The X’s & O’s

One important financial tool that is often overlooked is a balance sheet. This will help you keep an inventory of the financial assets you have and you can easily track your progress from year to year. Brent, Matthew, and Joshua will walk you through on how to create a balance sheet, the different elements you should include, and how you can utilize this tool to make better financial decisions.

The Hosts:

Brent Pasqua, Matthew Theal and Joshua Winterswyk

Transcript:

Brent Pasqua: Welcome in. It’s the Retirement Plan Playbook. We’re back in the studio. We’re bringing a very important topic, I think, today as we’re going to talk about some of the strategies of moving to a new state. It’s a topic that a lot of people have questions on right now. We’re going to stick to the financial side of it though, and discuss, is it even possible for some people? And how would you do it? I’m your host, Brent Pasqua, founder of RPA Wealth Management. I’m here with Matthew Theal, certified financial planner. Joshua Winterswyk, certified financial planner. Before we jump into it, though, have you guys been watching the Olympics?

Matthew Theal: I put it on, but I’ve had a massive headache trying to figure out if they’re live or not. That has been bugging me and then they jump around. It’s been a pretty awful experience for me.

Brent Pasqua: You can’t look in the little top right corner where it says live? There’s no live button up there?

Matthew Theal: Well, I know that now, but I didn’t for a week and a half.

Joshua Winterswyk: I’m mixed on that. I know they’re struggling because of the time difference. But I would agree, there’s not this TV Guide, going back to the old days of a TV Guide, telling you what’s on at what time, what’s live and what not. I’ve been watching it, too. I’ve enjoyed my favorite events that I normally watch. But the time difference is tough, because some of the events that I wanted to see aren’t live when I’m watching them. They’re the replays. And I even tried to figure out online how to know what’s going to be coming up and how to watch ahead. Everything on the websites look super confusing to me. I couldn’t figure it out. In five or 10 minutes I was just done with it.

Brent Pasqua: Yeah, no, totally. Let’s get into the hot take headlines. Sticking with that topic, NBC’s Summer Olympics ratings are really in a free fall. TV audience for the Summer Olympics is down a whopping 45% from the Rio games in 2016. And viewership and prime time is even worse down 51%. That being said, NBC reported that its Peacock service is seeing strong viewership. According to them, yours had streamed 3 billion minutes of Olympic coverage across NBColympics.com. The NBC Sports app and its Peacock streaming services. Moreover, NBC said that a number is pacing to surpass Rio Olympics total in the next few days. I mean, what are you thinking?

Matthew Theal: I’m happy that half of America is agreeing with how I’m feeling in that this Olympics has been awful and they’re not tuning in. I think it’s really interesting, though, because what NBC is doing, and what they did with the most popular sports, is they didn’t put them on TV. The most popular Olympic sport is the gymnastics, right? And for some reason the gymnastics was starting in the wee hours of the morning. It was starting at 2:00, 3:00, 4:00 AM on the west coast, and it was never on TV. You could stay up that late, but you wouldn’t watch it. You had to go to the Peacock service to watch it. So they basically pay walled the most popular event.

Brent Pasqua: And that’s what I didn’t understand. I understand it’s more than just us, USA, watching it, but it was weird that we got to watch swimming live, and that was probably the best part of the Olympics. But then gymnastics, we couldn’t watch. And then now you have social media. You already knew what happened.

Joshua Winterswyk: Well, even USA basketball, which is really popular here in the states viewers wise, was on the NBC streaming service. Matt and I talked about this. I get that they’re trying to promote their streaming service, but this is the world’s games. Why aren’t the most popular events on national TV for us to see here in the United States? And that turned me off, too. You’re watching your normal Channel Four TV, and now I have to purchase Peacock to view my favorite event. Look at what’s happening. Viewership’s down. A lot of people don’t want to do that. I’ve even noticed that I didn’t want to do that. So I’m sure a lot of Americans didn’t, either.

Matthew Theal: Yeah. The whole streaming app thing is quite weird. I don’t know why NBC thinks they’re Netflix or Disney. They’re not, they’re NBC. We all know them as Channel Four. And they should be putting all of their good content on Channel Four. And they should be selling their popular shows, like Friends and The Office. Do they have Friends? They might not. They should be selling The Office and Parks And Rec to Netflix and other streaming services for them to put on it, because they’re not a streaming service.

Brent Pasqua: Do viewership in other countries have to stream the same way, or is there the way that they bring it to their audience completely different?

Joshua Winterswyk: Let’s just use the UK as an example. Sky Sports has the Olympics. So it’s not even NBC in the UK that has that, right? So they have their own actual network of Sky Sports that’s broadcasting it. And from what I’ve heard, just through a few friends that either have lived in the UK or live in the UK, said that their primary focus is just on Great Britain and that’s all of their coverage, because that’s what the people want to see. So it is a little bit different than here. They’re really just broadcasting the events that their athletes are in. So a different coverage. But they said that you can see it, it’s not a streaming service, from what I understand.

Brent Pasqua: How much luster’s lost to you to not watch things live when you can find out in Twitter what’s already happened? And then who wants to go back and rewatch it?

Matthew Theal: All of the luster’s lost. They completely ruined the Olympics this year, in my opinion.

Brent Pasqua: Is part of it because of social media? Because this isn’t the first time we’ve had a big time difference with the Olympics, either.

Matthew Theal: It’s because they didn’t show the things that we wanted to watch in prime time.

Brent Pasqua: Sure. Okay. That’s fair.

Matthew Theal: I’m fine. My wife wanted to watch the gymnastics. I have fun… I think everyone has fun and watching the USA gymnastics team. They never put that on in prime time. We knew the results when we woke up, when our alarms went off at 5:30 or 6:00 AM. We knew the results, and then it was never televised again. I mean, that’s on them.

Brent Pasqua: The only thing I watched the entire time was swim, and I thought swimming was outstanding.

Matthew Theal: Yeah. Katie Ledecky, she’s great.

Brent Pasqua: Yeah. But it was the only live thing really that they had streaming, except a little track here and there.

Joshua Winterswyk: Yeah. Swimming was good. I also watched the fun round, the golf tournament. That was on live at night, but I think that was also on Peacock.

Matthew Theal: I watched that, too, though. That was cool.

Brent Pasqua: All right. Let’s get into the next one. US sets electric vehicle sales goal of 50% by 2030. That’s what they’re establishing as the goal. President Biden signed an executive order setting a target for electric vehicles. Hydrogen fuel cell and plug-in hybrid vehicles to make up 50% of US sales by 2030. Is something like this possible?

Matthew Theal: Most likely not. It’s interesting. They had all the automakers up there as he was signing this, and they said, “It’s not possible unless there’s government funding or incentives for people to buy these cars.” Look, I’m a plug-in hybrid driver. I like it. I think that’s the best electric slash gas way to get the majority of people away from gas only. It’s a really great car. I run out of gas, my electricity kicks in. I run out of electricity, my gas kicks in. I’ve done both multiple times. I mean, when you think about how much these cars actually cost, because getting an electric car is about four to five grand more than getting just a gas one, what’s the incentive for consumers?

Joshua Winterswyk: I think that… Is it possible to answer your question? It’s a tall task, but I think that it can lead to some good innovation, right? Getting these automakers together for this emissions goal and pushing for electric cars. I also drive a hybrid, which I love. So even more innovation are making these more efficient, just from that take, is a positive in my eyes. Pushing these automakers to continue to invest in more efficient vehicles and that are better for our environment. Because it seems like you’re not going to have to have a Tesla to have these features anymore. It seems like mostly all auto makers are making a car that could be dual, so you don’t have to have 100% gas, you don’t have to have 100% electric, but you could be somewhere in the middle and that’s probably going to be very helpful, I would think.

Matthew Theal: Yeah, I think that’s the best answer. And I wish that the government would push more. One on the major reasons why I bought my car was they had really great tax credits. I know we talked about this on a previous podcast, that tax credit is one of the most powerful tax reduction strategies you could use. So that’s why I bought my electric car. I wanted that big tax credit.

Joshua Winterswyk: And hopefully those continue. Even in the article they had mentioned, or the auto makers mentioned, that this administration said that even more tax incentive was going to be part of this goal or deal. So hopefully we continue to see that and give some initiative for this big change.

Brent Pasqua: Yeah. I don’t know if you guys have noticed. Gas is super expensive right now. It seems very expensive to fill up your car.

