We’re kicking off the week by answering your questions! And if you have a question for us, we’d love for you to submit your own via HowToMoney.com/ask/ , send us your voice memo!
1 - How legit are the crypto savings accounts that are paying high rates of interest?
2 - Is it true that I don’t have to file taxes if I make below a certain income threshold?
3 - I’ve been living in a submarine, but should I purchase a home with my housing allowance from the military?
4 - As a small business owner with no employees, should I consider a Solo 401(k) or a SEP IRA?
5 - I want to get into house hacking but first how do I boost my credit score, put together a lease, and screen tenants?
During this episode we enjoyed a Bumbleberry Honey Blueberry Ale by Fat Head's Brewery- thanks to Rich at Budgets and Brews podcast for donating this one to the show! And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe if you’re not already a regular listener, and give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to How the Money. I'm Joel and I am Matt.
Today we are answering your listener questions, listener questions. That's right, man,
(00:26):
are you ready to do this? I'm ready. It's a
listener question Monday, and we've got five great questions from listeners,
including one about crypto savings accounts. I'm really excited to
dive into that one. We've got a question from a
listener who's asking about buying a home when he lives
in a submarine. That's gonna be a fun one, as
well as a question from a listener who's asking if
(00:46):
everybody out there needs to file a tax return. Uh.
Even though she is a lower wage earner, she's got
a lower income. So we're gonna get to that one
plus two others during this ask How the Money episode.
It's gotta be tough to tour a house while you're
living in a submarine, Like, how do you actually zillo? Baby?
I guess you're just you're just doing what like two
thirds of buyers are doing these days, and you're like
(01:07):
five thirds of of of buyers. Even people who aren't
look actually gonna buy a house, they're you know, sitting
there flipping through Zillo. True, yeah, but I think no.
The stat is actually the people make an offer sixtent
of buyers or something in that range, make an offer
without actually having set foot in the house. These days,
COVID has changed things up when it comes to buying
a house. But we'll get to that and more. It's crazy.
In this episode, man, I wanted to share something, um,
(01:29):
a little personal. They're real quick, not super personal, but
I had to get a who wants to hear about
your new underwear line? Right? Remember that one from a
few months ago. I had to get a new oil
pan put in the Honda Odyssey, the O six Odyssey,
And it was one of those things that I was
surprised by that I didn't didn't realize this was an expense,
(01:50):
it was gonna have to happen. But I guess at
some point in recent years, when when I was getting
an oil change done, some um nefarious mechanic like they
lude the drain plug back in and so it made
the oil pain unusable. And I've I've got a good
mechanic that I took it to and and yeah, he
was like, I'm sorry, man, but we got to replace
it because is one of these like four fifty expenses
(02:12):
that I just wasn't thinking was coming down the pike. Yeah,
And I think it just goes to show though that
I want to say, I'm an optimist, and I think
sometimes like I expect things to continue to go a
certain way and those kind of things like slap me
upside of the head. But I can't budget like in
reality exactly. And I hope for for other optimists or
(02:35):
really anybody out there. You can't budget like an optimist.
You can't budget hoping that things continue to go swimmingly
that you never have, you know, in a four hund
and fifty dollar oil pan expense. Um, it's just one
of those things that is going to come along in
your financial life, and it's important to kind of make
room for those things ahead of time because it's a
double whammy if you also don't have the money on
(02:55):
hand to pay for that unexpected expense. So I just
want to kind of share that it happens to the
most of us, right. We we all have these costly
items that come along from time to time that we
weren't even anticipating. Um. But yeah, planning for the unexpected
is really important. Yeah, planning for those expenses. You know,
there are going to be expenses that that arise with
(03:15):
a sixteen year old vehicle, but it's a teenager now,
but you know requires a little bit more money that
it makes me think about. We talked about this recently too.
It makes me think about just some of these house expenses,
like on the outside of our houses that nobody gets
excited about, uh, dropping a load of money on like
a roof, for instance, Like you can't really see your shingles.
It's not an expense that you look forward to, but
(03:37):
it's something that has to be done. Tree work is
another one that you and I we discussed recently. It
seems like there's a lot of true work happening in
our neighborhood these days, and we're saying, how we think
it must have something to do with the stimulus money,
because it's one of those things where it's really painful.
It's apart ways with money for a tree service to
show up and maybe take down a couple of trees.
But you know, when some money lands in your lap,
(03:57):
when it lands in your bank account, it's it's something
where you're like, Okay, I was expecting that money anyway,
let's maybe take care of some of these things that
I don't really want to spend money towards. But these
are the kind of adult same thing with yeah, car expenses,
Yeah that nobody wants. Nobody wants to drop money on,
but that's like part of the thing being a grown up.
You have to do it. So Yeah, and make sure too,
you've got a mechanic that you trust. This is a
(04:17):
mechanic that you've gone to for years and you've great
relationship with him, so you can feel better about that
at least. Yeah, I know that he's telling me the
truth and he's never seen me wrong before. When it
comes to my car, it's just still one of those things.
It's like really man, And then like you kind of
like want to blame the messenger and be like I
hate you, but I don't actually hate you, and you're like, uh,
did you try using the torque wrench or something? Ye
(04:41):
like naming tools the muscle behind it. Dog. But let's
get onto the beer that we're having on this episode, Matt.
This one is called Bumbleberry. It's a honey blueberry ale
by Fathead Brewery, and this one was sent to us
by Rich. He's a friend of the show. He actually
hosts a podcast called Budgets and Bruce that he asked
me to be on recently. That was kind of fun
hanging out with him and super nice of him to
(05:02):
send this beer away. And we'll give our thoughts at
the end of the episode. Yes we will, So let's
go ahead. Now get to our listener questions, and all
your listeners out there, if you have a question for us,
we would love for you to submit your own question
to us. You can go to hottle money dot com
forward slash ask. We've got some simple instructions there as
to how you can send us your voice memo and
hopefully very soon we will be able to answer your question.
(05:24):
But first, ull let's go ahead and get to this
first question that has to do with cryptocurrency. Hi, Joel
and Matt. This is Ellie in Denver and I just
recently heard about a investing website called block Fee. It
seems really interesting to me because they are giving six percent,
(05:44):
eight point six percent, five point to five. They're giving
interest rates that high on cryptocurrencies that you hold in
their accounts, and the one that interests me the most
is called Gemini Dollar, and it's always worth a dollar
because it's pegged to the US dollar, and I think
that you could buy say five Gemini dollars and then
(06:08):
earn eight point six per year on that amount. I
haven't opened an account yet, but I'm curious if you
have heard of it already or what you think about it.
Thank you, Oh Matt. So many questions popping up these
days about earn more money on savings because the rates
for savers are atrocious right now, and so no wonder
(06:31):
Ellie's looking to try to find some way to make
more money on the money. She's just kind of going around. Yeah,
I get it, me too. I hate having money in
a savings account these days because half a percent is
about the best you can hope for. And uh and yeah,
so Ellie, let's talk about crypto savings accounts. The allure
is strong with these, and I think there's a lot
of people out there looking into crypto banks because they're
(06:53):
springing up all over the internet promising stellar rates of return,
some even as high as twelve percent. I've seen was
hanging around. But it's important to note that money that
you put into one of these accounts is not like
putting money in your traditional bank or your online bank
or even a credit union. It's not even close because
there is no f D I C insurance when you
(07:15):
deposit your funds at one of these cryptocurrency online banks.
And since the crypto space is still very much like
the Wild West, you're definitely putting your money at risk
if you decide to put your savings um in one
of these quote unquote banks. And yeah, you just can't
even call it a bank really based on what it is.
And these, uh, these websites aren't even insured by the
(07:38):
s I p C, where brokerage firms like Vanguard and
Fidelity are able to, uh say that five thousand dollars
of your money is insured. And we think that this
should cause you to hit the brakes from really even
considering these crypto bank accounts really any further. Yeah, what's
what's crazy about these companies too, is that they're promising
such high returns in order to attract more users and
more customers essentially, right, and so like it's almost like
(08:01):
the higher return that they're promising like the worst off
it's going to be because again, because they're not even
s I p C ensured, I mean, they could fold
and you would be completely out all that money, Like,
there is no guarantee that you're gonna that you would
you ever see any of that money again, especially if
you're a smaller quote unquote investor, because I mean, even
if there was like some sort of lawsuit, like, you're
(08:21):
gonna be at the very end of the line when
it comes to actually getting any type of money back.
And so, yeah, let's talk some more specifics on how
these cryptove savings accounts work. Within one of these accounts,
you're holding cryptocurrency and you could have you know, many
different varieties in there, and that crypto stash is then
being lent out to other investors and other traders. So
not only are you getting into the cryptocurrency game by
(08:42):
owning some actual cryptocurrency, but you're going above and beyond
on the risk scale by also lending out what you own.
And so while those rates of return do sound pretty nice,
they aren't all that great for the enormous risk that
you're taking on. There's almost like this sort of double
away amy when like the way I think about it,
it's like I'm imagining if I have and ridding my
bike in like a year, I'm really out of shape, right,
(09:03):
And also which isn't true, which is would never happen.
Let's be honest. It's something else that would never happen,
is imagine then if I also left my bike out
in the yard all winter along again for another whole year.
