Welcome to How the Money.
I'm Joel and I am Matt and today we're talking the wealth effect Christmas returns.
And b in p L I r L. Yeah. And by the way, everyone saying a prayer for Joel.
Because dude, it sounds like you've got something nasty over there. You're I think your voice is gonna gonna hold up for us.
So no, this is our Friday flight.
And yeah, Ben pl I r L will explain what all that means later on if you're.
Not privy to the fact. But Joel, I got a quick, frugal or cheap for you.
Uh. So the other day I took a jar of pennies to our local Kroger and uh because I was like, you know what, We've had this jar sitting around four forever. I'd actually sort of them out from like the quarters and stuff that we pay our kids allowance with sometimes for the different jobs. And so I finally took it to the grocery store and I was getting ready to dump it in the coin star and I thought, wait a minute, I don't want to pay this company a cut for the change that I have on hand, or
do they charge like eight percent? It's like ten or eleven percent, and I thought, man, forget that. It's unless you opt for a gift card instead.
Oh is it?
I didn't look that that hard at it, but regardless, we needed some a few grocery items, so I thought, you know what I'll do. I'll just I'll buy some milk, some eggs, get some bananas, and I'll pay for it using pennies at the register. I'm not going to put the burden on the cashier. I was going to go through the self checkout because they've got like a little cup.
I thought to kind of make it easy. So in my mind, it's like a self administered like a manual coinstar, where I get to reap off the benefit from it. Here's the downside. It didn't really have what I envisioned. I thought there was like a little bowl for you just to kind of like drop all the change, and no, I had to kind of like take stacks of pennies and run them across this little slot for them to fall down, and it kept getting jammed, and no joke, it took me like at least ten extra minutes to
pay for my stupid my purchase with the pennies. And when I actually did the math. I'm like, wait a minute, I saved like a dollar plus just give myself.
A massive amount of headache. And so I'm curious, Joel, what are your thoughts? Was this frugal or cheap?
Sounds cheap math? I think he answered your own question majorly cheap. Move on, Like it wasn't even wasted time and effort. It was like a minute And I'm like, what am I doing?
This is?
This is so dumb. But at the same time, what are you gonna do with all these pennies? Like you've got them on hand and you're gonna throw it away like it's it's literally money. But pennies, man, they're just they're worth I mean, they're literally worth less than what it cost to actually make it penny. I think it costs like three cents. Penny should be abolished.
We all know that.
It's just no one's had the fortitude to stand up to big Penny to kick him out. But yeah, they got a strong lobby. Maybe next time, check out the coinstar machine and see if you can get I think usually you can get like an Amazon gift card, and then I think so and then.
You don't pay anything. We use Amazon that's for sure.
Yeah, so that that'd be a better way to go, because that sounds like a stressful situation.
It sucked, Yeah, not.
Worth the jamming. And then there's somebody there who was like trying to get it unjammed. I just felt bad for them. Yeah, I'm just like, I'm sorry, I'm wasting all of our time here, and yeah, don't don't be like me. Yeah, I'm sure they were like, this guy sucks, he doesn't come back, but this guy has a money podcast. That's right, that's right. All right, let's move on. Let's get to the Friday Flight assembly of stories we found interesting this week, and let's talk about four OL and
kse for a second. There's there's another reason to not look at your four OAL and K statement now because it's down and you're tempted to fiddle with your investments. It's it's because your four and K is up and you might be tempted to to spend more money because of it. Right, not even by taking money out of your tax advantage account either. The truth is, if you invested mostly in stocks, it likely you likely saw your
portfolio balloon by twenty percent or more in twenty twenty three. Sure, which feels good and there is no reason it shouldn't put a smile on your face. But there's something you need to watch out for. It's called the wealth effect. It's a behavioral economics term which means that folks tend to spend more as the value of their investments goes up, even if they don't have liquid access to the gains. It can lead you to think, h I got more money to spend even though you don't really, all of
a sudden you feel rich. Yeah, just because your investments go up and value don't mean that you've got more discretionary income. You've got more long term income to spend off in the future. But this isn't money that you want to touch right now. And if you take this like too far, the wealth of that can result in taking on.
