We’re kicking off the week by answering your listener questions! And if you have a question that you’d like for us to answer on the show, we’d love for you to submit your own via HowToMoney.com/ask , send us your voice memo. Regardless of how random or bizarre you might think it is, we want to hear it!
1 - How much cash should I keep liquid as I’m looking to renovate my home and pay off student loans?
2 - Are medical expenses incurred by my family members reimbursable via my health savings account, decades into the future?
3 - As a recent divorcee, should I use my emergency fund or a maturing CD to eliminate my credit card debt?
4 - Should I be concerned that my bank received a “negative outlook” by Moody’s?
5 - I’m getting my MBA and am wondering if I should save up those tuition dollars in a 529 account or my high yield savings?
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to Out of Money. I'm Joel, I'm Matt.
Speaker 2 (00:02):
Today we're answering your listener questions.
Speaker 1 (00:24):
That's right, We've got a listener question episode lined up
for you on this beautiful Monday, and we've got five.
Like always, we've got five listener questions to get to
a letten.
Speaker 2 (00:34):
Me terrible weather, by the way, where our listeners are. Matt,
you have no idea that is true. It's nice here,
it's beautiful here though so a little little hot still,
it's a little warm.
Speaker 1 (00:42):
She's got student loans and she's trying to figure out
how much money to keep on hand, how much liquidity
while also paying down those student loans. We'll get to
her question. We're going to cover a five twenty nine
strategy for adults for adult learners. All adults should be learners,
but if you're looking to go back to school, and
we're going to talk about that lifelong learning is important.
And another listener he's worried about the He's wondering maybe
(01:06):
if he should be worried about some of the bank
downgrades that have been making their way through the news.
We'll get to those three questions, plus a couple others
throughout today's episode. All right, I look forward to it.
Speaker 2 (01:16):
But before we get to that, Matt, I wanted to
ask you kind of a frugal or cheap I've got
a couple pairs of headphones. As a dude who listens
to a lot of tunes, who listens to podcasts, but
who also creates audio for a living, I wear headphones
a lot of the day, and over time those headphones
they wear out, right, but one I actually have two
pairs that this is happening to right now. The ear
(01:37):
muff thingies that go on the outside.
Speaker 1 (01:39):
Are like the base. They're basically disintegrating. I'm pretty sure
that's the technical term for the muff. So the other
none of your most the pads, right the question that
creates the nice seal.
Speaker 2 (01:51):
Yes, but these pads are wearing out, they're molting whatever,
and actually I like a little flecks of black all
over me from these pads.
Speaker 1 (01:57):
Is often look over at you and you've got something
yes on your face.
Speaker 2 (02:01):
I know, like right there, buddy, So is it frugal
or cheap that I'm replacing the pads not the headphones?
Speaker 1 (02:08):
Uh? It is the earth conscious thing. It's the green
thing to do, most likely because I'm sure that you
could just easily toss those and buy a pair for
like another cheap pair for like ten bucks.
Speaker 2 (02:20):
They're not super cheap headphones. They're probably like fifty five
sixty really yeah.
Speaker 1 (02:25):
I mean you watch all the slick deals and all.
Speaker 2 (02:27):
That, because I'm honure you could get a fifty dollars
pair for ten When you're wearing headphones all day every day,
you don't want the ten dollars pairs. So there's a
difference in like ergonomics and sound quall.
Speaker 1 (02:35):
That's why I don't like the over the ear because
it presses on I think it has to do with
the fact that I wear glasses, and so I've got glasses,
and when you do the over the ear, even though
they're not really supposed to push on your ear, they
still push on your ear a little bit. And we
got glasses. It smushes the car your ear up against
your head and it sandwiches the acetate the arm of
(02:55):
the glass glasses there, and it hurts. That's why I
like the in ear. Even while I'm sitting here at
the desk, I don't like doing plug in. I like
to do the blue.
Speaker 2 (03:04):
I think we can both agree that the worst of
both worlds is the on ear headphones. Yep, only psychos
where those my parents included. I don't know, it's headphones.
I'm like, who would get these?
Speaker 1 (03:13):
They're the default cheap headphone, Like they look like they're
the nicer ones, but in reality.
Speaker 2 (03:19):
They just yeah, they don't quite cut it, all right,
So I think I play paid like eight or nine
dollars for a replacement for the muffs.
Speaker 1 (03:26):
I'm like a fifty to sixty dollars pair headphones. Yeah
all right, Well if that's the case, then I think
you probably made the right move. I was thinking those
were like a ten dollars, just a cheap pair, But
I just rocked my beats. Yeah there go.
Speaker 2 (03:36):
If I see a great sale at some point, maybe
I'll upgrade. But these things are still working. They're just
I don't I don't want all the molting, you know,
the plastic stuff all over.
Speaker 1 (03:44):
I don't want extinct dinosaur particles on you, you know, right, petroleum,
that's where plastic stalk's from.
Speaker 3 (03:50):
With.
Speaker 1 (03:50):
Yeah, let's introduce the beer that we're going to enjoy
it today. So this is a beer. This is a
collaboration actually between Burial and the Eighth State, which is
a brewery in Greenville, South Carolina. This beer is called
These are depictions of yet another revolutionary absence. This is
an Imperial Stouts. We were just joking about how you
(04:10):
shouldn't drink big stouts in the summer, in the summer heat,
and here we go. So this is what we're gonna
enjoy it today. We'll share our thoughts at the end
of the episode.
Speaker 2 (04:18):
And you always have to laugh at any burial naming
convention because they're all ridiculous and over the top, and
a state evidently allows it.
Speaker 1 (04:25):
Like, fine, you guys want to name it your ridiculous name.
You guys do your things, all right.
Speaker 2 (04:29):
But we take listener questions every single week now on
the show, and we would love to take yours. So
if you have a money question, please feel free to
reach out. You can submit yours at howdomoney dot com,
slash ask, or simple Instructions. It's really just recording a
quick voice memo into your phone and emailing it our way.
But yeah, hopefully we can take yours next Monday. All right,
But let's get to our first question for this episode.
(04:50):
This one is from a listener who's got a bunch
of young kids and has multiple money goals.
Speaker 4 (04:57):
Hey Matt and Joel. I'm Rachel from Crystal Lake, a
sub of Chicago. You don't know this, but you come
with me on several walks and I love it. Thank
you so much. I'm a consultant with variable income and
my husband is in sales. Together we bring in approximately
two hundred K a year. We have three kids, ages
(05:17):
five at under and boy are the expensive. Together we
have about one hundred K and student loans with interest
rates that vary from five to seven point twenty five percent.
We've maxed out contribution for my husband's work, and I
save a minimum of two K a month that doesn't
go to taxes. Combined, we have about two hundred and
(05:39):
sixteen K left on a mortgage with a rate under
four point five percent, on which we make two hundred
dollars principal payments extra per month. At present, we have
forty K all together in the various CDs and high
yield savings accounts, keeping money aside. I'll need to pay
taxes should I pay off the stuit loans for us,
(05:59):
keeping certain percentage above the emergency fund as liquid. Pay
less and have more liquid and how do we decide
how much to put into home upgrades with excellent ROI.
I've paid off the only car we have this year
and we don't have any credit cards that have a
balance with interest applied. Thank you so much for your
(06:20):
insight and your help.
Speaker 1 (06:21):
You guys rock all right, Rachel. So going back to
what you were saying there at the beginning, we are
happy to hear that we are your walking buddies. It's
like the yeah, two buds that gets to walk along
with you and you don't need to have a schedule
and figure out where it is that you're going to
meet up for where you're gonna reconnoiter meet up with somebody.
But yeah, we love that. Thank you for bringing us along.
(06:42):
And also another note too, man, kids, it is true
they are expensive. They're not quite as expensive as some
of the different headlines out there would lead you to believe.
You know, I think is it like seven hundred and
fifty thousand dollars.
Speaker 2 (06:56):
Now like the I think it's like three hundred and
eight thousand something like that was last time.
Speaker 1 (06:59):
He thought was a lot more. It used to be
in the upper twos. Now as there's not that much,
that's a lot money over twenty years. Still a lot.
Speaker 2 (07:07):
But I think for some people that can scare you
off and you'll be like, I thought I was gonna
have kids, but not if it costs that much. There's
a lot of there are a lot of ways to
make sure that your kids don't cost quite. They're only
cost three, I'm gonna have like five more kids. Right,
it gets overwhelming, and yeah, I realized, like, yeah, it's
not easy, but of course it is worth it even
though it's costly. Right, But Matt, let's let's talk about
kind of gets a racil's question. There's kind of a
(07:28):
lot going on in this one, so we'll try to
get to a bunch of the points or the questions
that you had. And it sounds like y'all are doing
really well from an income standpoint, which is great, and
on top of that, you're saving and investing in a
solid clip. You don't have any debts that are out
of control, and you've got that paid off car and
that's something we dig like, we oh, yeah, we don't
like cardbt that's one of our least favorite things.
Speaker 1 (07:46):
And I think she said that they paid off the
only car that they have, which makes it sound like
that there are a one car family that they're rocking
that with three kids. That is awesome. Hang on to
that as long as you can. Yeah, the longer you
can stick with that. Yeah, I'm like salivating this beer
so it's so good. I just took a sip. But
it's just easier than I think a lot of people,
like in their minds, are like, oh, we've got okay,
(08:07):
we've got kids. Now, we definitely have to get the
be the two car family thing. But with so many
people working remotely and the ability it takes a little
more work to schedule, but the ability to bike. I literally,
I mean I bike my dude to preschool this morning
on the cargo bike. I'm gonna and with ride sharing too,
we're gonna we're gonna take the van in to get
some repair work done later this week, Gonna take it
(08:28):
there and then I'm gonna uber home because guess what,
all right, fifteen twenty bucks with tip and all of
a sudden, that means I don't need that second car.
Speaker 2 (08:35):
Yeah, it's definitely a line item in the budget that
more and more people can and should question, especially especially
given how many more people are working hybrid or fully
remote these days. On the student loan front, by the way,
whether or not it's a priority to pay off those
that student loan debt, it depends largely on this new
save plan, right, which is changing the game for anybody
who has outstanding student loan debt. It's this save plan
(08:58):
is likely going to change your payment amount. It is
for a whole lot of people. And there's this helpful
calculator on student Loan planner that will link to in
the show notes. But if this new save plan is
going to reduce your payment substantially and your balance still
won't be growing, which is part of the benefit of
this new save plan, your student loans likely shouldn't be
a top priority. The biggest benefits come to low and
(09:19):
middle class income earners though, which isn't you guys, Rachel.
It sounds like you guys are making more than that
and you have three kids, though, so much depends on
the specifics of what sort of subsidy you're going to
qualify for under the new safe guidelines. How long have
you been paying on those student loans, right, how much?
There's a lot of different fact balance is left, and
so yeah, take that into consideration. Plug your numbers into
(09:42):
that calculator and kind of see, well, oh, it looks
like my payment is not going to be changed. If
that's the case, then that higher rate student loan debt
is probably a bigger priority for you than it is
for other people.
Speaker 1 (09:52):
Sure, yeah, yeah, normally this would be honestly, just a
really tough one.
Speaker 5 (09:56):
Right.
Speaker 1 (09:56):
So she specifically said that her student loan interest rates
are a little bit I don't know if they're a
little bit higher relative to most other folks, but they're
on the line, right, So typically any loans that are
higher than seven percent, like I would want those gone
if that was me, And anything lower than seven percent, like,
in my mind, that wouldn't be the worst debt in
the world to keep her around if you have other goals,
(10:17):
if you are investing solidly, But if your payments Rachel,
if they get reduced with this new safe plan, and
you know, like let's say you hit that max twenty
or twenty five years of repayments and then you end
up coming out ahead, then I see no reason to
pay down on them early, even though that might be
your natural tendency. Especially, I mean you mentioned her her
(10:39):
mortgage making ex additional payments to that. I get the
impression that they don't like having debt around and that's
something that they might want to eliminate.