But then imagine I'm like, Okay, I want to hop
on my bike and get across town for some important meeting. Well,
there's a good chance then I'm gonna be doing maybe
a good amount of walking. And whether it's because I'm
(09:23):
so out of shape I'm sucking wind, or because my
bike's broken, right, And so there are two huge risks
here when you have your money invested in these companies,
and while that might be okay or acceptable, if this
isn't money that you're necessarily counting on, right, And so
again going back to the bike analogy, like if I
was on my way to an important meeting, Uh, that
bad idea to do that. But if I was just
out for a ride and it didn't really matter, you know,
(09:44):
in that case, it could make sense for you. And
specifically because we're talking about savings here, usually this is
money that you need and even with you know, for
most of our listeners, I know, for us, like our investments.
We're not even really willing to put that um at
huge risk. And so yeah, matt Ellie mentioned the website
block Fi, and explicitly on that website it states loss
(10:05):
of principle, which is the money that you put in
there is possible, And it certainly is possible, and I'm
not gonna say it's likely, but that is never the
case with the savings at your bank because of what
we talked about the fd I C insurance. Essentially, these
crypto banks are out there combining cryptocurrency exchanges like coin
base and peer to peer lending a company like lending Club,
(10:25):
and that means just a much higher increase of volatility
and risk. And so yeah, I would, I would hear
pretty much everybody away from these things because it's it's
just too risky of a bet, right, unless it's just
money that you don't care about, right like if it's
play money, if it's money that it needs to be
money that you wouldn't lose sleepover. I haven't. I haven't
had a dollar that I didn't care about, the you know,
(10:46):
the ones I don't care about. I spend on craft beer.
If folks make different types of vets, uh, you know
different risks they're that they're willing to take. But in
the end, here essentially what we're saying, when it comes
to your savings and when it comes to your investments,
we want you to keep those separated. You know, uh
okay to take uh measured risks with your investments. You
can afford to lose money that you've you know, invested
this year if the market goes down, because you know
(11:07):
that you won't need that money until years or even
decades down the road. But that's not the case with
your savings. You want to keep that money safe in
the liquid in case you need it. Uh. And so
that makes these crypto savings accounts, to put it nicely,
less than ideal for that task. And so keep your
investments and your savings distinct and separate. And if you
are going to put any of your money towards some
of those cryptic savings accounts, make sure it's less than
(11:30):
five percent of your overall portfolio. That's, you know, one
of the ways that we designate quote unquote play money. Yeah, totally,
all right, Matt. When we got more questions to get to,
including what about taxes, like do you need to foul taxes?
If you don't make much money. We'll talk about that
and more right after this break. All right, we're back
(11:53):
from the break, and we're gonna hear from a listener
who listens to us underwater explain how that works. But
first let's hear this tax question. I'm at and Joel.
This is aoka from Grand Rapids, Michigan. I hold on
another podcast that a single individual who owns less than
twelve thousand, four hundred dollars in a year doesn't have
(12:14):
to file a tax re tone, I made a little
bit less than twelve thousand, which included about a thousand
dollars from door Dash. Given that door dash and other
gig economy jobs are different with taxes, I just wanted
to know if I can skip filing my taxes this year,
or if I would get in trouble but not returning
(12:36):
some of that door dash money. And is the twelve
thousand dollar rule even a thing? Is it even true?
Thanks so much? All right, Matt, I love this question.
I feel like this is definitely something that a lot
of people will have, especially um when in a year
where you might not have made very much money, do
I have to file taxes? For instance, if you're a
(12:58):
college student, maybe you made in thousand dollars last year
some side income whatever, and uh and yeah, you're like,
I don't really want to go through that hassle. Filing
taxes seems like a burden, and I understand that it's
um not the most fantask in the world, right, but yes,
since tax to day is to two weeks away Monday,
May seventeen, by the way, for all you slackers, exactly
(13:18):
two weeks away. Yeah, it's uh, it's true, Erica, that
you don't have to file taxes if you're single and
you make below the twelve thousand, four hundred dollar threshold.
That's because of the standard deduction. That is the amount
of of the standard deduction. So basically, you won't owe
any taxes on any income until you start making more
(13:39):
than twelve thousand, four hundred dollars and you're not required
to file its Act return. You won't get into trouble
with the I R S if you don't do it,
but you might still want to do it because of
the many ways you can benefit if you do file
your taxes instead of kicking up your feet and designing
to uh to not do it at all. Yeah, there's
some some major benefits to filing your taxes if your
(14:00):
income is a little bit lower. If you don't file,
you won't be able to qualify for a tax refund,
and so if you had taxes withheld from your paycheck,
you won't see that money. You might also qualify for
the earned income tax Credit, which you wouldn't get if
you don't file a return and claim it. And so
the cool thing about that specifically is that it's a
refundable credits and so even if you don't owe any
(14:21):
taxes at all, this credit will still get paid to you.
That's pretty sweet. But sadly of folks who would qualify
for the earned income tax Credit the e I T
c uh don't claim it, and so make sure that
you claim it if you qualify. Yeah, a lot of
people missing out on free money that way who have
it come into them. And you know, one other thing
to Erica that's definitely worth mentioning. If you're listening to
(14:43):
the show, hopefully you're investing in in IRA with some
of the money that you made, and if you're investing
in let's say a roth IRA, you might also qualify
with your low income for the savers tax credit, which
is one of the best tax credits around. Matt I've
always found this to be, you one of the most
fascinating tax credits available, and most people don't know about
(15:04):
how this works either. It's a nice little carrot. It's
a nice little incentive exactly especially for for low income
folks that really only applies to low income folks. The
federal government will essentially help you on your investing journey
by handing you back up to fifty percent of the
amount of money that you invested depending on your adjusted
gross income and Erica, you could qualify for that highest
(15:24):
fifty percent Savers tax credit based on your income. So
let's say you invested two thousand dollars last year into
a wrath IIRA, you get a thousand dollars back in
the form of a tax refund. Yeah, the Saber tax
credit is one of my favorites. And it's another thing
just like the Earned Income Tax Credit. They're they're too
really important tax credits that low income folks really really
(15:44):
need to know about. Uh, you don't want to miss
out on those because there's a lot of money at stake. Yeah,
it's it's it's like a four one K match from
the federal government. Yeah, yeah, you know, and Erica, you know,
so many things are based on your tax return, like
getting a home loan. Basically, filing your taxes shouldn't be
all that hard for you. It'll be free via I
r S Free File, and you might get thousands of
(16:04):
dollars in money that you otherwise wouldn't receive if you
didn't file a return. So we would recommend that you
go ahead and do it. There could be a lot
of money that you're leaving on the table if you, Yeah,
do what Joel said, like kick back, throw your feet up,
don't relax over the next couple of weeks. Instead see
if there are any funds that you're eligible for. Yeah.
We'll link to the I r S Free File site
in the show notes because that is the place where
(16:25):
people who make I think it's under like seventy two
thousand dollars a year a g I can file their
taxes and not pay a dime to in order to
do so. And like Matt said, it's less difficult than
you think it's going to be. It's really not that
big of a deal, especially with all the money that
could be at stake here for you Erica totally worth it. Yeah,
all right, Matt, Let's get to the next question. This
one comes from a listener who listens to How the
(16:47):
Money in the Ocean Hidlan Matt. My name is Nate
and I'm a long time listener to the show. I'm
currently in the Navy, and you just have company Company
and planning my financial future while spending many many months
underwater in a submarine. I want to get to my
advice about getting out the navy in less than six months.
I'm twenty seven and have a great crits for on
my car, and we'll have at least thirty five thousand
dollars and savings by the time I get out of
(17:09):
the Navy. I'm returning to school and we'll be a
recipient of the post leven g I built, which will
pay for my tuition and provide me with the housing
stipend of about fourteen hundred dollars in cash per month.
I was toting what the idea of purchasing a home
rather than renting. I'm able to ualize to be a
homeland program which allows me to purchase a home with
no down payment but still security competitive interest rate. I
figured that because it mortgage is typically the same or
(17:31):
in a lot of cases even a little less than
monthly rent. It would be beneficial. I have my monthly
housing STEPT been going towards owning home rather than renting one.
I have about two years left to school, and other
than summers, do not plan out working during that time.
Between my savings, any small amount of leftover money from
the house and stipend, and a small income about four
hundred dollars per month from doing Navy reserves at the
(17:51):
are separate from active duty, I would definitely be able
to cover roughly double my current monthly budget even without
working during the summers. I just want to see if
you guys thought this was a good idea or if
it cheers Ate all right, Nate, thanks so much for
that question. Uh here about housing, And by the way,
it's super cool that you've been listening to us underwater.
It might be the the closest that will actually get
(18:14):
to being in a submarine. Although now that I say that,
I feel like maybe when I was a little kid,
I feel like maybe on a field trip I did
actually walk through a submarine, which is I think even
as a kid, I remember being way smaller than I
was expecting it to be. It made me think that actually,
Nate might be super happy in like a tiny house
because he's used to living in small quarters. That's so true.
