Speaker 1: Welcome to How the Money. I'm Joel and I am Matt.
Speaker 1: Today we are answering your listener questions. Yeah, man, that's right.
Speaker 1: It's Monday and we are answering the listener questions this week.
Speaker 1: We've got a bunch of great ones, including one about
Speaker 1: roth Ira a conversion, whether now is a good time
Speaker 1: to do that. We've got a question about paying down
Speaker 1: debts or you know, maybe she should invest that money instead,
Speaker 1: we'll see. And then we've got a question too about
Speaker 1: money to set aside for home repair, specifically for a
Speaker 1: rental property. And we're gonna get to all those plus
Speaker 1: two more within this episode. But first me, let's talk
Speaker 1: about some investing. Yeah, before we get to all the questions,
Speaker 1: I'm excited to get to them. I wanted to talk
Speaker 1: about micro investing apps, and we talked about those a
Speaker 1: long time ago, back in episode twenty nine. But but
Speaker 1: I feel like some of the things that we talked
Speaker 1: about in that episode actually have come to pass right
Speaker 1: now in kind of how a lot of young people
Speaker 1: specifically are handling investing inside of micro investing apps. And
Speaker 1: I've just seen a lot of news about poor judgment
Speaker 1: in regards to what they're investing in. I think we
Speaker 1: talked about this just a little bit last week when
Speaker 1: we were talking about investing in a vaultabule market. But
Speaker 1: I think micro investing apps in particular make people more
Speaker 1: prone to trade more frequently. And so if you're using
Speaker 1: an app like robin Hood or in one, you know,
Speaker 1: we like both of them. They've done a really good
Speaker 1: job at lowering the costs and making it easier for
Speaker 1: investors to get on on board to start investing. But
Speaker 1: at the same time, I think a lot of young
Speaker 1: people just feel the need to trade more frequently and
Speaker 1: to trade when they don't need to, and it actually
Speaker 1: can lessen your returns over time. You can create a
Speaker 1: lot more stress, it can create an environment for poor investing.
Speaker 1: So yeah, I mean that's something we did talk about
Speaker 1: back in episode twenty nine, that micro investing apps. They
Speaker 1: have all these great tools at your disposal, but then
Speaker 1: if you use them too much, it turns out to
Speaker 1: be a really bad idea. It's like they may get
Speaker 1: too easy to trade. The interface is so slick. I
Speaker 1: just want to hop on there and like spend some
Speaker 1: money or make some sales whatever. Well, specifically to some
Speaker 1: of the bigger online brokerages as well. The end of
Speaker 1: last year, they started charging zero dollars for commissions, which
Speaker 1: means that you could buy and sell stocks for free.
Speaker 1: Before that, it was like what five bucks or six
Speaker 1: bucks depending on who you're with. Ye, and Robin Hood
Speaker 1: really really accelerated that change, that kind of started it, yes, exactly,
Speaker 1: and so folks got used to that, and so now
Speaker 1: pretty much everyone is doing that. And the downside though,
Speaker 1: like you said, when it's so easy and when it
Speaker 1: doesn't cost you any money, and when these apps look
Speaker 1: so good on your phone, you kind of want to
Speaker 1: dive in there and see what's going on with the market,
Speaker 1: You're going to be more likely to sell. You're gonna
Speaker 1: be more likely to make speculative moves like short term moves,
Speaker 1: which goes against everything that we would recommend the date
Speaker 1: trading kind of mindset. It just becomes a lot easier
Speaker 1: to become kind of enthralled and and have that sort
Speaker 1: of mindset. When it comes to investing. We're completely not
Speaker 1: about that. We're about investing for the long haul. We're
Speaker 1: about simple investing. And so, yeah, I just wanted to
Speaker 1: caution people as I'm seeing more and more stories pop
Speaker 1: up about young people investing in a speculative way. By
Speaker 1: the way, I'm saying young people like we're really old
Speaker 1: or something like that, like our generation, our generation exactly.
Speaker 1: I hate seeing that because, like we've talked about again
Speaker 1: and again, investing for the long haul, investing simply low
Speaker 1: cost index funds in particular, and target date retirement funds,
Speaker 1: those are going to be the best way to invest.
Speaker 1: And I love some of these new apps we talked
Speaker 1: about in one it's a fantastic app. They do a
Speaker 1: really good job. But if you're using it to do
Speaker 1: speculative or frequent trades, that is not a good idea.
Speaker 1: That's not a good use of a good APPA. And
Speaker 1: something else too, is, you know, with the lockdown and
Speaker 1: with so many folks working from home, folks who are
Speaker 1: used to maybe like checking their accounts like during lunch,
Speaker 1: Well you can check it whenever you want. And so
Speaker 1: I think a lot of folks who might be sitting
Speaker 1: at home, you know, working on the laptop, sitting on
Speaker 1: the couch, They've got their you know e trade to
Speaker 1: TDA Merrior trade accounts open off to the side, and
Speaker 1: they're they're watching the market, thinking is now a good
Speaker 1: time to Is now a good time to sell? I
Speaker 1: don't know. Folks are trying to time the marketing a
Speaker 1: little too much, way too much. And you know, we
Speaker 1: touched on this a little bit last week. I personally,
Speaker 1: you know, I kind of shared my long, kind of
Speaker 1: story about about how I go about making purchases. I
Speaker 1: think it's totally fine to take advantage of dips if
Speaker 1: you're going to purchase and hang onto that for the
Speaker 1: long haul. But that is not how a lot of
Speaker 1: folks are approaching the market right now. One of those
Speaker 1: companies that I mentioned, they have seen the number of
Speaker 1: daily trades skyrocket since they started offering those trades commission free,
Speaker 1: and so they used to have one million daily trades
Speaker 1: at the end of last year and at this point
Speaker 1: now they're seeing three million trades every single day. So
Speaker 1: I guess there is a downside to free Yeah, exactly,
Speaker 1: it's increased threefold. So that's a bummer to see. Like
Speaker 1: you said that, we don't like seeing that. That is
Speaker 1: not what we recommend. We want folks to buy low
Speaker 1: cost index funds and hang onto them forever, and we've
Speaker 1: always been able to do that with Vanguard, with Fidelity,
Speaker 1: blog intor accounts there, buy those funds and you're set. Yeah,
Speaker 1: And like I said, it's not necessarily the micro investing
Speaker 1: apps faults. Some of those micro investing apps are great.
