Why Budgeting Doesn’t Work For Most People (And How To Make It Work For You!)


When most people think about trying to improve the state of their finances, “budgeting” tends to be one of the first words that comes up.

And that’s a shame.  Really.

I’m not sure I’ve ever met anyone who actually likes budgeting.  And there are a few good reasons for not liking traditional budgeting:

  1. Most of us think that “budgeting” means at best, being cheap, and at worst, cutting our spending on things that we like to spend money on.
  2. Budgeting isn’t easy. In fact, the way most of us try to make budgets for ourselves, it takes effort to consistently make it work.

What happens when we make something that isn’t fun difficult as well?  We don’t actually do it.

Which is why I like to approach budgeting with a very different mindset.  In this video, I discuss how to approach budgeting in a way that will make you more aware of where your money is going each month. We also discuss ways to align your budget with what’s actually important to you, in a way that’s easy to maintain.

Most people make it easy to spend a lot of money, and hard to save.  In the video below, I’m going to show you how to make it hard not to save money.

To download a FREE copy of the Newlywed Money Checklist that we discuss in this piece, click here to grab it!

(Bill’s Note: This video, and the lightly edited transcription below, was originally recorded as a Facebook Live broadcast on January 29, 2018. If you want to participate in our next Facebook Live session, which are normally held every Monday at 8 PM Eastern, head to our Facebook page, hit “like”, and you’ll get the announcement the next time we go live.  Most of the content comes from questions submitted by my readers and viewers, so if you have a topic you’d like to hear more about, send a message to our Facebook page and we will get back to you as soon as we can!)

Introduction:  How Can I Make My Budget Stick?

Welcome, everyone! Welcome to our weekly Facebook Live chat. We broadcast this at 8:00 PM Eastern time every Monday.  Today, we’re doing a little bit earlier because I’m going to be in a meeting with a client at 8:00 PM.

Today, I want to talk a little bit about budgeting.  And specifically, why I think budgeting tends to not work for people.  And we’ll share some strategies to get around this.

I got a question from someone today who follows the page- let’s call him Eric. (I typically don’t use people’s real names because I know money is a sensitive subject for people. And so, I try to respect everybody’s anonymity for these questions.)

Anyway, I got a question from “Eric”.  It says, “Hi Bill, I’m a big fan of the new video series and have a question that I’d like your opinion on. I recently downloaded your Newlywed Money Checklist and I’m currently working through it with my wife.  We got to the section that discusses creating a budget and we got stuck with it. We’ve tried a few things in the past related to budgeting and they never seem to really work for us. How do we make a budget for our family that actually sticks?”

Amen, Eric! That’s a great question.  One that I get quite a bit actually.  First off, congrats on not only your recent marriage, but taking a step forward and downloading the Newlywed Money Checklist.  And not only just downloading it, but actually working through it. That’s awesome. It’s a big step.  If anyone wants to grab this checklist and follow along as we go, click here to download it.

Most Budgeting Strategies Are Difficult to Maintain

So let’s get to the heart of the question. Budgeting really and truly doesn’t work for a lot of people. And the reason for this is that we make it so difficult for ourselves to actually do it and stick to it.

I’ve seen a lot of different strategies that people have used over the years to try to manage their budget.  Everything from creating spreadsheets- literally typing in all different ways that they spend their money.  Or, using a tracking site like Mint.com, where you sync your credit cards and they pull in your transactions for you.  Sometimes, people try a strategy where they literally only spend cash as a way to really try to prevent yourself from overspending.  And even a derivative of this, which I actually like a lot, called the Dollar Bill Savings Method. I’ll probably talk a little bit about that strategy on another Facebook Live because I do think it’s kind of an interesting strategy for people who are struggling with trying to save.

But ultimately for most people, however you do it, budgeting means keeping track in detail of where your money is going each and every month.

There’s a reason why that doesn’t work and why I don’t like to think about budgeting in this way. It’s really two-fold.

Budgeting Highlights our Weaknesses

First and foremost, I think we tend to overlook it, but most people I talk to have some sort of anxiety, or shame, or even guilt about how they handle their money. It’s not something we’ve ever been taught, and it’s not something we’re inherently good at. We need to practice how to handle our money over time. Most of us are far from perfect in this regard, and we tend to not like to pay close attention to things we’re not perfect at.  As a species, this is something that all of us struggle with.

Here’s the thing- paying close attention to our budget tends to emphasize these weaknesses, or are these things that we’re unhappy with.  And as a result, people just don’t like to pay attention to their budget, which I think is perfectly understandable. But ultimately, it doesn’t help solve the problem

Traditional Budgeting Methods Are Hard

And secondly and probably most importantly, it’s a lot of work. We make it really, really hard for ourselves to actually track our budget.

If we’re using spreadsheets, we need to update them manually.  If you’re using Mint, you actually have to remember to log on to see how you’re doing.  And then once you get there, a bunch of your transactions are categorized incorrectly, so you need to go in and fix those. And finally, they don’t track your cash spending at all on these platforms. So, you have to actually manually input all the different ways you spend your cash.

Budgeting sucks. Plain and simple. It’s not easy. It’s not fun. And if you make it hard on yourself to do something that’s not fun, guess what?  It’s not going to happen. Like most New Year’s resolutions, you start budgeting, you’re excited about it at the beginning, it lasts a couple of weeks, but as soon as things get busy, it’s the first thing that we tend to drop because it’s something that we don’t enjoy and it’s hard.

Introducing… Two New Ways to Think About Budgeting

Which is why I like to think about budgeting in a completely different state of mind. To me, budgeting isn’t about only spending $20 at Starbucks this month. (And if you spend $21, that’s BAD, and Mint’s going to send you a nasty email calling you out on it!  Give me a break.) That’s not healthy. I don’t think that’s the way we should be doing budgeting.

Instead, budgeting is about two “A” words. Awareness of where your money is going (and awareness is never a bad thing, right?)  And aligning your money with what’s actually important to you.

So let’s walk through these one by one, starting with awareness.

Budgeting = Awareness

If you want to start budgeting, this is what I recommend, particularly for people who want to be saving more and find that they’re having a hard time doing it. I want you to do this:  before you start breaking out the spreadsheets or syncing all of your accounts to Mint, walk through this exercise.

This is something that, full disclosure, is not something that I’ve developed myself. For those of you who have followed the page for a while, you’ll know that I consider myself to be a “disciple” of Carl Richards. Carl is a two-time New York Times bestselling author of books about how to manage money.  (If you are serious about making improvements to the way you handle your finances, they are must-reads.  You can find them here and here.) He also writes a weekly column in the New York Times about money that I highly recommend. This is an exercise that he does and I think it’s really instructive here.

If you’re having a hard time budgeting and want to get started, do this for me over the next two weeks. Whenever you go to spend money, no matter what it is, no matter where it is, no matter what you’re spending it on, whether it’s necessary or whether it’s just for fun, do the following.  Whenever you spend money from today until two weeks from now, stop for a minute. And just think about it.

Actively try to think about how you’re spending money. Say to yourself, “Hmmm. I just went to the store and bought $125 worth of clothes. Isn’t that interesting?”

“I just spent $45 a bar… Isn’t that interesting?”  Just stop to think about it for a minute. Literally think about it. There’s no judgment, but whenever you spend money, just stop and be mindful about it for a second before you start rushing to the next thing.

You might be surprised, if you actually stop for a couple of seconds to pay attention, about the trends that you start to notice with where your money goes. You know, I frequently hear from people who do this who didn’t realize how much they were spending in particular categories of expenses that they didn’t actually really care about.

They spend money on whatever it is, they just do it, and it’s habitual. But when they actually stopped to think about it, they started to catch on to some of these trends.  So before you start putting yourself through a ton of work to track your transactions manually, stop and reflect on what you spend money on.  And see what you notice.

If it doesn’t work for you, then move on to the second piece that we’re to talk about, but give it a shot.

Budgeting is about bringing alignment between what your say is important to you financially and where your money actually goes.
Aligning Your Money With What’s Actually Important To You

The second strategy, the other way I want you to try to think about budgeting has to do with aligning where your money goes with what’s actually important to you.  Putting your money toward the things that are important to you, FIRST. This is my preferred method because I think it probably is the easiest one and it’s the fastest way to get results when it comes to your budget. There are a few steps involved.

First and foremost, I want you to figure out how much money is coming in every month, and I’m not talking about your annual salary divided by twelve. I’m talking about how much money actually gets deposited into your bank account every month.  After taxes are taken out, after your 401(k) contributions- how much money is coming in every month?

How Much Do You Actually Need To Save?

The second piece is a little bit harder. And it involves figuring out how much money you actually need to be saving to make sure you’re able to do the things that are important to you.

Never mind what you should be saving. What do you actually need to save?

Look, this is a complicated step.  It’s not easy to calculate how much you need to be saving to retire when you want to 30 or 40 years from now. It’s not easy to figure out how much you need to be saving to pay for a child’s college several years in the future. But you need to actually sit down and do this, first and foremost.

If you need help with that, reach out. I’ll help you figure out what those numbers are for you- but however you do it, you need to figure them out.

To recap this budgeting method so far: step one, how much money is coming in? Step two is how much do you actually need to save?

Automate, Automate, Automate

And then once you have that, I want you to login to your bank and schedule an automatic transfer coming out of your checking account every month to either a savings or an investment account for that dollar amount.

If you go through step two and find that you need to save $2,000 every month, I want you, tonight, to go ahead and set up a $2,000 transfer from your checking to your savings account every month.

And that really is the key here. We make it hard on ourselves to save.  For most people, when money comes into the checking account, we spend it and then whatever’s left over, we save it… if we actually remember to log in and transfer it to your savings account.

I want you to set this transfer up automatically. Make it hard for yourself not to save.

Remember, this isn’t permanent. If there are some months where you have higher expenses – if a car breaks down, if you just want to spend a little bit more money that month – that’s OK. You can always go to your savings account and transfer money back to your checking account.

But make that the hard step.  Pay yourself first, and then, if you actually need a little bit more money, you can pull a little bit out of savings. I’m giving you permission to do that.

But don’t make it easy for yourself to just spend that money. Actually put it away and make it so you actively have to think about taking it out. And if you do that, you’re going to be much, much more likely to actually make your budget work for you.

Spend the Rest, Guilt-Free!

And once you do that, once you set up the transfer for how much you need to save every month, spend the rest however you want. I don’t care.

If you’re able to save as much as you need to in order to accomplish the things that are important to you, I really don’t care where the rest of your money goes. And frankly, neither should you.

As long as you’re actively putting money toward the things that are most important to you, do whatever you want with the rest. Don’t worry about it, and don’t feel guilty about it. You’re saving as much as you need to. It’s really that easy.

It’s Not Always That Simple

Now, there’s one caveat. If you tend to actually spend more than you have left after putting money into savings, that’s when this strategy can get a little bit more difficult. And then, and only then, is when I want you to just start thinking through budgeting in the “traditional” sense. At this point, you’ll need to look to cut spending from particular places.

If we’re able to save as much as we need to save and you have a little bit of money left over, you don’t need to worry about it. But if you find that you’re having a hard time saving what you want to be saving, this is when we’re going to start trying to find ways to cut back.

And from there, here’s what I would do, in order, if you’re looking to solve this problem.

There Are Two Components to Budgeting.  Start with the One that Nobody Ever Talks About

First and foremost, when we talk about budgeting, there’s two components to it. There’s the income side and the spending side.

Most people tend to only focus on the expenses, but if you really are having a hard time saving as much as you need to every month, I want you to actually start by looking at the income side. Are there ways you could grow your income? From putting your money into investments that actually pay you income that could help potentially close that gap, to negotiating a higher salary at work if you think you’re underpaid and can back that up, to even starting some sort of side hustle. You might not actually need to cut your spending at all.

When we think about budgeting traditionally, we tend to only focus on the spending piece. But we really should be taking a look at the income side as well. So first and foremost, let’s start there.

Find the Easiest and Most Impactful Ways to Trim Spending

If that’s not enough, or if growing your income isn’t an option for you for whatever reason, the next step is not to start nickel and diming on your coffee every month.  That’s the hardest way to actually do this.  Instead, what are your top three or four categories of expenses every month? Where does most of your money actually go?

Now, for most people, this is some sort of combination of your rent or mortgage payments, student loan payments, transportation costs, food or even clothing. Pull all that stuff together in those big categories and ask yourself, what’s the easiest and least impactful cut that you can make to your biggest areas of expense?

In other words, if the goal is to cut your spending by a certain dollar amount every month, what’s the easiest way to actually do that? For most people, that’s not going to be coffee, right? Start with the biggest areas of expenses.

So maybe it means that it might make sense for you to move to a cheaper apartment the next time your lease is up. Or taking the bus or subway a little bit more rather than taking Ubers. Or if you have student loans, trying to switch your student loan repayment plan might be a good idea (if you have federal loans).  If you have private student loans, maybe trying to refinance them is a good idea. Or trying to cook a little bit more at home might be a good idea if you spend a lot on food.

The point is, there’s a lot of different ways to do this.  And each one is different, depending on what you actually need to be doing.

Make That Your Goal.  Not Just Budgeting

But only if you need to, write and make that your New Year’s Resolution. Don’t just make budgeting your resolution, but actually find the easiest and most impactful areas to cut if you need to. And when you do that, you’re going to find your budget tends to just come in order.

Make it as easy as you can on yourself. Make it hard not to save for yourself and from there, only if you need to cut spending, cut the pieces that are the easiest and most impactful for you to cut.

But ultimately, if you take anything away from this video here today, recognize that if you’re struggling with traditional budgeting and you feel like it doesn’t work for you, you are not alone.

Make Budgeting As Easy As It Can Be

The best thing you can do to make your budget work is to figure out how much you need to save every month and set it up to save that amount automatically. Move it from your checking to your savings account without thinking about it, without actually going in and doing it every month, and make the rest of your spending revolve around that. If you need to pull some of that money out of savings for whatever reason, you always can do that, but make that the hard part.

It doesn’t take a lot of time to do this. But you should be making it easy for yourself to save rather than the other way around.

