We recently asked our Mastermind Group what questions they had about finances as TpT sellers. We received lots of questions about both personal and business finances. If you aren’t already in our group we encourage you to join in the conversation at www.growwithusmastermind.com.
Today we brought a special guest on our podcast to talk about something that isn’t discussed much among TpT sellers—finances. Josh Bannerman is a Certified Financial Planner at Bannerman Wealth and he is the co-host of the Stacking Benjamins podcast. He has 20 years of experience. And, he works with over 120 families in 30 different states. We were super excited to have him as a guest.
Josh did an amazing job of answering our questions. We are going to do our best to sum up his answers, but if you want to learn more about handling your finances we urge you to listen to the full podcast.
As current or former teachers our retirement planning has always been handled for us by the school district. When it comes to the money you make from your TpT business, it’s all on you. That can leave a lot of questions.
What retirement planning advice would you give someone that’s still teaching and currently has a pension?
Josh shared that this really boils down to what your end goal is for your TpT income stream. You need to think through if this is something you’re doing to improve your lifestyle today or if you also want it for help improving your retirement, saving for your kids’ college funds or something else. That answer largely determines what you do with your money after you earn it and pay taxes on it.
While you don’t have much say about what happens with your pension plan, it’s a different world when you’re running your own business, even if it’s just a side hobby. You can save for retirement through SEP IRAs, simple IRAs, 401ks, or you can even set up your own pension plan. It all depends on how much money you have to use for retirement on top of what you’re already doing. You can contact online brokerage companies such as Schwab or Fidelity. It only takes a few minutes to do and your tax professional can tell you how much you can invest based on what your previous yearly income was.
If you are just getting started with earning money in your business, Josh recommends that you use some of the money for retirement planning and keeping some for lifestyle improvement.
What retirement planning financial advice would you give those that are completely on their own and no longer employed by a school?
Planning for retirement is a lot easier when your employer is automatically withholding a portion of your income for you. Now that you are working for yourself you need to set it up the same way. If you don’t automatically have money going into savings and retirement lifestyle inflation is going to creep up on you and stake all your money.
Have you ever noticed that the more money that comes in the more money you think you need to come in? This is normal for most people. You think if you can just get to $X each month everything will be easier. But, then you get to that amount and get used to spending the extra and find yourself in the same place again.
So, when you leave the classroom, set up those automatic systems on your own. You can work with a tax planner or investment firm to get it set up. You are now in charge of your own retirement so you need to be proactive about it.
Do you suggest we take our money out of the 403b?
The 403(b) is nothing more than just a shell, it’s a line item. What you have inside of that shell could be good or it could be awful. It all depends on the choices that your district had and the decisions they made when getting it set up.
Some plans won’t allow you to take the money out or move it until you reach a certain age. If that’s so, or if you feel that you have a good setup with the 403(b) plan then it’s important to remember to keep track of it. It’s easy to forget about old plans. Keep a spreadsheet or use an online tool to help you out. In the end, it’s really better to transfer it to an IRA with a company like Fidelity or Schwab if you can.
What should we look for when setting up retirement accounts and getting help?
There is a big push in the industry towards fiduciary standard which means advisors need to put the best interest of their clients above their own. But, there are a lot of people out there that aren’t held to this standard. If they get paid for selling you something they are going to be thinking about their bottom line, not your’s.
Josh is a huge fan of making sure that everything is out in the open. You should pay for advice because with financial planners that’s the only way they make money. They are getting that set fee to make sure that they are serving their clients instead of trying to earn a commission from selling products.
To get started finding someone to work with, Josh recommended checking out cfp.net or napfa.org to find a financial planner in your area. These are both fee-only planners so you don’t have to worry that they are going to try to push certain products on you in order to make a commission. Make sure you interview at least a few planners before choosing one. You want to make sure you find someone that you can connect with and want to work with long-term to reach your financial goals.
What’s the best thing TpTers should do with the money they pay their children for working to get the biggest bang for their buck?
It’s not uncommon for us TpT sellers to put our own children to work to help us out. It could be doing office type work or it could be being the models for our photography. Since you’re allowed to pay your child legitimate money for legitimate work that they do you’ll want to compensate them in the way that gets the biggest bang for their buck.
