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Speaker 1: Welcome to How the Money. I'm Joel and I am Matt,

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Speaker 1: and today we're talking about reacting rationally to rising rates. Yeah,

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Speaker 1: by this point, everybody knows that we like alliteration. You'll

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Speaker 1: definitely like a literation, Yeah, I do. But what I

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Speaker 1: like about the title of this episode is the rational part.

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Speaker 1: That's the word that I'm drawn to, because we don't

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Speaker 1: want to just have a knee jerk reaction to the

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Speaker 1: changing rates and how it is that you should be responding,

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Speaker 1: but we want you to first think about it. We

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Speaker 1: want you to react rationally. That's what we're gonna do today.

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Speaker 1: And by the way, if you've been hiding under a rock,

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Speaker 1: the FED has announced that they're gonna hike rates for

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Speaker 1: longer than they initially thought, and they've opened the door

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Speaker 1: to those larger half point increases as well. So this

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Speaker 1: is something that we can all expect to continue. Do

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Speaker 1: you think that he drove jay Pal? Do you think

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Speaker 1: he likes being in the spotlight? You think he likes

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Speaker 1: the limeline. I don't think it's his style. No, I

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Speaker 1: don't think so. I think he's kind of been forced

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Speaker 1: into it, but it's it's not necessarily his jam. It

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Speaker 1: kind of reminds me of the Fauci because you know,

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Speaker 1: he was like an expert and folks who are wanting

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Speaker 1: to talk to him kind of get his take. Similarly,

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Speaker 1: I feel like Jay Pal's in a similar boat where

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Speaker 1: folks are like, hey, something that's affecting all of us,

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Speaker 1: you're kind of responsible for, how like the policy moving forward?

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Speaker 1: And but I agree he seems to be willing to

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Speaker 1: do the work but doesn't like talking about it otherwise

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Speaker 1: because I don't think he wants to get blamed with

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Speaker 1: how it is it's impacting certain folks or a certain organisation.

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Speaker 1: I mean, he's turned down our podcast request for interviews

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Speaker 1: like every time he has email him. But this is

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Speaker 1: no guys, No, this is gonna be a very practical

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Speaker 1: episode because folks are wanting to know what should you

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Speaker 1: be doing with your money in this environment? Yeah, impactising rates, debt,

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Speaker 1: saving all sorts of stuff, and should it impact your investments?

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Speaker 1: We'll discuss exactly. But another question, Joel, what do you

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Speaker 1: do if you show up at all D and you

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Speaker 1: don't have a quarter? Do you know? Okay, yeah, so

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Speaker 1: I do know. I have literally done this and I

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Speaker 1: go up to one of the folks of the cash

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Speaker 1: register and ask to borrow a quarter. Did you do okay?

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Speaker 1: And always this was a thing you've literally done this.

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Speaker 1: Oh yeah, well shoot, I thought this was gonna be

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Speaker 1: news for you. No so, but maybe for our listeners.

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Speaker 1: You didn't know that you could do this. But yeah,

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Speaker 1: they always do it. Evidently this is a thing. It is, uh,

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Speaker 1: it's builts into their budget, like they budget for it.

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Speaker 1: I think cashier is allowed to dispense up to five dollars.

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Speaker 1: It's kind of like you can get five three beers

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Speaker 1: on their ship. And it makes sense, right because if

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Speaker 1: you are like, dang it, I don't have a quarter,

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Speaker 1: you want to get folks in the door, and they

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Speaker 1: are now just incentivized to put the cart back. I

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Speaker 1: always get the quarterback when I'm done. By the way,

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Speaker 1: I don't I give the quarterback when I'm done. I

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Speaker 1: don't take it with me. I would do the same

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Speaker 1: thing as well, for sure. But but yeah, evidently I

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Speaker 1: don't know how easy this is to do. But you

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Speaker 1: can take a key off of your keychain and stick

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Speaker 1: that in the quarter slot as well. Evidently that triggers

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Speaker 1: the okay, which also is going to incentivize you too,

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Speaker 1: then put the cart back. It's not about the money

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Speaker 1: per se, It's just about incentivizing you to not leave

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Speaker 1: your carts, you know, out there in the parking lot,

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Speaker 1: so they don't have to hire somebody exactly. Yeah, I

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Speaker 1: wanted to keep the costs. I wanted to explain that's

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Speaker 1: how ALDI works like, so basically, you stick a quarter

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Speaker 1: in to get the cart out, and if you have

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Speaker 1: them been to an Aldi before we talk about Aldi

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Speaker 1: is basically like the lowest cost nationwide grocery store that

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Speaker 1: you should consider shopping out because it's going to save

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Speaker 1: you a bundle. But one of the ways they keep

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Speaker 1: it costs low, and they have a bunch of different

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Speaker 1: ways they do this, but but one is that you

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Speaker 1: pay a quarter to get the shopping cart, but then

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Speaker 1: you get your quarterback because yes, it prevents them having

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Speaker 1: to employ people to go out there and grab carts

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Speaker 1: out of the parking lot and bring them back up,

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Speaker 1: which is just a it's like a never ending job.

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Speaker 1: When I go to Costco or I see people at

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Speaker 1: Kroger or something like that, it's like those cart fetchers.

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Speaker 1: They're working their butts off to to do that. And

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Speaker 1: so ALDI just says Yeah, if you take a few

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Speaker 1: extra steps, that's going to help us bring our costs

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Speaker 1: down and we'll pass those savings onto you. Exactly. I

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Speaker 1: love it. It just seems like it's such a smart system.

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Speaker 1: This is the way that you can reduce the costs

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Speaker 1: German efficiency completely. Not fire somebody, but you base your

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Speaker 1: entire business around not having to hire cartboys. Sure, when

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Speaker 1: you think about how many people are working at an all,

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Speaker 1: do you be given time it's like four or five, Like,

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Speaker 1: it's not that many people, it's like two people. Yeah,

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Speaker 1: it feels like it's two because they're also stocking the shelf,

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Speaker 1: and then when they see somebody going up to the front,

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Speaker 1: they like jog up there to the front of the store,

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Speaker 1: ring some folks up. That's why your cucumber costs thirty cent. Filess.

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Speaker 1: I love it, man, I love it. Let's quickly introduce

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Speaker 1: the beer that you and I are going to enjoy

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Speaker 1: that we're sharing during this episode. This is a short

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Speaker 1: spear which is says below it it's a lagger. This

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Speaker 1: one is by a new part Brewing donated to the

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Speaker 1: show by Matthew. We will give our thoughts on this

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Speaker 1: one at the end of the show. Yes we will,

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Speaker 1: but let's get onto the topic at hand. Reacting rationally

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Speaker 1: to rising rates and Matt it made me think of

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Speaker 1: the fact that the rational thing to do is to

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Speaker 1: put on close when you walk out the door, right,

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Speaker 1: unless you live in a nudist colony maybe, which I

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Speaker 1: don't know if if there's many how money listeners who

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Speaker 1: fit into that camp prefer the never nudist colonies. Yeah,

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Speaker 1: you gotta wear the cutup geene shorts for sure. Yeah,

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Speaker 1: that's that's one way to go about it. But like,

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Speaker 1: which clothes you opt to put on are largely determined

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Speaker 1: by the weather, what's going on that day. I check

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Speaker 1: the weather app every single morning because then I'm like, okay, cool,

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Speaker 1: is it a short day? Or is it a pants day?

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Speaker 1: And yeah? Or is it a shorts with long sleeve

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Speaker 1: shirt day? Right? Those are my favorite exactly? Or do

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Speaker 1: I need like the layer jacket because man, the temperature

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Speaker 1: is gonna change by like thirty degrees today and it's

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Speaker 1: gonna be cold and cool in the morning and actually

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Speaker 1: like really hot later in the afternoon. Well, and we're

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Speaker 1: kind of right in the middle of like seasons changing,

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Speaker 1: which impact us on a lot of levels. I feel

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Speaker 1: like a lot of people have more allergies right right

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Speaker 1: now when the seasons are changing. You're one of them, right. Yeah.

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Speaker 1: I'm definitely trying not to scratch my eyes. Yeah, I

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Speaker 1: can feel the pollen in my eyes. My body wants

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Speaker 1: me to scratch it, but I know what happens if

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Speaker 1: I do. It's worse. The pollen counts here in Georgia,

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Speaker 1: like they'd literally go off the charts. It's ridiculous. Yeah,

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Speaker 1: it's I forget what high on pollen is. It's like

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Speaker 1: one hundred or something like that. But then our pollen

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Speaker 1: counts like two thousand, and I'm like, it's like one

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Speaker 1: hundred thousand, dude, Like, how do we break it to

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Speaker 1: that strict scale? It goes up exponentially. Yeah. Well, the

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Speaker 1: thing is changing seasons they impact are They change our behavior,

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Speaker 1: and in addition to changing kind of like you know,

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Speaker 1: what we put on in the morning, they change the

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Speaker 1: sports we watch, and the changing seasons they change what

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Speaker 1: we plant in the garden, and the macro economic weather

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Speaker 1: has been changing lately, Matt. That's pretty clear. Lots changed

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Speaker 1: in the past twenty four months. All eyes, like you said,

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Speaker 1: have been on J Powell and the FED and rate

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Speaker 1: hikes are likely to continue this year. You don't want

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Speaker 1: to be necessarily wearing shorts in thirty two degree weather,

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Speaker 1: and so, like this episode, it's really about how you

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Speaker 1: should react to those changes so you're not cut off guard.

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Speaker 1: That's right. Yeah, so personal finance man, it is not

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Speaker 1: one of those subjects where advice tends to shift in

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Speaker 1: a major way. Most of the financial truisms out there,

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Speaker 1: you can take those to the bank no matter what

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Speaker 1: is happening on a macro higher level. What was true

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Speaker 1: last year, it's likely going to be true this year

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Speaker 1: most of the time. I'm guessing this is an instance

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Speaker 1: where like the eighty twenty principle applies, right, like that

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Speaker 1: foundational twenty percent, Like that's going to hold firm no

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Speaker 1: matter what, and it's pretty much always go get you

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Speaker 1: eighty percent of the way there. But that also doesn't

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Speaker 1: mean that there isn't nuance and that you shouldn't make

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Speaker 1: some changes as our financial climate is changing. This is

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Speaker 1: an episode about that remaining twenty percent of results and

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Speaker 1: performance that you're looking to squeeze out of your money.

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Speaker 1: We always went you saving investing in paying down crappy debt,

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Speaker 1: but what you prioritize first and the approach that you

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Speaker 1: take that you know it might look a bit different

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Speaker 1: as interest rates have risen quite a bit over the

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Speaker 1: past year, and they're likely going to be hiked even

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Speaker 1: more they're in twenty twenty three, yeah for sure, And

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Speaker 1: so we thought it was going to be important for

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Speaker 1: us to talk about the why behind the rate hikes

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Speaker 1: for a second before we get the kind of some

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Speaker 1: of the not necessarily solutions, but the ways you think

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Speaker 1: about your debt and your savings and kind of how

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Speaker 1: you handle your money differently, because you're going to probably

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Speaker 1: take a different approach than you would have in twenty

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Speaker 1: twenty And we don't want to bore you or anything,

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Speaker 1: but yeah, here's the never our goal. The TLDR. They're

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Speaker 1: largely a reaction of core to the fact that inflation

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Speaker 1: has run a muck and we've all noticed this in

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Speaker 1: our own personal lives. We've noticed it at the grocery

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Speaker 1: store right even at all the they're charging more for

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Speaker 1: some of your favorite items. And then that begs the question,

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Speaker 1: will why is inflation crazy? Why has it run amuck? Well,

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Speaker 1: it's mostly because of the pandemic induced supply chain issues.