Anyway, I hope this was helpful. Thanks so much to “Eric” for sending in this great question and working through our Newlywed Money Guide.  You can download that guide here if you’d like to learn more.

And again, if you have any questions about figuring out how much exactly you need to be saving every month, reach out and I’d be glad to help you out however I can. Thanks so much for joining us, and I hope you have a great day.



Should I Invest in Bitcoin?

Should I Invest in Bitcoin?


It’s hard to escape the investing phenomena that Bitcoin has become.  The rapid growth of the investment in 2017 caused many people to wonder whether they should invest in Bitcoin.

In this article, we discuss whether or not it makes sense to put some money in Bitcoin. As we will discuss, I’d invite you to ask yourselves three “Why?” questions before deciding whether or not this makes sense for you.

First, we’ll discuss why you are thinking about investing in Bitcoin now, and the risks involved in putting money into investments that have recently taken off in value.

From there, we discuss why Bitcoin specifically is the investment venture of interest, particularly since there are numerous other opportunities to put money into crypto and/or blockchain technology.  We’ll also discuss how Bitcoin compares and contrasts to two previous investment “bubbles”, and what they can teach us about the future of investing in blockchain.

Finally, we’ll discuss how Bitcoin fits into your overall investing strategy.  There are a lot of factors to consider, and you need to take several factors into account before picking your investments.  “Making a lot of money” is a dream- it’s not a strategy that you can consistently execute.  We’ll talk about some of the factors you should take into account before deciding where to put your money.

(Bill’s Note: This video, and the lightly edited transcription below, was originally recorded as a Facebook Live broadcast on January 22, 2018. If you want to participate in our next Facebook Live session, which are normally held every Monday at 8 PM Eastern, head to our Facebook page, hit “like”, and you’ll get the announcement the next time we go live.  Most of the content comes from questions submitted by my readers and viewers, so if you have a topic you’d like to hear more about, send a message to our Facebook page and we will get back to you as soon as we can!)


Welcome, everyone.  Welcome to our weekly Facebook Live broadcast, which we’re going to hold every Monday at 8 PM Eastern.

Today, I want to talk a little bit about investing strategies.  You’ve probably noticed this isn’t necessarily something I cover a lot here- I like to focus my content on what I think are the very real, important decisions we need to make when it comes to how we approach money day-to-day- and even just from an emotional standpoint.

But ultimately, investing is a big part of how we handle our money, so today I wanted to cover a question today that I’ve probably fielded somewhere between twelve to fifteen or times in the past two months.  And this question has to do with Bitcoin.  What’s all the fuss about, should you be investing in Bitcoin?  Is it a good idea for you to be putting your money into Bitcoin?


And my response to you here today is one word.


Literally. Why?  I don’t necessarily mean that in a negative way.  I know I sound sarcastic, but seriously:  Why?  Why do you want to invest in Bitcoin? And specifically, I have three different “why” questions I want to pose back to you here today.  I really encourage you to think through these – both about Bitcoin specifically if that’s something you’re interested in, but also about how you manage your investments in general. These three “why” questions that I have are really important when it comes to thinking through how to approach this subject.

Question 1: Why Now?

The first question I have for you is: “Why now?”  Why is Bitcoin a topic that is coming up right now?

Bitcoin is not a new thing.  It’s been around for several years, and I’ve never heard anybody ask me whether or not they should be investing in Bitcoin up until mid-December 2017 or so.  Like I said, I’ve probably gotten a dozen questions about this particular topic since then.  I didn’t hear anyone asking about whether they should invest in Bitcoin when it was $100 to invest in June 2013. Or when it was $500 in November 2015.  Or even when it was $1,000 in January 2017.  Nobody asked me about it until it was over $15,000 in December 2017.

We have a natural tendency when we’re making investment decisions to want to buy when things are going up.  The investment has done well, so it will continue to do so, right?  And it very well could.

The problem is that just because it’s gone up before, doesn’t mean it will necessarily continue to go up in the future.  And in fact, that’s a very, very dangerous assumption to make when it comes to choosing investments.

Which Investment Would You Pick?

Case in point, I had a client a few years back who had two investments with me.  I don’t remember exactly what they were, that’s not necessarily the point, but we’ll call them Investment A and Investment B.

I met with the client about six months after we had invested her money into those two investments.  She had some more money to invest.  She wanted to put some more money into at least one of these investments.  Now, Investment A had done really well over the prior six months.  It had really good returns, and she made a decent amount of money off of it.  On the other hand, Investment B was still a good fund, but it hadn’t really done well over the prior six months.  It may have even gone down in value, I don’t remember the specific details.

Guess which investment my client wanted to put more money into, when it came tothis new money she was looking to invest.  I’ll give you a hint:  she didn’t choose the one that hadn’t done well recently.  She wanted to put more money into Investment A. It had done well, so why not put more money into it?

We naturally look at how things have done in the past and use that as the basis for our decision making when it comes to making investments.

Buy High, Sell… Low?

But there’s a problem with that.

And the problem is that if that’s the way you’re making your investment decisions, that’s a really, really good way to lock yourself into buying investments when they’re priced high and selling them when they’re low.  We know intuitively that we want to buy investments when they’re low, and sell them when they’re high.  That’s how we make money of them.  We want to choose things that have done well because they might continue to do well, and they might….

But what if they don’t? If these investments have done well up until this point and then they don’t do well – and there’s a decent chance that they actually might not – you’re creating a structure for yourself to invest at high prices and then lose out when the investment falls in price.

We don’t know what Bitcoin is going to do tomorrow.  We don’t know if it’s going to get more expensive or less expensive to invest in.  But the point is buying it just because it’s gone up lately is really, really dangerous.  Because if you do this consistently, you’re really setting yourself up to buy investments when they’re high and sell them when they’re low.  Which we know isn’t what we’re supposed to do, but ultimately this is just a bias that we have.  We want to invest in things that have done well, because they might continue to do well.  But we can’t assume that.

Question 2: Why Bitcoin Specifically?

The second why question I have for you is: Why Bitcoin specifically?

And full disclosure here:  I am not a technology expert.  I’m a finance guy- that’s my area of expertise, but technology really isn’t. If you have some more technical questions about how any of the information below works, I’d be happy to connect you to some people in my network who can tell you more about this.

The key takeaway here: there’s a difference between Bitcoin itself and the technology behind it, which is called blockchain technology.  It’s a very real technology that’s here to stay, and it has value.

Can Tulips Teach Us About Bitcoin?

I’ve heard some people describe Bitcoin as a “speculative bubble”, or even I’ve seen a reference to Bitcoin as a “tulip bubble”.  The “tulip bubble” reference is a very specific one, that I think is worth digging into a bit.  Is Bitcoin the next “tulip bubble”?

And my answer to that is no, for reasons that we will discuss.  But before we get to why, we need to talk about what we mean by “tulip bubble”.

This actually goes back to the 1600’s in Europe.  The very first investment bubble that existed had to do with buying tulip bulbs (i.e., the bulbs that you plant in the ground to grow tulips).  Tulips aren’t native to Europe, apparently.  Traders brought them into Europe in the 1600’s, and people really liked them for some reason.  To the point where there wasn’t a big supply, but everybody wanted them, so prices went up.  A lot.

Not only did prices go up due to supply and demand, but people started to game the system.  Some investment-savvy people at the time asked, “what if we were able to buy up a lot of tulip bulbs and try to sell them off at higher prices later?”

The price of tulips in Europe at this time went very, very high.  To the point where the price of a tulip bulb was many times the annual income for most people.

The problem is that this price spike wasn’t actually based on anything.  There was no value behind it.  The price was based purely on the whims of the ongoing fad of the day.  So eventually, after a relatively short amount of time, people got sick of tulips, and the price of the tulip went down to basically nothing.  People who “invested” at the top lost just about everything.

There’s a Better Comparison

This what I’ve been seeing people compare Bitcoin to today.  And I really don’t think that’s the right comparison to make.  Because of the underlying blockchain technology, which is something that has actual value and I think is here to stay. The value of Bitcoin is not based on nothing.  It’s something that has some inherent value to it.

But I do think it has some “bubble-like” qualities.  The comparison that I’d actually make isn’t to this “tulip bubble”, but rather what happened to the United States in the technology industry during the 1990’s and early 2000’s.

This was the dawn of the internet.  Tech startups, companies that produced computers and internet-related technology, were popping up left and right.  A lot of new technology stocks hit the market during this time, which everybody wanted to buy into because the internet was the “new big thing”.  And most of the startup companies didn’t make it.  Some of them did – and the ones that made it are the companies that have done really well, like Amazon and Google. But as a whole, ultimately prices went up so high, some companies started to fail, and there was a price crash.  Prices in the technology industry came down in the early 2000’s.

The Next Netscape?

And I think that this really is a much better comparison to what’s happening to Bitcoin today.  Let me ask you this:  at the beginning of the tech boom in the 1990s, when all of these startups were launching and tech stock prices were going up and up and up, what was the first big, new technology stock back in the mid 1990s?  Google started a little bit later as did some of the other names you might guess, but the biggest technology stock, the one that everybody was talking about and quickly went up in price, was Netscape.

Some of you probably don’t even remember what Netscape is, because it’s not around anymore.  Netscape was one of the first main internet browsers that competed with America Online back in the early days of the internet.  This was the stock that everybody was excited about.  The introduction of Netscape stock was huge, the price went up astronomically in value, and a couple of years later, AOL bought Netscape for a fraction of what it was worth, and the browser has long been defunct.

There are Other Crypto Investment Opportunities

I think that this sort of frame of reference is a really good one.  I’d encourage you to think about Bitcoin and other crypto investment opportunities in this context.

I would suspect that all of these blockchain “firms” that you’re seeing launch right now, I’d expect that about 15% or so of them will succeed and  actually make it (and the ones that do may do very well, just like Google and Amazon did back in the 90’s).  Unfortunately, we don’t know which ones those are.

And, at least as of this recording, there’s no such thing as a “blockchain or crypto mutual fund”, or at least one that I have a lot of faith in. That may well come along in time, but right now there’s no way to buy into this phenomena as a whole right now. You’d essentially need to pick and choose from one venture to another, or don’t do it at all.

Ultimately, if I think that 15% of them will succeed, means that you might have an 85% chance of losing everything, if you choose to invest in one that fails.

Should I Invest in Bitcoin?

To answer the actual question, “Should I invest in Bitcoin?”, my answer is:  if you have the capacity to invest in something with that level of risk – if you’re ok with investing in something that risky – then I’d say sure… but only with some “fun money”.  I wouldn’t invest anything that you’re relying on, just in case it doesn’t work out.

Before you invest in one of these companies, I’d ask yourself:  “What would happen if this investment went to zero?”  What happens if you literally lose the entire investment?

If you’re comfortable with taking that risk with a little bit of money here and there, then go for it.  I encourage people to invest a little bit of money into specific investments that interest them… but only with “fun money”.  Don’t do your serious investing in these sorts of products.

However, I have one caveat to this.

Watch out for scams.  These crypto or blockchain investment ventures aren’t (yet) regulated in the same way that other investments are.  The SEC has started to crack down on this, but I’ve seen several “opportunities” that have been advertised that I would bet just about everything are scams.  There isn’t the regulatory structure in place behind these sorts of products to enforce these investments.

So, I’d be very careful.  Make sure that if you do invest in something like this, that it’s legitimate and only with money that you’d be comfortable with losing entirely.

Question 3:  Why Do You Think Bitcoin is The Right Investment (For You)?

But, there’s one more “why” question that we need to answer: why do you think it’s the right investment for you?

Does it fit with your investing plan?  Does it fit with your investing philosophy, or is it just a fad that you’ve heard about and are looking to get in on.

“Making a lot of money” isn’t an investing plan.  That’s not how you should be framing this decision, at least on it’s own.  There’s a lot more that you need to take into account. How you invest is important, too.

How do you want your money to serve you?  What exactly is it that you’re looking for from your investments?  Are you primarily looking for your investment to grow over time?  Or, are you looking for something that’s going to grow really quickly and then sell it off before it crashes? Or, would you rather have an investment that will pay you some sort of income stream?  A lot of investments can do this for you.

How much risk do you like to take?  I know a few people who almost get ill thinking about their investments dropping in value. Bitcoin is probably not the right thing for that person.  You have to be comfortable taking risk in order to pursue this venture.

And finally, what are you investing for?  Is this for something longer term like retirement, or something you’re looking to spend in a few years?

You Need A Strategy

You need to know the answers to these questions before you and actually pick the right kind of investment.

And frankly, this goes beyond Bitcoin.  It certainly applies here, but all of your investments, you should have a strategy in place.  So, while Bitcoin or any of the other crypto investments out there could be the right thing for a little bit of your money, you need to make sure it fits in with the rest of what you’re trying to do.  And don’t risk your entire investment strategy for something that doesn’t entirely fit.

I hope this was helpful in terms of talking about Bitcoin.  We broadcast one of these videos every Monday at 8 PM Eastern, and I typically base these on questions that come in.  So, if you have a topic you’d like to hear about for ten to fifteen minutes or so, go ahead and leave a comment on this video or send me an email.  I’d be happy to add your question to the queue.  Thanks so much everyone, have a great day!


The Unintended Consequence of the Tax Reform Law for Student Loan Borrowers

Executive Summary

When married couples with student loan debt go onto an Income-Driven Repayment plan, there’s a choice to be made:  is it better to file your taxes jointly (but base your income-capped student loan payments on both you and your spouse’s income) or to file taxes separately (and only count your income when calculating your student loan payment)?

Although it didn’t address student loans directly, the passage of the Tax Cuts and Jobs Act of 2017 has a big unintended consequence for these student loan borrowers.  This decision around whether to file taxes jointly or separately when on an Income Driven Repayment plan should be made by comparing the amount of money you’d save on taxes by filing jointly with how much more you’d need to pay each year on your student loans.  Since the tax reform law cuts taxes for most people, the difference in the amount you’d save on taxes by filing jointly versus separately will shrink for most people.  Which means that you’re now more likely to be better off filing taxes separately and saving money each month on student loans than you were under the old tax code.

