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Financial Misunderstandings

Financial Misunderstandings

Managing your finances can be a challenging task, especially when it comes to making sound investment decisions and navigating the complexities of taxes. In this podcast, Matt Robison and I tackle some common financial misunderstandings and provide insights into how you can avoid them. 

1) Accounts and Investments are not one in the same

You might have a backpack for hiking, but it’s what’s inside that counts. One prevalent misconception is that the type of account you have determines the success of your investments. However, the truth is that the account is merely a vehicle for holding investments and has no direct impact on their performance. It is crucial to recognize that the key to growing your wealth lies in investing wisely, rather than solely relying on the type of account.

2) Index Funds: They aren’t all the ‘safe’ option

Index funds are often considered a reliable investment option due to their built-in diversification and lower expenses compared to actively managed funds. While they can provide stability and consistent returns over the long term, it’s essential to remember that all investments carry some degree of risk. Educate yourself on market dynamics and timing to make informed decisions.

3) Make sure you are truly diversified

You may eat at a different restaurant every night, but if they are McDonalds, Burger King and Wendy’s, then you aren’t really eating a diverse diet. The same holds true for investments. Diversifying your portfolio across different asset classes and industries can help mitigate risk and potentially enhance returns.

4) Roth IRA Contributions: Know the Income Limits

Contributing to a Roth IRA can be an excellent strategy for retirement savings, as it offers tax-free growth potential. However, it’s important to be aware of the income limits. For single individuals, the maximum income threshold is $138,000, and for married couples filing jointly, it is $218,000. Understanding these limits ensures you avoid any potential tax penalties.

5) Backdoor Roth IRA – Get Professional Help

The backdoor Roth IRA strategy involves converting traditional IRA contributions into a Roth IRA to take advantage of potential tax benefits. However, executing this strategy correctly can be complicated. Stay in your lane.

6) Taxation on Bonuses: It’s not as clear cut as it seems

Receiving a bonus at work is always a cause for celebration. However, it’s crucial to understand the tax implications. While tax is paid when the bonus is received, that money is also considered income so you will owe the difference between what you paid upon receipt and your income tax obligations at the end of the year.

7) DIY is not for taxes at this stage in your life

While filing your taxes yourself may have sufficed in simpler financial times, as your wealth and financial situation grow, so does the complexity of your tax obligations. Engaging the services of a certified public accountant (CPA) or a qualified tax professional can help ensure accurate reporting, maximize deductions, and minimize the risk of errors that could trigger an audit.

8) Pay Your Taxes – Filing an extension does not apply to paying your obligation

Extending the deadline to file your tax return does not mean you can delay your tax payment. Regardless of when you file your taxes, failing to pay your tax liability by April 15 can result in late-payment penalties and accrued interest on the amount owed. Make sure to budget for your tax obligations and submit your payment promptly.

Conclusion:

Avoiding financial misunderstandings requires a proactive approach and a commitment to ongoing education. By recognizing that investment success depends on wise decision-making rather than the type of account, understanding the importance of diversification across all holdings, and seeking professional guidance when necessary, you can set yourself up for financial prosperity. Similarly, staying mindful of tax implications, adhering to deadlines, and leveraging the expertise of a CPA when needed will contribute to a more successful and stress-free tax season. Remember, financial management is an ongoing journey, and by arming yourself with knowledge and sound strategies, you can make the most of your financial resources and achieve your long-term goals.

This episode has information from my great friend Meg Bartelt. You can find the original blog post here.

Are you ready to create your ideal lifestyle? Let’s Connect.

Transcript

Transcript
Matt: 00:00

You chose poorly, the biggest financial mistakes that you’re probably making right now, and how to fix them quickly and easily. Because everything that’s described over the internet has to be fixed quickly and easily. Luckily, Mike Morton of Morton financial advice is pretty good at quick, easy fixes for things. Mike, how are you? Are you going to fix all my problems?

Mike: 00:20

Oh, no. Well, that’s a whole different episode. That’s not this podcast.

Matt: 00:25

That one is titled, Existential Disasters – Matt Roberson. All right. We’ll get into that another time but you want to talk about common financial mistakes so easy to fall into. But luckily, maybe the good news is not that hard to fix with a little bit of legwork.