Maybe that's one way to save money, Like he doesn't
(18:34):
need nearly as much square footage because like it's like
six d score foot studio. This place is huge. Yeah, exactly,
it probably will feel that way, and like it just
makes me think, Matt. Actually, um, a while ago, we
had Doug Norman on the show, who's a fellow navy
man and he, uh, he also lived on submarines for
long stretches of time. And Yeah, the way he talked
about like getting out and then heading back into you know,
(18:56):
a house, like you just don't need as much when
you're used to living in such tight quarter. Yeah, he
touched yea possessions and how he basically was able to
just remove a lot of stuff from his life pretty
easily because of Yeah, all the all this campaigns on
the submarine. Yeah, Nate, if you haven't listened on episode,
we'll put it in the show notes. But that's that's
when you should totally go back and listen to episode one,
sixties six. But Nate, let's get your question. Well, first,
(19:17):
you know, great job on taking care of your finances
as well as your credit. A lot of younger folks
in the military spend a lot of their paychecks and
then some Yeah, there's a lot of predatory lending that
takes place, and so a lot of military personnels sometimes
find themselves in debts various financial situations. Yeah, and so
I hope you've been able to to be a good
influence on the rest of your fellow submariners. That's how
(19:38):
Dog used to say it, because I used always thought
of submarners, but he Doug always said submariners. Yeah, all right,
something just something that boughts in my mind. But the
v A loan program is great because typically you'll you
would have to pay p m I private mortgage insurance
if you don't put that down. But for the folks
that serve our country, you can get a zero percent
down loan with excellent terms without the costs of a
(20:00):
monthly insurance. And by the way, it's called a v
A loan because it's backed by the U. S. Department
of Veterans Affairs. Uh. And so that's why the lone
borrowers can put done less they've got the military on
their side, that's true. Yeah, and then they deserve it
for their service, right, they the better loan terms. I
will say, it's really important, Nate to to think about
the other costs that go alongside of owning a home.
(20:22):
Even though it sounds like your housing stipend will easily
cover the mortgage payment, be sure to listen to another episode,
episode three twenty three before you go ahead and make
this decision. Even if the amount of the mortgage is
less than what you would pay in rent, that doesn't
make it a slam dog. And that's because there are
additional costs to owning a home, and they can really
add up. Renting is not throwing money away. I feel
(20:45):
like I need to repeat that because that's lot of
people feel that way. Yeah, they just assume that renting
is like the stupidest thing in the world. I think that,
you know, part of it is the cultural homeownership that
that has happened in our society, and owning a home
is great, Like we've we've said that many times to Matt.
We love owning our own home and we think that
it's a worthwhile ambition of a lot of people. But
(21:05):
at the same time, renting a place is not throwing
money away. So that's why we recommend that you only
purchase a home if you're willing to own it for
at least seven years. And so that's one big thing
that you really need to consider, Nate, before you commit
to this idea of owning owning a home, how long
are you actually going to be holding onto it? That's right? Yeah,
So Nate, when you move in the future, because you're
gonna move, I guarantee it. The question you need to
(21:27):
ask yourself is would you be willing to hold onto
that house or that that place and rent it even
if you're living hundreds of miles away. If you're okay
being committed to this home for the long term, even
if you aren't living in it, then we think it
can make sense for you to purchase this place. It
could be a great financial move for you. But you know,
if you're just planning on selling it maybe just two
or three years down the road after you know, after
(21:49):
you buy it, this isn't gonna be a great decision
because of the transaction costs. They're pretty steep, and we
have no idea what the real estate market might look
like at that point in time. Uh so, Yeah, the
time frame is the crucial question here. It's it's not
necessarily about the numbers, because you talked through your specific
financial situation, right, Like how the different incomes that you're
gonna have coming in. I think you said it's gonna
be double what your monthly budget's gonna be. Like, that's great.
(22:11):
I mean, it sounds like you're in a great financial situation.
It's less about the specific numbers in your case, and
it's more about the actual time frame and how long
you're willing to hang onto that place. Yeah, man, I
feel like it's similar to when we talk about whether
people should be savers or investors. Right, there's a there's
a time frame that becomes crucial when you're answering that question.
And if you're like trying to get that money in
(22:32):
and out within eighteen months, you've got to be a saver.
And that specifically because of the volatility that occurs in
the market eighteen months later, like you're you could have
less money than you started with, and so you want
to be a saver to make sure you retain that capital.
It's a similar thing when it comes to buying a home.
That time frame is ridiculously crucial, and it's less about
the volatility and more about the transaction cost that can
(22:54):
eat into that too, And you could have less money
than you started with because of the extreme cost of
buying and selling homes. All Right, we've got a couple
more questions, including one about a duplex uh and a
way to to sock away even more money if you
own your own business, and so we'll get to both
of those right after this. All Right, we're back. We've
(23:20):
got two more questions on this Ask ht M episode,
and this next one comes from a listener who's trying
to figure out which retirement account is the right one
for them. A Matt and Joel longtime listener, first time caller.
My name is Samantha and I live in Portland, Oregon.
I have a question about the difference between a solo
(23:41):
four oh one K and the s c P I
r A. I am a small business owner and work
fully for myself. I do not have any employees and
I currently have an SEP, and I'm not sure that
is the most advantageous for myself. You would kind of
talked about it on one of the most recent episodes,
(24:02):
but I would really love some more guidance and clarification
on which one is the better option. Thanks so much.
All right, well, Samantha, first of all, thanks for listening
to the show for so long. You mentioned that there
at the beginning of your question, and by the way,
this is a good question when it comes to owning
your own business and yeah, investing more of that money.
You can go either way since you don't have any employees.
(24:24):
Both a SEP and a SOLO four one K are
are both good choices and both can allow you to
invest a whole lot of money dollars each and every
year in these tax advantaged accounts. And the reason that
many business owners actually opt for a SOLO for one
K instead of a SEP I RAY is because you
can actually max out that account sooner without having to
(24:45):
earn more because of how the cap works on the contributions,
uh and so because of the way it works. With
a SOLO four one K, you can contribute the entire
fifty eight thou dollars while earning around a D fifty K,
But to max out a SEP you're actually gonna need
to be earning those or two two five K, which
is a pretty big increase and so if you're wanting
to invest big money, it's easier to do so with
(25:07):
a solo four oh one K. Yeah, let's discuss these
in in just a little more detail, Matt. The way
it works is that the solo four oh one K
rules allow you to contribute as both the business owner
and as an employee. Your business can contribute a huge
amount of money to that account in profit cheering, and
you as an individual can contribute another nice chunk, up
(25:28):
to nine even more if you're over fifty years old,
but you're still limited to the overall amount of fifty
eight thousand. Yeah. Just when you make those contributions, you
just have to switch hats. Like you have to put
the employer had on when you're making the employer contributions,
and then when you're making your own employee contributions, you
gotta put on the employee hat. I feel like I
need a special hat as an employer. Over here, we
(25:48):
don't have any hats. No, we need new hats that
should actually if and when And I'll say when because
one of these days we'll have some merch but we
can will totally make some hats, all right. You're like
a how a money trucker hat or something. An other
perk two is that you can choose to contribute to
the ROTH version of a SOLO for one K. The
the employer contribution, which is the biggest amount will that
(26:08):
you're allowed to to contribute, will be funded with pre
tax dollars, but you can elect to have your personal
contributions go in as after tax funds. So it's it's
great from that future tax planning perspective. It allows you
to diversify that tax liability and it gives you more
flexibility when you're like drawing down those funds in retirement.
So I think that's one of the main reasons I
(26:29):
like the solo Foreign King more than the STEP is
because it does offer more of the flexibility when it
comes to, yeah, the type of money that you're you're
putting in, yeah, and that's something that the STEP or
which by the way, that stands for a simplified employee pension,
that's something that that accept doesn't allow. So for listeners
out there who are self employed and don't have a
SOLO four one K set up yet, you can do
(26:50):
it with any of the low cost investment companies like Fidelity, Vanguard, Schwab,
as well, So we would recommend going with one of those.
But Samantha, for you, unless you're looking to invest a
really high percentage of your income, a STEP IRA will
work totally fine. Is It's gonna work great for you. So,
for example, if you have a net profit at around
one hundred thousand dollars, you can contribute nearly nineteen thousand
(27:10):
dollars towards a SEP, which is really solid. That's a
lot of money. That's a high percentage of your income
that can go towards a STEP. But if you wanted
to invest more of your money into a retirement plan, uh,
you can always roll it over to a solo FO
one K. That's always an option for you. Yeah, And
when it comes down to it, Matt, both of these
accounts are really good and allow you know, self employed
(27:31):
folks to to be able to stock away a lot
of money for their future. One of the other interesting
things about a STEP, especially since we're closing in on
tax day, is is that you can actually still contribute
to a STEP for last year, but you can't still
contribute to a solo four O one K for last year.
So if Samantha is specifically looking to stash more money
away for tax she's gonna have to do it in
(27:52):
a sep I a uh instead of doing it in
a solo for one K. But um, yes, so that's
just kind of another caveat another perk of of the step. Which, yeah,
it sounds like she's already got going and it's working
out pretty great for her. So yeah, totally so, Samantha,
best of luck. Either way you slice it, you're doing great.
But if you're looking to, you know, massively crank up
the amount that you're investing solo, fo one cake can
often be the best route to go. But all right, Matt,
(28:15):
let's get to one more question. Uh, and this one
is about buying a duplex. Hey guys, my name's Matthew.
