Categories
Pilot Money Guys

Flight #18: Money Advice To Share With Your Kids

Pilot Money Guys:

Kids and Money!

Welcome to Flight #18, where we are discussing kids and money!

This podcast is all about helping your kids take the first steps to financial freedom and independence. We discuss some of the steps we all wish we would have taken when we were first starting out as new savers and investors.

We believe we should help our kids learn from other's successes and mistakes - We do not have time to make them all ourselves! In fact, life is a series of building off the successes and failures we all experience. Sharing those lessons with our kids is easy in some areas but with finances it can be tough. Don’t let that stop you from preparing them for a great financial future.

“Children are sponges—they are going to absorb whatever is around them, so we need to be intentional about what surrounds them.” — Dave Ramsey

Our kids will learn from our money habits whether we like it or not. We encourage parents to communicate money matters to their kids as well as be honest and transparent as much as possible, so they don’t make the same money mistakes we made.

In this podcast we cover the most important financial topics for getting started. We believe this content can help you have great conversations with your kids. They still won’t think your cool, but I bet they’ll listen and learn something.

Our goal for our clients is to help their kids build a foundation of financial knowledge that will set them up for success in the future!

Thank you for listening!

This hypothetical illustration assumes an annual 6% return. The illustration doesn't represent any particular investment, nor does it account for inflation. Source:https://investor.vanguard.com/retirement/savings/when-to-start

This chart shows that if you start saving earlier, you can have a higher balance at retirement than someone who saves more but starts later. If you contribute $10,000 a year from age 25 to age 40, for a total investment of $150,000, it could grow to $1,058,912 by the time you're age 65. If you contribute $10,000 a year from age 35 to age 65, for a total investment of $300,000, it could grow to $838,019 by the time you're age 65.

 

Can You Beat COWBELL in timing the market?!

https://www.personalfinanceclub.com/time-the-market-game/

 

Podcast Transcription:

Flight #18: Kids and Money

[00:00:00] Voice Actor: ladies and gentlemen, welcome aboard the pilot money guys podcast, where our mission is to help clients build and protect wealth to achieve their dreams. And. This podcast is brought to you by leading edge financial planning without further ado. Here is your host Robert equity.

[00:00:31] Rob: Hey folks. Welcome to flight 18.

[00:00:34] We're talking kids and money today. The tip of the Kaptio. Thank you for joining us here at the pilot money guys podcast, where we cover some airline news except for today. And of course, a financial times. We aim to educate and bring some lighthearted financial fund to your day. I'm your host, Rob Ackland.

[00:00:50] I'm a little under the weather. So the godfather Charlie Madingley certified financial planner and leading edge founder is with us. Hello godfather. Hello? Hello.

[00:00:59] Charlie: How's it going? I'm sorry. You're feeling feeling badly, but uh, we're gonna, you all were trying to keep me down last time. I was feeling bad. So this time we kicked you out, you're down to.

[00:01:12] Rob: So you

[00:01:12] Ben: wouldn't fight and he's also rocking a mustache for all that. Anyone on

[00:01:17] Charlie: YouTube, how to do the YouTube, which really makes my teeth look huge. It looks

[00:01:21] Rob: great. Yeah. Does dentist nice? I've of course set a little shout out to Alaska or Borealis. That's my background. Yeah. Ben's got the max. You got the max is your background.

[00:01:34] Ben: And I do, I do have the max. Yeah. Um,

[00:01:38] Charlie: the good oldest button that was the good old days.

[00:01:41] Rob: Oh, that's the ejection button don't hit that don't hit. Oh yeah. Yeah. Excellent. Well, and of course we've got Mr. Cal bell Ben tickets and welcome Ben. Thank you. Good to be

[00:01:51] Ben: here. All

[00:01:52] Charlie: right. Did you introduce yourself as a mallet?

[00:01:55] Rob: I did it today. You know, why, why have calls me the Viking idiot? Any of those can, I

[00:02:02] Charlie: will answer. You can substitute. And I mean, I'm starting to like Malad a little bit, I think it sounds kind of cool if you, if you just absolutely reject that notion, we will, we will start again, but you can't. But I like it because we started off as the MC hammer, which was a little too much too strong, but you are the MC and you are a hammer, but then you said, Hey, let's soften that a bit.

[00:02:22] So we went to rubber. Rubber mallets too many syllables and too many words. Yes.

[00:02:29] Rob: Well, last my days is an evaluator MC hammer.

[00:02:34] Charlie: I'm seeing him. So, I mean, I don't know a mallet that is really starting to sound pretty good. Just as long as we keep the story from straying too far from the temporary nature, we have 10% rule.

[00:02:44] Rob: Okay, fantastic. Well, we're going to talk some aviation news. I've got this one. I think. So there's this day in history, actually, it wasn't from today, but it's from two days ago. Close enough. On October 12th, 1944. First Lieutenant Charles Elwood, Yeager of the air Corps army. The United States shut down five count of five.

[00:03:11] in one second. Wow. Becoming an ACE in a day. That's air quotes. They're ACE in a day. The termination today is used to designate a pilot who shut down five or more airplanes in a single day, based on the usual definition of. As one with five or more aerial victories. Right. Wow. That's incredible.

[00:03:28] Charlie: That's

[00:03:29] Ben: amazing.

[00:03:30] Was it just, uh, you know, best, you know, right place, right time.

[00:03:34] Rob: Oh man. So I've got, I've got his, I've got his whole quote cause it's it's worth now. He was a P 51, a Mustang fighter pilot signed it a three 63rd fighter squadron near the village of, uh, I might be butchering this, but that Britain Suffolk.

[00:03:50] Albertson's pretty good. Pretty good.

[00:03:52] Charlie: As far as I

[00:03:52] Rob: know, anyways, here's Jagger's quote, it was almost comic scoring two quick victories without firing a shot. By now, all the airplanes in the sky had dropped their wing tanks and were spinning and diving in a wild wide open dog fight. I guess two of them collided.

[00:04:07] I stopped shooting at him. I blew up a 1 0 9 from 600 yards, uh, my third victory. So he shot at one of them and he hit his wing man and they both had. So he didn't. So I guess he barely had to do two for one, two for one. And then when I turned to see another angling in behind me, man, I pulled back the throttle.

[00:04:26] So bleep hard. I nearly stalled rolled up and over. It came in behind and under him kicking right rudder and simultaneously firing. It was directly underneath the guy less than 50 feet. And I opened up the 1 0 9 as if it were a can of spam.

[00:04:40] Charlie: Less than 50

[00:04:40] Rob: feet. 50 feet that made four that's incredible moment.

[00:04:46] A moment later, I waxed the guy's Fanny and a steep dive. I pulled up at about a thousand feet. You went straight into the ground. Crazy. Wow. You're talking 12, 19 44. Top. That really is awesome. Top that

[00:05:01] Charlie: cowbell. That's

[00:05:01] Ben: pretty incredible. I mean, I've done some cool stuff. My drone. Yeah. Yeah, that's amazing.

[00:05:07] I mean, Chuck would be proud, but I can't beat that. You're right.

[00:05:14] Rob: That's a good one. All right. Any other things we want to

[00:05:19] Charlie: talk about? Nothing going on at all in the world of aviation to see here. Nope. Turn away from anything you see in the news. Yeah. Vaccinations airlines. We're not, uh, we're not, we're going to stay lighthearted today, folks. Okay. There's a lot of serious stuff going on.

[00:05:37] And I told Rob today, look, we got to have some humor. How else can you get through these times? Without some humor, you gotta laugh. You gotta laugh about it. Otherwise you'll go crazy. So that's what we're doing. We're not going to address those things today. Too many variables too. Uh, too many unknowns and let's do a hurtful still.

[00:05:53] So we'll wait. Yeah, we'll wait

[00:05:55] Rob: too soon to right. Well, let's get into our financial topic then this one, actually, I'm really excited about it's kids in. And how do you talk to your kids about money? What are some things to think about? We're going to cover the mentality you should use, how they should use money.

[00:06:11] When they first get started at a young age, the savings and investing, they should do, um, three different ways. You can choose to save with them. And of course, in that, we're going to talk about UTMs and Ross. Um, and we'll get into. Charlie, what have you got anything? Oh, right off the bat. We're talking mentality.

[00:06:31] Oh,

[00:06:31] Charlie: we got tons of stuff. The toughest part about today is keeping it, , succinct and meaningful. , we're going to try to give some real practical applications to kids and money, just stuff we've learned from other,, people that we know clients have taught us a lot of things to do with their.