Speaker 2 (10:46):
Which, let's be honest, is a really good way to
think about debt. But at the same time, when you
have low interest rate, debt and savings rates are higher
and other financial goals, so other things you do, you've
got to moderate maybe your approach to debt and investing.
Speaker 1 (10:58):
Exactly so with that forgiveness of mind, and after you
crunch your own numbers, if it's likely that this new
plan could basically tip those higher student loans, especially the
ones that are around seven and a quarter to a
lower effective rate essentially at the end of the day,
then it certainly makes even more sense to not prioritize
paying down the student loans.
Speaker 2 (11:17):
Yeah, and one of the heart at the heart of
Rachel's question, it comes down to liquidity, which is such
an important question map for people because having more cash
on hand gives you options, gives you flexibility, and can
give you peace of mind. And fortunately you're not hammered
as hard now having money in savings as you were
just a few years ago. And so how much money
(11:38):
do you keep on hand? Rachel, that's a good question,
And it seems like we're not prioritizing student loans, which
because of this new saved plan, they're not as highber
a priority as they would have been in years past.
But it often comes down to what you're gonna do
with the money instead. That is really the crux of everything,
Like what are your alternative options? Because if you're just
gonna blow that money, which I don't think you are,
(12:00):
It doesn't sound like you're that kind of person who's like
going to go on a self control Yeah, shopping's free
with it, like you just want to know the best
place to funnel it. Well, if you were going to
spend it in a silly way, it would make sense
to go ahead and be done with those student loans
as opposed to buying more stuff. But you're already investing
it sounds like you're maxing out your husband's four O
one k at work. It might make sense to go
ahead and at least open up roth iras though for
(12:20):
the both of you. Yeah, maybe max those out to
the total of thirteen grand a year for both of you.
And if you did that, if you got the money invested,
I think Matt, you and I would both feel better
about them missing out on the guaranteed return on their
money by paying off the student loans because they're putting
it in a tax advantaged account to grow and compound
for their future.
Speaker 1 (12:40):
Sure, yeah, if you wanted to do it by the book,
you would say the equivalent amount that you have outstanding
on your student loans, invest that money. So once you
have that much additional money set aside and is either
invested or even in a savings account where you're earning
a higher rate. But again knowing that when you do
invest that money is going to compound, it kind of
makes sense that you don't. It doesn't need to be
(13:02):
dollar for dollar per se. I think if it was me,
I would not only use some of the additional money
to make sure that they've maxed out their rothy race
for this year, but also set aside money for next year.
That way, you have that money ready to like it's
sitting there on the sidelines, ready to go. January first
hits you're able to lump some invest and next year
it's fourteen thousand dollars because they're upping the contribution limits
(13:25):
from sixty five to seven thousand, which is we love
to see, which is awesome. And so if I were
in your shoes and I was able to max out
not only this year but also next year's, I think
I would feel much much more comfortable about saying, Okay,
let's just see kind of how this plays out with
the student loans. We don't necessarily need to pay those
off ahead of time. But let's also get to home renovations, Rachel,
(13:48):
because first of all, it sounds like you've got the
ability to use that additional two thousand dollars a month
that you're setting aside, and you've got the potential just
to straight up pay cash for any projects that you've
gotten mind, which is awesome.
Speaker 2 (14:00):
Not to mention the two hundred bucks a month they're
prepaying towards the mortgage, like funnel that back into home
rental project.
Speaker 1 (14:05):
There you go twenty two hundred dollars and this is
gonna be way better than taking out a heelock at
today's rates. But then you asked about how much to
put towards renovating, and this is going to have to
be a judgment call on your part. You know, you
and your husband y'all need to talk about this. You'll
need to think through what aspects of your home that
you'd like to change the most, and what will honestly
(14:28):
have the most impact for y'all is a family. You know,
like with something as simple as adding some cubbies in
a mudroom, would that drastically improve the quality of life there.
That's literally something that Kate and I did when we
moved into our house last summer. Did not cost a
lot of money, but it subs I mean, I don't
know what we would do with all the shoes, the backpacks,
the jackets in the winter, the bicycle helmets. Just adding
(14:50):
these cubbies where each person we got six of them
there where they have their own space, dramatically increased the
usability of our little entry were there but with her
or maybe like she's got three kids, so maybe she's
realizing that what they need is another bathroom or something
right but way those needs while at the same time
keeping in mind that you may not be in this
house forever, and so you don't want to necessarily overbuild
(15:12):
your street or your neighborhood. It's difficult because you, on
one hand, you want to keep that in mind, but
you also don't want to make these improvements with return
on investment. As the only consideration, because I think the
last I read a new garage door is actually what
ranks the highest as far as what improves the resale.
And you just never know with who it is that's
going to buy your house whether or not they're going to
(15:33):
value the improvements that you made. And so what I
would say is make sure that you're adding utility for
the way it is that you and your family live there,
without getting crazy with it. But instead of ROI, make
it rou return of utility or something like that. Have
that be the filter to which you think through some
of these improvements.
Speaker 2 (15:51):
And so much of it comes down to how long
you think you're going to be in the house. If
you're like, hey, listen, we're on two acres out here,
and this is the perfect spot for our family, it's
just the house that's insufficient, and so if we do this,
this and this, then hey, we're going to be here
for the next thirty And granted I think some people
think that and maybe that doesn't end up being the case.
But if if you think you're gonna be there long term,
it makes even more sense. I think the funnel money
(16:14):
into the house and make it the way you want
it to be as opposed to thinking about pure resale value,
because if you're only going to be there for a
year or two and you're gonna need like bigger bones
essentially at some point you need a bigger, better house
something like that, then you probably don't want to sink
too much in you want to be saving up for
the next time payments.
Speaker 1 (16:30):
They Yeah, that's when you go to Ikea and just
get yourself some organization pieces the temporary fix. Yes, it's
a band aid, which is very much the temporary fix. Right, Actually,
scratch that. Scratch Ikea. Instead, go to your local Salvation
Army or Goodwill and find you a quality piece furniture
that might also solve some organizational needs. If that's what
you got going, it's even better. Yeah.
Speaker 2 (16:51):
And I think the period matt of your life with
young kids, it can be financially daunting. It feels like
you're trying to do a bunch of different things at once.
Three kids under.
Speaker 1 (17:00):
The age of five.
Speaker 2 (17:01):
That's about as tough as it gets from a financial
and a mental perspective. It can be very trying. Childcare
is expensive if you depending on whether or not you
have help or something from family members, you're trying to
excel in your career, you're trying to save for retirement,
you're trying to buy or fix up a house. It
feels like a lot and Matt, you and I we
know that feeling very well because you know, we're not
(17:21):
too far away from those years, those years. Our youngest
boys they're still three and so in our oldest are
ten now, so we still know, we still remember. It's
a fresh experience that you're trying to do all those
things at once, So just make sure you keep chipping away.
Know that those goals don't happen overnight. Make little adjustments
here and there, and then celebrate the wins and successes
along the way, because it's just so easy to fixate
(17:43):
on the future and think about the easier years that
are coming down the pike. But enjoy these two because
they really are special times, even though you're pretty worn
out at the end of the day.
Speaker 1 (17:53):
That's right. So Rachel, best of luck to you, and
I look forward to our walks together as we continue
to talk about our finance, the walks that we don't
even know we're taking. We take walks around here, but
we just Yeah, Rachel needs the recorder of a podcast
and send it our way. That way, it's like it's
like a penpal. That'd be beautiful relationship. But we've got
four more questions to get to, including one from a
(18:15):
divorce a whether or not she's on the right track.
We'll hear from her, plus others right after this. All right,
we're back.
Speaker 2 (18:30):
We've got more money questions to get to from Awesome
how to Money listeners and Matthi's next question is specifically
about one of our favorite retirement accounts that not enough
people know about.
Speaker 6 (18:41):
I'm Madam Joel. This is She's from Atlanta. Thank you
for all you do and the wealth of information that
you provide today. I had a quick question about it's
a sea accounts, particularly with regards to reinbursement later in life,
potentially decades down the road. How does it work in
case of family members? For example, if I pay for
(19:04):
a medical expense for my kids now and I want
to get reimbursed for that thirty forty years down the road,
would I be able to withdraw that fund and use
it for myself? And also, how does it work in
the case of spouse. If expense currently occurs for one spouse,
(19:28):
can the partner withdraw or reimburse that amount for his
or her use or medical expense later down the road.
I'm just curious. Thank you so much.
Speaker 1 (19:42):
Oh so a Sheesh is from Atlanta. I don't think
we get enough Atlanta Atlanta listener questions sentence which Aesh.
So we're actually gonna should we talk about this here?
We're going to have a listener beer hang here next week,
not this Friday, but the next friday after that, September fifteenth.
It took a lot of coaxing to get Matt out
(20:03):
of his hobbit hole. Do we want to go ahead
and share? So go ahead and pencil that on the
calendar because we talked about maybe doing it at like
around five, should go ahead nail it down, think four
to eight at InterVoice brewing indicator indicator. Yeah, so they've
got awesome pizza there. We'll make more official announcements in
the future. But as Shish, this is like the little
insider heads up for you as well as any others
(20:25):
who might be listening at this point who were from Atlanta.
Speaker 2 (20:27):
Said great pizza, and that is true. But Inner Voice
has great beers to here is so good.
Speaker 1 (20:31):
Yeah, So literally we're going there because you, and we
chose this location because we're the ones that got to
organize it. But we haven't been to InterVoice and we've
had their beers before. They're so good. And the pizza
it's Glyde Pizza, right, like, so this is a pizza
rha that you that our families used to frequent when
we lived in town, and they opened the second location
(20:51):
out there indicator I can't snink in wait, it's going
to be a ton of fun. So if you are
in Atlanta or the surrounding Atlanta area, mark that on
your calendar September fifteenth.
Speaker 2 (20:59):
Yeah, to see out there. It's we don't do this enough.
It's always fun to meet listeners in person, not just
I want to watch with them virtually when doing it
in real war, we're not actually.
Speaker 1 (21:08):
There, so although we like that too.
Speaker 2 (21:10):
And at first, I just want to let everyone know,
like why a she she's asking this and the reason
is because the HSA is actually one of the best
accounts to save for retirement and that's how he's trying
to use it. Like we've talked about this, We've done
whole episodes on this, we have articles up on the
side about this, but almost nobody knows sadly that the
HSA is one of the best ways, is one of
the best accounts with which to say.
Speaker 1 (21:30):
For their future.
Speaker 2 (21:31):
And they you know, a lot of people treat their
HSA as a way to save a little bit on
taxes to pay for current health care expenses. But that's
not the best way to go about it if you're
thinking long term, because you can turn your HSA into
a triple or even a quadruple tax advantaged account that
can grow for years and decades, that can compound for
a long time if you do it right. And that's
(21:53):
that's the way she is treating it, which I just
got to say, mad props.
Speaker 1 (21:56):
And part of what it takes to get maximum value
is to pay for all of your healthcare expenses out
of pocket so that you can allow for that tech
sheltered money to keep on growing and compounding. That makes
me think of Charlie Munger's quote on compounding, which is
like the number one or the first rule when it
comes to compounding to never interrupt it this unnecessarily, which
(22:20):
is it's okay to touch it when you need to
tap it, but you got to let that thing go.