I'm thirty two and I live in Atlanta, Georgia. I'm
currently in the market to buy a duplex, just started
moving forward with real estate, and I have a few questions. Currently,
my credit score is a seven one and I'm trying
(28:37):
to raise that a little bit over the next six months.
I don't have any debt aside from my vehicle. UM,
I do have a couple of credit cards, and my
question about that is should I request a limit increase.
I don't use the credit cards that much, but I'm
wondering if increasing the limit will help my credit score
(28:58):
or if it's gonna hurt me. With that said, I'm
also interested in a little bit more information about the
leases you all create for your rental properties. So any
information you all can provide on creating a lease for
your tenants as well as screening them will be very helpful.
Thank you, Joel. Did you just hear that question? This
(29:20):
is coming from Matthew in Atlanta who's looking at duplexes.
This could be me. Are you submitting a question for
your own podcast? Uh? The stockpile of listener questions was
getting kind of low. Uh, Matthew, we would totally recommend
for you to get a duplex if that's something you're
interested in. I hope you're gonna live in half of
it hopefully and rent out the other half. How's hacking? Yeah,
(29:41):
how dude? House acking rocks is one of the best
ways to build wealth and for you to easily get
into real estate. And another perk two is living in
a duplex will also mean that you don't have to
put down as much money and you're going to get
a better rate versus if that was a straight investment property. Yeah,
owner occupied gives you better terms, absolutely, But let's talk
more about getting the best mortgage interest rate. You mentioned
(30:03):
how your credit score is at seven one. That's a
great credit score, but if you can get that score
up to at least seven forty, that would be huge
to help you score the top notch rates that lenders
are are currently offering right now. That's that's one of
those cut off points that if you can get, if
you can get above seven forty, you're gonna be in
that that premium rarefied air. Yeah, it's like hitting three
(30:23):
in Major League Baseball like that. That's kind of the line.
It's like, oh, you're an excellent HITTERI yeah, exactly, same
with the seven forty credit score. Lenders are gonna look
on you favorably and yet to Requesting your credit score
increase is one way to potentially help increase your score.
Credit card companies haven't been too keen on doing that lately, though.
It kind of depends on your specific situation as to
(30:45):
whether or not they feel comfortable about you raising your limits. Yeah,
it never hurts to ask if you've been a responsible
user of that card and you can point to that,
then that's ammunition on your side to actually make that happen. Yeah,
you would, however, benefit from paying off your credit card
balances to two or three times a month. The lower
that reported balance is, the better it reflects on your
credit And that's just the easiest and most immediate way
(31:07):
to boost your score. Specifically for someone who's close to
that line, right, that's really really important, and especially before
you make a really big move like taking out a mortgage,
you want to make sure you're above that line because
you can save you thousands of dollars four years to come.
You want to do whatever it takes. And one of
those things that it is, in all likelihood gonna take,
(31:29):
it's just paying off your credit card balance more frequently
for the time being. That's right. And now let's assume
that you have a place and you're looking at maybe
putting together a lease for the other half of that duplex.
Bigger pockets they sell state specific leases for ninety nine bucks.
They've got great resources there when it comes to real
estate investing h and they've they've just got a great
community there as well. Also, no low they allow you
(31:51):
to make unlimited leases for just thirty nine dollars a year.
So that's something you can look into, and you can
check into other online legal sites as well, like legal Zoom,
but just be wary of going for the freeforms. This
is one area that you don't want to cheap out. Uh,
it could cost you a whole lot more on the
back end. In particular, if this isn't something that you
(32:12):
have experience doing as you're getting started, it would totally
be worth it to spend some money. And so on
the note of experience, you can also ask someone who
has been investing in real estate for many years if
they would share the least with you. Yeah, I think
you're right, matt It's totally cheap to try to get
some sort of free lease that might not be legally sufficient,
and think about all the problems that could cause if
(32:34):
if your lease doesn't meet you know, state law requirements,
or if there are some things in there that don't
sufficiently protect you from the damages or something that you
might incur. You want to make sure you have a
thoroughly buttoned up lease, and it's worth the money in
order to get that. Also too, let's talk about screening, Matthew,
you mentioned screening tenants, and I will say that one
(32:56):
step when it comes to investing in real estate is
not a deep percent of the battle. If you can
screen tenants well, your foray into real estate investing is
going to go well. And so we would highly suggest
you listen to episode two sixty nine for more information
on managing rental properties in general and then screening tenants specifically.
We went into a lot of detail there, but basically,
(33:17):
if you just want the quick and dirty, the most
important factors are running a credit check and running a
background check, checking employment, and calling the prior landlord of
that tenant. If you perform all of those steps, you're
going to all but ensure that you're gonna have a
good tenant moving into your property, one that has treated
other landlords uh fairly in the past, who has good
credit and pays our bills on time. Those are the
(33:39):
kind of things that you're gonna gonna want to make
sure that you look at before you have that person
sign a lease like that. There are people sometimes that
drive up they seem really nice, but then you look
at those things and you're like, man, I don't know
that they'rey're they're not really treating their obligations. Well, they're
they're not paying their bills on time. There three months
late on their credit card bill, and that's a red
flag for sure to say, I'll think want to rent
(34:00):
this person, They're probably not the kind of person that's
going to take care of my investment of my home
very well. Exactly. Yeah, they look a lot less nice
on paper, and specifically to don't skip out on checking
their employment and calling their previous landlords, because you know,
getting that background check, running that credit those are all
things that don't require you to interact with other people. Uh,
there's a lot of different services out there that allow
(34:21):
you to to run that information. It's really easy and
it gets delivered to you in a nice, neat package.
Making these phone calls and verifying their employment and previous landlords.
It takes a little more work, you know, you like
you have to actually talk to somebody, but it's also
I think the most important man like specifically talking to
a previous landlord. You can learn so much by talking
to their current landlord literally fifteen minutes, not even that
like like from I mean sometimes I'm talking to somebody
(34:43):
for like my seconds. You can feel awkward because you're like, well,
tell me about this person that like they don't really
know who you are, but they're used to gotta make
the phone calls. It's massively important. Yeah, make this phone calls.
And you can just learn so much just how they
talk about the previous tenants. Because if you ask them,
like one of the questions I asked is would you
rent to them again if they were to reapply? Uh,
(35:03):
and and if there's a pause or well, you can
just tell how they answer the question, as you know,
if if if it raises any any red flags, and
then you can kind of link those red flags you know,
from their credit report, from their employment and then if
there's all these little small red flags popping up, well
then that might be an instance where you kind of
go with your gut. So all that to say, all
(35:24):
you potential landlords out there, don't skip out on making
those phone calls. It might be talking to the prior
landlords might be the number one thing you need to do.
It might give you the most information actually in the
screening process. All right, Matthew, best to luck to you
finding an awesome duplex. Man. I hope it works out
and I hope it gets that real estate bug going
inside of you, because it's a beautiful way to start
(35:45):
generating wealth. Alright, Matt, let's get back to the beer
that we had on this episode. This one is called
Bumbleberry Bumbleberry Honey Blueberry Ale. Apparently it's award winning, it
says so on the can, uh by right there on
the cave right, it's stamped on their fat Heads Brewery.
So it's got a enormously large noggin a dude with
a sweet mustache on the on the front of the can.
(36:07):
And this was given to us by Rich from Budgets
and Bruce. What are your thoughts on this beer? Man?
I will say that it was easy drinking, flavorful with
a nice little sweet touch of the blueberry going on. Man,
it reminds me a lot of Sweetwater Blue, which is
actually a beer here out of Atlanta. But yeah, it
has a similar blueberry note, like kind of right on
the edge of the tongue. I liked it, and I'm
glad too that we were able to have a beer
(36:28):
from fat Heads. This is a brewery that some other
listeners have mentioned before. We've never had any other beers before.
Those guys are there out of Ohio. So I'm glad
that Rich was able to donate this one to the show. Yeah.
I thought this one tasted a little bit like a
blueberry muffin, like a really really light, easy drinking blueberry muffin. Yeah,
so if you're into that, if you're into drinking your muffin,
you're gonna like this beers for you, that's right. And
(36:50):
it just really is a super chill beer for like
a nice warm day and into warm Daisies day. So
all right, that's gonna do it for this episode. Thank
you for submitting your listener questions. And if you've been
listening and you've got a question that you would like
Matt and Night at tackle here on an upcoming ask
htm episode, just go to how to money dot com
slash ask. There are simple directions there for you to
(37:12):
submit your voice memo and hopefully we can take it
on the next Ask kind of Money episode. That's right,
and you can find our show notes up at how
the Money dot Com. Will make sure to link We
actually referenced a lot of past episodes during this episode,
so we'll make sure to link to all of those,
as well as any other resources that we may have mentioned.
H and also to. We appreciate all the reviews we've
We've gotten a lot of reviews in recently, and so
(37:33):
if you are one of those folks, we seriously appreciate you.
And for everyone else who hasn't, no threats, but uh,
we would appreciate it. Are you gonna threaten our listeners.
We're still gonna make the you know, we're still gonna
make the podcast. But reviews are great, that's true. Yeah,
well there's been some really sweet ones lately. They help.
