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1 - Is tax loss harvesting more trouble than it’s worth or am I missing something?
2 - Should I take out a HELOC on my mobile home that has experienced a tremendous amount of growth in equity?
3 - How can I help a family member who has struggled with medical debt to regain their financial footing?
4 - Is opening a 529 account at my local credit union a good idea?
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to Had the Money.
Speaker 2 (00:01):
I'm Joel and I am Matt, and today we're answering
your listener questions.
Speaker 1 (00:24):
We hope everyone out there had a wonderful weekend, and
we're glad that you tuned in to Have the Money.
It's like a radio radio pitch. You don't tune in
on your podcatcher. You hit play, you hit play, but
you don't actually you don't tune in. You're just you're
looking for that little green square, the sea green. What
do you call our color? Sea green? Yeah, something like that.
It's like a sea phone green background.
Speaker 2 (00:48):
Matt, do you remember back when we were getting our
getting it made and we almost were this close to
go with pink, Yeah, and it was it was like
a SALMONI color and it was you we're going to
share that.
Speaker 1 (00:57):
How we ever talked about that, I don't know, but
maybe maybe we'll share they we should alternate because I'm
on Instagram. I'm sure I've still got it on my computer.
But we're because we liked it. It looked really cool. But
I think we we were going too far off the
beaten path. I guess like ultimately, it's like how the Money. Okay,
let's go with the more the green color, but we
really dug the whole pink look. It was a lot
(01:18):
of It would have been cool. It would have been cool.
It would have it would have felt like Miami, you know,
because like the uniform, yes, which is everybody once once
one of those jerseys. Right, certainly it fits really well
with Miami and kind of the what do you call
that art deco, you know, like just sort of like
that vibe. The whole thing that they got goes South
party vibe for sure. Yeah, exactly. But ultimately I'm glad
(01:41):
we didn't go it didn't come with a think. But
this is and ask how to Money episode. We're gonna
hear from a listener who is helping a loved one
with their personal finances. Another listener is mobile homing his
way to wealth, and we're also going to discuss how
tax loss harvesting is for everyone. Uh, we'll get to
those plus more during this episode and can potentially save
(02:01):
you a ton. In tacts, we got to talk about
that and it's something it just depends though. Yeah, like
there's as always with personal finding stuff, there's a lot
of nuanced involved in Yeah. Man, all right, I got
a quick frugal or cheap for you. So this is
the first time I've seen you all day, because earlier
today the power went out here at the office and
it was out for for hours basically, so you just
pieced to I was already at home doing something, and
(02:23):
I was like, oh, I'm not coming in, yeah yeah,
And so actually less I put in my letter of resignation,
I left to go home to work. But before I
did that, I thought, well, there's a chance it flips
back on here real shortly. So I want to get
your take if this is a frugal or cheap I
grab the iMac. I unplugged it, which is what like
a twenty four inch screen, twenty seven inch screen. It's huge. Yeah,
(02:44):
they're pretty big. Yeah. And I walked across to the
coffee shop that you know I always go to every
single Monday, because I thought, oh, there's a good chance
that they've got power. But I thought twice about it
because I was I didn't want to be judged. I
was afraid that folks.
Speaker 2 (02:57):
Were gonna shame me for walking in with a giant
computer like a Laptop's okay, but sorry, sir, this is
too much.
Speaker 1 (03:04):
It's not like back in the day where you would
show up with a giant What is it like see
our team monitors or whatever, you know, just like the
old blocks, which I remember seeing pictures of people doing
back in the mid two thousands. Yea, early two days
are heavy too, just like the two TV's. But what
are your thoughts? Was is that a frugal or cheap
move to be like I'm gonna go over there and
set up camp. I think if you did it a
(03:24):
couple of hours, that'd be one thing.
Speaker 2 (03:25):
Because if I did it, what if you did it regularly,
like you know where you're like, hey, like four days
a week, I come in here and I just PLoP
down for five hours, and maybe I don't buy anything either.
I don't patronize this place, but it's a rare occurrence
right where we patronize that place fairly regularly, not daily,
of course, But.
Speaker 1 (03:41):
They almost know our names. Yeah, yeah, I am.
Speaker 2 (03:44):
Actually amazed at this point they still ask our names
when we ordered the same thing, the two of us
every Monday morning. But no, I think it's totally fine
because it is. It's our local coffee shop, man. And
if you go there for a few hours because the
power's out, I think they understand even if you are
dragging in some card issue and fancy screen.
Speaker 1 (03:59):
Okay, I'm glad you feel that way. I did think
twice about it, but turns out they actually didn't have
power either, right, And so I showed up. I stood
there and I realized all the lights were off. I
was like, oh, man, y'all, are y'all lost power too?
And they're like yeah, And then they saw my computer
and started laughing. Actually, one of the girls took a
photo of me, or she she asked. She's like, hey,
do you mind if I take a photo? Because we
always joke about people showing up with her with their
(04:21):
IMAX did the coffee shops. So I guess it's like
an inside joke for baristas to see somebody walking up
with her with her iomac.
Speaker 2 (04:28):
But again, I think if you did it in the
ray and you made that like your home base and
you play, you made it seem like that was your
coworking space, that's too much, right, right, Like yep, brought
in your filing cabinet too to sit next to you.
Speaker 1 (04:38):
That's just overboard. Bringing your Ergo ergonomic chair and I
got your ball that you're sitting on to make sure
your posture is good. That would be that would feel
a little a little different too far. I do think
whether or not you buy something during a visit that
that goes a long ways. Because I was thinking about
this the other day. I feel like this is going long,
but I'll like it quick. You could save a ton
of money by just going to a coffee shop and
(05:00):
buying a coffee. Like think about the cost of these
coworking spaces. I mean that's what you just mentioned that
there are a lot of money and if you could
instead go to some of your favorite different coffee shops
kind of bounce around, keep things fresh. I think I
would much rather do that. Granted we have our little
space here because we record the podcast, but if I
was just like a programmer or something like that, dude,
(05:20):
I would a not have a co working membership, Yeah,
and b instead go to a coffee shop. You know
who else You know who took a page out of
that book JK.
Speaker 2 (05:30):
Rowling, which when we visited Edinburgh, we rocked by the
coffee shop where she got our start, where she wrote
the first book, and it was because it was less
expensive to get a coffee that it was to pay
for heat at her apartment, and I'm like, dude, I
love that so much respect for the frugality of JK
early on, uh huh.
Speaker 1 (05:47):
And I love it. She lost it pretty quickly.
Speaker 2 (05:49):
I think she made considering her final book pulled up
in like the fanciest hotel, nicest suite in the nicest
hotel where we went and got drinks one time visit.
Speaker 1 (06:00):
But yeah, I think a lot of folks are taking
a page out of Jk's but considering too we work bankruptcy. Yeah,
evidently a lot of people don't want to pay for
those membership Yeah.
Speaker 2 (06:09):
Well yeah, lots changed on that. Go all right, Matt,
let's mention quickly. The beer we're having on this episode,
it's called broccoli by Other Half. We're drinking our veggies today,
which is the best way to do it. Oh yeah,
this big, big thanks to listener Jason, who sent over
just a plethora of good Other Half beers. Jason, we
really appreciate you, man, And what.
Speaker 1 (06:25):
A care package. You can't one of the best. You
can't beat that for us to I mean, this was
I almost shed a tear opening that made my entire month,
almost month, maybe definitely made my week Yeah, that was really.
Speaker 2 (06:36):
And and from one of our all time paper brewers too.
So by the way, if you if you have a
question you want Matt and I to tackle on an
upcoming Ask kind of Money episode, we'd love to take it.
Just record your question into your phone and then send
it our way via email. You can find the instructions
there the simple instructions for how to do that at
how to money dot com slash ask. But this first
question is about saving taxes when you're selling investments.
Speaker 3 (06:58):
Hi Ethon Joel. This is from Hillsboro, Oregon. Love the show,
Thank you so much. My question is about tax loss harvesting.
So I understand that you're able to get the losses
back as tax reduction, but if you reinvest the money
then eventually you would have to pay capital gains tax.
If you don't reinvest the money, then obviously you're losing
(07:20):
money overall. So it seems like the value proposition is
pretty small, just in case you're in a very high
tax bracket, and even then it's just just about ten percent.
I'll be happy if you can explain a little bit
better what am I missing?
Speaker 1 (07:33):
Thank you so much, all right, Rafael, good to hear
from you and thank you for that question. Is tax
loss harvesting really all that effective? There is a lot
of talk on this front. There are different different players
out there, different fintech companies that make this easier. But
let's go ahead and define it first. Tax loss harvesting
is basically when you sell an investment at a loss
(07:55):
in order to offset other capital gains that you might experience,
and if your losses exceed your gains, you can actually
deduct those losses up to three thousand dollars if you
are married filing jointly in a given year, to reduce
your ordinary income. And then on top of that, if
your losses are even larger than that, you can actually
(08:17):
carry them over and you can claim them to offset
not only ordinary income in future years, but also additional
capital gains that you might experience. There's so many layers
to this onion. You can carry those losses forward indefinitely.
So this is something where there is no there is
no cap essentially as to the number of times you
can kind of come back to this well and tap
(08:38):
it and so granted keeping up with it for multiple
years down the road. Yes, that does mean you're going
to have to keep up with that somewhere. But luckily
the IRS has a capital loss carryover worksheet nice and
make it nice and easy for you. It's something that
you can find in your I think it's in Schedule D.
That way you're able to stay organized and future deductions
you might take you can just reference that. Yeah, it's
(08:59):
really important, that's all. It's as simple as that.
Speaker 2 (09:02):
It's well, I guess, yeah, there is a little bit
of nuance here, right, it's not crazy simple that we're
talking about or potential to offset not just capital gains
taxes a significant amount of those, but also ordinary income
tax a small amount of that. And it's also really
important to mention that tax loss harvesting it doesn't work
inside of a tax advantage account. You don't know tax
loss harvesting inside of a four oh one K or
(09:23):
a roth iray, let's say, because the reason is you're
not creating a taxable event when you're buying and selling stocks,
ETFs or mutual funds or whatever inside of those tax
advantage accounts that we talk about all the time, Right,
tax loss harvesting it's only really possible when you're buying
and selling inside of your taxable brokerage account, which does
result in a taxable event when you're doing that buying
(09:45):
and selling. So I just want to point this out
because for a lot of how to money listeners who
are sticking fully with those accounts for the time being,
who are like, hey, I'm getting the match in my
four one K and i just started getting putting money
in the wroth, they're not. The taxable brokerage isn't really
on their radar. That's right, Well, this isn't of much
consequence to them. This is for ballers really who have
(10:08):
done a great job not only maxing those out, but
sticking significant sums into their taxable brokerage account over.
Speaker 1 (10:13):
The years too. That's right. Yeah, that's important context to
keep in mind. But Raphael, like the heart of his
question is is it really all that beneficial? Well, the
goal isn't to lose money when you are investing your money, right,
you want to make money. But there are ways to
use tax loss harvesting during a market downturn as a
way to help save at least a little bit that
(10:33):
otherwise would have gone to Uncle Sam. It's most helpful
for folks who find themselves in a higher tax bracket
if you're making bank that three thousand dollars that you're
able to off set from your ordinary income by selling
investments that haven't done so hot, that can help you
to avoid some potentially higher rates of tax that you
would otherwise have to pay. I think that's what Raphael
(10:55):
is kind of referencing are in his question. The less
you make, the less tax that you're skipping out on,
which makes this maneuver less advantageous overall. So, like what
you were saying, Yeah, if you're a low earner with
who does have some money in a taxable brokerage account
and you're like, oh, should I sell this stock at
a loss to get the tax break, Well, that's probably
not the right way to think about it. You're letting
the tax consequence wag the investing dog, which is not
(11:18):
the way you want to precede it, right, And tax
loss harvesting is most effective when you invest in single
stocks or sector specific ets, which isn't really our jam.
That's not the way we advocate for most people to invest,
because simple is better for the vast majority of armchair investors,
which is I think a lot of how to money listeners. Yeah,
that's often I mean that's really that's probably why we
(11:39):
don't spend a whole lot of time talking about this,
because we want to make sure that the initial eighty
percent is taken care of first, which is oftentimes that
we're discussing. Yeah the show.