And that's what we want you to also do here
with when it comes to your HSA. But on top
of that, though, you'll want to have records for every
health expense that you incur, which is going to help
you when it comes time to withdraw those funds. I
have never had an HSA, so I've never been able
(22:40):
to do this, but you better believe if I hadn't
a high deductible plan, I would also have an HSA,
and you better believe I would have an Excel sheet
or a Google sheet with the date, description, of course,
the price. But also make sure that you're either taking
a screenshot of those expenses or you're taking a picture
of the receipt to actually have the receipt in case
the eye used wants to have proof of that as well.
(23:03):
Keep it organized. Upload it to a folder. Maybe the
HSA folder lay labeled by year. Perhaps, I don't know.
You come up with your own system, but you got
to stay organized. That's key to making the HSA work
as a retirement account. Yeah. Have you ever heard of
hyper thymsia? No?
Speaker 2 (23:17):
Okay, so this is when you remember everything and apparently
it's a real problem, Like I always like talking about.
Speaker 1 (23:22):
It, amnesia, right, Yeah, Okay, Well, you remember nothing, which
is more akin to what I have. I don't.
Speaker 2 (23:26):
I don't remember things very well. I just asked my wife.
But hyper thymnesia is apparently when you remember everything. I
don't think she has this. And so because of that,
he needs to marry taylose documents, and even if you
remembered it, he wouldn't be able to prove it to
the irs. So you got to keep the record.
Speaker 1 (23:39):
He's like, it's up here, and they're like, no, that
doesn't count, right.
Speaker 2 (23:43):
Yeah, we can't tap that and get the files out
of your brain. But the heart of Ashes's question is
about whether or not his family members and their medical
needs qualify to make that document. So, if let's say
one of his kiddos goes to the er with this
or that injury God forbid, and you where you know,
you get a big medical bill, does that count towards
(24:04):
the HSA money you've set aside. The answer is yes, Right,
your HSA funds can be used to pay for out
of pocket qualified medical expenses incurred by your family members
who qualify as dependents on your taxes. The same is
true of your spouse, right if they're listed on your
tax return. If you're filing jointly then for that year, Yeah,
their expenses are also eligible. And so that's true whether
you have the individual or the family coverage within HSA
(24:26):
through your plan.
Speaker 1 (24:27):
That's right. And your kids are actually included as long
as they are dependents, and that goes up. So if
your kids are students. A lot of kids go off
to college and so they qualify up through age twenty
three as well. So that's good to know when they
go off to college. And if you're like me and
you end up in the er because you ate some
leftovers that were left out on the counter and you
(24:47):
end up you think you're going to die, and it
turns out you've got food poisoning and you're laid up
in bed for multiple days. Why does that not surprise me?
Learn my lesson. I'm willing to eat my own leftovers
that where I know that they weren't necessarily left in
a car for two days. All the things we did
get I mean, you I can laugh now, but dude,
(25:08):
at the time, I literally thought I was dying. I
didn't know what was going on.
Speaker 2 (25:11):
I'm sure your parents were like, we wish he would.
We're so mad at him right now.
Speaker 1 (25:15):
I think I barely had a cell phone at that point,
so I think they knew. But you know, this is
back in the old it's not the eighties. It makes
me think of the Blue episode. It was the eighties.
It wasn't at all the eighties. That's when I was born.
But technology wasn't what it was while went back when
we were in college. That's true, we still remember pagers
and AOL is a messenger. But by the way back
to your question the sheish, it's also important to mention
(25:36):
that HSA funds that they can be used to cover
some things that your health insurance policy may not cover. So,
for instance, your health care plan it might not cover
new glasses or orthodontia when it comes, especially if we're
talking about your kids here, which can get crazy expensive.
But those count as qualified expenses through your HSA. So
(25:59):
if you end up spending five thousand dollars on braces,
make sure to put that in the sheet excel file
as well. But ashish Man, I love how it is
you're thinking about using your HSA. Your long time horizon
is amazing here in the fact that you're willing and
able to invest HSA dollars for thirty to forty years.
That is impressive. It's going to offer you so much
(26:20):
more future flexibility because you're maximizing all of these retirement
accounts that you have at your disposal.
Speaker 2 (26:25):
Yeah, this is like the textbook way to use an
HSA if you have access to one, right, perfect like
maxid joker out, get all those tax benefits, invest it,
and then have a lot more money that's tax free
to spend later on. But you've got to document along
the way, right, and so there are a lot of
details that you need to know in order to make
that HSA work the most effectively for you possible. Right,
(26:46):
So she's good luck, keep it up, Man and Matt.
Let's get to our next listener question. This one comes
from a listener she just like really wants to know
after going through a really difficult life event, whether she
is still on the right track with her money.
Speaker 3 (26:59):
Hi.
Speaker 5 (27:00):
My name is Down and I'm from Toledo, Ohio. I've
listened to your podcast for several months now. I love
all of your helpful Hence your explanations of all things
financial are so helpful. I am fifty seven years old,
I am single, live by myself and rent my home
I have not purchased a home because my job is
somewhat transitional, meaning that I am transferred to a different
(27:23):
location every two to three years. I bring home about
twenty eight hundred dollars a month after taxes, insurance, and
money for my four O one K are deducted. I
also have a side gig making about three hundred to
four hundred dollars a month. I have five percent taken
out for my four O one K, and my employer
matches that five percent. In addition to my four to
(27:45):
one K and my savings, I will also have a
retirement pension from working for the State of Ohio for
twenty seven years. My monthly living expenses are about seventeen
hundred dollars. I have an emergency fund of thirty six
hundred dollars in a savings age count, and I have
forty thousand dollars in a CD. My only debt is
(28:05):
a credit card with a balance of four thousand dollars.
My questions are one, I plan to use some of
the money in my CD to pay off my four
thousand dollars credit card debt once the CD matures in
five months, instead of waiting. Should I deplete my emergency
fund in my savings account now to pay most of
the credit card debt off. Two should I invest my
(28:28):
forty thousand dollars from the CD differently once it matures
in November? And if so, what might be some good
investment options. I have considered purchasing a short term rental property,
but I am a little leery of making such a
big purchase. And then three, I am recently divorced and
very concerned about doing the right thing with my finances
(28:50):
so that I can retire when it comes time without
being incapacitated financially. Am I on the right track or
do you feel that I should be doing things to
different Really? Any suggestions would be greatly appreciated. I love
the show, Thanks for the help, and take care all right.
Speaker 1 (29:08):
Glad to have you on board, don and great job
keeping a nice gap between what it is that you
bring in every month and what goes out. You are
living frugally what she was saying, her monthly living expenses
are like seventeen hundred dollars a month. I don't care
where you live. That is incredible given today's the high
cost of living today.
Speaker 2 (29:26):
Yeah, just housing, groceries, transportation, like to keep that all
in that spare is really impressive in so housing, So
she mentioned not owning a home.
Speaker 1 (29:35):
Don don't worry about that because most folks have been
brainwashed into thinking that home ownership is the only way
to build wealth or the best way, right, the best way,
and it's not necessarily true. I think it can work
as a great forced method of savings, right, because when
you buy a home, that's just something you pay every
single month, and so you're kind of automatic. It's again
it's forced savings. But renters who are diligent investors, who
(29:59):
are listening to how to money or making the right
moves with their money, they can actually come out ahead
by not necessarily investing within you know, a primary resident.
That's even more true today than it was given where
five or ten years they are given where housing prices are.
Speaker 2 (30:13):
Yeah, resolutely, we've seen massive increases in both the cost
of rents and the cost of a home, but less
growth in the cost of rent and so renters are
sitting prettier than homeowners or people who want to be
homeowners now. And so I just want to mention too,
like how great is it to work for an employer
who matches dollar for dollar up to five percent.
Speaker 1 (30:32):
That is pretty great.
Speaker 2 (30:33):
Not necessarily the norm, but it's pretty sweet. And so
that means just by default, by putting in the five
you're getting a ten percent total of your salary tossed
into a retirement account, which is a really good place
to be, right especially since you've got that pension to
go along with what you've been putting away on your own.
In many ways, you're ahead of the game when it
comes to retirement savings. So this is a good place
(30:55):
to be. It's not that maybe you can't do more
down the road, but it's a good place. It's a
really good starting posies. And let's talk about the credit
card debt for a second, because you're not alone on
that either. About half of Americans have revolving credit card
debt to the tune of like over six thousand dollars. Fortunately,
you've got less than that, but we would say that
this should be a really high priority for you to
pay it off. But should you eliminate that small savings
(31:17):
nest egg in order to do it in order to.
Speaker 1 (31:19):
Do it right now? We'd say probably not. That's that's right. Yeah,
So if don if you look at our money gears.
We want folks amassing four hundred and sixty seven dollars
before they start paying off the credit card debt. And
the thing is, you have more than that in savings.
It's just not that all of it is liquid. You've
got a lot of it, some of it in CDs.
But if that were to you, like let's just say
(31:41):
an emergency comes along, well, you'd be putting that expense
of that emergency right back on your credit card. And
so feel free to take whatever you have an access
of that bare bones base emergency fund and pay that
to the credit card company. Go ahead and reduce your balance,
but don't use all of it because you are again
you would be in a position to where you have
(32:02):
no cash on hand. And on top of that too,
she pulls in I think combined between her main gig
as well as her side gig, she's bringing in over
three thousand dollars, so something like fifteen hundred dollars a
month because her living expenses are seventeen, right, so she's
got some excess funds on hand, and I think the
ability to start paying down that credit card balance even
(32:23):
before that was it forty thousand that she's gotten slocked
away on that CD that's going to mature later this year.
Down you have the ability to really start shipping away,
and by the time that thing matures, you could be
totally free and clear of that credit card. Best by
starting to chip away at it now, because you are
living so frugally, and because you've got that little making
(32:43):
that three or hundred bucks on the.
Speaker 2 (32:44):
Side, I love that because your margin is so substantial.
Even though you're not making six figures, you're still doing
You still got a big gap there, which is the
key to financial success.
Speaker 1 (32:55):
Right. The bigger the gap, the more the more moves
you can make that are going to benefit your future,
regardless of how much much you make. Right, But the
credit card debt's holding you back. So I agree Matt.
Speaker 2 (33:03):
The more she can funnel from that margin, specifically to
go towards credit card debt while retaining that minimum amount
in savings so that she has money on hand for
an emergency, I think that's okay. And then once that
CD matures, there's probably better things to do with that
money too. Like you and I, we want all how
to Money listeners to use credit cards wisely and to
avoid revolving credit card debt. That's of course that's a
(33:23):
wealth destroyer over time. But the truth is there are
probably better things that Don can do with that additional
forty K that she's gotten a CD as well. So
we should talk about that and Don. First, I just
want to say sorry to hear about your divorce. I mean,
we know that that can be tough emotionally and financially.
It's got ramifications in basically every realm of your life.
But based on what you've told us, I want to
(33:45):
tell you it sounds like you're heading into the right direction.
It sounds like you're making the right moves, and it
sounds like you know what you're doing too right, And
so I would think about like moves you need to
make and moves you should be making as more of
like tweaks instead of an overhaul. Like when you're going
in the right direction and you're going at the right speed,
but maybe the brakes are just a little squeaky, right,
(34:05):
it's like a tune up. It's a minor adjustment as
opposed to making big changes. And so once that CD matures,
I would say, keep a decent chunk around as additional savings.
Kind of like that three to six months worth of
the living expenses that we want people.
Speaker 1 (34:17):
To save up.
Speaker 2 (34:18):
And then after that, we suggest that you make it
a goal to max out your WROTH IRA each and
every year moving forward. Since you're over the age of
fifty five, you can contribute seventy five hundred dollars this year,
you contribute.
Speaker 1 (34:28):
And got that those ketchup contributions.
Speaker 2 (34:29):
Yeah, eight grand next year, right with that increased WROTH amount,
increased IRA amount, So make it your goal to max
that out. That is a great place for that additional savings,
which might be too much savings really when we're talking
about it, and we probably want more money growing for
your future. That's where we'd funnel some of that that
the CD money on once immatures.