[00:06:51] Ben is, uh, is the one that remembers it the most clearly, I think. Right. And so he can help us a little bit. It's been a while for you and I Rob, especially, especially me, but I do remember a lot now, in fact, that the first thing that I remember, uh, or sticks in my brain and, and, and helped me get a good star and overcome some of my other Follies down the road.

[00:07:13] I was just starting early. And let me, I'm going to share with you guys, um, and, and our YouTube audience as well, but check the power of starting early is unbelievable. Okay. So here we go. Um, and we'll talk to this graphic, but again, our podcast listeners go to YouTube, check this out or Google it it's everywhere.

[00:07:35] So here's an example and the power of starting now and Ben, you and I, the other day, we're talking to, uh, one of our. Sons. He just is getting started in the workforce. He's got a great job, right? And he's like, Hey, he called us up, which is awesome. We encourage all of our clients, kids to call us. We love to talk about it.

[00:07:55] He was actually 25. So he said, this is perfect. This is you. So if you start saving at 25 and in this example on the screen, You say you start saving at 25, you save $10,000 a year. I don't know the rate of return in this particular example, I think it's five, six or seven doesn't matter because it kind of cancels out.

[00:08:12] The point is still the same, uh, in the, in the, in the examples. Anyway, so this person started saving a 25, 10,000 a year. They invested it and they stopped saving at age 40. Now at age 65, they had a little over a million. Now, this person's friend, we'll call him. Ben Dickinson started saving at 35 and they saved all the way they did not.

[00:08:40] You know, they started at 35 instead of 25. They started, they saved all the way through 65 and they only ended up with 840,000 versus the over a million. So let me re reiterate Ben's friend saved at 28, 25 for 15 years in. They had a million bucks, Ben say from 35 to 65, 30 years. And it has 840,000. I mean it's yeah,

[00:09:08] Ben: that hurts.

[00:09:08] That really hurts seeing that I knew my friend was doing well, but I, I didn't realize that. Well, he saved half as much as me. Yes.

[00:09:18] Charlie: It's that really was wild. All right, Rob, what do you think? Beautiful. Any thoughts? I love it. It's powerful.

[00:09:25] Rob: I, you know, I think it can kind of tie into, um, you know, just the power of saving early, which there's a mentality on that.

[00:09:34] And I think we should get in a little bit of that. I think when you talk to your kids about money, you should have an abundance mentality . And instead of using certain language, like we can't.

[00:09:44] When you go to the store and you're looking to buy a toy or whatever. Um, it's I think a little bit more helpful to say we haven't budgeted for that at this time, or how are we going to afford that? How are we going to budget for that in the future? So if we prioritize that you want that Tonka toy, well, let's save for it.

[00:10:01] Let's see how we're going to get there. Um, and I think families that actually have conversations about money. It probably as long as they're not too negative. I think it has. People get comfortable with the idea, as opposed to, , there's certain families that, that money is taboo. Ask your dad how much he makes is just not anything you would do.

[00:10:20] And I think that just kinda makes the subject of money taboo. So you don't want to talk about it, maybe it's evil. And, uh, the other thing is when families get into the, to a, probably a bad scenario where they're highly. Certain, thanks from their significant others, such as you hide, you know, you go off to a clothing store or toy store and you say, Hey, it's going to be our secret.

[00:10:43] We're not gonna tell mom about this. Probably not the best thing. Cause you're just teaching them. You know that again, money's kind of evil. Um, so yeah, we wanna, we want to teach the abundance mentality where you're saying, Hey, you've got to. Well, let's see how we're going to get it. And then the reason they're getting the toys, because you were smart with your money, as opposed to just saying they can't have it.

[00:11:05] And the reason why they can have it is because of money. Absolutely. Yeah, yeah,

[00:11:10] Charlie: yeah. Same. We can't afford it kind of, kind of a cop out just saying we can't afford it and maybe that's true, you know, sometimes, uh, but, uh, but I like what you're saying, especially. Um, about the communicating abundance mentality, you know, and, and to me, abundance mentality means being generous.

[00:11:24] And I think there's a whole lot to learn there. That's a whole nother podcast, but one of the things, um, before I hand it off to, uh, the, uh, what's your name again, been the, uh, we call on because Jesus, today we call you cowbell. Before I ended off to Cabell, , one of the things I, I tried, I've tried this with my 15 year old daughter, because when we.

[00:11:45] See clients and, uh, talk to them and just friends and family, you know, sometimes their parents did it, right. They did a good job or the best they could, but if it's not communicated, there are misunderstandings. So not only is it important to behave well as an example to your children, but you have to tell your children how you're behaving to make it clear because there will be misunderstand.

[00:12:10] , you're talking about a young kid looking at something that they don't understand, and they're going to learn lessons from that, whether you like it or not. So I just wanted to expound on what you said, Rob, it's super important, but a cowbell. What do you

[00:12:21] Ben: think? Yeah, I think I'm going back to what Rob was saying that, that kind of teaches more financial independence as well, which is what you're going to.

[00:12:32] When you, when you go out on your own is okay. All of a sudden I'm not getting any support from anybody. Would I, how am I going to manage my finances? And personally, um, I had a lot, uh, I had support going through school and, and, um, but once I graduated, once I got my job after school, it was like, well, here you are, you're on your own.

[00:12:53] You know, you have to, you have to budget. You have to, uh, set your goals. If you want to buy something, you can't, you maybe can't buy it right when you want. And sometimes that can be a really difficult transition, um, and starting to, to create that mentality of abundance. And Hey, if you want something you're going to have to work for it, um, or you're going to have to save or set it as a goal.

[00:13:14] I think starting that as, as early as possible is going to be, there's going to be really huge. I think, um, we've talked about, about this. , you want, you want the best for your kids. You want them to, you know, maybe be in a better position than you were at their. Um, but sometimes there are lessons that need to be learned.

[00:13:31] , and the only way to learn them is to , let them do it themselves. And so you, you may even be able to afford the toys that, that they're wanting, but sometimes it, maybe it's better to just say, Hey, let's, let's figure out how you can buy this yourself. And not only that, but at the end of the day, you feel better about yourself.

[00:13:45] You've accomplished it and you've worked and saved and gotten the thing that you want. Um, and that's a really valuable lesson. , when you're a young adult,

[00:13:52] Rob: Yeah. I think there's a key distinction there. When you're talking abundance mentality, it's just the way you're going about your life, that money.

[00:13:59] Isn't something that is so limited that you can't do certain things. It's more, Hey, we can use money to our advantage. And how do we do that? It's not, um, would, I think a lot of parents who have gotten into the habit of, and I'm certain, I'm probably guilty of it. Myself is just, you know, you know, handing my kid, whatever they want at certain times.

[00:14:18] And that's not helpful either. I don't think, uh, just giving them whatever they want or, you know, obviously they get spoiled and they don't understand the meaning of money. Tell you we're going to say something.

[00:14:27] Charlie: I mean, I think this podcast is, is fun because we're talking about. We're talking to young adults that are just getting started at college, was talking to parents of young kids.

[00:14:37] Like we have a Rob and we're talking to. Ben's age group as well on, on maybe even some things on what accounts to invest in. We'll talk about that in a minute, but it's a funny story real quick with my, uh, gosh, I can't remember how old my daughter was. I don't know, 8, 9, 10. I would give her like five bucks and said, you can have these $5 and let's go to Walmart and, you know, take her to the toy section and hunter, you can buy whatever you want.

[00:15:02] Cause I wanted her to make these choices for trade-offs. Well, you can have this, but, uh, but you could also have this and just, you know, thinking about that. So you probably know already what I'm going to get get at. And that's when I gave her $5, she came back to me after 20 minutes, I was like, dad, I can't buy anything, nothing to buy when $5.

[00:15:22] I was like, okay, sorry. A little out of touch here, but just some practical, stuff. As far as savings, we talked about saving early, , parents, you can start a custodial Roth. We'll talk about the nuts and bolts of that in a minute, you can start a UTMA or sometimes they're called . We'll talk about the pros and cons in a minute as well.

[00:15:44] Uh, we could do a whole podcast on each one of those, but another technique is to match the CA your, your child's savings. Hey, you save a hundred bucks. I'm at you a hundred dollars. That's training, , for, for future savings and 401ks and such,.

[00:15:58] Somebody told me . One time, they said, we give our kids allowances or pay them for chores. And we encourage them to save 10% to give away 10% to something that they find meaning. And then do the rest with whatever they want. You know, that's a pretty good little habit pattern and kind of like you said, Rob teaches , the abundance mentality.

[00:16:18] And so I think that's a really good technique as well.