Debt because of that perceived.
Growth and your net worth, well, it's not perceived like your net worth is going up, but that does not have an impact on what you have now.
You know.
The same thing happens for a lot of folks, by the way, when their home value increases just because you bought a house back in twenty nineteen and it's now worth fifty percent more than what it is that you paid for. That doesn't mean you should start spending like
there's no tomorrow. And simultaneously, we're not saying that you shouldn't enjoy your money, but just be cognizant of this potential brain wiring issue that's just lurking beneath the service that might prompt you to spend in ways that you wouldn't have.
Let's say, after.
Twenty twenty two when the market was down, think about how you felt back then, not how you feel right now after seeing the market do well last year. We are still trying to build wealth over the long haul in a healthy and sustainable way.
Yep.
And I think that it's just important to be aware of our behavioral tendencies, and this is one of them.
All right, let's talk about student loans for a second. Student loans.
They were such a regular part of our show during the pandemic and as the new save plan was rolling out, and we haven't really talked about them much since the payments started back in the fall, though. And economists they were worried about the payment restart. They thought that it was going to kind of lead to some tightening in the economy. But oddly enough, we just haven't seen it
play out like that. Why it could be that folks who truly can't afford that student loan payment simply aren't paying, and so something like four and ten borrowers haven't paid anything since the payment restart happened in October. So should you pay your student loan bill? We would say, if you can afford to pay on it, yes, but also know that even though payments have restarted, there are still many months left. We're not paying on your loans is
not going to get you into trouble. It's what's known is like this on ramp timeframe, and so this coming fall is when people are going to actually be held accountable for not paying their student loans. That's when it's going to be reported to the credit bureaus. That's right, That's when that'll resume. So if you have to prioritize the other financial goals for the time being, don't feel
bad about doing so. But it was interesting to see I think that such a large section people are not paying on their student loder still, But I guess I'm also not surprised to either. Yeah, yeah, I mean, I think what's key is sort of what you said, which is like, hey, this is death that you took on. So it is even though it's not necessarily that it totally isn't being reported right now to the credit viewers.
That doesn't necessarily mean that you don't owe it. But the good news is is down the road it is going to be dropping from ten percent of your discretionary income down to five percent. So that's some relief that you can look forward to sure next summer. And by the way, if maybe you've got a more complicated situation and you need some help figuring out how to proceed with your student loans, this might be an instance where you might want to reach out to a pro over
at Student Loan Planner. We've actually got an article over on the website that'll help you to understand whether or not you're a good candidate to consider going with somebody who can kind of walk you through a more complicated
student loan payment process. And it makes more sense for people who have higher amounts of student loan yet, right, So if you're one of those folks who's like, I don't have like ten grand, I've got like fifty to sixty grand, then it might make sense to talk to a as well as those more complicated income driven repayment plans if you're trying to qualify and you're not sure what counts. Those are all similar situations that might require
a professional. But on the note of student loans, on the note of paying for college, one new perk of the Secure Act two point zero it actually went live this week. You can now officially roll five twenty nine money into a roth IRA. So back before this saw passed, neither of us were really excited about five twenty nine plans. There were just so many other routes that you should
take before saving, specifically for your kids college. The example we would always give is like make sure that you're putting your own oxygen mask on before you're trying to help your kid or help those around you. Basically, there is an order, a financial order of operations.
We called it.
The money Gears will make sure to link to that in our show notes as well. The five to twenty nine plane just falls way down on the list. Yes, exactly, and that's still true. But with this added flexibility, a significant chunk of money that you do funnel into a five twenty nine account for your kids, it can actually be rolled into a roth ira for their retirement years. It's supposed to basically be a relief for folks who just oversaved, who overdid it.