Speaker 1 (34:50):
That's right, Yeah, And don you also asked about buying
a rental property. It sounds like you move around a lot, right,
and so with that in mind, is probably not an
ideal investment for you. And on top of that, we
would want you to do a ton of research and
some due diligence before you consider going down that path,
because it's not like an investment per se, it's more
(35:10):
like a part time job. And you've already got a
full time job that it's going to have that nice
pension and a part time job on a edition what's
that side gig exactly. So with all that in mind,
like I mean, it could be an overwhelming endeavor, but
if you are super interested in it, certainly start reading
up on it. Just make sure you do a lot
of research there. But sticking to tax advantaged retirement accounts
(35:33):
and just funding those like clockwork and specifically what would
you invest in. I think a target date fund would
be smart as you are closer to retirement age those
funds automatically readjust it and make sure that you are
exposed to less volatility. That way, you're avoiding the sequence
of returns risk that's when were you to retire, you
start withdrawing on some of these funds. If there's a
(35:54):
big drop in the stock market, that would have a
major impact on the amount of money us left there
in your nest egg. And so by switching over to
less risky, less volatile investments within that target date fund,
that keeps that from happening. So we would recommend that
it allows you to pick a date and you can
start working towards that retirement year, but a solid decade
(36:15):
of that, plus your pension and plus social security, that's
not even something that we even talked about. In addition
to a continued frugal lifestyle, I think that's going to
easily be able to get you where it is that
you want to be. Yeah, and don hopefully our comments
help you feel good about where you're going. Comments always
make me feel good, Joe, Well, thank you, that's the goal.
Oh right, sorry, I thought you meant I thought you
said compliments. Well, but the.
Speaker 2 (36:37):
One thing we might suggest if you're interested is to
talk to a fee only financial advisor, and so you
could find one at xy Planning Network or NAPFA dot org.
Those are those are two places where you could find
somebody who meets kind of the standards for a financial
advisor that Matt and I think are important. And if
you really wanted someone to kind of like pour over
(36:58):
all of your financials at once, it might be worth
right paying a flat fee to somebody to do that.
A few hours of their time would likely be enough
to kind of go over some of these details and
help give you even more reassurance and maybe some more
direction too. But Matt, we got a couple more questions
to get to including yeah, whether or not someone going
back to school as an adult should be socking money
aside into a five twenty nine account.
Speaker 1 (37:20):
Isn't that just for kids? Maybe not. We'll get to
that and more right after this, Joel, everyone knows that
tricks are for kids. Silly rabbit. That's that's that's what
you're comment about five twenty nine. Before the break, maybe
(37:41):
think of do you remember that this commercial? Of course? Okay, yeah, classic.
We will get to that question about five twenty nine's
here in a second, but first let's hear a question
about the main bank that I actually used me personally.
Speaker 3 (37:54):
Hey, Juelan Matt, this is Massa from Boston. Again. Recently,
I read that the financial ratings agency Moody gave Alli
Financial a negative outlook. In past episodes, you'll have sung
the praises of Ally Bank. I have a couple of questions.
Is the Ally Financial that Moodies gave a negative outlook
to the same Ally Bank that you really like for
(38:15):
personal banking? And if so, should I be concerned that
even if my deposits are wholly insured by the FDIIC
because I have less than a quarter million dollars with them,
if Alli Bank goes under, I may have difficulty getting
my money back out. Thanks again for all you do
to educate and inform us. Oh in confession time, I
(38:36):
first learned about credit ratings for companies by selling bonds
in the video game Railroad Tycoon three.
Speaker 2 (38:42):
Okay, man, that's kind of cool and it made me
I think. Actually was talking to somebody I know recently
and he was saying that he plays the Nintendo game
Animal Crossing.
Speaker 1 (38:50):
Have you heard of it? Maybe?
Speaker 2 (38:51):
Okay, I have not. I've never played it. I probably
haven't played video games in like ten years ago ago.
It sounds like a video game to me, Yeah, it does.
But he was saying, like, man, there's so many personal
finance tidbits. As he's been listening to the show. He's like,
I've been learning, but I'm also kind of putting it
into action in the video game that I'm playing. And
I think that's kind of cool. The video games can
connect like real life truths to the stuff we're playing.
(39:13):
It's obviously playing stupid stuff like Halo and NBA Jam,
but it's like, it's cool to see that that some
games are actually kind of helping teach us secually. Nintendo
in particular doesn't well.
Speaker 1 (39:23):
It doesn't, Halo, there's some sort of market capacity, right,
like don't you have a limited A lot of death.
I don't remember the other stuff, but if that's the case, yeah,
video games in some cases don't do as good of it.
Like that's why we love nerdy board games because oftentimes
the mirror real life when you're presented with a limited
resource and you have to find a way to make
(39:43):
the best of those limited resources. That is life, at
least ancient real life. You know, like wheat tobacco. Well
that's Puerto Rico right there. We haven't played that on
in a while. But even like some video games do
that like makes me think of the classics, like Zelda.
You are gathering resources and you have to you know,
you go into the shop. You got the three things
that you can buy, and you got to decide which
(40:05):
one am I gonna buy the bomb? Am I gonna
buy the red candle? Or upgrade to the blue candle?
You know, you've got all these things that you got
to make decisions on. So it's not just nerdy board games. Yeah,
you can actually learn from video games. Yeah, which I appreciate.
Speaker 2 (40:19):
I agreed, especially since you know, we're not learning about
this stuff in school really, so at least if the
video games have an educational element to it, I'm all
for it. But that's thanks for sharing that, Massa. And
let's get to the heart of Massa's question about bank downgrades.
I'm sure, Matt, some listeners have seen these headlines and
maybe they're either worried or they feel like they've got
to change bank stats something like that. And we talked
(40:41):
about the recent downgrade to credit down grade to our
country and what we think that means.
Speaker 1 (40:47):
Right, well, you know, not just a bank. The US
event yes, got downgraded.
Speaker 2 (40:51):
Literally the country we live in got downgraded from a
credit standpoint, and Moody's they actually recently downgraded ten banks
and they gave negative outlooks to others, ally being one
of them. And then Fitch, the agency who did give
our country credit rating down grade, they said that they're
likely to down grade dozens of banks too, And so
part of that's because of multiple bank collapses that have
(41:12):
happened throughout twenty twenty three. It has folks on edge
when it comes to where they're putting their savings. So
a little nervous, yeah, and a lot of individuals have
moved their deposits not to better banks, but to the
biggest banks, believing that that's a safer place for them
to be. We want to reiterate, as always, that is
not necessarily the case. The truth is the big banks
offer much worse service alongside higher fees and non existent
(41:35):
interest rates on your savings. So no, the big banks
are not safer, and they're worse on basics, actually worse, not.
Speaker 1 (41:41):
To mention all the shenanigans. That's like Wells Fargo a
bank of America, which is a kind way of putting it,
just more like fraud, right, yeah, yeah, she need their
customers out of actual dollars.
Speaker 2 (41:52):
It's like someone murder someone and you're like, he's just
not nice. Yeah, and you're like, wait a second, No,
that was a mean thing to do, so much worse
than that. But that doesn't mean, of course, that you've
got to go bank with Ally like I do, because.
Speaker 1 (42:03):
There are other great online banks. So should you switch
to one of those? Should you completely ditch Ally? Well,
if that's not necessarily the case either here, I still
think Ally is a great choice. When all this news hit,
like I literally didn't think twice about what this meant
for all the saving. I mean literally, my emergency fund
is sitting there in ALLY, and I am not concerned
(42:23):
about it at all. Is that just because you're a
homer though, maybe? But so I will say, if I
was choosing a new bank, would I go with Ally?
I might go with one that is offering a slightly
higher rate, but Ally offers a really competitive rate, and
they're always up there in the top tier, even if
they're not there the very best. And they've got the
no penalty CDs, which I'm a huge fan of, and
so you just plug that away and that gets you
(42:44):
really dang close. So that keeps me from rate chasing,
which can always change on a dime. It depends on
what it is that if the different banks are offering,
you don't want to constantly be yeah, floating, bouncing from
one to the next.
Speaker 2 (42:56):
But I think it's interesting that you said that you
would maybe not go with Ally because other banks offer
better rates, but not because of this credit downgrade threat.
Speaker 1 (43:04):
That is not the reason that that would keep me
from going with ALI, for sure. Yeah, I mean I
like a lot that they offer. I like their interface,
I like their app on the phone, and masa if
it's not obvious, Ally Bank, it is the banking arm
of Ally Financial, who is who actually received that negative outlook,
And so the risk of Allied defaulting it's still relatively low,
(43:25):
and just given the tough times within the banking sector
in general here, not just here in the US, honestly,
just globally, and that has largely been caused by rising
interest rates, stiffer competition for your savings dollars. With all
that in mind, I don't see this as a reflection
of an ally specific problem. It just seems like it's
more of just the It's like it's the rising tide
as opposed to like a singular beach. So that's got
(43:47):
a rising tide right right. It's something that's impacting not
only the US, but I'll I mean, it's a global
issue that we're all going to be facing here. A
lot of experts are saying maybe early twenty twenty four
that we're going to see that small rep session yet
to be seen.
Speaker 2 (44:01):
Yeah, banks for having a tough time right now, they're
having a tougher time than they were in years past.
And on top of that, I think the heart of
the reason we would feel totally comfortable having our savings
at Ally, you do feel comfortable having your savings at Ally, Matt,
I do more business with Discovered. That's kind of my
main bank. But basically, if you have less than two
hundred and fifty thousand dollars in that account, there's no
reason to worry.
Speaker 1 (44:22):
Right, that would be me. Yeah, not that loaded.
Speaker 2 (44:24):
So we would tell you to make decision about which
bank that you use or don't use based on other factors, right,
Like you were talking about like the interest rate, like
the interface, like the customer service, and so if you
like all those features about the bank you're currently with
about Ally, don't let this credit downgrade reality or potential
future credit downgrade, you know, threats make you nervous, right.
Speaker 1 (44:48):
Yeah, Yeah, that's the thing. It wasn't even an actual downgrade.
It was just a negative outlook, which means it has
the potential for there to be a downgrade. I guess, yeah,
off in the future. So it's just it's kind of
like they're just putting it on radar, just being like, hey,
we see your books, we see what's going on here,
and we're just gonna go ahead and preemptively say something. Yeah,
and if we saw material weakness. Yeah, if there were.
Speaker 2 (45:10):
More like hard evidence that Ally in particular was doing
a poor job then and it was impacting their customers,
like and they were having to cut rates and stuff
like that, that would be one thing. But we haven't
seen any evidence of that, and so so.
Speaker 1 (45:25):
We do we will say something, right, and I probably
will move my money.
Speaker 2 (45:27):
Sure with that to be the case. And similar to
kind of what we talked about with the US credit
down grade, like, hey, this is one of those slow
moving events that you should be aware of. It's not negligible,
it's not nothing, but it's also not some sort of
massive event that should cause you to take big changes
with how you invest or what you're doing with your money.
But I would say too for for other folks who
have more than a quarter million dollars inn Ally or
(45:48):
any other bank for that matter, they should fix that
problem quickly.
Speaker 1 (45:51):
Right, you are loaded?
Speaker 2 (45:52):
Yeah, yeah, if you've got crazy amounts of cash on hand,
One you might have too much cash on hand, and
then two you got to make sure that it's between
multiple banks. I talked to some but he recently Matt
who inherited a ton of money. He never had a
lot of money and it was hundreds and hundreds of
thousands of dollars, so he was smart enough to split
it up between multiple banks, and that is something that Yeah,
if you have that cash on hand, why you're trying.