Speaker 1: They do a really good job. It's our behavior that
Speaker 1: it leads us to do. Yeah, exactly, all right, So Matt,
Speaker 1: let's get onto the beer that we're having on the
Speaker 1: show today. We're drinking dank Bot by Insight Brewing. Big
Speaker 1: thanks for listener Joe for sending this one in our way,
Speaker 1: and we'll give our thoughts on this beer at the
Speaker 1: end of the episode, but for now, onto the subject
Speaker 1: at hand. We're taking listener questions, and for folks that
Speaker 1: want to send us their voice question for consideration to
Speaker 1: be on a future episode, we'd love to hear it.
Speaker 1: Just go to how to money dot com slash ask.
Speaker 1: There are simple instructions there for you to see how
Speaker 1: to record your voice questions. Send it on over to us,
Speaker 1: and hopefully we can take it on an upcoming episode.
Speaker 1: I mean, I wanted to mention real quick that if
Speaker 1: you had a guess how many listener questions have we
Speaker 1: answered on our podcast, Because I was moving some files
Speaker 1: around on my computer and I saw how many we
Speaker 1: have in that folder. I'm gonna guess that we've answered
Speaker 1: a hundred and eighty listener questions so far. Well, you
Speaker 1: overshot it, so now it feels like that the number
Speaker 1: I'm going to share isn't nearly worthy of praise. But
Speaker 1: one fifty. We we've answered exactly a hundred and fifty
Speaker 1: questions between the ask episode it is on Mondays as
Speaker 1: well as some of those questions sprinkled in on Friday
Speaker 1: episodes on my part because I know, like when my
Speaker 1: wife's like, guess how much I spent on this, I
Speaker 1: got a guess under. I even think she might have
Speaker 1: gotten because I ruined it if I guess over. So yeah,
Speaker 1: wet blanket Joel, that's your new nickname. But I mean
Speaker 1: the reason I mentioned that, though, is because that's a
Speaker 1: lot of questions, you know, And that's also a lot
Speaker 1: of answers that we've provided. That's a lot of folks
Speaker 1: who have maybe trusted our advice. And so we appreciate
Speaker 1: all of our listeners out there who are listening to
Speaker 1: our show, and if you've never submitted a question, we
Speaker 1: would love to hear from you and and hopefully we
Speaker 1: can take it on an upcoming episode. Yeah, alright, Matt,
Speaker 1: we were just talking about micro investing apps. Well, we
Speaker 1: have a listener here with a question about investing, but
Speaker 1: specifically doing a ROTH conversion, So let's get to that
Speaker 1: one first. Hey man, Joel, this is Jonathan in Ohio.
Speaker 1: Thanks a lot for taking my question today. I'm trying
Speaker 1: to make some predictions about US tax rates in the
Speaker 1: year twenties sixties, so I thought, hey, who better task
Speaker 1: than Matt and Joel. So here goes m My wife
Speaker 1: and I are in our early thirties and we expect
Speaker 1: ROSS to be our main retirement nest egg. But I
Speaker 1: have twenty five tho dollars from an old traditional four
Speaker 1: one K that I now have in a Vanguard traditional
Speaker 1: I RA, and if I use a nine percent rate
Speaker 1: of return as an estimate, this will grow to almost
Speaker 1: eight hundred thousand dollars by that time I reached seventy
Speaker 1: and I'm required to take r m DS. So my
Speaker 1: dilema is should I convert this to a ROTH now
Speaker 1: and pay taxes in a tax bracket, or should I
Speaker 1: wait until we were retired if we don't have any
Speaker 1: other ordinary income when we get to retirement, which obviously,
Speaker 1: I don't know is the case. I wonder if we'd
Speaker 1: be avoiding taxes on in anyway, because that eight hundred
Speaker 1: thousand dollars is still under thirty thousand dollars each year,
Speaker 1: and distributions. Obviously, I know that tax slaws will change
Speaker 1: in many times between then and now, but I just
Speaker 1: want to get a second opinion. Thanks well, Jonathan, you
Speaker 1: know that that's an impossible question to I love the
Speaker 1: impossible questions. Yeah, it's still fun to attempt to predict
Speaker 1: the unpredictable. Though. In a quick note as well, you
Speaker 1: don't have to take your R M D s. Those
Speaker 1: require are minimum distributions until you are seventy two. Now.
Speaker 1: That was the result of the Secure Act, which became
Speaker 1: law at the end of last year. But honestly, Joel,
Speaker 1: if you're seventy seventy two, what difference does two years
Speaker 1: make a big difference if you're seventy if you don't
Speaker 1: have to take the R and D. But when you're
Speaker 1: that old, like two years, it's just like a blink
Speaker 1: of an eye, Like the older I get now, like
Speaker 1: time almost means nothing to me. It goes by so quickly.
Speaker 1: Makes you think of that picture of you and I
Speaker 1: from the face app when we're like, we look like
Speaker 1: two seven year old guys. It's not gonna be that
Speaker 1: long until we actually get there. Yeah, that's so true.
Speaker 1: Now I understand that, but that but that is actually
Speaker 1: a big deal for a lot of people who are
Speaker 1: trying to play in their retirement with draws, and especially
Speaker 1: as people are living longer, that extra two years to
Speaker 1: not have to take with draws is a big deal
Speaker 1: for people. That two years of compound growth, especially on
Speaker 1: that back end, like that is massive. I don't want
Speaker 1: to discount that. But at the same time, I'm also like,
Speaker 1: when you're seventy what's seventy two, we'll be there before,
Speaker 1: you know. Bunny, all right, well, let's talk about Jonathan's
Speaker 1: question Roth conversions and Jonathan, I think the first thing
Speaker 1: we need to address is predicting future tax rates, and
Speaker 1: it's pretty impossible to do that kind of like Matt said,
Speaker 1: it's hard to imagine them going lower though, because if
Speaker 1: you look at kind of a history of tax rates
Speaker 1: in this country, we're at a pretty low point ultimately,
Speaker 1: and as federal deficits increase in the national debt expands,
Speaker 1: taxes will likely have to rise to meet our increasing obligations.
