I'm a Fee-Only CFP® who provides affordable financial planning to clients in their 20s and 30s. I help people navigate through big life decisions, like buying a home, paying off student loans, maximizing their company benefits, planning their next vacation, investing in their future, and resisting their brother-in-law’s hot stock tip.
I’ll admit that I don’t have the patience to create a detailed budget myself (I practice “reverse budgeting” — make automatic contributions into savings, retirement, and investing accounts, set aside money to pay all my bills, and spend freely out of what’s left). It’s a system that works for many people, but sometimes you crave a more detailed way to plan.
Enter Gen Y Planning’s Associate Planner, Ashley Dixon, who’s a budgeting wizard. She works with clients with a variety of lifestyles, goals, and income levels who want to gain greater insight about their spending and saving habits. If Marie Kondo works on decluttering your stuff, think of her as here to declutter your spending!
I asked Ashley for her tips so you all can approach setting your own budget with less fear and more empowerment.
Step 1: Get into the right mindset
First, stop calling it a “budget,” because that word brings up negative emotions for so many people. Instead, think of it more as a “spending plan.” The idea is to find out where every dollar is going right now, determining if that matches your goals and values, and if it doesn’t, reassigning each dollar a new purpose. This helps you regain control over your money instead of feeling like it flies out of your bank account the second you get a paycheck.
A spending plan shouldn’t make you feel restricted or deprived. The idea is that you’ll still have wiggle room to make unexpected or seasonal purchases. The only difference is that now you’ll actually plan for those purchases by setting aside a small amount of money each month in advance, so you won’t suddenly realize there’s no money left for the December electric bill because you spent it on holiday gifts or car repairs.
Step 2: Select your system
Whether you track your spending in a notebook by hand, download a free budgeting spreadsheet, create your own spreadsheet, or use an app, the most important thing to do is actually start. Pick a method of tracking that feels easy and intuitive to you, so you actually enjoy returning to it again and again.
Be gentle with yourself. If you pick one method and grow to hate it, that’s okay! That just means you can try something else until you find the spending tracking system that feels right.
Step 3: Start tracking your spending
Look over your bank and credit card statements to see where your money goes each month. Think of this simply, in the form of “money in, money out.”
“Money in” is your total income, which could be from multiple sources if you, or your significant other, has a side hustle.
“Money out” falls into three categories:
Fixed costs: These expenses are roughly the same each month and include things like rent or mortgage payments, utility bills, subscriptions like Netflix, gym memberships, and cell phone bills. While the total you owe many vary, you know for a fact that you’ll be billed on a regular basis for these expenses.
Future goals: Savings for longer-term goals like travel, buying or renovating a home, replacing your car, paying for your kid’s college education, buying holiday gifts, or saving for retirement.
Everything else: These expenses fluctuate more because they don’t necessarily happen monthly, and what you spend can vary substantially. Think restaurants, bars, clothing, entertainment, plane tickets, holiday gifts, hobbies, and haircuts.
How does your checking account look after a month of bringing in income, spending some of that income on expenses, and moving some of that income into savings? Are you breaking even? Do you have to tap into your savings account to afford your expenses? Do you end up with a surplus of money? Gather this data without judgement — this exercise isn’t to determine your worth as a person, it’s merely to do some math and see where you end up. (Besides, your worth as a person isn’t tied to your bank account!)
Step 4: Take a look back at what sparks joy
Now that you’ve gathered data on how much money went toward different expenses, it’s time to ask yourself which of those expenses can be cut because they don’t really enhance your life.
Some cuts will be easy. Do you still read that magazine you’ve subscribed to for years? Do you pay for cable TV but actually get your entertainment from streaming services? If you’re habitually paying for things you don’t use, cutting them out of your life won’t change how you feel day-to-day at all. This is an effortless way to free up extra money to put toward other expenses and financial goals.
Other cuts will take some self-reflection and habit changes. Take food, for example. For many households, food is a major expense. Cooking at home is one way to cut back on food bills, but are you throwing spoiled or expired food away on a regular basis? Start meal-planning and creating shopping lists before heading to the grocery store so you can right-size the amount of food you buy. As for dining out, think about your reasons for doing so. Is it for date nights and nights out with friends? Special occasions? Or is it because you didn’t plan for a home-cooked dinner so you default to going out because it’s easier?
The point of a spending plan isn’t to deny yourself dinners out or HBO access. The point is to begin anticipating these upcoming costs and making room in your budget for them, so you don’t have to sacrifice saving money for long-term goals in order to afford short-term costs.
Step 5: Make changes going forward, beginning with your pay day
Begin with pay day, because you get a nice financial cushion in your bank account and are likely to time bill payments for when you earn income. What fixed bills are due before you get paid again? What savings do you need to incorporate? What’s left over for your variable expenses? Do you need to buy a gift? Do you have a hair appointment? Do you have to buy new shoes or an outfit for an event? Do you want to buy concert tickets? Are you going out to the movies? Plan it all. If something comes up that wasn’t in the plan, that’s okay. You can you can always rearrange the amounts you allocated. It’s your money, after all!
Once you commit to planning out your spending each pay period, you’ll start to become more mindful each time you’re faced with an opportunity to spend your money. You may realize you didn’t plan to spend money on this item, event, or dinner out, and decide to wait and plan it into your next spending plan period. Do you enjoy big holiday sales, like Black Friday, After Christmas, Fourth of July, or Back to School shopping? You don’t have to forgo your favorite shopping days, just plan for them. Save a little each month so you have an amount already set aside when those days arrive. I like automating savings from your checking account into several online savings accounts because you can nickname those accounts for different goals, like “Holiday Shopping” or “Travel for Friends’ Weddings.”
Let making a plan set you free
There’s so much power in knowing where your money is going, and in knowing that when you’re faced with an unexpected expense, you can afford it. Creating a spending plan helps you free up your money so you can put it toward the things that make your life better, instead of just letting money constantly stress you out.
A special thanks to the client who inspired this blog post when she told us she was “Marie Kondo-ing her spending.” You know who you are and we hope this post inspires even more people to take a look at their spending and slash the items that don’t spark joy.
As Gen Y gets older, we’re reaching financial stability in greater numbers, and that means that the family members who helped us out financially for so long may need our help now. Baby Boomers are getting older, and that can come with increased medical expenses, or even retiring in a less secure position than they thought they would.
