Speaker 1: Welcome to Head of Money. I'm Joel, I'm Matt.
Speaker 2: Today we're answering your listener questions.
Speaker 1: That's right, buddy, so let's get to it. We're gonna
Speaker 1: hear from a listener who's asking about BNPL and we're
Speaker 1: not talking about buy now, pay later. We're talking about
Speaker 1: baby now, pay later. He snap new acronym. What could
Speaker 1: go wrong? Why not? If that's something that they're offering.
Speaker 1: That's what this listener is asking. We'll get to another
Speaker 1: listener who's thinking about forcing some equity into his home
Speaker 1: via a basement build out. We'll give our thoughts there.
Speaker 1: And another listener she's in a tough spot. She's trying
Speaker 1: to choose between saving some money versus paying off some
Speaker 1: high interest rate credit cards. We'll share our thoughts there.
Speaker 1: Plus we've got plenty more to get to today as well, buddy. Yeah,
Speaker 1: all right, quick frugal or cheap for you? Though, before
Speaker 1: we dive in, you know I love frugler cheap.
Speaker 2: I know you do so, and I think I know
Speaker 2: where you stand on this actually, because I was trying
Speaker 2: to convince my wife that she wants some new tennis
Speaker 2: shoes at but uh, the tin isshues are expensive, and
Speaker 2: occasionally I'll wait for a sale to pop up, but
Speaker 2: she was like, I need them soon.
Speaker 1: Can you help me find a good deal. We're any
Speaker 1: good deals to be had on the new version? Yeah?
Speaker 1: Is that what she was saying?
Speaker 2: Whereas me typically I load up when there's a sale.
Speaker 2: I literally have like three boxes in my closet really
Speaker 2: for the next pair of shoes to come down the pike.
Speaker 2: When they're on sale. I get them and they're fresh,
Speaker 2: and they've you've never worn, ever worn? Oh my god, yes,
Speaker 2: just ready. You're like a borderline tissue order. So are
Speaker 2: you talking about this? When I get a pair of
Speaker 2: running shoes for like twenty five bucks that it's pretty
Speaker 2: solid that they're.
Speaker 1: Normally one hundred bucks or wh whatever. I'm going to
Speaker 1: load up and twenty five dollars really yeah? Cheap? Yeah?
Speaker 1: We kind of like I can log into my what
Speaker 1: kind of heads are you running around it? I can
Speaker 1: log into the back end of the site and show
Speaker 1: you mighty cow recent orders. That's the affordable shoes. Are
Speaker 1: you referring to the conversation we had at pizza movie night? Yeah?
Speaker 1: Last week?
Speaker 2: Okay, So okay, so you actually think helps convince Emily
Speaker 2: that used pair of shoes I gently use pair of
Speaker 2: shoes on eBay was the cause?
Speaker 1: Did she say yes, yeah, oh that's great. So what
Speaker 1: do you think, Well, she was so she was pushing
Speaker 1: back against the idea of getting a pair of used shoes.
Speaker 1: And this is something I've done multiple times. Kate's done
Speaker 1: it as well. And I wonder if it was more
Speaker 1: Kate being able to sort of sway her opinion, because
Speaker 1: as opposed she looks at me and she sees you
Speaker 1: to a certain extent when it comes to cheapness, but
Speaker 1: like far less attractive version of me, a little bit shorter,
Speaker 1: half Asian as opposed to half Norwegian. But no, I
Speaker 1: think it's a fair question worth asking, you know, like
Speaker 1: why is it that we feel so comfortable with buying
Speaker 1: used homes or use cars. Of course, we're all about
Speaker 1: buying used cars, but when it comes to clothing or
Speaker 1: you know, let alone shoes, there's a little bit of
Speaker 1: a negative connotation there. Folks are less willing to go
Speaker 1: to the thrift store. Personally, I love you love used underwear,
Speaker 1: definitely wouldn't do that. Of course. Well, I think that's
Speaker 1: on the line somewhere this might be a helpful framework,
Speaker 1: and so maybe that's it. I think there, let's introduce
Speaker 1: an intimate scale, like there's this gradient, and the less
Speaker 1: intimate an item is, I think, the more willing we
Speaker 1: are to buy used for it to have been something
Speaker 1: that someone else, because like you go into your home,
Speaker 1: lots of people come through your house, you have guests over,
Speaker 1: you have friends over. There's no part of your house
Speaker 1: that's like up against your body, right, They're not like
Speaker 1: coming into my bed right exactly. But when it comes
Speaker 1: to clothing, and especially something like shoes or you know,
Speaker 1: the more extreme case that's literally called intimates is underwear.
Speaker 1: So I understand the pushback on that, but man the
Speaker 1: ability to snag a deal.
Speaker 2: I think the one question that's really important to ask
Speaker 2: is how much usable life is left in this product,
Speaker 2: Because if it is incredibly gently used and you're getting
Speaker 2: a fifty percent discount essentially because someone worred a few
Speaker 2: times and didn't love it or didn't fit quite right
Speaker 2: and that's why they're selling it, then you're getting a
Speaker 2: great deal. But if it has been let's say, through
Speaker 2: half of its usable life, and you're getting a sixty
Speaker 2: five percent discount, I'm probably not willing to make that
Speaker 2: trade off. I would rather get the new thing and
Speaker 2: get most of the us or all the usable life
Speaker 2: myself out of it.
Speaker 1: Totally agree there. Yeah, Like I'm not buying shoes that
Speaker 1: look like they've been used, Like these are quote unquote
Speaker 1: use shoes and maybe they were worn for like a
Speaker 1: week or something like that, or maybe they're I don't
Speaker 1: like a department store that unloads a whole lot of
Speaker 1: open box shoes and so they've been worn around the
Speaker 1: store as people have tried them on or something like that,
Speaker 1: so they can't sell them. I'm totally fine with those
Speaker 1: kind of shoes. I'm not looking for a pair of
Speaker 1: shoes that look like they've been through the ringer already
Speaker 1: and like the color is starting to fade, or there's
Speaker 1: like a lot of tread missing. Nah, that's like it
Speaker 1: was it last week. That's that's more along the lines
Speaker 1: of like you buying your used tires where it's just
Speaker 1: like where did you get these time? Yeah, that was
Speaker 1: a bad idea as opposed to like a mismatched set
Speaker 1: of tires that are brand new perhaps okay that feels
Speaker 1: a little bit different, or a pair that was out
Speaker 1: on the showroom maybe because of that has got like
Speaker 1: kid fingerprints all over it or I don't know, I'd
Speaker 1: be totally fine with but those tires on my car.
Speaker 1: In a similar way, when it comes to shoes, I'm
Speaker 1: not looking for a pair of shoes that are completely
Speaker 1: worn out or Yeah.
Speaker 2: This conversation is making me think that I need to
Speaker 2: go to the thirst store again soon. It's been it's
Speaker 2: been too long.
Speaker 1: The three was great. Yeah, especially with kids. Kay was
Speaker 1: just there, And especially when it comes to shoes for kids,
Speaker 1: Oh my gosh.
Speaker 2: They're not usually getting all the usable life out of
Speaker 2: it because there's so much.
Speaker 1: I mean, like, we buy almost what looks like brand
Speaker 1: new shoes, and in a lot of cases and a
Speaker 1: lot of instances, they are pretty much brand new, and
Speaker 1: they're just shoes that the kids never wore. That's how
Speaker 1: my five year old got a pair of Adidas Sambas,
Speaker 1: like the indoor soccer shoe that was super dope. Yeah,
Speaker 1: I'm not gonna go out and buy those, but I'll
Speaker 1: certainly pick up a pair for three bucks. Sure.
Speaker 2: Yeah, you know, that's a good point. I think all
Speaker 2: for it, in particular for kids, stuff used is gonna
Speaker 2: save you a lot of money. Those guys they grow
Speaker 2: like weeds, you know, when they're when you're young. It's true,
Speaker 2: all right, Matt, let's mention. The beer we're having on
Speaker 2: this episode. This a tequila barrel aged stout from Wicked
Speaker 2: Weed Brewing. It's a part of their Dark Art series.
Speaker 2: We'll give our thoughts on this at the end of
Speaker 2: the episode. And if you have a money question we'd
Speaker 2: love to hear from you, just go to how to
Speaker 2: money dot com slash ask for the instructions for how
Speaker 2: to submit it. But really it's just recorda voice memo
Speaker 2: emailing it over to us. Now, let's get to a question,
Speaker 2: and this one is specifically about optimizing debt payoff.
Speaker 3: I met in Jewel. I have two somewhat related questions.