Speaker 2 (11:47):
Yeah, this is a back end last five to ten
percent sort of question. Right, But let's say you do
the index fund investing thing like we do. Right, you're
at that point where you're investing in a brokerage account
and you want to use tax lost harvesting to your advantage. Well,
you can actually use this tax saving method to get
a tax break without shaking up your investment allocation all
that much, which is kind of cool. So let's say
(12:09):
you could You could sell out of your S and
P five hundred fund when the market is down, for instance,
and then purchase a total stock market fund instead, which
allows you to reap those tax savings without changing your
investing strategy much at all. Right, because those those funds
are similar but not identical, you can go this route
in order to snag that helpful little tax break for yourself.
(12:30):
So yeah, even if you do the index fund investing
route inside of your brokerage account, you can use tax
loss harvesting. You're just probably not using it to shield
yourself from like, you know, millions of dollars or even
hundreds of thousands of dollars in tax. It's just like
a way at the edges to minimize your tax bill, yeah,
for most people. And this is something that so literally
the example you gave, that's something I did. So it
(12:51):
was back in June of last year. I don't know
if you remember, Like, yeah, the market around that time
it had declined significantly.
Speaker 1 (12:58):
I think it was down like twenty percent or something
like that. And I literally sold a big goal chunk
of VOO, which is Vanguard's S and P five hundred ETF,
and instead bought VTI, which is the Vanguard's total stock
market ETF. And they're like cousins, yeah, or almost like
siblings from a different other. And in the eyes of
(13:19):
the irs, they are substantially different enough that you can
completely avoid the wash sale rules. So like that's the
whole point of going with something that's substantially different is
because wash sale rule states that were you to sell
something and if you were to rebuy that within thirty days,
oh guess what, you don't get to deduct those losses anymore.
But you don't want that time out of the market
(13:40):
of waiting thirty days. So instead what you do you
buy something a little bit different, but from a performance standpoint,
you are often looking at something that for most investors
is pretty dang identical funds that correlate in a lot
of ways. Yeah, exactly, Yeah, but that's so that example
you gave, like that is how it would practically look
for someone who is specifically in the wealth building stage
(14:00):
of their life, right, who isn't selling many of their investments,
specifically within a brokerage account. But for an investor who
might be let's say in the draw down stage of
their investments, theoretically tax lost harvesting could save you hundreds
of thousands of dollars, right, like or like an infinite
not an infinite a mount I guess, like even millions
of dollars. So imagine you were kind of talking about
(14:22):
like a baller investor earlier. Imagine there is such a
person in this Let's say they have a fund that's
up nine hundred thousand dollars. Let's say he sells it. Well,
he's gonna owe a ton in taxes on those gains.
But then Let's say there's another investor who has the
same fund that's up nine hundred thousand dollars, she sells it,
but she also sells a fund that happens to be
(14:43):
down let's say eight hundred thousand dollars. Well, she's gonna
owe a lot less in taxes. She's only gonna owe
on the one hundred thousand dollars in gains. Because of
tax loss harvesting, she's able to apply that drawdown of
eight hundred thousand to that gain of nine hundred, netting
one hundred thousand dollars. So, for multiple reasons, that's less
likely to be the case for most folks, but it
(15:05):
is technically possible for this to be a massive way
for in particular high net worth individuals who have a
lot of money, specifically in progridge accounts, to avoid significant
amounts of tax I think it's.
Speaker 2 (15:15):
Important to mention that this is kind of like a
maybe not a black belt move. But if you are
a novice investor and you're like, oh, I'm going to
read up everything on tax loss harvesting and I'm gonna
try to use this to my advantage to save on taxes, again,
you might be short sighted, and there's a chance that
you can screw this maneuver up in a way that
actually harms your future investing abilities. Right, So you've got
(15:36):
to be careful when you're attempting to implement kind of
like a pro level move when you're still a novice,
and so it just kind of want to put that
warning out there. One cool thing that we haven't talked
about much but Betterment, which is our favorite Roboa advising platform.
It's also not something we talked about a ton, but
we really do like what Betterment does, and their fees
are incredibly low given what they offer. Well, Betterment has
(15:58):
a tax loss harvesting plus strategy, so if you do
have significant amounts of money in a taxable brokerage account,
Betterment's algorithm can actually do some tax loss harvesting on
your behalf without you really having to know what you're doing.
You can just kind of trust them to handle that
and basically save you money on when it comes to
your taxes most years because they're able to do this
(16:22):
automatically and do this kind of avoid the wash sale rule,
and they're able to buy a like kind investment when
the market's down basically thanks to their superior technology. So
that's that's kind of cool. If you're saying, oh, I
want to get get in on some of that tax
loss harvesting, that's actually been on kind of my radar
right as I've as I'm looking into doing more in
my broke taxable brokerage account, I'm like, oh, maybe betterment's
(16:44):
actually the best place for me to have that, even
better than a fidelity or a Vanguard because of that
extra added perk. Again, like for most investors, it takes
a lot of work to completely even just max out
your tax advantaged accounts first, and so really our biggest
scripe about tax loss harvesting is that it can muddy
the waters and it can steer and attention away from
the more favorable accounts that they should have been investing
(17:04):
in or like.
Speaker 1 (17:05):
That initial eighty percent. Yeah, instead folks are focused on
like what is this exotic maneuver? The YEA one is like, well,
that is something that is good to know about, but
are you at that level?
Speaker 2 (17:15):
It can cause you to sell an investment that is
down temporarily where you're saying, and it can change your
investing strategy based on trying to get a tax break
and that's not how you want to use it either. Like,
just because your TESTLA stock is down, you could sell
it and buy General Motors, right, but you're like they're
very different sorts of companies and is that the best
move for you? Well, don't do it just because of
(17:36):
the tax break that you might be able to achieve.
Speaker 1 (17:39):
That's right, But we've got plenty more to get to
during this episode. We're going to talk about authorized users,
We're going to talk about five twenty nine accounts. We'll
talk about all that more right after this our Matt
We're back.
Speaker 2 (17:57):
Are still taking listener questions, and this next one comes
from a listener who wants to upgrade his home.
Speaker 4 (18:03):
Hey, guys, I'm a big fan of the show. I
always love listening to you guys and learn about all
the money apps. My question is I have a mobile
home that I bought for six thousand, the land for
eighty five hundred and about five thousand dollars worth of renovation,
so twenty grand total. The house is worth fifty three thousand,
(18:27):
so I got equity immediately. But my question is for
my next house, that one at actual brick house, would
it be better to establish a home equity line of credit,
get a loan with my equity to put a down
payment on the next house, or should I go ahead
(18:48):
and pay this house off. I can do that within
a year, pay this trailer house off, save the twenty
percent down, and then do it that way.
Speaker 1 (18:58):
I really appreciate it. Answer all right, And he didn't
mention it. But that's actually from James. We know that
because that's what it said on his email. But James
got to mention his name. They're at the beginning. But James, dude,
you paid twenty thousand dollars for a home that is
now worth fifty three thousand dollars. It sounds like it
was almost like an instant equity gain that he was
(19:20):
able to realize. They're nicely done and depending on I
don't know how long he's he's owned it. Did you
say how long? I don't think he did, but it didn't.
Like the way he's talking about it, it does not
sound like he's had it for too long.
Speaker 2 (19:30):
That happened to really a lot of folks who bought
twenty nineteen, twenty twenty. It's like, pretty soon overnight your
home was worth quite a bit more than what you
bought it for.
Speaker 1 (19:38):
Which is which is a nice feeling.
Speaker 2 (19:39):
You're you don't necessarily want to tap the equity, but
it's also one of those things where it nice.
Speaker 1 (19:42):
To know that it's there. Yeah, exactly's nice to know. Well,
and when the time comes for him to sell it,
which we'll get to. But for an individual, two hundred
fifty thousand dollars of gains are not going to be
subject to tax, assuming this was your primary residence, James,
just like the standard rules that apply to a traditional
I don't what do you call it a traditional single family
(20:02):
home as opposed to a mobile home, But I do
love that you are working to move from a mobile
home to a traditional single family I think most stats
show that mobile homes don't appreciate as quickly as single
family homes Doah, so move up the property ladder.
Speaker 2 (20:16):
I think is it's not a bad goal here for
jameson and it sounds like he's done his financial due
diligence to pull it off.
Speaker 1 (20:22):
But should he get a he lock because he does
have that equity there? Should he tap the equity within
that home in order to help you to finance the
next one? That's the question, and the TLDR is probably not.
He would rather, we would rather you not take the
approach that you mentioned where you are using a helock
in order to tap that equity.
Speaker 2 (20:41):
Yeah, exactly. The latter approach that you mentioned is a
better approach. It's a little more conservative, but it leaves
you in a less vulnerable position and just protects you,
I would say, protect your finances. And let's discuss why
just a little bit mad he lock rates they're not
awesome right now. We're talking nine to ten percent these days.
I looked up our local credit union to see, oh,
what sort of rates are they offering on helocks. You know,
(21:03):
it depends on the specifics, but and it depends on
your credit score too, of course, but we could be
talking easily double digits for for helocks at and that's
at a credit union, So imagine kind of what some
of the crummier banks are offering and stuff like that
on helocks. Probably not very good. That's a far cry
from where we were just a few years ago, when
people are getting those sweet, delicious, candy like helocks that
(21:26):
were in the three ish percent range. Right and we've
just heard way too many horror stories recently of people
who tap their home equity via a helock homemke we
line of credit, again by the way, which comes with
a variable interest rate. Unlike a home equity loan where
you lock in that interest rate for a certain period
of time. The home equity line of credit and that
rate can of course change on a monthly basis, which
(21:46):
in an era of rapidly rising interest rates like we've
been in, strikes fear into your heart right as a borrower,
like kind of scary to be like, Oh, I'm locking
in this thing, I'm going to get I'm going to
make maybe make a bathroom renovation or something like that.
I would try to pay the selock off, you know,
within two and a half years, three years or something
like that. Well, as interest rates rise, it's going to
mean more money out of your pocket and probably a
(22:08):
longer payback period, which sucks. And so yeah, I'm not
going to say that taking money out of home equity
is a complete no go and then it doesn't make
sense for anyone ever or anything like that, but it
definitely makes sense in far fewer cases. Given the current
financial climate we find ourselves in. We're always in favor
of homeowners having a home equity lineup credit at their
disposal kind of like a backup emergency fund. But tapping
(22:30):
your home equity is really a good idea. We'd rather
see you take a little more time actually to make
that leap to this brick house that you're wanting, instead
of taking out additional debt, especially at these higher interest
rates that could continue to go up, and that kind
of debt, it really really could haunt you actually in
the end if you're trying to accelerate that purchase by
(22:51):
taking on my semi nefarious debt.
Speaker 1 (22:53):
Really yeah, yeah, just saving up the old fashioned way,
the cash in twenty percent down for a down payment.
That is a tried and true method of home buying.
It's certainly going to take longer, got to have some patience,
but that patience is going to pay off in so
many ways. Like there is a reason why twenty percent
is the magical number in order to get the best rate,
in order to get the best terms, because it shows
(23:15):
the bank, it shows the credit union that you are
putting enough skin in the game, right like you are,
like you're a partner with them. This is something that
y'all are working towards together. They want to see you
succeed and you're going in on that purchase together instead
of just completely relying on them to give you all
the money that you'll possibly need in order to pull
it off. Yeah, and on top of that, there are
(23:35):
some additional benefits too, like the ability to avoid additional
costs like PMI, which can increase your monthly payment for
years to come. And you'll have a smaller principal balance,
which is even more important these days given the higher
rates out there, and given too that you are no
longer going to be making payments on your current home,
and I think you're going to be able to quickly
(23:56):
find yourself with that twenty percent down in order to
purchase that home the next place that you want to
move into, potentially even before selling the current place that
you're in. It's not something he even asked about too,
but uh, yeah, puts you in a really strong position.
It puts you in a crazy strong position too. And
the ability, James, you didn't even mention this, but if
you wanted to potentially get into renting that property, that's
(24:16):
something that you could entertain as well, with the ability
for you to hang onto that for a couple of years.
If you're going to be staying local and hopefully seeing
the value of that continuing to rise. I don't think
I would hang onto a long term again because of
home appreciation and how it's not quite as steep of
a return like you would see with a traditional single
family home. But man, I think I would totally hang
(24:38):
onto that for at least a couple of years, give
it a shot, and then sell it without having to
again having to pay those capital gains. You're at least trying,
like testing up the waters a little bit much.
