April 26, 2024 • 37 mins
Are you ready to paint your way to financial freedom? In our latest episode, we promise to guide you through a four-step wealth-building strategy specifically tailored for professional painters. We kick off by talking about the importance of optimizing your income - ensuring you're not just earning well, but also managing your money effectively to maximize your profit margins. We acknowledge that while painting can be a lucrative business, it's critical to have a consistent stream of income before venturing into other financial investments.
Ever wondered about the difference between good debt and bad debt? Let's simplify it: bad debt is costly and doesn't bring you any income (think credit card debt), while good debt can be a calculated risk that results in a return on investment (like a low-interest mortgage or business loan). However, the goal is to avoid being caught in a debt trap. To help you out, we'll introduce you to the concept of the debt snowball - an effective and psychologically rewarding method of paying off your debt. Once you're debt-free, we'll guide you towards investing for long-term goals, starting with retirement plans and gradually branching out to other investment avenues.
As the episode wraps up, we highlight how you can maximize your tax advantages with retirement. Yes, you heard it right! It's not just about making money, but also about saving smart. We'll discuss qualified medical expenses, high-deductible health care plans, and how using a health savings account (HSA) can lead to tax-free medical expense payments. Furthermore, we'll shed light on maximizing contributions to a 401k or IRA and even explore the potential of a self-directed 401k. So join us, as we navigate the path to financial growth, one paint stroke at a time! So, tune in and let's paint a brighter financial future together!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to the profitable painter podcast.
The mission of this podcast issimple To help you navigate the
financial and tax aspects ofstarting, running and scaling a
professional painting business,from the brushes and ladders to
the spreadsheets and balancesheets.
We've got you covered.
But before we dive in, a quickword of caution.
While we strive to provideaccurate and up-to-date
financial and tax information,nothing you hear on this podcast
(00:22):
should be considered asfinancial advice specifically
for you or your business.
We're here to share generalknowledge and experiences, not
to replace the tailored adviceyou get from a professional
financial advisor or taxconsultant.
We strongly recommend youseeking individualized advice
before making any significantfinancial decisions.
Speaker 2 (00:41):
This is Daniel, the founder of Bookkeeping for
Painters.
Speaker 3 (00:44):
And this is Richard, tax director, with Bookkeeping
for Painters.
How's it going?
It's going pretty good, daniel.
How about yourself?
Speaker 2 (00:53):
Doing well.
The kids are constantly sickand I think it's kind of rubbing
off on me finally.
So I feel like I have thatfeeling in the back of the
throat where you're about to besick.
So that's fun.
Speaker 3 (01:09):
Yeah, it is the season for headcolds and flu.
Yeah, whenever the weatherchanges, changes up here it's
yeah, you're bound to getsomething.
So I feel for you.
Can I get the chamomile tea andthe honey and whatnot and try
and soothe that throat, right,yeah, so we've got kind of an
(01:36):
interesting topic today.
It's not home cold and fluremedies either.
That would be a differentpodcast.
We're talking about a wealthbuilding.
So big, big segue fromchamomile tea.
Why is that so hard for me tosay chamomile tea, daniel?
Speaker 2 (01:57):
why don't you talk about?
Speaker 3 (01:58):
the topic because I'm out.
Speaker 2 (02:02):
Yeah, so our topic today is wealth building steps.
So, basically, what stepsshould you take to build wealth?
Now you might be asking like,why would I want to build wealth
?
What does that even mean?
There might be a lot ofquestions there.
(02:25):
So I think of wealth is kind ofdifferent from being rich, and
in our businesses, we want touse our painting business to
help us build wealth for thelong term.
So when I think of wealth, Ithink of long term.
I think of Warren Buffett.
Warren Buffett is makingmillions in his sleep constantly
(02:49):
.
He's not actively trading histime for money.
When I think of rich, I thinkof like a doctor just spending
all his time working 80 hours aweek to get.
He might be making a lot ofmoney, hundreds of thousands a
year but he just has no balancein his life and he's just
(03:13):
running into the ground and assoon as and he might be spending
all that money on fancy carsand big houses and all that.
So he might not have any wealth.
He might have a high income,but he doesn't have any real
wealth.
So I think of I think folksshould think of their painting
(03:34):
business as a way, anopportunity to build wealth in
their life, and so we're goingto go through those steps of
building wealth.
Speaker 3 (03:46):
Yeah, wealth is a long term thing, right, like
it's why we're doing what we'redoing, so that we can pass
something meaningful on to thenext generation.
You mentioned Warren Buffett.
I just got to give a shout out,like I heard, charlie Munger
Warren Buffett's you know one ofhis closest friends and his
(04:08):
business partner for manydecades passed away this month
and he is one of the wealthiestpeople in America because he
took a long term view of things.
He didn't spend everything on,you know.
He certainly enjoyed someluxuries, I'm sure, but he had
(04:30):
his priorities straight and heknew how to grow his money and
that gave him the freedom tolive the lifestyle that he
wanted.
So that's kind of our goal inwealth building is putting our
money to work for a purpose andmaking sure that we have enough
of it when we need it.
Speaker 2 (04:49):
And so we'll run through these four wealth
building steps.
And we didn't come up with this.
I got it from somebody yearsago and I don't recall who, but
everyone has a verdict of this.
You know, if you listen to thefinancial gurus out there, they
have some verdict of this and itmight be slightly different,
(05:12):
but this might be a usefulframework for you.
So step number one to buildingwealth is optimizing your income
.
And if you're a business ownerwhich probably are if you're
listening to this podcast you'realso optimizing the processes
in your business.
So, basically, getting yourbusiness running and optimize to
(05:33):
make money.
And so here you know.
This is the first step, becauseyou want to get this out.
Investments or anything else,because your biggest asset in
your life is going to be yourincome.
How much money can you make?
So that needs to be your focus,step number one, and don't move
(05:57):
off of this step until you havea decent amount of money coming
into your, your life throughyour income.
Now, how much that is isdifferent for everybody, because
everyone has differentstandards of living, and so one
person might be like they don'thave enough money coming into
the life until they hit $200,000.
(06:17):
Another person might be $50,000.
It kind of depends on what yourgoals are and what your
standard of living is and alsowhere you live so many different
factors.
But step number one is optimizeyour income and your business
and your process and yourbusiness.
(06:37):
Step number two is saving upcash.
12 months is what we recommend,but this could be just a
substantial amount of cashbasically, so that's something
that goes south, that you canbasically fall back on that.
Step number three is pay offbad personal debt.
(06:58):
Step number four is invest forlong-term goals.
Speaker 3 (07:03):
Yeah.
So I think what I hear yousaying, daniel, in step number
one is don't worry aboutinvesting.
