Welcome to Out of Money. I'm Joel, I'm Matt.
Today we're answering your listener questions.
That's right, We've got a listener question episode lined up for you on this beautiful Monday, and we've got five. Like always, we've got five listener questions to get to a letten.
Me terrible weather, by the way, where our listeners are. Matt, you have no idea that is true. It's nice here, it's beautiful here though so a little little hot still, it's a little warm.
She's got student loans and she's trying to figure out how much money to keep on hand, how much liquidity while also paying down those student loans. We'll get to her question. We're going to cover a five twenty nine strategy for adults for adult learners. All adults should be learners, but if you're looking to go back to school, and we're going to talk about that lifelong learning is important.
And another listener he's worried about the He's wondering maybe if he should be worried about some of the bank downgrades that have been making their way through the news. We'll get to those three questions, plus a couple others throughout today's episode. All right, I look forward to it.
But before we get to that, Matt, I wanted to ask you kind of a frugal or cheap I've got a couple pairs of headphones. As a dude who listens to a lot of tunes, who listens to podcasts, but who also creates audio for a living, I wear headphones a lot of the day, and over time those headphones they wear out, right, but one I actually have two pairs that this is happening to right now. The ear muff thingies that go on the outside.
Are like the base. They're basically disintegrating. I'm pretty sure that's the technical term for the muff. So the other none of your most the pads, right the question that creates the nice seal.
Yes, but these pads are wearing out, they're molting whatever, and actually I like a little flecks of black all over me from these pads.
Is often look over at you and you've got something yes on your face.
I know, like right there, buddy, So is it frugal or cheap that I'm replacing the pads not the headphones?
Uh? It is the earth conscious thing. It's the green thing to do, most likely because I'm sure that you could just easily toss those and buy a pair for like another cheap pair for like ten bucks.
They're not super cheap headphones. They're probably like fifty five sixty really yeah.
I mean you watch all the slick deals and all.
That, because I'm honure you could get a fifty dollars pair for ten When you're wearing headphones all day every day, you don't want the ten dollars pairs. So there's a difference in like ergonomics and sound quall.
That's why I don't like the over the ear because it presses on I think it has to do with the fact that I wear glasses, and so I've got glasses, and when you do the over the ear, even though they're not really supposed to push on your ear, they still push on your ear a little bit. And we got glasses. It smushes the car your ear up against your head and it sandwiches the acetate the arm of the glass glasses there, and it hurts. That's why I like the in ear. Even while I'm sitting here at
the desk, I don't like doing plug in. I like to do the blue.
I think we can both agree that the worst of both worlds is the on ear headphones. Yep, only psychos where those my parents included. I don't know, it's headphones. I'm like, who would get these?
They're the default cheap headphone, Like they look like they're the nicer ones, but in reality.
They just yeah, they don't quite cut it, all right, So I think I play paid like eight or nine dollars for a replacement for the muffs.
I'm like a fifty to sixty dollars pair headphones. Yeah all right, Well if that's the case, then I think you probably made the right move. I was thinking those were like a ten dollars, just a cheap pair, But I just rocked my beats. Yeah there go.
If I see a great sale at some point, maybe I'll upgrade. But these things are still working. They're just I don't I don't want all the molting, you know, the plastic stuff all over.
I don't want extinct dinosaur particles on you, you know, right, petroleum, that's where plastic stalk's from.
With.
Yeah, let's introduce the beer that we're going to enjoy it today. So this is a beer. This is a collaboration actually between Burial and the Eighth State, which is a brewery in Greenville, South Carolina. This beer is called These are depictions of yet another revolutionary absence. This is an Imperial Stouts. We were just joking about how you shouldn't drink big stouts in the summer, in the summer heat, and here we go. So this is what we're gonna
enjoy it today. We'll share our thoughts at the end of the episode.
And you always have to laugh at any burial naming convention because they're all ridiculous and over the top, and a state evidently allows it.
Like, fine, you guys want to name it your ridiculous name. You guys do your things, all right.
But we take listener questions every single week now on the show, and we would love to take yours. So if you have a money question, please feel free to reach out. You can submit yours at howdomoney dot com, slash ask, or simple Instructions. It's really just recording a quick voice memo into your phone and emailing it our way. But yeah, hopefully we can take yours next Monday. All right, But let's get to our first question for this episode.
This one is from a listener who's got a bunch of young kids and has multiple money goals.
Hey Matt and Joel. I'm Rachel from Crystal Lake, a sub of Chicago. You don't know this, but you come with me on several walks and I love it. Thank you so much. I'm a consultant with variable income and my husband is in sales. Together we bring in approximately two hundred K a year. We have three kids, ages five at under and boy are the expensive. Together we have about one hundred K and student loans with interest rates that vary from five to seven point twenty five percent.
We've maxed out contribution for my husband's work, and I save a minimum of two K a month that doesn't go to taxes. Combined, we have about two hundred and sixteen K left on a mortgage with a rate under four point five percent, on which we make two hundred dollars principal payments extra per month. At present, we have forty K all together in the various CDs and high yield savings accounts, keeping money aside. I'll need to pay taxes should I pay off the stuit loans for us,
keeping certain percentage above the emergency fund as liquid. Pay less and have more liquid and how do we decide how much to put into home upgrades with excellent ROI. I've paid off the only car we have this year and we don't have any credit cards that have a balance with interest applied. Thank you so much for your insight and your help.
You guys rock all right, Rachel. So going back to what you were saying there at the beginning, we are happy to hear that we are your walking buddies. It's like the yeah, two buds that gets to walk along with you and you don't need to have a schedule and figure out where it is that you're going to meet up for where you're gonna reconnoiter meet up with somebody. But yeah, we love that. Thank you for bringing us along. And also another note too, man, kids, it is true
they are expensive. They're not quite as expensive as some of the different headlines out there would lead you to believe. You know, I think is it like seven hundred and fifty thousand dollars.
Now like the I think it's like three hundred and eight thousand something like that was last time.
He thought was a lot more. It used to be in the upper twos. Now as there's not that much, that's a lot money over twenty years. Still a lot.
