This is the fourth and final week of National Financial Literacy Month. You can see all the videos and complete summary from Week 1, Week 2 and Week 3.
This movement (follow on Twitter using #FLmonth) is all about educating people to establish and maintain healthy financial habits.
A huge thanks to Steve from MoneyPlanSOS (who interviewed me on his podcast), for posting and editing each 2 minute video during April.
In week one, I made my first YouTube video debut, and talked about Being Self-Employed. And this week I’m talking about Tax Brackets and Taxable Income (I promise it’s not as boring as it sounds)!
Week 4
April 23rd – Different Options to Pay for College
Jon White from JWFinancialCoaching.com giving a new perspective on your money, shares 3 ways to pay for your child’s college education. It pays to plan ahead and either take advantage of tax-favored accounts (529 or ESA plans) or strengthen your household’s finances by becoming debt free and cash-flowing education as they go.
Option #1: 529 plans
- Each State administers their own 529 plan
- Different rules from state-to-state
- Have the ability to deduct from State taxes
- Limited to the choices they offer
Option #2: Coverdell Education Savings Accounts
- Also known as ESA
- Grows tax FREE!
- Limited to saving $2,000 a year
- Has many more options to chose from
Option #3: Cashflow
- Pay-as-they-go
- Best accomplished when debt free
- Lose the opportunity of tax-advantaged savings
Watch the video on YouTube
JW’s contact info:
April 24th – Debt Payments and Bankruptcy
The Pro-rata Method can keep creditors off your back and help you avoid future judgments, or the execution of a judgment because you are declaring hardship and essentially asking for an alternative plan until you can afford to make the original monthly payments for all of your debt.
It is in the creditor’s best interest to accept this plan because it’s better for them to receive something rather than the nothing they’ll receive if you filed bankruptcy. You borrowed the money though and you want to pay it back, you just need a little wiggle room until you can get back on your feet.
Pro-rata Method
- The Formula
- Communication
- Transparency
The Formula
The formula is based on your disposable income (money you have left over after paying for essential bills)
Let’s say you have the following debt load:
Debt 1 $7,500 (current minimum $500)
Debt 2 $5,000 (current minimum $200)
Debt 3 $2,500 (current minimum $100)
Debt 4 $2,500 (current minimum $100)
Debt 5 $2,500 (current minimum $100)
Total Debt $20,000
Total Minimum Payment(s) $1,000/mo
Disposable Income $700/mo
You are $300 short.
Formula 1: Figures out what percentage each debt represents of your total debt.
Debt 1 $7,500 divided by $20,000 = .375 (37.5%)
Debt 2 $5,000 divided by $20,000 = .25 (25%)
Debt 3 $2,500 divided by $20,000 = .125 (12.5%)
Debt 4 $2,500 divided by $20,000 = .125 (12.5%)
Debt 5 $2,500 divided by $20,000 = .125 (12.5%)
Formula 2: Determines what your new minimum payments will be.
Debt 1 $700 multiplied by .375 = $262.50
Debt 2 $700 multiplied by .25 = $175
Debt 3 $700 multiplied by .125= $87.50
Debt 4 $700 multiplied by .125= $87.50
Debt 5 $700 multiplied by .125= $87.50
Communication & Transparency
Communicating with your creditors and being as transparent as possible will make this process much smoother. When/if your disposable income changes so should your minimum payments.
It’s important for you to let your creditors know that you wish to honor your obligation. You have every intention of paying them what you owe; you just can’t pay them the full minimum payments as they are.
Send each creditor a letter explaining your situation, why you’re experiencing hardship, and be sure to attach your budget and pro-rata forms with the letter.
The key is communication.
If your creditors feel you are doing everything you can and have every intension of paying them the money you owe them, the less likely you are to end up in court or to have your wages garnished.
Watch the video on YouTube
Brad’s contact info:
April 25th – Taxable Brackets and Taxable Income
In this video I give a brief explanation of tax brackets and how they are like water in glasses.
Step 1: Determine taxable income
- Take the total of all income (W2 or self-employed such as from a 1099)
- Subtract any exemptions or deductions
Step 2: Know the 6 tax brackets
- 10%
- 15%
- 25%
- 28%
- 33%
- 35%
I look at my income as water and the tax brackets as a glass. The more income I make the more glasses I’ll have to fill.
Step 3: Determine your “Effective Tax Rate”
The effective tax rate is the average of the taxes charged from all the tax bracket glasses and the income I make.
April 26th – Gifts of the Heart
Julia Graylion (a fellow Texan) from PromisesFC.com gifts some great ideas and examples of gifts from the heart that don’t break the bank. As you work hard to change your money habits, don’t mistake spending less on gifts for being “cheap” or “unloving”.
You can give GREAT gifts if you’ll just consider what the gift recipient enjoys most. Trinkets are nice, but they usually end up in someone’s garage sale. Why not give something that only YOU can give a person?
Watch the video on YouTube
Julie’s contact info:
April 27th – Calculating for Moving Expenses
Moving is a time when you really don’t want to be building up debt. You should be concentrating on getting settled, adjusting to a new location, and building wealth with your new job. Matt Wegner from FinancialExcellence.net s
Move yourself or pay someone?
You can save money by moving your own stuff, but hiring a company to do some or all of the moving for you can be worth the cost. Get a few quotes and consider the time of the month/year as well as any storage costs that may be involved.
Rent or buy?
Where will you live? Apartment, rental home, or are you purchasing a new home? Be prepared to pay a security deposit for a rental and to have the utilities turned on (if applicable). If you are buying then what will the property taxes be?
Adjust lifestyle to your new life
- What’s your new paycheck going to look like?
- What’s your budget going to be?
- Is there a State income tax?
- What is the Sales Tax rate?
- Will there be a change in property taxes (if buying)?
If you don’t plan ahead then you are probably going to end up reaching for that darn credit card again and go deeper into debt while in-between paychecks. Prepare by expecting there will be unexpected expenses.
Watch the video on YouTube
Matt’s contact info:
I hope you’re enjoying the 2 minute Financial Literacy Month videos. You can find them all at YouTube.com/MoneyPlanSOS.
Photo Credit: Paul Lowry
- Get access to exclusive content, not published anywhere else.
- Tips on getting organized and being more efficient.
- Advice on building a business around your life.
- A personal invite to the Freelancers Club!
I'm an ex-small business accountant who aims to help freelancers get out of debt and organize their life. And through the recently launched 
