When we did a detailed analysis of her budget, it didn’t seem that Ms. A’s financial situation should be as tight as she described. Our key finding was that she received an annual $15,000 to $17,000 tax return over the past 5 years, which she would use to help pay her debts. This was critical—a common mistake made by people on tight budgets. We could use this money to ease her way out of this situation.
Tax returns are always welcomed by taxpayers, but it is not usually the best idea to wait for Uncle Sam to give back the money you have earned and return means you over paid the IRS. We helped her adjust her W2 withholdings. Our initial goal would give her $500 a month extra on her pay ($6,000 per year), which was not specifically to invest—yet. Our priority was to build-up her cash reserves so that she would have up to 6 months of living expenses saved for necessary purchases or emergencies.
The second step we took was to stop her 401K contributions temporarily and focus on repaying her 401K loan. In essence, 401K loan payments are payments to oneself, and making both payments is a burden that we made easy. Furthermore, if you use the 401K plan primarily to serve as a loan vehicle to yourself, it makes little sense to contribute to it. Placing money in a cash account is simpler and does not mandate loan payments. Once the 401K loan was repaid, Ms. Bass restarted her contribution.
That was seven years ago. In the beginning, Ms. Bass was unsure how to work with Isakov Planning Group. She committed to a one-year trial working with us. Today, our relationship is still going strong, and Ms. Bass has a far better handle on how to manage her expenses and use her money in ways that make the most sense for savings and maintaining her life style and has a better for vision for her future and never has to live paycheck to paycheck. Ultimate goal to able to teach her 3 kids good habits.
Many of our clients are just like Ms. Bass, Hard-working people who need help understanding how their money is being spent and how it can work for them to reduce debt and give them financial peace. Contact Isakov Planning Group today, to your help you achieve your personal financial goals.