Preparing for Recession

How do you forgive a dead man, particularly when he's your grandfather? I'm Brian Dolan, and in a brand new podcast called The Grandfather Effect, I hope to find out. Head over to The Grandfather Effect and subscribe today.

Today's version of MoneyWise Live is prerecorded, so our phone lines are not open. Go to the ad, consider her ways and be wise. She prepares her bread in summer and gathers her food in harvest. Hi, I'm Rob West. Proverbs 6 tells us that we must be prepared for whatever lies ahead. I'll talk about what that means for your investment should we enter a recession.

Then we have some great questions lined up for you, but don't call in today because we're prerecorded. This is MoneyWise Live, biblical wisdom for your financial decisions. Well, first off, we must always put our trust in the Lord to provide for our needs. Joshua 1-9 is a favorite of mine and a powerful reminder. It reads, Have I not commanded you? Be strong and courageous.

Do not be frightened and do not be dismayed, for the Lord your God is with you wherever you go. That said, we must also do our part preparing as the ant does for possible hard times ahead. And there are increasing indicators that the economy may be heading into a recession. Well, in one sense, we're always heading into a recession because they're inevitable.

We just don't know when the next one will come. But plenty of economists are now predicting that the US will enter a recession this year for several reasons. The war in Ukraine, interest rate hikes, decreasing economic growth, and, well, skyrocketing inflation. Investors have listened to these dire predictions. A CNBC survey showed that 81% of us now think we'll see a recession in 2022.

A Reuters poll revealed that 40% of economists think recession will hit within two years. So what does that mean for your retirement portfolio? Well, investment advisors are weighing in with their advice, and it's interesting to note that much of it is what we say here every day. First starters, think beyond the next recession whenever it may come. Have a long-term investment plan and stick with it.

Recessions are always temporary and market downturns are as well. Trying to predict or time the market is difficult for the smartest brains on Wall Street. Consider all the managed funds that do no better than index funds and sometimes much worse.

A study by the American Enterprise Institute showed that from 2011 to 2020, investing in an S&P index fund yielded three times that of the average hedge fund. Now, what should your long-range investment plan look like? Well, first, it should be based on your time horizon. When is your best estimate for retiring?

Ideally, you want that date to be at least 10 years out. Here, a target date fund can be a big help. These are mutual funds or exchange traded funds, ETFs, that rebalance your portfolio periodically, shifting to more conservative investments as you near your retirement date.

Robo advisors do much the same thing. They're digital platforms that use algorithms to manage your investments without human supervision. Another key part of your long-term investment plan should be dollar cost averaging.

That simply means you contribute a set amount to your retirement account every pay period, no matter what. That means when the market's up and shares are expensive, you buy fewer of them. When the market's down and shares are cheaper, you buy more of them. Then when the market recovers, well, those additional shares you bought will increase in value right along with it. But if you sell during a recession, you lose out and lock in your losses.

If you feel you must tweak your portfolio, the time to do it is before a recession hits, not after. In that case, you might look at what are called safe haven investments. These would include some cash and short maturity bonds.

And right now we'd recommend I bonds. They're adjusted every six months for inflation and currently are yielding nearly 10%. You can't redeem them for a year. And if you cash them in before five years, you'll lose a few months interest. But in this current inflationary period, they're tough to beat. Gold would be another safe haven investment and a hedge against inflation.

In theory, it moves opposite of the market, but not always. For that reason, gold should be a very small part of your portfolio, no more than five or 10% in my view. If you're not using a robo advisor or a target date fund, you have to decide what the other 90% of your portfolio will be. Here we look to Ecclesiastes 11.2, give a portion to seven or even to eight for you do not know what disaster may happen on the earth. Your portfolio should be well diversified to weather a recession without serious losses.

Assets would include some index funds, say fixed income securities like the I bonds I mentioned and perhaps even real estate or real estate investment trusts. Well, taking these steps should get you through the next recession whenever it comes with peace of mind. You're listening to MoneyWise Live and you can find us online at MoneyWiseLive.org. However, today we're not live. So if you hear that phone number, please don't call, but do stay with us.

There's lots of great information ahead. Welcome back to MoneyWise Live. Thanks for being along with us today. Hey, our team is taking some time off. We're away from the studio, enjoying time with family and friends. So don't call in, but we lined up some questions that I know you'll enjoy. So let's head right back to the phones. Anniston, Alabama. Hi Stanley, how can I help you, sir?

