Speaker 1: Welcome to Head of Money.
Speaker 2: I'm Joel and I am Matt.
Speaker 1: And today we're answering your listener questions.
Speaker 2: That's right, buddy. Happy Monday to everyone out there. We
Speaker 2: hope you had a wonderful weekend. We've got list of
Speaker 2: our questions to get to. This is again more we're
Speaker 2: able to hear directly from listeners their specific financial quandaries
Speaker 2: that they find themselves in. We've got a listener asking
Speaker 2: about utilizing some rough contributions in a pinch. How to
Speaker 2: go about doing that? Another listener is asking about the
Speaker 2: save plan for student loans, but he's also a high earner,
Speaker 2: so we'll discuss that. And another listener is asking about
Speaker 2: purchasing a home in order to save money every single month.
Speaker 2: Is that even possible? Is that something that you do?
Speaker 2: It's something that she has heard folks talking about, so
Speaker 2: we'll get to that one and more during this episode.
Speaker 1: Yeah, I don't know. It feels a different math these
Speaker 1: days in twenty twenty four than it was in twenty eleven.
Speaker 2: Right, and maths, the math is broken, the matha math
Speaker 2: Andjrol that's true. All right, We've got yeah, like you said,
Speaker 2: a lot to get to on this one. But Matt,
Speaker 2: before we get to that, I just wanted to quit
Speaker 2: a bit. My dad sadly was My dad and mom
Speaker 2: were driving in town the other day.
Speaker 1: They were rear ended. They're smashed by the truck in
Speaker 1: the in the back end of their car and so
Speaker 1: their car like shattered glass. They are okay, they were okay.
Speaker 1: Fortunately they were okay on the way the doctor's appointment.
Speaker 1: My mom was able to walk to her doctor's appointment.
Speaker 2: So what's crazy is you know how I learned about this?
Speaker 2: My wife told me he didn't. He didn't tell me
Speaker 2: about this.
Speaker 1: Yeah, so okay, our friendship still matters, it does.
Speaker 2: But that we talk about so many different things. I
Speaker 2: think sometimes we forget. Yeah, but it's true. So they
Speaker 2: got shared it with me though, and I was like, wait,
Speaker 2: when did this happen? And she's like, no, that's why
Speaker 2: he's driving a Jeep. Why is he driving a Jeep?
Speaker 1: Because it's a rental car.
Speaker 2: You can share that say that for some other parts.
Speaker 1: Will Their Toyota is being repaired, right, and so they're
Speaker 1: that thing's being fixed up. But the thing I talked
Speaker 1: to my dad about, and the thing that I think
Speaker 1: most people forget is that when you're in an accident
Speaker 1: like that. Well one, I mean, there's so many things
Speaker 1: we could talk about about, what to do in the
Speaker 1: aftermath of an accident, how to document things, how to
Speaker 1: make sure that you are getting taken care of and
Speaker 1: you're getting your car fixed in the way that it
Speaker 1: needs to be, that you deserve.
Speaker 2: What you're supposed to say is immediately you just get
Speaker 2: out of the vehicle and you just start saying, it's
Speaker 2: my fault, it's my fault. Yeah, don't worry about it.
Speaker 1: Make sure you get it on video.
Speaker 2: So yeah, yeah, exactly, start recording me. Yeah, it's totally
Speaker 2: my fault.
Speaker 1: Right, it's all good. Say, oh, no need to involve
Speaker 1: any sort of the police here, any sort of documentation.
Speaker 1: Yeah you don't want you know what. Just kidding obviously,
Speaker 1: But yeah, there's a lot we can say on that.
Speaker 1: But the one thing I feel like that almost nobody
Speaker 1: knows about, or a lot of people have forgotten about.
Speaker 1: And the thing I had to remind my data is
Speaker 1: that something known as diminished value and the fact that
Speaker 1: when your car is in an accident, the nicer, the
Speaker 1: newer your car is, the more money you're gonna be
Speaker 1: able to get from the offending insured person from that
Speaker 1: insurance company, because not only are is the insurance company
Speaker 1: responsible for fixing your car up and bringing you back
Speaker 1: to the state that it was, but because of the
Speaker 1: fact that car has now been in an accident, it
Speaker 1: is worthless by that, just by that one metric.
Speaker 2: By the fact that it has been involved in IRAQ.
Speaker 1: That's right. So I was like looking up to figure
Speaker 1: out for my dad, Okay, how much are you owed
Speaker 1: from the insurance company, and there's like a there's a
Speaker 1: calculator you can find online, there's things you can do
Speaker 1: to kind of try to figure out. There's not a
Speaker 1: lot out there, but there's there's a little bit at least,
Speaker 1: And it was like, Okay, you probably deserve somewhere in
Speaker 1: the eighteen hundred to twenty four hundred dollars range. Push
Speaker 1: for something in this and if they try to say, oh,
Speaker 1: we'll give you five hundred bucks, well that's clearly a
Speaker 1: low ball value based on the calculations you can run.
Speaker 1: And so it's just one of those things most people
Speaker 1: don't think about that if you've been in a car
Speaker 1: accident that wasn't your fault, that is a term you
Speaker 1: need to know, you need to bring up with the
Speaker 1: insurance company, with the agent who you're working with, so
Speaker 1: that you can get paid for the fact that your
Speaker 1: car is now worth less than it was before it's
Speaker 1: I think Nebraska is the only state that maybe doesn't
Speaker 1: have the minish value. In the other forty nine states,
Speaker 1: you can ask for that and you are entitled to it.
Speaker 2: Yeah, that's one good reason to not live in Nebraska.
Speaker 2: This is I'm kidding, one of the other good reasons. Kidding.
Speaker 2: By the way, no hate all the Nebraska's out there
Speaker 2: where they driving the Toyota.
Speaker 1: They were what, what's the other call? They both have toyos. Yeah, well,
Speaker 1: yeah with a Highlander and a Prius.
Speaker 3: Oh I thought they used to have they used to
Speaker 3: have a rat for yes, right, a toy I don't
Speaker 3: think I knew that they Hey there's other Toyota's our
Speaker 3: words that when it comes to the hybrid drive train,
Speaker 3: I mean you're looking at gas mileage, you're looking at dependability.
Speaker 2: I kind of kicked myself that I don't have a
Speaker 2: ci Na. Yeah, I've been on the ads. We've both
Speaker 2: been on the Odyssey bandwagon now for quite a while.
Speaker 2: But the ability to have yeah, hybrid man, I'm trying
Speaker 2: to find a way to reduce our fuel costs. Yea,
Speaker 2: even though we still only have one vehicle.
Speaker 1: Keep trying to tell you go for the EV dog,
Speaker 1: but or a plug.
Speaker 2: In EV well. As prices continue to drop, Yes, that
Speaker 2: will be something I consider, because folks are there. I
Speaker 2: think a lot of folks are getting kind of scared
Speaker 2: off by the idea of like, oh no, like you know,
Speaker 2: the EV's aren't all what they're cracked up to be.
Speaker 2: Because of that, prices are dropping, and I think there
Speaker 2: could definitely be an opportunity there to snag some deals.
Speaker 2: I mean there already have been massive deals, specifically with Tesla,
Speaker 2: but then in the coming years more.
Speaker 4: Yeah.
Speaker 2: And have we talked about in China? How at their
Speaker 2: like latest auto show or this is a few weeks ago,
Speaker 2: I guess at this point, but they unveiled specifically is
Speaker 2: it bid? Is the Chinese evary.
Speaker 1: Are kicking butt making great rides.
Speaker 2: Twelve to thirteen hundred miles on a single charge from an.
Speaker 1: EV But we're not going to see those here in
Speaker 1: the States anytime soon.
Speaker 5: I know.
Speaker 2: But it's so messed up. Yeah, it just tells me
Speaker 2: there's more to do with I don't know, it seems
Speaker 2: like there's more politics involved as opposed to like doing
Speaker 2: what's green and what's best for the earth and ultimately
Speaker 2: what's going to make consumers the happiest of right, Oh
Speaker 2: my gosh about you. Imagine if you had a twelve
Speaker 2: hundred mile.
Speaker 1: Charge ev adoption would soar in this country if we
Speaker 1: had inexpensive, longer range EV's. But it doesn't seem like
Speaker 1: any politician right now wants to fight for that.
Speaker 2: So yeah, what is it mile anxiety or rangings? Yeah,
Speaker 2: that would completely disappe you go completely, Yeah, and we're
Speaker 2: headed in that. Actually I have more than a thousand
Speaker 2: miles in one day.
Speaker 1: Right, we're headed in that direction anyway. But sadly, we
Speaker 1: could be there sooner and we can have those options
Speaker 1: at our disposal. And I get some of the reasons
Speaker 1: for productionism, but you also can't have it both ways.