We really appreciate it. And yeah, it does let other
people know what they can expect when they tune into
(37:53):
How the Money, And yeah, it's our goal to provide
the best money saving money advice out there in the
podcast fear So. Yeah, thank you guys for listening. And
that's going to do it for this episode, Matt, So
until next time, Best Friends Out, Best Friends Out.
Welcome to How the Money. I'm Joel and I am Matt.
Today we are answering your listener questions, listener questions. That's right, man,
(00:26):
are you ready to do this? I'm ready. It's a
listener question Monday, and we've got five great questions from listeners,
including one about crypto savings accounts. I'm really excited to
dive into that one. We've got a question from a
listener who's asking about buying a home when he lives
in a submarine. That's gonna be a fun one, as
well as a question from a listener who's asking if
(00:46):
everybody out there needs to file a tax return. Uh.
Even though she is a lower wage earner, she's got
a lower income. So we're gonna get to that one
plus two others during this ask How the Money episode.
It's gotta be tough to tour a house while you're
living in a submarine, Like, how do you actually zillo? Baby?
I guess you're just you're just doing what like two
thirds of buyers are doing these days, and you're like
(01:07):
five thirds of of of buyers. Even people who aren't
look actually gonna buy a house, they're you know, sitting
there flipping through Zillo. True, yeah, but I think no.
The stat is actually the people make an offer sixtent
of buyers or something in that range, make an offer
without actually having set foot in the house. These days,
COVID has changed things up when it comes to buying
a house. But we'll get to that and more. It's crazy.
In this episode, man, I wanted to share something, um,
(01:29):
a little personal. They're real quick, not super personal, but
I had to get a who wants to hear about
your new underwear line? Right? Remember that one from a
few months ago. I had to get a new oil
pan put in the Honda Odyssey, the O six Odyssey,
And it was one of those things that I was
surprised by that I didn't didn't realize this was an expense,
(01:50):
it was gonna have to happen. But I guess at
some point in recent years, when when I was getting
an oil change done, some um nefarious mechanic like they
lude the drain plug back in and so it made
the oil pain unusable. And I've I've got a good
mechanic that I took it to and and yeah, he
was like, I'm sorry, man, but we got to replace
it because is one of these like four fifty expenses
(02:12):
that I just wasn't thinking was coming down the pike. Yeah,
And I think it just goes to show though that
I want to say, I'm an optimist, and I think
sometimes like I expect things to continue to go a
certain way and those kind of things like slap me
upside of the head. But I can't budget like in
reality exactly. And I hope for for other optimists or
(02:35):
really anybody out there. You can't budget like an optimist.
You can't budget hoping that things continue to go swimmingly
that you never have, you know, in a four hund
and fifty dollar oil pan expense. Um, it's just one
of those things that is going to come along in
your financial life, and it's important to kind of make
room for those things ahead of time because it's a
double whammy if you also don't have the money on
(02:55):
hand to pay for that unexpected expense. So I just
want to kind of share that it happens to the
most of us, right. We we all have these costly
items that come along from time to time that we
weren't even anticipating. Um. But yeah, planning for the unexpected
is really important. Yeah, planning for those expenses. You know,
there are going to be expenses that that arise with
(03:15):
a sixteen year old vehicle, but it's a teenager now,
but you know requires a little bit more money that
it makes me think about. We talked about this recently too.
It makes me think about just some of these house expenses,
like on the outside of our houses that nobody gets
excited about, uh, dropping a load of money on like
a roof, for instance, Like you can't really see your shingles.
It's not an expense that you look forward to, but
(03:37):
it's something that has to be done. Tree work is
another one that you and I we discussed recently. It
seems like there's a lot of true work happening in
our neighborhood these days, and we're saying, how we think
it must have something to do with the stimulus money,
because it's one of those things where it's really painful.
It's apart ways with money for a tree service to
show up and maybe take down a couple of trees.
But you know, when some money lands in your lap,
(03:57):
when it lands in your bank account, it's it's something
where you're like, Okay, I was expecting that money anyway,
let's maybe take care of some of these things that
I don't really want to spend money towards. But these
are the kind of adult same thing with yeah, car expenses,
Yeah that nobody wants. Nobody wants to drop money on,
but that's like part of the thing being a grown up.
You have to do it. So Yeah, and make sure too,
you've got a mechanic that you trust. This is a
(04:17):
mechanic that you've gone to for years and you've great
relationship with him, so you can feel better about that
at least. Yeah, I know that he's telling me the
truth and he's never seen me wrong before. When it
comes to my car, it's just still one of those things.
It's like really man, And then like you kind of
like want to blame the messenger and be like I
hate you, but I don't actually hate you, and you're like, uh,
did you try using the torque wrench or something? Ye
(04:41):
like naming tools the muscle behind it. Dog. But let's
get onto the beer that we're having on this episode, Matt.
This one is called Bumbleberry. It's a honey blueberry ale
by Fathead Brewery, and this one was sent to us
by Rich. He's a friend of the show. He actually
hosts a podcast called Budgets and Bruce that he asked
me to be on recently. That was kind of fun
hanging out with him and super nice of him to
(05:02):
send this beer away. And we'll give our thoughts at
the end of the episode. Yes we will, So let's
go ahead. Now get to our listener questions, and all
your listeners out there, if you have a question for us,
we would love for you to submit your own question
to us. You can go to hottle money dot com
forward slash ask. We've got some simple instructions there as
to how you can send us your voice memo and
hopefully very soon we will be able to answer your question.
(05:24):
But first, ull let's go ahead and get to this
first question that has to do with cryptocurrency. Hi, Joel
and Matt. This is Ellie in Denver and I just
recently heard about a investing website called block Fee. It
seems really interesting to me because they are giving six percent,
(05:44):
eight point six percent, five point to five. They're giving
interest rates that high on cryptocurrencies that you hold in
their accounts, and the one that interests me the most
is called Gemini Dollar, and it's always worth a dollar
because it's pegged to the US dollar, and I think
that you could buy say five Gemini dollars and then
(06:08):
earn eight point six per year on that amount. I
haven't opened an account yet, but I'm curious if you
have heard of it already or what you think about it.
Thank you, Oh Matt. So many questions popping up these
days about earn more money on savings because the rates
for savers are atrocious right now, and so no wonder
(06:31):
Ellie's looking to try to find some way to make
more money on the money. She's just kind of going around. Yeah,
I get it, me too. I hate having money in
a savings account these days because half a percent is
about the best you can hope for. And uh and yeah,
so Ellie, let's talk about crypto savings accounts. The allure
is strong with these, and I think there's a lot
of people out there looking into crypto banks because they're
(06:53):
springing up all over the internet promising stellar rates of return,
some even as high as twelve percent. I've seen was
hanging around. But it's important to note that money that
you put into one of these accounts is not like
putting money in your traditional bank or your online bank
or even a credit union. It's not even close because
there is no f D I C insurance when you
(07:15):
deposit your funds at one of these cryptocurrency online banks.
And since the crypto space is still very much like
the Wild West, you're definitely putting your money at risk
if you decide to put your savings um in one
of these quote unquote banks. And yeah, you just can't
even call it a bank really based on what it is.
And these, uh, these websites aren't even insured by the
(07:38):
s I p C, where brokerage firms like Vanguard and
Fidelity are able to, uh say that five thousand dollars
of your money is insured. And we think that this
should cause you to hit the brakes from really even
considering these crypto bank accounts really any further. Yeah, what's
what's crazy about these companies too, is that they're promising
such high returns in order to attract more users and
more customers essentially, right, and so like it's almost like
(08:01):
the higher return that they're promising like the worst off
it's going to be because again, because they're not even
s I p C ensured, I mean, they could fold
and you would be completely out all that money, Like,
there is no guarantee that you're gonna that you would
you ever see any of that money again, especially if
you're a smaller quote unquote investor, because I mean, even
if there was like some sort of lawsuit, like, you're
(08:21):
gonna be at the very end of the line when
it comes to actually getting any type of money back.
And so, yeah, let's talk some more specifics on how
these cryptove savings accounts work. Within one of these accounts,
you're holding cryptocurrency and you could have you know, many
different varieties in there, and that crypto stash is then
being lent out to other investors and other traders. So
not only are you getting into the cryptocurrency game by
(08:42):
owning some actual cryptocurrency, but you're going above and beyond
on the risk scale by also lending out what you own.
And so while those rates of return do sound pretty nice,
they aren't all that great for the enormous risk that
you're taking on. There's almost like this sort of double
away amy when like the way I think about it,
it's like I'm imagining if I have and ridding my
bike in like a year, I'm really out of shape, right,
(09:03):
And also which isn't true, which is would never happen.
Let's be honest. It's something else that would never happen,
is imagine then if I also left my bike out
in the yard all winter along again for another whole year.
But then imagine I'm like, Okay, I want to hop
on my bike and get across town for some important meeting. Well,
there's a good chance then I'm gonna be doing maybe
a good amount of walking. And whether it's because I'm
(09:23):
so out of shape I'm sucking wind, or because my
bike's broken, right, And so there are two huge risks
here when you have your money invested in these companies,
and while that might be okay or acceptable, if this
isn't money that you're necessarily counting on, right, And so
again going back to the bike analogy, like if I
was on my way to an important meeting, Uh, that
bad idea to do that. But if I was just
out for a ride and it didn't really matter, you know,
(09:44):
in that case, it could make sense for you. And
specifically because we're talking about savings here, usually this is
money that you need and even with you know, for
most of our listeners, I know, for us, like our investments.