Matthew Theal: Yeah, it’s very expensive. I keep seeing all the 80, 100, $90 left on the tank when you pull it. And then I fill up my Prius and it’s $35 and I laugh.

Brent Pasqua: Yeah, it’s smart. It’s a good way to save money. All right, let’s get in the retirement planning corner. One question that we’re constantly being asked is: What is the best state for a person to move to in retirement? And the answer usually comes down to preference, but we, based on our geographic location, have noticed that a lot of clients have moved to Nevada, Texas, Arizona, Idaho, Utah, and a lot of the surrounding states. And today I don’t think we should get into what are the pros and cons of moving to that state, but I think we should more consider about financially how it would impact you if you move to one of these states. One of those important areas, though, I think we can get into is cashflow. And if you do move to one of these states, how will your cashflow be impacted monthly? And can you really save a lot of money by moving to a different state?

Matthew Theal: This is a great question. When you are thinking about moving to another state, this is probably where you should start your analysis. What most people do is they say, “Hey, I’m sick of paying California state taxes,” but they don’t know how much state tax they’re actually paying. Maybe it’s $5,000, maybe it’s $10,000. Maybe they’re only paying a couple of thousand dollars in state tax or none. But the one thing that most people fail to realize when I talked to them is they’re not thinking about property tax, right? So they’re going to sell their home in California… Is it Prop 15? Is that what it’s called here in California?

Joshua Winterswyk: I’m not sure on the prop, but I’ll look that up.

Matthew Theal: The property tax prop is on the ballot every year to get rid of because they want to raise the property taxes. But most people are grandfathered into that program have had their home for awhile. When they move to new states, they have higher property tax rates than we have here in California, almost every state does. So you’re going to be paying more for that property that you’re buying. And Texas is one of those states, especially.

Joshua Winterswyk: Prop 19.

Matthew Theal: Prop 19.

Joshua Winterswyk: I think.

Matthew Theal: Good correction.

Brent Pasqua: I guess, too, one of my questions and thoughts are when it comes to this is: How many people really know what they are paying in state tax, without it just being a we know we’re paying a lot in California, but we don’t know what that dollar amount actually is?

Joshua Winterswyk: That’s a great question. And even when you get your taxes done, I mean, you guys could probably attest to this too, but the primary focus when you’re getting your taxes done is on that federal 1040 form. So that state tax isn’t jumping out to you anyways. So answering that question, you’re going to have to dig a little bit deeper to understand. And I feel like even when you meet with tax preparers, that isn’t the first conversation you’re having. It might not even be a conversation just besides if you’re getting a refund or you have to owe. So just a really good start there of making sure you understand exactly how much you are paying.

Matthew Theal: The other thing to consider is how much the cost of goods in that state. One example here in California, it’s pretty dense, right? We could hop in our cars and be in a shopping center with a Target, a McDonald’s, a grocery store probably in under five minutes. We don’t have to drive that far, it’s a couple of miles. But in some of these other states where people are moving to, they’re more spread out and there might only be one shopping center, or you might have to drive 30 miles to another town to get to a specific store. Now, you’re wasting a little bit more time. Sure, gas prices might be 20 cents lower than here in California, but you’re burning more gas now driving 20, 30 miles to the store.

Joshua Winterswyk: Well, you have electric vehicle now.

Matthew Theal: Oh, that’s true.

Brent Pasqua: And then what will you lose in state specific benefits if you do move?

Matthew Theal: So this is a good one. I mean, you could be on some kind of state specific social benefits plan. The big one here in California, we have CalPERS and CalSTRS. You should probably look into how that’s going to affect your benefit. Will you still be taxed on it? I believe the answer is yes, you still will be taxed on it. So it’s probably really not worth it for you to move to another state if you’re happy here in California.

Joshua Winterswyk: Right. You’ll pay taxes in the state that you’re in based on your pension. You don’t have to pay California taxes on a California pension. You’ll pay it based on your state. But I think it’s important, you can reduce the amount of taxes that you can pay if you are living in another state.

Brent Pasqua: But there’s also a lot of tools out there now, and especially with this technology and the internet, for you to even project that tax in that other state. Or even, now we’re opening the conversation of meeting with whoever’s preparing your taxes to analyze that as well. Because, again, you don’t want to sacrifice any benefits, and knowing what those tax differences are just going to make that decision even better, or more efficient.

Joshua Winterswyk: Yeah, I think before making a decision, because moving is a big decision. And where you’re moving to is obviously going to be important part of that. And that could be you’re either moving away from family or you’re moving to family, but if it’s a financial decision that you’re making you probably want to know what that dollar figure is. And you have to dig a little deeper than just assume you’re going to be saving that much money.

Brent Pasqua: Yeah, absolutely.

Joshua Winterswyk: And also just on that what you might be losing is understanding what your property rights are actually going to be in that other state. So in California we have community property rights. And what are the rights in the other state that you’re moving into? So this is just another question that you have to answer. Before you move, you want to make sure you’re not sacrificing anything by moving, even with the property you already own.

Brent Pasqua: That makes sense. I think if we get into something also a little bit more complicated with it, it’s really establishing domicile. Can you explain what that is and why it’s important?

Matthew Theal: Yeah. So I’ll take a crack at the definition. So domicile is essentially where your permanent residence is. It’s where you establish your home base. And the way they look at it is, it’s where you intend to remain and return to when you go out of town. You can only have one legal domicile. You can’t have my domicile be in California and Nevada, you have to pick one. And what I found while I was doing my research that was really interesting about this, is the definition of domicile actually varies by state. So you need to check with the state you’re moving to to see how you claim domicile in said state.

Matthew Theal: The other thing though, too, is domicile determines what your state tax laws apply to you, not only for income, but also for a state tax. So you need to think about that as well. You most likely have a trust set up in California if you live here. You need to consider the estate tax laws of the new state you’re going to. Some states have small thresholds where when you pass away your state will have to pay taxes. It’s not like California.

Matthew Theal: The next thing is the state in which you claim domicile will be your residency state. So that’s where you live. That’s where you need to have all your bills sent. That’s where your medical doctors need to be. And if you do this wrong and you’re going back and forth between states, you could actually end up triggering residency in both states. And in that case, you might have to pay not only state taxes in the state of California, but also in Utah or Idaho, whichever state you pick as your secondary state. So I know that was a lot. I know I’ve been talking for a while, but this is a very complex topic.

Brent Pasqua: But it doesn’t just pertain to states that have no state tax. This pertains, regardless of any state you move to, you need to know that these things.

Matthew Theal: Yes, exactly. If you move to Texas, but you’re still doing things in California a little bit half the time, it’s very possible that you might end up triggering the residency rule in California and have to owe California state taxes, even though you live in Texas.

Brent Pasqua: So basically, you have to make sure you prove where your home actually is?

Matthew Theal: Yes.

Brent Pasqua: And there are tons of criteria. States can differ in that criteria. And you don’t want to raise any red flags to trigger any questioning of where your actual home is?

Matthew Theal: Correct. Correct.

Brent Pasqua: I guess why that could be problematic is, if you don’t establish correctly you could be paying that very high property tax in Texas and paying that very high income tax in California.

Matthew Theal: Yeah, exactly. You could absolutely do that.

Brent Pasqua: It’s a good reason to dig deeper, and not to just assume that you’re going to be making a decision that’s going to save you a bunch of money.

Matthew Theal: Absolutely. I think it’s just a really good point and a really good factor that you have to take into account and make sure you understand before you make that decision to move.

Brent Pasqua: When we’re talking about owning multiple properties, what should you do if you’re a part-time resident of another state?

Joshua Winterswyk: You have to understand the laws of how this can complicate that legal domicile that we just talked about. Let’s just say that you do have a house in California and a vacation house in Nevada. We just talked so much about domicile, how that can be confusing, how that also can be very specific, and there’s criteria that you have to meet to making sure that you’re proving that your domiciles state is met. So you really have to take the steps to identify where your domicile is, track the time you’ve spent in each state as well, and making sure you’re just keeping really good records so that if an audit does come about, or there is question about where your domiciles state is, you can prove where that home actually is.

Matthew Theal: Yeah. When you get that second home, if you plan on keeping maybe a place in California and having a nice home in the new state, you’re just adding complexity to an already semi-complex situation. So it’s like a Rich man’s benefit, right? It’s a good problem to have, but also you’re just adding complexity to your situation by owning multiple properties in multiple states.

