What to do With Extra Income - Expert Edition Episode 34 (Classic Episode)

Certified financial planner Leisa Peterson joins us to discuss how to handle an increase in income and the importance of having a clear financial plan. We explore strategies for allocating funds, the benefits of zero-based budgeting, and the temptation to indulge in treating oneself. We also cover tax considerations when earning more money and the value of working with a CPA for tax optimization. We hope you can gain valuable insights into making intentional financial choices and the potential impact of disciplined saving on achieving long-term goals.

About our guest:
Leisa Peterson, CFP® is on a mission to help 1,000,000 people elevate their financial consciousness. As a money coach, business consultant and spiritual teacher, Leisa hosts the Mindful Millionaire podcast as well as virtual workshops and deep-dive retreats. Her masterful blend of sound financial strategy and mindfulness training helps people break free of patterns of lack, scarcity and money fears, allowing them to finally lead the rewarding, fulfilling, and abundant lives they most desire.
The Mindful Millionaire by Leisa Peterson

Guest Resources: 

• Baldridge College Solutions

• Taming The High Cost of College Resources

• Taming The High Cost of College Podcast
  

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TRANSCRIPT:

[00:00:00] Naseema McElroy: All right, nurses on fire. We are back with our certified financial planner, Leisa Peterson, here to talk about what to do when you are making more money. And specifically how do we allocate those funds and. What things do we need to consider tax wise with making more money?

So let's dive in Leisa. Yeah,

[00:00:22] Leisa Peterson: let's dive in I love what you've already said offline about just making sure that this is another perfect time to have a plan You don't have a plan and you're gonna plan to fail. So it's what you always say, right? Starts with a plan, know what you want to do with that money, have an idea if you're saving up to buy a house or you're saving up to buy another house because you want to rent it out.

I think both you and I think we may have talked about this before, but I can't remember. I don't actually consider myself a great saver, but when I have a project that I know the money is allocated for, I save massive amounts of money. I think you're like that too,

[00:01:04] Naseema McElroy: right? Yes, I'm like that too.

I know if I have something big coming up for example, I'm buying a new house. And I want to do all these upgrades. And so if I want to do that, I need a certain amount of money to put towards it. And it's super important to me. So I'm going to have a plan around that. But what's important for me when it comes to planning is that, I stick to this plan that I have written down and every single one of my dollars has an assignment, every dollar that I know I'm getting and any dollar extra that I know is coming in is going to go there.

That's how things are prioritized for me. And that's like the thing, the method that I use is zero based budgeting. And so it automatically falls in line because it's what I do anyway, I tell my money to go. And where to go in advance. And so anytime I have any extra dollar, I'm like, cool, that's just going to help me reach my goal faster.

[00:01:54] Leisa Peterson: So how do you deal with that temptation of I'm working harder. I need to, I deserve this. I should treat myself. Let's talk about that.

[00:02:04] Naseema McElroy: The treat yourself syndrome. I fall into that too. Like I am not immune to being a victim of that, but I look at what's really important to me and what's important to me, like I just talked about is like making sure that my home is bright, like where I come home to every night is major to me because that's where my family is.

That's where I come and relax and recenter myself. That's going to be above. All else. And I think it's harder to treat yourself when you're looking at the numbers and you know that if I treat myself, then this is going to take me. So this much longer as to where, if I was just like, Oh, I know I want to save money and it's important to me, but I haven't written it down and I haven't worked it into my budget.

It's easy for me to be like, oh, but I just got this check. So let that check go to whatever X, Y, Z. X, Y, Z thing out there, that just pops up. So just. Knowing that I have that plan and knowing that it's what's sparking joy in my life. It's what's super duper important to me is what keeps me on track.

[00:03:17] Leisa Peterson: Yeah. It's so great to hear you talk about it because I think that you're a living example of what it's like when we create a plan and we get super intentional and super deliberate about the choices that we're making and the enjoyment that comes from that instead of those super expensive shoes that might not bring, they might bring temporary joy, but they are not going to keep bringing joy if they are not investments.

I know I've heard all the stories like those investments, but not really. So what else would be helpful, do you think?

[00:03:50] Naseema McElroy: I think a lot of times people think, okay so I'm making all this money. Now I'm going to get taxed so heavily on it. So what do we do when we think we're facing all these extra taxes?

