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1 - Open enrollment: what factors should I consider when hopping to a more affordable health insurance provider?
2 - Buy now pay later: how much of a discount would have to be offered to make a “pay in 4” worth considering?
3 - Money gears: should I hit pause on investing in order to finally get rid of my credit card debt?
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to How the Money, Joel, you messed it up.
That's not how we do it. Why not? We can
do it that way? Okay, today we're answering your listener questions.
(00:25):
I thought you made a mistake, so I was just
catching it early on. Switch things up, all right, This
is and ask how to Money episode. Uh. Listener is
considering coppying healthcare plans in order to save it's open
enrollment season after all, Joel. Another listeners wondering open season
on our wallets healthcare fronts. That's what it feels like.
(00:46):
Another listener, he's wondering if you and I if we
could ever love buy now, pay later, so we'll share
our thoughts there. Another listener is considering pausing her investing
for some debt payoff goals. We'll get to those plus
more during our episode today, Buddy. Okay, So, I don't
know where this quote comes from, but I think it's
a it's either a quote from an old economist, but
then Forrest Gump, you might I don't think of us
(01:09):
the chocolates quote. No, not thinking about that one. No,
I just so I was listening to UH that there
aren't many politicians I appreciate these days. But I was
listening to one politician that I actually like in a
sea of awful ones. And I'm not even gonna mention
his name. I'm just not. I'm just not because I
don't want to. I'm just I don't want to get
that feedback. You're like, have you heard of this guy
(01:30):
named Donald? I forget his last name? Yeah? Right right? So, uh,
there's like literally two politicians I think make any sense
right now. But he was talking on a very obscure podcast,
so good luck, I want to find this. But he
was talking about the high prices of beef in this country,
which we've all been confronted with. If you've tried to
buy a steake recently, you wanted to punch yourself in
(01:51):
the face it was that expensive, and you probably opted
for chicken instead, unless you're just a baller like Matt.
Was he talking please? Was he talking about Brazil? Evidently
the Argentina? Oh is it he's talking about? Yes, talk
about our beef import the desire to import beef right now.
And he talked about how that's actually going to prolong
the problem. And one of the things that he said was,
(02:14):
and I thought this was so true, it's one of
those kind of destruction, creative destruction, elements of that happened
in a free market society. He said, high prices are
the cure for high prices, And that's just a really
classic like economist talk, yes again slogan. How often you
hear smart stuff like that come out of the mouths
of a politician, But it's really true in so many
(02:37):
ways that when prices get too high, it's I think people,
especially politicians, are often tempted towards a non free market
solution or a way to stem the pain of their
constituents in a quick manner. And what this guy was
saying was actually what happens when prices get high is
people either a make different choices, they demand less of
(03:00):
that item. So in the case of beef, like people
start opting for chicken or veggies, whatever it is, and said,
chicken super affordable these days, that's right, or especially with
that five six dollars off per package a costco. Baby,
When that happens when you stock up and throw a
pack in the freezer too, heaven. Yeah. And then the
other thing that happens is it attracts more suppliers, So yeah, farmers,
(03:22):
the suppliers see that the prices are high, they say,
I want a piece of that action. Right, They get
in start providing more supply, which then does what lowers
the overall the problem with beef is is that it
just takes a lot longer to go from raising cattle
to that being a steak in the supermarket. As long
as it take, I think it's like multiple years, right,
whereas like with chickens or pigs, like it's so much
(03:44):
quicker turnaround months, right, yeah, chickens it's literally like like
eight weeks or something, six weeks three months before the Yeah,
you go from hatching to like these chickens are ready
to go. So the pain is felt a lot longer,
which makes people want to get involved in the system
to lower the prices. When ultimate, as that politician said,
as a commists before them have said, high prices are
(04:04):
the cure for prices, let it go. So he would
see advocating for more of a free market. So he was, dude,
I'm all about that, because what's true is also the
opposite of that too, right, So low prices are also
the cure for low prices. Yeah, right, So it's a
self it's like an autocorrecting mechanism. This also makes me
think through it's like okay, beef is it's kind of
(04:24):
a really long runway, like years. But it makes me
think about other industries a that have really short lifespans
or short cycles that allow for there to be a
whole lot of adjustments where you see prices in a
much more dynamic way, and then different industries where it's
really stretched out. And when that comes to mind as
far as it being really stretched out, is higher ED
because ye like as opposed to eating a steak, which
(04:47):
is something you do in one sitting. When it comes
to higher ED, it literally takes most people at least
four years to consume that product, and then years, if
not decades beyond that to decide was that purchase it's
worth my money? Right, because a lot of it depends
on job satisfaction, career, how much money they're able to make.
But it makes Yeah, it makes me think that like
(05:08):
he's I guess he was talking about how painful it
is during during those sort of down periods where you're
trying to figure out the best decision, and I think
that's where folks could be potentially when it comes to
higher ED because they're saying, well, was that worth it? Ah,
I don't know. It's tough to tell. It's not something
you're gonna know, maybe even for a decade out because
I think about like when I was right out of school,
I remember thinking, man, what a waste of time. It's
(05:30):
even your perception. Your perception of it changes. But is
the solution what you're saying then, is a solution for
the government to get involved into distort prices? I would
say no, and that's just not the solution. Let's just
be honest that a lot of price distortment that currently happens,
like let's say we're talking about prescription drugs or healthcare,
there already is a lot of like it's not really
(05:51):
a free market system, and so, which is awesome. Why
it's so broken. We have a ton of distortment, and
so a lot of people are like, I prefer distortion.
How the free market's working on that. It's like, yeah,
it's it's not because it's not a free market really,
and that is a problem too. So all right, sorry,
random wonky economists. Not No, I think it's fun. All right,
should we mention the beer we're having? You and I
are enjoying an athletic brewing company beer that happens to
(06:14):
be called Upside Dawn, which is a golden And I
wanted to have this one on specifically because I told
you about our friend Jimmy who gave me a beer,
and I think maybe he was thinking we would have
it on the show, but then I just drank it,
and then anyway, he cried himself to sleep. Then I know,
I haven't talked to him about it, but I should soon.
(06:34):
He's not talking to you anymore. Last time I was
out I saw it. I was also athletic, and I thought, oh,
I should get that mentioned Jimmy. So the one he
gave me was an october Fest, which evidently you can't
get where we are. You have to order it. And
even still they don't you have to order it to
a different state. Maybe I don't know if i'd recommend
that there's somebody from to us at one point, maybe
(06:54):
we should holler at them and see if they can
send us some October but they would. I like the
way you're like, where your head's out? Good folks. Anyway,
Free beers the best kind of beer to you, by
the way. Yeah, so this is an NA we'll share
our thoughts. Have we had an NA on the show before,
I want to say we've had one or two? Really? Yeah,
it might have been an athletic back in the day.
Oh no way, Yeah, I just swear like the heat
reached out and brought us some beers and we try them.
(07:15):
But yeah, But let's let's get onto money questions. Matt
the if you're listening right now and you're like, I
have a money question on the tip of my brain
and I would love for Matt and Joel to tackle
it in maybe next week on the show. Even well,
you can go to have to money dot com, slash ask,
or literally just record a voice memo on that voice
recorder app on your phone. Email it over to us
(07:36):
at how to money pot at gmail dot com. We
look forward to hearing from you. Matt. Let's get to
man speaking of not real free markets. Well, let's get
to a question now, specifically about open enrollment.
Speaker 2 (07:49):
Hey, Matt and Joel, I've got a question about health insurance.
It's open enrollment season at my employer, and they're offering
us a couple of different options for health insurance this
year with a major provider right now, and it looks
like they're about twelve hundred dollars more expensive than one
of the other major providers that's being offered. I'm interested
in taking those savings, but I'm also weighing the cost
(08:13):
of confirming that all of our doctors accept the other ensure,
making sure that all of our prescriptions are covered for
my whole family of five. So any advice about how
to weigh the cost some benefits of switching from one
insurer to another.
Speaker 1 (08:26):
All right, Jil And that was Brian from Chicago, by
the way, And open enrollment, Man, this can be a
trying time for a lot of folks who they've got
all these options laid out before them. So we'll offer
a few thoughts that will hopefully make this process a
little less difficult. And yeah, I don't think Brian is
the only person to find himself in this situation as well,
(08:48):
because healthcare costs have risen significantly and they're yeah, obviously
trying to find different ways to say so, here's some numbers.
The average annual cost now is twenty seven thousand dollars
dollars for the average family in the US, and the
average employer covers most of that twenty thousand dollars, But
that still leaves a ton of money for you to
(09:10):
cover as the employee, a little over six thousand dollars,
and that's just the premiums like that, that doesn't include
the other costs. And so even with great workplace coverage
here we're talking that man like you could easily spend
over ten thousand, maybe closer to fifteen on healthcare costs
in a given year between just like themistons and then
(09:31):
just some of the other costs that go into it.
Paying those premiums gets you the coverage right in case
of catastrophic some catastrophic happens to you, but it also
gives you the ability to pay less to go see
the doctor when we're talking about cope's and stuff like that.
But just to think that that's how much it requires
just to have health coverage in this country, even when
your employer is putting a substantial amount of the bill,
(09:54):
it's it's harrowing. That's kind of hard to fathom. And
I know that there are some employers who do even
better on the healthcare coverage front, and they pay even
more or all of your premiums. I think if you
are an individual working for one of those employers just
don't neglect to realize how great of a benefit that is,
because it really is substantial. And you see, you might
have friends working down the street for another firm that's
(10:16):
less generous and they are paying a lot more of
They've got more skin in the game essentially when it
comes to premiums than you do. So if you're in
that case, be thankful, I'd say, and Matt, I think
when it comes to this question, we want to compare
the total annual cost. Right It's hard to do because
we're using predicted costs. There's no way to one hundred
(10:37):
percent predict exactly what you're going to spend in healthcare
in a given year. So much of healthcare is like
ow I broke my ankle, I need to go see
the doctor right now. You don't usually know exactly what
you're going to spend in the coming year, understandably so,
but you can come up with a solid estimate, I think,
based on what you spent last year and whether or
not there any procedures you already have planned that are
(10:59):
in the works. And some folks they even batch bigger
health needs into a specific year while they're on let's
say a lower deductible plan, and then they move to
a higher deductible plan in years where they're less likely
to need care, which is I think a solid planning option.
If you're saying, listen, I know I've got this major surgery,
and my spouse has this other thing going up, my
kid needs to get their tonsils removed. Let's go for
(11:20):
the lower deductible plan in twenty twenty six, and then
twenty twenty seven, hopefully most of our major surgeries are
over with boom, Like, we're going to go back to
the high deductible plan, try to save more money. But
the total costs we're talking about here is premiums, it's
your potential deductible, it's copays, and it's also really important
to know what your out of pocket max is as well.
I think those are really kind of the crucial moving
parts we've got a factor in, Yeah, the overall costs,
(11:42):
because if you just go simply seeking lower premiums, well
that's often going to mean higher deductibles. So also take
into account how much cash, how much money you have
in savings, whether or not you can go with a
plan like that if you have some more healthcare expenses
next year, Joel, you mentioned copay costs as well. Those
really can add up, so make sure you are aware
of that if you do go and see the doctor regularly.
(12:04):
And it's yeah, And Brian he mentioned specifically looking into
the doctors that he has making sure that they accept
the new health insurance as well. It may not be
worth it for you. So you get you're a family
of five, right, If you have to go and find
a new pediatrician, if you have to find a new
doctor for you, if your wife or your partner, if
they need to go find a new doctor as well,
(12:26):
it might be a massive headache. But that being said,
I don't know. Maybe extreme time situations call for extreme
measures here and the ability to save an extreme amount
of money. Yeah, yeah, And so I don't want the
default to be like, well, yeah, obviously make sure because
that's just presupposing that he's not going to make a
big change like that. And I actually want to introduce
the idea that hey, maybe it's worth doing something completely
(12:49):
different in order to save some money here. Yeah maybe,
but you might with three kids, you're attached to the physician.