[00:16:22] Rob: Yeah, for sure. I think I'm kind of backing up a little bit when you very first start with your kids being tangible or using tangible money, using cold, hard cash. Yeah, that's helpful. Yeah. When they can see the value of a dollar and they can see it coming in and you pay them for whatever work they did and they see it going out when they buy whatever it is they want, that helps them get an understanding of, oh, I can't work for this.

[00:16:50] I got this amount of money and it's going out. Eventually they're going to graduate. Right. They're going to graduate to apps. And of course, with all the technology, these days, they're going to have debit cards or credit cards or whatever they're going to use. And they're going to have an app on their phone.

[00:17:03] Tied to that. And even then be as tangible as you can be right with them. So like for my son, we have a capital 1, 360, a high yield savings account for him. And we'll get into that a little bit. I think it's, uh, uh, it's too much fun. I geek out about it, but I think, you know, when I, when I pay him for doing, uh, an extra job around the house , he does certain chores just because he's part of the family.

[00:17:23] He doesn't get paid for that. He can go above and beyond and do other things. Did he gets paid for it. So when he does those, I actually slide and there's a transfer, uh, slide to transfer on your, on your iPhone. Uh, when you're in new capital 1, 360 account, and you just slide it and it shows it going into his account and you can actually look and say, okay, the money's transferred from my account and now your accounts up $10 or $20 or whatever it is.

[00:17:48] And I think just kind of having that, Account where you can see that's a, I'm losing the word here, but a tangible, tangible, there we go. That's the one where you can actually feel it. , see it, touch it. And they see, okay. Yeah. That's, that's, uh, in my account now, as opposed to you just give them an open-ended account and all of a sudden they're out of money and,

[00:18:10] Ben: so yeah, my, my parents tried to teach me how to balance a checkbook and I don't think since then, I have ever used to balance a checkbook cause everything's on, on the app.

[00:18:20] I mean, they're so, um, anyway, that's just kind of, didn't really help me at all.

[00:18:27] Rob: Right?

[00:18:28] Charlie: What I liked about what you said, Rob, when you pay your children allowance, there's there's stuff they should be doing because they're part of the.

[00:18:37] Cleaning the room picking up after themselves, whatever. Hey, you're part of this unit. However, if you want to do something extra, , like Polish my shoes or something. No, no, I'm not. I'm positive. Mow the grass or whatever then. Yeah, that's an allowance, so we talked about, , saving how to help your children get started on that, you know, spending plans and Ben, you mentioned setting goals and saving for them, , teaching that delayed gratification, which is huge, which I don't think any of us have anymore, but what we call this, uh, in the nerd nerd world or financial planning is bringing these future expenses into the.

[00:19:14] And that applies to all of us, by the way, today I was working on my spending plan for the next quarter and I had to put on there, uh, a new car, probably not a new car, but a used car. And I haven't had a car payment a long time and it's going to hurt, but we, we just recently lost a car, which is another story for another day, but it's painful.

[00:19:34] So I had to put it in there and it's painful. I got to face. But bring those expenses that are 1, 2, 3 years out, bring them in platform right now.

[00:19:43] Ben: . Yeah. Um, absolutely. The first thing, just, just for, for the spending plan thing.

[00:19:49] Uh, first, first big purchase. After I started my first job, I went out and bought a, a medical. Um, literally with my first, my first paycheck. And then I had, uh, I had the rest of the month where then I realized, oh, oh crap. I didn't not have no more, no more money left for groceries. I really did. And so then.

[00:20:14] Everybody was asked it was worth it. Yeah. And then I had to call a call, uh, call my parents. And can you send me like a hundred dollars for some groceries? And they're like, what happened? Uh,

[00:20:29] Charlie: nothing at all. I would never do such a thing

[00:20:36] Rob: as we're talking about that budgeting. I think I do think one of the things we should touch on here is automating it, right?

[00:20:42] If you can, and there's two sides to that coin. Obviously, if you audit. You know, the payments going in, they don't see it. And they just, they just get used to money coming in. If they don't see that it's tied to the work, but when you automate it, when they, uh, you know, as far as their savings and investing, it can make it a lot easier.

[00:21:01]

[00:21:01] Charlie: Another technique is,, when you're, I don't know what age is appropriate, maybe 12, you know, when they can first start understanding stock ownership, as we're driving down the road, I would talk to my daughter, Hey, , you can own part of Walmart, , Hey, we go to Disney, you can own part of it.

[00:21:16] And what are you talking about? So then you go, Hey, I'm going to buy you a, a piece of a stock. You can actually buy single stock, stockpile.com. We should get paid for all our advertising today, by the way. But I stockpile dot copy, print out a, um, a certificate and frame it.

[00:21:30] Put other walls, say you own a piece of Disney. , that's great learning. Now, once you learn that lesson, then tell them we don't want to want to own just one company that we want to talk about. Mutual funds, ETFs, et cetera. But the lesson of ownership is good. Just be careful, you know, don't make, don't make a bunch of speculators out of your children at age 15.

[00:21:50] Ben: Just going to say, I need, I need a piece of paper like that for my Bitcoin. Um, so that it makes me feel like I own something other

[00:21:58] Charlie: a second. I thought you had coins. You don't have coins.

[00:22:02] Ben: Oh man. Here I go. Now we'll talk off the, off on this one. Just actual coin, the recording. Okay. I hate to break to you.

[00:22:10] There's nothing there. I don't have a gun.

[00:22:13] Charlie: Oh, this is. Yep. We're gonna have another, have another podcast on the Bitcoin. Uh,

[00:22:19] Rob: another one. Well, they should just go and look at what was it? You can't hide 7, 7, 7, 7. So Bitcoin, Jesus and Jesus.

[00:22:27] Charlie: That's called. I call it. You called that. So

[00:22:32] Rob: let's talk, speaking to the peak and the bottom.

[00:22:34] Can we, should we, should we do that, that little. Or save that for like, which graph you're talking about. Oh, the little a game trying

[00:22:42] Charlie: to time. That's right. So, so that was one of the lessons here for, for all of us, but especially as a young person starting out, it's not about timing the market. And this was our first point of compound interest, , Einstein said.

[00:22:57] Eighth wonder of the world compound interest. So it's not about timing getting in, getting out of the market. You know, it's about putting your money in there, saving it, and then, uh, investing wisely of course, but not trying to run for the Hills when things get scary. So we've got a little game we're gonna play on, uh, for our YouTube folks here.

[00:23:16] And this is personal finance club.com. You can, uh, Google, uh, timing the stock market game. And if several leads will pop up, so here's what we're going to do to put it

[00:23:27] Rob: in the show notes.

[00:23:28] Ben: And if you get, yeah, and if you can time the market, if you can beat this, if you beat us. Yeah.

[00:23:33] Charlie: We're going to get into today.

[00:23:34] . If you can beat this game, then send it in and let us know that it's possible. So. One Ben coin, we're going to hit play. And then Ben is going to try to time the market. So what's, we don't know it's going to be 10 years of the market and it's going to go up and it's going to go down.

[00:23:50] We don't know which 10 years. Right. But Ben's going to, what's your strategy, Ben, are you going to sell high and try to sell high buy low? Cause , sometimes the market gets too high. It's overvalued and you just want to sell, right. That's right.

[00:24:00] Ben: Yeah. If it goes up too much, I'm Def I'm definitely gonna sell.

[00:24:03] Um, you know, I don't want to just sit there while

[00:24:05] Charlie: let's go. Okay. That sounds good. So then we're going to compare Benz. With a buy and hold strategy for that 10 years. So, okay. Now remember, it's going to start off. First thing you got to do is you're going to be buying right off the bat. So if you want me to sell, you got to see it pretty quick.

[00:24:21] So here we get to say pretty quick. Okay. All right. So the market is going, oh wow. It just jumped up 10% going up like crazy 40% sell, sell, sell, sell. That's right. That's pretty high. And that's scary. That's

[00:24:32] Ben: scary. Oh no, it's still going. It's going through.

[00:24:35] Charlie: Oh, tell me when

[00:24:37] Ben: should I buy?

[00:24:37] Charlie: I'll know. Bye bye.

[00:24:39] Okay, we're going back in the market then I got to go back

[00:24:41] Ben: in with you. I couldn't stand it. All right. All right. Now I'm definitely waiting. Okay. It's going down a little bit. Yeah. All right.

[00:24:47] Charlie: Sell, sell, sell. Okay. That's scary. You're right. That's very

[00:24:50] Ben: scary. All right. All right. Bye-bye bye. I'm getting it's about to, I, I have a feeling right now as soon as it's about to spike.

[00:24:57] Oh, no. Yeah. Oh no. It's. You're struggling. You're in the market. How much longer we got you're in the main cell. So am I, but yes, I sold. All right. All right, now. Bye. Bye. Yep, let's go. And I think it's about to go. It's very scary, man. Come on. I need, I need some help here. I

[00:25:16] gave

[00:25:16] Charlie: him the 200 day moving average right here.

