IRA Basics: Understanding Your Retirement Account

Regardless of whether you already have an IRA or are interested and in need of getting an IRA, this blog will provide some helpful information to better understand this investment account. 

To begin, I want to break down two common misconceptions about IRAs. First, let me dispel the idea that an IRA in and of itself is the investment. It absolutely is not. It is just the vehicle that contains different types of investments such as mutual funds, index funds, stocks, bonds, and REITs. You need to understand this to better understand your own IRA and to know exactly where your money is invested. Don’t be misled into thinking an IRA is THE investment.  

The second misconception is that an investor can NOT touch his or her money until age 59 and a half. That is not exactly true. You may withdraw contributions from a Roth IRA at any time tax and penalty free. But in order to withdraw contributions penalty free, you must follow one of the two rules: 

  1. The Roth Conversion Ladder: 

A Roth IRA Conversion Ladder entails moving your money from a tax-deferred account, such as a 401k or Traditional IRA, into a Roth IRA. The benefit is that it allows you to withdraw the converted funds from your Roth IRA after only five years.

  1. The Rule 72(t): 

Rule 72(t) permits you to establish a schedule of annual or more frequent withdrawals from your retirement account called SEPPs (substantially equal periodic payments). When you withdraw money from a qualified retirement account under Rule 72(t), the funds are distributed to you as SEPPs. These regular payments are made over the course of five years OR until you turn 59½.

If you have interest in one of these two routes, I highly recommend working with a CPA to ensure accuracy and completeness (why does this remind me of Deloitte auditing assertions? haha)

Now let’s dive into some additional facts about IRAs.  

  • First, understand that you are not permitted to keep funds indefinitely in a Traditional IRA. You will need to take minimum distributions known as RMDs when you reach 70½ unless you were born after July 1, 2019. If you are born after that date, you will not have to take RMDs until you reach 72 as per the Secure Act.  
  • Another important concept about IRAs is that there are two types which often confuses people. Simplistically, the difference between the two, a Roth IRA and a Traditional IRA, is when you will pay taxes. If you want to pay the taxes initially, you would invest in a Roth IRA compared to paying taxes later which you would do with a Traditional IRA. 

So which is the best investment for you?  This is not a clear cut answer, but one that is unique to each investor as based on his or her financial situation. Let’s break this down to the basics to make some sense of what is best for you. The general rule is that if your income tax bracket is going to increase in the future, you will want to invest in a Roth IRA; you should choose a Traditional IRA if your income tax bracket will decrease in the future. So assess your personal financial situation before deciding which type of IRA is best for you. Again, that is the general rule as of today, but that is always subject to change, and it is difficult to determine a person’s income in thirty or so years. Think about when you want to pay the tax. Do you want to pay on the initial investment now, or do you want to wait and pay later on the compound growth of your investment?  

Roth IRAs also carry some income limits which investors need to understand. I think that whenever the Government attaches restrictions, you need to be alerted to the reasons why. The income limits known as MAGI for the Roth IRA in 2022 were as follows:

  • Single  – $129,000.00 which phases out at $144,000.00
  • Married Filing Joint – $204,000.00 which phases out at $214,000.00

You will need to assess your financial situation to determine what is best for you, but if your MAGI is below these limits, I would strongly consider investing in a Roth IRA. However, if you do go above these limits, you can still take advantage with a Backdoor Roth IRA. Wealthy people often utilize this investment strategy which is perfectly legal, just a bit unconventional and less well known. A Backdoor Roth IRA means you invest in a Traditional IRA and then convert that invested money into a Roth IRA. Not only is this method employed by those who are wealthy but also by those who have a Traditional 401k who want to split pretax and post-tax money.  

Since it is not a black and white, clear, and easy decision between a Traditional pre-tax or a Roth post-tax IRA, many times there needs to be a combination approach. On a personal note, this is what I do. You will need to consult with a CPA you trust and who is well-versed to help determine what is best for your financial situation.  

The good news is that you are able to recharacterize IRA contributions in order to change the initial designation. So, for example, if you made contributions in a Roth IRA and then realize you exceeded the Roth IRA income limits, you may recharacterize it to a Traditional IRA contribution. 

To determine which IRA is best for you and your retirement, you will need to calculate your GROSS annual income. It is commonly recommended to invest about 15% of your gross annual income into retirement. Good steps to follow for where to allocate your 15% are: 

  • Invest up to the limit of a 401k company match if offered 
  • Max out your IRA
  • Invest the remaining portion into a 401k

Let’s take a look to see how that looks with numbers. We will use a 3% company match for our calculations and an annual gross income of $100,000.00.   

  • $3,000.00 for the company match ($100,000.00 X 3%)
  • $6,000.00 (IRA limit for 2022)
  • $6,000.00 invested in a 401k which is the remaining to reach 15%

The end annual result is that you are investing $6,000.00 into an IRA and $9,000.00 annually into a 401k. I would split the $15,000.00 investment dollars into bi-weekly payments throughout the year and would have all of the payments set up on an automatic payment system for ease. I would also recommend that you offset the IRA with the 401k. Preferably consider staggering your payments with your income payout dates. Therefore, if your payroll is on the first and third Fridays or days of the month, it is best to automatically invest in your IRA on the second and fourth Friday or day of the month that corresponds to the payday. 

Again, let me reiterate that this is the general rule of thumb for retirement, but you may have different retirement needs to keep in mind. It is best to work with a certified financial planner or CPA to help guide you through this process. Reach out to me for additional help with your retirement questions or with any questions about finances, budgeting, and investing. Remember to follow me @Budgetdog on Twitter, YouTube, Facebook, and Instagram for daily financial content and education.  

A Matter of Perspective and Priorities

My question to you is what Motivates you and is your Passion? Passion is not a job. Rethink your answer if you assumed it is the same thing. Also, rethink the tangible and the intangible. I am talking from experience and misconstrued priorities. I believed what I had been taught that tangible things and status would make me happy. These were things I was brought up to believe were the end-all. I quickly, but not soon enough, came to realize how wrong this message is. So, if you are trying to set the world on fire and climb the social ladder for status and success and think this will bring you happiness and contentment, please read this and think about your priorities and your passions.  