But I think for some people that can scare you off and you'll be like, I thought I was gonna have kids, but not if it costs that much. There's a lot of there are a lot of ways to make sure that your kids don't cost quite. They're only cost three, I'm gonna have like five more kids. Right, it gets overwhelming, and yeah, I realized, like, yeah, it's not easy, but of course it is worth it even though it's costly. Right, But Matt, let's let's talk about
kind of gets a racil's question. There's kind of a lot going on in this one, so we'll try to get to a bunch of the points or the questions that you had. And it sounds like y'all are doing really well from an income standpoint, which is great, and on top of that, you're saving and investing in a solid clip. You don't have any debts that are out of control, and you've got that paid off car and that's something we dig like, we oh, yeah, we don't like cardbt that's one of our least favorite things.
And I think she said that they paid off the only car that they have, which makes it sound like that there are a one car family that they're rocking that with three kids. That is awesome. Hang on to that as long as you can. Yeah, the longer you can stick with that. Yeah, I'm like salivating this beer so it's so good. I just took a sip. But it's just easier than I think a lot of people, like in their minds, are like, oh, we've got okay, we've got kids. Now, we definitely have to get the
be the two car family thing. But with so many people working remotely and the ability it takes a little more work to schedule, but the ability to bike. I literally, I mean I bike my dude to preschool this morning
on the cargo bike. I'm gonna and with ride sharing too, we're gonna we're gonna take the van in to get some repair work done later this week, Gonna take it there and then I'm gonna uber home because guess what, all right, fifteen twenty bucks with tip and all of a sudden, that means I don't need that second car.
Yeah, it's definitely a line item in the budget that more and more people can and should question, especially especially given how many more people are working hybrid or fully remote these days. On the student loan front, by the way, whether or not it's a priority to pay off those that student loan debt, it depends largely on this new save plan, right, which is changing the game for anybody who has outstanding student loan debt. It's this save plan
is likely going to change your payment amount. It is for a whole lot of people. And there's this helpful calculator on student Loan planner that will link to in the show notes. But if this new save plan is going to reduce your payment substantially and your balance still won't be growing, which is part of the benefit of this new save plan, your student loans likely shouldn't be a top priority. The biggest benefits come to low and middle class income earners though, which isn't you guys, Rachel.
It sounds like you guys are making more than that and you have three kids, though, so much depends on the specifics of what sort of subsidy you're going to qualify for under the new safe guidelines. How long have you been paying on those student loans, right, how much? There's a lot of different fact balance is left, and so yeah, take that into consideration. Plug your numbers into that calculator and kind of see, well, oh, it looks
like my payment is not going to be changed. If that's the case, then that higher rate student loan debt is probably a bigger priority for you than it is for other people.
Sure, yeah, yeah, normally this would be honestly, just a really tough one.
Right.
So she specifically said that her student loan interest rates are a little bit I don't know if they're a little bit higher relative to most other folks, but they're on the line, right, So typically any loans that are higher than seven percent, like I would want those gone if that was me, And anything lower than seven percent, like, in my mind, that wouldn't be the worst debt in the world to keep her around if you have other goals, if you are investing solidly, But if your payments Rachel,
if they get reduced with this new safe plan, and you know, like let's say you hit that max twenty or twenty five years of repayments and then you end up coming out ahead, then I see no reason to pay down on them early, even though that might be your natural tendency. Especially, I mean you mentioned her her mortgage making ex additional payments to that. I get the impression that they don't like having debt around and that's something that they might want to eliminate.
Which, let's be honest, is a really good way to think about debt. But at the same time, when you have low interest rate, debt and savings rates are higher and other financial goals, so other things you do, you've got to moderate maybe your approach to debt and investing.
Exactly so with that forgiveness of mind, and after you crunch your own numbers, if it's likely that this new plan could basically tip those higher student loans, especially the ones that are around seven and a quarter to a lower effective rate essentially at the end of the day, then it certainly makes even more sense to not prioritize paying down the student loans.
Yeah, and one of the heart at the heart of Rachel's question, it comes down to liquidity, which is such an important question map for people because having more cash on hand gives you options, gives you flexibility, and can give you peace of mind. And fortunately you're not hammered as hard now having money in savings as you were just a few years ago. And so how much money
do you keep on hand? Rachel, that's a good question, And it seems like we're not prioritizing student loans, which because of this new saved plan, they're not as highber a priority as they would have been in years past. But it often comes down to what you're gonna do with the money instead. That is really the crux of everything,
Like what are your alternative options? Because if you're just gonna blow that money, which I don't think you are, It doesn't sound like you're that kind of person who's like going to go on a self control Yeah, shopping's free with it, like you just want to know the best place to funnel it. Well, if you were going to spend it in a silly way, it would make sense to go ahead and be done with those student loans
as opposed to buying more stuff. But you're already investing it sounds like you're maxing out your husband's four O one k at work. It might make sense to go ahead and at least open up roth iras though for the both of you. Yeah, maybe max those out to the total of thirteen grand a year for both of you.
And if you did that, if you got the money invested, I think Matt, you and I would both feel better about them missing out on the guaranteed return on their money by paying off the student loans because they're putting it in a tax advantaged account to grow and compound for their future.
Sure, yeah, if you wanted to do it by the book, you would say the equivalent amount that you have outstanding on your student loans, invest that money. So once you have that much additional money set aside and is either invested or even in a savings account where you're earning a higher rate. But again knowing that when you do invest that money is going to compound, it kind of makes sense that you don't. It doesn't need to be
dollar for dollar per se. I think if it was me, I would not only use some of the additional money to make sure that they've maxed out their rothy race for this year, but also set aside money for next year. That way, you have that money ready to like it's sitting there on the sidelines, ready to go. January first hits you're able to lump some invest and next year it's fourteen thousand dollars because they're upping the contribution limits from sixty five to seven thousand, which is we love
to see, which is awesome. And so if I were in your shoes and I was able to max out not only this year but also next year's, I think I would feel much much more comfortable about saying, Okay, let's just see kind of how this plays out with the student loans. We don't necessarily need to pay those
off ahead of time. But let's also get to home renovations, Rachel, because first of all, it sounds like you've got the ability to use that additional two thousand dollars a month that you're setting aside, and you've got the potential just to straight up pay cash for any projects that you've gotten mind, which is awesome.
