Slicing Through Money's Mysteries
One of the worries about entering the decumulation phase is that you might start spoiling your adult children. If you end up giving your adult children so much money, you might just take away their motivation to work!
Being able to earn your own money and provide for your family creates one of the most satisfying feelings ever. What a shame to take away such a great feeling by giving your adult children everything.
If you love your spouse, you’d make them financially independent. If you don’t truly love your spouse, then you’d make them depend on you for all their financial needs.
Depending on someone for money is a terrible feeling. Imagine being a grown adult and returning home to live with your parents after four years of college.
Every time you go out, you’ve got to ask them for a couple bucks to buy a loaf of bread or more likely, beer money to hang out with your buddies.
Now imagine marrying someone, giving up your job to raise a family, and being entirely dependent on your working spouse for all your spending needs. A common situation, but is it ideal?
It’s one thing to depend on someone for money as a kid. However, it’s another thing to be dependent on someone as an adult with so much education and experience.
For all this talk about the desire for financial independence, it’s odd that some couples aren’t willing to establish separate financial accounts to allow each other more freedom. There should be a concurrent quest to build your couple’s finances together and separate.
I’ve mentioned one of my regrets was having kids late. I was too focused on my career. Then I became too focused on achieving financial independence to make room for little ones. Ideally, I would have liked to have had my first kid at age 34 instead of at age 39.
However, a conversation with my friend Carlos made me better realize the benefits of being an older parent who is more financially secure.
When I first mentioned to Carlos I had an almost five-year-old son, he looked at me in shock. He responded, “You’re 44 years old and have a five-year-old?! What?!”
You see, Carlos is 48 years old and has a 24-year-old son. He’s very proud of his son because he always talks about how big and powerful he is. However, he lamented his son never tried hard enough in baseball, which is why he never was able to play in college.
So I asked Carlos what his son was doing now. He responded, “He lives in the Central Valley, in Modesto with his mom. I haven’t seen him in over a year.”
Modesto is only a 1 hour, 30-minute drive away from where he lives in San Francisco. I’m not sure why he doesn’t visit more often.
Much has been written about the high cost of having kids. Spending $300,000 – $1,000,000 per kid through high school is a lot of money. However, less has been written about how having kids may make you richer and a better person. Let’s change the dialogue with this article now that I’ve been a stay-at-home-father of two for five years.
If I could rewind time to when I was 25 years old, I’d slap myself silly for focusing so much on my career. The future me would tell my past self to put more effort into my relationship and start a family by age 35 at the latest.
I had my first kid two months before my 40th birthday in 2017. Although I felt like I had snuck in through the backdoor by being able to say I had kids in my 30s, I really started five years too late.
Up to age 32, my main focus was making money and climbing the corporate ladder. For the next two years, my focus was on figuring out how to escape the rate race.
Once I broke out, for the next five years, my main focus was on making sure I survived without a job. The whole idea of adding another human being into my newly free, but precarious life wasn’t a priority.
But if you’re thinking about having kids, I encourage you to have them sooner, rather than later. There is no greater love than you will have for your children. And it is impossible to know such love until you have them.
Do you have parental guilt? Welcome to the club. The vast majority of articles already address mom guilt. Therefore, I’d like to discuss more about the dad guilt epidemic. After all, it takes two to make a baby.
Unfortunately, men don’t have a culture of readily sharing our feelings. As children, we are told that “big boys don’t cry” or “suck it up already.” Consequently, we hide our pain and march on through the mundaneness of life like good soldiers.
If we suppress our feelings long enough, bad things tend to happen. It’s unfortunate that society doesn’t treat a man’s mental health with the same equal amount of attention as it does a woman’s health.
A simple Google search on the words “mom guilt” and “dad guilt” reveals 2X more results for “mom guilt.” Yet, I argue that dad guilt might be much more common than mom guilt.
On the front page of Google, you will even find an article from a website called Motherly entitled, “Is “Dad Guilt” Even A Thing?” The story’s purpose is to marginalize a father’s feelings about parenting.
The author concludes, “26 percent of dads pull the hide-in-the-bathroom trick to shirk parental responsibility. Just every now and then. When the shrieking gets too loud. When the man caves are overrun by toys. We get it. And we’ll let you in on a little secret: The pantry works pretty well, too.“
What about the remaining 74 percent? I’m disappointed there isn’t more recognition about what dads have to go through as well. Let’s raise awareness.
Life has a way of throwing us curveballs and throwing us into emergency situations when we least expect them. You might get in an accident and slip into a coma. Or you could catch a surprise illness that takes a sudden turn for the worst. Whatever the case may be, having a death file for your loved ones to reference can make stressful situations a lot less chaotic.
The following is a guest post from Steve, aka Paper Tiger, and a long-time Financial Samurai reader. A near-death experience this summer prompted him to create a detailed “death file” so that his wife and daughter would be better informed about all the family’s financial details, including assets invested, taxes, expenses/paying bills, family trust, and more.