I am going to step back to my younger self who was confident that I had made it and knew all of the answers. I am a planner, so I thought I had reached the pinnacle when I graduated college with an accounting degree, secured a job with Deloitte, was working to pass my CPA exam, had gotten married to my long-time girlfriend, and was on my way to making partner – all as I had planned. My wife and I thought I would climb my way up the corporate ladder for about 40 years, have a couple of children, and live happily and contentedly ever after. I was not only wrong, but I was disenchanted. I had bought into a false narrative. I also realized that my plans did not play out as smoothly and as easily as I had expected. Just because I wrote it down, didn’t mean it came to fruition. Wow! This was mind-blowing and unexpected.  

First, I hit a brick wall with the CPA exam. I did pass it eventually, but it was an arduous two-year long undertaking which was also very humbling. Still, my wife and I plowed ahead  – AS PLANNED. Remember, I was going to climb the corporate ladder and become a partner at Deloitte which would create bliss and be the answer to everything. I wrongly thought reaching the level of being a partner would make our lives so easy. Shortly after getting my CPA, I had an epiphany about all of this.   In retrospect, I wonder why I was thinking EASY was the right way and the best way and why I was so consumed with income and status.  With a new mindset, my wife and I paid off $76,000.00 of non-related mortgage debt and were undertaking the process of paying off our mortgage at breakneck speed.

So, what was the epiphany that changed my perspective?  According to my PLAN, the thing that drove me was to become a partner in the company, have my wife stay home to raise our children, and relish in the status and affluence that came with climbing the social ladder. There is nothing wrong with this plan EXCEPT this would NEVER have brought me happiness and was only what I was striving for because I did not really understand passion nor did I have my priorities straight. Quite honestly, my EGO was what was driving me.  I was worried about my reputation and my ego blinded me.

It wasn’t until one late night when I was doing an audit which was going to continue into the wee hours of the morning when my colleague, who was also striving to become a partner and had been clawing his way to the top of a daunting list for a long time, called his children to say good night. At that moment, I KNEW to the depths of my being that this life was not for me. What is the price of success?  If not being fully present in my family’s life was the price for “status” and “success” as deemed by the masses, then I was out. I was not and am not willing to sacrifice time and experiences with my wife and our daughter to be a partner in any corporation or for anything else.

What an interesting concept – success. How do we define success? What is our passion?  Are things more important than time with our loved ones?  What is the price we are willing to pay to kiss our child or children and spouse good night?  For me, there was no price. I knew when my colleague made that call that I would never pay the price of time with my family like that to be deemed “successful” according to society. Moreover, it also gave me pause to realize that my side hobby of helping others with their financial journeys was my real passion. It no longer mattered to me if it would be that lucrative, but I was certain it would be more fulfilling and that it would afford me precious time with my family. It would also allow me the freedom to reach the heights I wanted to reach without having to be a sycophant, feeling like a puppet in a costume trying to impress the higher-ups and groveling for any accolades that came my way.  

That is how Budgetdog came to be. Some of you have heard my story of Budgetdog before, but it was at that moment, late at night in a gloomy office, when I decided that that life was not for me. I knew I needed more but not in the way society dictates or that our culture tells us is good and right. I have remained steadfast in my journey since that day to follow my passion and to align my priorities to what is helpful and good  – not financially but moralistically – despite the fact that I didn’t even make a penny for the first sixteen months of its beginning. What began as my passion to help people and an attempt to find something more meaningful than my existence doing the same meaningless and rote job even amidst the gibes at a bachelor party in Las Vegas as my friends taunted me with “Budgetdog, Budgetdog, Budgetdog” is a life that affords me the time and ability to live life fully.  

I remain resolute in my decision. I understand the difference between a job and one’s passion or mission. What began as a hobby and a desire to help others is now my full time endeavor. To date, I have aided countless to improve their lives financially and perhaps even emotionally by helping them alleviate undo financial stress. What is the price for that? There is not a price tag that I can put on it.The jeers did not and do not bother me. I am no longer a coward with a misplaced ego. Even when a Deloitte partner mocked me when I gave my two week notice as I told him about Budgetdog, I was not daunted. Laugh! That is fine. Now I have the last laugh. I am living a life of freedom and passion. 

Think about your priorities – not those of others or of society. Often those are flawed. My priority is to my family. I quit my job a month before my daughter, Logan, was born. Her birth has even more profoundly changed my priorities. Partner? No thanks. Possessions? I don’t need or want them. Staying home, being with my baby girl is my priority. At all costs, our lives are about our families, not status which is such a subjective rating. Interestingly, our daughter was born with a rare genetic mutation called Dravet Syndrome which means constant care and monitoring as well as endless doctor visits, trips to the ER, and other things that are time-consuming that go beyond the normal scope of parenting. How blessed am I that I made the choice that I did, so I am able to be the caregiver for her. I can’t ever imagine putting work ahead of her needs. Life is too short and my time with my wife and daughter is worth more than anything. That is my passion, motivation, and priority.  

So, I challenge you to assess where you are and to ask yourself the tough questions. Don’t define yourself by false definitions or what society has instilled as what you need and want. What are you willing to sacrifice and for what? This is truly personal. For me, time and freedom are more important than money and possessions. Of course, we need money to live, but how much and at what expense? Only you can answer that. Finally, don’t be surprised that when you do find your passion and trust your abilities, that you won’t exceed your expectations and that of others. I know I have but that was not the point. Passion and Priorities are!

An Unimaginable Reality – Logan and Dravet’s Syndrome

I am going to deviate from my norm for this blog of all things financial and talk about life – real life, not an Instagram World or a world of selfies and posed pictures or a life that is staged to look all perfect and wonderful. No, this is the real world with all the bumps, bruises, and imperfections that go along with it. Don’t misconstrue my message. I am not complaining but rather telling you how I live in the real world. Along with this message, let me also express that I know I am blessed and feel so fortunate to have such an amazing and devoted wife and the most wonderful and beautiful daughter that a dad could ever dream of having. But, again, all of this is real. So, this blog is more a look into my real life, my life behind Budgetdog with its blogs, Twitter and Instagram, and all of my podcasts. This is about my real life as a dad to my daughter who is turning one and the journey she has taken us on over the last months.  