Speaker 1: You can't say that this is the future and we
Speaker 1: have to all go in this direction and then say,
Speaker 1: but we won't take the most low cost brand. We're
Speaker 1: going to essentially prevent them, bar them from entering the market.
Speaker 1: It's pretty messed up, yeap.
Speaker 2: Maybe what we need to do is like ramp up
Speaker 2: our espionage, like maybe maybe we need to steal more.
Speaker 1: Point more trade secrets Matt. Matt doubles as an FBI informant,
Speaker 1: So yeah, that's a side hustle.
Speaker 2: A little, the ways she makes some extra money.
Speaker 1: That's right, alright, midlistisch And the beer we're having on
Speaker 1: this episode, it's called Duchess Red. It's a sour cherry
Speaker 1: beer that we've had before, but never on this never
Speaker 1: on the podcast. So yeah, one of your wife's favorite beers.
Speaker 1: In fact, one of my favorite beers.
Speaker 2: I love it as well.
Speaker 1: All right, we'll give our thoughts at the end of
Speaker 1: the episode, but Matt loves it, all right. So let's
Speaker 1: get to listener questions. If you have a question, a
Speaker 1: money question, go to how to money dot com slash ask.
Speaker 1: Or if you just want to know that's deepest darket secrets,
Speaker 1: you can record that question too and send it our
Speaker 1: way they tell you, but you got to record it
Speaker 1: and send it over that's the only way you get
Speaker 1: the information. Just go to how to money dot com
Speaker 1: slash ask for the simple instructions, but basically record a
Speaker 1: voice memo sending it to us via email. Now let's
Speaker 1: get to the first question for this episode. This one
Speaker 1: is about student loan payoff.
Speaker 6: Hello, Matthew and Joel Sith. This is Shakatron from Benuda, California.
Speaker 6: I'm calling in with a question about student loans. My
Speaker 6: question is, at what point or what are the drawbacks
Speaker 6: of the new SAVE program. I guess it's not super
Speaker 6: new anymore, especially for high income earners. I am fortunate
Speaker 6: enough to make three hundred thousand dollars a year, but unfortunately,
Speaker 6: to get to that point, I had to take out
Speaker 6: a lot of student loans, and I have roughly one
Speaker 6: hundred and fifty thousand dollars in student loans right now
Speaker 6: that I'm chipping away at. I have a six percent
Speaker 6: interest on those graduate student loans. I currently am in
Speaker 6: the pay program that PAYE program. Everyone in their mom
Speaker 6: says that the new Save program online and that I
Speaker 6: talk to is the best thing since sliced bread. But
Speaker 6: when I read into the fine print, it seems like
Speaker 6: there's no cap on the amount of payments that you'd
Speaker 6: have every month versus my current plan, and so I
Speaker 6: get a little bit confused with all of these different options.
Speaker 6: Is it just a gimmick? And so I think in
Speaker 6: my situation it might not be beneficial. And I think
Speaker 6: I'm trying to push out my student loans as much
Speaker 6: as possible and try and get some help from Uncle
Speaker 6: Sam with different government programs for student loan forgiveness. But
Speaker 6: any thoughts you guys have would be much appreciated. And
Speaker 6: thank you for your show. It is very interesting and
Speaker 6: has kept me on the right path financially, So thank.
Speaker 2: You for that.
Speaker 1: Oh, Matt, you hear that you have been like the
Speaker 1: bumpers in the bowling lane for I was going to
Speaker 1: do which.
Speaker 2: By the way, that's it's worth mentioning. Maybe Shakatron I'm guessing,
Speaker 2: isn't his birth name given to him name? He's not
Speaker 2: an evil robot. No, you kind of gravitated towards it
Speaker 2: that my real name is joelseph it is. Yeah, I
Speaker 2: wanted to jump on the exact same thing that you did,
Speaker 2: which is the fact that he's I think what he
Speaker 2: said was that he is on the right financial path, which, dude,
Speaker 2: that is one hundred percent what it's about right there. Like,
Speaker 2: you might be listening to the podcast and you might
Speaker 2: not have much in common with Joel or I you
Speaker 2: might workron, but the fact is, like, what we're trying
Speaker 2: to do here with the show is just normalize these
Speaker 2: conversations around personal finances and money and delaying that immediate
Speaker 2: gratification and instead planning for your future. And the more
Speaker 2: that we're able to present that as normal and the
Speaker 2: more widely accepted. And it's not ever, I don't think
Speaker 2: going to be widely accepted as this is the path forward,
Speaker 2: not in this country. Not no, because we're constantly being
Speaker 2: fed but oh no, it's owed to you, like you
Speaker 2: need to live your life now, you don't need to
Speaker 2: plan for the future. But the fact that Shakatron is
Speaker 2: thinking about his future, I love that, and I mean
Speaker 2: honestly like that is like hearing that part of his
Speaker 2: comment there may be the happiest the fact that he's
Speaker 2: just proactively thinking about it.
Speaker 1: It's going to take some willingness to be countercultural. And
Speaker 1: it's also important to mention that that it doesn't happen overnight.
Speaker 1: Progress is slow and steady, but like man turning that
Speaker 1: rudder just a little bit, think about how quickly that's
Speaker 1: going to pivot you in a new direction over the
Speaker 1: coming weeks and months. That is the goal of the show.
Speaker 1: Get you on the right financial path. Some of that, too,
Speaker 1: is overarching advice, and some of it gets really specific too,
Speaker 1: rit like talking about diminished value or now talking about
Speaker 1: something like specific student on payment programs. Those are all
Speaker 1: worth discussing, and they're all kind of part of what
Speaker 1: it looks like to have a healthy financial life. And
Speaker 1: so let's specifically get to Chakatron's question here. Matt he
Speaker 1: by the way, he's got a big salary, which is huge.
Speaker 1: I mean, that's gonna help you pivot and continue along
Speaker 1: that healthy financial path much better than if your salary was, like,
Speaker 1: got quite a bit lower. But a high salary, of
Speaker 1: course doesn't mean that why choices aren't still necessary, right,
Speaker 1: I think some people that's the problem. As you tick
Speaker 1: up the income scale, you still see a lot of
Speaker 1: people in those upper echelons living paycheck to paycheck. You
Speaker 1: can make more progress, but you can also continue the
Speaker 1: same bad habits that led you to poor financial decisions
Speaker 1: when you were making half as much. Sure, and so yeah,
Speaker 1: but we want Chocatron to pick the right payback plan
Speaker 1: that gives him of the most bang for his buck,
Speaker 1: because every dollar he doesn't have to put towards his
Speaker 1: student loans is a dollar that he can say that
Speaker 1: he can invest or that he can just spend in
Speaker 1: other ways that are more fulfilling, that are more joyful.
Speaker 1: And by the way, I think that that one hundred
Speaker 1: and fifty thousand dollars of student loan debt, I don't
Speaker 1: see it as an anvil weighing him down, but I
Speaker 1: see it actually the reason he's able to command such
Speaker 1: an income right that it's catapulted him into a higher
Speaker 1: earning stratusphere. I know, of course, it's not fun to
Speaker 1: owe that much, to have this a debt amount that's
Speaker 1: this high, But that mindset shift, I think is an
Speaker 1: important one to say, Hey, listen, this was the thing
Speaker 1: that got me here. This isn't necessarily the thing holding
Speaker 1: me back. It's propelling me. Although now I got to
Speaker 1: figure out a way it's kind of eradicated so I
Speaker 1: can run even faster.
Speaker 2: Yeah. I guess what we don't know is how long
Speaker 2: he's been working since he graduated, because if you let's
Speaker 2: just say he just graduated, Hey, this seems like a
Speaker 2: perfectly a perfectly reasonable student loan amount. Rule of thumb
Speaker 2: being to not borrow more than what you earn in
Speaker 2: your first year after you graduate. But maybe it's been
Speaker 2: like five years. I don't know, but either way, I
Speaker 2: think there is he's he's climbed the ladder and he's
Speaker 2: doing it.
Speaker 6: Yeah.
Speaker 2: I think there's a lot of progress that you can
Speaker 2: make with an income that high. But you're asking about
Speaker 2: a topic with some real nuance here, and for most
Speaker 2: folks who aren't in your upper echelon earning stratosphere, Shakat,
Speaker 2: I think we're gonna both try to save this day
Speaker 2: as often as possible because it's so awesome. But for
Speaker 2: other folks out there, usnormis the Safe Plan, it really
Speaker 2: will be a massive help for them, which is why
Speaker 2: you hear all those great headlines, you hear all that
Speaker 2: that feverish support from almost everywhere.
Speaker 1: He specifically asked for it was a gimmick, and the
Speaker 1: answer is it's not a gum not for a lot.
Speaker 2: Of people exactly. Yeah, the average student loan netter is
Speaker 2: going to be able to see their payment reduced significantly
Speaker 2: because of the Safe Plan. That's ton of folks are
Speaker 2: gonna pay zero dollars a month thanks to the like
Speaker 2: specifically the more generous poverty line deduction. But for you shaka.
