Welcome to How the Money.
I'm Joel, I am Matt.
And today we're answering your listener questions.
All right, buddy, let's get to it. Your is your throat all warmed up?
I was born ready, Matt.
We did just chat for about fifteen minutes about local politics before before we actually I had already hit record and then we got off topic, so went back over there, stopped, deleted, started fresh from the beginning.
Sometimes that happens, like we're friends who we just like to catch up about random other stuff. Were yeah, that that's happening in our lives or around town, and then we're like, oh, wait, we're supposed to be recording a podcast now, aren't we.
Got to talk about a personal finance not local politic? Yard signs is that we're.
Just deliberating right now. Who's running for local school board? Is the thing?
Just stop? Stop?
All right?
We are endorse candidate right now. Hey, if you.
Want to, you to go out on a limb and no thanks, go for it. We're gonna talk about investing when you are younger, when you're twenty five. We're gonna specifically talk about some different accounts that this listener is asking about we're going to discuss insurance coverage limits. Specifically, we got some feedback from a listener. We will address that and plus another point that she raised. Another listener is asking what he should do about a four oh one k loan that he has. We've got all of
that to get to plus more today. But buddy, I want to share something really quick. Folks might remember. I guess it was maybe two years ago that there is a small part of me that was thinking we might get a second vehicle, and I was considering a Tesla, and I was just like, I want to I want to drive it. I want to get to get to see what it feels like and what's great.
About if you're going to do it, do it quick or that well?
I know tax well that that time is it's no longer something I want to do. Okay, But one of the I don't know if you recall, but one of the things I shared was that it was a ton of fun to drive a Tesla, so much fun. I really enjoyed it, but it was a pain in the butt. So this was during a trip when we rented it, which is all, isn't that a great way to try out a car? By the way, while you are traveling somewhere to try to get that particular vehicle before you purchase the dang thing.
Because like a twelve minute test drive, he giesn't tell you nothing.
Second multi day extended test drive, which is so much fun, especially when it's a Tesla and you're not used to an evy. It was a ton of fun, but it was a pain in the butt to find the Tesla superchargers, the charge points or whatever O.
My friends in California say the opposite that were crazy. Where I was, we had to go out of our way to get to a charger.
That was the downside as opposed to a gas station on every single corner right, and not to mention because you're tapping into the supercharger as opposed to trickle you know, slow charging at home. If you weren't traveling, it ended up being just as expensive as having filled up traditional gas power vehicle right going to the gas station.
Yeah, loading up on that battery at home.
That's the way to do it. An of money.
Yeah, if you're yeah, if you're filling up on the road, yeah, you're gonna pay a lot.
So basically, what I learned was that Okay, I don't want a Tesla, and also I'm not gonna rent another Tesla again because it just didn't really work out for the type of trip that we were taking. Uh So you might be surprised to hear that I just rented another Tesla for a trip that Kate and I were taking.
How you changed your tune?
Here's the thing.
In the span of three seconds.
Would you rent a Tesla if it was substantially cheaper than even the most affordable economy traditionally gas powered vehicle, Yes, it would.
And that's why I've been running evs lately. Rent a car, it's so great, dude.
So the I went to one of the site aggregators, you know where it's got all the different different places that you can rent from. And then I hopped to one that I had rented from quite somewhat recently, just to see directly on the site, and they had they were running specials on electric vehicles specifically. It wasn't just Tesla, it was also like the the Ford mack e.
I rented a subru electric car recently.
Money it was great, enjoyed it.
Yeah, yeah, So here's the deal.
It was ninety six dollars total for this rental, as opposed to a little over three hundred oh my god, for even the most economy whatever, gas powered vehicle.
That's where it's a hassle man.
Yes, well here, and here's the other thing. I of course looked to where we were traveling, and there were superchargers very close by to where we're planning to travel. But I specifically paid like ten bucks more and got the long range because I think there's a chance we may not even need to charge at all, uh during that trip, because because you know, they charge you if you bring it back without over ninety percent battery life. But it's only thirty five bucks, and so like I
might be able to save ten bucks or something. I don't know, maybe it's only fifteen or twenty five bucks to charge it myself. But the worst case scenario is let's say we're tight on time, we gotta make it back to the airport. What do you do? You just take it back and they just charge you thirty five bucks yah, which is still there is a still a massive savings to be had there. Going with the EV
as opposed to a more traditional traditional vehicle. Last wanted to share that I like that because I think there's a there's good savings opportunity out there.
I like that. I've been shocked at the discounts on EV's too when you're running a car. And last I was stayed at an Airbnb last time, and so I just messaged with the folks ahead of time, and I said, Hey, do you have a place I can plug in over there? Just trickle chargings fine? And they were like, yeah, we'll leave an extension cord out through the garage there you go.
So I was like fueling up for free, yes, and so yeah, just ask the question of your host, if for a hotel or wherever you're staying, just just check and see. Maybe you don't even have to pay for a supercharger. Maybe there's some place close by you can charge up for free.
In our case, we don't have it. It's not an Airbnb, so there's not going to be the ability to run that extension cord out otherwise.
I don't know. Man, Did I tell you that go to Low's get a tow hundred foot extension cord just like tapp into this house near behind?
Did I tell you that I literally threw an extension cord in the minivan because we rented a plug in hybrid for the road trip. Oh okay, and because I wanted to have the option wherever we stayed, because we stayed at Airbnb's the entire time to be able to use the extension. Dude, we absolutely use that extension cord. It was a smart thing that Chrysler Pacific, but yeah,
it was. This is just a piece of advice out there for folks to make sure to shop around instead of going with the default, even when the default tends to be a money saver, like Kayak or Priceline or skyscanner one of those sites that I did check. Sometimes it pays to go directly to the business's website itself and to find the best deal.