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Speaker 1: Alongside the government kind of overdoing it on the stimulus response,

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Speaker 1: basically putting too much money into the economy, too much

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Speaker 1: money then chasing too few goods. That's right, causing the

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Speaker 1: economy to overheat. That's kind of how inflation happens. And

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Speaker 1: the Fed it really has one blunt tool to try

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Speaker 1: and tame inflation, and that is to raise interest rates.

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Speaker 1: They don't have a toolbox at their disposal with a

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Speaker 1: bunch of different things. This is the way they try

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Speaker 1: to try to hammer inflation back into shape, and in

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Speaker 1: shape for them is back down to two percent. And

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Speaker 1: that's kind of what they're shooting for every single year

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Speaker 1: is to see a two percent rate of inflation. And

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Speaker 1: they've increased rates eight times over the past year. And

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Speaker 1: to put it in perspective, rate haven't been that high

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Speaker 1: since the year two thousand. Make sure they get conan

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Speaker 1: O'Brien the year two thousand, but it's yeah, it's been

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Speaker 1: a while since rates have been this high, and they're

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Speaker 1: like we said, they're likely to go even higher. That's right. Yeah,

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Speaker 1: So the big question is are the FED rate hikes

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Speaker 1: working And our best answer is going to be kind

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Speaker 1: of sort of but inflation is not going down as

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Speaker 1: much or as quickly as the FED would like. In fact,

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Speaker 1: the recent numbers measuring PCE, that's the Personal Consumption Expenditures Index,

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Speaker 1: it rose a lot more than experts were predicting last month.

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Speaker 1: The FED they look at the PC more closely because

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Speaker 1: it's a better indicator of actual consumer spending habits as

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Speaker 1: opposed to just the straightforward sticker prices of goods. Right,

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Speaker 1: and so a lot of times you'll see the price

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Speaker 1: of energy, this is how much it costs per barrel

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Speaker 1: of oil or per therm, that kind of thing, But

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Speaker 1: it doesn't take into account of substitutes, right, and so,

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Speaker 1: like we've all heard about the like eggs cost more money.

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Speaker 1: Folks are tired of hearing of eggs bread. The cost

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Speaker 1: of red has actually gone up. It's like something like

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Speaker 1: twenty or thirty percent. Use cars look like it was

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Speaker 1: going down and then boom, they kind of shot back up.

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Speaker 1: The viney too. But what the PC looks at is

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Speaker 1: it factors in substitutes that people make because of these

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Speaker 1: higher prices, and so what are people actually spending their

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Speaker 1: dollars on. That's what the FED is interested in because

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Speaker 1: that is what ultimately has and more of an impact

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Speaker 1: on inflation. But not only that, unemployment it is also

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Speaker 1: still near record lows. It's the lowest since nineteen sixty nine.

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Speaker 1: We bring that up because it's not that the FED

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Speaker 1: wants folks out there to lose their jobs. It's just

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Speaker 1: that a cooling labor market that would signal inflation coming down,

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Speaker 1: and they are laser focused on that end goal. But

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Speaker 1: the economy it's still looking really good in many respects, surprisingly,

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Speaker 1: which means inflation is going to remain a problem, which

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Speaker 1: means that the Fed will have to continue hiking rates.

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Speaker 1: As some folks out there have put it, good economic

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Speaker 1: news is actually bad news from the Fed's viewpoint, from

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Speaker 1: the standpoint of what they're going to be doing with

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Speaker 1: interest rates. Good news means inflation continues to roar, and

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Speaker 1: inflation continuing to roar means that we have a problem.

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Speaker 1: We've got to get this under control because staring inflation

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Speaker 1: causes other problems in the economy, especially for people at

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Speaker 1: the lower end of the wage spectrum, and interest rate

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Speaker 1: beatings will continue until the inflation morale. Yeah, he'll continue

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Speaker 1: to like to use the Bam bam club on inflation.

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Speaker 1: That's just kind of how it's going to go. And

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Speaker 1: let's talk about some good news at first on the

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Speaker 1: savings front, because like when we're talking about the impact

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Speaker 1: that inflation has had and subsequent rate hikes, well it's

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Speaker 1: been best out there. Best news has come for savers

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Speaker 1: for the first time in a long time, like people

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Speaker 1: who are saving money can actually rejoice at the rates

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Speaker 1: that they're seeing. It's been a long time since we've

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Speaker 1: been able to say that for the better part of

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Speaker 1: a decade or really longer, when rates were just rates

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Speaker 1: were in the basement, and about the best you could

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Speaker 1: hope to make on money that you were stashed into

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Speaker 1: your savings account was half a percent. And when we're

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Speaker 1: talking about like the big banks, it's interesting they never

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Speaker 1: really changed tactics. They're always paying point zero one percent.

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Speaker 1: But the best banks in the country, we're paying half

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Speaker 1: a percent on savings. But now we're talking about being

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Speaker 1: able to get somewhere close to ten times that, right,

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Speaker 1: a guaranteed FDIC insured five percent on savings products like CDs,

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Speaker 1: and definitely a guaranteed four percent on just regular old

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Speaker 1: savings accounts from some of the better online banks. But

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Speaker 1: just shows that the disparity is even bigger than before, because,

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Speaker 1: like I said, the big banks paying something like point

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Speaker 1: zero one percent, Well, it's even it was time to

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Speaker 1: leave back in the day, right when you were getting

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Speaker 1: paid half a percent at an online bank, but now

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Speaker 1: it's most definitely time to leave because online banks are

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Speaker 1: really the only place you're going to get these better rates.

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Speaker 1: They offer other benefits too. So if we're talking about

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Speaker 1: how to react rationally to rising rates, well one of

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Speaker 1: the things would be to ditch your cravvy bank who

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Speaker 1: isn't paying you anything on savings because the environment has

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Speaker 1: changed just so much, and we would say, yeah, don't

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Speaker 1: let this rising tide of better returns on savings pass

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Speaker 1: you by. That's right, and c I t they have

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Speaker 1: offered the most consistently great products. By the way, I

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Speaker 1: will link to their their best savings account in the

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Speaker 1: show notes, which, by the way, it's the Savings Connect

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Speaker 1: account they've Actually it's kind of weird they got they

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Speaker 1: have two different products and only one of them is

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Speaker 1: where they're offering that premium that really nice rate. I

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Speaker 1: don't necessarily understand it's something. I think it has something

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Speaker 1: to do with maybe like the bank that they were

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Speaker 1: with previously, like they still have that as a product,

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Speaker 1: but then they were purchased by another bank, and then

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Speaker 1: this is essentially an offering of that new bank. Yeah,

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Speaker 1: or I'm just making stuff up. I don't know, but

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Speaker 1: this is the reality is this can make a difference.

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Speaker 1: So hundreds and hundreds and hundreds in returns on your money.

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Speaker 1: Whereas before the stakes were small, the stakes have gotten

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Speaker 1: a lot bigger. That's right, And this is I mean,

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Speaker 1: it's good news, right. Obviously, folks are going to finally

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Speaker 1: be able to get some margin in their lives, which

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Speaker 1: is going to mean that they well, it's beneficial for

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Speaker 1: multiple reasons. Folks are being incentivized to save a little

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Speaker 1: bit more, and so there's a oh man, this is great,

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Speaker 1: I'm actually earning some money on my money. But then secondly,

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Speaker 1: you don't feel like a complete bum for saving money. Now,

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Speaker 1: that's right. But they're going to have that marginal hand

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Speaker 1: and that is going to allow them to avoid the

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Speaker 1: worst kinds of debt because they finally have some financial

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Speaker 1: margin and they're not living paycheck to paycheck. But one

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Speaker 1: other savings adjacent instrument that has experienced a surge of

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Speaker 1: interest is the I bond. The inflation bond. Most folks

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Speaker 1: had no idea what these were eighteen months ago. Over

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Speaker 1: the past twelve months, we've had a resurgence of folks

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Speaker 1: who are interested in those, especially when that for that

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Speaker 1: one six month period it was basically ten percent. Well,

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Speaker 1: it was incredibly attract On the Friday flight we've talked about,

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Speaker 1: just like the record inflows of dollars that have gone

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Speaker 1: into I bonds because rates have been just so attractive there,

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Speaker 1: so much higher than they have been historically, and the

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Speaker 1: value of ibondsays or what the rate that they're offering,

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Speaker 1: it has less to do with rising interest rates, and

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Speaker 1: it obviously it's got more to do with inflation running hot.

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Speaker 1: Thus the I bonds eye for inflation. But since that's

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Speaker 1: the whole reason that the Fed is raising interest rates

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Speaker 1: right now because of inflation, it's worth covering. In this

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Speaker 1: episode I bonds. They continu in you to be a

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Speaker 1: solid medium term savings vehicle, and you can still snag

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Speaker 1: a close to a seven percent return on I bonds

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Speaker 1: if you purchase them before the end of April. That's

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Speaker 1: when they reset and they reset the remeasure inflation basically

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Speaker 1: and reset those rates to whatever they think that they

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Speaker 1: should be at. But keep in mind or notice that

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Speaker 1: I mentioned that these are solid medium term savings vehicles,

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Speaker 1: and that's because once you put money into an ibond,

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Speaker 1: that money it's locked up, you cannot touch it for

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Speaker 1: twelve months. After those twelve months, you can access that money,

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Speaker 1: but you are then going to be giving up three

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Speaker 1: months worth of interest. So it's not ideal like it's

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Speaker 1: it's not where you're gonna stick money that you're gonna

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Speaker 1: want to be able to access in an emergency. These

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Speaker 1: are four some of those ideally like three maybe three

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Speaker 1: to five year goals. It actually just reminds me of

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Speaker 1: the fact that I've got some money sitting there and

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Speaker 1: I don't have it earmarked in any way. Say, I

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Speaker 1: literally put like ten grain in in December of twenty

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Speaker 1: twenty one, and then ten grain in in January of

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Speaker 1: twenty twenty two, and I'm just kind of like letting

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Speaker 1: it pass in there, and I'm waiting to see what happened.

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Speaker 1: There's going to be something that I think I'll be

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Speaker 1: able to put it towards. But it's kind of fun

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Speaker 1: because it's not retirement money, right, I don't consider it,

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Speaker 1: you know, as part of my nest egg. But it's

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Speaker 1: also literally every other dollar I have that I budget,

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Speaker 1: I've got savings categories, and every dollar is accounted for

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Speaker 1: like I'm either saving towards something. That money is getting

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Speaker 1: spent every single month, or that money is getting invested.

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Speaker 1: So this is money that feels a little bit like

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Speaker 1: like bonus money, like money that it is that feels free,

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Speaker 1: even though it's kind of painful to set that money

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Speaker 1: aside back when we did well. I mean, I bonds

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Speaker 1: are still I think, a really great choice, like you said,

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Speaker 1: for medium term savings and to get paid seven percent

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Speaker 1: basically six point eight nine to be exact return on

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Speaker 1: your money, and to have that guaranteed by the federal government. Again,

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Speaker 1: that rate is going to adjust, but for for folks

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Speaker 1: who have some extra cash and they don't want to

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Speaker 1: put it in the market, but they do want to

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Speaker 1: spend it in all likelihood sometime like you said, in

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Speaker 1: the next few years, I think I bonds are still

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Speaker 1: a great choice, and they, in addition to higher rates

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Speaker 1: on savings, are are one of the silver linings basically

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Speaker 1: of inflation and rising rates. But we've got to get

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Speaker 1: to some bad news, Matt. It's not all good, good stuff.