[00:25:18] Did not use that.

[00:25:20] Ben: Oh my gosh. I didn't even realize that's what that was. Or you could have used

[00:25:24] Charlie: the. Well, I mean, I think I've looked at this graph. I'm like, man, you did terrible. I was going to try to find something positive, but you did terrible. Your investment grew from October 21st, 1996 to 2006. Hey, that was a tough time.

[00:25:39] I was looking at this skill market. I was looking at this timeframe going, goodness. That is that's like two or three years. That's the beginning of my investment Rob year two. Right? We're the same age, right? Yup. Right? Yup. That's the beginning of our investment life right there. It was terrible. Anyway. So Ben, let's see how you did from October 96, doc Tober, 2006.

[00:25:57] Your investment grew your $10,000 investment grew to $17,000 almost while a buy and hold strategy netted $22,200 or thereabouts, you lost $5,260, you know, versus the market annualized told me, oh yeah, you did terrible. The market grew 8.3% per year. Your investments Ben grew 5.4% per year because. You, uh, got a little scared sometimes and you thought the market was overvalued and I thought you were going to nail it because I was like, oh, you sold and you're going to, and the market's going down and then, but you just don't know.

[00:26:35] I

[00:26:36] Ben: think I missed the buy

[00:26:37] Charlie: side. Yeah. Anyway,

[00:26:39] Rob: it's so funny. Cause that's exactly, even though you didn't have any news, you know, news media in your ear there, or any pandemics or anything, you know, you're still obviously underperforming. So that in the mix, and that's exactly what you see for a lot of investors who don't have the discipline and

[00:26:58] Ben: well, that first couple of years it went up, so it was up by 20, 30%.

[00:27:02] And so I was like, there's no way I can keep going at that pace. And then sure enough, as soon as I sold it kept going. Yeah. Double. Yeah. Yeah.

[00:27:10] Charlie: Great. Okay. Well, all right. All right. Nice, nice work then tumbled me. That's

[00:27:14] Ben: humbled.

[00:27:16] Charlie: So let's shift gears a little bit because it's so important to talk about what you mentioned earlier, Rob, the, how do parents save for their children , and kids are, you know, young adults.

[00:27:25] How do they save? We've had a lot of parents lately go. I want to get my, my kids started off on the right foot. What's the best way to do it. What's the best account. And I'll okay. Do you all? Yeah.

[00:27:38] Rob: Um, I, I've got the three ways kind of that we we've talked about. Uh, here, you've got of course joint bank accounts that you can do, just like you have with your spouse, with your spouse there, you've got your custodial accounts, which is the UTMA, which we'll get into.

[00:27:55] And then you have w I kind of just, the first salvo, I guess, is the prepaid debit card. If you just want to go out, get, you know, uh, get a debit card that you just. Fun. Whenever your child runs out of money, that's one way to do it. That's probably the first option. People who don't aren't comfortable opening up a bank account or custodial account.

[00:28:17] .

[00:28:17] Yeah. Ben,

[00:28:18] Charlie: what do you think

[00:28:19] Ben: I wish I had, I'd got to do earlier and just like we showed with the compound interest is actually get to save and invest. I mean, my first, my first account was just a custodial savings account at the bank and, uh, or a joint account.

[00:28:32] And that, that was a great place to start saving, just saving my money. But I think, um, really, I would love to have gotten investing early. And like we saw on that and hold and saving for the long-term and the way to do that, I know we've talked about it, the custodial, uh, UTMA accounts, but also the, the custodial Roth IRA.

[00:28:52] Um, Charlie, I think you're actually going through that right now for, for your daughter. Yeah.

[00:28:57] Charlie: I printed out the application and had some other parents asking me about it. Cause Rob, you nailed a couple of great strategies for just savings and spending and we could even get into how to start credit for your kids.

[00:29:09] But I think that's probably easy to put off until 18 early twenties, maybe. Um, but as far as investing and saving, if you want to start that, uh, for your, for your kids, um, , I did just like what you said, Rob? I took my daughter's, uh, sounds terrible. I took her Christmas money. I mean, I, how do I say this?

[00:29:30] Uh, in fact I've got a reputation. All the family. Yeah, there we go. I helped her. I helped her. Thank you. I was, I was really struggling there because everybody in my family was like, do not give your birthday money to your dad. Okay. But my daughter did part with some birthday and Christmas money and I invested before.

[00:29:48] And a joint brokerage account. And so now what I'm going to do is I'm just going to take equivalent cash and start her a custodial Roth. . Now custodial, anything Artemis , uh, custard a Roth becomes the property of the child at the age of majority, which is either 18 or 21, depending on. So it's going to become your, your kids. So just get over that part, whereas a five to nine doesn't ever have to become the property of your child.

[00:30:13] So there's some flexibility there, but in this case, we want our kids to have this. I want my daughter to have her birthday money, Christmas money back. I'm finally going to give it back to her and, and yes, it has multiple. Thank you very much. A couple of times. We'll see. Anyway, up until September of this, put it in there yet.

[00:30:30] Anyway. Um, so I'm going to do a custodial Roth. Now here's a couple of nuts and bolts about the custodial Roth. How young can you do this Schwab, , that's who we're working with. That's up for not the application. I called them. I said, Hey, is there an age limit? You know, Nope, no age limit. Now your custodian, sorry for using the same type of language.

[00:30:47] Let me clarify that. Fidelity, Schwab, Vanguard, who. They are not going to be the police of your custodial Roth. They do not care how old your kid is for them. You know, as far as, especially Schwab. I know that for sure. They're not going to ask. I mean, you're going to put it on the application, but they're not the police of that.

[00:31:02] They're just going to open the custody to a custodial account. They're going to do it now. Here's the rules your, your child has to make. So that's what

[00:31:11] Rob: I was just about to say, Charlie. So I am the police on this, so

[00:31:14] yeah,

[00:31:14] Charlie: you're the police.

[00:31:15] Rob: So now your child, you're not, you're not taking any birthday money and putting it around.

[00:31:19] No, no, no, no money she's earned.

[00:31:20] Charlie: She has to earn money. So my dog, so yeah, thanks for that clarification, Rob, because what I was actually doing is, was breaking the rules. My daughter does earn money so she can contribute now to a Roth. And in anybody, any child can earn money. Here's the sticky wicket. How do I prove if I get.

[00:31:38] Does my child have to file a tax return. Do they have to get a W2? What if they're mowing grass? They're not going to get a W2. So, if they work for a restaurant, they're going to get a W2. , if they work for someone else, they might get a 10 99.

[00:31:49] If they don't then just have records of that income, create a log, you know, making notes of it, uh, show bank accounts or receipts or deposits or something, , because your child, even though they make money, they may not have to file the tax return depending on how much they make. So those are the nuts and bolts of the custodial Roth.

[00:32:08] The limit is right now, $6,000, uh, for our child, they have to make, you can put a hundred percent of their income in it, so they can only put 6,000 in it if they make 6,000. Does that make sense so far? Am I on track here? If

[00:32:23] Ben: they only make 3000, they can't put in 6,000, they can only put in, correct?

[00:32:26] Charlie: Correct. Earn income. .

[00:32:28] Awesome. Yeah. So , last thing I'll say on just savings accounts is the utmost are pretty good. Um, but I th I think depending on the tax laws and things like that, sometimes they lose some of their advanced. So, but, but they're okay. I mean, they're all right.

[00:32:43] I'm not a huge fan of personally. I'd rather do the Roth, but everybody's circumstances are a little different. So,

[00:32:49] Rob: so I've got, um, I, my personal, I'm just going to disagree with disagree there. Charlie, I'll let it out. So. Yep. I think it's important to give them the UTMA is a little bit for, you know, some clients that are maybe a little bit higher or net worth, and it's a uniform transfers to minors, act it expounds upon the UGME, which is, was a little bit older it's uniform gift to minors act where that I think was only securities.

[00:33:16] The UTMA can be money, , real estate, fine art, all of that. If the account allows it obviously, but, but that's covered under the act and. And you're deaf in your example of the birthday money. I love UTMs for that example, because that's a, that expands on the gift act, right? So if there's a gift, that's where you can put that that's a great place for a gift and a TIG to get invested in the market or whatever you want to do with it.

[00:33:42] But that's obviously what we, uh, most of the time advice for longer-term assets, you're going to invest in the market and the UTMA does that fidelity Schwab I'm sure. Almost everyone does that. So that that's kind of where we get it. To, uh, the difference between if it's earning income than a Roth IRA for the kid is great.