First, I want to say Happy Birthday to my precious baby who turned one on September 4th.  What a joy she is and what a worry at the same time. Some of you who know me intimately, know that prior to January 29, 2022, our lives were better than we could ever have imagined or dreamed of financially, emotionally, and personally. Of course, we had some ups and downs and some bumps like everyone, such as car and appliance repairs and other “normal” life things. But nothing earth shattering or devastating. For that, we were lucky and had worked hard to achieve it.    

Then on January 29, 2022, our whole world was turned upside down and inside out to the point that it is still raw and surreal. On that day, our seemingly healthy baby suffered her first seizure.  It is beyond an understatement to say that it devastated us. Imagine my horror when Erin, my wife, came running hysterically into the room where I was preparing to make a company presentation, shaking and saying that something was terribly wrong with our baby. As most who suffer some type of shocking event or trauma, I still can remember every minute detail from that experience and relive it over and over in slow motion.  

After arriving at the emergency room and having Logan evaluated, we were reassured that babies having seizures is not that uncommon and were discharged. We left the hospital, feeling somewhat better but still frightened only to return by ambulance exactly twenty-four hours later with another seizure. We kept wondering if this too was “normal” as our minds were a whirlwind of incoherent and jumbled thoughts. In one day’s time, our lives changed forever.  

That became our first of many hospital stays, lasting four days but providing few answers. Questions plagued us. Finally, after a battery of tests, they were ready to dismiss us with little information other than things seemed to be okay.  As we were preparing to leave, a doctor came back in, telling us they noticed something on the EEGs that did not seem “right.” What did that even mean?  We were sickened by so many medical terms, so many questions, and so many incoherent thoughts that we were trying to absorb.   

Since that fateful day, we have had too many ambulance runs to the ER and too many hospital stays. Eight full months into the year, our total hospital bills have soared past $150,000! We know too many of the amazing nurses in the Neurology unit at Cincinnati Children’s Hospital and the EMTs who all seem to know the drill all too well when they get the familiar calls to our house.  

We have also finally learned, through a series of wonderful and oddly strange events that have opened doors and have put us in touch with the right doctors, that Logan has Dravet Syndrome. In one fell swoop, our daughter who appeared to be perfectly healthy was diagnosed with this rare syndrome that affects one in every 15,700 children. Like all syndromes, it presents itself differently in each child. Some children have mild and even few seizures, complications, and side effects, but others have many severe seizures and complications including lags or regression in mental and physical development and even death in extreme cases which is about 15 to 20% of those diagnosed with Dravet Syndrome. There is currently no cure for Dravet Syndrome. There is active research in the field given doctors are aware precisely the gene that is the main cause (SCN1A). We are hopeful with time that a miracle surfaces. What about Logan?  We have so many questions and no answers or guarantees.  But isn’t that all part of living in the real world?  

It is not only the diagnosis and the unknown that make life so difficult, but for children like Logan and the families, it is the minute-by-minute worries rather than the day-to-day struggles that are difficult to handle and absorb. For us, life with Logan is like living with a ticking bomb. Daily life is arduous. Typically life with a baby, a child, or children is hectic and busy. We would gladly welcome that. That was what we were expecting. Instead, we are always living under the shadow of another seizure which leads to more complications and problems. 

Logan comes with a long list of dos and don’ts that amount to our daily tasks being overwhelming as they consume our time and energy. Some of our struggles with Logan which are the same with other children with Dravet Syndrome are that she can’t get overheated or have rapid changes of temperatures, overstimulated or overexcited, or overtired or sick. That eliminates so many things such as going outside, even for a simple walk in the stroller on most days. Photosensitivity is a trigger for some with Dravet Syndrome, so we err on the side of caution and try to keep Logan out of the sun too much, vying for shade whenever possible. If she is out in the sun, she has to have her eyes shielded. Try keeping sunglasses on a baby! It is almost impossible, but mandatory. Water is another trigger due to the overstimulation and temperature change. Obviously, going to a pool is out, but it also makes bathtime a worry. For most babies, bathtime is such a fun time. But for us, it is a time when we have to be guarded and alert. The water has to be carefully regulated, and we can’t allow her to get overstimulated or over excited. So, a seemingly fun and easy daily routine for us is one that is filled with trepidation. In addition, for the average parent, a missed nap leaves them with a cranky baby. For us, it is catastrophic and one that almost always leads to a nasty seizure. Each nap and sleep session has to be carefully calculated to ensure that she is getting enough sleep throughout the day and night. Unfortunately, Logan is not able to relax enough to allow herself to fall asleep and stay asleep. We have spent countless hours trying to remedy this, including working with sleep specialists. She sleeps in a SlumberPod when we can’t be home that resembles a tent or in our pitch black bedroom closet always with white noise all in an attempt – and often a futile one at that – to help her get some sleep. In addition, during any time when she is sleeping, Logan is hooked up to a variety of monitors including one that detects rapid movements that would indicate a seizure, an oxygen monitor to allow us to be alerted if she stops breathing, and a sound and visual monitor to help us watch her as she sleeps – or tries to sleep. 

Daily life and normal routines are a worry. Every activity of every day must be carefully checked. As mentioned, Logan and those like her don’t regulate excitement and stress like other children and people. This overstimulation includes but is not limited to sounds, different movements, and quick motions. Just dropping something which makes a louder than normal sound or a flash of light is a worry. Even sitting on the floor playing with her is different than it is for most babies and children. We are ALWAYS watching and asking ourselves if her movement was a normal jerk or twitch or if it was a myoclonic seizure. We are constantly assessing whether she can keep playing or whether we need to pick her up and try to calm her to prevent a seizure. There are so many triggers for her seizures, but they are all such a part of everyday life that most people don’t even give them a thought or a glance. For each of these events, we hold our breaths and prepare ourselves for another seizure, rescue meds, and the chaos that ensues after. 

Furthermore, excitement and exciting things are a fundamental and normal part of development and growth for all of us. Our constant struggle is how to help her grow and develop, learning new things and experiencing life and all of its wonder and beauty while at the same time, eliminating the triggers. With each new phase and discovery, we brace ourselves as we await a sleeping dragon to rear its ugly head in the form of a seizure. We live our lives in a state of hypervigilance in order to safeguard Logan from the many triggers that plague her. Because of this, we have had to isolate ourselves and Logan. We can’t go out, have missed many family events, and rarely are even able to see our immediate families. This also means they are not able to see Logan or engage with her. But it is not about us. We all know it is about Logan. 