Speaker 2 (24:48):
If this is going to work for you so much,
that comes down to whether or not you feel compelled
or interested being a landlord. A lot of people say
that's a part time job I don't care about, or
I don't want don't want to do it, yeah, or
maybe you're minimizing your career potential and your day job
by kind of trying to do this on the side.
But if it does interest you, if it's like, oh,
I've thought about doing that and kind of kind of
having a couple rental properties someday, maybe that's a maybe
(25:08):
that's a dream of mine. Well, if you can save
up twenty percent for the next property and you can
hold on to the one that you've currently got. That's
a great strategy to help get you there. It's I
think it's the easiest way, Matt, for most people to
get into. It's either house hacking or it's that those
are the best two avenues to get into owning some
sort of rental real estate. And maybe the next best
is like an ADU accessory dwelling unit, which is kind
(25:29):
of like house hacking, So maybe we'll put it in
that category. But I love that as a way. That's
exactly how I got my first rental property. Was like
the home that I lived in for a while, a
house hacked it, rented out of room, and then guess what,
I moved out, rented that whole thing out, moved into
another house, and I did that again. And that's a
great that's a tried and true method I think that
people can follow. It just makes it easier to get
(25:50):
the financing you have to put less down, and it
helps you to build up that property portfolio.
Speaker 1 (25:53):
That's right, So, James, we hope that gets you pointed
in the right direction. Joel Y's here from our next listener,
who is helping a loved one with their personal finances.
Speaker 5 (26:02):
Hi, Matt and Joel My name is Alex and I'm
calling from Western New York. I've been listening to the
podcast for some time now and have loved the content
that you've shared with us. I'd love to get your
guys's opinion on a question I have regarding an authorized user.
I'm currently trying to help a family member get back
on their feet after their credit score had tanked to
(26:23):
about mid five hundreds due to medical debt. We have
tried to get the bills from their medical office in
order to verify them and move forward, but they have
been less than forthcoming, so now we're looking for a
temporary solution. I'm about to pay off all my credit
card debt, which would bring me up to about an
eight hundred credit score. I'm wondering if I make them
(26:47):
an authorized user, would that be enough to help them
qualify for a decent apartment or better yet, by their
first home. They're looking to move next year, So do
you think making them an authorized user will be enough
to help them well? Doing so effect my score? And
do you have any advice or suggestions for our situation?
(27:10):
Thanks again, guys, and stay safe.
Speaker 2 (27:13):
All right, Matt, there's a lot in this question that
we have to talk about. Right, So Alex, thank you,
thank you for listening, thank you for sending this question
in our way, because at first it on its face
it appears like a simple authorized user question, but there's
actually a whole lot.
Speaker 1 (27:27):
There's a few additional layers, yes, to discuss.
Speaker 2 (27:29):
It's like an Onion's question, a little bit in a
good way, right, And there's a lot of time so
much of personal finances. Yes, one thing leads to another,
and when you want to help somebody out, it's admirable,
but you got to know how to go about doing
it the right way, so you don't throw yourself under
the bus while you're trying to do good. Right, And
so I would say, Alex, is the fact that you're
trying to help one of your family members out, that's admirable,
Like that's a good thing.
Speaker 1 (27:50):
We should all strive to do that.
Speaker 2 (27:51):
And medical debt is clearly a heinous problem in our
society these days. Fortunately, new rules ensure the medical debt
of less than five hundred bucks doesn't get to the bureaus,
which has been actually massively beneficial to a lot of
people helping raise their score taking some of those things
off of credit reports. But those larger bills, they still
get reported. Right if it's above that five hundred dollars level,
(28:11):
those are still going to hit the report, which then
impact the score. And so given how porous healthcare coverage
can be, there are still millions of folks similar to
what your family member is dealing with. And I would
just suggest please do go back and listen to our
episode with doctor Virgie, which we did in seven sixteen,
because you know, she offered a lot of information about
how to fight back against medical debt and how to
(28:35):
get some of that wiped off of your credit report.
At the same time, hopefully some of that infok can
help you challenge some of the medical bills that are
coming in and get a reduction or potentially full forgiveness
of the total amount owed. I think that I wish
it weren't the case, Matt, that we had to have
doctor Virgie's tactics. I wish wish the system was better
at making sure people didn't get relegated to second class
(28:57):
status as citizens because of some sort of adverse medical event.
But sadly, we have to know these tactics to fight
back if we're not going to be kind of victims
of a credit scoring model that that isn't really all
that great, as.
Speaker 1 (29:09):
Well as the medical billing complex right that exists out there.
But trying to help this individual by adding them as
an authorized user, is that going to do the trick? Well,
it'll help, but it's not going to be able to
overcome just a mountain of negative information on their credit report.
If that's what we're talking about. If your score is
in the five hundreds, man, improvements like seeing their score
(29:31):
get to a level that most creditors or lenders or landlords.
We'll talk about that here in a second. What they
see as decent is going to take some time. And
so the most important thing is going to be to
get that negative information off of the credit report. And
so what would recommend is to pull their credit report
from Annual Credit report dot com.
Speaker 2 (29:51):
Totally this like for them, like help them understand it, right,
You're going to walk through this, walk them through this
sort of like we're talking about the James, Like you
are now on a team and y'all are working together. Yeah,
but challenge anything that isn't accurate and again, see if
they can get that medical debt forgiven, because that's going
to have a massive impact as well to have that
completely wiped. Yeah, the truth is they might qualify for
(30:12):
full forgiveness and they just don't know it, right, because
a massive chunk of Americans. Because of the way these
nonprofit hospitals work and the forgiveness abilities for people who
don't make enough money, they don't necessarily advertise it, right,
and they don't tell people who come in there, Hey,
guess what how much money do you make?
Speaker 5 (30:28):
Oh?
Speaker 2 (30:29):
Wait, oh really, we'll apply right here and you'll get
full forgiveness for your this medical bill. It won't cost
you a time. They don't tell people that. But the
truth is forgiveness exists for a decent chunk of people
who have a medical debt, who rack up medical debt.
But Matt, yeah, that is the first step. And after that,
you know, adding them as an authorized user because of
how well you handle credit, Well, that'll help, right because
(30:49):
they'll get like a little bump from having your credit
and information showing up on their credit file. But I'd
have them look into more than just that. I would say,
look into a service line self as well, which is
kind of cool. It used to be called self lender.
It's basically this way where where they if they have
a certain amount of cash on hand, they can make
a loan to themselves and pay it through self. Self
(31:11):
reports those payments on their credit report, and that helps
people score significantly. I would just be taking like an
all of the above approach, because if I was attempting
to raise that score meaningfully in short order, I would
want the help of an authorized user from a family member,
which is which is awesome that one of those loans
through self. I would want to challenge those in accuracies.
I want to want to do all of the above,
(31:31):
and doing this credit builder loan via self it could
improve your score by something like thirty points over the
course of the next six months. So we are talking
about a significant improvement. But you really want to want
to do all of these things and help them see
the many ways in which they can benefit their score.
It's not just the one thing. And if you try
just the authorized user thing, you're probably gonna see a
(31:51):
little bump, but not nearly as much.
Speaker 1 (31:52):
As you're hoping for. Yeah, it makes me think of
was it last week that we're talking about the experience
boost to oh yes, to your credit. I mean like
we're making fun of the savings account, or the debit card,
the smart money account. That's right, but again you have
access to that without having to open that account. That
is worth looking at, so you get the experience boost
as well as the alex boost. There's all of these
(32:13):
smile boosts along the way which could hopefully move the
needle in a significant way. Because you talked about this
family member wanting to potentially move, I think sometime next year,
if we're talking about renting, or even if we're talking
about buying, their credit score being in a healthier place
is going to be integral to them being able to
do either of those things, whether to buy or to rent,
(32:33):
because landlords and mortgage brokers they will both want to
see a decent score, and aside from just improving that
credit score, practically speaking, I think their other focus should
be to save up some more money to have that
on hand, because if you are talking about renting, well,
a landlord might ask for a higher security deposit because
(32:53):
of that lower credit score if it hasn't rebounded enough
by the time that they start looking for a place.
That's literally something I've done with some recent renters. They
had some hard times in their past when it came
to their ability to pay some debt. Both of their
credit scores were in a really rough place, but they
were super upfront about it and said, hey, this is
(33:13):
what we've had some of the challenges that we faced
in the past, this is what we're willing to do.
And we were totally able to negotiate a higher deposit
which allowed them to one percent to get the place
that they were excited about. And oftentimes that would not
have been the options been an option for especially like
I guess, a larger property management or an apartment complex,
(33:35):
and that provides you protection as well, right just in
case they haven't necessarily reformed some of their ways, so
they're not paying their bills on time, and they're not
paying their rent on time. Well, that additional security deposit
puts you in a better position and allows you to
accept a tenant that doesn't have as great of credit exactly.
And so that's when it comes to renting. But if
we're talking about buying, I would say, without knowing anything
(33:56):
else about their finances, I'm going to kind of go
out on a limb and say that for the near
term future is likely going to be their best bet
without taking on any additional undue risk by purchasing a home.
We don't want them to have very little on hand
to put down and to end up financing a home
at a higher interest rate than what they would need to.
So it sounds like like you said, and there might
(34:17):
be some more time in the coming years for reform
to happen. And once they are in a really strong
financial position, that's in your saving, like we were talking
about the chance, once you're saving up that solid twenty
percent down, that's when we want to see them starting
to see what's out there on the market.
Speaker 2 (34:32):
Yeah, And I just want to say too, I think
this is kind of teaching your family member to fish,
as opposed to handing them fish. And so when you're
kind of saying, hey, this is kind of how the
credit scoring model works, and I'm willing to do this
one thing on your half. But if you do this, this,
and this, this will actually help you meaningfully improve your
score in not too too long, maybe six months to
a year, we should be able to see an improvement
(34:53):
of triple digits. And if we're taking all of these
steps and so, I think you can help teach them.
You can even take them to annual credit report dot
com and say this is how you pull the credit report,
and this is how you see if there's something inaccurate
on there, and this is how you reach out to
the hospital to see if there's any forgiveness for that bill.
But don't do it for them.
Speaker 1 (35:10):
And this this can be you can take them directly
to the credit bureau location here in Atlanta. Is it
Equifax right on Peachtree. Yeah, if you go there in person,
it's like farm to table. But no, I don't think
they let you in. I don't think of it. You
can get it directly from the source, right, Yes, No,
it's definitely not. That's not how it works together. And
you've gotten to do it through the internet.
Speaker 2 (35:27):
Their customer service is lacks of day's a clot best.
But yeah, there's there's so much that you can help
them figure out. Just make sure that this is a
learning process so they can continue to do these things
and work on their credit. It makes me think of
like a parent who does a kid's assignment for them
for school or something like that.
Speaker 1 (35:44):
They don't do them any good.
Speaker 2 (35:46):
No, they don't learn to buckle down because there's gonna
be many more assignments and you don't want to have
to be doing those assignments for them in perpetuity. It's
it's one of those things where it's like you have
to kind of stick with them through that hard time,
through the through the writer's block or whatever it is,
and kind of push them forward so they can have
success in future assignments as well. And last, but not least, Alex,
I just want to say congrats on paying off all
(36:06):
your credit card debt.
Speaker 1 (36:08):
That's huge.
Speaker 2 (36:08):
On what do you mention that we're thinking so much
about your family member's financial situation credit score?
Speaker 1 (36:13):
It's got a score where she set up up in
the eight hundreds.
Speaker 2 (36:15):
Yeah, that's super solid, amazing. I feel like this is
awesome worthy of celebration for you for sure, and of course,
as you know, it's not easy to get there, but
you made it happen. And your family member, I think
they can do the same. And I think that can
provide just hope and inspiration for that family member to say, hey, look,
I wasn't looking how far off come?
Speaker 1 (36:32):
Yeah, I was kind of in a similar boat. And
by taking these dots, by listening to this podcast, it's
a little plug for the How to Money show.
Speaker 2 (36:38):
Yeah, you should force them to listen to us three
days a week, but I think it could most definitely
improve their finances.