Don't forget Costco's auto rental program as well. It's a good place to look. All right, Let's mention the beer we're having on this episode, Matt. This is called Marbits by Southern Grist. It's a marshmallow IPA. We'll give our thoughts later. Should be interesting, Yes we will, all right. If you have a money question, we'd love to hear from you, just go to how to money dot com slash ask read the instructions or record your question on the voicemail app of your phone. Email it over to
us at how to Moneypod at gmail dot com. We want to hear from you. Hopefully we can take your question next week on the show. Matt, let's get to a question specifically about a four oh one K loan UH and a nervousness about not being able to pay it back in time.
Hello, Matt and Joel. My name is Nathan Parkinson from Pocatello, Idaho. I have a four to oh one k through my work right now that I have a four to oh one K loan through, and I was thinking about moving jobs and one of the places I was planning on going to doesn't have a four to oh one K. The difference in pay might be at least thirty thousand dollars, so I wasn't sure if I can't pay off that loan. I've read that sixty to ninety days that you have to pay it off or you might get charged on
your tax taxes. I just wanted to be able to find out if I should be looking for a different job that actually offers a four o one K loan and how I might be able to find something that can either get a match or if it doesn't have a four to one k loan, how I go about getting more into my IRA four oh one k.
Thanks Matt and Joel. Oh, Nathan's in a tight spot here, Joel, I certainly hate to see him not take this job that pays a whole lot more because of this decision that he's made here in the pasture. Honestly, these are the sorts of situations. These are the things we want folks to avoid completely, and it's why we tend to be against four one k loans because the common refrain that you hear when you talk about a four one k loan is like, hey, you're just gonna pay yourself back, no harm, no foul.
Even that interest to your paying. Yeah, it's going back to you.
But the assumption is that because of that, I guess it's just not that bad. But when you take the money out, it's also not in the market, it's not growing on your behalf, and then you might end up in a situation like Nathan, where you are looking for a new job, or maybe even worse, maybe you are in a situation where you get laid off and oh you know what, that four one k loan, it can present a real issue. Yes, you don't have the ability to pay it back pretty quickly.
That's right. Yeah, So the four on k loan, it sounds like the easiest way to get money. Hey, it's better than a lot of other options. And it might be depending on your you know, ability to pay back how long it's going to take. But there are a lot of potential downsides too. And think about the run up we've seen in the market, Matt, what Nathan took out not to you know, point into this source spot Nathan, Sorry,
but like it. The ruin is the market's been up like what thirty five percent essentially over the past five or six months. So Nathan's right, if he doesn't pay this loan back in a timely fashion, he's gonna owe money, right because it's going to be treated as a disbursement. So I think he said in his email he owes about fifty three hundred dollars toward this four O one
k loan. And so what does that look like, Well, it means he's going to pay ordinary income tax on that money, as well as a ten percent early would draw penalty on top. So I don't think Nathan's fifty nine and a half. Because of that, he is gonna owe that extra ten percent. And that's I don't know. To somebody like me, that feels like Harry Houdini got punch Matt. You remember, That's that's how we ended up dying, right, was like somebody punched him when he wasn't ready, and was it.
I thought it was like a canniball.
I thought it was somebody. I think I think it was like some young fella, because he would let people come punch him as hard as as hard as he could during his acts, and they were like, oh, I'm going to punch her, and he wasn't. He wasn't ready, he wasn't doing his act. It was like the kind of sucker punched him exactly exactly.
I don't like that.
Of course, he wasn't ready, internal bleeding, all that kind of stuff. That's what this feels like to me.
You probably gotta feel pretty bad about yourself if you're the guy that like Initially you're like, yeah, I gotcha, but then you're like, oh, I'm.
Sorry, dude, I killed the greatest musician magician of all time, you know, killed the guy. Yeah, Well, in this specifics matter here, by the way, because the IRS says that you need to pay back this four one K loan before you file taxes, and you could even wait until October with an extension next year. That'd be fine with
the IRS. They're okay with that. But your employer likely has more stringent requirements in their play in documents, and that's what you're really going to want to pay attention to. Most plans that you pay back that loan in full right when you leave your job with no grace period your employer, I don't know, Nathan mentioned like sixty or ninety days. Yeah, there's a chance that your employer has has that written into those planned documents. But don't count
your chickens before they hatch. Don't assume this. Make sure that that's the case, that that's exactly how your employer treats this dispartment disbursement. You want to just make sure you're following the letter of the law here, because, like we just said, the adverse consequences could be significant, and.
This is one of those really important things where man I would be willing to make a lot of sacrifices in order to pay this four K loan back in the required time period, Like, for instance, I might even be willing to delay taking that new job, if that's something you have any control over, in order to pay this the sucker off, maybe even take out like I would.
I think I would certainly be willing to drain my emergency fund, maybe even borrow from a helock in order to avoid that negative outcome, and then of course make a plan to replenish that e fund, make a plan to pay back that he loock eight like as soon as possible. I certain I don't think I would go as far as like taking on a payday loan. Joel.
Yeah, that feels a little a little too far, But like, the only way I'm doing that, Matt, is if there's some mob boss who's starting to break my knee caps And in that case, I'd probably take out a payday loan, But that's it.
You might want to consider it, and.
I'm not in that kind of trouble right now.
I don't think I would do this, But depending on your situation, you might even want to, like maybe borrow from a relative with the assurances. And this is obviously assuming that you are taking this very seriously and you plan to not borrow from yourself like this every again, but just make assurances to them that they that you will be paying them back regularly over the coming year
or so. But man, just that the difference in your salary right there, that thirty thousand dollars is significant, and I wouldn't let the four o one k loan keep you tethered to that significantly lower paying job.
You know.
I think where there's a will, there's a way. But certainly make it a high priority to completely eliminate this.
