Speaker 1: Episode two oh five, how to Save for Retirement. Welcome
Speaker 1: to the Frugal Friends podcast, where you'll learn to save money,
Speaker 1: embrace simplicity, and live with your life. Here your host
Speaker 1: Jen and Jill. Welcome to the Frugal Friends podcast. My
Speaker 1: name is Jen, my name is Jill, and today we
Speaker 1: are talking about retire meant get it, love it. I
Speaker 1: love thinking about it. I'm gonna love doing it some day.
Speaker 1: You know. It is the sexiest topic in personal finance,
Speaker 1: which is so interesting. Yeah, this is definitely the text space.
Speaker 1: This is where it's all at. Yeah, Like I feel
Speaker 1: like crypto and n f t s those are like
Speaker 1: only fans like those are that's that's too a little
Speaker 1: too far. But investing in retirement, like that's what's really sexy.
Speaker 1: And so I am super I'm always super excited to
Speaker 1: do a retirement episode. It doesn't feel sexy to me,
Speaker 1: to each his own, but I am glad to be
Speaker 1: talking about it and dreaming about days when I don't
Speaker 1: have to work. Although, let's be real, Jen, we're gonna
Speaker 1: set our hands to something always and forever. Yes, well,
Speaker 1: and we're going to talk about that in the episode. Yeah,
Speaker 1: I'm very excited about it. But first, our sponsors sponsors
Speaker 1: spring break that was recorded in St. Petersburg. Not that,
Speaker 1: not that spring break that one, but kind of spring
Speaker 1: break is coming and if you are lucky or have
Speaker 1: kids home from school, you will get a few days off.
Speaker 1: We know you'll be twiddling your thumbs thinking, gosh, I
Speaker 1: wish I had something to do. Don't worry, We've got you.
Speaker 1: We wrote a free e book for you with over
Speaker 1: two hundred things for you to do that will help
Speaker 1: you save money. So grab your copy at Frugal Friends
Speaker 1: podcast dot com slash e book again, that's Frugal Friends
Speaker 1: podcast dot com, slash e book. Right it on your
Speaker 1: to do list so you can immediately mark it off.
Speaker 1: You're welcome. Yes, and this episode is also brought to
Speaker 1: you by your roth Ira. We are recording this pretty early,
Speaker 1: so the I R S has probably changed the tax
Speaker 1: deadline again. But let's like for a second, pretend it's
Speaker 1: April four. This means you have less than three weeks
Speaker 1: to invest in your roth Ira. This is important because
Speaker 1: you can only invest a max of six thousand dollars
Speaker 1: per year, so if you miss this year, you do
Speaker 1: not get it back. So if you're able to take
Speaker 1: a three week detour on your financial goal and take
Speaker 1: advantage of this amazing tax sheltered retirement account. Do it.
Speaker 1: And if you don't know what I'm talking about, listen
Speaker 1: to the rest of this episode. And if you want
Speaker 1: more on this topic of retirement, queue up episode ninety four,
Speaker 1: which is Retirement one oh one Everything frugal people need
Speaker 1: to know about saving for retirement, and or episode one
Speaker 1: fifty eight where we talk about roth iras with Barbara Guinty.
Speaker 1: She is a gem and explained so many things in
Speaker 1: a way that did not make us feel stupid. So
Speaker 1: we loved that. So get those ready for after this episode. Yeah,
Speaker 1: this episode is like a follow up to episode ninety four,
Speaker 1: so we talk a lot about how to figure out
Speaker 1: how much to save and stuff like that, and here
Speaker 1: we're kind of really getting into nuts and bolts and
Speaker 1: like a little bit of how to do those things,
Speaker 1: so a little bit deeper. But I love these articles.
Speaker 1: They're really good, and I, for one, for one, love
Speaker 1: talking about investing in retirement and I think it's sexy.
Speaker 1: So which is great. Now, Jen, because I remember you've
Speaker 1: shared a couple of times on the podcast that when
Speaker 1: you first got into writing about personal finance. This was
Speaker 1: the topic that you said you would not write about,
Speaker 1: and then they said, yes you will, here's your assignments,
Speaker 1: and then you did it and then became an expert,
Speaker 1: and now you love it and you think it's sexy,
Speaker 1: which in my opinion is like a little too far.
Speaker 1: But the evolution, I will be honest, Jill. That wasn't investing.
Speaker 1: That was insurance. And I am still not an expert
Speaker 1: in insurance, but I do know a whole lot more
Speaker 1: about it and I can't hold a conversation with an
Speaker 1: insurance agent should I ever need to at a party,
Speaker 1: and I can say that's probably not too far off.
Speaker 1: But let's get into our first article. And it is
Speaker 1: actually named how to Say for Retirement, because if that's
Speaker 1: what you're searching for, this is going to be the
Speaker 1: first article to come up. And I actually know the
Speaker 1: writer of this article, Cat Triutina. She is super smart,
Speaker 1: and so I knew it was going to be a
Speaker 1: good article and I read it and it was So
Speaker 1: what did you think about it, Jill? Yeah, Well, it
Speaker 1: goes through seven steps, which we will go through all
Speaker 1: steps because they kind of go in order. It's not
Speaker 1: one of those like pick your favorites. You kind of
Speaker 1: do need to go in order of the seven steps
Speaker 1: that are listed out, And I like how it starts
Speaker 1: off with describing kind of where does this sit for
Speaker 1: most people. That's always an interesting perspective for me of
Speaker 1: how many people are thinking and talking about investing in retirement.
