Shownotes
This episode focuses on practical financial strategies for preparing for the end of the year and setting yourself up for success in the coming year.
Travis and Steve discuss the importance of revisiting your budget, emphasizing that it should be a flexible tool rather than a rigid constraint.
They introduce the concept of an income-sourcing plan for those approaching retirement, highlighting how to draw from various accounts to optimize tax efficiency effectively.
Additionally, they reveal the hidden benefit of receiving extra paychecks throughout the year, which can be leveraged for debt reduction or savings.
The conversation is packed with actionable insights aimed at helping listeners take control of their financial futures, making it a valuable resource for anyone looking to improve their financial well-being.
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Thanks to our sponsor, S.E.E.D. Planning Group! S.E.E.D. is a fee-only financial planning firm with a fiduciary obligation to put your best interest first. Schedule your free discovery meeting at www.seedpg.com
You can watch all episodes, as well as other great content produced by NQR Media through their YouTube channel at https://youtube.com/@NQRMedia
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About Your Co-Hosts:
Travis Maus has been in financial services for over fifteen years. He is a Senior Wealth Manager and Chief Executive Officer at S.E.E.D. Planning Group. Travis also hosts the Unleashing Leadership Podcast, where he dissects some of his favorite books on leadership and how you can apply it to your business or life.
Steve Campbell has over a decade of industry experience and is the Chief Brand Officer at S.E.E.D. Planning Group. Steve also hosts the One Big Thing Podcast, an interview-style show meant to inspire and encourage 30 and 40-year-olds going through difficult seasons of navigating marriage, raising kids, and growing personally.
Transcripts
Welcome to Ditch the Suits podcast where we share insights nobody in the financial services industry wants you to know about.
Steve Campbell:We're here to help you get the most from your money in life.
Steve Campbell:So buckle up and welcome to Ditch the Suits.
Steve Campbell:Well, welcome to Ditch the Suits.
Steve Campbell:Steve Campbell here with Travis Moss.
Steve Campbell:If you are new to Ditch the Suits, I serve as the chief brand officer at Seed Planning Group.
Steve Campbell:Travis serves as our chief Executive officer.
Steve Campbell:Seed is a fee only financial planning firm and we have a fiduciary obligation to the clients we work with.
Steve Campbell:And this show is all about us bringing our professional and collective experiences of things we talk about every day with people just like you so that you're here so you can get the most from your money in life.
Steve Campbell:And today we're going to be kicking off a brand new series.
Steve Campbell:So if you're new to Ditch the Suits, Travis is going to tee us up what the series is about so that we can jump right into it and give you an expectation of what you're going to hear about today.
Steve Campbell:So, Travis, why don't you give us what, what we're going to be talking about over the next few episodes.
Travis Moss:Trying to get it right with our finances and when we're at the end of the year and we're trying to think about what we did well this year and we're trying to think about where we're going next year, maybe I think it's a little bit easy to dwell on some of the stuff that maybe you didn't get done.
Travis Moss:It's like you open your eyes and all of a sudden it's the end of the year and you think, where did the time go?
Travis Moss:And oh my gosh, I didn't get those things done and I need to do all these things.
Travis Moss:And it's really just, it's just so easy to get overwhelmed.
Travis Moss:But rather than like getting frozen in either regret or indecision, we wanted to help people with some things that can maybe keep them moving forward.
Travis Moss:So we've got 11 things on our list to talk about.
Travis Moss:So 11 best practices or ideas or strategies, however you want to term.
Travis Moss:I think we're going to term them as best practices today, but we've got 11 things that we think can help people as they're wrapping up the year and getting ready for next year to take a step forward.
Travis Moss:One of the things we always talk about a seed is that, you know, it's not about being perfect all the time.
Travis Moss:It's just about keeping that ball rolling forward so you don't have to be Perfect at this.
Travis Moss:You don't have to do all 11 of these things, but if you can do one or two of these things, maybe you weren't doing them before, you are going to get incrementally better, and that's going to have a compounding effect.
Travis Moss:So every year, if you could pick one or two of these things and get a little bit better at them, it is going to make a big, big difference.
Travis Moss:So we're going to cover three of them today.
Travis Moss:We've got three episodes.
Travis Moss:We're going to split it up into three pieces, three, four, and four.
Travis Moss:And the first three, we're going to kind of start out with what experts say you should be doing, which is looking at your budget every year and maybe revisiting that and making some changes.
Travis Moss:But I think it's always interesting because I've worked with people of all different ages and Steve, you've had people call in at all different ages.
Travis Moss:And I think one of the interesting things about budgets is what does budget actually mean?
Steve Campbell:Yep.
Travis Moss:And how do you effectively kind of assess your budget and adjust your budget so that it's not like a weight loss plan in January or, you know, your commitment to go to the gym and then you're paying for a membership like I do, but you don't actually go.
Travis Moss:It's like, how do you actually.
Travis Moss:What does it mean?
Travis Moss:And how do you actually do it?
Steve Campbell:Yeah.
Travis Moss:So we're going to talk about simple methodology on how to make real and immediate changes and to maybe just look at something that everybody says you should do, but so few people actually do it.
Travis Moss:And then it's a little bit in the eye of the beholder, like, how's it actually work for you?
Travis Moss:And then those who are retiring, we're going to talk about how to set up an income sourcing plan.
Travis Moss:So a lot of people that we talk to who are in retirement or getting ready retirement, especially the first time they're calling us up, they may say something like, I don't know what accounts to take money out of, or I always take all my money out of this account.
Travis Moss:I like to tell a story about somebody who had an ira, a Roth, and after tax money, and they were convinced that they should pay off their mortgage with their Roth money.
Travis Moss:And it's like, why?
Travis Moss:And it's.