Don't try and buy a rentalproperty or open up a stock
account until you are able tosecure a steady and reoccurring
income.
It's kind of like that.
(07:25):
I just saw that joke likewhat's the best way to invest
$50?
Well, buy a tank of gas anddrive yourself to work and
you'll make a couple hundredbucks that day.
So yeah, our income is thelifeblood of our wealth building
.
It's not the only part of it,but if we have an income, we're
(07:46):
not getting any of these othersteps.
Speaker 2 (07:50):
Yeah, I feel like some folks want to skip over
this step and then think aboutthe cool fancy stuff in step
four.
I had a friend recently startasking me about investing for
the long term, putting his moneyin different assets and fancy
tax strategies, and he wasasking me for advice and he had
(08:15):
big goals for what he wanted tomake millions and all this stuff
but his income was only at like$30,000 a year.
And I was like, well, beforeyou start worrying about how
many LLCs to set up and all thisstuff and your tax money
(08:35):
strategies, you don't have anytax liability, so focus on your
income first.
Get that up.
That should be your main goal.
Don't worry about all the fancystuff.
And the richest people in theworld.
Most of them are folks thatthey focused on one thing, like
you think of Jeff Bezos.
(08:56):
I mean, he built Amazon.
He didn't have 15 side hustles,he built one thing.
He focused on optimizing that.
So most you know there's someexceptions out there, of course,
but for the most part peoplebuild their wealth on focusing
on one thing optimizing thatincome in that business and then
(09:18):
later on branch out into otherthings.
But yeah, this one is doing thehard work and getting stepped
one knocked out before you know.
Moving on to the next step.
Speaker 3 (09:32):
So if we're a business owner and that's how
we're getting our income part ofthis step might be, you know,
looking at our processes and ourbusiness, making sure that we
are hitting the profit marginsthat we need to, making sure
that we're efficient in ourbusiness so that we get the most
income possible, because that'sgoing to be the thing that
(09:53):
really moves the needle the most.
You know, if we're wasting 15,20% of our of our business
profit on unnecessary expensesor inefficient processes, that's
going to affect our wealthbuilding tremendously down the
road.
Speaker 2 (10:11):
Yep, yeah, in previous podcasts we really dive
into this deep on what youshould be hitting like, what you
should be making in your inyour painting business.
So if you want more detail onwhat your income should be in
your painting business,definitely listen to one of
those those episodes to kind ofdial that in Moving on to the
(10:31):
next step.
It's saving 12 months in livingexpenses in cash.
Speaker 3 (10:40):
So this is important because we don't know what's
going to happen.
Right, we we expect the best,but we want to prepare for the
worst, and maybe our good jobprovides a steady income.
Maybe they close the plant oneday or, you know, through no
fault of our own, we end uplosing our job.
(11:00):
We don't want a momentarysetback to completely derail our
wealth building.
So this 12 months of cash, thisis not an investment.
This is an insurance policy tomake sure that we can keep our
homes, keep our families warmand well fed, regardless of what
(11:23):
things life might throw at us.
So so generally, you know asmuch as I want to put our
savings to work and earninterest or earn profit.
Your, your, your emergencyfunds should be liquid.
It should be readily available.
Some people like to use highyield savings accounts, maybe a
(11:46):
money market account, as long asyou can still get to it, but
generally, that that's going tobe something that we don't want
to tie up in like stocks that wecan't sell or real estate that
we can't liquidate.
We want that to be available incase of a rainy day.
Speaker 2 (12:02):
Yeah, I think folks in the finance space called this
dry powder and yeah, and sothink of, like, what happened in
2008 or the dot com bubble.
If you were around then youknow there's there's times in
the business cycle where thingsjust go crazy, all the hell you
(12:24):
know.
So you want to be prepared forthose those.
You know events but also justmight be something where it's
not a global thing, maybe that'sa local thing.
Something happens.
You know in your family thatyou know God forbid, something
happens to your spouse orsomething like that.
You know that might be asituation where you know you
(12:48):
need to have some sort of backupor you get seriously injured
and you don't have disabilityinsurance.
So you know being prepared forthose.
Either you know economic eventsor those just personal events
that might happen in your life.
Speaker 3 (13:04):
Yeah, the third one on our list is pay off bad
personal debts.
And how, daniel?
How would you describe a badpersonal debt?
Well, is there, is there a goodpersonal debt and bad personal
debt?
How does that work?
Speaker 2 (13:25):
Yeah, there's definitely a lot of opinions on
this.
I think the the one that makesthe most sense to me if you have
debt that's not really payingyou, giving you some sort of
return, and if it's reallyexpensive.
So I always think of creditcards, like personal credit
cards.
Those are usually prettyexpensive and they're usually
(13:50):
just for buying things that youcan't afford.
So that that's what I think ofwhen I think of bad personal
debt.
But I think you know I'm kindof I lean towards on the
personal side, like trying notto have any debt.
You know the exception may behaving a mortgage.
But even if you can avoid that,that would be cool.
(14:10):
But you know, especially whenwe're getting into these higher
interest rates now, you know,having a mortgage I guess a
couple years ago or so, lockingin like a fixed rate you know 3%
or whatever was that that wouldhave been pretty cool.
But in this high inflationaryenvironment especially so, that
(14:32):
might be an exception.
And having like a long fixed,you know, mortgage rates, that
might be cool.
But credit cards definitely Iwould say is not a good debt to
have.
On the personal side of thingsit's not really, you know,
giving you kind of return onyour investment or anything like
that, so I would get rid ofthose for sure.
Speaker 3 (14:56):
So it sounds like the difference is bad debt is debt
that does not earn you money, itjust costs you money.
There could be some good debtmaybe in like a low interest
mortgage or, dare I say,possibly a low interest business
loans that we can start ourbusiness.
(15:16):
But we need to make sure thatwe're making more money than the
debt is costing us, and it canbe tricky.
It can be like I don't take theview that that debt is evil,
but I view it as like debt canbe debts like electricity.
It's very useful, but only ifit is applied correctly and
(15:40):
safely.
It's very easy to get burnedwith debt.
So I do like what you're saying, daniel, about trying to avoid
it if at all possible.
Should we talk about, maybe alittle bit about like the debt
snowball, in case some of us dohave some of these bad debts
what you know, how the debtsnowball method could help us
(16:01):
get rid of these bad debts, youknow, faster.
Speaker 2 (16:04):
Yeah, I think there's two main ways to tackle or two
ways of that.
Like one, you can pay down thedebt that has the highest
interest rate.
You know, like if you have,let's say, you have some student
loans and you have some creditcard debt and you have your
(16:25):
mortgage, your credit cards areprobably the highest interest
rate.
So you pay those off first andthen move on to the next highest
interest rate.