Speaker 1: And Matt, there's a recent two trillion dollar stimulus bill
Speaker 1: is likely going to cost all of us some money
Speaker 1: in increased taxes over the coming years. I don't think
Speaker 1: that the federal government should operate like a household and
Speaker 1: should have to have like the balanced budget. But at
Speaker 1: the same time, I do think the increased federal spending
Speaker 1: the increased deficit will lead to higher tax rates for
Speaker 1: us in the coming years. But again, it's impossible to predict.
Speaker 1: How can I actually know that it does influence at
Speaker 1: least a little bit of how we answer this question, though, Yeah,
Speaker 1: for sure, man, And so another consideration is where the
Speaker 1: market is currently right, making a roth conversion in a
Speaker 1: down market makes a whole lot of sense if you're
Speaker 1: in a lower tax bracket, and in particular, if you
Speaker 1: do it right now while the market is down, as
Speaker 1: stock prices have fallen, your tax bill on that conversion
Speaker 1: is going to be lower than it would have been
Speaker 1: just a few months ago. It's especially ideal if you
Speaker 1: can make that conversion in a year in which your
Speaker 1: income doesn't exceed the marginal twelve percent tax bracket. Yeah, Basically,
Speaker 1: the lowerer a GI, the lower your taxable income, the
Speaker 1: more it actually makes sense to do a Roth conversion. Now, Jonathan,
Speaker 1: don't wait ten years when your tax rate's gonna be
Speaker 1: twice is what it is now. That's me predicting the future,
Speaker 1: which is impossible. Yeah, that's a bad move, Matt, don't
Speaker 1: do that, and I think too. It's important to note
Speaker 1: for Jonathan that in order for this to even be
Speaker 1: on the table, you really have to make sure that
Speaker 1: you have the cash on hand to pay the tax
Speaker 1: on the conversion and at the same time make sure
Speaker 1: you aren't depleting your emergency fund in order to make
Speaker 1: this move. Especially with rampant job insecurity of contracting economy,
Speaker 1: it makes sense to hold on to that emergency fund.
Speaker 1: And if you don't have enough money on hand to
Speaker 1: keep that intact as well as paying the tax bill
Speaker 1: that you're going to incur next year, then don't do
Speaker 1: it because that puts you it undue risk. So, while
Speaker 1: we love the idea of making a Roth conversion, you
Speaker 1: have to be able to pay the taxes that you're
Speaker 1: gonna incur in order to make it. Is still us
Speaker 1: mark move and Jonathan, another advantage of making that conversion
Speaker 1: is you have the potential to spread out your tax liability.
Speaker 1: You didn't really mention this, but if you do have
Speaker 1: happen to have a four O win K through maybe
Speaker 1: a current employer, converting to a rath with that old money,
Speaker 1: like that makes sense to go ahead and do that now,
Speaker 1: because it's helpful to have both pre tax and post
Speaker 1: tax buckets in retirement. Essentially you're diversifying your tax liability
Speaker 1: when the time does come for you to retire. Yeah,
Speaker 1: at those different tax buckets so helpful. Having both pre
Speaker 1: tax and post tax just gives you even more flexibility
Speaker 1: in retirement to basically dictate what your income is gonna
Speaker 1: look like and dictate what your tax rate is going
Speaker 1: to be because you don't know what the actual tax
Speaker 1: rate is going to be in the future. Yeah, so
Speaker 1: that's kind of a good way. I think a lot
Speaker 1: of answers that we give on the show sometimes are
Speaker 1: split it down the middle. That's a way to split
Speaker 1: it down the middle to have some pre tax some
Speaker 1: post tax money. You're you're splitting the difference and you're
Speaker 1: giving yourself more flexibility in the future while ensuring some
Speaker 1: tax breaks now. Right, And it really comes down to
Speaker 1: ultimately us not knowing the future. Like I said at
Speaker 1: the beginning of your question, Jonathan, we are in a
Speaker 1: pretty historically low tax environment. I'm kind of keen to
Speaker 1: take the burden the hand on this one and make
Speaker 1: the conversion, especially if most of your retirement account exposure
Speaker 1: is in those accounts that have already offered you at
Speaker 1: tax benefit. I would jump at the chance to have
Speaker 1: some of my money in a post tax rath account
Speaker 1: because it does add to some of the flexibility you're
Speaker 1: gonna be able to have. Of course, it's hard to
Speaker 1: know whether you'll actually be in a lower tax bracket
Speaker 1: in retirement, so just do your best and either way,
Speaker 1: keep investing for the long haul. That's really what it
Speaker 1: comes down to you. I mean, these sorts of decisions
Speaker 1: about whether to convert to a roth ira from a
Speaker 1: traditional ira, they're good questions to have. But more than anything,
Speaker 1: growing that nest egg, putting more into it and making
Speaker 1: sure you're going to have enough in retirement, that is
Speaker 1: the bigger part of the equation. All Right, man, We've
Speaker 1: got a couple more questions that we're gonna get to,
Speaker 1: but first let's take a quick break. All right, That
Speaker 1: we're back to the break. We're you get to a
Speaker 1: question about employees stacked purchase plans in just a second,
Speaker 1: but before that, let's get to a question that's on
Speaker 1: a lot of listeners minds. Do I pay off debt
Speaker 1: or do I invest with the extra money that I've got? Hi,
Speaker 1: Joel and Matt. My name is Kate and I currently
Speaker 1: live in Pittsburgh, Pennsylvania. UM. I love the show and
Speaker 1: I found it to be a very valuable motivational tool
Speaker 1: for me. UM, I'm coming a bit late to the game.
Speaker 1: I'm thirty five with married with two kids twelve ages
Speaker 1: twelve and four. We're a single income family, and I
Speaker 1: unfortunately haven't given much thought to my finances until recently.
Speaker 1: I pretty much let life get carried away, assuming I
Speaker 1: would take care of things later. So now is later,
Speaker 1: and I'm working on making sure that I'm in more
Speaker 1: control of my finances and making better decisions for the future.