Speaker 3: The first is a medical bill related question. My wife
Speaker 3: and I recently had our first baby and have about
Speaker 3: a twenty seven hundred dollars bill that we owe. We
Speaker 3: have the cash to pay it right away. However, the
Speaker 3: hospital gives us ten months of interest free payments, so
Speaker 3: at the end of those ten months or ten payments,
Speaker 3: the bill would be totally paid for without any interest,
Speaker 3: or I could pay it all on a lump sum
Speaker 3: right now. But my thought is, since I have a
Speaker 3: high yield savings account, I could just leave the emergency
Speaker 3: or leave my emergency fund there and make the payments
Speaker 3: and continue to gain interest on that money. Curious to
Speaker 3: hear your thoughts about that. The second question is somewhat
Speaker 3: related and has to do with HSA accounts. I have
Speaker 3: a pretty full HSA account, money is still going into it.
Speaker 3: I know you guys have explained the process of keeping
Speaker 3: track of those records of medical bills and getting the
Speaker 3: cash out later, but I was wondering if you could
Speaker 3: maybe explain that again or direct me to an episode
Speaker 3: that explains that in full details. Thanks love what you
Speaker 3: guys do. Thanks for all your help.
Speaker 1: That's yeah, this question actually was from Phil. He didn't
Speaker 1: say his name, but of course he emailed his voice
Speaker 1: memo over that's money faux pas, one fair Phil. And
Speaker 1: he didn't say where he lives, so let's just pretend
Speaker 1: this is Phil from Chicago. I don't know if that's
Speaker 1: actually think say Maui, but Mali? Yeah, all right, why not?
Speaker 1: I don't think we've ever heard from someone in Mali.
Speaker 1: But congrats on the new baby, Phil, It's great. News
Speaker 1: for you and your family. And I will say, twenty
Speaker 1: seven hundred dollars. This is almost exactly what the average
Speaker 1: cost of having a baby is today with insurance, which
Speaker 1: isn't jump change, I'll say, but it definitely it certainly
Speaker 1: could be worse because not being insured for that it
Speaker 1: makes it a lot more expensive. This is something I've
Speaker 1: had personal experience with having four kids. We have we
Speaker 1: explored all the variety.
Speaker 2: Of ways to pay for a baby because you have
Speaker 2: traditional insurance for zero of the birth one we did
Speaker 2: have traditional insurance for I think it was funny because
Speaker 2: it was actually our second we got Kate on healthcare
Speaker 2: dot gov plan, but the first one we're like, we're.
Speaker 1: Going to do this cash pay up front. We're going
Speaker 1: to get all the discounts. See how low we can
Speaker 1: get this bad boy. And it wasn't that low. It
Speaker 1: was around ten thousand dollars. Yeah, but it's.
Speaker 2: Actually still significantly better than what most people who don't
Speaker 2: have insurance pay for birth of a baby. But that's
Speaker 2: still a lot of money, even still much more than Yeah,
Speaker 2: exactly listenary that you just mentioned. But there are other ways,
Speaker 2: I will say, because we tried different pat like so
Speaker 2: we had health sharing.
Speaker 1: We thought that would help with the cost. That didn't.
Speaker 1: It doesn't. It does not. They don't cover that, and
Speaker 1: we knew that as well. But we're hoping that that
Speaker 1: with a different discounts that they offered, that we would
Speaker 1: have been able to chip it down. I will say
Speaker 1: our most affordable baby was the last one because we
Speaker 1: got better and better at it. And it's also because
Speaker 1: we didn't give birth in a hospital. We were at
Speaker 1: a birthing center. And so for us, at least where
Speaker 1: we live, there's a quote unquote, you know, a birthing
Speaker 1: center that's not technically a hospital. They're associated with a hospital.
Speaker 1: So if you are looking if there isn't an emergency,
Speaker 1: for instance, and you're looking for that peace of mind,
Speaker 1: it's they have the ability to get the birthing mother
Speaker 1: over there super fast. But by avoiding the facility charge
Speaker 1: of giving birth in a hospital our last kiddo, our son,
Speaker 1: we were able to I think we were out the
Speaker 1: door with like the prenatal care and everything. Total. Man,
Speaker 1: we're somewhere around like seven to eight thousand dollars, which
Speaker 1: is good a lot better than the other three, for sure.
Speaker 1: I think it's a good tip for maybe some folks
Speaker 1: out there, for everyone else out there who don't.
Speaker 2: Have insurance center looking appropriate. Well, let's talk about Phil's question,
Speaker 2: and let's first talk about the interest free payment question
Speaker 2: that he presented. You know, it's similar to one that
Speaker 2: we get about paying off a mortgage when you can
Speaker 2: make more in a savings account.
Speaker 1: Right, It's like kind of that ARB trash.
Speaker 2: Can I keep the money in savings because I'm going to,
Speaker 2: you know, necessarily exceed the return that I would get
Speaker 2: otherwise paying down that debt more quickly, and I'll we're
Speaker 2: talking about vastly bigger sums of money right when we're
Speaker 2: talking about the mortgage question. But we do indeed prefer
Speaker 2: folks to keep their savings intact along with their mortgage
Speaker 2: pay it down as agreed, all else being equal. But
Speaker 2: this question I think adds a little bit of nuance, right,
Speaker 2: And there might be more similarities maybe with the interest
Speaker 2: free loans that some furniture chains offer.
Speaker 1: Matt. You've seen those commercials.
Speaker 2: It's like no payment's no interest till twenty twenty nine,
Speaker 2: and people are like, all right, let me go get
Speaker 2: that couch, and why not I don't have to pay
Speaker 2: a dime on it for a long time, but the
Speaker 2: fine print will screw you over in a massive way
Speaker 2: if you don't jump through the proper hoops. The penalties
Speaker 2: are insanely steep. It's you know, essentially all the back
Speaker 2: interest that needs to be paid ballooning the cost of
Speaker 2: the couch you bot. And it's similar with some of
Speaker 2: these hospital loans. Right if you don't pay off your
Speaker 2: loan while promotional interest rate is in effect, you're gonna
Speaker 2: also owe a lot of backloaded interest, which just makes
Speaker 2: this much more of a risky maneuver. Whereas, like with
Speaker 2: the mortgage, less risky you can always say I'm not
Speaker 2: gonna pay it off now. Oh, but you know what,
Speaker 2: six months later, the facts on the ground change. I'm
Speaker 2: gonna choose to pay it off at this point in time.
Speaker 2: But with this loan, if you from the hospital, there
Speaker 2: is a chance that you screw it up and you
Speaker 2: end up paying a lot more than you thought, and
Speaker 2: it doesn't end up being kind of the zero percent
Speaker 2: interest loan that sounded so appetizing at the beginning, that's true.
Speaker 1: Yeah, So with that in mind, I'm not sure that
Speaker 1: all that effort is worth the squeeze I'm probably not
Speaker 1: gonna recommend for folks out there to do this. Because
Speaker 1: you've got the cash, just go ahead, pay the bill,
Speaker 1: be done with it. By doing that, you'll be able
Speaker 1: to declutter your mental space. And it's not like you're
Speaker 1: giving up much from a financial standpoint. If you so
Speaker 1: crunching the numbers, I think you'll be giving up around
Speaker 1: one hundred dollars in interest, which would have been taxable,
Speaker 1: by the way, So keep that in mind. It's not
Speaker 1: that I wouldn't reach down and pick up of eighty
Speaker 1: bucks off the ground. It's just that I wouldn't attempt
Speaker 1: to over optimize in this way. This decision that comes
Speaker 1: with just the downside risks that Joel just spelled out.
Speaker 1: If you find yourself not paying attention, and that might
Speaker 1: happen right like right now you're thinking, I'm a pretty
Speaker 1: buttoned up guy. Well like you might be having more
Speaker 1: sleepless nights, you might have more brain fog setting in
Speaker 1: than what you're typically used to.
Speaker 2: I'm pretty sure my a qu drop by about eighteen
Speaker 2: to twenty two points. Matt, Yeah, in those early days
Speaker 2: of having a baby.
Speaker 1: So I mean, and it comes down to the individual
Speaker 1: comes back. I will say that, oh sure, yeah, yeah,
Speaker 1: you're not as dumb as you used to do your babies.
Speaker 1: But I guess I'm saying like, I don't know if
Speaker 1: I would recommend this to most people if you are
Speaker 1: like a robot, because I'm trying to picture myself in
Speaker 1: this situation, and personally I think I would go through
Speaker 1: with it. But it's because I know that, like I
Speaker 1: set reminders on the calendar, I carve that money out
Speaker 1: of accounts I ear market. I am incredibly disciplined when
Speaker 1: it comes to maneuvers like this to ensure that I
Speaker 1: don't end up completely forgetting and then having it go
Speaker 1: into some sort of penalty interest territory. Yeah, certainly, if
Speaker 1: we were talking talking about a large amount of money, right,
Speaker 1: like let's say, if we were talking about eight hundred
Speaker 1: dollars an interest as opposed to like eighty dollars an interest,
Speaker 1: I think I would more widely recommend Hey, yeah, let's
Speaker 1: jump through some hoops here.
Speaker 2: The more hoops I'm willing. It makes me think of
Speaker 2: getting like a bank account bonus with an online bank
Speaker 2: versus one of kind of the big big banks.