On the saving for college front.
But crafty listeners out there can use this sort of a think of it almost as like a loophole to start helping your kids do invest for decades down their road, even earlier, in particular if they don't end up using those.
Dollars for higher education.
And we've actually got a new article up on the site and you can go there for all the nuance and all the particulars that need to keep in mind.
There's a lot of detail. There's a five year rule, there's an aging year process. You got to age this money man. That's right, fine cheese.
So even though you can do it starting this year, there are a lot of people who won't be ready to do it this year. But it is definitely it makes five twenty nine plans look a whole lot more attractive because they have greater flexibility now. And Matt on the note of school, the FASTS launch, did you see that, Yeah, except for it basically just made people angry. It was just the worst launch of all time. And so I guess.
We had Tina the fafts of Guru on the show Can to Steal, Yeah, a couple of months ago, and you know we were talking about, oh yeah, hey, this new shorter FAFTSA is gonna make it easier for a lot of people.
It should be great. That's what we were promised, not from her but from the higher ups.
Well, and the government had three years to get this right and they still botched it. So hopefully they're gonna get the kinks worked out.
Will report back.
But yes, you can technically fill out this now short shortened fats of form.
Now you can try to. You can try to.
Yeah, but I would just say, don't pull your hair out, don't go crazy, just wait a few weeks.
Still get things sorted out totally, all right, dud.
Let's talk about Christmas returns, because now that the dust has settled from Christmas in the holidays, it's about time to start making some of those returns. Listener Mackenzie, she actually emailed us and she sold a few of her own wanted gift cards via I think she specifically used card cash dot com. So if you're listening, you've got some gift cards that you don't love. Don't let them get buried in the bottom of your junk drawer until they expire or get accidentally thrown away. Get rid of
them in just eroads their values, yes exactly. Unlove those things and turn those gift cards into actual dollars that you can spend today on things that you might value a little more. And if it's actual physical goods that you received that you don't plan on keeping, make a
plan to do those returns soon. And although it's going to be easier to do an online return and just mail those items back, know that it's likely going to cost you more if you're wanting to go that route and just drop it off at the UPS store or wherever it is that you make returns. Instead, consider returning in store because that's going to help you to avoid those quote unquote return or restocking charges that are becoming
more and more popular. Let alone not to mention the actual shipping costs if that's something that you.
Have to pay for.
But while you might have until the end of the month to make returns at some of the stores, other Christmas return policies actually and mid month, so make sure that you are reading the fine detail. Yeah, make a plan this weekend to go make those returns, and you're right, man, I mean they just those return policies are getting more stringent. It makes sense because it costs the retailers meaningful amounts of money to process those returns. It caught shipping's not free.
It wasn't free when it got sent to you, and it's not free when you send it back to them.
So I'm not.
Mad about the fact that they're charging for that, but people need to be aware of that because it might change how they decide to make their return. We've got more to get to on this episode, including can you lease a used car? Turns out you might be able to pretty soon. We'll get to that and more right after this.
Back from the break that's keep.
This Friday flight train rolling and Joel, of course, you know that is now time for our ludicrous headline of the week. This one is from the journal Wall Street Journal, and the headline reads the new fitness gadgets that promise to change your life, which is it's kind of fun because you and I both have gotten more into fitness recently, so I think we were both like.
Oh, let's see, let's see what's out there.
It's funny specifically because some of the things that they're highlighting, like the gadgets, it's they're silly and they're crazy expensive. These different pieces of technology that are finding their way into our lives, These different products that are hitting the market.
So for instance, there is one that was like a sweat lost tracker.
Another product that they mentioned were adjustable compression leggings. Yeah, that one the one level of compression. Sorry, it's not doing it anymore. You need to be able to do It's kind of like the Reebok pumps. You can change it, dial it up a little bit. And there was also this like six thousand dollars stationary bike that vibrates. It's supposed to meant to mimic bicycling down a cobblestone street, you know, to get that real life experience like you wanted to at home when you're getting.