I mean, I remember Matt when we moved the one
of the hardest parts about leaving where we lived was
how much we loved the pediatrician where we were, and
we just not to throw shade, but we haven't found
a great pediatrician where we are now. It's just okay, yeah,
(13:10):
and we miss the old and we're like, we even
think about do we go back and just drive forty
five minutes to go see a pediatrician. Maybe you can.
And so if you if you feel that attached and
you're like, huh, well my pediatrician who we love, you know,
doesn't take this new healthcare coverage, doesn't doesn't take this plan,
well I get how that's going to help sway your decision,
and you might be like, not worth the savings if
(13:32):
we can't see that person again. And yeah, you got
a factor in prescriptions too, because if there are any
regular prescriptions that you'd want to you know, that you take,
you'd want to see how much those are going to
cost underneath this new plan as well. Although depending on
what you take, especially if it's an older generic, you
might actually save a lot of money by not going
through insurance and using a site that we've mentioned before
(13:53):
like cost plus Drugs. Good Rx is another good place.
So don't necessarily think you have to go through insurance
to save money on prescriptions. You might save more not
going through insurance. We'd also love to see you on
an HSA eligible high deductible health care plan if it
makes sense for your overall health care costs. Don't let
the tail wag the dog here, but if a high
(14:14):
deductible health care plan is ideal from that total cost
perspective that we're discussing, it'll mean you can utilize an
HSA two, which can just be another way to save
money on healthcare because it reduces your taxes for the
current year and it allows you to grow those dollars
for your future too. Your employer they might be generous
enough to even offer an HSA match. We have heard
(14:35):
from many listeners who have that as a benefit where
they work. That sweetens the pot. We're seeing more of
this and we love it. But just take that into
consideration as well, because there are additional perks with the
high deductible healthcare plan. You save on premiums, you have
access to the HSA. Still, that doesn't mean it's always
the best choice for everyone. Yeah. Yeah, And Brian, he's
(14:56):
talking about saving twelve hundred bucks here. But kind of
piggybacking off of the taking more extreme measures. I've got
to bring up health sharing plans because if you are
interested in saving, what I would say is the most
extreme amount of money trol. So I logged into our
state's healthcare exchange, so healthcare dot gov, or if you
(15:17):
live in a state where healthcare dot gov no longer
works because the state exchanges took over, check that out.
But I logged in there and guess what our family
of six monthly cost was going to be. I'm gonna
guess for a bronze plan for the cheapest. Okay, I'm
gonna guess like twenty three thousand monthly, So I'm me
eight nineteen hundred, twenty five hundred dollars wow a month?
(15:38):
Okay a month? Yeah, versus three hundred and seventy four
dollars a month, which is what we're paying here. This
is the difference between oh, paying over thirty thousand dollars
over the course of a year and versus six. And
that's you're not talking about a gold plan, No, this
was like prices you might be able to get a
plan starting at and it said that I could not
believe it, and by the way, when I said six
(15:58):
thousand dollars, that's not only the quote unquote premium that
I'm paying towards the health sharing but also that also
includes our out of pocket costs. So we spent a
little over six thousand dollars total last year. Yeah, and
you're probably thinking, all, yeah, I know how you are,
with like not ever going to see the doctor last
year was actually we had several doctor's visits out of
(16:19):
which is yeah, you have to take that rational a
few times kind of out of the ordinary for us.
So I'm just highlighting that if you are looking to
save the absolute most amount of money, you've got to
look into health sharing. And not all of them are
are are religious, are faith based either Sidera, So you
and I both both of us families are with Meta Share,
but Sidara is a great option as well, where there's
(16:41):
a whole lot of folks who are served well yea
via that organization. The problem is, it's really hard when
you're offered a Cadillac health insurance plan through your work,
the premiums are highly subsidized. It's tough to think about
saying none of the above and going getting your own
health sharing plan. I think it. They typically make the
most sense for self employee people, right who don't have
access to any sort of health coverage to work, or
(17:02):
if you're if maybe you're employed by an employer who says, yeah,
we don't you're kind of your own. Yeah, but like
we don't really subsize the premiums very much, and you're
feeling more of that healthcare dot Gov sort of slap
in the face where you're faced with paying the bulk
of the premiums yourself exactly. But even assuming the average
American where it's okay, say twenty seven thousand employers covering twenty,
(17:24):
you're covering six. I paid six total last year, not
just in the cost of health care, but also in
out of pockets what I call in my excel sheet
medical out of pocket costs. Yeah. Uh, and so you're
still looking at saving a few thousand dollars right there,
assuming uh, you know, a healthier year. But that's something
else you got to keep in mind too, because if
(17:44):
you do use the doctor a whole lot, if you've
got a whole lot of procedures lined up, if you've
got different you know, regular visits that you need to
go in and get things checked in on that's probably
not going to work out for you quite as well. Yeah,
So I think what we're ultimately saying here to Brian
is to, yeah, look at that over all out of
pocket costs and say, is it word jumping through these hoops?
And am I gonna have to give up too much
(18:05):
in order to save the twelve hundred bucks? Or is man?
I'm still getting everything that I really value. Maybe a
couple things are gone, but I don't really care about
those things or use those things anyway. And yeah, it's
really it's partly math, but it's partly kind of lifestyle
and what you care about when it comes to your
healthcare coverage. But twelve hundred bucks, that's not chump change.
(18:27):
It's potentially worth jumping through some of those hoops in
order to save that much money every year. All Right,
We've got more questions to get to. We'll get theoretical
about buy now, pay later, and we'll also man that
classic personal finance question of investing or paying down debt.
We've got a good question on that front. We'll get
to those and more right after this. All right, buddy,
(18:52):
we are back from the break. Let's now hear from
a listener who has a hypothetical discount question for.
Speaker 3 (18:59):
Us, again from Philadelphia, calling in with yet another question.
This question pertains to buy now and pay later services. Now,
I would like to preface this with I have never
in my life used or even considered to use any
of these services. And I say that just to cover myself,
(19:19):
because I know your views of them are fairly negative.
And I understand that and mostly agree that. Said, I
had a thought experiment. I thought you might want to
indulge me in it. What if to attract more people
to use buy now and pay later services and to
get them used to using them in general, they started
(19:40):
offering large discounts on the items that you were purchasing.
Figure something along the lines of ten twenty thirty percent off.
Would something like that move the needle on how you
felt about buy now pay later services? If your answer
is no, I would be curious if there's anything these
buy now now, pay later services could do to interest
(20:02):
you in using them. For instance, even a larger discount,
let's say eighty percent off just to be ridiculous, or
perhaps some other kind of bonus that I can't think of.
Is there anything that would get you interested in doing this,
and I promise I don't work for these companies and
I'm trying to trick you into using the services and
or becoming an advertiser for them by now pay later services.
(20:22):
Can they be made into something that the how the
money guys would approve of? What do you say, man,
Jil can you fix it? As always? Best? Wayne out?
Speaker 1 (20:32):
Inside man for Klarna? Wayne, not cool? Wayne, we know
what you're doing now, Matt, I could if there was
a gun to your head, would you use a buy now,
Pay later service? If it was existential life or death? Yeah? Okay,
that's not wouldn't be the end of the world. Okay, Yeah,
I agree, I agree. So they're they're Wayne, that's the answer.
If Matt were faced, Well, a lot of it does
come down to the discount, so that it comes down
(20:54):
to the particulars. So I mean, I'm glad that Wayne's
avoided them so far, but I think the shortening it
truly is yes, like not even goin to my head
sort of situation. And I think what Wayne is really
putting his finger on the heart of why we're not
fans of buy now, Pay later if there were discounts
involved for using buy now pay Later, I'd be more
(21:14):
than happy to consider using them. I actually did, and
I think I talked about this on the show. I
used by Now Pay Later one time, and it was
because I got a meaningful discount on some running shoes.
I don't I don't remember if it was like, do
you buy anything else other than running shoes? No, not really.
I just ripped through on so fast, though, but it
was I was like, I'll just go buy these shoes
are a good price here, And then there was I
(21:36):
think it was like fifty bucks off one hundred and
fifty bucks for using Clara, and I was like, I'll
just get another pair of shoes. I stick them on
the top of my closet mat in a row, and
then I just like pull down the next pair when
I need it. But yeah, I was like, well, if
they're gonna offer me fifty bucks off, then I'm happy.
I'm happy to use by Now pay Later. And then
I just didn't use it, Like by Now Pay Later.
I immediately paid off the loan or whatever they call
(21:56):
it in order to avoid the behavioral trap because I
just don't want to be caught in that sort of
like I've got how many outstanding loans do I have?
And am I being tempted to buy things I wouldn't
otherwise buy? But yeah, if there was like a ten
or twenty percent off perk for using buy now, Pay later,
I'd probably use it a lot more. Yeah, you know.
Like so occasionally folks will reach out to us to
say that, well, credit cards, they're not much better than
(22:17):
buy not pay later, Like you are still using debt
to purchase something that you don't have the money for
at the time, And that's that's kind of true. But
I think I would say that if that is how
you are actually using your credit cards, and if that
is how you are using your buy now, pay later,
well then that's not something I'm happy with, right, that's
not happy with you, I'm not because if that if
you don't have the cash on like you need to
(22:38):
have the cash on hand if you are going to
use these methods of payment, it doesn't matter if it's
a credit card or if it's a buy now, Pay later,
like that is the like you must have that ticket
in order to ride Like that is like we're trying
to raise the standard here, We're trying to raise the bar,
like the cash on hand that is your license to
be able to play this game. Otherwise then it's too
slippery of a slope. Otherwise we don't once you messing
(23:01):
with it at all. And so if okay, then if
they are the same, You got the cash on hand,
why would you then go with a credit card over
the buy not pay later? And it does come down
to the perks, going back to what you're saying as
far as getting the discount, you were saying, like, maybe
get like ten or twenty percent off, like truly, if
like I would do it for like five percent off? Yeah,
because because that's roughly what a credit card. Yeah, because
(23:23):
I'm getting anywhere between two percent and six percent off
with my credit cards. If there is a buy not
Pay later. And this is me maybe wishing this out
into existence, but if there was a a buy now,
Pay later that was willing to offer five percent off
just across the board in order to use their products,
guess what I would do it. I would get in there,
I'd figure out how to incorporate that into my financial system,
(23:44):
into my Excel spreadsheets to spread that out over the
four months. But actually probably wouldn't do that. I'll probably
just like i'd do with a credit card. I would
pay it off at the end of the month, snag
the discount, and I would probably stop using credit cards.
Although that being said, there are other perks as well
that the credit cards offered, right, not just the discount,
but I think I would consider it like the buyer
protections and how if someone steals your credit card. Wouldn't
(24:05):
rent a card, I'm sorry, I wouldn't rent a vehicle
with buy not pay later. Yeah, and some of these
other flight and some of these other perks that maybe
we can touch on. But as far as just general spending,
I think I do it even for five percent, not
even you don't even need a tune me with eighty percent,
because you're so What you're really getting at the heart
at is that credit cards offer meaningful protections and benefits
(24:28):
when you use them. The only thing that buy now,
pay later offers. The only perk you get is you
get to pay that item off over a longer period
of time. And so what that leads to for so
many people, What that has led to for so many
is poor behavioral and financial results, which have been well documented.
People spend more on average when they have the ability
to use buy now, pay later Klarna or afterpay or
(24:50):
whatever at checkout, and it's it's just one of the
reasons to be wary when you see those statistics that
that's why retailers want to do business with buy now,
pay later companies because they know that when they make
that available at checkout, people will buy more stuff, they
will add more things to their card, it will juice
their sales. And you could, you know, argue that tapping
your credit card to pay insulates you from maybe some
(25:12):
of the pain and friction of buying too. And yes
that I think that can be true for lots of folks.
But the goal of using a credit card it's not
just to mitigate the pain of purchases. That's but that
is the whole essential use case and reason for existence
to buy now, pay later companies to mitigate friction. And
you know, there are important consumer protections alongside these rewards
(25:34):
that I think and boosting your credit score by now
pay later doesn't do that. Credit cards do help do that.