Mike: 00:44

Yeah, that’s exactly right. In fact, these ones are financial mistakes, that you might be thinking, your assumptions, misunderstandings let’s call them financial misunderstandings, that you really want to make sure that you are not falling into. So we’re going to run through some of those today and clear those up for you.

Matt: 01:01

Sounds awesome to me, because I’m lazy, I hate doing a lot more work and this, the number one thing that I find this happens with all kinds of experiences and all kinds of domains is that frequently people know that they should be doing things better. But it’s just too much work upfront, to do the stuff that would make their life easier in the long term so they don’t do it. And this is what happens to me, alright, so that that piece builds up, and then you have another piece, it’s like, I should probably tell the cable company to stuff it and just cut the wire, I’d save so much money, get the same stuff, boy, that sounds like a phone call. That’s good to talk to so you don’t do it, you got to talk to people talking to humans, as always. I like it when a robot tries to verify that I’m not a robot and I’m like, actually, I want you to think that I’m a robot just just do things for me like interface with me on a robot level. Alright, where do you want to start off?

Mike: 02:00

We’re going to go top to bottom, I actually have some notes for this document, didn’t you read them?

Matt: 02:06

Reading notes is like the number one mistake you can make when doing a show with Mike Morton.

Mike: 02:12

That’s true actually, otherwise you might not show up to do the episode.

Matt: 02:15

Yeah, you know how to fix that? You pull a LeBron. You ever hear what he was like? Yeah, I scratched that play the coach called, here’s how we’re going to do it. I love seeing your notes That’s like yeah, we’re gonna scratch that play. Alright, so the number one mistake you made was… I see now that you’ve got eight, I’m not actually reading these things. I’m just like ‘you got a top eight list’. Why didn’t you make it a top 10 list?

Mike: 02:36

I think it is. Oh it’s only eight, I don’t know it’s just the way it is.

Matt: 02:39

Alright we’re going to come up with two on the fly. So it’s going to be a top 10 list. My last question for you is did you organize this, is there any logic to it?

Mike: 02:52

Yes, you know how this was organized? A big shout out to my great friend, Meg Bartelt! This is one of her blog posts that she put up a while ago and I loved it so I stole them exactly from her so that our listeners can also understand these misunderstandings. And so we’ll definitely have that in the show notes, that was obviously going to be in the show notes anyway, to her blog post, but it was great blog post. So that’s the order that you get.

Matt: 03:18

I love your answer here. It’s, oh it’s definitely organized, I can’t tell you how, because it’s according to someone else’s logic. Let’s just go with number one here. And maybe the listeners will get back to us. If you listeners and viewers of this show can divine any kind of organizational principle behind what we’re about to tell you, let us know. We’d love to hear. Alright, what’s number one?

Mike: 03:38

Number one is thinking that the account is the investment itself. And it’s funny that I get this, but it’s very basic. And people have this misunderstanding that when I say, ‘do you have some investments?’ they’re like, yeah, I have a Roth IRA. Okay, that’s an account. Do you have some investments? It’s like saying, Do you have some money? Yeah, I got it, You got a checking account? Okay, but is there cash in it? Do you have some money? So the account itself, and there’s a million of them that we talked about on the show, 401K’s, HSAs, IRAs, 403 B’s, blah, blah, they’re all account types. And they have certain rules and regulations and uses, but they’re not the investment. So don’t make the mistake of like, Yes, I have a 401k, I have investments. The 401k is an account it is not the investments.

Matt: 04:24

Right it’s like if you went hiking, and your friend was like, hey, did you bring supplies? And you’re like I brought a backpack. Okay. Are there supplies in your backpack? Like water food matches?

Mike: 04:36

That’s right, oh wait right, I’m supposed to bring something in the backpack.

Matt 4:39

No, but I’ve got the backpack. It’s like okay great, thats the container. Alright, that’s, you know, what’s weird to me about this one is this makes total sense. I have the opposite problem. You helped me discover this where you asked me if I have an IRA and I’m like, yes, I have my funds invested in a target date fund, like, no Matt, that investment for which you intended to be for your retirement isn’t a target date fund, it’s designed in that way, but that’s not an IRA. I’m like, what do you mean? You’re like, oh my gosh, what is wrong with you? So that’s the converse of the problem of what you’re laying out.