Hey Rob, thank you and thank you for your show. Me and my wife, we're not in our sixties yet. My wife retired in May and she's going back to work part-time and I work a regular job. We have life insurance policies for ourselves and our kids. We kept them in case something happened to them. We'd have money to be able to bury them and then maybe some extra money to give to the family.

We're blessed that one of our children was able to get their own life insurance. So we cashed hers in. All of them have cash value too. And if we cashed them in, we can get that money. Well, when I cashed it in, they told me that I could have it taxed since it hadn't been pre-taxed. And I'm a little confused about that. I feel like it was already pre-taxed, but then again, maybe it wasn't. That's one question because what we want to do is since she's retired and we're debt-free now, we want to cash our policies in and take that money that we received and invest it somewhere and the premiums that we would have been paying to invest them as well.

We just don't know where to invest them for the best yield. And so can you help me with those two questions? Yeah. So this is cash value, life insurance, whole life. Is that right? Yes, sir. Okay.

Yeah. So the way that works is, you know, what's taxable is that portion beyond your cost basis, which you've paid into it. So because they don't withdraw the taxes as it's growing over time, as you take it out, you have a taxable portion beyond what's called the policy basis. And so they should be able to give you that amount.

And then you would pay income taxes on that amount over and above the basis. But I agree with you, I like the idea of you getting whatever death benefit you need as pure term insurance, low cost, and then doing your savings separate and aside from an insurance policy. So, you know, if you're not looking for guarantees and, you know, you're not completely risk averse, you're going to get more upside potential with less fees and more flexibility. If you do your investing and saving outside of that, then based on your age and goals and objectives, I'd be looking to use a stock and bond portfolio to do that. You know, where you'd either use high quality mutual funds or an advisor or a robo advisor, depending on kind of, you know, whether you're looking for a passive or active approach and the amount of money, you know, you have to invest. But give me any follow up questions you have just on what I shared.

Okay. Would it be better on back on the life insurance policy for us to pull it all out and us pay taxes at the end of the year or they offer where they'll pay the taxes for us out of it? Would that be best or would it be better to let them go ahead and do it? Yeah, I'd talk to your CPA about that, you know, just to see what would be the best option. You know, the benefit of them doing it is, you know, that money's withheld. You don't have to worry about whether or not, you know, you've got it available when the tax time comes. And if there's, you know, estimated payments that need to be made, you know, they'll go ahead and send that right in immediately. And so, you know, you won't have any penalties or interest if you hold that and wait and pay it all at, you know, the time you file the return. But if you'd rather kind of be in control over that money, then I would just check with your tax preparer to say, based on whatever taxes do, do you need to pay it in in advance, you know, on a quarterly basis as a quarterly estimated payment?

And if so, you know, how much do they recommend that you send in? So I don't have a preference either way. But if you're going to take that on yourself, I'd get some professional advice on it.

Okay, thank you. And you saying stocks and bonds is the best way to go right now? I would be at my age right now.

I'd be very conservative. Okay, what is your age? I'm 58. Okay. And what are you looking to invest? How much do you have right now? And what would you be adding to it? Oh, well, we want to invest this money when we cash it in. And then we'd be adding probably, we're looking at about $10,000 cash that we'd like to invest. And then probably on a monthly basis, something like another $1,000 every month. Okay. And this is money you don't plan to touch for at least 10 years? I would say more like five. Okay.

Yeah. You know, I'd probably connect with our friends at soundmindinvesting.org. I think they could help you with the strategy. You could also use a robo advisor like the Schwab Intelligent Portfolios or the Vanguard Advisor or Betterment, any one of those three.

And they'll ask you a series of questions and then using a computer algorithm based on the answers you provided about your age, your risk tolerance, your goals and objectives. They'll build an ETF portfolio of ETFs that are basically indexes indexed to both stock indexes as well as bond indexes. So, you know, you'll capture the broad moves of the market in a portfolio that's tailored to your age and objectives, but it'll be very low cost, you know, less than half a percent a year. And as you invest that $1,000 a month, it'll automatically be reinvested and there aren't any transaction costs.

You'll just have that one fixed cost of probably a quarter of one percent. So I'd check out Betterment. The Schwab Intelligent Portfolios or Vanguard Advisor.