[00:34:01] If it's not earned income, then maybe a UTMA works for

[00:34:06] Charlie: no, that's a great point. And I like the point you made too about watching out for, if you think you might get some student aid, uh, then, then those are going to count against you. That's why the 5 29 is really a powerful cause it, it doesn't do that, but.

[00:34:20] Ben: Yeah, and you can give $15,000 a year right now without filing a gift tax return. So if you were going to give money to. Know, that's just something to keep in mind. , the UTMA I think that for the majority of states, I believe it is 21. When the, when the custodian sturdy in ship ins custodial ship ends,

[00:34:40] Rob: uh, Colorado in Tennessee, at least it is.

[00:34:42] Ben: Yeah. Yeah. So. You know when w and we've experienced this with some of our clients, as soon as they turn that age. Well, that money is theirs.

[00:34:50] Rob: That's a good point. And I think it's important. Define some of these terms. So you, if you give them money or if you're a parent and you give your kids some money, that's going to go into a UTMA. You are the donor, you can name a custodian. Usually it's the, still the parent, that's just a custodian and you have a fiduciary duty.

[00:35:08] We've talked all about fiduciaries. If you've heard any of our other podcasts, you have a fiduciary duty to your kid in that scenario. So you have to do what's best for them in managing that investment, which means you can't take any of it.

[00:35:21] Ben: That's right. You can't invest in meme stocks, right? I guess you could.

[00:35:28] Rob: And part of that UTMA though, as far as tax wise is when it does become there, let's say at 21 who is then out on their own is they're taxed on the, any kind of capital gains on that. They're, they're taxed at their rate, not on their parents.

[00:35:43] Yeah. If I'm saying that that's a good

[00:35:45] Charlie: point. Yeah. Taxes and Artemis is, is, uh, not an easy subject. It confounds me continuously.

[00:35:54] Rob: The other part, I think that's important about Roth. IRAs is all the advantages that we've talked about. Roth IRAs, and we maybe do another podcast on that. Let us know, hit me up at Robert, uh, leading edge planning.com, but the Roth IRA.

[00:36:12] Are in a retirement account. However, when you contribute money to them, you can always take that money out because you've already been taxed on it without any penalties, any fees, any taxes. So you can take a take out your contribution amount and that's an important distinction. So some people might say, oh, Roth IRA.

[00:36:30] Well, my kid's 10. He doesn't get to see that until he's 59 and a half. Well, if something happens and he needs. He can take out the mountain. He's contributed now not the part he has earned or it's made, right? Not the part that, um, is getting pounding and gains. Thank you, Ben. Not

[00:36:48] Charlie: the kids call it these days.

[00:36:52] Rob:

[00:36:52] Yeah. Not the gaze. You, if you take out the games, then you're penalized and taxed on the gain. So anyways, I think that's a great thing that a lot of people don't understand is, oh, well, they can actually, they need to buy a car or whatever they can access.

[00:37:05] Yeah. That was contributed now, is that, why is that? May not be wise,

[00:37:09] Charlie: but they could do it. It's like an emergency emergency fund emergency, super remote. And

[00:37:15] Ben: don't buy a new car. Yeah, there we go. Don't

[00:37:18] Charlie: bind, you know, we're coming upon the baby coming up on the end here, but what, what final thoughts?

[00:37:22] You know, Ben, you've got some techniques as a young, young guy, young, newer investor. You've got something you're passionate about. I think you were talking about you'd liked about new cars or something.

[00:37:32] Ben: Oh man. Yeah. I love buying. Uh, I see these fancy, , Mercedes and I'm actually, I'm more of a truck guy, we were admiring a nice Dodge truck the other day.

[00:37:42] Man, I need that. Oh, it's $120,000. Nevermind, but no bug. Yeah. Oh yeah. The T-Rex yeah, the thing is awesome. I'm sure it's always been this way, but we see, we, we see social media that we see our friends with w you know, maybe nice cars we see are, are the people that we look up to with nice cars.

[00:38:01] Um, and we, it's really easy to fall into the trap of obviously wanting that, um, you know, you go to a dealership to get a new car, and they're going to talk you into, instead of maybe buying this used car one. Pay monthly and you can get this nice new car and, uh, and take out a loan for it. And so I would just say, you know, it's not always the best idea just to go and buy a new car.

[00:38:22] It is a, it is a wealth killer. Is that what we put on the sheet there? Charlie? But so, so that's one of the things, you know, don't fall into that temptation. Don't feel like you need to keep up with anybody. Um, number two, I would say is, um, you know, I'm, I'm currently renting property instead of, uh, I don't, I don't own a home right now and I think that's perfectly fine.

[00:38:42] Um, if you look at, if you look at some of the math, we can get into it, the pros and cons, but, um, don't feel like you need to go and just buy a house, right. When you graduate or right as your, uh, your, you know, your, your. You're out in the workforce. Um, you know, there that you may not, it may not actually be, uh, be thrown away money renting, which we hear a lot.

[00:39:02] And then the last one I know we talked about automating your, um, your savings. When you're setting a budget, just take 10, 20, 30 minutes to set a budget you don't have to stick to it, you know, by the penny, by penny, but make sure you have at least a savings goal , you can do it on an app. You can do it right now. Take out your phone and set a savings. I have a transfer and money into my savings account. Every, every few days it just transfers money into the. That has helped me tremendously with saving. I don't like to look at my, my account statements very often.

[00:39:31] I don't like to look at what I'm spending my money on, which is not, not necessarily a great thing, but I have a budget budgeted out where I know I'm meeting my savings. And I'm able to, um, to, you know, buy the things that I need, um, by doing that. So that has been really helpful to me. Those are the things that I'm passionate about.

[00:39:48] Charlie: I love it. Well, put you get off my pedestal. Drop the mic box. Yeah. Oh, total drop. That that's expensive. Rob, what do you got, man?

[00:40:00] Rob: That's all I got really? He nailed it. We've talked. Uh, we talked quite a bit. They did talk to mentality the use of money, tangible. The savings or automation, the three different ways to joint custodial and prepaid debit card that mothers, and obviously Roth IRAs.

[00:40:16] Charlie, what do you got anything to wrap it up? Oh boy,

[00:40:18] Charlie: this is a good one. I just love what Ben said, you know, set goals that are important to you. Not somebody else. We see so many people with this FOMO, right. And they're missing out. They feel like they're missing out, but it's like take the time as a young person to go.

[00:40:33] What do I want? And go after that. If you don't ever do that, then you're going to be constantly trying to meet a goal or benchmark that's moving on. You constantly and you will drive yourself crazy. I hope that makes sense to people, a lot of people say, it's know your values. That's a little bit vague and maybe, uh, a platitude of sorts, but know what's important to you and then write it down.

[00:40:59] And then set those goals because it's the L keeping up with the Joneses and we just see so many people through the whole life chasing this unattainable money goal. And then sometimes they get it and guess what? They're disappointed because it wasn't what they really wanted all along.

[00:41:17] So know what you want, know what's important to you and go through. That's it.

[00:41:21] Ben: I've just, I've just, I love that. That that's such a good point. He made me think of one more, one more thing that I find important right now. Um, we're in Tennessee just recently, uh, passed the, uh, the sports gambling act. I don't know what it's called, but you can now gamble on sports.

[00:41:38] And it's very tempting. If you can do it through an app on your phone and it tells you that it has pretty, uh, you know, graphics and everything that pop up when you win and they say you can win tons of money. And, um, you know, every day they say, they say, Um, and I think it's the same with some of the Robin hood stuff that you see on commercials.

[00:42:00] Um, I was seeing, I saw a Coinbase commercial the other day, and it's like, you know, you go and buy doge coin. It was literally a thing about dose going and how it was started as a joke, but you can go and invest in it and coordinate. So I would just say stick to the, you know, have your, have your long-term money that you're saving and don't, don't try and gamble it away on literally gambling or, um, these meme stocks trying to try to win it all on, uh, you know, following people on Reddit or in these Twitter groups or whatever it is.

[00:42:29] Um, you know, that will cause more stress in the long run. Most likely you're going to lose money. You're not going to be able to beat the market. We just, I'm, I'm an expert investor, as we all know. And I, I just lost to the game. So, I mean, right there, you can't beat the market. Um, no, but, um, I really think like as a young person, especially creating those habits and not falling into this trap of trying to, um, gamble your money away and really invest in investing is not gambling and, and really learning about that and sticking to that.

[00:42:59] I

[00:42:59] Rob: love it. Nice. That's it. All right. I've got the two quotes to wrap it up. We're not a fan of everything Dave Ramsey says, but this one I am. You've got to tell your money what to do, or it will leave. They Ramsay. If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.