Download our free student loan guide to learn more about Income Driven Repayment plans.  And if you’re interested in learning more about how to save money on taxes under the new tax law, check out our list of #taxhacks today!

(Bill’s Note: This video, and the lightly edited transcription below, was originally recorded as a Facebook Live broadcast on January 9, 2018. If you want to participate in our next Facebook Live session, which are normally held every Monday at 8 PM Eastern, head to our Facebook page, hit “like”, and you’ll get the announcement the next time we go live.  Most of the content comes from questions submitted by my readers and viewers, so if you have a topic you’d like to hear more about, send a message to our Facebook page and we will get back to you as soon as we can!)


Hello and welcome!  Happy New Year to everybody.  Today I want to have our very first weekly chat that we’re going to have on the Pacesetter Planning Facebook Page (and will be published here every Thursday).  Normally we’ll broadcast live at 8 PM Eastern time on Mondays.

Each week, we’re going to do a deep dive into a financial topic.  Typically, these will be driven by questions that people either ask me in person while I’m out and about in Philadelphia, or are submitted through the website or our Facebook page.  And I’ll share my response to these questions here.

So, if you have an idea, anything you’re curious about hearing, shoot me a message or leave a comment on this video or post, and I’d be more than happy to talk through it. I already have a few questions that we’ll be covering over the next few weeks.

Tax Reform and Student Loans

But for today, I want to talk about something that I think is timely, given current events, and that is the potential side effects of the passage of the recent tax reform law that was enacted before the holidays.  There’s a new opportunity that I think is out there for student loan borrowers, particularly borrowers who are on an Income-Driven Repayment plan (IDR).

To give you a heads up in advance, this is going to primarily involve people who are on an IDR for their student loans who are married.  Now, if you’re not married yet but you’re on one of these plans, and you see yourself potentially getting married over the course of your student loan payments, stick around and you’ll pick up on some things that will help you someday down the road.

Before we dive into exactly what this effect is, I think it’s worth pausing to make a quick note.  We did a deep dive into the Tax Cuts and Jobs Act right after it was passed in December 2017.  We’re not going to rehash that today, but just to reiterate:  there were NO direct effects on student loans in the law itself.

There were a lot of rumors going around through the legislative process that there were going to be some changes made to student loan policy, particularly to your ability to deduct student loan interest.  None of that actually happened.  So, everything in that light is exactly the way it was before.  If your income is below a certain threshold, you’re still able to deduct up to $2,500 in interest paid on your student loans from your taxes every year.  Nothing’s changed in that light.

Income-Driven Repayment Plans

What has changed, though, is the ways that we calculate student loan payments under these Income-Driven Repayment plans- or at least it has the potential to change, depending on your circumstances.

What do I mean by that?  The starting point needs to be: what is an Income-Driven Repayment plan?

For those of you who aren’t on one of these plans already, typically when you borrow student loans, you have a six- to nine-month grace period before you need to start making payments.  Your student loan servicer typically puts you on a standard, ten-year repayment plan.  They’ll tell you how much you owe based on how much you borrowed and the interest rate.  You make the monthly payment that they tell you to make, and ten years later it’s completely paid off and you’re good to go.

But for most student loans (note: not all of them, but most student loans will qualify), if you have a particularly high amount of loans compared to your income, you have a few options.  And one of them is going on an Income-Driven Repayment plan.  There are a wide variety of IDRs, but we’re going to treat them all as the same today (even though they are not the same).  There are some pretty substantial differences between them- if you want some more information on this, go ahead and download our free student loan guide. It’s about thirty pages long and it’s the most popular giveaway we’ve ever posted on our site.  It will walk you through exactly what you need to know about all of these different repayment plans, what they consist of, and will help you identify which one is right for you.  Click the link to download this guide.

But generally speaking, these IDRs tie the amount you owe every month on your student loans to your income level.  If you aren’t making a lot of money, or you have much higher levels of student loan debt than your income, it essentially allows you to scale your student loan payments back to a reasonable level based on your income.

How Do Married Couples Calculate Their Income for IDR Repayment Plans?

The question, though, is what actually counts as your income? Now if you’re single, this is pretty straightforward.  Your income itself is your income.  Whatever you make at your job, any other income you have, that’s what they base it on.  Nothing too complicated.

But, when you get married, it’s a little bit more complicated.  You have your personal income, and if you’re spouse works, they have income as well.  So- what does your student loan servicer base your payment on?  Is it based on just your salary, or is it based on you and your spouse’s?

Obviously, if your goal is to lower your student loan payment, you want to have the payments based on a lower amount.  So ideally, you’d just count your salary.

The answer to the question of how student loan servicers treat your income is that they actually let you choose which one to use.  You can either report just your income, or you and your spouses income- you have the choice.

So, that begs the question, why is that not a no-brainer?  Like I said, if you have the option to pay your loans based on a lower salary or a higher salary, your monthly payment is going to be lower based on just your income.  So, why wouldn’t you do that?

Your Tax Filing Status Determines What Income They Count

Unfortunately, there definitely is a catch to it.  And the catch is this:  however you decide to report your income (to base your student loans payment on), you need to file your taxes the same way too.  In other words, if you want to report just your income to lower your student loan payment every month, you need to file your taxes “married filing separately” from your spouse.  Or inversely, if you file your taxes “married filing jointly”, your loan servicer will look at both of your incomes when they calculate what you owe on your loans every month.

For most couples, you’re going to save more on taxes by filing jointly rather than separately.  There are a few big exceptions (we wrote on the blog last year a list of some of those particular exceptions), but particularly for most young couples, you’re going to find that you save more on taxes by filing jointly rather than separately.  But- that means that you’re going to owe more on your student loan payments if you’re on an IDR because you’re filing jointly and they’ll base your payments on your combined incomes.

You can think of this like a balance scale (like the ones we used back in school) where you weigh one thing against the other.  On one hand, we have the amount of taxes you’re going to owe.  If you file jointly, that’s likely going to be a lower number and if you file separately, it’s likely going to be a higher number.  On the other side of the scale, you have your monthly student loan payments.  And that works the exact opposite way:  if you file jointly, you’ll probably save on taxes, but you’ll owe more on your student loans.  And vice versa, if you file separately, you’ll probably owe more on taxes every year but you’ll save on your monthly student loan payments.

You can imagine that there’s a point at which these things will balance out.  For example, let’s say that if you file taxes jointly with your spouse, you’re going to save $2,000 more on your taxes every year than if you filed separately.  But, doing so might cost you an extra $2,000 in student loan payments across the whole year when you add up your monthly payments.  If this is the case, it doesn’t actually matter what you do: you’ll save $2,000 on taxes, and pay $2,000 extra toward your student loans every year.  It washes out.  (Technically, under this scenario I’d recommend that you file jointly and pay more on your student loans, since this method will cost you less in the long run!)

How Does the Tax Reform Law Change Things?

But typically, it doesn’t balance out.  There’s typically a better answer for you whether you should file separately and reduce your loan payments, or file jointly and pay more every month.  Usually, there’s going to be a clear cut answer.

And that brings us back to the tax reform law.

Because what this law has effectively done (it’s not intentional that it worked out this way, but it is the effect if you’re one of the IDR plans) is that the way you calculate your student loan payments hasn’t changed – your income is still the same, the options are still the same – but they’ve reduced  the other side of the scale for most people.  Most people are going to have tax cuts under the new law, which means the gap between how much you’re going to owe if you file jointly vs separately is less than it was under the old tax law for most people.  They’ve taken the equilibrium point between the two and threw it off a little bit.

Which means that there’s going to be more people that are going to be better off filing taxes separately and taking a lower student loan payment every month going forward than there was under the old tax law.  The balance point has shifted, which means that more people are going to better off filing taxes separately than there were before.

To be clear, for most people you’re still going to owe more on taxes filing separately than you would if you file jointly.  That hasn’t changed.

But what has changed is the magnitude of the difference.  If the overall dollar amount of your taxes is going down because of the way they drew the brackets, for most people the gap between what you’d owe if you file jointly vs. separately has shrunk- by a real dollar amount.

Which means, for more people than there were before, you’re going to be better off filing separately and reducing your student loan payments every month.  Not for everyone– there will be still people who are better off filing jointly and paying more on your student loans.  But, you need to go back and revisit the math, because the math has fundamentally changed as of January 1, 2018.

Not Too Late To Change

Now the good news is that you have the ability to decide this every single year.  If you’re already on one of the IDR plans and have been filing your taxes jointly and reporting the higher income number, you can change that every single year.  Every year, you file your taxes and you have to recertify your income level- if you’re already on one of the IDR plans, you’ve gone through this before.  So, I’d invite you to revisit this.  Try to figure it out on your own- are you still better off doing what was right for you under the old tax law, or has it changed?  Because there’s a very real chance that it could have potentially changed.

So, if you’re on an IDR and you’re filing jointly now, take a hard look at this to make sure it’s still the right option for you.  And if you qualify for an IDR, and just haven’t gotten around to signing up for one, there could be a higher benefit to you than there was before.  It might be a little bit more of an attractive option now than it was under the old tax law.  I’d invite you to take a look at this.

A Few Important Details: Other Factors You Need to Consider

Now, a couple quick details that I think are important to note before we wrap up.  I’ve tried to keep this at a fairly conceptual level, but there are some details you need to be aware of.

As I mentioned before, there are several different types of these Income-Driven Repayment plans.  Primarily, there are five different types.  You need to be aware that one of these five main types of IDRs actually doesn’t give you the choice to separate your income from your spouse’s.  We’ve spend this time talking about how you have the choice to file separately or jointly and report your income likewise, but if you’re on one particular type of IDR, you unfortunately don’t have the ability to make this choice.

The plan in question is called the Revised Pay As You Earn plan (you’ll usually see it abbreviated as “REPAYE”). If you’re on this plan, you unfortunately don’t have the option to split your income up- you need to report you and your spouse’s income jointly.  Which means that if IDRs are something that you’re looking into – like I said at the top, if you’re single now but you’re envisioning getting married down the road while you’re still making student loan payments – you might want to think twice about choosing REPAYE.

Now, there are some unique benefits to REPAYE- it’s not worth forsaking it altogether – but it is something you should take into account.  Under REPAYE, you won’t have the ability to separate your income (which might be a more attractive option now than it was under the old tax law).

(Note:  to be clear, the plan is question is REPAYE.  There’s another IDR called “Pay as You Earn”, or “PAYE”, that does give you the ability to separate your income from your spouse’s.  Congress has really mucked up the student loan policy over the past decade or so, with some assistance from the Department of Education.  There’s a lot of different types of IDRs, they all sound the same, but we’re talking today about REPAYE, not PAYE.)

Second key detail:  this principle of weighing the two sides of the balance scale is the right idea, but be aware that the calculation is a little bit more complicated than this.  There’s one other factor that you need to take into account before you decide to file separately and lower your student loan payments.

And that is that when you file separately, you lose the ability to claim the student loan interest deduction that I mentioned up at the top.  Right now, you can deduct $2,500 in student loan interest that you paid over the course of the year from your taxable income.  You can do that if you file jointly, as long as your income doesn’t exceed relevant thresholds.  But if you file separately, you lose the ability to do this.

The concept of balancing the two sides of the scale is the same… but you can almost think of the loss of the student loan interest deduction if you file separately as a “thumb on the scale” in favor of filing jointly.  It makes filing jointly a little bit more appealing.

The principle stands: more people today are going to be better off filing separately and reducing your student loan payments than there were under the old tax law.  But, there is a separate factor that you need to factor into your decision.

Student Loan Analysis is Complicated

To wrap up, this is complicated stuff.  Like I said, the way that we’ve come to the current student loan landscape doesn’t really make sense.  This is something that I help my financial planning clients with on an ongoing basis.  I help my clients do this sort of analysis to help figure out what steps need to be taken.

But, I actually offer a separate, standalone Student Loan Analysis service.  For people who don’t want, can’t afford, or don’t have any interest in doing Comprehensive Financial Planning, I offer this as a separate service.  We would meet via a video conference for 45 minutes to an hour, I’d collect your individual student loan data so we can understand what you specifically qualify for, discuss your goals for your student loans- are you trying to minimize your monthly payment, or are you trying to pay them off as quickly as possible?  Those are two good answers, depending on your circumstances, but they’re completely opposite strategies.  We discuss all of these things, and within two days I’ll send you a list of recommendations for what to do with your loans.

If this is something you’re interested in or would like to learn more about, I do offer free consultations.  Click here to set up a no-obligation, free strategy session to talk through this issue we’re talking about today, or any other issue when it comes to your loans.

In closing, I think there’s a very real, unintended consequence that came about from this change in tax law that really is an opportunity for a lot of people- if you decide to take advantage of it.  I encourage you to do so.

Again, Happy New Year!  We’re going to be holding these chats on our Facebook Page, usually live at 8 PM on Mondays.  If you have any questions or things you’d like me to cover, shoot me an email or leave a comment on this video.  Thanks so much, and have a great day!


How Will the Tax Cuts and Jobs Act Affect You?

Like just about everything these days, most of the coverage around the “Tax Cuts and Jobs Act” has been viewed with an overwhelmingly partisan lens.  Most of this has to do with the nature of the corporate tax cuts in the law, perhaps justifiably so.  But in my opinion, there’s been far too little discussion about the actual impact the law will have on individuals and families in our generation.

Now that the political bickering is over (at least on this issue…) and the tax proposal has been finalized, let’s take a look at exactly how this tax overhaul will affect you.  This is a mammoth piece of legislation, so I won’t be able to cover every detail, but we will cover the major pieces.

One note: all of these changes apply to the 2018 tax year, with two major exceptions.  Your 2017 taxes, due April 15, 2018, will be unaffected unless you are itemizing medical expense deductions.  And, the Individual Mandate repeal doesn’t kick in until 2019.

That being said, the change in tax law has created some unique opportunities to save on taxes, both in 2017 and beyond.  I’ve compiled a list of twelve tax hacks to save you money on taxes based on the new law.  Download the list today!


[Note:  the day after Congress passed the Tax Cuts and Jobs Act in December 2017, I hosted a Facebook Live chat summarizing the provisions of the bill.  The video is available below.]