A work out. It's it's ridiculous.
I certainly plan to continue to exercise more in twenty twenty four, or at least maintaining what I did last year, but I don't plan on purchasing any of these items that purport to help me. I think there's nothing wrong. Let's say with buying a normal, used, perhaps stationary bike to have at home, or paying to join a gym
that you pay a monthly fee for. But if you go too far down the gear rabbit hole, I think you might find yourself with less cash on hand, and simultaneously you may not be any closer to being fit.
Yeah.
I mean a lot of those gadgets were just kind of ridiculous. There was one it almost looked like an ab roller, but it was like seven hundred and fifty dollars. They claimed to be a total body workout and I'm like, how is that possible? And so yeah, it just thinking that the new fitness item is what's going to help you get in shape.
No, no, no, no, it's about.
You and actually following through and finding a fitness regimen that you can keep doing through thick and through thin, throughout the year.
Sure, it's not.
About getting the right gadget. And Matt, this is one of those instances where we see some parallels between physical health and financial health. We're oftentimes looking for the easy button that's going to provide us with all the results. Oh yeah, but without all the effort, right, I mean
that's when you if you were to boiler down. That's what I want, but it just that's not how life works, and we want to see that progress in a fraction of the time that's actually necessary to build up a durable, healthy foundation. So just like we're tempted to buy gadgets to get healthy, we also might be tempted into thinking that joining an investing club or shocking money into cryptocurrency
is to ticket to building wealth. It's like, hey, listen, I don't have time to wait for ten percent annualized compounding returns in the S and P I got to strike it rich much more quickly. I got to take bigger risks. Well, that's going to lead to heartache for most people. And someone might look at last year's S and P FI five hundred and they think, wow, dang, I just missed out on twenty four percent returns. But
those returns didn't happen on December thirty first. They took place over the three hundred and sixty five previous days that slow and steady investors kept at it regardless of what the market was doing. There's no easy button. Yeah, we can be so obsessed and fixated on the end result as opposed to knowing like.
The process that it takes to get there, right.
Like the hours and days of sweat and denying your self dessert or or you know, when it comes to physical fitness, but when it comes to investing, sacrifice that's involved with saying no to purchases and socking that money away into those those tax advantage retirement accounts. The small things like, hey, literally, what if it's a new year. You go into your four oh one K, the back end of your four oh on and K, and you
increase your contributions by one percent. Maybe you're at seven percent, maybe you're at four percent right now, but if you increase it by one percent, it seems like a small move, but it ends up being a really big move that's going to help you out and help you just build more wealth in the coming months and years. And if you are kind of new to investing, we have a beginner's guide of how to invest. We'll link to that article in our show notes. Matt, let's talk about cars
for a second. We've always said, you and I have always said that leasing a car is like lighting money on fire, like it's it's just a horrible idea.
Yeah, pretty much.
I don't like money on fire and I don't lease cars, but what if you could lease a used car?
Would that be better? Maybe?
Honda and Accura, it turns out, are going down this path of leasing generally used, certified pre owned cars for less money in order to lure in younger drivers. I kind of sort of like it because leasing a four year old Honda that's in great shape is a better financial move than leasing a brand new Honda Cord or something or something like that. It's a better option than leasing something bright new because like, basically what a lease is you.
Are paying for depreciation. And when you have a brand new.
Vehicle, guess what those are the vehicles that depreciate the fastest. Yeah, So, like, is it a card depreciates fifty percent within the first five years, ten percent just from driving it off the lot, and there remaining remaining forty percent basically over the next four years, I guess.
But just keep that in mind.
