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Earned income required for Roth IRA.

28/3/2014

Editor: Crass Cash

If you want to open and contribute to a ROTH IRA then you need at least the contribution amount as earned income.

You or your spouse must have compensation from a job or self-employment to contribute to a Roth IRA. If you have children and you want them to work for you in order to meet the contribution amount that's good also.

Having your kids start to work for you at an early age is a great way to shelter wealth and also to teach them a good work ethic.

If your kids start working for you and you also gift them the maximum $14k from each parent, then your children could put away a whopping $33,500 each year! Do this for 40 years starting at the age of 10 and they could be worth $6.7 million by the time they're 50! And that adjusted for inflation. How do you think Mitt Romney's kids got so rich at such a young age??

This is another reason why having a home based business with multiple streams of income is so important.

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OPPORTUNITY COSTS

27/3/2014

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Editor: Crass Cash

Opportunity Costs are one of the core principles taught in collegiate economics class. And for a good reason! It's very important that you know this concept since like gravity, it applies to everybody.

Unless you're a whacked out philosopher who doesn't believe in time, then this applies to you. Every second that goes by is an opportunity cost. Simply stated, an opportunity cost is just the cost for doing one activity versus another one. What is the opportunity cost of going to the beach? For buying a new car? For taking this job over another one?

Here's a simple example. You work at a job that pays you $10 an hour. But there's another job out there where they will pay you $12 per hour. So while you're getting paid $10 an hour you're
"costing" yourself $2 per hour. From a financial standpoint it's important that you reduce or eliminate your opportunity costs as much as possible.

However, there are limits to this. Things such as health, happiness, and risk are factors that can't be quantified, so a rational, yet still emotional judgement needs to be made regarding these decisions. Taking a job that makes you miserable for an extra $1 an hour isn't worth it. It's important that you weigh these options carefully.

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PROBLEMS WITH RETIRING 30 YEARS EARLY

26/3/2014

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Editor: Crass Cash

So you've decided that you want to retire. Like 30 years early! While the planning of retirement for many in the baby boom generation was faster than a virgin's first orgasm (guy, not a girl), for a subculture of generation x and y'ers this is becoming a reality. Blogs of people from all over the industrialized world (mostly the USA due to lower tax rates) have been popping up. They shun American style consumerism and shown in great detail their finances and net worth for all the world to see.

Retiring in your 30's presents many acute problems that need to be addressed prior to taking the plunge. The first being that how are you going to draw down principle when you can't because some of it is locked up in govt qualified retirement accounts? Hmmm, maybe this is why Rich Dad is not a big advocate of such plans. I can't get money out of these plans until I'm 59.5 years old without suffering a 10% penalty. As a result I'll have to work around them if I plan to support myself for 25 years until they become free. As a result my cash flow for living will have to come entirely from different sources.

I've talked extensively about having multiple streams of income to help protect you from financial disaster and also to help increase income. Don't have all your eggs in one basket! The income and principle from one of these eggs will be delayed, so you'll have to rely on the others for the time being. As a result you need to make sure that all of your income is generated from straight cash flow and not from principle. I actually advocate this regardless of whether you're 59 or 99.

You also need to figure in other benefits that my be related to your employer, such as insurance. Health, dental, life, etc. all will be needed to be paid by you. You should also have enough in reserve so that you can pay for all of these deductibles if tragedy hits. Insurance that you can get rid of? Disability for one, since you won't need to work for money. You could also potentially cancel your life insurance if all of your debts are paid off. Even though you maybe fine I've found it's best if the spouse receives enough money to pay off all debts at the time of your death. This just makes life easier for him or her. The last thing he or she needs to think about is making payments.

With that said it would also be a good idea to keep a part time job so that you can at least earn enough earned income to keep contributing to your retirement accounts. See if your current employer would be interested in letting you work less and less, down to the point to where maybe you can make enough to contribute fully to both your 401k and Roth IRA each year.

Whether you decide to retire 30 years early or not, here's something that everybody needs to do. Try to see what it's like to be retired from a financial standpoint. A lot of people aren't good with numbers and unforeseen situations so try it out for real. Try living completely off other asset's cash flow and saving all of your paycheck. If you can do this for a year, you may be ready!

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Earned income required for Roth IRA.

OPPORTUNITY COSTS

PROBLEMS WITH RETIRING 30 YEARS EARLY

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