Speaker 1: And she mentions. The writer mentions that according to the
Speaker 1: Federal Reserve, about a quarter of Americans have no retirement
Speaker 1: savings at all, and almost two thirds of non retired
Speaker 1: adults are concerned about being able to meet their retirement
Speaker 1: savings goals. So if that's you, please rest assured that
Speaker 1: you're not alone. There are plenty of people also in
Speaker 1: that boat. But also well done for engaging in some
Speaker 1: of this content because we don't have to stay there,
Speaker 1: We don't have to remain in a concerned place about
Speaker 1: what is retirement going to look like for us? So
Speaker 1: this episode certainly for you. And um, I'm excited to
Speaker 1: get into the steps because I think as I was
Speaker 1: reading through it, after about step three, I feel like
Speaker 1: is where your typical basic information stops. Where people will
Speaker 1: kind of give you a little bit of a snippet
Speaker 1: of how to invest and this article feels like it
Speaker 1: keeps going and gives you the full picture of the
Speaker 1: steps to take the safer retirement. So let's go through them,
Speaker 1: because it's not a destination, essentially, like saving for retirement
Speaker 1: is the journey, so that kind of leads us into
Speaker 1: the first one is set your retirement savings goal. So
Speaker 1: this is what we talk a lot about. We are
Speaker 1: very much focused on step one of this whole investing
Speaker 1: journey because people so often think about paying off debt
Speaker 1: or investing in terms of like, Okay, I'm well, I'm
Speaker 1: old enough, I need to get my finances in order,
Speaker 1: or this is a burden weighing on me. I feel
Speaker 1: anxious about money, so I need to figure it out
Speaker 1: to alleviate that anxiety. When really we cannot do our
Speaker 1: finance as well, and we cannot feel confident about them
Speaker 1: unless we know why we're doing it, and it can't
Speaker 1: be to alleviate some kind of shame or guilt or
Speaker 1: societal obligation. It has to be because you know what
Speaker 1: you're looking for in life, not just in retirement, but
Speaker 1: all the years leading up to it too, Because again,
Speaker 1: saving for retirement is the journey, and so we have
Speaker 1: to not just look at the destination, which is actual retirement,
Speaker 1: but we have to look at designing our dream life
Speaker 1: and not the life that the media or our family
Speaker 1: or social media is telling us should be our dream life.
Speaker 1: We have to do the hard work of figuring out
Speaker 1: what that is and then figuring out how to afford
Speaker 1: it while still saving for that destination. That's just a
Speaker 1: long way of saying Number one is set your retirement
Speaker 1: saving schools. So once you design that, then figure out
Speaker 1: what it costs and know that it will change. You'll
Speaker 1: have to revisit this every five years at least you'll
Speaker 1: have to revisit step one and go through all seven
Speaker 1: steps again. So never feel like you're behind either because
Speaker 1: just because you're doing it now, I mean you should
Speaker 1: have done it five years ago. Yeah, but like you'll
Speaker 1: be doing it in five more years, So don't wait
Speaker 1: just because you want to put it off, Like, do
Speaker 1: it now. So yeah, that is that step one. Set
Speaker 1: your retirement savings goal the amount right. Well, I like
Speaker 1: how you're pairing both, not you're pairing both the what
Speaker 1: do I want life to look like? And so there's
Speaker 1: some intangible goals and desires that we might have for
Speaker 1: retirement and what our journey likes to get looks like
Speaker 1: to get. They're kind of like the why, but then
Speaker 1: also with real hard, concrete numbers, and so the article
Speaker 1: does give a breakdown of how do you figure out
Speaker 1: how much money you're going to need in retirement to
Speaker 1: pay for the lifestyle that you're hoping you can have,
Speaker 1: And so there's a lot of formulas and different rules
Speaker 1: that can be followed, So feel free to dig into
Speaker 1: the article more to learn how to calculate how much
Speaker 1: you need to save. I will say one thing that
Speaker 1: was mentioned in a separate article as we were doing
Speaker 1: some research for this episode, where a lot of people
Speaker 1: think that they can live off of maybe seventy five
Speaker 1: have to maybe even fifty percent of their current expenses
Speaker 1: in retirement because they think they're spending is going to
Speaker 1: be less, but in reality it's not. So definitely keep
Speaker 1: that in mind and even go at least ad of
Speaker 1: of current spending, if not more, because a lot of
Speaker 1: times that is when extra travel is happening, or bucket
Speaker 1: lists or medical concerns or greater desires to be generous.
Speaker 1: So just keep that in mind that this isn't the
Speaker 1: time to be like oh, I'm going to really cut
Speaker 1: my expenses in retirement if we've got time to plan
Speaker 1: for it. Yeah, and the end number is really arbitrary.
Speaker 1: You don't know how much money you're going to need
Speaker 1: in retirement. I think the main thing is to design
Speaker 1: the life that you want throughout that journey, and that's
Speaker 1: cut your expenses, raise your income so you can have
Speaker 1: you can focus on the month to month, how much
Speaker 1: you're investing, that's the really important thing. If you want
Speaker 1: a formula is the most common. We talked about it
Speaker 1: in episode, but you just multiply your annual expenses by
Speaker 1: and that's essentially what you would need to save to retire.
Speaker 1: So like, if you spend fifty dollars a year and
Speaker 1: that's not with your investment, you just spend fifty grand
Speaker 1: a year, then times fifty grand is one point to
Speaker 1: five million. So that's kind of what your goal should be.
Speaker 1: And so that's nice to figure out to see, but
Speaker 1: sometimes that number can be intimidating. Don't let it intimidate you.
Speaker 1: Focus on the month to month savings, right. That's another
Speaker 1: thing that this article points out is that we just
Speaker 1: need to focus month to month and make sure we're
Speaker 1: investing every month of every year from now on till
Speaker 1: we retire. And so once you figured out how much
Speaker 1: you need to save, paired with the reality that you're
Speaker 1: going to be really looking at it every five years
Speaker 1: at least, you want to open a retirement account that
Speaker 1: stuff too. And so, of course a retirement account historically
Speaker 1: investment accounts in the stock market, you're going to have
Speaker 1: a significantly better return on your investment than just throwing
Speaker 1: your money into a savings account. So this is what
Speaker 1: we're talking about, investing in retirement, putting it into some
Speaker 1: sort of account that's going to grow to a higher percentage.
Speaker 1: And so there are two main types of retirement accounts.
Speaker 1: There's employee sponsored retirement accounts like a four oh one
Speaker 1: K and individual retirement accounts like I R A s
Speaker 1: and so in general, both are available in traditional and
Speaker 1: RATH varieties. Both offer tax advantaged growth of your investment money.