Yeah, I mean, it'd be it'd be kind of like a self inflicted wound to say, I'm gonna stay at this job if I really want to move on, and I'm going to get paid a lot more just because of this four one k loan. There's there's got to be a way. And you mentioned some good methods, Matt, of finding the money to get rid of this four one k loan so that you're not, you know, taking keeping that money out of your four one k forever. Yeah, and that you're also not paying the tax and penalty,
which is a big deal. You also mentioned, Nathan, that you're holding out for another job or for an employer that offers a four to one K, and.
Which I will say, by the way, to reiterate, we're talking about a four one K loan, not because at one point he said, what if the new one doesn't have a four one K loan? I think maybe he misspoke, and I think he's specifically talking about a four one K plan. Yeah, specifically, especially one with a match.
And you do have to consider that, you know, you and I talked regularly, Matt about the secondary benefits that employers offer, and those benefits had up incredibly some you know, some employers offering health insurance with a significant discount where they'll pay like eighty or ninety percent of the premiums for you and straight up free. Yeah.
I got friends that are having babies and everything is just like completely covered at super fancy employers. Has me just weeping those Catillac health care plans. Knowing how much money IVE spent on labor and delivery over my lifetime.
I know, as self employed individuals the healthcare stuff.
Had the privilege of being able to do that.
Yes, yes, so those things really matter and a four one K plan is incredibly helpful. I think not having access to a workplace retirement account would be a bummer, no match, no ability to shovel chunks of money into a tax advantaged account. That's that's a downer. It's a downer for anyone who wants to be smart with their money, Like you're looking for that in an employer and you're hoping that they're competitive in the right.
But it's not a deal breaker though, No, especially especially given the difference in income. So and here's the other thing too that I want to address, Like, you can still get really wealthy, Nathan with just an IRA. Yeah, yeah, so.
I could be a roth Ira millionaire in what thirty six years? Thirty five?
Well, at seven and a half percent, it's thirty five years. I was way off. It's a here right there. That's pretty incredible in my opinion. And that's just the I mean, I know for a lot of folks it might be it it's difficult for them to max out an IRA every single year as opposed to a four to one K. You can become a four to one K millionaire in as little as twenty years. But at the same time, who's maxing out there four one k? I know some folks are, but there's a lot of folks for saying
twenty three thousand, five hundred dollars. Dudes, I'm sorry, but I ain't got that kind of money setting around, right.
That'd be a third of my income, or that'd be half of my income, and that seems impossible.
But it's still possible, even just with the boring old IRA at your disposal.
And well, there's that, but let's just say this. Let's say Nathan plans to invest at least half of just the raise that he's getting, a thirty thousand dollars raise. That's hey maxing out right there, a roth IRA every year just became super easy. If he's got a high deductible health care plan through the employer and HSA, he can max that out too, And then he's got more money left over toss into a taxable brokerage account as well. So he's just got a whole bunch of accounts at
his disposal. It does not have to be the workplace retirement account, the four to one K, or the TSP at other employers, or a four to fifty seven B like it can be some of these other accounts that are widely accessible to almost everyone. It doesn't have to be a tax advantage account through your employer. I think that makes it easy because it's deducted from your paycheck. It's automatic, right, and you don't really have to think about it. That's one of the perks.
You don't really feel it.
That's right. So you're going to have to make a proactive plan to save for yourself in some of these accounts, including probably in all likelihood, automatic contributions monthly from your bank account towards some of these accounts. I think you can just you can still do an incredible job saving for your future without an employer plan. It just takes more intentionality and it falls more directly on your shoulders. But I wouldn't let that, especially especially with a massive
pay increase like this. I would not let that be a deal breaker by any stretch of the imagination.
Sure, and again we're talking about investing in your ability to grow wealth here, but let's make sure that that, Nathan, that your first order of business is one hundred percent to be able to pay off that for win k loan and honestly just to be able to man, let's just stay away from that altogether in the future as well.
We've got more money questions to get to, Matt, including a listener who wants to limit their grocery and restaurants spending. We'll get to that and more. We'll get to that in a whole lot more right after this. All right, we are back from the break. We've got more listener questions to get to Joel. This doesn't happen very often, but we're going to hear from a listener who has been listening to the podcast for quite a while, longer than my mom's been listening to the podcast.
Let's hear from Bryant.
What's up, fellas. Briant here from Montana. Longtime listening to the show about six years, and I really appreciate what you guys do. I've just got another boring investment question that nobody probably wants to hear about, but I've been pretty curious and I'm going to shoot anyway. A little context. My wife and I are both twenty five years old, and we've been together since we were sophomores in high school, and she actually just finished up her doctoral degree and
started her career. We are very fortunate and we were able to get through school debt free, so we currently do not have any debt as far as investing goes. I currently max out my roth IRA and my HSA. On top of that, I have a pretty solid pension and I've been investing for about five years. My wife is kind of in the opposite boat. She hasn't been able to invest at all while she was in school, but is looking to start now. Her employer offers her a four oh one K with up to a five
percent match in an HSA. Of course, we plan to put enough money into her traditional four oh one K to get the mast and max out her HSA. That would put us at about twenty percent of our income. We're looking to up that to about twenty four percent, and we were just curious whether we should put that extra money into her four oh one K or whether we should open a roth IRA for her. I'd really appreciate some feedback, Pretty curious on what I should do.
I'm currently leaning towards the IRA, but would love to get your guys' thoughts. Thanks.
All right, Joel, is this just a yes or no answer to to Bryant as to whether or not you should go ahead with the IRA. Let's have some color?
Yeah?
Okay? Well, first off, high school sweethearts. I love I love that. That's awesome. You guys been together for a long time and their sophomores. Yes, and he's been listening for a while too, Yes, sincebody's been listening since he was a teenager.
Yes, that's crazy. Yeah, he's like, finally I can enjoy a craft beer, just.