Speaker 1: We have a large amount of debt, including consumer debt,
Speaker 1: student loans, a personal loan, and a mortgage. I am
Speaker 1: a teacher and contribute twelve percent of my income to
Speaker 1: my four oh one k annually. Currently my four oh
Speaker 1: one k, though is it in terms of my savings
Speaker 1: for the future. I know I need to emphast up,
Speaker 1: but my debt is absolutely crushing currently and we're working
Speaker 1: on a plan to pay it off as soon as possible.
Speaker 1: But if you have no if you have debt, you
Speaker 1: have no money, and that includes money for savings. But
Speaker 1: if I only focus on the debt, it will be
Speaker 1: years before I can begin saving for the future beyond
Speaker 1: my four o one k. My concern is that that
Speaker 1: would be years of not being able to benefit from
Speaker 1: compounding interests with investments. So I'm not sure what to do.
Speaker 1: Focus only on the debt and put off savings until
Speaker 1: at least most of my desk taken care of, or
Speaker 1: take some amount of money, even if it's small, and
Speaker 1: begin investing into another retirement account such as a rath
Speaker 1: I array while working at the same time to pay
Speaker 1: off the debt. I would appreciate any advice you may
Speaker 1: have to help me figure out of solid path going forward.
Speaker 1: Thank you so much for the help and for all
Speaker 1: of your work on the podcast. Cheers. Kate thinks so
Speaker 1: much for listening to the podcast, and we are glad
Speaker 1: that it's been motivational for you. Honestly though, like you're
Speaker 1: not getting started all that late at age thirty five. Yeah,
Speaker 1: thirty five is not that late in the game. I
Speaker 1: think Kate's giving herself a little bit of a hard
Speaker 1: time here, and I think we all understand the realities
Speaker 1: of like pushing something off a little bit further down
Speaker 1: the road. You know, she was kind of mentioning how
Speaker 1: she's like, I'm gonna say that for later. We've all
Speaker 1: been there, like we don't want to do the harder,
Speaker 1: difficult things in life, but you know you're there now.
Speaker 1: We understand that you're ready to make some decisions. So
Speaker 1: that makes me happy though that we can kind of
Speaker 1: guide you along in the stage of life. And didn't
Speaker 1: Kate say too that her investment rate, her savings rate
Speaker 1: was twelve. I think that's pretty good. That's that's solid. Again,
Speaker 1: Kate raking herself over the coals and when it's unnecessary. Kate,
Speaker 1: you're doing a great job. Keep it up. I want
Speaker 1: to say that you didn't mention whether or not you're
Speaker 1: getting an employer match. If you do, then you should
Speaker 1: at a minimum keep investing up until that match amount,
Speaker 1: no matter what. When it comes to investing more or
Speaker 1: paying down debt. For instance, if your employers putting in
Speaker 1: three percent, if you put in six, if they're essentially
Speaker 1: matching fifty cents on the dollar, well, then stop at
Speaker 1: six percent of your money and start funneling that extra
Speaker 1: money towards your high interest rate debts. Then you're able to,
Speaker 1: like we're talking about earlier, Matt, kind of splitting the difference.
Speaker 1: You're doing both simultaneously, and I think that's always a
Speaker 1: good place to be, especially if you do have high
Speaker 1: interest rate debts that you want to get rid of. Yeah,
Speaker 1: and on that note, we've we've talked before about the
Speaker 1: debt snowball and the avalanche. Student loans and mortgages aren't
Speaker 1: typically the highest priority for us to don't want to
Speaker 1: pay off, especially your mortgage, But you should funnel all
Speaker 1: your extra money towards getting rid of that personal loan,
Speaker 1: a SAP any of that consumer spending. And then once
Speaker 1: that is taken care of, you can increase your four
Speaker 1: O n K contribution amounts. Yeah, once you've been able
Speaker 1: to make good progress on the debt, you can start
Speaker 1: investing again. But super high interest rate debt does take
Speaker 1: priority over investing typically at least after that match amount. Yeah,
Speaker 1: So tackling the high interest rate debt like that's more
Speaker 1: along the lines of taking the that avalanche approach, right
Speaker 1: because you're gonna start with the higher interest rates, but
Speaker 1: because you're already saving within your four own k and
Speaker 1: you already have a plan to knock out your debt.
Speaker 1: I think the decision really comes down to taking the
Speaker 1: route that will be the most effective for motivating you.
Speaker 1: If the snowball appeals to you, then maybe, like that
Speaker 1: laser like focus on purely paying off debt is the
Speaker 1: way to go. Like, maybe you just want to focus
Speaker 1: on one item at a time and then once you've
Speaker 1: eliminated that completely, then focus on investing. But you know,
Speaker 1: if you are going to look at the numbers and
Speaker 1: take more of a mathematical approach, then that's when the
Speaker 1: debt avalanche might be for you. Yeah, Matt. So much
Speaker 1: of our personal finance lives are emotionally based and trying
Speaker 1: to split the difference, which sometimes really does work and
Speaker 1: it can be the best way to go, it doesn't
Speaker 1: always work for our mindset. Our brains have such an
Speaker 1: easier time handling a singular goal, and if that singular
Speaker 1: goal is going all in and investing as much as
Speaker 1: we can or funneling as much money as we can
Speaker 1: towards HIE interest rate debts. Well, having just one goal
Speaker 1: makes it so much easier to accomplish, and so if
Speaker 1: at is what works best for Kate, then I think
Speaker 1: she should do that, because, Yeah, we like talking about
Speaker 1: the numbers, we like talking about what makes the most
Speaker 1: sense and how take advantage of the match and then
Speaker 1: putting everything else towards high interest rate. That that's probably
Speaker 1: the best way to go, but it's not the best
Speaker 1: way to go if it's not a plan you can
Speaker 1: stick to. So whatever it is, the Cake can stick
Speaker 1: to and can continue to feel in control of that,
Speaker 1: I would, says her best bet nice man. Alright, our
Speaker 1: next listener question is about an employee stock purchase plan.
Speaker 1: Let's here. Hello guys, my name is Adish, I'm from Philadelphia.