Speaker 1: And I did this like probably ten years ago, signed
Speaker 1: up for a bank account with Chase, and man, you
Speaker 1: had to go into the branch and it just took
Speaker 1: a lot of time and old and I probably made,
Speaker 1: you know, three hundred bucks for signing up for the
Speaker 1: account for moving money around, but you have to make
Speaker 1: like five to ten minutes of small talk with them, yeah,
Speaker 1: to let them tell you on the other products, just
Speaker 1: the hoops I had to jump through the rigmarole of
Speaker 1: like eradicating that account.
Speaker 2: When I was done, just wasn't worth it. Like it
Speaker 2: was just such a frustrating experience. I was like, I'll
Speaker 2: never do this again. And my eyes would like, especially
Speaker 2: back in the day, Matt, like three hundred bucks when
Speaker 2: you're twenty six years old or something like that. I mean,
Speaker 2: that's a lot of money. And so I was I
Speaker 2: was more than willing to do it. And then I
Speaker 2: realized even if the end of it, it just wasn't
Speaker 2: worth the effort. So I would, you know, take that
Speaker 2: into account, maybe count the cost ahead of time. Phil
Speaker 2: This sounds like maybe it would be easier to pull
Speaker 2: off and you're not going to run into a giant
Speaker 2: bank bureaucracy, but still there are potential pitfalls that you
Speaker 2: have to be aware of onto his HSA question. Matt,
Speaker 2: I think that this is a two for question. Two
Speaker 2: questions to one. I think that actually the birth bill
Speaker 2: offers the perfect case study. Because you now have a
Speaker 2: medical bill of twenty seven hundred dollars that you mentioned.
Speaker 2: You could of course tap your HSA for those funds now.
Speaker 2: But because the HSA, the health Savings account is so
Speaker 2: dang flexible, and we'll link to some of the articles
Speaker 2: we've written about HSA's on howdomoney dot com in the
Speaker 2: show notes. You know, Phil, you could continue to leave
Speaker 2: that money invested so it grows for your future. You
Speaker 2: could use cash that you have in savings to cover
Speaker 2: this twenty seven hundred dollars an expense that you have.
Speaker 2: And when you think about it, logically, just randomly picked
Speaker 2: a number, okay, sixteen years, how much would twenty seven
Speaker 2: hundred dollars grow to in a sixteen year timeframe. On average,
Speaker 2: that money would quadruple. So, you know, a decade and
Speaker 2: a half from now, Phil could take the cash out
Speaker 2: based on his twenty twenty five expense. You could essentially
Speaker 2: leave the remaining eighty one hundred dollars for future healthcare
Speaker 2: expenses that would be the growth on the money you
Speaker 2: invested inside of your HSA. So you pull the twenty
Speaker 2: seven hundred bucks out then for whatever you needed for,
Speaker 2: and yet you've still got a big bundle of cash
Speaker 2: that's working for you, working for your future. And you
Speaker 2: could do the same with other prior healthcare expenses, right
Speaker 2: that you haven't tapped yet. I love the idea of
Speaker 2: leaving that money put if you have enough cash on
Speaker 2: hand to essentially foot the bill now, so that you
Speaker 2: can grow your investments tax free for the future, yes.
Speaker 1: Right, and that those remaining dollars you can tap for
Speaker 1: any reason because money is fungible of course, as long
Speaker 1: as you have the documentation proving you have other qualified
Speaker 1: medical expenses. So what that means is that you do
Speaker 1: need to keep up with your documentation, and so when
Speaker 1: it comes to record keeping, like you don't have to
Speaker 1: get fancy with it. This isn't some sort of super
Speaker 1: sophisticated thing like I would just take a picture of
Speaker 1: the bill to have a record, save it to like
Speaker 1: a Google drive file for maybe that year, and then
Speaker 1: just keep a running total in a Google sheet. You
Speaker 1: can make an HSA receipt sort of a spreadsheet like
Speaker 1: That's what I would do. But there are options using
Speaker 1: different budgeting software out there, like personal capital or why
Speaker 1: mapp where you can label healthcare transactions specifically and then
Speaker 1: you can go back to it look it up. But
Speaker 1: then within those proprietary sort of systems, there's still a
Speaker 1: risk because are those sites going to be around forever?
Speaker 1: Is this are these options or is this what do
Speaker 1: you call it, usability that they're no longer going to
Speaker 1: keep up with? Perhaps, So it's just something to keep
Speaker 1: in mind. If it was me, I would do exactly
Speaker 1: what I said, keeping up having that Google Drive folder
Speaker 1: with for your HSA receipts and keeping a running total
Speaker 1: of those of the date that expense was made, a
Speaker 1: little description of it, the total dollar amount, and the
Speaker 1: amount of that dollar amount that you have reimbursed to yourself,
Speaker 1: and hopefully for a long period of time it'll be
Speaker 1: none because you're allowing those dollars to continue to earn
Speaker 1: and compound.
Speaker 2: Yeah, Matt, even though you and I have never had
Speaker 2: access to an HSA, Sadly, it is something we talk
Speaker 2: about frequently on the show because it is this underrated
Speaker 2: investment account that people can take part in if they
Speaker 2: have a high deductible health care plan and they can
Speaker 2: grow money for their future tax free. Like it's not
Speaker 2: tax deferred, it's not a tax break in the here
Speaker 2: and now. It's no tax on that money. Ever, if
Speaker 2: you jump through the documentation hoops right, and if you're
Speaker 2: spending that money on qualified healthcare expenses. But again, what
Speaker 2: makes it so great is that you can incur the
Speaker 2: healthcare expense now and not take the disbursement until decades
Speaker 2: down the road. And this brings up another question like
Speaker 2: do you even need to keep receipts And some people
Speaker 2: would say, I don't even bother. And part of this
Speaker 2: depends on when you want to tap those funds. So
Speaker 2: if you don't need any HSA money, if you're like,
Speaker 2: I'm not going to use it until I'm in my
Speaker 2: mid sixties, well, if you don't need it until after
Speaker 2: age sixty five, you might not even need to go
Speaker 2: through the hassle of keeping receipts. But I think it's
Speaker 2: a minor hassle and I think you still should if
Speaker 2: you want to use your.
Speaker 1: Yeah, it just gives you options to be able to
Speaker 1: pull some of the money out before right full retirement.
Speaker 2: And that's what by the HSA can be so powerful,
Speaker 2: in particular for early retirees because you can start to
Speaker 2: draw down on that fund when maybe other dollars that
Speaker 2: you have investor for your future are just too hard
Speaker 2: to get or they're going to cause too much financial headache. Right,
Speaker 2: You're going to have penalties for accessing that money early.
Speaker 2: And so, yeah, let's say you wanted to use your
Speaker 2: HSA to pay for Medicare premiums, though later on in life, well,
Speaker 2: you don't need receipts for that. Still, I guess I
Speaker 2: just like the idea of tracking for flexibility purposes. The
Speaker 2: HSA is just one of the best accounts because it
Speaker 2: is so darn flexible. And also, don't forget that an
Speaker 2: HSA can effectively turn into a traditional IRA later in life,
Speaker 2: but then it loses one aspect of that triple tax advantage.
Speaker 2: And the ideal at least is to get the triple
Speaker 2: tax advantage on the majority of the dollars that you're
Speaker 2: sticking in that account. Yeah, but what you're highlighting is
Speaker 2: that you don't have to worry about overfunding that because
Speaker 2: eventually you'll be able to draw down on that and
Speaker 2: pay taxes all that income just.
Speaker 1: Like you would with the traditional I ring. Yep, But Joe,
Speaker 1: we got more to get to. We're gonna hear from
Speaker 1: a listener who's expecting to make bank and the near future.
Speaker 1: We'll hear from him plus others right after this. All right, Matt,
Speaker 1: we're back now.
Speaker 2: We got a question about making an investment in your home.
Speaker 1: What's the best way to go about it?
Speaker 4: Hey, guys, this is Shane from Madison, Wisconsin, somewhat new
Speaker 4: listener and a first time caller, and I have a
Speaker 4: question about finishing a basement and doing a home renovation.
Speaker 4: My wife and I are expecting our first child in
Speaker 4: a few months, so we're looking at ways to add
Speaker 4: space to our current home. We did buy our home
Speaker 4: in twenty twenty when rates were low, and therefore it
Speaker 4: doesn't really make sense for us to and move or
Speaker 4: do a cash out refinance. Rather, we're going to try
Speaker 4: to finish the unfinished basements in this utilize the space
Speaker 4: that's already there. We have about seven hundred square feet
Speaker 4: looking to add a living space, bedroom, and a bathroom.
Speaker 4: My question, then, is what are some of the best
Speaker 4: ways to fund this? From my research, I feel like
Speaker 4: a helock is a good option. However, rates are still
Speaker 4: somewhat high on that. Do you anticipate rates continue to fall?
