Money Musings 💭 a 🤯 field trip
In middle school we took a field trip to Thomas Edison’s house.
Major side note: I later learned that a Black man named Louis Lattimer was instrumental in the invention of the light bulb AND that Thomas Edison was an antisemite who electrocuted animals for fun.
As you tour Thomas Edison’s house you can see the first light bulb from 1879! The 🤯 shocking part is that it’s still burning. It still works after 142 years. WHAT?! This was mind-blowing to me.
Imagine middle school Ashley coming at the tour guide with a rampage of questions. If the first light bulb is still burning, why do we need to change our light bulbs regularly? This was before LED bulbs were mainstream.
The answer: planned obsolescence.
If light bulbs never went out, you’d never need to buy more, outside of an accident where a lightbulb was smashed by a ball or something (speaking from experience).
This was the first time I heard of this concept but as time went on it’s become more and more prevalent. Many of the things we buy are not made to last. They are made to wear out or break so we have to replace them. Burning rage! 🤬
Not only is this bad for our wallets, it’s costly to our planet. This constant churn of items on a large scale uses resources and energy to make things and deliver them to our door or our local store. It has a tremendous carbon impact.
So what can we do? If we have the financial privilege to do so, and when the option is available, we can support companies that make things to last.
We can use our voices to share that this is not something we’re happy about and that we want companies to make changes to be more sustainable.
Tanja Hester reminded me: sometimes buying nothing is the best option of all.
Gloria Steinem said, “the truth will set you free but first it will piss you off.”
YEP.
MONEY MOVE OF THE WEEK
DETERMINE IF AND WHAT KIND OF LIFE INSURANCE IS FOR YOU
Do you need life insurance? Life insurance can be important if you are a parent or if someone depends on your income. You may also want life insurance if you bought a home with a partner who wouldn’t be able to pay the mortgage on their own or if you have debt that wouldn’t be forgiven if you were to pass away.
There are two main types of life insurance: term and permanent. With term life insurance you choose your amount of coverage (i.e. the amount your beneficiary gets if you pass away) and in exchange, you pay a monthly premium for a certain number of years. You can typically choose 10, 20, or 30 years. After 30 years (or whatever you choose), you no longer have or pay for life insurance.
The other type of insurance is permanent insurance. It gets this name because you pay into it and once you pay into it enough (which is A LOT), you have the insurance until you pass away. Term you get for the “term” and permanent you have forever. These policies are VERY expensive, meaning they have very high premiums in relation to the insurance coverage you get, and insurance brokers make a very high commission when they sell you one.
The financial experts I talked to for my book agreed that term life insurance makes the most sense for 99.9% of people.
So who should consider a permanent insurance policy? It can make sense for two categories of people. Those with:
A high value illiquid (non-cash) estate who are worried about the estate taxes that will be owed by those they leave behind. Georgia Lee Hussey, the founder of Modernist Financial gives the example of a family farm or multi-generational business where the assets being left aren’t in cash.
A child or family member who has special needs and will need expensive care throughout their life.
YOU GOTTA SEE THIS
DEFINE: ENTREPRENEUR OR FREELANCE RETIREMENT PLANS.
If you run your own business, a great place to start saving for retirement is via an IRA (individual retirement account), but the maximum you can contribute in 2021 is $6,000 (or $7,000 if you’re over 50).
Once you are ready to contribute more, there are some special options available to you. Hooray!
It’s important to note - all these can be completely free (or pretty close to it) to open up and maintain. Woot woot. Contributions are typically tax deductible business expenses.
Here’s a quick rundown on each.
The Solo 401(k). Also called a Simple or Individual 401(k). This is only for small businesses without employees (other than business partners and spouses). You can contribute $19.5K as the employee and up to 25% of your compensation as the employer, with the max being $58K for 2021. Limits are so high because business owners can contribute both as an employee and match as an employer. This makes me so happy.
SEP-IRA. Stands for Simplified Employee Pension. Nearly all small businesses qualify for this one.
Employees can make traditional IRA contributions up to $6,000 (or $7,000 if over 50) in 2021.
Employers can contribute up to 25% of the employees total compensation up to $58K. For self-employed individuals, contributions are typically limited to 20% of net income.
The big thing to note with this one is if you do have employees, you have to match their contributions at the same percentage you match your own.
SIMPLE IRA. If you’re curious, SIMPLE stands for Savings Incentive Match Plan for Employees. Any business with fewer than 100 employees can have one.
Employees can contribute if they earned $5,000 in the two previous years and are expected to earn $5,000 in the current year. They can contribute up to $13,500 in 2021 (or $16,500 if they are over 50).
Employers can either 1) match all employee contributions up to 3% OR 2) contribute 2% of each employee's compensation.