You can read some reviews on them at nerdwallet.com. But that would be a great place for you to be investing moving forward. And then I just check with your CPA with regard to the taxes on the life insurance. And Stanley, appreciate you listening and calling, sir. All the best to you in the days ahead. North Port, Florida is where Marie is. Hi, Marie, how can we help you? Hi, Rob. Thanks for taking my call.

OK, here's the scoop. I'm 65 years old. I bought a home in twenty nineteen at one forty two five. I have a balance of of ninety thousand, a little bit less than ninety thousand from the inception. I've got four hundred thousand, I mean, sorry, four hundred a month, you know, on the principal. I put a what, 20 percent down so I don't have the PM, the PMI, you know, on the house. Yes, I have no other debt. I have an emergency fund of ten thousand. And my question is, too, I have a sixty thousand dollar in savings and I'd like to know if it's advisable to place that sixty thousand on the balance of this loan. And, you know, just knock it down, because, as I said, my age and retirement, I have no retirement investment except maybe six thousand.

Yeah, no, I see. OK, and so are you living, Marie, on Social Security? No, no, I'm still working full time.

OK, how long do you plan to keep working? Well, that's kind of where my I'm leaning. I'm I mean, I'm in good health. I was looking at so 70. But what is your age? I'm 65.

OK, so another five years. You know, I like the idea of you being debt free, but I hate with if you don't have much to fall back on, except that emergency fund of ten thousand, I hate for you to put all sixty thousand against the house if you're not going to be able to pay it off because you still got the mortgage payment unless you reamortize the loan. So I'd probably hang on to what you have until you get to a place where you can pay the whole thing off at once.

And then I do it because then you free up that mortgage payment. You hang on the line. We'll talk a bit more off the air. Thanks for your call. Well, folks, let me again just remind you, our team is away today taking some time off. We're not in the studio, so don't call in. But stay with us. We have a lot more to come on MoneyWise Live.

This is biblical wisdom for your financial decisions. Thanks for tuning in to MoneyWise Live. I'm Rob West, your host. Our team is out of the studio today. We're taking some time off, so don't call in. But we have some great questions we lined up in advance. We'll head right back to the phones.

Bloomington, Indiana. Hi, Tricia. How can we help you?

Hi, thank you for your time. I'm calling because about three years ago I bought a house and I did not follow anybody's advice and did not have a down payment. I used a USDA loan.

Now that housing, the housing market is different and my house is worth about 20,000 more than what I paid for it. I'm wondering if it would be a good idea to refinance and then get away from the PMI. Yeah, so it's an FHA loan, is that right? It's a USDA loan, so I would have to follow the rules there and I'm not sure what those are.

I've been told there are some. Okay, yeah, I would look into that, you know, if it's, you know, with an FHA loan you're not able to get rid of that PMI. You would have to switch to a conventional loan which would involve a refinance and you would have to have at least 20% equity. Am I hearing that you do believe you have 20% equity in the home now?

Yes, I've paid it down to 80,000 and the last check I made at least now I would have to have, you know, a true assessor come assess it but it appeared to be about 100 to 120,000 worth 100 to 120,000. Okay, very good. And what is your current interest rate? It is 5.25. Okay, and what is your credit score, do you know?

I haven't checked in a couple of months but it is probably 7.10 something of that nature. Okay, and you have good documented income? Yes.

Okay, very good. Yeah, I would look at a refi of a conventional loan because if you can establish 20% equity, which it sounds like you should be able to do that and you've got an interest rate right now of five and a quarter, you should be able to get that down, you know, well over one percentage point or a point and a half which would be my minimum threshold to justify it. As long as you plan to stay in this home for seven years plus and you can knock a point and a half off the interest rate and get rid of the PMI at the same time, you know, you'd be money ahead, so to speak. The key would just be, Tricia, that I'd love for you to try to avoid extending the term. So if you have, you know, 25 years left, let's either get a 25-year mortgage or at least base your payment on a 25-year amortization so you're not lowering the rate but extending the term. But if you can do that, I think you would be accomplishing all of the factors that would make this worthwhile.

I would get at least three lenders to give you an offer on this and I'd get two of them at least from an online bank and you can find out who has the best loan programs right now at bankrate.com. So I'd be looking to refinance and accomplish several things at once, including eliminating that private mortgage insurance, all right? Okay, thank you. Very good, you're welcome and thank you for calling today. Let's stay in Indiana. Indianapolis is where Christina is.