What’s NOT in the Law?

Before we dive into exactly what the new tax code says, we need to quickly talk about what it doesn’t say.  There were several controversial elements inside the draft bill that got a lot of media attention.  Several of these were stripped out of the final version- you no longer have to worry about any of these rumored changes.  These include:

  • The provision that would have treated graduate student tuition waivers as taxable income is gone from the final version of the law. This would have increased taxes on graduate students by as much as 400%, but it was removed from the final law.


  • At one time, there was a proposal to remove the ability to deduct student loan interest payments from your taxable income. This provision was removed as well.  You can still deduct the amount you pay in interest toward your student loans, up to $2,500 in interest per year.


  • There was also a provision that would have caused tuition payments made by your employer to be fully taxable to you. This was also removed- your employer can give you $5,250 tax-free for tuition, which is unchanged from the old tax law.
Tax Rate Changes

Now, let’s talk through the major changes that have been introduced, starting with tax rates themselves.

  • For most Americans, your marginal tax rates will be going down (albeit temporarily- these cuts expire in 2025, although Congress may extend them). Find your income level in the tables below to see how your tax rates compare in the old and new tax code.

  • A few key items to note:
    • While most people will see a decrease in their tax rate, there’s one group of people who will see an increase: unmarried people who have a yearly taxable income roughly between $157,000 and $416,000.  The logic behind drawing the boundaries of the tax rates in this way is unclear.
    • There are also some income ranges, both for individual and married taxpayers, where there is no change in the marginal rate. For example, a married couple with $450,000 in annual income is in the 35% tax bracket in the old tax code, and the 35% tax bracket in the new tax code.  (Although, it is worth noting that even though the marginal tax brackets are unchanged, the total taxes owed is less due to the decreased marginal brackets below the 35% bracket.)
    • There’s a distortion in the tax code if you are married and both you and your spouse make a high income, frequently called the “Marriage Penalty”. For example, let’s say you and your spouse make $400,000 each.  If you were filing individually, you each would fall in the 35% tax bracket.  However, if you’re married filing jointly, you have $800,000 in taxable income as a household, which puts you in the 37% tax bracket.


  • Taxes on investment income (dividends and long-term capital gains) have not changed under the new tax law. Depending on your income, you’ll either pay 0%, 15%, or 20% in taxes on dividends or capital gains.
Personal Income Tax Reductions and Pass Through Businesses
  • There’s one other change in how income is taxed, and it’s a big one. The change relates to “pass through” businesses, which are businesses that don’t pay corporate income taxes, but instead “pass through” their earnings to individuals who pay the tax at their individual tax rates. Under the new law, these “pass through” businesses are allowed to deduct 20% of their income (or 50% of the wages they pay, whichever is less) from their total taxable income.  In plain English, if a pass through business makes $100,000 in income, they are allowed to reduce their taxable income by 20%- meaning that the individual who gets the pass through income only pays taxes on $80,000 worth of income.


  • This is a bigger deal for you than you may realize. A pass through business doesn’t have to be a big company; in fact, more often than not these businesses are really just individuals who are self-employed.  For example, independent contractors and sole proprietors are typically set up as pass through businesses.  Which means that if you and a friend do the same exact job, but you are an employee of a big firm and your friend is an independent contractor, your friend will pay taxes on 20% less income than you.  This likely to accelerate the growing trend of workers becoming independent contractors rather than full-time employees– there’s now a clear tax benefit to doing so.


  • But, there’s a catch. Pass through businesses that engage in a “service-based” business have some restrictions on how much you can make to qualify for the 20% deduction.  If your pass through business income is more than $157,500 for individuals (or $315,000 for married couples), your ability to deduct 20% of your taxable income starts to phase out.


  • What counts as a “service-based business”? Most occupations that involve selling a service to another person, including accounting, health, law, financial services, and consulting.  Oddly enough, two services were specifically excluded from the income phaseouts:  engineers and architects.  If you work in either of these fields, your income can grow as much as you’d like without losing the ability to deduct 20%.
Standard Deductions and Personal Exemptions

The income-component to the tax code change is relatively straightforward:  most people will have a reduction in their overall tax rate, except for the specific groups I outlined about.  However, this only tells part of the story.

Note: It’s a little bit more complicated to tell if these changes will be a net benefit or net loss for you, as they tend to offset each other.  I’m going to lay out the changes and give you the tools you need to get an idea whether this will have a net positive or net negative impact on you, but it’s always a good idea to talk to a CPA about your unique circumstances.

  • Once you calculate how much you have in taxable income, you are allowed to either deduct a variety of expenditures from your taxable income (we’ll get to that in a minute), or take what’s called a Standard Deduction. The standard deduction directly reduces your taxable income.  Under the old law, individuals could claim a $6,350 standard deduction, and married couples could claim a $12,700 standard deduction.  Under the new law, the standard deductions have nearly doubled.  Now, individuals can reduce $12,000 and couples can reduce $24,000 in taxable income under the new standard deduction.

Clearly, this is a net benefit, right?   Sort of.

  • Under the old tax code, you also had the ability to claim a personal exemption of $4,050 for yourself ($8,100 for a married couple), and another $4,050 exemption for each child that you have. These exemptions, like the standard deduction, reduce your taxable income.  Under the new tax law, these exemptions have been eliminated

It’s critical to note that the amount of the personal exemption being removed ($4,050) is less than the increase in the standard deduction (a $5,650 increase for individuals and a $11,300 increase for couples).  So, for people without children, this is a net win.  But, particularly for large families who claimed the $4,050 exemption for each child, your taxable income is going up considerably.  However…

  • There are two changes to the Child Tax Credit under the new law that likely will more than make up for the loss of the exemptions for families with children:
    • The amount of the tax credit has doubled, from $1,000 to $2,000 per child, per year. Note that, unlike the discussion around exemptions and deductions (that referred to taxable income), the $2,000 tax credit is literally a $2,000 reduction in the taxes that you owe. Which makes it a considerably better benefit than a $4,050 reduction in taxable income.  One other note:  if your final tax calculation comes out that you don’t owe any money in taxes, $1,400 of the $2,000 credit is refundable to you.
    • There are income restrictions for who is eligible for the Child Tax Credit, but these have been greatly expanded under the new law to make the credits more accessible to more families. Now, individuals who make less than $200,000 per year or married couples who make less than $400,000 per year can claim this credit.

As an example, let’s look at a household that consists of a husband, wife, and three children.  Both the husband and wife make $175,000 each.

Even though they have a greater taxable income under the old tax code, they save over $18,000 in taxes, both because of the decrease in marginal tax rate and the substantial Child Tax Credit.

To summarize:  your standard deduction has gotten better, your ability to claim exemptions has been removed/gotten worse (particularly for large families), and the expansion of the Child Tax Credit has gotten significantly better for families with children under certain income thresholds.

LOTS of Changes in Itemized Deductions

As I mentioned above, everyone can claim the standard deduction.  But, if you can list a set of qualified expenses that exceed the amount of the standard deduction, you are still allowed to use the itemized deduction process.  It wasn’t common to itemize deductions before, and now that the standard deduction has been doubled, it will be even less common now (since you need to have nearly double the amount of expenditures in order to be better off itemizing).  But, if you do itemize, here’s what you need to know about the changes to the types of expenses that qualify for itemization:

  • Charitable Contributions- There were a lot of rumors that we would be losing the ability to deduct charitable contributions under this law. That fear proved to be unfounded:  the amount you can itemize for charitable contributions has actually increased (from 50% to 60%).  But, of course, fewer people will take advantage of this now that the threshold to exceed the standard deduction has nearly doubled.


  • Mortgage Interest– There are two big changes here:
    • You are still able to deduct the amount of interest paid on a mortgage, but the amount of interest that qualifies has been reduced. Before, you could deduct interest paid on the first $1,000,000 of mortgage principal; this has now been reduced to $750,000.  But, it’s critical to note that all mortgages in existence before December 15, 2017 have been grandfathered in and are not subject to the new rules.
    • Interest paid on Home Equity Loans or Home Equity Lines of Credit is no longer deductible.


  • State and Local Taxes– this one has gotten a lot of press coverage. Before, you were able to deduct the amount you pay in state taxes and local taxes on your federal tax return.  There was a lot of talk about removing this provision entirely, but in the end, the final tax law merely put restrictions on this ability rather than eliminating it altogether.  You are now able to deduct a maximum of $10,000 in state and local taxes, rather than unlimited amount.  This particularly hurts high-income individuals in states and cities with high tax rates.


  • Your ability to deduct medical expenses has temporarily expanded, even though this was another item that Congress nearly eliminated. If you have medical expenses that exceed 7.5% of your income, you can deduct these expenses in 2017 and 2018, which is down from a 10% of income threshold.  But, in 2019, the ability to deduct medical expenses goes back to 10% of income.  One other note:  this is, I believe, the only change that applies to your 2017 income taxes (that are due April 15, 2018).


  • The IRS had a long list of Miscellaneous Expenses that could be deducted if they exceed 2% of your taxable income. Most commonly, the ability to deduct expenses relating to tax preparation fell under this category.  The ability to make these deductions has now been eliminated.


  • You are no longer allowed to deduct moving expenses. (With one exception:  you are still allowed to deduct moving expenses if you’re in the military and you are required to move for a military job).


  • Finally, alimony payments are no longer treated as a taxable transfer. Under the old rules, the person who pays alimony to an ex-spouse was allowed to deduct the alimony amount, and the person who received the alimony payment needed to count it as taxable income.  This is no longer the case, but similar to the grandfathering under the mortgage interest deduction, the new rules only apply to new or modified alimony agreements in 2018 and beyond.
Other Big Changes

There are a few other big changes to the tax code that don’t relate to the tax rates or various deductions available:

  • The Individual Mandate that requires you to pay taxes if you don’t have health insurance under the Affordable Care Act (“Obamacare”) hasn’t technically been repealed…. But the taxable penalty for not having health insurance is $0, starting in 2019. This doesn’t mean that you shouldn’t have health insurance (you should), but it does mean that you won’t be taxed if you don’t have health coverage.  But again, note that this provision starts in 2019.  If you don’t have health insurance in 2017 or 2018, you’ll still need to pay the tax.


  • There are several changes to the use of 529 Accounts. Historically, these accounts have been one of the most tax-advantaged accounts to save for college- contributions are tax free at the federal level and can be tax free at the state level as well, and withdrawals are tax free if used for qualified higher education expenses.  Under the new code, they now can also be used to fund K-12 education expenses- they’re not just for college savings anymore. Under the new rules, you’re allowed to withdraw $10,000, per child, per year, for qualifying K-12 education expenses (including private school tuition).  There was a provision in the bill that would have extended these accounts to be able to be used for homeschooling education expenses, but this was removed from the final version of the law.  529’s can now be used for college expenses and K-12 expenses, but not homeschooling.


  • There are two other huge changes that are much less likely to affect younger people, so I’m going to gloss over them. But you should be aware that they exist:
    • The Alternative Minimum Tax (AMT) is still around, but it’s now much harder to actually qualify to pay the AMT. The AMT is a method of making sure that very rich people can’t use too many loopholes to avoid paying taxes. Essentially, under the AMT, you need to calculate the amount of taxes you owe twice– once under the standard tax rules, and once under the AMT rules.  If you owe more in AMT taxes, you need to pay the AMT.  This is still in existence, but it’s going to be much harder for people to actually need to pay the AMT.  If you have a very high income, this is something to keep on your radar, but most people don’t need to worry about this at this time.
    • The Estate Tax, like the AMT, is still around, but almost nobody will qualify for it anymore. The estate tax is a vehicle used to tax the amount of wealth someone has after they die, before the wealth is inherited by the next generation.  The estate tax still exists, but your estate needs to be double the size it used to be in order to be subject to the estate tax.  Until you have $11.2 million dollars saved up (or $22.4 million for couples), you don’t need to worry about it!

When they began the tax reform process in early 2017, Republican leaders in Congress claimed that they wanted to make it so easy to file your taxes that most Americans would be able to file taxes on a postcard.  As you can probably tell from the summary above, they fell… just a little short of that goal.

That being said, the fact remains that for most taxpayers, the filing process will be somewhat expedited, primarily by doubling the standard deduction.  For many people, you’ll just need to calculate your taxable income, take your standard deduction (and, potentially, your Child Tax Credit), and you’ll be good to go.

What do you think?  How will the new tax law affect the amount of taxes you pay?  And if you want some ideas on how to use the change in the tax code to save some money on your taxes, click here to download my twelve #taxhacks based on the new law.

The Conversation About Money You Need to Have With Your Spouse

The Conversation About Money You Need to Have With Your Spouse

Nobody likes to talk about money.

In many ways, finances are the last big “taboo” in our society.  There’s even some research to back it up – a study from University College London surveyed 15,000 men and women in Great Britain a few years ago and found that people are seven times more likely to tell a stranger details about their sex life than they are to tell a stranger their salary.

One of the central missions of my work is to help millennials get more comfortable talking about money.

Because it’s absolutely critical that we do so, particularly as we enter serious relationships.  As a generation, we are moving in with partners and getting married at a later age than our parents and grandparents did.  Which means that couples have more established habits around money when they start to combine finances.  And that, ultimately, can lead to friction in a relationship.

There’s been some research done on this subject, too.  And it isn’t good news.  Money issues are the number one cause of stress in relationships and can be a leading indicator of divorce.

As uncomfortable as it might be to have a serious, in-depth conversation around money with a boyfriend/girlfriend/fiancé/spouse, we need to learn how to have these discussions.  And more importantly, we need to learn how to have these discussions in a way that doesn’t cause us to fight.

[This article is one of a fourteen part ongoing series about the way managing your money changes when you get married that will be released from November 2017 to February 2018.  But, there’s no need to wait!  Click here to download your free Newlywed Money Checklist, that will walk you through each of the steps to take with your finances when you get married.  Click the link to get it today!]

What a Money Conversation Should Cover

Talking about money with a partner should be an open dialogue.  To make it easy for you, I’ve prepared a list of fifty-four questions about money that I think every couple should discuss.

