May 15, 2025 • 17 mins
Now That April 15th Has Passed, How Do I Get Ahead Of The Tax Game For 2025?
Ready to keep more of your hard-earned money in 2025? Tax planning shouldn't wait until next April.
Jeff Bingham, President of B&H Wealth Strategies, shares his father's timeless wisdom: "It's not about how much you make, it's how much you get to keep." This philosophy underpins a practical approach to tax planning that works within our complex system—a tax code spanning 2,672 pages with roughly 70,000 additional pages of supplements and addendums.
Discover actionable strategies starting with maximizing contributions to employer-sponsored retirement plans. Every dollar contributed directly reduces your taxable income while building retirement security. Jeff explains how someone earning $50,000 who contributes just 10% to their 401(k) can save $1,000 in taxes annually. For additional tax advantages, Individual Retirement Accounts offer another powerful vehicle with contribution limits of $7,000 for those under 50 and $8,000 for those over 50.
Challenging conventional wisdom, Jeff explores when aggressively paying down mortgage debt might not be the most tax-efficient approach. With mortgage interest being tax-deductible, those with low rates secured before 2022 might benefit more from strategic leverage than early payoff. The math becomes clear: if you can earn more on your investments than your after-tax mortgage cost, keeping that "good debt" could work in your favor.
Take control of your financial future and develop a personalized tax strategy by visiting BHRetire.com. Remember, the best time to plan for next year's taxes is now.
To learn more about B&H Wealth Strategies visit:
https://www.BHRetire.com
B&H Wealth Strategies
423- 247-1152
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Welcome to the Four Seasons Podcast brought to you
by B&H Wealth Strategies,serving Northeast Tennessee and
Southwest Virginia since 1966.
Here we guide you through theever-changing seasons of your
financial journey, offeringinsights to help you grow,
protect and enjoy your wealth.
Ready to turn your financialdreams into reality, dare to
(00:27):
dream.
And now here's your host.
President of B&H WealthStrategies, jeff Bingham.
Speaker 2 (00:46):
Season might be over, but smart financial strategy
isn't a once-a-year event.
The best time to plan for nextyear's taxes is now.
So how can you get ahead andkeep more of your hard-earned
money in 2025?
Welcome back everybody.
Skip Monty here, co-host slashproducer, back in the studio
(01:07):
with B&H Wealth Strategiespresident, Mr Jeff Bingham.
Jeff, how you doing today?
I'm good.
Skip, how about yourself?
I'm doing great.
I'm doing great.
Now that we're past April the15th, I'm doing a little bit
better, although it was a littlepainful for me, but now that
we're-.
Speaker 3 (01:21):
Everybody's favorite time.
Sorry, oh yeah.
Speaker 2 (01:23):
That's all right.
Well, now that we're past that,how do we get ahead of the tax
game in 2025?
Speaker 3 (01:30):
Well, that's one of my favorite topics to talk about
, you know, is taxes, and it'sobviously something that is
right now top of mind and, as mydad used to always say, it's
not about how much you make,it's how much you get to keep.
So what do we do?
And you know, and people alwayswant to have great tax
reduction strategies and my dadused to always tell people he
(01:51):
said, well, one way to do it ismake less income.
That's surely not somethingthat people are interested in.
So we try to find alternativesto that, as we try to find the
solutions that are there andthere aren't as many things out
there today as there used to be.
When I talk about the history ofthe firm and when we go back
from 1966 forward, and so therewas a period of time when tax
(02:15):
rates were very, very high andthere were a lot of alternative
limited partnerships and purelytax strategies in the 80s and
whatnot that were out there.
So we've evolved from that, youknow, coming forward.
But that was part of what thisfirm was about even back in
those days was when tax rateswere, you know, as high as you
know go back in the 80s probablyas high as 70%, something like
(02:37):
that, you know.
And then Dan Rostenkowski andRon Radin struck a deal and you
know, cut tax rates to ever take.
You know kind of where they aretoday.
I mean there's been somechanges but it's not a lot, not
a lot of differences.
I mean you know there's somebut people might want to, you
know, pick at what I just saidright there.
But we've kind of stayed inthis, in this rate, a range rate
(02:58):
from where we are from.
