of it. 25 state attorneys general have sent a letter to Secretary Mnuchin asking for the money to be protected from seizure, but no action has been taken by the Treasury department yet. Individual states can also protect the checks, but only a few have taken that step so far.

The National Consumer Law Center has recommended the checks be protected, and are recommending those who are at risk to move the money out of the account as soon as it arrives, or create a new account at a small bank or credit union, or wait to get a paper check and cash it. If you are at risk of having your check seized, read the National Consumer Law Center article.

Do you have any questions about the stimulus checks? If so, post them below.

This post will be updated as more information becomes available.

The Stock Market Rollercoaster

These graphs show the S&P 500 and DOW Jones averages since the beginning of 2020 through the close of the market on March 20, 2020:

Some “experts” are predicting it could go down another 20% before this is over. Maybe they are right. Maybe they are wrong. Maybe it will start going back up tomorrow, maybe it will drop another 30% or more. No one knows for sure. My crystal ball is out of order, so I certainly don’t know.

Investors are panicking and pulling money out of the market. I hear people use words like “stressful” “scared” and “worried” with only the occasional investor using the word “opportunity.”

Let’s address the stressed, scared, worried, panicking investors first.

If you have a financial advisor, this would be the time to call them. Actually, if they are a good financial advisor, they should have contacted you already. If they are avoiding you, it’s time to find a new advisor.

I could give you all the statistics about not missing the up days in the market, or not buying high and selling low, but stress and worry and being scared are emotions, not logic. Our brains have been wired to “fight, flee, faint, or freeze” when we deal with stressful situations, including stressful financial situations. Getting out of the market is our way of fleeing as we see our balances going down.

I would encourage you to pause. What are you investing for? Most people would say retirement or college or some other goal. What values are those goals based on?

Our behavior should be framed by our goals, which should be framed by our values. If your financial planner hasn’t done this with you, or if you don’t have a financial planner, here is an important question for you:

  • Why is money important to me?

Write down whatever answer comes to mind first. Let’s say you thought “security.” Write down security then ask:

  • Why is security important to me?

Keep this process going until you dig down to the deepest reason money is important to you. Don’t dismiss this as simplistic and unimportant! Pause the panic and do this exercise.

For me, money is important because it represents security, freedom, time, and the ability to support and spend time with my family. Money is simply a tool to help me live these values, and I invest in the market to help it grow. That is true in up markets, and honestly it is even more true in down markets.

For the average 40-year old they have years until they will need the money invested in the market, and years in retirement.

What about someone who is 60 and planning to retire in the next few years? First of all, you should probably be moving towards a more conservative portfolio if you don’t have time to weather the ups and downs of  the market. If that describes you, it is time to talk to a financial planner. Remember, however, that you likely have 20 or more years in retirement. Don’t panic and sell now or you lock in the losses that are just on paper now.

Many people can’t understand how some investors see this as an opportunity. How is it an opportunity? The stock market is on sale! You can buy additional shares of stock or mutual funds right now at a steep discount. America and the world will recover from this, and the market will go back up. Maybe not tomorrow, maybe not next month, and maybe not this year, but it will recover.

Let’s say the stock of a company was trading at $30 a share and it is down to $15 right now. Instead of buying one share at $30 you can now buy two shares for that same $30. When the market recovers to $30 you now have two shares worth a total of $60. You can make much more money during a down market because of the discounts.

Can I share a few good investing principles with you to think about during the down times?

  • Only look at your balance once a quarter, at the most. How is my portfolio doing? I have no idea. I haven’t looked at it. Not because I am worried or scared, but because I don’t care. I’m not investing for the short term.
  • If you can put any extra money in the market right now, go for it!
  • If your financial advisor is avoiding you or not dealing with the emotions of investing, it is time to start looking for a new advisor. Ask any potential advisor lots of questions and make sure you feel comfortable with them.

If you have questions or want to talk more, let’s have a conversation. Contact me or leave a comment below.

Money and Marriage

Since 2007 money has topped the list of sources of stress for Americans, with almost two-thirds reporting that money caused them very significant or somewhat significant stress.

Money is also the leading cause of stress in relationships, with 70% of married couples arguing about money. According to research arguments about money are by far the top predictor of divorce, and fights around money take longer to recover from than any other type of argument.

Reading all of that might make everything seem hopeless. After all, don’t all married couples fight about money? No! My wife and I have been married for almost 20 years and we have never had a fight about money. We had a lot to learn about money together, but we have never fought about money.