Like just like the buddy, the boys came right exactly, And I mean it's no wonder that he's crushing it already, right, and his wife has her doctorate at this young age as well, graduating debt free. That's just an incredible way to get started, like Tyra getting off on the right foot. I mean, that's an understatement for where Brian and his wifer are you going in life. I mean they're just starting off with everything kind of going in their direction to win at their backs.
Yeah, they are doing all the right stuff already. The guy the roth Ira, the HSA A pension as well, So I guess he's got some sort of old school government job perhaps I don't know, but he's doing basically d all of the above, and it's helping him to sock away quite a bit of money and in let's say, very tax friendly vehicles as well. I'll say, Brian, a guy wasn't necessarily picking up any of this in your voice. But the fact that your wife hasn't started investing yet
is nothing to be too worried about. Man, Like, she's been working her butt off, she's been getting that debt free degree, which is incredible, and the higher likely income that she is going to be able to earn that she's gonna be able to garner will be well worth it as far as a standard of living, how much you're going to be able to invest, ultimately leading to greater levels of financial freedom financial independence. So kudos to you both for rushing it like that. I love too
that he said that twenty percent of his income. It doesn't kind of feel like quite enough if he wants to ramp it up to twenty four percent. And a lot of folks, Matt, they continue to increase their standard of living as that income goes up. And yeah, maybe they kind of bump up their their four one K contribution by one percent each year or something like that. But even then, you're what's your the amount of money you're investing, it might not be keeping pace with the
rate of pay increases that you're getting. So actually, as a percentage of your income, you're not doing as well as you were in those early years. And the truth is not having any student loans, which is I think rare for people, especially with the amount of degrees they've gotten in their household. That's hard to come by. But not having those student loans makes it even more feasible to dedicate more of your resources towards investing for your future.
And there's just something incredibly powerful but delaying some of those lifestyle upgrades intention right when you're doing it on purpose for a missional purpose of having greater levels of financial freedom earlier in your life. And speaking from the other side of forty Bryant, like, especially if you plan to have kids, funneling more money away now is going to allow for those greater levels of work and life
flexibility when it has the most impact. Matt, You and I talk about this regularly just as friends, but like where the happiness curve, where it hits the bottom is typically right where you and I are in life, and we feel like we're living our best lives now because we're not worried about we're not trying to build this like nose of the grindstone career, and we're also not worried about finances because we front loaded a lot of
that sacrifice. I think that's where a lot of people find themselves is they're like, I guess I need to start saving for retirement. I haven't done anything yet, and so they just.
Feel like they have to work all the time and they're missing out on a lot of the relational and familial things that really make life worth living in this spot in life in particular.
So yeah, yeah, there are just more responsibilities that are thrust upon us as we're trying to achieve, oftentimes at this age career. But then there's demands being asked of us from as a kid or I'm sorry, like as a son or a daughter, from our parents as they are aging from the standpoint of what it is that we're trying to be able to provide for our kids for them as well. But I think keeping that lifestyle
creep in check is basically what you're alluding to. And I think just like I picture the horse, you know, like the horses pulling the carriages and the cities, and they got the blinders on because it doesn't really matter. All the craziness is going around them out there in the city. All they need to be able to do
is just to walk exactly straight ahead. And I think if you can kind of keep the blinders on from a lifestyle standpoint, it's like, it doesn't really matter that that guy over there or your old friends from high school or college are going on this trip or they're doing that. Man, such a great reason to get off of social media so that you're not keeping up with the lifestyle upgrades that lots of other folks are opting
to do, whether intentionally or not intentionally. But what we're saying here is to continue to intentionally limit some of your spending and it's going to make socking away more money for future you just even more feasible. Easy.
My buddy Jim just bought a boat. Maybe maybe that's why I should do with my extra income.
And it's like, oh, I guess it's time that we all get both, right, Huh.
It's like, no, enjoy your buddy Jim's boat, Like, don't get one yourself and keep investing. It doesn't mean that you can't, over time like increase your spending, right. I think you and I have also found ways to loosen the reins in regards to that. But yeah, you want to do the right things first, and he's at a particular age and place to be able to kind of double down.
On these efforts such yeah, I can have such a massive impact. And for him, he's thinking about bumping it up like five percent, right, Well, if you run the number, is that simple increase five percent? It can cut five years of your working timeline off. We'll link to a classic Mister money Mustache post that really very clearly and easily lays this out. But it might even incentivize you to try to even increase your contribution amounts over time. But the heart of your question here four one K
versus roth Ira. Yes, we are leaning the same direction you are, and I'm going to say wroth Ira certainly get the full match with your four one k, of course, but then or I guess with your wife, but then make sure that you are maxing out her wroth Ira, and if you want to contribute more than that, increasing four one K contributions after that can make sense. So could opening a taxable brokerage account if early retirement is a goal of years. But the taking the wroth route
is great because it's such a flexible account. It's giving you greater levels of tax flexibility. In the future as well. And actually, on the note of tax, like, you are likely going to continue to earn more and more money, so you are in a you're currently in a lower tax bracket. Let's go ahead and buy the bullet, Now pay the tax man, and never have to worry about taxes in that account for the rest of your life.
Well, at some point you might get to the point where regular contributions to roth Ira aren't allowed. Yeah, And so actually being able to fill that bucket up while the bucket's accessible makes sense because at some point you might lose access to that bucket. And I do too the kind of having some pre tax some post tax money it allows you that tax flexibility in the future.
I think that's underrated because later in life you can kind of sort of it's like a choose your own adventure when it comes to how much you pay in tax depending on which buckets you're withdrawing from. And I do think that's that can be a really smart way
to apportion your funds. And it just makes sense too in regards to a four one K, get the match or sticking some money in there, then go into the roth are and then go back into the four one K, and you know you might be kind of neck and neck those accounts with how much money you're setting aside in both of them over time, and then when it comes time to tap them, you've got a lot of options, right,
And so yeah, that flexibility comes in quite handy. We've had different guests on the show, Matt who have different post tax and pre tax preferences. I think there's a compelling case for both. But I do think that combo of the four one K get the match the rothncks. It's like this lethal in a good way option for people, and I think it's the route that most people should consider.