Speaker 1: But you pick whether you'd prefer an income tax break
Speaker 1: now or in retirement. So yeah, choose which one you
Speaker 1: want to do or both. But that's that is going
Speaker 1: to need to happen. You need to open that account
Speaker 1: to have someplace to put that money that you're putting
Speaker 1: a way every month. Yeah, and ideally you will have
Speaker 1: both because I think if the last two years have
Speaker 1: taught us anything is that we you cannot rely on
Speaker 1: what was to plan for what will be. And so
Speaker 1: you don't know what taxes are going to be like
Speaker 1: when you retire um, but you do know what taxes
Speaker 1: are like right now. So if you are in a
Speaker 1: city where you are triple taxed and you want to
Speaker 1: pay less in taxes now, then maybe that means prioritizing
Speaker 1: more in traditional the four oh one K or the
Speaker 1: traditional IRA. If you are like us and you are
Speaker 1: in a state where there's no state tax, no city tax,
Speaker 1: like just you know, it's a free for all, then
Speaker 1: rapha as are really great. If you plan to make
Speaker 1: more money in the future but are at the beginning
Speaker 1: of your career, rapha a great. So again, this is
Speaker 1: why you reevaluate like every few years, because you're going
Speaker 1: to be in a different place in five years than
Speaker 1: you are now. So you can make your plan now,
Speaker 1: do it, execute it. Stop worrying that it's not the
Speaker 1: best plan, and just execute the plan. I have this
Speaker 1: this quote from The Flash, the TV show The Flash,
Speaker 1: and I is in my book and I just rediscovered
Speaker 1: it when I was doing um the updated edition of
Speaker 1: No Spend Challenge Guide, and it was from one of
Speaker 1: the villains, like one of the villains that turns good.
Speaker 1: He's played by um Wentworth Miller from Prison Break and
Speaker 1: he's just great. But the character says, make the plan,
Speaker 1: execute the plan, expect the plan to go off the rails,
Speaker 1: throw away the plan. And I thought it was the
Speaker 1: most insightful quote. I have lived my life by that quote.
Speaker 1: And that is what I mean. That is saving for
Speaker 1: retirement to like you make these plans of you do
Speaker 1: rule to figure out how much to say you break
Speaker 1: that down monthly. We tend to use like a seven
Speaker 1: to ten interest um when we plan because SMP five
Speaker 1: hundred typically returns ten percent. But if you're including bonds
Speaker 1: in your portfolio, which we'll get to that later, it's
Speaker 1: better to more be more on the conservative side because
Speaker 1: those do not yield ten. So you know, you can
Speaker 1: do the numbers, and you can make the plan, and
Speaker 1: you can use the accounts, the four one K, the
Speaker 1: I R A, and plans will still go off the rails.
Speaker 1: And that doesn't mean you failed. That means that the
Speaker 1: plan has gone off the rails and you throw the
Speaker 1: plane away. You make a new plan, so so good.
Speaker 1: It doesn't mean don't plan, just keep adjusting, keep pivoting. Yeah,
Speaker 1: all that to say I do. I mean I have
Speaker 1: both a four oh one K like traditional and tax
Speaker 1: divert and tax now like benefit plans and currently our
Speaker 1: own contributing to roth iras that's us. But I like both,
Speaker 1: and I think having both, if you have the option,
Speaker 1: really important, really good. So I already talked about this
Speaker 1: a little bit, but number three is choose your investments.
Speaker 1: So we were just talking and I don't know if
Speaker 1: it was the last episode of the episode before that
Speaker 1: our rerun where we talked about Jill opening her roth
Speaker 1: Ira and what a great step that was, and then
Speaker 1: she forgot to invest it the money in the account.
Speaker 1: That's what I'm saying, Like most most advice stops at
Speaker 1: step two in this article, and then I love that.
Speaker 1: I love that this author added this step three. Now
Speaker 1: you've got to choose your investments. Even still though it
Speaker 1: was not an easy process, after watching you do it, Jen,
Speaker 1: I'm like, I bide, I am still very lost. Okay,
Speaker 1: So yeah, and because I you, is this something you
Speaker 1: only do one time if you're lucky. So I forgot,
Speaker 1: like it's been years since I've done it, So even
Speaker 1: I forgot had to because I don't do it all
Speaker 1: the time. It is a confusing process, especially if you're
Speaker 1: using Vanguard or Fidelity. UM. I think Fidelity's website is
Speaker 1: a little more user friendly, but we were using Vanguard,
Speaker 1: and it's super easy if you use UM like an
Speaker 1: m one where you're doing a robo advisor and they
Speaker 1: will choose the investments for you and they will make
Speaker 1: sure that you are invested once you put money in.
Speaker 1: That's what a robo advisor does. So if you don't
Speaker 1: want anything to do with choosing investments, you just want
Speaker 1: to open the account, put the money in, and just
Speaker 1: let it go. You don't want to do that like
Speaker 1: tiny step three that you will do you will spend
Speaker 1: thirty minutes on one time. Then it it would have
Speaker 1: taken me hours looking up all of these acronyms. Yeah,
Speaker 1: I think every few years I try to recreate it
Speaker 1: so I know what to do, and it confusing every
Speaker 1: single time. But choosing your investments is not a hard thing.
Speaker 1: We have our episode, UM, I can't remember what it is,
Speaker 1: but it's Minimalist Investing. It wasn't too long ago if
Speaker 1: you if you scroll through, you should see it. But
Speaker 1: where we talk about how to compile a minimalist portfolio.
Speaker 1: So if you are specifically thinking about what investments do
Speaker 1: you want in your portfolio, check out our Minimalist Investing episode.
Speaker 1: We are not licensed stock brokers or certified financial planners,
Speaker 1: so we can't tell you exactly what to invest in,
Speaker 1: but there are some very common selections that you will
Speaker 1: see everywhere, and we kind of go over those common selections,
Speaker 1: but we can't tell you that it's right for you. Essentially,
Speaker 1: and well, I will have that episode linked the Minimalist
Speaker 1: Investing episode in the show notes. Yeah, essentially, you're just
Speaker 1: you have to get in there and buy funds, so
Speaker 1: you're and honestly, I can't even tell you if I'm
Speaker 1: right on that one, because again it's been probably a
Speaker 1: year and a half since I last tried it. Well,
Speaker 1: here's here's real talk. I still have yet to open
Speaker 1: one for Eric because when I first did this, I
Speaker 1: didn't realize that each one of us could have our
Speaker 1: own rath Iras. I know it sounds silly out loud,
Speaker 1: I just never really put much thought into it. I'm like, we,
Speaker 1: as a married couple opened up a roth Ira and
Speaker 1: then you and I were talking. You're like, well, you
Speaker 1: both can have one. You're both individual people. I'm like,
Speaker 1: oh my gosh, and I just still haven't done it
Speaker 1: because I'm still so confused by the first time that
Speaker 1: I did it. So I'm waiting to come over to
Speaker 1: your house and you open one for Eric too. We will. Okay,
Speaker 1: So we're recording this pretty early, and so let's set
Speaker 1: a deadline of by the time this airs, Eric will
Speaker 1: have a rough and maybe we should keeping. I mean,
Speaker 1: obviously we can't tell people what to do, but maybe
Speaker 1: that could be a our own learning process of redoing it.