Not to mention the two hundred bucks a month they're prepaying towards the mortgage, like funnel that back into home rental project.
There you go twenty two hundred dollars and this is gonna be way better than taking out a heelock at today's rates. But then you asked about how much to put towards renovating, and this is going to have to be a judgment call on your part. You know, you and your husband y'all need to talk about this. You'll need to think through what aspects of your home that you'd like to change the most, and what will honestly
have the most impact for y'all is a family. You know, like with something as simple as adding some cubbies in a mudroom, would that drastically improve the quality of life there. That's literally something that Kate and I did when we moved into our house last summer. Did not cost a lot of money, but it subs I mean, I don't know what we would do with all the shoes, the backpacks,
the jackets in the winter, the bicycle helmets. Just adding these cubbies where each person we got six of them there where they have their own space, dramatically increased the usability of our little entry were there but with her or maybe like she's got three kids, so maybe she's realizing that what they need is another bathroom or something right but way those needs while at the same time keeping in mind that you may not be in this house forever, and so you don't want to necessarily overbuild
your street or your neighborhood. It's difficult because you, on one hand, you want to keep that in mind, but you also don't want to make these improvements with return on investment. As the only consideration, because I think the last I read a new garage door is actually what ranks the highest as far as what improves the resale. And you just never know with who it is that's going to buy your house whether or not they're going to
value the improvements that you made. And so what I would say is make sure that you're adding utility for the way it is that you and your family live there, without getting crazy with it. But instead of ROI, make it rou return of utility or something like that. Have that be the filter to which you think through some of these improvements.
And so much of it comes down to how long you think you're going to be in the house. If you're like, hey, listen, we're on two acres out here, and this is the perfect spot for our family, it's just the house that's insufficient, and so if we do this, this and this, then hey, we're going to be here for the next thirty And granted I think some people think that and maybe that doesn't end up being the case. But if if you think you're gonna be there long term,
it makes even more sense. I think the funnel money into the house and make it the way you want it to be as opposed to thinking about pure resale value, because if you're only going to be there for a year or two and you're gonna need like bigger bones essentially at some point you need a bigger, better house something like that, then you probably don't want to sink too much in you want to be saving up for the next time payments.
They Yeah, that's when you go to Ikea and just get yourself some organization pieces the temporary fix. Yes, it's a band aid, which is very much the temporary fix. Right, Actually, scratch that. Scratch Ikea. Instead, go to your local Salvation Army or Goodwill and find you a quality piece furniture that might also solve some organizational needs. If that's what you got going, it's even better. Yeah.
And I think the period matt of your life with young kids, it can be financially daunting. It feels like you're trying to do a bunch of different things at once. Three kids under.
The age of five.
That's about as tough as it gets from a financial and a mental perspective. It can be very trying. Childcare is expensive if you depending on whether or not you have help or something from family members, you're trying to excel in your career, you're trying to save for retirement, you're trying to buy or fix up a house. It feels like a lot and Matt, you and I we know that feeling very well because you know, we're not
too far away from those years, those years. Our youngest boys they're still three and so in our oldest are ten now, so we still know, we still remember. It's a fresh experience that you're trying to do all those things at once, So just make sure you keep chipping away. Know that those goals don't happen overnight. Make little adjustments here and there, and then celebrate the wins and successes along the way, because it's just so easy to fixate on the future and think about the easier years that
are coming down the pike. But enjoy these two because they really are special times, even though you're pretty worn out at the end of the day.
That's right. So Rachel, best of luck to you, and I look forward to our walks together as we continue to talk about our finance, the walks that we don't even know we're taking. We take walks around here, but we just Yeah, Rachel needs the recorder of a podcast and send it our way. That way, it's like it's like a penpal. That'd be beautiful relationship. But we've got four more questions to get to, including one from a divorce a whether or not she's on the right track.
We'll hear from her, plus others right after this. All right, we're back.
We've got more money questions to get to from Awesome how to Money listeners and Matthi's next question is specifically about one of our favorite retirement accounts that not enough people know about.
I'm Madam Joel. This is She's from Atlanta. Thank you for all you do and the wealth of information that you provide today. I had a quick question about it's a sea accounts, particularly with regards to reinbursement later in life, potentially decades down the road. How does it work in case of family members? For example, if I pay for a medical expense for my kids now and I want to get reimbursed for that thirty forty years down the road, would I be able to withdraw that fund and use
it for myself? And also, how does it work in the case of spouse. If expense currently occurs for one spouse, can the partner withdraw or reimburse that amount for his or her use or medical expense later down the road. I'm just curious. Thank you so much.
Oh so a Sheesh is from Atlanta. I don't think we get enough Atlanta Atlanta listener questions sentence which Aesh. So we're actually gonna should we talk about this here? We're going to have a listener beer hang here next week, not this Friday, but the next friday after that, September fifteenth. It took a lot of coaxing to get Matt out of his hobbit hole. Do we want to go ahead
and share? So go ahead and pencil that on the calendar because we talked about maybe doing it at like around five, should go ahead nail it down, think four to eight at InterVoice brewing indicator indicator. Yeah, so they've got awesome pizza there. We'll make more official announcements in the future. But as Shish, this is like the little insider heads up for you as well as any others who might be listening at this point who were from Atlanta.
Said great pizza, and that is true. But Inner Voice has great beers to here is so good.
Yeah, So literally we're going there because you, and we chose this location because we're the ones that got to organize it. But we haven't been to InterVoice and we've had their beers before. They're so good. And the pizza it's Glyde Pizza, right, like, so this is a pizza rha that you that our families used to frequent when we lived in town, and they opened the second location out there indicator I can't snink in wait, it's going
to be a ton of fun. So if you are in Atlanta or the surrounding Atlanta area, mark that on your calendar September fifteenth.