We're not even really willing to put that um at
huge risk. And so yeah, matt Ellie mentioned the website
block Fi, and explicitly on that website it states loss
(10:05):
of principle, which is the money that you put in
there is possible, And it certainly is possible, and I'm
not gonna say it's likely, but that is never the
case with the savings at your bank because of what
we talked about the fd I C insurance. Essentially, these
crypto banks are out there combining cryptocurrency exchanges like coin
base and peer to peer lending a company like lending Club,
(10:25):
and that means just a much higher increase of volatility
and risk. And so yeah, I would, I would hear
pretty much everybody away from these things because it's it's
just too risky of a bet, right, unless it's just
money that you don't care about, right like if it's
play money, if it's money that it needs to be
money that you wouldn't lose sleepover. I haven't. I haven't
had a dollar that I didn't care about, the you know,
(10:46):
the ones I don't care about. I spend on craft beer.
If folks make different types of vets, uh, you know
different risks they're that they're willing to take. But in
the end, here essentially what we're saying, when it comes
to your savings and when it comes to your investments,
we want you to keep those separated. You know, uh
okay to take uh measured risks with your investments. You
can afford to lose money that you've you know, invested
this year if the market goes down, because you know
(11:07):
that you won't need that money until years or even
decades down the road. But that's not the case with
your savings. You want to keep that money safe in
the liquid in case you need it. Uh. And so
that makes these crypto savings accounts, to put it nicely,
less than ideal for that task. And so keep your
investments and your savings distinct and separate. And if you
are going to put any of your money towards some
of those cryptic savings accounts, make sure it's less than
(11:30):
five percent of your overall portfolio. That's, you know, one
of the ways that we designate quote unquote play money. Yeah, totally,
all right, Matt. When we got more questions to get to,
including what about taxes, like do you need to foul taxes?
If you don't make much money. We'll talk about that
and more right after this break. All right, we're back
(11:53):
from the break, and we're gonna hear from a listener
who listens to us underwater explain how that works. But
first let's hear this tax question. I'm at and Joel.
This is aoka from Grand Rapids, Michigan. I hold on
another podcast that a single individual who owns less than
twelve thousand, four hundred dollars in a year doesn't have
(12:14):
to file a tax re tone, I made a little
bit less than twelve thousand, which included about a thousand
dollars from door Dash. Given that door dash and other
gig economy jobs are different with taxes, I just wanted
to know if I can skip filing my taxes this year,
or if I would get in trouble but not returning
(12:36):
some of that door dash money. And is the twelve
thousand dollar rule even a thing? Is it even true?
Thanks so much? All right, Matt, I love this question.
I feel like this is definitely something that a lot
of people will have, especially um when in a year
where you might not have made very much money, do
I have to file taxes? For instance, if you're a
(12:58):
college student, maybe you made in thousand dollars last year
some side income whatever, and uh and yeah, you're like,
I don't really want to go through that hassle. Filing
taxes seems like a burden, and I understand that it's
um not the most fantask in the world, right, but yes,
since tax to day is to two weeks away Monday,
May seventeen, by the way, for all you slackers, exactly
(13:18):
two weeks away. Yeah, it's uh, it's true, Erica, that
you don't have to file taxes if you're single and
you make below the twelve thousand, four hundred dollar threshold.
That's because of the standard deduction. That is the amount
of of the standard deduction. So basically, you won't owe
any taxes on any income until you start making more
(13:39):
than twelve thousand, four hundred dollars and you're not required
to file its Act return. You won't get into trouble
with the I R S if you don't do it,
but you might still want to do it because of
the many ways you can benefit if you do file
your taxes instead of kicking up your feet and designing
to uh to not do it at all. Yeah, there's
some some major benefits to filing your taxes if your
(14:00):
income is a little bit lower. If you don't file,
you won't be able to qualify for a tax refund,
and so if you had taxes withheld from your paycheck,
you won't see that money. You might also qualify for
the earned income tax Credit, which you wouldn't get if
you don't file a return and claim it. And so
the cool thing about that specifically is that it's a
refundable credits and so even if you don't owe any
(14:21):
taxes at all, this credit will still get paid to you.
That's pretty sweet. But sadly of folks who would qualify
for the earned income tax Credit the e I T
c uh don't claim it, and so make sure that
you claim it if you qualify. Yeah, a lot of
people missing out on free money that way who have
it come into them. And you know, one other thing
to Erica that's definitely worth mentioning. If you're listening to
(14:43):
the show, hopefully you're investing in in IRA with some
of the money that you made, and if you're investing
in let's say a roth IRA, you might also qualify
with your low income for the savers tax credit, which
is one of the best tax credits around. Matt I've
always found this to be, you one of the most
fascinating tax credits available, and most people don't know about
(15:04):
how this works either. It's a nice little carrot. It's
a nice little incentive exactly especially for for low income
folks that really only applies to low income folks. The
federal government will essentially help you on your investing journey
by handing you back up to fifty percent of the
amount of money that you invested depending on your adjusted
gross income and Erica, you could qualify for that highest
(15:24):
fifty percent Savers tax credit based on your income. So
let's say you invested two thousand dollars last year into
a wrath IIRA, you get a thousand dollars back in
the form of a tax refund. Yeah, the Saber tax
credit is one of my favorites. And it's another thing
just like the Earned Income Tax Credit. They're they're too
really important tax credits that low income folks really really
(15:44):
need to know about. Uh, you don't want to miss
out on those because there's a lot of money at stake. Yeah,
it's it's it's like a four one K match from
the federal government. Yeah, yeah, you know, and Erica, you know,
so many things are based on your tax return, like
getting a home loan. Basically, filing your taxes shouldn't be
all that hard for you. It'll be free via I
r S Free File, and you might get thousands of
(16:04):
dollars in money that you otherwise wouldn't receive if you
didn't file a return. So we would recommend that you
go ahead and do it. There could be a lot
of money that you're leaving on the table if you, Yeah,
do what Joel said, like kick back, throw your feet up,
don't relax over the next couple of weeks. Instead see
if there are any funds that you're eligible for. Yeah.
We'll link to the I r S Free File site
in the show notes because that is the place where
(16:25):
people who make I think it's under like seventy two
thousand dollars a year a g I can file their
taxes and not pay a dime to in order to
do so. And like Matt said, it's less difficult than
you think it's going to be. It's really not that
big of a deal, especially with all the money that
could be at stake here for you Erica totally worth it. Yeah,
all right, Matt, Let's get to the next question. This
one comes from a listener who listens to How the
(16:47):
Money in the Ocean Hidlan Matt. My name is Nate
and I'm a long time listener to the show. I'm
currently in the Navy, and you just have company Company
and planning my financial future while spending many many months
underwater in a submarine. I want to get to my
advice about getting out the navy in less than six months.
I'm twenty seven and have a great crits for on
my car, and we'll have at least thirty five thousand
dollars and savings by the time I get out of
(17:09):
the Navy. I'm returning to school and we'll be a
recipient of the post leven g I built, which will
pay for my tuition and provide me with the housing
stipend of about fourteen hundred dollars in cash per month.
I was toting what the idea of purchasing a home
rather than renting. I'm able to ualize to be a
homeland program which allows me to purchase a home with
no down payment but still security competitive interest rate. I
figured that because it mortgage is typically the same or
(17:31):
in a lot of cases even a little less than
monthly rent. It would be beneficial. I have my monthly
housing STEPT been going towards owning home rather than renting one.
I have about two years left to school, and other
than summers, do not plan out working during that time.
Between my savings, any small amount of leftover money from
the house and stipend, and a small income about four
hundred dollars per month from doing Navy reserves at the
(17:51):
are separate from active duty, I would definitely be able
to cover roughly double my current monthly budget even without
working during the summers. I just want to see if
you guys thought this was a good idea or if
it cheers Ate all right, Nate, thanks so much for
that question. Uh here about housing, And by the way,
it's super cool that you've been listening to us underwater.
It might be the the closest that will actually get
(18:14):
to being in a submarine. Although now that I say that,
I feel like maybe when I was a little kid,
I feel like maybe on a field trip I did
actually walk through a submarine, which is I think even
as a kid, I remember being way smaller than I
was expecting it to be. It made me think that actually,
Nate might be super happy in like a tiny house
because he's used to living in small quarters. That's so true.