There's certainly outliers right where if you're super low income earner you might want to go roth Ira and Roth for one K. If you are an incredibly high income earner like you.
Might be time to get the tax break on both. Yeah.
Yeah, so so those are It's there is no one size fits all, but I do think for the average person that that's the comba that makes the most.
Sense, and specifically for Bryant's situation, sounds it sounds like, based on what he told us, that's what I would do. One caveat though, like we've been I was just praising his desire to want to increase his percentage of saving and investing. I will say this is just assuming like you are the one that has listened to us for so long, and so I'm just assuming that your wife
is also on the same page. That being said, just for the sake of argument here, let's say that she's starting to kind of change your tune a little bit. It's just like, man, we've been working so hard and I want to be able to go with two ply toilet paper, or like, maybe it's time for a second car. What's something else that comes into's and comes into Joel. I don't know, but I want twins. That'd be a much bigger expect that would be for many.
Years to come.
I just want to say that it's not just about what your goals are. Obviously, Like y'all are a team, right, I mean, y'all are married, y'all are y'all are partners for a life, and so don't be overly frugal, uh And maybe what she would potentially call cheap in an effort to sort of win this little battle, and you end up losing the war decades down the road. Like, the goal is for y'all to a mass an incredible amount of wealth, so that decades on the road, you've
won the war. You're both living the life. You're proud, and you can look back fondly on the sacrifices that you've made as a couple. I just wanted to throw that out there. Yeah, I just want to make sure that you are reaching some of those goals that you'll have together, that they are in fact both of Y'all's what.
You're saying is he should be telling his wife, Matt and Joel told me to save sixty percent of my income. She hates us because we just ruined her life and like that. But that's I think where some people get sometimes when they start learning about the compounding returns and what that can do, and they're like, I'm just gonna like put all my a in that one basket. You've seen the truth and you can't unsee it. And compounding returns are awesome. But you know, we would also say
life has to be lived. It's you want to take advantage of both those things, living an awesome life and saving and investing for the future. But Bryant, best of luck to you to your wife. You guys are doing awesome and I'm sure you'll continue to do so. Matt, let's get to another question. This one comes from someone who's in the money advice space.
Hi, Matt, angel this is Angela and Richmond Hill, Georgia. I've been listening to your show for several years now and want to thank you for your thoughtful content. I'm in a credit financial counselor and I really like your ask how to Money episodes as it makes me think about how I would respond if they were my clients. I did want to comment on two listener questions. The first was from around January of this year, and I just haven't gotten around to doing a voice memo. The
listener was asking about maxing out their TSP. Well, maxing out early might seem like a good idea. Once the TSP is max the employee can't contribute anymore, which means they can't be matched for the rest of the year, so they're basically essentially leaving money on the table. The second question had to do with lowering insurance costs for
a vehicle the listener called a few weeks ago. One of the things a listener mentioned was lowering his liability to the state minimum, and I don't know that that was clearly addressed. While lowering are even canceling property assurance comprehensive and collision, especially on the Honda makes sense. Lowering
the liability is exposing him to much greater risk. I find that most people don't understand the difference between property and liability on their policies and was curious about your thoughts. Thanks so much, Have a.
Great day, all right, Joel, what do you think about Angela's feedback? Should we start a new segment called Joel Matt stinks?
I don't think so, Okay, Yeah, that might be ripping off somebody else's okay, we Joel Matt suck. I don't know that. Yeah, that's a different or are totally awful Joe matter totally offul Maybe that no, But if you do have like I love stuff like this, we're like, oh, yeah, it's a good forum, I think right now.
And it helps me to realize too that if we haven't parsed out, I don't know, there's nuance and a lot of these questions, and sometimes we sometimes will gloss over certain aspects of.
We'll miss something in a question. Sure, and it's kind of important, and so maybe we like answered it three quarters of the way and we certainly left out a quarter or some people just disagree with our advice sometimes and they think that, maybe, yeah, we really could stand to be informed. So we appreciate appreciate this sort of feedback of it all.
Yeah.
I think we try to say regularly too that that there's a lot of subjective nature, just like in our answer to the last question to our advice, and even the way we view some of these things has changed since we started the podcast in terms of like balance and in terms of how we think about retirement and work, and that's informing how we answer questions do you.
Think about life?
Yeah?
Yeah, it just depends on what aspect of life that you are taken into account. Like there's you got the financial side of things, but then you've kind of got the life fulfillment side of things, and you've got the work satisfaction side of things, and are a ton of different factors for sure.
By the way, one thing Angela mentioned she said that she was a what she says, she was a budget coach or a money counselor money counselor right, And I think that's I think that's super cool. You and I. We've had people in her position on the show in the past for interview segments, and I think a lot
of times knee jerk people go to financial advisors. They think that's the pro they need, and financial advisors can be expensive and it might not make the most sense for them where they're out on their wealth building journey, but a money counselor or a budget coach can often be a great use of your money for a specific period of time as you're trying to learn the ropes
and you want some personal, one on one feedback. So Angela, we're glad you're out there doing your thing, and really do appreciate your feedback.
That's right. Yeah, And Angela is right about maxing out your workplace retirement accounts too early, like for instance, a four to one K or a TSP that she mentioned. And so again, for many folks, it sounds impossible, right, Like we're again we're talking about over twenty three thousand dollars over the course of a year. I think a lot of folks are thinking, how am I supposed to make that happen, let alone doing.
It faster than over the course of a year, right, My problem is not that I contributed too quickly. Yeah, retirement accounts like.