Mike: 05:21

Yeah, you might have that converse problem of what we’re laying out. If you’re backwards like Matt, then you might have the converse problem. Remember, there are accounts and account types. And then inside those, you might have cash, you might have investments, et cetera, et cetera. So don’t mix up the two.

Matt: 05:39

Okay, so bottom line here is, it’s both, you need to do both things you need to understand the account type you have, and then you need to put money into the account and then you have to invest the money.

Mike: 05:51

So that’s the other thing, just so you know, you can’t leave it in cash sitting there like oh, Mike, this is great, I’ve got a Roth IRA and I put money in there. Okay, did you invest the money? Again, don’t get confused, it’s an account type, you need to have investments inside that account.

Matt: 06:07

That comes up all the time, too, because you call you listen to this show, and you’re like, I need to put money in index funds. I’ve understood one thing that I’m going to call Vanguard. They’re, what’s his name? Bogle. He invented these things, low cost index funds, we’re doing it. And the first thing they’ll say to you is like, Okay, we’ve established your brokerage account, you’re like, yes. And then you put money in it, you’re like, yes. And then they’re like, but you realize you now need to choose where the money goes from there. That’s where it’s not really invested in, and you’re like what?

Mike: 06:36

That’s right

Matt: 06:38

One more step alright. But it does sound like I know it is that there are easy fixes for this. And I was being tongue in cheek. So I’m not sure that’s true. But this is actually not that hard. I’ve gone through this myself. And once, you’ve taken idiot potion to overcome being an idiot, like in the form of Mike telling you, you realize that’s not an IRA, once you figure it out, here are the accounts you have, and you put money in the accounts, then you really do just need to choose the investments. So it’s not hard, it just it takes a few additional minutes.

Mike: 07:08

It’s just a misunderstanding that I come across a lot, so let’s clear it up. There’s account types, they have funny names. And then inside those accounts, you can have cash or investments. So just don’t confuse the two.

Matt: 07:21

Alright, straightforward. That makes sense. I’m still screwing it up actively right now. But it’s good to know, what’s your number two?

Mike: 07:26

I’m in an index fund, it’s super safe. Whoa, hold on a sec, hold on a sec, index funds and safe are two different concepts. Alright, so index funds track an index that’s why they’re called index funds. So it could be the S&P 500, top 500 biggest companies here in the US. There’s other indexes total global world stock investments, bonds, total bond index, and you can invest money into an index fund. Okay. index funds are not safe or risky. They are index funds. So you have to understand what it is you’re investing in? Is it a Emerging Market Index Fund? Is it a total US Index Fund? Is it a Global Bond Fund? Or is it a US Treasury index? And they all have different risk profiles. All right, so just get away from hey, Mike, I’m in an index fund, so I’m totally safe and nothing can go wrong. Yeah, you have to understand what you’re invested in. So don’t get me wrong, it’s all a matter of degrees. Risk is a matter of degrees and what your investments are in, but just don’t assume and this is something I run across. ‘Hey, I’m in index funds so I’m really safe,’ you have to understand what safe means, what it means for you and all that, but just don’t think, oh, done and dusted. I got my account, I got the investments, it’s an index fund, I’m going to be totally fine.

Matt: 08:44

So it sounds like if you were in a an international small cap, high growth fund, it would be reasonable to say there’s a higher risk profile with that it would be like, I’m getting in the car, and I’m going to drive 120 miles an hour. And then if your client were to say to you, Hey, man, I’d like less risk, I’m going to go into an all stock fund. That would be that would be less risky. It’s like getting in the car driving 60 miles an hour. And then it’s like, Hey, I’m going to be in just in T bills. Yeah, that’s a little less risky. It’s like getting in the car driving 20 miles an hour. But if you want no risk, you have to not get in the car. That means no risk.

Mike: 09:21

Yeah. And then you’re moving backwards because inflation is coming in and eating away at your money. You’re actually slowly in reverse and you don’t even realize it.

