Julie, age 27, calculated her expected net worth based on the formula taught in the classic personal finance book The Millionaire Next Door. She’s concerned. Her current net worth is significantly lower than the number that the formula revealed. Is she on-track?
Anonymous wants to save for a downpayment on a home. Should she reduce her 401k contributions in order to amass these savings? Should she store some of that money in a Roth IRA?
Samantha is more than halfway finished with paying off her debt. In order to make this happen, she took on a second job. How much will she owe in taxes?
Maxime works at a job in which his 401k only offers expensive choices. Should he put his money in a taxable brokerage account, instead?
Leslie’s parents are going to retire in five years, but they’ve only saved $65,000. What should they do? How can she help?
Clare is creating an estate plan. What should she be thinking about?
Former financial planner Joe Saul-Sehy and I answer these six questions in today’s episode.
Here are the details:
Samantha asks:
I’ve paid off about $17,000 of debt, and I have another $14,000 to go. It’s a mixture of student loans and credit cards. To pay this debt off, I took on part-time jobs in addition to my full-time job.
How do I calculate how much money I will owe the IRS in taxes? Is it possible for me to calculate this before actually doing my taxes, this way I can save up between now and that time?
**Update: As a listener pointed out below, the information contained within the episode is incorrect. Instead of increasing her withholdings to 1 or 2, Samantha should place her withholdings at 0 or 1. As Paula said in the comments, “…you increase your withholdings by decreasing your allowances, and vice versa. The more allowances you claim, the less tax is withheld.”**
Anonymous asks:
I would like to max out my 401(k) to decrease my taxable income, and my husband and I have been saving up for a downpayment on a house.
I’m wondering: is it better to not max out my 401(k), take the tax, and use that extra savings to speed up growing a downpayment fund? Or should I keep maxing out the 401(k) and be patient about saving up?
Additionally, we’re over the Roth IRA cap, so should I put less into a 401(k) and put some money into a Traditional IRA and figure out a backdoor Roth? We could use some of that hypothetical converted Roth withdrawal in the future towards a house.
How would you suggest thinking through this?
Julie asks:
I’m 27 years old. After paying off all my debt last year, I started contributing 15% of my income to a Roth 401(k). My net worth is approximately $23,000.
I’ve been reading The Millionaire Next Door, which contains a formula to determine if you’re wealthy. According to the book, you should have a wealth that = your age x realized pre-tax annual income / 10.
My pre-tax income is about $35,000/year, and according to this formula, I should have just under $95,000 to be considered average.I’m saving a little over 30% of my gross pay and I feel so far behind. Do you have any advice?
Maxime asks:
All of my 401(k) funds are expensive – the lowest one has an expense ratio of 0.87%. Should I invest in the 401(k) or an individual account, like a Vanguard S&P 500, which has an expense ratio of 0.04%? Or should I split it 50/50? What’s your opinion on this?
Leslie asks:
I’d like to know your recommendations for 401(k) investments for my parents. My dad is retiring in five years and he’s the main provider for the family. They’re playing catch up for several reasons.
Right now, they have $30,000 in a TSP Class G, and $35,000 in a JP Morgan account, which is invested heavily in equity securities. The JP Morgan account is sustaining losses. I think they should wait it out a few months in hopes that the market will revert back, and then move their money to a more conservative account.
Do you agree with this? If so, where should they move their money?
Clare asks:
I’m doing One Tweak a Week, and I need to write a will soon. What are some questions I should ask myself to write a will that’s in line with my personal values?
I’m a mother, I’ve got two children, and I’m happily married. I want to make sure that the will is a true reflection of who I am and who I want to be.
My husband can get a will for free through work. Should mine look similar to his?
Former financial planner Joe Saul-Sehy and I tackle these six questions in this week’s podcast episode. Enjoy!
Resources Mentioned:
- The Millionaire Next Door, by Thomas J. Stanley & William D. Danko
- The Next Millionaire Next Door, by Thomas J. Stanley & Sarah Stanley Fallaw
- Another tax headache ahead – USA Today
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