I think there's so many Even though credit cards have
their downsides, there are so many potential positives for using
them if you use them effectively. There just really aren't
any for buy not pay later yeah, thinking about the
friction lists, I'm assuming are there apps on your phone
(25:54):
or can you put Klarna or the different buy now
pay later companies in your wallet? Right, because I like,
I've been thinking about it recently and the fact that
I can double click and pay and then the little
transaction device, the clover or the square pay or whatever
like when they has it, when it's got the little
when it's got the little ding like the little chime.
(26:14):
There's something about that that makes it so satisfying. And
I think I've mentioned this before, but I've since that,
since I've mentioned it previously, I've been thinking about that
because it used to be what with a chip You
stick it in there and it would make this terrible
sound like that, Yeah, and it made what does that reinforce?
It makes it seem like you did something wrong, as
opposed to they completely change the user interface of it.
(26:38):
Now it's like this nice little congratulations you have been approved.
You did it. I think I was half the reason
they invented. It's a nice technology. It's a nice pat
on the back. And I think that's the friction. Whereas honestly,
I think credit cards feel a little more dangerous because
of the fact that we can use them in Apple
Pay or the Google Pay and the wallets as opposed
(26:58):
to because when you're sitting down at a computer clicking
the uh, the four easy installments, the four that doesn't
seem any more difficult to me than the fact that
you've got a credit card auto saved in there, right,
But the in personness of that sort of physical response
that a device does to you when you purchase something
that to me almost puts credit cards back on my radar.
(27:18):
As far as the payment method, that might be a
bit more nefarious right now. Yeah, yeah, Well we talked
about this with Jason Gorski a while back, right when
he professor who writes about the power of cash, And
I do think they're again like kind of what you're
getting at is the insertion took a few seconds, was
kind of annoying. The tapping makes it then the awful buzz, Yeah,
(27:40):
it makes it super easy and you feel like you're
breezing through the line. And I think that is actually
a downside making it really easy to use credit cardslet
physically parting with the cash that's right hand, that's right.
So we have to be careful about how we're paying
what we're getting used to, how we're reconciling our books
and looking at our spending at the end of the month.
And if by now pay later works for you, you're
(28:03):
using it in a really intentional manner and you're not
overspending using those services, then by all means like you
do you. But I just think the whole way they're
designed is essentially to get people to spend in ways
the otherwise wouldn't, to become even more of a consumer.
And I think those incentives have really gotten the best
(28:25):
of a lot of people. Speaking of paying with cash,
did you notice the old lady who was paying for
her coffee with cash this morning? No, And she was
a little confused about the price, and he's like, oh, no,
we actually round down when you pay with cash, so
he didn't say the precise amount. But I was like,
oh my gosh, that's right. Yeah, because when you pay
with card, they charge you that service feed That's true. Yeah,
(28:45):
but yeah, fascinating how that has an impact on how
it is we consume, though, Joel, let's hear from a
listener who is trying to right her former wrongs.
Speaker 4 (28:53):
I met and Joel, This is Kelsey from Colorado, springs.
Love your podcast, and I have a question regarding investing
for four one K wrath Ira and brokerage accounts first
paying our debt and saving. So for context, my first job,
I wasn't making a bunch was my first job, and
(29:14):
so I was investing fifteen to twenty percent of that
those still in my four to one K and putting
five hundred lives a month into maxing out my roth
IRA as well. I was young and naive and strut
for money, took out some loans trying to pay those off,
(29:36):
still in there about eighteen percent wracked up credit card debt.
Have since been paying those off, but just curious your
thoughts on whether I continue putting into my four one
K and roth first, maybe pausing those for a little bit,
just so that I can get my auto and other
(30:00):
signature loans paid off for contacts. I have about ninety
thousand dollars in my roth IRA, about eight thousand dollars
in savings, but have about twenty five thousand dollars in debt.
So just trying to figure out how I can navigate
(30:20):
this thought I was doing the right thing, but now
in a little bit of a financial picko, which ironically
feels like it came from investing so much so any
insight is super helpful. Looking to buy a house within
the next two years or so, and just wanting to
make sure I'm handling my money here on out in
the right way. Love your podcast, Love what you guys
(30:41):
are doing.
Speaker 1 (30:42):
Thanks, Oh man, I'm so glad Kelsey said this question
largely because it's like one of those point essential personal
finance questions that people will have, the investing first, debt
payoff question, And there's never just like a right or
wrong yes or no answer to this either, never completely straightforward,
and the answer really depends on a number of factors.
(31:05):
Despite the credit card debt and the loans that Kelsey
has taken out, which aren't our fave, I think we
should also just say congrats to her for all she's
been able to do saving for her future. She's got
ninety thousand dollars in a roth iray. Yeah, that in particular,
that's pretty solid. That's solid, man, And that's going to
grow to be a much larger amount over time thanks
to compounding returns. And those are that they'll never be taxed,
(31:27):
which is one of our favorite things about the roth
Ira that's all your money tax free in the future,
which is a beautiful thing. Also, Matt, do you want
to highlight how you did something Oh, very similar to
what Kelsey did by investing. I heard I heard too early.
I heard in Kelsey's voice, She's just like, then this happened.
Don't feel bad about it. I mean, I don't know.
(31:48):
Is it like a rite of passage that there are
there's a certain subset of us make this mistake. But
like you, I heard the glories of compounding. I had
some friends who were a little bit older, and I
was like, oh man, they're already investing. I need I
got to get investing as well. You were O old
twenty three okay, yeah, which is or twenty two very young,
because the average person doesn't start investing till like what
like like thirty times. I don't even know. But I
(32:10):
just knew that I wanted to invest. I hadn't been,
and so I had I had ground to makeup drill.
That's basically where I saw myself. And but what I
didn't do was have money in the bank, and so
I was investing. Again. I didn't have nearly as much
as Kelsey, but I found myself in a tight spot,
and instead of relying on debt, I actually pulled those
(32:30):
contributions out, which probably ended up costing me more money
because the market was down a little bit and I
was investing in mutual funds that were very expensive, and
so it was like a double waymy I learned that
lesson there early on. Next to learn it early though, Yeah, yeah,
oh yeah, you learned the lessons with like one or
two zeros at the end of it, as opposed to
like three or four. Yeah. But we're gonna talk about
(32:52):
the money gears here, Kelsey, because when you go through
the money gears, which by the way, you can find
up on the website it had to money dot com
forward slash start here. But you will see that paying
off high interest debt that is gear number three. It's
just after getting your four one K match. It's just
after saving up the basic emergency fund. But then after
(33:12):
that credit card debt or other debts with double digit
interest rates, that should be your top focus. And that
is because you are unlikely to see higher returns from
the market were you to invest those dollars. And so
the thinking goes like, why not get the guaranteed return
along with the peace of mind of not having that
debt in your life anymore. Yeah, yeah, yeah, and I'm
(33:34):
with you on that. I mean, I think for a
little while, probably the best way for Kelsey to proceed
is to suspend any contributions she might be making to
her wroth IRA. Yeah. And normally, Matt, we're not telling people,
don't contribute to your wroth IRA, but the truth is,
if you're doing it out of order, Yeah, for a
little while, you do need to stop that. We say,
(33:55):
keep getting them four one K match at work if
you have one, but don't contribute beyond that either. And this,
if you do both of those things, stop contribute to
your roth. Contribute less to your four one k only
up to the match that allows you to claw back
more cash flow to work towards debt, payoff a heck
of a lot more quickly. Every other dollar basically that
you can afford to part with each month it should
(34:16):
be funneled then towards the credit card debt and the
eighteen percent loan that you mentioned. You know, hopefully, hopefully
that hyper focus is going to allow you to eradicate
those debts more quickly, get them completely out of your life,
because after that, that's when you can resume investing for
your future and you'll have even more money for that
purpose with less debt lingering in your life. But sometimes Matt, like,
(34:37):
trying to do all those things at once feels like
spinning a bunch of plates, and it can feel like
it's so easy to lose one, and then you lose
them all. They all come crashing down to the ground.
Drop them. Plant's. Yeah, that's where the hyper focus comes in,
especially when you have higher interest rate debt. It's like,
just let's go all in on that. Put the other
stuff to the side for now. You can get back
to it soon. Yeah. Well, aside from like that eighteen
percent loan that she mentioned, which so she mentioned her
(34:59):
car loan, and I'm guess seeing that that car loan
is not as offensive as maybe some of her credit
card debt or that eight percent loan that she took out,
So I hope. So, I imagine you're right, medium or
even low interest rate debt is worth addressing here, and
that is money gear number six. It is further on
down the line, and that's because there are just more
productive things that you can be doing with your money.
(35:21):
You don't have to forsake investing until you are completely
debt free. We ideally want all the how to money
listeners out there to not have a car loan. But
if you've already got one in your life and you're
making this a binary choice, I would love to see
you paying off a bit more slowly while also investing.
Like I think about too over the most recent years,
like this isn't the best decision right for her to
(35:42):
be investing aggressively while keeping some of the really high
rate debt around like the credit cards as as well.
But it's also not the worst outcome because of what
the market has done over the past few years. But
the thing is is that is not guaranteed to continue. Yeah,
you looked to last year and you're looking at twenty
five percent returns, but in the year before that too,
But you go one more year Joel to twenty twenty two,
(36:04):
and things weren't looking so great, sure, and so you
can't count on that continuing, even though you're not in
the most terrible position given what you have done over
the past few years. But what you are playing with
fire right when you yes it is to keep it
is risky, you know. Eighteen twenty something percent interest rate
debt around in your life for longer than you need to. Man,
(36:25):
I always I hear people sometimes talk to me about
credit card debt as though it's not a big deal.
I've got six eight, ten thousand dollars hanging out and yeah,
I have the cash to pay it off. But you know,
I'm just I'll get around to it, and like, nothing
bothers me more than that. I you know, I don't
like to give unsolicited advice. We give advice here because
(36:47):
it's solicited. People are asking questions, but it's not financial advice,
by the way, This is just for fun. But when
those people like come up and say that to me,
I mean, it bothers me so much, even though I
don't want to offer my advice. But like, but what
you want to say is what are you doing with
your life right? Exactly? What do you think? It is
a big problem and there aren't many better things you
could be doing with your money than paying that debt
(37:08):
down as quickly as possible. Is it just interesting though, too,
that Kelsey did invest so aggressively though, because that's the thing.
I think most folks who are kind of like I
don't know, I'll take care of that at some point.
They're also I'm guessing not typically the folks who are
funneling dollars like it's their like it's their job into
the wroth, which it sounds like Kelsey has. Yeah, she's
got way more in her wrath, by the way, than
I did when I had to tap my tap my contributions.
(37:31):
When when I found myself in that cash pinch, we
should we should out for it. Maybe a last little
piece of advice here for Kelsey, and I just want
to note that she's got money in savings, she's also
gotten money in WROTH contributions that are accessible, and she
could use either one of those or both to pay
down her debt more quickly. But I would say, in
all likelihood she shouldn't. And that's because you know, while
(37:53):
WROTH contributions they are accessible without paying tax or penalty,
you can never get those dollars back into the wroth
right because of annual contribution limits, and you're interrupting the
compounding of those dollars. But it can also, I think,
create this unhealthy relationship with your retirement accounts that we
want to prevent where we're seeing more and more Americans
feeling like they can take money out of their retirement
(38:13):
account because of changes to the law and just wanting
it to make it easy and not pinch their lifestyle.
They're taking money from their four to one case, and
that to me is a red flag. We see people
going back to the well multiple times to their retirement
accounts when they shouldn't. It would also be much better
to invest less, to be more frugal, and to pay
(38:34):
down those debts quickly with cash flow that you have.