The worst tumble brag of all time. But there are some go get our financial independence minded folks out there who really do attempt this, and so in an effort to just get that out of the way, they just ratchet up their contribution amounts to the sky, getting much smaller paychecks for a while until they hit that max early on, which maybe emotionally feels really good. But it certainly seems like you're doing the right thing here, but
you might be leaving money on the table. Like Angela mentioned, if you max out your contributions let's say by June, well, you run the risk of missing out on any mash dollars that would have been yours had you taken just the steadier taurus approach.
Over the course of the year. And similar to an earlier question, I mean, so much depends on your employer's plan documents, because in some cases you won't be missing out on the match, and others who will, right, And so the best approach is typically to figure out what your biweekly contribution should be in order to make twenty six equal investments with each paycheck that leaves nothing to chance, right,
you are doing equal investment amounts. And yes, Matt, you talk about funding the WROTH in full on day one of the year, right as soon as as soon as you possibly can, because that way, your money is invested for a longer time. And I think like people want to optimize all the way. That's kind of what they're going for here, to fund their account early. But if it means yeah, your money's invested longer, but you have fewer dollars to invest because you're not getting the full match,
that's a problem and you want to avoid that. But then some companies will have language in their play around something known as true ups where they'll ensure that you get the full match, even if you stuffed all that money into your four to one K early on, and they'll basically cut a check at the end of the year for whatever match you might have missed out on during that year. As long as you max it out, you're going to get the full amount of the match
that the employer offers you. I know what your plan documents say, because some are generous in that way, others are not. And you don't want to make a mistake and miss out on matching dollars because you funded too early.
Exactly, And this might be something you have to dig into a little bit because there probably aren't going to be a ton of folks at your company who are investing in this way.
So the question the HR person does not often get to see exactly.
So you certainly reached out to them, but it might take you doing a little command f assertion some of these terms like true ups and having to dig in deep to become a little to become an expert there on your specific plan. Angel also referenced insurance, and this is a case where you don't want to be cheap, right, I think, especially if your vehicle is older, you might want to eliminate comprehensive coverage in order to save on insurance costs in order to keep that money there in savings.
But it's one thing to shop around and compare rates with other insurance companies. But if you are cheap, you might opt for inferior coverage amounts, putting you at a significant financial risk. And we're specifically talking about liability insurance here because as state minimums, they are not indicative of what your coverage should be. There is no there's no one size fits all answer to how much you should be insured for, because my answer would be very different.
If I was, like a previous caller, twenty or twenty five years old, my net worth is like zero or even negative. Right, If I've got ten twenty thirty thousand student loans, there's a big difference between that and where I've been. After let's say, decades and decades of investing regularly in the.
Market, insurance becomes more important.
Yeah, it's more. Initially it just kind of seems like a nuisance. It's like, oh, this is thing that you have to do. But the older you get and the more wealthy build, it's like I see it with rosier color glasses.
As I get older, it's.
Like, oh, man, what a great thing to have to be able to make sure that I've mitigated that risk. We won't get into specifics here, but when it comes to the liability insurance that we have on our old one hundred and ninety thousand mile minivan, Joel, I've got twenty times what our state limit is. Wow, which sounds kind of crazy, but not when you consider the fact,
I don't know, some folks are just more litigious than others. Right, it doesn't really matter if you've got an old, ratty look in minivan, they're gonna try to come after you. But specifically, I mean, we live close to a fairly you know, we live in a big city or near a big city where there are like Lamborghinis driving down the Interstate. And when I see that, when I'm sharing a lane, yeah, sharing the Interstate highway lane with like a Lambeau.
Hey you try to raise them.
Hey, I'm getting into a different lane because I don't want to be behind them. But be like, that's a really expensive vehicle, and you could easily blow through not just your statement of THEMS, but like I mean, like something that's even substantially, even something that's ten or twenty x, it would not be difficult to blow through some of those liability minimums. And so you need to keep all this into account. Where you live that matters, right, And
so I guess that's what I'm getting here. Like, for instance, if you lived in a small little town where you know everybody and nobody's really soon ay each other, and everyone drives ten year old tell you how to pickup trucks, Okay, you probably don't need to go with like some super off the charts coverage amount. Yeah, but it's just another instance where your context and specifically where you live and where you're driving it matters.
I think a lot of times frugal people are they're getting the quotes, and they aren't getting quotes for state minimum coverage, and they're not thinking about, well, how much do what are my insurance needs? And so it's they're just comparing prices between the lowest common denominator insurance policy and they probably need to get quotes for insurance that's going to cover them in case of a more substantial claim or encounter with a Lamborghini or something like that. Right, So, yeah,
you do need to be careful. And it's kind of like you must be over forty eight inches to ride this ride or something like that. They still let people as tall as me ride those rides, right, And so I think you don't want the bare minimum. That's not going to be enough for a whole lot of people. So I do appreciate Angela mentioning that I'm not sure
why we didn't address and answer that question. I don't even remember that question right now on that, but I think it also it might make sense if you're kind of confused, you're not sure how do I decide what sort of coverage I need? This is going to very person a person kind of like you're you're mentioning you might want to hire an independent insurance agent, not just to help you shop rates with a bunch of companies, but to offer some advice right about what kind of
coverage limits you might need given your financial situation. And my guess is an independent insurance agent should be able to help you on that front.
Yep, independent broker. Yeah, like even with like homeowners, the ability to talk through replacement costs, right price per square foot, what just kind of what the trends are. I think that can be really helpful.
For what are the trade offs between me going with a two thousand dollars deductible versus a five thousand dollars deductible? What are the premium changes can I self ensure for that? Those are good questions to ask. And then there's Yeah, there's a site called Trusted choice dot com where you can find an independent insurance agent near you, So be sure to check that out. That that could be an important task for you to look into this week or in the coming weeks.
Absolutely, Joe, we got more to get. See, we're going to hear from a listener who's interested in cutting back on their grocery spending as well as how much they're spending going out to eat. We'll get to that and more right after this Harbor.