Christina, how can I help you? Hi, so my husband and I go to a, sorry, a financial advisor and I'm just looking for a second opinion on the advice that we were given. So we are both in our 40s and our goal has always been to pay off our mortgage before we retire. So the last time we saw this financial advisor, he suggested that we might be better off right now refinancing our mortgage and borrowing on it because we have to do some pretty significant home improvements. So the idea would be rather than using our cash at hand to pay for the home improvement that we would borrow that while money is cheap because the interest rates are low and then using our available cash to invest in the stock market so that it's sitting in the stock market longer term and we get more return off of it. Yeah, let's run through some of the numbers.

I get the gist of what he's recommending. What do you plan to spend on these renovations and improvements? Somewhere around $20,000. Okay, and what do you have saved up that you're considering investing?

It would be probably 10 to 15. Okay. But the idea would be that we would sell the house within about three years so we would get our money back quickly. Okay, so you've got 10 to 15,000 saved up. Is that in addition to what I would call your emergency fund? Yes, yeah. Okay, all right. So you'd have to pull, if you're going to do 20,000 renovations and you wanted to pay cash without touching the mortgage, it would require that you pull at least five to ten thousand from your emergency fund to be able to fund the whole thing?

Correct, yes. Okay, and you said you're looking to sell in three years so I wouldn't be refinancing your first mortgage for sure. I think the question is do you take out the home equity loan and invest the difference, home equity loan being able to be used to pay for the renovations or do you pay out of cash? I think just given where you're at and the amount of money we're talking about here, I'd probably opt for you all just paying for this out of cash as opposed to trying to put an extra 10 to 15,000 in the market right now. Given this short time horizon that we're talking about here, I don't think that we're going to see anywhere significant returns in the next year or two.

I think the market's going to be pretty choppy, especially given the run that we've seen as of late. So you all taking on debt unnecessarily to be able to fund this renovation project when you've got the money saved up and I assume you're contributing separately toward retirement accounts, I just think it's unnecessary. So if it were me, I'd just pay for this out of your savings that's been earmarked to this and out of current cash flow and then you'll obviously get all that money back when you sell and you can decide to plow that into your next home. Does that make sense? That makes sense. Thank you. Okay, we appreciate your call today.

God bless you. You are listening to MoneyWise Live with Rob West. Today's broadcast is pre-recorded and that means we're not taking any calls, but we've got some calls lined up and great information coming your way that we think you'll find helpful. So stick around for more MoneyWise Live after this brief break. Delighted to have you along with us today on MoneyWise Live. I'm Rob West, your host.

This is biblical wisdom for your financial decisions. Our team is not here today, so don't call in. This segment is pre-recorded, but we've got some great questions, some wonderful folks that we asked to call in advance and we're going to do that right now. Let's head right back to the phones. Beth is in Ohio and Beth, what can I do for you? Hi, Rob. Thank you for your program. I wished I had started listening to this years ago. Well, I appreciate it.

It's very kind. Yes. So I am looking at retiring from full-time work within the next three to four years. My housing costs are currently about 25% of my income, but if I retire with the same mortgage, it would be about 33% of my retirement income. So I was hoping to knock that back over the next three to four years, and I have the ability to have my mortgage recast. I see. So, you know, to get it more under, you know, back to the 25%. So I was wondering what you thought of doing that versus putting that money aside for retirement. Yeah. What is your mortgage interest rate? The mortgage interest rate is about three and a quarter percent. Okay.

And you wouldn't be able to have it paid off, but what you're saying is the reductions you would give by prioritizing paying down the mortgage in the next three years or so would allow you to have it recast such that it would revert back to 25% of your now lower income. Is that right? Correct. Correct. Yes. And you feel like that, you know, if you kind of your account, basically you're not contributing to your retirement accounts anymore.

You just get whatever growth occurs from the investments that are there. Plus whatever other income sources you have, you feel like that will allow you to balance your budget with this recast mortgage that's a little bit lower? Yes.

Without dipping into, I have a deferred comp of about $125,000. So I would not need to touch that except for emergencies. Okay.

Yeah. I like that plan, Beth, because, you know, we're expecting a choppy market here. I mean, nobody knows it could go straight up from here, but we also could hit a recession. I mean, we've got some headwinds and I think most people that I trust are looking for tempered returns in the next few years, perhaps not as much as we've seen, you know, in the last couple of years for sure.