The other way that I think DaveRamsey recommends to basically
pay off your lowest balancefirst.
So you just rank order, likemaybe you have a few credit
(16:49):
cards that you have debt on andjust pick the one that has the
lowest balance, pay that one offfirst and then you get like a
psychological win from that andthen you go to the next one.
So the first course of actionyou're it's more efficient,
you're probably saving moremoney.
(17:10):
The second course of action iskind of psychologically feels
better because you're feels likeyou're accomplishing more
because you're paying offbalance is quicker.
So I mean, I think either wayis good.
From my perspective.
I think it comes out of theperson which way they want to
(17:32):
try to tackle that.
Speaker 3 (17:34):
Yeah, but the key with the snowball is, once you
pay off a credit card, you knowso, first you figure out however
much money you have towardsputting towards debt and once
you pay off a credit card, youneed to take that card's minimum
payment plus the amount thatyou had allocated for paying off
(17:54):
debt, and that's where yoursnowball starts and you put that
towards the next one.
Now, when that card's gone, youtake that card's minimum
payment and your snowball getsbigger and bigger until you're
finally until you're finallydebt free.
But I'm with you.
So it's like, as a numbers guy,I love the idea of highest
interest rates because I canmake out my little spreadsheets,
(18:14):
I can calculate the numbers and.
But Dave Ramsey is very, verygood at addressing, like, the
behavioral side of finances andmoney.
And ultimately we are humans,we are not spreadsheets or
computers, and we need toconsider what motivates us and
(18:35):
keeps us going.
And because if we, if we stop,then it doesn't matter what the
interest rates are, becausewe've kind of fallen off the
snowball there.
Yeah.
Speaker 2 (18:49):
Yeah, Exactly so.
That's step three.
Now, as a reminder you eachstep is recommended to you
complete that step before movingto the next one.
So you have your 12 months cash, you have some sort of 12
months cash put away, then youstart paying off your personal
bad debt and then you startinvesting for the long term,
(19:13):
which is step number four.
Speaker 3 (19:16):
Yeah.
So when you invest for the longterm, you're going to have a
lot of different options hereand we tried to kind of put
together a recommended startingpoint and then, like Daniel was
saying, when you complete thisstep, move on to the next one.
So if you ask me, where shouldI get started?
If you work for an employer whooffers a 401k or like a simple
(19:43):
IRA or something like that, andthey offer some kind of a match,
that's going to be yourstarting point.
You want to get that matchbecause that match is free money
from your employer to you.
If your employer offers a dollarfor dollar match up to, say,
like 6%, you want to contributethe entire 6% so that you get
(20:07):
that dollar for dollar match.
That's 100% return on yourinvestment.
Even if the investments don'tdo much, you start off with 100%
return.
So that's step one get thatfull match.
But once you max it out, ifit's 6%, you're doing all 6%.
(20:28):
Jump out of that 401k Becausethere's much better investment
options out there than mostcompany sponsored Safe Harbor
401k plans.
Speaker 2 (20:41):
Yeah.
So I think this would probablymost apply to maybe if you have
a spouse that has a.
They're not working in yourpainting business, they're
working for some other companyand that company has a 401k that
does matching.
Make sure that your spouse iscontributing all the way up to
(21:03):
their match.
So that's probably the mostcommon scenario that folks
listening might have thatopportunity.
Speaker 3 (21:15):
Yeah, and so once you've funded up to the match
and you've gotten out, thenyou're going to want to take
your money and you're going towant to fund your Roth IRA.
Now, you may not have a RothIRA.
The good news is is that it'svery simple and easy to start.
You can have a personal RothIRA at pretty much any bank.
(21:36):
Your local bank will probablyopen one for you, or you can go
to the internet where you knowFidelity, merrill Lynch, e-trade
, ally you name it.
If you can't think of a bank,just look at your local sports
stadium and that the bankprobably has their name on the
(21:56):
side of it.
You can go there, but they'llbe more than happy to open up a
Roth IRA account for you.
Now, the reason that I say Rothis because Roth are very
special vehicles.
You do not get a tax break inthe year that you contribute to
a Roth, but what makes Rothspecial is that as the money
(22:22):
grows inside of it, that moneygrows tax free, and when you
eventually retire and go towithdraw that money or, even
better yet, pass it on to thenext generation, that money will
stay tax free.
So for 2024, the most you cancontribute to your Roth is
(22:46):
$7,000, unless you are 50 yearsold or older.
Then you can do 8,000.
And both you and your spousecan have a Roth.
So a married couple would beeither 14,000 or 16,000
depending on their age, and it'sOK if your spouse doesn't work.
(23:06):
You can contribute to theirRoth on their behalf with your
earned income.
So just keep in mind no taxbreak up front, but the growth
on it is exponential.
So those are.
Those are very powerfulretirement accounts.
(23:31):
The next thing we want to talkabout is a health savings
account and if you're notfamiliar with health savings
accounts, they are one of themost tax lucrative things that
has ever come out of Congress.
One of the cardinal rules abouttax planning is that there's no
(23:52):
double dipping.
You can't take the same taxdeduction twice unless we're
talking about an HSA is one ofthe only things that allows us
to get a tax break when we putmoney in and the tax break when
we take money out.
So they work a lot like a Rothdoes, except I just got done
(24:12):
saying that with Ross you get noupfront tax break In HSA you do
.
So whatever you contribute toan HSA, you pay no taxes on in
the year that you contribute,that money grows inside your HSA
and if you pull it out for alegitimate medical expense, that
(24:34):
money comes out tax free.
So that's your double dip it'spre tax savings and after tax
savings.
If you're curious what aqualified medical expense is,
the IRS has publication 502,which goes into a lot of detail,
but basically anything thatinvolves doctors visits,
(24:57):
eyeglasses, dentists,prescription meds.
There are actually a few thingsin there too that you might not
consider to be typicalallopathic medicine, things like
acupuncture, chiropractic, thatalso qualify.
So if you have a specific thingin mind, check out IRS
publication 502.
(25:17):
But if you pull it out forthose types of things, it comes
out tax free.
A question I get a lot is well,what if I don't need the money
for medical expenses?
What happens then?
That's kind of the coolest partabout an HSA is that if you can
build it and then turn 65 andqualify for Medicare, you no
(25:42):
longer need an HSA and all thatmoney that's been growing in
there comes out to you tax-free.
It's like a backup retirementaccount that is even more
tax-advantaged than yourstandard retirement accounts.
So very lucrative vehicle, butthere are some requirements
(26:04):
around it.
Speaker 2 (26:06):
Yeah, one of the main ones being that you have to
actually have a high-deductiblehealth care plan to contribute
to it.