Speaker 1: If there's anything that stands out, we can share that
Speaker 1: with you in our Frugal Friends Facebook group. Absolutely alright.
Speaker 1: Number four, once you've done steps one through three is
Speaker 1: set up automatic recurring deposits. This is the key. Do
Speaker 1: not skip this one. There's not much more to be
Speaker 1: said about this, but make it automatic. We love paying
Speaker 1: bills automatically, we love saving automatically. And when you set
Speaker 1: up that monthly withdrawal to go into your retirement accounts,
Speaker 1: you don't have to think about it, so it's not
Speaker 1: dependent on you remembering doing it manually. And oftentimes when
Speaker 1: we get in the rhythm of it and we are
Speaker 1: not accustomed to having that money in our accounts, we
Speaker 1: don't miss it. We put away a couple of hundred
Speaker 1: dollars monthly to our rath. I ra a my up
Speaker 1: her right. It's not joint one, and I love that
Speaker 1: I don't have to be a part of it constantly.
Speaker 1: It's happening for me that I'm investing. Of course, each
Speaker 1: one of us has to decide what we have a
Speaker 1: budget for, so there's no shame if it has to
Speaker 1: be a low amount for you. You're doing it, which
Speaker 1: is better than twenty five per cent of Americans. So
Speaker 1: just do it. It's get it on monthly. Mm hmm. Yeah.
Speaker 1: And so that at least in Vanguard is a separate
Speaker 1: place from buying the funds. You have to buy your
Speaker 1: funds first and then go into a separate place to
Speaker 1: create automatic investments and from there on, that's why choosing
Speaker 1: your investments is just a one time deal. From then,
Speaker 1: when you set up automatic recurring deposits, everything is done
Speaker 1: for you. You set the amount, you tell it where
Speaker 1: you want it, like which funds you want it to buy?
Speaker 1: Which are the funds you've already chosen. You do have
Speaker 1: to say the percentage that you allocate to it, which
Speaker 1: again we talked about centages in our Minimalist Investing episode.
Speaker 1: And that's it. That is it. So it's not difficult.
Speaker 1: It is confusing. I will not lie. You get in
Speaker 1: there and you there will be a lot of words
Speaker 1: you don't understand well. And that was my problem because
Speaker 1: everybody online is like, I do this for entertainment. I'm
Speaker 1: not an advisor, so I can't tell you how to
Speaker 1: do it. There is just like zero information on on
Speaker 1: that step three of how to do it because everyone's
Speaker 1: telling you. I can't tell you what to invest in.
Speaker 1: So there is some sort of gap there in an
Speaker 1: ability to be able to d I Y this. But
Speaker 1: hopefully you can phone a friend who's done it before.
Speaker 1: You've got someone in the financial space who can help you. Yeah,
Speaker 1: And we we have are a place in our Financial
Speaker 1: Freedom Mentorship where we actually have like a walkthrough video
Speaker 1: at least how to do it for Vanguard and UM
Speaker 1: with like sample savings templates up to like a d
Speaker 1: K and a million, but it can be a bit confusing,
Speaker 1: but there are examples on YouTube. You can see walkthroughs
Speaker 1: of buying index funds and setting up recurring deposits on YouTube.
Speaker 1: Those are there good? Yes. So number five is regularly
Speaker 1: increase your retirement savings rates. So I think traditional wisdom
Speaker 1: has said fifteen percent of your income. When you set
Speaker 1: a minimum, people are always like, oh, does my employer
Speaker 1: match count towards part of that fifteen when really it
Speaker 1: is as much as possible and honestly is probably better,
Speaker 1: I say, especially because people plan to retire at sixty
Speaker 1: sixty five beyond. But statistically most people will have to
Speaker 1: retire before sixty four just due to health things or
Speaker 1: family taking care of family member or whatever. So a
Speaker 1: lot of people have to retire before they're planning to.
Speaker 1: And so you want to have your retirement savings I
Speaker 1: would say by sixty maybe even earlier. And so if
Speaker 1: you can increase, the earlier you increase your retirement savings,
Speaker 1: the less overall you have to save. And so that's
Speaker 1: where frugality comes into. This whole thing is we love
Speaker 1: to save money. We want to get as much as
Speaker 1: we can for as little money as we can expend
Speaker 1: it for within reason. And this is one of those
Speaker 1: places where if you spend more upfront, you will save
Speaker 1: more in the long run. People who save in their
Speaker 1: twenties and thirties will spend less money put less money
Speaker 1: into savings then somebody who starts in their thirties forties
Speaker 1: and get to the same place. So it's you save money.
Speaker 1: Like if you're trying to become a millionaire, you the
Speaker 1: earlier you start, the less money it takes to get
Speaker 1: there easier. I should have just said that in the beginning.
Speaker 1: So yeah, do as much as you can, as early
Speaker 1: as you can. But I think the real thing is
Speaker 1: every month of every year for the rest of your
Speaker 1: working life, and it doesn't matter what what amount. And
Speaker 1: I like some of these tips that they mentioned within
Speaker 1: step five of how you can increase your retirement savings rate.
Speaker 1: Some of it, hopefully is just that you're able to
Speaker 1: increase what you contribute monthly, but also if you have
Speaker 1: a raise or a bonus, or you happen to come
Speaker 1: across money you weren't anticipating, or a tax return, or
Speaker 1: you paid off debt, now a lot that amount of
Speaker 1: money that you were paying to debt to this retirement
Speaker 1: savings avoiding lifestyle inflation. So yes, there's the monthly, but
Speaker 1: then we can also have our sights on when I
Speaker 1: get a large sum of money, either expected or unexpected,
Speaker 1: to be keeping that in our minds as well, to
Speaker 1: put it towards retirement, not just a cool new gadget
Speaker 1: for my immediate self, but to also be thinking about
Speaker 1: future self. And that's a training of the brain. All right.