Before we talk about what it should cover, though, we need to talk about what this money conversation shouldn’t include.  Primarily, judgment.

This needs to be a judgment-free conversation.  Your objective is to understand your partner’s habits and values as they relate to money, not to criticize them.  Once everything is out on the table, only then can you begin to craft financial strategies that will work for your family.

I truly believe that this is the only way to reduce or prevent conflict around your finances.  Have a serious, no-judgment dialogue about your history with money, and use the perspectives you get from the conversation to shape your family’s financial vision.

Here’s what you need to cover, as I outline in this free checklist:

Your Money Histories

Who you are as a person is often a direct reflection of how you were raised.  The way you handle your finances today is the result of your history with money to date.  Therefore, you need to know your spouse’s money history in order to understand and appreciate how they interact with money.

Before you start making big financial decisions with your partner, it’s critical to understand “where they’ve been” when it comes to money, and vice versa.  Doing so will help give you perspective on how they make decisions that might be different from those that you would make on your own.  Which, in turn, can reduce fighting about money.

Your Money Habits

If the discussion about your money history is about where you’ve been in the past when it comes to finances, the discussion around money habits reflects where you each are today.

Even if you’ve been together for years and have fully integrated your finances, this is still an important discussion to have.  At the absolute worst, this discussion will help you better organize your finances.  At best, you’ll learn some critical details about the current state of your finances.

Your Money Goals

We’ve covered where you were in the past, and where you are today when it comes to your finances.  Now, we need to talk about where you’re going.

What is it that you want to accomplish financially in your life?  What does your dream life look like as a family?  We often just go through the motions of our day-to-day life without thinking too much about these things in detail.  I think that this is a mistake.

Use my free question list to have a real discussion about what it is that you each want out of your life.  Once you’re able to articulate these things in detail, you’re that much more likely to actually make them happen.

Your Investing Philosophy

The discussion about your money goals can be a really fun exercise for couples.  But once you’ve talked through some of these goals, you need a roadmap to get you there.  And that typically will involve some sort of investing decisions.

How comfortable are you making investing decisions?  How much risk are you willing to take?  It’s critical to have a discussion about these topics with your partner up front, to reduce conflict about these items later.  Even if you don’t know that much about investing, you still need to be comfortable with the amount of risk you’re taking.

The Important Stuff

I’ve saved this set of questions for the end, even though these are the most important things you’ll discuss.  The last piece you need to address in your money conversation has to do with the role money should play in your lives.

My favorite question to ask whenever I meet with a new client is simply, “Why is money important to you?”  And when I ask this question, I refuse to accept a one word answer like “freedom”, or “security”.  Why does freedom matter to you?  Why does money make you feel secure?  You need to go deep – really deep – into these questions to fully understand the role that money will play in your family.

This isn’t just fluff.  I’m giving you some of my best stuff in this free download.  I’ve had multiple clients literally burst into tears when they go through some of these questions. Not out of sadness, but out of the realization that it’s within their power to use their money to live their dream life.

I truly believe that you can live your dream life too.  But, this only happens when you’re intentional about aligning your finances with that vision.  This list of questions to discuss with your partner is a critical step to help you get there.

Money Conversations are Important for All Couples

I know what some of you are thinking: this conversation isn’t one that you need to have.

Maybe you’re just at the point where you’re thinking about moving in with your boyfriend or girlfriend, and feel uncomfortable bringing money up so early in a relationship.  Or, maybe you’ve been married a few years and think you know all of the important stuff about your spouse’s finances.

Here’s the thing:  it’s never too early to start talking about your future if you’re in a committed relationship.  Money will play a pivotal role in the success of your partnership.  It’s an uncomfortable subject to discuss, but using the questions in this guide will make it easier.

And if you’re already married, you’re absolutely right that you know a lot about your partner’s financial situation already.  Of course you do.

But 99% of the couples I’ve met with have a very superficial knowledge about their partner’s finances.  They know the key numbers and financial data points, but not the why behind the decisions they make with their money.  And it’s this why that’s so important to understand if you want to avoid fighting about money later on.

You might know your partner’s answers to some of the fifty-four questions in this guide.  But I guarantee that if you go through the rest of them, you’re going to find some big surprises.

It’s Awkward, But Critical

Money might be awkward to talk about, but when you’re in a committed relationship, you must talk about it.  The good news is that money can be a powerful tool in your toolbox that you need to use to live your dream life – if you have proactive conversations about it with your spouse.  Use this guide to help facilitate a conversation with your spouse about money.

Where to Keep Your Savings When Interest Rates are Low

Saving might be a virtue, but it’s not one that the market tends to reward.

Even as interest rates in the economy as a whole have risen over the past few years, savings account interest rates generally haven’t followed suit.  Banks are quick to raise rates on things that make them money (such as interest rates on loans), but haven’t been nearly as quick to raise savings account rates.

Simply put, savings accounts are terrible right now.

Ask your parents or grandparents where they keep some of their spare cash, and they might tell you that rather than keep money in savings, they put money into Certificates of Deposit (CDs) or into a Money Market Account.  The only problem?  Those rates aren’t very good right now, either.

So, is all hope of earning some decent return on your savings lost? What’s the best place to keep your savings?  And how much do you really need to keep in your savings accounts?

[This article is one of a fourteen part ongoing series about the way managing your money changes when you get married that will be released from November 2017 to February 2018.  But, there’s no need to wait!  Click here to download your free Newlywed Money Checklist, that will walk you through each of the steps to take with your finances when you get married.  Click the link to get it today!]

You Need to Keep Some Money in Cash

Please don’t misinterpret “Savings accounts are terrible” to mean “You shouldn’t keep any money in savings”.  You should.

You need to keep enough money in savings to cover three to six months of living expenses, just in case you lose your job, your car breaks down, or you have unexpected health expenses.  There’s no getting around it, you need to have cash that you could access at a moment’s notice.

If both you and your spouse have good paying jobs or your fixed monthly expenses (like your rent or student loan payments) are relatively low, three months of spending is usually sufficient.  If your household only has one source of income, or your fixed expenses are relatively high, you should shoot to have six months of spending in a savings account.

Don’t Let That Number Scare You

Three to six months of living expenses is a big number.  If you don’t have that much money in savings today, it can seem like an impossible target to reach.

Rather than focusing on the end target, start by working toward something smaller. Instead, calculate your average spending for one month, and focus on saving that much.  Once you have that amount in the bank, try to double it.  And so on, until you reach your target savings about.

Start small, and focus on saving a month’s worth of expenses at a time.

Once You Have Your Emergency Fund Established, Keep it There

Once you’ve saved three to six months of living expenses, which we call your “emergency fund”, don’t keep adding to it.  Leave your emergency fund alone until you need to actually withdraw funds in a pinch.  (Of course, once the emergency is over, you’ll want to focus on building up this savings back up to three to six months of living expenses.)

But, you still should check in on this account from time to time.  Once or twice a year, you should review your budget to make sure that your spending hasn’t drastically changed.  If you’re spending more than you used to, you may need to add some money to your emergency fund, and vice versa.

In fact, most people will need to add to their emergency fund periodically over time.  Why?

Because savings accounts are terrible.

Simply put, the stuff we buy tends to get more expensive faster than banks raise interest rates on savings accounts. Long term inflation (the rate that prices rise) is around 3% per year in the US.  If the money in your savings account only earns 0.2% interest per year, you’re essentially losing money by keeping money in a savings account.

Which is why it’s so important to review your spending and add to your emergency fund as needed so you could still cover three to six months worth of expenses if you had to.

Beyond Emergencies

We’ve talked about why I don’t like savings accounts, but also why you need to use them anyway for your emergency fund.  We’ll talk through ways to make the most of savings accounts in a bit.

But what about the rest of your money?  Once you have your emergency fund, where should you be putting your savings?

It Depends on When You’re Going to Spend Your Savings

When deciding what to do with your non-emergency savings, the first question you need to answer is, “What’s it for?”  Are you saving money for a down payment on a house in a year or two, or for something more long term?

Unfortunately, finding a place for your money that will earn a higher rate of return than savings accounts will involve taking risk.  And as a general rule, the sooner you actually need the money, the less risk you should take with it.

For example, I usually recommend that most people in their 20s and 30s invest almost all of their retirement savings in the stock market using low cost mutual funds. These are relatively high-risk investments, but they also produce much higher average expected returns every year. If your retirement account were to drop in value by 20%, you might certainly be upset… but since you aren’t going to retire for several more decades, it wouldn’t be catastrophic since you have plenty of time to earn the money back.

However, if you were planning on using your savings to buy a house a year from today, and your savings were to drop in value by 20%, this would be a much bigger deal for you since you’d have much less time to earn the money back.  While long term growth rates in the stock market tend to be good, they can and do fluctuate up and down in the short term.

All of this is a long way of saying:  when deciding what to do with money you’ve saved beyond your emergency fund, the primary thing to consider is when you’re going to spend the money.  The longer you want to keep the money saved, the more risk you can afford to take.

Some Rules of Thumb

Now that we’ve discussed how to think about risk with the money you have saved, consider the following options for your short and longer-term savings.  There are pros and cons to each of these strategies that you should consider before making a decision- if you have any questions about these strategies, shoot me an email.

Short Term Savings (You Expect to Spend the Money in 0 – 2 Years)

For short term savings, you should take as little risk as possible to minimize your risk of loss in the account.  If you’re still up to take some risk, you might consider investing 20% of your short-term savings into stock mutual funds, and the other 80% into bond mutual funds.  This portfolio mix will still fluctuate with the market, but it should offer you a decent expected long run return.

Better yet, you might consider only investing in bond mutual funds and skipping the stock component altogether.  Bond funds still go up and down in value like stocks, but tend to be less volatile in most environments.  A money market mutual fund could also work well, but will offer a lower expected return (in exchange for less volatility).

If you’re looking for places to put your money that don’t pose a substantial threat to drop in value, you could consider a short term individual savings bond or a CD that matures by the time you need to withdraw the money. While rates on these vehicles tend to be relatively low, they are still a safe place to put your savings.  And particularly for 2 year CDs, rates tend to be much better than you’ll get on a savings account.  But, beware:  using either of these investment option, you’re tying your money up for the full term of the bond or CD.  If you buy a 2 year CD, you shouldn’t plan on taking the money out of the CD until the full two years are up.

Finally, particularly if you are looking to use your money in the next few months, you may be stuck keeping your savings in cash.  We’ll talk about ways to improve your returns on these types of funds shortly.

Medium and Long-Term Savings Goals

While any of the short-term strategies I described above could be used for longer term savings goals, I recommend investing your longer-term money into stock and bond mutual funds.  A longer-term CD or individual bond could work for you, but you’ll likely be better off putting your money into the market.

Since stock mutual funds offer more risk and more reward than bond funds, the longer you are looking to invest for, the higher the percentage of your investments should be in stock funds.

For example, if you are looking to buy a house in five years, you might consider investing 50% of your money for this goal into stock mutual funds, and 50% of your money into bond funds.  If you’re looking to invest for your newborn child’s college education, you might invest 80% of your savings into stock mutual funds, and 20% into bond funds.  And if you’re saving for your retirement that’s 35 years away, you might invest 100% of your retirement savings into stocks.

One final note about this, though.  As you get closer and closer to realizing these longer-term goals, you want to make sure that you gradually shift your investments into more conservative positions, all else being equal.  If you want to buy a house five years from now and you decide to invest your savings 50/50 in stocks and bonds, as you get closer to the point in time when you want to buy a house, you should shift your account away from the stock funds and into more bond funds or CDs.

This is All Well and Good, but Where Do I Keep My Cash?

You know the options for where to put your savings beyond your emergency fund, but that still leaves us with the same fundamental problem we had at the beginning.

If savings accounts are terrible, is there another option for where we can keep our emergency fund and maybe even our savings for our short-term savings goals?

The answer is, “sort of”.

Ditch the Traditional Savings Account and Open a High Yield Savings Account

Like just about everything else in our lives, the internet has drastically altered the landscape of personal finance options.  A few decades ago, you would have needed to work with a stockbroker to invest in a stock or mutual fund.  Now, you can open up an account at TD Ameritrade and place a trade on your own with just a few clicks of a button.

The same thing has happened with savings accounts.  A few years ago, you had no other option than to keep your savings with the local branch of a national bank, or maybe a more regional bank or credit union.

No longer.

Over the past decade, several banks have opened high yield savings accounts.  These aren’t banks that you could go to visit in person; instead, they operate 100% online as a way to keep their costs low.  This, in turn, allows them to pay significantly higher interest rates than the traditional savings banks.

Three of my favorite high yield savings accounts are

As of this writing, all three of these banks paid the same interest rate and they have been regularly raising their rates over the past few years.  They also have no monthly fees associated with them, and are FDIC insured.

Best yet, the interest rate on these accounts is literally over 4,000% higher than the interest rate paid on a Bank of America savings account at the time of this writing.

Most savings accounts just aren’t good in today’s interest rate environment.  And even with high yield savings accounts, I still don’t recommend keeping your medium- and long-term savings in one of these accounts.

But, if you’re looking to get a higher return on your emergency fund and even your short-term goal savings, a high yield savings account is the first place I’d start.

Should You and Your Spouse Have the Same Health Insurance Plan?

It’s the most wonderful time of the year…  health care open enrollment is upon us!

Ok, ok, so picking a health insurance plan isn’t super exciting stuff.  Fair enough.  But, we all know that health insurance is important, and picking a plan is a critical step to protect our finances (and, of course, our health) in the coming year.

For couples, though, making decisions about health insurance is much more complicated.  Should your family have one health insurance policy for both of you, or separate policies?  Before you drop your health insurance plan and add yourself to your spouse’s, let’s discuss a list of things to consider to determine the right steps for your family.

[This article is one of a fourteen part ongoing series about the way managing your money changes when you get married that will be released from November 2017 to February 2018.  But, there’s no need to wait!  Click here to download your free Newlywed Money Checklist, that will walk you through each of the steps to take with your finances when you get married.  Click the link to get it today!]