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Speaker 1: Savers fortunately have benefited from rising rates. But we got

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Speaker 1: to talk about how people should approach debt, and so

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Speaker 1: much of how you should approach debt comes down to

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Speaker 1: what kind of debt it is. We'll get into the

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Speaker 1: specifics right after this. We are back from the break

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Speaker 1: and we are still reacting rationally to rising rates, and

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Speaker 1: it is now time to get to the bad news,

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Speaker 1: which is mostly on the debt front. And you alluded

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Speaker 1: to this, Joel, but it is important to mention that

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Speaker 1: your approach to debt in an environment of rising rates

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Speaker 1: like that should differ depending on the specific type of

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Speaker 1: debt that we're talking about. And that's because the impact

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Speaker 1: can be massively different, depending not just on the rate,

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Speaker 1: but also the term, whether or not that interest rate

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Speaker 1: is locked or whether that debt is a variable rate.

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Speaker 1: And we'll talk about a few different types and we'll

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Speaker 1: offer our thoughts on what your approach should be. First,

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Speaker 1: let's talk about credit cards, Joel, because the interest rates

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Speaker 1: on credit cards, they have gone up quite a bit

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Speaker 1: since the rate hikes started about a year ago. The

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Speaker 1: average rate is now more than twenty percent. Man, that's

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Speaker 1: too high. That's painful, that's a far cry from the

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Speaker 1: average interest rate which was below twelve percent less than

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Speaker 1: ten years ago, which is crazy. Yeah, I mean to

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Speaker 1: think that interest rates on credit cards have gone up

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Speaker 1: that much swung and we've we've always been against carrying

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Speaker 1: a balance on your credit card. But it gets yeah,

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Speaker 1: it gets even worse in a environment rising rates, doesn't it.

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Speaker 1: And really I don't think it changes though our advice

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Speaker 1: on credit cards all that much because because we've always

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Speaker 1: had kind of that same mentality, right, we never want

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Speaker 1: people to be in credit card debt, even if a

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Speaker 1: sort of crater back to what they were a decade ago,

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Speaker 1: even if they were twelve percent, that's still too high.

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Speaker 1: That's still too much to be paying to visa MasterCard.

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Speaker 1: But like if you have credit card where here's where

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Speaker 1: the rubber meets the road. The fact that rates have

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Speaker 1: risen substantially and are going to continue to go up

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Speaker 1: should cause you to focus more on eliminating any outstanding

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Speaker 1: credit card debt that you've got in short order. This

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Speaker 1: is the kind of debt that crushes people, that really

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Speaker 1: inhibits your ability to make progress with your personal finances.

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Speaker 1: So credit card debt has gotten worse, has become something

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Speaker 1: that we hate even more than we hated before because

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Speaker 1: rising rates have made it just that much nast here. Yeah,

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Speaker 1: it reminds me. So. At some point, we talked about

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Speaker 1: interest rates here on the show, and we use the

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Speaker 1: analogy of an escalator, and so if you remember, then kudos,

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Speaker 1: good for you. If you don't remember, we talked about

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Speaker 1: interest rates basically being an escalator. So if you're using

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Speaker 1: interest rates to your advantage, you are riding up that escalator.

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Speaker 1: It is allowing you to get to the next level faster.

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Speaker 1: It is allowing you to achieve your financial goals faster.

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Speaker 1: But let's imagine you are a middle schooler and you

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Speaker 1: decide to run up the escalator that's coming down. It

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Speaker 1: is a lot harder to get to that second floor.

429
00:19:57,960 --> 00:20:00,200
Speaker 1: And that is what it is like to pay these

430
00:20:00,280 --> 00:20:02,280
Speaker 1: to make these payments to the credit card companies because

431
00:20:02,320 --> 00:20:05,480
Speaker 1: of the higher rate that you're having to faither the

432
00:20:05,560 --> 00:20:08,160
Speaker 1: interest rate on credit cards. It's basically like the fastest

433
00:20:08,200 --> 00:20:11,840
Speaker 1: moving escalator that you could possibly be trying to run up. Well,

434
00:20:11,840 --> 00:20:14,080
Speaker 1: I guess payday loans are probably those are those are

435
00:20:14,119 --> 00:20:16,320
Speaker 1: the absolutes are the absolute words. Yeah, yeah, it's it's

436
00:20:16,359 --> 00:20:18,520
Speaker 1: great and well, and the thing is too, it's because

437
00:20:18,600 --> 00:20:21,000
Speaker 1: this is variable rate debt that you've taken on. If

438
00:20:21,040 --> 00:20:23,120
Speaker 1: you have credit card debt, this could even be debt

439
00:20:23,119 --> 00:20:25,480
Speaker 1: that you that you incurred over the past two, three,

440
00:20:25,560 --> 00:20:27,920
Speaker 1: four or five years. And the reality is that because

441
00:20:27,920 --> 00:20:30,240
Speaker 1: of today's environment, more of that payment is going to

442
00:20:30,320 --> 00:20:32,560
Speaker 1: interest and not the principle, which means it's just kind

443
00:20:32,560 --> 00:20:34,640
Speaker 1: of take even longer to get rid of. It's even

444
00:20:34,680 --> 00:20:36,399
Speaker 1: more of a slog yeah, to pay it off quickly.

445
00:20:37,040 --> 00:20:39,960
Speaker 1: And there are ways to make credit card debt less egregious,

446
00:20:39,960 --> 00:20:44,800
Speaker 1: like transferring your debt to a zero percent introductory APR card.

447
00:20:45,200 --> 00:20:46,919
Speaker 1: Will link to an article in the show notes that

448
00:20:46,960 --> 00:20:49,159
Speaker 1: lists out some of our favorite cards there. But you know,

449
00:20:49,280 --> 00:20:51,959
Speaker 1: for folks who are intent on paying that debt off fast,

450
00:20:52,320 --> 00:20:54,800
Speaker 1: this can help you to accelerate your progress if you

451
00:20:54,800 --> 00:20:58,040
Speaker 1: can literally stop that escalator kind of that's essentially what

452
00:20:58,080 --> 00:21:00,440
Speaker 1: it is exact. I mean, that's that's the best analogy

453
00:21:00,560 --> 00:21:03,800
Speaker 1: going back to the uscar throwing like a crowball cards

454
00:21:03,800 --> 00:21:06,879
Speaker 1: in the years. Yeah, but beware because opening up another

455
00:21:06,920 --> 00:21:10,320
Speaker 1: credit card, if you haven't changed your habits, that can

456
00:21:10,480 --> 00:21:13,240
Speaker 1: venture you, you know, into an even worse debt situation

457
00:21:13,280 --> 00:21:15,640
Speaker 1: and you've just got another card to deal with, Yes, exactly.

458
00:21:15,640 --> 00:21:17,560
Speaker 1: That is where people go wrong with balance transfer cards.

459
00:21:17,560 --> 00:21:19,840
Speaker 1: It's possible to use it to your financial advantage, and

460
00:21:20,040 --> 00:21:22,320
Speaker 1: I think it can make sense for a lot of people,

461
00:21:22,600 --> 00:21:24,480
Speaker 1: but for others who know that they're not gonna be

462
00:21:24,520 --> 00:21:26,560
Speaker 1: able to handle credit, well, that's not where we want

463
00:21:26,600 --> 00:21:28,359
Speaker 1: you to be. That puts you and even you know,

464
00:21:28,440 --> 00:21:30,560
Speaker 1: worse situation, like you said, Matt. And let's talk about

465
00:21:30,560 --> 00:21:32,800
Speaker 1: car loans for a second. So credit cards, that credit

466
00:21:32,800 --> 00:21:34,879
Speaker 1: card debt is bad, no matter what, but it's just

467
00:21:34,880 --> 00:21:38,320
Speaker 1: gotten worse. Well, car loans are are kind of different

468
00:21:38,400 --> 00:21:41,600
Speaker 1: right now. And let's talk about the rapidly rising rates

469
00:21:41,600 --> 00:21:45,040
Speaker 1: we've seen on car loans. The average auto loan rate

470
00:21:45,359 --> 00:21:47,800
Speaker 1: on a new car right now is eight point six

471
00:21:47,840 --> 00:21:50,639
Speaker 1: seven percent, and the average I don't like it, the

472
00:21:50,760 --> 00:21:52,800
Speaker 1: average Oh you're not gonna like this one even more

473
00:21:52,840 --> 00:21:55,720
Speaker 1: than Matt, because the average rate used card. Guess what

474
00:21:55,760 --> 00:21:59,000
Speaker 1: it is? Oh, normally, I feel like it's typically been

475
00:21:59,080 --> 00:22:00,959
Speaker 1: like a half percent high. Oh no, it's a lot more.

476
00:22:01,000 --> 00:22:03,280
Speaker 1: It's a lot higher. Thirteen point six five. This is

477
00:22:03,280 --> 00:22:07,159
Speaker 1: according to car dealership guy on Twitter, who is a

478
00:22:07,160 --> 00:22:09,840
Speaker 1: great follow but yeah, I mean it interest rates on

479
00:22:11,119 --> 00:22:13,600
Speaker 1: any car loan right, new or used, they've just gotten

480
00:22:13,600 --> 00:22:15,879
Speaker 1: worse and worse. They've been going up and up. And

481
00:22:15,920 --> 00:22:17,920
Speaker 1: that's in stark contrast to kind of what had been

482
00:22:18,160 --> 00:22:20,800
Speaker 1: the case with car loans for quite a while. In

483
00:22:21,119 --> 00:22:23,800
Speaker 1: an era of incredibly low interest rates. We were seeing

484
00:22:24,119 --> 00:22:27,439
Speaker 1: a lot of dealers offering promotional financing that made it

485
00:22:27,440 --> 00:22:29,679
Speaker 1: feel like, I mean, the interest rate was zero or

486
00:22:29,720 --> 00:22:32,280
Speaker 1: close to zero in so many cases. But what should

487
00:22:32,320 --> 00:22:34,080
Speaker 1: you do about your car loan? Well, that depends on

488
00:22:34,119 --> 00:22:36,440
Speaker 1: a few things. Did you take out your car loan

489
00:22:36,600 --> 00:22:39,560
Speaker 1: when rates were low a couple of years ago, or

490
00:22:39,600 --> 00:22:42,000
Speaker 1: are you planning to take one out now? And different

491
00:22:42,000 --> 00:22:45,679
Speaker 1: people in different situations to react differently. Our favorite method

492
00:22:46,119 --> 00:22:48,119
Speaker 1: on the car front is to always pay in cash

493
00:22:48,359 --> 00:22:50,240
Speaker 1: and to buy a cheaper used car if you can't

494
00:22:50,280 --> 00:22:53,240
Speaker 1: afford the more expensive one you want. Like, ninety month

495
00:22:53,280 --> 00:22:56,359
Speaker 1: car loans are a no no, we we hate that stuff.

496
00:22:56,800 --> 00:22:58,199
Speaker 1: I don't even know how long that is, Like, like,

497
00:22:58,200 --> 00:23:01,880
Speaker 1: how long is not? Like that's more than seven year? Yeah? Yeah, yeah,

498
00:23:02,000 --> 00:23:03,800
Speaker 1: ninety months. I think it's seven and a half years. Yeah,

499
00:23:03,800 --> 00:23:07,119
Speaker 1: I mean that's that's like the terrible idea to be.