Speaker 1: I hope you and your families are safe and doing
Speaker 1: with thanks not for your podcast and especially for the
Speaker 1: Friday episodes. They're helping me to keep up with all
Speaker 1: the covidnant and related updates. I have a question related
Speaker 1: to employee share purchase plan. I have enrolled in the
Speaker 1: SPP program with my employer and I was going to
Speaker 1: sell some of the acquired stocks around February as market
Speaker 1: crashed afterwards, I'm holding the stocks right now. I might
Speaker 1: need the cash in next one or two years for
Speaker 1: a real estate investment. So my first question is should
Speaker 1: I continue to hold my employer stocks or should I
Speaker 1: sell them at loss? And my second question is should
Speaker 1: I continue to enroll in the esp program? Take care
Speaker 1: and stasive my Adash, thank you so much for your question.
Speaker 1: We're doing great. We're staying pretty safe, I think, right, Matt. Yeah, Man,
Speaker 1: I only do safe things. I've got kids, exactly. We've
Speaker 1: got to make sure we keep our kids away from
Speaker 1: other people more than more than even ourselves. Yeah, actually
Speaker 1: that is true. Yeah, but hope you're doing well to Dash.
Speaker 1: And this is a great question because e s p
Speaker 1: p s are awesome if used correctly. And Matt, we
Speaker 1: went into some detail on ESPPS, in particular on episode
Speaker 1: one fifty six inside of a nask HTM episode. But
Speaker 1: a Dash's question gets into even some more ESPP nuance,
Speaker 1: So let's get into it. Yeah, there's so much of
Speaker 1: your decision to sell, and when the cell comes down
Speaker 1: to like really a couple of things, A like what
Speaker 1: you will be doing with that money down the road,
Speaker 1: and be the tax consequences of selling it sooner. If
Speaker 1: you held your es PP shares for more than two
Speaker 1: years from the offering date and one year from your
Speaker 1: purchase date, it's called a qualifying position, and you're able
Speaker 1: to report more of your profit as capital gains rather
Speaker 1: than as earned income. And capital gains tax rates right
Speaker 1: now are pretty favorable. They are, so to avoid poor
Speaker 1: tax treatment, make sure that you reach those thresholds before selling,
Speaker 1: and then make that sell happen at that point. But
Speaker 1: either way, you don't want to sell those stocks right now,
Speaker 1: especially at a loss so much the answer comes down
Speaker 1: to not what the stock is worth right now, but
Speaker 1: what's the tax treatment, because that is just as big
Speaker 1: of a consideration, if if not an even bigger consideration
Speaker 1: to make when you're buying and selling shares. So, just
Speaker 1: what Matt said, if you can hit those timetables to
Speaker 1: give yourself preferred tax treatment, that's gonna be a big
Speaker 1: reason to actually hold onto these shares for now. And
Speaker 1: we would say to you asked about continuing to participate
Speaker 1: in your ESPP, well, yeah, if you have the money
Speaker 1: to invest in your ESPP as well as making meaningful
Speaker 1: contribution to your four oh one K and H s
Speaker 1: A if you have access to one, and if your
Speaker 1: employer stock discount is really really generous, that we would say, yeah,
Speaker 1: you should totally be participating because it is a major
Speaker 1: benefit that an employer offers that you should be taking
Speaker 1: advantage of. Just be sure that the amount of employer
Speaker 1: stock that you have doesn't exceed five percent of your
Speaker 1: investment holdings. Investing through your e s P P should
Speaker 1: be a tiny amount of your overall portfolio. So while
Speaker 1: it is this awesome perk, you can purchase company stock
Speaker 1: at a super sweet discount, hold onto it for that
Speaker 1: minimum time period, sell and get great tax treatment. Will
Speaker 1: make sure that you're widely diversified and that most of
Speaker 1: your investments are an index funds inside of your four
Speaker 1: O one K or an I RA A or an
Speaker 1: H s A, and that this e s PP is
Speaker 1: just a tiny percentage of the overall investing that you're doing. Yeah, man.
Speaker 1: And the reason for that is because of the inherent
Speaker 1: risk involved with investing in a specific company single stock investing.
Speaker 1: It's why we do not recommend that. And on the
Speaker 1: note of diversification dust. You know, he mentioned his upcoming
Speaker 1: real estate endeavors as well. Best of luck. They're uh
Speaker 1: until speaking of real estate, our next question is about
Speaker 1: budget for a rental property, and so we'll get to
Speaker 1: that one right after the break. All right, Matt, we'll
Speaker 1: back from break. We've got more listener questions to get
Speaker 1: to and just a second, we're gonna get to a
Speaker 1: question about going to medical school. Is that a good idea?
