The word “budget” sounds like a dirty word to some but it’s necessary to be financially responsible. Keeping a budget gives you clarity on where your money goes so you can reach your financial goals. In this video, Rob Auclair shares with you the steps to create and maintain a successful budget.
- Identify income
- Categorize expenses
- Budgeting apps
- 50/30/20 budgeting rule
Rob: Welcome to “Successful Living.” I’m your host, Rob Auclair. We are going to talk about motivation, the benefits of motivation, and hopefully we can give you some tips to help you get motivated. I’m going to be joined by our tax expert, Greg performer are — Greg Porcaro. Greg is going to talk about the pp — PPP loans, tax credits, and tax planning. We are going to move on to budgeting, which people don’t like to do. Once they do it, if they do it, they find some relief and anxiety and they are getting some of their goals. We will take of your question from someone who wants to get out of the stock market on what’s the appropriate way to do that. Our word of the day is motivation. Motivation is the reason or reasons one has for acting or behaving in a particular way. When I think about motivation myself, it brings me to a quick imes. I’m willing t0 seconds.
When I first started in my career, it was the first week. I was thinking phone calls. I make about 50 phone calls, 12 appointments in New York City, from Connecticut. I was told not to confirm those appointments. I get to New York City at 7:30 a.m. My first appointment didn’t speak the same language. I waited all day for all 12 appointments and saw none of them. I was young and probably not so smart. I had wet feet and thought and umbrella wasn’t cool enough. I got back on the train to Stamford, Connecticut, fell asleep, ended up in new haven. I was taking a cab to a room in a house with three other individuals who I didn’t know. I laid down and I said, it doesn’t get much worse. There’s a story about all 12 appointments. That’s my motivation. That’s my motivation to keep charging forward. That was probably the worst day I could have in this business. I keep improving.
Let’s talk about the benefits of motivation. Number one, clarify a goal . When you are motivated and ready to take action, you will then have the desire to change your life. When you say, it’s time for me to get healthy, you will have a clear vision.
Number two, it pushes through setbacks. Every road to success will have its setbacks. Motivation steps in and makes you charge forward. When I started my business, many people might’ve said no. It made me figure out what I needed to do.
Number three, fights against fear. We are so focused on the end goal that all the things that we made fear — may fear are no longer there because we are only focusing on the goal.
Number four, you build self-confidence. As you push through these setbacks, you are accomplishing small goals and you feel successful. These successes build some confidence.
Number five, you inspire others. I had a roommate in college who was a runner. He got up every day at 5:00 a.m. and ran. It motivated me to say, I can certainly run at 2:00 p.m., every other day. He motivated me to do that. He was a great example.
Let’s look at how to increase our motivation. If we are struggling with finding it, number one, surround yourself with good people. They say you are what you surround yourself with.
If you surround yourself with athletic people, you will probably be athletic. If you surround yourself with very good people, you will probably be a good person.
Number two, keep learni – read. Pick someone’s brain. Engage with a doctor or specialist.
Number three, the old Nike saying, just do it. I had a client who wanted to save for their kids’ education.
For about five years, she asked me the differences between accounts. Spilled it out. She didn’t start doing that for another eight. Don’t get paralyzed.
Number four and five, number one, get out of your comfort zone. Make yourself uncomfortable.
Number five, just write down your goals. If you write it, if you think it, if you see it, you will become it. I know that’s a little cliché-ish. Just go out there and do it. Find out what’s going to motivate you to get that done. When we return, we will be joined by Greg Porcaro. Stay tuned.
Rob: Come back to “Successful Living. — welcome back to “Successful Living.” 2020 is coming to an end. We want to make sure we are prepared as the tax year draws to a close. We are going to welcome in Greg Porcaro.
Thanks for joining us again.
Greg: My pleasure. Good to see you.
Rob: I know this year has been a little different for you, obviously, with the pushing of the deadline and a lot of different credits and loans. I want to get to the basics right now. Let’s call it our business owners. What are things they should be thinking about as the year end approaches?
Greg: Of all the years I’ve talked to people about tax planning, this is definitely the year where you can’t sit back and say I’m sure everything is going to be just fine based on 2019. It’s important that everybody, business owners and individuals alike, take a look at their situation well in advance.
Rob: So, what are some of those things — I know we will get into more specifics. Let me ask you this. Before we get into what COVID has done to our business owners, what should business owners every year be thinking of at this time of year?
Greg: I think business owners are somewhat accustomed to paying attention to what’s happening in the fourth quarter how the year went planning for — in the fourth quarter, how the year went, planning. That’s routine. This year, there are too many variables to look at it from that routine perspective. Even individuals, who typically might feel they are not in as much control, because their situation is driven perhaps just by the w-2 — a lot has changed. For individuals in particular, they have to be wary that they may have employment through the federal additional unemployment payments of $600 for week. We talked about this on our show that that’s taxable. Many people did not have taxes withheld during the course of going through collecting the payment, in addition to what they were getting from the state. You could add a significant amount of taxable income if no tax was paid. It’s good to have a hands-on approach to that now so you are aware. That’s one big potential problem. I’m fearful we are going to see people who didn’t take that into account.
