(clapping)
What is your philosophy on tax refunds, in general?
Well, if you buy a shirt, and you take it back,
and they give you a refund--
Right.
you don't celebrate,
'cause you know it's your freaking money.
(laughing)
Right.
Guess what?
If you overpay your taxes,
Right.
And they send you some money in April,
it's your freaking money.
Right.
You don't celebrate, I know Santa Claus personally,
he does not live in Washington D.C..
That's right.
(laughing)
And so this money is yours, it came back to you,
you loaned it to the government
interest-free all year long, dumb, stop that.
Okay, so how do you make sure
you don't get a giant tax refund?
Well if there's no big changes in your life,
it's really fairly easy,
if you didn't have a baby, or you didn't get married,
or you didn't buy a house, no big changes.
And let's say you got a pretty typical refund, maybe $3,000.
You got a $3,000 refund--
Right.
what we've gotta do, is just go into payroll
and go guys, that's $250 a month,
and if I get paid twice a month,
then that's $125 on the 1st and the 15th,
I need to bring home that much more.
Adjust my take home pay by this much.
You can't really use the IRS tables
because they suck, they don't work.
Right.
The dependents are wrong, it doesn't work that way.
If you've had a bunch of changes,
just have your tax professional
actually do your taxes ahead of time,
like a year in advance--
Oh that's so cool.
And then you just take that tax amount--
That's brilliant!
and have that taken out of your check.
That's brilliant!
'Cause the goal is to be at zero!
(clapping)
Now, say they've already got their own money
in the mail, most people that I know
think about a tax refund as a bonus.
Yeah.
They think oh--
Vacation!
Right, they think vacation, or if it's smaller,
drinking night, you know what I mean?
It depends on how much you're getting--
Or how much you're drinking.
300 versus 3,000, or how much you're drinking, exactly.
So what do we do, if we already have a check in the mail?
Well, we teach folks,
and we've talked about on here before, The Seven Baby Steps.
Anytime you get money from anywhere,
we're gonna work down these baby steps,
the first one is you put $1,000 aside
as a starter beginner emergency fund.
Once you've done that--
Yep.
then we're gonna pay off all your debts,
except your house--
That's a big one!
using the medicinal ball, knocking that out,
we've talked about that on here before.
Once that's done, we're gonna go back
to that rainy day fund of $1,000,
raise it up to a fully funded,
grandma's rainy day fund, three to six months of expenses.
Right.
Then we would start investing,
15% of our income into retirement.
So you've got no payments at that point,
you've got your emergency fund in place,
we're starting to put 15% away,
let's camp there for a second.
Because people always ask me, now how do I do that?
How do I put 15% away?
A good way to remember it,
it's kinda like rock, paper scissors.
How many of you got a match 401k at your house?
Oh yeah.
You got matches?
(clapping)
Okay, if you've got a match, match always wins,
'cause that's 100% return on your money
before anything happens.
That's right.
You'll always take that.
So match is first, Roth is second,
'cause Roth grows tax-free,
everybody say tax-free!
Tax-free!
You don't get to say that very often!
(laughing)
Roth is a big deal, and then once we do Roth,
we move onto a traditional 401k, or traditional IRA.
So the way it might work,
so let's say we had a 3% match,
a lot of people have 3% match,
so out of our 15%, we're gonna put three
of our 15% into the match.
Gotcha.
Now what're we gonna do?
We've still got 15% to go.
Well, we've got some Roth IRAs we're gonna do.
If you've got a Roth 401k, you can do it there too.
Oh, yeah, cool.
About seven out of ten of the 401ks are now Roth.
Roth, Roth, Roth, 'cause it's tax-free,
and we're gonna go ahead and put nine into that.
Now you can put $6,000 a person into a Roth IRA,
or if you've got a Roth 401k,
you can put up to $19,000 in there.
Wow.
So we're gonna load that up.
But let's just say we maxed out there,
and we've still got some money left.
We still didn't use our whole 15%,
let's say your 401k was a traditional only,
then you might go back to that 401k,
and do some traditional investing, as well.
So, match is first, beats Roth.
Roth is second.
And then we go to traditional.
It really is rock, paper, scissors!
(clapping)
Give us one for the road, one big one, one final tip.
If you make over $200,000, married, filing jointly.
Yeah.
Or you make over 150 as a single,
you don't qualify for a normal Roth IRA,
so you can do what's called a backdoor Roth,
if that's the case.
Like my wife, Sharon and I, we do those.
All that is, is you open an after-tax IRA,
and instantaneously roll it into a Roth.
And you can do that, regardless of your income.
Wow.
It's a loophole in the law, some day it'll be closed,
but right now, you can still do it.
Isn't he brilliant?
(clapping)
(cheering)