Speaker 1: But first let's get to our next question, which is
Speaker 1: about budgeting to buy a rental property. Hi. There, my
Speaker 1: name is Hannah. I live in Montana. I know it's
Speaker 1: very funny. I was hoping you could give a quick
Speaker 1: recap about budgeting for a good rental property. I think
Speaker 1: in that episode you might have said something like you
Speaker 1: should set aside the equivalent of ten of your mortgage
Speaker 1: for maintenance expenses, another ten percent for capital expenses like
Speaker 1: a roof, and maybe another ten percent for vacancy. I
Speaker 1: had questions about that because it's seems like the amount
Speaker 1: you would then set aside could vary based on the
Speaker 1: term of your loan. My other question was when can
Speaker 1: you stop saving for vacancy? Do you have any advice
Speaker 1: on that if we don't anticipate a very high vacancy rate,
Speaker 1: maybe is there a number of months we should shoot
Speaker 1: for having saved up? Thanks? Oh, Matt, it must be
Speaker 1: tough to live in Montana and have that name. At
Speaker 1: this point in time, I knew you were going to
Speaker 1: bring that up. She brought it about your nature. Speaking
Speaker 1: of Miley Cyrus, did you happen to see her performance
Speaker 1: on SNL at home? You know, they've still been doing SNL,
Speaker 1: but like an at home version version. I haven't watched
Speaker 1: SNL in like five years. I mean, yeah, we're recording
Speaker 1: this at a time. But she did a cover of
Speaker 1: Wish You Were Here, that Pink Floyd song. That's pretty cool. Nice. Yeah,
Speaker 1: it's a cool way for them to continue the show
Speaker 1: even though they're not really live, so you kind of
Speaker 1: miss out on some of that audience interaction a little bit. Personally,
Speaker 1: it's more like a podcast. I'm sure Hannah struggled with
Speaker 1: that throughout the years, depending on how long she's lived
Speaker 1: in Montana, which is a wonderful state. But yeah, let's
Speaker 1: try to offer a couple of rules with them. And
Speaker 1: I know it can be overwhelming for new landlords to
Speaker 1: to start to think about the costs they are gonna
Speaker 1: incur when they are buying our rental property. That not
Speaker 1: to mention the hassle of buying, renovating, and finding tenants
Speaker 1: to live in the property that you're buying. That's why
Speaker 1: a lot of people choose to forego real estate investing,
Speaker 1: or at least mom and popular estate investing. But but but
Speaker 1: we're big fans of it because we do think it
Speaker 1: can have outsized returns over the years. Man. I think
Speaker 1: on that episode we said that one percent of the
Speaker 1: original purchase price was what you should budget for annual
Speaker 1: maintenance of a rental property, and I think that's still
Speaker 1: a pretty helpful number to consider. Right an average two
Speaker 1: dollar house will likely incur roughly two thousand dollars in
Speaker 1: repairs every single year when averaged out over time. And granted,
Speaker 1: there's a lot of advice we can share with Hannah
Speaker 1: on this, but when it comes down to it, so
Speaker 1: much of the answer when it comes to this question
Speaker 1: is based in the kind of properties that you're buying,
Speaker 1: is based in where you're buying, the condition that the
Speaker 1: property is in. There are so many variables that it's
Speaker 1: hard to give a precise answer to this question. But
Speaker 1: but we're gonna do our best and je so you know,
Speaker 1: like we're getting at here. Most beginner real estate investors
Speaker 1: severely underestimate the cost that it takes to own a
Speaker 1: rental property. So do take into account the fixed expenses
Speaker 1: that you will incur every month, like insurance and trash.
Speaker 1: Likely some of those expenses are already built into your
Speaker 1: mortgage payment, but like we said, these costs tend to
Speaker 1: level out over a longer period of time. But just
Speaker 1: make sure that you have the cash on hand to
Speaker 1: be able to make these important repairs from month one.
Speaker 1: And I'm not sure exactly where you are on your
Speaker 1: real estate journey, but if you are sitting aside ten
Speaker 1: percent for each of those things you mentioned repairs, you mentioned,
Speaker 1: capital expenses, and vacancies, you might even be setting aside
Speaker 1: too much money. So maybe you're kind of on the
Speaker 1: other end of the spectrum. However, for most folks that
Speaker 1: that's not the case. Most folks underestimate, uh, the amount
Speaker 1: of money that is going to need to go into
Speaker 1: the home just to keep it up and running. Yeah, man,
Speaker 1: I think in particular with real estate investing, I'm okay
Speaker 1: with overestimating the costs you're gonna incur, because what happens
Speaker 1: when you own a property and you have tenants in
Speaker 1: it and you don't have the money to cover a
Speaker 1: necessary expense. That's how you sell it and you make
Speaker 1: it somebody else's problem. Yeah. I like that, That's that's
Speaker 1: one option, but really it stinks if you don't have
Speaker 1: the cash on hand to repair a broken water heater
Speaker 1: or an h fact that goes bad in the summer.
Speaker 1: Those are repairs that you have to make in order
Speaker 1: to keep your tenant happy and in order to keep
Speaker 1: the property in good shape. But let's keep talking about
Speaker 1: rules of thumb, because especially when we're talking about real
Speaker 1: estate investing, I think other rules of thumb can be helpful.
Speaker 1: And again, these are rules of thumb because they're good
Speaker 1: general things to think about. They don't apply to every
Speaker 1: specific situation, right. But another decent one is that fifty
Speaker 1: of your rental profits will likely go to repairs on
Speaker 1: the home, and I think that can be a helpful
Speaker 1: gauge when you're thinking about how much money to stock away.
Speaker 1: So the biggest takeaway from that is, don't take all
Speaker 1: the profit that you're taking all the monthly rent that's
Speaker 1: above the mortgage. Don't take that and spend it. Save
Speaker 1: a good bit of that, at least fifty of it
Speaker 1: for upkeep of the property. Real estate investing is something
Speaker 1: that you're doing for for the long haul to continue
Speaker 1: to attract good tenants and to continue to keep the
Speaker 1: good tenants that you already have. You really do need
Speaker 1: to maintain the property well, and so putting that money
Speaker 1: back into the property for repair costs and upkeep is
Speaker 1: really crucial throughout the whole process. Then, Hannah, you're the
Speaker 1: last bit of your question there had to do with
Speaker 1: when you can stop saving for for vacancy. Once you
Speaker 1: have that full ten percent amount in the savings account
Speaker 1: for vacancy, you can stop saving for that potential vacancy. Obviously,
Speaker 1: you don't need to continue to say for that. By
Speaker 1: the way, you said you don't anticipate a high vacancy rate. Luckily,
Speaker 1: I've been pretty fortunate to avoid vacancies, but only due
Speaker 1: to a lot of hard work to get a new
Speaker 1: tenant in on a short and tight timeline. And additionally,
Speaker 1: in a contracting economy, it's even more important to plan
Speaker 1: for some of those potential vacancies and to be maybe
Speaker 1: a little more conservative with the budget numbers for this property.
Speaker 1: It's better to be safe than sorry. I think traditionally
Speaker 1: we would have said that, like, oh, that that sounds
Speaker 1: really conservative, just to have your money sitting around like
Speaker 1: that in cash, But especially given the current crisis that
Speaker 1: we're in, is are such thing to have too much
Speaker 1: cash on hand? And I think the answer to that
Speaker 1: is cash is keen. You know, it's important to have
Speaker 1: enough cash on hand to handle some of these storms
Speaker 1: because there are a lot of unforeseen circumstances that we're
Speaker 1: gonna be faced with. Yeah, Matt, I think if I
Speaker 1: were to calculate the vacancy rate for all five properties
Speaker 1: that I own, it's probably something like two percent. It
Speaker 1: almost never happens. I'm really really good about getting people
Speaker 1: in there to do the painting, to do the necessary
Speaker 1: repairs in between tenants in like a day or two
Speaker 1: to keep it looking good, to get somebody else in there.