500
00:23:07,320 --> 00:23:10,359
Speaker 1: We never want people to become payment buyers when it

501
00:23:10,359 --> 00:23:13,040
Speaker 1: comes to their automobile. And so if you don't currently

502
00:23:13,119 --> 00:23:15,160
Speaker 1: have a car loan, but you're thinking of taking one on,

503
00:23:15,520 --> 00:23:18,720
Speaker 1: think again because of the rates, but also because it

504
00:23:18,800 --> 00:23:22,479
Speaker 1: might push you into a longer loan just in order

505
00:23:22,520 --> 00:23:24,240
Speaker 1: to be able to afford that payment. And that's not

506
00:23:24,280 --> 00:23:27,240
Speaker 1: a good place to be in right, to be overleveraged

507
00:23:27,240 --> 00:23:29,879
Speaker 1: for a depreciating asset. But let's say you're already in

508
00:23:29,920 --> 00:23:32,480
Speaker 1: a car loan and you took it out at the bottom,

509
00:23:32,800 --> 00:23:35,359
Speaker 1: right when rates were super low during the fall winter

510
00:23:35,440 --> 00:23:37,560
Speaker 1: of twenty twenty one, you might not want to pay

511
00:23:37,560 --> 00:23:39,640
Speaker 1: it off early, right, depending on the rate that you've got.

512
00:23:39,800 --> 00:23:41,800
Speaker 1: If you've got a low single digits loan and you

513
00:23:41,800 --> 00:23:44,439
Speaker 1: can easily afford those payments, I mean, it might make

514
00:23:44,440 --> 00:23:46,280
Speaker 1: sense to keep that puppy around and do better things

515
00:23:46,280 --> 00:23:48,560
Speaker 1: with the money, like pad your savings or sockhomore into

516
00:23:48,640 --> 00:23:52,280
Speaker 1: your investment investment accounts. This is kind of where the

517
00:23:52,520 --> 00:23:56,840
Speaker 1: duality how people should react differently to rising rates depending

518
00:23:56,880 --> 00:23:59,439
Speaker 1: on their specific situation and what kind of debt they

519
00:23:59,440 --> 00:24:02,120
Speaker 1: currently have around. That's right, Let's talk for a minute

520
00:24:02,160 --> 00:24:05,520
Speaker 1: here about mortgage rates because they don't move in lockstep

521
00:24:05,560 --> 00:24:08,800
Speaker 1: with the federal funds rate. But those have gone up

522
00:24:08,880 --> 00:24:11,000
Speaker 1: quite a bit as well, and this is one of

523
00:24:11,040 --> 00:24:16,040
Speaker 1: the reasons that has made housing quite a bit less affordable. Basically,

524
00:24:16,040 --> 00:24:18,040
Speaker 1: anyone out there who's considered buying a new home over

525
00:24:18,080 --> 00:24:22,399
Speaker 1: the past few years but hasn't, they're acutely aware of

526
00:24:22,400 --> 00:24:25,520
Speaker 1: that fact that has made it that much more difficult

527
00:24:25,560 --> 00:24:28,880
Speaker 1: to consider moving. A friend of ours, Peter, is leaving

528
00:24:29,040 --> 00:24:32,080
Speaker 1: a two and a half percent mortgage for a six

529
00:24:32,119 --> 00:24:34,520
Speaker 1: and a half percent mortgage. He said that, he told me,

530
00:24:34,560 --> 00:24:36,720
Speaker 1: he was like, that's the toughest part of this thing. Like, yeah,

531
00:24:36,760 --> 00:24:38,320
Speaker 1: we feel like he's the best moved for our family

532
00:24:38,400 --> 00:24:40,720
Speaker 1: to leave where we are to go to this other spot.

533
00:24:41,000 --> 00:24:42,760
Speaker 1: This home is going to be awesome for us for

534
00:24:42,880 --> 00:24:45,320
Speaker 1: years to come. It's really hard to sell a house

535
00:24:45,320 --> 00:24:46,679
Speaker 1: when you have a two and a half percent mortgage

536
00:24:46,760 --> 00:24:48,680
Speaker 1: rate and buy one that's at six and a half

537
00:24:48,680 --> 00:24:50,920
Speaker 1: like that, there's like, that's like a mental hurdle he's

538
00:24:50,920 --> 00:24:53,679
Speaker 1: got to overcome. Sure, Yeah, yeah, Well, we would suggest

539
00:24:53,680 --> 00:24:56,479
Speaker 1: to not overly fixate on mortgage rates though, you know,

540
00:24:56,520 --> 00:24:58,040
Speaker 1: as to whether or not you should purchase a home

541
00:24:58,119 --> 00:24:59,840
Speaker 1: or not, because like there are other factors that can

542
00:25:00,200 --> 00:25:01,680
Speaker 1: or like whether or not this is gonna be a

543
00:25:01,720 --> 00:25:03,679
Speaker 1: good fit for your family, if this is the right

544
00:25:03,800 --> 00:25:06,719
Speaker 1: home for your stage of life, schools, like, all of

545
00:25:06,720 --> 00:25:09,640
Speaker 1: these things are more than likely going to be probably

546
00:25:09,640 --> 00:25:11,879
Speaker 1: more important than just the dollars in the sense. But

547
00:25:11,960 --> 00:25:15,160
Speaker 1: if you currently have a mortgage that's crazy low, then

548
00:25:15,440 --> 00:25:17,920
Speaker 1: you're sitting on a gold mine. Will actually talk more

549
00:25:17,960 --> 00:25:20,439
Speaker 1: about the amount of equity that's built up into homes,

550
00:25:20,880 --> 00:25:22,800
Speaker 1: that has builds up in homes over the past couple

551
00:25:22,800 --> 00:25:25,000
Speaker 1: of years. But bottom, I mean, this doesn't change the

552
00:25:25,040 --> 00:25:27,760
Speaker 1: fact though that these higher rates have had a massive

553
00:25:27,800 --> 00:25:30,760
Speaker 1: impact on on the general housing market, right, like it

554
00:25:30,800 --> 00:25:33,240
Speaker 1: has decreased the amount of inventory, where even though we

555
00:25:33,280 --> 00:25:36,000
Speaker 1: have seen inventory tick up, I guess over the past month,

556
00:25:36,000 --> 00:25:38,040
Speaker 1: we're still and it's not as bad as it was

557
00:25:38,880 --> 00:25:40,280
Speaker 1: a year ago. I think we were at all time

558
00:25:40,320 --> 00:25:42,840
Speaker 1: lows a year ago, but it's the lowest has been

559
00:25:42,880 --> 00:25:46,280
Speaker 1: in like since maybe data has been kept on the

560
00:25:46,320 --> 00:25:48,320
Speaker 1: statistic Like the I was looking at a chart and

561
00:25:48,359 --> 00:25:49,879
Speaker 1: I zoomed out as far as I could, and I

562
00:25:49,880 --> 00:25:52,639
Speaker 1: think the chart started in the early eighties, and we

563
00:25:52,720 --> 00:25:56,480
Speaker 1: are by far basically at the lowest point. And so

564
00:25:55,880 --> 00:26:00,440
Speaker 1: this is only hurting family's abilities to consider moving because

565
00:26:00,480 --> 00:26:03,199
Speaker 1: the families that they want to buy homes from, they

566
00:26:03,200 --> 00:26:06,000
Speaker 1: don't have anywhere to go because they likely either have

567
00:26:06,080 --> 00:26:08,760
Speaker 1: they pay for a house or it's like our friend Peter,

568
00:26:08,840 --> 00:26:10,520
Speaker 1: he's locked into a crazy low rate. While I was

569
00:26:10,520 --> 00:26:12,000
Speaker 1: going to say, there's a lot of families like Peter

570
00:26:12,040 --> 00:26:14,399
Speaker 1: Samiley who are making the opposite decision, and they're saying,

571
00:26:14,680 --> 00:26:16,880
Speaker 1: you know what, we really want to move, but that

572
00:26:17,200 --> 00:26:19,600
Speaker 1: gap in mortgage rate is too prohibitive, so we're going

573
00:26:19,640 --> 00:26:21,320
Speaker 1: to stay put. And so I think that's part of

574
00:26:21,359 --> 00:26:23,560
Speaker 1: the reason we're seeing low supply, fewer people moving, is

575
00:26:23,560 --> 00:26:25,560
Speaker 1: because they do have that locked in low rate, which

576
00:26:25,600 --> 00:26:28,200
Speaker 1: is keeping supply low, which is which is it's gumming

577
00:26:28,240 --> 00:26:31,800
Speaker 1: up the gears basically of allowing folks to move. But

578
00:26:31,840 --> 00:26:33,320
Speaker 1: I mean something else though, I think that's important to

579
00:26:33,359 --> 00:26:38,040
Speaker 1: keep in mind, is to like there is the more

580
00:26:38,160 --> 00:26:39,800
Speaker 1: we talk about money here on the show, the more

581
00:26:39,840 --> 00:26:42,159
Speaker 1: I realize that I almost feel like that there's a

582
00:26:42,200 --> 00:26:44,840
Speaker 1: barrier that keeps people from making the best decision when

583
00:26:44,840 --> 00:26:46,840
Speaker 1: it comes to purchasing homes because you've got the thirty

584
00:26:46,920 --> 00:26:48,680
Speaker 1: year fixed rate mortgage, right, and it seems like such

585
00:26:48,680 --> 00:26:51,000
Speaker 1: a long time frame. It seems like this really daunting thing.

586
00:26:51,400 --> 00:26:54,080
Speaker 1: But the average homeowner only stays in their house for

587
00:26:54,160 --> 00:26:57,360
Speaker 1: something like eight years. Yeah, and so chances are even

588
00:26:57,400 --> 00:26:59,240
Speaker 1: if you do stay in that house longer than then

589
00:27:00,040 --> 00:27:03,320
Speaker 1: that you can always refinance. Right Like when I always

590
00:27:03,400 --> 00:27:06,480
Speaker 1: used to be against adjustable rate mortgages, and but I

591
00:27:06,480 --> 00:27:07,960
Speaker 1: think it was just out of a bias, and the

592
00:27:08,040 --> 00:27:10,439
Speaker 1: more into you think, oh, if I'm going to have

593
00:27:10,480 --> 00:27:12,199
Speaker 1: this house for thirty years and I want to make

594
00:27:12,240 --> 00:27:15,200
Speaker 1: sure I'm locked into the absolute lowest absolutely for a

595
00:27:15,240 --> 00:27:16,680
Speaker 1: lot of people, though, you might be able to hop

596
00:27:16,720 --> 00:27:19,120
Speaker 1: into a ten one arm and lower those payments, get

597
00:27:19,119 --> 00:27:21,760
Speaker 1: a lower interest rate, and then the chances are that

598
00:27:21,760 --> 00:27:23,400
Speaker 1: you either won't be in that house ten years from

599
00:27:23,440 --> 00:27:25,760
Speaker 1: now or you would have been able to finance refinance

600
00:27:25,800 --> 00:27:28,160
Speaker 1: into a lower rate. So those are things worth considering

601
00:27:28,240 --> 00:27:30,320
Speaker 1: right as interest rates rise. These are the kind of

602
00:27:30,440 --> 00:27:33,159
Speaker 1: changes that you can make on the margins to be

603
00:27:33,200 --> 00:27:35,840
Speaker 1: able to make a financial move that maybe if you

604
00:27:35,920 --> 00:27:38,719
Speaker 1: had gone with them the most traditional product, you wouldn't

605
00:27:38,720 --> 00:27:40,920
Speaker 1: have been able to you would have had to avoid. So, yeah,

606
00:27:40,960 --> 00:27:43,000
Speaker 1: mortgage rates going up as much as they have. In

607
00:27:43,000 --> 00:27:45,400
Speaker 1: conjunction with kind of home prices going up as much

608
00:27:45,400 --> 00:27:47,880
Speaker 1: as they did, crated, they seem to have gone down

609
00:27:47,960 --> 00:27:50,440
Speaker 1: a little bit. And yeah, so I know, mortgage rates

610
00:27:50,600 --> 00:27:53,080
Speaker 1: going up in many ways because the FED has been

611
00:27:53,160 --> 00:27:55,800
Speaker 1: hiking rates. It's really kind of put the kibosh on

612
00:27:55,800 --> 00:27:57,360
Speaker 1: the housing market in a lot of ways, and it's

613
00:27:57,440 --> 00:28:00,680
Speaker 1: really had a dramatic impact on want to be first

614
00:28:00,680 --> 00:28:04,080
Speaker 1: time homebuyers. But yeah, I think we just want to

615
00:28:04,119 --> 00:28:07,720
Speaker 1: note that there's some ways to not let interest rates

616
00:28:07,720 --> 00:28:10,159
Speaker 1: completely drive your decision. But Matt, let's talk about something else.