Your Goal: Get the Best Benefits for the Lowest Cost

At a high level, this doesn’t seem all that complicated.  You want the best health insurance policy you can get at the lowest overall cost.

If your spouse’s company offers much better health insurance than yours, you may want to drop your coverage and get added to your spouse’s plan.  On the other hand, if the coverage of each of your policies is similar, but yours is less expensive, this might be a reason for your spouse to join your policy.

Sometimes, the quality and cost between your plans will be negligible.  It probably isn’t worth the time or effort in these cases to make a change.

But Unfortunately, It’s Not That Simple

When evaluating the cost of a policy, there are a lot of other factors to consider rather than just the premium amount.  You need to sit down with your spouse and really dig into each policy to figure out which one is going to give your family the best benefits at the lowest cost.

There are many factors to review:

Your Expected Medical Expenses

Consider your overall level of health.  Are you the type of person who hasn’t needed to see the doctor in years?  Or, are you regularly working with specialists on a particular health issue?

Take stock of how often you usually have sick visits to the doctor, whether you are working with any specialists, and any prescriptions that you take.

You want to compare coverage of the services that you know you’ll be using under all of your available health insurance plans.  If you have no underlying medical conditions, a High Deductible Health Plan (HDHP) with minimal coverage and low premiums might be a great fit for you.  But, if you make frequent doctor’s visits, you may find that a more comprehensive policy is a much cheaper option for you than a HDHP, even if the monthly premiums are more expensive.  This analysis should be one of the primary factors to consider when choosing between your health insurance plans.

Make Sure You’re Protected in an Emergency

Beyond your expected medical expenses, make sure that you know how much you’ll need to pay in the event of an emergency.  Comprehensive plans often cover most of the cost of emergency care.  Under a HDHP, you’ll likely pay for 100% of the medical cost up to a specified dollar amount.

Review both of your insurance policies to understand how they handle emergency treatment prior to deciding.  While it probably won’t be the basis for your decision, it’s critical to know what’s covered and what’s not.

Understand How Much You’re Expected to Pay When You Visit the Doctor

Different health insurance plans will expect you contribute different amounts toward your health care.  While reviewing your options, you should identify the deductible, copayments, coinsurance, and maximum out of pocket expense for each policy.

  • The deductible of your policy refers to how much you’ll need to pay for your health care before the insurance company starts to “kick in” money. For example, if you have a $1,300 deductible on your policy, you are responsible for paying for the first $1,300 in healthcare expenses this year.  When reviewing healthcare plans, a higher deductible means that you’ll have to pay more for health care before insurance starts to cover your medical expenses.
  • Copayments, or “copays”, are flat-fee dollar amounts that you’ll need to pay when you see a doctor or get a prescription (after you hit the deductible). For example, a sick visit to your doctor might cost you a $20 copay per visit.
  • Coinsurance is another way of calculating your required payment for medical care after you hit your deductible. Rather than paying a flat fee (like the $20 copay example), instead you pay a fixed percentage of your care.  So, a visit to the doctor’s office might cost you 10% of the total visit under a coinsurance model.  Note that under most insurance plans, you’ll have to pay a copay or coinsurance- not both.
  • Finally, health insurance policies have a maximum out of pocket expense. This is the total maximum amount you’ll have to pay for your health care this year.  Once you pay this amount, your insurance company will cover 100% of the remaining cost of care for the rest of the year.

When you review the health insurance options available to you and your spouse, you should review each of these terms in detail when estimating the total cost of the insurance, and choose the option that’s best for you.

Compare Premium Costs

Finally, you should compare the cost of your premiums for the insurance options you have available.  In particular, you should answer the following questions:

  • Do either of your employers pay a portion of your health insurance premium? If so, you’ll lose this benefit if you decide to not use this insurance policy.
  • If either of your policies make you eligible to have an Health Savings Account (HSA), does your employer make contributions to your HSA? If they do, giving up that policy is giving away free money.  It still might make sense to do this if the other policy has better benefits, but it is certainly a factor you’ll want to consider.  We’ll talk more about HSAs in a minute.
  • How do your premiums change when you add a spouse to your policy? In other words, is there a cost difference between a) having both of you on your insurance, b) having both of you on your spouse’s insurance, or c) having separate insurance plans?
Review Coverage Provisions

Picking a health insurance policy for your family needs to be about more than just picking the lowest cost policy.  You’ll also want to review the coverage levels that each insurance offers.  Specifically, consider:

In-Network vs Out-of-Network Providers

Many health insurance plans have a list of doctors and specialists within their network.  If you go a doctor within your health insurance’s network, it will cost you less (via copay or coinsurance) than it would if the doctor is outside of your network.

The implication here:  if you drop your insurance coverage and get added to your spouse’s, you may need to switch doctors if your current doctor isn’t in your new health insurance’s network.  Or at the very least, it might be more expensive to continue seeing your doctor.

For every doctor or specialist you see, you want to make sure that switching health plans won’t put yourself out of network.

Coverage Exclusions

All health insurance policies cover the basics-  preventive care, immunizations, and emergencies.  However, if you have specific health care needs, you want to make sure that your policy actually covers them.

Many health insurance policies have certain conditions that they exclude from coverage.  “Preexisting conditions” were a particular type of exclusion that has been in the news a lot over the past few years; Obamacare eliminated the exclusion for preexisting conditions, but there are other exclusions that are still allowed.  So, you should review your policy options carefully to make sure you can get the coverage you need.

Beyond Costs and Benefits

Costs and benefits are the two primary drivers behind picking a health insurance policy for your family.  However, there are a LOT of other things you might want to take into account before picking your family’s health insurance plan(s).

Review ALL of Your Options

I’ve touched on this in passing a few times, but when you’re deciding whether or not to combine health insurance plans for your family, you really shouldn’t just look at the plans that you and your spouse are currently on.

Take this as an opportunity to review ALL of the insurance plans that your company offers.  While HDHP plans have become increasingly popular over the past several years, some companies still offer more comprehensive (but more expensive) policies that may appeal to you if you go to the doctor a lot.  Review the options at each of your employers, and pick the best plan for you.  Don’t just limit yourself to what you’ve done before.

Do You Want to Use a Health Savings Account?

Health Savings Accounts (HSAs) are savings and investment accounts specifically designed to be used to pay for health care expenses.  You (or your employer) contributes to these accounts, you decide how you’d like to invest the money in the account, and can withdraw the money at any point to cover medical expenses.

There are a few reasons why I highly recommend HSAs for many new families.  First and foremost, they have a lot of tax benefits.  Any money you contribute to the account (up to $6,750 per year for a family, or $3,400 per person in 2017) isn’t counted in your taxable income for this year.  What’s more, the growth of your money in the HSA isn’t taxed, and as long as you spend the money on medical expenses, it isn’t taxed when you spend it, either.

Particularly for families with low medical expenses, HSA’s can be a great way to invest for the future.  By investing the money in your HSA now, you have a source of tax free money in the future when you need to pay for your medical expenses.

But, there’s a catch.  You can only contribute to an HSA if you have a High Deductible Health Plan (HDHP).  So, if you currently have an HDHP and switch to your spouse’s (non-HDHP) plan, you would no longer be eligible to contribute to an HSA.  You’ll still be able to spend the money you’ve already put in your HSA on medical expenses for either you or your spouse… you just won’t be able to add any more.    If you like the flexibility that an HSA provides and like the idea of investing money specifically for future healthcare expenses, you may want to think twice about giving up a HDHP policy.

Other Considerations

Finally, there are a handful of other things to consider when picking a health plan for your family:

  • Job Security- if one of you has a much more secure job than the other, it might not make sense for you to both use the health insurance policy of the spouse with the insecure job.
  • Complexity- Having two health insurance policies means twice as much paperwork to deal with, and two different sets of bills to pay. If you value simplicity in managing your household finances, it might make sense for you to combine.
  • Coverage Gaps- Most health insurance plans start on January 1. But, if either of your plans have a different start date, you want to make sure that you don’t have a gap in coverage if you choose to combine.  For example, let’s say that Bob’s insurance plan starts on January 1, and Amy’s starts on July 1.  If the couple decides they both want to be on Amy’s insurance plan, they will need to make sure that Bob is covered by his insurance plan from January to July.

This is a decision with a lot of factors to consider before making the right decision for your family.  To learn more about other big financial decisions to make once you get married, download our free Newlywed Money Checklist.   Ultimately, evaluate all of the points in this article to weight the pros and cons before making a decision.


Don’t Panic About Proposed Public Service Loan Forgiveness Elimination

Executive Summary

Public Service Loan Forgiveness (PSLF) is a specific student loan payment strategy for individuals with high student loan debt who work for the government or a registered non-profit.  This includes government employees, employees of traditional non-profit entities, teachers, and even doctors and nurses who work at teaching hospitals.  Under this program, if you make 120 student loan payments on certain types of loans loans under a qualifying repayment plan, the remaining balance is forgiven after 120 payments.

Originally created under the Bush administration, there have been many rumored changes to PSLF program over the years.  In 2012, the Obama administration proposed putting some caps on the loan amounts that can be forgiven.  And recently, a proposed internal budget memo was leaked indicating that President Trump’s Department of Education is proposing eliminating the program all together.

In this video, I discuss the proposed threats to the PSLF program, and why I don’t think there’s any need to panic about these changes yet.  Ultimately, I believe that the chance that this proposal could become law is incredibly low both in its current form and in the current legislative climate in Washington DC.  And even if it does become law, it almost definitely would need to apply to future borrowers only.  If you’ve already taken out student loans and are counting on PSLF, you very likely have it in writing in your promissory notes that your loan servicer will honor PSLF in the first place!  Which would create massive legal challenges if the government were to revoke that at this point.

Nevertheless, it’s absolutely critical that you pay careful attention to the PSLF fine print if you are counting on this forgiveness.  To make sure you qualify for the program, you need to do a very detailed loan-level review to make sure your loans qualify for the program in the first place, since many of them don’t.  You also need to make sure your loans are on a qualifying repayment plan to be eligible for PSLF.  Finally, you need to submit an Employment Certification Form annually to your loan provider.  Ultimately, remember, this is on you to make sure you qualify!  For more information on qualifying for PSLF, click here and download my free student loan guide.

(Bill’s Note: This video, and the lightly edited transcription below, was originally released as a Facebook Live broadcast on May 18, 2017. If you want to participate in our next Facebook Live session, head to our Facebook page, hit “like”, and you’ll get the announcement the next time we go live.  Most of the content comes from questions submitted by my readers and viewers, so if you have a topic you’d like to hear more about, send a message to our Facebook page and we will get back to you as soon as we can!

Finally, click here to grab a copy of the FREE 30 page student loan guide mentioned in this video to learn more about how to qualify for Public Sector Loan Forgiveness.]

Pacesetter Planning Facebook Live Transcript

Welcome, everyone!

I was in the process of filming some things that will be going live at pacesetterplanning.com later today when I noticed the news that came out yesterday about the potential changes to the Public Sector Loan Forgiveness (PSLF) program by the Trump administration.  Particularly, the proposed elimination of the Public Sector Loan Forgiveness program.  I wanted to share a few quick thoughts on this.

Trump Administration Proposes Elimination of Public Sector Loan Forgiveness

In case you missed the news, the Department of Education’s internal budget memo was leaked yesterday to the Washington Post.  And it looks like that this proposed budget will essentially eliminate PSLF.  For those of you who don’t know, this is a specific student loan program that allows people who work for non-profits, or the government, or even some hospitals to be eligible to have the balance of their student loans forgiven after 10 years.  And, essentially, it looks like the Trump administration is going to try to eliminate this program.

Interestingly, that’s not the only thing that was actually proposed in this document.  They also proposed some changes to the Income Based Repayment plans that are available as well.  Those [repayment plans] are typically for people who are either pursuing loan forgiveness or those who don’t have the necessary monthly income to pay their “standard” student loan payment every month.  Under these programs, you have the capability to peg your monthly student loan payments as a percentage of your current income.

The Washington Post leaked that the Trump administration will be changing some of the specific percentages of your monthly income that would make you eligible for this program, as well as the length of some of these income based repayment programs.

There’s nothing new in that particular proposal.  Actually, I wrote on the blog back the week that Trump was elected about that specific change in policy.  It’s something that he campaigned on.  And, I wrote about it on CNBC’s website as well a few months ago. So, there’s nothing new there.  The real news is that this Public Sector Loan Forgiveness program may end up being eliminated.

This isn’t Something to Panic About… Yet

There’s been a lot of panic about that, and justifiably so at first glance, but I wouldn’t panic about this yet. And there’s a few reasons for that.

This Proposal Needs to Go through the Standard Legislative Process to Become Law.  Good Luck with That

First and foremost is that this is not an actual budget that was released.  This is not the law of the land.  If you go back to your 8th grade social studies classes (Schoolhouse Rock, and all that good stuff!), any budget bill has to be originated in the House of Representatives, passed through the Senate, and then signed into law by the President.  So just because the Department of Education has released this as their blueprint or vision for the future, doesn’t mean that it’s actually policy. And in fact, I think it’s probably unlikely that, in its current form, it will ever become policy. I’m not a legal expert, obviously I’m not in government, but based on what I’m seeing right now, I don’t see how that the elimination of PSLF really could possibly be eliminated as they’re proposing.  At least in its current form.

Interestingly, the Obama administration a few years ago actually did try to make changes to the program.  Rather than allowing your entire loan balance to be forgiven in 10 years, they were proposing to put some caps on it as a cost savings device, and that didn’t get through.  So, if that didn’t happen a couple of years ago under the Obama administration, particularly under the legislative climate that we’re in today, I just don’t see this actually happening right now.  Which is good.

This is Unlikely to Affect Borrowers who Already Have Student Loans

And even if it does, there’s a second piece of good news for all of you out there who took out these loans, are in public sector jobs, and are counting on this loan forgiveness.  And that is, that, quite frankly, it is against all precedent in student loan policy that, if this change were to go into effect, it would affect current borrowers.