Logan’s constant monitoring is a reality; it is our responsibility and our lives. The more we can lessen the seizures, the better it is for Logan. Watching your child go through something like this is beyond words. It is crushing. Being able to stay home with Logan has been a blessing. Budgetdog has enabled me to be there with her to monitor as many of the activities and situations as possible. If it had not been for that, one of us would have had to quit a “day job” to stay home. I can’t imagine trying to handle the stress of a financial worry on top of all of the anxiety we already have. But that is where we are, and we count those blessings. 

So, today and each day, we celebrate Logan where she is, and we know that she is perfect no matter what her perfect looks like. We are deeply committed to providing the best possible care we can for her including the most up-to-date and effective medicines and therapies available. We have immersed ourselves in learning everything we can about Dravet Syndrome and are trying to bring awareness about this syndrome to everyone we can. In one short year, Logan has totally changed our lives. This is real. It is not always pretty or easy, but it is life as it is.   

For parents, there is no way to imagine loving a child anymore than you do. Parents love their children unconditionally, wholeheartedly, and purely to a level that is like no other love. Logan has taught us in this first year, how to be totally selfless and more appreciative for all of the blessings in life as well as how not to take anything for granted. Living in the real world with . Logan is unimaginably challenging but so remarkably rewarding and incredible. We know how blessed we are to be the parents of such an amazing daughter.

Happy Birthday to my baby girl. We pray that we can celebrate many more birthdays and cherish each moment of your life. We also pray for all of the parents and children impacted by Dravet Syndrome and other syndromes like this. It is our mission to find cures to help all of the Logans out there.  

For more information about Dravet Syndrome and the research that is being done, check out https://dravetfoundation.org/

I do not usually do this, but if you can…please share this blog and help us bring awareness to this very rare disease! You can tag me on all social medias. Thank you from the bottom of my heart!

My Top Five Index Funds

In today’s economy, we are all scrambling to ensure that our investments are making as much money as possible. We expect fluctuation in the market but need to make wise choices when deciding what we should have in our portfolios. Historically, for twenty years up to December 31, 2021, the S&P 500 Index averaged 9.5% per year, but the average equity fund investor earned a return of only 3.9%. Investors are always trying to beat the market and to time the market, and they continue to lose. Index fund investing has proven over time to be the most successful way to win in the market. I’m here to give you some advice about the top five index funds that you may want to consider for your investment portfolio. Keep in mind that the number of stocks in each fund as well as the top stocks fluctuate along with the market. Therefore, the information used in this blog may not be exact at the moment you are reading this blog. I encourage to check the latest data for each fund to see the changes.  

Top Five Index Funds:

I work with Vanguard; they are the one with whom I have my investments and are my top picks. Please note that if you already have investments with Charles Schwab or Fidelity, you can buy equivalent funds to the ones I am suggesting, but I would not recommend buying the Vanguard funds I am recommending through another broker due to the fees you would incur. Reach out to me individually if you are working with a different broker and need help figuring out what the equivalent to the Vanguard funds I am discussing here or download my free investment fund cheat sheet here.    

#1 – Vanguard Total Stock Market Index Fund (VTSAX) – 

Vanguard Total Stock Market Index Fund is an index fund that tracks the entire United State equity market, thus providing investors with exposure to virtually the entire United States stock market which includes a variety of 4,076 small-cap, mid-cap, and large-cap stocks according to Vanguard as of July 31, 2022. The fund’s top five stocks reported by Vanguard as of July 31, 2022 are Apple, Amazon, Google Class A, Google Class C, and Microsoft Corp. Since the United States makes up 50% of the global market, this is a very attractive fund. In addition, it has an expense ratio of 0.04% which means you only pay $4.00 for every $10,000.00 invested. My guideline on a personal level in this regard is that I never go above 0.20% or twenty basis points. Basically you can invest in this stock for almost no cost. My portfolio consists of 73% VTSAX.  

#2 – Vanguard 500 Index Fund (VFIAX) – 

Similar to my #1 pick, the Vanguard 500 Index Fund is also an index tracking fund and it also has an expense ratio of four basis points. One big difference is that this fund covers the top 500 United States companies, so you get the majority of the domestic market with this fund. While it is labeled as Vanguard 500, there are really 503 holdings due to parent companies such as Alphabet which is actually Google’s parent company, dividing out class A and class C shares according to Vanguard as of July 31, 2022.  Another difference between Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and this fund is that you only get the large-cap exposure. The top five stocks in VFIAX, like with VTSAX, are Apple, Microsoft, Amazon, Tesla and Google as noted by Vanguard’s latest data.  VTSAX has 4,076 stocks while VFIAX only holds 503 stocks, but the S&P makes up 80% of the United States market. Because of the vast similarities of the two, however, I would choose one or the other, and my preference as noted above is VTSAX. 

#3 – Vanguard Total International Stock Index Fund (VTIAX) – 

My third preference is the Vanguard Total International Stock Index Fund which is an index fund that provides investors the luxury of investing in developing as well as emerging international economies. Despite the fact that the United States makes up 50% of the global economy, there are many thriving international companies. This fund has a higher expense ratio than the first two picks with eleven basis points which is still below my guideline and is good considering that you will only pay $11.00 for every $10,000.00 invested. According to the latest data by Vanguard dated 7/31/22, there are 7, 819 stocks in this fund from Europe, the Pacific, the Middle East, emerging markets, and even some from North America. Vanguard has noted the top five stocks included in this fund are Taiwan Semiconductor Manufacturing Co. Ltd., Toyota Motor Corp., Shell plc., Tencent Holdings Ltd.and Samsung Electronics Co. Ltd. Just as the number of stocks in the fund changes, so do the stocks within the fund. The beauty of this fund is that it helps round out your portfolio which as a global investor I think is important. However, be aware that since this fund invests in stocks that are from around the globe, including those that are in developed as well as from emerging markets, this fund can have more volatility than you may see in a domestic fund along with political risks and currency risks. You may want to assess your financial personality and level of risk to see if this fits your investing tolerance profile before including it in your portfolio. For me, I think excluding the other 50% of the world seems shortsighted, especially taking into account that the United States and other countries have historically and continue to vie for the top financial spots. For that reason, 19% of my portfolio consists of this fund.  