I work with many clients who provide monetary support to parents, siblings, and other relatives, and together we find ways to work family help into their budgets. It’s possible to make financial gifts your family without sacrificing your own future, and I often recommend it over lending relatives money and dealing with the fallout out of your relationship if they can’t, or won’t, pay you back.
Put your oxygen mask on first before helping others
Just like they say when you’re on a flight: “put your oxygen mask on first before helping others.” If you’re struggling, you need to reach a place of stability before you can afford to gift money to family. If you have debt (especially high-interest credit card debt), expensive medical bills for yourself or your children, or you just aren’t able to end each month with money in the bank, working those issues out need to be your priority.
Helping yourself first also includes saving for your own retirement, by the way. If you put that off to provide financial support to a relative, the next generation is going to have to do the same for you. Give your kids the gift of your own security in retirement!
Set a “family help” budget
If you’re meeting your monthly expenses, saving for retirement and other goals, and you have some cash to spare, you now know exactly what you have available to gift to family. Regular gifts can take many forms (and, of course, you can adjust the amounts as your situation changes). You can do things like:
Gift a set amount of money each month for them to use as they choose
Hold an amount in savings to help in case of an emergency
Pay for long-term care insurance premiums for your relative so they’ll be able to afford assistance as they age and are less independent
Pay for certain specific expenses, like groceries, cell phone bills, utility bills, or homeowners insurance
Even small gestures like adding your relative to family sharing plans for their cell phone, or streaming subscriptions like Netflix, can help those on a limited income
Non-financial ways to help
If gifting money isn’t in your budget right now, there are still lots of ways you can support your family. You can give older relatives rides to doctor’s appointments, invite family over for meals or bring a meal to their home, or help out a sibling with young children by offering to baby-sit for no charge. Never underestimate the power of giving free tech support to your grandma! The gift of your time is truly valuable.
Know when to say “no”
Sometimes, gifting money to a loved one ends up enabling unhealthy behavior. If your family member suffers from a spending, gambling, or drug addiction, giving them money will just keep them on that dangerous path. You can help by, say, paying for therapy or rehab, but simply giving cash is not helpful.
Another time you can say no is when you disagree with how the money will be spent. For example, your relative claims to need help affording their rent payment, but after you give them money they go on a lavish vacation or shopping spree instead. You can make sure you money goes to the right place by sending it there yourself (like writing checks to their landlord) but you can’t gift a family member out of being financially irresponsible.
Helping family financially is such a kind and generous act, and I encourage you to work it into your budget if you can do so without shortchanging your own financial goals. Remember, building a solid financial foundation now will allow you to be more generous with your family in the future.
Older millennials are quickly approaching the sandwich generation phase: taking on greater responsibility for older relatives while also caring for young children. As baby boomers begin to retire, some will need the support of their adult children. In some cases, it may make sense to consider claiming your parent as a dependent on your taxes.
There are a lot of rules about this, and complicating things is the fact that the Tax Cuts and Jobs Act expires on Dec. 31, 2025. That may change many of the rules yet again! Because of this, I’m a fan of turning to tax pros. For this blog post, I sought the expertise of Luis F. Rosa, CFP®, EA, founder of Build a Better Financial Future. (Thanks for answering my questions so close to Tax Day, Luis!)
Why claim your parent as a dependent?
If you contribute a considerable amount toward supporting your parent, claiming them as a dependent qualifies you for certain tax credits. This can help stretch your budget for helping your parent financially. You may also be able to add a dependent parent to your employer’s health insurance, which may include contributing to a family Health Savings Account (HSA) to be applied toward their medical expenses.
However, there are strict guidelines about what counts as a dependent for tax purposes.
How can your parent qualify as a dependent?
Your parent or another adult can qualify as a dependent if:
They aren’t married, or if they’re married, they don’t file a joint tax return with their spouse.
They are a U.S. citizen, resident alien, or resident of Canada or Mexico.
They’re a qualifying relative, which means they have met the following tests:
They have either lived in your house for a year OR they’re a relative (which includes a child, sibling, parent, grandparent, aunt, uncle, and sibling-in-law). Relatives don’t have to live with you.
Their gross income is under $4,150 (this is for 2018). Social Security income doesn’t have to be included in the gross income calculation in many cases.
You provide more than 50% of their support for the year.
Your parent or another adult can be able-bodied and still be your dependent for tax purposes, but if you’re caring for a disabled relative you may be eligible for additional tax credits.
What are the tax benefits?
Single tax filers get the main benefit to claiming a parent as a dependent: the ability to file as a Head of Household. This can lower your tax bill because a higher amount of your income is taxed at a lower bracket than if your filing status is single. Take a look at how the tax brackets compare for the 2019 tax year:
Head of Household
$0 to $9,700
$0 to $13,850
$9,701 to $39,475
$13,851 to $52,850
$39,476 to $84,200
$52,851 to $84,200
$84,201 to $160,725
$84,201 to $160,700
$160,726 to $204,100
$160,701 to $204,100
$204,101 to $510,300
$204,101 to $510,300
$510,301 or more
$510,301 or more
As you can see, more of your income is taxed at the lowest 10% and 12% tax brackets when you file as a Head of Household.
You’d also be eligible for a non-refundable $500 tax credit, which begins to phase out (meaning you get less of the credit) when you have a modified gross adjusted income of $200,000 as an individual tax filer, or $400,000 if you’re married and file jointly. A non-refundable tax credit is one where if the amount of the credit is larger than the amount of taxes you owe, you don’t receive the whole credit and therefore don’t have a negative tax bill. For example, if you owe $1,000 in taxes, you’ll only owe $500 after getting the tax credit. But if you only owe $400, you won’t get a $100 refund after applying the $500 credit. Instead, you’ll owe $0 and get to use $400 worth of the credit.
You can include your dependent’s medical expenses in your itemized deductions if you itemize (meaning you don’t take the standard deduction) and have eligible medical expenses in excess of 10% of your adjusted gross income.
If your dependent parent is totally and permanently disabled, you can qualify for the dependent care credit, which can total 20% to 35% (depending on your adjusted gross income) of the cost of care, up to $3,000 for an individual and $6,000 for two or more individuals. You may also be able to set aside pre-tax income in a dependent care FSA if your employer offers it.
Who should I talk to about claiming my parent as a dependent?
Like I said, the rules for this are complicated and may change in 2026. Talk to a financial planner or tax professional like a CPA or Enrolled Agent so you can navigate this situation with expert guidance.