You know again, when presidentKennedy in the sixties, tax
rates were as high as 90%, youknow, in the upper income tiers.
I mean, think about that Nowagain.
There were so many loopholesand there were so many things
you know that were there.
So the tax code itself is 2,672pages in volume.
(03:23):
That's how many pages there arein the IRS tax code, with a
corresponding maybe 70,000 pagesof supplements and addendums
and resources that go along withthat.
I mean, I think if you look atthat, that's like 35 million.
I heard this today.
It was like 35 million words, Ithink, and that'd be like
(03:43):
reading the Bible like 50 timesor something crazy like that.
So anyway, that's our tax code.
It's ridiculously complex andit's almost it's just one of
these things where we just stackthings on top of it, right, we
don't ever get rid of anything,we just kind of stack on top of
it.
Most people just kind of throwtheir hands up in the air out
(04:03):
there and just like I don't know, and what do you do about it,
right?
Anyway, with all that beingsaid, what can we do?
And, like I said, I'm not a tax, I don't prepare taxes, I'm not
a CPA, nor do I want to be.
So what I try to do with myclients and now with the
listening audience out there isto try to have them do all the
(04:24):
things that they can do, rightwithin their legal limits, to
reduce their taxes, before theytake it to their CPA or before
they plug it into their TurboTaxto do it.
Because, basically, when youstart doing your income tax or
you take it to your CPA, they'rejust scorekeepers, right?
You're going to give them thedocs, they're going to plug it
in, and then they're going tospit it back out.
And they're going to say you'regoing to give them the docs,
(04:44):
they're going to plug it in andthen they're going to spit it
back out, and then we're goingto say you're either going to
get this much back or you owethis much.
Here's your total tax liabilityfor the year and here's your
bill.
So that's kind of how the worldthat most people operate in.
So what we look at is how canwe reduce that.
So, when you do take it tolight the scoreboard up, that
you can have less tax and moreof your own money kept right,
(05:04):
because I think it's fair to saythat, most people out there
will believe that you can dobetter with your own money than
the government can do with yourmoney.
I think that's a fair statementto make and I think most people
would agree with that Amenbrother, but we also want to be
very you got to be careful.
I mean, the difference betweentax avoidance and tax evasion is
about 20 years.
So again, what are you doingcurrently?
(05:31):
What might you do otherwise?
I mean simple things like ifyou're working and you've got an
employer-sponsored retirementplan, are you putting as much
money into thatemployer-sponsored retirement
plan that you can?
Right, because the money thatyou put in there is a deductible
contribution, right?
(05:51):
So if you make $50,000 orwhatever number it is, whatever
the number is, doesn't matter,if you put, you know, whatever
dollar you put into that youreduce that taxable income, that
salary that you have, that wagethat you have.
Every dollar that goes in therereduces that.
You still have to pay socialsecurity tax on it, but you take
that out of the income taxcalculation, so you have a
(06:12):
deductible contribution thatgoes in there.
So first, that's what you wannado, that's a way to reduce tax.
So if you've got $50,000, youput $5,000, 10% of your income
into that 401k plan, yourtaxable income now is $45,000.
If you're in a 20% again, justuse an easy math If your
effective tax rate is 20%, youjust reduce your taxable or your
(06:36):
tax liability by $1,000 bydoing that.
So that's one simple way to doit.
It's also an effective way todo it because you get the money
into the retirement plan.
It's going to grow on a taxdeferred or tax free basis.
Now, on the flip side of that,when it comes out of that
retirement plan, every dollarthat comes out of it is taxable.
(06:57):
So you got to be sensitive tothe drawdown on those monies as
well.
But that's one way to do it.
So let me stop there and see ifyou want to kind of dig in
around that a little bit.
Speaker 2 (07:08):
Well, I was actually going to ask you mentioned 401k,
but what other tax advantageaccounts should individuals or
families prioritize contributingto before year end?
Speaker 3 (07:21):
Well, I think so.
You got your 401k plan.
If you've got an employersponsored plan, there's some
income limits and some variousthings that I'll go through.
But you could also complimentthat with an IRA right.
You could have your ownindividual retirement account,
which you can.