Speaker 1: But at the same time, when COVID hit, I had
Speaker 1: a couple of tenants reach out saying they wouldn't be
Speaker 1: able to pay rent for the month of May. And so,
Speaker 1: no matter how proactive you are, there are certain things
Speaker 1: that are unforeseen when it comes to being a landlord.
Speaker 1: So having that vacancy built in to your savings, having
Speaker 1: money set aside for the times when your property will
Speaker 1: potentially be unoccupied is really smart because even if you're
Speaker 1: a go getter, you're proactive, you're making sure that the
Speaker 1: repairs are done in the right amount of time in
Speaker 1: order to keep tenants in that property. That still doesn't
Speaker 1: necessarily mean that it's going to be occupied all the time. So, Hannah,
Speaker 1: it sounds like you're asking the right questions. I don't
Speaker 1: mean to sound too conservative, but I think the more
Speaker 1: money you can have set aside for potential vacancies and repairs,
Speaker 1: the better off you'll be, and the less dress you'll
Speaker 1: have as a landlord altogether. Nice man. All right, we've
Speaker 1: got another question, and after this question, we're gonna dispense
Speaker 1: some medical school advice. I'm Andel, my name is Rick,
Speaker 1: and I currently live in Ancona, Iowa. I graduated with
Speaker 1: my bachelor's last man and have spent the time since
Speaker 1: then taking a gap here working in a hospital setting,
Speaker 1: gaining healthcare experience, and trying to learn how to do
Speaker 1: this whole adulting thing, which is actually how I ended
Speaker 1: up Finding your Guys podcast. Come in August, I will
Speaker 1: be starting medical school and I was looking for some
Speaker 1: advice on how to navigate the financials of this massive
Speaker 1: life life change I will be undergoing from taking on
Speaker 1: massive loans to readjusting my budget and whatever else you
Speaker 1: guys think would be helpful for me to know. I
Speaker 1: welcome all the advice I can get. Thanks a munch,
Speaker 1: keep giving out great advice and have a wonderful day. Rick, First,
Speaker 1: congrats getting into medical school. Also, what a great idea
Speaker 1: to take a gap here some of that real life
Speaker 1: experience working in a hospital setting. That makes a whole
Speaker 1: lot of sense. And I think that the first question
Speaker 1: that we would typically ask that we typically have for
Speaker 1: folks about the commit years of additional schooling and the
Speaker 1: massive costs associated with that learning is are you sure
Speaker 1: is that what you want to do? Not to dissuade
Speaker 1: you from from something that you're passionate about or something
Speaker 1: that you really do want to pursue, because because if
Speaker 1: it is something that you've completely got your heart set on,
Speaker 1: then you should definitely go for it. But it is
Speaker 1: an important question to ask before you actually do make
Speaker 1: the decision and start taking on debt because of that decision,
Speaker 1: but because of your experience working in healthcare this past year,
Speaker 1: it certainly seems like you shouldn't have any doubts because
Speaker 1: because if you're still ready to proceed after that, then
Speaker 1: go ahead, man, make it happen, especially given what we've
Speaker 1: gone through over the past several months. Right. Uh, Yeah,
Speaker 1: there so much we don't know until we've actually experienced it,
Speaker 1: And it sounds like Rick is doing that experience things.
Speaker 1: I love that, Uh and Rick. Most medical students may
Speaker 1: not be thinking of scholarships, but there are lots of
Speaker 1: them available for medical students. There's gonna be some specific
Speaker 1: schools that will offer a full merit scholarship, but then
Speaker 1: they're going to be groups like the American Medical Association
Speaker 1: Foundation that has the Physicians of Tomorrow Award, which gives
Speaker 1: students in their final year of medical school ten thousand dollars.
Speaker 1: There are a lot of traditional resources on the web
Speaker 1: that you would typically associate with undergrad scholarships, but be
Speaker 1: sure to check out Scholey, fastweb Scholarships dot Com like
Speaker 1: these are all going to be great sites for you
Speaker 1: to check out and to see what offerings there are
Speaker 1: for medical students. Yeah, pinching your budget is definitely an
Speaker 1: important thing to do as a college student, but finding
Speaker 1: scholarships is even better. Right, Don't cut your Netflix membership
Speaker 1: and then not search for scholarships, because that one additional
Speaker 1: scholarship can have such a huge impact, can massively outweigh
Speaker 1: just those little cuts that you can make to your budget.
Speaker 1: But at the same time, right, it is important to
Speaker 1: think about your budget. Getting an advanced degree is often
Speaker 1: a lean financial time in people's lives. There's not much
Speaker 1: money coming in and you're living in kind of austere
Speaker 1: quarters typically, and at the same time you're taking on
Speaker 1: a good bit of debt, so you're forced to live
Speaker 1: pretty cheaply. So I would say that the key is
Speaker 1: to continue to live that way as your increases. Right,
Speaker 1: as someone who is getting a medical degree, once you
Speaker 1: hit residency, you'll start to see an increased income, and
Speaker 1: once you start making an even bigger income as a doctor,
Speaker 1: living like a resident is key to being able to
Speaker 1: pay off those student debts and as quick a time
Speaker 1: frame as possible. And Matt, there's a great website out there,
Speaker 1: the White Coat Investor. Pretty sure his name is Jim Dolly,
Speaker 1: but he has a site and a podcast, Like, dude
Speaker 1: is smart, and he has helped so many physicians save money,
Speaker 1: and his website and his podcaster particularly towards people in
Speaker 1: the medical space. So I think he's got a lot
Speaker 1: of great advice to offer. I would say that if
Speaker 1: you're becoming a doctor, if you're in medical school, if
Speaker 1: you're working towards that, his site in his podcast are
Speaker 1: are great ones to follow because they're gonna be able
Speaker 1: to help you along the way. But if you can
Speaker 1: continue to live like a resident all the way through,
Speaker 1: if you can get those additional scholarships and also cut
Speaker 1: your costs at the same time, you'll be in a
Speaker 1: much different place than a lot of people that graduate
Speaker 1: medical school. And we gotta reach out to him and
Speaker 1: see if we can have him on the show. Sometimes
Speaker 1: he would be a great guest. He would be. Let's
Speaker 1: kind of back it up to to to actually, you know,
Speaker 1: you're assuming that we're gonna get student loans, but you know, Rick,
Speaker 1: we would recommend for you to try to take out
Speaker 1: as few student loans as you possibly can, if you
Speaker 1: can bootstrap your way through medical school as much as possible,
Speaker 1: Like that's you know what we would recommend. But when
Speaker 1: the time does come for you to take out some loans,
Speaker 1: be sure and start by filling out the FAFSA. UH.