Matt: 09:28

Oh, hey, here’s a subtle one. So the idea of I’m in cash, therefore I have no risk. That’s like a sneaky bonus here, right? It’s like, well, you’re actually incurring another kind of risk if inflation ticks up.

Mike: 09:41

There you go, you got to number nine. You skipped ahead but number nine, yeah, if you’re just sitting in cash, you think so I’m super safe. It’s you know that car. Speaking of cars, holy smokes, have they gone up in price. I was looking at cars. It’s like when did it go from sort of 20 or 30,000 for a pretty nice used car to 60,000, oh my goodness.

Matt: 09:58

That’s a phenomenal question. I don’t understand the economics of the used car market. I do find that what manufacturers in different industries tend to do is they reach a point where there’s a known product and they have to decide how can we increase profit margins, right, like their shareholders are hungry for higher profit margins. And so what you need to do is you need to introduce new features that you can charge a premium for. And before you know it, it’s like this will allow you to plug in your Bluetooth and it has AI integrated to the car and it will drive itself except don’t really do that. And I think as those features find their way into the secondary market, that probably jacks up the price.

Mike: 10:49

You shouldn’t be a business consultant, Matt. We’re only on number two. So as the podcast host, we got to keep moving brother.

Matt: 10:53

Alright I’m doing a shit job of being a podcast host. Alright, what’s number three?

Mike: 10:57

Alright number 3, this one I actually, I do run across a lot. I’m super diversified, because I have lots of different accounts and different funds. Okay, so you know, I’ve got a 401K and I got my IRA, and I have my brokerage account, and I know what those are. Those are accounts. And inside of those, I have investments, I’ve got the total US market, the total world market. I’ve got the S&P 500 and the top 100 biggest companies in the US. So I’m totally diversified. And if you just understood the four things I mentioned, they’re all big US companies and so you have for the exact same things across different accounts. And so you think because you would you look at it, it’s true, it’s like you’re diversified, because you have Vanguard, and you have Fidelity and you got your local bank account, and you got your brokerage and you get in statements from everywhere, and you got different accounts and investments, unfortunately, all of those investments are all in the same exact things.

Matt: 11:47

This would be like if your doctor said, Hey, do you eat a balanced diet, and you’re like yeah, I actually eat out in a different restaurant every day. And what are the restaurants like? I got Burger King, I got McDonald’s, I got Wendy’s. It’s like wait, those are all fast food. They’re all different but not diverse.

Mike: 12:00

Yes, but I’m diverse. If they’re all different, I’m driving different areas, different places. I’m paying them different prices, pulling up to different logos.

Matt: 12:09

Yeah. Like we play both kinds here. Country and Western. Yeah. It’s a very diverse set we play all right. All right. Hey, did we just hit that one in good time?

Mike: 12:21

Record time? Unbelievable. Look at you!

Matt: 12:23

See, I can mix it up. I’m diverse. Alright, number four. Oh, number four, I love this. I love number four, I’m looking at the notes. Now, this is my first mistake, I love number four, because it involves terms that I still barely understand

Mike: 12:37

That’s right, the whole sentence, you can always contribute to a Roth IRA. Oh, this is great. Yeah, I contribute to my Roth IRA every year. The problem is there’s limits, you’re not sometimes you are not allowed to contribute to the Roth IRAs, I run into this, don’t always just put money into an either traditional IRA or Roth IRA without knowing the rules. I told you IRAs have rules, 401K’s, 403 B’s all these have different kinds of rules. But you can’t always just put money into a Roth IRA, there’s income limits, alright. So as a single if you make it, we’re in 2023. If you make more than about 138,000 as an individual, you cannot contribute directly to a Roth IRA. And if as a married couple, if on your tax forms, but says over about $220,000 of income, you cannot contribute, you can’t put money directly into a Roth IRA. So don’t make that mistake.

Matt: 13:29

If you’re listening to this, and you’re thinking, I really do want to understand the ins and outs of Roth IRAs I will tell you that on financial life planning the Morton podcast, we have a couple of back episodes where you walk through this in a really easy to understand kind of way. So that’s great. If you’re wondering, what is a Roth IRA is that the people at my synagogue I should know, then I think you should really take a step back and rethink your podcast choices like maybe this, I’m not trying to get rid of listeners, but maybe you’re just here for the life part.