Speaker 2: The safe plan is almost assuredly going to be a
Speaker 2: bad idea.
Speaker 1: Yeah, And it's no wonder that you're confused because the
Speaker 1: details can be hard to figure out.
Speaker 2: Yeah, exactly, it's it's it's worth noting too. That is
Speaker 2: he said he's an engineer. I means he's pretty smart. Right,
Speaker 2: he's commanding a pretty high salary. Yes, it's still really confusing, still.
Speaker 1: Confusing, and they're I think part of it's because there's
Speaker 1: these four letter acronyms. You're like, save, pay, repay, and
Speaker 1: you're like, I don't know, it's hard to parse the details,
Speaker 1: and you maybe read the it feels like reading a
Speaker 1: foreign language, almost, as you're perusing the specifics of each one,
Speaker 1: and you're like, so, how do I know which one
Speaker 1: of these is going to be best for me? Then?
Speaker 1: And we The save plan is an income driven repayment plan, right,
Speaker 1: which means the higher income, the more you pay each month.
Speaker 1: So if you make sixty thousand dollars, as you were
Speaker 1: alluding to, let's say you made sixty thousand dollars and
Speaker 1: you have four kids, your payment might go from hundreds
Speaker 1: of dollars a month to zero dollars a Yeah, and
Speaker 1: there's going to be a lot of people, depending on
Speaker 1: their income and how their family size, they might find
Speaker 1: themselves in that position. But if you are in Shaka
Speaker 1: territory and you're making hundreds of thousand dollars of dollars
Speaker 1: a year and you don't have like a dozen children
Speaker 1: to like qualify as a larger family size, which I
Speaker 1: didn't hear Shaka mention anything about having kids. If he's
Speaker 1: single and has an income that high, the Save plan
Speaker 1: is actually going to be more harmful than helpful. Right,
Speaker 1: So sticking with the pay plan that you're currently on
Speaker 1: is almost inevitably going to be the best financial decision
Speaker 1: to spite. Despite the laudatory things that you've heard about
Speaker 1: the Save plan, it just doesn't fit for your situation
Speaker 1: for year.
Speaker 2: You not a good plan for it. Yeah. The crux
Speaker 2: of the matter is that payment cap that you mentioned,
Speaker 2: Because if you sign up for Save and your income
Speaker 2: continues to increase, well, that payment can go up too.
Speaker 2: And here's the thing, the sky is the limit to
Speaker 2: how high it can go. Yeah, there is no cap
Speaker 2: that is not true for your pay plan. So you
Speaker 2: don't want to base your decision solely on what you're
Speaker 2: earning now, but you also want to think about what
Speaker 2: it is that you might be earning in the near future.
Speaker 1: The other thing I think worth mentioning is that the
Speaker 1: pay plan comes with a shorter timeline for forgiveness for
Speaker 1: graduate student loans, which is, I believe what Chaka said
Speaker 1: he had right, So twenty years versus twenty five years
Speaker 1: with a save plan, and that might seem like forever
Speaker 1: a way anyway, but with the size of your balance,
Speaker 1: you just might find that to be another compelling reason
Speaker 1: to choose pay oversave. Also, I wouldn't let that be
Speaker 1: a deciding factor because ultimately, especially given your income, we'd
Speaker 1: love to see you pay off that balance before you
Speaker 1: reach that endpoint. Anyway, Forgiveness is cool, but given yeah,
Speaker 1: how much money you're able to bring in the size
Speaker 1: of that balance, I think you should be able to
Speaker 1: get rid of those loans in years rather than decades.
Speaker 1: But that is at least one more fact or one
Speaker 1: more checkbox, and like maybe much just stick with pay
Speaker 1: because if it does take me longer, I'm that much
Speaker 1: closer to having at least part of my student loan
Speaker 1: debt forgiven.
Speaker 2: Yeah. For him, like we have to sort of interpret
Speaker 2: the question for the listener out there, because they're hearing
Speaker 2: one hundred and fifty K and they're thinking, oh my gosh,
Speaker 2: that's a substantial amount of money. But for those folks,
Speaker 2: it might only be earning you know, like sixty or
Speaker 2: seventy K, where yes, you do probably want to extend
Speaker 2: the payments as long as possible and not for that forgiveness.
Speaker 1: In that case, it feels like a grizzly bear sitting
Speaker 1: on your chest, whereas yeah, in the case of Shaka,
Speaker 1: it's like a baby cub, Yeah, trying to grab onto
Speaker 1: your back.
Speaker 2: It's like swatten away a fly.
Speaker 1: Yeah, all those costs hurt even though you're a baby.
Speaker 1: It's yeah, it's still uncomfortable.
Speaker 2: But there's But I think what you're saying is true
Speaker 2: because like so Shaka he was like chipping away at
Speaker 2: his student loans, and I think that's okay. It's a
Speaker 2: big balance. You know, it can be hard to maybe
Speaker 2: like mentally wrap your mind around that. We get it.
Speaker 2: You don't I want to put other financial goals on
Speaker 2: the back burner at the same time, right, Like, for instance,
Speaker 2: you don't want to avoid investing in order to pay
Speaker 2: it off immediately. In order to pay it off more quickly.
Speaker 1: I think a lot of years that you might be
Speaker 1: avoiding your roth irka if you made that choice.
Speaker 2: I just think it's a good idea to try to
Speaker 2: be doing both at the same time, eliminating that debt
Speaker 2: but also building up a nest egg for your future.
Speaker 2: And then plus those contributions will actually reduce your AGI,
Speaker 2: which reduces your required monthly payment. But the longer you
Speaker 2: can live a lean existence, the more quickly you're going
Speaker 2: to be able to eradicate that debt. And again, we
Speaker 2: know this is a massive sum, but your income, it's
Speaker 2: pretty large, and it might not be worth drawing out
Speaker 2: those payments for multiple decades, for instance, to have just
Speaker 2: perhaps small amount forgiven by the time you reach that,
Speaker 2: you know, twenty years down the road, I think you
Speaker 2: might just be better off funneling money toward the debt
Speaker 2: to get rid of it sooner rather than later. And
Speaker 2: there's different calculators you can check out, like the student
Speaker 2: Loans the student Loans simulator that is up at studentaid
Speaker 2: dot gov. I've heard folks talk about that, but simultaneously
Speaker 2: it seems like it has limited information that it will consider. So,
Speaker 2: for instance, how long you've been paying on that, and
Speaker 2: so given the fact that you've got more, there's the
Speaker 2: stakes are higher here. Given the large amount of student
Speaker 2: loans that you have, it might be worth checking in
Speaker 2: with student loan planner. We actually have a review up
Speaker 2: on the website that will link to you in the
Speaker 2: show notes for this episode. But that might be a
Speaker 2: great resource for you, just to have somebody essentially kind
Speaker 2: of guiding you, walking you.
Speaker 1: Through this, like a financial planner for your student loans,
Speaker 1: like yeah, and as someone who's an experts specifically at
Speaker 1: choosing the right payment plan and knowing the right pathwork.
Speaker 2: Yeah, and especially given the fact that the rules have changed,
Speaker 2: and we often talk about this. It used to be
Speaker 2: where the only time we would say, hey, you should
Speaker 2: probably consider hiring a professional is with a tax professional
Speaker 2: because the fact that the rules change so frequently, and
Speaker 2: some small mistakes on the friend and could cost you
Speaker 2: a large amount of money. But that's it's a similar
Speaker 2: pattern now that we're seeing when it comes to student
Speaker 2: loan repayments, as the rules of change and as there
Speaker 2: are different requirements. Yeah, so that might be worth your time.
Speaker 1: Yeah, we'll link to that review in the show notes
Speaker 1: in case, you do want to say, listen, I've got
Speaker 1: a lot of money here that I need to pay off,
Speaker 1: and making the wrong choice could cost me a lot
Speaker 1: more than hiring the professional to help me choose the
Speaker 1: slam dunk best thing for me. You're in the kind
Speaker 1: of position chockout where that can make a lot of sense.
Speaker 1: But best of luck as you pay off those loans,
Speaker 1: we hope you're not holding on to them for too long. Matt.
Speaker 1: We've got more to get through on this episode, including
Speaker 1: we'll talk about cashing out a retirement account to pay
Speaker 1: off a nefarious debt. We'll talk about that and more
Speaker 1: right after this.
Speaker 2: Right man, we are back from the break, and like
Speaker 2: you mentioned, we will talk about tapping some ROTH contributions.
Speaker 2: But let's now hear from a listener who's looking to
Speaker 2: take a more active role when it comes to his
Speaker 2: retirement portfolio.
Speaker 5: Hi, Matt and Joel, this is Addie. I am a
Speaker 5: thirty nine year old engineer living in in Southeast Michigan.