Speaker 1 (46:11):
To figure it out? It should be it should be
under the umbrella of different banks so that you're getting
full FDIC coverage for every dollar that you have. That's right.
Let's get to our last question. This is from a
listener who is looking to take advantage of a pretty
sweet employer benefit.
Speaker 7 (46:27):
Hi, how to money? This is Hannah Tisher from Greenville,
South Carolina. I'm going back to school to get my
MBA part time with an employer sponsored program. However, if
I want to complete the program in three years, I
will have to pay between five and ten thousand dollars myself.
Should I put this money in a five to twenty
nine plan or continue saving it in my high yield
(46:49):
savings account?
Speaker 4 (46:50):
Thanks?
Speaker 7 (46:51):
And I hope you guys have a.
Speaker 1 (46:52):
Great day, all right, Matt.
Speaker 2 (46:54):
Lots of cool stuff going on here with Hannah. Like, first,
she's going back to school to gain more skills. Yeah,
something we applaud, but it sounds like her employer is
paying the bulk of this, which is also great. I
love that if you can get someone else to put
the bill for your education, you're doing something.
Speaker 1 (47:07):
Right at least most of the bill. Yeah, Which, so
she said that in order to graduate early or to
do the three year program, So that's one consideration. Is
there a way that she could go more slowly? I
guess to just take your time and not have to
pay the five to ten thousand dollars, right, I'm sure
there are other things that you are considering, Hannah.
Speaker 2 (47:22):
Sure, just the thought and sometimes graduating more quickly makes sense,
and you don't mind funneling some of your own dollars
into that. Yeah, And my guess is that this NBA
should lead to increased opportunities and bigger pay bumps in
the future. Yeah, with not too much out of pocket
from Hannah, which is awesome. And so yeah, way to
take advantage of this additional perk that so many other people,
so many other employees just kind of leave on the table.
Speaker 1 (47:43):
But let's talk about how it is that Hannah is
going to fund the amount that she's gonna need to contribute,
or that she's choosing to contribute. At least she's wondering
if she should have that money there in a high
old savings account, or if she if she should consider
using the five twenty nine education account, the account that's
offered by her state of South Carolina. There, So which
(48:04):
one do you use? The answer to this is going
to be both of them. So, yeah, this sounds crazy,
kind of weird, but stick with me here, Hannah, South Carolina.
They've got a state income tax and the top rate
is six and a half percent. Some folks pay zero.
It all depends on your current income, but most.
Speaker 2 (48:23):
Zero percent tax rate, by the way, is for people
who make very little, very very little, so you probably
aren't in there.
Speaker 1 (48:28):
The vast, vast majority of folks pay that top rate
because the sliding scale it only, yeah, truly benefits folks
who make next to nothing. And so given that reality,
any money that you contribute to a five twenty nine account,
it's going to reduce your taxable income at the state level.
So with that in mind, we definitely want you to
sock the specific amount that you know that you're gonna
(48:48):
need to pay for an upcoming qualified educational expense into
that five to twenty nine plan.
Speaker 2 (48:55):
That's right, But here's the thing, you don't actually have
to keep the money in the five twenty nine plan
for all that long. Right. One of the biggest selling
points to these accounts is that you can invest and
grow those dollars for future educational expenses.
Speaker 1 (49:06):
Sounds like a nice thing. Yeah, why wouldn't I want
to invest this money that's going to go towards my
kids college in fifteen years from now?
Speaker 2 (49:14):
Exactly, You've got plenty of time to let that money
grow for their future. But Hannah, given your need, Hannah's
not two years old, No she's not, and so she's
got to use this money really soon in the near
term future. We don't want you investing money that's going
into the five twenty nine account. Stock it in there,
but we don't want you to invest it. We instead
want you to keep it in the cash equivalent. But
in that account, right, the cash account in the Saving
(49:36):
for College plan, it only pays two point seventy five percent.
So once you've got it in there and you have
the qualified expense that year, pull it back out, put
it in your HYSA, your high heeled savings account once
you've got to make the payment, So the money will
be in there for a relatively short period of time
could be days, could be weeks, maybe even a couple months,
but then you pull it back into your life and
(49:58):
really what you've done is you've continued to maximize the
yield of those savings dollars, but you've also gotten a
sweet little tax break. We've done something very similar. Emily
of course, is in grad school studying to become a
licensed therapist, and that we've taken advantage of the five
twenty nine account in order to basically get some state
tax savings. But we're not using it in the same
(50:20):
way as we are for money that we're investing for.
Speaker 1 (50:22):
Our kids future education. You're not using it in the
traditional means. You're really just jumping through a hoop in
order to discord the tax break, which is totally illegal.
This is totally legit, and because there are no requirements
for how long that money needs to live inside of
that five twenty nine account in order to achieve that
tax exempt status, essentially you're just you're filtering that. It's
(50:44):
it's almost like you're laundering your money, but it's like
it's like a legal laundering. That's exactly what the money
goes into it, but then you're immediately taking it out,
But because you've stuck it in there, you get that TAXI.
Speaker 2 (50:53):
That's why I bought the nail salon Matt, so that
I could launder and pay no tax.
Speaker 1 (50:56):
On all my earnings. I think you kind of hinted
at this, but you do have to wait to withdraw
the money until the year that the qualified educational expense
is going to occur. And so what that means like,
if there's this were me, I would go ahead and
earmark the funds that you know you're gonna need to
put towards tuition, right these qualified expenses, set that money
aside within your high yield savings account, and then whenever
it is that because it may not be that may
(51:18):
not be a bill that comes due this year, that
might happen next year, and so you want to keep
that money as long as possible, earning your five four
or five percent in your high yield and then once
you know that, okay, this is the year that I'm
going to incur that expense, that's when you go ahead
and put that within the fight twenty nine account. And
that's also when you're going to take it out, because
when you take it out, it's that year it has
to go towards that qualified extent.
Speaker 2 (51:40):
If you have like a longer timeline hand, if you're saying, oh,
this is money I'm gonna have to pay towards the
NBA in seven eight years from now, then I would
would say like, oh no, maybe it's going to open
it up and invest some of those dollars and grow it.
But because we're on a more truncated timetable, I think
it makes sense to do it this way the.
Speaker 1 (51:55):
Whole Yeah, exactly. The entire reason that we're talking about
not investing it is because we want you to be
able to avoid the sort of like we're talking about earlier,
was it with Dawn. She's getting closer to retirement, and
so we're looking to avoid that risk. That's what we're
trying to get you to do here, Hannah, is to
avoid the investment risk, the volatility, because you know you're
going to need that money now, and so anytime you
know you're going to need access to funds in a
(52:18):
time period less than two or three years, we don't
want you investing that money. And so this is how
you can earn the most on that money without actually
investing it, and it doesn't have to sit there for again,
all that long. It doesn't need a season for a
year or anything. So we want you to be able
to get the best of both worlds here by taking
this what we'd call a slightly more optimized route. But Hannah,
(52:39):
best of luck to you as you're heading off there
to grad school or specifically to get your MBA. So
did Hannah say she was in South Carolina? Did she
say she was in Greenville? I don't know if she said. Okay, well,
if she is, she would easily be able to go
and visit the brewery that we're enjoying on today's episode.
So again, this was the here you say it, let
me read it. That's a silly name. Oh yeah, yes,
(53:00):
silly saying it.
Speaker 2 (53:00):
Our depictions of yet another revolutionary absence.
Speaker 1 (53:04):
This is an imperial pastry stout, I believe. What were
your thoughts on this thick bad boy that we enjoyed today, Yeah,
I was the first things.
Speaker 2 (53:12):
First, it was thick, it was viscous, right, and then
I tasted sweet vanilla and cinnamon combo, a little bit
that toasted coconut coming through as well. It's just this big, burly, magnificent,
magnanimous stout. I don't even know what other ad change
just to throw in on this one.
Speaker 1 (53:27):
I would say chocolate as well. That's like the first
thing that I noticed was it just was like chocolate.
I felt like I was drinking like a hot chocolate,
which is kind of the opposite or straight out of
the Willy Wonka River. Oh my gosh. Yeah, just like
Augusta snow drinking straight from the sacred fount But could
you really imagine any heavier beer to enjoy it on
quite possibly the hottest day? Seriously, we talked about how
(53:50):
stouts are. Oh, you want to avoid these big, heaviestouts.
It's a bad idea in the summer. It's a bad
idea on ninety plus degree days. Well, okay, so here's
what we're gonna give. If you're listening to the episode
this deep into the episode, we're gonna go ahead and
share something with you because it means that you're you're dedicated. Right. So,
our little studio here, our little clubhouse, our ac unit
is a window unit. And what that means is that
(54:10):
when we record, we actually have to go and turn it.
Speaker 2 (54:12):
Off because it's loud. It's noisy, it's noisy. And so
on these hot days with the ac turned off, it
gets really warm and it starts to feel like we're
like really towards the center of the Earth's court.
Speaker 1 (54:24):
What's the wind Hoff method whatever that is. This is
the opposite. It's like we're basically like in Asana here,
hey for yeah, I was gonna say, free Saunam. We've
got a little thermometer over here and inside our office
right now it is ninety two point eight degrees, so
we're we're sweat movies dedication right there. It's one of
the ways we're able to keep expenses low. Though, Joel.
We've got this old carriage house that is not insulated,
(54:46):
but man, we still love it.
Speaker 3 (54:48):
Though.
Speaker 2 (54:48):
You know what, we always say, what doesn't kill you
makes you stronger, and so I think this makes us
I feel stronger, better humans, better podcasters, let's hope. So
if it doesn't make us hilarious, but that's gonna do
it for you. This episode and listeners. You can find
show notes up on our website as always at how
to money dot com. We've got other resources there too,
including the how to Money newsletter. How to Money dot
Com slash newsletter comes out every Tuesday morning. It's a gem.
(55:11):
It's of course, free provides a lot of encouragement alongside
great money advice.
Speaker 1 (55:16):
That's right, so buddy, that's going to be it for
this one. Until next time, Best friends Out, Best Friends Out,
Welcome to Out of Money. I'm Joel, I'm Matt.
Speaker 2 (00:02):
Today we're answering your listener questions.
Speaker 1 (00:24):
That's right, We've got a listener question episode lined up
for you on this beautiful Monday, and we've got five.
Like always, we've got five listener questions to get to
a letten.
Speaker 2 (00:34):
Me terrible weather, by the way, where our listeners are. Matt,
you have no idea that is true. It's nice here,
it's beautiful here though so a little little hot still,
it's a little warm.
Speaker 1 (00:42):
She's got student loans and she's trying to figure out
how much money to keep on hand, how much liquidity
while also paying down those student loans. We'll get to
her question. We're going to cover a five twenty nine
strategy for adults for adult learners. All adults should be learners,
but if you're looking to go back to school, and
we're going to talk about that lifelong learning is important.
And another listener he's worried about the He's wondering maybe
(01:06):
if he should be worried about some of the bank
downgrades that have been making their way through the news.
We'll get to those three questions, plus a couple others
throughout today's episode. All right, I look forward to it.
Speaker 2 (01:16):
But before we get to that, Matt, I wanted to
ask you kind of a frugal or cheap I've got
a couple pairs of headphones. As a dude who listens
to a lot of tunes, who listens to podcasts, but
who also creates audio for a living, I wear headphones
a lot of the day, and over time those headphones
they wear out, right, but one I actually have two
pairs that this is happening to right now. The ear
(01:37):
muff thingies that go on the outside.
Speaker 1 (01:39):
Are like the base. They're basically disintegrating. I'm pretty sure
that's the technical term for the muff. So the other
none of your most the pads, right the question that
creates the nice seal.
Speaker 2 (01:51):
Yes, but these pads are wearing out, they're molting whatever,
and actually I like a little flecks of black all
over me from these pads.