So a high-deductible healthcare plan is like just covering
you for catastrophic.
If something is catastrophic,some sort of catastrophic event,
you get hit by a bus, you getcancer, that sort of plan, that
(26:29):
sort of health care plan, coversyou in those instances.
But if you just have a cold orjust getting a checkup, you
usually have to pay it out ofpocket for those types of
medical expenses.
So a high-deductible healthcare plan is usually good for
someone working age that doesn'tget sick a lot.
(26:50):
It just covers you just in casesomething crazy happens.
So you can get thathigh-deductible health care plan
and then that will allow you toget that health savings account
with that plan.
Speaker 3 (27:03):
And when you do go in for your checkups or your teeth
cleanings or whatnot, you'regoing to pay for those out of
your HSA, and so those servicesare coming to you now at a
discount because you're notpaying any taxes on that money.
And if your HSA has had time togrow, you're not paying any
taxes on the growth.
(27:24):
If you are a single individualwith an HSA, you can contribute
$4,150 a year as of 2024.
This year that number goes up alittle bit for inflation.
If you have a family, then youcan contribute $8,300 in 2024.
(27:47):
And that's definitely somethingyou want to take advantage of.
If you're a business owner, itmakes it easier because you can
control what types of healthcare is available.
But even if you work forsomebody else, you may be able
to qualify for an HSA throughyour work provided insurance,
(28:12):
assuming that's something theyoffer.
You can get HSA plans throughthe Affordable Care Act, so
we're recording this towards theend of 2023.
We're in the middle of openenrollment.
Look for HSA plans, and they doqualify.
They do qualify for premium taxcredit, that government subsidy
that helps you pay for yourhealth insurance.
(28:32):
Hsa plans qualify for that aswell, so they're a nice option,
all right.
And then finally, once you havefully funded your HSA, now we
can talk about going back to the401k or the IRA.
So if you work for somebodyelse and you're not a business
(28:58):
owner, then go back to yourcompany's 401k and fund that as
much as you can.
As of 2023, you can put in$22,500 max.
So that's going to give you alot of ceiling for a lot of
retirement savings.
If you're a business owner,you're in luck because now you
(29:20):
can start your own 401k throughyour business and you can decide
whether you want it to be atraditional 401k where you get
the tax break up front, or ifyou want to do a Roth 401k,
where you pay taxes on the moneynow but the growth comes out
tax free.
(29:41):
And if you really want to takeit up to the next level, you can
look into what's known as aself-directed 401k.
Self-directed 401k for those ofus not familiar, is a
retirement account where you arethe custodian.
So actually let me work thatyou're not the custodian,
(30:03):
someone else is the custodian,but you have control over the
investments.
Traditionally, if you're doinga 401k with fidelity or a
vanguard, you're looking atstocks, mutual funds, bonds the
typical stuff.
Self-directed 401ks allow youto invest in real estate, gold,
(30:25):
silver, digital currencies.
You can invest in businesses.
You can start a business.
You can get what I tend to callcheckbook control, where you
can create a company inside ofyour IRA and then you have
control of that company'scheckbook.
As long as all the profits fromwhatever your investments or
(30:48):
ventures are stay inside thatretirement account, they are not
taxable.
So you can see how a Rothself-directed 401k can be
incredibly powerful.
Little bit of an antidote foryou.
I don't know how many of us haveseen that movie, the Social
(31:10):
Network.
It came out a while ago, but itwas all about the creation of
Facebook.
There is a famous investor bythe name of Peter Thiel and he
invested $500,000 into Facebookwhen it was still a brand new
thing that was just on thecollege campuses.
But he invested that money fromhis Roth IRA.
(31:34):
His portfolio is now worth morethan $6 billion and because he
has done that inside of a Roth,he will never pay taxes on that
money.
This is the platinum standard,but we can all have dreams.
(31:57):
Even if we only do 1% that wellin our Roths, we will be
sitting pretty.
Speaker 2 (32:05):
Yeah it's a pretty amazing option and pretty much
nobody knows about this Taxstrategy is using a Roth 401k or
a Roth IRA, putting that moneyin there and then using that to
invest in something like abusiness or gold, bitcoin, real
(32:28):
estate, whatever.
A lot of the pain.
Businesses that we work with.
Real estate is an easy pivotfor a lot of them because they
are often working in homes andthey're pretty familiar.
They know real estate agents,so they end up getting into real
estate.
So if you use your Roth 401k oryour Roth IRA to put the money
(32:53):
in there, use that money topurchase a house for rental
purposes, all those rentalpayments will go to you tax free
.
So that's a pretty cool thing.
Obviously, there's things yougot to do to make sure it's set
up right and managed correctly,but that can be a pretty
(33:13):
powerful wealth building tool.
Speaker 3 (33:17):
Yeah, and something that people will ask a lot is
hey, I really want to invest inreal estate in my self-directed
401K or IRA, but how do I getenough money in there to buy
real estate?
And there's a lot of things wecould talk about here,
(33:38):
especially if you have a solo401K and by solo I mean you're
the only employee, so you canjust max it out, put $66,000
plus dollars a year in there.
But you could also use leverage.
I know we just got done talkingabout good debt and bad debt,
(33:59):
but you need to be a littlecareful.
There's some extra taxes andthings that go along with it.
But if you're wondering, yes,you can get a loan to buy real
estate inside a self-directedretirement account and leverage
(34:20):
what you do have into multipleproperties.
Speaker 2 (34:24):
Yeah, the only thing with that is basically the part
that's leveraged would betaxable ordinarily.
So the key is really getting asmuch money into your Roth as
before you need it.
Then, once you build up thatRoth IRA or Roth 401K as much as
(34:47):
you can and then try to get itas close as you can to paying
for a house right out with theRoth money so that therefore it
will be 100% tax free with thoserental payments assuming it's a
rental property, because if youdo finance it, you can finance
it, but then the portion thatyou finance will have that tax
(35:10):
shelter, like the cash youcontributed into the Roth does.
Speaker 3 (35:16):
Right, the profit on the interest portion, and there
are some ways to kind ofmitigate that with 401K versus
IRA.
But yeah, I think that's kindof outside the scope.
But yeah, if you can fund ityourself without debt, that's
even better.
And we probably don't reallywant to get into like the mega
(35:39):
backdoor Roth and things likethat.
But there's steps even abovethat.
I just like saying megabackdoor Roth because it reminds
me of like a transformer orsomething like that, but that
might be the cold meds talking.
Anyway, lots of great options,but these are this like this is
(36:01):
where I feel like most peopleshould start.
When you go to invest, matchingout of your company's 401K,
fill up the $7,000 into yourRoth IRA and your spouses if
possible, max out your HSA andthen go back to either your
(36:21):
company's 401K or, if you havethe ability to do, a solo 401K.