Mike: 14:02

That’s it, and maybe you’re here for the life part. And that’s okay. We talk about Roth IRAs enough, you’re gonna you’re gonna get it on this show as well, you’ll figure it out.

Matt: 14:10

You know what I’m going to do while we’re about to go to number five here, and we are going to make a top 10, I’m going to add another one you watch. We’re about to go to number five, but I’m going to give you a challenge to think about during this podcast. These are top 10 financial mistakes that everyone’s probably making and doesn’t even realize it’s easy to get out of. Mike, I want you to think about the life version of this not the finance. While we’re talking here, I want you to think about: what’s your number one life mistake that everyone’s probably making and that you figured a way to to hack your way out of that’s easy peasy.

Mike: 14:44

All right, I’ll tell you that for you and then we’ll get into it later. I have a way that you can get more time into your life.

Matt: 14:54

Oh, that’s amazing, yes, like create more time Christopher Nolan movie.

Mike: 14:58

Yeah, yes. All right, so that’d be number 10, how to get more time into your life.

Matt: 15:04

To turn this into a real Christopher Nolan movie, we’re gonna need like a soundtrack where it’s like, RAH RAH RAH.

Mike: 15:10

Alright, let’s go to number five. And the reason I mentioned, you can’t always contribute to a Roth IRA, I’ve had to fix this except they’re called excess contributions, you made excess contributions you weren’t allowed to. So we had to back those out so don’t always assume you can do that. So the next one is, you’ve heard this tricky thing that backdoor Roth IRA, Mike says, hey, you’re lucky enough to make enough income, you can’t go in the front door, you can’t contribute directly to the Roth IRA so I’m going to do a backdoor Roth IRA all by myself, and I’m going to do it, I’m going to open the accounts and put the money in and transfer the money. And then I’m going to file my taxes that showed that how I did it. And if you can do all that you make your own podcast. Okay, so you could have your own podcast if you know how to do all that because this one I run across all the time, man, and it’s not hard, but there’s a lot of steps. And if you don’t know how to read a tax form, or enter the exact wording on certain TurboTax screens, you’re going to mess it up. And I’m telling you this from experience that 50% of the backdoor Roth IRA stuff I see from my clients from friends from CPA accountants, right filling in the forms are still messed up. Okay, so this one is a tricky one so be careful. Are you ready to create your ideal lifestyle? Let’s discover what’s most important to you and design a plan to have more of that in your life. Go to meet Mike morton.com. All one word, meet Mike morton.com.

Matt: 16:49

I can tell you for a fact that I am not falling prey to this mistake for two reasons. One, I don’t have a backdoor Roth. Number two, the entire topic, I believe you when you say get some professional help on this one. Because every time you brought up the term Backdoor Roth on this show, it makes me think of just one thing, which is a story my wife tells, she’s a physician, about having a patient who was not English speaking, and fortunately, my wife speaks actually pretty good Spanish but the difficulty is that there are many terms that you just don’t learn in conversational Spanish that you need as a physician and she was trying to explain to a patient that she had to perform a rectal exam, and she was struggling to get the words across. Suddenly it dawned on the patient and he said, Ah, see a backdoor. And I didn’t know that was a term. But I think of that every time you talk about a Backdoor Roth, it just immediately sets me into a panic of this is something that I do not understand I need help with I am never going to try and do anything having to do with this myself.

Mike: 17:50

The Allah backdoor Matt, why do you have to bring that up and shutdown all the listeners, now we can never use the backdoor Roth anymore, I had a nice pretty picture of a nice house with a picket fence and instead of walking in the front door, you have to walk around the back into the back door and you just totally ruin it for me bring it up with Congress. There’s also the reason that you don’t want to do this is because do you know there are pro rata rules yet another terminology that you’re going to be shaking your head at. There are pro rata rules about when and how you can do backdoor Roth IRA contributions, etc. Now, we do have a show on this, go back and listen to that but even then, get in touch or use some professional resources to help you out during this one.