Lifelong renters are often surprised at the random additional expenses they have to cover when they buy a home for the first time. Because landlords cover a lot of the cost of maintaining their property (or roll that cost into your rent amount), rent is the highest amount you pay for housing per month, while a mortgage is actually the lowest amount you’ll pay. There are lots of hidden costs of homeownership you should keep in mind as you decide whether to rent or buy.
You don’t want to drain your cash reserves to cover the down payment and closing costs and then have nothing left when your dishwasher breaks three months after you move in (and something always breaks!).
Money-devouring costs all homeowners should prepare for
According to a 2017 Zillow report, homeowners spend an average of $9,080 per year on hidden costs of homeownership. Residents of cities with higher costs of living, like San Francisco or Boston, can expect to spend closer to $15,000 per year. These costs can include:
Maintenance and repairs: Professional house cleaning, fixing or replacing broken appliances, renovations and improvements, and more. Don’t get me started on how expensive it is to maintain a large yard! If there’s one thing I remember from owning a house a few years ago, it’s that there’s always another home improvement project on your list.
Utilities: If you moved from a small apartment to a larger house, you’re in for some sticker shock when you get your first utility bills, especially if your former landlord didn’t make you pay for all of the utility bills. You’ll be on the hook for gas, electricity, water, sewer, and trash pickup. And, of course, a larger home (especially if it has multiple stories) costs more to heat and cool than a smaller space. And if you have a yard to water, that will increase your water bills. Can you tell that I really want you all to understand what it takes to maintain a yard?
Property taxes and insurance: These expenses are bundled into your mortgage payment, but they’re variable costs that can increase or decrease over time. Insurance companies raise rates in natural disaster-prone areas (homeowners insurance does not cover flood damage, by the way — you’ll need a separate policy for that). And if you buy in a neighborhood that gets trendier by the day, your property taxes may increase dramatically as the value of your home goes up.
Homeowners associations or condo fees: Don’t underestimate the effect that an extra few hundred dollars per month can have on your housing budget. While it’s helpful when an HOA or condo covers maintenance to the neighborhood or building, this is a lot of money. And if they need to cover more expensive repairs, they may ask all residents to cough up a few thousand dollars each.
How to start your home-maintenance budget
Don’t go over budget in your home purchase: Let’s say you work with a financial planner to determine your home-buying budget (this is a great time to work with a financial planner, by the way!) and you decide that you can afford a $300,000 home. You have $60,000 saved up for a down payment and plan to take out a mortgage for the remaining $240,000. But because you’re an awesome saver with a steady income and an excellent credit score, mortgage lenders pre-approve you for a $300,000 mortgage — $60,000 over your original budget. Should you borrow the higher amount and broaden your home search? No. Just because you’re pre-approved for a higher mortgage amount doesn’t mean you should take it. You’ll be taking on a risk, because the more you spend on paying off your mortgage, the less you’ll have available for other home-related expenses.
Make your savings work harder for you: I recommend creating a separate savings account earmarked for home maintenance. A high-yield online savings account is perfect for this because you’ll earn significantly more interest than you would at most brick-and-mortar banks, which allows your savings to go even further. Plus, you’ll be able to access that money whenever you need it. Plan on setting aside at least 1% of the value of your home each year for home repairs and maintenance. On a $300,000 home, that means $3,000 a year. Divide this number by 12 and set up a monthly contribution to your savings (i.e. $250 per month).
Know when to call in the pros: DIYing home repairs to save money isn’t always the most cost-effective solution. Your time is worth money, and sometimes a professional can complete a repair better and faster. Having a home repair cash cushion means you can hire someone instead of spending your weekend trying to learn how to install a ceiling fan.
Prepare yourself for hidden costs of homeownership that aren’t monetary
Moving out of your community can affect your daily, weekly and monthly routine. Before you move out of a neighborhood in the city that you love to buy a home 30 minutes away in the suburbs that you can afford, consider how other things may be affected by this decision. Do you have friends that you run with after work? A yoga studio that you can walk to? Or is it easy to go to happy hour with your co-workers since you’re close to home? A long commute not only affects your health and body, many people would actually choose to make less money for a shorter commute.
Buying a home is one of the most expensive and complicated things you’ll do as an adult, so it pays to do your research. Really consider how a move will affect all the areas of your life, not just your finances. Talk to friends who own homes to find our what major repair projects they had to tackle in the first year or two as well as how it has changed their lifestyle. You may be surprised that the convenience and flexibility that renting offers may be a good fit for a few more years. Plus, you can allocate your money to reach other financial goals in the meantime.
I frequently recommend Roth IRAs to my clients as part of their retirement savings strategy. Because you contribute after-tax income, millennials who are still establishing their careers (and therefore are in a lower tax bracket) can lock in a lower tax rate on contributions now, and then pay no taxes when withdrawing money in retirement — even if you’re in a higher tax bracket.
You can always withdraw your contributions from a Roth IRA at any time — tax free and penalty free!
One thing to keep in mind is that Roth IRAs have income limits. That means you may be one promotion or new job away from no longer being allowed to contribute. Getting married can change your eligibility, too, because doing so rapidly increases your household income. For 2019, the income limits are $137,000 if you’re single and $203,000 for married couples. (If your income is close to that amount, you might be able to make a partial contribution.) If you opened a Roth IRA earlier in your career when you earned less, you may not be able to add to it now.
If that happens to you, what happens to all the money in your Roth IRA? Is it still yours? Will you ever be able to contribute again in the future? Don’t worry — you have a lot of options.
The Money Your Contribute to a Roth IRA Is Yours to Keep
Whatever happens to your income or your career, your Roth IRA is your account. The money you deposited there is still your money. No matter how much you’re earning in the future, the money you already have in the account will remain invested with the goal is to grow into a nest egg for your future self.
That’s why it’s so important to start saving early in your career, when you have a few years to accumulate a nice balance in your Roth IRA before you get a few substantial raises (by the way, don’t give up raises just to remain Roth-eligible — get the income you deserve!). Until you get to that point, don’t miss a great opportunity to have access to tax-free money in the future.
Who can contribute to a Roth IRA? (New for 2019!)
Roth income limits changed between 2018 and 2019. If your household falls within a small income window, you may be able to start contributing to your Roth IRA again. You can also contribute a little more than you could in the past.
Single and head of household limits
If you earned less than $122,000 in the previous tax year, you can contribute up to $6,000 to your Roth IRA annually. (If you’re 50 or older, that jumps to $7,000.)
If you earn between $122,000 and $136,999, you can still contribute to a Roth IRA, but the amount you can contribute is reduced on a sliding scale depending on how much you make.