617
00:28:10,200 --> 00:28:12,159
Speaker 1: Let's talk about student loans for a second. How have

618
00:28:12,240 --> 00:28:15,480
Speaker 1: those been impacted by the FED rate hikes. Well, you know,

619
00:28:15,760 --> 00:28:18,520
Speaker 1: payments are still on pause, forgiveness is still in limbo.

620
00:28:18,960 --> 00:28:22,560
Speaker 1: The Supreme Court is kind of like has heard hearing

621
00:28:22,600 --> 00:28:24,960
Speaker 1: the case. We should have a ruling on that case

622
00:28:25,000 --> 00:28:27,919
Speaker 1: in early summer. So until then we're in just this

623
00:28:27,960 --> 00:28:31,600
Speaker 1: holding pattern. And we would say in an era of

624
00:28:31,720 --> 00:28:34,200
Speaker 1: rising rates, this is one of those things where your

625
00:28:34,200 --> 00:28:36,680
Speaker 1: student loans are effectively they have an interest rate of

626
00:28:36,760 --> 00:28:39,720
Speaker 1: zero right now, and so it just doesn't make sense

627
00:28:39,760 --> 00:28:43,760
Speaker 1: to pay anything because of the potential for forgiveness and

628
00:28:43,800 --> 00:28:46,840
Speaker 1: the reality that you are getting a zero percent rate

629
00:28:46,840 --> 00:28:49,600
Speaker 1: for the time being. There's just no incentive for anybody

630
00:28:49,880 --> 00:28:52,840
Speaker 1: to be paying on that at all, right now, yes, right, yeah,

631
00:28:52,840 --> 00:28:54,760
Speaker 1: I mean so, back when interest rates were incredibly low,

632
00:28:54,760 --> 00:28:58,560
Speaker 1: it made sense for some borrowers who were hyper focused

633
00:28:58,560 --> 00:29:01,040
Speaker 1: on paying down their student loan debt to maybe even

634
00:29:01,080 --> 00:29:05,800
Speaker 1: consider refinancing into private student loans. But now that's completely

635
00:29:05,840 --> 00:29:08,880
Speaker 1: inadvisable for almost everyone out there. Right now rates have

636
00:29:08,960 --> 00:29:12,160
Speaker 1: gone up and you lose all of your federal protections

637
00:29:12,200 --> 00:29:14,280
Speaker 1: if you do that, and so this would be like

638
00:29:14,360 --> 00:29:18,320
Speaker 1: the absolute wrong thing to do. Refinancing has basically been

639
00:29:18,320 --> 00:29:20,880
Speaker 1: taken off the table right now as an option for everyone.

640
00:29:21,240 --> 00:29:23,280
Speaker 1: So paying off the student loans isn't something that you

641
00:29:23,360 --> 00:29:24,640
Speaker 1: want to do right now, but you do want to

642
00:29:24,640 --> 00:29:27,440
Speaker 1: make sure that you are saving up towards that goal

643
00:29:27,480 --> 00:29:30,120
Speaker 1: of eventually paying towards those student loans, because at some

644
00:29:30,160 --> 00:29:31,840
Speaker 1: point they are going to restart and you want to

645
00:29:31,880 --> 00:29:34,120
Speaker 1: make sure that you are prepared for that reality. Yeah,

646
00:29:34,160 --> 00:29:35,400
Speaker 1: there's a stat I think we share it on a

647
00:29:35,440 --> 00:29:37,800
Speaker 1: Friday flight, something like fifty three percent of student loan

648
00:29:37,840 --> 00:29:41,040
Speaker 1: borrowers said my finances would be completely screwed if student

649
00:29:41,040 --> 00:29:43,920
Speaker 1: loan payments restarted again tomorrow, and we don't want our

650
00:29:43,920 --> 00:29:45,560
Speaker 1: listeners to be in that position. We want them to

651
00:29:45,600 --> 00:29:49,000
Speaker 1: be prepared by having stocked away more savings even though

652
00:29:49,000 --> 00:29:50,960
Speaker 1: they don't owe any money on these loans and they're

653
00:29:51,000 --> 00:29:54,040
Speaker 1: at a zero percent interest currently. It's like, that's great

654
00:29:54,120 --> 00:29:56,520
Speaker 1: for borrowers, but you also don't want to be caught

655
00:29:56,560 --> 00:30:00,880
Speaker 1: completely off guard win those payments resume. At the same time,

656
00:30:00,880 --> 00:30:03,560
Speaker 1: like average rates on new student loans, they've only climbed

657
00:30:03,600 --> 00:30:06,120
Speaker 1: since the pandemic started, largely because of the fact that

658
00:30:06,160 --> 00:30:09,320
Speaker 1: interest rates have gone up on basically everything. So yeah,

659
00:30:09,320 --> 00:30:11,760
Speaker 1: if you or your child is in school currently, taking

660
00:30:11,760 --> 00:30:14,719
Speaker 1: on too much student loan debt is still potentially toxic.

661
00:30:14,760 --> 00:30:18,280
Speaker 1: From a personal finance perspective, It's important to be really

662
00:30:18,280 --> 00:30:20,400
Speaker 1: cautious before you start taking on tens of thousands of

663
00:30:20,440 --> 00:30:24,000
Speaker 1: dollars or even more in order to get a higher degree.

664
00:30:24,320 --> 00:30:26,680
Speaker 1: And there is the potential that we get some sort

665
00:30:26,720 --> 00:30:29,480
Speaker 1: of new income based repayment program, Matt, We've talked about

666
00:30:29,480 --> 00:30:31,360
Speaker 1: that on the show before. I think I could make

667
00:30:31,400 --> 00:30:34,320
Speaker 1: a major difference for a lot of borrowers. It's potentially

668
00:30:34,320 --> 00:30:37,120
Speaker 1: more impactful than even the student loan forgiveness because of

669
00:30:37,240 --> 00:30:39,400
Speaker 1: how much it caps payments, and if it goes through

670
00:30:39,440 --> 00:30:42,880
Speaker 1: as it's currently proposed, it will have an incredible impact. Yeah,

671
00:30:42,880 --> 00:30:45,920
Speaker 1: but it's just proposed, right, that's still vaporway right now. Yeah,

672
00:30:45,920 --> 00:30:48,040
Speaker 1: that's just a proposed policy. But if that happens, like

673
00:30:48,080 --> 00:30:51,000
Speaker 1: that could change the whole student debt conundrum and how

674
00:30:51,040 --> 00:30:52,800
Speaker 1: people think about taking on student loan debt. I have

675
00:30:52,800 --> 00:30:54,640
Speaker 1: a feeling it will actually drive up the cost of

676
00:30:54,680 --> 00:30:59,120
Speaker 1: college even more substantially. But yeah, borrowing too much though,

677
00:30:59,560 --> 00:31:02,280
Speaker 1: simply it can put you in a precarious financial position

678
00:31:02,320 --> 00:31:04,680
Speaker 1: for years or even decades to come. And so when

679
00:31:04,720 --> 00:31:07,440
Speaker 1: it comes, until the rules change, the advice is basically

680
00:31:07,600 --> 00:31:11,080
Speaker 1: to keep student loan debt to a minimum, and yeah,

681
00:31:11,120 --> 00:31:14,160
Speaker 1: if you have student loan debt, to not necessarily be

682
00:31:14,320 --> 00:31:16,800
Speaker 1: motivated to pay it off quickly, but be motivated to

683
00:31:16,880 --> 00:31:19,200
Speaker 1: save so that you're ready to eliminate it when the

684
00:31:19,240 --> 00:31:22,160
Speaker 1: time comes. All right, So that's the reality of how

685
00:31:22,280 --> 00:31:26,320
Speaker 1: these rising rates, how they are currently impacting different things

686
00:31:26,360 --> 00:31:28,560
Speaker 1: like our ability to save or some of the different

687
00:31:28,560 --> 00:31:31,719
Speaker 1: debt obligations that folks might have. But how should you

688
00:31:31,840 --> 00:31:34,640
Speaker 1: be reacting? Obviously, you want to be rational about it,

689
00:31:34,640 --> 00:31:37,080
Speaker 1: but we're going to give some specific recommendations on what

690
00:31:37,120 --> 00:31:39,000
Speaker 1: you should be doing, and we'll get to those right

691
00:31:39,040 --> 00:31:50,360
Speaker 1: after this. All right, Matt, let's keep going. Let's talk

692
00:31:50,400 --> 00:31:52,880
Speaker 1: about rate hikes. How we can be rational in the

693
00:31:52,920 --> 00:31:55,280
Speaker 1: face of those rate hikes when it comes to how

694
00:31:55,280 --> 00:31:57,040
Speaker 1: we save, how we invest in, how we pay off

695
00:31:57,040 --> 00:31:59,440
Speaker 1: our debt. And like we said at the beginning of

696
00:31:59,480 --> 00:32:03,320
Speaker 1: the episode, different macroeconomic climates they call for different reactions

697
00:32:03,320 --> 00:32:05,280
Speaker 1: from us, and a lot has changed in the past

698
00:32:05,320 --> 00:32:08,400
Speaker 1: couple of years, and so it does kind of change

699
00:32:08,480 --> 00:32:11,920
Speaker 1: how we as individuals should react with our personal finances

700
00:32:11,920 --> 00:32:13,640
Speaker 1: on a whole bunch of levels. We've covered a few

701
00:32:13,640 --> 00:32:16,320
Speaker 1: specific things already, but we've got more information we want

702
00:32:16,320 --> 00:32:18,800
Speaker 1: to cover. Here's the thing, though, you don't necessarily want

703
00:32:18,800 --> 00:32:22,560
Speaker 1: the interest rate tail wagging the personal finance dog and like,

704
00:32:22,680 --> 00:32:25,520
Speaker 1: to a certain extent, interest rates they feel like a

705
00:32:25,640 --> 00:32:29,280
Speaker 1: rising tide, right. It impacts virtually all aspects of our

706
00:32:29,320 --> 00:32:32,280
Speaker 1: financial lives. But there are ways that we can limit

707
00:32:32,280 --> 00:32:35,520
Speaker 1: our exposure having to pay higher rates and increase our

708
00:32:35,560 --> 00:32:38,280
Speaker 1: exposure to where we're able to yeah, receive the benefit

709
00:32:38,320 --> 00:32:41,160
Speaker 1: of those higher rates. And that's really kind of like

710
00:32:41,200 --> 00:32:43,400
Speaker 1: what we're getting to the heart up today. That's right.