Matt: 18:29

Yeah, and the use of that show in all seriousness is not to explain how to do this in detail, it’s the you know, the landscape of questions to ask issues that are going to come up, it puts you in a good position to have a conversation with a financial adviser so I definitely agree, talk to someone get the help, but it’s a good primer for what you’re going to need to cover going in there.

Mike: 18:51

Or as you’re, as you’re interviewing financial advisors, ask them, do you know the pro rata rules for the backdoor Roth IRA? That’d be a good one.

Matt: 18:58

That would be a good word, or what’s the first thing you think of when I say Alibag? Alright, what’s number six.

Mike: 19:03

Number six, bonuses are taxed at higher rates or low rates. So one of the two, you’re like my bonus, was either taxed appropriately, or wasn’t taxed appropriately, or it’s not taxed at all. Okay, bonuses are just income. Alright, so first of all, your bonus is just an income so when you go and file taxes, it’s just more income as if they had paid it out throughout the entire year so it’s no different. Okay? But the other thing that’s gonna get you on this, is that your bonus when it’s paid to you, but that month is taxed at a different rate than the rest of your salary. Okay, so two things to think about one, understand that when you have income, say I’m making $150,000 and I get a $30,000 bonus, my income is $180,000, I owe taxes on $180,000 of just income. All right. During the year my employer is taking out income I mean taking out taxes, taking out taxes to pay them right throughout the year. That has nothing to do with how much I might owe. Hopefully it’s close, right? Okay, hopefully it’s close. But what I owe is based on $180,000, what they took out is what they withheld, so don’t confuse them say, oh, I’m all fine, I got paid a bonus, but they took out some taxes, I’m all fine. Or the other way around, so just be careful when it comes to bonuses.

Matt: 20:25

Is there a way upfront to it’s a bonus, it’s supposed to be a bonus but I have worked for a company where after a couple of years, you do get a sense if it’s the kind of company that pays bonuses of like, maybe I should factor that in. So is this the kind of thing where if year after year, there’s a good likelihood that you’re going to get a bonus, do you want to increase your withholding and anticipation?

Mike: 20:49

Yes, two things you could do. You could either increase withholding, that means that the company will withhold or pay more taxes for you throughout the year. So you realize, oh, I just took this new job, and I got a nice bonus and then I owed 5,000 in taxes and I didn’t know taxes before. So maybe increase and have them withhold that extra 5,000 throughout the year. The other thing you can do is make an estimated payment when you get your bonus. Okay, so some sales based on commission’s get large, lumpy checks when they make a sale. And so that’s like a bonus so you can make estimated payments right then and there. But remember that bonuses are taxed currently at a 22% rate. Okay, flat rate, all right whereas the rest of your salary, they calculate oh, you make $150,000, here’s how much we’re going to withhold because it’s a progressive tax rate bonuses are just was held at 22%. If you make $500,000 okay, you’re in the 37% tax bracket, and your bonus only got withheld at 22%, you’re going to owe $10,000 bucks, whatever, $20,000 bucks, you know, you’re going to owe a lot more. So just be aware of that.

Matt: 21:53

Or would it? And we’re just one more on this, then we’ll move on. But would it conversely, instead of increasing your withholding, would it be equally reasonable to say, I’m not going to increase my withholding, what I’m going to do instead is make sure that I’m specifically planning for the fact that I’m going to have this tax hit coming because I’m under withheld, I’m going to invest a portion of money and I’m just going to take advantage of the float essentially of the fact that I get throughout the year to invest this portion of money, get a return on it and I’ll end up ahead even though I’m going to have to pay that.

Mike: 22:29

Yeah, as long as you invested in something that’s going way up in price, and you take advantage of that float, you can do that. Okay, but be aware, Matt, that you’re supposed to pay taxes as you earn the money and the IRS will penalize you if you get a bonus in like June, and then you don’t pay any extra tax. If you get your if you get a bonus in June and you don’t pay it all the way until next April, you could have a penalty for that.

Matt: 22:53

I see. I see. Okay.