Speaker 4: Any insight into a helock might be helpful. We do
Speaker 4: have some money saved up, but not enough to fund
Speaker 4: the entire project. It's probably about sixty thousand, maybe a
Speaker 4: little bit more. Any advice on this would be appreciated.
Speaker 4: And my beer recommendation is a Spotted Cow from Nuclaris
Speaker 4: Brewing Company, very fitting for Wisconsin. Thank you, really enjoy
Speaker 4: the show, have a good beginning start to twenty twenty five.
Speaker 1: Oh right, how does Shane fund that basement? Before we
Speaker 1: get nerdy with the money, let's talk about beer because
Speaker 1: he mentioned new Glaris. Why does Spot Cow have such
Speaker 1: a cult following? That's a good question. It is a
Speaker 1: great beer, and Newclares makes them really good, solid beer.
Speaker 1: But it's not like I feel like it carries to
Speaker 1: blow your mind. It carries more cultural clout than the
Speaker 1: beer itself. Does you know what I'm saying?
Speaker 2: I think my favorite beers that Nuclarius makes are actually
Speaker 2: some of the fruited beers. Yeah, really delicious, But yeah,
Speaker 2: Spotted Cow. I guess it's just we had like a.
Speaker 1: Blue like a wild blueberry something about a lake that
Speaker 1: was that was a Nuclearius one maybebe that one maybe
Speaker 1: new Uh, I don't I can't remember specifically. We haven't
Speaker 1: had Spotted Cow. We have had it on the show,
Speaker 1: but it was back in twenty twenty, back when Shane
Speaker 1: was buying his house. We actually enjoyed it on the show.
Speaker 1: I think you were up there for some reason and
Speaker 1: you came back with some maybe. Well it's I feel
Speaker 1: like you're the Michelle you're oh, could have been your
Speaker 1: tenant at the time. She's she's from wiscond that's right,
Speaker 1: that's right. I think her dad brought them down or
Speaker 1: she brought some back for me. Yeah, yeah, that was fun.
Speaker 5: Well.
Speaker 2: I think Nuclarius too is one of the original independent
Speaker 2: breweries from that region of the US and in Wisconsin.
Speaker 2: And I've never made it out to the Bruphub, but
Speaker 2: apparently like the their actual brewing system I believe came
Speaker 2: over from Germany. It's super legit and it's like a
Speaker 2: beautiful grouphub. So loved visits some day. Yeah, I thought
Speaker 2: to the list of places the visit while in Wisconsin
Speaker 2: for real, right, But let's get to Shane's question. Congrats
Speaker 2: on the baby coming soon, by the way, and Matt
Speaker 2: Shane asked about rates are headed. Where where rates going
Speaker 2: in the near future.
Speaker 1: Might make you feel better about taking out that he
Speaker 1: lot because you're like, yeah, yeah, rates are going to
Speaker 1: go down.
Speaker 2: If rates are going to go down, then hey, the
Speaker 2: he like does look less less bad, right, like a
Speaker 2: solid option. But really it's anyone's guess. I mean, a
Speaker 2: lot of folks were pretty certain that we were in
Speaker 2: for dramatic rate declines in twenty twenty four and in
Speaker 2: twenty twenty five. But all signs at least the Tea
Speaker 2: leaves I'm reading Matt a point to rates remaining a
Speaker 2: lot more sticky for the time being, which is great
Speaker 2: news for savers, not so great for folks who want
Speaker 2: to borrow big chunks of money. Though still I don't
Speaker 2: think it means that Shane should not borrow any money
Speaker 2: for this renovation. But I guess just know that kind
Speaker 2: of predicting rate patterns where they're going, what's going to happen, Like,
Speaker 2: I can tell you what I think, and it certainly
Speaker 2: looks less likely rates are going to go down in
Speaker 2: the near term. But it's been really fascinating to watch
Speaker 2: people be so wrong in their predictions on rates and
Speaker 2: what it would do at housing prices, and people have
Speaker 2: been wrong on those economic predictions a lot in recent years.
Speaker 1: Yeah, Man, the last four years, there's been a whole
Speaker 1: lot of unprecedented territory that we've entered into. And I
Speaker 1: feel like, if there's anything that we've learned or should
Speaker 1: have learned, is that it's really tough to predict anything
Speaker 1: after a pandemic, After the world shuts down, little humility
Speaker 1: goes a long way totally. But the basement. I love basements, man,
Speaker 1: I'm so jelly of Shane. I feel like out in
Speaker 1: the Midwest, basements are They're a little more dim a
Speaker 1: dozen like I think, like, I've got family in Missouri,
Speaker 1: in Illinois, they've all got basements. They're amazing. They do
Speaker 1: all sorts of awesome stuff down there, start businesses, extra
Speaker 1: space for kids. And by doing that, Shane, you're talking
Speaker 1: about increasing the value of your home and potentially being
Speaker 1: able to use that space to increase your cash flow.
Speaker 1: How think you didn't see that specifically all without having
Speaker 1: to add any additional square footage. It doesn't sound like
Speaker 1: you're planning on on running it out. You're likely going
Speaker 1: to need it for the baby, but that is often
Speaker 1: a part of the appeal for a lot of folks.
Speaker 1: Because you got the walls, the roof, they already exist.
Speaker 1: You might have to do a little waterproofing. I'm not
Speaker 1: exactly sure how it works. Yeah, but it's just a
Speaker 1: much more affordable endeavor than to, let's say, build an
Speaker 1: adu from scratch, if that's even something that your city,
Speaker 1: that your community allows. Basements are or where it's at. Man,
Speaker 1: I love them.
Speaker 2: I mean, think about Matt, you're actually adding square footage
Speaker 2: to your house right now. How much cheaper is it
Speaker 2: if the square footage exists? But you just have to
Speaker 2: finish it, right.
Speaker 1: I so wish that there was an unfinished basement that
Speaker 1: we would have had. This is Yes, it's painful, this
Speaker 1: is why Jelly.
Speaker 2: Yes, yeah, so, I mean I think it makes sense
Speaker 2: if you have the unfinished space. It's just so much
Speaker 2: cheaper than the alternatives that Shane mentioned in particular that
Speaker 2: he's got the locked in low rate, Like why go
Speaker 2: and find another way to get the space you need?
Speaker 2: This is going to be easily the most fiscally responsible
Speaker 2: way of doing that.
Speaker 1: Shean's probably got a thirty year locked in at three percent. Right,
Speaker 1: he's not going anywhere exactly. So what about borrowing to
Speaker 1: fund this renovation? Well, ideally, you know, always we'd like
Speaker 1: to see folks save up and pay cash, but that's
Speaker 1: a tall order. When we're talking about a sixty thousand
Speaker 1: dollars renovation, you are likely going to have to borrow
Speaker 1: at least for the renovation at rates that are nowhere
Speaker 1: near what you saw in twenty twenty.
Speaker 2: You might be a little shocked when you start looking
Speaker 2: around at local borrowing options. You might be looking at
Speaker 2: paying in the neighborhood of like, I don't know, eight
Speaker 2: to nine percent, probably on a helock right now. Yeah,
Speaker 2: part of it depends on your credit score. Hopefully you
Speaker 2: got a high credit score. And that's particularly I would say,
Speaker 2: from a local credit union. That is, from all the
Speaker 2: data Matt and I have seen over the years, the
Speaker 2: best place shop at a couple of local credit unions
Speaker 2: because they have better borrowing terms than you're going to
Speaker 2: get at most banks. That is just a majority of
Speaker 2: the time sort of thing. And I don't think though
Speaker 2: eight to nine percent rate should scare you off completely,
Speaker 2: should cause you to avoid borrowing for this renovation, but
Speaker 2: I do think it should cause you to keep expenses
Speaker 2: as low as possible and then also make sure you
Speaker 2: have a reasonable payoff timeframe that so you're going to
Speaker 2: eradicate it and not keep it around for like, you know, eight, nine,
Speaker 2: ten years to come.
Speaker 1: More like three years or less. I think. I mean,
Speaker 1: I just want you to be super careful about this.
Speaker 1: I will say that the nice thing about going with
Speaker 1: a helock is that if rates do end up dropping, well,
Speaker 1: you're going to pay less on that debt moving forward,
Speaker 1: which is great. Helocks they oftentimes, especially from local credit unions,
Speaker 1: come with no closing costs, so that's nice. So just
Speaker 1: shop around and see if you can find yourself the
Speaker 1: best deal, and hopefully you don't even have to take
Speaker 1: out a full sixty thousand dollars helock, since it sounds
Speaker 1: like you do have some cash on hand, like I
Speaker 1: wouldn't completely obliterate your emergency fund to pull us off,
Speaker 1: but also don't be afraid to use some of that
Speaker 1: cash to help minimize what it is that you're going
Speaker 1: to borrow in order to pull this project off, and
Speaker 1: maybe spend some time playing with a helock calculator as well,
Speaker 1: because I think that might be able to open your
Speaker 1: eyes as to what it is that you are signing
Speaker 1: up for. Cause, like, let's say you are because I
Speaker 1: played with the numbers a little bit before we hit
Speaker 1: record and on a sixty thousand dollars loan at like
Speaker 1: let's say eight and a half percent, you're looking at
Speaker 1: it's like, okay, five hundred dollars minimum payment. That doesn't
Speaker 1: seem too bad, but that's for the minimum payment. If
Speaker 1: you were looking to eliminate this thing in like three years,
Speaker 1: you're looking at putting somewhere close to an extra two
Speaker 1: thousand dollars towards that thing every single month, which that's
Speaker 1: a lot of money hard to scrounge up. Yeah, yeah, yeah,
Speaker 1: I mean, I just I want I'm not saying this
Speaker 1: to scare you, but this is a part of your
Speaker 1: due diligence and making sure that you know what it
Speaker 1: is that you're getting into. By going like, I don't
Speaker 1: just want you to think about, well, no, this is
Speaker 1: important to us, and this is what we're gonna do.