If you're under age 50, you canput in $7,000.
If you're over age 50, you canput in $8,000.
(07:43):
You have what's known as acatch-up provision, so you can
do that and that's both husbandand wife can do that.
So you have if you're over 50,that's $16,000 a year you can
contribute into an individualretirement account.
Those are deductible dollars.
If you're over 50, that's$16,000 a year you can
contribute into an individualretirement account.
Those are deductible dollars ifyou're using it and you fall
within the right income ranges.
There's, like I said, there'sdon't, don't.
That's not a blanket statement.
(08:04):
That is absolutely true.
Because you've got an employersponsor plan, you make X number
of dollars.
There can be some limits onwhat I just said right there.
So don't, that's not.
You know, those are the caveatsto that statement right there.
A lot of times people want to,you know and I'm not saying that
you shouldn't, so do notmisunderstand this at all so a
lot of people want to pay offyou know, mortgages really
(08:25):
quickly and get them over anddone with, and a lot of times
that's a really good idea.
But if you have an extremelylow rate, like idea.
But if you have an extremelylow rate, like a lot of people
that you know, before 2022, youknow, when you think about
people that got mortgage ratesat 3%.
So my question would be whywould you ever pay that off
early, right now, you might beable to, but in that lane, right
(08:47):
there, when you think about itlike that, using other people's
money, using the bank's money at3%, like we just use it at 3%
or 4% and that's deductible,right, and that's deductible.
So if you're in a 20% taxbracket and you're in a 3.5%,
you just reduced your taxable in.
(09:08):
I mean, that's like 2.7%because of the deductible
interest on that.
So can you earn more than thaton your money in today's world,
in the bank and interest rates?
We'll call it 4%, right, theleverage is on your side.
So why would you pay that off?
Like you might be able to, butit's you know, sometimes it's
more effective to use otherpeople's money, even though you
(09:30):
might be able to pay it off orpay it down and do those kinds
of things.
So, you know, I want to becareful when I say those kind of
things, because I'm notsuggesting that debt is good and
we always say, well, debt isbad, and most of the time,
that's a blanket statement thatshould be held to.
Like debt is, you know, debt isborrowing.
When you have debt, you're that.
(10:00):
Just on risk free money, right,I mean, that's a risk free
money.
I'm talking about, you know,borrowing from your house and
going out and investing inBitcoin, like we've talked about
in other episodes.
That's not what I'm saying.
So don't nobody out there thinkthat that's what I'm suggesting
at all, because I don't thinkthat that's a good idea in most
or maybe all cases.
But if you can earn 4% on yourmoney and the cost of that money
(10:23):
is 3% and you can deduct thatinterest, yeah, that's pretty
good leverage.
That's leveraging your favor.
That's using other people'smoney for your benefit, not
because you have to.
Right, that's a smart, prudentfinancial decision, right there,
and so that's one way to do it.
(10:43):
The other thing is, what aboutthe earnings that you've got?
Like when you're investing yourafter-tax monies that are out
there, money that you're notusing for income but that you're
paying income tax on right.
For a long time people hadmoney in the bank and interest
rates were so low they didn'thave to worry about earning any
interest.
It wasn't creating taxliability.
You could have a considerableamount of money in the bank and
(11:05):
interest rates were so low youdidn't even have to file a 1099
on it.
Well, now the interest rate'sat 4% or so.
Just using that as an easynumber, what you're seeing with
money in the bank that it'scoming over onto that tax return
.
It's creating more taxliability for you.
So that 4% rate of return wherewe're talking about it in a
(11:26):
mortgage, where it's deductible,well, in an earnings
perspective of money you're notspending, you're paying tax on
that.
So it's diluting the rate ofreturn and inflation.
So we think again.
What I always say out there isthat people see it at 4% on an
earnings rate.
Well, they think, well, safemoney, I'm making money.
(11:46):
What they don't realize theremay not be any market risk in
that kind of earnings, but thereis purchasing power risk.
So 4%, if you will take a 20%tax, effective tax rate takes
that down to 3.2.
And if you think inflation is3.2% or around 3%.
Basically, at best you'rebreaking even with your
(12:09):
purchasing power.