Brent Pasqua: I’ve heard so many people say, and this isn’t taken from clients. Its just people’s chatter about how they would manage it if they had, let’s say, a property in a no state tax on how they would have someone either go flip on the utilities in the house to make it look like they’re there, or they’ll have a burner phone in the house to make it look like they’re there. The IRS doesn’t mess around with this. And it doesn’t seem like something that would be very smart to be messing around with.

Matthew Theal: Yeah. I mean, that’s all fun and games and jokes, but yeah, IRS doesn’t mess around. I doubt you’re going to get away with it.

Brent Pasqua: And is that risk even worth the reward?

Matthew Theal: Right.

Brent Pasqua: I mean, that goes back to even understanding the cash flow decision and what you’re actually paying in taxes, and analyzing that. Because doing all of that and taking those steps, even your time, is it worth your time to do that and potentially getting caught, and then facing those consequences? In most cases I would probably assume no.

Matthew Theal: Yeah. I think it’s maybe fun for people to come up with in theory, until you actually start really starting to think about it and the consequences that can come from it. It’s probably not something I would recommend.

Brent Pasqua: No, not really messing around with the IRS with that. What is a ancillary probate?

Matthew Theal: So ancillary probate is an additional probate process that happens when you die and own property in another state. So let’s give an example. Let’s say, we’ll go back to the Texas. You own a property in Texas, and a property in California. Texas is your legal domicile. Well, when you pass away, if it’s not set up properly in your trust, your California home is going to go into ancillary probate. So again, you’re going to have to update your trust when you move to another state to make sure it’s set up to avoid ancillary probate.

Brent Pasqua: Welcome in, and welcome to The Retirement Plan Playbook. We’re here. We’re ready to go. And we just want to welcome you in. I’m Brent Pasqua, host and founder of RPA Wealth Management. And I’m here with Matthew Theal, certified financial planner and Joshua Winterswyk, certified financial planner.

Brent Pasqua: Today’s show’s going to be a good one. We’re going to talk about creating a personal balance sheet, and why it’s so important for people to have balance sheets. I think it’s one thing that so many people lack. And we’ll talk about the importance of having a balance sheet, and why it can be helpful, and actually even how to create one. But before I get started, have you started your holiday shopping yet?

Joshua Winterswyk: I actually haven’t Brent. I’ve thought of a lot of ideas, so in my head I’m already creating a mental list. I always tell myself that I’m going to get my holiday shopping done early, but I actually haven’t started yet. How about you?

Brent Pasqua: My wife has started, and she’s gotten a lot done. She’s amazing at doing that. I could never do that. I can’t think that far ahead of things that I’m not tasked, and I’m not that good at.

Joshua Winterswyk: And gifting.

Brent Pasqua: Yeah.

Brent Pasqua: But she’s got a lot done. I need to start working on her stuff, and the other gifts I need to work on. But I know with shipping delays, and product delays, and all of that, it’s something I need to jump on really quick.

Joshua Winterswyk: Yeah. No, definitely. What about you, Matt?

Mattthew Theal : Yeah, my wife started doing some shopping. I haven’t really done anything yet. I’ll probably save all mine and try and get overnight shipping on the 22nd or something, and hopefully it works out.

Joshua Winterswyk: You’re just limited on the items you can actually buy?

Mattthew Theal : Yeah. I’m a procrastinator.

Brent Pasqua: That’s the worst thing about holiday shopping though, is if you procrastinate, it just costs you so much more. Either you buy more expensive gifts, or you just pay that much more to get it there in time.

Mattthew Theal : Yeah, I agree.

Joshua Winterswyk: And then you’re just upset that everything’s not like Amazon, and can get here in two days that’s free. Or, if you’re an Amazon prime member it’s free. You buy anything outside of Amazon, you’re getting the regular shipping cost to get it overnighted. And that’s not fun.

Brent Pasqua: Yeah. I don’t want to be outside on Christmas Eve hoping the UPS truck drives up the street.

Joshua Winterswyk: Yeah.

Joshua Winterswyk: In your holiday sweater outside. Looking for the UPS guy outside.

Brent Pasqua: All right. Well, let’s get into the hot take headlines.

Brent Pasqua: Facebook announced that it has changed it’s named to Meta, and the name change reflects the company’s growing ambitions well beyond social media. The rebranding also comes after the company has dealt with the barrage of news and reports over the last few months stemming from the whistleblower Francis Haugen’s trove of internal documents; which was a major story. But first of all, let’s get into why is Facebook actually changing their name, and are they changing directions of their company?

Mattthew Theal : Yeah. Good question, Brent.

Mattthew Theal : So I think they’re doing the rebrand. Obviously, the Facebook brand has been pretty tarnished over the last five years with the election interference, and then this whistle blower. So it was a good time. And then changing the name to Meta, I think is a big pivot that the company is undertaking to be part of this so-called metaverse.

Joshua Winterswyk: Yeah, it comes at a great time with all of the turmoil. But even their time horizon for this new metaverse idea is pretty long. I mean, they don’t even really have anything ready to launch right now. And it looks like this time horizon for this new metaverse that Facebook is trying to create is anywhere from five to 10 years before we see real production. But really cool from a business standpoint. I mean, they’re continuing to be innovative. I think that’s always good too. They’re not just sitting on dollars and being okay with the direction of the company. They are taking that next step, and I think that that’s kind of cool.

Joshua Winterswyk: Can you tell people what the overall vision of metaverse actually is in a brief summary? Because I know it can be overcomplicated.

Mattthew Theal : Yeah. So that’s a really great question.

Mattthew Theal : First of all, the metaverse has nothing to do with Facebook. The metaverse is this idea that we’ll start living more of our digital lives online, essentially. And it’s very futuristic. There’s books like Snow Crash, or Ready Player One that dive into this topic. It’s been written about a lot. The crypto Web3 community is leading the metaverse charge right now. It’s going to be decentralized. Corporations like Facebook and Microsoft are going to try and capitalize on it, but most likely they won’t be players in whatever online world that is built out.

Brent Pasqua: So you have an existence in a separate internet verse that you have things that you participate in, that you have currency in that you have involved… You have another life in this technological world, right? And then you have your life on earth.

Mattthew Theal : Yeah.

Mattthew Theal : And we’re already kind of living in the metaverse, at least a high percentage of the population is. And more and more people are getting onboarded daily with crypto wallets, and NFTs, and even playing video games. We haven’t talked about Axie Infinity on this podcast, but Axie Infinity is a online video game where you could earn crypto. But people in Asian countries, I believe actually the Philippines, are doing that as a full-time job right now and making more than they would make at factories.

Joshua Winterswyk: I think what’s interesting though about this too, is it’s not necessarily a new concept. I mean, they’ve always been trying to achieve a second life, or there’s the video game even, Second Life. I think just with technology though, and the advancements with even blockchain technology, just advancements in normal technology and virtual reality, that it’s becoming even more advanced of this Web3 metaverse. And Facebook sees an opportunity there, but it isn’t necessarily a new idea.

Mattthew Theal : No, not all.

Mattthew Theal : And that’s, Facebook’s big play is they actually own Oculus, that makes those goggles where you do get the VR experience. So that could be an area they go down. But for the most part, the people leading the charge, the programmers in Web3 and crypto, they’re all about decentralization. And Facebook is a centralized company, and I don’t see them being able to really compete in the metaverse of what’s going on. And a lot of the pieces are already being built without them.

Brent Pasqua: Yeah.

Brent Pasqua: When people think about what they currently do online; social media pages, Instagram, Facebook, metaverse goes well beyond just having a couple of social media page. I mean, that’s just what we do in our everyday life. This takes it to a whole new level. The question I would have though, is what is in it for Facebook? Is it just because they’re participating in so much already?

Mattthew Theal : Yeah.

Mattthew Theal : So they have the social aspect, and there’ll obviously be a social aspect to what gets built out in Web3 land, or the metaverse. But at the end of the day it’s money, right? This is marketing. You’re calling your company Meta, you’re going to lift your stock price, you’re going to make your investors happy that you’re pivoting to the next best thing. Social media is dying out. Facebook’s pretty much just used right now by people who are over 50. Teens aren’t really using Instagram anymore. Teens are going to TikTok. So the writings on the wall for a lot of the products that Facebook has.