I think that's the proper relationship. You want to this debt,
like get rid of it quickly, but don't necessarily pull
money from your investments to do so well. And she
also doesn't want to completely deplete her liquid savings on
hand in case she finds herself again cash strapped off
in the future to where she feels forced to draw
on retirement contributions. And specifically she said eight thousand dollars
(38:59):
is what she has on hand in cash, and that's
not a ton. I mean it's great, it's a great start,
but after you pay off that high interest rate debt
again just heading cruising down down those money gears, I'd
be looking to beef that up to three to six
months worth of living expenses, and I'm guessing that's probably
for you. It sounds like she might be single. She
didn't mention a family, but I'm guessing for her that's
(39:20):
probably like a couple months worth of living expenses. But
then beyond that, I would even want to want to
see something even a bit more robust than what she's
currently got. Agreed, But Kelsey, you got this one step
at a time. We know you get rid of that
debt and you'll get back to investing in no time.
All right, mat we got more questions to get to.
Let's talk about how closing a credit card impacts your credit.
We'll get to that more right after this. All right, buddy,
(39:49):
we are back from the break. It is now time
for the Facebook question of the Week, which is from
an anonymous poster who writes the guys that would be
You'd me Jeal. The guys have mentioned multiple times how
closing a credit card can cause a dip in your
credit score, especially if that is your longest active credit line.
I have an opportunity to pay off my mortgage only
(40:09):
current outstanding debts, and I use my credit card more
like a debit card and pay it off weekly. With
paying off my mortgage and essentially closing out that line
of credit hurt my credit score, particularly if I am
looking at investing in other real estate in the next
two years. Yeah, which you think, jo'l. That's a great question.
Help this poster to understand. And this is one of
(40:29):
those non basic personal finance questions where you're getting a
little bit further into the weeds about how your credit
score is constructed. But I'm glad people are asking this
question because all this stuff matters, right, And Yeah, paying
that close of attention to your credit score, how the
credit scoring system works, shows a high level of personal
finance acuity. And it's typically, by the way, why we
(40:52):
don't recommend people close a credit card accounts, because if
you can avoid it, it's actually going to help boost
your credit scord if you keep that credit card active
in your credit mix. If it doesn't have an annual fee,
just use it less. And if it does have an
annual fee, maybe ask your credit card company if you
can downgrade to a card that doesn't have one. That
way you kind of get the best of both worlds.
But I just want to maybe highlight the credit card
(41:14):
thing map before we get to this mortgaging, because that's
a question that gets asked even more frequently, and it's
why we typically recommend people, Hey, we want you to
keep your credit score robust. Closing the card could do
the opposite, it's a more more typical example. But you
can't do that with your mortgage. And so if your
mortgage is winding down, which is a great thing, you
can't really stop that process, no, nor would you want to, right,
(41:36):
And so, yeah, paying off your mortgage it will ding
your credit score, which sounds kind of ridiculous, but it's true.
The fact that you now completely outright own this home. Yeah,
that's actually gonna hurt your credit score. That's one of
those counterintuitive realities of the credit scoring system that people
are just like, I what in the world you pay
off debt and it takes your score down a peg
(41:56):
like that. It's so counterintuitive, and it's kind of frustrating
as an individual consumer, to be honest. Yeah, And in
part not only because this is the longest line essentially
a line of credit where you've you know, you have
a history here of making payments, but also because of
the type. Right, So this is an installment loan that
you're paying off, and I'm guessing based on the way
this person is posting that they don't have any other
(42:17):
installment loans. Well they said, they said they don't have
any other debt, so it's not like they have student loans,
or it's not like they have a car payment where
they're paying that on a regular basis, which, by the way,
are great things from a personal finance standpoint, but from
a perfect credit score standpoint, not the best, not ideal.
I do want to highlight here though, that they wrote
I have an opportunity to pay off my mortgage, which
(42:40):
tells me that it's optional. Like I wonder if they
came in they got a bonus at work, or maybe
they inherited some money and they're thinking, oh, I want
to do something smart with this money. I'm going to
pay off the house. I have the opportunity to pay
this thing off ten years early. I should be jumping
at this opportunity. And I would say, let an opportunity
continue knock and don't answer that door, because I'm as
(43:04):
if you've had this loan for this mortgage for a while,
or if you like, let's see you refinanced ten fifteen
years ago, you've got this thing locked in. I'm guessing
at a really low rate. And again, there are just
better things, more optimal things that you can do with
those dollars than eliminate a three percent mortgage. Yeah, agreed,
saving and investing and you used to saving would not
outpace your mortgage rate. But it still does right now.
(43:27):
Until the Fed lowers interstrates even more and savers get
dinged even harder. The chances are, if you're in a
high held savings account with one of our favorite online banks,
that you're outpacing your mortgage rate. By the way, if
you do decide to pay off this mortgage, it shouldn't
negatively impact your ability to invest in more in real
estate and to get the best rates in the coming years.
Typically that yeah, getting rid of that line of credit
(43:51):
from your credit mix not ideal from a credit score perspective.
But if you have a great score, yeah, you'll see
a ding for a while, maybe for a few months,
but without the primary mortgage, you're gonna have tons of
cash flow to save up for a down payment for
those investment properties, and your credit score is going to
have more of like a short lived impact, negative impact,
and I think it'll bounce back pretty quickly. I doubt
(44:13):
it'll still be dinged after a couple of years. Yeah, agreed.
And even if it, even if it is still down
ten to fifteen points, if you have a really high
credit score to begin with, it doesn't matter. You're still
going to be able to qualify for the best rates
in terms. All right, you know what, Let's do another
one here real quick. Another anonymous poster. Hi trying to
learn here. I keep seeing that people should be investing
at least fifteen percent of their earnings. I think this
(44:34):
is the last money wheel. Does this include or not
include money you already put into your four oh one
k money wheel? Obviously we a man man, we're doing
a bad branding job. Money gear. It's the money gears
money years. And the reason we call it the money
years is because we like biking and we're like just
thinking about oh seven gears on the bike. When you're
(44:55):
first getting started, you start off on year one and
then before you got to gain some speed before you
ramp it up. That's right before you shift gears. So, yeah,
does this include four one K dollars? Though? Joel the
fifteen percent? Well, the answer the answer is simple here,
we're all about your savings rate being a minimum of
fifteen percent of your gross income. But gross income includes
your four one K right, so yes, yes, and so
(45:16):
we count investing and we count debt payoff in your
savings rate. So whether you're paying off credit card debt
or you are putting more money towards four on and
K roth I right, those are all included, we would
say in your your savings rate, what's known as your
savings rate. Part of the reason is because you're not
spending that money the others because if you had to
go into liquid savings at some point in the not
(45:37):
so distant future, you'd have way too much allocated to cash.
You'd be really imbalanced, right if like all of your
savings rate went straight into to a savings account. But
isn't that that's an investing question though, right, Well, versus
a percentage savings rate should go to saving, investing, paying
down debt, that's another question. And it's highly specific. But
(45:57):
you like diving into these details more than I do.
Like some of this. I like it makes me think
about like when you weigh yourself, Like some people are like, no, no,
you gotta weigh yourself first thing in the morning. And
some folks were like, no, I like to do it
at night before I get before I jump in the shower.
Or some folks they strip down and they're totally naked,
and some folks are like, ah, I just war my clothes.
Joel always wears his cutof geen shorts, though he never
(46:17):
takes those off. Yeah, like Cobias Chunky. I mean the
way I think about it, as long as you are
consistent with like however it is you're you are calculating
your savings rate over time, As long as you stick
with that, I think that's the biggest thing, especially if
early retirement is a goal of yours, to you know,
slowly but surely ratchet that thing up. I guess I
just worry that some of the basic personal finance advice
(46:39):
to the years has really told people, yeah, save ten
percent of your income, and we've and we set the
bar so low. Granted a lot of Americans not even
hitting that savings rate. And yeah, but if you set
the bar so low and you don't really help people
understand how much a higher savings rate can impact their
ability to attain financial freedom, then maybe we're letting people.
We're not helping people realize what they can build for themselves,
(47:02):
the piece out money they can amass, and the optionality
they're able to find in the not so distant future
if we say, you know, if we keep the savings
right ideal too low, or we make it sound like
it's not as important. So yeah, I guess that's where
I think it is important. But I think you're probably
right to Matt. People obsessed over it kind of as
far as the semantics way, they find Yeah, I'm less
interested in that, And I think maybe what they're saying
(47:23):
too is like, hey, my gross income and with that's
what you address there, right, Does it include the four
win k dollars? It's not just your take home pay
and you investing on your own within an IRA and
within a brokerage account. The four one k totally counts.
There are going to be so many four one k
millionaires in the next ten twenty thirty years because of
the fact that folks have been auto enrolled. They're going
to be doing that like clockwork. The behavioral aspect of
(47:45):
it is just firing on all cylinders, and yeah, they're
going to be hopefully set up quite well for retirement.
I think this poster will too, if they maintain it
at least fifteen percent savings, right, which I think is
the floor that most people should be striving for. All right, matt,
Le's get back to the beer we had on this episode.
This was an athletic brewing company upside down, Golden Ale
(48:05):
upside don. An athletic, of course, is the heavy hitter
in the ina beer space or your thoughts on this
one the non alcoholic beer space. Yeah, you know what
I thought of. So we're not vegan, but it makes
me think of the fact that it's harder to cook.
I think vegan meals that taste really good.
Speaker 2 (48:24):
M hm.
Speaker 1 (48:25):
And I think the same as tree when it comes
to alcohol in beers, right, Like it's you're just working
with less and it makes it tricky, like if you're
not including butter or something like. There's just a depth
and a richness that comes with that. And which is
what's funny is I actually saw in here that it
says this is vegan, So I thought I was gonna
have like a food analogy, but in fact, this is
(48:46):
a vegan beer. But I think if you think of
this less as a beer and more as a different
type of drink or a different type of beverage, then
I can get behind it. Right. If I think of
this as like a multi multi hopwater, then I'm like, oh, yeah,
that was that was pretty good multi hop water. That's
a really good way to describe it, as opposed to
thinking of it as an actual beer. All that craft beer.
All I can think while drinking this for the first
(49:08):
half of the show was so watery but barely beer flavored.
And then I had Yeah, I just had to reorient
my mind to be like, this is this isn't craft beer. Yeah,
so if you think of it as a craft in
a beer, which is not really the same thing, Yeah,
it's a different category. So if I put this more
in the category of seltzer, oh okay, I could totally
see myself opting for this over a lime seltzer from Aldi. Ah.
(49:33):
Thought that would be a whole lot more affordable. Go
with the seltzer. But that being said, it's still got
those flavor profiles and I still really enjoyed it. Still
really liked to notice here on the can that Athletic
they restore They give up to two million every year
to help restore local trails. Okay, that's something you can
get behind right. Sure, yeah, I like that makes me.
(49:54):
I don't think I ever had an Oduel's like your
uncles in a beer. This has got to be better,
I'm pretty sure I've I don't know something would be
so long. I know that this is better. This has
to be way better. I'm not even going to mention
the fact that this has reminds me of lot Duels
back when I was twenty years old, and it doesn't
because I never had it, but my goodness, this has
to supersed it by a long, a long way. Yeah,
(50:14):
either way, glad that you and I got to share
it today. You can find show notes up on the
website at Howdymoney dot com and that's gonna be get money.
So until next time, best friends Out, Best Friends Out,
Welcome to How the Money, Joel, you messed it up.
That's not how we do it. Why not? We can
do it that way? Okay, today we're answering your listener questions.
(00:25):
I thought you made a mistake, so I was just
catching it early on. Switch things up, all right, This
is and ask how to Money episode. Uh. Listener is
considering coppying healthcare plans in order to save it's open
enrollment season after all, Joel. Another listeners wondering open season
on our wallets healthcare fronts. That's what it feels like.