And even the decade before that. So I think if you have kind of this guaranteed reduction in your mortgage, which as you said, is your absolute biggest expense every month that brings it in line with the income sources, you know, you'll have, that's something you can count on as opposed to, you know, you investing in this, you know, 401k or retirement account three years outside of retirement, which would mean in order to fully maximize that it'd have to be invested in stocks. And, you know, we could see some declines that could even be significant in the next few years.

Now, ideally you wouldn't touch it and it would come back and so forth, and that money would be there for the future. But I just like kind of the certainty of you entering retirement with a budget that balances and something that you can really count on and having that one major expense right-sized by you focusing on paying it off between now and then just, you know, gives me a lot of peace of mind. So if that's kind of also the way you're feeling, then I would support that direction. Great, great.

Yeah, I didn't think I could see that much growth in three years. So I think I am feeling more comfortable with, you know, paying this mortgage down and getting the payment lower. So great. Okay. All right. Thank you. Yes, ma'am. Thank you for checking in with us. God bless you. Let's head to Greensburg, Indiana, WGNR. Hi, Norman. What can I do for you, sir?

Hi, Rob. Thanks for taking my call. I was just curious if you could fill me in a little bit about the dependent care flexible spending accounts. I was considering enrolling one.

I'm not sure at what point it would be a benefit or where it wouldn't be. Yeah, so this is offered through your work, is that right? This is offered through my employer.

Yep. So basically, it's a pre-tax benefit that allows you to pay for eligible dependent care services. So this would be, you know, preschool, summer day camp, school before after school programs. But it also could be, you know, a dependent child or adult daycare even. So it's a simple way to save money for the purpose of taking care of family members while you continue to work. And, you know, the benefits are, you know, reducing your overall tax burden because the funds are taken out of your paycheck before taxes are deducted, which saves you an average of, you know, based on our data of about 30 percent on these dependent care services. So I like it for that purpose if you know you're going to have a need for that.

We are certain we'll have a need. We spend about $12,000 a year on daycare and related expenses, I guess you'd say. Mostly daycare, right? Yes.

Okay. So I think for that reason, you know, this could make a lot of sense for you to, you know, consider as you look at options to reduce that overall expense. I think the big win here is just, you know, from a tax standpoint. So I would just estimate kind of what you feel like you're going to need on a 12 month basis and then, you know, orient your contributions into the FSA, you know, around what that true need is so that you have only going in what you'll use on a 12 month basis.

But if you know those expenses are coming and this account can be used for that purpose, I think it makes a lot of sense. So we appreciate your call. Thanks for checking in with us and all the best to you, sir. Hey, let's take an email or two.

We don't get a lot of time to do these. When you send your emails to questions at MoneyWise.org, we do our best to get them on the air. And this one comes from Gloria. She says, I'm a regular tither. I've put my house up for sale. I'm wondering how do I tithe on the sale? Do I tithe on the asking price, the price that I bring home after realtors taxes, clothing title, closing title, et cetera, or what?

And it's a great question, Gloria. You know, if we apply the principle of the tithe to anything, it's based on the increase. So when you sell a home, the question is what is your increase? And it's not the selling price. It is the selling price minus the transaction costs. You mentioned several of those, but also minus, and this is a big one, your original purchase price. So you sell a house for $400,000, you bought it for $200,000, but you, you know, you had a $25,000 in expenses and let's say you added $50,000 to it in improvements that stayed with the property and increased the value. So your profit would be the net of all of that.

Original is the selling price minus the original purchase price minus the transaction costs of selling it minus any improvements that you made along the way. And then you would take that and apply a 10th to it. And that would tell you very quickly what it is that your tithe would be.

So that's a great question. I appreciate you wanting to honor the Lord with your giving through your assets, including a home sale. I'm confident the Lord will be pleased in that. Hey, MoneyWise Live and MoneyWise Media are listener supported. So if you'd like to consider a gift to this ministry, we'd be grateful. It's quick and easy for you to give online on our website.

Just head to MoneyWiseLive.org and click the donate button. That goes directly to ensure that we can continue all of the operations we have here on a regular basis. And we've got some exciting plans for the months ahead and all the things we'll be able to deliver to you. And here's the goal that together as a community of stewards, we can be more effective in managing God's money.