Travis Moss:And it comes down to personal biases and things that maybe you were preconceived years ago and you just kind of.
Travis Moss:It's a motivating factor, so you hold on to it.
Travis Moss:But then when it comes to the Real life, like, okay, now we got to put the plan in action.
Travis Moss:It doesn't make any sense anymore.
Travis Moss:And so we'll talk about income sourcing plan and how you can actually use one effectively.
Travis Moss:And then if you're not sure what that is, we will definitely walk you through.
Travis Moss:So just keep listening.
Travis Moss:And then if, let's say you're not sure that you need one, or if you're like, yeah, you know, I've got it all figured out.
Travis Moss:You know, I just kind of look at my accounts, whichever one's doing the best to take the money out.
Travis Moss:Well, you definitely need a plan, and that's definitely not the right way to do it.
Travis Moss:So we'll talk a lot more about that.
Travis Moss:And then for those who are still working.
Travis Moss:So that part's kind of for the retiree, but those that are working.
Travis Moss:Did you know if you get paid every two weeks, every year you get two extra paychecks?
Travis Moss:Believe it or not, a lot of people don't realize that.
Travis Moss:So if you get paid every Wednesday, that means you get paid every two weeks.
Travis Moss:There's two months out of the course of the year where you get an extra paycheck.
Travis Moss:I did not know this till this year that about every 11 years, the way that the math works out with calendar is that you actually get three months of extra paychecks.
Travis Moss:So you're going to get an extra paycheck, potentially, depending on how your payroll is, three times this year instead of just twice.
Travis Moss:So we're going to talk about that and actually what you could do with that.
Travis Moss:So all of a sudden you get this little windfall, and we're going to talk a lot about building versus spending and, you know, maybe how you can kind of achieve both at one time.
Travis Moss:I guess if you really want to think about, um, if you can build a better foundation, it's going to free you up to spend more.
Travis Moss:So we're going to talk about that dichotomy today.
Steve Campbell:Yeah, and I'm, I'm, I'm excited for this episode because this show is about your money in your life.
Steve Campbell: And: Steve Campbell:It's been a.
Steve Campbell:It's been a lot this year, going through an election, everything on the news, and you've been trying to digest all of that.
Steve Campbell:This is going to be kind of a nice, like, reset, and let's get back to what we actually can control.
Steve Campbell:And so you've maybe been riding an emotional roller coaster all year, but I was really excited when you kind of shared these notes and we talked through it because again, 11 practical things that you can actually go do.
Steve Campbell:So many podcasts and money shows give you these big ideas, but people don't know how do I do it?
Steve Campbell:So some of these might seem so elementary at its core, but again, because we get call ins all the time, these are the things that people just don't really understand how to make it work for them.
Steve Campbell:And so I think it's going to be a great conversation and I think it's, I think it kind of.
Steve Campbell:Travis leads right into the first one.
Steve Campbell:You say that word budget, and I think we sometimes assume budgets for people just getting started out, but to really kind of break down when we say budget, the importance of it and what it means.
Steve Campbell:So, so when you say budget, what are the things we want to consider?
Steve Campbell:Hey guys, Steve Campbell with Digital Suits.
Steve Campbell:Want to take one quick moment to make a big ask.
Steve Campbell:If you haven't already, Travis and I would love for you to subscribe to this podcast.
Steve Campbell:But if you haven't, also, we would love for you to leave a five star rating and review.
Steve Campbell:Your rating and review will let other podcasters know the show is worth their time.
Steve Campbell:So let's get right back to the episode and thanks for listening to Ditch.
Travis Moss:The Suits podcast and this right to your point.
Travis Moss:Sometimes simple is better for 99% of the people out there.
Travis Moss:You don't need sophisticated or sexy budget talk.
Travis Moss:You need simple budget talk.
Travis Moss:You need a way that it doesn't become a heavy lift so that you can get at it, you can work at it, you can see improvement on it, but it's not so much work that you need spreadsheets and all kinds of other stuff going on.
Travis Moss:And I think that there's three types of budgets.
Travis Moss:I think that there's a detailed budget and that's most of the time our engineers have those.
Travis Moss:They come in with spreadsheets and every single nickel they've got an idea of where it's going, where it's coming from, what they're doing with it.
Travis Moss:And that's good if that's your personality type, but that's the personality of maybe 25% of the people out there.
Travis Moss:So then there's a 75% of the people who look at a spreadsheet and start to yawn and fall asleep and they start to struggle with that.
Travis Moss:Then there's also there's benefits and there's drawbacks.
Travis Moss:A detailed budget, obviously you could be more accountable because you know where Red dollar is drawback to that is it can create a type of rigidity.
Travis Moss:And we're going to talk about how life changes.
Travis Moss:And you've got to be a little bit fluid when you're talking about budgeting.
Travis Moss:Then you have the vague budget.
Travis Moss:And I actually prefer the vague budget.
Travis Moss:And the vague budget is here's broad categories of spending.
Travis Moss:And I, I kind of need to focus on these broad categories, but I don't need to define every dollar within the category.
Travis Moss:I think sometimes people are so strict on defining every, every detail that, you know, life just kind of passes them by and they have to miss it because the number is going to be out of order.
Travis Moss:And it's like, don't let the numbers run your life.
Travis Moss:Yes, you need to be disciplined, but you need to control the budget, not the budget controls you.
Travis Moss:And then there's pretend budgets.
Travis Moss:And these are for the people who say they have a budget, but they never, they always blow by their budget.
Travis Moss:Just never.
Travis Moss:You know, and I've worked with people like this too.
Travis Moss:I think that there's two types of people and we were having a fun conversation today with somebody about this.
Travis Moss:There are savers and there are spenders.