Mike: 22:55

Your company is reporting that they paid a bonus to you and they withheld some taxes from the IRS you had that for nine months. So this is true for self employed people, No, that’s why you make quarterly estimated payments, because you have to pay as you’re making the money. You can’t just hold it all.

Matt: 23:11

Okay. All right. Let’s go on what’s next.

Mike: 23:14

Speaking of taxes and payments, This mistake I run across a lot. Oh, yeah, cool, I’m just going to file an extension and do my taxes and pay what I owe later in the year. And then inevitably, the IRS is on to this, you can’t just file an extension and pay later, you can file an extension, but you still pay now. Okay, so don’t mess that one up. If you’re going to file an extension, which more and more people are doing, because honestly, taxes have always been complicated, but they’re getting more complicated. And I find that the statements are coming later and later used to get them like January, February, now it’s like throughout March, you’re getting your statements and you got to file your taxes by April. So a lot of people file an extension. CPAs are super busy, the accountants doing all this stuff are super busy. But don’t make the mistake, you have to still pay what you owe at that April deadline. All right, even filing an extension and then you’re like, what if, how do I know what I owe, unless I file my taxes? It’s very natural question I had this question too is like what how do you do that? What happens is you just do a preliminary estimate, you take your W2, basically your income, and you just do a quick estimate, this is what accountants do. They’ll spend an hour or two instead of four or five hours. So they’ll do the quick major data entry, your salary, bonuses, right stuff like that, and say, here’s what we think you’re gonna owe, make a payment if you’re short. And then we’ll actually do the full analysis and full stuff by October.

Matt: 24:38

Got it. All right, that’s, that’s a good one. This again, goes under the category of maybe get a little bit of expert help on some of these things before you attempt them yourself. And that’s actually a good segue to the last one that you planned for.

Mike: 24:52

Did you read ahead? You read ahead of the dose that I read. Yeah, so number eight, you know, it’s the thinking that you can do your taxes yourself. Now, this may be true and I do have clients that do their taxes themselves, although to be honest, I review all the taxes and I still find stuff. We were talking about that earlier in the show. So you could do your taxes yourself if you have like just ordinary like a W2 job, and maybe a couple other small things, a couple of kids but just W2 jobs and that’s about it. But now you’ve got bonus income, you got some RSUs and options. You got a vacation rental, you rented out vacation home that you sometimes rent out you got a side hustle one of us thinking about self employed, one of you has a W2 job. This stuff is not easy anymore. Okay, yeah, and you got different and you have different accounts, because we all know we got all those multiple accounts and investments. And so hiring a CPA hiring accountant is a pain in the butt, and they do cost some money, but trust me, they’re gonna save you a lot of headaches and time. So that is a recommendation I often give is you could do it yourself if you have some help. So again, some of my clients do their own taxes, but I’m helping them and trust me, I’m looking at TurboTax screens and helping them click the buttons and all that. Otherwise, if you’re on your own, hire a CPA, hire an accountant to help you out.

Matt: 26:09

I do remember a point in my life where a friend of mine pinched the bridge of his nose and said, Matt, you’re old enough, you have reached a point in your life cycle where it’s time, let me introduce you to my accountant. As matter of fact, my Christmas present to you is I will help you pay for this. You just you need to do this otherwise, you’re going to screw up your life. And it was good advice it was really good advice like you’re dishing out here. Alright. Look, we did your planned eight, we threw in a bonus nine. Yep. And now we’re going to deliver the audience the number 10 which is the homework that I gave you. And that you teased earlier in the show outside the financial planning realm in the life plan. What’s the number one mistake that people fall into and what’s the easy fix? You said it has to do with manufacturing time somehow?