Does that make sense?
So that's where the purchasingpower, that dollar, maybe it's
kept pace for on a year overyear basis, on an after-tax
basis, but in most cases I wouldsay it's not, because I think
inflation, the real rate ofinflation, is not in that
three-ish percent number thatthe headline number is.
That's out there, because,again, we exclude energy, we
(12:30):
exclude food and we excludehealthcare.
Now how many of you all outthere listening don't spend
money on those things?
Everybody spends money on thosethings.
As a matter of fact, a lot ofpeople spend more money on those
things than they do any otherthings that are out there, and
yet we exclude those from theCPI number as it's reported out
(12:51):
there.
So it's an interesting thingthat we do, because it's too
volatile.
They say to include it in there.
Okay, that's a do, I'll go intothat rabbit hole.
But so inflation?
So, in other words, you'repurchasing power with that type
of money, it's creating taxliability and you're actually
even though we feel better abouthigher rates of return in the
bank.
Right now it's like, oh, wefinally earned some money in the
bank, which is true, but is itreally?
(13:13):
Is it really more?
Are you making any more moneyon it from a, from a true
purchasing power perspective,than it was when interest rates
were low and inflation wasrunning less than 2%?
Again, taking all the factsthat I talked about around that,
so you know it may be closer tokind of the same effect right
of what the purchasing power ofthe earnings on that money is,
(13:35):
if you will.
But what we look for is can wedefer right no-transcript risk
(14:06):
that people are taking withtheir money?
Is that purchasing power risk?
Speaker 2 (14:09):
Interesting, and so I guess the inverse of if you've
got a high interest rate on yourmortgage, it would be
beneficial to pay it off early.
Speaker 3 (14:18):
Absolutely no.
When, and again using my dad's,without question.
Right?
I mean, you think about ifyou've got your six or 7%, and
you've got now again, this isyou got to think of liquidity
issues and all that.
But let's say you owe a hundredthousand dollars on your
mortgage.
Right, you're getting your downto that, you've whittled it
down.
So it's a hundred thousanddollars and it's a six percent.
You know it's at six percentand you have a hundred thousand
(14:40):
dollars earning four percent ofthe bank, right, right, what
should you do?
Right?
Well, at least, without takinganything else into account,
you'd pay that debt off.
Right, I'm earning four.
It's costing me six, likethat's a two percent swing,
right, I mean that's.
You know, without all the taxcalculations, you know you lose
your liquidity.
(15:01):
There's some things that needto be taken into account.
So don't everybody, nobody runout there and, do you know, act
on what I just said right here.
You know from from watching thepod, but that's certainly where
you want to begin to have thatconversation.
You know that's leverage.
That's not leveraging yourfavor at all.
You know that's the kind ofdebt you want to get rid of.
Speaker 2 (15:18):
Well, I feel very fortunate to be on the opposite
end of that spectrum.
So thank you for because I'vealways heard that if you could
make an extra house payment oncea year, twice a year, it would
be beneficial to pay it off.
But apparently not in my case.
Speaker 3 (15:33):
Well, you know, and again, I'm very careful around
these topics like this, so it'snot like oh, you told me, you
know, I saw the financialadvisor guy on the podcast
Ashley, don't pay the mortgages,I don't do that.
That's not what I'm saying.
Everybody's situation isdifferent, Everybody's comfort
zone is different, you know.
So you really have to take that.
(15:53):
That is a that's a measurementof a lot of things.
But if you just are looking atit from a financial perspective,
right, Just math, just the puremath of that says if I can earn
four on my money and the debtis costing me three, why would I
pay it off?
Right?
So from that, from amathematical perspective,
(16:16):
absolutely.
Then, as that number goes up,you start having other
conversations about it.
Speaker 2 (16:21):
Every situation is different, so that's why people
need to call B&H WealthStrategies, so that you can help
them out there.
Speaker 3 (16:29):
Yeah, would love to have conversations about this
and any other things that folkswant to talk about.
We're always available to be asounding board and, hopefully,
to give you sound advice as well.
Speaker 2 (16:38):
Awesome.
Well, jeff, it's been a greatepisode.