Travis Moss:Savers are almost always going to kind of go more towards the detailed side or they'll be in the vague area, but they just, they are over conservative with their spending.
Travis Moss:And then you have spenders and they're normally in the vague to the pretend side.
Travis Moss:They think they have a budget, but they're just, it's like lip service.
Travis Moss:They know they're supposed to, but, you know, hey, these were just great deals or I had to do this right now or this came up and I just have to, you know, somebody had to buy that for the kids.
Travis Moss:So I did it.
Travis Moss:And the happy medium is someplace in the middle.
Travis Moss:And that's kind of why I said the vague area, which is I want enough detail so that I can understand what I'm doing, but I don't want so much detail that, you know, I'm like, again, it's like being constricted.
Travis Moss:I don't want to be constricted by my budget.
Travis Moss:Yeah.
Steve Campbell:And I think in our experience of working with people, as long as we have, it's very rare that you meet two people that are both savers or two people that are both spiders.
Steve Campbell:It's usually two people that look at money differently or how to do it.
Steve Campbell:And so getting people on the same page, I know, you know, one of the big questions when people call in and they speak with me is just, are we doing the right things and are we okay?
Steve Campbell:And I think when it comes to a budget, maybe the question that people have is it seems like we're making good salaries, but where is all of our money going?
Steve Campbell:It seems like maybe we don't.
Steve Campbell:We're not always in position to use the money the way that we want to.
Steve Campbell:And so I think this conversation.
Steve Campbell:And you're going to kind of get into this a little bit about knowing if you have a healthy budget or things to look at.
Steve Campbell:So again, looking at, you know, budgets and pointing back to it, bringing awareness to it, what are some areas is along these three lines that would be good for people to think about?
Travis Moss:Yeah, and so it sounds like I kind of said it.
Travis Moss:You know, you don't need to be worried about the details, so just go out and do what you want.
Travis Moss:That's not really what I'm saying.
Travis Moss:You know, the whole point of the budget is to be able to revisit or bring awareness to where your money's going.
Travis Moss:So I think that that addresses what you're talking about or where you might be spending it in the future.
Travis Moss:Budgets, a lot of times are based in the past.
Travis Moss:Well, this is what we spent last year.
Travis Moss:Yeah, but is that what you're going to spend next year?
Travis Moss:You know, when you look forward, does forward look exactly like what it looked like going backwards?
Travis Moss:And that gets us to that whole effectiveness component of it.
Travis Moss:And, you know, you're.
Travis Moss:You're going to have life changes throughout the year.
Travis Moss:You're going to have situations where you have to be flexible and you, you have to not just beat the heck out of yourself.
Travis Moss:You know, if something happens.
Travis Moss:Let's say you have a bunch of pets.
Travis Moss:I have a bunch of pets, and one of my dogs gets sick, and I have to take them to, you know, a specialty hospital and have surgery, and it costs $4,000.
Travis Moss:There's things like that that are just budget busters.
Travis Moss:You're just gonna have to deal with them.
Travis Moss:Or let's say it was one of your kids or your spouse or somebody got sick and you had to do that or you had a roof leak or something.
Travis Moss:Does that mean that you failed financially?
Travis Moss:No.
Travis Moss:Does that mean that your budget was wrong?
Travis Moss:No, it just means that life has happened and you need to look at that and kind of say, okay, how do I account for this and how do I adjust going forward now?
Travis Moss:So budget's got a lot of give and take.
Travis Moss:It's a little bit elastic.
Travis Moss:It's, you know, this is what's happening in life now.
Travis Moss:At the same time, though, you have to be disciplined.
Travis Moss:You can't like every little thing.
Travis Moss:Well, I had a chance to go to Starbucks with my best friend today, so I went to Starbucks even though I can't pay off my credit card.
Travis Moss:Like, you know, there's got to be some discipline there.
Travis Moss:But for those that are, that have the discipline, don't be so over disciplined that you don't let life happen.
Travis Moss:And then, you know, that just stresses you out.
Travis Moss: t's like, oh, I didn't budget: Travis Moss:Oh my gosh, look at, you know, I've really screwed this up.
Travis Moss:You haven't.
Travis Moss:You have to kind of look at this more as a fluid situation.
Travis Moss:And you really, you know, you have to look at it one of the reason, part of the reason why I like the vague part because you start with just simply looking at.
Travis Moss:At the end of every month, are you plus or minus?
Travis Moss:And that's really easy.
Travis Moss:If you normally have, let's say at the end of every month, you normally have $2,000 in your checking account and you finish a month and you have $2,500, you're positive.
Travis Moss:If you finish the month and you have 1,500, you're negative.
Travis Moss:If you run all your bills through a credit card, you pay everything on credit card, and at the end of the month you pay off the credit card with whatever cash you have.
Travis Moss:Right.
Travis Moss:That's an even better way because every month you got to pay the credit card off to zero.
Travis Moss:So if you get to the end of the month and you look at it go, holy cow, we owe $7,000 on our credit card and we were figuring we'd owe 5, that means you overspent by 2, you know, or if you get to the end of month and you owe four, that means you underspent by one.
Travis Moss:That's not the end of the conversation.
Travis Moss:Is the next reason why is, well, why did that happen?
Travis Moss:Did something not happen?
Travis Moss:If you underspent, was it an expense you didn't pay that you normally would pay or that you expected to pay?
Travis Moss:If you're overspending, is that, was there a one off thing?
Travis Moss:Did that furnace break or something like that?
Travis Moss:Was there an emergency?
Travis Moss:If there's an emergency every month and every month you're spending an extra thousand dollars, it's not an emergency.
Travis Moss:That's, that's your operational expenses of your household, right?
Travis Moss:See, that's where you have to be flexible with this.
Travis Moss:People will come in and say, here's my budget I look at it and go, that's not possible.