Joshua Winterswyk: Yeah.

Brent Pasqua: I think it’s not going away. This metaverse is going to keep evolving. So, it’s probably just the beginning steps of what’s continuing to develop at this point.

Mattthew Theal : No, things are getting weird. It’s getting kind of sci-fi out there.

Joshua Winterswyk: Yeah.

Brent Pasqua: All right, let’s get into the second one.

Brent Pasqua: US inflation hit a 31 year high as prices rose 6.2%, fastest pace in three decades. Some states saw more increases than others. Why are we seeing this? We talked about that on a couple different podcasts. But what states are seeing prices rise the fastest?

Mattthew Theal : Yeah.

Mattthew Theal : So this is an interesting way to look at it. So the headline numbers… Oh, it’s 6% inflation. Does that mean everything’s going up by 6%? No. Does that mean that all the states are having prices increased by 6%? And the answer is no. Actually some states are having their prices increased by 7, 8, 9%. And what we’re seeing that’s really interesting is a lot of the states in the Midwest are having the largest price increase. And what’s funny is those were the states where it had the cheapest cost of living for a long time, where it didn’t match the coastal regions. And now because of inflation, that cost of living is going up in those states, and it’s becoming more expensive to actually live there than it was 3, 4, 5 years ago. It’s just not as cheap. So, I actually found that really interesting.

Joshua Winterswyk: Especially with so many people moving to those states, especially from the west coast. I mean, we see so many clients that are moving from California to the Midwest for cost of living decreases, that being one of their primary reasons for moving. And now we’re seeing inflation closing that gap.

Mattthew Theal : Yeah.

Mattthew Theal : And California, and then the Eastern Seaboard are experiencing the lowest changes in inflation right now.

Joshua Winterswyk: Yeah, it’s really interesting. The United States is so big, we sometimes even forget that, and that these inflation numbers aren’t relative to every state. I thought what was also interesting with this headline was that there was some local headlines about Turkey prices being doubled, but really year over year, they’re only up 1.7% per the labor department data. So I want to know who’s wrong there.

Mattthew Theal : It just depends where you’re looking at. You go to Walmart, you could get… Turkeys are selling at 69 cents a pound.

Joshua Winterswyk: Yeah. It’s just different headlines, right?

Joshua Winterswyk: And it’s actually probably increasing inflation even more by driving fear that turkeys are going to double in price, so we’re going out there and buying them earlier, buying a couple of them. And it’s actually helping inflation rise in that sense.

Mattthew Theal : You can get 10 pound bird at Walmart for under $10. How are you going to beat that?

Joshua Winterswyk: Maybe I should go to Walmart. I still need my Turkey.

Brent Pasqua: How long do we anticipate inflation’s going to rise for?

Mattthew Theal : There’s no way to predict the future. I would imagine that it continues for some time, until at least supply bottlenecks, or are finished off and the wages stop rising. I mean, one of the things that no one’s talking about right now is wages are rising. You go to Amazon, you’re making $20 an hour and they’re paying for your college. And that’s contributing to inflation.

Joshua Winterswyk: Right.

Joshua Winterswyk: And I think October was a big month. I think we all were expecting inflation to even taper off in August, September. But October was also… Inflation was there, and the numbers were even higher. So I think that… Again, yeah. I think it’s going to be sticking around maybe a little longer than everyone expected.

Mattthew Theal : Yeah.

Brent Pasqua: All right. Well, let’s get in the retirement planning corner.

Brent Pasqua: Today let’s discuss how to create your own balance sheet. And I think balance sheets are something that people can utilize no matter what age you are, what stage your financial status is, and they can become extremely helpful. And what a balance sheet actually does is it can help you create really an inventory of your stuff, your assets, your money, your accounts, your liabilities; which to get your total net worth is assets minus liabilities. And the only really way to calculate your net worth is to really be able to have an inventory of all your stuff. The first question I really have though is, why is a balance sheet so extremely important?

Mattthew Theal : That’s a great question, Brent. So a balance sheet’s going to let you do quite a few different things. Like you said, it’s inventory of your assets. Seeing what you own, and who you owe money to. The second thing is you could track your progress over time, which is pretty cool. Most people probably want their net worth to grow over time and improve. A balance sheet is your scorecard to see how well you’re doing. And then you could use it to make better financial decisions. If you go far a loan, you can send in your balance sheet, it makes the process much quicker. And it just will keep you organized financially. You’ll know where all your accounts are.

Brent Pasqua: Isn’t it so important for someone to see after the year’s over, where they started at the beginning of the year to how much their net worth changed throughout the year?

Joshua Winterswyk: Absolutely.

Joshua Winterswyk: It’s that snapshot of your wealth, and tracking of that wealth. And when we talk about businesses, all businesses have balance sheets. That’s one of the core financial statements when you’re running a business that you’re supposed to have. So personally, why wouldn’t we all have one of those too? If we really want to understand our financial health, we need that snapshot. And we also need to continue to monitor that snapshot. It’s the same reason why you go to the doctor and still do your blood work every year, or whatever test that that doctor’s running. So very important to not only have that organization, have that awareness of your financial health, and continue to track it to see where you’re going. And are you even achieving the goals that you set out for?

Brent Pasqua: I feel like if you want to make progress financially, and you want to continue to grow and better yourself financially, there’s no real other way to start that than to actually know what you have, and be able to track and document it all. Because if you’re just coming up with it in your mind, you’re just coming up with a fictitious number, and assuming that you’re doing better than you possibly are.

Joshua Winterswyk: Yeah, you just have that mental accounting. And it’s almost like you’re making an excuse to put that on paper and see actually how you’re doing.

Brent Pasqua: I think 95% of all clients when we meet with them for the first time, and we’re talking about assets and a balance sheet, they’re coming up with these numbers based off of memory. They don’t have an actual balance sheet.

Joshua Winterswyk: And sometimes they’re surprised, whether it’s better than they thought, or worse than they thought. And that’s just a good start concerning planning to make your financial life better. But it’s just really important. Pretty simple idea, concept, and a report to create for yourself, but very, very valuable in so many ways.

Brent Pasqua: Yeah. It’s one of the first things we do as advisors is get a record of all the assets, and then create the balance sheet, because then we can visualize what there is.

Joshua Winterswyk: Yeah, absolutely.

Brent Pasqua: So if someone wanted to create their own balance sheets on their own, and they weren’t working with the advisor, how would they actually do that?

Mattthew Theal : So there’s a couple different ways you could do it. The first is you go the old school way. You pull up your statements, and then you get out pen and paper, and you just start writing it down. I’ve had clients do that for years. That’s a pretty impressive way to do it, but it works. The other, if you’re a little bit more savvy on the computer, you could try out Excel. Pretty much, same process there. You go and pull up your Excel document and start typing in it. List your accounts, and the values, and… I don’t know, maybe put one tab for 2021, the next tab then for 2022, and then you could track it over time. There also are some third party softwares you could pay for. Mint.com has one. I think Josh, you said, RightCapital has one.

Joshua Winterswyk: Mm-hmm (affirmative).

Mattthew Theal : There’s quite a few in the app store if you used your iPhone, that you could pay for, that will track your balance sheet for you. And then as always, maybe one of the ones that would be a little bit smarter so you get some professional advice on your balance sheet and how to use it properly, would be to hire a financial planner who’s going to use state-of-the-art software, but also give you the tool kit that you need to use your balance sheet effectively.

Brent Pasqua: When I did my first one way back in the day, I did the archaic way. I just wrote down the numbers at the beginning of the year, and then hoped at the end of the year that my numbers have improved. So don’t feel if you’re doing that, that that’s necessarily the worst thing to do. At least you’re tracking it. But there is now so many other stay of the art ways to do it that are so much better.

Joshua Winterswyk: Yeah, absolutely.

Joshua Winterswyk: So just, again, listing out those assets on paper like you said, and those liabilities to calculate that net worth. To me personally, Excel is really good at this. Excel, I think even has some balance sheet templates in it if you’re just using the Microsoft tools. You can put in the data and it even titles everything for you, so if you don’t know where to start, it can help you with that. But just really important. And like you said Brent, I agree pen and paper will still work.

Brent Pasqua: What are some of the assets that you want to put on a balance sheet? Can you give us some examples?