Speaker 1: Step six open an additional retirement accounts. So once you've
Speaker 1: done all of the other things and you're moving and
Speaker 1: grooving your max amount that roth ira, consider another one.
Speaker 1: So of course many people might have both a four
Speaker 1: oh one K and a roth IRA. Certainly if you
Speaker 1: are if you've got a side hustle or you work
Speaker 1: for yourself, you could consider a step I RA or
Speaker 1: a solo for oh one K. This is where I
Speaker 1: do have a question though, Jenn, if you can confirm
Speaker 1: they talk about that. If you do, you can open
Speaker 1: multiple I ra s. But the contribution limit counts across
Speaker 1: all accounts. So is that to say that like I
Speaker 1: could have under my name to rath I ras, but
Speaker 1: the limit both combined is still going to be six
Speaker 1: K a year. Yeah, And So the reason they do
Speaker 1: that is, like I said before, balancing post tax and
Speaker 1: pre tax protection. And this is the one thing where
Speaker 1: I go against the one thing where it's usually I'm
Speaker 1: just like, focus on one thing and then you know,
Speaker 1: once you've mastered that, go on to the next, or
Speaker 1: once you've maxed that out, go on to the next.
Speaker 1: I really believe in balancing unless you have a really
Speaker 1: good reason to do only wrath or to do only traditional,
Speaker 1: which you will know if you're that special, you're either
Speaker 1: not working or you're really highly taxed. But I think
Speaker 1: for most people it's very beneficial to kind of just
Speaker 1: be putting your your apples evenly into both baskets. And
Speaker 1: I can't tell you what's good. You know best for you,
Speaker 1: but I just I hedge my bets because I don't
Speaker 1: know what taxes are going to be like when I retire,
Speaker 1: so and I'm in a tax bracket and situation or
Speaker 1: that makes sense for me. But yeah, I would say
Speaker 1: have both accounts if you can. Not everyone has access
Speaker 1: to an employer sponsored account. If you have a side
Speaker 1: hustle where you can get a solo for a one k, great,
Speaker 1: but not everyone will. So that means you may have
Speaker 1: to divvy up between a traditional ira and a roth ira,
Speaker 1: and again you can put three k in one and
Speaker 1: three k in the other. But yeah, you can have
Speaker 1: two roth iras. But there's really no point in doing it.
Speaker 1: It's just an account and you would have the same
Speaker 1: investments in each or you could have different investments in
Speaker 1: one single roth ira, so there's not really a point
Speaker 1: to doing it. I will say here that when if
Speaker 1: you ever do a four oh one K roll over
Speaker 1: and put that into a traditional ira or rath, that
Speaker 1: does not count towards your contribution limit for the year.
Speaker 1: So if you're rolling over six thousand from a four
Speaker 1: oh one k to an i ra a, the rollover
Speaker 1: does not count as a contribution. It's considered rollover. Yeah,
Speaker 1: and if you if you have a four oh one k,
Speaker 1: definitely hit up capitalized. They will do four one k
Speaker 1: rollovers or four or three b rollers, etcetera. Are actually
Speaker 1: really complicated as well, and so you can go to
Speaker 1: Frugal Friends podcast dot com slash capitalized and they will
Speaker 1: help you with that for free. They're an amazing company.
Speaker 1: So Frugal Friends podcast dot com slash capitalized to do
Speaker 1: that and um don't be worried about the rollover being
Speaker 1: considered a contribution. So the next one is number seven,
Speaker 1: last one on the list, and I love this one.
Speaker 1: Uh it's keep things in perspective through good times and
Speaker 1: bad And we saw bad times in January of this
Speaker 1: year in the stock market. If you were paying attention,
Speaker 1: you saw it went pretty much back down. I wasn't
Speaker 1: paying attention because I'm a long term investor and like,
Speaker 1: this is what I mean. I've seen drops like this before.
Speaker 1: But historically the stock market sees an average return of
Speaker 1: ten but every few years we see corrections. Every I
Speaker 1: guess five to ten years, we see a crash. I
Speaker 1: don't know what the actual numbers are. There are averages,
Speaker 1: but but expect bad times, but also expect good times
Speaker 1: because there have been years where the SMP five has
Speaker 1: grown more than twenty percent. The trend has always historically
Speaker 1: been up. But if you laser focus in you will
Speaker 1: see a lot of up and down. I mean, you
Speaker 1: have to be aware of your own risk um and
Speaker 1: we'll talk about this little in the next article. But
Speaker 1: be aware of your risk aversion. But keep things in perspective.
Speaker 1: We are investing for the long term. We're not crypto people.
Speaker 1: We are not pumping dump options and four X people.
Speaker 1: We're long This is retirement we're talking about. Those things
Speaker 1: aren't necessarily bad, but they're not for retirement. This is
Speaker 1: what we're talking about when we talk about retirement. It's
Speaker 1: long term investing. So just keep the perspective and invest
Speaker 1: every month, every year for the rest of your working life.
Speaker 1: And I like applying this idea to us individually as well,
Speaker 1: keeping things in perspective for our own good and bad times,
Speaker 1: not just the stock markets good and bad times. It's
Speaker 1: okay if there are months or years where your contribution
Speaker 1: to your retirement account is not as much as it
Speaker 1: has been or could be. The key is consistency. Still
Speaker 1: give something to it. But it's okay if there's other
Speaker 1: things that steal financial goals, because it is a journey
Speaker 1: to get to retirement, not just a quick thing that's happening.
Speaker 1: So the key is time and consistency, and so keep
Speaker 1: that in perspective too. Absolutely, all right, let's move to
Speaker 1: this next article, and we won't spend as much time
Speaker 1: on this, partially because it's not that long of an article,
Speaker 1: but still worth going through. It comes from the Motley
Speaker 1: fool And it's just how to invest money, but it
Speaker 1: looks at it in a really big picture kind of way.
Speaker 1: So I think that this is helpful, especially for us newbies,
Speaker 1: for us beginners or just dipping our toe in the water.