Travis Moss:And they're like, what do you mean?
Travis Moss:I'm like, I know that you don't eat for $150 a month.
Travis Moss:I know it costs you more than $150 a month to eat.
Travis Moss:And I know that you don't never go out to dinner and you don't never do anything, you know, for yourself.
Travis Moss:I know you do something right.
Travis Moss:Or if you don't, you should so, you know, stop blocking it.
Travis Moss:Or you have nothing in here for maintenance in the house.
Travis Moss:Well, we just did the roof and we did the furnace.
Travis Moss:Yeah, okay.
Travis Moss:Start saving for the next roof because you know something's going to happen, whether it's the roof, the foundation, you know, a rock goes through a window, something's going to happen, and you're going to have maintenance on that house year in and year out.
Travis Moss:People who pay cash for their car, I don't have a car payment.
Travis Moss:Right, but you pay cash for a car.
Travis Moss:So guess what?
Travis Moss:You need to save for your next car so that you have cash to buy the next car.
Travis Moss:So there's things like that that you kind of plus or minus into that budget that kind of go around what you're doing.
Travis Moss:But it all comes back down to, you know, I'm plus 500 for the month.
Travis Moss:I know I'm supposed to save $500 a month for my next car.
Travis Moss:So I'm actually right on target.
Travis Moss:I'm right where I'm supposed to be, right?
Travis Moss:Or I roll to the end of the month.
Travis Moss:Every month, my checking account goes, you know, I take that 500, I put it in my investment account from my future car, but yet my checking account keeps going up by $1,500.
Travis Moss:Okay, you're running out of surplus.
Travis Moss:You can figure out what to do with that $1,500.
Travis Moss:And then that gets you to, okay, well, what do you do with that $1,500?
Travis Moss:And the answer there is, do you want to build or do you want to spend?
Travis Moss:Build means you look at the foundation and you say, look, I'm going to make it so that I have more money in the future.
Travis Moss:I'm going to work on accumulating assets.
Travis Moss:That's investing in real estate and those types of things, right?
Travis Moss:Or I might pay off high interest debt, that type of stuff.
Travis Moss:Spend means, oh, look at all this extra money.
Travis Moss:Let's, you know, go on more vacations.
Travis Moss:Or let's go and let's.
Travis Moss:Let's spend this money in some way that doesn't create any kind of foundational value.
Travis Moss:Which experiences are important.
Travis Moss:If you've deprived yourself in your budget from good experiences that some of that money does need to get a good experiences, you need to have those in your life.
Travis Moss:Because if, if you get to in your 60s or 70s or 80s and you've never had good, you know, you for went all those experience so that you would have the money.
Travis Moss:You will have the money, but you will be alone and bored.
Travis Moss:You have to live a bit while you go along too.
Travis Moss:But if you're already having a good time and doing the family vacations, all that kind of stuff, and you have some extra, then you ought to really probably be looking at building.
Steve Campbell:When I think too with Travis, with budgets, it's also really good for people to remember because again, you talk with people from all over the country that call in your life in.
Steve Campbell:The people in your life are unique to your situation.
Steve Campbell:What budget is right for you, Travis might be very different for me depending upon who's dependent upon you.
Steve Campbell:Feeding a family of six versus a family of three is very different.
Steve Campbell:And so I think adopting and adapting that budget throughout things like inflation and cost of goods, don't let a budget be restrictive.
Steve Campbell:Like we can't do all these things as much as creating maybe guardrails that can help.
Steve Campbell:You know, are we building or you know, are we spending having that?
Steve Campbell:So many people call in and say, should we do this or should we do that?
Steve Campbell:Well, we can't possibly tell you what to do if we don't first understand every single month how much do you have that will help you build a baseline for achieving those goals.
Travis Moss:Well, and if you're struggling with the budget, there's two things I think that you can work on.
Travis Moss:And I.
Travis Moss:And I.
Travis Moss:This works for just about anybody.
Travis Moss:Very rarely do we find people who are interested in financial planning who don't have some room to change the things that they're doing.
Travis Moss:Sure, sometimes you do.
Travis Moss:Sometimes you get the person on the fixed income that just they're out of time, they can't work anymore and they don't have enough.
Travis Moss:But most people have some flexibility.
Travis Moss:And the first thing that you do is you look at installing discipline around your wants.
Travis Moss:Because what throws most people's budget off is they don't have any control over the wants.
Travis Moss:They do a want every single day.
Travis Moss:I want to go out to lunch, I want to get coffee, I want to go out to dinner, I want to buy extra shoes.
Travis Moss:I want to do this, I want to do that, I want a Bigger car, nicer car.
Travis Moss:You know, it's.
Travis Moss:And there's no pacing on the wants.
Travis Moss:And we see this a lot of times actually with early retirees that they're like, all of a sudden they have access to their money and they're like, well, I'm sending a home.
Travis Moss:I have nothing to do.
Travis Moss:Might as well spend that 401k because I want a new kitchen or I want a new bathroom.
Travis Moss:It's like, whoa, whoa, whoa, whoa.
Travis Moss:Pace yourself.
Travis Moss:The same thing you would have done if you were working.
Travis Moss:Pace yourself a little bit here.
Travis Moss:So the first thing is put some discipline around those wants.
Travis Moss:Are you rewarding yourself a little bit too often?
Travis Moss:Are you spoiling yourself?
Travis Moss:Like, if you were your kid, would you be like, yeah, that's, you know, like, we just gave you ice cream.
Travis Moss:You don't need another ice cream, you know?
Travis Moss:And then if you get that under control, then you need to look at your needs.
Travis Moss:So let's say that you've taken care of all your wants and you're like, look, you know, it's a nice balance.