Mike: 27:00

Yes. All right. You can create more time for yourself. I think the number one thing that I run across is that I work with a lot of busy parents, right? And you know this, Matt, I know this, what are your kids doing all week, they’re in schools, that’s nice, we can get some stuff done. But then it’s practice this, go into this drive into that picking up this thing, all the kinds of activities there and doing activities. So you’re driving them to activities and joint activities, hopefully, but it’s busy man it’s super busy. So how can we get more time in your life and I’ll tell you how, you need to put the phone away for a small amount of time. Alright, don’t run it. Don’t turn it off right away, hold on a sec, I know you’re addicted to your phone, I’m addicted to my phone. You might be really listening to the show on your phone probably listening to the phone, but it’s in their pocket, hopefully. Give it like three more minutes. So put your phone away at certain times, I’ll give you some recommended times to consider one dinnertime with your family. Get all the devices down away and work on just being present, have the conversation Hey, you know what’s going on in the present, have a conversation at dinner times is a great one. The mornings another great one. Do not sleep first. Don’t sleep with your phone in your room, get the phone out of the room by an alarm clock. They’re like 10 bucks. That’s the number one thing is like I have my alarm on my phone so I can dont need a clock, Don’t sleep with the phone in your room, and in the morning, don’t look at your phone. I challenge you don’t look at your phone first thing in the morning. Leave it there and get up with your kids and have some breakfast joke around. Help them get ready. Just be there. Read the paper while there that’s what I do. Like my kids are coming in and out getting ready for school I will try to have some conversation while I read the paper in between. Don’t pick up your phone. Okay. And then the third tip, you could do it in the evening as well. Same idea, okay, get the phone out of the bedroom. And this I guarantee you this, do this for a week and at the end of the week reflect how did I feel? And you will find wow, I have more time in my life. More time.

Matt: 29:06

I think we’ve come to use the phone to fill up the interstitial spaces of life. You’re in the checkout line at the grocery store and it’s the itch. And everyone knows what I’m talking about the itch you develop when it’s I’ve got 15 spare seconds what do I do to fill that time? How about this, fucking nothing. Yeah, that they can Hey, can I give you mine because we’re on the way out. We’ve covered our top 10 list. I’m gonna give you mine on the way out. Number one life mistake that I see people making. You and I were talking off air about this is as you think to yourself, whatever it is you’re doing, it’s you know what, when this stops being fun, I’m going to stop doing it. Like when this is no longer working for me, I’m going to stop and the right answer is stop. Why? Oh, it’s fun. Always leave a party while you’re having a good time, my kids have heard me say this about 50 billion times. It is amazing. This is the number one thing I learned in college is psychologically when diminishing marginal returns set in it colors, your psychological evaluation of an experience. And this has actually been proved by behavioral economists, including Daniel Kahneman, who did this experiment using colonoscopy, I won’t get into that we’ve already had enough discussion on that general theme in this show. I’m not going to get further into that. But this has been rigorously proven that as soon as you begin the very tail end of an experience, as soon as you begin to experience something negative, then your feeling about the experience gets much worse. And then your psychological enjoyment of it goes way, way down. And the best, the easiest hack for this is leave a party while you’re having a good time. And what you’ll find is the way you think about that experience gets 20% better. Your feeling of enjoyment and satisfaction and happiness with the activities in your life will go up because they’ll all be like, well, I enjoyed that. And I enjoyed that. And it’s like, just a cavalcade of fun. And you’ll most of all, and comedians know this, it’s the always leave them wanting more principal. You’ll want to do that thing again. Unless it’s your workout where you actually do have to keep going, always leave a party while you’re having good time. That’s mine.

Mike: 31:33

And you’ll end up with a cavalcade of fun. So if you didn’t understand all the diminishing returns and all the other stuff that was coming out of Matt’s mouth cavalcade of fun.

Matt: 31:44

Cavalcade, well, you know what this show with you has been a cavalcade of fun, and I don’t need to sneak that in the back door. Hey, we’re gonna wrap up. Thanks, Mike Morton, I’m Matt Robeson. We will see you next time.

Mike: 31:55

Thanks, Matt. Thanks for joining us on financial planning for entrepreneurs. If you liked what you heard, please subscribe to and rate the podcast on Apple, iTunes, Google Play Spotify, or wherever you get your podcasts. You can connect with me at LinkedIn for Morton financial advice.com. I’d love to get your feedback. If you have a comment or question, please email me at financial planning . Until next time, thanks for tuning in. This recording is for informational purposes only and should not be considered for investment advice or opinions expressed as our of the date of recording. Such opinions are subject to change. We do not guarantee the accuracy or completeness of the data presented here.

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