Mattthew Theal : Yeah.

Mattthew Theal : So, you could start just your bank accounts; checking, savings, maybe if you have CDs or anything fun like that. Maybe you have a stock brokerage account. The Robinhoods are really popular right now, but maybe you have a Charles Schwab, or a Fidelity with some stock in it. You want to list your employer stock options, any 401ks, IRAs, Roth IRAs, 403Bs, 457s, and your retirement account. Maybe you’re a business owner. Most business owners don’t know the worth of their business, so that’s a whole other conversation. But, you’d probably write your business, and then your property. Do you own land? Do you own a home? Do you own commercial building? You want to track that as well.

Brent Pasqua: How often should they update that?

Mattthew Theal : Well, ideally you’d say that any accounts like a brokerage or retirement would update in real time. The home values and stuff, those don’t actually change as much as people think. So maybe on an annual basis. Same with the business, maybe every couple years.

Joshua Winterswyk: Would you recommend listing personal property on a balance sheet? So let’s say art, or classic car, stuff like that, jewelry.

Mattthew Theal : You can, if it’s valuable. But if it’s not that valuable, why do it? I mean, maybe if you own some really nice NFTs, or some really nice artwork.

Joshua Winterswyk: Yeah. So when I was saying art, that’s what I was thinking, NFTs.

Mattthew Theal : Yeah, you could do that. There’s Crypto Punks, they’re selling for a couple hundred thousand dollars, and that’s a significant asset but…

Joshua Winterswyk: Baseball cards.

Mattthew Theal : Yeah. Baseball cards, if they’re valuable. But, the whole thing is for these, you got to find a buyer. So it’s fine to write down a number, but if no one’s willing to buy it, it’s kind of useless.

Brent Pasqua: I think one of the neat things about the software that we utilize though, and I have a lot of clients that use it, is the financial planning software sends them a report once a week. And it gives them the updates of all of their balance sheet and their figures. And I think that’s helpful for people to also begin to track because you can make adjustments to either your spending, or what you’re doing financially just by being able to look at your balance sheet once a week.

Joshua Winterswyk: And you can also just quickly calculate if you’re moving money around or you’re purchasing even an asset, how it’s going to affect your balance sheet. So just effectively creating one is going to allow you to analyze even further about projecting the future. So just again, really valuable.

Brent Pasqua: We talked about some of the assets that would go on a balance sheet. So we know, to get net worth, you need assets minus the liabilities. Liabilities being the debts, or the things that you owe money on. What are some of the liabilities that you would have on your balance sheet?

Mattthew Theal : So liability is money owed to people. So what you’re going to do is put your debts on this. The first debt that most people have is some type of credit card debt. It could be revolving, but also sometimes you run into a situation where maybe you have 20-$25,000 in credit card debt. You’re going to want to put that on there. Also, if you own a home, you’re going to want to put your home loan. If you own cars, you’re going to want to put your auto loans as well. And then finally student loans, put that as well because again, you owe money for that education. It’s a debt. Those are really the main four or five liabilities. I don’t think I missed one, did I?

Joshua Winterswyk: No.

Joshua Winterswyk: So if you did list your business, what if there’s a SBA Loan for your business, are you listing that on there?

Mattthew Theal : Yeah.

Mattthew Theal : If you had a loan for the business, you’d want to list that on there as well.

Joshua Winterswyk: So, just basically whatever you owe.

Mattthew Theal : Yep.

Joshua Winterswyk: If you owe money, you’re going to list it under that liabilities tab.

Joshua Winterswyk: I think you can even take it one step further, and list what’s short term and what’s long term. Short term being anywhere under 10 or five years. And then everything long term; like a mortgage, that’s at 20, 30 years. And break it up that way too.

Brent Pasqua: I think another great way to increase your net worth is paying down your debts. It’s a fast way, or it could be a quick way to really increase what you have. And I think that’s a neat thing to track on your balance sheet is being able to watch some of your liabilities go away.

Joshua Winterswyk: Yeah, that’s the fun part.

Joshua Winterswyk: If your goal is to be debt free and getting that to zero, or if your goal is just to be personally debt free, meaning you got rid of the student loans, the credit cards, and seeing that all go away, those red liabilities that are listed on a balance sheet, it’s nice to see those go down, or go to zero.

Brent Pasqua: Yeah.

Brent Pasqua: If you’re not retired, and you’re thinking about retirement, or planning retirement, I think just in our observation of working with clients who are retired, some of the people that live the most financially free in retirement are the ones that have their houses paid off. It just frees up so much cash flow. That’s a good goal to create.

Joshua Winterswyk: Yeah.

Joshua Winterswyk: And to be debt free, and also to get rid of a mortgage, you’re never really probably going to be that unhappy with that decision if you paid that down. So yes, there’s certain scenarios where you might need to keep the mortgage, or you want to; but just from a happiness standpoint, I don’t think you’re going to be upset you ever paid off your mortgage.

Mattthew Theal : Right.

Brent Pasqua: Once you have all your assets on the page, and you have all your liabilities on your balance sheet, how do you find out your net worth?

Mattthew Theal : You just add up your assets, and you add up your liabilities, and you subtract the two. Pretty simple calculation. You could do it by hand, or you could use Excel, or the software will do it for you.

Brent Pasqua: And then, what are some of the best ways to improve net worth? We talked about paying down some debts, but what are some other ways?

Mattthew Theal : Paying down debt is a really good one for a lot of people. If you see someone with a balance sheet that you’re under water, where you have a negative net worth, which is possible, paying down debts probably one of your top strategies, because it most likely means you have a little bit too much debt compared to how much assets you have. So you pay down the debt first, then you could start building assets. But if you don’t have a ton of debt, your goal should be to grow your assets. So how are you going to do that? You’re going to probably invest in the stock market, maybe invest in some businesses. You’re going to want to put your money or capital to use in ways to get you a high rate of return so that your net worth grows.

Joshua Winterswyk: I think it’s just really important to point out that that balance sheet’s going to grow by you effectively using your cashflow. Using cash flow to pay down debt, using cash flow to save money, to invest money, to purchase assets. So cashflow is very important relative to this balance sheet. And I think also Matt, you just made a really good point that we take it for granted like net worth’s always positive. But we see a lot of the younger generation where net worth is negative because of big student loans and stuff like that. So not a bad thing, but you have to be aware. Creating this balance sheet is going to make you aware of where that cash flow should be going to getting you to zero, or to growing that net worth.

Brent Pasqua: Can having a balance sheet help you make investment decisions, and how?

Mattthew Theal : Yeah, it can. Because when you look at it… Let’s say you look at your balance sheet, and be like, “Okay, well my balance sheet’s pretty safe. I have a couple hundred thousand cash in the bank. I have retirement accounts, and maybe there’s half a million or a million in there, but I can’t touch it for another 10 years. So my retirement’s looking like it’s on track for progress, but maybe I would want to make a little bit more money. Maybe I could deploy some of my cash that’s in the bank into maybe a portfolio of stocks and bonds, or I could use half of that to do a risky investment, like some cryptocurrency, or some venture. But yeah, you should absolutely be looking at the risk of your balance sheet, and making decisions that way.

Brent Pasqua: Yeah.

Brent Pasqua: And I guess then it can help lead you to possibly be just leveraging some of your assets at that point too?

Mattthew Theal : Yeah, you could do that. Absolutely.

Joshua Winterswyk: And it shows you how diversified your assets are, like what assets are you overweighted or underweighted in? So again, devoting more cash flow to the more underweighted assets. You want diverse in an investment portfolio, but you also want diversification within your balance sheet. So if you have too much percentage of one particular asset, that’s providing more risk to your overall financial snapshot. So again, I think that it’s very effective in looking at where you’re overallocated or under allocated according to your overall asset total.

Mattthew Theal : On the flip side too, if you have that negative net worth, you have a lot of liabilities, you probably shouldn’t be taking a ton of risk on your balance sheet. You should be working on paying down those liabilities, most likely ramping up your retirement savings, getting that emergency fund built out, instead of taking too much risk. I always find it funny when someone with high debt loads wants to take a lot of risk. I’m like, “Well, that’s not really what you should be doing because you have a higher chance of losing this money that you’re risking. You should use it in a productive means, and maybe pay down high interest debt, or start saving for your retirement.”