(00:46):
Another listener, he's wondering if you and I if we
could ever love buy now, pay later, so we'll share
our thoughts there. Another listener is considering pausing her investing
for some debt payoff goals. We'll get to those plus
more during our episode today, Buddy. Okay, So, I don't
know where this quote comes from, but I think it's
a it's either a quote from an old economist, but
then Forrest Gump, you might I don't think of us
(01:09):
the chocolates quote. No, not thinking about that one. No,
I just so I was listening to UH that there
aren't many politicians I appreciate these days. But I was
listening to one politician that I actually like in a
sea of awful ones. And I'm not even gonna mention
his name. I'm just not. I'm just not because I
don't want to. I'm just I don't want to get
that feedback. You're like, have you heard of this guy
(01:30):
named Donald? I forget his last name? Yeah? Right right? So, uh,
there's like literally two politicians I think make any sense
right now. But he was talking on a very obscure podcast,
so good luck, I want to find this. But he
was talking about the high prices of beef in this country,
which we've all been confronted with. If you've tried to
buy a steake recently, you wanted to punch yourself in
(01:51):
the face it was that expensive, and you probably opted
for chicken instead, unless you're just a baller like Matt.
Was he talking please? Was he talking about Brazil? Evidently
the Argentina? Oh is it he's talking about? Yes, talk
about our beef import the desire to import beef right now.
And he talked about how that's actually going to prolong
the problem. And one of the things that he said was,
(02:14):
and I thought this was so true, it's one of
those kind of destruction, creative destruction, elements of that happened
in a free market society. He said, high prices are
the cure for high prices, And that's just a really
classic like economist talk, yes again slogan. How often you
hear smart stuff like that come out of the mouths
of a politician, But it's really true in so many
(02:37):
ways that when prices get too high, it's I think people,
especially politicians, are often tempted towards a non free market
solution or a way to stem the pain of their
constituents in a quick manner. And what this guy was
saying was actually what happens when prices get high is
people either a make different choices, they demand less of
(03:00):
that item. So in the case of beef, like people
start opting for chicken or veggies, whatever it is, and said,
chicken super affordable these days, that's right, or especially with
that five six dollars off per package a costco. Baby,
When that happens when you stock up and throw a
pack in the freezer too, heaven. Yeah. And then the
other thing that happens is it attracts more suppliers, So yeah, farmers,
(03:22):
the suppliers see that the prices are high, they say,
I want a piece of that action. Right, They get
in start providing more supply, which then does what lowers
the overall the problem with beef is is that it
just takes a lot longer to go from raising cattle
to that being a steak in the supermarket. As long
as it take, I think it's like multiple years, right,
whereas like with chickens or pigs, like it's so much
(03:44):
quicker turnaround months, right, yeah, chickens it's literally like like
eight weeks or something, six weeks three months before the Yeah,
you go from hatching to like these chickens are ready
to go. So the pain is felt a lot longer,
which makes people want to get involved in the system
to lower the prices. When ultimate, as that politician said,
as a commists before them have said, high prices are
(04:04):
the cure for prices, let it go. So he would
see advocating for more of a free market. So he was, dude,
I'm all about that, because what's true is also the
opposite of that too, right, So low prices are also
the cure for low prices. Yeah, right, So it's a
self it's like an autocorrecting mechanism. This also makes me
think through it's like okay, beef is it's kind of
(04:24):
a really long runway, like years. But it makes me
think about other industries a that have really short lifespans
or short cycles that allow for there to be a
whole lot of adjustments where you see prices in a
much more dynamic way, and then different industries where it's
really stretched out. And when that comes to mind as
far as it being really stretched out, is higher ED
because ye like as opposed to eating a steak, which
(04:47):
is something you do in one sitting. When it comes
to higher ED, it literally takes most people at least
four years to consume that product, and then years, if
not decades beyond that to decide was that purchase it's
worth my money? Right, because a lot of it depends
on job satisfaction, career, how much money they're able to make.
But it makes Yeah, it makes me think that like
(05:08):
he's I guess he was talking about how painful it
is during during those sort of down periods where you're
trying to figure out the best decision, and I think
that's where folks could be potentially when it comes to
higher ED because they're saying, well, was that worth it? Ah,
I don't know. It's tough to tell. It's not something
you're gonna know, maybe even for a decade out because
I think about like when I was right out of school,
I remember thinking, man, what a waste of time. It's
(05:30):
even your perception. Your perception of it changes. But is
the solution what you're saying then, is a solution for
the government to get involved into distort prices? I would
say no, and that's just not the solution. Let's just
be honest that a lot of price distortment that currently happens,
like let's say we're talking about prescription drugs or healthcare,
there already is a lot of like it's not really
(05:51):
a free market system, and so, which is awesome. Why
it's so broken. We have a ton of distortment, and
so a lot of people are like, I prefer distortion.
How the free market's working on that. It's like, yeah,
it's it's not because it's not a free market really,
and that is a problem too. So all right, sorry,
random wonky economists. Not No, I think it's fun. All right,
should we mention the beer we're having? You and I
are enjoying an athletic brewing company beer that happens to
(06:14):
be called Upside Dawn, which is a golden And I
wanted to have this one on specifically because I told
you about our friend Jimmy who gave me a beer,
and I think maybe he was thinking we would have
it on the show, but then I just drank it,
and then anyway, he cried himself to sleep. Then I know,
I haven't talked to him about it, but I should soon.
(06:34):
He's not talking to you anymore. Last time I was
out I saw it. I was also athletic, and I thought, oh,
I should get that mentioned Jimmy. So the one he
gave me was an october Fest, which evidently you can't
get where we are. You have to order it. And
even still they don't you have to order it to
a different state. Maybe I don't know if i'd recommend
that there's somebody from to us at one point, maybe
(06:54):
we should holler at them and see if they can
send us some October but they would. I like the
way you're like, where your head's out? Good folks. Anyway,
Free beers the best kind of beer to you, by
the way. Yeah, so this is an NA we'll share
our thoughts. Have we had an NA on the show before,
I want to say we've had one or two? Really? Yeah,
it might have been an athletic back in the day.
Oh no way, Yeah, I just swear like the heat
reached out and brought us some beers and we try them.
(07:15):
But yeah, But let's let's get onto money questions. Matt
the if you're listening right now and you're like, I
have a money question on the tip of my brain
and I would love for Matt and Joel to tackle
it in maybe next week on the show. Even well,
you can go to have to money dot com, slash ask,
or literally just record a voice memo on that voice
recorder app on your phone. Email it over to us
(07:36):
at how to money pot at gmail dot com. We
look forward to hearing from you. Matt. Let's get to
man speaking of not real free markets. Well, let's get
to a question now, specifically about open enrollment.
Speaker 2 (07:49):
Hey, Matt and Joel, I've got a question about health insurance.
It's open enrollment season at my employer, and they're offering
us a couple of different options for health insurance this
year with a major provider right now, and it looks
like they're about twelve hundred dollars more expensive than one
of the other major providers that's being offered. I'm interested
in taking those savings, but I'm also weighing the cost
(08:13):
of confirming that all of our doctors accept the other ensure,
making sure that all of our prescriptions are covered for
my whole family of five. So any advice about how
to weigh the cost some benefits of switching from one
insurer to another.
Speaker 1 (08:26):
All right, Jil And that was Brian from Chicago, by
the way, And open enrollment, Man, this can be a
trying time for a lot of folks who they've got
all these options laid out before them. So we'll offer
a few thoughts that will hopefully make this process a
little less difficult. And yeah, I don't think Brian is
the only person to find himself in this situation as well,
(08:48):
because healthcare costs have risen significantly and they're yeah, obviously
trying to find different ways to say so, here's some numbers.
The average annual cost now is twenty seven thousand dollars
dollars for the average family in the US, and the
average employer covers most of that twenty thousand dollars, But
that still leaves a ton of money for you to
(09:10):
cover as the employee, a little over six thousand dollars,
and that's just the premiums like that, that doesn't include
the other costs. And so even with great workplace coverage
here we're talking that man like you could easily spend
over ten thousand, maybe closer to fifteen on healthcare costs
in a given year between just like themistons and then
(09:31):
just some of the other costs that go into it.
Paying those premiums gets you the coverage right in case
of catastrophic some catastrophic happens to you, but it also
gives you the ability to pay less to go see
the doctor when we're talking about cope's and stuff like that.
But just to think that that's how much it requires
just to have health coverage in this country, even when
your employer is putting a substantial amount of the bill,
(09:54):
it's it's harrowing. That's kind of hard to fathom. And
I know that there are some employers who do even
better on the healthcare coverage front, and they pay even
more or all of your premiums. I think if you
are an individual working for one of those employers just
don't neglect to realize how great of a benefit that is,
because it really is substantial. And you see, you might
have friends working down the street for another firm that's
(10:16):
less generous and they are paying a lot more of
They've got more skin in the game essentially when it
comes to premiums than you do. So if you're in
that case, be thankful, I'd say, and Matt, I think
when it comes to this question, we want to compare
the total annual cost. Right It's hard to do because
we're using predicted costs. There's no way to one hundred
(10:37):
percent predict exactly what you're going to spend in healthcare
in a given year. So much of healthcare is like
ow I broke my ankle, I need to go see
the doctor right now. You don't usually know exactly what
you're going to spend in the coming year, understandably so,
but you can come up with a solid estimate, I think,
based on what you spent last year and whether or
not there any procedures you already have planned that are
(10:59):
in the works. And some folks they even batch bigger
health needs into a specific year while they're on let's
say a lower deductible plan, and then they move to
a higher deductible plan in years where they're less likely
to need care, which is I think a solid planning option.
If you're saying, listen, I know I've got this major surgery,
and my spouse has this other thing going up, my
kid needs to get their tonsils removed. Let's go for
(11:20):
the lower deductible plan in twenty twenty six, and then
twenty twenty seven, hopefully most of our major surgeries are
over with boom, Like, we're going to go back to
the high deductible plan, try to save more money. But
the total costs we're talking about here is premiums, it's
your potential deductible, it's copays, and it's also really important
to know what your out of pocket max is as well.
I think those are really kind of the crucial moving
parts we've got a factor in, Yeah, the overall costs,
(11:42):
because if you just go simply seeking lower premiums, well
that's often going to mean higher deductibles. So also take
into account how much cash, how much money you have
in savings, whether or not you can go with a
plan like that if you have some more healthcare expenses
next year, Joel, you mentioned copay costs as well. Those
really can add up, so make sure you are aware
of that if you do go and see the doctor regularly.
(12:04):
And it's yeah, And Brian he mentioned specifically looking into
the doctors that he has making sure that they accept
the new health insurance as well. It may not be
worth it for you. So you get you're a family
of five, right, If you have to go and find
a new pediatrician, if you have to find a new
doctor for you, if your wife or your partner, if
they need to go find a new doctor as well,
(12:26):
it might be a massive headache. But that being said,
I don't know. Maybe extreme time situations call for extreme
measures here and the ability to save an extreme amount
of money. Yeah, yeah, And so I don't want the
default to be like, well, yeah, obviously make sure because
that's just presupposing that he's not going to make a
big change like that. And I actually want to introduce
the idea that hey, maybe it's worth doing something completely
(12:49):
different in order to save some money here. Yeah maybe,
but you might with three kids, you're attached to the physician.
I mean, I remember Matt when we moved the one
of the hardest parts about leaving where we lived was
how much we loved the pediatrician where we were, and
we just not to throw shade, but we haven't found
a great pediatrician where we are now. It's just okay, yeah,
(13:10):
and we miss the old and we're like, we even
think about do we go back and just drive forty
five minutes to go see a pediatrician. Maybe you can.
And so if you if you feel that attached and
you're like, huh, well my pediatrician who we love, you know,
doesn't take this new healthcare coverage, doesn't doesn't take this plan,
well I get how that's going to help sway your decision,
and you might be like, not worth the savings if
(13:32):
we can't see that person again. And yeah, you got
a factor in prescriptions too, because if there are any
regular prescriptions that you'd want to you know, that you take,
you'd want to see how much those are going to
cost underneath this new plan as well. Although depending on
what you take, especially if it's an older generic, you
might actually save a lot of money by not going
through insurance and using a site that we've mentioned before
(13:53):
like cost plus Drugs. Good Rx is another good place.