[00:04:02] Leisa Peterson: Yeah. These are tough questions to answer by ourselves. This is one of those things why I use a CPA is, whenever we've got. Multiple income streams or let's say you go on a contract and then you have your regular job like the deductions of your on your taxes are not set up for that.

They do not, they're not your friend. So without having somebody give you some back in the napkin advice, and by the way, this might take a half an hour. It might be like an email CPA. This is what I made before. Can you help me? These are what my deductions, this is what my taxes look like last year. Can you tell me how much more I should be having taken out of my check now from this new, receipt?

If it's on a contract and they don't take out taxes, then all the more reason why you need to be really careful and get advice now rather than next April when it's too late. So you just have to come up with extra money that you already spent or allocated.

[00:05:02] Naseema McElroy: And I think it's important to have a relationship with a CPA, a certified public accountant that does tax planning, not just taxes, because they can help you, especially if you have fluctuations in your income regularly, they can help you plan out what to do with your money.

Some of the things that they might suggest is maybe diverting more into your retirement accounts or, increasing maybe your withholdings so that it balances out so that you're maximizing your take home pay. To be able to meet whatever your financial goals are, but at the same time, still meeting your tax obligation.

So at the end of the year, there's no big tax surprise. So I love that you said that you work with a professional. I've been working with a professional for. Like basically as soon as I started my nursing career, because it became a little too complex for me. So it's, I think that's important. Yeah,

[00:05:53] Leisa Peterson: it never hurts.

It probably won't cost you a lot if you're afraid of what it's going to cost you or the time it takes. The cool thing is you could also be trying someone out with these questions that you have now. And if you like how they help you, if you like, The structure of how they charge, maybe you're like, maybe this time I'm going to have somebody else do it.

I think the data says in many cases that they pay for themselves. You get somebody good. They are paying for that additional cost. I spend a lot of money every year. I have an accountant that literally instead of nickel and diming you throughout the year, he just charges me that one time when I get my taxes done.

And I, my husband and I run like. Four to five different businesses. And so it's pretty complicated, but I love how he does that. Cause then it's just one check and I don't have to worry about checking in with him, but then I'm going to get a hundred dollar check every time I call him like an attorney or something.

So pick the person that fits you, but use this as a time to see if you could actually save some money. They'll often do audits too, by the way. They will do audits where you give them your tax returns for two or three years. You might have to wait until after the filing date of July 15th, just because they're probably really busy right now.

But after that updated filing date, you could go in, give them a couple of tax returns and they could tell you, Hey, we should refile. You might pay for their expense. And then some.

[00:07:11] Naseema McElroy: Yeah, I really like that. And I've had instances where basically working with or getting a CPA on my side has saved me so much money.

It's, and then like relative to what they charge, it's like super duper cheap. I'm like, Oh my God, can I pay you more? Rather than, thinking that I was getting overcharged. And like you said, they pay for themselves and then some, so yeah, it's great. And yes, they do auditing in the back end.

If something was wonky with your taxes a couple of years ago, they can refile and it can, Save you even more money. So yeah, that's tax free money. Yeah. Oh yes. Thanks for mentioning that. Cause we love the tax free money, but yeah. So overall if you feel like you're going to have an increase in your income, if you're going to have some kind of windfall, the most important thing that you can do is make sure you have a plan for your money that's written down.

And that you have some kind of accountability too because it is easy to just treat yourself and then to work with a professional as far as making sure your tax optimizes. So yeah, Leisa, anything else you want to add?

[00:08:21] Leisa Peterson: No, this is a great questions. And keep in mind, you got some money to play with. Like I became a millionaire because I went on disaster duty with state farm insurance after the Northridge earthquake in 1994.

I got, I took all the per diem, like I would eat peanut butter and jelly sandwiches. I saved everything. And I had a chunk of 3, 000 that allowed us to buy, go from an inexpensive neighborhood to a very expensive neighborhood in the, in Walnut Creek, you're familiar. We couldn't have bought that house had I not done that.

So you just never know when you're stocking away cash, how it can actually change your life because it became one house and then another house and another house. And

[00:09:01] Naseema McElroy: That is awesome. That is awesome. And yeah, and I like that you mentioned that it was only that 3, 000 that made that difference that got you into that house that got you where you needed to be as a stepping stone, but you had a plan for it.

Yes. All right, Leisa, thank you so much. This is so great. Thank you.

Hey there I’m Naseema

My dream is for everyone to know that financial independence is attainable with a little intentionality. Learn how I can help you finally break the cycle of living paycheck to paycheck.

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