That's gonna give you so muchcapacity for savings.
Speaker 2 (36:34):
Yeah, awesome, All right, well, I hope you all got
a good framework for buildingwealth in your painting business
.
We'd love to hear your thoughtson your goals, on some ideas
maybe you have in buildingwealth in your painting business
and in your life.
Well, definitely welcome you tojoin our Facebook group if you
(36:57):
go to Facebook type in Grow yourPainting Business and send an
invite to join that privateFacebook group.
We'd love to hear your thoughtsor ideas for the next episode.
Speaker 3 (37:09):
Yeah, absolutely Appreciate everybody listening
and hope to see you on the nextepisode.
Welcome to the profitable painter podcast.
The mission of this podcast issimple To help you navigate the
financial and tax aspects ofstarting, running and scaling a
professional painting business,from the brushes and ladders to
the spreadsheets and balancesheets.
We've got you covered.
But before we dive in, a quickword of caution.
While we strive to provideaccurate and up-to-date
financial and tax information,nothing you hear on this podcast
(00:22):
should be considered asfinancial advice specifically
for you or your business.
We're here to share generalknowledge and experiences, not
to replace the tailored adviceyou get from a professional
financial advisor or taxconsultant.
We strongly recommend youseeking individualized advice
before making any significantfinancial decisions.
Speaker 2 (00:41):
This is Daniel, the founder of Bookkeeping for
Painters.
Speaker 3 (00:44):
And this is Richard, tax director, with Bookkeeping
for Painters.
How's it going?
It's going pretty good, daniel.
How about yourself?
Speaker 2 (00:53):
Doing well.
The kids are constantly sickand I think it's kind of rubbing
off on me finally.
So I feel like I have thatfeeling in the back of the
throat where you're about to besick.
So that's fun.
Speaker 3 (01:09):
Yeah, it is the season for headcolds and flu.
Yeah, whenever the weatherchanges, changes up here it's
yeah, you're bound to getsomething.
So I feel for you.
Can I get the chamomile tea andthe honey and whatnot and try
and soothe that throat, right,yeah, so we've got kind of an
(01:36):
interesting topic today.
It's not home cold and fluremedies either.
That would be a differentpodcast.
We're talking about a wealthbuilding.
So big, big segue fromchamomile tea.
Why is that so hard for me tosay chamomile tea, daniel?
Speaker 2 (01:57):
why don't you talk about?
Speaker 3 (01:58):
the topic because I'm out.
Speaker 2 (02:02):
Yeah, so our topic today is wealth building steps.
So, basically, what stepsshould you take to build wealth?
Now you might be asking like,why would I want to build wealth
?
What does that even mean?
There might be a lot ofquestions there.
(02:25):
So I think of wealth is kind ofdifferent from being rich, and
in our businesses, we want touse our painting business to
help us build wealth for thelong term.
So when I think of wealth, Ithink of long term.
I think of Warren Buffett.
Warren Buffett is makingmillions in his sleep constantly
(02:49):
.
He's not actively trading histime for money.
When I think of rich, I thinkof like a doctor just spending
all his time working 80 hours aweek to get.
He might be making a lot ofmoney, hundreds of thousands a
year but he just has no balancein his life and he's just
(03:13):
running into the ground and assoon as and he might be spending
all that money on fancy carsand big houses and all that.
So he might not have any wealth.
He might have a high income,but he doesn't have any real
wealth.
So I think of I think folksshould think of their painting
(03:34):
business as a way, anopportunity to build wealth in
their life, and so we're goingto go through those steps of
building wealth.
Speaker 3 (03:46):
Yeah, wealth is a long term thing, right, like
it's why we're doing what we'redoing, so that we can pass
something meaningful on to thenext generation.
You mentioned Warren Buffett.
I just got to give a shout out,like I heard, charlie Munger
Warren Buffett's you know one ofhis closest friends and his
(04:08):
business partner for manydecades passed away this month
and he is one of the wealthiestpeople in America because he
took a long term view of things.
He didn't spend everything on,you know.
He certainly enjoyed someluxuries, I'm sure, but he had
(04:30):
his priorities straight and heknew how to grow his money and
that gave him the freedom tolive the lifestyle that he
wanted.
So that's kind of our goal inwealth building is putting our
money to work for a purpose andmaking sure that we have enough
of it when we need it.
Speaker 2 (04:49):
And so we'll run through these four wealth
building steps.
And we didn't come up with this.
I got it from somebody yearsago and I don't recall who, but
everyone has a verdict of this.
You know, if you listen to thefinancial gurus out there, they
have some verdict of this and itmight be slightly different,
(05:12):
but this might be a usefulframework for you.
So step number one to buildingwealth is optimizing your income
.
And if you're a business ownerwhich probably are if you're
listening to this podcast you'realso optimizing the processes
in your business.
So, basically, getting yourbusiness running and optimize to
(05:33):
make money.
And so here you know.
This is the first step, becauseyou want to get this out.
Investments or anything else,because your biggest asset in
your life is going to be yourincome.
How much money can you make?
So that needs to be your focus,step number one, and don't move
(05:57):
off of this step until you havea decent amount of money coming
into your, your life throughyour income.
Now, how much that is isdifferent for everybody, because
everyone has differentstandards of living, and so one
person might be like they don'thave enough money coming into
the life until they hit $200,000.
(06:17):
Another person might be $50,000.
It kind of depends on what yourgoals are and what your
standard of living is and alsowhere you live so many different
factors.
But step number one is optimizeyour income and your business
and your process and yourbusiness.
(06:37):
Step number two is saving upcash.
12 months is what we recommend,but this could be just a
substantial amount of cashbasically, so that's something
that goes south, that you canbasically fall back on that.
Step number three is pay offbad personal debt.
(06:58):
Step number four is invest forlong-term goals.
Speaker 3 (07:03):
Yeah.
So I think what I hear yousaying, daniel, in step number
one is don't worry aboutinvesting.
Don't try and buy a rentalproperty or open up a stock
account until you are able tosecure a steady and reoccurring
income.
It's kind of like that.
(07:25):
I just saw that joke likewhat's the best way to invest
$50?
Well, buy a tank of gas anddrive yourself to work and
you'll make a couple hundredbucks that day.
So yeah, our income is thelifeblood of our wealth building
.
It's not the only part of it,but if we have an income, we're
(07:46):
not getting any of these othersteps.
Speaker 2 (07:50):
Yeah, I feel like some folks want to skip over
this step and then think aboutthe cool fancy stuff in step
four.
I had a friend recently startasking me about investing for
the long term, putting his moneyin different assets and fancy
tax strategies, and he wasasking me for advice and he had
(08:15):
big goals for what he wanted tomake millions and all this stuff
but his income was only at like$30,000 a year.