Joshua Winterswyk: You don’t want to compound that negative net worth.

Mattthew Theal : No, you don’t want to make it worse.

Joshua Winterswyk: You just dig that whole even deeper from what I’m hearing from you. And that’s a great point.

Brent Pasqua: I think of all the podcast topics that we have done, I think this ranks as one of my top. Just because I think it’s so critical to have a balance sheet, and have an idea of what’s in front of you, what you have, and then how to be able to maximize making financial decisions. I think you can create so many strategies by just creating a balance sheet, and having this on paper. I can’t emphasize the importance of actually having that.

Joshua Winterswyk: I totally agree.

Brent Pasqua: Any final thoughts on balance sheet?

Mattthew Theal : No. Just one thing I’ll mention is, one thing we see a ton of, especially here in California because it’s a high cost state, the homes are very expensive, is we see a lot of people sitting on big equity balances in their home. Creating a balance sheet can help you make a decision on if it’s a good time to do a cash out refi, or use that equity in your home in a more productive way. Because essentially, what it’s doing is just sitting in there earning whatever rate of return your home gets.

Brent Pasqua: Great topic producer Matt. I think this one’s an excellent one for today.

Joshua Winterswyk: I think so too.

Joshua Winterswyk: Great topic. Get started. Let’s let’s build those balance sheets.

Brent Pasqua: All right.

Brent Pasqua: Let’s head into the final segment of the show. We’ll get into RPA Recommends. Anybody want to kick it off?

Joshua Winterswyk: I’ll kick it off today.

Joshua Winterswyk: This one’s for the pet lovers. So my wife and I, we have two dogs that we love; Memphis and Mila. And we like to take them on walks. And so we’re always looking… They need leashes, they need harnesses, they need that kind of stuff. And we found a company, it’s called Wolfgang. So if you just Google Wolfgang, they have great and really cool styles of harnesses, leashes, collars on their website. And they’ll probably do some promos here through the holiday season. But if you’re looking to upgrade your dog’s gear for the walks, or their callers, check out Wolfgang,

Mattthew Theal : All right.

Mattthew Theal : So I mentioned earlier, things are getting a little weird in the world. But in a good way. And I think Facebook changing its name to Meta is bringing the metaverse and what’s going on to Web3 to most people. If you’re playing catch up, Google NFTs, Google Web3s. And just spend 10 to 15 minutes, maybe watching some YouTube videos or reading some articles.

Joshua Winterswyk: Podcasts.

Mattthew Theal : Any podcasts on them are great.

Mattthew Theal : Learn what’s been getting built over the last three or four years, because crypto’s not just all Bitcoin and Ethereum, and it’s going to take over the dollar. There’s actually a whole new internet being built, and it’s pretty fascinating. Josh and I are currently in a decentralized autonomous organization at Dow. And as of recording, we are bidding with a bunch of other people to buy the US Constitution. And this is probably a project that you’ll hear about when this podcast comes out, because it’ll either be successful or unsuccessful. If it’s successful, it’ll go mainstream media. So, do some research. It’s pretty fascinating what people have been building over the last three to five years.

Brent Pasqua: So, your recommend is to do research on crypto?

Mattthew Theal : On Web3, and NFTs, and everything that’s been happening in the past year or two. Because I originally poo pooed it, but I have since gotten really into it, and getting more involved by the day. It’s pretty much where I’m spending my evenings now.

Brent Pasqua: Maybe too, in the future, you can give us some resources so people can check it out, read some of the stuff that you’re reading, and just know where to go for good information.

Mattthew Theal : Yeah, absolutely.

Mattthew Theal : A new podcast just launched; Web3 Breakdowns by Patrick O’Shaughnessy. I’d suggest checking that one out. The first one is on Bored Ape Yacht Club, which is a NFT project that was really successful.

Joshua Winterswyk: I’ll just piggyback that with your recommendation. But I think that the spaces, and the applications are just growing so fast now. I think at first when we were looking at cryptocurrency in this space, there was a lot of promises, not that much movement. But there’s tons of movement now. Things are developing, and applications are being created so quickly. And then we have access to them now. That has sparked my interest. And so, looking forward to seeing if we actually purchase this constitution or not.

Mattthew Theal : I hope we win it.

Brent Pasqua: My recommend is something that will hopefully make you look nice. Not just in the metaverse and the virtual reality world, but make you look nice on earth, the life that we live here in the present.

Brent Pasqua: Holidays are coming. I didn’t realize that this was out there, but they have Banana Republic Factory. And it’s online, and it’s just substantially discounted really nice Banana Republic clothes. If you’re looking for a sweater, or new outfit for Christmas, or Thanksgiving, or the holiday time, whatever it is, check it out because they got really, really good prices. And Banana Republic clothes are really good quality, something you can have for a very long time. And if you want to look nice and save a few bucks, place to do it when things are 50, 60% off.

Joshua Winterswyk: No, you’re going to look nice.

Joshua Winterswyk: My recommendation; your dog’s going to look nice all while you’re researching Web3.

Brent Pasqua: Yes, living in a virtual reality world.

Brent Pasqua: All right. Well, as we close out, as advisors, we love helping people. That’s why we do it. If you’d like to schedule an appointment with any of us, please go to rpawealth.com and schedule a complimentary consultation. You can also download our e-book from our website. And if you’d like to show notes, please go to retirementplanplaybook.com. As always, Happy Holidays, and thanks for listening.

Joshua Winterswyk: Thank you.

Mattthew Theal : Thank you.

Announcer: RPA Wealth Management is a state registered investment advisor located in Rancho Cucamonga, California. Registration does not imply a certain level of skill or training. RPA Wealth Management may only transact business in those states and jurisdictions in which it is registered or qualifies for an exemption or exclusion from registration requirements. A copy of RPA Wealth Management’s current disclosure statement; form ADV Part 1, containing RPA Wealth Management’s business operations, services, and fees is available by accessing the SEC’s investment advisor public disclosure website. RPA Wealth Management will provide form ADV Part 2A, firm brochure, and 2B, brochure supplement, to interested parties upon request. Information provided on this podcast should not be construed as a solicitation, or offer, or a recommendation to acquire or dispose of any investment, or engage in any other transaction. RPA Wealth Management does not render or offer to render personal investment advice or financial planning advice through its podcast. RPA Wealth Management podcasts are intended for information and educational purposes only.

Matthew Theal: Prop 19.

Joshua Winterswyk: I think.

Matthew Theal: Good correction.

Brent Pasqua: I guess, too, one of my questions and thoughts are when it comes to this is: How many people really know what they are paying in state tax, without it just being a we know we’re paying a lot in California, but we don’t know what that dollar amount actually is?

Joshua Winterswyk: That’s a great question. And even when you get your taxes done, I mean, you guys could probably attest to this too, but the primary focus when you’re getting your taxes done is on that federal 1040 form. So that state tax isn’t jumping out to you anyways. So answering that question, you’re going to have to dig a little bit deeper to understand. And I feel like even when you meet with tax preparers, that isn’t the first conversation you’re having. It might not even be a conversation just besides if you’re getting a refund or you have to owe. So just a really good start there of making sure you understand exactly how much you are paying.

Matthew Theal: The other thing to consider is how much the cost of goods in that state. One example here in California, it’s pretty dense, right? We could hop in our cars and be in a shopping center with a Target, a McDonald’s, a grocery store probably in under five minutes. We don’t have to drive that far, it’s a couple of miles. But in some of these other states where people are moving to, they’re more spread out and there might only be one shopping center, or you might have to drive 30 miles to another town to get to a specific store. Now, you’re wasting a little bit more time. Sure, gas prices might be 20 cents lower than here in California, but you’re burning more gas now driving 20, 30 miles to the store.

Joshua Winterswyk: Well, you have electric vehicle now.

Matthew Theal: Oh, that’s true.

Brent Pasqua: And then what will you lose in state specific benefits if you do move?

Matthew Theal: So this is a good one. I mean, you could be on some kind of state specific social benefits plan. The big one here in California, we have CalPERS and CalSTRS. You should probably look into how that’s going to affect your benefit. Will you still be taxed on it? I believe the answer is yes, you still will be taxed on it. So it’s probably really not worth it for you to move to another state if you’re happy here in California.

Joshua Winterswyk: Right. You’ll pay taxes in the state that you’re in based on your pension. You don’t have to pay California taxes on a California pension. You’ll pay it based on your state. But I think it’s important, you can reduce the amount of taxes that you can pay if you are living in another state.