Once you hit $137,000, you are no longer eligible to contribute to a Roth IRA.
These limits also apply to people who are married but filing separately, provided you did not live with your spouse during the tax year in question.
Married filing jointly
If you and your spouse earn a combined income of less than $193,000 per year, you each can contribute up to $6,000 per year to your Roth IRAs. (Again, if you’re over 50, that jumps to $7,000 each.)
For couples filing jointly, the reduced contribution window is smaller: between $193,000 and $202,999. Once you reach an annual income of $203,000, you household can no longer contribute to your Roth IRAs.
Married filing separately
If you lived with your spouse during the tax year in question but still file separately, you can only contribute to a Roth IRA if you earn less than $10,000 per year, and only on a reduced contribution scale.
If I’m Close to the Income Limits, What Can I Do?
If your income fluctuates over time, you may be able to contribute some years but not others. For example, let’s say you exceeded the income limit in 2017, but dropped to part-time work in 2018 so you could go to grad school and no longer exceed the limit. That means you can contribute once again in 2018. If your income is close to the Roth IRA contribution limits, you may be able to keep contributing by making some smart money moves.
There are a few reasons financial planners often suggest paying into a 401(k) and a Roth IRA. One of those reasons is that when you contribute pre-tax income to your 401(k), you reduce your take-home income — which could take you below Roth IRA limits.
The Magical Backdoor Roth for High Income Earners
If you’re still beyond Roth IRA income limits, there’s another way to indirectly contribute to a Roth: The backdoor Roth IRA. To do this, you open a traditional IRA, fund it with $6,000, and then convert it to a Roth IRA. However, if you have other Traditional IRA money it is generally not advantageous to do this. I only recommend this for people who have the majority of their retirement assets in 401(k) plans and very little IRA assets. Make sure you have a CPA on your team who knows how to execute it properly.
Can I Still Contribute to a Roth IRA for 2018?
You can contribute to a Roth IRA for the prior year until Tax Day. That means if you still haven’t made a contribution for 2018, you have until April 15 of this year to do so.
Remember, the money in your Roth IRA will always be yours. If you contribute to your Roth for as long as you can, then when the time comes to use it, you’ll have tax-free money waiting for you.
I’ve spoken to so many successful millennials who earn a comfortable salary and save and invest a healthy amount. Yet they still hoard cash like their luck is about to run out, or are racked with fear whenever faced with a chance to spend on something that isn’t essential to survival. They’re so afraid to spend money!
While the media is talking about millennials spending all their money on avocado toast, I work with a lot of millennials who are financially conservative. Like our Depression-era great-grandparents, we stick to safe bets, like savings accounts instead of higher-risk investing. Why do we behave this way, when we stand to benefit the most from investing because of a longer time horizon than older generations have? It’s because our money fears are deeply rooted in our personal histories.
When I begin working with new clients, one of my favorite questions is: What was money was like growing up for you?
This gives me insight into how they manage their money today. What lessons did your family teach you? Did your parents’ money behaviors match their advice? When it came to money, was there abundance, scarcity, shame, greed, obsession? My goal is to help you cut through the noise of your family history to forge your own path to happiness.
Here are some common reasons financially successful people are afraid to spend money, and what you can do about it so you can fearlessly use your money to match your values and live a great life!
You Worry About Your Job Security or Another Recession
Many of us dealt with the difficulties of starting our careers during the Great Recession 10 years ago, and it’s common to carry that trauma to the jobs you have later on. So many millennials have been laid off and switching jobs every 2-3 years is becoming part of our new normal. Many of us are full-time freelancers with variable income.
It’s absolutely normal to worry about your job security, but there are things you can do to feel more in control of your career:
Keep your skills fresh. Take on new, unfamiliar tasks at work. Attend industry conferences and classes (especially if your employer will help pay for them!). Attain certifications that will help advance your career.
Update your resume and LinkedIn frequently. Not only will you always be prepared when a job opportunity strikes, but it helps boost your confidence to see your amazing career progress in writing. LinkedIn is where recruiters hang out so while you’re busy working, other people might be helping you find your next great role.
Network. You can make valuable career connections through friends, family, former coworkers, and neighbors. Have a 30-second description of what you do in your mind in case someone at a party asks what you do. At industry conferences, make special effort to get to know a few new people and connect with others. You never know who is looking for a new hire and you might be a great fit.
Create an emergency fund. Work your way toward having cash to cover three months of living expenses if you lose your job. Deposit it into a high-yield online savings account so it’s easy to access, but not so easy that you’ll spend it on non-emergencies. If you have kids, a non-working spouse, or income that varies, try to save up six months worth. But don’t keep 100% of your money in cash — once you reach your emergency savings goals, apply other money to other goals like retirement or saving to buy a home.
You Hold Onto Dysfunctional Behaviors
Growing up with financially irresponsible parents may make you doubt every financial decision you make. Dealing with these issues isn’t simple, but the outcome is worth the work.
Go to therapy. You owe it to yourself to examine your behavioral patterns with the help of a trained professional, and to break those patterns that aren’t serving you.
Realize that your parents’ reality isn’t the same as yours. They grew up in a different time, with different money products and services. You don’t have to take their advice if it’s outdated — find a financial planner who understands current product choices like robo-advisors and ETFs.
Share less about your financial situation with your family. You’re an adult, and adults don’t have to tell everyone everything. Find money accountability buddies with whom you can set goals and celebrate your successes. You might be an active member of the FIRE movement, for example, and your family might think that’s crazy, but there are others who get you — find them.
You Think Money is Evil
It’s common to fear your money because you’ve been taught that money equals greed. But money doesn’t have a personality — it’s simply a tool. It allows you to buy the things you need to survive, but also lets you afford the things you enjoy and be generous with others.
Be charitable. Begin to see your money as a means to bring good into the world, and use some of it to support causes that are important to you. Make a plan for your charitable giving.
Spend money on meaningful experiences. Travel the world, buy a friend dinner, attend concerts and practice being generous. Use your money to create memories. One of my favorite things to do is use my travel rewards on my friends or family and fly them to Austin to visit me!
Think of the ways money has enhanced your life. Appreciate the household items that make your day easier, or your comfortable home. Practice gratitude for these physical things and wonderful experience that you’re able to afford. One of my favorite money mantras is: “I love money because I love living an awesome life!”
You Feel Guilty When You Spend Money
It’s one thing to be living paycheck-to-paycheck on six figures (this article isn’t for that guy), but it’s another thing to be making smart financial decisions AND continue to beat yourself up every time you spend money. When I first begin working with a client, the first thing I evaluate is if they’ve created a solid financial foundation.
