Many of the issues we face today with our finances are due to poor decision-making rather than poor mathematical skills. Some examples of major decisions that can affect our financial situation include:
- Where you live
- How to file your taxes
- What to do with your weird student loans
- How to create a budget in a world where paychecks tend to be unpredictable or roller-coaster-like
After speaking with people and hearing from them about real-world decisions they hope to make regarding their finances, it becomes clear that these decisions are made every day by ordinary people in order to establish a financially secure future.
Renting a home and owning a rental property is not illegal. Many people in general will rent while owning multiple homes, especially young single individuals who want to be free. However, the rule to remember is that the location of where your way income property is located is important.
If you make the wise decision to invest in an income property and later move to another part of the country, you will now be a long-distance landlord. You will have to manage any repairs, vacant units and emergency situations from hundreds or thousands of miles away. While you could hire a property management company to help you with your long-distance landlord duties, the 10-20% of your profits paid to the property manager will impact your income.
If you would not purchase an income property in a state you’ve never lived in, why would you move away after purchasing an income property?
There are instances when you will want to wait until your location is stabilised. You may still want to invest even though you haven’t purchased a home at that point. There are investment opportunities available to you; retirement accounts, index funds, or even investing in a real estate investment trust (REIT) if you have a desire to purchase real estate. The fact that you didn’t own a home when you were 25 years old does not mean that you can no longer invest in real estate.
Old Federal Family Education Loan Program (FFELP) loans, which were issued by private lenders and guaranteed by the federal government, fall into a grey area. Since FFELP loans were private loans, they will not qualify for the same benefits as federally owned loans. This has created confusion for borrowers who have FFELP loans.
The important aspect to understand regarding FFELP loans is that many FFELP loans may be refinanced into a Direct Consolidation Loan. By refinancing a FFELP loan into a Direct Consolidation Loan, the borrower would now qualify for federal benefits, including administrative forbearance and possibly future cancellation programs.
While a borrower does not automatically qualify for repayment programs if he/she simply consolidates a FFELP to Direct Consolidation Loan, it is worth looking into as a consolidation may make an administrative change that alters your repayment strategy completely.
When Two People File Jointly (married couples filing jointly), the tax brackets are typically twice as high as the single filing brackets. This means that if one person earns far more than their spouse, by combining their incomes, it can move some of their income to lower tax brackets which can provide you with real savings.
However, if both spouses earn similar amounts, the advantages may be limited. In addition, some deductions or credits can vary based on your filing status.
Overall, there is no universal answer for which filing method is better, but in most cases, there will be a minimal benefit to filing jointly due to the differences between income splits.
What about if your Income Changes Monthly?
If you work as a gig worker, freelancer, contractor, earn commissions, or charge fees for your professional services, you experience entrepreneurial cash flow fluctuations.
It can feel almost impossible to create a budget when you have inconsistent income. Possible.
First, taxes are not optional. Make sure to set aside 25% to 30% of every payment you receive in a separate savings account immediately after you receive the payment and do not touch that money; treat it as though it never belonged to you. Also, plan on making estimated tax payments each quarter so you do not find yourself with an unpleasant surprise in April.
Second, you must develop a cushion.
When you have a couple of big months of income, don’t rush to increase your living expenses by upgrading your life. Instead, keep the excess money in your business account. This will create stability and help you eventually transfer a consistent “salary” from your inconsistent income. Now, that may seem like a small thing, but psychologically it can change everything.
When budgeting on variable incomes, it’s not about being exact. Instead, it’s about protecting yourself.
And we are ending in a completely different place.
So, why do you want to be completely debt-free?
Not because debt is evil; not because the spreadsheets are demanding it.
Most times, it is due to something they picture in their mind.
A house, travel, starting a family, sleeping at night without worrying about how to pay for things.
Debt Freedom becomes powerful when you have a common vision of why you want to pay off debt. Without a common “why,” paying off debts can feel like a punishment. With a common “why,” it can feel like making progress.
This is true for all of these questions:
- Is it a good idea to invest in rental properties? It depends on your current situation.
- Is it a good idea to consolidate student loan debt? It depends on the type of loan you’re using.
- Should you file your taxes together with your spouse? It depends on how your income is structured.
- How do you manage to make a budget if your income isn’t consistent? Establishing a logical system is far more effective than guessing.
- Why should I try to eliminate debt? Because of where you’re headed next.
Money decisions are generally not independent of the future you want to achieve. Once you start to see your financial life as a continued path, the clarity of your answers will start to come into focus.