Going back through all of the different changes in student loan policy over the past 15-20 years, I can’t think of a single one off the top of my head where people who already had loans originated now were affected by the changes. Typically, when these changes go into effect, they are for new borrowers. The good news, is that if you have loans in existence right now and are on track for loan forgiveness, I would just be shocked based on the precedents that have been set and the way these things work, if this were to actually affect you.

In fact, I’ll even take it a step further. For many of you, if you go back to the promissory notes that you signed when you were 18 or 19 years old and took these loans out (you probably didn’t even understand half the stuff because they do a terrible job walking you through it…), the PSLF program is often enshrined in those documents.  So literally, for them to eliminate this program right now, in my opinion (and some of the legal experts I’ve followed since this has come out), I don’t see how they could legally do this.  And in fact, I think this would create a lot of legal programs, if they were to eliminate the program for people who have already taken out these loans and are on track for loan forgiveness.

I think it’s more likely that they might eliminate the program for future people, which certainly could be a problem for folks, but it’s certainly not at the crisis magnitude that cancelling it for people who have all this debt and are really counting on this program being around at this point.

So, I think that a lot of the panic I’m seeing, while it might be justified at face value, really doesn’t justify panic just yet, to be honest.  Because first of all, it’s not on the books. It’s not even close to being on the books at this point. And I think that it would create so many legal headaches for the government to cancel this program that they’ve promised people in writing over the past 10 years, that I just don’t see it happening.

But, You Still Need to Pay Attention to PSLF

That being said, if this is something that you’re counting on, there are a few critical things that you need to do.  And that’s really why I wanted to talk about this today while this topic is in the news.  While I would continue going forward expecting this forgiveness program to be in place until we see anything different (and if we do, we’ll talk about it), if you’re on track for it now, you need to be doing a few things to make sure you do qualify.

Part of the reason that people are so scared about this is because, well, let me ask you- if I was to ask you how many people have qualified for PSLF over the past several years… the answer would be zero.  Because, the law was passed in October 2007.  So, it hasn’t even been ten years since it went into effect.  So, nobody has been eligible to qualify yet. That’s going to be changing later this year and early next year [Note: the application for forgiveness was released in early September 2017, as predicted in this video].  The very first group of people who are eligible for this program are really reaching the end now. But because it’s never been actually implemented, there’s a little bit of uncertainty here.

And so, what I wanted to do was talk through some of the things that, driven by this uncertainty, you should be doing to make sure you’re being taken care of.

You Need to Make Sure Your Loans Qualify for PSLF Under the Current Law

First and foremost, you need to make sure you actually qualify for the program.  We know that you need to hold a public sector/nonprofit type job, but you also need to make sure that your individual student loans qualify.  Because, one of the biggest misconceptions and mistakes that I’ve seen since I founded Pacesetter Planning is people who think they’re on track for PSLF and don’t even qualify for forgiveness in the first place because their particular student loans don’t qualify.

Over the past ten years, student loan policy regulations have changed every few years.  So, you really need to do a deep, loan-level analysis to make sure that you actually qualify.

I’ve made it as easy as I can for you to do that.  Click here to download a free student loan guide that walks you through the steps you need to take. Everything you need to make sure that you can qualify for this program under the current law as it exists, is detailed in that guide.  So, I highly encourage you to download that guide (it’s free, no cost for this!) and do the analysis that is listed there to make sure that your student loans qualify for this program. Because if they don’t, that’s going to be a whole other conversation.

You Need to Make Sure You’re on a Qualifying Repayment Plan

Second of all, this is a little less common of a problem, but make sure you’re on a qualifying repayment plan. If you’re on a standard 10-year repayment plan, it’s very likely that you’ll have paid off your loans by the time 10 years is over. So, double check with your loan servicer what type of repayment plan you’re on, and specifically make sure that this payment plan makes you eligible for PSLF.

This is particularly an issue, I’ve found, with people who have graduated medical school, who are residents but aren’t yet “full doctors”. For those of you who don’t know much about the medical industry, people who graduate medical school typically have over $250,000 in student loan debt, then they go into three (or four, or five, or six or seven) year residency and fellowship programs, where they make a fraction of what they’ll make as full doctors.  Because having a nonprofit hospitals jobs would qualify for PSLF, what I see happen a lot is people who defer their loans while they don’t have a big income during residency, but count that, in their head at least, as counting toward that ten year PSLF qualification.

Just to be clear, that’s not going to work. Because technically, it’s not ten years that qualifies you for PSLF, its 120 payments.  You need to make 120 payments on your student loans in order to qualify for this program.  So, it’s really not enough to go into residency, put your loans on deferment, and start counting the time.  Because if you’re not actually making the payment, it’s not going to count for you. So again, make sure that you know if your payment plan is going to qualify you, and that every payment you make is going to count toward that 10 year (120 payment) goal.

You Need to File an Employment Certification Form Annually

And finally, last thing, unfortunately this is on you to make sure you qualify for this.  Your student loan servicer and the government are certainly not going to be looking out for you to make sure that you’re doing what you need to do in order to qualify.

So, the last piece I recommend is that for people who are in qualifying jobs (working for a nonprofit or the government or things like that), you need to be filling out an employment certification form.  Every year. And submitting it to your student loan processor.  It basically shows that you hold a job that will qualify you, for all the payments you are making this year, toward those 120 payments that would qualify you for PSLF.  If you don’t have that form, click here or send a Facebook message to the Pacesetter Planning Facebook page, and I will send you a copy of that form. But you absolutely need to be filling it out every year.

The Government Accountability Office (GAO) released a study recently that said that 4 million people are “qualifying” for PSLF, but less than 1/8 of them are actually filling out that form.  I think that’s a huge mistake.  And other than having loans that don’t qualify in the first place, which I already talked about, not filling out that form and proving to the government and your student loan servicer every year that you qualify, is the number one mistake I see people make that could potentially lead to problems for them down the road.  So, definitely make sure you do that. I have no issues whatsoever with sending you this form if you send the Pacesetter Planning Facebook page a message.  I’ll make sure we get the form to you.

Conclusion: Worry About Complying with the Current Laws around PSLF, Not About Proposed Future Changes

Anyway, that’s about it.  Like I said, potential scary headlines about the future of this program.  We don’t really know what’s going to happen yet.  But based on the reasons that I detailed, I don’t think there’s any reason to panic yet.  I think it’s definitely something to keep an eye on. But, like I said, this is not law, it’s not part of the budget at all (in fact, we’re many, many months from even getting to that point). I don’t think this is likely, in fact it’s been tried in some ways before and it hasn’t gone through. Particularly with the climate in Washington DC right now, I just don’t see it happening. And more importantly, it’s against all precedent in student loan policy to affect current borrowers. If they were to eliminate the program, I think it’s much more likely that it would be eliminated for people who are taking out loans in the future, not people who are already on track.


You need to make sure, if you’re counting on PSLF, you have to make sure you’re doing everything you can to qualify. You need to make sure your student loans qualify in the first place, you need to make sure you’re on the right repayment plan for those loans, and you need to filing an Employment Certifiction Form indicating that you work for a nonprofit or government agency, every year, for ten years to show that you’re qualified.

Again, if you have any questions about this, I highly encourage you to either send me a Facebook message on the Pacesetter Planning business page, or download that free student loan guide.  There’s a ton of detail in it and it’s going to give you just about everything you need to know.  Thanks for taking the time today- have a good day!

What To Do If You Have a Worse Credit Score Than Your Spouse

When most couples talk about money, the topic of credit scores usually isn’t one that gets them fired up.  It’s much more fun to focus on a goal like buying a new home than it is to dwell on your credit score.

But, building your credit is one of the most critical steps to take in your 20s, since your credit score impacts most of the other parts of your financial picture.  The interest rates on your future mortgages and car loans directly depend on your credit score.  And, credit takes time to build, so even if you don’t need to take out a mortgage soon, the time to focus on this is now.

It’s very common to see a husband and wife have very different credit scores.  What steps should the person with the lower score take?

[This article is part of an ongoing series about the way managing your money changes when you get married in the coming months.  But, there’s no need to wait!  Click here to download your free Newlywed Money Checklist, that will walk you through each of the steps to take with your finances when you get married.  Click the link to get it today!]

Differing Credit Scores Can Be a Huge Challenge for Couples

There are a lot of decisions couples need to make about how they handle their finances together when they get married.  Typically, these decisions involve deciding whether (and how) to combine financial accounts, how to manage monthly cash flows, and how to save and invest.

Credit scores aren’t one of the topics that tend to come up right away.  Unless you’re in the process of buying a home, they just aren’t a topic that tends to be on the top of people’s minds.

But, this doesn’t mean that it isn’t an important topic for couples.  On the contrary, being in a marriage where one partner has a significantly higher credit score than the other can be a huge source of stress on your relationship.  And, it can complicate the process of taking out a mortgage, since you will need to use both of your credit scores when applying for the house.

It’s important, therefore, to be aware of your partner’s credit score and to get out in front of any areas for improvement before you actually need to use the credit score.

How Do You Fix It?

The good news is that this is a fixable problem.  The bad news is that it can take a good amount of time to improve your credit scores significantly.  Which is why it’s critical to start as soon as possible.
This isn’t an exhaustive list, but if you’re looking to improve your credit score, start with these strategies:

Download your Credit Reports Every Year

Knowing is half the battle.  Use a free service like Credit Karma to pull your credit reports once a year.  And, make sure to look at reports from all three credit bureaus- Equifax, Experian, and Transunion.  It isn’t common, but sometimes there can be erroneous items on one report that aren’t listed on any of the others.  You can also get your credit reports through the website of each of these credit bureaus.

Dispute Errors As Soon As Possible

We’ll touch on this in a bit, but it’s so important that I wanted to call it out right away.  You’d think that the three credit bureaus are infallible, but unfortunately, they are far from it.  I’ve caught three different errors on clients’ credit reports in the past couple months alone.  If you see something that you know is a mistake on your report, use the link on the relevant credit bureau’s website to file a dispute immediately.  These things can take some time, but it is possible to remove factually incorrect information from your reports.  And, as I said, this is unfortunately a more common problem than you’d expect.

Recognize that Making Changes to Your Available Credit Usually Involves Taking a Step Backward Before You Take a Step Forward

This is crucially important.  If you open a new credit card and use it the right way (more on that in a bit), over time your credit score will likely go up.  But, whenever you request new credit, this creates what’s called a “hard check” on your credit that causes your credit score to drop for the time being.

Again, in the long run, this will be outweighed by you using your new credit wisely, but be aware that if you’re planning to take out a loan sometime this year, now isn’t the time to be opening new credit cards.

And as an FYI, “hard checks” typically remain on your credit report for two years.

Have Enough Credit Available…

This one is particularly important for those people fresh out of undergrad or a grad school program.

Double check how much available credit you have on each of your credit cards.  Typically, most people new to the working world have credit limits in the $300-$500 range.  Frankly put, that’s not enough to build a great credit score.  Request a credit increase to give yourself more of a foundation to build your credit history.

…But Don’t Use (Much of) It

One of the primary drivers of your credit score is how much you use the credit you have available.  A good rule of thumb is to always use 30% or less of the total amount of credit you have available on each credit card.

In other words, if you have one credit card with a $10,000 credit limit, never let the balance on that card get higher than $3,000.  And of course, pay off the balance every month.  Speaking of which…

Set Reminders

It’s hard to keep track of your finances when you’re busy.  So, make it easy on yourself!  Set reminders to pay your bills every month.

One of the easiest ways to mess up your credit score is to accidentally miss a payment.  Set calendar reminders to yourself to make sure you don’t forget!

Check Your Reports for Any Overdue Bills (And Either Pay or Dispute Them Right Away)

When you do your annual review of your credit report, pay close attention to any bills (medical bills are common examples) that have accidently or allegedly gone unpaid.

If you have a bill listed as in collection that has gone unpaid, first do some research to make sure the bill is actually yours, and if it is, that it actually wasn’t paid.  John Oliver did a great report on erroneous credit reporting not too long ago that is worth taking the time to watch.

If you have a reason to contest the charge, do so as soon as possible.  If you realize that you just forgot to pay the bill, take care of it ASAP.

Don’t “Shop Around” for Loans and Credit Cards….

Or, at the very least, be careful not to get firm quotes from more than one lender at a time.

As mentioned above, every time a lender does a credit check on you regarding issuing you a credit card or loan, this creates a “hard check” on your credit that hurts your score.  If you go to five different credit card companies requesting a credit card, that’s five “hard checks” that will appear on your credit report, even if you only open one card.

By all means, do your homework and shop around, but only begin the application process once you’ve made a decision.

Beware Retail Credit Cards

I’ll confess- I’ve goofed on this one myself.

Stores generally offer pretty good perks to entice you to open up a store credit card.  But, having retail credit cards directly impacts your credit score, and not in a good way.

Lenders view retail credit cards as a negative indicator, so it’s almost always a best practice to say no to the discounts that the retail stores offer you in order to save money on your mortgage down the road.

Give it Time

In most areas of financial planning, we can usually implement a pretty quick fix.  Whether it’s acting on a need to save more for retirement or to refinance a loan, usually the recommendations I provide to my clients can be acted on quickly and you can see immediate results.

Unfortunately, improving your credit score just doesn’t work that way.

Don’t get me wrong, there are things you can and should do today to improve your credit score.

But, it’s not a quick fix- it might be two years before you see substantial improvement.  Trust the process and give it time, and your score will improve if you manage your credit the right way.


Whole Life Insurance Is a Terrible Investment For Most Millennials

Several months ago, I wrote a post on this blog that was… shall we say, somewhat critical of using whole life insurance as an investment.  To be clear, that’s not to say that I think life insurance itself is bad.  Life insurance is important if you have a spouse or children who depend on your income, or if have a mortgage.

But, there’s a big difference between getting life insurance because you actually need insurance versus getting a whole life insurance policy as an investment.  If you have an insurance need, you absolutely have to get a term life insurance policy to cover that need.  I emphasized this in my original post, and I’ll touch on it again below. If you are considering whole life insurance as an investment vehicle – or worse, if a life insurance salesman is trying to convince you that you need one – well, to borrow a phrase from my last article, you should run like hell.