Travis Moss:I feel pretty good about it.
Travis Moss:Once a week I do something fun for myself, like go out to dinner or something.
Travis Moss:Okay, the next one is, have you become lazy with your needs?
Travis Moss:And I say lazy with your needs because people will say, I need my cable.
Travis Moss:You don't need to spend $180 on cable.
Travis Moss:You want to spend $180 on cable.
Travis Moss:You can look at other ways to watch TV.
Travis Moss:Probably give you even more options for less than $180 a month.
Travis Moss:So you don't.
Travis Moss:Even though, yes, you need your at home entertainment or whatever.
Travis Moss:And that's porter or car payment.
Travis Moss:I need to have my car payment.
Travis Moss:Right, but you don't need a $800 payment.
Travis Moss:You could get a lesser vehicle and have a 600 payment.
Travis Moss:Right.
Travis Moss:That's not the only vehicle that you could buy.
Travis Moss:It's the only vehicle that you want to buy.
Travis Moss:So we get, we get lazy with the need term a lot of times.
Travis Moss:And if you're struggling with your budget, look at it.
Travis Moss:If you're being lazy.
Travis Moss:When was the last time you shopped your insurances?
Travis Moss:You know, if you have homeowners insurance, a car insurance, and you're like, yeah, you know, I need to pay my insurance.
Travis Moss:That's right.
Travis Moss:But have you checked to see if you could get that cheaper?
Travis Moss:Any place in the last two or three years, right?
Travis Moss:So if you're struggling with your budget, maybe you could save a hundred dollars a month by shopping your insurance well, again, people get lazy.
Travis Moss:Well, you know, it's my buddy who's the insurance agent and stuff.
Travis Moss:Okay, you're just getting lazy with it to your buddy who's the insurance agent.
Travis Moss:Business is business, right?
Travis Moss:You're making business and friendship.
Travis Moss:You're co mingling them and you're being lazy with the fact that you need to have insurance, but you also need to have a affordable insurance that lets you still live the rest of your life.
Steve Campbell:Let's take a break to hear a word from our sponsor.
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Steve Campbell:In this thought provoking podcast, Travis shares his invaluable insights and experiences gained from two decades of managing diverse businesses, which includes small family enterprises, Fortune 500 companies, and his own successful startups.
Steve Campbell:Through candid storytelling in real life examples, he unveils the profound truth that success or failure ultimately rests upon a leader's ability to recognize and unleash the potential in others.
Steve Campbell:Start listening to the Unleashing Leadership podcast today, available on all major podcast platforms.
Steve Campbell:Yeah, and I think how many just people, because of life demands, kind of live their life on automatic.
Steve Campbell:They automatically pay their bills online.
Steve Campbell:And when you do that, you stop asking questions or shopping around for all kinds of things, which is really where savings can come.
Steve Campbell:So you've laid the groundwork for the importance of a budget.
Steve Campbell:Right.
Steve Campbell:You got three ways you can look at it.
Steve Campbell:I think the idea is have a sense of what's going on with your money so that you know what you have every month.
Steve Campbell:And I think that segues really into practical point number two, which is when people are in retirement or approaching retirement now, when they're no longer receiving a paycheck, they're trying to figure out how do I get money when I'm in retirement, when my prior employer is no longer sending me a check in the mail.
Steve Campbell:And this is what we would call income return retirement sourcing.
Steve Campbell:So, Travis, talk to us about this second area in really the importance of understanding income sourcing.
Travis Moss:Yes.
Travis Moss:So income sourcing plan, we promised we'd explain it first and foremost and then kind of, you know, if you need this and everything.
Travis Moss:So what income sourcing is, is you're retired, you're not going to have a paycheck anymore.
Travis Moss:Maybe you'll have a pension, maybe a Social Security, but you still need additional money.
Travis Moss:So you go, okay, I'm going to take some money out of some place.
Travis Moss:Or let's say you Retire and you have an option to take your pension and you also have an option to defer your pension.
Travis Moss:Pension and you go, but if I defer my pension, how would I possibly live?
Travis Moss:Yet you've got a 401k with a million dollars in it.
Travis Moss:So income sourcing is okay, I need $5,000 a month or $10,000 a month or whatever your number is.
Travis Moss:Where does it come from?
Travis Moss:That's, that's a fancy term for how do I pay myself.
Travis Moss:And the reason why you need a plan is look at it like this.
Travis Moss:Let's, let's pretend that you could take your pension and you could get $50,000 a year from your pension.
Travis Moss:But let's pretend that you have, let's say a quarter of million dollars in cash and you have an option when your pension, take the cash value, which is pretty equivalent to the dollar amount, maybe it's $1 million pension, and you could take that and roll over like your 401k could.
Travis Moss:And you're 55 years old.
Travis Moss:Let's just, I'm just making stuff up now just to give us a time period.
Travis Moss:You want the $50,000, a pension will give you the $50,000.
Travis Moss:You also have cash.
Travis Moss:You could, instead of taking the pension, you could live off of 50 grand in cash.
Travis Moss:No income tax is due on that.
Travis Moss:I mean, you'd pay income taxes on any dividends or interest if you're in those tax brackets.
Travis Moss:But the 50 grand, probably no, you know, if it's in cash, there's no tax on that.
Travis Moss:You take the pension you rolled over to an Iraq and well, that's wonderful.
Travis Moss:That'll be your future pension.
Travis Moss:Right?
Travis Moss:You could use it in the future and you could say, well, I could have also deferred the pension.
Travis Moss:But there's one more other thing you could do instead of taking the $50,000 and spending the $50,000 every year, which would trigger the income taxes and then you would spend that, which is essentially what you're doing with the money out of the savings.
Travis Moss:You do a Roth conversion on that 50 grand, so you pay the same amount of income taxes you otherwise would have paid.