Speaker 5: I have recently hired a financial advising firm to manage
Speaker 5: my funds and finances. After working with them for four months,
Speaker 5: I believe I have time and skills needed for planning
Speaker 5: the finances by myself. However, regarding managing my investment, there
Speaker 5: are two things that I am unable to do by myself.
Speaker 5: They are one tax loss harvesting and two sector investing.
Speaker 5: My question to you both is, are tax loss harvesting
Speaker 5: and sector investing as effective as these financial advising firms
Speaker 5: claimed to be. Hoping to hear your answers sometime soon.
Speaker 5: Thank you, and I appreciate what you both are doing
Speaker 5: in terms of educating people like me. Thank you, Matt.
Speaker 1: This is a perfect timing for this question, considering we
Speaker 1: were just talking about when to hire a financial pro
Speaker 1: or not, and I feel like there's probably more weeds
Speaker 1: we can dive into in answer to ADDIE's question here,
Speaker 1: so Ati, thank you for your question, and I love
Speaker 1: that you're ready to manage your own investments. I will
Speaker 1: say we have like mixed feelings on financial advisors and
Speaker 1: when it makes sense for people to bring one on
Speaker 1: into their financial lives, they make very little sense for
Speaker 1: people in the beginning of their wealth building endeavor.
Speaker 2: Right.
Speaker 1: I think we took a question not too long ago, Matt,
Speaker 1: from someone in his early twenties didn't have much save
Speaker 1: doesn't have much invested yet, and he's trying to figure out,
Speaker 1: you know, what it looks like to have a relationship
Speaker 1: with a financial advisor. We're saying it's too soon, you're
Speaker 1: not ready. You need to keep funneling money towards your
Speaker 1: future and less towards a pro to help you out. Right.
Speaker 1: But the further along you get, or the more complex
Speaker 1: your finances get, the more you might want to employ
Speaker 1: employ the help of a pro.
Speaker 4: Right.
Speaker 1: But if you're going to do that, it's crucial to
Speaker 1: do it wisely because you want to make sure you
Speaker 1: hire a fee only fiduciary. And you know, we prefer
Speaker 1: that you do business with an advisor who charges a
Speaker 1: flat hourly or a one time fee, because the ongoing costs,
Speaker 1: the one percent ongoing fees could really eat intose compounding returns.
Speaker 1: It seems on the very front end, it seems like
Speaker 1: one percent. That sounds reasonable, and I'm gonna paying a
Speaker 1: little bit dribs and drabs every single year. But man,
Speaker 1: I don't want to have to pay like three thousand
Speaker 1: dollars to have someone help me come up with a
Speaker 1: financial plan. That's so much money. But when you do
Speaker 1: the math, the way that one percent fee eats into
Speaker 1: your returns. You'd be much better off paying three thousand
Speaker 1: dollars one time for a financial plan for a long,
Speaker 1: multi visit session with a financial planner. Our brains, it's
Speaker 1: just hard for our brains to think that that's the case,
Speaker 1: that that one time expensive fee would be smarter. But
Speaker 1: for most people it's much smarter.
Speaker 2: Yeah, especially for a lot of listeners who might be
Speaker 2: entering into some of those higher earning years of their careers.
Speaker 2: And what I also love about what Addie is saying
Speaker 2: is that he feels like having an advisor for just
Speaker 2: a period of time, that it has given him the
Speaker 2: tools to go alone, because like, it's just awesome that
Speaker 2: he's been able to learn, Because I think going through
Speaker 2: the planning experience, it can provide a ton of helpful insights.
Speaker 2: Right The information that they make you gather and confront,
Speaker 2: the goals that they help you to outline, the questions
Speaker 2: that they can ask are illuminating, and I think all
Speaker 2: of those things combined can make the task of creating
Speaker 2: a financial plan a little less daunting. Certainly you can
Speaker 2: do that all on your own, sure, but an advisor
Speaker 2: can just prod you in different ways that maybe you
Speaker 2: otherwise wouldn't. It makes me think of like hiring a
Speaker 2: personal trainer for a period of time where you're like, oh, wow,
Speaker 2: I didn't realize I was capable of that, or oh wow,
Speaker 2: I did not think to try to do this instead
Speaker 2: of that because maybe you were stuck in your ways.
Speaker 1: Or say, oh, can you read a couple of self
Speaker 1: help books and work through your own mental health issues? Sure,
Speaker 1: but like it's the help of a licensed therapist who's
Speaker 1: gone through years of training can get to help you
Speaker 1: get to the root of some things and help you
Speaker 1: think about things in a way you never had before.
Speaker 1: And then maybe down the line, off you've done some therapy,
Speaker 1: like you can abandon it or at least like do
Speaker 1: it less often.
Speaker 2: Professionals are going to have a deeper level of knowledge
Speaker 2: on many fronts, which means you know, they're just going
Speaker 2: to bring things to the service that you may not
Speaker 2: have thought about.
Speaker 1: That's right. So I do think that is one of
Speaker 1: the plus checks in the plus column for hiring an advisor.
Speaker 1: But let's get to those two specific questions that you ask.
Speaker 1: Yes about tax loss harvesting, so we'll start there. Tax
Speaker 1: loss harvesting is great. It can be a way to
Speaker 1: reduce taxes without really changing the makeup of your portfolio
Speaker 1: very much. But it's not helpful when we're talking about
Speaker 1: tax advantaged accounts. When you buy and sell inside of those,
Speaker 1: there is no taxable events, so you don't need tax
Speaker 1: loss harvesting. The only way that it makes sense or
Speaker 1: that it can be helpful is if you've got funds,
Speaker 1: significant funds, and a taxable brokerage account. So if that's
Speaker 1: the case, there are opportunities basically every single year to
Speaker 1: reduce your tax burds. Burden buy tax loss harvesting, which
Speaker 1: means selling a fund at a loss and buying a
Speaker 1: very similar fund afterward, which save yourself money at tax time.
Speaker 1: But like I said, it doesn't really affect your portfolio
Speaker 1: in any meaningful way. By harvesting a loss, you're able
Speaker 1: to offset taxes on both gains and in And so, yeah,
Speaker 1: do you need your financial planner, your fancy paints financial
Speaker 1: planner to help you do this? Is it worth the
Speaker 1: fee or the percentage you're giving to them for this?
Speaker 1: I would say probably not. Robo advisors like Betterment can
Speaker 1: help you do it for far less than that, And
Speaker 1: they say on Betterment site that four and five users
Speaker 1: cover their Betterment fee with the savings from tax loss
Speaker 1: harvesting alone. So I think if you do have a
Speaker 1: substantial taxable broker's account and you like tax loss harvesting,
Speaker 1: you like saving potentially a few thousand dollars being able
Speaker 1: to make that claim on your taxes. If that's one
Speaker 1: of the main selling points of your advisor, there are
Speaker 1: cheaper ways to get that done.
Speaker 2: Sure, And I will say, of course Betterment has a
Speaker 2: vested interest in saying on their site that hey, eighty
Speaker 2: percent of folks other fee covered, So you know, take
Speaker 2: that with a grain of salt. But the fact is,
Speaker 2: tax loss harvesting is a legitimate thing, and this is
Speaker 2: a more affordable way to achieve that rather than maybe
Speaker 2: paying one percent.
Speaker 1: It's something you DIY too, Like you can sell and
Speaker 1: find the perfect times during the year, but it's easier
Speaker 1: when an algorithm does it for you. Yeah, it's possible
Speaker 1: to screw it up, do I wy ing it too? Sure,
Speaker 1: So you just have to realize that there are potential pitfalls.
Speaker 2: It literally is can be as simple as I know.
Speaker 2: We talked about this during the on the show, but
Speaker 2: I guess it was right after the pandemic, like as
Speaker 2: things were taken that I just switched a lot. I
Speaker 2: ended up selling a bunch of VU and instead bought VTI,
Speaker 2: which from a portfolio standpoint for me, was pretty much
Speaker 2: the minimal exact same thing. Yeah, but it was different
Speaker 2: enough in the eyes of the irs that hey, I
Speaker 2: was able to harvest some losses there.
Speaker 1: And the cool thing is you can push You can't
Speaker 1: you can only claim a small amount in any given year,
Speaker 1: but if you have a lot of loss in one
Speaker 1: specific year, you can continue to claim that in smaller,
Speaker 1: small increments moving.
Speaker 2: Forward, roll it forward, and definitely you probably got tax
Speaker 2: losses for the next couple decades. Yeah, So we wanted
Speaker 2: to mention Betterment because I think that could be the
Speaker 2: perfect happy medium place to have your taxable brokerage account
Speaker 2: because you're gonna certainly save a lot more than what
Speaker 2: you're paying to a traditional financial advisor. But of course
Speaker 2: you're going to get the upside of that tax lost
Speaker 2: harvesting alongside also some other compelling reasons to use Betterment.
