Our guest on today’s podcast is Jen Smith, the “Millionaire Mommy Next Door.” By age 40, Jen had become a self-made millionaire and she and her husband are now financially independent, stay-at-home parents. In our interview, Jen describes her path from minimum-wage jobs to financial freedom.
Jen has appeared on The Montel Show and shares with Consumerism Commentary and is scheduled to appear in an upcoming film, Secrets of Money: The Documentary Movie. She writes regularly on her blog, Millionaire Mommy Next Door.
To listen, use the player above (Adobe Flash required), download the podcast here, subscribe to the podcast RSS feed, or use the iTunes link. Note: open links in a new window (Ctrl-click or Command-click) to avoid interrupting the podcast.
[00:00] Introduction from Tom Dziubek
[00:44] Interview with Jen Smith, Millionaire Mommy Next Door
– [01:02] Why and how Jen set out to be a millionaire
– [04:22] How Jen has lived differently since achieving millionaire status
– [07:55] Jen’s unconventional path to becoming a millionaire
– [10:34] Apprenticeship as an alternative
– [17:38] Why Jen started the Millionaire Mommy Next Door website
– [19:28] Jen’s donations to micro-lending website Kiva.org
[21:06] End
We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.
Between March 1917 and January 1984, there have been thirteen major changes in the rules for the estate tax, a tax paid by heirs for wealth inherited. Of these thirteen changes, eight were tax increases and five were tax decreases. In 2001, A study by the University of British Columbia and the University of Michigan determined that the timing of death surrounding these changes is elastic.
When the estate tax increased, individuals with wealth to leave to their heirs were more likely to die in the days before the increase than they were after the increase. The reverse is true when the tax law change favored the wealthy. When the estate tax decreased, individuals with wealth were able to hold on to life longer in order to save their heirs money owed to the government.
Here’s the study.
Right now, the estate tax is one of the IRS’s more complicated systems. Keeping it simple, the gross estate, after deductions, is used to determine the amount the heirs owe in tax payments. There are fourteen tax brackets from a rate of 18% for amounts below $10,000 up to 45% for amounts above $1,500,000. Keep in mind these are marginal tax rates. If you inherit $2,000,000 you do not owe 45% of that entire amount ($900,000), you owe $555,800 plus 45% of $500,000 ($725,000). But this is not currently relevant because the “first” $3,500,000 is excluded from the estate tax; effectively, the amount an heir would owe would be 45% of the amount inherited over $3,500,000. This greatly reduces the effective tax rate on an estate — for the 0.3% of all estates that end up owing taxes, their average effective tax rate is under 20% according to the Urban Institute-Brookings Tax Policy Center (source).
Unless Congress changes the law — a legitimate possibility — anyone who inherits wealth from an individual who dies in 2010 is exempt from the estate tax. If history is a guide, we should see the same pattern of convenient timing; those close to death at the end of this year will manage to hang on another week or two to pass away in a more heir-friendly tax environment.
And if the law sunsets in 2011 and the estate tax is back in force, those nearing death at the end of 2010 will accelerate their passing to get in under the wire.
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Do you play the lottery? I’ve always considered lotteries to be a method of “taxing the poor,” as the saying goes. While no one is forced to play the lottery, those who do are more often than not people who believe society has left them with only one “reasonable” option for becoming financially comfortable — sheer luck against massive odds. Another class plays the lottery: people who pool their money with others in a corporate-type office, dreaming of leaving their cubicles behind.
I admit that since I accepted a new job a few years ago, I have occasionally been contributing one dollar when a co-worker decides the latest jackpot is high enough to justify the group purchase. It’s not often. Perhaps I’ve contributed twenty dollars over the past three years. I never expect this cash outlay to pay off for me, and with this expectation, I have not yet been let down. Why do I bother play, with my full understanding of the odds? Chipping in for lottery tickets with co-workers benefits my team socially more than financially. Is it financially smart? Probably not, but it gives us an excuse to maintain good working relationships with each other. I’m willing to pay twenty dollars over three years for that benefit.
For a group of ten employees at Chubb in New Jersey, pitching in to play the lottery did pay off. They, not we, won the $216 million jackpot for the “Mega Millions” game. After taking the cash payout, each employee will walk away with $14 million. “Walk away” may not be the term they prefer; according to their interview with the media, they will not be leaving their jobs.
If these winners are like many others, they will quickly burn through their new-found wealth, or what is left after taxes. During this process of spending and perhaps investing, I hope they choose worthy recipients and uses for the funds.
When you win the lottery, you are required to speak to the media. With your name in the open, long-lost friends and relatives, charities, and scam artists will be knocking down your door. Here are some basic tips to make sure you aren’t harassed as much as you would be otherwise:
- Change your phone number.
- Hire a lawyer.
- Find a financial adviser through a recommendation from a trusted friend.
- Talk to the a bank to open account within which you can accept a large wire transfer.
- Set aside enough for taxes. Lottery winnings are taxed as regular income.
If you have more tips, share them here with other Consumerism Commentary readers.
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