Following is a chart that indicates how often international stocks have outperformed United States stocks and solidifies why it makes sense to me to invest some of my money in these stocks. 

#4 – Vanguard Emerging Markets Stock Index Fund (VEMAX) – 

My fourth pick is similar in some regards to my third choice, but it only focuses on emerging markets around the world. It is a great index fund because it offers investors a low cost way to gain exposure to markets such as China, Taiwan, India, Brazil, and Saudi Arabia to name just the top five in areas such as technology, basic materials, real estate, and energy among a wide variety of others. The total number of stocks included in this fund according to Vanguard as noted according to their published data as of July 31, 2022 is 5,412, and the top five stocks among many include China Construction Bank Corp. Class H, Taiwan Semiconductor Manufacturing Co. Ltd, Alibaba Group Holding Ltd, Tencent Holdings Ltd, and Meituan Dianping Class B. This fund is a bit more expensive than the other three but is still under my twenty basis points, with an expense ratio of fourteen basis points. Therefore, you would only pay $14.00 for every $10,000.00 you invested in VEMAX. As I pointed out with VTIAX, this fund consists of stocks from emerging market companies which can cause it to be more volatile than those with stocks in developed countries as well as having political risks and currency risks. Despite their potential for volatility, over time they tend to outperform other funds. I consider this fund to be a great one to consider for long-term, risk tolerant investors who want to diversify their portfolios, including in them international stocks. I also think this fund is important to consider because of where we are historically. Some of the most brilliant investors including Ray Dalio, founder of Bridgewater Associates which is reportedly the world’s largest hedge fund and who is worth 22 billion dollars as according to Forbes, love emerging markets. Also, even though global economies are now more connected than ever, there are still diversification benefits to investing in emerging markets. According to the International Monetary Fund, the World Economic Outlook forecasts average annual GDP growth of 5.5% for emerging markets from 2021 to 2023 compared with 3.5% for advanced economies. Looking at all of the data and considering possible volatility, my portfolio consists of 4% of VEMAX.  

#5 – Vanguard Total World Stock Index Fund Admiral Shares (VTWAX) – 

My last pick is an index fund that is rather all-encompassing of the other funds I have previously outlined. This fund allows investors to be exposed to stock markets around the world from emerging markets and developed foreign markets and includes the United States. The fund is made up of 9,435 stocks including but not limited to Apple Inc., Amazon Inc., Microsoft Corp., Alphabet Inc. Class A (Google), and Alphabet Inc. Class C (Google) as noted by Vanguard as of July 31, 2022. It has an expense ratio of ten basis points meaning you would only pay $10.00 for every $10,000.00 you invested. One of the things that I love the most about this fund is its weighted exposure which is very similar to the way I model my portfolio. Vanguard Total World Stock Index Fund is about 60% United States, 30% international, and 10% emerging markets which looks like this: 

My portfolio is currently 73% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), 19% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX), 4% Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX), 2% Meta stock, and 2% crypto currency OR 73% United States, 15% international excluding emerging markets, 8% emerging markets, 2% Meta, and 2% crypto currency. This also may fluctuate throughout the year, so I rebalance as needed. My model meets my current long term goals and risk profile. The  allocations will change as my needs and goals change, but my strategy will remain the same. Also, by utilizing the power of three index funds (versus solely using VTWAX), I lowered the overall expense ratio by approximately three basis points and am able to retain more control of my allocations at any given point in time.

As noted, index fund investing historically is a way to be successful in the market. This is one of the best ways for you to invest in low-cost index funds. My model works for me, and if you are looking for a way to structure your portfolio, it may work for you too. You will want to look at your own goals and needs, risk factors, and investing tolerance profile to help you structure your portfolio. Whatever you do, don’t buy into hype, try to beat the market, or time the market; just set your portfolio and allow your money to grow.  

Remember to subscribe to my blog and follow me on social media for more updates and information about a variety of financial topics. If you liked this blog or want to learn more, I’d love to hear from you.  I try to respond to every comment and message across all my platforms.  

Life Happens – Plan Wisely and Be Ready

We often hear the expression “Life Happens.” The idea is everywhere from ads, life insurance,  nonprofits organizations, the list goes on. We get it!  Yet, we fail to put into practice what we understand and know to be true. I can tell that I know from experience that “Life Happens” and when it does, why you need to be ready. This blog is a bit different from my other ones. It is not just information that I am passing along to you about how to budget, invest, or save, but is my perspective on the WHY. I can tell you about budgets and saving, and it is just that – me TELLING you something. It is education. You can believe me as a CPA and a person with a financial background and passion for helping people succeed financially, or you can dismiss my WORDS. But this is more than WORDS!  This blog is about EXPERIENCE and the WHY behind the words. We all know that experiencing something is much more motivational than words, and because I truly am passionate about helping people, I want you to have a more positive experience when LIFE HAPPENS- and it will HAPPEN!  

I’m going to jump back to the experience, so you can better understand the WHY. Hopefully, you will take away information from this experience about the importance of being financially ready for the unknown, yet the inevitable. Of course, I can’t fully prepare you for the unexpected and the unknown because that is the story of the life of each one of us. Nobody knows how the story will play out and how each chapter will unfold. So, that is not the message here. The message is to change your perspective on money, so you will be ready for the unexpected. You have the ability to change catastrophic situations into something less ruinous, at least on the financial side.  

Stepping back, let me lay the background. Since jumping into the arena of helping people through my platforms to achieve financial freedom by things such as creating budgets, paying off debt, investing, and estate planning, I have had the opportunity to connect with many wonderful and inspiring people like you. These people are intelligent, insightful, and hungry;  wanting to be successful in their goals. Like you, my wife and I also had these lofty and ambitious goals. Going back seven years, we really were motivated to become debt-free. We knew the importance of this concept and how much we wanted to achieve this goal. At that time, however, we did not TRULY understand the WHY to the same extent as we do now that we are LIVING the “Life Happens” chapter of our lives.  