Speaker 2: They've got some great tools over there as well. Like
Speaker 2: one of the tools is, like, if you're thinking about
Speaker 2: selling a certain number of shares of an ETF or
Speaker 2: a stock. They'll just tell you, hey, this is what
Speaker 2: you're going to owe in tax. That can come in
Speaker 2: really handy if this is something that you're looking to
Speaker 2: use less. As you know, some folks see their brokerage
Speaker 2: account more as an additional retirement account. Some folks see
Speaker 2: it as like, hey, I want to invest in this
Speaker 2: within this vehicle for three to five years and then
Speaker 2: I'm going to pull the trigger and then I'm going
Speaker 2: to spend that money on something that I want to
Speaker 2: enjoy at that point in life. But like a boat, yeah,
Speaker 2: I mean particularly yeah, but that is a perfectly fine
Speaker 2: reason I think to invest money. So yes, to invest
Speaker 2: some money for certain number of years. But then Addie
Speaker 2: asked about sector specific investing, and that's certainly something that
Speaker 2: you can make a priority. But so much of it
Speaker 2: is going to depend on your specific goals. It is
Speaker 2: going to depend on your risk tolerance as well. It
Speaker 2: depends on how complicated you want to make your investments.
Speaker 2: Because you could invest in some precious metals, you can
Speaker 2: dabble in reads a little bit, real estate investment trusts,
Speaker 2: you could focus on the tech sector. All this is
Speaker 2: up to you.
Speaker 1: But we just go all in on Nvidia.
Speaker 2: You could do that if you wanted to. I would
Speaker 2: rather you do all of that than consume. Right, Like,
Speaker 2: if on one hand you're looking at just spending that
Speaker 2: money in frivolous ways, that doesn't bring you much joy,
Speaker 2: But on the other hand, you're thinking about investing in
Speaker 2: a more aggressive way that might be a little riskier. Okay, Well,
Speaker 2: between the two those, I'd rather see you investing, even
Speaker 2: if it's not something that for the vast majority of
Speaker 2: folks I think you should be doing. Because it's not
Speaker 2: necessary to build up a nice nest egg for retirement
Speaker 2: by investing in these ways. You can just stick with
Speaker 2: the simple SMP or the total stock market indexes out there.
Speaker 1: And some people might accuse us of over simplifying things,
Speaker 1: matt and in regards to investments. They might have a point.
Speaker 1: It's something I've thought about for sure over the years. Right,
Speaker 1: are we making it just too simplistic on the investing front?
Speaker 1: Do you need kind of to to broaden your horizons
Speaker 1: to make sure you have your money spread out in
Speaker 1: an even more diversified manner than what we recommend with
Speaker 1: kind of the simple investing approach. And I think ultimately,
Speaker 1: for a lot of our listeners, our goal is for
Speaker 1: them to do the thing right and to get money
Speaker 1: into those accounts, to start growing that money for their future,
Speaker 1: and it's less about perfect and I think sometimes that
Speaker 1: attempt at perfect it is the enemy of something that's
Speaker 1: not even just good.
Speaker 2: That's great, sure, yeah, but I mean, honestly, like that's
Speaker 2: where I see the fancier, more sophisticated ways of investing
Speaker 2: as being what keeps people from investing in the SMP.
Speaker 2: And not because the SMP is sub is inferior, but truly,
Speaker 2: I mean, like over the past decade plus, the S
Speaker 2: and P five hundred has outperformed even betterments this sub betterment.
Speaker 2: They actually updated their core portfolio earlier this year to
Speaker 2: weight heavier towards US equities because it has seen subpower
Speaker 2: performance when you're comparing it to the S and P
Speaker 2: of five hundred and So does that mean that the
Speaker 2: that the US stock market is going to continue to
Speaker 2: out the rest of the world.
Speaker 1: I don't know, but probably not if history has anything
Speaker 1: to teach us about, Like we could see we see
Speaker 1: times of international ow performance versus US DOX two innother decades.
Speaker 1: So it's It's hard to predict, but the one thing
Speaker 1: I can predict is that the more complicated you make something,
Speaker 1: the more people are gonna like say this is not
Speaker 1: for me.
Speaker 2: Yeap, They're gonna throw in the towel altogether.
Speaker 1: Yep. And so yes, addie, if you choose to do
Speaker 1: that and you want to complicate things a little more
Speaker 1: and you want diversity, more diversification through some sector specific funds,
Speaker 1: more power to you. It's just not something that we
Speaker 1: think is a necessity, and so we'd actually encourage you
Speaker 1: to go back and listen to episode seven thirty four
Speaker 1: with Paul Merriman. His take is that having some small
Speaker 1: cap value exposure over the long haul hasn't in recent years,
Speaker 1: but over the long haul will result in outsized gains.
Speaker 1: But he is also about keeping it simple, so he's
Speaker 1: like one added step of complexity without without really overdoing it.
Speaker 1: I think he advocates a simple too fund approach, and
Speaker 1: I guess we think that for most investors dollar cost
Speaker 1: averaging to one or two funds is ideal. It just
Speaker 1: makes it more likely that you're going to do the thing.
Speaker 1: It doesn't complicate things too much. I would say, another
Speaker 1: episode worth listening to is the one we did with
Speaker 1: Brian Ferraldi back in seven ninety four. He loves investing
Speaker 1: in single stocks, but he doesn't recommend it for everyone.
Speaker 1: In fact, for most people he thinks it's not a
Speaker 1: good strategy. We're fans of whatever approach though that allows
Speaker 1: you to stay the course and keep building wealth. And
Speaker 1: if some of that is investing in individual stocks, but
Speaker 1: while you're doing the basic, simple thing with the majority
Speaker 1: of things. Just because you're interested more power, that's great
Speaker 1: and enjoy. But I just think for most folks that's
Speaker 1: not where their head's at. Their head is like, how
Speaker 1: do I build wealth in a simple, repeatable fashion, And
Speaker 1: that's kind of what we harp on and that's where
Speaker 1: we put the majority of our emphasis.
Speaker 2: That's right, Addie, So we hope that gets you pointed
Speaker 2: in the right direction. Joel us here from our next
Speaker 2: listener who is in a tight spot and so he's
Speaker 2: looking to tap some retirement funds.
Speaker 4: Hi, Matt and Joel, This is Terry from Jacksonville, Florida.
Speaker 4: Been listening to you guys for a long time. Love
Speaker 4: the podcast, Love everything that you do to spread financial
Speaker 4: and information. Got an interesting roth Ira question for you
Speaker 4: so I was considering cashing out an old Roth IRA
Speaker 4: account to clear some small debt from a credit card,
Speaker 4: And when I was doing so, I was trying to
Speaker 4: figure out how much my original contributions to the Roth
Speaker 4: account were versus what my gains were and what I
Speaker 4: would be responsible for paying taxes on since it doesn't
Speaker 4: qualify for any of the early withdrawals. The account was
Speaker 4: from a previous employer from two thousand and eight. In
Speaker 4: two thousand and nine, I do not still have those
Speaker 4: tax accounts, and the account itself has changed hands from
Speaker 4: a number of financial institutions, from Scott Trade to tdmor
Speaker 4: Trade now to Charles Schwab, and they have no record
Speaker 4: of telling me that either. My question is what's my
Speaker 4: course of action here if I decided to go this route,
Speaker 4: and if not, is this something that I need to
Speaker 4: be doing with my current Roth account to keep track
Speaker 4: of this for the future if I ever need to
Speaker 4: tap into that for a critical time and critical time
Speaker 4: and financial need. My wife has a similar account hasn't
Speaker 4: worked in about ten years in an account, and that
Speaker 4: account has been sitting there growing and we.
Speaker 2: Just don't know how much.
Speaker 4: The honest the starting point was versus versus what it
Speaker 4: is now again, appreciate you taking my question. Hope you guys,
Speaker 4: Hope you guys can figure this one out with me.
Speaker 2: Thanks nice. So, Joel, it's worth mentioning right out of
Speaker 2: the gate that Terry, he said wroth Ira, but he's
Speaker 2: also mentioning the fact that this is an employer sponsored account.
Speaker 2: So in his email he actually referred to it as
Speaker 2: a Roth four one K on one hand of the
Speaker 2: now at other points he called it a roth Ira.
Speaker 2: So I'm assuming because of the employer part, he's talking
Speaker 2: about a roth for one cat.
Speaker 1: That's what I'm getting. Yeah, that's what I'm gathering too,
Speaker 1: So that's how we'll address this.
Speaker 2: We're just clarifying the language because there are two different.