Turns out, saying this didn’t win me a ton of fans in the insurance sales business.  I heard from a few people who make their living from selling these whole life insurance policies, who had a lot of arguments against what I said in my last post.  I even spoke to two of them on the phone to hear their point of view.

The points they made in favor of investing in whole life insurance (I’ll detail them all, with my responses, below) sound good at the surface, but their arguments flat out don’t hold up for almost all millennial investors.  In fact, I’ll go so far as to say that while there are some specific cases where whole life insurance could make theoretical sense for a handful of people out there, these cases are so few and far between that 95% of my readers shouldn’t even consider it.  If someone tries to sell you a whole life policy, and you aren’t a member of the 1% or trying to set up your estate for your heirs to inherit, you should run like hell.  Quickly.

Simply put, if you have an insurance need, you should buy term insurance.  It’s significantly cheaper, so you can invest the difference between the whole life premium and the term life premium.  With the right investment strategy, you should come out light years ahead of where you’d be with a whole life policy, as we’ll see below.

And if you don’t need insurance, just invest the money until you get married, have a child, or get a mortgage.  No need to buy a whole life insurance policy if you don’t need the insurance piece to begin with.

There’s a lot of information here, but it’s important.  I hope you use this post as a reference in the future as needed.

The Sales Gimmicks Life Insurance Salesmen Use are Just That- Gimmicks

A good salesman wouldn’t get very far without some good stories to convince (or worse, to scare) you into buying a whole life insurance policy. When I discussed my previous article with two sales reps from reputable life insurance companies, I heard several common reasons that they use to convince people to invest with them.  Let’s walk through them one by one – consider this your one stop shop for turning away a whole life insurance salesman.

Reason 1: Withdrawals from Life Insurance Investments are Tax Free

I start with this one because, frankly, it’s the best argument out there in favor of investing in life insurance.  It’s true- when you invest in life insurance, the policy builds up a “cash value” from which you can withdraw on a tax-free basis.  This “cash value” is the investment component of a whole life insurance policy.

Is it the only tax free investment out there?  Absolutely not.  In fact, there are several other options out there if you’re looking for a way to have tax free income in the future:

  • Roth IRAs are by far the most common type of tax-free accounts. There are annual contribution limits ($5,500 per year for millennials) and income limits (you have limited eligibility to contribute to a Roth IRA if your income exceeds $118,000 for individuals and $186,000 for couples in 2017).  But, if you are eligible to contribute to a Roth, this is my recommended tax-free-growth investment of choice.
  • Municipal bonds are investment vehicles that allow you to lend money to cities or towns, in exchange for interest payments. Those interest payments are tax free at the federal, state, and local level.  These aren’t particularly good long term growth investments (although we’ll compare their performance to whole life policies in a little bit). But if tax free income is what you’re after, a series of good, investment-grade municipal bonds will do the trick.
  • There are several other investment options that aren’t completely tax free, but are significantly tax-advantaged compared to more traditional mutual funds. Specifically, these include:
    • US Government bonds (taxable by the federal government, but not state and local governments)
    • Dividends– Investing in high-dividend, blue chip stocks that pay dividends isn’t tax free, but stock dividends are taxed at much lower rates than your standard income tax for most investors.  (As a side note, a “dividend” is like an interest payment that some companies pay to investors who own their stocks).

Yes, investing in whole life insurance gives you some tax advantages down the road.  But, so do other investments – and these alternatives don’t have the disadvantages of whole life that we’ll address at the end of this post.

Oh yeah, and did the life insurance salesman you were talking to about one of these policies mention that even though the withdrawals are tax free, you’ll be charged interest when you draw down the cash value of your life insurance policy?

I didn’t think so.

Reason 2: Whole Life Insurance Investments are a Good Way to Diversify

I get it, this sounds appealing at the surface.  “I’m putting most of my money into stock and bond mutual funds, and I know I shouldn’t put all of my eggs into one basket, so why not put a portion of my investments into a life insurance policy?”

Nope.  This one doesn’t work at all, for two reasons:

  1. If you put 20% of your portfolio into a life insurance policy, that means you are entrusting a single company with 20% of your assets. What if the life insurance company who runs the policy goes bankrupt in 10 years?  What happens then?   It might be a different type of investment vehicle, but you shouldn’t let a large percent of your portfolio ride on the successes of any one company.
  2. The way whole life insurance policies work is that you give your money to the insurance company, they invest the money for you, and direct a portion of it to build your cash value in the policy (the “investment” component), a portion to cover the policy’s death benefit (the “insurance” component), and a portion to cover their operating expenses.  How are they investing your money?  In the same stock and bond mutual funds that the rest of your investments are in.  If all of your money is invested in the same stuff, it doesn’t matter that the life insurance agency is the middle man.  Adding the middle man doesn’t really diversify you.  And remember, you’re losing a portion to cover their business expenses.


Reason 3: Everybody Needs Insurance

No, no they don’t.  I addressed this one in my last article.

If you have a family member (spouse, child, etc.) who depends on you for income, you need life insurance.

If you have a large debt that needs to be paid off (like a mortgage) even if you were to pass away, you need life insurance to cover that debt.

If you don’t have any financial obligations that would need to be covered if you were to die, you don’t need life insurance.  Period.  That might change in the future, but you don’t need it now.

But even if you do need life insurance, a term life insurance policy will do just fine for almost everyone.  In a term insurance policy, you specify how long you want the coverage to last.

Which is a good thing.  And, in fact, the entire point.  Most people don’t need life insurance in their 80s and 90s.

Once you’re retired, most people don’t need life insurance.  If your mortgage is paid off, your kids are grown and supporting themselves, and you’re living off of your retirement assets and managing them well, there’s no need for you to have insurance.  So, why pay for a whole life insurance policy that will be many multiples more expensive than a term insurance policy, if you won’t need the insurance coverage when you’re most likely to die?  It’s just a waste.

Reason #4: Whole Life Insurance Is a Good Investment for Some People

Sure.  Maybe.

But not for your typical millennial.

Whole life insurance policies can be a good way to transfer money to your heirs.  If you don’t have heirs (or a ton of money to leave them), like most people who read this blog, this doesn’t apply to you (yet).

And, as we’ll discuss in a bit, two of the three big downsides to investing in whole life insurance are that the premiums are very expensive, and you’re essentially locked into paying them for life.  You might be able to afford to pay these insurance premiums now, but what happens if you lose your job?  Or when you have children?

Simply put, there’s too much uncertainty about how the future will play out for millennials to invest in something like whole life insurance.

Reason #5: Life Insurance Salesmen Tout the Investment Benefits of Whole Life Insurance, but You’re Better Off Investing Elsewhere

The last common thread I heard when debating whole life insurance with these salesmen is that life insurance is a good part of an investment portfolio is that it’s “safe” or “guaranteed”.  We need to do a deeper dive into this one.

Yes, there are some guarantees associated with the buildup of cash value in a whole life insurance policy.  But, are they really better than the alternatives?  Let’s take a look:

Whole Life Investment Performance is Hard to Verify

In most cases, the performance of the underlying investments in your life insurance policy don’t match the stated rates of return that the company projects.  In fact, I’m not sure I’ve ever seen a whole life policy who’s actual investment return matches the projections the salesman showed you when (s)he tried to sell you the policy.  Finding the actual returns usually involves submitting an official request to the insurance carrier.

I spent more time than I’d like to admit trying to go through data to find a good data set to show actual performance of a sample whole life insurance policy.  Turns out, this isn’t data that the big companies like to advertise.  I could only find one set of data that looked reasonably accurate based on my experience in the industry, for a hypothetical 35 year old taking out a $100,000 whole life insurance policy:

A few things to notice here:

  • The average annual return for the policy from age 35 – 83 was about 5.5%. Not great, but not terrible for a conservative investment, right?
  • But, notice that the breakeven point (the point where your cash value is the same as the amount you pay in every year) doesn’t occur until about year ten! That means, this investment is guaranteed to lose money for you for the first ten years you have it!
  • The good returns don’t kick in until after the person who holds the policy is expected to die!
  • The premiums are expensive! On that note…
Investing in Whole Life vs. Buying Term Insurance and Investing the Difference

It’s time to get down to business.  I’ve made theoretical arguments about why investing in life insurance is a bad idea.  Let’s see some numbers to back it up.

I’m coming at this analysis from the perspective that if you’re considering investing in whole life insurance, you a) like the idea of investing conservatively, or b) like the idea of tax free investments.  So, the investment models I outline below aren’t my typical recommendations – instead, they are made with these specific goals in mind.

Simply put, can we come up with an investment portfolio with these qualities that is projected to beat the performance in the table above while also buying term insurance to make sure you’re fully insured?

Let’s take a look at two cases:

Case 1: Buy Term and Invest the Rest in Municipal Bonds

We’ve already discussed that municipal bonds are tax free, and, like “guaranteed” life insurance investments, are also appealing to risk-averse investors.  How does a municipal bond portfolio compare to a whole life insurance investment?

Take a look at the table below.  Here, we’re comparing the value of the same whole life policy we saw before with a comparable 20 year term life policy.  Notice the premium for the term life policy is about 10% of the whole life premium.  We’re taking the difference between the premiums and investing them into a municipal bond portfolio.  Since the historical average return on a good municipal bond is about 5% (rates are lower than that right now, but they’re rising), we’re assuming that the portfolio will pay 5% interest a year, tax free. Let’s take a look at how the portfolios would compare, if the investments perform as they have in the past (which, of course, is not a guarantee):

Twenty years later, the whole life policy is still underperforming a tax free municipal bond portfolio.  All while getting the insurance coverage you need.

Case 2: Buy Term and Invest in Dividend Paying Stocks

Municipal bonds are all well and good, but what if you’re a relatively conservative investor, still concerned about taxes, who wants to dabble in the stock market?

Let’s run the numbers one more time, this time against a portfolio of ten of the most boring stocks I can think of.  First, a disclaimer:  I like investing in individual stocks, but only as a complement to a more well-diversified portfolio.  You shouldn’t put 100% of your investments into the kind of portfolio I’m about to show below.  But, if you’re thinking about putting 20% of your portfolio into a life insurance policy as an investment, something like this might be an alternative worth considering for a small portion of your money.

What counts as a boring stock?  Specifically, I’m thinking of massive companies with a long track record of success that generate reliable dividend payments to investors every year.  In this analysis, we’re looking at big companies across many industries: Chevron, Aqua America, John Deere, Wells Fargo, Pepsi, AT&T, McDonalds, Johnson & Johnson, Disney, and Proctor and Gamble.  Pretty boring companies, right?  (Ok, maybe Wells Fargo has been less boring of late.  But you get my drift).

The average annual return for these stocks, combined, over the past 20 years?


Again, past performance does not equal future returns.  But given that the 8.96% takes some good years (the late 1990s and the past five years) and some bad years (the early 2000s and of course the market crash in 2008-2009), it’s not the worst point of comparison against how this particular whole life insurance policy performed.

So, what does this comparison look like?

Now, keep in mind that this portfolio is taxable.  So, taxes will reduce these numbers a bit.

But, hopefully I’ve made my point.  There are better long term ways to invest than either of the options I presented here.  But starting from the perspective that a) you need to have insurance, and b) we want to invest in either tax free and relatively safe ways (municipal bonds) or in relatively secure companies (my “boring stocks”), whole life insurance just doesn’t hold up.

Whole life insurance is a bad investment.  Period.

A Bonus Three Reasons to Hate Whole Life Insurance

In my conversations with life insurance salesmen, there are three key points that they didn’t bring up as reasons to invest in their policies, even though they are critically important.  See if you can figure out why they might not have emphasized these characteristics to me…

Whole Life Policies are Complex

If you’ve made it this far, you’ve seen a lot of information on whole life insurance policies and are possibly (or even likely) overwhelmed with the details of these policies.  How does cash value build up in a life insurance policy?  Wait- what exactly is cash value in the first place?

There’s a lot to these policies.  It’s way more complex to invest in life insurance than it is to invest in just about anything else.  And, in my opinion, complexity doesn’t give you any value here.  It actually does the opposite.

In the spirit of Newton and Archimedes, I’d like to call this Nelson’s First Principle of Personal Finance:

“The more complex the investment, the worse it is for the average investor”

And whole life insurance policies are certainly on the “complex” end of the spectrum.

You’re Locked into Whole Life Policies

If you buy a whole life policies, you’re typically locked into paying these high premiums until you’re 100 years old.  If you miss a payment, your policy will lapse.  And, you could lose the “benefits” that made you buy the policy in the first place.

If you’re a young investor, this should scare you.  If you don’t know for sure where your life will be in 10 or 15 years (spoiler alert: you don’t), you shouldn’t mess with locking into a policy that (as we’ve seen) has poor returns for the first several years.

I’ve already shown how your investment returns could be greater by buying term and investing the difference.  And that analysis assumes that you don’t let your policy lapse.  If you do, the difference is all the more clear.

Life Insurance Salesmen Have Huge Incentives to Sell Whole Life Insurance (And Have No Incentives to Sell You Term Insurance)

I point blank asked a life insurance salesman how much more he gets paid to sell a whole life policy than a term life policy.  They didn’t even know, because their pay for selling term life insurance is so low that they’ve never bothered to sell one.

This is a HUGE problem.  Life insurance agents are paid way more to sell whole life policies than term life policies.  A “financial advisor” who works for a life insurance company has zero incentive to show you a portfolio of term life insurance and a municipal bond portfolio like the one I showed you before.  Zero.

There’s a reason that trust in the financial services industry typically polls somewhere around levels of the criminal justice system.  And selling bad life insurance policies to people under the age of 40 is, in no small part, a reason why.

This is a huge part of the reason I started my own firm, among many others.  I believe that the best financial advice you can receive is paid based on a level fee.  In other words, the fees you pay should not vary depending on what the advisor recommends to minimize conflicts of interest.  Life insurance salesmen don’t operate that way.


There’s a lot here.  But this stuff is important.

It can be very easy to be talked into investing in life insurance.  The facts and figures salesmen use make it seem appealing.

But unless you’re in the top 1%, you should get your insurance needs covered with a term policy.  There are better investment options elsewhere.