I have learned a tremendousamount, and maybe we could talk
more about.
Tax is a deep subject, so maybewe can touch on that again in
another episode.
Absolutely All right Anytime.
All right, jeff, have a greatrest of the day.
Thanks so much, you too, skip.
Speaker 3 (16:57):
Talk to you soon.
God bless you too.
You too Skip Talk bhretirecom.
Speaker 1 (17:21):
Take the first step toward making your financial
dreams come true.
Until next time, remember everyseason is the right season to
plan for your future.
Securities and registeredinvestment advisory services
offered through Silver OakSecurities Inc.
Member FINRA, sipc, b&h WealthStrategies and Silver Oak
Securities Inc.
Member FINRA, sipc, b&h WealthStrategies and Silver Oak
Securities Inc are notaffiliated.
Welcome to the Four Seasons Podcast brought to you
by B&H Wealth Strategies,serving Northeast Tennessee and
Southwest Virginia since 1966.
Here we guide you through theever-changing seasons of your
financial journey, offeringinsights to help you grow,
protect and enjoy your wealth.
Ready to turn your financialdreams into reality, dare to
(00:27):
dream.
And now here's your host.
President of B&H WealthStrategies, jeff Bingham.
Speaker 2 (00:46):
Season might be over, but smart financial strategy
isn't a once-a-year event.
The best time to plan for nextyear's taxes is now.
So how can you get ahead andkeep more of your hard-earned
money in 2025?
Welcome back everybody.
Skip Monty here, co-host slashproducer, back in the studio
(01:07):
with B&H Wealth Strategiespresident, Mr Jeff Bingham.
Jeff, how you doing today?
I'm good.
Skip, how about yourself?
I'm doing great.
I'm doing great.
Now that we're past April the15th, I'm doing a little bit
better, although it was a littlepainful for me, but now that
we're-.
Speaker 3 (01:21):
Everybody's favorite time.
Sorry, oh yeah.
Speaker 2 (01:23):
That's all right.
Well, now that we're past that,how do we get ahead of the tax
game in 2025?
Speaker 3 (01:30):
Well, that's one of my favorite topics to talk about
, you know, is taxes, and it'sobviously something that is
right now top of mind and, as mydad used to always say, it's
not about how much you make,it's how much you get to keep.
So what do we do?
And you know, and people alwayswant to have great tax
reduction strategies and my dadused to always tell people he
(01:51):
said, well, one way to do it ismake less income.
That's surely not somethingthat people are interested in.
So we try to find alternativesto that, as we try to find the
solutions that are there andthere aren't as many things out
there today as there used to be.
When I talk about the history ofthe firm and when we go back
from 1966 forward, and so therewas a period of time when tax
(02:15):
rates were very, very high andthere were a lot of alternative
limited partnerships and purelytax strategies in the 80s and
whatnot that were out there.
So we've evolved from that, youknow, coming forward.
But that was part of what thisfirm was about even back in
those days was when tax rateswere, you know, as high as you
know go back in the 80s probablyas high as 70%, something like
(02:37):
that, you know.
And then Dan Rostenkowski andRon Radin struck a deal and you
know, cut tax rates to ever take.
You know kind of where they aretoday.
I mean there's been somechanges but it's not a lot, not
a lot of differences.
I mean you know there's somebut people might want to, you
know, pick at what I just saidright there.
But we've kind of stayed inthis, in this rate, a range rate
(02:58):
from where we are from.
You know again, when presidentKennedy in the sixties, tax
rates were as high as 90%, youknow, in the upper income tiers.
I mean, think about that Nowagain.
There were so many loopholesand there were so many things
you know that were there.
So the tax code itself is 2,672pages in volume.
(03:23):
That's how many pages there arein the IRS tax code, with a
corresponding maybe 70,000 pagesof supplements and addendums
and resources that go along withthat.
I mean, I think if you look atthat, that's like 35 million.
I heard this today.
It was like 35 million words, Ithink, and that'd be like
(03:43):
reading the Bible like 50 timesor something crazy like that.
So anyway, that's our tax code.
It's ridiculously complex andit's almost it's just one of
these things where we just stackthings on top of it, right, we
don't ever get rid of anything,we just kind of stack on top of
it.