Speaker 1 (01:57):
Is often look over at you and you've got something
yes on your face.
Speaker 2 (02:01):
I know, like right there, buddy, So is it frugal
or cheap that I'm replacing the pads not the headphones?
Speaker 1 (02:08):
Uh? It is the earth conscious thing. It's the green
thing to do, most likely because I'm sure that you
could just easily toss those and buy a pair for
like another cheap pair for like ten bucks.
Speaker 2 (02:20):
They're not super cheap headphones. They're probably like fifty five
sixty really yeah.
Speaker 1 (02:25):
I mean you watch all the slick deals and all.
Speaker 2 (02:27):
That, because I'm honure you could get a fifty dollars
pair for ten When you're wearing headphones all day every day,
you don't want the ten dollars pairs. So there's a
difference in like ergonomics and sound quall.
Speaker 1 (02:35):
That's why I don't like the over the ear because
it presses on I think it has to do with
the fact that I wear glasses, and so I've got glasses,
and when you do the over the ear, even though
they're not really supposed to push on your ear, they
still push on your ear a little bit. And we
got glasses. It smushes the car your ear up against
your head and it sandwiches the acetate the arm of
(02:55):
the glass glasses there, and it hurts. That's why I
like the in ear. Even while I'm sitting here at
the desk, I don't like doing plug in. I like
to do the blue.
Speaker 2 (03:04):
I think we can both agree that the worst of
both worlds is the on ear headphones. Yep, only psychos
where those my parents included. I don't know, it's headphones.
I'm like, who would get these?
Speaker 1 (03:13):
They're the default cheap headphone, Like they look like they're
the nicer ones, but in reality.
Speaker 2 (03:19):
They just yeah, they don't quite cut it, all right,
So I think I play paid like eight or nine
dollars for a replacement for the muffs.
Speaker 1 (03:26):
I'm like a fifty to sixty dollars pair headphones. Yeah
all right, Well if that's the case, then I think
you probably made the right move. I was thinking those
were like a ten dollars, just a cheap pair, But
I just rocked my beats. Yeah there go.
Speaker 2 (03:36):
If I see a great sale at some point, maybe
I'll upgrade. But these things are still working. They're just
I don't I don't want all the molting, you know,
the plastic stuff all over.
Speaker 1 (03:44):
I don't want extinct dinosaur particles on you, you know, right, petroleum,
that's where plastic stalk's from.
Speaker 3 (03:50):
With.
Speaker 1 (03:50):
Yeah, let's introduce the beer that we're going to enjoy
it today. So this is a beer. This is a
collaboration actually between Burial and the Eighth State, which is
a brewery in Greenville, South Carolina. This beer is called
These are depictions of yet another revolutionary absence. This is
an Imperial Stouts. We were just joking about how you
(04:10):
shouldn't drink big stouts in the summer, in the summer heat,
and here we go. So this is what we're gonna
enjoy it today. We'll share our thoughts at the end
of the episode.
Speaker 2 (04:18):
And you always have to laugh at any burial naming
convention because they're all ridiculous and over the top, and
a state evidently allows it.
Speaker 1 (04:25):
Like, fine, you guys want to name it your ridiculous name.
You guys do your things, all right.
Speaker 2 (04:29):
But we take listener questions every single week now on
the show, and we would love to take yours. So
if you have a money question, please feel free to
reach out. You can submit yours at howdomoney dot com,
slash ask, or simple Instructions. It's really just recording a
quick voice memo into your phone and emailing it our way.
But yeah, hopefully we can take yours next Monday. All right,
But let's get to our first question for this episode.
(04:50):
This one is from a listener who's got a bunch
of young kids and has multiple money goals.
Speaker 4 (04:57):
Hey Matt and Joel. I'm Rachel from Crystal Lake, a
sub of Chicago. You don't know this, but you come
with me on several walks and I love it. Thank
you so much. I'm a consultant with variable income and
my husband is in sales. Together we bring in approximately
two hundred K a year. We have three kids, ages
(05:17):
five at under and boy are the expensive. Together we
have about one hundred K and student loans with interest
rates that vary from five to seven point twenty five percent.
We've maxed out contribution for my husband's work, and I
save a minimum of two K a month that doesn't
go to taxes. Combined, we have about two hundred and
(05:39):
sixteen K left on a mortgage with a rate under
four point five percent, on which we make two hundred
dollars principal payments extra per month. At present, we have
forty K all together in the various CDs and high
yield savings accounts, keeping money aside. I'll need to pay
taxes should I pay off the stuit loans for us,
(05:59):
keeping certain percentage above the emergency fund as liquid. Pay
less and have more liquid and how do we decide
how much to put into home upgrades with excellent ROI.
I've paid off the only car we have this year
and we don't have any credit cards that have a
balance with interest applied. Thank you so much for your
(06:20):
insight and your help.
Speaker 1 (06:21):
You guys rock all right, Rachel. So going back to
what you were saying there at the beginning, we are
happy to hear that we are your walking buddies. It's
like the yeah, two buds that gets to walk along
with you and you don't need to have a schedule
and figure out where it is that you're going to
meet up for where you're gonna reconnoiter meet up with somebody.
But yeah, we love that. Thank you for bringing us along.
(06:42):
And also another note too, man, kids, it is true
they are expensive. They're not quite as expensive as some
of the different headlines out there would lead you to believe.
You know, I think is it like seven hundred and
fifty thousand dollars.
Speaker 2 (06:56):
Now like the I think it's like three hundred and
eight thousand something like that was last time.
Speaker 1 (06:59):
He thought was a lot more. It used to be
in the upper twos. Now as there's not that much,
that's a lot money over twenty years. Still a lot.
Speaker 2 (07:07):
But I think for some people that can scare you
off and you'll be like, I thought I was gonna
have kids, but not if it costs that much. There's
a lot of there are a lot of ways to
make sure that your kids don't cost quite. They're only
cost three, I'm gonna have like five more kids. Right,
it gets overwhelming, and yeah, I realized, like, yeah, it's
not easy, but of course it is worth it even
though it's costly. Right, But Matt, let's let's talk about
kind of gets a racil's question. There's kind of a
(07:28):
lot going on in this one, so we'll try to
get to a bunch of the points or the questions
that you had. And it sounds like y'all are doing
really well from an income standpoint, which is great, and
on top of that, you're saving and investing in a
solid clip. You don't have any debts that are out
of control, and you've got that paid off car and
that's something we dig like, we oh, yeah, we don't
like cardbt that's one of our least favorite things.
Speaker 1 (07:46):
And I think she said that they paid off the
only car that they have, which makes it sound like
that there are a one car family that they're rocking
that with three kids. That is awesome. Hang on to
that as long as you can. Yeah, the longer you
can stick with that. Yeah, I'm like salivating this beer
so it's so good. I just took a sip. But
it's just easier than I think a lot of people,
like in their minds, are like, oh, we've got okay,
(08:07):
we've got kids. Now, we definitely have to get the
be the two car family thing. But with so many
people working remotely and the ability it takes a little
more work to schedule, but the ability to bike. I literally,
I mean I bike my dude to preschool this morning
on the cargo bike. I'm gonna and with ride sharing too,
we're gonna we're gonna take the van in to get
some repair work done later this week, Gonna take it
(08:28):
there and then I'm gonna uber home because guess what,
all right, fifteen twenty bucks with tip and all of
a sudden, that means I don't need that second car.
Speaker 2 (08:35):
Yeah, it's definitely a line item in the budget that
more and more people can and should question, especially especially
given how many more people are working hybrid or fully
remote these days. On the student loan front, by the way,
whether or not it's a priority to pay off those
that student loan debt, it depends largely on this new
save plan, right, which is changing the game for anybody
who has outstanding student loan debt. It's this save plan
(08:58):
is likely going to change your payment amount. It is
for a whole lot of people. And there's this helpful
calculator on student Loan planner that will link to in
the show notes. But if this new save plan is
going to reduce your payment substantially and your balance still
won't be growing, which is part of the benefit of
this new save plan, your student loans likely shouldn't be
a top priority. The biggest benefits come to low and
(09:19):
middle class income earners though, which isn't you guys, Rachel.
It sounds like you guys are making more than that
and you have three kids, though, so much depends on
the specifics of what sort of subsidy you're going to
qualify for under the new safe guidelines. How long have
you been paying on those student loans, right, how much?
There's a lot of different fact balance is left, and
so yeah, take that into consideration. Plug your numbers into
(09:42):
that calculator and kind of see, well, oh, it looks
like my payment is not going to be changed. If
that's the case, then that higher rate student loan debt
is probably a bigger priority for you than it is
for other people.
Speaker 1 (09:52):
Sure, yeah, yeah, normally this would be honestly, just a
really tough one.
Speaker 5 (09:56):
Right.
Speaker 1 (09:56):
So she specifically said that her student loan interest rates
are a little bit I don't know if they're a
little bit higher relative to most other folks, but they're
on the line, right, So typically any loans that are
higher than seven percent, like I would want those gone
if that was me, And anything lower than seven percent, like,
in my mind, that wouldn't be the worst debt in
the world to keep her around if you have other goals,
(10:17):
if you are investing solidly, But if your payments Rachel,
if they get reduced with this new safe plan, and
you know, like let's say you hit that max twenty
or twenty five years of repayments and then you end
up coming out ahead, then I see no reason to
pay down on them early, even though that might be
your natural tendency. Especially, I mean you mentioned her her
(10:39):
mortgage making ex additional payments to that. I get the
impression that they don't like having debt around and that's
something that they might want to eliminate.
Speaker 2 (10:46):
Which, let's be honest, is a really good way to
think about debt. But at the same time, when you
have low interest rate, debt and savings rates are higher
and other financial goals, so other things you do, you've
got to moderate maybe your approach to debt and investing.
Speaker 1 (10:58):
Exactly so with that forgiveness of mind, and after you
crunch your own numbers, if it's likely that this new
plan could basically tip those higher student loans, especially the
ones that are around seven and a quarter to a
lower effective rate essentially at the end of the day,
then it certainly makes even more sense to not prioritize
paying down the student loans.
Speaker 2 (11:17):
Yeah, and one of the heart at the heart of
Rachel's question, it comes down to liquidity, which is such
an important question map for people because having more cash
on hand gives you options, gives you flexibility, and can
give you peace of mind. And fortunately you're not hammered
as hard now having money in savings as you were
just a few years ago. And so how much money
(11:38):
do you keep on hand? Rachel, that's a good question,
And it seems like we're not prioritizing student loans, which
because of this new saved plan, they're not as highber
a priority as they would have been in years past.
But it often comes down to what you're gonna do
with the money instead. That is really the crux of everything,
Like what are your alternative options? Because if you're just
gonna blow that money, which I don't think you are,
(12:00):
It doesn't sound like you're that kind of person who's like
going to go on a self control Yeah, shopping's free
with it, like you just want to know the best
place to funnel it. Well, if you were going to
spend it in a silly way, it would make sense
to go ahead and be done with those student loans
as opposed to buying more stuff. But you're already investing
it sounds like you're maxing out your husband's four O
one k at work. It might make sense to go
ahead and at least open up roth iras though for
(12:20):
the both of you. Yeah, maybe max those out to
the total of thirteen grand a year for both of you.
And if you did that, if you got the money invested,
I think Matt, you and I would both feel better
about them missing out on the guaranteed return on their
money by paying off the student loans because they're putting
it in a tax advantaged account to grow and compound
for their future.
Speaker 1 (12:40):
Sure, yeah, if you wanted to do it by the book,
you would say the equivalent amount that you have outstanding
on your student loans, invest that money. So once you
have that much additional money set aside and is either
invested or even in a savings account where you're earning
a higher rate. But again knowing that when you do
invest that money is going to compound, it kind of
makes sense that you don't. It doesn't need to be
(13:02):
dollar for dollar per se. I think if it was me,
I would not only use some of the additional money
to make sure that they've maxed out their rothy race
for this year, but also set aside money for next year.