Speaker 1 (36:44):
The fact that you're walking alongside them is incredible. But Joel,
we've got more to get to. We're going to discuss
paying for higher education. We'll get to that right after
this break.
Speaker 2 (37:02):
All right, Matt, let's keep going. Let's get to our
Facebook question of the week. By the way, if you're
not a member of the how to Money Facebook group
and you're on Facebook regularly, it's the best part of
being on that social media site. I actually don't use
Facebook for anything else except Facebook Marketplace or the how
to Money Facebook the only two things I use it for,
so be sure to go check that out. It's how
the money listeners helping each other out. Eleven thousand people strong.
(37:24):
This question comes from Brandon, who says I need a
recommendation on places to open a five to twenty nine
account for a kid's college fund by current credit union
and investment services don't seem to offer it. Last week,
we actually talked about how much to contribute to a
five to twenty nine It's possible to overdo it, but
something around one hundred dollars a month level is a
great goal to have, especially given you know that increased
level of flexibility that we talked about, or if you
(37:46):
overfund it, you can you know, siphon some of that
money into a roth ira over time for your kiddo,
typically is who you're saving money in a five to
twenty nine for. But where do you go to open
up a five to twenty nine account. That's not something
we've really talked about on the show, Matt, I guess
we have a little bit. There are really two routes
that you can go with this. There are Advisor sold
plans and there are direct sold plans. And so if
(38:08):
you've been listening to us for any length of time,
my guess is you can already intimate which one we prefer.
Speaker 1 (38:16):
Matt. If you want to laborage talking about direct baby again,
you go directly to the five twenty nine building and
you get it straight fresh.
Speaker 2 (38:23):
You know, farm to table style, just like with Equifax.
You want to show up in person, and that farm
to table style comes with far fewer fees.
Speaker 1 (38:29):
No, it is true Advisor sold plans they end up
costing folks much more money over time, morning Star. They
actually found that point six percent that that is the
average gap, which surprisingly that sounds like the fee that
an advisor which charged you in order to manage manage
your stuff.
Speaker 2 (38:46):
And that's that's average. So when we're talking about the
lowest that is true lowest cost funds, it's actually an
even bigger gap typically, So we'll get talk more about
that in a second.
Speaker 1 (38:53):
That's right. Yeah, So because of that, most folks are
going to be better off taking the DIY approach, especially
given the array of inexpensive investment options inside many of
these five twenty nine accounts these days. And so what
investment options should you choose? Well, that kind of depends
on how old your kid is, because a straight up
low cost index fund can be a great choice, but
(39:16):
there are also age based options that get more conservative
as you get closer to needing those funds. Those are
well with worth considering. I know, for the Georgia five
twenty nine, which are it's a weird URL. It's like
path two five twenty nine, Path to college, Path to
college five twenty nine or something like that. It's like
four different things just like crammed into a URL. But
(39:38):
they've got options, and they are a lot of them
that are age based, are based on the date that
the or the year that your child is going to enroll.
You've got those, but then you've also got like preservation
of capital options, you've got balanced approach, and then you've
got the one hundred percent equities. Yeah, which is the
most it's the most aggressive option that they have, but
it's basically just one hundred percent.
Speaker 2 (39:58):
Stocks and pure investing for something a newborn that can
make sense. That is totally the path that you're gonna
want to take. But if you are looking at funding,
let's he didn't say the age of.
Speaker 1 (40:07):
His kid, but if let's say you've got like a
fourteen year old, fifteen year old, you are a lot
closer to that kid needing to tap this funds, then
you probably don't want to expose your kid to or
their money that's in the fights one too that much risk, Yeah, yeah, exactly.
Speaker 2 (40:21):
You're you're being a little too cavalier likely in aunl
likelihood if you choose the most aggressive path when they're
that age. And so the first question is that sort
of direct soul versus advisor sold plan, which one do
you want to go with? Do you want the handholding
and the much higher fees or do you are you
down with the DIY approach, which is something that we
always encourage here on the show. And then the next
(40:42):
question is like, well, which state five twenty nine plan
do you go with? And a lot of people think, oh,
I guess I have to go with the state five
twenty nine plan for for where I live. Not that's
not actually the case, but for a lot of people,
it actually makes the most sense to go with the
five twenty nine plan in the state where they live,
especially if there's a tax break, a state tax break
associated with that account.
Speaker 1 (41:02):
Right.
Speaker 2 (41:03):
So, for instance, in Georgia where we live, if you
can put up to eight thousand dollars per beneficiary in
to your five twenty nine account, you can actually put
more in there, but every dollar you put in up
to eight thousand dollars per beneficiary shield you from state tax,
right if you're married filing jointly. So that is something
to note. Do you live in a state that offers
a state tax benefit and if so, up to what amount?
(41:26):
And that is kind of how you're going to want
to think about and decide where you decide to invest
your money. Let's say you live in a state though
without a state income tax well, you'll likely want to
opt for a direct sold plan from another state that
prioritizes low fees, which.
Speaker 1 (41:41):
Is totally legit. That's totally an option. You do not
have to open a po box yea in that.
Speaker 2 (41:47):
State because let's be honest, a lot of the five
twenty nine plans have gotten a whole lot better, but
in some states they still suck. And so if you
are in one of the states that has higher fees
on five twenty nine plans, you're going to want to
go with a lower cost state plan that's run by
another state, which is again doable, no problems. So Georgia
and Utah are two of the best. They've been great
(42:08):
for quite a while with some of the absolute rock bottom,
lowest fees, Matt, Like you said, we invest in the
Georgia Path to College program and it rocks. Like the
fees are literally right about point one percent on a
lot of these funds, which is close to non existent.
Speaker 1 (42:22):
That's what we like to see. Yeah, path with number
two college five two nine dot com it's kind of ratchet.
But that being said, like this is the DIY approach,
but it's still a website, Like there's still somewhere for
you to go. It's not like you're having to cobble
this together and write some sort of charter at home.
Still easy, it's still relatively easy. It's just not quite
(42:42):
as easy if you were to let's say you've got
a Brokeridge account or an IRA first of all, So
like we're talking about earlier, right, the first thing you
need to have is an IRA. Then after that then
you look at it Brokeridge accounts. But a lot of
folks are gonna think, oh, the default thing I should
do is just go there. They're going to make it easy.
They administer five twenty nine accounts. The best path is
to go ahead and open a new account with whatever
(43:03):
state you choose. When it comes to the five twenty
nine account that you'd like to open saving for college,
that's actually I think the best site to do some
research about five twenty nine plans. We'll make sure to
link to that in the show notes. But you can
check to see if you are eligible for a tax
break via your state, and there are links to the
direct soul plans for every other state. Again, going through
(43:24):
an advisor intermediary is possible, and you know it's legit,
but it's going to eat into those returns, which means
you're going to have fewer dollars for your kids college
once the time comes. But if you pick one of
the best low cost plans, just keep dollar cost averaging
into that plan regularly, you're going to be just fine.
Speaker 2 (43:42):
Yeah, I'm glad we went over this though, how to
choose the right five twenty nine plan, because most people
are like, okay, five twenty nine plans and then and
then we say, hey, yeah, if you're far along enough
in your own money journey, you've been saving for your
own retirement really well, yeah, maybe this is the next
step for you. And then people are like, great, what
do I do now? And so it's good to know, Hey,
direct Sold Save You for College has all these rankings
and ratings, know whether or not your state has some
(44:03):
sort of tax benefit for you. If not, go with
one of the low cost states in Utah and Georgia
are two of the best. To our faiths, this right,
and not just because we live here.
Speaker 1 (44:12):
We're not homework. We're just saying literally, there's several other
states that oftentimes I want to just off the top
of my head, I want to.
Speaker 2 (44:18):
Say Ohio, Ohio sold always, but I just dug through again,
and Ohio is good, but not quite as low as Georgia.
Oh really, Georgia is like literally Georgia and Utah are
the top two. Oh nice, that was not the case
as of like I would say, last year, And well
it's something that they revisit and in their rank based
on oftentimes fees and some of the different investing options
that are available to you. So what that tells me
is that Georgia said, Hey, we're going to make sure
(44:39):
that the different options that we are that we are
offering folks, that they're affordable, that there's plenty of choices,
because in the end, that's going to mean the ability
for those kids to have more.
Speaker 1 (44:49):
To go towards college.
Speaker 2 (44:50):
So lots of folks who live in a state no
state income tax benefit, George is the place to go.
Speaker 1 (44:54):
Really nice.
Speaker 2 (44:55):
Yeah, we're number one. We can cheer our homestate on
that one for sure. All right, But let's get back
to the beer mat that you and I had on
this episode. This one's called Broccoli. It's a double dry
hopped IPA or your thoughts on this one from.
Speaker 1 (45:08):
Other half man. This is such a delicious beer. I
wish I can. Honestly, I wish I could compare some
other half IPAs to Burial, because in my mind they're
they're pretty similar.
Speaker 2 (45:17):
They're both very kind of earthy and like vegetable. It's
got hops out the wazoo. There's a reason they're using
vegetables for their branding. Yes, because it does have like
this herbal vegetable like earthiness to it, but it's super hazy.
It's kind of got those orange notes. And what I
would say about this beer.
Speaker 1 (45:34):
Though, as much as you and I, I'm sure you're
gonna have nothing but nice, nice things to say about
it as well. This is the pro level IPA. We
were talking about tax loss harvesting earlier and how it's like,
we don't want you to get overly obsessed with that
too early on, but at eventually, at some point you
can kind of work your way up to that. That's
how I feel about this beer. As somebody who's never
had an IPA where they'd go straight to this, I
(45:56):
think they might say, are you sure this is a beer?
Like they're not necessarily going to know even what they're drinking,
as opposed to having kind of progressed through the craft
beer offerings yeah, and you find yourself kind of at
this point.
Speaker 2 (46:10):
You don't want to go from two to ten, right,
and this is this is a ten beer. It's like
like an eleven. Yeah, it's gonna it's gonna give you
a little mouth kick. And if you're if you can
handle it. Like Matt and I, we've many years of
training have led us to this point where we can
drink a beer like this and admire it and appreciate
it and enjoy it.
Speaker 1 (46:26):
But yeah, if you're a newbie something to behold, Yeah.
Speaker 2 (46:28):
You might not be quite ready for the depth and
the glory that is this beer. But yeah, no, I
love this one. I have nothing negative to say, only positives,
and I don't have really much to add except for
it's freaking delicious, so good. It's top notch, just like
I've come to expect from from Other Half. When actually,
when Emily and I were in New York, we stopped
by Other Half has uh they've got a little bar
(46:49):
in Rockefeller Center. Now, oh yeah, a little tasting uh
huh bar. I actually brought a couple of beers. Some
got him in the fridge, so we've got tons of
other half the fridge right now. Thanks to Jason and
thanks to my New York City trip. But this one
again comes from Jason. Thank you Jason and J's bar.
We had a broccoli I believe it was like a
cheesy broccoli or something like that. They they do some
sort of variation and that was delicious too. But man,
(47:11):
I'm a big fan of this one.
Speaker 1 (47:13):
Yeah, roasted broccoli, perhaps maybeard broccoli. You know we've talked
about I love that what was his name? That was
the Frankie salon Frankie where he talked about meals. That's right, Well,
link to that episode as well. If you happen to think, oh, yeah,
I would like to find a way to spend less
on groceries. How do I reduce my grocery budget every
single month? We just listen to Frankie's interview.
Speaker 2 (47:31):
Yeah, maybe maybe I'll teach you how to cook some
basic stuff that you maybe had an otherwise thought to
try those cruciferous vegetables.
Speaker 1 (47:39):
But yeah, that's gonna be it for this episode. You
can find links to some of the different episodes and
resources that we mentioned during this episode up in our
show notes at how the Money dot Com. No doubt
he's actually got a whole resources page.
Speaker 2 (47:50):
If you're like I know, Matt and Joel have talked
about a whole lot of good stuff over the years,
and I should go back and see what the top
URL they've mentioned, or what the top resources are they've got.
How do I need complash resources? You can find them
all in one location.
Speaker 1 (48:02):
It makes it easy as opposed to digging through the
show notes, because let's be honest, folks are listening, maybe
slightly delayed, and they're thinking, I'm gonna have to go
digging for that. Nah, Just go to how the Money
dot Com forward slash resources. You'll find it all there.