Most people just kind of throwtheir hands up in the air out
(04:03):
there and just like I don't know, and what do you do about it,
right?
Anyway, with all that beingsaid, what can we do?
And, like I said, I'm not a tax, I don't prepare taxes, I'm not
a CPA, nor do I want to be.
So what I try to do with myclients and now with the
listening audience out there isto try to have them do all the
(04:24):
things that they can do, rightwithin their legal limits, to
reduce their taxes, before theytake it to their CPA or before
they plug it into their TurboTaxto do it.
Because, basically, when youstart doing your income tax or
you take it to your CPA, they'rejust scorekeepers, right?
You're going to give them thedocs, they're going to plug it
in, and then they're going tospit it back out.
And they're going to say you'regoing to give them the docs,
(04:44):
they're going to plug it in andthen they're going to spit it
back out, and then we're goingto say you're either going to
get this much back or you owethis much.
Here's your total tax liabilityfor the year and here's your
bill.
So that's kind of how the worldthat most people operate in.
So what we look at is how canwe reduce that.
So, when you do take it tolight the scoreboard up, that
you can have less tax and moreof your own money kept right,
(05:04):
because I think it's fair to saythat, most people out there
will believe that you can dobetter with your own money than
the government can do with yourmoney.
I think that's a fair statementto make and I think most people
would agree with that Amenbrother, but we also want to be
very you got to be careful.
I mean, the difference betweentax avoidance and tax evasion is
about 20 years.
So again, what are you doingcurrently?
(05:31):
What might you do otherwise?
I mean simple things like ifyou're working and you've got an
employer-sponsored retirementplan, are you putting as much
money into thatemployer-sponsored retirement
plan that you can?
Right, because the money thatyou put in there is a deductible
contribution, right?
(05:51):
So if you make $50,000 orwhatever number it is, whatever
the number is, doesn't matter,if you put, you know, whatever
dollar you put into that youreduce that taxable income, that
salary that you have, that wagethat you have.
Every dollar that goes in therereduces that.
You still have to pay socialsecurity tax on it, but you take
that out of the income taxcalculation, so you have a
(06:12):
deductible contribution thatgoes in there.
So first, that's what you wannado, that's a way to reduce tax.
So if you've got $50,000, youput $5,000, 10% of your income
into that 401k plan, yourtaxable income now is $45,000.
If you're in a 20% again, justuse an easy math If your
effective tax rate is 20%, youjust reduce your taxable or your
(06:36):
tax liability by $1,000 bydoing that.
So that's one simple way to doit.
It's also an effective way todo it because you get the money
into the retirement plan.
It's going to grow on a taxdeferred or tax free basis.
Now, on the flip side of that,when it comes out of that
retirement plan, every dollarthat comes out of it is taxable.
(06:57):
So you got to be sensitive tothe drawdown on those monies as
well.
But that's one way to do it.
So let me stop there and see ifyou want to kind of dig in
around that a little bit.
Speaker 2 (07:08):
Well, I was actually going to ask you mentioned 401k,
but what other tax advantageaccounts should individuals or
families prioritize contributingto before year end?
Speaker 3 (07:21):
Well, I think so.
You got your 401k plan.
If you've got an employersponsored plan, there's some
income limits and some variousthings that I'll go through.
But you could also complimentthat with an IRA right.
You could have your ownindividual retirement account,
which you can.
If you're under age 50, you canput in $7,000.
If you're over age 50, you canput in $8,000.
(07:43):
You have what's known as acatch-up provision, so you can
do that and that's both husbandand wife can do that.
So you have if you're over 50,that's $16,000 a year you can
contribute into an individualretirement account.
Those are deductible dollars.
If you're over 50, that's$16,000 a year you can
contribute into an individualretirement account.
Those are deductible dollars ifyou're using it and you fall
within the right income ranges.
There's, like I said, there'sdon't, don't.
That's not a blanket statement.
(08:04):
That is absolutely true.
Because you've got an employersponsor plan, you make X number
of dollars.
There can be some limits onwhat I just said right there.
So don't, that's not.
You know, those are the caveatsto that statement right there.