Speaker 1: We'll find a way to make it work. And while
Speaker 1: that might be true, if you do it, you will
Speaker 1: find a way to make this work. I want you
Speaker 1: to be able to know what you're getting into, to
Speaker 1: be able to boldly make that decision. Your eyes are
Speaker 1: wide open, and then man, go for it, go after it.
Speaker 1: As long as you have taken those steps and you've
Speaker 1: crunched the numbers.
Speaker 2: It makes me think too that I don't know if
Speaker 2: this basement or in no should cost sixty grand. I mean,
Speaker 2: I guess it depends on what's going into it, but.
Speaker 1: Say like a living a bed, and a bath. Yeah
Speaker 1: as well, So I mean that sounds reasonable. Yeah, scens reasons.
Speaker 2: But also think about, well, I don't know if I'm
Speaker 2: going to get some some of the materials at like
Speaker 2: the Habitat for Humanity restore.
Speaker 1: Think about all the basement. No one sees this, it's
Speaker 1: just the extra bedroom.
Speaker 2: Think about the ways that you can cut a couple
Speaker 2: grand off the cost here and there, and heck, maybe
Speaker 2: you get the sixty thousand dollars reno down to forty
Speaker 2: eight thousand dollars and you've saved up ten grands, so
Speaker 2: all you're borrowing is thirty eight. Then I don't know
Speaker 2: anything you can do to reduce the amount of money
Speaker 2: that you're paying nine percent interest rate for for years
Speaker 2: to come the better, So just maybe leave no stone
Speaker 2: unturned on that so in order to just reduce the cost.
Speaker 2: And you're right, Matt, the basement, it's like, it's not
Speaker 2: like you're renovating the half bath on the main floor
Speaker 2: that every guest uses and you're like, yeah, I want
Speaker 2: the finest tile something like that, or a really nice sink.
Speaker 1: It probably is can be a little more utilitarian down
Speaker 1: in the basement. Yeah, and even this is good. I
Speaker 1: don't know, I'm afraid this is going to sound a
Speaker 1: little ratchet, but like, get what it is that you
Speaker 1: need completed, completed, but then after that maybe you can
Speaker 1: even start to click cash flow more of it. Right,
Speaker 1: So let's say you put twenty into it. You're able
Speaker 1: to use a space for what it is that you
Speaker 1: want to use it for. But then maybe maybe over
Speaker 1: the next couple of years you're able to cash flow
Speaker 1: that thing. You've got that home equity available to you,
Speaker 1: but you're not tapping that, and then you're gonna be
Speaker 1: able to avoid paying an additional five or ten thousand
Speaker 1: dollars in interest payments because it's something that you've been
Speaker 1: able to avoid.
Speaker 2: And don't sleep on Facebook Marketplace. I had a buddy
Speaker 2: who just did a massive innovation, and he kept barking
Speaker 2: at me about all the deals he was getting on
Speaker 2: Facebook marketplace. Do you remember what's the best deal that's
Speaker 2: still to you? I mean a range is one of
Speaker 2: the things that he highlighted. He got like a really really.
Speaker 1: Nice one and miking or a bluestar. It was something
Speaker 1: I don't know what it was called wolf maybe is
Speaker 1: what it was. I want to say, say it with
Speaker 1: a V. I forget how much it was both supposed
Speaker 1: to cost.
Speaker 2: I want to say it was like a twenty thousand
Speaker 2: dollars range, some crazy something like that, and he got
Speaker 2: it for like less than half the price.
Speaker 1: So even still, I know it's still expensive. Oh my gosh,
Speaker 1: but I mean rich friends, he's got high intaste. It's
Speaker 1: so expensive.
Speaker 2: He's really storing like this beautiful old house and so
Speaker 2: it's it fits in nicely.
Speaker 1: But yes, you've had kids cooking touris for my blood.
Speaker 1: You know what kind of stove we're cooking on over
Speaker 1: It's one of them, like six hundred ones. So like
Speaker 1: they got the electric although I will say with you
Speaker 1: already the fancy stuff to make good tasting food and
Speaker 1: that's what you need to keep in mind, Like, this
Speaker 1: doesn't need to be a fancy space in order to
Speaker 1: be able to grow your family. There's ways you can
Speaker 1: do it, do it on the cheap. I'll quickly share
Speaker 1: that adding a gas range to our project. We just
Speaker 1: realized that might be something that we're in that we're
Speaker 1: doing because our current electric range. We need the space
Speaker 1: on the electrical panel because that it takes a whole
Speaker 1: lot of amps to power the electric stove. And we're
Speaker 1: talking it through and she's like, all right, we're like
Speaker 1: right on the edge as to the amount of space
Speaker 1: we need from an electrical standpoint, and our GC pointed
Speaker 1: out that, hey, actually, if you don't have an electric range,
Speaker 1: if instead it was gas, we could it wouldn't need
Speaker 1: to be on that dedicated whatever breaker. When the HVAT
Speaker 1: guy shows up to run natural gas to the new furnace,
Speaker 1: maybe you run a line up there. And all this
Speaker 1: time Kate's like her eyes got big, and she's like, oh, yes, yes, please,
Speaker 1: this is going to save this money, babe. Don't you
Speaker 1: understand you gotta spend some money to save some money.
Speaker 1: I guess sometimes sometimes. All right, now, let's get to
Speaker 1: another question. This one comes from a listener who's got
Speaker 1: a retirement trade off question as he and his family
Speaker 1: are set to move.
Speaker 5: Hi Matt Angel, I'm kid from North Carolina and I
Speaker 5: have a question regarding my wife's pension payout and an
Speaker 5: IRA conversion. For some background, I'm in a PhD program
Speaker 5: in chemistry and my wife is a school teacher. By default,
Speaker 5: six percent of her salary goes toward our state's pension plan,
Speaker 5: but in order to become fully vested in that plan,
Speaker 5: she needs five years of service. I'm currently on track
Speaker 5: to graduate later this year, which comes with a decent
Speaker 5: probability of moving out of state, which means that once
Speaker 5: we move, she will only have four years of service
Speaker 5: contributed to the pension. She will she will be paid
Speaker 5: out all of her contributions and growth that has happened
Speaker 5: since she was hired, which will total around ten to
Speaker 5: fifteen thousand dollars. I'm currently trying to look at two
Speaker 5: options of where to put this money. One to put
Speaker 5: this money into a traditional IRA through fidelity where we
Speaker 5: both currently have our roths, or two to put this
Speaker 5: money into her roth IRA and eat the tax bill
Speaker 5: during the first year of my new higher paying job.
Speaker 5: I'm leaning towards option two, as it is pretty likely
Speaker 5: that because of the field I'm going into, our household
Speaker 5: income may one day be over the limit to qualify
Speaker 5: for ROTH contributions, and I would like to have the
Speaker 5: backdoor WRATH as an option for her down the road.
Speaker 5: I'm not sure though, if it makes sense to do
Speaker 5: the conversion and pay the taxes or to go with
Speaker 5: option one and wait to see if she's able to
Speaker 5: roll those funds over into a new employer's four oh
Speaker 5: one K or four fifty seven B plan after we move.
Speaker 5: I am twenty eight and she is twenty six, so
Speaker 5: we still have a lot of years before we plan
Speaker 5: to retire. And I appreciate whatever advice you may have
Speaker 5: on this topic. Thank you, and I love the podcast.
Speaker 1: All right. Sounds like Kaide sitting in the catbird's heat.
Speaker 1: Joel sounds like he's got a few options here laid
Speaker 1: out before him. He's got a wife with a solid job.