[00:43:17] By Edmund Burke, we've arrived at our final destination. Let us be the first to welcome you to the end of flight eight. Thank you for joining us here at the pilot money guys podcast. If you liked what you heard, please hit that subscribe button and leave a review so we can reach more people. If you have any questions or you'd like to, uh, anything answered on the show, she does email info@leadingedgeplanning.com or robert@leadingedgeplanning.com.

[00:43:42] And as Emerson said, the world makes way for those who don't know where they are going. So plan accordingly. Thanks for listening. Take care.

[00:43:52] Voice Actor: Thank you for listening to the pilot money guys podcast. It has been our pleasure to share some information with you today. Give us a call to discuss absolutely any investment question. You may have click on the subscribe button below to be notified when new episodes become available. Visit leading edge planning.com to learn more.

[00:44:11] Take care.

[00:44:14] The information covered and posted, represents the views and opinions of the guests and does not necessarily represent the views or opinions of leading edge, financial planning, LLC, leading edge financial planning, LLC. Leading edge is a registered investment advisor. Advisory services are only offered to clients or prospective clients who are.

[00:44:33] And its representatives are properly licensed or exempt from licensure. The information provided is for educational and informational purposes only, and does not constitute investment advice and should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell. It does not take into account any investors, particular investment objectives, strategies, tax status, or investment horizon.

[00:44:56] You should consult your attorney or tax advisor. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-thinking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those.

[00:45:16] Any projections market outlooks or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Always seek the advice of your financial advisor or other qualified financial service provider. With any questions you may have regarding your investment for you.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this Podcast will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 10/21/2021 and are subject to change at any time due to the changes in market or economic conditions.

Categories
Pilot Money Guys

2021 Child Tax Credit Payment: How Much Is Your Kid Worth?

Stitcher Button
We apologize for interrupting your regularly scheduled podcast program. We have BREAKING NEWS! What is up with the new American Rescue Plan (ARP) CHILD TAX CREDIT payment?

There is a new increased Child Tax Credit Payment via the American Rescue Plan (ARP) that's paying out right now. Like many of us, you may have received a payment that you weren't expecting.

  • Will you have to pay it back?

  • Will it cause your tax bill to be higher in April?

  • Should you spend it now?

  • What's the difference between the new increased ARP Child Tax Credit and the previous version of the Child Tax Credit?
Typically, taxpayers with income under $400,000 MAGI, married filing jointly, received a $2,000 tax credit per child under the age of 17 to offset your tax bill. This year, instead of getting the credit on your taxes, a portion of the credit will be paid out in advance over the next 6 months. If you count on the tax credit to offset your tax bill, you could be in for a big surprise!

In this podcast, Leading Edge's Co-Founder and CFO, Kevin Gormley CFP®,CPA aka "The Professor" covers all the details of the new increased Child Tax Credit as well as the existing credit. Plus, everything you need know to NOT be surprised at tax time!

Check out this Wall Street Journal article on the Child Tax Credit!

Check out our recent post on Tax Deductions

Podcast Transcription:

Voice: ladies and gentlemen, welcome aboard the pilot money guys podcast, where our mission is to help clients build and protect wealth to achieve their dreams. And. This podcast is brought to you by leading edge financial planning without further ado, here is your host Robert equity

Rob Eklund: tip of the cap, Tia and welcome to the pilot money guys. Ad hoc special edition podcast regarding child tax credits. I'm your host, Rob Macklin. Joining me today. We are lucky enough to have certified financial planner and CPA. Kevin Gormley, nicknamed the professor. Which isn't too original as he used to be a professor, but still he's known to pontificate around the leading edge campus.

And he looks like a young Jim Gaffigan lives in Tennessee, loves long walks on the beach and usually has a good bourbon with it. Welcome Kevin.

Kevin Gormley: Hey Robin. Yeah. It's, it's great to be here with you guys. A big, big fan boy of the pilot money guys. First time, long time and all that other crap.

Rob Eklund: Perfect. Perfect.

We got a, of course we've got anchoring. The podcast is our financial wonder. Boy, Ben Dickinson. Welcome Ben. Good to be

Ben: here. Anchoring it down. Like keeping it anchored. I like it. Charlie is out. Charlie's out. Charlie's out. Kevin's in. And this is a good time.

Rob Eklund: Good crew the crew. Yeah. Yeah. Uh, let's jump into it.

We've got a little airline news. This is an ad hoc, uh, podcast. We just brought it out because the child tax credits, if you're getting payments from the IRS, or if you make less than $400,000, you might want to tune in. But first we're going to jump into airline news. Ben, what do you got?

Ben: Airline news. So I, this, this one might not, might be debatable whether this is airline news, but this is, this is sort of aviation news.

Uh, maybe more rocket. Our man rocket, the myth, the legend, Jeff Bezos, rocketed into space, debatable. Whether he actually made it to space. I think there's been some debate on that. I know he went fat farther than Branson. Well, what are you guys saying, Nick? Did he make a space?

Rob Eklund: I don't know. Did he? Well, I can tell you it's not an astronaut.

At least the FAA says he can't wear the wings. No, can't

Ben: agree.

Kevin Gormley: He's like, why not? Why not Rob? Why can't he wear the wings? He

Rob Eklund: says, uh, passengers can't can't wear the wings. And unless you've demonstrate activities during the flight that were essential to public safety or contributing, attributed to human space, flight safety, he wasn't a pilot.

He wasn't commanding it. He wasn't working on it. Really. He was just passenger. So no wings for him,

Ben: man. No rings for you also just couldn't. It had one button that they had to press just to get the wings. I mean, they could have, he really should've thought of that. If he's this genius, billionaire, come on, just add one button in there,

Rob Eklund: cowboy hat for crying out loud, you should get the wings.

Kevin Gormley: You should get the wings at the blue, the cowboy.

, Rob, I do have a question for you. Um, has he, has he been up higher?

Oh, yeah, it's a little it's a little bit. Yeah.

Rob Eklund: Yeah. Tap out about 41,000 for myself.

Ben: He, how high did he go? I mean,

Rob Eklund: I was able to make it Branson. That's always a good thing,

Ben: right? Yes. Yes. Um, the billionaires like to get after each other, which I appreciate as a, as a simpleton, uh, here, I, I, I don't mind, I don't mind doing this, this.

I dunno exactly.

Rob Eklund: Did he really get the space Branson that is? Did he really make it? I don't know.

Ben: W we, we were debating before this, about the Karman line, uh, that Kevin was talking about to us. Uh, the Karman line apparently is a unofficially official line of S of, uh, where space begins. Yeah. I'm not sure.

Kevin Gormley: Yeah. Ben, it's a, it's a little known fact. That Theodore Von Karman actually established the Karman line. And it's, it's somewhat, yes, it's somewhat of a nebulous, uh, amount, but it's 50 miles up or roughly 80 kilometers. I don't know, 80 kilometers. That doesn't sound like very much, but, uh, that's, that's where the space line allegedly begins.

And I know, uh, Bezos was making fun of Brandon. And, uh, you know, look, I'm afraid to go, uh, even 30,000 feet. So I'm not making fun of any of these guys. The interesting part for me though, is a lot of people are like, well, how does this space flight solve world hunger? Like, you know, how does this solve world hunger?

How does this solve other problems? And I'm like, I don't really care. It was pretty cool to watch.

Ben: Yeah. Yeah. I go hungry and watch the show.

Kevin Gormley: I mean, what are the aviators think? Rob? What's been the, what's been the scuttlebutt around, uh, aviators, as far as all this. Do you even care?

Rob Eklund: I don't think we care too much, but maybe I'm wrong. I have, I've only flown a few, a few, uh, flights, uh, since it's happened, but I don't think we care too much other than we like to make fun of.

Maybe the shape of the rocket and whatnot, but

Kevin Gormley: yeah,

Ben: it was a little Dr. Evil, Alaska, no one, but

Rob Eklund: he's got some big windows like it. Excellent. Anything else? Any other aviation S news. I know United bots and planes, or is it planning to buy a lot of planes? Like 200 Max's

Ben: yeah. So that's exciting. I mean, hopefully it happens.

There's always, always some risks around. I'm not even gonna say the name of the plane. I don't want to jinx anything, but don't say, but yeah. Yeah, besides that, I mean, we, we, uh, luckily we, we recorded, uh, our, our last podcast here. What last was it? Last week? I think it was last what? Yeah. And so, yeah. Yeah. I mean, uh, not too much going on since then, maybe some, some different, uh, different fuel shortage, potential issues I saw on the west coast, but, uh, for the most part, it looks like things are going pretty smooth.