Speaker 1: Accounts, right, and they both have brought them the name
Speaker 1: in that again, is where simplicity would be awesome in
Speaker 1: the retirement account space. But there are a lot of
Speaker 1: different accounts with different letters and numbers attached to them,
Speaker 1: which can be just mind boggling for people who don't
Speaker 1: spend a lot of their time, whether it's their job
Speaker 1: or just their free time, thinking through these things. So Terry,
Speaker 1: we will address this as though it's a WROTH four
Speaker 1: one K, and we'll actually kind of allude to the
Speaker 1: roth IRA in this too. But it does sound like
Speaker 1: you've been jostled around to different brokerage firms that can
Speaker 1: make a record keeping difficult. So what we would suggest
Speaker 1: is to reach out to the HR department of your
Speaker 1: old employer to see if they have records of your
Speaker 1: accounts and your contribution amounts. That's at least one stone
Speaker 1: worth turning over. And if you have an old account statement,
Speaker 1: you might be able to reach out to the old
Speaker 1: investment firm itself, although for you in particular, it seems
Speaker 1: that both of those are now defunct. They've been purchased,
Speaker 1: the original company has been wiped off the face of
Speaker 1: the planet, so those records probably don't exist anymore. Those
Speaker 1: are two potential ways to dig up the document you're
Speaker 1: looking for, but honestly, it might.
Speaker 2: Be a waste of your time in your essence, Yeah, yeah, no, exactly,
Speaker 2: that's right, because we don't want you to cash out
Speaker 2: your ROTH for one K funds the money that you've
Speaker 2: got stashed away there to pay off what you refer
Speaker 2: to as small credit card debt. That would be bad news.
Speaker 2: Bears and that's for many reasons that are worth discussing here.
Speaker 2: Because Joel, like you alluded to roth Ira contributions, they
Speaker 2: can be taken out tax and penalty free, but Roth
Speaker 2: four win k contributions don't receive the same treatment, which
Speaker 2: means taking money out of that account, even if it
Speaker 2: were below your contribution threshold, that's going to result in taxes.
Speaker 2: It's gonna result in penalties, making it a in our opinion,
Speaker 2: a massive financial mistake not to mention that you'd be
Speaker 2: robbing future Terry of a much bigger, tax free nest
Speaker 2: egg if you were to pull those dollars out now
Speaker 2: as opposed to leaving them invested in the market.
Speaker 1: Yeah, think about yourself, Terry, but yourself twenty years down
Speaker 1: the line and you pull that money out Old Terry
Speaker 1: right exactly, and young Terry super satisfied because you don't
Speaker 1: have that debt lingering anymore. But future Terry is like
Speaker 1: bawling because he realizes that there's not just like, I
Speaker 1: don't know, you didn't say exactly how much you're planning
Speaker 1: on pulling out, but maybe it's not just fifteen thousand
Speaker 1: or ten thousand dollars less, it's the compounding returns of
Speaker 1: that money than now future Terry doesn't have at his disposal.
Speaker 1: So that is I think one of the biggest reasons
Speaker 1: to not even consider going this route. Right, you need
Speaker 1: to wait until you're fifty nine and a half to
Speaker 1: withdraw money in that wroth for one K to be
Speaker 1: tax and penalty free. And I'm not sure how small
Speaker 1: this credit card debt is, but we'd much rather see
Speaker 1: you living on a bare bones budget for something like
Speaker 1: nine to twelve months so you can eradicate it in
Speaker 1: a short order, leaving every single dollar that you're thinking
Speaker 1: about taking out intact in your wroth for one K.
Speaker 1: Because it has this double impact, right, it keeps those
Speaker 1: dollars working for you, dramatically impacting your future net worth,
Speaker 1: but it also helps you feel the pain of the
Speaker 1: credit card debt that you've accrued. And it's not that
Speaker 1: we're massacis. It's not that we want need it to
Speaker 1: yeah exactly. We're not trying to like make you hate
Speaker 1: your life, But tapping a retirement account it just feels
Speaker 1: like the easy way out, which is why so many
Speaker 1: people take it.
Speaker 4: Matt.
Speaker 1: When you see the statistics about people that touch their
Speaker 1: retirement accounts early. It's sad, it's awful. And what happens
Speaker 1: to as an American the average American leaves our job. Well,
Speaker 1: they decide, oh, you know, there's like ten thousand bucks,
Speaker 1: eight thousand bucks, my four one k might as well
Speaker 1: just like crack the piggybank open. And the truth is
Speaker 1: they do that, and because it's the easy way out,
Speaker 1: they find themselves back in debt again, not too far
Speaker 1: down the road, with a much lighter retirement account to boot.
Speaker 1: And so our advice is to make a plan to
Speaker 1: cut spending YEP, to funnel more money towards that debt
Speaker 1: in the here and now so you can pay it
Speaker 1: off quickly instead. But don't do anything with the wraw
Speaker 1: four one k, leave that thing being Yeah.
Speaker 2: Leave your retirement nest eck alone. And I think a
Speaker 2: part of your plan could be to consider a balance
Speaker 2: transfer credit card. And this is especially true if the
Speaker 2: interest that you're paying on your credit card balance is
Speaker 2: just incredibly frustrating and slowing you down.
Speaker 1: I just be honest. With rising interest rates and rising
Speaker 1: credit card interest rates, it probably is.
Speaker 2: Really, I'm sure. Yeah, even if you have righted your
Speaker 2: ways and you're not spending recklessly on that it could
Speaker 2: just really slow things down as those rates have ticked up.
Speaker 2: And so I think choosing a card with a long
Speaker 2: enough zero percent interest rate where you feel confident that
Speaker 2: you'll be able to pay it off in full within
Speaker 2: that window could be the way to go. You're gonna
Speaker 2: pay a transfer fee of three to four percent, but
Speaker 2: it's worth not having. I think you know any interest
Speaker 2: or crew for let's say fifteen, eighteen, even twenty one months,
Speaker 2: if you have a plan. And I do kind of
Speaker 2: feel like we're getting outside the bounds of your original question, Terry,
Speaker 2: but we wanted to mention this because like alarm bells
Speaker 2: are going off in our heads when we hear folks
Speaker 2: talk about tapping the retirement accounts early for something that
Speaker 2: feels temporary like it. It feels like a huge deal
Speaker 2: to you right now, But we just feel that there
Speaker 2: are better ways to proceed. There are different changes that
Speaker 2: you can make and you're spending, there are different ways
Speaker 2: you can impact your earning potential to focus on eliminating
Speaker 2: this altogether without experiencing the permanent impacts of having withdrawn
Speaker 2: some of your retirement funds.
Speaker 1: So that's whey who you listen to in the personal
Speaker 1: finance based Matters MAC because there are some people who
Speaker 1: would who think the debt is the worst thing since
Speaker 1: lif spread and whatever it takes to pay that off
Speaker 1: in the shortest amount of time is the most prudent
Speaker 1: thing to do. And again, we always take like shades
Speaker 1: of gray happy medium, and that is not always true,
Speaker 1: because you can do a lot of harm to yourself
Speaker 1: preventing future wealth building activities. Even with something as egregious
Speaker 1: as credit card debt, there are better ways to handle it.
Speaker 1: And again, I think feeling the behavioral implications of what
Speaker 1: it took to get in that credit card debt, marching
Speaker 1: yourself slowly and steadily out of that is going to
Speaker 1: make you feel different at the end of the day,
Speaker 1: having achieved debt payoff by buckling down instead of tapping
Speaker 1: the retirement account instead to get there sooner. And last, banaloigues,
Speaker 1: I just want to mention that you're terry, that you're
Speaker 1: a Schwab, and that's good. They're one of the biggest
Speaker 1: low cost players in the game. That means record keeping
Speaker 1: should become less of an issue moving forward. It can't
Speaker 1: hurt to print out annual contribution statements for your own
Speaker 1: personal records just in case. So if you stick those
Speaker 1: in a file folder or something in a cabinet in
Speaker 1: your house, then I think that can help you for
Speaker 1: future record keeping purposes.
Speaker 2: Cool. Well, you mentioned the forms. Done makes me think
Speaker 2: of so one thing. So Terry, let's just say, just
Speaker 2: in case, you were talking about Rothie IRA contributions. When
Speaker 2: you make contributions to an IRA, the brokerage that you're
Speaker 2: with has to issue you Form fifty four to ninety eight.
Speaker 2: And that is a way that actually I personally have
Speaker 2: needed to go back to previous brokerages to get some
Speaker 2: of those forms because I was like, wait a minute, yeah,
Speaker 2: you can tap contributions if you were in a pinch.
Speaker 2: And this was a situation where Kate and I found
Speaker 2: ourselves in years ago where we're like, oh man, income's
Speaker 2: looking pretty low this year. We've got some financial goals
Speaker 2: that we're looking to hit. Maybe let's just consider this
Speaker 2: is just something we were considering. And I had to
Speaker 2: reach back out to E Trade because my first roth
Speaker 2: IRA was with E Trade and they sent me the
Speaker 2: forms and so it takes a little bit more legwork,
Speaker 2: but that's when you can reach out to the brokerage
Speaker 2: directly in order to keep up with that on your own.