Travis Moss:The only difference is you take money from a taxable bucket and put it in a tax free bucket forever.
Travis Moss:And you cannot do that with that 250 grand in cash that you have.
Travis Moss:Super powerful strategy that you can do.
Travis Moss:That's an income sourcing plan.
Travis Moss:That's a simple example.
Travis Moss:There's infinite examples that we could do on ways to more effectively use cash.
Travis Moss:I mentioned that I had Somebody who wanted to use their Roth to pay off their mortgage when they retired, they had $350,000 in after tax investments.
Travis Moss:Once you're retired, you can't put money in Roth anymore unless you have earned income.
Travis Moss:So the only way it gets in there is a Roth conversion.
Travis Moss:So why would you, if you have money that you're paying income taxes on and you have a pool of money that you don't pay any income taxes on, why wouldn't you use the pool of money?
Travis Moss:If you can access them both equally, why wouldn't you use the taxable pool of money, reduce that and let that tax free money build up over time?
Travis Moss:Well, we end up with these biases, I think, because that was, oh, this is, this is my account putting money away so that I can pay off my mortgage early.
Travis Moss:Right.
Travis Moss:And, but then when we get to the practical point, it's like, what's the best way to pay off the mortgage?
Travis Moss:Should you pay off the mortgage in that case too?
Travis Moss:If your mortgage, if you were one of those people who were fortunate to get a mortgage a couple of years ago, 20, 20, 20, 21, 20, 22, you have a mortgage, people may never see those rates again for the next 30 years.
Travis Moss:Yeah, you've got a two and a half percent mortgage, a three and a quarter percent mortgage, something like that, why would you be in a hurry to pay that off?
Travis Moss:You could go.
Travis Moss:If you had, let's say you have a half million dollar mortgage and you get a half million dollars in cash to pay off that mortgage, or a half million dollars in your, in your Roth account and you were going to take that out and pay that, you can buy a money market, they're paying like 5% or so right now.
Travis Moss:You can buy a money market that pays you more than the interest you're paying on the mortgage.
Travis Moss:So this is how wealthy people get more wealthy.
Travis Moss:When people pick on and they get frustrated that people are doing well and how did they get so much money?
Travis Moss:It's these little things that they do that, you know, if you saved $5,000 a year since the time you were 20, you'd be a multimillionaire by the time you're in your 60s.
Travis Moss:Assuming that you invest in.
Travis Moss:Yeah, yeah, you know, we could talk about what the investments are, but that's how you get to be a millionaire without ever making a million dollars.
Travis Moss:Well, imagine if you found four or five different ways to do that, just by understanding better ways to use your income, when to use certain types of accounts for certain types of things.
Travis Moss:So sometimes it's convenience, it's accessible, sometimes it's biased.
Travis Moss:Well, that account's doing the worst.
Travis Moss:I'm going to cash it out first.
Travis Moss:Well, that's because it's the most aggressive and we're in a recession.
Travis Moss:You should cash out the CDs, leave the stocks, let them recover type of thing.
Steve Campbell:Well, I think it's those kind of freebies you just gave, I don't know, three minutes ago with that depiction of how you would take a pension and Roth conversion.
Steve Campbell:I mean, that's the stuff that gets me fired up.
Steve Campbell:Because, again, if you've already made decisions that are locked in place, you can't go back and undo them.
Steve Campbell:But if you can get out in front of people that maybe came in thinking that they were going to do one thing, I mean, that's the value of planning.
Steve Campbell:And that's when being in the room with a couple or an individual, in having what you just said happen in real time, which is, hey, I know you came in today and wanted to take your pension because it feels good and it's guaranteed, but if I show you how you could do this, look at what this can do from a tax planning standpoint.
Steve Campbell:And Roth conversions, people go, whoa, like, that's our money.
Steve Campbell:We can do that.
Steve Campbell:It's not like you got an inheritance.
Steve Campbell:You're just rethinking how you did it.
Steve Campbell:That's the stuff that.
Steve Campbell:Again, why I love ditch the suits.
Steve Campbell:We give you a lot of free information because it has the power to set you up in a very meaningful way.
Steve Campbell:So if you kind of missed the last four minutes, reverse this podcast just a little bit.
Steve Campbell:Go back and understand the depth of what Travis just shared with you, because I think it's a very cool financial planning tool that most people aren't aware of.
Travis Moss:And one quick, one more quick example before we move on to our last point, here's another income sourcing plan.
Travis Moss:Let's say that you needed to take out $20,000 out of your retirement account because that's what you need to pay the bills this year.
Travis Moss:And you're right on the threshold between 12 and 22% federal bracket.
Travis Moss:And if you took the 20 grand out, 10,000 would be in the 12%, 22,000 would be.
Travis Moss:Or 10,000 would be in the 22%.
Travis Moss:So about 50.
Travis Moss:50, right.
Travis Moss:So 50% of your money, you're going to pay 22% taxes on, 50%, you're going to pay 12% taxes on instead of paying.
Travis Moss:If you have a Roth instead of.
Travis Moss:And this is where good financial planning and projections come in.
Travis Moss:Because you have to understand where your future tax brackets are likely to lay.
Travis Moss:Right?
Travis Moss:So you've got to do a forward looking projection.
Travis Moss:But assuming you've done the forward looking projection and you go, look, you know, I'm pretty much going to be right around this range actually, or lower in the future or something like that, you might say, look, I'm going to take $10,000 out of my IRA and pay the 12% taxes.
Travis Moss:And instead of paying 22% on the other 10 grand, I'm going to take the other 10 grand out of my Roth or out of that CD in the bank.
Travis Moss:Or let's say that that 10 grand was to pay your income taxes.