Thanks in advance for that. MoneyWise Live will be right back after this. Stay with us.

Thanks for tuning in to MoneyWise Live, biblical wisdom for your financial decisions. Our team is off today. We're not in the studio, so don't call in, but we've got some great questions lined up in advance. Let's head right back to the phones.

Ricky's in Georgia. Ricky, how can I help you? Yes, we have about $230,000 when my wife got laid off last year. She lost her job, and we took an IRA and put it in a Charles Schwab account, just sitting there, not doing anything for a year.

And we were just curious, you know, what we might need to do. Sure. Ricky, I'm sorry to hear about your wife getting laid off. It's still in the IRA at Schwab, correct? You didn't take it out and move it to a taxable account? No, sir, we just moved it from her company and straight into that, the whole amount. Got it. Okay, and what are your ages?

Excuse me, I'm 67 and she's 65. Okay, are you all, has she found another job? No, I don't want her to work anymore.

Got it. Okay, and are you still working or are you retired? Yeah, I'm part-time. I'm retired. I work part-time.

Okay, very good. Tell me about your income sources. Other than that part-time income, are you collecting Social Security?

Yes, we both collect Social Security. All right, any other income? Well, we've got about $60,000 in savings, but no, no other income, just, you know. Okay, so you're living off of Social Security plus your part-time income? Well, really just, I'm banking my part-time. We're just living off of Social Security.

Okay, great. Yeah, so you all are in pretty good shape in the sense that, you know, you don't, you know, have any expenses that are uncovered. You're living modestly, which means your Social Security is covering, you know, whatever you need and then you're continuing to work as you're able to. Perhaps you enjoy that and that's just giving you money to put into savings. You've got plenty of liquid savings, it sounds like, and then you've got this Charles Schwab IRA.

So I think the key is, Ricky, is to get this invested in a way that's consistent with you all, your ages and goals and objectives. There's not a need to take unnecessary risk with this account because you're living modestly and your expenses are covered. But at the same time, given inflation, which means that the purchasing power is declining every month that this sits in cash or money market wherever it is, you know, it'd be a good thing to have a portion of this, maybe a small portion, in some high quality stocks and the rest of it perhaps in some fixed income type instruments like bonds. And if you were comfortable with that, with a goal of not eight or ten percent a year, but a goal of four or five percent a year to grow it, and even if we got into a recession and the market was down, keep in mind you wouldn't sell anything because you don't need to. You don't need the money.

So you could wait it out and after it recovered, it would move to higher ground, at least historically speaking. So I think that's probably the best move for you guys so that this money is working for you. And given that it's a sizable sum of money, I'd encourage you to hire an investment professional to make these decisions for you, again, based on, you know, your goals and objectives, not their own, of course. Are you open to have an advisor invest this for you? Sure. I mean, we're willing to sit down and talk to someone.

Yeah, I think that would be a great thing. And obviously at the end of the day, you and your wife are the stewards, so you need to make the decision. But at least you would know that there's a plan here and this money is growing and it's not losing, you know, purchasing power every month. I'd encourage you, Ricky, to head to our website, MoneyWiseLive.org, and then click the button that says, Find a CKA.

That stands for Certified Kingdom Advisor. I'd interview two or three of your choosing. Find the one that's the best fit. And if you felt comfortable, I'd move in that direction and have them, you know, deploy these funds on a very conservative investment basis. And I think at the end of the day, you'd be in really good shape because, you know, you've got your expenses covered. You've got a nest egg here that would be growing. If you had unexpected expenses down the road, long-term care, other needs like that, you'd have something that you could access to be able to pay for that. And if not, then this would be a great, you know, nest egg to ultimately give away to ministry, charity, or heirs. So I think that will get you going in the right direction. Again, our website is MoneyWiseLive.org. We appreciate your call, Ricky.

Let's head next to Lakeland, Florida. Hi, Maria. How can I help you? Hi.

Thank you for taking my call. I have been employed for over 40 years. I'm 61. I have worked for the same company the last 30 years. I am no longer working with them since late September. I started working independently for a, as an independent contractor for another company.

And my question is, should I, I just started this in about a month now. It takes me traveling to different counties in Florida teaching and just wanted to know if I should, what direction should I take to become incorporated or an LLC in order to be able to just write off more in taxes the traveling demands? Yeah. Yeah.