Speaker 1: What do we need to be focusing on? What did
Speaker 1: you think, Jen, this is a good perspective to have
Speaker 1: when you're starting to invest. So I liked every single
Speaker 1: one of these, But yeah, I really like that it's
Speaker 1: short and to the point, and there's no one, one
Speaker 1: size fits all answer, Like you have to design the
Speaker 1: life that you want to live and then say for
Speaker 1: it and spend for it in the way that's right
Speaker 1: for you. And I think the reason investing is so
Speaker 1: important is not to stimulate the economy. It's not any
Speaker 1: of that. It's that investing beats inflation. And nobody paid
Speaker 1: attention to inflation until this year. Everyone thought two three
Speaker 1: was you know where we were heading. Even the Fed
Speaker 1: was like, oh, yeah, we're gonna keep it at you know,
Speaker 1: zero percent for a few years to get out of
Speaker 1: this pandemic. And that's nobody are anyways, Yeah, seven percent,
Speaker 1: like and that's like what we said earlier. Conservatively, that's
Speaker 1: what that's the number that we use to measure our
Speaker 1: investing growth a balanced portfolio. And so if you're not investing,
Speaker 1: you're losing money and money that works. So working money
Speaker 1: pays less taxes than working humans. Think about that. So
Speaker 1: the money that your money makes in the stock market
Speaker 1: pays less in taxes, even in capital gains. So even
Speaker 1: in a brokerage account pays less in taxes than you
Speaker 1: do as a working individual. And if it's an attack
Speaker 1: sheltered account, it pays even less in taxes. I don't
Speaker 1: know if that's encouraging or discouraging, but I'm here for it.
Speaker 1: I'm not here to I'm not here to debate it,
Speaker 1: but I'm saying that's the system we live in. As
Speaker 1: long as you're not pumping and dumping stocks, that's that's different.
Speaker 1: But so yeah, like that's the importance. I don't know
Speaker 1: if I can get over that that illustration. Well, so,
Speaker 1: because there's no one size fits all answer here, there
Speaker 1: are some things that are worth considering and figuring out
Speaker 1: how you want to invest what that will look like.
Speaker 1: So they list off three things. We're just going to
Speaker 1: quickly go over what that is. The first is your style,
Speaker 1: So the question to ask yourself is how much time
Speaker 1: do you want to put into investing your money, meaning
Speaker 1: on a daily, weekly, monthly, yearly basis, how much time
Speaker 1: do you want to put to this actual process of investing.
Speaker 1: There certainly are different styles to this. Primarily we're talking
Speaker 1: about active investing versus passive investing. The article believes that
Speaker 1: there's merit in both styles. Jen, You're welcome to debate that,
Speaker 1: but certainly, if you are interested in the active investing,
Speaker 1: you do need to have time. Like it says, it's
Speaker 1: going to require lots of homework, research analysis, keeping track
Speaker 1: of things. You need to have knowledge. You're going to
Speaker 1: have to have more than the basic knowledge. So if
Speaker 1: you're listening to this podcast and you already feel like, whoa,
Speaker 1: I've got so much to learn, I mean, if you're
Speaker 1: excited about that, then keep going, but otherwise know that
Speaker 1: you don't have to gain too much more if you
Speaker 1: choose the more passive option. If you want active, you
Speaker 1: got a lot of knowledge and the desire you have
Speaker 1: to want to spend hours researching and investing and looking
Speaker 1: into the best vehicles for your money and potentially moving
Speaker 1: things around. But I love how they wrap up talking
Speaker 1: about this first one of your style that passive investing
Speaker 1: is the equivalent of putting an airplane on autopilot versus
Speaker 1: flying it manually. You can still get good results over
Speaker 1: the long run and the effort required is far less.
Speaker 1: So in a nutshell, you could go towards passive investing
Speaker 1: and put your money to work in an investment vehicle
Speaker 1: where someone else is doing the hard work. So that
Speaker 1: would be like a mutual fund. So I mean, of
Speaker 1: course I don't know all of how autopilot and planes works.
Speaker 1: I do think that there's some manual to landing and
Speaker 1: taking off required of the pilots. But I think that
Speaker 1: this is accurate in general, and there's definitely a lot
Speaker 1: of research on this of what's going to give the
Speaker 1: most return in the long run, and it seems to
Speaker 1: be pretty equal of whether you're actively investing or passively investing.
Speaker 1: So like you do you if you've got time, knowledge
Speaker 1: and desire, but also know that you're not doing yourself
Speaker 1: a disservice if you do choose the passive route. Yeah,
Speaker 1: and I think any pilot will tell you no matter
Speaker 1: how much they know about flying, or even the more
Speaker 1: they know about flying, the more they use autopilot. Whether
Speaker 1: you're driving it yourself. For putting on an autopilot, you
Speaker 1: still end up at the same place. It just the
Speaker 1: ups and downs are a little more extreme on active
Speaker 1: investing and full disclosure. The Motley Fool, which is where
Speaker 1: this article is, makes their money selling knowledge products to
Speaker 1: active investors. So that's a you know, know that if
Speaker 1: you've got capacity for an emotional roller coaster over the
Speaker 1: next thirty years, totally active investing is great. Yeah, it's
Speaker 1: a great hobby. I would say balance it. I don't
Speaker 1: know a single active investor that doesn't also have passive investments,
Speaker 1: so and they have score of them. The more the
Speaker 1: more money they put into active investing, the more money
Speaker 1: they have in passive investments, So I know that. But yeah,
Speaker 1: I mean, and I would say active investing doesn't just
Speaker 1: involve the stock market. It also includes real estate. So
Speaker 1: if you are like for us, we're not doing any
Speaker 1: for one case right now because we're saving for real
Speaker 1: estate investments, and so that's how we're choosing to diversify.
Speaker 1: And that's not for everyone. Some people just want to
Speaker 1: maybe research companies that are on the rise that they
Speaker 1: want to do some active investing with So that is
Speaker 1: up to you and where your passions lie, but the
Speaker 1: vast majority will want to do passive investing. Number two
Speaker 1: is your budget. How much money do you have to invest?
Speaker 1: So this is very important. May have heard something called
Speaker 1: dollar cost averaging, and so that is a fancy way
Speaker 1: of saying you are investing monthly versus lump some investing
Speaker 1: where you just do a big lump sum like once
Speaker 1: a year. You probably heard me say in the last
Speaker 1: episode that I lump some invested in my son's because
Speaker 1: I had the money. I didn't want to think about
Speaker 1: that investment. I just wanted to leave there and like
Speaker 1: collect money. But we dollar cost average our raphai A
Speaker 1: because that's something we want to build a habit of.