Our Life Happens Chapter:  Over the last seven years, my wife and I have reached some ambitious goals. We graduated from college, pursued our professional careers, paid off $76,000.00 of debt and a mortgage. Things were great, and they even got better. On September 4, 2021, we became parents to our amazing daughter, Logan. We were on top of the world! We welcomed into our world a healthy baby who was born without complications. Included into the plan was for me to quit my day job as a CPA and continue to grow Budgetdog full time, staying home to care for Logan and help others along their financial journeys. This also came to fruition. Continuing this chapter, things were still going along smoothly and as hoped and planned. Logan was thriving, Budgetdog was booming, and we were financially independent. Then “Life Happened” unexpectedly, without warning, and beyond comprehension. Truthfully, we are still reeling from it and can’t fully grasp the extent of what happened on January 29, 2022.  

The odd thing about such tragedies is that most people, when recalling them, remember every minor detail as if it happened just moments ago. As I was getting ready to make a presentation to a company on a call, my wife, Erin, frantically ran into the room yelling that something was wrong with Logan. We did not have any clue what was going on with her, so we rushed her to the hospital where we were told that she had suffered a seizure. They assured us that it was not that uncommon for babies to have seizures, so we left the hospital feeling somewhat better but still unnerved and confused as well as inept. Seizures? What did that mean? Why? The questions were daunting and innumerable to say the least. But then, in less than 24 hours, the seizures started again, and we were back in the emergency room. Now we found ourselves in a situation where Logan was being admitted to the hospital, and after a five-day stay, we became fully aware that she was having many seizures, but they were NOT “common.” Skipping ahead in this chapter, after many runs to the ER, many stays in the hospital, running more tests and speaking to too many specialists to count, we were devastated to learn that Logan was diagnosed with Dravet Syndrome. This is a rare syndrome, not disease, that impacts one in 15,700 children. It manifests itself differently in each child, ranging from mild seizures that begin in early childhood to early death in those with extreme cases which is about 15 to 20% of those diagnosed with Dravet Syndrome. Where Logan will fall, we do not know. We struggle every day to control her seizures, to visit the multitude of doctors and specialists on her “team,” to help her develop and grow as any baby her age would and should, and to manage LIFE under this dark and terribly frightening cloud. Yes, we know very well – all too well – that “Life Happens!” 

But that is the point. Life does happen to all of us. We can never be prepared for the unexpected. What is written in the chapters of our lives is unknown and unexpected. But, and here is the WHY, how prepared we are, and I can only speak financially, will help when these situations come our way. Our situation with Logan continues to unfold. Sometimes the more we learn, the more frightening and dire things seem. But this situation is not going away; it is who Logan is. This has stopped us in our tracks. Certainly it has given us a different perspective and meaning about the fleeting nature of life, the importance of relishing each precious moment, the insight about being kind and good to others because we never know what other people are going through in their own lives, the wisdom of how often we get caught up in minutia, and the importance of faith and prayer in our lives. And with this new insight and wisdom, I also know more than ever and want to communicate the need for the WHY.  

The WHY does matter because it can help in a catastrophe. It can make a crisis into something that is more manageable. We know that Logan’s diagnosis is a life-long situation. It is who she is. We also know that we are in a financial situation that helps alleviate some of the financial stress. As parents, we are helpless, but we can try to provide the best care we can give her which is very expensive. Currently Logan is one of only three children in the United States under the age of two who was able to start on Fintepla while in the hospital, which is just one of the multitudes of daily medications. Logan’s Dravet specialist, Dr. Perry, who is part of an amazing team at Cook’s Children Hospital in Fort Worth, TX, pushed for her to be able to receive it despite the fact that it was FDA approved only for children over the age of two. But she needs it. The catch was that at first, because it was not approved for babies her age, we were going to have to pay for it. The out of pocket expense was going to be $5000.00 a month. What do you do as a parent?  That is a huge amount of money, especially over the course of a year. That is the WHY.  Because we had previously paid off our house and have no debt, we knew we could cover the monthly cost for the drug. We were hoping that insurance would kick in once Logan turned two, but we also knew we were financially able to handle this expense for her and provide the best medicines and care we could to help her. Since being prescribed the medication, Dr. Perry was able to get it covered by insurance. But this is only the beginning of the journey for us and Logan. There are things that will not be covered, and even with insurance, medical bills will be high. Again, the WHY.  Medical debt accounts for 67% of bankruptcies. That is staggering. Think about that. One day you are financially okay, paying your bills, meeting your minimums, and along comes LIFE. That is exactly the reason I am such a huge proponent of getting your finances in order and being financially free.  

Because Life Happens, and we all know if does, whether it comes in the form of a car wreck, some type of medical crisis, things breaking and needing to be repaired, or just the high cost of living on a normal basis, you can’t wait to get your finances in order and have the curve balls that life throws at you become even more catastrophic than they already are. We are all going to have to face challenges, crises, and catastrophes at some point in our lives. How we deal with them in a philosophical way will be up to each of us. I can’t speak to that. But life is too short to constantly be worrying about money. It is too stressful and unnecessary. You don’t have to be a victim or a statistic. Don’t be the 67% who go bankrupt due to medical bills or who lose their home from a life-altering situation. Live life fully. Be present in the lives of your loved ones. Be a good steward of your money, earning, saving and giving. So the WHY of being fiscally responsible and financially independent is because when Life Happens to you, when it is that critical chapter in your life, you can get up swinging harder than ever. Don’t lose! Life is too short, too precious, to lose. I know because I am fighting for Logan – she is my WHY.  

Estate Planning Decoded- The Why, How, and Who

WHY? 

Nobody wants to think about the inevitable – death. We all know it will eventually happen, but it is not something we like to think about or talk about. Why we do this is human nature, we tend to think that as long as we don’t talk about it, it will not happen. Hopefully it will not happen anytime soon! But it will happen. And because it WILL happen, and sometimes in an untimely or tragic way, it is vitally important for us to make sure all necessary plans are in place to help secure the lives of our loved ones. That is where estate planning comes in.  