So don't necessarily think you have to go through insurance
to save money on prescriptions. You might save more not
going through insurance. We'd also love to see you on
an HSA eligible high deductible health care plan if it
makes sense for your overall health care costs. Don't let
the tail wag the dog here, but if a high
(14:14):
deductible health care plan is ideal from that total cost
perspective that we're discussing, it'll mean you can utilize an
HSA two, which can just be another way to save
money on healthcare because it reduces your taxes for the
current year and it allows you to grow those dollars
for your future too. Your employer they might be generous
enough to even offer an HSA match. We have heard
(14:35):
from many listeners who have that as a benefit where
they work. That sweetens the pot. We're seeing more of
this and we love it. But just take that into
consideration as well, because there are additional perks with the
high deductible healthcare plan. You save on premiums, you have
access to the HSA. Still, that doesn't mean it's always
the best choice for everyone. Yeah. Yeah, And Brian, he's
(14:56):
talking about saving twelve hundred bucks here. But kind of
piggybacking off of the taking more extreme measures. I've got
to bring up health sharing plans because if you are
interested in saving, what I would say is the most
extreme amount of money trol. So I logged into our
state's healthcare exchange, so healthcare dot gov, or if you
(15:17):
live in a state where healthcare dot gov no longer
works because the state exchanges took over, check that out.
But I logged in there and guess what our family
of six monthly cost was going to be. I'm gonna
guess for a bronze plan for the cheapest. Okay, I'm
gonna guess like twenty three thousand monthly, So I'm me
eight nineteen hundred, twenty five hundred dollars wow a month?
(15:38):
Okay a month? Yeah, versus three hundred and seventy four
dollars a month, which is what we're paying here. This
is the difference between oh, paying over thirty thousand dollars
over the course of a year and versus six. And
that's you're not talking about a gold plan, No, this
was like prices you might be able to get a
plan starting at and it said that I could not
believe it, and by the way, when I said six
(15:58):
thousand dollars, that's not only the quote unquote premium that
I'm paying towards the health sharing but also that also
includes our out of pocket costs. So we spent a
little over six thousand dollars total last year. Yeah, and
you're probably thinking, all, yeah, I know how you are,
with like not ever going to see the doctor last
year was actually we had several doctor's visits out of
(16:19):
which is yeah, you have to take that rational a
few times kind of out of the ordinary for us.
So I'm just highlighting that if you are looking to
save the absolute most amount of money, you've got to
look into health sharing. And not all of them are
are are religious, are faith based either Sidera, So you
and I both both of us families are with Meta Share,
but Sidara is a great option as well, where there's
(16:41):
a whole lot of folks who are served well yea
via that organization. The problem is, it's really hard when
you're offered a Cadillac health insurance plan through your work,
the premiums are highly subsidized. It's tough to think about
saying none of the above and going getting your own
health sharing plan. I think it. They typically make the
most sense for self employee people, right who don't have
access to any sort of health coverage to work, or
(17:02):
if you're if maybe you're employed by an employer who says, yeah,
we don't you're kind of your own. Yeah, but like
we don't really subsize the premiums very much, and you're
feeling more of that healthcare dot Gov sort of slap
in the face where you're faced with paying the bulk
of the premiums yourself exactly. But even assuming the average
American where it's okay, say twenty seven thousand employers covering twenty,
(17:24):
you're covering six. I paid six total last year, not
just in the cost of health care, but also in
out of pockets what I call in my excel sheet
medical out of pocket costs. Yeah. Uh, and so you're
still looking at saving a few thousand dollars right there,
assuming uh, you know, a healthier year. But that's something
else you got to keep in mind too, because if
(17:44):
you do use the doctor a whole lot, if you've
got a whole lot of procedures lined up, if you've
got different you know, regular visits that you need to
go in and get things checked in on that's probably
not going to work out for you quite as well. Yeah,
So I think what we're ultimately saying here to Brian
is to, yeah, look at that over all out of
pocket costs and say, is it word jumping through these hoops?
And am I gonna have to give up too much
(18:05):
in order to save the twelve hundred bucks? Or is man?
I'm still getting everything that I really value. Maybe a
couple things are gone, but I don't really care about
those things or use those things anyway. And yeah, it's
really it's partly math, but it's partly kind of lifestyle
and what you care about when it comes to your
healthcare coverage. But twelve hundred bucks, that's not chump change.
(18:27):
It's potentially worth jumping through some of those hoops in
order to save that much money every year. All Right,
We've got more questions to get to. We'll get theoretical
about buy now, pay later, and we'll also man that
classic personal finance question of investing or paying down debt.
We've got a good question on that front. We'll get
to those and more right after this. All right, buddy,
(18:52):
we are back from the break. Let's now hear from
a listener who has a hypothetical discount question for.
Speaker 3 (18:59):
Us, again from Philadelphia, calling in with yet another question.
This question pertains to buy now and pay later services. Now,
I would like to preface this with I have never
in my life used or even considered to use any
of these services. And I say that just to cover myself,
(19:19):
because I know your views of them are fairly negative.
And I understand that and mostly agree that. Said, I
had a thought experiment. I thought you might want to
indulge me in it. What if to attract more people
to use buy now and pay later services and to
get them used to using them in general, they started
(19:40):
offering large discounts on the items that you were purchasing.
Figure something along the lines of ten twenty thirty percent off.
Would something like that move the needle on how you
felt about buy now pay later services? If your answer
is no, I would be curious if there's anything these
buy now now, pay later services could do to interest
(20:02):
you in using them. For instance, even a larger discount,
let's say eighty percent off just to be ridiculous, or
perhaps some other kind of bonus that I can't think of.
Is there anything that would get you interested in doing this,
and I promise I don't work for these companies and
I'm trying to trick you into using the services and
or becoming an advertiser for them by now pay later services.
(20:22):
Can they be made into something that the how the
money guys would approve of? What do you say, man,
Jil can you fix it? As always? Best? Wayne out?
Speaker 1 (20:32):
Inside man for Klarna? Wayne, not cool? Wayne, we know
what you're doing now, Matt, I could if there was
a gun to your head, would you use a buy now,
Pay later service? If it was existential life or death? Yeah? Okay,
that's not wouldn't be the end of the world. Okay, Yeah,
I agree, I agree. So they're they're Wayne, that's the answer.
If Matt were faced, Well, a lot of it does
come down to the discount, so that it comes down
(20:54):
to the particulars. So I mean, I'm glad that Wayne's
avoided them so far, but I think the shortening it
truly is yes, like not even goin to my head
sort of situation. And I think what Wayne is really
putting his finger on the heart of why we're not
fans of buy now, Pay later if there were discounts
involved for using buy now pay Later, I'd be more
(21:14):
than happy to consider using them. I actually did, and
I think I talked about this on the show. I
used by Now Pay Later one time, and it was
because I got a meaningful discount on some running shoes.
I don't I don't remember if it was like, do
you buy anything else other than running shoes? No, not really.
I just ripped through on so fast, though, but it
was I was like, I'll just go buy these shoes
are a good price here, And then there was I
(21:36):
think it was like fifty bucks off one hundred and
fifty bucks for using Clara, and I was like, I'll
just get another pair of shoes. I stick them on
the top of my closet mat in a row, and
then I just like pull down the next pair when
I need it. But yeah, I was like, well, if
they're gonna offer me fifty bucks off, then I'm happy.
I'm happy to use by Now pay Later. And then
I just didn't use it, Like by Now Pay Later.
I immediately paid off the loan or whatever they call
(21:56):
it in order to avoid the behavioral trap because I
just don't want to be caught in that sort of
like I've got how many outstanding loans do I have?
And am I being tempted to buy things I wouldn't
otherwise buy? But yeah, if there was like a ten
or twenty percent off perk for using buy now, Pay later,
I'd probably use it a lot more. Yeah, you know.
Like so occasionally folks will reach out to us to
say that, well, credit cards, they're not much better than
(22:17):
buy not pay later, Like you are still using debt
to purchase something that you don't have the money for
at the time, And that's that's kind of true. But
I think I would say that if that is how
you are actually using your credit cards, and if that
is how you are using your buy now, pay later,
well then that's not something I'm happy with, right, that's
not happy with you, I'm not because if that if
you don't have the cash on like you need to
(22:38):
have the cash on hand if you are going to
use these methods of payment, it doesn't matter if it's
a credit card or if it's a buy now, Pay later,
like that is the like you must have that ticket
in order to ride Like that is like we're trying
to raise the standard here, We're trying to raise the bar,
like the cash on hand that is your license to
be able to play this game. Otherwise then it's too
slippery of a slope. Otherwise we don't once you messing
(23:01):
with it at all. And so if okay, then if
they are the same, You got the cash on hand,
why would you then go with a credit card over
the buy not pay later? And it does come down
to the perks, going back to what you're saying as
far as getting the discount, you were saying, like, maybe
get like ten or twenty percent off, like truly, if
like I would do it for like five percent off? Yeah,
because because that's roughly what a credit card. Yeah, because
(23:23):
I'm getting anywhere between two percent and six percent off
with my credit cards. If there is a buy not
Pay later. And this is me maybe wishing this out
into existence, but if there was a a buy now,
Pay later that was willing to offer five percent off
just across the board in order to use their products,
guess what I would do it. I would get in there,
I'd figure out how to incorporate that into my financial system,
(23:44):
into my Excel spreadsheets to spread that out over the
four months. But actually probably wouldn't do that. I'll probably
just like i'd do with a credit card. I would
pay it off at the end of the month, snag
the discount, and I would probably stop using credit cards.
Although that being said, there are other perks as well
that the credit cards offered, right, not just the discount,
but I think I would consider it like the buyer
protections and how if someone steals your credit card. Wouldn't
(24:05):
rent a card, I'm sorry, I wouldn't rent a vehicle
with buy not pay later. Yeah, and some of these
other flight and some of these other perks that maybe
we can touch on. But as far as just general spending,
I think I do it even for five percent, not
even you don't even need a tune me with eighty percent,
because you're so What you're really getting at the heart
at is that credit cards offer meaningful protections and benefits
(24:28):
when you use them. The only thing that buy now,
pay later offers. The only perk you get is you
get to pay that item off over a longer period
of time. And so what that leads to for so
many people, What that has led to for so many
is poor behavioral and financial results, which have been well documented.
People spend more on average when they have the ability
to use buy now, pay later Klarna or afterpay or
(24:50):
whatever at checkout, and it's it's just one of the
reasons to be wary when you see those statistics that
that's why retailers want to do business with buy now,
pay later companies because they know that when they make
that available at checkout, people will buy more stuff, they
will add more things to their card, it will juice
their sales. And you could, you know, argue that tapping
your credit card to pay insulates you from maybe some
(25:12):
of the pain and friction of buying too. And yes
that I think that can be true for lots of folks.
But the goal of using a credit card it's not
just to mitigate the pain of purchases. That's but that
is the whole essential use case and reason for existence
to buy now, pay later companies to mitigate friction. And
you know, there are important consumer protections alongside these rewards
(25:34):
that I think and boosting your credit score by now
pay later doesn't do that. Credit cards do help do that.
I think there's so many Even though credit cards have
their downsides, there are so many potential positives for using
them if you use them effectively. There just really aren't
any for buy not pay later yeah, thinking about the
friction lists, I'm assuming are there apps on your phone
(25:54):
or can you put Klarna or the different buy now
pay later companies in your wallet? Right, because I like,
I've been thinking about it recently and the fact that
I can double click and pay and then the little
transaction device, the clover or the square pay or whatever
like when they has it, when it's got the little
when it's got the little ding like the little chime.
(26:14):
There's something about that that makes it so satisfying. And
I think I've mentioned this before, but I've since that,
since I've mentioned it previously, I've been thinking about that
because it used to be what with a chip You
stick it in there and it would make this terrible
sound like that, Yeah, and it made what does that reinforce?
It makes it seem like you did something wrong, as
opposed to they completely change the user interface of it.