While it's not our favorite thing, it is better than leasing a brand new vehicle, Yeah, for sure. And because the payments, I mean, they're gonna be a lot more reasonable, I guess, is what I'm saying than leasing something that's completely brand new. Oh yeah, no, it's gonna it's kind of shades of great here massively, massively trimmed that monthly amount that you have to pay an Accura. But just like we always say, Matt better yet, go ahead and just buy the four year old car yep and drive
it for a decade. That's gonna save you a lot more over the years than leasing, even if you're leasing used So I kind of like that leasing used cars is gonna become a thing, and I'm curious to see how it plays out. But I think even for how to money listeners, while it's a less egregious money mistake than leasing a brand new car, it's still not the.
Optimal move exactly. Yeah, it's a better option, it is not the best option.
Owning is still going to be better than leasing, I think like ninety nine percent of the time. But one other model that's gaining steam and maybe it'll be the future, does involve ownership either. But it's about having flexible access to transportation. So we've seen car sharing sites like zip car that's certainly made a difference in the market. Turo
they have as well. But these resources are great because they can help you to ditch a car from your life completely, but then you still have access to a car when you need one or whenever you want one. So yeah, leasing is going to be more flexible, but these other non ownership models are even honestly, I think, more flexible, but not in mind. It's a great goal to try and own fewer depreciating assets. And it also makes me think of even just bicycling, because guess what,
that's also a depreciating asset. But it's vastly more affordable to own a bicycle, and I know you can't bike everywhere. Well, the depreciation hit from buying a fifty thousand dollars car or a five hundred dollars bike is vastly different.
Yeah, yeah, right, it's kind of like apples and oranges.
Yeah, or something even more stark, right, but like, yeah, we've talked about this, and we'll link to this episode in the show notes. We've talked about trying to get rid of a car from your life, and especially for two car households, and there's more work from home happening and stuff like that. Just add up all the costs of this car and think, could I if I did some ride share, a little bit of zip car, a
little bit of Touro. Could we have just one car, maybe in our garage, one car in our possession, and that way we're not taking the depreciation hit on two cars simultaneously. It's it leaks worth looking into. And I think it's a goal of a whole lot of people can accomplish. It's gonna bring thousands and thousands of dollars back into your life every single year exactly. Yeah, dude, So this makes me think. I know I talked about rent using Turo to rent a Tesla, and I shared
like the electric car versus gasoline. Yeah, numbers, I crunch those numbers. But I don't think I talked about the actual Turo experience. This is last year when Kate and I were out in Colorado.
But it was actually pretty damn good. And here's the thing.
We actually hit a There was a hiccup, which is when we landed at the airport, I turned my phone off airplane mode or whatever, and the car that we were supposed to be receiving from Turo it hadn't been returned yet and so it wasn't going to be available. But somebody from Truro called me. It was like, hey, we've got another car.
For you.
You just have to approve it. I was like, okay, sounds great, same price, it was a nicer Tesla. Downside though, is that we had to wait around like an extra thirty minutes because they needed to deliver.
It to the airport.
Got as opposed to, how do we just gone with a standard rental car? Of course they would have just given us any car that's in their fleet that's already there, so slightly more customized experience, but just know, perhaps there might be some flexibility required of you. It's not unlike honestly renting from Airbnb, right like, you get a unique place, something that's more customizable to what it is you're looking for, but you're not going to have countless rooms to choose
from at a hotel. Were your Airbnb for some reason not to be available for Yeah, but overall, just a good experience. We're definitely gonna check it out again in the future.
Nice.
Yeah, Well, let's talk about buying now, pay later for a second map, because do it until now it's been something you're only able to do online, but that just changed this past week. You can now buy now, pay later in real life, which in the flesh just freaking crazy to me. If you head to a self checkout lane at Walmart, now you can opt to pay for your purchases via multiple installments. Supposedly you can't do this with groceries, they said, by the way, which is good
news because that would have worded me. But most other stuff you can purchase at Walmart up to four thousand dollars. I think of an order can be paid off over time. And American shoppers they're just so quickly getting used to affirm Klarna and after pay and they're starting to think of buy now, pay later as a normal way to pay. It's the adoption has been like rapid, but gosh, this is not a normal way to pay.