Um, how are the flights in Southwest? So you're,

Rob Eklund: they're, they're busy. Things are crazy right now. Uh, you know, I think the airlines are hopping, so hopefully that continues, uh, through the, through the Delta variant and all that good stuff, but we'll see. Absolutely. We'll see. Absolutely awesome. Sounds good.

Let's move it along. Uh, before we get to the exciting stuff, let us remind you. This podcast is brought to you by leading edge financial planning. We are fiduciary fee only advisors, and we want to know what keeps you up. When you were thinking about your finances, what questions do you have about your retirement savings?

Life insurance policies long-term care options, or estate planning, or why we call it? Ben Caldwell, give us a jingle 8 6 5 2 4 0 2 2 2 9 2 2 8 6 5 2 4 0 2 9 2 2. It's up to you to get these facets of your life in order or not. You decide to get a handle on these issues. We can help that's enough of that.

Mr. Professor. Kevin Gormley let's get into the child tax credits.

Kevin Gormley: Yes, sir. Um, so I think I'll just start out by saying I had more conversations during this tax season about people's kids and basically what their kids were worth to them. Um, because we talked a little bit about if a kid's a, you know, when I say kids 17, 18, 19 years old should be claimed as dependence and or should file themselves.

All the kids want. That money that was out there. So when we talk about taxes, we talk about tax credits and everybody goes to sleep. Uh, if somebody mentions that you might get some of that free money, all of a sudden everyone wakes up and that's really what this is about. This is about, uh, either that free money or maybe having to pay back money if you are a high income person.

So, so that's really how I would frame this discussion. If you're high income, you may not be getting some of these, uh, these friends.

Rob Eklund: Yeah. I feel like Ben should insert the little clip from Jerry Maguire. Show me the money right there

Ben: to meet the money. I just cause we met just because you make a lot of money.

It doesn't mean you shouldn't get any free money. I mean, come on. Right? Right. Well basis to get some free money to

Rob Eklund: you probably don't well, I don't mean to sidetrack you here, but for our listeners, um, who don't know that much about taxes, can you just explain real quick, the difference between a tax credit and a tax deduction kind of different.

Kevin Gormley: Well, uh, I'll give it a shot. I hope I can explain it. Uh, but a tax deduction lowers your taxable income. So if you have a hundred thousand dollars of tax in taxable income, you have a $2,000 deduction, a hundred minus two is 98,000. And so you still have to pay taxes on that income, but a tax credit. Wow. A tax credit is if you have a hundred thousand dollars of income and you're going to pay $20,000 of tax.

The credit actually will reduce your tax dollar for dollar. So the credits is really where we come in and we say, uh, you owe a $20,000, no check that you owe $16,000. And so it can be like a four, $5,000 difference when you have credits.

Rob Eklund: Very nice. Excellent. Awesome.

Ben: So the tax credit, I've got a letter here that was sent by none other than the president directly.

Not me. That's a Charlie handwritten from what I can tell. Very good to handwriting, very clear, almost looks at times new Roman. Um, it kind of goes over some of these details, estimate some stuff. What's going on with this child. I don't have a kid, so this doesn't, this doesn't help me at all. But unfortunately, yet I'm thinking now though, I should start having a bunch of kids just so I can get these, these credits.

Rob Eklund: Well, I'm absolutely be

Kevin Gormley: a bad idea. I'm absolutely not going to touch that one. Cause that sounds like a political hot potato. But, um, but yeah, the thing is, is, uh, you know, I don't know how much children crock cost to raise. Uh, Costa rays, but, um, you know, I've heard, I've heard a million dollars over your lifetime.

I've heard other numbers as well. And so at tax time, we actually might get something for having children and that's really what these tax credits are about. So, so Ben, when, uh, the tax law changed, I think it was in 2017 or 18. Uh, they changed things where people even making up to $400,000, married, filing jointly could now get child tax credits.

Now other things were lost, but I'm not going to go into that. But, uh, so it's $2,000 per child that are under the age of 17 or 16 or less at the end of the year. So, uh, when the kids are over, then set older than 17. Uh, you only get $500. So what ends up happening with a lot of our clients who are high income is one year, uh, they don't know much tax the next year they owe a lot of tax and then they say, I think our CPA did something wrong here, Kevin.

Yeah. And they call me and they say, uh, are you sure this is right? And I say, let's take a look at it. And then we find, well, uh, you have two children that are now over the age, so you're no longer getting all these calls. So, uh, so anyway, that's really, there is a great benefit to having the child tax credits you, you saved money.

Rob Eklund: And I think that was a, the tax cuts and jobs act of 2017. They raised it from a thousand to 2000. So we're already moving the right direction,

Kevin Gormley: right? I am. Yeah, that's good, man. I love when people pull out that, uh, uh, legislative language there. Thank you, Rob.

Rob Eklund: My brother's

Kevin Gormley: a lawyer. Yeah. Yeah. So, so really what's happened in, in 2021.

Um, and this, this sounds like I'm an infomercial here, but for one year only for just one year only, uh, you get, yeah, you get extra, you get extra money. So, um, but, but there's lots of caveats as always. So if you, if you are a single and you make $75,000 or less adjusted, gross income, Uh, head of household 112,500 or less, uh, again, just a gross income.

We won't go into what that is or married, filing jointly 150,000 or less. Uh, you will get per child. Now you'll get $3,000 if they are 17 and below in 2021. So for one year only, it's not 16. It's now 17. And then if the kids are five or younger, You would get $3,600 in a child tax credit. So, um, now that caveat of $150,000 married, filing jointly and single 75 or less, um, I don't know what you guys think about how many clients we have that actually, uh, make less than that.

But it ain't many.

Rob Eklund: No, not, not a lot for us. Uh, but you know, those younger pilots out there, they're hitting that. They're below that 150 in, in, during COVID times, you know, some of our other clients, I think might've been a hundred below, 150. And depending on what the IRS is looking at there, they might've thought, oh, well, they make less than 150 based on their 20, 20, uh, income and or their two.

Yeah. Or 2020, income. So we're gonna give them this, tax credit, something

Kevin Gormley: like that. Right. Yeah, Rob. So, uh, what was really interesting last year? Interesting to a tax geek that is so take that with a grain of salt, is that sometimes like 2000, right now it's 2020 tax return. If he didn't file a 2020 tax return, it's the 2019 tax.

Yeah. So for people that actually made more in 20, sometimes it's better to not file your tax return. And we did a lot of that. Um, I don't really want to call it gaming the system. I like to call it a tax smart planning, but, uh, some could perceive it to be gaming the system, but it's based on 2020 tax return.

If you did not file one, which I did not file my own tax return yet it then is based on 2009.

Rob Eklund: Gotcha. So just kind of to summarize a little bit the American recovery act, which is in 2021, raised it from that 2000 to 3000. If we're just talking, uh, 17 and under now.

So you can, uh, you got the tax credit of $3,000. If you're 1700, unless you're under six and it's 3,600. Is that per child? Is that.

Kevin Gormley: Yeah, exactly. So let me, let me take it a different way here. Uh, frame it a different way. You still get your $2,000 per child. If they're 17 or younger, you then get that super bonus 2021, a APA, extra thousand dollars.

So, and the reason why I say this and it's called an enhanced credit, Rob is because if you make over $150,000, that enhanced part starts to go away. If you're married, filing joint, But you need to make over $400,000 before that $2,000 starts to phase out. Gotcha.

Rob Eklund: Okay. Fantastic. Now for those people that did make under 150 or maybe didn't file in 2020, and they saw, uh, an IRS, payment in July, how in the heck did they calculate it?

Kevin Gormley: Yeah, I'm going to, I'm going to make fun of myself as I always do. And mentioned that on July 16th, I looked at my own bank account and said, what's this $167. And so, um, I, I didn't, I didn't expect it, but what the IRS ended up doing is they said, all right, you're going to get this amount of tax credit.

We're going to divide that amount by, of tax credit by 12. And then we're going to pay it over six weeks. So Ben, I don't know if there's an easier way to say it than that, but boy, that sure is confusing. How would you, how would you say that? Only the IRS.

Rob Eklund: Yeah.

Ben: Maybe I'm just trying to ask a question with this, but so you're you get, you get half of essentially what you should be getting as the credit, if you, if over the next six months and then at tax time, is that going to come in the form of a refund or, or potentially reduce the amount you owe?

Is that right? Based on half of what you should be

Kevin Gormley: getting well, that that's, that's sorta correct, but I'm not really sure what you said. Uh, Rob, where you, where are you tracking that? Um, yeah,

Rob Eklund: , I think I tracked it. You get 50% of the credit that you would've got when you filed your taxes the next year during April, or whenever you file, but you're going to get that over the last thing.