711
00:32:43,440 --> 00:32:45,560
Speaker 1: So first let's tackle some of the different ways that

712
00:32:45,600 --> 00:32:49,160
Speaker 1: you can reduce what you're paying out to financial institutions.

713
00:32:49,200 --> 00:32:52,200
Speaker 1: And the most important recommendation that we have is to

714
00:32:52,440 --> 00:32:55,680
Speaker 1: cautiously take out any new debt. We talked about this

715
00:32:55,760 --> 00:32:59,080
Speaker 1: in a recent Friday flight. But Americans are taking taking

716
00:32:59,080 --> 00:33:01,960
Speaker 1: on he locked so home equity line of credit debt

717
00:33:02,320 --> 00:33:05,320
Speaker 1: like it's their job, man. But he locks come with

718
00:33:05,400 --> 00:33:08,640
Speaker 1: a floating rate. So that means that the typical borrower

719
00:33:08,840 --> 00:33:11,120
Speaker 1: might have pulled out money, say like at a five

720
00:33:11,120 --> 00:33:14,000
Speaker 1: percent rate, but maybe now they're paying something like like

721
00:33:14,040 --> 00:33:16,400
Speaker 1: seven or eight percent on that debt. Dude, they might

722
00:33:16,440 --> 00:33:18,600
Speaker 1: have taken out home equity line of CREDITBT at like

723
00:33:18,600 --> 00:33:20,640
Speaker 1: a three percent rate a few years ago. I mean,

724
00:33:20,760 --> 00:33:23,480
Speaker 1: it's probably yeah, and it might have just ballooned that

725
00:33:23,600 --> 00:33:25,520
Speaker 1: much and it might still be good. A lot of

726
00:33:25,520 --> 00:33:27,880
Speaker 1: times they have like an expiration date of like five

727
00:33:27,960 --> 00:33:30,240
Speaker 1: years or something like that. But if it's still around,

728
00:33:30,520 --> 00:33:33,320
Speaker 1: then it could be significantly higher than what they originally

729
00:33:33,360 --> 00:33:36,200
Speaker 1: thought that they were pulling out. But home equity debt

730
00:33:36,560 --> 00:33:40,480
Speaker 1: is at a record high of twenty trillion dollars, dude.

731
00:33:40,680 --> 00:33:42,280
Speaker 1: But again, it's a bad idea to use your home

732
00:33:42,320 --> 00:33:44,440
Speaker 1: like a piggy bank. It's not always a bad thing,

733
00:33:44,520 --> 00:33:47,480
Speaker 1: right taking on debt. It's sometimes it can be done strategically.

734
00:33:47,560 --> 00:33:49,920
Speaker 1: We talked about that in episode six thirty seven. If

735
00:33:49,960 --> 00:33:51,800
Speaker 1: it's safe is going to help you to get a

736
00:33:51,840 --> 00:33:54,760
Speaker 1: business off the ground, it might make sense maybe make

737
00:33:54,800 --> 00:33:57,760
Speaker 1: a renovation to that exact same home. But it's even

738
00:33:57,760 --> 00:34:01,120
Speaker 1: more important to know the terms before you sign on

739
00:34:01,160 --> 00:34:02,760
Speaker 1: the dotted line. You want to make sure that you

740
00:34:02,800 --> 00:34:04,640
Speaker 1: are aware of what you're getting yourself in. I think

741
00:34:04,640 --> 00:34:06,719
Speaker 1: a lot of people took out helocked at and they

742
00:34:06,800 --> 00:34:09,640
Speaker 1: just assumed, great, I'm going to be paying four percent

743
00:34:09,680 --> 00:34:12,200
Speaker 1: in perpetuity or something like that. But that's not how

744
00:34:12,239 --> 00:34:14,600
Speaker 1: it works. And these rates are constantly justing up or

745
00:34:14,680 --> 00:34:16,520
Speaker 1: typically once a month, and so you have to be

746
00:34:16,560 --> 00:34:20,320
Speaker 1: careful and kind of be looking with that crystal ball

747
00:34:20,400 --> 00:34:23,240
Speaker 1: into the future. Not that we can do that perfectly,

748
00:34:23,280 --> 00:34:25,440
Speaker 1: but some of the writing is on the wall about

749
00:34:25,440 --> 00:34:27,359
Speaker 1: what's going to happen with rates, at least in the

750
00:34:27,360 --> 00:34:29,560
Speaker 1: coming months. And if you are going to take out

751
00:34:29,560 --> 00:34:32,719
Speaker 1: a new loan, it's always smart to check rates from

752
00:34:32,760 --> 00:34:35,839
Speaker 1: a few different institutions, and specifically now, I think that's

753
00:34:35,840 --> 00:34:38,080
Speaker 1: even more important in an era of rising rates, because

754
00:34:38,520 --> 00:34:40,719
Speaker 1: when rates are fluctuating as much as they have been,

755
00:34:41,120 --> 00:34:43,319
Speaker 1: that just makes it all the more necessary because the

756
00:34:43,440 --> 00:34:47,080
Speaker 1: disparity between rates from different banks and credit unions can

757
00:34:47,120 --> 00:34:51,080
Speaker 1: be meaningful as rates are just like moving rapidly. So

758
00:34:51,200 --> 00:34:53,240
Speaker 1: don't just go to your favorite local bank and apply

759
00:34:53,320 --> 00:34:56,279
Speaker 1: for a home loan or a helock. Shop around with

760
00:34:56,360 --> 00:34:59,000
Speaker 1: multiple loan providers so you can compare apples to apples,

761
00:34:59,239 --> 00:35:01,120
Speaker 1: because this the kind of thing that could save you

762
00:35:01,560 --> 00:35:03,759
Speaker 1: really like thousands of dollars, and the stakes are just

763
00:35:04,000 --> 00:35:06,120
Speaker 1: have gotten so much higher as rates have gone up.

764
00:35:06,880 --> 00:35:09,720
Speaker 1: Just like we talked about the disparity between savings accounts

765
00:35:09,719 --> 00:35:11,920
Speaker 1: from the big banks, Yeah there was a gap a

766
00:35:11,960 --> 00:35:14,400
Speaker 1: couple of years ago. Now there's a chasm, right, And

767
00:35:14,440 --> 00:35:17,120
Speaker 1: so I think the same can be true with rates

768
00:35:17,200 --> 00:35:20,239
Speaker 1: the different banks and credit unions are offering. You're just

769
00:35:20,320 --> 00:35:22,400
Speaker 1: gonna want to make sure you shop around because that

770
00:35:22,440 --> 00:35:25,440
Speaker 1: gap can be bigger than it normally is. That's right,

771
00:35:25,480 --> 00:35:28,600
Speaker 1: But for any debt that you already have, it's important

772
00:35:28,600 --> 00:35:30,840
Speaker 1: then to check in all those loans. We want you

773
00:35:30,880 --> 00:35:33,640
Speaker 1: to make sure that those rates haven't crept higher without

774
00:35:33,680 --> 00:35:36,920
Speaker 1: you realizing it. Like we mentioned helocks, they've got a

775
00:35:37,000 --> 00:35:40,160
Speaker 1: variable rate, and those debts are the most precarious within

776
00:35:40,200 --> 00:35:43,120
Speaker 1: an environment like we're currently in. Same thing with credit

777
00:35:43,120 --> 00:35:46,120
Speaker 1: card debt. It pretty much always sucks, but we want

778
00:35:46,160 --> 00:35:49,440
Speaker 1: you hyper focused on eliminating it. As the average rate

779
00:35:49,480 --> 00:35:51,520
Speaker 1: of credit card debt is nearing twenty percent, It's always

780
00:35:51,560 --> 00:35:54,400
Speaker 1: been bad, but it's just way worse now, and opening

781
00:35:54,400 --> 00:35:56,720
Speaker 1: a new card to do a balance trainswer. That certainly

782
00:35:56,719 --> 00:35:59,160
Speaker 1: isn't going to be a silver bullet. But if you

783
00:35:59,200 --> 00:36:00,960
Speaker 1: have a plan to pay that debt off, right, if

784
00:36:01,120 --> 00:36:02,759
Speaker 1: you are going to be able to lower that rate

785
00:36:02,800 --> 00:36:05,520
Speaker 1: for a little bit while making progress more quickly, that

786
00:36:05,560 --> 00:36:07,640
Speaker 1: can make a lot of sense. And oftentimes as you

787
00:36:07,680 --> 00:36:09,440
Speaker 1: are putting together a plan, you might be wondering like

788
00:36:09,480 --> 00:36:11,760
Speaker 1: should I be paying like you've got the snowball versus

789
00:36:11,760 --> 00:36:13,920
Speaker 1: the avalanche debate? Right, Like should I pay off the

790
00:36:15,040 --> 00:36:17,280
Speaker 1: credit card or the debt that has the highest interest

791
00:36:17,360 --> 00:36:19,319
Speaker 1: rate or should I be focusing on the one with

792
00:36:19,360 --> 00:36:21,600
Speaker 1: the lowest balance. That way, I'm able to see a

793
00:36:21,600 --> 00:36:24,520
Speaker 1: little more traction. Well, we actually have an article up

794
00:36:24,520 --> 00:36:27,719
Speaker 1: on the website that talks through the snowball versus the

795
00:36:27,760 --> 00:36:29,879
Speaker 1: avalanche approach. But either way, we want to make sure

796
00:36:29,920 --> 00:36:32,319
Speaker 1: that you are thinking through this. We don't want you

797
00:36:32,360 --> 00:36:35,480
Speaker 1: to just willynially apply for a zero percent APR card

798
00:36:35,960 --> 00:36:37,960
Speaker 1: thinking that this is going to be the solution to

799
00:36:38,000 --> 00:36:40,040
Speaker 1: all your problems when you haven't put together an actual

800
00:36:40,040 --> 00:36:44,719
Speaker 1: plan to completely and permanently eliminate these high interest rate debts. Yeah, Matt,

801
00:36:44,719 --> 00:36:47,960
Speaker 1: and I think different people can choose different methods, snowball

802
00:36:48,040 --> 00:36:49,759
Speaker 1: or avalanche. Like you and I, we've kind of gone

803
00:36:49,760 --> 00:36:52,279
Speaker 1: back and forth overt of the years, which about which

804
00:36:52,360 --> 00:36:54,880
Speaker 1: debt payoff style we think makes the most sense. And

805
00:36:54,920 --> 00:36:57,200
Speaker 1: so yeah, that article onto the individual. Yeah, that article

806
00:36:57,239 --> 00:36:59,239
Speaker 1: can help you decide, like put the information in front

807
00:36:59,239 --> 00:37:00,960
Speaker 1: of you. Then you say, okay, yeah, I think this

808
00:37:01,000 --> 00:37:03,279
Speaker 1: one makes more sense for me. But the key, like

809
00:37:03,320 --> 00:37:05,840
Speaker 1: you said, is to have a plan. Which one do

810
00:37:05,880 --> 00:37:08,000
Speaker 1: you choose? Up to you? That's right, But I think

811
00:37:08,000 --> 00:37:11,520
Speaker 1: it's also important to mention that in an era of

812
00:37:11,680 --> 00:37:16,240
Speaker 1: rising interest rates, locked in low interest rate debt actually

813
00:37:16,640 --> 00:37:19,240
Speaker 1: looks pretty good these days, right, and it likely should

814
00:37:19,239 --> 00:37:20,960
Speaker 1: be put on the back burner for a lot of people.