Maybe that's one way to save money, Like he doesn't
(18:34):
need nearly as much square footage because like it's like
six d score foot studio. This place is huge. Yeah, exactly,
it probably will feel that way, and like it just
makes me think, Matt. Actually, um, a while ago, we
had Doug Norman on the show, who's a fellow navy
man and he, uh, he also lived on submarines for
long stretches of time. And Yeah, the way he talked
about like getting out and then heading back into you know,
(18:56):
a house, like you just don't need as much when
you're used to living in such tight quarter. Yeah, he
touched yea possessions and how he basically was able to
just remove a lot of stuff from his life pretty
easily because of Yeah, all the all this campaigns on
the submarine. Yeah, Nate, if you haven't listened on episode,
we'll put it in the show notes. But that's that's
when you should totally go back and listen to episode one,
sixties six. But Nate, let's get your question. Well, first,
(19:17):
you know, great job on taking care of your finances
as well as your credit. A lot of younger folks
in the military spend a lot of their paychecks and
then some Yeah, there's a lot of predatory lending that
takes place, and so a lot of military personnels sometimes
find themselves in debts various financial situations. Yeah, and so
I hope you've been able to to be a good
influence on the rest of your fellow submariners. That's how
(19:38):
Dog used to say it, because I used always thought
of submarners, but he Doug always said submariners. Yeah, all right,
something just something that boughts in my mind. But the
v A loan program is great because typically you'll you
would have to pay p m I private mortgage insurance
if you don't put that down. But for the folks
that serve our country, you can get a zero percent
down loan with excellent terms without the costs of a
(20:00):
monthly insurance. And by the way, it's called a v
A loan because it's backed by the U. S. Department
of Veterans Affairs. Uh. And so that's why the lone
borrowers can put done less they've got the military on
their side, that's true. Yeah, and then they deserve it
for their service, right, they the better loan terms. I
will say, it's really important, Nate to to think about
the other costs that go alongside of owning a home.
(20:22):
Even though it sounds like your housing stipend will easily
cover the mortgage payment, be sure to listen to another episode,
episode three twenty three before you go ahead and make
this decision. Even if the amount of the mortgage is
less than what you would pay in rent, that doesn't
make it a slam dog. And that's because there are
additional costs to owning a home, and they can really
add up. Renting is not throwing money away. I feel
(20:45):
like I need to repeat that because that's lot of
people feel that way. Yeah, they just assume that renting
is like the stupidest thing in the world. I think that,
you know, part of it is the cultural homeownership that
that has happened in our society, and owning a home
is great, Like we've we've said that many times to Matt.
We love owning our own home and we think that
it's a worthwhile ambition of a lot of people. But
(21:05):
at the same time, renting a place is not throwing
money away. So that's why we recommend that you only
purchase a home if you're willing to own it for
at least seven years. And so that's one big thing
that you really need to consider, Nate, before you commit
to this idea of owning owning a home, how long
are you actually going to be holding onto it? That's right? Yeah,
So Nate, when you move in the future, because you're
gonna move, I guarantee it. The question you need to
(21:27):
ask yourself is would you be willing to hold onto
that house or that that place and rent it even
if you're living hundreds of miles away. If you're okay
being committed to this home for the long term, even
if you aren't living in it, then we think it
can make sense for you to purchase this place. It
could be a great financial move for you. But you know,
if you're just planning on selling it maybe just two
or three years down the road after you know, after
(21:49):
you buy it, this isn't gonna be a great decision
because of the transaction costs. They're pretty steep, and we
have no idea what the real estate market might look
like at that point in time. Uh so, Yeah, the
time frame is the crucial question here. It's it's not
necessarily about the numbers, because you talked through your specific
financial situation, right, Like how the different incomes that you're
gonna have coming in. I think you said it's gonna
be double what your monthly budget's gonna be. Like, that's great.
(22:11):
I mean, it sounds like you're in a great financial situation.
It's less about the specific numbers in your case, and
it's more about the actual time frame and how long
you're willing to hang onto that place. Yeah, man, I
feel like it's similar to when we talk about whether
people should be savers or investors. Right, there's a there's
a time frame that becomes crucial when you're answering that question.
And if you're like trying to get that money in
(22:32):
and out within eighteen months, you've got to be a saver.
And that specifically because of the volatility that occurs in
the market eighteen months later, like you're you could have
less money than you started with, and so you want
to be a saver to make sure you retain that capital.
It's a similar thing when it comes to buying a home.
That time frame is ridiculously crucial, and it's less about
the volatility and more about the transaction cost that can
(22:54):
eat into that too, And you could have less money
than you started with because of the extreme cost of
buying and selling homes. All Right, we've got a couple
more questions, including one about a duplex uh and a
way to to sock away even more money if you
own your own business, and so we'll get to both
of those right after this. All Right, we're back. We've
(23:20):
got two more questions on this Ask ht M episode,
and this next one comes from a listener who's trying
to figure out which retirement account is the right one
for them. A Matt and Joel longtime listener, first time caller.
My name is Samantha and I live in Portland, Oregon.
I have a question about the difference between a solo
(23:41):
four oh one K and the s c P I
r A. I am a small business owner and work
fully for myself. I do not have any employees and
I currently have an SEP, and I'm not sure that
is the most advantageous for myself. You would kind of
talked about it on one of the most recent episodes,
(24:02):
but I would really love some more guidance and clarification
on which one is the better option. Thanks so much.
All right, well, Samantha, first of all, thanks for listening
to the show for so long. You mentioned that there
at the beginning of your question, and by the way,
this is a good question when it comes to owning
your own business and yeah, investing more of that money.
You can go either way since you don't have any employees.
(24:24):
Both a SEP and a SOLO four one K are
are both good choices and both can allow you to
invest a whole lot of money dollars each and every
year in these tax advantaged accounts. And the reason that
many business owners actually opt for a SOLO for one
K instead of a SEP I RAY is because you
can actually max out that account sooner without having to
(24:45):
earn more because of how the cap works on the contributions,
uh and so because of the way it works. With
a SOLO four one K, you can contribute the entire
fifty eight thou dollars while earning around a D fifty K,
But to max out a SEP you're actually gonna need
to be earning those or two two five K, which
is a pretty big increase and so if you're wanting
to invest big money, it's easier to do so with
(25:07):
a solo four oh one K. Yeah, let's discuss these
in in just a little more detail, Matt. The way
it works is that the solo four oh one K
rules allow you to contribute as both the business owner
and as an employee. Your business can contribute a huge
amount of money to that account in profit cheering, and
you as an individual can contribute another nice chunk, up
(25:28):
to nine even more if you're over fifty years old,
but you're still limited to the overall amount of fifty
eight thousand. Yeah. Just when you make those contributions, you
just have to switch hats. Like you have to put
the employer had on when you're making the employer contributions,
and then when you're making your own employee contributions, you
gotta put on the employee hat. I feel like I
need a special hat as an employer. Over here, we
(25:48):
don't have any hats. No, we need new hats that
should actually if and when And I'll say when because
one of these days we'll have some merch but we
can will totally make some hats, all right. You're like
a how a money trucker hat or something. An other
perk two is that you can choose to contribute to
the ROTH version of a SOLO for one K. The
the employer contribution, which is the biggest amount will that
(26:08):
you're allowed to to contribute, will be funded with pre
tax dollars, but you can elect to have your personal
contributions go in as after tax funds. So it's it's
great from that future tax planning perspective. It allows you
to diversify that tax liability and it gives you more
flexibility when you're like drawing down those funds in retirement.
So I think that's one of the main reasons I
(26:29):
like the solo Foreign King more than the STEP is
because it does offer more of the flexibility when it
comes to, yeah, the type of money that you're you're
putting in, yeah, and that's something that the STEP or
which by the way, that stands for a simplified employee pension,
that's something that that accept doesn't allow. So for listeners
out there who are self employed and don't have a
SOLO four one K set up yet, you can do
(26:50):
it with any of the low cost investment companies like Fidelity, Vanguard, Schwab,
as well, So we would recommend going with one of those.
But Samantha, for you, unless you're looking to invest a
really high percentage of your income, a STEP IRA will
work totally fine. Is It's gonna work great for you. So,
for example, if you have a net profit at around
one hundred thousand dollars, you can contribute nearly nineteen thousand
(27:10):
dollars towards a SEP, which is really solid. That's a
lot of money. That's a high percentage of your income
that can go towards a STEP. But if you wanted
to invest more of your money into a retirement plan, uh,
you can always roll it over to a solo FO
one K. That's always an option for you. Yeah, And
when it comes down to it, Matt, both of these
accounts are really good and allow you know, self employed
(27:31):
folks to to be able to stock away a lot
of money for their future. One of the other interesting
things about a STEP, especially since we're closing in on
tax day, is is that you can actually still contribute
to a STEP for last year, but you can't still
contribute to a solo four O one K for last year.
So if Samantha is specifically looking to stash more money
away for tax she's gonna have to do it in
(27:52):
a sep I a uh instead of doing it in
a solo for one K. But um, yes, so that's
just kind of another caveat another perk of of the step. Which, yeah,
it sounds like she's already got going and it's working
out pretty great for her. So yeah, totally so, Samantha,
best of luck. Either way you slice it, you're doing great.
But if you're looking to, you know, massively crank up
the amount that you're investing solo, fo one cake can
often be the best route to go. But all right, Matt,
(28:15):
let's get to one more question. Uh, and this one
is about buying a duplex. Hey guys, my name's Matthew.
I'm thirty two and I live in Atlanta, Georgia. I'm
currently in the market to buy a duplex, just started
moving forward with real estate, and I have a few questions. Currently,
my credit score is a seven one and I'm trying
(28:37):
to raise that a little bit over the next six months.
I don't have any debt aside from my vehicle. UM,
I do have a couple of credit cards, and my
question about that is should I request a limit increase.
