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Estate Planning & Home FInancing

Lesson 28 from: Personal Finance for Artists & Freelancers

Galia Gichon

Estate Planning & Home FInancing

Lesson 28 from: Personal Finance for Artists & Freelancers

Galia Gichon

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Lesson Info

28. Estate Planning & Home FInancing

Lesson Info

Estate Planning & Home FInancing

So what is the state planning? Meanwhile, we've already talked about a state planning it includes a will it really helps protect your family if something bad happens to you that's what you're doing, you're state planning so it's direct with your family dynamics are you married? You have children there's a really the two obvious and if you do, if you are married, you have children, you've got to do some estate planning the amount of assets so the amount of money you've got really determines how much you're gonna pay in taxes. If you don't do proper state planning, your money will end up in probate, which means just so much of it is going to go towards fees like, do you really want that? I mean, we've talked so much about making money and earning money and protecting it like, do you want that to go towards fees, legal fees and core fee is no. So setting up a trust and working with an estate planning attorney is definitely something you should look at if you have significant assets and I'...

d say if you have today two, three, four million dollars and, you know, on ly expect that to grow, you should definitely consider setting up a trust if you have less money than that, you probably don't need to sow how a state taxes work and I'm not going to be quoted on this number because the number changes so much, but you want to think about how much is my estate worth today? So that means if I own a home, what is the equity in my house? What are all my ira is worth? You know why the business like if you truly think your business is something that can be sold without you in it? Like if you truly have an accounts receivable in the business or if you got equipment but if you're the business and you die and the business and there's nothing there than I would not include a business I'd be I'd probably be conservative, including a business and then obviously your savings. So the house because a lot of people include the house that is net of your mortgage that's after your mortgage is paid off, so if you have a house that you think is worth five hundred thousand but if you owe three hundred thousand oh you're only looking at two hundred thousand is the estate so two hundred thousand hundred thousand and ira's hundred thousand savings your whole estates probably worth four, five hundred thousand today, I don't necessarily think you need to start doing a state planning in the sense of setting up a trust because if you died today, your state's only worth about three, four hundred thousand five hundred thousand your family probably will not have to pay taxes on that. So I think the estate number is usually two million three million four million five million around that range. So if you think your state's going to be that that yes, you need to start thinking about mohr extensive estate planning, but if these are the numbers you're looking at, you're probably okay with just a will and just some insurance. And so someone had asked me under no summary, if you want to ask about the life insurance because I thought that was a good question, um, which, like, if you have life insurance and you die is a part of your state, right? Yes, but you have such a great question, so saying and die and you have a house and you have an ira and you have savings, and maybe this is all worth a million dollars, and I think if you do have some assets, I've just already seen it. You probably have more than you think you d'oh or maybe you don't, but again, this is the time to really stop and look at what I've got. So if you've got a million dollars and all of this, and then you have a life insurance policy that pays out a million, your state is now two million dollars so that becomes part of your state so the question is, do you pay taxes on it? It really depends on where you're living and what the congress tax laws are because they're changing every year is that considered a taxable estate or not let's just say you know your status two million and the estate law is one point five your state will on ly pay taxes on five hundred thousand on the difference it's not like the whole amount, so whatever amount it is over the st number that was a good question thank you for whatever I have to remember that austin so over the break, even if your timing is an immediate but something has started to residents just start to get quotes for insurance there's no commitment, none but getting quotes really also you're like, wow, I can afford that I didn't realize it was so little for so much or put it off creator update your will so it's not if or when create a will or update your well home finance. Oh yeah, let's move on tio about more exciting topic even if you think you can never afford a whole let's go through this exercise because I have seen people who thought they could never afford a home by home probably my on ly exception of someone who I thought shouldn't buy a home is if you live in a really, really cheap but amazing rent control department in new york city on there's a few of you that have, you know, the twenty, five hundred square foot studio and soho for two hundred forty dollars a month yeah, you're you're you're in a great position on dh there's a few of them that I've just have been inherited illegally you're legally what not, you know, living in new york for so long there are a few I had a really, really sweet rank controlled studio it was so tiny, but it was about six hundred dollars a month I lived there for seven years awesome studio right in the heart of the upper west side but it was small but you know there are the exception, so I think that's probably if you think you can afford it still go through this exercise. But there's, like I said there's, been a handful of people in twenty years that I've met that I thought, you know what you shouldn't buy, you should just keep renting that