Yeah, to see out there. It's we don't do this enough. It's always fun to meet listeners in person, not just I want to watch with them virtually when doing it in real war, we're not actually.
There, so although we like that too.
And at first, I just want to let everyone know, like why a she she's asking this and the reason is because the HSA is actually one of the best accounts to save for retirement and that's how he's trying to use it. Like we've talked about this, We've done whole episodes on this, we have articles up on the side about this, but almost nobody knows sadly that the HSA is one of the best ways, is one of the best accounts with which to say.
For their future.
And they you know, a lot of people treat their HSA as a way to save a little bit on taxes to pay for current health care expenses. But that's not the best way to go about it if you're thinking long term, because you can turn your HSA into a triple or even a quadruple tax advantaged account that can grow for years and decades, that can compound for a long time if you do it right. And that's that's the way she is treating it, which I just got to say, mad props.
And part of what it takes to get maximum value is to pay for all of your healthcare expenses out of pocket so that you can allow for that tech sheltered money to keep on growing and compounding. That makes me think of Charlie Munger's quote on compounding, which is like the number one or the first rule when it comes to compounding to never interrupt it this unnecessarily, which is it's okay to touch it when you need to tap it, but you got to let that thing go.
And that's what we want you to also do here with when it comes to your HSA. But on top of that, though, you'll want to have records for every health expense that you incur, which is going to help you when it comes time to withdraw those funds. I have never had an HSA, so I've never been able to do this, but you better believe if I hadn't a high deductible plan, I would also have an HSA, and you better believe I would have an Excel sheet or a Google sheet with the date, description, of course,
the price. But also make sure that you're either taking a screenshot of those expenses or you're taking a picture of the receipt to actually have the receipt in case the eye used wants to have proof of that as well. Keep it organized. Upload it to a folder. Maybe the HSA folder lay labeled by year. Perhaps, I don't know. You come up with your own system, but you got to stay organized. That's key to making the HSA work as a retirement account. Yeah. Have you ever heard of hyper thymsia? No?
Okay, so this is when you remember everything and apparently it's a real problem, Like I always like talking about.
It, amnesia, right, Yeah, Okay, Well, you remember nothing, which is more akin to what I have. I don't.
I don't remember things very well. I just asked my wife. But hyper thymnesia is apparently when you remember everything. I don't think she has this. And so because of that, he needs to marry taylose documents, and even if you remembered it, he wouldn't be able to prove it to the irs. So you got to keep the record.
He's like, it's up here, and they're like, no, that doesn't count, right.
Yeah, we can't tap that and get the files out of your brain. But the heart of Ashes's question is about whether or not his family members and their medical needs qualify to make that document. So, if let's say one of his kiddos goes to the er with this or that injury God forbid, and you where you know, you get a big medical bill, does that count towards
the HSA money you've set aside. The answer is yes, Right, your HSA funds can be used to pay for out of pocket qualified medical expenses incurred by your family members who qualify as dependents on your taxes. The same is true of your spouse, right if they're listed on your tax return. If you're filing jointly then for that year, Yeah, their expenses are also eligible. And so that's true whether you have the individual or the family coverage within HSA through your plan.
That's right. And your kids are actually included as long as they are dependents, and that goes up. So if your kids are students. A lot of kids go off to college and so they qualify up through age twenty three as well. So that's good to know when they go off to college. And if you're like me and you end up in the er because you ate some leftovers that were left out on the counter and you end up you think you're going to die, and it turns out you've got food poisoning and you're laid up
in bed for multiple days. Why does that not surprise me? Learn my lesson. I'm willing to eat my own leftovers that where I know that they weren't necessarily left in a car for two days. All the things we did get I mean, you I can laugh now, but dude, at the time, I literally thought I was dying. I didn't know what was going on.
I'm sure your parents were like, we wish he would. We're so mad at him right now.
I think I barely had a cell phone at that point, so I think they knew. But you know, this is back in the old it's not the eighties. It makes me think of the Blue episode. It was the eighties. It wasn't at all the eighties. That's when I was born. But technology wasn't what it was while went back when we were in college. That's true, we still remember pagers
and AOL is a messenger. But by the way back to your question the sheish, it's also important to mention that HSA funds that they can be used to cover some things that your health insurance policy may not cover. So, for instance, your health care plan it might not cover new glasses or orthodontia when it comes, especially if we're talking about your kids here, which can get crazy expensive.
But those count as qualified expenses through your HSA. So if you end up spending five thousand dollars on braces, make sure to put that in the sheet excel file as well. But ashish Man, I love how it is you're thinking about using your HSA. Your long time horizon is amazing here in the fact that you're willing and able to invest HSA dollars for thirty to forty years.
That is impressive. It's going to offer you so much more future flexibility because you're maximizing all of these retirement accounts that you have at your disposal.
Yeah, this is like the textbook way to use an HSA if you have access to one, right, perfect like maxid joker out, get all those tax benefits, invest it, and then have a lot more money that's tax free to spend later on. But you've got to document along the way, right, and so there are a lot of details that you need to know in order to make that HSA work the most effectively for you possible. Right, So she's good luck, keep it up, Man and Matt.
Let's get to our next listener question. This one comes from a listener she just like really wants to know after going through a really difficult life event, whether she is still on the right track with her money.
Hi.
My name is Down and I'm from Toledo, Ohio. I've listened to your podcast for several months now. I love all of your helpful Hence your explanations of all things financial are so helpful. I am fifty seven years old, I am single, live by myself and rent my home I have not purchased a home because my job is somewhat transitional, meaning that I am transferred to a different location every two to three years. I bring home about twenty eight hundred dollars a month after taxes, insurance, and
money for my four O one K are deducted. I also have a side gig making about three hundred to four hundred dollars a month. I have five percent taken out for my four O one K, and my employer matches that five percent. In addition to my four to one K and my savings, I will also have a retirement pension from working for the State of Ohio for twenty seven years. My monthly living expenses are about seventeen
hundred dollars. I have an emergency fund of thirty six hundred dollars in a savings age count, and I have forty thousand dollars in a CD. My only debt is a credit card with a balance of four thousand dollars. My questions are one, I plan to use some of the money in my CD to pay off my four thousand dollars credit card debt once the CD matures in five months, instead of waiting. Should I deplete my emergency fund in my savings account now to pay most of
the credit card debt off. Two should I invest my forty thousand dollars from the CD differently once it matures in November? And if so, what might be some good investment options. I have considered purchasing a short term rental property, but I am a little leery of making such a big purchase. And then three, I am recently divorced and very concerned about doing the right thing with my finances so that I can retire when it comes time without
being incapacitated financially. Am I on the right track or do you feel that I should be doing things to different Really? Any suggestions would be greatly appreciated. I love the show, Thanks for the help, and take care all right.