Rob: A lot of times, it’s not that easy to do the withholding or pay estimates or whatever it may have been. Someone may have needed the money badly and said, I will worry about taxes later.
Greg: I’m sure that’s how many people felt, understandably.
Rob: What other stuff on the individual side should they be aware of this year?
Greg: In many cases, we can look to 2019 as an indicator of what might happen in 2020, but that may not be true. Last year, 2019, kids may have gotten tuition credit. That might’ve helped get them over the tax from — tax hump. This year, they may not have paid any tuition. That could be up to $2500 per student for that credit. There mortgaged — their mortgag e interested action might be less — interest deduction might be less.
Rob: What’s the best thing for someone to do? I think what you’re saying is about it rig maybe you could pay a little bit early, but make sure you are prepared to pay that tax bill.
That’s what the real anxiety is. What’s going to be different. You’re going to get some credits that are no longer there. You’re going to have income you didn’t pay taxes on yet. That’s going to drive up how much you owe in taxes. You will not have the money possibly when april 15 comes next year.
Greg: Some people might think they are still getting a refund. Not only will you not — may you not get a refund, you may osa money — owe some money. There may not be anything you can do, the economic situation being what it is, but being prepared for it mentally, if not fiscally, is very helpful.
Rob: I would like to go back to the business owner a little bit. I’m going to ask a few questions around the PPP loan and some other credits COVID has created. The famous PPP loan, famous because everyone was talking about it when it went out there, now there’s that forgiveness process. Are they done giving money out? How is the forgiveness process currently working?
Greg: As soon as they are done giving money out, congress has been lax coming up with a bulus deal. They talk about trillions of dollars like it’s nothing. I don’t know what’s going to happen whether we will see any more money in 2020. The forgiveness process that started in august, many banks still are not prepared. The rules haven’t been finalized. They are basically waiting to make sure they know what the rules are before they start accepting or processing forgiveness applications. Many banks are now allowing you to submit the information, so you can begin the process. Fortunately, it’s not that time sensitive. You have up to 10 months after your covered period ends. Most people can wait until after December, which might not be a bad idea because a lot of the rules haven’t been finalized.
Rob: Someone might be nervous. It hasn’t been pushed out there, the forgiveness process. That being said, if it does get forgiven, is it going to be taxable or not?
Greg: This is a really complicating tax planning for business owners and even self-employed people who may have gotten a PPP loan. As it stands right now, the IRS concluded a couple months ago that the expenses covered by PPP loan money are not deductible, which, in effect, renders the PPP loan taxable, which is in direct contradiction to what congress intended. I personally don’t agree with the IRS inclusion. I don’t want to get into the details as to why. I think there was an alternative view that they didn’t take. You can imagine having to pay tax — the average loan was around $150,000, for example. Paying tax on $150,000 in income that you don’t actually have. You had to pay it out to your employees, to cover your rent and utilities, it — and utilities, etc. Now you have to pay tax on that depending on your bracket. You don’t have the money. I am very optimistic and I’ve heard from others that there’s a good chance congress will eventually get to work and fix this, but as of right now, we have a two-tier plan structure going with people. Worst-case scenario, best case scenario, just so they are aware of what could happen in the event congress doesn’t fix it and people are not willing to buck the IRS’s conclusion, regardless of whether it’s correct or not. It’s a whole complicated problem.
Rob: I guess we will wait and see on that one. Covid-19 has produced. Just to make our business owners aware of those, I think one is the employee retention credit — can you tell us how that works and how you determine if you qualify and how you claim it?
Greg: We haven’t had anyone that I know of actually use this credit, but it was intended to provide a credit to employers who kept on the payroll even if — as long as their revenue was 50% lower than it was in 2019, the government would give them edit up to $10,000 per employee. It was a sizable credit. Your business had to be somewhat decimated by COVID to qualify. Many businesses in that situation couldn’t have survived a 50% reduction in revenue, even if they wanted to keep the people. Some — there may have been one to two people you would keep. If you got the PPP loan, you couldn’t use this credit. The PPP loan is the focus for most small businesses and large businesses. I didn’t see a lot of use of this credit.
Rob: Which one have you seen a lot of use and, what’s out there?