It's super weird.
And the fact that yeah, now we're normalizing buy now, pay later even more, that you can use it in the store, in the physical store, idn't. I don't like that you can use it online. I don't like that you can do it for buying airplane tickets. I don't like that you can do it for anything. But yeah, this it's the buy now, pay later. Things only get worse. Yeah, you're basically stealing from future you in order to satisfy
present day you. That wants your stuff right that once your goods, and it is weird, but it is definitely becoming more widespread. A quarter of Americans have used it to pay for something at this point, and these services they're just gaining steam. And there's a reason that retailers are jumping on the bandwagon that they're offering the service. It's because shoppers tend to buy more when they can buy now.
Pay later.
This is the whole selling point that affirm Klarnaine, after pay give to the retailers or say listen or higher, you're gonna have bigger cards at checkout. People are gonna spend instead of spend sixty bucks, are going to spend one hundred and twenty bucks yeah, or seventy five Yeah. But they're like, this is you're going to get more money by allowing us to partner with you and giving your customers access to these beautiful, wonderful buy now pay later abilities.
Yeah.
And at some points though, the piper is going to have to be paid, right Like, at some point the bill quite literally.
Is gonna come do.
And I think this is gonna end up getting millions of folks into real trouble because what they're doing is just front loading these purchases that they should have instead waited to make until they had saved up enough to
actually be able to afford it. Essentially, this is it's kind of like a way of time travel with your money, right, Like you are pulling these purchases from the future to present day, and you're just assuming that you're either going to have more money off in the future to pay this off you're gonna or you're assuming that you're gonna have more discipline to actually stick with it, or you're assuming that maybe in the future, I'm not gonna want as much stuff and so I'll be able to tomorrow
pay for the things for today. But that's a false assumption on all three of those accounts. There, you likely like you're counting on the best case scenario happening, and that puts you behind the a bom and to see it everything you see twenty and thirty somethings who have started using by now pay later. It's become a crutch.
They start using it regularly for all sorts of purchases, whether it's clothing, new electronics, item travel, whatever it is, and they just get they think of this as normal now to pay for something in installments, and a lot of them are overdoing those purchases, buying things that they really truly can't afford. That's right, all right, dude, Let's talk about housing, because if you're hoping that following interest rates might induce more inventory in the Springs housing market,
you're not alone. We really could see more people willing to list their homes as rates get closer to six percent, because folks are saying, hey, at least it's it's not eight percent. It's it's not like it was before. And one tactic that did make sense for some home buyers was to opt for an ARM and adjustable rate mortgage. So what I did, actually the last, the first time I've ever gotten an adjustable rate mortgage was when we
bought our house eighteen months ago. But why did you opt for an ARM over that thirty year because the difference in rate was significant?
Exactly.
Yeah, it only makes sense if you are getting a superior rate. But here's the thing. New data today it shows that almost nobody is getting a better deal by opting for an ARM these days, So certainly can't hurt to ask, But keep in mind, at a thirty year fixed rate, they are looking like the best option for most home buyers right now. That plus putting at least twenty percent down to avoid PMI private mortgage insurance.
Although we know that this is a.
Tall ask, it's a tough requirement, it is what we want to steer folks toward. Yeah, I think I was always like, for a long time, Mat just knee jerk against adjustable rate mortgages, and then I started to see the nuance and I'm like, yeah, they can make sense at times, depending on the terms, depending on how long you're going to live in that home, and depending on the rate decrease you're able to get by going with
an ARM instead of an adjustab rate. But you're right, adjustable rate mortgages, because of the way mortgage rates flux and change, adjustbory mortgages just starn't nearly as good of a deal as they were a year ago. So fixed rate mortgages again top of the heat. That's right, But that's going to do it for this episode. Matt will have show notes with Lee. Thanks to some of the stuff that we mentioned on today's episode up on our website at howtomoney dot com. All right, man, let's get
out of here until next time. Best friends out and best friends out