A lot of times people want to,you know and I'm not saying that
you shouldn't, so do notmisunderstand this at all so a
lot of people want to pay offyou know, mortgages really
(08:25):
quickly and get them over anddone with, and a lot of times
that's a really good idea.
But if you have an extremelylow rate, like idea.
But if you have an extremelylow rate, like a lot of people
that you know, before 2022, youknow, when you think about
people that got mortgage ratesat 3%.
So my question would be whywould you ever pay that off
early, right now, you might beable to, but in that lane, right
(08:47):
there, when you think about itlike that, using other people's
money, using the bank's money at3%, like we just use it at 3%
or 4% and that's deductible,right, and that's deductible.
So if you're in a 20% taxbracket and you're in a 3.5%,
you just reduced your taxable in.
(09:08):
I mean, that's like 2.7%because of the deductible
interest on that.
So can you earn more than thaton your money in today's world,
in the bank and interest rates?
We'll call it 4%, right, theleverage is on your side.
So why would you pay that off?
Like you might be able to, butit's you know, sometimes it's
more effective to use otherpeople's money, even though you
(09:30):
might be able to pay it off orpay it down and do those kinds
of things.
So, you know, I want to becareful when I say those kind of
things, because I'm notsuggesting that debt is good and
we always say, well, debt isbad, and most of the time,
that's a blanket statement thatshould be held to.
Like debt is, you know, debt isborrowing.
When you have debt, you're that.
(10:00):
Just on risk free money, right,I mean, that's a risk free
money.
I'm talking about, you know,borrowing from your house and
going out and investing inBitcoin, like we've talked about
in other episodes.
That's not what I'm saying.
So don't nobody out there thinkthat that's what I'm suggesting
at all, because I don't thinkthat that's a good idea in most
or maybe all cases.
But if you can earn 4% on yourmoney and the cost of that money
(10:23):
is 3% and you can deduct thatinterest, yeah, that's pretty
good leverage.
That's leveraging your favor.
That's using other people'smoney for your benefit, not
because you have to.
Right, that's a smart, prudentfinancial decision, right there,
and so that's one way to do it.
(10:43):
The other thing is, what aboutthe earnings that you've got?
Like when you're investing yourafter-tax monies that are out
there, money that you're notusing for income but that you're
paying income tax on right.
For a long time people hadmoney in the bank and interest
rates were so low they didn'thave to worry about earning any
interest.
It wasn't creating taxliability.
You could have a considerableamount of money in the bank and
(11:05):
interest rates were so low youdidn't even have to file a 1099
on it.
Well, now the interest rate'sat 4% or so.
Just using that as an easynumber, what you're seeing with
money in the bank that it'scoming over onto that tax return
.
It's creating more taxliability for you.
So that 4% rate of return wherewe're talking about it in a
(11:26):
mortgage, where it's deductible,well, in an earnings
perspective of money you're notspending, you're paying tax on
that.
So it's diluting the rate ofreturn and inflation.
So we think again.
What I always say out there isthat people see it at 4% on an
earnings rate.
Well, they think, well, safemoney, I'm making money.
(11:46):
What they don't realize theremay not be any market risk in
that kind of earnings, but thereis purchasing power risk.
So 4%, if you will take a 20%tax, effective tax rate takes
that down to 3.2.
And if you think inflation is3.2% or around 3%.
Basically, at best you'rebreaking even with your
(12:09):
purchasing power.
Does that make sense?
So that's where the purchasingpower, that dollar, maybe it's
kept pace for on a year overyear basis, on an after-tax
basis, but in most cases I wouldsay it's not, because I think
inflation, the real rate ofinflation, is not in that
three-ish percent number thatthe headline number is.
That's out there, because,again, we exclude energy, we
(12:30):
exclude food and we excludehealthcare.
Now how many of you all outthere listening don't spend
money on those things?
Everybody spends money on thosethings.
As a matter of fact, a lot ofpeople spend more money on those
things than they do any otherthings that are out there, and
yet we exclude those from theCPI number as it's reported out
(12:51):
there.
So it's an interesting thingthat we do, because it's too
volatile.
They say to include it in there.