Brent Pasqua: But there’s also a lot of tools out there now, and especially with this technology and the internet, for you to even project that tax in that other state. Or even, now we’re opening the conversation of meeting with whoever’s preparing your taxes to analyze that as well. Because, again, you don’t want to sacrifice any benefits, and knowing what those tax differences are just going to make that decision even better, or more efficient.

Joshua Winterswyk: Yeah, I think before making a decision, because moving is a big decision. And where you’re moving to is obviously going to be important part of that. And that could be you’re either moving away from family or you’re moving to family, but if it’s a financial decision that you’re making you probably want to know what that dollar figure is. And you have to dig a little deeper than just assume you’re going to be saving that much money.

Brent Pasqua: Yeah, absolutely.

Joshua Winterswyk: And also just on that what you might be losing is understanding what your property rights are actually going to be in that other state. So in California we have community property rights. And what are the rights in the other state that you’re moving into? So this is just another question that you have to answer. Before you move, you want to make sure you’re not sacrificing anything by moving, even with the property you already own.

Brent Pasqua: That makes sense. I think if we get into something also a little bit more complicated with it, it’s really establishing domicile. Can you explain what that is and why it’s important?

Matthew Theal: Yeah. So I’ll take a crack at the definition. So domicile is essentially where your permanent residence is. It’s where you establish your home base. And the way they look at it is, it’s where you intend to remain and return to when you go out of town. You can only have one legal domicile. You can’t have my domicile be in California and Nevada, you have to pick one. And what I found while I was doing my research that was really interesting about this, is the definition of domicile actually varies by state. So you need to check with the state you’re moving to to see how you claim domicile in said state.

Matthew Theal: The other thing though, too, is domicile determines what your state tax laws apply to you, not only for income, but also for a state tax. So you need to think about that as well. You most likely have a trust set up in California if you live here. You need to consider the estate tax laws of the new state you’re going to. Some states have small thresholds where when you pass away your state will have to pay taxes. It’s not like California.

Matthew Theal: The next thing is the state in which you claim domicile will be your residency state. So that’s where you live. That’s where you need to have all your bills sent. That’s where your medical doctors need to be. And if you do this wrong and you’re going back and forth between states, you could actually end up triggering residency in both states. And in that case, you might have to pay not only state taxes in the state of California, but also in Utah or Idaho, whichever state you pick as your secondary state. So I know that was a lot. I know I’ve been talking for a while, but this is a very complex topic.

Brent Pasqua: But it doesn’t just pertain to states that have no state tax. This pertains, regardless of any state you move to, you need to know that these things.

Matthew Theal: Yes, exactly. If you move to Texas, but you’re still doing things in California a little bit half the time, it’s very possible that you might end up triggering the residency rule in California and have to owe California state taxes, even though you live in Texas.

Brent Pasqua: So basically, you have to make sure you prove where your home actually is?

Matthew Theal: Yes.

Brent Pasqua: And there are tons of criteria. States can differ in that criteria. And you don’t want to raise any red flags to trigger any questioning of where your actual home is?

Matthew Theal: Correct. Correct.

Brent Pasqua: I guess why that could be problematic is, if you don’t establish correctly you could be paying that very high property tax in Texas and paying that very high income tax in California.

Matthew Theal: Yeah, exactly. You could absolutely do that.

Brent Pasqua: It’s a good reason to dig deeper, and not to just assume that you’re going to be making a decision that’s going to save you a bunch of money.

Matthew Theal: Absolutely. I think it’s just a really good point and a really good factor that you have to take into account and make sure you understand before you make that decision to move.

Brent Pasqua: When we’re talking about owning multiple properties, what should you do if you’re a part-time resident of another state?

Joshua Winterswyk: You have to understand the laws of how this can complicate that legal domicile that we just talked about. Let’s just say that you do have a house in California and a vacation house in Nevada. We just talked so much about domicile, how that can be confusing, how that also can be very specific, and there’s criteria that you have to meet to making sure that you’re proving that your domiciles state is met. So you really have to take the steps to identify where your domicile is, track the time you’ve spent in each state as well, and making sure you’re just keeping really good records so that if an audit does come about, or there is question about where your domiciles state is, you can prove where that home actually is.

Matthew Theal: Yeah. When you get that second home, if you plan on keeping maybe a place in California and having a nice home in the new state, you’re just adding complexity to an already semi-complex situation. So it’s like a Rich man’s benefit, right? It’s a good problem to have, but also you’re just adding complexity to your situation by owning multiple properties in multiple states.

Brent Pasqua: I’ve heard so many people say, and this isn’t taken from clients. Its just people’s chatter about how they would manage it if they had, let’s say, a property in a no state tax on how they would have someone either go flip on the utilities in the house to make it look like they’re there, or they’ll have a burner phone in the house to make it look like they’re there. The IRS doesn’t mess around with this. And it doesn’t seem like something that would be very smart to be messing around with.

Matthew Theal: Yeah. I mean, that’s all fun and games and jokes, but yeah, IRS doesn’t mess around. I doubt you’re going to get away with it.

Brent Pasqua: And is that risk even worth the reward?

Matthew Theal: Right.

Brent Pasqua: I mean, that goes back to even understanding the cash flow decision and what you’re actually paying in taxes, and analyzing that. Because doing all of that and taking those steps, even your time, is it worth your time to do that and potentially getting caught, and then facing those consequences? In most cases I would probably assume no.

Matthew Theal: Yeah. I think it’s maybe fun for people to come up with in theory, until you actually start really starting to think about it and the consequences that can come from it. It’s probably not something I would recommend.

Brent Pasqua: No, not really messing around with the IRS with that. What is a ancillary probate?

Matthew Theal: So ancillary probate is an additional probate process that happens when you die and own property in another state. So let’s give an example. Let’s say, we’ll go back to the Texas. You own a property in Texas, and a property in California. Texas is your legal domicile. Well, when you pass away, if it’s not set up properly in your trust, your California home is going to go into ancillary probate. So again, you’re going to have to update your trust when you move to another state to make sure it’s set up to avoid ancillary probate.

Brent Pasqua: I think this is something a lot of people forget as well, and they don’t realize that it gets super complicated with your state and your estate plan if you have properties in multiple different states and making sure that those properties are actually up to date inside of your trust.

Joshua Winterswyk: That was exactly my thought, too. This is just another thing that could potentially complicate what seems like an easy move to another state or owning property in two different states. But another step that you had to make sure that you’ve taken care of.

Matthew Theal: Yeah. It’s funny because if you set up properly, that’s where we’re going, this is complex, you’re going to have to pay some professionals to set this up properly to make sure your trust is in line, make sure your tax plan is correct. You’re probably going to pay more in professional fees than you pay in California state tax fees on an annual basis just based on the fact that most people who are listening to this are retired and they’re probably not paying that much in California state taxes anyways.

Joshua Winterswyk: Mm-hmm. Good point.

Brent Pasqua: Yeah. And then if people with high net worth, these are costly things to keep up to date. I mean, your estate plan is probably getting reviewed and updated. Every year your taxes are being done by a CPA. You’re having multiple returns done. This isn’t something that’s very easy to do.

Joshua Winterswyk: No. And even if a property has to change titles, there’s other fees for that. So it is a very complex process and could be a very costly process.

Brent Pasqua: What should you update as far as your records go?

Matthew Theal: You should most likely notify all the important government agencies. So I’m just going to read off a list here. We’ve got the USPS, IRS, that’s an important one. That’s the theme of the show, make sure the tax man knows where you are. All your financial institutions, so that’s the people who have your 401K, your IRAs, your brokerage statements, your bank account, your credit cards, your auto loan, all of that should be updated with your new address. Don’t forget to let social security know where you are, because they’re sending your check. And then the Medicare, VA and federal student loans, if you have any of those or qualify. But yeah, pretty much every institution that is important, I would let them know where you are and where you’re living and change those addresses on those bills.

Brent Pasqua: Amazon?

Matthew Theal: Yeah. I mean, Amazon will probably find you.

Brent Pasqua: They’ll still show up at your door?

Matthew Theal: Yeah. They’ll figure out a way to find you. They got those trackers in the Alexa’s.

Brent Pasqua: I imagine that the IRS is like, where are all these packages going? That’s how we’re going to find them.