Speaker 1: He's got a pension, which is totally awesome. That's actually
Speaker 1: that was a prerequisite for me marrying my wife. You've
Speaker 1: got to like you got to come to the table's
Speaker 1: dowry slash pension. It was all part of that pre
Speaker 1: marriage negotiation, Matt, I will say, so his wife's pension
Speaker 1: story is not uncommon. The days of staying in one
Speaker 1: place for like decades, for like thirty years and getting
Speaker 1: the max eligible pension. That's incredibly rare these days. It's
Speaker 1: just not how folks are living their life. And for
Speaker 1: folks or how businesses are living their lives, or exactly me,
Speaker 1: they're like getting yanked left and right. But even for
Speaker 1: folks who do have access to a pension for a while,
Speaker 1: like they just may not be there long enough to
Speaker 1: receive any benefit that's going to kind of move the
Speaker 1: needle for them off in the future. We've actually had
Speaker 1: some questions from some New Yorkers working in public service
Speaker 1: who have a choice between a pension and four K
Speaker 1: like product that we almost always well recommend the latter,
Speaker 1: not the pension.
Speaker 2: All right, So in this case, in Kaid's particular situation,
Speaker 2: your wife is still going to be due some money
Speaker 2: for her years of service, which is great, I mean,
Speaker 2: that's the.
Speaker 1: Way it should be. But what should you guys do
Speaker 1: with those funds? Should you go wroth traditional should you
Speaker 1: hold off? And this is in some ways, Matt kind
Speaker 1: of a classic personal finance question. And it's interesting. We've
Speaker 1: had different guests on the show who have said different things,
Speaker 1: and I think you think there's some nuance to this argument.
Speaker 1: It depends on some of the details. Some previous guests
Speaker 1: would say roth, no matter what, always in forever. If
Speaker 1: you have access to contribute money to a roth, that'd
Speaker 1: be the ed slots of the world. That's right.
Speaker 2: But then on the other side of the coin, some
Speaker 2: of our former guests would say, always traditional. You can
Speaker 2: plan better because you can essentially dial in your tax
Speaker 2: bracket in future years by going traditional, and you can
Speaker 2: always convert to a.
Speaker 1: Roth down the road, as the Sean mulaney are. That's right.
Speaker 2: So I think there's wisdom potentially on both sides of
Speaker 2: the aisle, and so yes, there's nuance. There's debating this,
Speaker 2: and rightly so, I tend to agree with Kid's analysis
Speaker 2: here of putting this money into her wroth IRA and
Speaker 2: just paying the fairly known tax bill. Since you've got
Speaker 2: the ability to do so, I think why not get
Speaker 2: more money into the wroth. I also just don't think
Speaker 2: this decision needs to be a complex one, and I
Speaker 2: typically just air towards the side of the wroth allah
Speaker 2: at slot myself.
Speaker 1: Kind to take the simplicity route. Yeah, And the reason
Speaker 1: for that too is because you might not be able
Speaker 1: to contribute in the future. And this is something you mentioned,
Speaker 1: which this is actually a great problem to have because
Speaker 1: it means you're going to be crushing it on the
Speaker 1: income side. But if that is where things are headed,
Speaker 1: it means funding the wroth to the max while you
Speaker 1: can like right now, it's even more important because if
Speaker 1: you foresee significant income escalation, taking that bird in the
Speaker 1: hand from a tax perspective, that seems super wise. Why
Speaker 1: not load up on the wroth in the years where
Speaker 1: you can, where it's even available to you, where you
Speaker 1: are eligible for it, and then you can take the
Speaker 1: traditional route to save on taxes when your income is
Speaker 1: sky high At that point.
Speaker 2: Makes me think, man, if I had the offer of
Speaker 2: eating as much brisket as I wanted to because I
Speaker 2: wouldn't be able to eat it for a whole year
Speaker 2: or something like that, I'm going to load up on
Speaker 2: as much and I'm going to remember that day, probably
Speaker 2: with fondness and a little bit of regret, because I
Speaker 2: probably would have overdone it, and don't forget you do
Speaker 2: have to be prepared to pay tax come April next year.
Speaker 2: You mentioned you mentioned that, and you mentioned that you
Speaker 2: had that cash on hand, which is great, So just
Speaker 2: make sure to keep that cash on hand. It's probably
Speaker 2: going to be I'm guessing a few thousand dollars, which
Speaker 2: isn't insane, but you don't want to not have it
Speaker 2: when the time comes. And the other reason I think
Speaker 2: Matt to go straight to roth despite having to pay
Speaker 2: taxes now is the backdoor wroth option that Kid mentioned,
Speaker 2: because if you have money sitting in a traditional ira,
Speaker 2: it just makes that move more complicated. And I like
Speaker 2: the idea of not having money in a traditional ira
Speaker 2: having it all in the wroth for simplicity's sake. From
Speaker 2: that sort of money maneuver too.
Speaker 1: I think it's highlighting here like he's did he say
Speaker 1: he's a chemist, like and he's finishing, like he's getting
Speaker 1: his PhD or something like that, he is going to
Speaker 1: be making bank. And if you think that at some
Speaker 1: point you're not going to be able to contribute to
Speaker 1: a roth ira married filing filing jointly, that means I
Speaker 1: mean this year at least like your that means your
Speaker 1: income is going to be getting close to two hundred
Speaker 1: and fifty thousand dollars, which again, great problem to have.
Speaker 1: But what I'm pointing out here is that we're talking
Speaker 1: about ten to fifteen thousand dollars. It's not a large
Speaker 1: amount of money. Right now, it seems like it's a
Speaker 1: large amount of money because you're still in school and
Speaker 1: you're maybe you've only been living off of one income
Speaker 1: and that income has been a teacher salary. But like
Speaker 1: ten years from now, kid, that's going to be your
Speaker 1: caviar budget. You know, future Caid is going to be
Speaker 1: looking back at twenty seven, twenty eight year old Kaid thinking, Man,
Speaker 1: I'm glad he made the right decision. But also future
Speaker 1: kid is going to say to himself, I'm so glad
Speaker 1: he didn't he didn't sweat the details when it came
Speaker 1: to this, because yeah, I got that PhD in chemistry
Speaker 1: and I'm working for the big chemistry company. I don't
Speaker 1: know what chemistry. I don't know anything about kreem or
Speaker 1: something like that. I don't know.
Speaker 2: Oh yeah, and it's just a drop in the bucket
Speaker 2: for the down payment on his yacht.
Speaker 1: Yeah, I mean when you're making bank smaller amounts like that,
Speaker 1: they don't quite matter as much. But I taking the
Speaker 1: proper steps, digging into it, doing some research. Now. I
Speaker 1: don't want to at all discount the effort that you're
Speaker 1: putting into this right now, because you are doing the
Speaker 1: smart thing.
Speaker 2: Yeah, and so much of what you're trying to do
Speaker 2: in this too is you're trying to potentially project future
Speaker 2: tax rates in the United States, and you're also trying
Speaker 2: to project your own future earnings, which neither of which
Speaker 2: you can do perfectly. Of course, so we're all at
Speaker 2: least partially shooting in the dark with a question like this,
Speaker 2: But I think with that shot in the dark, there
Speaker 2: are like shadows that we can see of future income
Speaker 2: of what's going to happen with tax rates, even though
Speaker 2: we can't see anywhere close to perfectly. All you can
Speaker 2: do is make the best decision with the information you
Speaker 2: currently have, and I would take the Roth position. I
Speaker 2: actually did take the Wroth position, Matt. We talked about
Speaker 2: this on the show, a cash out of a pension
Speaker 2: that I had instead of it just seemed after running
Speaker 2: the numbers, that was the best decision for me instead
Speaker 2: of waiting to take the monthly payment of sixty five boom,
Speaker 2: take the ROTH contribution, lump some invest that stuff, and
Speaker 2: then watch it grow over decades to come, and never
Speaker 2: have to pay tax on it again in the future.
Speaker 2: I'm gonna have to pay tax in just a couple
Speaker 2: of months at tax time. But I went into that
Speaker 2: eyes wide open knowing that was going to be the case,
Speaker 2: and I'm glad that I made that decision, even though
Speaker 2: I can't say that it's the most optimized move to make,
Speaker 2: because I'll only know that in retrospect, I can only
Speaker 2: go based on kind of history and the data I
Speaker 2: have on hand.
Speaker 1: Although I will say I just thought something else, which
Speaker 1: is that he mentioned paying the tax bill within during
Speaker 1: his first year of employment after he gets his degree,
Speaker 1: because that's what's going to force him to move. And
Speaker 1: I have no idea about the pension that your wife has,
Speaker 1: but if there's any way for her to cash out
Speaker 1: sooner while you are only making a single salary, a
Speaker 1: teacher salary, and you have the ability to pay the
Speaker 1: taxes at that lower tax rate, I'd be interested in
Speaker 1: somehow seeing if I could maneuver that. I don't know
Speaker 1: if that may not even be an option. But again,
Speaker 1: I just thought of the fact that you talked about
Speaker 1: paying taxes with that new, bigger salary after you've moved.
Speaker 1: But if there's any way to avoid that, I would
Speaker 1: certainly be looking into that. Yeah, but Joel, you've got
Speaker 1: more to get to. We are going to hear from
Speaker 1: a listener who's looking to invest in a way that's
Speaker 1: going to get him some guaranteed returns? Is it even possible?
Speaker 1: We'll get to that more right after this.