Okay, that's a do, I'll go intothat rabbit hole.
But so inflation?
So, in other words, you'repurchasing power with that type
of money, it's creating taxliability and you're actually
even though we feel better abouthigher rates of return in the
bank.
Right now it's like, oh, wefinally earned some money in the
bank, which is true, but is itreally?
(13:13):
Is it really more?
Are you making any more moneyon it from a, from a true
purchasing power perspective,than it was when interest rates
were low and inflation wasrunning less than 2%?
Again, taking all the factsthat I talked about around that,
so you know it may be closer tokind of the same effect right
of what the purchasing power ofthe earnings on that money is,
(13:35):
if you will.
But what we look for is can wedefer right no-transcript risk
(14:06):
that people are taking withtheir money?
Is that purchasing power risk?
Speaker 2 (14:09):
Interesting, and so I guess the inverse of if you've
got a high interest rate on yourmortgage, it would be
beneficial to pay it off early.
Speaker 3 (14:18):
Absolutely no.
When, and again using my dad's,without question.
Right?
I mean, you think about ifyou've got your six or 7%, and
you've got now again, this isyou got to think of liquidity
issues and all that.
But let's say you owe a hundredthousand dollars on your
mortgage.
Right, you're getting your downto that, you've whittled it
down.
So it's a hundred thousanddollars and it's a six percent.
You know it's at six percentand you have a hundred thousand
(14:40):
dollars earning four percent ofthe bank, right, right, what
should you do?
Right?
Well, at least, without takinganything else into account,
you'd pay that debt off.
Right, I'm earning four.
It's costing me six, likethat's a two percent swing,
right, I mean that's.
You know, without all the taxcalculations, you know you lose
your liquidity.
(15:01):
There's some things that needto be taken into account.
So don't everybody, nobody runout there and, do you know, act
on what I just said right here.
You know from from watching thepod, but that's certainly where
you want to begin to have thatconversation.
You know that's leverage.
That's not leveraging yourfavor at all.
You know that's the kind ofdebt you want to get rid of.
Speaker 2 (15:18):
Well, I feel very fortunate to be on the opposite
end of that spectrum.
So thank you for because I'vealways heard that if you could
make an extra house payment oncea year, twice a year, it would
be beneficial to pay it off.
But apparently not in my case.
Speaker 3 (15:33):
Well, you know, and again, I'm very careful around
these topics like this, so it'snot like oh, you told me, you
know, I saw the financialadvisor guy on the podcast
Ashley, don't pay the mortgages,I don't do that.
That's not what I'm saying.
Everybody's situation isdifferent, Everybody's comfort
zone is different, you know.
So you really have to take that.
(15:53):
That is a that's a measurementof a lot of things.
But if you just are looking atit from a financial perspective,
right, Just math, just the puremath of that says if I can earn
four on my money and the debtis costing me three, why would I
pay it off?
Right?
So from that, from amathematical perspective,
(16:16):
absolutely.
Then, as that number goes up,you start having other
conversations about it.
Speaker 2 (16:21):
Every situation is different, so that's why people
need to call B&H WealthStrategies, so that you can help
them out there.
Speaker 3 (16:29):
Yeah, would love to have conversations about this
and any other things that folkswant to talk about.
We're always available to be asounding board and, hopefully,
to give you sound advice as well.
Speaker 2 (16:38):
Awesome.
Well, jeff, it's been a greatepisode.
I have learned a tremendousamount, and maybe we could talk
more about.
Tax is a deep subject, so maybewe can touch on that again in
another episode.
Absolutely All right Anytime.
All right, jeff, have a greatrest of the day.
Thanks so much, you too, skip.
Speaker 3 (16:57):
Talk to you soon.
God bless you too.
You too Skip Talk bhretirecom.
Speaker 1 (17:21):
Take the first step toward making your financial
dreams come true.
Until next time, remember everyseason is the right season to
plan for your future.
Securities and registeredinvestment advisory services
offered through Silver OakSecurities Inc.
Member FINRA, sipc, b&h WealthStrategies and Silver Oak
Securities Inc.
Member FINRA, sipc, b&h WealthStrategies and Silver Oak
Securities Inc are notaffiliated.
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