Travis Moss:They actually pay the income tax bill that you owe.
Travis Moss:Right.
Travis Moss:Maybe you're paying quarterlies or something.
Travis Moss:You're using that ten grand to pay the quarterlies, kick it into January, get it into the next tax year, maybe you have more room the following year.
Travis Moss:If you have more room the following year, you kick it into that year, you save the 10%.
Travis Moss:You might say, well, maybe I'll get a penalty and some interest charges.
Travis Moss:And it's not going to be 10%, you know what I mean?
Travis Moss:It's not going to be anywhere near the tax savings that you save.
Travis Moss:It'll be, it'll be, you'll have a significant improvement in the overall situation.
Travis Moss:So understanding where your tax brackets are and how each type of account works too is super important.
Travis Moss:Because instead of saying, well, I always take my income out of my ira, you might want to split that up a little bit depending on kind of where you're going to hit tax wise.
Travis Moss:And just because you owe the taxes, understanding how the taxes work, you may not actually have to make that payment, you know, immediately, especially depending on how it came up.
Travis Moss:You know, if it's a Roth conversion at the end of the year, you know, you have, you have some time to make that before your final quarterly is done.
Travis Moss:So income sourcing plan, super important.
Steve Campbell:Yeah.
Steve Campbell:And if anybody is new, to ditch the suits partner.
Steve Campbell:It's hard to believe we're almost coming up on four years of doing this.
Steve Campbell:What you just described is what financial planning really is.
Steve Campbell:And so if somebody has been working with a financial advisor for years and everything is about the investments, what you just laid out as the conversations you should be having with an individual to understand, are there things that we're not taking advantage of that we could or should.
Steve Campbell:That's what actual financial planning is.
Steve Campbell:So I love when you talk about.
Travis Moss:That Stuff, it gets pretend financial planners out there.
Travis Moss:Yeah, I don't think we're allowed to say that, but we're saying there's people who do planning, so called financial.
Steve Campbell:Yeah.
Steve Campbell:Well, hey, this is so fun.
Steve Campbell:We've talked about income sourcing, we've talked about budgeting.
Steve Campbell:And then when I saw this in the show notes, I was like, gosh, I didn't even know is this one's kind of fun.
Steve Campbell:This is the extra paycheck.
Steve Campbell:So you kind of alluded to it at the beginning.
Steve Campbell:Talk to us about this extra paycheck and a little bit extra cash coming in 20.
Travis Moss:Okay, so if you get paid every two weeks, if you're getting paid, you know, every other Monday or every other Wednesday, every other Friday, you're getting paid every other week, which means you always have two extra paychecks in the course of a year.
Travis Moss:Well, this year at least the way our payroll works, we have three.
Travis Moss:Apparently because of the way that the math works, you get every 11 years, if you're a biweekly paycheck person, you get an extra, one extra paycheck.
Travis Moss:So like you would actually get three extra paychecks in that particular year.
Travis Moss:So this is important.
Travis Moss:You know, I try to look out ahead of the next year and figure out where I'm going to be, what things I'm going to pay for, you know, when I'm going to do stuff, that type of stuff.
Travis Moss:And understanding when you get these extra paychecks, they don't just happen.
Travis Moss:It's not, oh, wow, I have an extra $4,000 in my account.
Travis Moss:Back to budgeting, I must have done a great job.
Travis Moss:No, you just got that extra paycheck.
Travis Moss:Okay.
Travis Moss:You know, you're so, so understanding where that's coming from.
Travis Moss:But what you can do with it, I think is important.
Travis Moss:And this goes back to spend or build or maybe a combination of the two, if you're thinking about, okay, let's use this as best as possible to make next year easier for us, make it more fun.
Travis Moss:Wouldn't you rather pay for vacation out of cash than on a credit card?
Travis Moss:Yeah, that would be so much better.
Travis Moss:So the first thing is, do you have credit cards with high balances that extra paycheck comes in?
Travis Moss:Let's say you get an extra $6,000 in your paycheck, or maybe it's $3,000.
Travis Moss:Whatever it is, maybe you get only 2,000.
Travis Moss:Take $500.
Travis Moss: n and special, take the other: Travis Moss:If you were paying 20% interest on $2,000, you just saved yourself $400 for the year if you put two grand down on it.
Travis Moss:High rate mortgage payments.
Travis Moss:And the reason why I say this high rate mortgage, a lot of people say I'm going to make those extra payments on the mortgage.
Travis Moss:If you have a low rate on your mortgage, stop.
Travis Moss:Your money is so much more powerful putting it in an IRA or a Roth than it is paying off a two and a quarter percent mortgage or a two and a half or three percent mortgage.
Travis Moss:Again, that is the difference between people who become insanely wealthy and people who just, just maybe get comfortable.
Steve Campbell:Well, and I was just looking up on here, I might be wrong, but you did a lot more of this research on it, it looks like.
Steve Campbell:So it's not that you're going to get three extra paychecks, boom, boom, boom.
Steve Campbell:But it looks like it's going to hit in spread out months, maybe January, May, August, October.
Steve Campbell:So why I'm saying that and why that's important.
Travis Moss:Well, that would be 4.
Travis Moss:So you're only going to get 3.
Steve Campbell:I know you're only going to get 3.
Steve Campbell:Kind of this little thing that I was reading said it might depend on it.
Steve Campbell:But why I'm saying that is if you can plan ahead, right, then you know that these are going to hit incrementally throughout the year.
Steve Campbell:Making a game plan.
Steve Campbell:So then when it does hit you or your spouse, more Amazon boxes aren't just showing up that week.
Travis Moss:Well, think about how much better you'll feel about stuff, Steve.
