It’s another Q&A Edition of Optimal Finance Daily: Episode 1516. and I’m your host and personal finance enthusiast, Diania Merriam. Today's questions are on financial goals and how to select a CPA when you're running a small business.
We are going to change it up like I do once a month or so, and address some audience questions. A quick disclaimer: just like all the content shared here, this is for informational and entertainment purposes only… or “infotainment” if you will. I’m not a certified financial planner, and encourage you to take my opinions with a grain of salt.
And if you want to send a question in to be answered here on the show, just send a message to finance AT oldpodcast.com
But for now let’s get to today’s questions and start optimizing your life!
Personal Finance Question 1: “How Do I Prioritize My Financial Goals?”
Our first question is from Hattie who writes:
“I am a 40 year old single mother who makes $125,500 a year as a Financial Controller. I have $37,500 left in student loans (down from $92K last March) and have been paying them off aggressively. I have no other debt, $10,000 in retirement and $27,000 in cash.
My daughter will “need” a car when she turns 16 in 3 years and I also planned to pay her college tuition.
I’ve been squirreling away cash and building it up to get to $37K to pay off the student loans. But I worry that if I just pay them off, Biden will forgive student loans. So my approach has been to make the minimum payments and wait for one year to see what happens, and then potentially pay it down to a more realistic $10K that may be forgiven.
So I’m wondering how should I prioritize my various goals of providing for my retirement, getting out of student loan debt, putting my daughter through college, getting her a car and replacing my car (which will probably last me another 5 years)? Also, should I save for a down payment and buy a house as I feel that I’m ‘wasting money' by renting?”
DIANIA MERRIAM: Thank you so much Hattie for reaching out with this fantastic question!
First of all, given that you were able to pay $55,000 towards your student loans over the last 15 months, that tells me that you have a very healthy gap between your income and expenses, which is fantastic!!!
So I just wanted to start out with a high five because that is seriously awesome, you’re in a fantastic place to really start building your net worth.
A couple of things stood out to me here… I can see that you’ve prioritized paying off the student loan debt over retirement savings, and I’m wondering if that’s the most optimal path. I’d look at the interest rate on your student loans, is it high and does it justify refinancing? Are they federal loans that qualify for any of the various loan forgiveness programs? Student loans are complex, and I’m no expert, but I do know that paying them off as quickly as possible isn’t always the best option.
I’d encourage you to check out The Student Loan Planner, founded by Travis Hornsby. He did a speech at the EconoMe Conference last year that you can watch on YouTube.
I think it will be useful as you figure out your next move here. His blog is very informative and he’s been analyzing the changing landscape with Biden and student loan cancellation, so check that out too.
Even if you decide to continue to aggressively pay off the student loans, at the very least, you should consider first making sure that you’re contributing enough to your employer sponsored retirement plan to get what ever match they are offering, because that’s free money. When it comes to your other savings goals, I’d encourage you to prioritize investing for retirement over your daughter’s car and college as well as saving for a house.
Now that might sound heartless coming from a woman that has been blessed with no children, but the reason why I say that is because your daughter can take out loans for college, you however, cannot take out loans for your retirement. And one of the best things you can do for her financially is to fund your own retirement so that you won’t be a burden on her later.
When you said she needs a car, you yourself put the word “need” in quotes so it sounds like you recognize that this is more of a want than a need. When I was a teenager, I thought I needed a car too and my mom made a deal with me- she committed to match whatever I saved on my own. I ended up saving $3,500, bought a Honda Civic for $7k with her match, and got my first real experience in working hard to get something I wanted. Why not get your daughter involved in saving for the car so it’s not all on you?
When it comes to replacing your car, you have enough of a gap between your expenses and income and a time horizon of 5 years, so as long as you’re buying a used car and you maintain a healthy cash reserve like you have now, it doesn’t sound like this will be an issue. And when it comes to buying a house, the way I’ve looked at it for myself is that this became an option for me after I achieved other financial goals like debt freedom, a healthy emergency fund, and fully funding my retirement vehicles.
Home ownership has high carrying costs, and if you need to access the money you have locked up in equity in your home, you either need to sell the house or take out a home equity loan- which creates more risk. I don’t look at renting as wasting money… you need to live somewhere and typically your primary residence isn’t a good investment anyway.
Question 2: “How do I find a CPA for a small business?”
Our next question comes from Nikki who asks:
“I started a small side business (very small – but rewarding for me nonetheless), but after listening to Episode 1509, I do wonder if I’ll need to make extra tax payments. What advice/resources can you share about finding a CPA to help with tax planning? I've heard about websites in previous episodes that relate to finding Certified Financial Planners, but not sure if there is something similar for CPAs.”
DIANIA MERRIAM: Hi Nikki, great question and congrats on your starting your side hustle! I was in the same boat as you when I started The EconoMe Conference — I wanted to find someone that could help with the strategic planning side for taxes and not just a tax preparer.
The first thing I’d recommend is to start with people you know… do you have anyone in your network that you trust who has a small business and is happy with their CPA?
The first CPA I worked with came through a recommendation from a new acquaintance of mine — not someone I knew very well. That ended up being a disaster, and I really paid for that mistake.
My current CPA was recommended by someone I got to know from a local Choose FI group (if you’re not familiar, Choose FI is a popular podcast about financial independence and they have meetup groups in most major cities). So you might want to check Facebook and see if there is a local Choose FI group that can provide some specific recommendations.
I know that probably sounds like a cop out on your question, since my answer is “go ask someone else” but every good service I’ve ever used whether it be a plumber, CPA, etc has always been recommended by someone I trust who is enthusiastic about the service. I’d also recommend you listen to episodes 1430 and 1447 which give some more specific things to look for in a CPA.
And finally, if you’re having trouble finding a CPA that comes recommended, check out the Association of International Certified Professional Accountants at AICPA.org where you can search for a credentialed CPA in your area. Though if you go this route, make sure you compare a few options and see if you can find any google reviews on the CPAs you’re considering.
Well I hope you enjoyed another Q&A edition of Optimal finance daily. If you have a question you’d like addressed on the show, go ahead and send it over to finance AT oldpodcast.com
I hope you have a great rest of your day, and I’ll see you tomorrow, where I’ll be back narrating your favorite authors, and where your optimal life awaits!