Here are the three building blocks of basic financial security:
Eliminate high-interest rate debt. Get out and stay out of credit card debt. Figure out a plan for your student loans. I use 5% as a rule of thumb for whether or not to focus on paying down debt or increasing retirement savings. Aggressively pay off debt with an interest rate above 5% and anything under that, pay the minimum and re-route the extra money towards your retirement accounts.
Have three months of net pay saved for emergencies. Make sure that you have adequate emergency savings so that you can withstand a job loss, major home repair, or medical emergency.
Actively save for retirement with every paycheck. Make sure you’re contributing at least enough to your 401(k) or other employer-sponsored retirement plan to get your employer match, and then max out a Roth IRA if you qualify. As a rule of thumb, aim to contribute about 15% of your income towards retirement. Make sure you have an asset allocation on your retirement accounts that matches your age, time horizon, and risk tolerance.
If you’ve checked the boxes on these three things, it’s time to let go of the guilt. You’re doing a good job and it’s getting you 80% of the way there. Yes, there are certainly other things you can do to improve your situation, but that’s where working with a financial planner can be helpful, especially as life events complicate your situation (getting married, starting a family, buying a home, starting a business, etc.).
You Can Conquer Your Money Fears
There’s so much freedom in taking back control of your life! If the thought of spending or managing your money gives you anxiety, seek help from a licensed therapist. If you’ve already created basic financial security, it might be a great time to hire a financial planner to help you reach other money goals and let go of the fear of spending money.
As you start to align your spending with your values there will be less of a disconnect between your money and what’s important to you, and you can start to experience a balance between living a life you love and creating a plan for your future self.
Whether you’re the recipient of a trust fund or you’re setting one up for the benefit of someone else, it’s important to understand the basics of how trusts work. Trusts can be complicated, but they’re also helpful estate planning tools that allow people to pass their wealth down, while in many cases bypassing the expensive and time-consuming probate process.
Keep in mind that I am not a lawyer and this post is for informational purposes only. Also, trusts are state-specific, so it’s important to reach out to an estate planning attorney in your area for your specific estate planning needs.
What Is a Trust Fund?
A trust fund allows a person (the grantor) to set aside assets like cash, investments, real estate, and life insurance for the benefit of one or more beneficiaries. The trust is managed by a trustee, who can be a professional (financial institution, attorney, or financial advisor) or someone the grantor knows personally. Professional trustees are paid for their management services out of the trust.
The grantor works with an estate attorney to select the terms of the trust: Will assets be distributed to beneficiaries while the grantor is still alive, or after they pass away? Will the grantor maintain the right to continue making changes to the trust, or will they give up all ownership of the assets placed into the trust? Will the trust pay out a certain sum of money to charities in addition to a beneficiary?
These decisions all affect whether or not the assets in the trust are considered part of the grantor’s estate when they pass away, and whether or not they’d be subject to estate taxes as a result.
There are two types of trusts with important qualities that affect the grantor’s control of the assets in trust, as well as the tax ramifications to the grantor’s estate:
Revocable trusts allow the grantor to keep control over the assets in the trust and change beneficiaries. They can even undo the trust entirely! The grantor can also name a successor trustee to manage the trust for them if they become incapacitated. However, the grantor is still considered the owner of all the assets, so when they pass away, the assets are subject to estate taxes. Also, if they die with debts, the assets may be used to pay those debts off.
Irrevocable trusts can’t be undone by the grantor, who can’t make any changes to the trust terms or the beneficiaries once it’s created. The grantor is no longer the owner of assets placed into an irrevocable trust, so they wouldn’t be subject to estate taxes when the grantor passes away, and creditors can’t go after those assets to pay off the grantor’s debts.
Both revocable and irrevocable trusts avoid probate. Keep in mind that this is just a high-level explanation. There are different types of trust within these two types, and some revocable trusts become irrevocable upon the grantor’s death. That’s why working with an estate attorney in your state is so important!
One of the big choices to make when setting up a trust is deciding how the assets should be paid out. Here are a few of the main ways a beneficiary can receive their trust fund assets:
Receive the Trust All at Once in a Lump Sum (or a Few Large Payouts)
The most straightforward way to come into a trust fund is to get all of the assets at once. The grantor may stipulate that the beneficiary receive the assets when reaching a certain age or life milestone (such as turning 30 or graduating from college).
Another way to receive money from a trust is in several large payouts. For example, if you are the beneficiary of a trust, some of the proceeds may have been used to pay for your college. Then the rest of the money might be paid out over the next few decades. I’ve seen clients have the following set up: at age 25 they receive 25% of the trust, at age 30 another 25%, and at age 35 the remainder of the trust.
Getting a large amount of money or investments at once can be a blessing and a curse. On the one hand … you get a lot of money! On the other, figuring out what to do with so much money (and any emotions that come along with it, depending on your relationship with the grantor) is not easy. I’ve had quite a few clients have conflicting feelings about inheriting assets. It can be helpful to work with a financial planner to figure out how to honor this money in a way that makes sense for you in your current life stage, as well as setting aside a portion for your future self.
Receive Smaller Payments From the Trust Over a Period of Time
The grantor may divide up the trust fund payout into even smaller increments. One example would be a monthly payout from the trust for the rest of your life. Often times, trustees are able to distribute trust assets to beneficiaries for “general well-being.” One distribution method is so common it is often referred to as “HEMS”, which stands for: health, education, maintenance, and support.
Grantors may choose to dole out many smaller payments to beneficiaries instead of one large one as a protective measure. Maybe they worry the beneficiary will blow through a large trust fund payment quickly, or they don’t want the beneficiary’s spouse to have a claim to half the money should they get divorced.
For the grantor, the upside of structuring trust payouts in this way is that you help the beneficiary treat the trust as more of a source of income than a windfall. The downside is that the trust will need to be managed by a trustee for a longer time, which adds to the administrative costs of the trust.
How Trust Fund Payouts Are Taxed
How a trust is taxed depends on how it’s structured. First, it helps to understand the sources of trust payouts: the principal and the income. A trust’s principal is the value of the original assets — the cash deposited or the price paid for the investments, for example. The principal may generate an income in the form of interest paid on the principal.
Simple trusts may not hold onto the income earned by the principal, so they must distribute that income to beneficiaries (you can’t distribute the principal — also called the trust corpus — or pay money out of the trust to a charity). Complex trusts may hold onto earned income, distribute income or principal to beneficiaries, and make distributions to charitable organizations.