Oh Steph, all right man, that's gonna be it until
next time. Best Friends Out, Best Friends Out.
Welcome to Had the Money.
Speaker 2 (00:01):
I'm Joel and I am Matt, and today we're answering
your listener questions.
Speaker 1 (00:24):
We hope everyone out there had a wonderful weekend, and
we're glad that you tuned in to Have the Money.
It's like a radio radio pitch. You don't tune in
on your podcatcher. You hit play, you hit play, but
you don't actually you don't tune in. You're just you're
looking for that little green square, the sea green. What
do you call our color? Sea green? Yeah, something like that.
It's like a sea phone green background.
Speaker 2 (00:48):
Matt, do you remember back when we were getting our
getting it made and we almost were this close to
go with pink, Yeah, and it was it was like
a SALMONI color and it was you we're going to
share that.
Speaker 1 (00:57):
How we ever talked about that, I don't know, but
maybe maybe we'll share they we should alternate because I'm
on Instagram. I'm sure I've still got it on my computer.
But we're because we liked it. It looked really cool. But
I think we we were going too far off the
beaten path. I guess like ultimately, it's like how the Money. Okay,
let's go with the more the green color, but we
really dug the whole pink look. It was a lot
(01:18):
of It would have been cool. It would have been cool.
It would have it would have felt like Miami, you know,
because like the uniform, yes, which is everybody once once
one of those jerseys. Right, certainly it fits really well
with Miami and kind of the what do you call
that art deco, you know, like just sort of like
that vibe. The whole thing that they got goes South
party vibe for sure. Yeah, exactly. But ultimately I'm glad
(01:41):
we didn't go it didn't come with a think. But
this is and ask how to Money episode. We're gonna
hear from a listener who is helping a loved one
with their personal finances. Another listener is mobile homing his
way to wealth, and we're also going to discuss how
tax loss harvesting is for everyone. Uh, we'll get to
those plus more during this episode and can potentially save
(02:01):
you a ton. In tacts, we got to talk about
that and it's something it just depends though. Yeah, like
there's as always with personal finding stuff, there's a lot
of nuanced involved in Yeah. Man, all right, I got
a quick frugal or cheap for you. So this is
the first time I've seen you all day, because earlier
today the power went out here at the office and
it was out for for hours basically, so you just
pieced to I was already at home doing something, and
(02:23):
I was like, oh, I'm not coming in, yeah yeah,
And so actually less I put in my letter of resignation,
I left to go home to work. But before I
did that, I thought, well, there's a chance it flips
back on here real shortly. So I want to get
your take if this is a frugal or cheap I
grab the iMac. I unplugged it, which is what like
a twenty four inch screen, twenty seven inch screen. It's huge. Yeah,
(02:44):
they're pretty big. Yeah. And I walked across to the
coffee shop that you know I always go to every
single Monday, because I thought, oh, there's a good chance
that they've got power. But I thought twice about it
because I was I didn't want to be judged. I
was afraid that folks.
Speaker 2 (02:57):
Were gonna shame me for walking in with a giant
computer like a Laptop's okay, but sorry, sir, this is
too much.
Speaker 1 (03:04):
It's not like back in the day where you would
show up with a giant What is it like see
our team monitors or whatever, you know, just like the
old blocks, which I remember seeing pictures of people doing
back in the mid two thousands. Yea, early two days
are heavy too, just like the two TV's. But what
are your thoughts? Was is that a frugal or cheap
move to be like I'm gonna go over there and
set up camp. I think if you did it a
(03:24):
couple of hours, that'd be one thing.
Speaker 2 (03:25):
Because if I did it, what if you did it regularly,
like you know where you're like, hey, like four days
a week, I come in here and I just PLoP
down for five hours, and maybe I don't buy anything either.
I don't patronize this place, but it's a rare occurrence
right where we patronize that place fairly regularly, not daily,
of course, But.
Speaker 1 (03:41):
They almost know our names. Yeah, yeah, I am.
Speaker 2 (03:44):
Actually amazed at this point they still ask our names
when we ordered the same thing, the two of us
every Monday morning. But no, I think it's totally fine
because it is. It's our local coffee shop, man. And
if you go there for a few hours because the
power's out, I think they understand even if you are
dragging in some card issue and fancy screen.
Speaker 1 (03:59):
Okay, I'm glad you feel that way. I did think
twice about it, but turns out they actually didn't have
power either, right, And so I showed up. I stood
there and I realized all the lights were off. I
was like, oh, man, y'all, are y'all lost power too?
And they're like yeah, And then they saw my computer
and started laughing. Actually, one of the girls took a
photo of me, or she she asked. She's like, hey,
do you mind if I take a photo? Because we
always joke about people showing up with her with their
(04:21):
IMAX did the coffee shops. So I guess it's like
an inside joke for baristas to see somebody walking up
with her with her iomac.
Speaker 2 (04:28):
But again, I think if you did it in the
ray and you made that like your home base and
you play, you made it seem like that was your
coworking space, that's too much, right, right, Like yep, brought
in your filing cabinet too to sit next to you.
Speaker 1 (04:38):
That's just overboard. Bringing your Ergo ergonomic chair and I
got your ball that you're sitting on to make sure
your posture is good. That would be that would feel
a little a little different too far. I do think
whether or not you buy something during a visit that
that goes a long ways. Because I was thinking about
this the other day. I feel like this is going long,
but I'll like it quick. You could save a ton
of money by just going to a coffee shop and
(05:00):
buying a coffee. Like think about the cost of these
coworking spaces. I mean that's what you just mentioned that
there are a lot of money and if you could
instead go to some of your favorite different coffee shops
kind of bounce around, keep things fresh. I think I
would much rather do that. Granted we have our little
space here because we record the podcast, but if I
was just like a programmer or something like that, dude,
(05:20):
I would a not have a co working membership, Yeah,
and b instead go to a coffee shop. You know
who else You know who took a page out of
that book JK.
Speaker 2 (05:30):
Rowling, which when we visited Edinburgh, we rocked by the
coffee shop where she got our start, where she wrote
the first book, and it was because it was less
expensive to get a coffee that it was to pay
for heat at her apartment, and I'm like, dude, I
love that so much respect for the frugality of JK
early on, uh huh.
Speaker 1 (05:47):
And I love it. She lost it pretty quickly.
Speaker 2 (05:49):
I think she made considering her final book pulled up
in like the fanciest hotel, nicest suite in the nicest
hotel where we went and got drinks one time visit.
Speaker 1 (06:00):
But yeah, I think a lot of folks are taking
a page out of Jk's but considering too we work bankruptcy. Yeah,
evidently a lot of people don't want to pay for
those membership Yeah.
Speaker 2 (06:09):
Well yeah, lots changed on that. Go all right, Matt,
let's mention quickly. The beer we're having on this episode,
it's called broccoli by Other Half. We're drinking our veggies today,
which is the best way to do it. Oh yeah,
this big, big thanks to listener Jason, who sent over
just a plethora of good Other Half beers. Jason, we
really appreciate you, man, And what.
Speaker 1 (06:25):
A care package. You can't one of the best. You
can't beat that for us to I mean, this was
I almost shed a tear opening that made my entire month,
almost month, maybe definitely made my week Yeah, that was really.
Speaker 2 (06:36):
And and from one of our all time paper brewers too.
So by the way, if you if you have a
question you want Matt and I to tackle on an
upcoming Ask kind of Money episode, we'd love to take it.
Just record your question into your phone and then send
it our way via email. You can find the instructions
there the simple instructions for how to do that at
how to money dot com slash ask. But this first
question is about saving taxes when you're selling investments.
Speaker 3 (06:58):
Hi Ethon Joel. This is from Hillsboro, Oregon. Love the show,
Thank you so much. My question is about tax loss harvesting.
So I understand that you're able to get the losses
back as tax reduction, but if you reinvest the money
then eventually you would have to pay capital gains tax.
If you don't reinvest the money, then obviously you're losing
(07:20):
money overall. So it seems like the value proposition is
pretty small, just in case you're in a very high
tax bracket, and even then it's just just about ten percent.
I'll be happy if you can explain a little bit
better what am I missing?
Speaker 1 (07:33):
Thank you so much, all right, Rafael, good to hear
from you and thank you for that question. Is tax
loss harvesting really all that effective? There is a lot
of talk on this front. There are different different players
out there, different fintech companies that make this easier. But
let's go ahead and define it first. Tax loss harvesting
is basically when you sell an investment at a loss
(07:55):
in order to offset other capital gains that you might experience,
and if your losses exceed your gains, you can actually
deduct those losses up to three thousand dollars if you
are married filing jointly in a given year, to reduce
your ordinary income. And then on top of that, if
your losses are even larger than that, you can actually
(08:17):
carry them over and you can claim them to offset
not only ordinary income in future years, but also additional
capital gains that you might experience. There's so many layers
to this onion. You can carry those losses forward indefinitely.
So this is something where there is no there is
no cap essentially as to the number of times you
can kind of come back to this well and tap
(08:38):
it and so granted keeping up with it for multiple
years down the road. Yes, that does mean you're going
to have to keep up with that somewhere. But luckily
the IRS has a capital loss carryover worksheet nice and
make it nice and easy for you. It's something that
you can find in your I think it's in Schedule D.
That way you're able to stay organized and future deductions
you might take you can just reference that. Yeah, it's
(08:59):
really important, that's all. It's as simple as that.
Speaker 2 (09:02):
It's well, I guess, yeah, there is a little bit
of nuance here, right, it's not crazy simple that we're
talking about or potential to offset not just capital gains
taxes a significant amount of those, but also ordinary income
tax a small amount of that. And it's also really
important to mention that tax loss harvesting it doesn't work
inside of a tax advantage account. You don't know tax
loss harvesting inside of a four oh one K or
(09:23):
a roth iray, let's say, because the reason is you're
not creating a taxable event when you're buying and selling stocks,
ETFs or mutual funds or whatever inside of those tax
advantage accounts that we talk about all the time, Right,
tax loss harvesting it's only really possible when you're buying
and selling inside of your taxable brokerage account, which does
result in a taxable event when you're doing that buying
(09:45):
and selling. So I just want to point this out
because for a lot of how to money listeners who
are sticking fully with those accounts for the time being,
who are like, hey, I'm getting the match in my
four one K and i just started getting putting money
in the wroth, they're not. The taxable brokerage isn't really
on their radar. That's right, Well, this isn't of much
consequence to them. This is for ballers really who have
(10:08):
done a great job not only maxing those out, but
sticking significant sums into their taxable brokerage account over.
Speaker 1 (10:13):
The years too. That's right. Yeah, that's important context to
keep in mind. But Raphael, like the heart of his
question is is it really all that beneficial? Well, the
goal isn't to lose money when you are investing your money, right,
you want to make money. But there are ways to
use tax loss harvesting during a market downturn as a
way to help save at least a little bit that
(10:33):
otherwise would have gone to Uncle Sam. It's most helpful
for folks who find themselves in a higher tax bracket
if you're making bank that three thousand dollars that you're
able to off set from your ordinary income by selling
investments that haven't done so hot, that can help you
to avoid some potentially higher rates of tax that you
would otherwise have to pay. I think that's what Raphael
(10:55):
is kind of referencing are in his question. The less
you make, the less tax that you're skipping out on,
which makes this maneuver less advantageous overall. So, like what
you were saying, Yeah, if you're a low earner with
who does have some money in a taxable brokerage account
and you're like, oh, should I sell this stock at
a loss to get the tax break, Well, that's probably
not the right way to think about it. You're letting
the tax consequence wag the investing dog, which is not
(11:18):
the way you want to precede it, right, And tax
loss harvesting is most effective when you invest in single
stocks or sector specific ets, which isn't really our jam.
That's not the way we advocate for most people to invest,
because simple is better for the vast majority of armchair investors,
which is I think a lot of how to money listeners. Yeah,
that's often I mean that's really that's probably why we
(11:39):
don't spend a whole lot of time talking about this,
because we want to make sure that the initial eighty
percent is taken care of first, which is oftentimes that
we're discussing. Yeah the show.