And I was like, well, beforeyou start worrying about how
many LLCs to set up and all thisstuff and your tax money
(08:35):
strategies, you don't have anytax liability, so focus on your
income first.
Get that up.
That should be your main goal.
Don't worry about all the fancystuff.
And the richest people in theworld.
Most of them are folks thatthey focused on one thing, like
you think of Jeff Bezos.
(08:56):
I mean, he built Amazon.
He didn't have 15 side hustles,he built one thing.
He focused on optimizing that.
So most you know there's someexceptions out there, of course,
but for the most part peoplebuild their wealth on focusing
on one thing optimizing thatincome in that business and then
(09:18):
later on branch out into otherthings.
But yeah, this one is doing thehard work and getting stepped
one knocked out before you know.
Moving on to the next step.
Speaker 3 (09:32):
So if we're a business owner and that's how
we're getting our income part ofthis step might be, you know,
looking at our processes and ourbusiness, making sure that we
are hitting the profit marginsthat we need to, making sure
that we're efficient in ourbusiness so that we get the most
income possible, because that'sgoing to be the thing that
(09:53):
really moves the needle the most.
You know, if we're wasting 15,20% of our of our business
profit on unnecessary expensesor inefficient processes, that's
going to affect our wealthbuilding tremendously down the
road.
Speaker 2 (10:11):
Yep, yeah, in previous podcasts we really dive
into this deep on what youshould be hitting like, what you
should be making in your inyour painting business.
So if you want more detail onwhat your income should be in
your painting business,definitely listen to one of
those those episodes to kind ofdial that in Moving on to the
(10:31):
next step.
It's saving 12 months in livingexpenses in cash.
Speaker 3 (10:40):
So this is important because we don't know what's
going to happen.
Right, we we expect the best,but we want to prepare for the
worst, and maybe our good jobprovides a steady income.
Maybe they close the plant oneday or, you know, through no
fault of our own, we end uplosing our job.
(11:00):
We don't want a momentarysetback to completely derail our
wealth building.
So this 12 months of cash, thisis not an investment.
This is an insurance policy tomake sure that we can keep our
homes, keep our families warmand well fed, regardless of what
(11:23):
things life might throw at us.
So so generally, you know asmuch as I want to put our
savings to work and earninterest or earn profit.
Your, your, your emergencyfunds should be liquid.
It should be readily available.
Some people like to use highyield savings accounts, maybe a
(11:46):
money market account, as long asyou can still get to it, but
generally, that that's going tobe something that we don't want
to tie up in like stocks that wecan't sell or real estate that
we can't liquidate.
We want that to be available incase of a rainy day.
Speaker 2 (12:02):
Yeah, I think folks in the finance space called this
dry powder and yeah, and sothink of, like, what happened in
2008 or the dot com bubble.
If you were around then youknow there's there's times in
the business cycle where thingsjust go crazy, all the hell you
(12:24):
know.
So you want to be prepared forthose those.
You know events but also justmight be something where it's
not a global thing, maybe that'sa local thing.
Something happens.
You know in your family thatyou know God forbid, something
happens to your spouse orsomething like that.
You know that might be asituation where you know you
(12:48):
need to have some sort of backupor you get seriously injured
and you don't have disabilityinsurance.
So you know being prepared forthose.
Either you know economic eventsor those just personal events
that might happen in your life.
Speaker 3 (13:04):
Yeah, the third one on our list is pay off bad
personal debts.
And how, daniel?
How would you describe a badpersonal debt?
Well, is there, is there a goodpersonal debt and bad personal
debt?
How does that work?
Speaker 2 (13:25):
Yeah, there's definitely a lot of opinions on
this.
I think the the one that makesthe most sense to me if you have
debt that's not really payingyou, giving you some sort of
return, and if it's reallyexpensive.
So I always think of creditcards, like personal credit
cards.
Those are usually prettyexpensive and they're usually
(13:50):
just for buying things that youcan't afford.
So that that's what I think ofwhen I think of bad personal
debt.
But I think you know I'm kindof I lean towards on the
personal side, like trying notto have any debt.
You know the exception may behaving a mortgage.
But even if you can avoid that,that would be cool.
(14:10):
But you know, especially whenwe're getting into these higher
interest rates now, you know,having a mortgage I guess a
couple years ago or so, lockingin like a fixed rate you know 3%
or whatever was that that wouldhave been pretty cool.
But in this high inflationaryenvironment especially so, that
(14:32):
might be an exception.
And having like a long fixed,you know, mortgage rates, that
might be cool.
But credit cards definitely Iwould say is not a good debt to
have.
On the personal side of thingsit's not really, you know,
giving you kind of return onyour investment or anything like
that, so I would get rid ofthose for sure.
Speaker 3 (14:56):
So it sounds like the difference is bad debt is debt
that does not earn you money, itjust costs you money.
There could be some good debtmaybe in like a low interest
mortgage or, dare I say,possibly a low interest business
loans that we can start ourbusiness.
(15:16):
But we need to make sure thatwe're making more money than the
debt is costing us, and it canbe tricky.
It can be like I don't take theview that that debt is evil,
but I view it as like debt canbe debts like electricity.
It's very useful, but only ifit is applied correctly and
(15:40):
safely.
It's very easy to get burnedwith debt.
So I do like what you're saying, daniel, about trying to avoid
it if at all possible.
Should we talk about, maybe alittle bit about like the debt
snowball, in case some of us dohave some of these bad debts
what you know, how the debtsnowball method could help us
(16:01):
get rid of these bad debts, youknow, faster.
Speaker 2 (16:04):
Yeah, I think there's two main ways to tackle or two
ways of that.
Like one, you can pay down thedebt that has the highest
interest rate.
You know, like if you have,let's say, you have some student
loans and you have some creditcard debt and you have your
(16:25):
mortgage, your credit cards areprobably the highest interest
rate.
So you pay those off first andthen move on to the next highest
interest rate.
The other way that I think DaveRamsey recommends to basically
pay off your lowest balancefirst.
So you just rank order, likemaybe you have a few credit
(16:49):
cards that you have debt on andjust pick the one that has the
lowest balance, pay that one offfirst and then you get like a
psychological win from that andthen you go to the next one.
So the first course of actionyou're it's more efficient,
you're probably saving moremoney.
(17:10):
The second course of action iskind of psychologically feels
better because you're feels likeyou're accomplishing more
because you're paying offbalance is quicker.
So I mean, I think either wayis good.
From my perspective.
I think it comes out of theperson which way they want to
(17:32):
try to tackle that.