That way, you have that money ready to like it's
sitting there on the sidelines, ready to go. January first
hits you're able to lump some invest and next year
it's fourteen thousand dollars because they're upping the contribution limits
(13:25):
from sixty five to seven thousand, which is we love
to see, which is awesome. And so if I were
in your shoes and I was able to max out
not only this year but also next year's, I think
I would feel much much more comfortable about saying, Okay,
let's just see kind of how this plays out with
the student loans. We don't necessarily need to pay those
off ahead of time. But let's also get to home renovations, Rachel,
(13:48):
because first of all, it sounds like you've got the
ability to use that additional two thousand dollars a month
that you're setting aside, and you've got the potential just
to straight up pay cash for any projects that you've
gotten mind, which is awesome.
Speaker 2 (14:00):
Not to mention the two hundred bucks a month they're
prepaying towards the mortgage, like funnel that back into home
rental project.
Speaker 1 (14:05):
There you go twenty two hundred dollars and this is
gonna be way better than taking out a heelock at
today's rates. But then you asked about how much to
put towards renovating, and this is going to have to
be a judgment call on your part. You know, you
and your husband y'all need to talk about this. You'll
need to think through what aspects of your home that
you'd like to change the most, and what will honestly
(14:28):
have the most impact for y'all is a family. You know,
like with something as simple as adding some cubbies in
a mudroom, would that drastically improve the quality of life there.
That's literally something that Kate and I did when we
moved into our house last summer. Did not cost a
lot of money, but it subs I mean, I don't
know what we would do with all the shoes, the backpacks,
the jackets in the winter, the bicycle helmets. Just adding
(14:50):
these cubbies where each person we got six of them
there where they have their own space, dramatically increased the
usability of our little entry were there but with her
or maybe like she's got three kids, so maybe she's
realizing that what they need is another bathroom or something
right but way those needs while at the same time
keeping in mind that you may not be in this
house forever, and so you don't want to necessarily overbuild
(15:12):
your street or your neighborhood. It's difficult because you, on
one hand, you want to keep that in mind, but
you also don't want to make these improvements with return
on investment. As the only consideration, because I think the
last I read a new garage door is actually what
ranks the highest as far as what improves the resale.
And you just never know with who it is that's
going to buy your house whether or not they're going to
(15:33):
value the improvements that you made. And so what I
would say is make sure that you're adding utility for
the way it is that you and your family live there,
without getting crazy with it. But instead of ROI, make
it rou return of utility or something like that. Have
that be the filter to which you think through some
of these improvements.
Speaker 2 (15:51):
And so much of it comes down to how long
you think you're going to be in the house. If
you're like, hey, listen, we're on two acres out here,
and this is the perfect spot for our family, it's
just the house that's insufficient, and so if we do this,
this and this, then hey, we're going to be here
for the next thirty And granted I think some people
think that and maybe that doesn't end up being the case.
But if if you think you're gonna be there long term,
it makes even more sense. I think the funnel money
(16:14):
into the house and make it the way you want
it to be as opposed to thinking about pure resale value,
because if you're only going to be there for a
year or two and you're gonna need like bigger bones
essentially at some point you need a bigger, better house
something like that, then you probably don't want to sink
too much in you want to be saving up for
the next time payments.
Speaker 1 (16:30):
They Yeah, that's when you go to Ikea and just
get yourself some organization pieces the temporary fix. Yes, it's
a band aid, which is very much the temporary fix. Right, Actually,
scratch that. Scratch Ikea. Instead, go to your local Salvation
Army or Goodwill and find you a quality piece furniture
that might also solve some organizational needs. If that's what
you got going, it's even better. Yeah.
Speaker 2 (16:51):
And I think the period matt of your life with
young kids, it can be financially daunting. It feels like
you're trying to do a bunch of different things at once.
Three kids under.
Speaker 1 (17:00):
The age of five.
Speaker 2 (17:01):
That's about as tough as it gets from a financial
and a mental perspective. It can be very trying. Childcare
is expensive if you depending on whether or not you
have help or something from family members, you're trying to
excel in your career, you're trying to save for retirement,
you're trying to buy or fix up a house. It
feels like a lot and Matt, you and I we
know that feeling very well because you know, we're not
(17:21):
too far away from those years, those years. Our youngest
boys they're still three and so in our oldest are
ten now, so we still know, we still remember. It's
a fresh experience that you're trying to do all those
things at once, So just make sure you keep chipping away.
Know that those goals don't happen overnight. Make little adjustments
here and there, and then celebrate the wins and successes
along the way, because it's just so easy to fixate
(17:43):
on the future and think about the easier years that
are coming down the pike. But enjoy these two because
they really are special times, even though you're pretty worn
out at the end of the day.
Speaker 1 (17:53):
That's right. So Rachel, best of luck to you, and
I look forward to our walks together as we continue
to talk about our finance, the walks that we don't
even know we're taking. We take walks around here, but
we just Yeah, Rachel needs the recorder of a podcast
and send it our way. That way, it's like it's
like a penpal. That'd be beautiful relationship. But we've got
four more questions to get to, including one from a
(18:15):
divorce a whether or not she's on the right track.
We'll hear from her, plus others right after this. All right,
we're back.
Speaker 2 (18:30):
We've got more money questions to get to from Awesome
how to Money listeners and Matthi's next question is specifically
about one of our favorite retirement accounts that not enough
people know about.
Speaker 6 (18:41):
I'm Madam Joel. This is She's from Atlanta. Thank you
for all you do and the wealth of information that
you provide today. I had a quick question about it's
a sea accounts, particularly with regards to reinbursement later in life,
potentially decades down the road. How does it work in
case of family members? For example, if I pay for
(19:04):
a medical expense for my kids now and I want
to get reimbursed for that thirty forty years down the road,
would I be able to withdraw that fund and use
it for myself? And also, how does it work in
the case of spouse. If expense currently occurs for one spouse,
(19:28):
can the partner withdraw or reimburse that amount for his
or her use or medical expense later down the road.
I'm just curious. Thank you so much.
Speaker 1 (19:42):
Oh so a Sheesh is from Atlanta. I don't think
we get enough Atlanta Atlanta listener questions sentence which Aesh.
So we're actually gonna should we talk about this here?
We're going to have a listener beer hang here next week,
not this Friday, but the next friday after that, September fifteenth.
It took a lot of coaxing to get Matt out
(20:03):
of his hobbit hole. Do we want to go ahead
and share? So go ahead and pencil that on the
calendar because we talked about maybe doing it at like
around five, should go ahead nail it down, think four
to eight at InterVoice brewing indicator indicator. Yeah, so they've
got awesome pizza there. We'll make more official announcements in
the future. But as Shish, this is like the little
insider heads up for you as well as any others
(20:25):
who might be listening at this point who were from Atlanta.
Speaker 2 (20:27):
Said great pizza, and that is true. But Inner Voice
has great beers to here is so good.
Speaker 1 (20:31):
Yeah, So literally we're going there because you, and we
chose this location because we're the ones that got to
organize it. But we haven't been to InterVoice and we've
had their beers before. They're so good. And the pizza
it's Glyde Pizza, right, like, so this is a pizza
rha that you that our families used to frequent when
we lived in town, and they opened the second location
(20:51):
out there indicator I can't snink in wait, it's going
to be a ton of fun. So if you are
in Atlanta or the surrounding Atlanta area, mark that on
your calendar September fifteenth.
Speaker 2 (20:59):
Yeah, to see out there. It's we don't do this enough.
It's always fun to meet listeners in person, not just
I want to watch with them virtually when doing it
in real war, we're not actually.
Speaker 1 (21:08):
There, so although we like that too.
Speaker 2 (21:10):
And at first, I just want to let everyone know,
like why a she she's asking this and the reason
is because the HSA is actually one of the best
accounts to save for retirement and that's how he's trying
to use it. Like we've talked about this, We've done
whole episodes on this, we have articles up on the
side about this, but almost nobody knows sadly that the
HSA is one of the best ways, is one of
the best accounts with which to say.
Speaker 1 (21:30):
For their future.
Speaker 2 (21:31):
And they you know, a lot of people treat their
HSA as a way to save a little bit on
taxes to pay for current health care expenses. But that's
not the best way to go about it if you're
thinking long term, because you can turn your HSA into
a triple or even a quadruple tax advantaged account that
can grow for years and decades, that can compound for
a long time if you do it right. And that's
(21:53):
that's the way she is treating it, which I just
got to say, mad props.
Speaker 1 (21:56):
And part of what it takes to get maximum value
is to pay for all of your healthcare expenses out
of pocket so that you can allow for that tech
sheltered money to keep on growing and compounding. That makes
me think of Charlie Munger's quote on compounding, which is
like the number one or the first rule when it
comes to compounding to never interrupt it this unnecessarily, which
(22:20):
is it's okay to touch it when you need to
tap it, but you got to let that thing go.
And that's what we want you to also do here
with when it comes to your HSA. But on top
of that, though, you'll want to have records for every
health expense that you incur, which is going to help
you when it comes time to withdraw those funds. I
have never had an HSA, so I've never been able
(22:40):
to do this, but you better believe if I hadn't
a high deductible plan, I would also have an HSA,
and you better believe I would have an Excel sheet
or a Google sheet with the date, description, of course,
the price. But also make sure that you're either taking
a screenshot of those expenses or you're taking a picture
of the receipt to actually have the receipt in case
the eye used wants to have proof of that as well.
(23:03):
Keep it organized. Upload it to a folder. Maybe the
HSA folder lay labeled by year. Perhaps, I don't know.
You come up with your own system, but you got
to stay organized. That's key to making the HSA work
as a retirement account. Yeah. Have you ever heard of
hyper thymsia? No?
Speaker 2 (23:17):
Okay, so this is when you remember everything and apparently
it's a real problem, Like I always like talking about.
Speaker 1 (23:22):
It, amnesia, right, Yeah, Okay, Well, you remember nothing, which
is more akin to what I have. I don't.
Speaker 2 (23:26):
I don't remember things very well. I just asked my wife.
But hyper thymnesia is apparently when you remember everything. I
don't think she has this. And so because of that,
he needs to marry taylose documents, and even if you
remembered it, he wouldn't be able to prove it to
the irs. So you got to keep the record.
Speaker 1 (23:39):
He's like, it's up here, and they're like, no, that
doesn't count, right.
Speaker 2 (23:43):
Yeah, we can't tap that and get the files out
of your brain. But the heart of Ashes's question is
about whether or not his family members and their medical
needs qualify to make that document. So, if let's say
one of his kiddos goes to the er with this
or that injury God forbid, and you where you know,
you get a big medical bill, does that count towards
(24:04):
the HSA money you've set aside. The answer is yes, Right,
your HSA funds can be used to pay for out
of pocket qualified medical expenses incurred by your family members
who qualify as dependents on your taxes. The same is
true of your spouse, right if they're listed on your
tax return. If you're filing jointly then for that year, Yeah,
their expenses are also eligible. And so that's true whether
you have the individual or the family coverage within HSA
(24:26):
through your plan.
Speaker 1 (24:27):
That's right. And your kids are actually included as long
as they are dependents, and that goes up. So if
your kids are students. A lot of kids go off
to college and so they qualify up through age twenty
three as well. So that's good to know when they
go off to college. And if you're like me and
you end up in the er because you ate some
leftovers that were left out on the counter and you
(24:47):
end up you think you're going to die, and it
turns out you've got food poisoning and you're laid up
in bed for multiple days. Why does that not surprise me?