(26:38):
Now it's like this nice little congratulations you have been approved.
You did it. I think I was half the reason
they invented. It's a nice technology. It's a nice pat
on the back. And I think that's the friction. Whereas honestly,
I think credit cards feel a little more dangerous because
of the fact that we can use them in Apple
Pay or the Google Pay and the wallets as opposed
(26:58):
to because when you're sitting down at a computer clicking
the uh, the four easy installments, the four that doesn't
seem any more difficult to me than the fact that
you've got a credit card auto saved in there, right,
But the in personness of that sort of physical response
that a device does to you when you purchase something
that to me almost puts credit cards back on my radar.
(27:18):
As far as the payment method, that might be a
bit more nefarious right now. Yeah, yeah, Well we talked
about this with Jason Gorski a while back, right when
he professor who writes about the power of cash, And
I do think they're again like kind of what you're
getting at is the insertion took a few seconds, was
kind of annoying. The tapping makes it then the awful buzz, Yeah,
(27:40):
it makes it super easy and you feel like you're
breezing through the line. And I think that is actually
a downside making it really easy to use credit cardslet
physically parting with the cash that's right hand, that's right.
So we have to be careful about how we're paying
what we're getting used to, how we're reconciling our books
and looking at our spending at the end of the month.
And if by now pay later works for you, you're
(28:03):
using it in a really intentional manner and you're not
overspending using those services, then by all means like you
do you. But I just think the whole way they're
designed is essentially to get people to spend in ways
the otherwise wouldn't, to become even more of a consumer.
And I think those incentives have really gotten the best
(28:25):
of a lot of people. Speaking of paying with cash,
did you notice the old lady who was paying for
her coffee with cash this morning? No, And she was
a little confused about the price, and he's like, oh, no,
we actually round down when you pay with cash, so
he didn't say the precise amount. But I was like,
oh my gosh, that's right. Yeah, because when you pay
with card, they charge you that service feed That's true. Yeah,
(28:45):
but yeah, fascinating how that has an impact on how
it is we consume, though, Joel, let's hear from a
listener who is trying to right her former wrongs.
Speaker 4 (28:53):
I met and Joel, This is Kelsey from Colorado, springs.
Love your podcast, and I have a question regarding investing
for four one K wrath Ira and brokerage accounts first
paying our debt and saving. So for context, my first job,
I wasn't making a bunch was my first job, and
(29:14):
so I was investing fifteen to twenty percent of that
those still in my four to one K and putting
five hundred lives a month into maxing out my roth
IRA as well. I was young and naive and strut
for money, took out some loans trying to pay those off,
(29:36):
still in there about eighteen percent wracked up credit card debt.
Have since been paying those off, but just curious your
thoughts on whether I continue putting into my four one
K and roth first, maybe pausing those for a little bit,
just so that I can get my auto and other
(30:00):
signature loans paid off for contacts. I have about ninety
thousand dollars in my roth IRA, about eight thousand dollars
in savings, but have about twenty five thousand dollars in debt.
So just trying to figure out how I can navigate
(30:20):
this thought I was doing the right thing, but now
in a little bit of a financial picko, which ironically
feels like it came from investing so much so any
insight is super helpful. Looking to buy a house within
the next two years or so, and just wanting to
make sure I'm handling my money here on out in
the right way. Love your podcast, Love what you guys
(30:41):
are doing.
Speaker 1 (30:42):
Thanks, Oh man, I'm so glad Kelsey said this question
largely because it's like one of those point essential personal
finance questions that people will have, the investing first, debt
payoff question, And there's never just like a right or
wrong yes or no answer to this either, never completely straightforward,
and the answer really depends on a number of factors.
(31:05):
Despite the credit card debt and the loans that Kelsey
has taken out, which aren't our fave, I think we
should also just say congrats to her for all she's
been able to do saving for her future. She's got
ninety thousand dollars in a roth iray. Yeah, that in particular,
that's pretty solid. That's solid, man, And that's going to
grow to be a much larger amount over time thanks
to compounding returns. And those are that they'll never be taxed,
(31:27):
which is one of our favorite things about the roth
Ira that's all your money tax free in the future,
which is a beautiful thing. Also, Matt, do you want
to highlight how you did something Oh, very similar to
what Kelsey did by investing. I heard I heard too early.
I heard in Kelsey's voice, She's just like, then this happened.
Don't feel bad about it. I mean, I don't know.
(31:48):
Is it like a rite of passage that there are
there's a certain subset of us make this mistake. But
like you, I heard the glories of compounding. I had
some friends who were a little bit older, and I
was like, oh man, they're already investing. I need I
got to get investing as well. You were O old
twenty three okay, yeah, which is or twenty two very young,
because the average person doesn't start investing till like what
like like thirty times. I don't even know. But I
(32:10):
just knew that I wanted to invest. I hadn't been,
and so I had I had ground to makeup drill.
That's basically where I saw myself. And but what I
didn't do was have money in the bank, and so
I was investing. Again. I didn't have nearly as much
as Kelsey, but I found myself in a tight spot,
and instead of relying on debt, I actually pulled those
(32:30):
contributions out, which probably ended up costing me more money
because the market was down a little bit and I
was investing in mutual funds that were very expensive, and
so it was like a double waymy I learned that
lesson there early on. Next to learn it early though, Yeah, yeah,
oh yeah, you learned the lessons with like one or
two zeros at the end of it, as opposed to
like three or four. Yeah. But we're gonna talk about
(32:52):
the money gears here, Kelsey, because when you go through
the money gears, which by the way, you can find
up on the website it had to money dot com
forward slash start here. But you will see that paying
off high interest debt that is gear number three. It's
just after getting your four one K match. It's just
after saving up the basic emergency fund. But then after
(33:12):
that credit card debt or other debts with double digit
interest rates, that should be your top focus. And that
is because you are unlikely to see higher returns from
the market were you to invest those dollars. And so
the thinking goes like, why not get the guaranteed return
along with the peace of mind of not having that
debt in your life anymore. Yeah, yeah, yeah, and I'm
(33:34):
with you on that. I mean, I think for a
little while, probably the best way for Kelsey to proceed
is to suspend any contributions she might be making to
her wroth IRA. Yeah. And normally, Matt, we're not telling people,
don't contribute to your wroth IRA, but the truth is,
if you're doing it out of order, Yeah, for a
little while, you do need to stop that. We say,
(33:55):
keep getting them four one K match at work if
you have one, but don't contribute beyond that either. And this,
if you do both of those things, stop contribute to
your roth. Contribute less to your four one k only
up to the match that allows you to claw back
more cash flow to work towards debt, payoff a heck
of a lot more quickly. Every other dollar basically that
you can afford to part with each month it should
(34:16):
be funneled then towards the credit card debt and the
eighteen percent loan that you mentioned. You know, hopefully, hopefully
that hyper focus is going to allow you to eradicate
those debts more quickly, get them completely out of your life,
because after that, that's when you can resume investing for
your future and you'll have even more money for that
purpose with less debt lingering in your life. But sometimes Matt, like,
(34:37):
trying to do all those things at once feels like
spinning a bunch of plates, and it can feel like
it's so easy to lose one, and then you lose
them all. They all come crashing down to the ground.
Drop them. Plant's. Yeah, that's where the hyper focus comes in,
especially when you have higher interest rate debt. It's like,
just let's go all in on that. Put the other
stuff to the side for now. You can get back
to it soon. Yeah. Well, aside from like that eighteen
percent loan that she mentioned, which so she mentioned her
(34:59):
car loan, and I'm guess seeing that that car loan
is not as offensive as maybe some of her credit
card debt or that eight percent loan that she took out,
So I hope. So, I imagine you're right, medium or
even low interest rate debt is worth addressing here, and
that is money gear number six. It is further on
down the line, and that's because there are just more
productive things that you can be doing with your money.
(35:21):
You don't have to forsake investing until you are completely
debt free. We ideally want all the how to money
listeners out there to not have a car loan. But
if you've already got one in your life and you're
making this a binary choice, I would love to see
you paying off a bit more slowly while also investing.
Like I think about too over the most recent years,
like this isn't the best decision right for her to
(35:42):
be investing aggressively while keeping some of the really high
rate debt around like the credit cards as as well.
But it's also not the worst outcome because of what
the market has done over the past few years. But
the thing is is that is not guaranteed to continue. Yeah,
you looked to last year and you're looking at twenty
five percent returns, but in the year before that too,
But you go one more year Joel to twenty twenty two,
(36:04):
and things weren't looking so great, sure, and so you
can't count on that continuing, even though you're not in
the most terrible position given what you have done over
the past few years. But what you are playing with
fire right when you yes it is to keep it
is risky, you know. Eighteen twenty something percent interest rate
debt around in your life for longer than you need to. Man,
(36:25):
I always I hear people sometimes talk to me about
credit card debt as though it's not a big deal.
I've got six eight, ten thousand dollars hanging out and yeah,
I have the cash to pay it off. But you know,
I'm just I'll get around to it, and like, nothing
bothers me more than that. I you know, I don't
like to give unsolicited advice. We give advice here because
(36:47):
it's solicited. People are asking questions, but it's not financial advice,
by the way, This is just for fun. But when
those people like come up and say that to me,
I mean, it bothers me so much, even though I
don't want to offer my advice. But like, but what
you want to say is what are you doing with
your life right? Exactly? What do you think? It is
a big problem and there aren't many better things you
could be doing with your money than paying that debt
(37:08):
down as quickly as possible. Is it just interesting though, too,
that Kelsey did invest so aggressively though, because that's the thing.
I think most folks who are kind of like I
don't know, I'll take care of that at some point.
They're also I'm guessing not typically the folks who are
funneling dollars like it's their like it's their job into
the wroth, which it sounds like Kelsey has. Yeah, she's
got way more in her wrath, by the way, than
I did when I had to tap my tap my contributions.
(37:31):
When when I found myself in that cash pinch, we
should we should out for it. Maybe a last little
piece of advice here for Kelsey, and I just want
to note that she's got money in savings, she's also
gotten money in WROTH contributions that are accessible, and she
could use either one of those or both to pay
down her debt more quickly. But I would say, in
all likelihood she shouldn't. And that's because you know, while
(37:53):
WROTH contributions they are accessible without paying tax or penalty,
you can never get those dollars back into the wroth
right because of annual contribution limits, and you're interrupting the
compounding of those dollars. But it can also, I think,
create this unhealthy relationship with your retirement accounts that we
want to prevent where we're seeing more and more Americans
feeling like they can take money out of their retirement
(38:13):
account because of changes to the law and just wanting
it to make it easy and not pinch their lifestyle.
They're taking money from their four to one case, and
that to me is a red flag. We see people
going back to the well multiple times to their retirement
accounts when they shouldn't. It would also be much better
to invest less, to be more frugal, and to pay
(38:34):
down those debts quickly with cash flow that you have.
I think that's the proper relationship. You want to this debt,
like get rid of it quickly, but don't necessarily pull
money from your investments to do so well. And she
also doesn't want to completely deplete her liquid savings on
hand in case she finds herself again cash strapped off
in the future to where she feels forced to draw
on retirement contributions. And specifically she said eight thousand dollars
(38:59):
is what she has on hand in cash, and that's
not a ton. I mean it's great, it's a great start,
but after you pay off that high interest rate debt
again just heading cruising down down those money gears, I'd
be looking to beef that up to three to six
months worth of living expenses, and I'm guessing that's probably
for you. It sounds like she might be single. She
didn't mention a family, but I'm guessing for her that's
(39:20):
probably like a couple months worth of living expenses. But
then beyond that, I would even want to want to
see something even a bit more robust than what she's
currently got. Agreed, But Kelsey, you got this one step
at a time. We know you get rid of that
debt and you'll get back to investing in no time.
All right, mat we got more questions to get to.
Let's talk about how closing a credit card impacts your credit.