Speaker 2: We're back from the break, still taking your money questions. Man,
Speaker 2: we got to get to the Facebook question of the week.
Speaker 2: This comes from the how to Money Facebook group, which
Speaker 2: if you're on Facebook and you want like minded folks
Speaker 2: to offer money advice and to help help your fellow
Speaker 2: listener out, you can just type in how to money
Speaker 2: in Facebook and you'll find that how to Money Facebook group.
Speaker 1: It's a check full of awesome folks.
Speaker 2: All right, Matt, This question comes from Melissa. She says,
Speaker 2: I'm living paycheck to paycheck and I'm not sure if
Speaker 2: I should try to save or pay off high interest
Speaker 2: credit card debt. This is a classic personal finance question, too, right.
Speaker 2: I gotta say I'm sorry to hear this, Melissa, that
Speaker 2: you're living paycheck to paycheck, And I don't know, Matt
Speaker 2: how reliable. The stats are about like fifty to sixty
Speaker 2: percent of Americans living paycheck to paycheck. That's the stat
Speaker 2: we see every single year. I've seen some debunking of
Speaker 2: that claim that more Americans actually have more cash on
Speaker 2: hand than they let on and in some of those surveys,
Speaker 2: or that the surveys that are done just aren't thorough enough.
Speaker 1: It's the hardhearted researchers who are like, oh, they're fine.
Speaker 1: I don't think that's what they're attempting to do. I think, okay, yeah, yeah.
Speaker 2: I just think it's the ones who they stand to
Speaker 2: benefit from the headlines of making it sound like more
Speaker 2: Americans are living on the financial precipice. They just don't
Speaker 2: have a detailed enough methodology in the look doing the survey.
Speaker 2: But still that doesn't mean there's not too much of
Speaker 2: the country who is living paycheck to paycheck, and it's
Speaker 2: a real thing. They'd be utterly devastated if they were
Speaker 2: to miss a single paycheck, which is something we want
Speaker 2: people to avoid. You and I can't fix the tragic reality,
Speaker 2: but we are trying to do our part when it
Speaker 2: comes to financial literacy, because it does make us sick
Speaker 2: realizing that there are a lot of people who are
Speaker 2: in that situation. And the truth is there are actually
Speaker 2: a lot more individuals in this situation who can do
Speaker 2: more than they think about it. You know, the state
Speaker 2: of financial literacy in this country is dismal, but a
Speaker 2: little bit of financial literacy in your life, I think
Speaker 2: can go a long way, especially for people kind of
Speaker 2: living on the margins right now.
Speaker 1: Totally, And this question is one of the first ones
Speaker 1: we typically hear from anyone out there who we encounter
Speaker 1: who is in a similar situation to yours, Melissa. And
Speaker 1: the money gears that we created, I think they should
Speaker 1: help to inform the answer to this perfectly and basically
Speaker 1: to just go ahead and answer your question, should you
Speaker 1: save or pay off that high interest credit card debt? Save? First?
Speaker 1: We want you to a mass a two thousand, four
Speaker 1: or sixty seven dollars emergency fund. And this is based
Speaker 1: on old research. Maybe today that's more like three and
Speaker 1: sixty something like that. Yeah, I would be curious to
Speaker 1: run the numbers, maybe to even und it up to
Speaker 1: I don't know, five thousand, but having a base in
Speaker 1: your savings will be able to just alleviate some mental stress.
Speaker 1: It's gonna sure that you can cover an emergency that
Speaker 1: might come along. Because we want you to get rid
Speaker 1: of that credit card debt for sure, but not until
Speaker 1: you've saved up that bare minimum amount where you to
Speaker 1: skip that step in instead and instead start chipping away
Speaker 1: at your credit card debt. Like, yeah, you might make
Speaker 1: a little bit of more progress, but then boom, you
Speaker 1: got that big unexpected expense that comes up. You don't
Speaker 1: have any cash on hand. Yeah, where does that charge go?
Speaker 1: Goes right back on your credit card. It feels like
Speaker 1: you made progress, then you end up sliding back down
Speaker 1: to the same spot. It feels like you extended, extended
Speaker 1: a whole lot of energy. And that's not the sort
Speaker 1: of headspace that we want you in. Like it's like
Speaker 1: shoots and ladders, Matt, Yeah, I guess.
Speaker 5: So.
Speaker 1: It's been a while since I've played. I played with
Speaker 1: my son. He cheats every time. It's adorable, but because
Speaker 1: I just don't think he realizes that cheater. But when
Speaker 1: you start tackling your credit card debt, we want like
Speaker 1: having that cash cushion on hand is going to allow
Speaker 1: for that credit card debt payoff to be permanent, as
Speaker 1: opposed to something that you slide back into.
Speaker 2: But it really is like you hit the ladder, you
Speaker 2: go up, and then you hit a slide and you
Speaker 2: go back down. And that's what it feels like. I
Speaker 2: think if your efforts are to pay off the credit
Speaker 2: card debt without amassing any sort of savings, so I
Speaker 2: do think, yeah, you're right, Matt. That initial emergency fund,
Speaker 2: not the three to six months of expenses yet, just
Speaker 2: that basic, bare bones y fund, that cash in the bank.
Speaker 2: That's the first step. And then the next step is
Speaker 2: to pay off the credit card debt. And depending on
Speaker 2: how much credit card debt you have, this could be
Speaker 2: a multi year process. So I just you know, for
Speaker 2: most people, it takes many, many years to get into
Speaker 2: a significant amount of credit card debt and then they're like, cool,
Speaker 2: can I get rid of it in two months? And
Speaker 2: the answer is typically no, Like, it's gonna take a
Speaker 2: little bit more of a sustained effort, but we want
Speaker 2: you to get beyond paying the minimum amount because that
Speaker 2: would keep you in debt for decades. We talked about
Speaker 2: this on a recent Friday flight. How you know the
Speaker 2: average credit card debt, Let's say it's in the neighborhood
Speaker 2: of ten grand. If you pay the minimum amount every
Speaker 2: single month, you're talking about multiple decades of being in
Speaker 2: credit card debt and a lot of interest that you're
Speaker 2: going to fork over in the meantime, and you're likely
Speaker 2: going to need to change some habits and reassess your
Speaker 2: spending too. A bare bones budget is something we talk
Speaker 2: about on the show We Haven article we'll link to
Speaker 2: in the show notes about it. It's not for everyone,
Speaker 2: and it's not for all time, but it could be
Speaker 2: a big help as like a short term maneuver, essentially
Speaker 2: to help you grow the gap between what's coming in
Speaker 2: and what's going out each month. That'll help you make
Speaker 2: progress on both the savings and the debt payoff fronts
Speaker 2: more quickly. So maybe a bare bones budget for two
Speaker 2: to three months, right saying listen, I'm cutting back to
Speaker 2: the bare minimum so that I can make more rapid
Speaker 2: progress in this goal. I think that's a good way
Speaker 2: to handle things for a lot of folks.
Speaker 1: Totally. And you said that the next step after the
Speaker 1: emergency fund was to pay off that credit card debt,
Speaker 1: but technically speaking, if when you look at the money
Speaker 1: gears and this isn't something that you asked about, Melissa,
Speaker 1: but make sure that you aren't skipping a match at
Speaker 1: your employee, at your employer, if that's something that's available
Speaker 1: to you, because even though you might have some high
Speaker 1: rate credit card debt, a match is either a one
Speaker 1: hundred percent return on your money or a fifty percent
Speaker 1: return on your money. And even with the worst credit
Speaker 1: cards out there, I got, like a retail like a
Speaker 1: Macy's credit card or something like that thirty four percent, yeah,
Speaker 1: or a credit card that has like a penalty interest
Speaker 1: rate that you're getting slammed with that's still at least
Speaker 1: twenty percent less than what it is that you'd be
Speaker 1: making on your money were you to get your match.
Speaker 1: So keep that in mind. But we understand your focus
Speaker 1: on savings and eliminating that credit card debt because it
Speaker 1: feels like the thing that is most urgent. But don't
Speaker 1: forget about the four to one K match. Assuming though,
Speaker 1: that you are now moving on to that debt payoff phase,
Speaker 1: like Joel said, this could take a really long time,
Speaker 1: and as you're trying to find ways to maybe optimize
Speaker 1: the best way to pay that down. We would recommend
Speaker 1: for you to check out a website called undebt dot
Speaker 1: it so it's undebted and in order to create a
Speaker 1: plan as to whether you should be taking more of
Speaker 1: the snowball method, whether it's more of an avalanche method,
Speaker 1: maybe a mixture of the two. If you are in
Speaker 1: completely overwhelming amounts of credit card debt, we would recommend
Speaker 1: to reach out to an organization like Money Management International.
Speaker 1: But all that to say, keep listening to the show,
Speaker 1: keep asking questions over in the Facebook group, and we
Speaker 1: would totally recommend for you to reach out to us
Speaker 1: directly if you think we can be of any help
Speaker 1: in any way.