I turned to Catherine Moseley, a CPA in Ohio, for some expert advice on how trusts are taxed.
“Well, the answer is, ‘it depends,’” she said. “How the trust funds are paid out, be they principal and earnings (interest, dividends, capital gains, other, etc.), depends on the dictates of the trust document. Some are written that the trust will pay the income taxes, but most are silent on this issue. In that case, the trustee makes the decision as to if the trust or the beneficiaries will be liable for the income tax payment.”
If the beneficiaries are liable to pay taxes, anything they receive from the trust is taxed at their income rate. If the trust pays the taxes, the trust is taxed at trust income tax rates.
For 2019, the estate tax exemption is $11.4 million per person, up from $11.18 million in 2018. For a couple, that amount doubles to $22.8 million. That means that you can inherit up to that amount as a beneficiary before owing any federal estate tax. However, you may be subject to a state estate tax in your state since those amounts are usually much lower.
I’d Like to Set Up a Trust. What Do I Do?
As you can see, there are many options available when it comes to creating a trust. If you’re considering setting up a trust, consult an estate attorney in your state. Do not try to use an online solution for complex estate planning needs. A trust will allow you to avoid probate when you pass away. If you don’t have a trust and you die, your assets could be subject to probate, which means that they become public knowledge. A trust can help protect your legacy while giving your loved ones privacy during a difficult time.
If you’ve begun to receive payouts from a trust, it’s an excellent time to work with a financial planner. They can help you apply a lump sum of money toward your big goals like paying down debt or buying a home, or help you adjust your budget to accommodate monthly payouts from a trust.
More and more, I work with clients who are interested in the FIRE movement (which, if you haven’t heard of it, stands for Financial Independence, Retire Early). Countless blogs, websites, and podcasts are dedicated to FIRE, sharing the stories of how people penny-pinched their way to freedom from The Man.
My friend Paula Pant interviewed Suze Orman and asked for her opinion of the FIRE movement. Orman stated she hated it and went into great detail about why, but later amended her opinion when she looked more deeply into the movement and learned that, for many people, it doesn’t mean they save up $1 million by 30 and then stop working completely for the next 60 years.
One of my roles as a financial planner is to help clients envision their ideal retirement scenario and then help them simplify, streamline, and automate their finances in order to get there. And with careful planning and aggressive saving, retiring early becomes possible. But just because it’s possible, does it mean it’s also a good idea?
Spend five minutes Googling the FIRE movement and you’ll find articles passionately defending it, and just as many telling you why retiring early is a horrible idea. I prefer to look into the possibility of early retirement on a person-by-person basis, because what’s right for you isn’t necessarily what’s right for your friends, siblings, parents, or coworkers. What should you do? Before you decide anything, it helps to understand what the FIRE movement is about.
Why FIRE? Why now?
Unlike our parents’ generation, today’s 20- and 30-somethings don’t expect to (or don’t want to) work for the same company for their entire careers. Frankly, many companies aren’t loyal to their employees. The worker-friendly benefits and union protections enjoyed by previous generations have been dramatically reduced. While many newer companies are adopting progressive benefits like free health insurance, unlimited vacation time, and long parental leave, those benefits often aren’t extended to contractors or part-time employees.
What we have here is a combination of social and economic issues that are making many of today’s younger workers reconsider a traditional career path. Sometimes that means leaving a full-time job to start your own company, switching to freelancing for one or more clients, or figuring out a way to no longer need a job to support yourself.
So … people just stop working? How does that work?
Not exactly. Some of the most well-known FIRE movement proponents often have income coming in. Some of them have a spouse who still works, or they’ve found a way to monetize their blogs, podcasts, or other business ventures. They may have passive investments like real estate that are cash-flow positive.
Point being, they generally don’t clear out their cubicles before their 40th birthday and then do literally nothing for the rest of their lives. Humans are designed to work. I heard Joshua Becker speak at a minimalist conference and he said something that stuck with me: “There is this myth that leisure is the goal.” Most people get bored of a life of leisure and what we really desire is meaningful work.
Instead, think of the FIRE movement this way
Proponents of FIRE prefer to emphasize the “financial independence” part of the movement. It’s not so much about the stereotypical image of retirement, where you spend all day on the golf course. Rather, you spend your working years saving enough so that you don’t have to rely on a steady paycheck to support yourself. This frees up your time to pursue things that interest you — and that can include things that earn income.
Transitioning into more meaningful work is key. I have a handful of clients who are in their 30s with net worths around $1 million. Although they could quit their jobs, take their money and retire on a low cost-of-living island and live off of $25,000 per year, most of them enjoy living in a big city in the U.S., are active in their communities, and want to be near their friends and family. They are not looking to check out of their lives completely, but they do want to get out of the rat-race sooner rather than later so they can focus on projects and ventures that are important to them.
What does it take to reach financial independence?
Whenever I work with someone who is interested in FIRE, here’s what I suggest:
Eliminate your debt and start aggressively saving!
Keeping up with the Joneses is expensive. New cars, big houses, private school tuition for the kids, and annual ski trips are awesome if you want and can afford them, but they’re going to make it tough to save, especially if you don’t earn enough. Even high earners can end up living paycheck to paycheck just to support the outward appearance of success.
If you want to attain financial independence, you are going to have to pick and choose so you can save more aggressively. Often this means saving 25-50% of your income. We’re talking about living well below your means, not just saving 10% off your income.
That could mean driving older cars or trying to get by with one or no car. It could mean living in a smaller home, or maybe even renting a home if that makes more sense for you. It could mean prioritizing your retirement savings over saving for your kids’ college educations because they can borrow for school, but you can’t borrow for retirement.
Maximize your tax advantaged accounts
Invest in a 401(k) (take advantage of that employer match!) as well as in a traditional or Roth IRA (if you qualify). If you make too much money to contribute to a Roth IRA, here’s a post for you. If you’re self-employed or have a side-hustle, consider setting up a SEP-IRA or Solo 401(k). Once you’ve set these accounts up, work to max them out.
If you have a High Deductible Health Plan (HDHP) that qualifies for a Health Savings Account (HSA), max this out as well. This is one of the only types of accounts that has a triple tax benefit. Learn more about hacking your HSA here.
Don’t just save. Invest!
A savings account earning at least 2% interest is a safe place to deposit money you’ll need in the short term and you’re going to need emergency savings of at least 3-6 months of expenses. After paying off debt, building up emergency savings, and maximizing your retirement accounts, you’ll be ready to open a taxable brokerage account.