Speaker 1: So essentially it's the six thousand. We just split that
Speaker 1: up into twelve months and then so we do five
Speaker 1: hundred for each i RA every month, and that's how
Speaker 1: we do it versus doing twelve thousand at the beginning
Speaker 1: of the year, which theoretically does yield a higher return
Speaker 1: than dollar cost averaging. But what's more important is the habit.
Speaker 1: That's why we say, look at your budget and do
Speaker 1: things on a monthly base. This the increase the gap
Speaker 1: between your income and expenses so that you have more
Speaker 1: money for these financial goals, and that overall is going
Speaker 1: to be better for your financial goals than trying to
Speaker 1: eke out every penny of interest that you can get.
Speaker 1: I mean, I just I love I love this idea.
Speaker 1: And finally, the last and third thing to consider is
Speaker 1: your own risk tolerance. So the question to ask yourself
Speaker 1: is how much financial risk am I willing to take?
Speaker 1: Of course, some of this is going to relate to
Speaker 1: how much time you have until retirement. The longer amount
Speaker 1: of time that you have, the more risk you could take.
Speaker 1: You still have to look at your own risk aversion levels,
Speaker 1: and the less amount of time that you have for retirement,
Speaker 1: the less risk you want to take. So of course
Speaker 1: the bonds are going to have a very low risk
Speaker 1: but also a relatively low yield. So around two to
Speaker 1: three percent is what you're going to see on those
Speaker 1: types of investments versus stock returns, like we've said, on
Speaker 1: average will give about ten percent per year, give or
Speaker 1: take so for index funds, right, but it is going
Speaker 1: to be a little bit more risky, So that's what
Speaker 1: you want to take into consideration. And the there's a
Speaker 1: spectrum on risk tolerance, so like if you're you can
Speaker 1: be super risk averse, but you don't have to choose
Speaker 1: I'm gonna have all bonds or I'm gonna have all
Speaker 1: single stocks. Like you can still choose index funds that
Speaker 1: are very diversified just over one sector like health or tech.
Speaker 1: Do you want tech, you might as well just get
Speaker 1: an SMPI, but that's besides the point. Or you can
Speaker 1: choose a index fund that's just small cap companies, So
Speaker 1: those are companies that are below a certain valuation that
Speaker 1: are growing faster, so they're a little more volatile, but
Speaker 1: it's not a single stock. It's an index fund, and
Speaker 1: so they tend to have higher returns, a little more
Speaker 1: risky um, but not as risky as a single stock.
Speaker 1: So there are different places where you you can find
Speaker 1: yourself on a spectrum, And just because you want to
Speaker 1: be a little bit more risky doesn't mean you have
Speaker 1: to go straight to single stocks. You can just go
Speaker 1: to these index funds or real estate investment trusts. If
Speaker 1: you want to get into real estate but are not
Speaker 1: risk averse enough to buy your own property, you can
Speaker 1: look into reads like a fund Rise has a bunch
Speaker 1: of reads, so there are options when you are looking
Speaker 1: outside of and you can even put some of these
Speaker 1: things inside of your You put pretty much all of
Speaker 1: them inside of a raw ira or an ira. That's
Speaker 1: why we love ira because they're more customizable. You're typically
Speaker 1: limited on a four oh one K or four or
Speaker 1: three B with your investment options. That's another reason to
Speaker 1: have both. If you're able, you know what's the reason
Speaker 1: to have this one thing? And we are able. Yeah,
Speaker 1: I don't have to settle for balance on this. I
Speaker 1: just go all in the Bill of the week. That's right.
Speaker 1: It's time for the best minute of your entire week.
Speaker 1: Maybe a baby was born and his name is William.
Speaker 1: Maybe you paid off your mortgage, maybe your car died
Speaker 1: and you're happy to not have to pay that bill anymore.
Speaker 1: That's bills, Buffalo bills, Bill Clinton, this is the bill
Speaker 1: of the week. Hi lady, my name is Bunny and
Speaker 1: my buddy is close. A friend of mine invited about
Speaker 1: club Lady River, and we claimed to our closets and
Speaker 1: broader gently one item. It's just been laws are aware,
Speaker 1: and then in different ones in her house, we put
Speaker 1: them in piled camps, dresses, jackets, shoes, you name it.
Speaker 1: There was a child for it. We drank wine and
Speaker 1: sad and to those clothes. It was amazing to have
Speaker 1: friends told us something and said this would be great
Speaker 1: on you and vice first that no costs, just friends
Speaker 1: set and new to you close. So that was my
Speaker 1: goal of the week and a fun idea idea for
Speaker 1: other people to go heaving a shunt have a great day.
Speaker 1: That is awesome. I missed so for two years when
Speaker 1: it was like not acceptable to be sharing people's things
Speaker 1: in each other's homes like I missed clothing swap parties
Speaker 1: the most, like unreasonably the most. And I am so
Speaker 1: glad that you did that and you drink wine. Oh
Speaker 1: it sounds like such a fun frugal evening. I think
Speaker 1: I've only been to one clothing swap party, but it
Speaker 1: was life. What a great way to get new things,
Speaker 1: keep things out of the trash. I love it all right.
Speaker 1: If you want to submit your bill of the week,
Speaker 1: whether it has anything to do with a fun frugal
Speaker 1: evening or not, visit Frugal Friends podcast dot com slash bill.
Speaker 1: Leave us your bill. We are waiting in anticipation. Now
Speaker 1: it's time for n Yes, that's so comforting. Today's Lightning
Speaker 1: Round question, how are you currently planning for your dream retirement?
Speaker 1: Love this question. It came from So our new podcast manager.
Speaker 1: She's going to be writing our Lightning Round questions now
Speaker 1: and I find I love I love the surprise, and yeah,
Speaker 1: it's less for me to do. So Jill, how are
Speaker 1: you currently planning your dream retirement? Well, that weird dream
Speaker 1: is definitely new to me, and I can't say that
Speaker 1: I've put a ton of thought into that part of it,
Speaker 1: just retirement in general, wanting to make sure that I've
Speaker 1: got money for it. I think my mind always goes
Speaker 1: to worst case scenario, like I need to make sure
Speaker 1: I've got money for my older years because I will
Speaker 1: probably have some medical concerns. But I do like this
Speaker 1: reframing of the question. You know, to to dream about
Speaker 1: some of the fun things that it could entail, but
Speaker 1: reality is, like you said, Jen, we don't know. We
Speaker 1: can make a plan and see. I think either way though,
Speaker 1: it's going to be good to have money at the
Speaker 1: end of that road when I'm not able to or
Speaker 1: desiring to continue to work a forty hour week job.