Speaker 3 (17:34):
Yeah, but the key with the snowball is, once you
pay off a credit card, you knowso, first you figure out however
much money you have towardsputting towards debt and once
you pay off a credit card, youneed to take that card's minimum
payment plus the amount thatyou had allocated for paying off
(17:54):
debt, and that's where yoursnowball starts and you put that
towards the next one.
Now, when that card's gone, youtake that card's minimum
payment and your snowball getsbigger and bigger until you're
finally until you're finallydebt free.
But I'm with you.
So it's like, as a numbers guy,I love the idea of highest
interest rates because I canmake out my little spreadsheets,
(18:14):
I can calculate the numbers and.
But Dave Ramsey is very, verygood at addressing, like, the
behavioral side of finances andmoney.
And ultimately we are humans,we are not spreadsheets or
computers, and we need toconsider what motivates us and
(18:35):
keeps us going.
And because if we, if we stop,then it doesn't matter what the
interest rates are, becausewe've kind of fallen off the
snowball there.
Yeah.
Speaker 2 (18:49):
Yeah, Exactly so.
That's step three.
Now, as a reminder you eachstep is recommended to you
complete that step before movingto the next one.
So you have your 12 months cash, you have some sort of 12
months cash put away, then youstart paying off your personal
bad debt and then you startinvesting for the long term,
(19:13):
which is step number four.
Speaker 3 (19:16):
Yeah.
So when you invest for the longterm, you're going to have a
lot of different options hereand we tried to kind of put
together a recommended startingpoint and then, like Daniel was
saying, when you complete thisstep, move on to the next one.
So if you ask me, where shouldI get started?
If you work for an employer whooffers a 401k or like a simple
(19:43):
IRA or something like that, andthey offer some kind of a match,
that's going to be yourstarting point.
You want to get that matchbecause that match is free money
from your employer to you.
If your employer offers a dollarfor dollar match up to, say,
like 6%, you want to contributethe entire 6% so that you get
(20:07):
that dollar for dollar match.
That's 100% return on yourinvestment.
Even if the investments don'tdo much, you start off with 100%
return.
So that's step one get thatfull match.
But once you max it out, ifit's 6%, you're doing all 6%.
(20:28):
Jump out of that 401k Becausethere's much better investment
options out there than mostcompany sponsored Safe Harbor
401k plans.
Speaker 2 (20:41):
Yeah.
So I think this would probablymost apply to maybe if you have
a spouse that has a.
They're not working in yourpainting business, they're
working for some other companyand that company has a 401k that
does matching.
Make sure that your spouse iscontributing all the way up to
(21:03):
their match.
So that's probably the mostcommon scenario that folks
listening might have thatopportunity.
Speaker 3 (21:15):
Yeah, and so once you've funded up to the match
and you've gotten out, thenyou're going to want to take
your money and you're going towant to fund your Roth IRA.
Now, you may not have a RothIRA.
The good news is is that it'svery simple and easy to start.
You can have a personal RothIRA at pretty much any bank.
(21:36):
Your local bank will probablyopen one for you, or you can go
to the internet where you knowFidelity, merrill Lynch, e-trade
, ally you name it.
If you can't think of a bank,just look at your local sports
stadium and that the bankprobably has their name on the
(21:56):
side of it.
You can go there, but they'llbe more than happy to open up a
Roth IRA account for you.
Now, the reason that I say Rothis because Roth are very
special vehicles.
You do not get a tax break inthe year that you contribute to
a Roth, but what makes Rothspecial is that as the money
(22:22):
grows inside of it, that moneygrows tax free, and when you
eventually retire and go towithdraw that money or, even
better yet, pass it on to thenext generation, that money will
stay tax free.
So for 2024, the most you cancontribute to your Roth is
(22:46):
$7,000, unless you are 50 yearsold or older.
Then you can do 8,000.
And both you and your spousecan have a Roth.
So a married couple would beeither 14,000 or 16,000
depending on their age, and it'sOK if your spouse doesn't work.
(23:06):
You can contribute to theirRoth on their behalf with your
earned income.
So just keep in mind no taxbreak up front, but the growth
on it is exponential.
So those are.
Those are very powerfulretirement accounts.
(23:31):
The next thing we want to talkabout is a health savings
account and if you're notfamiliar with health savings
accounts, they are one of themost tax lucrative things that
has ever come out of Congress.
One of the cardinal rules abouttax planning is that there's no
(23:52):
double dipping.
You can't take the same taxdeduction twice unless we're
talking about an HSA is one ofthe only things that allows us
to get a tax break when we putmoney in and the tax break when
we take money out.
So they work a lot like a Rothdoes, except I just got done
(24:12):
saying that with Ross you get noupfront tax break In HSA you do
.
So whatever you contribute toan HSA, you pay no taxes on in
the year that you contribute,that money grows inside your HSA
and if you pull it out for alegitimate medical expense, that
(24:34):
money comes out tax free.
So that's your double dip it'spre tax savings and after tax
savings.
If you're curious what aqualified medical expense is,
the IRS has publication 502,which goes into a lot of detail,
but basically anything thatinvolves doctors visits,
(24:57):
eyeglasses, dentists,prescription meds.
There are actually a few thingsin there too that you might not
consider to be typicalallopathic medicine, things like
acupuncture, chiropractic, thatalso qualify.
So if you have a specific thingin mind, check out IRS
publication 502.
(25:17):
But if you pull it out forthose types of things, it comes
out tax free.
A question I get a lot is well,what if I don't need the money
for medical expenses?
What happens then?
That's kind of the coolest partabout an HSA is that if you can
build it and then turn 65 andqualify for Medicare, you no
(25:42):
longer need an HSA and all thatmoney that's been growing in
there comes out to you tax-free.
It's like a backup retirementaccount that is even more
tax-advantaged than yourstandard retirement accounts.
So very lucrative vehicle, butthere are some requirements
(26:04):
around it.
Speaker 2 (26:06):
Yeah, one of the main ones being that you have to
actually have a high-deductiblehealth care plan to contribute
to it.
So a high-deductible healthcare plan is like just covering
you for catastrophic.
If something is catastrophic,some sort of catastrophic event,
you get hit by a bus, you getcancer, that sort of plan, that
(26:29):
sort of health care plan, coversyou in those instances.
But if you just have a cold orjust getting a checkup, you
usually have to pay it out ofpocket for those types of
medical expenses.
So a high-deductible healthcare plan is usually good for
someone working age that doesn'tget sick a lot.
(26:50):
It just covers you just in casesomething crazy happens.
So you can get thathigh-deductible health care plan
and then that will allow you toget that health savings account
with that plan.
Speaker 3 (27:03):
And when you do go in for your checkups or your teeth
cleanings or whatnot, you'regoing to pay for those out of
your HSA, and so those servicesare coming to you now at a
discount because you're notpaying any taxes on that money.