Speaker 1: It's not just for undergrad as medical schools do use
Speaker 1: this to determine how much aid that you're going to
Speaker 1: be eligible for. UH. And the good news is that
Speaker 1: you're interest rate for your first year loans are going
Speaker 1: to be much lower because borrowing rates have gone down
Speaker 1: a good bit. Yeah, that's one silver lining to kind
Speaker 1: of the difficult times that we're experiencing right now. Lower
Speaker 1: borrowing rates for students. And another thing I think it's
Speaker 1: important for Rick to consider is where he's gonna work
Speaker 1: post graduation. You can get medical school loan forgiveness by
Speaker 1: taking a number of potential job choices once you're done.
Speaker 1: For example, the National Health Service Core offers health providers
Speaker 1: and professionals the opportunity to receive up the fifty dollars
Speaker 1: in tactually for loan repayment for a two year commitment. Also,
Speaker 1: medical students in their final year of school can get
Speaker 1: up to a hundred and twenty thousand dollars in loan
Speaker 1: repayment for a three year service commitment at an nh
Speaker 1: SC site. Also, if you've ever been interested in a
Speaker 1: military career, there are great benefits for those who choose
Speaker 1: to serve. So depending on how much student loan debt
Speaker 1: you have to take on, depending on that overall debt
Speaker 1: load level, finding the jobs that are going to actually
Speaker 1: help pay your student loans off, that's a big thing
Speaker 1: to consider once you're done. And in particular, there are
Speaker 1: so many needs for doctors rurally across the United States
Speaker 1: of America. Looking for jobs in rural areas is actually
Speaker 1: gonna be one of the best ways to be able
Speaker 1: to get relief for some of those student loans. And
Speaker 1: at the same time you're probably going to be serving
Speaker 1: people who who need access to good physicians, so it
Speaker 1: can be rewarding too. So Rick, best of luck to
Speaker 1: you as you get through medical school. I'm sure it's
Speaker 1: a long slog. Keep that budget under control, apply for
Speaker 1: those scholarships, and then make sure you're looking to those
Speaker 1: bigger opportunities that can pay off once you've actually got
Speaker 1: your degree in hand. All right, Matt, let's get back
Speaker 1: to the beer that we had on the show today.
Speaker 1: We shared an i PA called dank Bot by Insight
Speaker 1: Brewing Big thanks to listener Joe for sending this one
Speaker 1: our way. What were your thoughts on this beer? Man?
Speaker 1: Hey man, this was a solid beer. I'll describe how
Speaker 1: it poured first, which was a nice golden orange. This
Speaker 1: is definitely more of a traditional style I PA because
Speaker 1: you could see through it. That's how you can tell
Speaker 1: the difference between the New England style and more traditional
Speaker 1: I p A. And I'm much into this one is
Speaker 1: from Minnesota, and that's where Joe, who sent this one
Speaker 1: to us, that's where he's from, so I think this
Speaker 1: must be a local brewery there for him. I hate
Speaker 1: saying this, but this beer is called dank Bot. I'm
Speaker 1: want to describe it as dank way to take the
Speaker 1: easy descriptor. It did have that piney kind of resid
Speaker 1: the earthy flavor to it. Obviously it had some of
Speaker 1: the hop edge to it, but at the same time
Speaker 1: it was pretty multi as well, so due to that,
Speaker 1: it did remind me more of maybe some of the
Speaker 1: more traditional I p A s from yesteryear. But I
Speaker 1: enjoyed it just as much reminded me when you and
Speaker 1: I first started having beers together. But but yeah, I mean,
Speaker 1: what were your thoughts on this one? Yeah. I think
Speaker 1: the first thing that came to my mind was that
Speaker 1: it had some abrasively happy notes. And I don't mean
Speaker 1: that negatively. I think abrasive typically is a word that
Speaker 1: we used to describe things that we don't like. But no,
Speaker 1: abrasively brasive personality, right exactly. But abrasively happy is good
Speaker 1: because I like hops. But yeah, I did have some
Speaker 1: of those old school bitter pine notes. And while piney
Speaker 1: i p a S aren't typically what you find on
Speaker 1: store shelves these days, I still really enjoy getting to
Speaker 1: have one every now and again. And I feel like
Speaker 1: this was a really good representation of one of the
Speaker 1: I pas of yesteryear. I think, as you just put so, Yeah,
Speaker 1: thank a really really good beer. And again, this is
Speaker 1: a beer by Insight Brewing, sent to us by a
Speaker 1: friend of the show, Joe up there in Minnesota. Thanks Joe.
Speaker 1: All right, buddy, that's gonna be it for this episode.
Speaker 1: Listeners can find our show notes up on our website
Speaker 1: at how the Money dot com. We'll include some of
Speaker 1: those links to some of those different sites that include
Speaker 1: all of that scholarship information, whether you're looking at undergrad
Speaker 1: or education even beyond that, Yeah, and for anybody who's
Speaker 1: been listening for a while, we would appreciate a five
Speaker 1: star review on Apple Podcast. If you have a minute,
Speaker 1: head over there, hit the five stars and leave a
Speaker 1: nice little note. We'd really appreciate it, all right, man,
Speaker 1: Well that's gonna be it until next time. Best friends Out,
Speaker 1: Best Friends Out.