because you've got a nice nugget so how much do you need for down payment? So whatever I start with this exercise it's again, it could be a higher amount, but at least starting to get to know these numbers so I just worked with a couple recently, eh, wonderful same sex couple who came to me both playwrights and the first thing they said, it's like, we we just want to own a home. We feel like it's so important to us, to our family, our values, there's no way we could ever afford it. I mean, that was the first thing they said, and I was like, well, let's, go through the numbers where do you live? What part of town do you live in? How much are the average prices of home? So that was the first thing they didn't know what homes cost in their neighborhood because they have been renting for so long. So I said, your first piece of homework is goto open houses for the next month don't call an agent, don't call him were a real state agent, but just goto open houses. I know when my husband I, we're looking to buy something, we went to sixty different open houses because we thought, do we want pre ward? We want modern, we want a condo? Do we want to go up to want a house to want a fireplace like you don't know what you want? And you're also thinking, well, I think I can afford this or what is my money really buy, and so you could look on some great websites like zillow and streeteasy and truly are these air wonderful real estate websites, but on the whole, you've got to go look at something roll state is all about the physical physicality of it. So start looking goto open houses on the whole you need twenty to twenty five percent for down payment. Sure, you could do for less, but I'm not a fan of that. If you really are trying to buy something and you can get it for less than that amount, I think you can't really afford it. And maybe you should still focus on saving for the down payment because maybe you're on buying it for, you know, more investment or speculative purpose. And so that's not really what this discussion is and that's not actually something that I thought that I don't support it, but it's, just not my philosophy. Um, you know, if we're talking about like and buying something is a straight investment that's a separate discussion, so I think this is really like wanting to own your own home, so if a home cost three hundred thousand dollars, you need sixty thousand to seventy five thousand saved. So that's, why start to get to know how much does the home cost? And then how can I save sixty to seventy five thousand? And if you don't have a lot saved, this could be a really low number. I'm worried this could be really high number, but then the idea is that, ok, well, maybe next you'll have ten thousand the year after that, I'll have fifteen thousand and in five years I can have my down payment saved or a lot of people were calling in their numbers today that how this money or you do get a big pay, so the point is putting it out there. So let's, talk a little bit about what is your mortgage payment? And I got this from bankrate dot coms, you can figure out your own mortgage calculator, so if you have a three hundred thousand dollar home value, you've put on a mortgage of two hundred twenty five thousand, so these rates I don't know if they've gone up or down, but this was probably two weeks ago when I did this a thirty year fixed rate loan of four point three eight percent. I've owned homes for seventeen years now. Sixteen years that's a really good rate. My first mortgage was seven percent know like seven point seven. Five percent so that's a great rate, so a monthly payment is eleven twenty four, and then I added monthly taxes I estimated four hundred dollars a month does eleven, twenty four seem like a manageable number? To pay for a mortgage yeah, so the hard part here is coming up with a down payment because then the other thing that you get that eleven twenty four a big portion of that is interest and right now you can conduct that so that's a tax deduction for you whether you're freelance whether your corporate whether you don't work that's a tax deduction doesn't matter who you are you can deduct mortgage interest so play around with the numbers start with what a kind of apartment can I have or work backwards and say I can't afford more than I don't want to pay more than fifteen hundred dollars a month is my payment I don't want to pay more than two thousand I don't want to pay more than three thousand I don't want to pay more than seven hundred well if I have fifty thousand saved, what can I afford so you can work backwards with that so you can start with how much home do I have what's my down payment thes air interest rates I just got off a bank rate that gives you an eleven hundred dollars monthly payment you tech on taxes we're talking fifteen hundred total consider too in that number is if it's a condo there's h oh ay right, which writes so I write because keeps going up right sometimes right, right so and I you know it's funny cause I actually struggled with how much I put for the four hundred dollars monthly payment. So in new york, you want a condo, twenty five percent of the apartments in new york or condo, the rest are coop, and the reason why you want a condo is if you finally have afforded to buy the apartment, you can now rent out the apartment. So that's, what's great about having a conjure in new york, where if you own, like, we owned this wonderful coop, when we decided to move, we had to sell it, even though we couldn't necessarily for two homes, but we're like, we can't rent it out, they don't you rent it out. So, I mean, if I had thought about it a little bit, I probably would have wanted to buy a condo that I could at least rent out and be a landlord. So it's, like a second is our question before because I'm gonna keep going. No, okay, so why own a home tax benefits? So as a freelancer, you can deduct a lot, but with that being said, it's another great deduction. So if you're going to pay all that money turned to rent, why not pay it towards a mortgage and get another tax deduction? It builds equity, so if nothing else, that payment that you're making which everyone is paying rent I mean unless you're living at home but most of us