Greg: The paid sick leave credit. When it came out, I thought it we didn’t anticipate that this was going to go on for months and months. From personal experience, we’ve had three employees who could not come to work because they had a symptom or were exposed to someone with COVID, had to take time out of work to get tested, wait for their negative test results before they come back to work. This credit provides up to $500 per day, up to a $5,000 maximum credit for employers who pay their employees while they are waiting, in effect, for their hopefully negative COVID results. It’s a great credit. I feel like it’s overlooked. It’s easily processed through payroll systems. Paychex, ADP. You get an immediate credit. Not only is it a credit, it’s immediate. Whatever you owe for payroll that week is lowered by the amount of credit you are entitled to based on the employee. It’s limited to 80 hours.
Rob: 80 hours per employee.
Greg: It seemed like a lot at the time. It’s so easy to be exposed and potentially have to go for testing. That credit is basically watered down a bit if your reason for coming to work is a family member has a COVID problem. A child needs to be tested or can’t go to school. $2000 in aggregate. It’s certainly better than no credit. The credit is very useful. I’m afraid that it’s not being considered often. Include season, we will have people who have to — who don’t know and will find out. There will be people taking time out of work for testing, to make sure it is safe for them to come back to work. I think it’s going to become more utilized in the winter flu season.
Rob: I want to ask one more question.
We have small business owners out there. They are looking at this and thinking, my payroll company didn’t do that. My tax guy, I’m not sure, is aware of that. Should they start making appointments and try to preplan or figure out some of these credits?
Greg: I definitely think so. IRS.gov and the taxpayer advocate are two websites you can go to that have great information, presented in layman’s terms with excellent examples. The tax saver advocate has a tool so you can pre-conclude whether you are eligible for a credit. Most services, you have to tell them you have a COVID person. It’s not their responsibility. You have to be very proactive this year to see what things are. Not only because of the tax planning, because you need to preserve cash, you need to be ready for what might come next as we get into the winter months, so to speak.
Rob: That’s a great point. We want to thank you again. You give us great information. We look forward to seeing you soon.
Greg: Likewise. Thank you.
Rob: When we come back, we are going to talk about budgeting and how it can lessen our anxiety.
Rob: Welcome back. Budgeting — it’s cumbersome, but once we get there, it opens up the world to getting clarification, to hitting our financial goals. A couple statistics that really opened up for me. How do we do a budget?
Number one, we identify our income. There are two pieces look at — to look at. Make sure you have w-2, 1099, don’t forget investment income.
Number two, list out or categorize your expenses. Fixed expenses and variable expenses whateve same dollar amount and happens every single month. The variable expenses go up and down. Those may be such things as grocery bill, electric bill. They are needed, but they vary.
Number three, add a pay yourself line, which is an emergency fund, debt repayment, major purchases. Make sure you’re allocating money every paycheck toward that.
Number four, discretionary expenses, eating out, gifts, hobbies, things you could do without. Once you bring that altogether, if your income is greater than your expenses, you are going to now have your budget. If it’s less than, you need to go back and change it around. If this is too difficult, what you might want to look at is the 50/20/30 rule. This is a way in which we can look at a budgeting rule in which 50% of your money goes to those fixed expenses, groceries, housing, utilities, house — health care, car payments. 30% goes to your wants, shopping, not food, clothing, dining out, hobbies. 20% is savings. If you are in a lot of debt, that could be savings/debt.
Think of that 50/30/20 as a general guideline. There are a couple things I look at. You want to keep things as simple as possible. I found some great apps that are helpful for different people. Let’s take a look here.
Number one, mint.com, probably one of the oldest apps out there. It does account aggregation, tracks your bills, does free credit reports. It’s also an investment tracker. I believe it’s always free. That’s a good want to look at. Number two is personal capital. It’s for advanced users. This tracks cash flow. It gives you nice charts. If you like those charts, this may be a good one. The big thing, it does a deep dive into investments, making sure you don’t have too much heavy expenses inside your investments and you have the right allocation. Personal capital also gives you an advisor option. YNAB, you need a budget. It takes every dollar you have and assigns it to an expense. It’s probably the most educational one. It’s free for a month and then it’s $84 a year. Albert, which is a new one. Budgeting and investments together, but you can add on. You have a bill negotiator, so , if you are paying too much for your electricity, you could have this negotiated down. You can text an expert. That’s $4 a month. The last one is good budget. If you are a member of the old envelope method, a good budget is a good way in which to have that within an app. I challenge you with — you can jump right in and do this. If you track your expenses for four weeks, you will uncover so many new things you didn’t know where there, it will help you out, think — decrease her goals.
Rob: Welcome back. We have a viewer question. Now that she’s going to liquidate her account, what’s the best way to do this? Make sure there are no capital gains. Any liquidation you do, if you leave some in cash, make sure you have the right allocation still remaining with the balance. Thanks for joining us this week.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. While our best intentions are to provide accurate and timely information, you should always consult with retirement, tax, and legal professionals prior to taking any action.