Glad to have you on board, don and great job keeping a nice gap between what it is that you bring in every month and what goes out. You are living frugally what she was saying, her monthly living expenses are like seventeen hundred dollars a month. I don't care where you live. That is incredible given today's the high cost of living today.
Yeah, just housing, groceries, transportation, like to keep that all in that spare is really impressive in so housing, So she mentioned not owning a home.
Don don't worry about that because most folks have been brainwashed into thinking that home ownership is the only way to build wealth or the best way, right, the best way, and it's not necessarily true. I think it can work as a great forced method of savings, right, because when you buy a home, that's just something you pay every single month, and so you're kind of automatic. It's again
it's forced savings. But renters who are diligent investors, who are listening to how to money or making the right moves with their money, they can actually come out ahead by not necessarily investing within you know, a primary resident. That's even more true today than it was given where five or ten years they are given where housing prices are.
Yeah, resolutely, we've seen massive increases in both the cost of rents and the cost of a home, but less growth in the cost of rent and so renters are sitting prettier than homeowners or people who want to be homeowners now. And so I just want to mention too, like how great is it to work for an employer who matches dollar for dollar up to five percent.
That is pretty great.
Not necessarily the norm, but it's pretty sweet. And so that means just by default, by putting in the five you're getting a ten percent total of your salary tossed into a retirement account, which is a really good place to be, right especially since you've got that pension to go along with what you've been putting away on your own. In many ways, you're ahead of the game when it comes to retirement savings. So this is a good place to be. It's not that maybe you can't do more
down the road, but it's a good place. It's a really good starting posies. And let's talk about the credit card debt for a second, because you're not alone on that either. About half of Americans have revolving credit card debt to the tune of like over six thousand dollars. Fortunately, you've got less than that, but we would say that this should be a really high priority for you to pay it off. But should you eliminate that small savings nest egg in order to do it in order to.
Do it right now? We'd say probably not. That's that's right. Yeah, So if don if you look at our money gears. We want folks amassing four hundred and sixty seven dollars before they start paying off the credit card debt. And the thing is, you have more than that in savings. It's just not that all of it is liquid. You've got a lot of it, some of it in CDs. But if that were to you, like let's just say an emergency comes along, well, you'd be putting that expense
of that emergency right back on your credit card. And so feel free to take whatever you have an access of that bare bones base emergency fund and pay that to the credit card company. Go ahead and reduce your balance, but don't use all of it because you are again you would be in a position to where you have
no cash on hand. And on top of that too, she pulls in I think combined between her main gig as well as her side gig, she's bringing in over three thousand dollars, so something like fifteen hundred dollars a month because her living expenses are seventeen, right, so she's got some excess funds on hand, and I think the ability to start paying down that credit card balance even before that was it forty thousand that she's gotten slocked away on that CD that's going to mature later this year.
Down you have the ability to really start shipping away, and by the time that thing matures, you could be totally free and clear of that credit card. Best by starting to chip away at it now, because you are living so frugally, and because you've got that little making that three or hundred bucks on the.
Side, I love that because your margin is so substantial. Even though you're not making six figures, you're still doing You still got a big gap there, which is the key to financial success.
Right. The bigger the gap, the more the more moves you can make that are going to benefit your future, regardless of how much much you make. Right, But the credit card debt's holding you back. So I agree Matt.
The more she can funnel from that margin, specifically to go towards credit card debt while retaining that minimum amount in savings so that she has money on hand for an emergency, I think that's okay. And then once that CD matures, there's probably better things to do with that money too. Like you and I, we want all how to Money listeners to use credit cards wisely and to avoid revolving credit card debt. That's of course that's a
wealth destroyer over time. But the truth is there are probably better things that Don can do with that additional forty K that she's gotten a CD as well. So we should talk about that and Don. First, I just want to say sorry to hear about your divorce. I mean, we know that that can be tough emotionally and financially. It's got ramifications in basically every realm of your life. But based on what you've told us, I want to tell you it sounds like you're heading into the right direction.
It sounds like you're making the right moves, and it sounds like you know what you're doing too right, And so I would think about like moves you need to make and moves you should be making as more of like tweaks instead of an overhaul. Like when you're going in the right direction and you're going at the right speed, but maybe the brakes are just a little squeaky, right, it's like a tune up. It's a minor adjustment as
opposed to making big changes. And so once that CD matures, I would say, keep a decent chunk around as additional savings. Kind of like that three to six months worth of the living expenses that we want people.
To save up.
And then after that, we suggest that you make it a goal to max out your WROTH IRA each and every year moving forward. Since you're over the age of fifty five, you can contribute seventy five hundred dollars this year, you contribute.
And got that those ketchup contributions.
Yeah, eight grand next year, right with that increased WROTH amount, increased IRA amount, So make it your goal to max that out. That is a great place for that additional savings, which might be too much savings really when we're talking about it, and we probably want more money growing for your future. That's where we'd funnel some of that that the CD money on once immatures.