Speaker 1: So with that said, for me, right now it is
Speaker 1: a roth ira A. Both Eric and I do not
Speaker 1: have four oh one k options with our work, so
Speaker 1: we're doing the best weekn and with the rath I
Speaker 1: ra s hopefully genuine, and I will have created one
Speaker 1: for Eric b and huh, there it is there, it's
Speaker 1: it's time specific, time stamped. And then from there we
Speaker 1: are putting a significant amount of money into our own home,
Speaker 1: cash flowing renovations, but specifically trying to house hack. We've
Speaker 1: partitioned a portion of our home off to be a
Speaker 1: short term rental, and my hope with that the income
Speaker 1: that comes from that short term rental will go to
Speaker 1: a lot of these savings and retirement goals. So it's
Speaker 1: kind of when we talk about being the CEO of
Speaker 1: our own finances, when I look at where do I
Speaker 1: have options? You know, sometimes it's not an expense issue.
Speaker 1: Sometimes it's a revenue issue. Sometimes it's not a revenue issue,
Speaker 1: it's an expense issue. And so for me, I'm kind
Speaker 1: of in that place where the expenses are kind of
Speaker 1: way as low as they can go and where they
Speaker 1: need to be to cash flow some of the things
Speaker 1: we want to do. And I'm more so looking at
Speaker 1: where can I increase revenue to get at the goals
Speaker 1: that I want to get at. So that's my hopeless
Speaker 1: some of this, and as we talk about journey, that's
Speaker 1: where I'm giving myself some of that permission that I
Speaker 1: can't do all of the things all at once, but
Speaker 1: this is my plan of how I can get there.
Speaker 1: M hmm, wonderful. So for me, we are maxing out
Speaker 1: our rath ey raise two of them and then also
Speaker 1: saving to invest in real estate. But I was actually
Speaker 1: listening to the Afford Anything podcast recently and she Paula
Speaker 1: was interviewing a Harvard professor about fluid and crystallized intelligence,
Speaker 1: and the interview was a gut punch to me because
Speaker 1: he talked about success addiction and how like finding value
Speaker 1: in your work is great, but being addicted to it
Speaker 1: that will never bring true long term happiness. And so
Speaker 1: I am thinking more about how to practice more of
Speaker 1: what I preach and like designing a life that surrounds
Speaker 1: around core values that can't be bought or worked for
Speaker 1: to an extent, So focusing more on like and he
Speaker 1: he gave these like three fs and one other thing,
Speaker 1: but I like change it to be an F. So
Speaker 1: now it's for fs. So it's faith, family friendships, fulfilling work,
Speaker 1: he said, work that serves others. But I think fulfilling
Speaker 1: work is the same thing. So like, how can I
Speaker 1: and work is last, so work should still be in there,
Speaker 1: but work is last, and so how can I put
Speaker 1: more focus onto those things and align my finances there?
Speaker 1: So I am trying to get our business to be
Speaker 1: more sustainable and to take us kind of out of
Speaker 1: the back end and learn new skills so that eventually
Speaker 1: I can move on to new opportunity cities that allow
Speaker 1: for greater opportunity for the faith, family friendships thing, so
Speaker 1: that those are I'm always planning, and those are kind
Speaker 1: of the top ideas in my planning. Arsenal beautiful. Well,
Speaker 1: we'd love to hear also how you're planning for your
Speaker 1: own retirement, whether it's just retirement or your dream retirement
Speaker 1: in our Fogal Friends community on Facebook. And thank you
Speaker 1: all so much for listening. We want to thank you
Speaker 1: for your kind reviews on Apple. Podcasts like this one
Speaker 1: comes from wits End five all right, Pragmatic Finances. It's
Speaker 1: five stars. I'm obsessed with financial podcasts. I have listened
Speaker 1: to Jen and jail for the last year plus. I
Speaker 1: love each of their unique perspectives on budgeting, spending wisely,
Speaker 1: living your best life, not taking yourself too seriously, and
Speaker 1: practical no nonsense solutions for your finances. They are silly
Speaker 1: and zany and knowledgeable. They aren't afraid to admit if
Speaker 1: they don't know something or if they don't necessarily agree
Speaker 1: with the philosophy, but they still share it in hopes
Speaker 1: that it will benefit any the listeners. I enjoy their
Speaker 1: perspective as a forties something are and money nerd amazing.
Speaker 1: My favorite thing is zany who. That's a word I've
Speaker 1: not heard in a while, and I won't take it. Yes,
Speaker 1: thank you so much. Wits end. We also want to
Speaker 1: thank our friends who share these episodes on social media,
Speaker 1: So when you share the latest episode on Instagram, we
Speaker 1: are adding you to our monthly drawing. For every five
Speaker 1: tags and reviews we get every month, we're giving away
Speaker 1: fifty dollars for you to spend in the Frugal Friends shop.
Speaker 1: So keep leaving us reviews wherever you listen to podcasts
Speaker 1: and send the screenshot to reviews at Frugal Friends podcast
Speaker 1: dot com. And don't forget to tag Us on social
Speaker 1: See you later. Frugal Friends is produced by Eric Sirian.
Speaker 1: All right, Jen, yeah, tell me when? When? Where? How
Speaker 1: are we opening? Erica Roth Ira It's Operation Ira and Ira. Um.
Speaker 1: Whenever you want to come over, My house is always open.
Speaker 1: That's it. That's all I have to say. All right,
Speaker 1: I always want you to come over to my house.
Speaker 1: And you're always doing something, Oh my god, with me.
Speaker 1: Sometimes it's not well I would have we're doing things too.
Speaker 1: Don't act like, you know, have a now dope life. Gosh,
Speaker 1: it's the problem is our lives are so dope. Like
Speaker 1: it's just we can't make time, you know. Yeah, yeah,
Speaker 1: so dope, so dope. Well, looking forward to Eric and
Speaker 1: Ira joining forces two K twenty two