815
00:37:21,280 --> 00:37:23,520
Speaker 1: Kind of like we talked about with Tom Anderson recently.

816
00:37:23,520 --> 00:37:25,920
Speaker 1: You mentioned episode six thirty seven. That was a really

817
00:37:25,920 --> 00:37:29,400
Speaker 1: interesting conversation. Tom wrote the book The Value of Debt

818
00:37:29,480 --> 00:37:33,440
Speaker 1: in Building Wealth, which a lot of people might sound counterintuitive,

819
00:37:33,680 --> 00:37:36,680
Speaker 1: but it makes actually a whole lot of sense based

820
00:37:36,719 --> 00:37:38,920
Speaker 1: on kind of what we're seeing right now. Because if

821
00:37:38,960 --> 00:37:40,800
Speaker 1: you have the ability to earn something like five percent

822
00:37:40,880 --> 00:37:43,840
Speaker 1: on cash the f stocked away, or almost seven percent

823
00:37:43,920 --> 00:37:45,719
Speaker 1: in an I bond, why are you gonna pay extra

824
00:37:45,760 --> 00:37:48,600
Speaker 1: money towards that three percent mortgage? It just it doesn't

825
00:37:48,600 --> 00:37:52,359
Speaker 1: necessarily make financial sense. It might make some psychological sense

826
00:37:52,400 --> 00:37:55,799
Speaker 1: for some people. Maybe they just prioritize and hate their

827
00:37:55,840 --> 00:37:58,560
Speaker 1: debt that much that that's still going to be their

828
00:37:58,560 --> 00:38:01,880
Speaker 1: main focus. But this gives you a nice little spread

829
00:38:01,920 --> 00:38:05,640
Speaker 1: which offers you, at the same time more liquidity, more flexibility.

830
00:38:05,960 --> 00:38:08,200
Speaker 1: And the reality is it might make more sense to

831
00:38:08,200 --> 00:38:11,560
Speaker 1: pay more money towards those fixed rate debts if rates

832
00:38:11,560 --> 00:38:13,759
Speaker 1: start to fall, but at least for the time being,

833
00:38:14,080 --> 00:38:15,560
Speaker 1: there are just better things to do with your money.

834
00:38:15,600 --> 00:38:19,400
Speaker 1: So why would you prioritize eradicating that mortgage really quickly?

835
00:38:19,680 --> 00:38:21,799
Speaker 1: I mean, when it's just that that easy to get

836
00:38:21,840 --> 00:38:24,000
Speaker 1: better guaranteed returns, we'd take take the burden in a hand.

837
00:38:24,080 --> 00:38:26,279
Speaker 1: That's that's guaranteed returns. And that's not even just like

838
00:38:26,360 --> 00:38:29,200
Speaker 1: hoping that the stock market outperforms. That's right, it's it's

839
00:38:29,200 --> 00:38:31,600
Speaker 1: a concrete proposal. Here makes me think of my friend Josh.

840
00:38:31,640 --> 00:38:33,360
Speaker 1: We were talking the other day. I've not heard of

841
00:38:33,360 --> 00:38:34,840
Speaker 1: anybody with a rate this load, but he has a

842
00:38:34,920 --> 00:38:38,399
Speaker 1: two and a quarter interest rate on his house, and

843
00:38:38,600 --> 00:38:41,640
Speaker 1: I was like, dude, you are you'd be crazy to

844
00:38:41,680 --> 00:38:44,839
Speaker 1: ever pay anything extra on that. They refly two years

845
00:38:44,840 --> 00:38:46,600
Speaker 1: exactly two years, I think so. I think he like

846
00:38:46,760 --> 00:38:50,320
Speaker 1: literally hit the bottom. So we were we were tooting

847
00:38:50,320 --> 00:38:53,120
Speaker 1: that hole. I'm pretty loud. Yeah, telling folks, just asking

848
00:38:53,160 --> 00:38:55,239
Speaker 1: folks to consider to at least look at their their

849
00:38:55,280 --> 00:38:57,839
Speaker 1: financial situation and to see if a rEFInd might make

850
00:38:57,920 --> 00:38:59,680
Speaker 1: sense for them. Yeah. And so if you do have

851
00:38:59,719 --> 00:39:02,919
Speaker 1: that locked in super low rate, it's one of those things.

852
00:39:02,960 --> 00:39:06,279
Speaker 1: The era of rising rates makes that locked in rate

853
00:39:06,600 --> 00:39:09,319
Speaker 1: look kind of like gold, and so you probably don't

854
00:39:09,320 --> 00:39:11,479
Speaker 1: want to touch it, and you want to be able

855
00:39:11,520 --> 00:39:14,120
Speaker 1: to take access money you might have used to pay

856
00:39:14,160 --> 00:39:17,600
Speaker 1: down debt, to do other to make other better financial

857
00:39:17,600 --> 00:39:19,520
Speaker 1: moves with it. That's right. Yeah, And again, if you

858
00:39:19,600 --> 00:39:21,840
Speaker 1: have some current debt, you also might be able to

859
00:39:21,880 --> 00:39:24,560
Speaker 1: get a better deal on the debt that you currently

860
00:39:24,600 --> 00:39:28,640
Speaker 1: have by negotiating with whoever it is that's servicing your debt.

861
00:39:28,960 --> 00:39:31,759
Speaker 1: And so whether we're talking about credit cards like we've been,

862
00:39:31,960 --> 00:39:34,840
Speaker 1: but even like medical debt or even back taxes owed

863
00:39:35,000 --> 00:39:37,600
Speaker 1: to the irs, it's always an option to hop on

864
00:39:37,640 --> 00:39:40,000
Speaker 1: the phone let them know if you are in a

865
00:39:40,120 --> 00:39:44,279
Speaker 1: particularly difficult financial situation. This can be especially helpful if

866
00:39:44,320 --> 00:39:47,040
Speaker 1: you've experienced some sort of financial hardship and you literally

867
00:39:47,040 --> 00:39:49,319
Speaker 1: can't make the payments, like if you've recently lost your job,

868
00:39:49,840 --> 00:39:52,879
Speaker 1: but if you have multiple debts and if you feel

869
00:39:52,880 --> 00:39:55,879
Speaker 1: completely overwhelmed and underwater, it could make sense to reach

870
00:39:55,920 --> 00:39:59,360
Speaker 1: out to someone like Money Management International or the National

871
00:39:59,360 --> 00:40:02,280
Speaker 1: Foundation or Credit Counseling. Both of those are non profits,

872
00:40:02,320 --> 00:40:04,360
Speaker 1: and they can help you to put together a plan

873
00:40:04,640 --> 00:40:07,000
Speaker 1: that is going to allow you to pay that dead

874
00:40:07,040 --> 00:40:09,560
Speaker 1: off once and for all. And I think the other

875
00:40:09,600 --> 00:40:11,520
Speaker 1: thing somebody might ask is, in like an era of

876
00:40:11,640 --> 00:40:15,240
Speaker 1: rising rates, should that impact how you think about investing?

877
00:40:15,360 --> 00:40:17,560
Speaker 1: And I think it can be tempting to change your

878
00:40:17,600 --> 00:40:19,320
Speaker 1: approach here. There are a lot of people, there was

879
00:40:19,360 --> 00:40:21,120
Speaker 1: a lot of ink actually spilled a few years back

880
00:40:21,160 --> 00:40:23,880
Speaker 1: about how the sixty forty portfolio was dead and that

881
00:40:24,000 --> 00:40:27,080
Speaker 1: was what like sixty percent stocks forty percent bonds, And

882
00:40:27,120 --> 00:40:29,960
Speaker 1: there are now a lot of people writing about how

883
00:40:30,040 --> 00:40:32,560
Speaker 1: sixty forty looks really good moving forward. And so it's

884
00:40:32,560 --> 00:40:35,319
Speaker 1: just interesting. I feel like investing fads, they come and

885
00:40:35,360 --> 00:40:38,560
Speaker 1: they go, they change, and this rising interest rate environment

886
00:40:38,600 --> 00:40:41,920
Speaker 1: has a lot of people making prognostications about what the

887
00:40:41,960 --> 00:40:44,520
Speaker 1: future holds. But our thought as always is to stay

888
00:40:44,520 --> 00:40:47,040
Speaker 1: the course. What's your investing plan, what are your goals

889
00:40:47,040 --> 00:40:51,000
Speaker 1: with your money? And I would say, don't let the

890
00:40:51,080 --> 00:40:53,840
Speaker 1: op ed in the Wall Street Journal or the talking

891
00:40:53,880 --> 00:40:59,000
Speaker 1: head on CNBC change your approach, because oftentimes a change

892
00:40:59,000 --> 00:41:02,239
Speaker 1: in approach means you're being reactionary. And we still think

893
00:41:02,239 --> 00:41:05,640
Speaker 1: that the low cost, widely diversified approach. It kind of

894
00:41:05,640 --> 00:41:09,120
Speaker 1: remains our favorite in all environments, right when rates are rising,

895
00:41:09,120 --> 00:41:11,480
Speaker 1: when rates are going down, like if you're a long

896
00:41:11,600 --> 00:41:14,759
Speaker 1: term investor and you're investing for decades to come, it's

897
00:41:14,800 --> 00:41:17,759
Speaker 1: still just a wonderful smart way to invest. And this

898
00:41:17,800 --> 00:41:20,200
Speaker 1: can look like an SMP five hundred index fund, a

899
00:41:20,239 --> 00:41:22,960
Speaker 1: total stock market fund, or a target date fund, whichever

900
00:41:23,080 --> 00:41:25,440
Speaker 1: one makes you feel the most comfortable, but you're if

901
00:41:25,440 --> 00:41:28,560
Speaker 1: you're investing for a decade plus in the future, there's

902
00:41:28,560 --> 00:41:31,200
Speaker 1: just no need to make any changes, any shifts to

903
00:41:31,280 --> 00:41:34,920
Speaker 1: kind of your investment behavior or approach. Yeah. Yeah, it's

904
00:41:34,920 --> 00:41:37,319
Speaker 1: so interesting that folks are considering going like moving back

905
00:41:37,360 --> 00:41:39,680
Speaker 1: to the sixty forty portfolio, where they're thinking about incorporating

906
00:41:39,680 --> 00:41:41,840
Speaker 1: like forty percent bonds back into the portfolio just because

907
00:41:41,880 --> 00:41:44,879
Speaker 1: bonds happen to be looking a little bit nicer now, right,

908
00:41:44,960 --> 00:41:47,440
Speaker 1: But fact is, they don't look all that much better

909
00:41:47,680 --> 00:41:49,879
Speaker 1: than Again, what we've already talked about what you can

910
00:41:49,880 --> 00:41:53,840
Speaker 1: earn in a high yield savings account. Over time, stocks

911
00:41:53,880 --> 00:41:57,239
Speaker 1: still outperformed bonds by a significant margin. And so, like

912
00:41:57,239 --> 00:42:00,400
Speaker 1: you said, if you're looking at a decade plus time timeframe,

913
00:42:00,440 --> 00:42:04,120
Speaker 1: that you I mean, we don't invest in bonds at all,

914
00:42:04,160 --> 00:42:07,239
Speaker 1: except for those medium term I bonds, which are kind

915
00:42:07,239 --> 00:42:08,680
Speaker 1: of fun, you know, it's sort of like fun money.