A death file is a binder, folder, spreadsheet, and/or document(s) that contains all the information a loved one would need in the event of your incapacity or passing. It can be in physical or digital form based on personal preference. Depending on your circumstances, it could be as simple as one piece of paper or as lengthy as a book. A death file is also commonly referred to as an in-case-of-death-binder or simply a death binder.
Although nobody likes to think about when we may inevitably kick the bucket, preparing for your passing with a death file is an act of love and responsibility. Anyone who has had a loved one pass unexpectedly and had to settle their affairs can surely attest to that.
Examples of critical items that should be included in a death file include:
Despite paying taxes your entire life, even when you die, the government still wants something from you! As a financially savvy individual, it behooves you to understand as much about the tax rules as possible. At the very least, you need to know about the historical gift tax exclusion amount. After all, tax is likely your largest ongoing expense.
The Internal Revenue Code imposes a gift tax on property or cash you give to any one person, but only if the value of the gift exceeds a certain threshold called the annual gift tax exclusion. For 2022, that annual gift tax exclusion amount is $16,000, up from $15,000 in 2021. The historical gift tax exclusion amount tends to increase by $1,000 increments every three to five years.
That’s right, you’re not allowed to give more than the annual gift tax exclusion without incurring a tax. This is despite having already paid taxes on the $16,000!
For example, let’s say you earn $200,000 a year and pay a 20% effective tax rate. Your take home pay is $160,000 and you save 20% a year, or $32,000 a year.
If you wanted to give 100% of your hard-earned savings to someone, you may have to eventually pay an additional tax on $32,000 – $16,000 = $16,000 if your estate ends up over the estate tax exemption amount.
Thankfully, the estate tax exemption amount is $11,700,000 per person in 2021 and going up to $12,060,000 per person in 2022. But the estate tax exemption amount is at risk of going down under the Biden administration. President Biden wants to raise income taxes, raise capital gains taxes, and do away with the stepped-up basis as well.
Something funny happened on our long and intricate preschool admissions journey. A school we had applied to in 2017 reached out and said they have a spot for our son this fall. Now we have to decide whether to forego an enrollment deposit at another school or stay the course.
We jokingly refer to this school as the “Harvard Of Preschools.” Even one of our wealthiest friends, who regularly donates six figures a year to his children’s schools, advised us not to bother applying
“It’s impossible to get in. Save your time,” he told me years ago.
Not being one not to try, we applied anyway when our son was only three months old.
A year ago, we got word from the Harvard of Preschools that we had been waitlisted. 80 families had applied for just one non-sibling spot. Oh well. I should have listened to my friend.
The admissions director said we were at the top of the waitlist, but I suspected he was just being nice.
Then recently, the Head of School e-mailed us and said a spot opened up for us this September because a family was leaving. Guess my friend was wrong!
At some point in your child’s education journey, they too may also come off a waitlist from a “better school” after you have paid an enrollment deposit for another school. Therefore, I thought it might be useful to describe our thought process to help you decide.
If you’re a parent, you might consider starting a 529 plan for generational wealth transfer purposes in addition to paying for your child’s education. Even if you are not a parent yet, you should consider opening up a 529 plan. You can open the 529 plan in your name and change the beneficiary later.
There’s a decent chance the estate tax threshold will eventually come down from its current all-time high of $11.7 million per person. Further, the number of millionaires in the world is expected to continue growing.
Therefore, using a 529 plan to reduce the value of your estate by the time you pass may help you save on taxes. After all, who wants to pay a 40% death tax rate when you could help fund a loved one’s education in a tax-efficient manner?
To recap, 529 plans are funded with after-tax dollars just like a Roth IRA. The money gets to grow tax-free. All money taken out—including investment gains—is tax-free as long as it is spent on qualified education expenses such as tuition, room and board, books and supplies.
If the money is used for non-educational purposes, you must pay income taxes on the growth plus a 10% penalty. Your original capital contributions are not subject to income taxes or a 10% penalty.
Let me share our original intent for our son’s 529 plan. Then I’ll discuss how the example might evolve for tax-efficient wealth transfer purposes. I’m convinced every parent and parent-to-be should contribute to a 529 plan.
Before becoming a father in 2017, I dreaded changing diapers. Now that I am a father, I long to win the poop lottery. To see my boy take a gigantic dump is curiously gratifying. Digestion system. Check!
Before becoming a father, I wrote a lot about supporting mothers because I couldn’t fathom having to carry a child in my belly for nine months. It didn’t seem possible to naturally give birth to something so big. Watching a C-section video is also uncomfortable. I felt guilty not providing equal care. It was the least I could do.
But now that I am a father, I’ve come to realize that I haven’t been giving fathers enough credit. Being a father is damn hard work! From 11pm – 6:30am shifts, to then having to go grind it out at work, to providing constant moral support, I give props to all dads. I wish the mass media would better recognize dads rather than constantly vilify fathers for not doing enough.
There is a tremendous amount we fathers can do to provide for our children and make our partners’ lives easier. I simply do not believe fathers are given enough credit. Most articles you see are about fathers not doing enough around the house or not spending enough time with their children.
But I believe encouragement is a strategically better way to make fathers try harder.