That's right, Yeah, And don you also asked about buying a rental property. It sounds like you move around a lot, right, and so with that in mind, is probably not an ideal investment for you. And on top of that, we would want you to do a ton of research and some due diligence before you consider going down that path, because it's not like an investment per se, it's more
like a part time job. And you've already got a full time job that it's going to have that nice pension and a part time job on a edition what's that side gig exactly. So with all that in mind, like I mean, it could be an overwhelming endeavor, but if you are super interested in it, certainly start reading up on it. Just make sure you do a lot of research there. But sticking to tax advantaged retirement accounts and just funding those like clockwork and specifically what would
you invest in. I think a target date fund would be smart as you are closer to retirement age those funds automatically readjust it and make sure that you are exposed to less volatility. That way, you're avoiding the sequence of returns risk that's when were you to retire, you start withdrawing on some of these funds. If there's a big drop in the stock market, that would have a major impact on the amount of money us left there
in your nest egg. And so by switching over to less risky, less volatile investments within that target date fund, that keeps that from happening. So we would recommend that it allows you to pick a date and you can start working towards that retirement year, but a solid decade of that, plus your pension and plus social security, that's not even something that we even talked about. In addition to a continued frugal lifestyle, I think that's going to easily be able to get you where it is that
you want to be. Yeah, and don hopefully our comments help you feel good about where you're going. Comments always make me feel good, Joe, Well, thank you, that's the goal. Oh right, sorry, I thought you meant I thought you said compliments. Well, but the.
One thing we might suggest if you're interested is to talk to a fee only financial advisor, and so you could find one at xy Planning Network or NAPFA dot org. Those are those are two places where you could find somebody who meets kind of the standards for a financial advisor that Matt and I think are important. And if you really wanted someone to kind of like pour over all of your financials at once, it might be worth right paying a flat fee to somebody to do that.
A few hours of their time would likely be enough to kind of go over some of these details and help give you even more reassurance and maybe some more direction too. But Matt, we got a couple more questions to get to including yeah, whether or not someone going back to school as an adult should be socking money aside into a five twenty nine account.
Isn't that just for kids? Maybe not. We'll get to that and more right after this, Joel, everyone knows that tricks are for kids. Silly rabbit. That's that's that's what you're comment about five twenty nine. Before the break, maybe think of do you remember that this commercial? Of course? Okay, yeah, classic. We will get to that question about five twenty nine's here in a second, but first let's hear a question about the main bank that I actually used me personally.
Hey, Juelan Matt, this is Massa from Boston. Again. Recently, I read that the financial ratings agency Moody gave Alli Financial a negative outlook. In past episodes, you'll have sung the praises of Ally Bank. I have a couple of questions. Is the Ally Financial that Moodies gave a negative outlook to the same Ally Bank that you really like for
personal banking? And if so, should I be concerned that even if my deposits are wholly insured by the FDIIC because I have less than a quarter million dollars with them, if Alli Bank goes under, I may have difficulty getting my money back out. Thanks again for all you do to educate and inform us. Oh in confession time, I first learned about credit ratings for companies by selling bonds in the video game Railroad Tycoon three.
Okay, man, that's kind of cool and it made me I think. Actually was talking to somebody I know recently and he was saying that he plays the Nintendo game Animal Crossing.
Have you heard of it? Maybe?
Okay, I have not. I've never played it. I probably haven't played video games in like ten years ago ago. It sounds like a video game to me, Yeah, it does. But he was saying, like, man, there's so many personal finance tidbits. As he's been listening to the show. He's like, I've been learning, but I'm also kind of putting it into action in the video game that I'm playing. And I think that's kind of cool. The video games can connect like real life truths to the stuff we're playing.
It's obviously playing stupid stuff like Halo and NBA Jam, but it's like, it's cool to see that that some games are actually kind of helping teach us secually. Nintendo in particular doesn't well.
It doesn't, Halo, there's some sort of market capacity, right, like don't you have a limited A lot of death. I don't remember the other stuff, but if that's the case, yeah, video games in some cases don't do as good of it. Like that's why we love nerdy board games because oftentimes the mirror real life when you're presented with a limited resource and you have to find a way to make the best of those limited resources. That is life, at least ancient real life. You know, like wheat tobacco. Well
that's Puerto Rico right there. We haven't played that on in a while. But even like some video games do that like makes me think of the classics, like Zelda. You are gathering resources and you have to you know, you go into the shop. You got the three things that you can buy, and you got to decide which one am I gonna buy the bomb? Am I gonna buy the red candle? Or upgrade to the blue candle? You know, you've got all these things that you got
to make decisions on. So it's not just nerdy board games. Yeah, you can actually learn from video games. Yeah, which I appreciate.
I agreed, especially since you know, we're not learning about this stuff in school really, so at least if the video games have an educational element to it, I'm all for it. But that's thanks for sharing that, Massa. And let's get to the heart of Massa's question about bank downgrades. I'm sure, Matt, some listeners have seen these headlines and maybe they're either worried or they feel like they've got
to change bank stats something like that. And we talked about the recent downgrade to credit down grade to our country and what we think that means.
Right, well, you know, not just a bank. The US event yes, got downgraded.
Literally the country we live in got downgraded from a credit standpoint, and Moody's they actually recently downgraded ten banks and they gave negative outlooks to others, ally being one of them. And then Fitch, the agency who did give our country credit rating down grade, they said that they're likely to down grade dozens of banks too, And so part of that's because of multiple bank collapses that have happened throughout twenty twenty three. It has folks on edge
when it comes to where they're putting their savings. So a little nervous, yeah, and a lot of individuals have moved their deposits not to better banks, but to the biggest banks, believing that that's a safer place for them to be. We want to reiterate, as always, that is not necessarily the case. The truth is the big banks offer much worse service alongside higher fees and non existent
interest rates on your savings. So no, the big banks are not safer, and they're worse on basics, actually worse, not.
To mention all the shenanigans. That's like Wells Fargo a bank of America, which is a kind way of putting it, just more like fraud, right, yeah, yeah, she need their customers out of actual dollars.
It's like someone murder someone and you're like, he's just not nice. Yeah, and you're like, wait a second, No, that was a mean thing to do, so much worse than that. But that doesn't mean, of course, that you've got to go bank with Ally like I do, because.