Speaker 2 (11:47):
Yeah, this is a back end last five to ten
percent sort of question. Right, But let's say you do
the index fund investing thing like we do. Right, you're
at that point where you're investing in a brokerage account
and you want to use tax lost harvesting to your advantage. Well,
you can actually use this tax saving method to get
a tax break without shaking up your investment allocation all
that much, which is kind of cool. So let's say
(12:09):
you could You could sell out of your S and
P five hundred fund when the market is down, for instance,
and then purchase a total stock market fund instead, which
allows you to reap those tax savings without changing your
investing strategy much at all. Right, because those those funds
are similar but not identical, you can go this route
in order to snag that helpful little tax break for yourself.
(12:30):
So yeah, even if you do the index fund investing
route inside of your brokerage account, you can use tax
loss harvesting. You're just probably not using it to shield
yourself from like, you know, millions of dollars or even
hundreds of thousands of dollars in tax. It's just like
a way at the edges to minimize your tax bill, yeah,
for most people. And this is something that so literally
the example you gave, that's something I did. So it
(12:51):
was back in June of last year. I don't know
if you remember, Like, yeah, the market around that time
it had declined significantly.
Speaker 1 (12:58):
I think it was down like twenty percent or something
like that. And I literally sold a big goal chunk
of VOO, which is Vanguard's S and P five hundred ETF,
and instead bought VTI, which is the Vanguard's total stock
market ETF. And they're like cousins, yeah, or almost like
siblings from a different other. And in the eyes of
(13:19):
the irs, they are substantially different enough that you can
completely avoid the wash sale rules. So like that's the
whole point of going with something that's substantially different is
because wash sale rule states that were you to sell
something and if you were to rebuy that within thirty days,
oh guess what, you don't get to deduct those losses anymore.
But you don't want that time out of the market
(13:40):
of waiting thirty days. So instead what you do you
buy something a little bit different, but from a performance standpoint,
you are often looking at something that for most investors
is pretty dang identical funds that correlate in a lot
of ways. Yeah, exactly, Yeah, but that's so that example
you gave, like that is how it would practically look
for someone who is specifically in the wealth building stage
(14:00):
of their life, right, who isn't selling many of their investments,
specifically within a brokerage account. But for an investor who
might be let's say in the draw down stage of
their investments, theoretically tax lost harvesting could save you hundreds
of thousands of dollars, right, like or like an infinite
not an infinite a mount I guess, like even millions
of dollars. So imagine you were kind of talking about
(14:22):
like a baller investor earlier. Imagine there is such a
person in this Let's say they have a fund that's
up nine hundred thousand dollars. Let's say he sells it. Well,
he's gonna owe a ton in taxes on those gains.
But then Let's say there's another investor who has the
same fund that's up nine hundred thousand dollars, she sells it,
but she also sells a fund that happens to be
(14:43):
down let's say eight hundred thousand dollars. Well, she's gonna
owe a lot less in taxes. She's only gonna owe
on the one hundred thousand dollars in gains. Because of
tax loss harvesting, she's able to apply that drawdown of
eight hundred thousand to that gain of nine hundred, netting
one hundred thousand dollars. So, for multiple reasons, that's less
likely to be the case for most folks, but it
(15:05):
is technically possible for this to be a massive way
for in particular high net worth individuals who have a
lot of money, specifically in progridge accounts, to avoid significant
amounts of tax I think it's.
Speaker 2 (15:15):
Important to mention that this is kind of like a
maybe not a black belt move. But if you are
a novice investor and you're like, oh, I'm going to
read up everything on tax loss harvesting and I'm gonna
try to use this to my advantage to save on taxes, again,
you might be short sighted, and there's a chance that
you can screw this maneuver up in a way that
actually harms your future investing abilities. Right, So you've got
(15:36):
to be careful when you're attempting to implement kind of
like a pro level move when you're still a novice,
and so it just kind of want to put that
warning out there. One cool thing that we haven't talked
about much but Betterment, which is our favorite Roboa advising platform.
It's also not something we talked about a ton, but
we really do like what Betterment does, and their fees
are incredibly low given what they offer. Well, Betterment has
(15:58):
a tax loss harvesting plus strategy, so if you do
have significant amounts of money in a taxable brokerage account,
Betterment's algorithm can actually do some tax loss harvesting on
your behalf without you really having to know what you're doing.
You can just kind of trust them to handle that
and basically save you money on when it comes to
your taxes most years because they're able to do this
(16:22):
automatically and do this kind of avoid the wash sale rule,
and they're able to buy a like kind investment when
the market's down basically thanks to their superior technology. So
that's that's kind of cool. If you're saying, oh, I
want to get get in on some of that tax
loss harvesting, that's actually been on kind of my radar
right as I've as I'm looking into doing more in
my broke taxable brokerage account, I'm like, oh, maybe betterment's
(16:44):
actually the best place for me to have that, even
better than a fidelity or a Vanguard because of that
extra added perk. Again, like for most investors, it takes
a lot of work to completely even just max out
your tax advantaged accounts first, and so really our biggest
scripe about tax loss harvesting is that it can muddy
the waters and it can steer and attention away from
the more favorable accounts that they should have been investing
(17:04):
in or like.
Speaker 1 (17:05):
That initial eighty percent. Yeah, instead folks are focused on
like what is this exotic maneuver? The YEA one is like, well,
that is something that is good to know about, but
are you at that level?
Speaker 2 (17:15):
It can cause you to sell an investment that is
down temporarily where you're saying, and it can change your
investing strategy based on trying to get a tax break
and that's not how you want to use it either. Like,
just because your TESTLA stock is down, you could sell
it and buy General Motors, right, but you're like they're
very different sorts of companies and is that the best
move for you? Well, don't do it just because of
(17:36):
the tax break that you might be able to achieve.
Speaker 1 (17:39):
That's right, But we've got plenty more to get to
during this episode. We're going to talk about authorized users,
We're going to talk about five twenty nine accounts. We'll
talk about all that more right after this our Matt
We're back.
Speaker 2 (17:57):
Are still taking listener questions, and this next one comes
from a listener who wants to upgrade his home.
Speaker 4 (18:03):
Hey, guys, I'm a big fan of the show. I
always love listening to you guys and learn about all
the money apps. My question is I have a mobile
home that I bought for six thousand, the land for
eighty five hundred and about five thousand dollars worth of renovation,
so twenty grand total. The house is worth fifty three thousand,
(18:27):
so I got equity immediately. But my question is for
my next house, that one at actual brick house, would
it be better to establish a home equity line of credit,
get a loan with my equity to put a down
payment on the next house, or should I go ahead
(18:48):
and pay this house off. I can do that within
a year, pay this trailer house off, save the twenty
percent down, and then do it that way.
Speaker 1 (18:58):
I really appreciate it. Answer all right, And he didn't
mention it. But that's actually from James. We know that
because that's what it said on his email. But James
got to mention his name. They're at the beginning. But James, dude,
you paid twenty thousand dollars for a home that is
now worth fifty three thousand dollars. It sounds like it
was almost like an instant equity gain that he was
(19:20):
able to realize. They're nicely done and depending on I
don't know how long he's he's owned it. Did you
say how long? I don't think he did, but it didn't.
Like the way he's talking about it, it does not
sound like he's had it for too long.
Speaker 2 (19:30):
That happened to really a lot of folks who bought
twenty nineteen, twenty twenty. It's like, pretty soon overnight your
home was worth quite a bit more than what you
bought it for.
Speaker 1 (19:38):
Which is which is a nice feeling.
Speaker 2 (19:39):
You're you don't necessarily want to tap the equity, but
it's also one of those things where it nice.
Speaker 1 (19:42):
To know that it's there. Yeah, exactly's nice to know. Well,
and when the time comes for him to sell it,
which we'll get to. But for an individual, two hundred
fifty thousand dollars of gains are not going to be
subject to tax, assuming this was your primary residence, James,
just like the standard rules that apply to a traditional
I don't what do you call it a traditional single family
(20:02):
home as opposed to a mobile home, But I do
love that you are working to move from a mobile
home to a traditional single family I think most stats
show that mobile homes don't appreciate as quickly as single
family homes Doah, so move up the property ladder.
Speaker 2 (20:16):
I think is it's not a bad goal here for
jameson and it sounds like he's done his financial due
diligence to pull it off.
Speaker 1 (20:22):
But should he get a he lock because he does
have that equity there? Should he tap the equity within
that home in order to help you to finance the
next one? That's the question, and the TLDR is probably not.
He would rather, we would rather you not take the
approach that you mentioned where you are using a helock
in order to tap that equity.
Speaker 2 (20:41):
Yeah, exactly. The latter approach that you mentioned is a
better approach. It's a little more conservative, but it leaves
you in a less vulnerable position and just protects you,
I would say, protect your finances. And let's discuss why
just a little bit mad he lock rates they're not
awesome right now. We're talking nine to ten percent these days.
I looked up our local credit union to see, oh,
what sort of rates are they offering on helocks. You know,
(21:03):
it depends on the specifics, but and it depends on
your credit score too, of course, but we could be
talking easily double digits for for helocks at and that's
at a credit union, So imagine kind of what some
of the crummier banks are offering and stuff like that
on helocks. Probably not very good. That's a far cry
from where we were just a few years ago, when
people are getting those sweet, delicious, candy like helocks that
(21:26):
were in the three ish percent range. Right and we've
just heard way too many horror stories recently of people
who tap their home equity via a helock homemke we
line of credit, again by the way, which comes with
a variable interest rate. Unlike a home equity loan where
you lock in that interest rate for a certain period
of time. The home equity line of credit and that
rate can of course change on a monthly basis, which
(21:46):
in an era of rapidly rising interest rates like we've
been in, strikes fear into your heart right as a borrower,
like kind of scary to be like, Oh, I'm locking
in this thing, I'm going to get I'm going to
make maybe make a bathroom renovation or something like that.
I would try to pay the selock off, you know,
within two and a half years, three years or something
like that. Well, as interest rates rise, it's going to
mean more money out of your pocket and probably a
(22:08):
longer payback period, which sucks. And so yeah, I'm not
going to say that taking money out of home equity
is a complete no go and then it doesn't make
sense for anyone ever or anything like that, but it
definitely makes sense in far fewer cases. Given the current
financial climate we find ourselves in. We're always in favor
of homeowners having a home equity lineup credit at their
disposal kind of like a backup emergency fund. But tapping
(22:30):
your home equity is really a good idea. We'd rather
see you take a little more time actually to make
that leap to this brick house that you're wanting, instead
of taking out additional debt, especially at these higher interest
rates that could continue to go up, and that kind
of debt, it really really could haunt you actually in
the end if you're trying to accelerate that purchase by
(22:51):
taking on my semi nefarious debt.
Speaker 1 (22:53):
Really yeah, yeah, just saving up the old fashioned way,
the cash in twenty percent down for a down payment.
That is a tried and true method of home buying.
It's certainly going to take longer, got to have some patience,
but that patience is going to pay off in so
many ways. Like there is a reason why twenty percent
is the magical number in order to get the best rate,
in order to get the best terms, because it shows
(23:15):
the bank, it shows the credit union that you are
putting enough skin in the game, right like you are,
like you're a partner with them. This is something that
y'all are working towards together. They want to see you
succeed and you're going in on that purchase together instead
of just completely relying on them to give you all
the money that you'll possibly need in order to pull
it off. Yeah, and on top of that, there are
(23:35):
some additional benefits too, like the ability to avoid additional
costs like PMI, which can increase your monthly payment for
years to come. And you'll have a smaller principal balance,
which is even more important these days given the higher
rates out there, and given too that you are no
longer going to be making payments on your current home,
and I think you're going to be able to quickly
(23:56):
find yourself with that twenty percent down in order to
purchase that home the next place that you want to
move into, potentially even before selling the current place that
you're in. It's not something he even asked about too,
but uh, yeah, puts you in a really strong position.
It puts you in a crazy strong position too. And
the ability, James, you didn't even mention this, but if
you wanted to potentially get into renting that property, that's
(24:16):
something that you could entertain as well, with the ability
for you to hang onto that for a couple of years.
If you're going to be staying local and hopefully seeing
the value of that continuing to rise. I don't think
I would hang onto a long term again because of
home appreciation and how it's not quite as steep of
a return like you would see with a traditional single
family home. But man, I think I would totally hang
(24:38):
onto that for at least a couple of years, give
it a shot, and then sell it without having to
again having to pay those capital gains. You're at least trying,
like testing up the waters a little bit much.