And if your HSA has had time togrow, you're not paying any
taxes on the growth.
(27:24):
If you are a single individualwith an HSA, you can contribute
$4,150 a year as of 2024.
This year that number goes up alittle bit for inflation.
If you have a family, then youcan contribute $8,300 in 2024.
(27:47):
And that's definitely somethingyou want to take advantage of.
If you're a business owner, itmakes it easier because you can
control what types of healthcare is available.
But even if you work forsomebody else, you may be able
to qualify for an HSA throughyour work provided insurance,
(28:12):
assuming that's something theyoffer.
You can get HSA plans throughthe Affordable Care Act, so
we're recording this towards theend of 2023.
We're in the middle of openenrollment.
Look for HSA plans, and they doqualify.
They do qualify for premium taxcredit, that government subsidy
that helps you pay for yourhealth insurance.
(28:32):
Hsa plans qualify for that aswell, so they're a nice option,
all right.
And then finally, once you havefully funded your HSA, now we
can talk about going back to the401k or the IRA.
So if you work for somebodyelse and you're not a business
(28:58):
owner, then go back to yourcompany's 401k and fund that as
much as you can.
As of 2023, you can put in$22,500 max.
So that's going to give you alot of ceiling for a lot of
retirement savings.
If you're a business owner,you're in luck because now you
(29:20):
can start your own 401k throughyour business and you can decide
whether you want it to be atraditional 401k where you get
the tax break up front, or ifyou want to do a Roth 401k,
where you pay taxes on the moneynow but the growth comes out
tax free.
(29:41):
And if you really want to takeit up to the next level, you can
look into what's known as aself-directed 401k.
Self-directed 401k for those ofus not familiar, is a
retirement account where you arethe custodian.
So actually let me work thatyou're not the custodian,
(30:03):
someone else is the custodian,but you have control over the
investments.
Traditionally, if you're doinga 401k with fidelity or a
vanguard, you're looking atstocks, mutual funds, bonds the
typical stuff.
Self-directed 401ks allow youto invest in real estate, gold,
(30:25):
silver, digital currencies.
You can invest in businesses.
You can start a business.
You can get what I tend to callcheckbook control, where you
can create a company inside ofyour IRA and then you have
control of that company'scheckbook.
As long as all the profits fromwhatever your investments or
(30:48):
ventures are stay inside thatretirement account, they are not
taxable.
So you can see how a Rothself-directed 401k can be
incredibly powerful.
Little bit of an antidote foryou.
I don't know how many of us haveseen that movie, the Social
(31:10):
Network.
It came out a while ago, but itwas all about the creation of
Facebook.
There is a famous investor bythe name of Peter Thiel and he
invested $500,000 into Facebookwhen it was still a brand new
thing that was just on thecollege campuses.
But he invested that money fromhis Roth IRA.
(31:34):
His portfolio is now worth morethan $6 billion and because he
has done that inside of a Roth,he will never pay taxes on that
money.
This is the platinum standard,but we can all have dreams.
(31:57):
Even if we only do 1% that wellin our Roths, we will be
sitting pretty.
Speaker 2 (32:05):
Yeah it's a pretty amazing option and pretty much
nobody knows about this Taxstrategy is using a Roth 401k or
a Roth IRA, putting that moneyin there and then using that to
invest in something like abusiness or gold, bitcoin, real
(32:28):
estate, whatever.
A lot of the pain.
Businesses that we work with.
Real estate is an easy pivotfor a lot of them because they
are often working in homes andthey're pretty familiar.
They know real estate agents,so they end up getting into real
estate.
So if you use your Roth 401k oryour Roth IRA to put the money
(32:53):
in there, use that money topurchase a house for rental
purposes, all those rentalpayments will go to you tax free
.
So that's a pretty cool thing.
Obviously, there's things yougot to do to make sure it's set
up right and managed correctly,but that can be a pretty
(33:13):
powerful wealth building tool.
Speaker 3 (33:17):
Yeah, and something that people will ask a lot is
hey, I really want to invest inreal estate in my self-directed
401K or IRA, but how do I getenough money in there to buy
real estate?
And there's a lot of things wecould talk about here,
(33:38):
especially if you have a solo401K and by solo I mean you're
the only employee, so you canjust max it out, put $66,000
plus dollars a year in there.
But you could also use leverage.
I know we just got done talkingabout good debt and bad debt,
(33:59):
but you need to be a littlecareful.
There's some extra taxes andthings that go along with it.
But if you're wondering, yes,you can get a loan to buy real
estate inside a self-directedretirement account and leverage
(34:20):
what you do have into multipleproperties.
Speaker 2 (34:24):
Yeah, the only thing with that is basically the part
that's leveraged would betaxable ordinarily.
So the key is really getting asmuch money into your Roth as
before you need it.
Then, once you build up thatRoth IRA or Roth 401K as much as
(34:47):
you can and then try to get itas close as you can to paying
for a house right out with theRoth money so that therefore it
will be 100% tax free with thoserental payments assuming it's a
rental property, because if youdo finance it, you can finance
it, but then the portion thatyou finance will have that tax
(35:10):
shelter, like the cash youcontributed into the Roth does.
Speaker 3 (35:16):
Right, the profit on the interest portion, and there
are some ways to kind ofmitigate that with 401K versus
IRA.
But yeah, I think that's kindof outside the scope.
But yeah, if you can fund ityourself without debt, that's
even better.
And we probably don't reallywant to get into like the mega
(35:39):
backdoor Roth and things likethat.
But there's steps even abovethat.
I just like saying megabackdoor Roth because it reminds
me of like a transformer orsomething like that, but that
might be the cold meds talking.
Anyway, lots of great options,but these are this like this is
(36:01):
where I feel like most peopleshould start.
When you go to invest, matchingout of your company's 401K,
fill up the $7,000 into yourRoth IRA and your spouses if
possible, max out your HSA andthen go back to either your
(36:21):
company's 401K or, if you havethe ability to do, a solo 401K.
That's gonna give you so muchcapacity for savings.
Speaker 2 (36:34):
Yeah, awesome, All right, well, I hope you all got
a good framework for buildingwealth in your painting business
.
We'd love to hear your thoughtson your goals, on some ideas
maybe you have in buildingwealth in your painting business
and in your life.
Well, definitely welcome you tojoin our Facebook group if you
(36:57):
go to Facebook type in Grow yourPainting Business and send an
invite to join that privateFacebook group.
We'd love to hear your thoughtsor ideas for the next episode.
Speaker 3 (37:09):
Yeah, absolutely Appreciate everybody listening
and hope to see you on the nextepisode.
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