Back from the break, Matt, it's time for the Facebook question of the week. This one comes from Stephen. He says, homeowner's insurance question. Do premiums go up on homeowner's insurance for using it the same way they do on car insurance? Our house was struck by lightning. Oh, some appliances are fried.
That sounds terrible. It's one of those active god things you can't do much about, right, Yeah, he says, in the siding where it got hit is going to need to be repaired to our deductible as five thousand dollars. Any guidance or advice is appreciated.
Five thousand bucks. All right. That's does is bring back are you having PTSD? Does is bringing back bad memories? Jo? Now, as so, your house didn't get struck by lightning, but the tree.
Got struck by lightning, got struck.
Which is why came through the roof.
That's right, no awful, honestly, Like, it was not a fun experience, but it it could have been a lot worse.
I did not.
I don't have terrible memories about it that situation.
Yeah.
Fortunately unfortunately weren't in the house when it happened, or else I probably would have worse memories.
Sure, yeah, so, But to answer Stephen, I mean, it varies from state to state because every state is going to have an insurance commissioner and it's their job to regulate the insurance companies and enforce the rules. In most states. Finally, a claim will cause your insurance premiums to increase, but how much it partly depends on the insurance companies. Some may not bump up the rates all that much, while
others might consider dropping you all together. Like you use it, and you use it, you lose it, right Like, That's one of the one of the refrains that you sometimes hear. It's not common after a single claim, but it can happen, which means that in your case, you do need to be careful before you file a claim. I would be considering the long term consequences. And in your case, j it wasn't just like a couple of appliances that got fried, right,
having to repaint the siding where it got charred. It was much more substantial than.
That flooring framing.
Yeah, it was water damage touched a.
Whole lot of areas, which made meant the price tag went up, which meant the reality of claiming and filing claim made a whole lot more sense. And so yeah, how much your premiums can increase depends on a lot of factors, right, including the ad fault nature, which this is not the case. Even this wasn't so in your fault, right, this was, like I said, an act of God. The overall claim amount that can impact to the how much
premiums go up for you. And rates have already been subject to higher increases over the past couple of years. Insurance companies are feeling the pain of higher payouts. You we read about the wildfires in Los Angeles, read about the hurricane damage right in the Southeast. I mean, it just feels like we're experiencing greater levels of more natural
disasters and then so which means higher claim amounts. And we're also talking about just everything costing more right after a significant bout of inflation, So a premium increase of twenty to forty percent. I don't think that would be out of the question. And if you're paying let's take let's say three thousand dollars a year for your homemotos insurance right now, well they might say, hey, you actually need to pay four grand or forty two hundred forty
five hundred starting next year. I don't like it, and it's important to mention that this claim is going to stick on your clue report, which would likely up your rates when getting quotes from other insurance companies in the future. SEA might say, Hey, definitely don't like that. I'm going to file a claim. I'm going to get paid out, and then at some point, maybe six months down the road, after I've like gotten far enough away from this incident and fixing everything back up, I'm going to go to
another insurance company. And that's how I'm gonna be able to lower my rates. Maybe maybe, but maybe not, because they're all going to know about the claim you filed and that's going to impact the quotes they give you too.
That's right. Yeah, so let's go back to the deductible five thousand dollars. This is a good thing because it's actually helping to keep your premiums lower. And on top of that, it makes it less likely that you are going to file the claim steven which keeps your premiums reasonable. Like we just discussed, and so I would run some numbers. How much is it going to cost for you to get these repairs done? Because if we're talking let's say
seven thousand dollars in total or six certainly five? Right, like, you don't file a claim that would not make much financial sense in this case. Self insurance would be the right call. But let's say if oh, actually it's not just the sighting, some of the framing got charred or something. Oh, it's all the appliances, they're all on the fritz. Oh the electricals damage now too, Oh my gosh. Yeah, now we got to upgrade all We got upgrade our panel.
And the service is actually I don't know, I'm just making these are terms i've heard as I've renovated at homes. The service coming from the street, there's something wrong with that. Well, if that were to be the case, and the replacement expenses and cost is coming in a good bit higher, then I think filing a claim could be this minus move.
And there's always a great area here, Like it's never like the exact formula, I don't think, but I do think. I think of insurance homeowners insurance as mostly there for catastrophic reasons. If something significant happens that's incredibly beyond your ability to pay for or doesn't make any financial sense to file acclaim. So I think you're right, mat If it's like kind of close to that deductible amount, yeah,
that's something you cover. You don't involve insurance at all because you don't want it on your clue report and you don't want to raise your premiums. And then but if that's not the case, and you've got a good bit of cash sitting on which hopefully you do have a good bit of cash, having a deductible that high, that means you're willing to take on the responsibility of self insurance. I think hopefully you can handle this on your own. But again, there's always a gray area, and
there a sliding scale. It can be difficult to know the exact way to proceed.
All right, Let's get to one more quick one. This is from Grace, and she writes, we are trying to find a way to limit our grocery and restaurant spending. And we thought we had a winning idea of getting Visa gift cards. Because the card won't let you pay when you run out of money, we could get one for each family member and not important but a bonus. Then in our real budget there is just the buying of the gift card for this purpose instead of a
million little transactions. Grace, I hear you as the one who keeps up with the budget. All those small expenses get on my nerves, but she writes, then it turned out that there are fees to get the cards. They were quite prohibitive. Any other ideas, Cash isn't great because you can't use it to order door dash or anything like that, but maybe we will have to try it any other ideas well. I see the benefit of not being able to I see not being able to get
door dash as a positive. Yes of going with cash. Let's go ahead and address that one right out of the gate. Don't do door dash.
Yeah, if you're really trying to limit your hate door dash, man, how much you spend eating out or just on food in.
General, don't make it so easy.