Speaker 2 (24:48):
If this is going to work for you so much,
that comes down to whether or not you feel compelled
or interested being a landlord. A lot of people say
that's a part time job I don't care about, or
I don't want don't want to do it, yeah, or
maybe you're minimizing your career potential and your day job
by kind of trying to do this on the side.
But if it does interest you, if it's like, oh,
I've thought about doing that and kind of kind of
having a couple rental properties someday, maybe that's a maybe
(25:08):
that's a dream of mine. Well, if you can save
up twenty percent for the next property and you can
hold on to the one that you've currently got. That's
a great strategy to help get you there. It's I
think it's the easiest way, Matt, for most people to
get into. It's either house hacking or it's that those
are the best two avenues to get into owning some
sort of rental real estate. And maybe the next best
is like an ADU accessory dwelling unit, which is kind
(25:29):
of like house hacking, So maybe we'll put it in
that category. But I love that as a way. That's
exactly how I got my first rental property. Was like
the home that I lived in for a while, a
house hacked it, rented out of room, and then guess what,
I moved out, rented that whole thing out, moved into
another house, and I did that again. And that's a
great that's a tried and true method I think that
people can follow. It just makes it easier to get
(25:50):
the financing you have to put less down, and it
helps you to build up that property portfolio.
Speaker 1 (25:53):
That's right, So, James, we hope that gets you pointed
in the right direction. Joel Y's here from our next listener,
who is helping a loved one with their personal finances.
Speaker 5 (26:02):
Hi, Matt and Joel My name is Alex and I'm
calling from Western New York. I've been listening to the
podcast for some time now and have loved the content
that you've shared with us. I'd love to get your
guys's opinion on a question I have regarding an authorized user.
I'm currently trying to help a family member get back
on their feet after their credit score had tanked to
(26:23):
about mid five hundreds due to medical debt. We have
tried to get the bills from their medical office in
order to verify them and move forward, but they have
been less than forthcoming, so now we're looking for a
temporary solution. I'm about to pay off all my credit
card debt, which would bring me up to about an
eight hundred credit score. I'm wondering if I make them
(26:47):
an authorized user, would that be enough to help them
qualify for a decent apartment or better yet, by their
first home. They're looking to move next year, So do
you think making them an authorized user will be enough
to help them well? Doing so effect my score? And
do you have any advice or suggestions for our situation?
(27:10):
Thanks again, guys, and stay safe.
Speaker 2 (27:13):
All right, Matt, there's a lot in this question that
we have to talk about. Right, So Alex, thank you,
thank you for listening, thank you for sending this question
in our way, because at first it on its face
it appears like a simple authorized user question, but there's
actually a whole lot.
Speaker 1 (27:27):
There's a few additional layers, yes, to discuss.
Speaker 2 (27:29):
It's like an Onion's question, a little bit in a
good way, right, And there's a lot of time so
much of personal finances. Yes, one thing leads to another,
and when you want to help somebody out, it's admirable,
but you got to know how to go about doing
it the right way, so you don't throw yourself under
the bus while you're trying to do good. Right, And
so I would say, Alex, is the fact that you're
trying to help one of your family members out, that's admirable,
Like that's a good thing.
Speaker 1 (27:50):
We should all strive to do that.
Speaker 2 (27:51):
And medical debt is clearly a heinous problem in our
society these days. Fortunately, new rules ensure the medical debt
of less than five hundred bucks doesn't get to the bureaus,
which has been actually massively beneficial to a lot of
people helping raise their score taking some of those things
off of credit reports. But those larger bills, they still
get reported. Right if it's above that five hundred dollars level,
(28:11):
those are still going to hit the report, which then
impact the score. And so given how porous healthcare coverage
can be, there are still millions of folks similar to
what your family member is dealing with. And I would
just suggest please do go back and listen to our
episode with doctor Virgie, which we did in seven sixteen,
because you know, she offered a lot of information about
how to fight back against medical debt and how to
(28:35):
get some of that wiped off of your credit report.
At the same time, hopefully some of that infok can
help you challenge some of the medical bills that are
coming in and get a reduction or potentially full forgiveness
of the total amount owed. I think that I wish
it weren't the case, Matt, that we had to have
doctor Virgie's tactics. I wish wish the system was better
at making sure people didn't get relegated to second class
(28:57):
status as citizens because of some sort of adverse medical event.
But sadly, we have to know these tactics to fight
back if we're not going to be kind of victims
of a credit scoring model that that isn't really all
that great, as.
Speaker 1 (29:09):
Well as the medical billing complex right that exists out there.
But trying to help this individual by adding them as
an authorized user, is that going to do the trick? Well,
it'll help, but it's not going to be able to
overcome just a mountain of negative information on their credit report.
If that's what we're talking about. If your score is
in the five hundreds, man, improvements like seeing their score
(29:31):
get to a level that most creditors or lenders or landlords.
We'll talk about that here in a second. What they
see as decent is going to take some time. And
so the most important thing is going to be to
get that negative information off of the credit report. And
so what would recommend is to pull their credit report
from Annual Credit report dot com.
Speaker 2 (29:51):
Totally this like for them, like help them understand it, right,
You're going to walk through this, walk them through this
sort of like we're talking about the James, Like you
are now on a team and y'all are working together. Yeah,
but challenge anything that isn't accurate and again, see if
they can get that medical debt forgiven, because that's going
to have a massive impact as well to have that
completely wiped. Yeah, the truth is they might qualify for
(30:12):
full forgiveness and they just don't know it, right, because
a massive chunk of Americans. Because of the way these
nonprofit hospitals work and the forgiveness abilities for people who
don't make enough money, they don't necessarily advertise it, right,
and they don't tell people who come in there, Hey,
guess what how much money do you make?
Speaker 5 (30:28):
Oh?
Speaker 2 (30:29):
Wait, oh really, we'll apply right here and you'll get
full forgiveness for your this medical bill. It won't cost
you a time. They don't tell people that. But the
truth is forgiveness exists for a decent chunk of people
who have a medical debt, who rack up medical debt.
But Matt, yeah, that is the first step. And after that,
you know, adding them as an authorized user because of
how well you handle credit, Well, that'll help, right because
(30:49):
they'll get like a little bump from having your credit
and information showing up on their credit file. But I'd
have them look into more than just that. I would say,
look into a service line self as well, which is
kind of cool. It used to be called self lender.
It's basically this way where where they if they have
a certain amount of cash on hand, they can make
a loan to themselves and pay it through self. Self
(31:11):
reports those payments on their credit report, and that helps
people score significantly. I would just be taking like an
all of the above approach, because if I was attempting
to raise that score meaningfully in short order, I would
want the help of an authorized user from a family member,
which is which is awesome that one of those loans
through self. I would want to challenge those in accuracies.
I want to want to do all of the above,
(31:31):
and doing this credit builder loan via self it could
improve your score by something like thirty points over the
course of the next six months. So we are talking
about a significant improvement. But you really want to want
to do all of these things and help them see
the many ways in which they can benefit their score.
It's not just the one thing. And if you try
just the authorized user thing, you're probably gonna see a
(31:51):
little bump, but not nearly as much.
Speaker 1 (31:52):
As you're hoping for. Yeah, it makes me think of
was it last week that we're talking about the experience
boost to oh yes, to your credit. I mean like
we're making fun of the savings account, or the debit card,
the smart money account. That's right, but again you have
access to that without having to open that account. That
is worth looking at, so you get the experience boost
as well as the alex boost. There's all of these
(32:13):
smile boosts along the way which could hopefully move the
needle in a significant way. Because you talked about this
family member wanting to potentially move, I think sometime next year,
if we're talking about renting, or even if we're talking
about buying, their credit score being in a healthier place
is going to be integral to them being able to
do either of those things, whether to buy or to rent,
(32:33):
because landlords and mortgage brokers they will both want to
see a decent score, and aside from just improving that
credit score, practically speaking, I think their other focus should
be to save up some more money to have that
on hand, because if you are talking about renting, well,
a landlord might ask for a higher security deposit because
(32:53):
of that lower credit score if it hasn't rebounded enough
by the time that they start looking for a place.
That's literally something I've done with some recent renters. They
had some hard times in their past when it came
to their ability to pay some debt. Both of their
credit scores were in a really rough place, but they
were super upfront about it and said, hey, this is
(33:13):
what we've had some of the challenges that we faced
in the past, this is what we're willing to do.
And we were totally able to negotiate a higher deposit
which allowed them to one percent to get the place
that they were excited about. And oftentimes that would not
have been the options been an option for especially like
I guess, a larger property management or an apartment complex,
(33:35):
and that provides you protection as well, right just in
case they haven't necessarily reformed some of their ways, so
they're not paying their bills on time, and they're not
paying their rent on time. Well, that additional security deposit
puts you in a better position and allows you to
accept a tenant that doesn't have as great of credit exactly.
And so that's when it comes to renting. But if
we're talking about buying, I would say, without knowing anything
(33:56):
else about their finances, I'm going to kind of go
out on a limb and say that for the near
term future is likely going to be their best bet
without taking on any additional undue risk by purchasing a home.
We don't want them to have very little on hand
to put down and to end up financing a home
at a higher interest rate than what they would need to.
So it sounds like like you said, and there might
(34:17):
be some more time in the coming years for reform
to happen. And once they are in a really strong
financial position, that's in your saving, like we were talking
about the chance, once you're saving up that solid twenty
percent down, that's when we want to see them starting
to see what's out there on the market.
Speaker 2 (34:32):
Yeah, And I just want to say too, I think
this is kind of teaching your family member to fish,
as opposed to handing them fish. And so when you're
kind of saying, hey, this is kind of how the
credit scoring model works, and I'm willing to do this
one thing on your half. But if you do this, this,
and this, this will actually help you meaningfully improve your
score in not too too long, maybe six months to
a year, we should be able to see an improvement
(34:53):
of triple digits. And if we're taking all of these
steps and so, I think you can help teach them.
You can even take them to annual credit report dot
com and say this is how you pull the credit report,
and this is how you see if there's something inaccurate
on there, and this is how you reach out to
the hospital to see if there's any forgiveness for that bill.
But don't do it for them.
Speaker 1 (35:10):
And this this can be you can take them directly
to the credit bureau location here in Atlanta. Is it
Equifax right on Peachtree. Yeah, if you go there in person,
it's like farm to table. But no, I don't think
they let you in. I don't think of it. You
can get it directly from the source, right, Yes, No,
it's definitely not. That's not how it works together. And
you've gotten to do it through the internet.
Speaker 2 (35:27):
Their customer service is lacks of day's a clot best.
But yeah, there's there's so much that you can help
them figure out. Just make sure that this is a
learning process so they can continue to do these things
and work on their credit. It makes me think of
like a parent who does a kid's assignment for them
for school or something like that.
Speaker 1 (35:44):
They don't do them any good.
Speaker 2 (35:46):
No, they don't learn to buckle down because there's gonna
be many more assignments and you don't want to have
to be doing those assignments for them in perpetuity. It's
it's one of those things where it's like you have
to kind of stick with them through that hard time,
through the through the writer's block or whatever it is,
and kind of push them forward so they can have
success in future assignments as well. And last, but not least, Alex,
I just want to say congrats on paying off all
(36:06):
your credit card debt.
Speaker 1 (36:08):
That's huge.
Speaker 2 (36:08):
On what do you mention that we're thinking so much
about your family member's financial situation credit score?
Speaker 1 (36:13):
It's got a score where she set up up in
the eight hundreds.
Speaker 2 (36:15):
Yeah, that's super solid, amazing. I feel like this is
awesome worthy of celebration for you for sure, and of course,
as you know, it's not easy to get there, but
you made it happen. And your family member, I think
they can do the same. And I think that can
provide just hope and inspiration for that family member to say, hey, look,
I wasn't looking how far off come?
Speaker 1 (36:32):
Yeah, I was kind of in a similar boat. And
by taking these dots, by listening to this podcast, it's
a little plug for the How to Money show.
Speaker 2 (36:38):
Yeah, you should force them to listen to us three
days a week, but I think it could most definitely
improve their finances.
Speaker 1 (36:44):
The fact that you're walking alongside them is incredible. But Joel,
we've got more to get to. We're going to discuss
paying for higher education. We'll get to that right after
this break.