Speaker 2: And I will say, prior to that, I had never
Speaker 2: kept up with my contributions, my retirement contributions with my IRA,
Speaker 2: and I never had a four one K before that
Speaker 2: at that point anyway, And of course Joel, you're not
Speaker 2: surprised to hear that. That's when I started my investment
Speaker 2: Bounce's contribute. I had a sheet that I added to
Speaker 2: to my excel file. Yeah, sounds like you, because I
Speaker 2: just want to be able to keep up with that
Speaker 2: on my AM.
Speaker 1: And I think it's worth mentioning really quickly. If Terry
Speaker 1: was talking about a roth Ira, well, the great thing,
Speaker 1: the cool thing about roth IRA's when we talk about this,
Speaker 1: is that you can tap those contributions tax and penalty free,
Speaker 1: so you could go back get that forum realized. Wait
Speaker 1: a second, over the last six years, I have contributed
Speaker 1: twelve thousand dollars, let's say, and I could pull all
Speaker 1: that out right now, pay off the credit card debt,
Speaker 1: no harm, no foul, right because I didn't have to
Speaker 1: pay any taxes or penalties. Matt and Joel will love
Speaker 1: that plan. If it's a roth Ira, you can do that.
Speaker 2: That is more flexibility there.
Speaker 1: That is a touchier subjective if we're talking about a
Speaker 1: roth ira, because you're right, you don't pay taxes and penalties,
Speaker 1: but you're talking about money that's in a tax advantaged
Speaker 1: account that you've already paid tax on the growth of
Speaker 1: which you'll never pay tax on again in the future.
Speaker 1: I still like the idea. I think of buckling down
Speaker 1: if you can pay it off in short order and
Speaker 1: leaving the money in the roth ira doing even though
Speaker 1: you could tap it without like the excessive penalties.
Speaker 2: Yeah, the the principal soul stands that we would want
Speaker 2: you to try to do everything else possible in order
Speaker 2: to find a way to eliminate that debt without touching
Speaker 2: those retirement savings.
Speaker 1: All right, Matt, We've got more to get to, including
Speaker 1: what's better renting or buying. Oh, it's a touchy subject,
Speaker 1: but we'll talk about that right after this.
Speaker 2: We are back from the break and it is now
Speaker 2: time for the Facebook Question of the Week. Joel. This
Speaker 2: is from an anonymous poster, and the question is our
Speaker 2: mortgage payments typically cheaper than rent. I sometimes hear of
Speaker 2: people who only made a small down payment on their home,
Speaker 2: say five percent who say they're now paying less than
Speaker 2: what they'd pay for rent. However, in my area, I
Speaker 2: can't rent a three bedroom, single family home for around
Speaker 2: two thousand dollars a month. A similar home in my
Speaker 2: area would go for about three hundred and seventy thousand,
Speaker 2: and this would end up being around twenty seven hundred
Speaker 2: dollars a month at the moment with PMI, taxes, taxes,
Speaker 2: and insurance after putting down a percent down payment if
Speaker 2: I continue renting, I am the type to invest the
Speaker 2: difference in mutual funds and keep that down payment in
Speaker 2: a high yield savings account where it would make about
Speaker 2: eighteen hundred dollars a year. I'd love to buy a
Speaker 2: home if it would save me money. And I notice
Speaker 2: people saying that sometimes, but I don't know if they
Speaker 2: mean they bought back when interest rates were nothing, or
Speaker 2: they mean you can actually go out now and find
Speaker 2: this sort of situation. I like how this poster said
Speaker 2: back when interest rates were nothing, because that's truly what
Speaker 2: it feels like. I'm sure for a lot of folks
Speaker 2: who are who are looking to purchase a home today.
Speaker 1: Sure, yeah, timing is not on your side. It feels
Speaker 1: like there has been a massive shift. And if you
Speaker 1: bought your home five plus years ago, you're thanking your
Speaker 1: lucky stars. And if you are like weighted, you punted
Speaker 1: just for a little while, you're probably feeling the eight
Speaker 1: inside that you didn't pounce earlier. And really, real estate
Speaker 1: is incredibly dependent on timing, right if you bought, If
Speaker 1: you bought a house in the nine to thirteen timeframe
Speaker 1: and you're still living in it, you're locked in low
Speaker 1: mortgage rate combined within inexpensive sales price. It would mean
Speaker 1: that you're paying far less than anyone who's renting something
Speaker 1: similar around the corner if they just signed the lease
Speaker 1: last month. Right, But if you bought in twenty twenty three,
Speaker 1: your mortgage amount is likely higher than what someone around
Speaker 1: the corner is paying. So, for example, Matt, I have
Speaker 1: had a rental property that I recently sold that the
Speaker 1: only rental property have ever sold because it was a
Speaker 1: primary and I was trying to avoid tax blah blah
Speaker 1: blah blah blah. But the amount I was renting that
Speaker 1: property out for was far cheaper than what the equivalent
Speaker 1: mortgage is going to be for the people who just
Speaker 1: bought the home, So they would have been better off
Speaker 1: renting the property at least from a monthly expense standpoint.
Speaker 1: And that is just still get the same house, right,
Speaker 1: And that's not the ownership, of course, that's true, and
Speaker 1: that's just the gap between rent and mortgage. That doesn't
Speaker 1: take into account all the other factors too. So it's
Speaker 1: significantly more expensive on a monthly basis to buy that
Speaker 1: home than it was to rent it.
Speaker 2: Yeah, and truly rates do, I mean rates and home
Speaker 2: values are the big driver of why it's so much
Speaker 2: more difficult today. And I think a reason why this
Speaker 2: poster has maybe heard folks saying this is the fact
Speaker 2: that here's a stat for you. Over eighty percent of
Speaker 2: mortgage holders today have a rate at five percent or lower.
Speaker 2: And so yes, folks who are buying new homes today
Speaker 2: are looking at seven plus percent, but the vast majority
Speaker 2: of folks have rates that are locked in at far
Speaker 2: lower levels. And to take a step back into like
Speaker 2: the macro economy a little bit, this is this is
Speaker 2: one of the reasons why inflation has been so sticky
Speaker 2: because of the fact that the biggest line item that
Speaker 2: we experienced every single month in our budgets is what
Speaker 2: it's housing. And when you raise interest rates, guess what
Speaker 2: happens to your mortgage. Nothing. When you're locked in at
Speaker 2: a thirty year mortgage, that is not an expense that
Speaker 2: you see go up as opposed to other countries where
Speaker 2: mortgage is reset. That is why, for instance, that's at
Speaker 2: least one of the reasons that we're likely only going
Speaker 2: to see one interest rate cut this year as opposed
Speaker 2: to what was like it was the end of last
Speaker 2: year that they're like, oh, there's gonna be three cuts
Speaker 2: the next year. That's when the markets are off. Yeah,
Speaker 2: that's just one of the reasons why inflation has been
Speaker 2: a little sticky. But enough about that. I wanted to
Speaker 2: also mention that so much comes down to where it
Speaker 2: is that you live, because real estate is incredibly local.
Speaker 2: Like it makes me think I've out in California, for instance,
Speaker 2: Like you would not only be hard pressed to buy
Speaker 2: a home, but you'd also be committing a lot more
Speaker 2: money every single month housing costs. Your mortgage could easily
Speaker 2: be double the rent for the same or at least
Speaker 2: a very similar home. But let's say you live in
Speaker 2: a market like Memphis, Tennessee, or you live in Alabama,
Speaker 2: you live in Birmingham or Cleveland out in the Midwest,
Speaker 2: you still might find that buying a home actually makes
Speaker 2: more financial sense. So so much of this comes down
Speaker 2: to where it is that you live within the United States.
Speaker 1: Right, So you're asking me broad question that, but this
Speaker 1: is such a highly specific market where it's like, well,
Speaker 1: where do you live? Because that is going to be
Speaker 1: a massive indicator on whether or not you're going to
Speaker 1: be able to save money by buying versus renting. And
Speaker 1: like we've talked about before on the show, Matt Apps
Speaker 1: in so many locations around the country, between how expensive
Speaker 1: it is to rent relatively inexpensive in comparison and buy
Speaker 1: incredibly expensive in so many markets has never been wider
Speaker 1: in a whole bunch of places. So at least on
Speaker 1: the surface, when you're talking about a macro level, it's
Speaker 1: going to be cheaper to rent than it is to
Speaker 1: buy in most places. And so yeah, payments are also,
Speaker 1: by the way, dependent on how much you put down,
Speaker 1: As this question ask or mentioned, the more money you
Speaker 1: save to put down on that home, the lower your
Speaker 1: monthly payment is going to be. And I mentioned the
Speaker 1: additional cost of home ownership those a balloon also in
Speaker 1: recent years thanks to inflation, taxes, insurance, maintenance, costs of
Speaker 1: prison significantly, all the costs, all the costs, and so
Speaker 1: we're factoring in sometimes. I mean, people look at the
Speaker 1: mortgage payment versus the rent, but there's so much more
Speaker 1: you have to take into consideration. Home Ownership can be
Speaker 1: a great goal, and it can be a potentially solid
Speaker 1: financial move, but it's just not a slam dunk in
Speaker 1: the way ownership advocates make it sound. That's particularly true
Speaker 1: in our economic climate, Matt. And that is particularly true
Speaker 1: as well for listeners like this who say I would
Speaker 1: be investing the difference, I would be holding onto that money,
Speaker 1: I would not be consuming it. Yeah, lots of times
Speaker 1: when you're renting, you're taking the cheaper rent amount, and
Speaker 1: a lot of renters are spending the access. But if
Speaker 1: you're going to bank the access, I think it puts
Speaker 1: an even bigger check mark in the box of continuing
Speaker 1: to rent, save up more money so that you have
Speaker 1: a larger nest to get your disposal for that purchase
Speaker 1: when you're finally ready.