are paying something why not put that towards something that you can own and what I see and I was actually looking for a statistic to back this up when I was putting the presentation together but I couldn't find it but I read this years ago and I see it over and over I mean really I've worked with so many people is that my clients and just people that I've met and statistics I've read people who own a home have a higher net worth I'm not talking about their bill gates or warren buffet have gazillion dollars but if you tend to be a homeowner you tend to not have a cz much debt in terms of credit card debt or student loan dead you tend to have more savings retirement plans I don't know if you've just like I don't know I don't know what it is so but they are correlated so why not become part of that it's not the one percent that ninety nine percent it's just like yeah I want have a higher net worth from ninety nine per center who wants to know what you meant by monthly taxes on the mortgage payment calculations right right so you're going to have to pay real estate taxes so that's what goes towards where you live I mean it's it's don't want to say when the downsides of owning a home, but you're gonna have to pay real estate taxes so that really pays for your local fire department, your police department, your schools and so that's how they calculated so it's usually an annual number, so I just seemed here is five thousand dollars a year, but if you're in a really, really amazing school district, it could be ten thousand, so because that's, what pays for the school's zen? L pe says, can you invest in the home for retirement? You suggesting that the time is part of the s o? You know, that's, a great question, I'll just share a quick story, you can, but you gotta live somewhere so very often people say, well, can I just use my home and then I'll sell it? Sure, but where you gonna live? Like? So if you're selling it to go live in the nursing home, okay, but I don't think that's what they mean they're saying, well, I'm just gonna build this equity this for five hundred thousand equity and it's, not that I can't be a great tool, but here's, what I have found cause I've worked with that, I think I'm working with this this couple, they're both, um I think one's a graphic designer ones a copy editor I mean and so they just got lucky they had bought a brownstone in brooklyn in the late eighties or mid eighties you know for just a song in a parrot is very cheap it's now worth millions of dollars and they have been not very good savers they put their daughter through college just a wonderful wonderful couple they have very little saved in the bank but they're sitting on like this two to three million dollar brownstone it's amazing so they could sell it and use that as their savings but they want to live they want to stay in brooklyn so that's part of the issues they don't necessarily want to live I don't wanna leave where they live and anywhere that they want to live in sort of like a metropolitan urban area is going to cost that I mean maybe won't cost two million but maybe cost a million dollars for a decent one or two bedroom apartment again I'm not I'm just making up the numbers so here they thought they were like investing in their home with that being said they all have looked and said, well maybe I'm just going to sell this and move to just a much cheaper area of the country like I can move to florida or parts of connecticut or whatever it won't give them the lifestyle they want but maybe that's what they'll do so they could do that but it's not your only option so again it's like that whole moderation thing so the way it works with tax benefits as I mentioned is not that your mortgage payment is lower but you can pay less taxes because now you have another deduction you're already paying this so you're paying your rent of fifteen hundred a month so now that fifteen hundred dollar a month mortgage payment, you get another deduction and so your tax bracket just went from twenty five percent to twenty percent or the estimated tax is that you? Oh, so again your c p a when you tell them about your tax bracket right away they'll say to you okay, well, you have a mortgage what your deductions and that'll really take that into account so it's I mean again it's just another benefit you know want to cripple yourself in this sense of you don't wantto not have any money because you want to be house poor so it's like anything in moderation but on the whole if it's a goal to strive for, I would make it one because I just I can't stress that enough and there you know, like I said there's once in a blue moon that I talked to a client, I'm like, you know what? Maybe you don't need a home like I have a client in her seventies who has saved a lot of money, she's renting and she's paying high rent, but she's like, you know, maybe in a year or two, I want to go live in tallis, new mexico, and I want to find leave new york and like then don't own something. Um, but I have helped a lot of clients buy homes that they didn't think they could afford it's just like some great, great stories in new york city, which is an expensive city. So really quick are you do you should we calculate the cost of the real estate agent and some of these costs? Because sometimes it can be, like six percent? Yeah, yeah, absolutely. So on the whole, I'd say that if you're doing closing costs, you're going to need ten to twenty thousand dollars that's a really high number, and it might not be that, but that's closing cost legal costs, moving furniture, so maybe, you know, your I'm not going to buy new furniture, maybe you'll buy higher the two college kids in a truck or whatever that company is, and you're not going to really spend a lot, so absolutely could be less, but you're gonna have to hire a lawyer, you cannot do it yourself, and you will, huh? Opposing costs on the real estate agent it's usually in the price and sometimes you gotta roll it into the mortgage you could borrow a little bit more to cover closing costs so that's why if you're trying to buy something with no money down it's going to be tight and I've seen that and it hasn't worked as well that's a good point so if you own a home just to