Speaker 2 (37:02):
All right, Matt, let's keep going. Let's get to our
Facebook question of the week. By the way, if you're
not a member of the how to Money Facebook group
and you're on Facebook regularly, it's the best part of
being on that social media site. I actually don't use
Facebook for anything else except Facebook Marketplace or the how
to Money Facebook the only two things I use it for,
so be sure to go check that out. It's how
the money listeners helping each other out. Eleven thousand people strong.
(37:24):
This question comes from Brandon, who says I need a
recommendation on places to open a five to twenty nine
account for a kid's college fund by current credit union
and investment services don't seem to offer it. Last week,
we actually talked about how much to contribute to a
five to twenty nine It's possible to overdo it, but
something around one hundred dollars a month level is a
great goal to have, especially given you know that increased
level of flexibility that we talked about, or if you
(37:46):
overfund it, you can you know, siphon some of that
money into a roth ira over time for your kiddo,
typically is who you're saving money in a five to
twenty nine for. But where do you go to open
up a five to twenty nine account. That's not something
we've really talked about on the show, Matt, I guess
we have a little bit. There are really two routes
that you can go with this. There are Advisor sold
plans and there are direct sold plans. And so if
(38:08):
you've been listening to us for any length of time,
my guess is you can already intimate which one we prefer.
Speaker 1 (38:16):
Matt. If you want to laborage talking about direct baby again,
you go directly to the five twenty nine building and
you get it straight fresh.
Speaker 2 (38:23):
You know, farm to table style, just like with Equifax.
You want to show up in person, and that farm
to table style comes with far fewer fees.
Speaker 1 (38:29):
No, it is true Advisor sold plans they end up
costing folks much more money over time, morning Star. They
actually found that point six percent that that is the
average gap, which surprisingly that sounds like the fee that
an advisor which charged you in order to manage manage
your stuff.
Speaker 2 (38:46):
And that's that's average. So when we're talking about the
lowest that is true lowest cost funds, it's actually an
even bigger gap typically, So we'll get talk more about
that in a second.
Speaker 1 (38:53):
That's right. Yeah, So because of that, most folks are
going to be better off taking the DIY approach, especially
given the array of inexpensive investment options inside many of
these five twenty nine accounts these days. And so what
investment options should you choose? Well, that kind of depends
on how old your kid is, because a straight up
low cost index fund can be a great choice, but
(39:16):
there are also age based options that get more conservative
as you get closer to needing those funds. Those are
well with worth considering. I know, for the Georgia five
twenty nine, which are it's a weird URL. It's like
path two five twenty nine, Path to college, Path to
college five twenty nine or something like that. It's like
four different things just like crammed into a URL. But
(39:38):
they've got options, and they are a lot of them
that are age based, are based on the date that
the or the year that your child is going to enroll.
You've got those, but then you've also got like preservation
of capital options, you've got balanced approach, and then you've
got the one hundred percent equities. Yeah, which is the
most it's the most aggressive option that they have, but
it's basically just one hundred percent.
Speaker 2 (39:58):
Stocks and pure investing for something a newborn that can
make sense. That is totally the path that you're gonna
want to take. But if you are looking at funding,
let's he didn't say the age of.
Speaker 1 (40:07):
His kid, but if let's say you've got like a
fourteen year old, fifteen year old, you are a lot
closer to that kid needing to tap this funds, then
you probably don't want to expose your kid to or
their money that's in the fights one too that much risk, Yeah, yeah, exactly.
Speaker 2 (40:21):
You're you're being a little too cavalier likely in aunl
likelihood if you choose the most aggressive path when they're
that age. And so the first question is that sort
of direct soul versus advisor sold plan, which one do
you want to go with? Do you want the handholding
and the much higher fees or do you are you
down with the DIY approach, which is something that we
always encourage here on the show. And then the next
(40:42):
question is like, well, which state five twenty nine plan
do you go with? And a lot of people think, oh,
I guess I have to go with the state five
twenty nine plan for for where I live. Not that's
not actually the case, but for a lot of people,
it actually makes the most sense to go with the
five twenty nine plan in the state where they live,
especially if there's a tax break, a state tax break
associated with that account.
Speaker 1 (41:02):
Right.
Speaker 2 (41:03):
So, for instance, in Georgia where we live, if you
can put up to eight thousand dollars per beneficiary in
to your five twenty nine account, you can actually put
more in there, but every dollar you put in up
to eight thousand dollars per beneficiary shield you from state tax,
right if you're married filing jointly. So that is something
to note. Do you live in a state that offers
a state tax benefit and if so, up to what amount?
(41:26):
And that is kind of how you're going to want
to think about and decide where you decide to invest
your money. Let's say you live in a state though
without a state income tax well, you'll likely want to
opt for a direct sold plan from another state that
prioritizes low fees, which.
Speaker 1 (41:41):
Is totally legit. That's totally an option. You do not
have to open a po box yea in that.
Speaker 2 (41:47):
State because let's be honest, a lot of the five
twenty nine plans have gotten a whole lot better, but
in some states they still suck. And so if you
are in one of the states that has higher fees
on five twenty nine plans, you're going to want to
go with a lower cost state plan that's run by
another state, which is again doable, no problems. So Georgia
and Utah are two of the best. They've been great
(42:08):
for quite a while with some of the absolute rock bottom,
lowest fees, Matt, Like you said, we invest in the
Georgia Path to College program and it rocks. Like the
fees are literally right about point one percent on a
lot of these funds, which is close to non existent.
Speaker 1 (42:22):
That's what we like to see. Yeah, path with number
two college five two nine dot com it's kind of ratchet.
But that being said, like this is the DIY approach,
but it's still a website, Like there's still somewhere for
you to go. It's not like you're having to cobble
this together and write some sort of charter at home.
Still easy, it's still relatively easy. It's just not quite
(42:42):
as easy if you were to let's say you've got
a Brokeridge account or an IRA first of all, So
like we're talking about earlier, right, the first thing you
need to have is an IRA. Then after that then
you look at it Brokeridge accounts. But a lot of
folks are gonna think, oh, the default thing I should
do is just go there. They're going to make it easy.
They administer five twenty nine accounts. The best path is
to go ahead and open a new account with whatever
(43:03):
state you choose. When it comes to the five twenty
nine account that you'd like to open saving for college,
that's actually I think the best site to do some
research about five twenty nine plans. We'll make sure to
link to that in the show notes. But you can
check to see if you are eligible for a tax
break via your state, and there are links to the
direct soul plans for every other state. Again, going through
(43:24):
an advisor intermediary is possible, and you know it's legit,
but it's going to eat into those returns, which means
you're going to have fewer dollars for your kids college
once the time comes. But if you pick one of
the best low cost plans, just keep dollar cost averaging
into that plan regularly, you're going to be just fine.
Speaker 2 (43:42):
Yeah, I'm glad we went over this though, how to
choose the right five twenty nine plan, because most people
are like, okay, five twenty nine plans and then and
then we say, hey, yeah, if you're far along enough
in your own money journey, you've been saving for your
own retirement really well, yeah, maybe this is the next
step for you. And then people are like, great, what
do I do now? And so it's good to know, Hey,
direct Sold Save You for College has all these rankings
and ratings, know whether or not your state has some
(44:03):
sort of tax benefit for you. If not, go with
one of the low cost states in Utah and Georgia
are two of the best. To our faiths, this right,
and not just because we live here.
Speaker 1 (44:12):
We're not homework. We're just saying literally, there's several other
states that oftentimes I want to just off the top
of my head, I want to.
Speaker 2 (44:18):
Say Ohio, Ohio sold always, but I just dug through again,
and Ohio is good, but not quite as low as Georgia.
Oh really, Georgia is like literally Georgia and Utah are
the top two. Oh nice, that was not the case
as of like I would say, last year, And well
it's something that they revisit and in their rank based
on oftentimes fees and some of the different investing options
that are available to you. So what that tells me
is that Georgia said, Hey, we're going to make sure
(44:39):
that the different options that we are that we are
offering folks, that they're affordable, that there's plenty of choices,
because in the end, that's going to mean the ability
for those kids to have more.
Speaker 1 (44:49):
To go towards college.
Speaker 2 (44:50):
So lots of folks who live in a state no
state income tax benefit, George is the place to go.
Speaker 1 (44:54):
Really nice.
Speaker 2 (44:55):
Yeah, we're number one. We can cheer our homestate on
that one for sure. All right, But let's get back
to the beer mat that you and I had on
this episode. This one's called Broccoli. It's a double dry
hopped IPA or your thoughts on this one from.
Speaker 1 (45:08):
Other half man. This is such a delicious beer. I
wish I can. Honestly, I wish I could compare some
other half IPAs to Burial, because in my mind they're
they're pretty similar.
Speaker 2 (45:17):
They're both very kind of earthy and like vegetable. It's
got hops out the wazoo. There's a reason they're using
vegetables for their branding. Yes, because it does have like
this herbal vegetable like earthiness to it, but it's super hazy.
It's kind of got those orange notes. And what I
would say about this beer.
Speaker 1 (45:34):
Though, as much as you and I, I'm sure you're
gonna have nothing but nice, nice things to say about
it as well. This is the pro level IPA. We
were talking about tax loss harvesting earlier and how it's like,
we don't want you to get overly obsessed with that
too early on, but at eventually, at some point you
can kind of work your way up to that. That's
how I feel about this beer. As somebody who's never
had an IPA where they'd go straight to this, I
(45:56):
think they might say, are you sure this is a beer?
Like they're not necessarily going to know even what they're drinking,
as opposed to having kind of progressed through the craft
beer offerings yeah, and you find yourself kind of at
this point.
Speaker 2 (46:10):
You don't want to go from two to ten, right,
and this is this is a ten beer. It's like
like an eleven. Yeah, it's gonna it's gonna give you
a little mouth kick. And if you're if you can
handle it. Like Matt and I, we've many years of
training have led us to this point where we can
drink a beer like this and admire it and appreciate
it and enjoy it.
Speaker 1 (46:26):
But yeah, if you're a newbie something to behold, Yeah.
Speaker 2 (46:28):
You might not be quite ready for the depth and
the glory that is this beer. But yeah, no, I
love this one. I have nothing negative to say, only positives,
and I don't have really much to add except for
it's freaking delicious, so good. It's top notch, just like
I've come to expect from from Other Half. When actually,
when Emily and I were in New York, we stopped
by Other Half has uh they've got a little bar
(46:49):
in Rockefeller Center. Now, oh yeah, a little tasting uh
huh bar. I actually brought a couple of beers. Some
got him in the fridge, so we've got tons of
other half the fridge right now. Thanks to Jason and
thanks to my New York City trip. But this one
again comes from Jason. Thank you Jason and J's bar.
We had a broccoli I believe it was like a
cheesy broccoli or something like that. They they do some
sort of variation and that was delicious too. But man,
(47:11):
I'm a big fan of this one.
Speaker 1 (47:13):
Yeah, roasted broccoli, perhaps maybeard broccoli. You know we've talked
about I love that what was his name? That was
the Frankie salon Frankie where he talked about meals. That's right, Well,
link to that episode as well. If you happen to think, oh, yeah,
I would like to find a way to spend less
on groceries. How do I reduce my grocery budget every
single month? We just listen to Frankie's interview.
Speaker 2 (47:31):
Yeah, maybe maybe I'll teach you how to cook some
basic stuff that you maybe had an otherwise thought to
try those cruciferous vegetables.
Speaker 1 (47:39):
But yeah, that's gonna be it for this episode. You
can find links to some of the different episodes and
resources that we mentioned during this episode up in our
show notes at how the Money dot Com. No doubt
he's actually got a whole resources page.
Speaker 2 (47:50):
If you're like I know, Matt and Joel have talked
about a whole lot of good stuff over the years,
and I should go back and see what the top
URL they've mentioned, or what the top resources are they've got.
How do I need complash resources? You can find them
all in one location.
Speaker 1 (48:02):
It makes it easy as opposed to digging through the
show notes, because let's be honest, folks are listening, maybe
slightly delayed, and they're thinking, I'm gonna have to go
digging for that. Nah, Just go to how the Money
dot Com forward slash resources. You'll find it all there.
Oh Steph, all right man, that's gonna be it until
next time. Best Friends Out, Best Friends Out.
Hosts And Creators
Joel Larsgaard
Matthew Altmix
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