Estate planning is necessary to ensure that assets will be secured for loved ones upon death or incapacitation as well as making sure children, if there are any, are cared for according to the person’s wishes. It does not need to be complicated, but you do want to make sure that it is done properly to ensure that money and property is passed on according to your desires and the maximum amount of money is transferred to your beneficiaries rather than having legal hang-ups and punitive or unnecessary taxes.  

HOW?  

While the process does not have to be complicated, it does have to be done properly.  Certainly you could handle it yourself, but you need to be careful as this is not something that you can leave to chance or mistakes. Remember that your family will not be in the best frame of mind at the time that the estate distribution comes into play, so you definitely do not want things to be further complicated. To that end, it is probably best that you have a team of specialists help with your estate planning. Some estates are easier than others depending on the amount of assets and the complexity of the plans for beneficiaries. You need to assess your personal situation and think through who you will need to help in the process of your estate planning. I recommend that you have an insurance agent, a CPA, a certified financial planner (CFP), and an attorney help you through the process of planning your estate. 

WHO and Roles: 

Insurance Agent:  Often overlooked and underestimated is an insurance agent. Having a good insurance agent who is well-versed in the different types of insurance policies and the one that best fits the needs of his or her client is crucial. Please note that I have discussed life insurance before, whole life and term, and I recommend term life insurance over whole life insurance. But in addition to helping clients with insurance, insurance agents often provide valuable advice and tools regarding estate planning. They can provide information regarding your estate well in advance of the actual estate planning process.  

CPA: Another important person in estate planning is a CPA who understands a client’s financial estate and the need for safeguarding assets often before the client does. In addition, most CPAs have an understanding of estate tax laws and the financial implications of what happens when these laws are not followed and assets are not secured. Let’s keep in mind that the reason for estate planning is to secure assets for a person’s loved ones. Having assets tied up in undue taxes and litigation can be excruciating for a family upon the death of a loved one. In addition to understanding these laws, CPAs are also adept at helping to appraise the value of the estate as well as identifying cash flow requirements. Lastly, the CPA can complete and file the final tax return for the deceased along with Form 706 which is the United States Estate Tax Return (and Generation-Skipping Transfer) that is used along with the deceased client’s state 1040 form. As you can see, the role of the CPA is vital.

CFP: I advise you to utilize a certified financial planner (CFP) before death as they are key in managing assets, providing advice about different types of investments, and planning cash flow. In fact, they will manage cash flow during a client’s life and after death. Choose your CFP carefully and make sure he or she has specific knowledge of insurance along with estate taxes and laws in order to best meet your needs in the present and in the future.  

Attorney: The last key person on the team is an attorney. Some attorneys specialize in estate planning and understand all of the nuances of the laws associated with estates. They create all of the legal documents, forming the framework, and file them appropriately, so estate assets are protected, children and dependents are provided for, and all wishes and desires are noted. It is vital that these documents are properly created and filed in order for them to be recognized as “official.”  Lawyers are recognized as the ones who can legally draft documents and file them; it is their job. Therefore, it is best to leave this responsibility to the professionals. In addition, the same attorney who drafts and files the documents for a person’s estate can also be used during the probate process and the distribution of assets to beneficiaries. A different attorney may be used for the probate and distribution process, but many find it is more streamlined to keep the same attorney for this process.  

Process: Obviously you do not need to run out today and secure all four of these professions and plan every detail of your estate. You need to assess where you are in your life especially regarding your assets, and your responsibilities. If you are young, single, and just starting your career, you would not need to secure the services of all of these professionals. At this point, you probably can take care of most of your investments on your own and can file your own taxes since they are pretty simple unless you have extenuating circumstances. However, as you progress in your career and life, earning more money, acquiring more assets, and taking on more responsibilities, you will want to add these professionals to your team. Think about the purpose of each of these. Certainly you will want to utilize them accordingly. Along the way, as your wealth grows, you will want to secure your assets. Additionally, if you marry and/or have children, you will want to ensure they are financially secure in the event that anything happens to you and your income is no longer there for them. That is the time for you to add a good insurance agent to your team. Little by little, you will want to evaluate your life and your financial situation and add the right components in order to best provide for your family when the inevitable comes.

Like I noted earlier, nobody wants to think about death, but we all know it will happen. Therefore, it is best to be prudent and plan for that day. It is one of the most important and loving things you can do for your loved ones.  

The Stock Market – Gloom and Doom 

It seems like all we hear anymore is gloom and doom – especially about the financial world!  Interest rates are creeping up, and some analysts predict a crash in the housing market and the economy. It is fair to worry about money because for some items, money is not going as far as it used to a year or so ago. People are expressing their concerns about investments such as 401Ks. Many are asking whether or not to invest in the market that keeps dipping. From the news, some contend that the best thing to do is to crawl under a rock!  My advice is to stop listening to the insanity. Remember hype is what spurs on the “news.”  Don’t buy into the fear. More importantly, if you start buying into the idea that the stock market will fail or even crash, you are betting against yourself.  Let’s take a breath and think through all of the hype in a logical way.  

First, let’s understand the stock market and its purpose. For the practicality of understanding, lets imagine a scenario. You want to get into the stock market, so you invest in an index fund or exchange traded-fund (ETF), Vanguard Total Stock Market Index Fund (VTSAX), or even better, Vanguard Total World Stock Index Fund ( VTWAX). Your Coworker asks you why you are getting into the stock market now and warns your that a crash is coming.

I guess he has a magic crystal ball telling him that…

Now let’s think about this logically. In order for these to fail, every company that is part of VTSAX or VTWAX would have to become defunct.  What is the likelihood of this to happen? Correct! It is virtually impossible.

What is the Stock Market Really? Going deeper in understanding the stock market, I like to remind everyone what the “stock market” fundamentally is. The stock market is YOU. Let me explain this concept. If you invest in VTSAX that covers the United States, long term, you must assume that the United States economy will fluctuate, having highs and lows. But people are what fuels the companies and, in essence, are the market. The companies operate using leverage from all of us – not just investors. We are great consumers. We need gas, food, water, and housing. The more we need and want, the more we have to work in order to buy these things. In turn, companies will continue to produce goods, services, and materials. They will continue to create new, innovative, and revolutionary goods and services, generating more positive results for their companies and more profits. These profits are one factor in incentivizing investors who will continue investing.  Occasionally, the governing entities will intervene and will impose sanctions and regulations.  We know and expect that. It is the way the government works as well as our economy.  Long term, this is nothing to worry about.  Educated investors anticipate this. We also understand that the free market adjusts to change and will adapt, just as we will adapt. These changes and adaptations often lead to great improvements and an improved society.