show these numbers before we wrap up is pay down your mortgage faster. So there's a great little book called the automatic millionaire by david bach interest you can buy it on amazon for probably a dollar or even a penny on dh it's there's not it's a lot of fluff in the book there's not a lot of content, but what I like about the book is he had a lot of examples of people became millionaires just from doing automatic savings for a one case, but then paying down the mortgage faster was like the third example and these were like average guy next door you know, joe the plumber kind of examples and it just I mean, the numbers speak for themselves so it's a great book if you just need like a motivating book, we're going to talk about books in the next segment but just don't spend a lot of money on it so buy used or borrowed from the library but paying down your mortgage faster man just look at this example you've got this three hundred thousand dollars home value you've got your mortgage so if you just do the thirty year mortgage you're going to spend one hundred and seventy nine thousand dollars in interest so that three hundred so that two hundred twenty five mortgages now you know over four hundred thousand because you think about the mortgage plus the interest but if you just do one extra payment a year that's it first of all you're shortening your turn by five years and you're saving twenty eight thousand dollars so in that case this mortgage payment was eleven hundred right that's one hundred dollars a month hundred dollars a month extra saves you twenty eight thousand dollars and shortens your term so I just round up my mortgage payments twenty two hundred I go to twenty five hundred I just have it on automatic you can also do bi monthly payments that means you split the mortgage in two and that saves you a little bit of money your bank can set that up for you so this would be if you have a mortgage pay it down faster I can't stress that enough it makes a huge huge difference huge difference for like student loans this well problem? Well it's just really you're going to see the difference on the background yeah because you are going to be taking money from savings or from your your income, but if you can't afford the home, you've got the money for the down payment. You got the money for the mortgage paid down faster, it's just like a really, really smart financing tool. I mean, every financial professional I've ever matter listen to us said, pay down your mortgage faster because the idea is that I mean, very few people stay in a home for thirty years, but if nothing else, you're putting more equity into your property because the idea is you're paying this mortgage down faster. So maybe you solid and five years within your mortgage has been paid down that much faster, it's, incremental of first, but you're still gonna have more equity, pretty powerful stuff, huh? Okay, we're going to wrap up with the homework and then see if any questions to get before we move on. So if this is important to you and it should be, it really should be me. I I don't know, I hate using that work should, but hopefully it is to some of you, but at least it's planted the seed. I mean, I again I look at this is not a negative thing I look at this is the american dream, so create a separate savings account to save for a down payment. I mean probably one of the biggest mistakes I made when I first moved to new york and like the very early nineties, I remember there was a studio for sale my building for seventy thousand dollars and I thought about buying it I thought, okay, seventy thousand dollars that means I have to save fifteen thousand, which is a lot of money, but I had already gotten a job in a bank and I was like, I think it's pretty, you know, easily in a very short period of time and, um and I was like, now I don't know if I'm going to stay in new york I don't know if only I had bought that studio for seventy thousand dollars, but I didn't we all make our mistakes eso create a separate savings account to safer down payment? I mean, really, I I'm thinking of this wonderful client who I'm going to go to her house warming party in next month who, when I started working with her head debt, did not have anything like we've seen like, you know, she was like the people we saw initially on the first day in a short period of time she had five six different savings accounts she was so and she was in her forties she was motivated to do more with her life, she just bought an apartment in new york city it's, just it's such a great story, start looking at homes in your price range, like this couple that I talked about that I worked with. They sent me an email, and they're like, we went to all these open houses, we had no idea. So the other thing that I pushed them to do is they're looking at a one bedroom. I said, how much is a two bedroom in the neighborhood? Wasn't that much more. Like at the two bedroom, you know, you're two people moving in together. If you own your home, pay down the mortgage faster. So maybe this is your goal. The numbers really make a big difference.

Class Materials

bonus material with purchase

Day 1 Presentation
Day 2 Presentation
Day 3 Presentation
Monthly Spending Plan Worksheet
My Money Matters Kit for $7
Weekly Spending Plan
Budget Worksheet
Emotional Side of Money Checklist
Mutual Fund Checklist
Personal Finance Checklist
Retirement Planning worksheet

Ratings and Reviews

Kieu Truong

I love how approachable and welcoming and easy to understand this course has make financial terms and situation sounds. I love Galia and she makes I really feel calm and comfortable learning from her. Great!

Danielle Allen

This class was an eye-opener for me. I love the way Galia makes you feel comfortable thinking about as well as talking about your financial picture. I also appreciated her many examples and actionable steps for planning.

Shannon Borg

Galia is AWESOME! I love how down-to-earth she is (hence the name of her business!). I learned so much, and am going into a new year with a totally different outlook on my money. Now I have a plan, goals and much less anxiety about the whole process! Thank you, Galia!

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