There are other great online banks. So should you switch to one of those? Should you completely ditch Ally? Well, if that's not necessarily the case either here, I still think Ally is a great choice. When all this news hit, like I literally didn't think twice about what this meant for all the saving. I mean literally, my emergency fund is sitting there in ALLY, and I am not concerned about it at all. Is that just because you're a
homer though, maybe? But so I will say, if I was choosing a new bank, would I go with Ally? I might go with one that is offering a slightly higher rate, but Ally offers a really competitive rate, and they're always up there in the top tier, even if they're not there the very best. And they've got the no penalty CDs, which I'm a huge fan of, and so you just plug that away and that gets you really dang close. So that keeps me from rate chasing,
which can always change on a dime. It depends on what it is that if the different banks are offering, you don't want to constantly be yeah, floating, bouncing from one to the next.
But I think it's interesting that you said that you would maybe not go with Ally because other banks offer better rates, but not because of this credit downgrade threat.
That is not the reason that that would keep me from going with ALI, for sure. Yeah, I mean I
like a lot that they offer. I like their interface, I like their app on the phone, and masa if it's not obvious, Ally Bank, it is the banking arm of Ally Financial, who is who actually received that negative outlook, And so the risk of Allied defaulting it's still relatively low, and just given the tough times within the banking sector in general here, not just here in the US, honestly, just globally, and that has largely been caused by rising
interest rates, stiffer competition for your savings dollars. With all that in mind, I don't see this as a reflection of an ally specific problem. It just seems like it's more of just the It's like it's the rising tide as opposed to like a singular beach. So that's got a rising tide right right. It's something that's impacting not only the US, but I'll I mean, it's a global
issue that we're all going to be facing here. A lot of experts are saying maybe early twenty twenty four that we're going to see that small rep session yet to be seen.
Yeah, banks for having a tough time right now, they're having a tougher time than they were in years past. And on top of that, I think the heart of the reason we would feel totally comfortable having our savings at Ally, you do feel comfortable having your savings at Ally, Matt, I do more business with Discovered. That's kind of my main bank. But basically, if you have less than two hundred and fifty thousand dollars in that account, there's no reason to worry.
Right, that would be me. Yeah, not that loaded.
So we would tell you to make decision about which bank that you use or don't use based on other factors, right, Like you were talking about like the interest rate, like the interface, like the customer service, and so if you like all those features about the bank you're currently with about Ally, don't let this credit downgrade reality or potential future credit downgrade, you know, threats make you nervous, right.
Yeah, Yeah, that's the thing. It wasn't even an actual downgrade. It was just a negative outlook, which means it has the potential for there to be a downgrade. I guess, yeah, off in the future. So it's just it's kind of like they're just putting it on radar, just being like, hey, we see your books, we see what's going on here, and we're just gonna go ahead and preemptively say something. Yeah, and if we saw material weakness. Yeah, if there were.
More like hard evidence that Ally in particular was doing a poor job then and it was impacting their customers, like and they were having to cut rates and stuff like that, that would be one thing. But we haven't seen any evidence of that, and so so.
We do we will say something, right, and I probably will move my money.
Sure with that to be the case. And similar to kind of what we talked about with the US credit down grade, like, hey, this is one of those slow moving events that you should be aware of. It's not negligible, it's not nothing, but it's also not some sort of massive event that should cause you to take big changes with how you invest or what you're doing with your money.
But I would say too for for other folks who have more than a quarter million dollars inn Ally or any other bank for that matter, they should fix that problem quickly.
Right, you are loaded?
Yeah, yeah, if you've got crazy amounts of cash on hand, One you might have too much cash on hand, and then two you got to make sure that it's between multiple banks. I talked to some but he recently Matt who inherited a ton of money. He never had a lot of money and it was hundreds and hundreds of thousands of dollars, so he was smart enough to split it up between multiple banks, and that is something that Yeah, if you have that cash on hand, why you're trying.
To figure it out? It should be it should be under the umbrella of different banks so that you're getting full FDIC coverage for every dollar that you have. That's right. Let's get to our last question. This is from a listener who is looking to take advantage of a pretty sweet employer benefit.
Hi, how to money? This is Hannah Tisher from Greenville, South Carolina. I'm going back to school to get my MBA part time with an employer sponsored program. However, if I want to complete the program in three years, I will have to pay between five and ten thousand dollars myself. Should I put this money in a five to twenty nine plan or continue saving it in my high yield savings account?
Thanks?
And I hope you guys have a.
Great day, all right, Matt.
Lots of cool stuff going on here with Hannah. Like, first, she's going back to school to gain more skills. Yeah, something we applaud, but it sounds like her employer is paying the bulk of this, which is also great. I love that if you can get someone else to put the bill for your education, you're doing something.
Right at least most of the bill. Yeah, Which, so she said that in order to graduate early or to do the three year program, So that's one consideration. Is there a way that she could go more slowly? I guess to just take your time and not have to pay the five to ten thousand dollars, right, I'm sure there are other things that you are considering, Hannah.
Sure, just the thought and sometimes graduating more quickly makes sense, and you don't mind funneling some of your own dollars into that. Yeah, And my guess is that this NBA should lead to increased opportunities and bigger pay bumps in the future. Yeah, with not too much out of pocket from Hannah, which is awesome. And so yeah, way to take advantage of this additional perk that so many other people, so many other employees just kind of leave on the table.
But let's talk about how it is that Hannah is going to fund the amount that she's gonna need to contribute, or that she's choosing to contribute. At least she's wondering if she should have that money there in a high old savings account, or if she if she should consider using the five twenty nine education account, the account that's offered by her state of South Carolina. There, So which one do you use? The answer to this is going
to be both of them. So, yeah, this sounds crazy, kind of weird, but stick with me here, Hannah, South Carolina. They've got a state income tax and the top rate is six and a half percent. Some folks pay zero. It all depends on your current income, but most.
Zero percent tax rate, by the way, is for people who make very little, very very little, so you probably aren't in there.
The vast, vast majority of folks pay that top rate because the sliding scale it only, yeah, truly benefits folks who make next to nothing. And so given that reality, any money that you contribute to a five twenty nine account, it's going to reduce your taxable income at the state level. So with that in mind, we definitely want you to sock the specific amount that you know that you're gonna need to pay for an upcoming qualified educational expense into that five to twenty nine plan.