Adaptations and Change: What Does It Mean?  Overall, we humans do not like change, and we are prone to listening to biases. It is just the way we are programmed. We also, generally speaking, are somewhat limited in our scope and range of thinking on a worldview or a broad global view. Who can blame anyone for that? There is SO MUCH information out anymore that it is almost impossible to sort through everything – especially all of the NOISE and disinformation. My advice to you is to stop listening to all of the craziness out there. I know it is difficult, and we have the propensity to want to gather together. Certainly to some there is comfort in knowing others are in the same boat – even if it is sinking! But you need to stop listening and buying into all of the gloom and doom.  Read and educate yourself.  That is one of your best defenses against failing in the stock market.  Remember that large corporations and entities study human biases and trends. They use this information and algorithms to their advantage – not yours. They are hedging on the hysteria of the masses.  Educate yourself and understand that you are investing in the market for the long term. Look at the marker trends over a long period of time. The market is pretty tried and true. It will dip and fluctuate as it always does, but I am betting on us consumers. Remember we are the market. Stay calm and ride this out.  

For more information on investments, putting together a budget, prioritizing debts and making a plan to be debt free, and anything else financial, reach out to me for help. This is my passion and my mission.  Also, make sure you are following me on Twitter, Instagram, and Facebook to catch all of my free content, and make sure you subscribe so you catch every new blog post!

The 8 Reasons You Should Consider a Trust

In working with many clients, I often get questions that are a little out of the realm of budgets and financial portfolios. One of these questions pertains to trusts. While it is not directly a financial question in terms of investing or budgeting, it does deal indirectly with money and assets, yet is one that is often overlooked. It is in some ways like wills. Some people, while verbalizing that wills are necessary, still refuse to draw up a will.

Why?  And how does that turn out when the inevitable happens? 

I’ll save this topic for another blog. Trusts are also somewhat of an enigma which often tends to scare people into inactivity, causing even more problems in the long run. So let’s dispel some of the myths about trusts and delve into the eight main reasons why they are beneficial and even necessary.  

Asset Management and Control: People set up trusts in order to transfer assets to a trustee or trustees. Trusts can be managed by individuals and/or corporations including lawyers. Establishing trusts can also be a way not only to manage and control one’s assets but is also a way for the grantor to continue to increase wealth while establishing the control of what will happen to their assets.  

Privacy: There are times when it is best when the conditions of a trust or the exchange of assets are private rather than public. Information in a will becomes public record after the will is filed with the probate court which is the case for most estates since the assets in the will are eventually distributed. This is not the case with a living trust called an inter vivos trust or a trust between the living.  In inter vivos trusts, the conditions and assets are kept private.  

Tax Control: For income purposes, trusts and inheritances are considered as gifts, so trusts and the distribution of assets from trusts to the beneficiaries are not taxed.  That is good news.  These laws began changing for the masses in the 1990s, and now, as of 2022, the lifetime gift exclusion is $12.06 million. There are also amounts for married couples that are double that at $24.12 million. Trusts can save both the grantor and the grantor’s family money in regards to current income taxes and transfer taxes.  The IRS does not tax the beneficiary in most cases since the money in the trust has already been taxed.  

Disposition Control:  The grantor of a trust at times may wish to put certain restrictions on the disposition of assets. There are a variety of reasons such as ensuring that the beneficiaries do not act irresponsibly with the assets allocated to them. Trusts allow the grantor to do this.  So, for example, if the grantor does not want a minor to receive assets or wants to put restrictions on when the assets and how the assets will be disbursed, it is possible to set that up in the trust.  This allows the grantor control over the disposition of the trust, thus enabling the grantor an alternative to an outright asset transfer.  

Protection of Trust Assets: In trusts, the assets are protected, thus insulating the monies and properties from claims that could be associated with them by creditors or debts. This is assurance to the grantor that the assets will be there for the beneficiaries of the trust.  

Distribution Flexibility:  Trusts allow for flexibility in the way the assets are distributed.  This enables the grantor of the trust to provide accordingly and also to allow for changes in financial status or life changes.  An example of this is when the trust is first established, the grantor may envision that the assets be divided equally between beneficiaries. However, fast forward into the future, and, now, not all three beneficiaries have the same financial needs. The grantor of the trust is able to write the trust in such a way that accounts for these situations which can be a relief to the grantor.  

Avoidance of Conservatorship:  In the event of a family member who is physically, mentally, or emotionally unable to provide financial care for himself or herself, a trust is a wonderful way to deliver the necessary financial means for long-term care. Often in these situations, by law, a conservatorship is named who is charged with managing the assets. There are times, however, when the trust is written, leaving the assets with a trustee who is entrusted with managing the money for the person who is not able to financially care for himself or herself which then bypasses the conservatorship.  But, this is dependent on the situation and the way in which the trust is established, so it is necessary to check with a professional when in this situation. Nonetheless, the trust provides the necessary money to financially provide for the individual who needs long-term care.  

Transferring Assets Outside of Probate:  After death, if the deceased has assets, regardless of a will, the will and/or estate must be authenticated which is called probate.  Often an executor or executrix is already named in a will, so the named person has the responsibility of administering the process of probate.  The process can be drawn out and can be costly, so it is incumbent to avoid probate as much as possible.  Trusts, especially those with revocable living trusts, avoid probate because they are not set up as part of the deceased’s will.  Therefore, the disposition of assets is streamlined and avoids costly fees that are often associated with wills.  

Let’s face it. We all work hard for our money and don’t want to waste it.  Most of us want to leave something to our families upon our deaths.  Trusts allow us to do so in ways that avoid many headaches, taxes, fees, and undue stress.  They are certainly something to be aware of, especially as we accumulate wealth.  For help discerning if a trust is right for you, contact me so we can dissect trusts on a deeper level.  For all of your financial needs, contact me and follow me on Budgetdog.  My mission is to help people make the most of their financial situation.