Travis Moss:If you got stuff that you want to do for the family or things that you need to pay off or that new washer machine you need to get because, you know, the old ones wearing out, imagine how much less stress you'll have if you'll know when you can do it right.
Travis Moss:I think that that's huge and I think so many people are just willfully, you know, oblivious to how their paychecks work.
Travis Moss:And you know, this is empowering and is empowering for people.
Travis Moss:Savings.
Travis Moss:If you don't have savings.
Steve Campbell:Yep.
Travis Moss:You know what I mean?
Travis Moss:Put at least a big chunk of that paycheck into savings.
Travis Moss:If you're the type of person that whenever you have savings, you spend it.
Travis Moss:I've had to do this with clients before.
Travis Moss:We set up a brokerage account, we put their money in a brokerage account.
Travis Moss:We'll stick it in a money market just like you would do in savings.
Travis Moss:You make, you know, your money, market rate of return, whatever it is, but you have to go through somebody to ask for the money back.
Travis Moss:And normally that slows people spending down, right?
Travis Moss:Because it's like, hey, Travis, can you send me back the money?
Travis Moss:Okay, what's a go?
Travis Moss:What's going on?
Travis Moss:Oh, you know, I'm just not responsible in my spending.
Travis Moss:You normally cut that.
Travis Moss:It's like getting a trainer at the gym.
Travis Moss:You walk into the gym and the trainer goes, how'd you put on £2 last week?
Travis Moss:I don't know.
Travis Moss:He's like, tell me how much pizza you had.
Travis Moss:Yeah, you're right.
Travis Moss:I had two pizzas last week.
Travis Moss:You know, it's like, come on, you can't, you know, so having a trainer or having a coach or somebody that you have to go through to get your money a lot of times will help you change that behavior.
Travis Moss:Fund your retirement account, whether it's a Roth or traditional, but don't just do either one.
Travis Moss:Randomly look at your tax brackets.
Travis Moss:If you're in a high tax bracket, that traditional is probably going to make a lot of sense.
Travis Moss:If you're in a low bracket, that Roth's going to make a lot of sense.
Travis Moss:You get that big tax return at the end of the year.
Travis Moss:You, you know, I know this is outside of the payments, but you know that that's your own money coming back.
Travis Moss:That's money that you overpaid into the system because you didn't properly calculate your withholdings.
Travis Moss:And as much as that's fun, if you're not funding your retirement accounts and you're getting this massive check back, and you're like, well, I can't fund the retirement accounts because I can't afford to during the course of the year.
Travis Moss:That's what that retirement or that's what that tax return is supposed to go to.
Travis Moss:So.
Travis Moss:And you could say, well, you know, that tax return, that's how I plan for my vacations and pay off the credit cards.
Steve Campbell:Fine.
Travis Moss:Then these extra payments that you get, these extra paychecks, put those towards those things.
Travis Moss:And then the last one we have is fund a 529 account.
Travis Moss:Yep.
Travis Moss:And I think we.
Travis Moss:We're going to cover 529 accounts later on in some of these episodes.
Travis Moss:But the earlier you fund a 529 account, the better.
Travis Moss:If you fund a 529 account, the first one or two or three years of a child's life, that is far better than you funding it for, like, you know, from, from the time that they're 10 to the time that they're 18, you'll have way, way you'll be so far ahead, you'll never catch up.
Steve Campbell:Little 529 sneak peek.
Steve Campbell:That's supposed to be in the second one.
Steve Campbell:So see, folks, another freebie from Travis Moss.
Steve Campbell:And hey, two things I would encourage you with.
Steve Campbell:If you're married, if you make decisions with somebody else, if you know that you get paid every other week and you know this is coming, start having the conversation now.
Steve Campbell:Get it out on the table.
Steve Campbell:Hey, do we know this is going to happen?
Steve Campbell:What are we preparing for?
Steve Campbell:But also, I think if you work with a planner, I know we will work with our team to know that this is happening.
Steve Campbell:So if you deal with clients, get it on the agenda for the upcoming meetings and let them know, guys, what are we doing with this?
Steve Campbell:This is the importance of having accountability and working with somebody.
Steve Campbell:So some, some pretty exciting stuff that can seem so elementary, but given.
Steve Campbell:Yeah, go ahead.
Travis Moss:One more real quick because I know that you're trying to wrap up.
Travis Moss:So I didn't mean to interrupt, but if you're working on your budget and you get paid every other week and you don't know that, so you say, look, you know, I, I'm planning for retirement.
Travis Moss:I get $3,000 after tax, every paycheck.
Travis Moss:So it's $6,000 I need to replace when I retire.
Travis Moss:Well, if you're getting paid every other week and you're getting those extra paychecks and you spend that over the course of the year, it's not going into extra savings.
Travis Moss:You need to know that.
Travis Moss:You need to know that you rely on those extra payments.
Travis Moss:So you do need to be aware of this in order to figure out, like, your income sourcing plan or your budget.
Steve Campbell:I just appreciate that we've been apparently podcasting so long together that I must have a closing podcast voice that you're aware of.
Steve Campbell:So the fact that you knew I was bringing it to a close is absolutely true.
Steve Campbell:So, folks, thanks for stopping by.
Steve Campbell:Ditch the suits.
Steve Campbell:We know it's been a heavy lift this year.
Steve Campbell:There's been a lot going on in the world.
Steve Campbell:This whole series is about bringing you 11 practical things you can do.
Steve Campbell:We've covered three.
Steve Campbell:We're going to have a couple more in the next episode and three episodes total in this, so stick with us.
Steve Campbell:Remember, there's going to be 11 practical takeaways, and in the show notes, we will include each one of those so that you can start taking action on them.
Steve Campbell:So, as always, thank you for being our guest on Ditch the Suits.
Steve Campbell:And the next time, here's getting the most from your money in Life.