In addition, I have been counseling individuals and couples about money for close to 20 years and have learned a lot about what works and what doesn’t work. Through personal experience, counseling experience, and research, I have discovered many things that financially healthy couples do with money.

Here are my top ten tips for couples:

1. Find a financial counselor that can help you walk through everything. A trained financial counselor understands the financial side of money and the emotional side of money. I strongly suggest couples work with an Accredited Financial Counselor, which can be found at http://afcpe.org/find-an-afc. If you are not married yet, see a Financial Counselor as part of your pre-marital counseling.

2. Meet as a couple on a regular basis and discuss (discuss – not fight) your budget, goals, dreams, and creative solutions to your financial challenges.

3. Each partner in the couple should take the online Money Habitudes assessment. This tool will help you understand your money habits and attitudes, and will give you important tools and knowledge to discuss with each other and your financial counselor. You can learn more here: https://online.moneyhabitudes.com/

4. Set financial goals together and work towards achieving those goals.

5. Make sure each partner has money they can spend on whatever they want.

6. Set some money aside for each partner to be able to grow and develop their talents. For example, if your spouse wants to learn to play tennis, they could sign up for lessons. If you want to learn how to cook healthy meals, you could take a class. Even better, see if there is a class you both would enjoy.

7. Spend money on experiences, not things.

8. Be sure there is absolutely NO financial infidelity in your marriage (financial lies). Few things will destroy trust in a marriage faster than lying about money.

9. Review both partners credit reports on a regular basis (at least once a year).

10. Learn about money together – listen to podcasts and read books together. A few suggestions for podcasts include Stacking Benjamins, You Need a Budget, The Ric Edelman Show, and Money Tree Investing. A few books I recommend are You Need a Budget, The Difference, and How Rich People Think.

What other tips do you have for making money work in your marriage or relationship? Please share in the comments below or on Facebook at https://www.facebook.com/RyanHLawBlog/

 

Sources:

American Psychological Association (2017, November 1). APA Stress in America survey. Retrieved from http://www.apa.org/news/press/releases/2017/11/lowest-point.aspx

Jacques, S. (2013, July 12). Researcher find correlation between financial arguments, decreased relationship satisfaction. Retrieved from https://www.k-state.edu/media/newsreleases/jul13/predictingdivorce71113.html

MagnifyMoney (2017, February 13). 21% of divorcees cite money as the cause of their divorce, MagnifyMoney survey shows. Retrieved from https://www.magnifymoney.com/blog/featured/money-causes-21-percent-divorces925885150/

Money (2014, June 1). Poll: How husbands and wives really feel about their finances. Retrieved from http://time.com/money/2800576/love-money-by-the-numbers/.

Vincent, S., (2015, February 4). Love and money: People say they save, partner spends, according to SunTrust survey. Retrieved from http://investors.suntrust.com/news/news-details/2015/Love-and-Money-People-Say-They-Save-Partner-Spends-According-to-SunTrust-Survey/default.aspx

Paying for College – 529 plans

College can be paid for in a number of different ways – you can save up in advance, you can work and pay along the way, you can excel in academics, sports or other areas and get scholarships, you can pay with grants or loans or you might just have a rich relative that is willing to pay it for you.

In today’s article I want to cover the first option – saving up in advance.

In 2013 the Center for Social Development did a study called “Small-Dollar Children’s Savings Accounts, Income, and College Outcomes”(1) where they share some interesting findings:

  • 61% of low- and moderate-income (LMI) children have no savings account for college.
  • An LMI with savings for college is three times more likely to enroll in college than a child with no savings, and more than four and a half times more likely to graduate.
  • Only 5% of LMI’s with no savings will graduate, while 25% of those with savings of $1-$499 will graduate, and 33% of those with $500 or more set aside will graduate.

These numbers are significant – compared to their peers from a similar socioeconomic background, setting aside between $1-$499 for your child or grandchild makes them three times more likely to enroll in college and four and a half times more likely to graduate. That’s not a lot of money for those outcomes.

In addition, the government has provided some great tax benefits to saving for college in special accounts called 529 plans. Each state has at least one 529 plan, but they all share these benefits:

  • Tax-free investment growth
  • Tax-free withdrawals for qualified expenses
    • Qualified expenses include tuition, fees, room and board, textbooks, computer, printer and software as well as any other required fee from a university or college
  • You can use the money to pay for education expenses in any state
  • The account holder maintains ownership of the account
  • You can change the beneficiary any time you want
  • If your child gets a scholarship you can withdraw up to the amount of the scholarship and just pay taxes on the earnings
    • Non-qualified withdrawals (i.e. those not for qualified expenses) are subject to taxes and a 10% penalty on the earnings
  • Legally there is no maximum amount, though in reality most people want to keep the annual contribution below $14,000 if you are single, and $28,000 if you are married(2)

Many states offer a tax deduction or credit of some kind if you live in that state and invest in that state’s 529 plan. NerdWallet has created a list of which states offer a deduction or credit here:

https://www.nerdwallet.com/blog/investing/529-plans-list/

Which plan should you invest in? You want to find a plan with low fees, direct-investing (which means you pay no commissions on the investment) and, if possible, a tax deduction or credit.