If you really want to retire early, you’re going to need start investing every month in a taxable brokerage account so that you’re building up assets outside of your retirement accounts. Many retirement accounts cannot be accessed without penalty until age 59½, which is why having this type of investment account will give you money to tap into before you reach an age where you can withdraw from retirement accounts.
What could throw off a plan to retire early?
Factors beyond your control can eat into your savings:
Health issues: Unfortunately, getting seriously ill is expensive. It can be really hard if you’re on a high-cost, high-deductible insurance plan because you no longer have insurance subsidized through an employer. What can you do to prepare as best as you can?
Consider a high-deductible plan with a Health Savings Account, or HSA, if you’re eligible. This will allow you to set aside pre-tax income and withdraw it tax-free later on for qualified medical expenses.
Practice preventative health care. See your doctors regularly, exercise, eat well, and quit smoking. Exercise, meditation, and yoga can also help reduce stress, which can cause or exacerbate health issues. Living an active lifestyle will save you thousands of dollars in avoided medical issues in the future.
Family emergencies: Sometimes, a loved one goes through a difficult time and needs significant financial help. If you’re in a position to assist, here are some ways to do that without compromising your financial security or your relationship with that person:
Give gifts, not loans. It’s better for your relationship to just gift money you can afford to live without, rather than expect repayment and never receive it.
Know when to say no. If you genuinely can’t afford to help, or giving money just enables a bad situation like a drug or gambling addiction, it’s okay to turn down the request for money. (I give my clients permission to “throw me under the bus.” Tell your family member it’s your financial planner who says that they have to stop giving you money, not you.)
Market uncertainty: The stock market is volatile right now and we may see an increase in volatility over the coming years. Should you sell everything and hide? No! Here’s why:
A long investing time horizon smooths out short-term market highs and lows. That makes investing a more appropriate choice for money you don’t need for at least five years.
You can dollar cost average into the market if you continue to invest, regardless of whether or not stock or bond prices decrease or increase.
Timing the market and making frequent trades will actually lower your investment returns. So will making investment choices based on fear.
If all of this investing talk still scares you, I highly recommend this podcast episode in which Tim Ferriss interviewed Terry Mallouk of Creative Planning. In it, he explained the importance of staying in the market as opposed to trying to time the market, by basically saying that he hasn’t seen anyone time the market successfully.
I’m sold on FIRE. How do I begin to plan?
One thing I notice about people who aspire to retire early is that they tend to be extreme savers. If saving 10% of your income sounds like a lot of money to you, you’re probably not ready for FIRE. But if you’re already saving 25-50% of your income, you’re likely on your way to FIRE. However, you should think about hiring a fee-only financial planner who can help you select low-cost index funds that appropriately match your investment goals.
You don’t need to be a millionaire to get professional financial help! If you’re interested in early retirement and would like some guidance when it comes to your investments, apply to become a client of Gen Y Planning today! We’d love to help you use your money to match your values and retire early!
I regularly assign my clients money-related homework assignments, and I’ll be the first to tell you that it’s hard to deal with your money. I struggle, too! (That’s why I hire a financial planner myself.) I also try to help my clients knock out a few tasks during their meetings so they feel accomplished after our calls.
Even when you know it’ll only take a few minutes, or that it’s a smart move, or that you’re taking risks by procrastinating … you’d rather do literally anything else. It’s why people frantically clean their house when they have a work deadline. It feels good to make any kind of progress, even if it’s not actually the kind of progress you need to make right now.
Sometimes you do make progress with your finances, but it’s not the most optimal progress. We have lots of money choices to make — save or pay off debt?Roth IRA or 401(k)? — and sometimes we talk ourselves into taking the wrong action for our personal situation.
Here are some of the ways I see people putting off dealing with their money, and what to do instead:
You put off paying down debt to invest your money elsewhere
No one wants to miss out on a hot stock tip. I frequently hear of people with debt, especially high-interest credit card debt, getting by on making minimum payments while allocating other money toward investing.
Here’s the thing: any dollar you put toward the principal on a debt will earn you a return equal to the debt’s interest rate. So if you have a credit card charging 20% APR, paying down your debt earns you a 20% return! You’re likely not going to see returns like that on your investments.
If you have low-interest debt, like a mortgage, you can tackle both debt repayment and investing at once because in the long term, you’ll ideally earn higher returns on your investments than the interest rates you’ll pay on debt. But get rid of that high-interest debt before you start investing!
You put off contributing to your 401(k) to invest in a taxable brokerage account
You’ve made it! You’re earning a comfortable salary, contributing enough to a 401(k) to get your full employer match, maxing out an IRA, and you still have money leftover to invest. Pat yourself on the back!
Before you open a taxable brokerage so you can start investing outside of your retirement accounts, consider maxing out your 401(k) first. Beginning in 2019, you’ll be able to contribute up to $19,000.
Why focus on the 401(k)? The money you contribute is pre-tax, meaning you can lower your taxable income now, while you’re earning more. You’ll owe income taxes on withdrawals when you’re retired, but you’ll likely earn less at that point if you’re no longer working, so you’ll pay less tax on that money in the future.
Here’s an example to show you how much you can save. Let’s say a married couple earned $200,000 in 2018, filed jointly, and each contributed the 2018 max of $18,500. They’ll pay $8,360 less in taxes than if they hadn’t contributed at all! What if they each contributed $10,000 and put the rest of that money into a taxable brokerage? Their tax savings would drop to $4,620.
You put off hiring a financial planner, accountant, or other professional
Why pay someone to do something you can do yourself? Because bringing in the pros will actually save you time and money in the end. Your time is has monetary value, and financial tasks like doing your taxes and mapping out your financial plan take a lot of time.
Financial professionals often end up paying for themselves, not just in saving you time, but also in helping you identify ways to save on expenses and taxes. They can run projections that will let you know when you can realistically retire, how your tax burden may shift as your situation changes, and more.
Ultimately, I want to help you use your money, to match your values, so you can live an amazing life. If you’re ready to work with a financial planner, I’d be happy to help! Apply to work with Gen Y Planning.
You put off, well, everything … because you just don’t have the time
Not only is your time worth money, it’s also hard to think long-term when so many short-term tasks are staring you in the face. Your dishwasher is leaking, your child forgot their lunch this morning, your electric bill is due, and you need to stress-clean your house before a judgemental family member visits for the weekend. Who has the time to think about taxes, investments, budgeting, and negotiating a lower cable bill with so much on their to-do list for today?