Speaker 2: We issue the best of luck, Melissa. You're not alone
Speaker 2: in this predicament and you can call your way out.
Speaker 2: Many how to money listeners have and hearing those success
Speaker 2: stories matter of how people have been able to completely
Speaker 2: change their financial future, even with like a difficult past,
Speaker 2: it never ceases to amaze and inspire me. All right,
Speaker 2: let's get to another question from listener Andre. He says,
Speaker 2: does anyone know of a one year investment I can
Speaker 2: make that would guarantee more than a three to four
Speaker 2: percent return? I know of CDs that offered three to
Speaker 2: four percent, But I thought i'd ask if there are
Speaker 2: better options. Keyword here being guarantee is what Andre said.
Speaker 1: Nope, doesn't exist. That's the TLDR, at least not in
Speaker 1: action like a quote unquote investment. Because if you have,
Speaker 1: let's you know, if you've got a high to medium
Speaker 1: interest rate debt, well paying that off, I would say
Speaker 1: that would generate a quote unquote guaranteed return. But short
Speaker 1: term guaranteed investments that like, they just are not a thing.
Speaker 1: And so the choices that you have here, they're really
Speaker 1: just finding the best rates for storing cash. High old
Speaker 1: savings accounts they're great, but they're also not guaranteed. We've
Speaker 1: seen we've seen rates going down for savers as the
Speaker 1: FED has lowered interest rates slowly. CD rates they are
Speaker 1: guaranteed for a period of time, but then the starting
Speaker 1: rate of those can be a little bit less than
Speaker 1: what the highield savings accounts are currently paying. Bottom line,
Speaker 1: you should be able to get like a four ish
Speaker 1: percent rate without needing to actually investor or take any
Speaker 1: real risk.
Speaker 2: Yeah, and we're talking about a timeline that's that short,
Speaker 2: a single year. Sorry, there just isn't any investment that
Speaker 2: is worth partaking in because the risk is just too high.
Speaker 2: When we're talking about investing money, could the returns be
Speaker 2: significantly higher than that? Sure of course they could be.
Speaker 2: Think about the stock market in twenty twenty four. If
Speaker 2: you had stuck your the money in the stock market
Speaker 2: on January first and then taking it out on December
Speaker 2: thirty first, you would have.
Speaker 1: Forgive four percent twenty five percent.
Speaker 2: Maybe you would have done much better than sticking in
Speaker 2: a savings account, but that's not guaranteed. You could have
Speaker 2: experienced to hear like twenty twenty two. And I think
Speaker 2: the choice too, between a high yield savings account or
Speaker 2: a CD is actually kind of a tough one right now,
Speaker 2: because if you want to guarantee you go with a CD.
Speaker 1: You know.
Speaker 2: But here's the thing. You and I we don't expect
Speaker 2: yields to fall meaningfully for savers, but they could, and
Speaker 2: so much of that depends on the FED. It depends
Speaker 2: on the current administration and the best CD rates they're
Speaker 2: they're in that nine to thirteen month range right now,
Speaker 2: so right out a year timeframe.
Speaker 1: Which is perfect for Andre.
Speaker 2: Right, I would check out a site like Investipedia, bank Rate,
Speaker 2: Doctor of Credit. They typically list the best offers, and
Speaker 2: the best that I saw Matt as I was preparing
Speaker 2: for this question was Marcus and Synchrony. They seem to
Speaker 2: be paying top rates. But then you know ciit's high
Speaker 2: old savings account rate. It's just as good, if not better,
Speaker 2: than what those guys are offering.
Speaker 1: On a CD.
Speaker 2: But that's a savings account, and that rate is subject
Speaker 2: to change if the FED lowers rates by half a
Speaker 2: point or something like that. Guess what the rate you're
Speaker 2: earning on savings is going. So it's not guarantee you'd
Speaker 2: see a drop. Yeah, So yeah, I don't know if
Speaker 2: you feel comfortable with no guarantee. The high old savings
Speaker 2: account I think can make a lot of sense. If
Speaker 2: you want the set in stone, the contractually oblicated guarantee
Speaker 2: that you get with a certificate of deposit, then I
Speaker 2: think that can make a lot of sense. To just
Speaker 2: make sure you're not going down to your local financial
Speaker 2: institution brick and mortar and opening it up because the
Speaker 2: trade off that yeah, you might get there, Oh hey
Speaker 2: we got two percent rates on CDs right now, and
Speaker 2: that's just not competitive with what you're able to find
Speaker 2: if you just do you know a little bit of
Speaker 2: a sick.
Speaker 1: Standard, Yeah, a solid one online And all that note,
Speaker 1: I will say, don't go chasing returns. Don't go with
Speaker 1: like some sort of neobank that's promising a we are
Speaker 1: offering a four and three quarter money market account, because
Speaker 1: there's no free lunch. And if there's anything that we've
Speaker 1: learned about the neo banks, like nobody suspected that there
Speaker 1: might be a small regional bank that could collapse, but
Speaker 1: ever since Silicon Valley Bank, it's like, oh the I mean,
Speaker 1: that was always a risk, but now it feels a
Speaker 1: little more tangible, like a little bit more real of
Speaker 1: a risk. But then like, yes, you might get a
Speaker 1: slightly higher rate with some of these online banks, but
Speaker 1: there's other things that you're giving up as well, like
Speaker 1: actual customer service if you need to get ahold of them,
Speaker 1: or transfers that are happening in any sort of timely manner.
Speaker 1: I mean, so all I had to say, if it
Speaker 1: was me, I would not be looking to completely juice
Speaker 1: my returns by going with some of these new neo
Speaker 1: banks that you've never heard us talk about as opposed
Speaker 1: to the banks you hear is talking about all the time,
Speaker 1: like discover ally c It and even Marcus and Synchronylos
Speaker 1: are bunctioned Legit online banks too. Totally.
Speaker 2: All right, Matt, Let's get back to the beer we
Speaker 2: had on this episode. This one is a tequila barrel
Speaker 2: aged stout by Wicked we Brewing. What were your thoughts
Speaker 2: on this beastly stout, my friend?
Speaker 1: Yeah, it was big, wasn't it. So this is very
Speaker 1: similar to the one that we had a couple of
Speaker 1: weeks ago that was the rum barrel aged. This is
Speaker 1: just the tequila barrel. Yes, it's the same based out,
Speaker 1: I'm assuming. So it tastes tastes like it, I will say,
Speaker 1: I'm not sure if I tasted the tequila like in
Speaker 1: the rum barrel. It's there are clear rum notes. I
Speaker 1: think I remember saying it tastes like that there are
Speaker 1: raisins in here that have been soaked in actual rum
Speaker 1: that were like macerated and put back into the bottle,
Speaker 1: whereas this, there's no part of this that tastes like
Speaker 1: a margerita to me. What about you? Now? I will say,
Speaker 1: I got like maybe some of the earthy vibes a
Speaker 1: little bit. Yeah, yeah, that's a good way to describe tequila.
Speaker 1: It's kind of it's like tastes like soil, Yeah, like
Speaker 1: wet earth.
Speaker 2: Yeah, so I thought it had a little bit of that,
Speaker 2: but yeah, not nearly as much as the rum. But
Speaker 2: this was like big, burly, semi sweet, little earthy, and
Speaker 2: just incredibly complex. There were just a lot of different
Speaker 2: flavor notes going on, which just goes to shut that
Speaker 2: WI could weave. They make, they make great beer, and
Speaker 2: then the way they blend the beer. I feel like
Speaker 2: there's the blending is kind of like an underrated part
Speaker 2: of the process. And I don't know much about it,
Speaker 2: but from what I can tell, this is a well
Speaker 2: blended style because you're using multiple barrels and you're trying
Speaker 2: to create a finished product that's kind of seamless throughout
Speaker 2: all the bottles making. Yeah, and I don't know, man,
Speaker 2: I like this beer a lot.
Speaker 1: Yeah. I feel like you can take some of those
Speaker 1: brown sugar notes maybe, yeah, even a little bit of honey.
Speaker 1: It's almost as if it's a dark art to be
Speaker 1: able to pull something like this off. We are not
Speaker 1: paid by Wicked. We just a little disclaimer out there
Speaker 1: for folks, but we're willing to be. But that's gonna
Speaker 1: be up for this episode. The listeners can find our
Speaker 1: show notes to some of the different resources, some of
Speaker 1: the different articles that we mentioned during this episode up
Speaker 1: on the website at howtomoney dot com. Hey leave us
Speaker 1: a solid review if you've been enjoying the show and
Speaker 1: that's not something that you've done truly other than like
Speaker 1: telling a friend about the show and like making them
Speaker 1: subscribe to the show like that is the second best
Speaker 1: way to help the show out. Helps us to spread
Speaker 1: the word, helps others to get their money game together. Joel,
Speaker 1: that's what we like to see most. That's gonna be
Speaker 1: it for this one. Until next time, Best Friends Out,
Speaker 1: Best Friends Out.