Josh doesn’t really think you can beat using a Roth IRA. While it doesn’t give you any tax benefit today, it gives your kids a tax break in the future because the money isn’t taxed when they withdrawal it. The real magic happens when your child lets the Roth IRA grow until they are in their own retirement. If you invest $2k a year in a fund for your child for ten years and they decide not to add anything to it after that point, they’ll still have $350k in it by the time they hit 50.
A tip for getting your kid interested in investments
Josh also gave us a great tip for getting kids interested in learning about investments. There’s an app called Stockpile that allows you to have an account with your child in their name where they can invest in fractions of larger stock. For example, they can choose to invest in Amazon even though they only have $20 to invest.
What makes this so interesting for kids is that the logos they see are the ones they recognize. For instance, instead of seeing the Microsoft logo they see the Xbox logo (which is made by Microsoft). They know what Xbox is and it makes it more personal to them. They even get their own login (even though you get the final say on any transactions). This lets them watch their money grow.
How much money should be kept in reserves for business and personal expenses since our income is so variable?
Josh is a big believer in putting systems to work in your business especially when it comes to your finances. Earlier we shared about having your retirement funds automatically put into savings or investments, you can do the same thing with your income.
Instead of paying yourself from your TpT business have the funds go into a savings account. Then each week, two-weeks, month, or whatever works the best for you, have a set amount of money transfer into your checking account. When you do this all of the extra money you make during the good months are being kept in savings. Then, when summer starts or December hits and there isn’t as much money coming in, you’re still able to pay yourself the same amount because that extra money is there waiting.
Everyone wants to learn how to do cool or exciting things with money. But before we can get to that point we have to learn how to handle the foundational stuff, like monthly budgeting and cash flow management.
What’s the rule on life insurance?
Don’t trick yourself into thinking that you don’t need life insurance because your family can take over your business if something happens to you. I thought that way at first. But, then I sat down and started writing out directions and passwords for my husband to follow if he ever needed to. And, once I hit the tenth page I realized that I didn’t want him to have to worry about all that if something happened to me. I’d rather he had life insurance money to help him from the get-go and then the business if he chose to take it over once things settled down.
Josh backed up this strategy during our conversation. You are the creator of your content. Even though you have passive income, if you want your business to keep making money you really need to keep creating new content. The demand is always changing. Even though there are some evergreen products, don’t count on them to support your family if something happens to you.
Josh shared that for the inexpensive cost of life insurance, it’s really a risky trade-off not to get it. He’s never heard anyone say, “that’s really too much” after they lose someone. It’s usually, “Is that all there is?” regardless of how much money they receive. When the family receives that money, it’s finite. That’s all there is.
Determining how much you need
He recommended that you figure out how much money you would need for things like paying off the mortgage and sending your kids to college. Then, figure out how much money you need to live on every month for the rest of your life. Take that number, annualize it and divide it by 25. Then, add that number to the first number (the mortgage payoff sum and college fund sum). That’s the starting point you want to use for your life insurance amount.
Now, Josh also shared about setting up a continuity plan. This is where you work with another TpTer to put a plan in place to step in and handle their business if something happens to them and they do the same for you. It provides another level of care for the family as well as the clients.
What kind of financial goals should we set for ourselves in 2019?
Josh takes a different approach to planning. He isn’t big into yearly planning. Instead, he focuses on creating 3-year plans and 90-day plans. When you look at the long-term it allows you to dream bigger. Once the bigger 3-year goal is set, the 90-day goals can be established to help you reach the big goal. For example, your 3-year goal might be to hit $100k in your business. If you have that goal in place you can establish steps to take each quarter to help you get there.
You want to be making decisions that are going to help your business for the long haul and not just the present. You want to align your business with decisions that put you on the path to larger growth.
Still have questions?
If you are serious about getting your finances straight in 2019, Josh is taking on new clients. I encourage you to contact him and check out the Stacking Benjamins Podcast. You can book a time to talk to him about your individual situation using this form.
And, jump over to the Mastermind group to ask any additional questions you have or to share financial tips that you use in your business.