Week 2 Challenge: Reflect on Account Types

First of all, forgive me if my formatting is no fun. I’m at a Nissan dealer getting repairs done after a safety recall. But life ticks on, and luckily I can do Patreon from my phone.

Last week, I decided I to make a weekly challenge to strengthen our financial wellness. I don’t think anyone actually read it.

But this week, let’s try again.

Week 1 challenge:

Last week, I challenged everyone to go through their recurring charges to their bank or credit card and cancel something they don’t use.

- I cancelled Yotta and Stash, which will save me $4/month. That’s not groundbreaking, but it’s one less thing to detract from my wellness. Yotta isn’t an actual charge, but rather a transfer to a dead bank account, and I recovered the balance. But Stash was literally throwing money away.

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- Maybe you had something more expensive to cancel. I challenged you to even cancel Patreon if you don’t use it. No one did. So thanks for the continued donations, or thanks for not reading the challenge :)

Week 2 Challenge:

This week, I challenge you to look at your investing account types and determine if you are using the right ones.

One of the biggest investing mistakes you will make is using the wrong account type, and your growth will be hampered severely by taxes. Or, you will miss out on potential bonuses.

Are you still keeping your kids college fund in a savings account? Do you have a savings account with much more than 6 months expenses in it, but do not own Series-I bonds. Let’s talk.

- Tip #1: If you have a college fund for your kid, yourself, or anyone else, you should keep it in a 529 college savings plan. 529 contributions are tax deductible (state taxes only) in most states. In VA, I can deduct $4,000/parent/kid into my daughter’s college fund. That’s $8,000/year I can deduct from my state taxable income. And, that $8,000/year will grow with the market, and the gains are tax-free if used for college or other education expenses. Even buying a new computer is an “education expense” from the 529 point of view. If my daughter doesn’t go to college or gets a scholarship, I can use the 529 for grandkids instead, or make a trust.

- Tip #2: You should have 6 months to 1 year of savings in an emergency fund. If you have more than that sitting aside in cash, but you don’t want to invest it and risk loss, consider Series I-bonds. I bonds give you guaranteed income with no risk of loss and are a great alternative to cash. They’re also liquid, so you can convert back to cash in an emergency (you’ll lose some of the interest accrued, but will still get your principal back). Most people don’t use Series I-bonds, but that’s a mistake. Consider the option.

- Tip #3: Do you have any side hustle income? Drive for Uber, own rental property, or even do the Freeloader Challenge? You’re probably self-employed in a sole proprietorship. As such, you can use a SEP (self-employed retirement account). This is like an IRA for self-employed people, and it does not affect your contribution limit to a normal IRA. With a SEP, you can defer more taxes while still investing in the same asset classes you’re used to.

Final thoughts

Financial wellness has many dimensions to it. You don’t need to be a magnificent equities trader if you’re managing other aspects of your finances correctly.

Saving $100/month on taxes by using effective account management is worth more than making an extra $50/month on a dividend stock, and saving money on taxes doesn’t require a deposit like an investment does.

Keep focusing on the fundamentals, and you can’t go wrong.