You're going to get a prepaid over the next six months from July to December, you're getting that 50% broken up. Six payments is that Kevin,

Kevin Gormley: is that what you're tracking? That, that that's perfect. So let's, let's give an example. Examples are always easy. So let's say that you're going to get $2,000. You're you're over the $150,000 in whatever tax return.

So you're going to get $2,000. They will pay you a thousand dollars from July till December, and then next year, when you file your tax return, you get the other thing.

Ben: But what is the cause I was hearing that there is the major confusion point with these are the big challenge for some people is you may be getting these payments and then not expect that you're going to owe more in taxes or, or get more money back. Can you explain that part of the confusion there?

Yeah.

Kevin Gormley: Yeah. So the, uh, the most evil words in taxes is claw-back claw-back is always things that, uh, make, uh, everybody upset. And it, it particularly makes people that prepare taxes upset because we always get blamed. So if you were to get that thousand dollars extra, or let's say it's 1500, let's say, let's say you made a hundred thousand dollars in 2020.

And now you joined Southwest airlines and you're flying a lot of premium trips. And so now all of a sudden your income is I'm just going to make this up 450,000. So, so you went from making a hundred thousand to 450,000. So that, that thousand $500 that you got an advance.

You got to pay all that back when you do your 2021 tax return. So not only do you not get that 3000, you have to pay back 1500 when you arrive at your final destination of filing your tax return.

Ben: Yeah. What about you think there would be any penalties or anything on that if, if you have to pay it back.

Kevin Gormley: So I told you the most evil words and tax, I'll tell you the most friendly words in tax and that's safe. And so there is actually a safe Harbor where you'll not have any penalties on that you're doing, unless, unless you're, uh, unless you're cheating the IRS and you lie about something. But no, there's, there's no, there's no issues with that.

It's again, it's going to be when you file your taxes, uh, the, if you're married, the spouses are going to look at each other and say, uh, oh man, we all, all this money.

Rob Eklund: If I'm, if I'm, uh, thinking of this correctly, Kevin and Ben, uh, if I'm gonna make, if the last year I made less than 150,000, and this year I'm going to make over 150,000 and I'm getting those IRS payments, then I better be real careful what I do with that money.

I might want to, you can go, there's a couple things you can do, right, Kevin, and you could go on and go onto the IRS website and register and do all that, uh, get through that process. And then. Or you can probably put that money aside and make sure you don't touch it. Maybe make a little interest on it and then get ready to pay that come tax time next year.

Kevin Gormley: Yeah. So my, my advice to everybody is not to do anything, not to go cancel it, especially now that it's after July 15th, because you know, people will say, well, I got to check in the mail. I'm going to send it back. Please. Don't do any of that. Just to just accept the money as an interest free loan. If you get them.

And then at tax time, you, you basically end up settling up at tax time. So, uh, but, but yes, to answer your question, if you're, if you're getting, uh, you know, too much money, quote unquote, you could save that money and be prepared to pay some taxes next year. But of course, Rob, no one does that. Everybody gets the money and spends it.

And that's the whole reason why we, uh, we are getting this free money, which is not at all free because it's going to be on our taxes next year. Yeah.

Rob Eklund: Well little savings account, then what would you do with

Ben: it? What would I do with it? You know what I would do, I would throw it all into

Rob Eklund: not dose

Ben: on the rise, but,, I wouldn't do that.

I don't know. I think maybe a person that would, that likes you to refund back and this is just behavioral, but, and this is another thing just to think about, some people just. Hate owing on th on their taxes. And I agree the interest free loan , is exactly what you probably should do.

Um, you know, really take it, take advantage of it. But, um, if you're a person that hates to have to owe money, I would definitely consider turning that off. Or, I mean, is it worth it maybe up in any sort of withholding at all, just in case, uh, if you are getting that, would that be smart at all?

Rob Eklund: That could be a tactic.

Kevin Gormley: Yeah. So the more money you withhold, the less money you pay a tax time. Uh, so, um, that is absolutely a tactic and for certain people, uh, if they, if they get, if they don't get a refund, they're very upset. So, uh, But, you know, like you said, Ben, you should never overpay your taxes. You know, you can never be too thin.

You can never be too rich and, uh, you should never overpay your taxes. I think I just made up a third one. Yeah.

Rob Eklund: Nice. So, uh, again, not too many people listening probably are in this category, but if you do fall into that category where you're making really close to that 150,000, you should probably think to get to take advantage of these child tax credits.

So you want to get your ink. Lower than that 150,000. If you're close, if you're within, you know, maybe 10,000, maybe you've got a better number there, Kevin. Right.

Kevin Gormley: So Rob, the phase out starts, uh, at 150,000 and I think, I think that's just a great point for tax planning. Is, uh, you know, you don't always need to know their tax rules, but find yourself a tax geek that knows the tax rules.

And there are times that by, you know, and maybe you put a little bit more, more money in your 401k, or maybe you do something, maybe you give away a little bit more money in that year to lower your adjusted gross income. So you can be eligible for certain things. I think that's always a good thing.

Strategy.

Rob Eklund: Yeah. Things like IRA contributions, health savings accounts, those kinds of things. Yeah. Key. And that's where professor Gormley can really help all your tax for bedroom. Like it. Awesome. You haven't what else you got on this topic? Yeah, I know. It's really dense and there's a ton we could talk about, but uh, what

Kevin Gormley: else you have?

Yeah. So just a few things, maybe the top five things to know about this is, uh, if you're, if your kids are older than 18, Uh, you're out of luck. They're only worth $500 to you. Uh, maybe, maybe they're worth a little bit more, but if they're 18 or over in 2021, it goes back to 17 and 22, they're only worth $500.

, if, if children are claimed by another person, Sometimes we have mixed families. Well, obviously you're not going to be getting the tax credit in advance, but you would still get it. If you're going to claim that child, if you yourself are dependent on someone else, I would love to be a dependent on Jeff Bezos if he's listening.

But if you're a dependent on someone else, Yeah. Uh, if you have a brand new baby, uh, you're not going to get the advanced tax credit because the IRS is not aware. Congratulations on your brand new baby. Uh, you do, as they say in the tax business, you have a new deduction and in this case, a new child tax credit.

Um, and then the other thing is if your children are five or younger in 2021, you could get this, uh, you know, $3,600. You know, some of the websites where I've read, they talk about winning the lottery. If you have a really young child and you could get that 3,600, but for the most part, and here's the final takeaway point is most of our clients that we work with, Rob, this will not affect, right?

Because they make too much money and I'd love to discuss in another podcast, what making too much money means, because I sure say it a lot and nobody ever knows what the heck I'm saying. When I say it, you make too much money. They're like, Yeah, put it on the

Rob Eklund: books. Gavin, I like it. Ben, any, any final thoughts?

Ben: Just, just rethinking, uh, the new kids situation now. Um, I'm really seeing the dollar value in them. Um, you know, feed them cheap. That's what I'm going to say. And that way you can really, really make some money off of this tax credit. Um, but, uh, but no, no. It's good, great information.

It's that? And the fact that it's automated is definitely something to be aware of. You're getting it whether you want to or not, you have to pay it back.

Rob Eklund: So, yeah. Kevin, did you finish your, finish your thoughts there? You got some more,

Kevin Gormley: well, I have 16 more cards to go through, but I think, um, I think I'm good, Rob.

Rob Eklund: Perfect. All right. That's it. We're going to leave you with an anti quote today because we've been doing a lot of, uh, regular quotes, financial. This, one's not so much of a financial quilt, but it could be. And it's this from Mario Andretti. If everything seems under control, you're just not going fast enough.

Anyways, anything, any thoughts on that? Ben,

Ben: you know, just, I guess I, maybe I just don't get it. Maybe I'm not smart enough, but I'd rather be in control than going too fast where I'm out of

Rob Eklund: control. Definitely not a way to fly a plane.

Kevin Gormley: I don't think. Yeah. For, for our younger viewers, um, Mario Andretti was a race card. Yeah.

Ben: Yeah,

Kevin Gormley: I've used, I've used quotes from Mario Andretti and people have said, ah, what the hell is he talking about?

Ben: . That's it? We've reached our final destination on this ad hoc special edition of the pilot money guys podcast.

Rob Eklund: If you like, what you do. Hit the subscribe button. If you have any topics you want us to cover, you can contact me@robertleadingedgeplanning.com or info@leadingedgeplanning.com. Remember, as Emerson said, the world makes way for those to know where they're going. So you may want to plan accordingly. Thank you for listening.


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this Podcast will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 08/02/2021 and are subject to change at any time due to the changes in market or economic conditions.