916
00:42:08,719 --> 00:42:10,400
Speaker 1: But when it comes to retirement, well, again, that's a

917
00:42:10,440 --> 00:42:12,640
Speaker 1: saving that's not that's not changing our investing style. That's

918
00:42:12,680 --> 00:42:14,480
Speaker 1: that's for savings. Some folks would be like, oh, you're

919
00:42:14,520 --> 00:42:16,399
Speaker 1: kind of investing for a medium term goal, right, But

920
00:42:16,560 --> 00:42:18,400
Speaker 1: bottom line, But it's a guaranteed return, So we're not

921
00:42:19,600 --> 00:42:23,520
Speaker 1: usually when you're investing returns with a sixty forty portfolio

922
00:42:23,719 --> 00:42:26,280
Speaker 1: forty percent bonds, right, and so there's a guaranteed return

923
00:42:26,360 --> 00:42:29,279
Speaker 1: there as well. But bottom line, historically speaking, when you

924
00:42:29,280 --> 00:42:31,920
Speaker 1: look at what the market has returned, you are still

925
00:42:31,920 --> 00:42:36,759
Speaker 1: going to outperform bonds with stocks. Yeah, in our retirement portfolios,

926
00:42:36,800 --> 00:42:40,080
Speaker 1: you and I don't invest in any bonds, like where

927
00:42:40,080 --> 00:42:43,359
Speaker 1: that sold on actually investing in stocks? Yeah, well, and

928
00:42:43,360 --> 00:42:44,719
Speaker 1: I do want to mention at the very beginning of

929
00:42:44,760 --> 00:42:47,840
Speaker 1: the episode, I kind of talked about how the macro environment,

930
00:42:47,920 --> 00:42:49,440
Speaker 1: like you have to kind of stick your finger to

931
00:42:49,480 --> 00:42:51,920
Speaker 1: the wind. It's and it's just like kind of checking

932
00:42:51,920 --> 00:42:53,560
Speaker 1: the weather before you got in the day. It changes

933
00:42:53,600 --> 00:42:55,680
Speaker 1: what you wear. I think of investments as being kind

934
00:42:55,719 --> 00:42:58,399
Speaker 1: of like the underwear that you put on every day. Like, yes,

935
00:42:58,440 --> 00:43:00,880
Speaker 1: you change your underwear every day, but you're wearing the

936
00:43:00,920 --> 00:43:03,520
Speaker 1: same thing every day, right, Like, and so I think

937
00:43:03,920 --> 00:43:06,000
Speaker 1: that's how we should think about investing, is it's this

938
00:43:06,080 --> 00:43:09,360
Speaker 1: piece of clothing that remains the same, and don't you

939
00:43:09,360 --> 00:43:10,880
Speaker 1: don't want to shake anything up on that front? Why

940
00:43:10,920 --> 00:43:12,640
Speaker 1: you might be putting on different pants or shorts or

941
00:43:12,840 --> 00:43:15,240
Speaker 1: long sleeves or jackets or something like that. The investments

942
00:43:15,280 --> 00:43:16,800
Speaker 1: are kind of one of those tried and true, boring

943
00:43:16,840 --> 00:43:19,160
Speaker 1: things that you don't don't really mess with, that's right. Yeah,

944
00:43:19,160 --> 00:43:21,640
Speaker 1: So rate hikes they you know, they've already impacted our

945
00:43:21,680 --> 00:43:25,160
Speaker 1: economy in a meaningful way. But the Fed they've got

946
00:43:25,160 --> 00:43:27,839
Speaker 1: one major goal, and that's for inflation to chill out.

947
00:43:28,320 --> 00:43:31,360
Speaker 1: And while we've seen some downward movement, we're also not

948
00:43:31,520 --> 00:43:34,440
Speaker 1: terribly close to the end goal either. But while rate

949
00:43:34,520 --> 00:43:37,839
Speaker 1: hikes can be painful in some areas of your personal finances,

950
00:43:38,040 --> 00:43:39,600
Speaker 1: there are also going to be ways that you can

951
00:43:39,640 --> 00:43:45,240
Speaker 1: react thoughtfully, no way, rationally, sorry, in order the blunt

952
00:43:45,280 --> 00:43:48,239
Speaker 1: the worst effects and to insulate yourself from the most

953
00:43:48,320 --> 00:43:51,680
Speaker 1: severe downsides. And you can even benefit from the positives

954
00:43:51,680 --> 00:43:55,239
Speaker 1: that come from rising rates as well. Use this opportunity

955
00:43:55,320 --> 00:43:58,120
Speaker 1: to finally get a fully funded emergency fund of at

956
00:43:58,200 --> 00:44:00,920
Speaker 1: least three to six months worth of fences, maybe even

957
00:44:00,920 --> 00:44:03,040
Speaker 1: considering that up to six to nine months played on

958
00:44:03,080 --> 00:44:05,399
Speaker 1: the more on the safer side, like my family does.

959
00:44:05,400 --> 00:44:06,960
Speaker 1: I mean, yeah, so much of it depends again on

960
00:44:07,040 --> 00:44:09,440
Speaker 1: your specific scenario, And I think one other thing to

961
00:44:09,480 --> 00:44:12,960
Speaker 1: consider probably with rising rates, is that it could. It

962
00:44:13,239 --> 00:44:16,040
Speaker 1: hasn't upset that the job market yet, Matt, you mentioned

963
00:44:16,040 --> 00:44:19,080
Speaker 1: that earlier still the lowest unemployment rate since nineteen sixty nine,

964
00:44:19,160 --> 00:44:21,440
Speaker 1: but there is a chance that moving forward, if rate

965
00:44:21,520 --> 00:44:25,080
Speaker 1: hikes continue and the economy does experience a little damage

966
00:44:25,080 --> 00:44:27,359
Speaker 1: because of it, we could see more layoffs. And so

967
00:44:27,400 --> 00:44:31,120
Speaker 1: it just it's another call to Yes, Fortunately Sami's accounts

968
00:44:31,120 --> 00:44:33,960
Speaker 1: are paying more, but if your job is more unstable,

969
00:44:34,000 --> 00:44:37,319
Speaker 1: if your family finances are more unstable, savings matters even more.

970
00:44:37,480 --> 00:44:41,000
Speaker 1: If we do like and people have been predicting, predicting recessions,

971
00:44:41,000 --> 00:44:42,560
Speaker 1: it feels like for a couple of years now and

972
00:44:42,640 --> 00:44:45,839
Speaker 1: it hasn't really come to pass, but I would say

973
00:44:46,320 --> 00:44:49,040
Speaker 1: this is a call to be prepared for that potential

974
00:44:49,080 --> 00:44:51,680
Speaker 1: reality as well. Yeah, but let's get back to our beer.

975
00:44:51,719 --> 00:44:54,120
Speaker 1: You and I man, we enjoyed a shorts beer. This

976
00:44:54,239 --> 00:44:56,680
Speaker 1: is it says it's a logger, but this isn't a

977
00:44:56,719 --> 00:44:59,000
Speaker 1: normal logger. Now, it's like a dark logger. Yeah, So

978
00:44:59,160 --> 00:45:01,080
Speaker 1: I mean I guess that's you know, it is darker,

979
00:45:01,200 --> 00:45:02,600
Speaker 1: and so because of that, I think it's got some

980
00:45:02,600 --> 00:45:05,920
Speaker 1: of those multier flavors. Like so if if a regular

981
00:45:05,960 --> 00:45:08,279
Speaker 1: Logger is like white bread. Well, then this is whole

982
00:45:08,280 --> 00:45:10,680
Speaker 1: wheat baby, because it does have more of you know,

983
00:45:10,760 --> 00:45:13,000
Speaker 1: like whole wheat bread. It's slightly it's not a sweet,

984
00:45:13,239 --> 00:45:15,239
Speaker 1: right like, it's maybe a touch more bitter. It's got

985
00:45:15,280 --> 00:45:17,480
Speaker 1: some more that browning going on, and I kind of

986
00:45:17,480 --> 00:45:19,359
Speaker 1: feel like that's what's going on here with a short spear.

987
00:45:19,480 --> 00:45:21,560
Speaker 1: But I did enjoy it. What were your thoughts? Yeah,

988
00:45:21,600 --> 00:45:23,560
Speaker 1: well my first thought was maybe the shorts be with you,

989
00:45:23,640 --> 00:45:26,960
Speaker 1: which is maybe think of Spaceballs, which is a classic,

990
00:45:27,040 --> 00:45:29,400
Speaker 1: true classic movie I haven't seen a long time. I

991
00:45:29,400 --> 00:45:30,759
Speaker 1: think I remember watching that when I was like eight

992
00:45:30,880 --> 00:45:32,600
Speaker 1: years old or something like that. I think I was

993
00:45:32,640 --> 00:45:34,600
Speaker 1: probably too young to watch it, but the kids in

994
00:45:34,640 --> 00:45:37,759
Speaker 1: the neighborhood we're watching it just remember thinking what is this?

995
00:45:38,800 --> 00:45:41,200
Speaker 1: I was a good one, dark helmet, a lot of stuff. Well, yeah,

996
00:45:41,239 --> 00:45:43,880
Speaker 1: this is like this dark roasty but also kind of

997
00:45:43,880 --> 00:45:46,480
Speaker 1: crisp logger. So it's just interesting combo. You don't think

998
00:45:46,480 --> 00:45:48,720
Speaker 1: of those things going together. But I think your bread

999
00:45:48,760 --> 00:45:51,279
Speaker 1: explanation probably is the best way to think about this beer.

1000
00:45:51,320 --> 00:45:54,040
Speaker 1: But I thought it was delicious, even though it's kind

1001
00:45:54,080 --> 00:45:55,800
Speaker 1: of a rare style that I don't know if I

1002
00:45:55,920 --> 00:45:58,040
Speaker 1: had many short spears in my life, maybe a couple,

1003
00:45:58,239 --> 00:46:00,680
Speaker 1: so kind of fun to get to try this one. Absolutely,

1004
00:46:00,719 --> 00:46:02,480
Speaker 1: another big thanks to Matthew for sending us to spear.

1005
00:46:02,480 --> 00:46:04,560
Speaker 1: We appreciate it, man most deaf. We will make sure

1006
00:46:04,640 --> 00:46:07,200
Speaker 1: to include a picture of the spear up in our

1007
00:46:07,239 --> 00:46:09,160
Speaker 1: show notes up on the website, along with any of

1008
00:46:09,160 --> 00:46:11,920
Speaker 1: the resources that we may have mentioned, including maybe a

1009
00:46:11,960 --> 00:46:14,600
Speaker 1: link to Treasury Direct dot gov, which is where you

1010
00:46:14,600 --> 00:46:16,920
Speaker 1: can buy some of those I bonds. It will make

1011
00:46:16,920 --> 00:46:18,839
Speaker 1: sure to link to some other helpful stuff there as well.

1012
00:46:19,120 --> 00:46:21,160
Speaker 1: But buddy, that's going to be it for this episode.

1013
00:46:21,239 --> 00:46:24,160
Speaker 1: Until next time, Best Friends Out, Best Friends Out.