We'll get to that more right after this. All right, buddy,
(39:49):
we are back from the break. It is now time
for the Facebook question of the Week, which is from
an anonymous poster who writes the guys that would be
You'd me Jeal. The guys have mentioned multiple times how
closing a credit card can cause a dip in your
credit score, especially if that is your longest active credit line.
I have an opportunity to pay off my mortgage only
(40:09):
current outstanding debts, and I use my credit card more
like a debit card and pay it off weekly. With
paying off my mortgage and essentially closing out that line
of credit hurt my credit score, particularly if I am
looking at investing in other real estate in the next
two years. Yeah, which you think, jo'l. That's a great question.
Help this poster to understand. And this is one of
(40:29):
those non basic personal finance questions where you're getting a
little bit further into the weeds about how your credit
score is constructed. But I'm glad people are asking this
question because all this stuff matters, right, And Yeah, paying
that close of attention to your credit score, how the
credit scoring system works, shows a high level of personal
finance acuity. And it's typically, by the way, why we
(40:52):
don't recommend people close a credit card accounts, because if
you can avoid it, it's actually going to help boost
your credit scord if you keep that credit card active
in your credit mix. If it doesn't have an annual fee,
just use it less. And if it does have an
annual fee, maybe ask your credit card company if you
can downgrade to a card that doesn't have one. That
way you kind of get the best of both worlds.
But I just want to maybe highlight the credit card
(41:14):
thing map before we get to this mortgaging, because that's
a question that gets asked even more frequently, and it's
why we typically recommend people, Hey, we want you to
keep your credit score robust. Closing the card could do
the opposite, it's a more more typical example. But you
can't do that with your mortgage. And so if your
mortgage is winding down, which is a great thing, you
can't really stop that process, no, nor would you want to, right,
(41:36):
And so, yeah, paying off your mortgage it will ding
your credit score, which sounds kind of ridiculous, but it's true.
The fact that you now completely outright own this home. Yeah,
that's actually gonna hurt your credit score. That's one of
those counterintuitive realities of the credit scoring system that people
are just like, I what in the world you pay
off debt and it takes your score down a peg
(41:56):
like that. It's so counterintuitive, and it's kind of frustrating
as an individual consumer, to be honest. Yeah, And in
part not only because this is the longest line essentially
a line of credit where you've you know, you have
a history here of making payments, but also because of
the type. Right, So this is an installment loan that
you're paying off, and I'm guessing based on the way
this person is posting that they don't have any other
(42:17):
installment loans. Well they said, they said they don't have
any other debt, so it's not like they have student loans,
or it's not like they have a car payment where
they're paying that on a regular basis, which, by the way,
are great things from a personal finance standpoint, but from
a perfect credit score standpoint, not the best, not ideal.
I do want to highlight here though, that they wrote
I have an opportunity to pay off my mortgage, which
(42:40):
tells me that it's optional. Like I wonder if they
came in they got a bonus at work, or maybe
they inherited some money and they're thinking, oh, I want
to do something smart with this money. I'm going to
pay off the house. I have the opportunity to pay
this thing off ten years early. I should be jumping
at this opportunity. And I would say, let an opportunity
continue knock and don't answer that door, because I'm as
(43:04):
if you've had this loan for this mortgage for a while,
or if you like, let's see you refinanced ten fifteen
years ago, you've got this thing locked in. I'm guessing
at a really low rate. And again, there are just
better things, more optimal things that you can do with
those dollars than eliminate a three percent mortgage. Yeah, agreed,
saving and investing and you used to saving would not
outpace your mortgage rate. But it still does right now.
(43:27):
Until the Fed lowers interstrates even more and savers get
dinged even harder. The chances are, if you're in a
high held savings account with one of our favorite online banks,
that you're outpacing your mortgage rate. By the way, if
you do decide to pay off this mortgage, it shouldn't
negatively impact your ability to invest in more in real
estate and to get the best rates in the coming years.
Typically that yeah, getting rid of that line of credit
(43:51):
from your credit mix not ideal from a credit score perspective.
But if you have a great score, yeah, you'll see
a ding for a while, maybe for a few months,
but without the primary mortgage, you're gonna have tons of
cash flow to save up for a down payment for
those investment properties, and your credit score is going to
have more of like a short lived impact, negative impact,
and I think it'll bounce back pretty quickly. I doubt
(44:13):
it'll still be dinged after a couple of years. Yeah, agreed.
And even if it, even if it is still down
ten to fifteen points, if you have a really high
credit score to begin with, it doesn't matter. You're still
going to be able to qualify for the best rates
in terms. All right, you know what, Let's do another
one here real quick. Another anonymous poster. Hi trying to
learn here. I keep seeing that people should be investing
at least fifteen percent of their earnings. I think this
(44:34):
is the last money wheel. Does this include or not
include money you already put into your four oh one
k money wheel? Obviously we a man man, we're doing
a bad branding job. Money gear. It's the money gears
money years. And the reason we call it the money
years is because we like biking and we're like just
thinking about oh seven gears on the bike. When you're
(44:55):
first getting started, you start off on year one and
then before you got to gain some speed before you
ramp it up. That's right before you shift gears. So, yeah,
does this include four one K dollars? Though? Joel the
fifteen percent? Well, the answer the answer is simple here,
we're all about your savings rate being a minimum of
fifteen percent of your gross income. But gross income includes
your four one K right, so yes, yes, and so
(45:16):
we count investing and we count debt payoff in your
savings rate. So whether you're paying off credit card debt
or you are putting more money towards four on and
K roth I right, those are all included, we would
say in your your savings rate, what's known as your
savings rate. Part of the reason is because you're not
spending that money the others because if you had to
go into liquid savings at some point in the not
(45:37):
so distant future, you'd have way too much allocated to cash.
You'd be really imbalanced, right if like all of your
savings rate went straight into to a savings account. But
isn't that that's an investing question though, right, Well, versus
a percentage savings rate should go to saving, investing, paying
down debt, that's another question. And it's highly specific. But
(45:57):
you like diving into these details more than I do.
Like some of this. I like it makes me think
about like when you weigh yourself, Like some people are like, no, no,
you gotta weigh yourself first thing in the morning. And
some folks were like, no, I like to do it
at night before I get before I jump in the shower.
Or some folks they strip down and they're totally naked,
and some folks are like, ah, I just war my clothes.
Joel always wears his cutof geen shorts, though he never
(46:17):
takes those off. Yeah, like Cobias Chunky. I mean the
way I think about it, as long as you are
consistent with like however it is you're you are calculating
your savings rate over time, As long as you stick
with that, I think that's the biggest thing, especially if
early retirement is a goal of yours, to you know,
slowly but surely ratchet that thing up. I guess I
just worry that some of the basic personal finance advice
(46:39):
to the years has really told people, yeah, save ten
percent of your income, and we've and we set the
bar so low. Granted a lot of Americans not even
hitting that savings rate. And yeah, but if you set
the bar so low and you don't really help people
understand how much a higher savings rate can impact their
ability to attain financial freedom, then maybe we're letting people.
We're not helping people realize what they can build for themselves,
(47:02):
the piece out money they can amass, and the optionality
they're able to find in the not so distant future
if we say, you know, if we keep the savings
right ideal too low, or we make it sound like
it's not as important. So yeah, I guess that's where
I think it is important. But I think you're probably
right to Matt. People obsessed over it kind of as
far as the semantics way, they find Yeah, I'm less
interested in that, And I think maybe what they're saying
(47:23):
too is like, hey, my gross income and with that's
what you address there, right, Does it include the four
win k dollars? It's not just your take home pay
and you investing on your own within an IRA and
within a brokerage account. The four one k totally counts.
There are going to be so many four one k
millionaires in the next ten twenty thirty years because of
the fact that folks have been auto enrolled. They're going
to be doing that like clockwork. The behavioral aspect of
(47:45):
it is just firing on all cylinders, and yeah, they're
going to be hopefully set up quite well for retirement.
I think this poster will too, if they maintain it
at least fifteen percent savings, right, which I think is
the floor that most people should be striving for. All right, matt,
Le's get back to the beer we had on this episode.
This was an athletic brewing company upside down, Golden Ale
(48:05):
upside don. An athletic, of course, is the heavy hitter
in the ina beer space or your thoughts on this
one the non alcoholic beer space. Yeah, you know what
I thought of. So we're not vegan, but it makes
me think of the fact that it's harder to cook.
I think vegan meals that taste really good.
Speaker 2 (48:24):
M hm.
Speaker 1 (48:25):
And I think the same as tree when it comes
to alcohol in beers, right, Like it's you're just working
with less and it makes it tricky, like if you're
not including butter or something like. There's just a depth
and a richness that comes with that. And which is
what's funny is I actually saw in here that it
says this is vegan, So I thought I was gonna
have like a food analogy, but in fact, this is
(48:46):
a vegan beer. But I think if you think of
this less as a beer and more as a different
type of drink or a different type of beverage, then
I can get behind it. Right. If I think of
this as like a multi multi hopwater, then I'm like, oh, yeah,
that was that was pretty good multi hop water. That's
a really good way to describe it, as opposed to
thinking of it as an actual beer. All that craft beer.
All I can think while drinking this for the first
(49:08):
half of the show was so watery but barely beer flavored.
And then I had Yeah, I just had to reorient
my mind to be like, this is this isn't craft beer. Yeah,
so if you think of it as a craft in
a beer, which is not really the same thing, Yeah,
it's a different category. So if I put this more
in the category of seltzer, oh okay, I could totally
see myself opting for this over a lime seltzer from Aldi. Ah.
(49:33):
Thought that would be a whole lot more affordable. Go
with the seltzer. But that being said, it's still got
those flavor profiles and I still really enjoyed it. Still
really liked to notice here on the can that Athletic
they restore They give up to two million every year
to help restore local trails. Okay, that's something you can
get behind right. Sure, yeah, I like that makes me.
(49:54):
I don't think I ever had an Oduel's like your
uncles in a beer. This has got to be better,
I'm pretty sure I've I don't know something would be
so long. I know that this is better. This has
to be way better. I'm not even going to mention
the fact that this has reminds me of lot Duels
back when I was twenty years old, and it doesn't
because I never had it, but my goodness, this has
to supersed it by a long, a long way. Yeah,
(50:14):
either way, glad that you and I got to share
it today. You can find show notes up on the
website at Howdymoney dot com and that's gonna be get money.
So until next time, best friends Out, Best Friends Out,
Hosts And Creators
Joel Larsgaard
Matthew Altmix
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Ruthie's Table 4
For more than 30 years The River Cafe in London, has been the home-from-home of artists, architects, designers, actors, collectors, writers, activists, and politicians. Michael Caine, Glenn Close, JJ Abrams, Steve McQueen, Victoria and David Beckham, and Lily Allen, are just some of the people who love to call The River Cafe home. On River Cafe Table 4, Rogers sits down with her customers—who have become friends—to talk about food memories. Table 4 explores how food impacts every aspect of our lives. “Foods is politics, food is cultural, food is how you express love, food is about your heritage, it defines who you and who you want to be,” says Rogers. Each week, Rogers invites her guest to reminisce about family suppers and first dates, what they cook, how they eat when performing, the restaurants they choose, and what food they seek when they need comfort. And to punctuate each episode of Table 4, guests such as Ralph Fiennes, Emily Blunt, and Alfonso Cuarón, read their favourite recipe from one of the best-selling River Cafe cookbooks. Table 4 itself, is situated near The River Cafe’s open kitchen, close to the bright pink wood-fired oven and next to the glossy yellow pass, where Ruthie oversees the restaurant. You are invited to take a seat at this intimate table and join the conversation. For more information, recipes, and ingredients, go to https://shoptherivercafe.co.uk/ Web: https://rivercafe.co.uk/ Instagram: www.instagram.com/therivercafelondon/ Facebook: https://en-gb.facebook.com/therivercafelondon/ For more podcasts from iHeartRadio, visit the iheartradio app, apple podcasts, or wherever you listen to your favorite shows. Learn more about your ad-choices at https://www.iheartpodcastnetwork.com
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com