It can help to break down big financial goals into smaller, more attainable tasks. A nebulous goal like “start investing” is never going to get accomplished. However, you can easily open a brokerage account online in just a few minutes (I’m a fan of Vanguard, Schwab, Fidelity, Ellevest, and Betterment). Then tomorrow when you have a few more minutes, link your checking account to your new brokerage so you can transfer money in to invest. Then, another day, choose one or two low-fee index funds to allocate your investment dollars to.
So, when is it time to deal with your money?
Any time you experience a life change, it’s time to reevaluate your finances. Deal with your money when:
You switch jobs or lose your job: New jobs mean new employee benefits to select, and losing your job means you’ll need to adjust your budget until you earn an income again.
You get engaged, married, or divorced: Any time there’s a change in who you share expenses with, your financial situation is going to change. Divorce especially can have huge ramifications for your money.
You have a child: Suddenly you need to factor in child care, college savings, and a bigger house. Plus, it’s important to create a will so you can name guardians for your child.
You receive an inheritance or settlement: Coming into money suddenly is the perfect time to begin working with a financial planner, estate attorney, and accountant.
You get promoted: A bigger salary makes lifestyle inflation way too easy.
You start your own business: There are lots of financial and tax issues to consider when you start a company.
Holiday donation drives are in full force, and you may be considering how to allocate any spare amount of money you can give toward causes you care about. I often discuss charitable giving with clients, because believe it or not, it’s an important part of an overall financial plan. If you want to read more about one of my favorite charities, you can check out this article from Financial Planning Magazine!
You probably often hear that donating to a charity is also good for the donor because it’s a tax deduction. Well, it may be, but it depends on a few factors and due to the increase in the standard tax deduction, fewer people will actually lower their tax bill by giving to charity. It’s true that charitable giving can provide you with helpful tax benefits, but if one of your goals in giving is to do so in a way that lowers your taxable income, you need to be strategic about how you give.
When Can You Get a Tax Deduction for Giving to Charity?
It helps to understand how taking a charitable deduction works and why it may not be worth it for your personal situation. To take a charitable deduction, you must itemize your deductions when you do your taxes, instead of taking the standard deduction — and itemizing isn’t for everyone.
The new tax law that came into effect for the 2018 tax year nearly doubled the standard deduction to $12,000 for individual filers and $24,000 for married people filing jointly. That makes it less of an advantage to itemize even for those who typically did it before (like homeowners, parents, or people who give large donations to charities).
Fun Tax Tip: Itemize Every Other Year
If you plan to give generously but won’t exceed the standard deduction amount, you won’t take tax deduction for your donations because taking the standard deduction would be a better choice for you. But by adjusting the timing of your giving, you can get that tax deduction after all.
How Would This Work in Real Life?
Let’s say a married couple donates $15,000 every year. In 2017, they would have itemized their deductions because the standard deduction used to be $12,700 for married filers. But the standard deduction is now higher than the $15,000, so it wouldn’t be necessarily be worth it to itemize, instead they would claim the standard deduction of $24,000.
That would look like this:
2018: Donate $15,000
Take $24,000 standard deduction for 2018
2019: Donate $15,000
Take $24,000 standard deduction for 2018
Total deductions for 2018 and 2019: $48,000
However, what if the couple bunched their annual donations and then itemized every other year? It would look like this:
January 2019: Donate $15,000 (their gifting for 2018)
December 2019: Donate another $15,000
Take $30,000 itemized deduction for 2019 + any other itemized deductions they have.
2020: No charitable giving
Take $24,000 standard deduction for 2020
Total deductions for 2019 and 2020: at least $54,000!
This couple would still donate $30,000 to charity, but by timing their donations to fall in the same tax year and only itemizing for that year, they would be able to deduct at least $6,000 more than if they had given the same amount of money over two different tax years.
How Else Can You Give to Charity in a Tax-Advantaged Way?
You can gift assets besides cash to charity, and doing so may allow you to save on taxes (which means more of your assets go to a good cause instead of paying taxes!). There are two ways to donate that I’m a big fan of:
Donating Appreciated Securities
If you’ve owned shares of stock, a mutual fund, or other security for more than a year, those securities are considered “appreciated” — if you were to sell them today, you’d owe the lower capital gains tax rate (15% for most people) on the gain, instead of your higher ordinary income tax rate.
If the value of your securities has increased, you can simply donate the appreciated securities directly to the charity and you won’t have to pay capital gains tax. The charity gets 15% more of the value of your donation and you get to deduct the value of the securities at the time you donated (if you itemize your taxes).
This is my favorite way to give to my alma mater every year! I started a Theatre Scholarship in my name a few years ago and each year I look at my investments and donate the ones which have appreciated the most.
Donor Advised Funds (DAF)
This special type of account allows you to set aside cash or appreciated securities to eventually give to the charities of your choice. This will give you time to accumulate funds while you decide where you want your donations to go. It’s also a great place to put stock or investments that have a really low basis (i.e. inherited stock, employer stock, etc.).
You receive a taxable deduction in that year that you move cash or investments to the DAF based on the Fair Market Value of the securities when they’re moved into the DAF. If you have highly appreciated stock that you want to donate before the end of the year, but you’re not sure which charities you want the money to go to, set up a DAF and move the money there.
Any money in the DAF can be gifted to charities at any time and over multiple years. I have a client who received an inheritance and made a large contribution to a DAF and then has monthly distributions set up to 10 different charities. This makes it easy to track for tax purposes as well. You can also invest a portion of the money if you know you won’t be giving it all away over the next few years.
You can open a DAF through a discount brokerage firm. My two favorites are Vanguard Charitable and Schwab Charitable. Vanguard has the lowest fees for investment options but a high $25,000 minimum to set up the account, while Schwab’s minimum is only $5,000 to open an account.
Using a DAF makes it easy to itemize every other year! You can put assets into the fund in the years you intend to itemize, but then donate from the fund even in the years that you don’t itemize since you get the deduction when you make the contribution to the fund (as opposed to when you donate directly to the charity).
When to Seek Professional Advice
It’s important to talk about the tax ramifications of charitable giving with a professional, especially when you plan to donate very generously. I recommend working with a financial planner, tax professional, or both to create a plan for your donating.
I’m a huge proponent of using your money to match your values so you can live your ideal life and help others along the way. If you’d like to begin gifting money to good causes but want to create a plan to do so, I’d be happy to help!