That's right, But here's the thing, you don't actually have to keep the money in the five twenty nine plan for all that long. Right. One of the biggest selling points to these accounts is that you can invest and grow those dollars for future educational expenses.
Sounds like a nice thing. Yeah, why wouldn't I want to invest this money that's going to go towards my kids college in fifteen years from now?
Exactly, You've got plenty of time to let that money grow for their future. But Hannah, given your need, Hannah's not two years old, No she's not, and so she's got to use this money really soon in the near term future. We don't want you investing money that's going into the five twenty nine account. Stock it in there, but we don't want you to invest it. We instead
want you to keep it in the cash equivalent. But in that account, right, the cash account in the Saving for College plan, it only pays two point seventy five percent.
So once you've got it in there and you have the qualified expense that year, pull it back out, put it in your HYSA, your high heeled savings account once you've got to make the payment, So the money will be in there for a relatively short period of time could be days, could be weeks, maybe even a couple months, but then you pull it back into your life and really what you've done is you've continued to maximize the yield of those savings dollars, but you've also gotten a
sweet little tax break. We've done something very similar. Emily of course, is in grad school studying to become a licensed therapist, and that we've taken advantage of the five twenty nine account in order to basically get some state tax savings. But we're not using it in the same way as we are for money that we're investing for.
Our kids future education. You're not using it in the traditional means. You're really just jumping through a hoop in order to discord the tax break, which is totally illegal. This is totally legit, and because there are no requirements for how long that money needs to live inside of that five twenty nine account in order to achieve that tax exempt status, essentially you're just you're filtering that. It's it's almost like you're laundering your money, but it's like
it's like a legal laundering. That's exactly what the money goes into it, but then you're immediately taking it out, But because you've stuck it in there, you get that TAXI.
That's why I bought the nail salon Matt, so that I could launder and pay no tax.
On all my earnings. I think you kind of hinted at this, but you do have to wait to withdraw the money until the year that the qualified educational expense
is going to occur. And so what that means like, if there's this were me, I would go ahead and earmark the funds that you know you're gonna need to put towards tuition, right these qualified expenses, set that money aside within your high yield savings account, and then whenever it is that because it may not be that may not be a bill that comes due this year, that might happen next year, and so you want to keep that money as long as possible, earning your five four
or five percent in your high yield and then once you know that, okay, this is the year that I'm going to incur that expense, that's when you go ahead and put that within the fight twenty nine account. And that's also when you're going to take it out, because when you take it out, it's that year it has to go towards that qualified extent.
If you have like a longer timeline hand, if you're saying, oh, this is money I'm gonna have to pay towards the NBA in seven eight years from now, then I would would say like, oh no, maybe it's going to open it up and invest some of those dollars and grow it. But because we're on a more truncated timetable, I think it makes sense to do it this way the.
Whole Yeah, exactly. The entire reason that we're talking about not investing it is because we want you to be able to avoid the sort of like we're talking about earlier, was it with Dawn. She's getting closer to retirement, and
so we're looking to avoid that risk. That's what we're trying to get you to do here, Hannah, is to avoid the investment risk, the volatility, because you know you're going to need that money now, and so anytime you know you're going to need access to funds in a time period less than two or three years, we don't want you investing that money. And so this is how you can earn the most on that money without actually investing it, and it doesn't have to sit there for again,
all that long. It doesn't need a season for a year or anything. So we want you to be able to get the best of both worlds here by taking this what we'd call a slightly more optimized route. But Hannah, best of luck to you as you're heading off there to grad school or specifically to get your MBA. So did Hannah say she was in South Carolina? Did she
say she was in Greenville? I don't know if she said. Okay, well, if she is, she would easily be able to go and visit the brewery that we're enjoying on today's episode. So again, this was the here you say it, let me read it. That's a silly name. Oh yeah, yes, silly saying it.
Our depictions of yet another revolutionary absence.
This is an imperial pastry stout, I believe. What were your thoughts on this thick bad boy that we enjoyed today, Yeah, I was the first things.
First, it was thick, it was viscous, right, and then I tasted sweet vanilla and cinnamon combo, a little bit that toasted coconut coming through as well. It's just this big, burly, magnificent, magnanimous stout. I don't even know what other ad change just to throw in on this one.
I would say chocolate as well. That's like the first thing that I noticed was it just was like chocolate. I felt like I was drinking like a hot chocolate, which is kind of the opposite or straight out of the Willy Wonka River. Oh my gosh. Yeah, just like Augusta snow drinking straight from the sacred fount But could you really imagine any heavier beer to enjoy it on quite possibly the hottest day? Seriously, we talked about how stouts are. Oh, you want to avoid these big, heaviestouts.
It's a bad idea in the summer. It's a bad idea on ninety plus degree days. Well, okay, so here's what we're gonna give. If you're listening to the episode this deep into the episode, we're gonna go ahead and share something with you because it means that you're you're dedicated. Right. So, our little studio here, our little clubhouse, our ac unit is a window unit. And what that means is that when we record, we actually have to go and turn it.
Off because it's loud. It's noisy, it's noisy. And so on these hot days with the ac turned off, it gets really warm and it starts to feel like we're like really towards the center of the Earth's court.
What's the wind Hoff method whatever that is. This is the opposite. It's like we're basically like in Asana here, hey for yeah, I was gonna say, free Saunam. We've got a little thermometer over here and inside our office right now it is ninety two point eight degrees, so we're we're sweat movies dedication right there. It's one of the ways we're able to keep expenses low. Though, Joel. We've got this old carriage house that is not insulated, but man, we still love it.
Though.
You know what, we always say, what doesn't kill you makes you stronger, and so I think this makes us I feel stronger, better humans, better podcasters, let's hope. So if it doesn't make us hilarious, but that's gonna do it for you. This episode and listeners. You can find show notes up on our website as always at how to money dot com. We've got other resources there too, including the how to Money newsletter. How to Money dot Com slash newsletter comes out every Tuesday morning. It's a gem.
It's of course, free provides a lot of encouragement alongside great money advice.
That's right, so buddy, that's going to be it for this one. Until next time, Best friends Out, Best Friends Out,