I don't use the credit cards that much, but I'm
wondering if increasing the limit will help my credit score
(28:58):
or if it's gonna hurt me. With that said, I'm
also interested in a little bit more information about the
leases you all create for your rental properties. So any
information you all can provide on creating a lease for
your tenants as well as screening them will be very helpful.
Thank you, Joel. Did you just hear that question? This
(29:20):
is coming from Matthew in Atlanta who's looking at duplexes.
This could be me. Are you submitting a question for
your own podcast? Uh? The stockpile of listener questions was
getting kind of low. Uh, Matthew, we would totally recommend
for you to get a duplex if that's something you're
interested in. I hope you're gonna live in half of
it hopefully and rent out the other half. How's hacking? Yeah,
(29:41):
how dude? House acking rocks is one of the best
ways to build wealth and for you to easily get
into real estate. And another perk two is living in
a duplex will also mean that you don't have to
put down as much money and you're going to get
a better rate versus if that was a straight investment property. Yeah,
owner occupied gives you better terms, absolutely, But let's talk
more about getting the best mortgage interest rate. You mentioned
(30:03):
how your credit score is at seven one. That's a
great credit score, but if you can get that score
up to at least seven forty, that would be huge
to help you score the top notch rates that lenders
are are currently offering right now. That's that's one of
those cut off points that if you can get, if
you can get above seven forty, you're gonna be in
that that premium rarefied air. Yeah, it's like hitting three
(30:23):
in Major League Baseball like that. That's kind of the line.
It's like, oh, you're an excellent HITTERI yeah, exactly, same
with the seven forty credit score. Lenders are gonna look
on you favorably and yet to Requesting your credit score
increase is one way to potentially help increase your score.
Credit card companies haven't been too keen on doing that lately, though.
It kind of depends on your specific situation as to
(30:45):
whether or not they feel comfortable about you raising your limits. Yeah,
it never hurts to ask if you've been a responsible
user of that card and you can point to that,
then that's ammunition on your side to actually make that happen. Yeah,
you would, however, benefit from paying off your credit card
balances to two or three times a month. The lower
that reported balance is, the better it reflects on your
credit And that's just the easiest and most immediate way
(31:07):
to boost your score. Specifically for someone who's close to
that line, right, that's really really important, and especially before
you make a really big move like taking out a mortgage,
you want to make sure you're above that line because
you can save you thousands of dollars four years to come.
You want to do whatever it takes. And one of
those things that it is, in all likelihood gonna take,
(31:29):
it's just paying off your credit card balance more frequently
for the time being. That's right. And now let's assume
that you have a place and you're looking at maybe
putting together a lease for the other half of that duplex.
Bigger pockets they sell state specific leases for ninety nine bucks.
They've got great resources there when it comes to real
estate investing h and they've they've just got a great
community there as well. Also, no low they allow you
(31:51):
to make unlimited leases for just thirty nine dollars a year.
So that's something you can look into, and you can
check into other online legal sites as well, like legal Zoom,
but just be wary of going for the freeforms. This
is one area that you don't want to cheap out. Uh,
it could cost you a whole lot more on the
back end. In particular, if this isn't something that you
(32:12):
have experience doing as you're getting started, it would totally
be worth it to spend some money. And so on
the note of experience, you can also ask someone who
has been investing in real estate for many years if
they would share the least with you. Yeah, I think
you're right, matt It's totally cheap to try to get
some sort of free lease that might not be legally sufficient,
and think about all the problems that could cause if
(32:34):
if your lease doesn't meet you know, state law requirements,
or if there are some things in there that don't
sufficiently protect you from the damages or something that you
might incur. You want to make sure you have a
thoroughly buttoned up lease, and it's worth the money in
order to get that. Also too, let's talk about screening, Matthew,
you mentioned screening tenants, and I will say that one
(32:56):
step when it comes to investing in real estate is
not a deep percent of the battle. If you can
screen tenants well, your foray into real estate investing is
going to go well. And so we would highly suggest
you listen to episode two sixty nine for more information
on managing rental properties in general and then screening tenants specifically.
We went into a lot of detail there, but basically,
(33:17):
if you just want the quick and dirty, the most
important factors are running a credit check and running a
background check, checking employment, and calling the prior landlord of
that tenant. If you perform all of those steps, you're
going to all but ensure that you're gonna have a
good tenant moving into your property, one that has treated
other landlords uh fairly in the past, who has good
credit and pays our bills on time. Those are the
(33:39):
kind of things that you're gonna gonna want to make
sure that you look at before you have that person
sign a lease like that. There are people sometimes that
drive up they seem really nice, but then you look
at those things and you're like, man, I don't know
that they'rey're they're not really treating their obligations. Well, they're
they're not paying their bills on time. There three months
late on their credit card bill, and that's a red
flag for sure to say, I'll think want to rent
(34:00):
this person, They're probably not the kind of person that's
going to take care of my investment of my home
very well. Exactly. Yeah, they look a lot less nice
on paper, and specifically to don't skip out on checking
their employment and calling their previous landlords, because you know,
getting that background check, running that credit those are all
things that don't require you to interact with other people. Uh,
there's a lot of different services out there that allow
(34:21):
you to to run that information. It's really easy and
it gets delivered to you in a nice, neat package.
Making these phone calls and verifying their employment and previous landlords.
It takes a little more work, you know, you like
you have to actually talk to somebody, but it's also
I think the most important man like specifically talking to
a previous landlord. You can learn so much by talking
to their current landlord literally fifteen minutes, not even that
like like from I mean sometimes I'm talking to somebody
(34:43):
for like my seconds. You can feel awkward because you're like, well,
tell me about this person that like they don't really
know who you are, but they're used to gotta make
the phone calls. It's massively important. Yeah, make this phone calls.
And you can just learn so much just how they
talk about the previous tenants. Because if you ask them,
like one of the questions I asked is would you
rent to them again if they were to reapply? Uh,
(35:03):
and and if there's a pause or well, you can
just tell how they answer the question, as you know,
if if if it raises any any red flags, and
then you can kind of link those red flags you know,
from their credit report, from their employment and then if
there's all these little small red flags popping up, well
then that might be an instance where you kind of
go with your gut. So all that to say, all
(35:24):
you potential landlords out there, don't skip out on making
those phone calls. It might be talking to the prior
landlords might be the number one thing you need to do.
It might give you the most information actually in the
screening process. All right, Matthew, best to luck to you
finding an awesome duplex. Man. I hope it works out
and I hope it gets that real estate bug going
inside of you, because it's a beautiful way to start
(35:45):
generating wealth. Alright, Matt, let's get back to the beer
that we had on this episode. This one is called
Bumbleberry Bumbleberry Honey Blueberry Ale. Apparently it's award winning, it
says so on the can, uh by right there on
the cave right, it's stamped on their fat Heads Brewery.
So it's got a enormously large noggin a dude with
a sweet mustache on the on the front of the can.
(36:07):
And this was given to us by Rich from Budgets
and Bruce. What are your thoughts on this beer? Man?
I will say that it was easy drinking, flavorful with
a nice little sweet touch of the blueberry going on. Man,
it reminds me a lot of Sweetwater Blue, which is
actually a beer here out of Atlanta. But yeah, it
has a similar blueberry note, like kind of right on
the edge of the tongue. I liked it, and I'm
glad too that we were able to have a beer
(36:28):
from fat Heads. This is a brewery that some other
listeners have mentioned before. We've never had any other beers before.
Those guys are there out of Ohio. So I'm glad
that Rich was able to donate this one to the show. Yeah.
I thought this one tasted a little bit like a
blueberry muffin, like a really really light, easy drinking blueberry muffin. Yeah,
so if you're into that, if you're into drinking your muffin,
you're gonna like this beers for you, that's right. And
(36:50):
it just really is a super chill beer for like
a nice warm day and into warm Daisies day. So
all right, that's gonna do it for this episode. Thank
you for submitting your listener questions. And if you've been
listening and you've got a question that you would like
Matt and Night at tackle here on an upcoming ask
htm episode, just go to how to money dot com
slash ask. There are simple directions there for you to
(37:12):
submit your voice memo and hopefully we can take it
on the next Ask kind of Money episode. That's right,
and you can find our show notes up at how
the Money dot Com. Will make sure to link We
actually referenced a lot of past episodes during this episode,
so we'll make sure to link to all of those,
as well as any other resources that we may have mentioned.
H and also to. We appreciate all the reviews we've
We've gotten a lot of reviews in recently, and so
(37:33):
if you are one of those folks, we seriously appreciate you.
And for everyone else who hasn't, no threats, but uh,
we would appreciate it. Are you gonna threaten our listeners.
We're still gonna make the you know, we're still gonna
make the podcast. But reviews are great, that's true. Yeah,
well there's been some really sweet ones lately. They help.
We really appreciate it. And yeah, it does let other
people know what they can expect when they tune into
(37:53):
How the Money, And yeah, it's our goal to provide
the best money saving money advice out there in the
podcast fear So. Yeah, thank you guys for listening. And
that's going to do it for this episode, Matt, So
until next time, Best Friends Out, Best Friends Out.
Hosts And Creators
Joel Larsgaard
Matthew Altmix
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