Speaker 2: You got to be a little bit more disciplined, right,
Speaker 2: because you don't have that forced method of savings that
Speaker 2: homeowners are faced with where you have to make your
Speaker 2: mortgage payment if you want to stay in that house.
Speaker 2: But one other thing I want to mention too is
Speaker 2: that home ownership isn't just about the basic numbers. Because
Speaker 2: if you are in a good finished position, yeah, you
Speaker 2: got a solid down payment saved up, Sure, that's great.
Speaker 2: But homeownership also needs to suit your lifestyle goals because like,
Speaker 2: you can't just only look at the numbers. And it
Speaker 2: makes me think about like making a big life decision
Speaker 2: purely based on the numbers, Like it makes me think
Speaker 2: about going to medical school and you're thinking, oh, I'm
Speaker 2: gonna be a doctor. That way I can make a
Speaker 2: ton of money. Okay, there's a whole lot of other
Speaker 2: questions that you need to ask, like are you even
Speaker 2: interested in being a doctor at the side of blood?
Speaker 2: Do are you smart enough to be a doctor? Can
Speaker 2: you handle twelve years of higher education? Basically in order
Speaker 2: to get to that point?
Speaker 1: Would be a note to all those questions.
Speaker 2: Do you want to be on call? You no, like,
Speaker 2: depending on the type of medicine that you're getting into.
Speaker 2: And so there's just so much more to purchasing a
Speaker 2: home than all, right, do the numbers. Mike sense and
Speaker 2: I certainly understand this is how to money, and we're
Speaker 2: looking to optimize from a financial standpoint, but we just
Speaker 2: like to zoom out a little bit and look at
Speaker 2: the whole picture, not only the whole financial picture, like
Speaker 2: what are the additional maintenance costs, what does that look like,
Speaker 2: but also what it looks like from a lifestyle standpoint.
Speaker 2: If you want to be able to move, if you
Speaker 2: like exploring new places, you know, if you like to
Speaker 2: travel it done. These are all things that kind of
Speaker 2: point in the direction of renting to where you don't
Speaker 2: have to maintain the home so that you can travel,
Speaker 2: so that you can hop from city to city as
Speaker 2: opposed to being tied down to a specific location, because
Speaker 2: that's what that's what it's going to take to ensure
Speaker 2: that you make a smart financial move, not moving, you know,
Speaker 2: less than five years from now, if you're looking to
Speaker 2: purchase a home in twenty twenty four.
Speaker 1: One last thing I want to say, and potentially semi
Speaker 1: Devil's advocate of our position, is that rent is likely
Speaker 1: to increase over time while your mortgage is going to
Speaker 1: roughly stay the same. We've talked about the fact that
Speaker 1: your mortgage can essentially act as a bulwark against inflation
Speaker 1: for your finances, and so there is no easy, one
Speaker 1: size fits answer to this question. But that is one
Speaker 1: more thing to factor in to say, Okay, if I
Speaker 1: take out this mortgage, yes, it's going to cost me
Speaker 1: more now, But ten years down the line, what's rent
Speaker 1: going to be in my town, in the place I
Speaker 1: want to live. And if I'm planning on staying in
Speaker 1: this place, even though my mortgage is initially more expensive,
Speaker 1: it might not be a decade down the road, and
Speaker 1: that is at least something worth considering. So hopefully this
Speaker 1: gives you enough food for thought to make a smart
Speaker 1: decision when it comes to your own housing choice. But
Speaker 1: there's certainly a lot of inputs that you have to consider.
Speaker 1: This is It's just a complex question, it is, man,
Speaker 1: all right.
Speaker 2: Let's get to the beer that you and I enjoyed
Speaker 2: during this episode. This is the dutchess red And do
Speaker 2: they always say does it always say sweet cherry sour?
Speaker 4: On?
Speaker 6: There?
Speaker 2: This isn't like a special duchess, is it? This is
Speaker 2: like the standard duchess? I think so, I just have
Speaker 2: never had it in a can before, which I love
Speaker 2: because normally when you buy so back in the day,
Speaker 2: And when I say it back in the day, I'm like,
Speaker 2: I don't know. Five years ago when you got Duchess,
Speaker 2: you had to buy it in like a seven to
Speaker 2: fifty bottle, or like at a minimum, like one of
Speaker 2: those medium sized three or like five hundred millvater bottle
Speaker 2: sometimes too, which can be a lot for a sweeter
Speaker 2: beer like this, right.
Speaker 1: Especially for a beer with as much flavor.
Speaker 2: Yeah, I was waiting on you to take up the
Speaker 2: I hate sweet beers point.
Speaker 1: Well, I will say I do like this beer. I
Speaker 1: love cherry beers. But yes, this beer is a little
Speaker 1: sweet for my liking.
Speaker 2: I still like it.
Speaker 1: I still enjoy it, but it's not as tart or
Speaker 1: funky as I want a cherry sour to be. I
Speaker 1: like those other flavors infused in there, and some of
Speaker 1: like the funky vibes that so many of the Belgian
Speaker 1: breweries are able to produce. Yeah, this beer doesn't have
Speaker 1: much of that going on. It is more just straight
Speaker 1: up sweet cherry.
Speaker 2: Yeah.
Speaker 1: That being said, I still like it.
Speaker 2: It's still really good, much less funky. But yeah, the
Speaker 2: first thing is, I mean, you got that cherry sweetness.
Speaker 2: It's like this dark, sweet cherry with just like the
Speaker 2: tiniest little bit of pucker, which then kind of segues
Speaker 2: into the oakiness that you pick up on the barrels
Speaker 2: that they aged this beer in. But yeah, I've never
Speaker 2: seen it's never had this beer in this format in
Speaker 2: a can. And I truly think this is gonna I'm
Speaker 2: gonna go out to wherever I can. I'm I'm assuming
Speaker 2: you got this at the local bottle shop. Yeah, But
Speaker 2: to be able to have this in the fridge as
Speaker 2: like a dessert beer, like Kate and I would one
Speaker 2: split one of these like once a week. It's like
Speaker 2: a dessert in a glass. You know what I'm saying. Yeah,
Speaker 2: Oh yeah, I like so good, nice cherry cordial, but
Speaker 2: in beer form. Yeah, it's like a you into cherries
Speaker 2: or ports? Have you ever? Have you gotten those in
Speaker 2: your in your wine club? No? Have we talked about
Speaker 2: that on the show.
Speaker 1: Emily got me a wine club subscription for was it
Speaker 1: my birthday, I guess or yeah, earlier this year. Yeah,
Speaker 1: and that's been fun trying some new stuff.
Speaker 2: But have you gotten any dessert wines?
Speaker 1: So she knows I'm cheap, so correctly signature wines or
Speaker 1: I normally go to. I feel like as.
Speaker 2: Soon as the subscription is that, baby, well, I'm not
Speaker 2: sure we're gonna renew it.
Speaker 1: Thanks, it's really kind, but it's been.
Speaker 2: Fun, it's been real.
Speaker 1: I prefer Costco Wine blog as instead of like the
Speaker 1: other rating systems, are.
Speaker 2: Really good wines that you can you can by Costco.
Speaker 2: That's what I'm saying. But I know it's a good
Speaker 2: one and glad we got to enjoy it today. It's good.
Speaker 1: All right, that's gonna do it. For this episode. We'll
Speaker 1: put links in the show notes to some of the
Speaker 1: resources that we mentioned today. And if you haven't been
Speaker 1: to the website recently, go check it out. Lots of
Speaker 1: new information being published all the time at how to
Speaker 1: money dot com to help you with your finances, to
Speaker 1: help you continue on in your journey, and if you
Speaker 1: just want to bite sized information every week, sign up
Speaker 1: for the newsletter over at how to money dot com
Speaker 1: slash newsletter.
Speaker 2: That's right, that's gonna be it, buddy, Until next time.
Speaker 2: Best Friends Out, Best Friends Out.