Consumer expert Clark Howard said, “Utah is by far the single best plan in the country.” He also lists Iowa, New York, Georgia and Michigan as great plans.(3) Morningstar rates Utah’s plan as “…one of the best in the U.S.”(4)

You can explore your state’s plan further from the NerdWallet link above, but if you are looking for a great plan you can’t go wrong with the Utah Educational Savings Plan (https://uesp.org/). It is direct-sold, has low-fees, and has good investment options with Vanguard. There is no fee to open the account, there is no minimum investment and Utah residents can get a Utah State tax credit for contributions.(5)

Remember – saving as little as $1-$499 for your child’s college education dramatically increases the odds of them going to, and graduating from, college, which will increase their lifetime earnings, decrease their chances of living in poverty and decrease their chances of being unemployed.(6)

 


  1. https://csd.wustl.edu/publications/documents/wp13-06.pdf
  2. Note that it could actually be much higher than this if your plan allows it, but that gets into estate planning issues, which we aren’t going to get into here.
  3. http://clark.com/education/clark-updates-his-529-guide-for-2010/
  4. https://uesp.org/morningstar-utah-educational-savings-plan-is-one-of-the-best-in-the-u-s/
  5. This is not tax advice – check with your tax advisor or preparer to ensure you get the maximum benefit.
  6. This is assuming they choose the right major, but that will have to be covered in another article.

Are You Financially Fragile?

What would happen to you and your family if:

  • your fridge broke down?
  • your car transmission went out?
  • the primary breadwinner in your family dies?
  • the primary breadwinner in your family becomes disabled?
  • the Social Security fund goes bankrupt and you will no longer receive a Social Security check?

As many as 76% of Americans live paycheck-to-paycheck – they have little to no savings and they spend more than they earn each month. These people are the Financially Fragile.

Financially FragileWhen one of the above events happens it can be challenging for anyone, but it is devastating for the Financially Fragile.

If you are living this way, you can take a few steps to become Financially Resilient. Being Financially Resilient means that you are able to withstand or recover quickly from difficult financial conditions, such as your car transmission going out. Again, that can be difficult for anyone, but the Financially Resilient will recover quickly while it can destroy the Financially Fragile.

Here are some things I recommend to start down the path to becoming Financially Resilient:

  • Have an emergency fund – start out with $1,000
  • Use a budget[i]
  • Spend less than you earn
  • Have adequate insurance
  • Pay off debt
  • Use a Revolving Savings account[ii]
  • Have some “fun money” or “mad money”
  • Pay attention to your credit score[iii]

For more information on these topics, see the links below. I encourage you to take steps to become more Financially Resilient.


[i] Guide to Budgeting

[ii] https://ryanhlaw.com/revolving-savings/

[iii] https://ryanhlaw.com/know-your-score/

How to save money on shaving

Today is a quick tip on how to save some money on a product many of us use at least a few times a week – razors.

Dorco razor

I don’t like cheap disposable razors, so for years I was using expensive razors such as the Gillette Fusion or similar blades. For the Gillette Fusion razor handle with 1 cartridge you will pay $9.99 on Amazon, and for a pack of 8 blades it is $29.96, or $3.74 per blade.

I was thinking about checking out Dollar Shave Club a while back, then I found out that their razors are Dorco razors. Why not go right to the source?

I have been using Dorco razors for a while now, and they are, by far, the best razors I have ever used.

For their 3 blade system the handle with 2 cartridges it is $6, and a pack of 4 blades is $7.15, or $1.79 per blade.

$3.74 per blade vs. $1.79 per blade – that’s a big difference!

You can regularly find coupons for 20% off that, as well. For example, this link will save 20%:

http://dorcousa.refr.cc/CT7LL7F

Bonus Tip: To make blades last longer, and for the best shave ever with no nicks, cuts or razor burn, I recommend Shave Secret.

I’ve been using it for several years now and it is the best stuff ever.

shave secretYou can find it online, on Amazon and at Wal-mart.