Very good. Well, typically what you'd want to do is create what's called an S-corp, which is for a sole proprietor. And essentially all of the taxes flow down to you personally. So you'd choose a business name, you'd create and file your articles of incorporation, you know, and with the state. And then, you know, if you wanted to look at an LLC, that would essentially limit your personal liability, which just means that business debts owned by the business and other claims on the business like liens and lawsuits are limited to the assets of the business itself. And you can either do all of this yourself, or you can hire an attorney to help you, which is what I would recommend that you do.

You appoint that registered agent, you pay the fees, you publish the notice of intent to create the LLC, and then the attorney would draft what's called the LLC operating agreement. But the key piece is that you establish the corporation so that you can separate your personal affairs, you know, and finances from the business, even though it's taxed at the personal level. And so I would talk to a CPA about setting all of this up to make sure that it's done properly. And then I'd probably get that an attorney to help you file to form the business, register it in the state, you know, the business, the articles in corporation, and all the annual filings that you'll need to do to stay in compliance, you want somebody to help you kind of set all of that up, you know, so you don't miss anything along the way. And, you know, this would be a great, you know, tool for you as you operate your business, just to make sure that again, your personal things are treated separately. And to your point about being able to deduct business expenses, that's going to help with the IRS, because you'll be able to clearly delineate what was for the business versus what was for you personally, without a corporation, it's very difficult to do that.

And the IRS can challenge some of those decisions as being, you know, personal expenses, just because there's not a clear line that, you know, divides the two. So I would take that next step, perhaps get an attorney talk to a CPA, get all of this set up. And I think, you know, once everything's in place, you could handle it yourself or, you know, have someone do the annual filings for you, that'll be up to you. But all the best to you in this business endeavor, Maria, we appreciate your call today. Next up, Al in Minnesota. Al, thanks for your call.

How can I help you? Thank you for taking our call. I heard you earlier this week have a question came in about titling of accounts. And my wife and I have all of our accounts in joint. That would include houses, our three acres of land, our bank accounts, any investments, auto insurance, homeowners insurance, utility bills, credit cards. Our question is, are there any accounts that we should not have in joint?

And why? Is there a liability factor? Yeah, go ahead. Yeah, I would, I would talk to an attorney about that, Al, just to, you know, get a legal opinion on that. I wouldn't be comfortable necessarily lending a legal opinion. But what I would just say is, you know, as a married couple, if you're in a community property state, a spouse's assets are subject to the other spouse's, you know, debts. So it really doesn't matter whether it's titled or not. That way, it's just going to generally be seen as a spousal asset. And the benefit of having it titled jointly is that, you know, one person still remains or keeps access to the asset upon the other person's death without having to wait for probate and so forth. So there is some real functional benefits to having your assets titled jointly. And, you know, you're probably each going to be liable for the other along the way anyway, you know, in most states. But if you have specific questions about, you know, whether things should be titled differently, whether it makes sense to, you know, have a living trust or use a transfer on death, you know, as opposed to joint tenants with right of survivorship, or, you know, some other limit to your liability, you could certainly talk to an attorney about that. The other thing I would consider while we're talking about liability, Al, is having an umbrella policy of somewhere between two and $5 million, depending upon, you know, what you have going on, and any potential risks that would make that, you know, increase that, that would just cover you beyond the normal limits of, you know, insurance policies like auto insurance, or homeowners insurance, if there was an accident or an event that pushed beyond that. But in terms of the titling, I think at the end of the day, if you have specific concerns, I would just sit down with an attorney and talk through that.

But generally speaking, I don't see a reason why you wouldn't want to have everything titled jointly. I hope that helps you, sir. We appreciate you listening and calling today.

God bless you. You know, as we think about applying God's wisdom to our financial decisions and choices, it begins with a recognition that God owns it all. That's the starting point for all of us. Then that places us in the proper role of steward and money becomes a tool to accomplish God's purposes. So the operative question at that point is, Lord, Master, what do you want me to do with your money?

And I think as we ask that question, He'll reveal to us where He's leading us and how money can be used to accomplish that. I hope this has been an encouragement to you today. MoneyWise Live is a partnership between Moody Radio and MoneyWise Media. Say thank you to my team today, Robert and Dan and Amy. We appreciate you being here as well. Come back and join us next time for another edition of MoneyWise Live. We'll see you then. God bless you. Bye-bye.