Matthew Theal: Yeah.

Brent Pasqua: What should you do with your estate plan?

Joshua Winterswyk: Well, if you are moving and you do have an existing estate planner, here’s a good reminder. If you don’t have one at all, you probably need to get one. But if you do have one and you’re moving to a new state, it’s probably best to get that trust reviewed. You want it to be updated to the actual law that is abided by in the state that you’re actually moving to. So now is just a good time if you’re thinking about that, to meet with that estate planning attorney, reviewing your living trust and all of your estate documents. Because those laws in the state that you could move to could be different than the state you actually live in. So, again, you need to be taking the step hiring the professional to making sure that that is updated and it’s abiding by all of the law in the new state that you’re potentially moving to.

Matthew Theal: Yeah. I have one takeaway from the show, and I’m sure Brent and Josh, you guys would agree with me because we all have many clients who have left the state and moved to other states. And I know we’re making this sound probably a little bit more complex than it is. It is a complex process. We just want everyone to do it right. But the one thing is, if you’re not happy in California… Most people we find when they move out of the state are fairly happy, right? They seem to be very happy in their retirement in their new state. So from that angle, it’s probably worth it.

Brent Pasqua: Yeah. I would agree with that. Especially if your family moved there, right?

Matthew Theal: Yeah. If your family moved there. Or for some reason you don’t need to even live in California anymore because maybe your family is far away, or it’s not very big, or you have a job in California anymore. Probably no reason to be here.

Brent Pasqua: That is a good just looking back observation is that, even what I’m seeing, a lot of parents are moving out of state, even children are following, or even vice versa. So the whole family is transplanting to that new state and they’re finding happiness, because they’re staying with their family and stuff like that. So we’ve seen that very commonly lately. Yeah. There are complexities to it. There’s time that has to go into it, but it’s not impossible. For a lot of people it can be worth the time. I think you got to know how much it’s worth. For everybody that I work with that has done this, they do it the right way. They’re not trying to hide their way through different locations. They’re actually living there. They stay there and they do their time in that state. And then they’re able to come back. They manage the seasons, right? Winter time, they’re in one state. Or summertime, they’re in other.

Brent Pasqua: One of the ways I think that we have helped a lot of clients in steps we take to help them find out the answer to this, whether or not it’s worth it or not, is as we built out their financial plan… In the financial plan, we can do a comparison, what the benefits would be and the potential tax savings would be if they do move to another state. And in that time they could really determine from a financial benefit, is this worth exploring more? If the answer to that is yes, then the next steps we take is let’s bring the CPA into the meeting, let’s bring the attorney into the meeting, let’s bring your whole team in, and let’s talk about this in a little bit more depth than what it would require what the costs are going to be. And then a real decision can be made once you gather all the facts.

Joshua Winterswyk: Yeah, no, that’s just a really good summary of how proper planning can really just make this process even more efficient and legal.

Brent Pasqua: Yeah. But if you’re paying 5,000 to 7,000 or $10,000 in state tax… I don’t know. It seems like there’s a lot more costs that are going to come up from moving to another state.

Matthew Theal: Yeah. It’s probably going to be more of a wash. So at the end of the day, like I said, it comes down to happiness. Where do you want to be? Where do you want to live?

Brent Pasqua: Absolutely. Happiness is a key. All right. Let’s kick up.One of the things that makes me happy, and that’s RPA recommends. Who wants to get us started today?

Matthew Theal: I’ll get it started, but I’m going to point this at Josh. Josh, have you done the golf gloves, the Asher ones, yet?

Joshua Winterswyk: The Asher golf gloves?

Matthew Theal: Yeah.

Joshua Winterswyk: Yes, I have.

Matthew Theal: Oh, you have? Oh man. Well-

Joshua Winterswyk: I’m pretty sure I’m the one who told you about them, but-

Matthew Theal: You did. But I didn’t know if you talked about them on the show though yet.

Joshua Winterswyk: Oh, oh, did I talk about them? No, I don’t think so.

Matthew Theal: Well, I know a lot of our listeners play golf and they talk with Josh and I about our golf game. And Josh recommended I try these gloves that are online called Asher, A-S-H-E-R. They’re great gloves. I don’t think I’ll ever buy another brand’s golf gloves again.

Joshua Winterswyk: Yeah. They’re nice. I think they’re based out of Colorado. They just make really cool craft golf gear. So if you’re looking for something a little different, I highly recommend them to you. I use their golf gloves. Matt, I’ll see you with your new Asher glove hopefully on Sunday.

Matthew Theal: Yeah. You definitely will.

Joshua Winterswyk: I’m going to go a little different. So air purifiers have gained tons of popularity over the last couple of years.

Matthew Theal: Why would that be?

Joshua Winterswyk: Yeah. Yeah. Right? So they’re coming out with even new features and a lot of good benefits. Clean air, helps with even allergies, potentially even helps clean viruses and bacteria out of the air. So not a bad thing for air purifiers. RPA wanted to purchase some new ones. So Matt and I did some research and we bought some Blue air purifiers. Pretty cool. Would you guys recommend them?

Brent Pasqua: Yeah. We have it going right now in the conference room. So I can clear out the COVID from either one of you.

Matthew Theal: It’s green right now, but true story. One of us sneezed in the office, I won’t name, the other day. And I noticed I walked into the common space and the Blue Wave was yellow, which means there’s toxins in the air and it’s cleaning it. And that happened probably about five minutes after that person sneezed.

Joshua Winterswyk: Was it me?

Matthew Theal: No. You weren’t in the office at that time.

Joshua Winterswyk: I just want to know. Now we’re down to two. What’s really cool about them, though, the tech on them is really nice. They’re actually showing you through a light system how clean the air is. And they even have an app that’ll tell you how long it’s going to take for these machines to clean the airspace. So it’d be like 29 minutes until the air’s completely cleaned in that room. So just pretty cool. Pretty cool devices.

Matthew Theal: And then another person, I won’t again mention names, who sprays Lysol. And then the thing just almost breaks. It just goes red when that happens.

Joshua Winterswyk: It beeps.

Brent Pasqua: One of my joys is walking around the office spraying Lysol. This was even pre COVID. And then now we have these machines, so now every time I walk around the office spraying Lysol I see these machines start to go nuts. Now you’re getting even more entertainment from spraying Lysol around the office.

Joshua Winterswyk: So if you come in check them out. They’re pretty cool. But yeah, that’s pretty funny when Brent goes and starts spraying that bottle.

Brent Pasqua: I wear a mask while I spray the Lysol because I don’t want to breathe that stuff in, but for everybody else in the office it’s fine for you guys to be breathing it. All right. So I’ll get into the RPA recommends for myself. I’m going to do a place that I think I probably mentioned a long time ago when we first kicked off the show. It’s one of my favorite lunch spots or dinner spots. One of my favorite restaurants here in Southern California. The Mexican place that I favorite any chance I get is Javier’s. I went there this last weekend in Newport. It was outstanding. They built a whole area outside. It’s absolutely beautiful out there. Weather is good in Southern California right now. If you’re more towards the ocean, it’s even cooler. I recommend if you want to take your spouse on a nice date or you’re going to take your family out, check it out, go have some nice Mexican food. It’s outstanding. It’s not cheap, but it’s a nice place to go.

Joshua Winterswyk: I love how Brent, when he talks about Javier’s, it puts a little twinkle in his eye. That’s his spot.

Matthew Theal: Yeah. I know we’ve been going long on the show, but I want to get out this weekend. Maybe, do you want to go down to Javier’s?

Brent Pasqua: Hey, I’m always down.

Matthew Theal: You’re selling me. I’m going down to Newport.

Brent Pasqua: I’m always open. If there’s one company, I know we’ve mentioned a few that potentially sponsor this podcast, I think Javier’s is up on that list. At least we just get a free meal or something. All right. So as advisors, we love helping people. That’s why we do it. If you have more questions about moving out of state, reach out to us, we’ll sit down and talk to you about it. If you’d like to schedule an appointment with any of us you can go to RPAwealth.com and schedule a complimentary consultation. If you’d like to download our ebook, feel free to do that. For our show notes, you can go to retirementplanplaybook.com. But as always, we love having you listening. So thank you.

Joshua Winterswyk: Thank you, guys.

Matthew Theal: Thank you.

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