This is the number one thing you want to eliminate. And there are other other things you can do, of course, which we'll talk about to reduce your grocery spend, but you know, doing the app based takeout orders is one of the worst things you do. So I do think actually moving the cash is a reasonable choice here, dude, because it's going to to prevent the worst thing in the world that you can do, and it's also going to put those limits on you. Yeah, that don't come with fees.
I will say, if you're looking for more convenience, because folks are thinking, well, I don't want to like roll with hundreds of dollars in my wallet or in my purse kick at old school, and only put the amount of money that you want to spend on discretionary spending
in your checking and or whatever, like spending account. Like sometimes newer banks these days are calling them spending accounts, but like that's that's kind of how these accounts were created back in the day, and I think most people, including myself, I only kind of it's random the amounts of money I have in my checking account and my
spending account versus my savings. Like basically I try to keep as little in my checking account as possible so I can earn the interest in the savings account, right Like, that's what us optimizers are out here doing. But I think you can take a more methodical approach. And if you so, it sounds like she is tracking her spending anyway, because she's talking about all the purchases that she's inundated with at the end of the month, and maybe she
hates them just as much as I do. But that being said, you probably know how much you're spending every single month on eating out and groceries and things like that, and so simply just move that amount of money to your checking account and then you are going to roll with your debit card. And I think that can be a nice Granted, there are always going to be workarounds, right Like you could just say, oh, well, then I
could just go in there and transfer that money over. Well, in a similar way, you could also go to the ATM, that's right and pull more cash.
There's always a way to circumvent your desire to save money.
You are still potentially your own worst enemy here. Nothing is you proof.
There's no complete cure for humanity that Matt has found yet or that I found it. But I think making it harder on yourself to do the things that are in your worst interest in terms of saving on your grocery bill makes a lot of sense. And then where you shot matters to talk about that all the time. No cost grocery stores Aldy in Legal in particular Trader
Joe's solid for savings. Just find a grocery store where you can buy stuff for less and buy the off brand stuff the store brand stuff, I guess you might say, and I think also, Matt, at least what we've found is planning ahead just saves our butts. Like the more we're flying by the seat of ours, the more likely we are to make a bad decision on a whim. And so we've been taken to like on the smoker smoking like two chickens or something like that on the weekend.
It's like ten dollars for two chickens right at Costco, and then I smoke both of them, and we have like three or four meals we plan to make out of those chickens throughout the week, and so it's not very expensive, but it does take a little bit of foresight.
And so yeah, I did, I think just the more you can plan and figure out multiple meals with the limited range of ingredients the weekend ahead of time, that that'll save your bacon too, And because eating out really, when it comes down to it, I think for most it is the worst man the grocery store savings. You can save money there, but the biggest savings is just eating out less and eating at home more.
At the end of the day. I will also say that I am not totally completely against these prepay cards if it allows you to save even more money by the fact that you're not eating out as much, or maybe splurge purchases like buying stuff like on a whim in the grocery store. I think that, hey, you got to spend three bucks. Oh, you got to spend five
bucks a month in order to have this card. Okay, Well, if it allows you to save fifty dollars two hundred bucks by not eating out, then I think that might just for you be the price of admission here in order to kind of implement some behavior change.
And some of those grocery stores will. If you buy the groceries online and you opt to go pick them up, someone else actually does the shopping for you. It's much easier to stick to your list if you're not going into the grocery store itself, you're much less likely to succumb. You're actually it's pretty impossible to come to like the shelf on the side.
Right, we're buying on a whim.
Well, hey, the chips are two for five dollars to this week, I should stock up. You're gonna do that if you go in the store. But if you just buy online the stuff that's on your list, and then you opt to go pick up at some grocery stores, you're not paying a dollar more, you're not paying anything. They'll just add that on as a service for you
bring the groceries out to your car. That can be the best of both worlds for a lot of folks, I think, when it comes to to making it easier to eat at home and to save me money the same time.
Yeah, that's right, so Grace, we hope that helps let us know what you end up doing toocause I'm kind of curious to see if like go going with the old school cash envelopes, if that, if that's the what's required in order for you to just stick to the budget. Joel, let's get back to the beer that you and I enjoyed, which was a mar bits By Southern Grist, which I'll say, this isn't the first Southern. We've had a lot of Southern Grists.
Are you.
I think you're drawn to the Southern Grist brewery labels. Is that is that at the labels?
That must be the name of the But I also saw I'm also we've had so many beers. I want to try something that's unique, something I've never had before, and so this was a marshmallow infused IPA.
Indeed, it was.
I think this is takeoff on Lucky Charms. It looks like it with the rainbow on the front and stuff.
It's literally, yeah, it's got like a little four leaf clover all over the place. It's got like the little like graveyard headstone looking at marshmallow, you know, the kind of fake marshmallow that we're talking about, the crunchy kind of marshmallows.
So, what are your thoughts?
One of my favorite?
Yeah, I mean neither. I was gonna say one of my least favorit it's actually it's got I think I just don't like marshmallows either.
I think that's it. Like, it's very It's not often that I'm like, oh, yeah, what's the marshmallows, like even when you kind of toast it just right when you're doing uh smores or whatever, that's not really that's not my jam. But I will say the creaminess lends itself to to the ipa as far as the because sometimes you will have IPAs that have lactos in there. But there's something about this one with a bitterness from the
hops that seemed to kind of kind of ruffle. Yeah, that kind of clashed with the marshmallow the sweetness that they're trying to pull out there. So it's you know, there's like almost two competing flavor profiles that we're going head to head. Yeah, a little bit, but yeah, it's still fun to fun to enjoy and drink.
It's good to experiment. This experiment felt flat on its face.
We shared it. So it's the sixteen ounce? Can I drink my eight ounces? Looks like you left one ounce?
Might not finish? Yeah, all right, that's going to do it, Matt. For this episode, we'll put links to the show notes, some of the some of the stuff we mentioned up on our website at howtmoney dot com.
That's right, buddy, that's it. So until next time, Best Friends Out best friends out