Learn my lesson. I'm willing to eat my own leftovers
that where I know that they weren't necessarily left in
a car for two days. All the things we did
get I mean, you I can laugh now, but dude,
(25:08):
at the time, I literally thought I was dying. I
didn't know what was going on.
Speaker 2 (25:11):
I'm sure your parents were like, we wish he would.
We're so mad at him right now.
Speaker 1 (25:15):
I think I barely had a cell phone at that point,
so I think they knew. But you know, this is
back in the old it's not the eighties. It makes
me think of the Blue episode. It was the eighties.
It wasn't at all the eighties. That's when I was born.
But technology wasn't what it was while went back when
we were in college. That's true, we still remember pagers
and AOL is a messenger. But by the way back
to your question the sheish, it's also important to mention
(25:36):
that HSA funds that they can be used to cover
some things that your health insurance policy may not cover. So,
for instance, your health care plan it might not cover
new glasses or orthodontia when it comes, especially if we're
talking about your kids here, which can get crazy expensive.
But those count as qualified expenses through your HSA. So
(25:59):
if you end up spending five thousand dollars on braces,
make sure to put that in the sheet excel file
as well. But ashish Man, I love how it is
you're thinking about using your HSA. Your long time horizon
is amazing here in the fact that you're willing and
able to invest HSA dollars for thirty to forty years.
That is impressive. It's going to offer you so much
(26:20):
more future flexibility because you're maximizing all of these retirement
accounts that you have at your disposal.
Speaker 2 (26:25):
Yeah, this is like the textbook way to use an
HSA if you have access to one, right, perfect like
maxid joker out, get all those tax benefits, invest it,
and then have a lot more money that's tax free
to spend later on. But you've got to document along
the way, right, and so there are a lot of
details that you need to know in order to make
that HSA work the most effectively for you possible. Right,
(26:46):
So she's good luck, keep it up, Man and Matt.
Let's get to our next listener question. This one comes
from a listener she just like really wants to know
after going through a really difficult life event, whether she
is still on the right track with her money.
Speaker 3 (26:59):
Hi.
Speaker 5 (27:00):
My name is Down and I'm from Toledo, Ohio. I've
listened to your podcast for several months now. I love
all of your helpful Hence your explanations of all things
financial are so helpful. I am fifty seven years old,
I am single, live by myself and rent my home
I have not purchased a home because my job is
somewhat transitional, meaning that I am transferred to a different
(27:23):
location every two to three years. I bring home about
twenty eight hundred dollars a month after taxes, insurance, and
money for my four O one K are deducted. I
also have a side gig making about three hundred to
four hundred dollars a month. I have five percent taken
out for my four O one K, and my employer
matches that five percent. In addition to my four to
(27:45):
one K and my savings, I will also have a
retirement pension from working for the State of Ohio for
twenty seven years. My monthly living expenses are about seventeen
hundred dollars. I have an emergency fund of thirty six
hundred dollars in a savings age count, and I have
forty thousand dollars in a CD. My only debt is
(28:05):
a credit card with a balance of four thousand dollars.
My questions are one, I plan to use some of
the money in my CD to pay off my four
thousand dollars credit card debt once the CD matures in
five months, instead of waiting. Should I deplete my emergency
fund in my savings account now to pay most of
the credit card debt off. Two should I invest my
(28:28):
forty thousand dollars from the CD differently once it matures
in November? And if so, what might be some good
investment options. I have considered purchasing a short term rental property,
but I am a little leery of making such a
big purchase. And then three, I am recently divorced and
very concerned about doing the right thing with my finances
(28:50):
so that I can retire when it comes time without
being incapacitated financially. Am I on the right track or
do you feel that I should be doing things to
different Really? Any suggestions would be greatly appreciated. I love
the show, Thanks for the help, and take care all right.
Speaker 1 (29:08):
Glad to have you on board, don and great job
keeping a nice gap between what it is that you
bring in every month and what goes out. You are
living frugally what she was saying, her monthly living expenses
are like seventeen hundred dollars a month. I don't care
where you live. That is incredible given today's the high
cost of living today.
Speaker 2 (29:26):
Yeah, just housing, groceries, transportation, like to keep that all
in that spare is really impressive in so housing, So
she mentioned not owning a home.
Speaker 1 (29:35):
Don don't worry about that because most folks have been
brainwashed into thinking that home ownership is the only way
to build wealth or the best way, right, the best way,
and it's not necessarily true. I think it can work
as a great forced method of savings, right, because when
you buy a home, that's just something you pay every
single month, and so you're kind of automatic. It's again
it's forced savings. But renters who are diligent investors, who
(29:59):
are listening to how to money or making the right
moves with their money, they can actually come out ahead
by not necessarily investing within you know, a primary resident.
That's even more true today than it was given where
five or ten years they are given where housing prices are.
Speaker 2 (30:13):
Yeah, resolutely, we've seen massive increases in both the cost
of rents and the cost of a home, but less
growth in the cost of rent and so renters are
sitting prettier than homeowners or people who want to be
homeowners now. And so I just want to mention too,
like how great is it to work for an employer
who matches dollar for dollar up to five percent.
Speaker 1 (30:32):
That is pretty great.
Speaker 2 (30:33):
Not necessarily the norm, but it's pretty sweet. And so
that means just by default, by putting in the five
you're getting a ten percent total of your salary tossed
into a retirement account, which is a really good place
to be, right especially since you've got that pension to
go along with what you've been putting away on your own.
In many ways, you're ahead of the game when it
comes to retirement savings. So this is a good place
(30:55):
to be. It's not that maybe you can't do more
down the road, but it's a good place. It's a
really good starting posies. And let's talk about the credit
card debt for a second, because you're not alone on
that either. About half of Americans have revolving credit card
debt to the tune of like over six thousand dollars. Fortunately,
you've got less than that, but we would say that
this should be a really high priority for you to
pay it off. But should you eliminate that small savings
(31:17):
nest egg in order to do it in order to.
Speaker 1 (31:19):
Do it right now? We'd say probably not. That's that's right. Yeah,
So if don if you look at our money gears.
We want folks amassing four hundred and sixty seven dollars
before they start paying off the credit card debt. And
the thing is, you have more than that in savings.
It's just not that all of it is liquid. You've
got a lot of it, some of it in CDs.
But if that were to you, like let's just say
(31:41):
an emergency comes along, well, you'd be putting that expense
of that emergency right back on your credit card. And
so feel free to take whatever you have an access
of that bare bones base emergency fund and pay that
to the credit card company. Go ahead and reduce your balance,
but don't use all of it because you are again
you would be in a position to where you have
(32:02):
no cash on hand. And on top of that too,
she pulls in I think combined between her main gig
as well as her side gig, she's bringing in over
three thousand dollars, so something like fifteen hundred dollars a
month because her living expenses are seventeen, right, so she's
got some excess funds on hand, and I think the
ability to start paying down that credit card balance even
(32:23):
before that was it forty thousand that she's gotten slocked
away on that CD that's going to mature later this year.
Down you have the ability to really start shipping away,
and by the time that thing matures, you could be
totally free and clear of that credit card. Best by
starting to chip away at it now, because you are
living so frugally, and because you've got that little making
(32:43):
that three or hundred bucks on the.
Speaker 2 (32:44):
Side, I love that because your margin is so substantial.
Even though you're not making six figures, you're still doing
You still got a big gap there, which is the
key to financial success.
Speaker 1 (32:55):
Right. The bigger the gap, the more the more moves
you can make that are going to benefit your future,
regardless of how much much you make. Right, But the
credit card debt's holding you back. So I agree Matt.
Speaker 2 (33:03):
The more she can funnel from that margin, specifically to
go towards credit card debt while retaining that minimum amount
in savings so that she has money on hand for
an emergency, I think that's okay. And then once that
CD matures, there's probably better things to do with that
money too. Like you and I, we want all how
to Money listeners to use credit cards wisely and to
avoid revolving credit card debt. That's of course that's a
(33:23):
wealth destroyer over time. But the truth is there are
probably better things that Don can do with that additional
forty K that she's gotten a CD as well. So
we should talk about that and Don. First, I just
want to say sorry to hear about your divorce. I mean,
we know that that can be tough emotionally and financially.
It's got ramifications in basically every realm of your life.
But based on what you've told us, I want to
(33:45):
tell you it sounds like you're heading into the right direction.
It sounds like you're making the right moves, and it
sounds like you know what you're doing too right, And
so I would think about like moves you need to
make and moves you should be making as more of
like tweaks instead of an overhaul. Like when you're going
in the right direction and you're going at the right speed,
but maybe the brakes are just a little squeaky, right,
(34:05):
it's like a tune up. It's a minor adjustment as
opposed to making big changes. And so once that CD matures,
I would say, keep a decent chunk around as additional savings.
Kind of like that three to six months worth of
the living expenses that we want people.
Speaker 1 (34:17):
To save up.
Speaker 2 (34:18):
And then after that, we suggest that you make it
a goal to max out your WROTH IRA each and
every year moving forward. Since you're over the age of
fifty five, you can contribute seventy five hundred dollars this year,
you contribute.
Speaker 1 (34:28):
And got that those ketchup contributions.
Speaker 2 (34:29):
Yeah, eight grand next year, right with that increased WROTH amount,
increased IRA amount, So make it your goal to max
that out. That is a great place for that additional savings,
which might be too much savings really when we're talking
about it, and we probably want more money growing for
your future. That's where we'd funnel some of that that
the CD money on once immatures.
Speaker 1 (34:50):
That's right, Yeah, And don you also asked about buying
a rental property. It sounds like you move around a lot, right,
and so with that in mind, is probably not an
ideal investment for you. And on top of that, we
would want you to do a ton of research and
some due diligence before you consider going down that path,
because it's not like an investment per se, it's more
(35:10):
like a part time job. And you've already got a
full time job that it's going to have that nice
pension and a part time job on a edition what's
that side gig exactly. So with all that in mind,
like I mean, it could be an overwhelming endeavor, but
if you are super interested in it, certainly start reading
up on it. Just make sure you do a lot
of research there. But sticking to tax advantaged retirement accounts
(35:33):
and just funding those like clockwork and specifically what would
you invest in. I think a target date fund would
be smart as you are closer to retirement age those
funds automatically readjust it and make sure that you are
exposed to less volatility. That way, you're avoiding the sequence
of returns risk that's when were you to retire, you
start withdrawing on some of these funds. If there's a
(35:54):
big drop in the stock market, that would have a
major impact on the amount of money us left there
in your nest egg. And so by switching over to
less risky, less volatile investments within that target date fund,
that keeps that from happening. So we would recommend that
it allows you to pick a date and you can
start working towards that retirement year, but a solid decade
(36:15):
of that, plus your pension and plus social security, that's
not even something that we even talked about. In addition
to a continued frugal lifestyle, I think that's going to
easily be able to get you where it is that
you want to be. Yeah, and don hopefully our comments
help you feel good about where you're going. Comments always
make me feel good, Joe, Well, thank you, that's the goal.
Oh right, sorry, I thought you meant I thought you
said compliments. Well, but the.
Speaker 2 (36:37):
One thing we might suggest if you're interested is to
talk to a fee only financial advisor, and so you
could find one at xy Planning Network or NAPFA dot org.
Those are those are two places where you could find
somebody who meets kind of the standards for a financial
advisor that Matt and I think are important. And if
you really wanted someone to kind of like pour over
(36:58):
all of your financials at once, it might be worth
right paying a flat fee to somebody to do that.
A few hours of their time would likely be enough
to kind of go over some of these details and
help give you even more reassurance and maybe some more
direction too. But Matt, we got a couple more questions
to get to including yeah, whether or not someone going
back to school as an adult should be socking money
aside into a five twenty nine account.
Speaker 1 (37:20):
Isn't that just for kids? Maybe not. We'll get to
that and more right after this, Joel, everyone knows that
tricks are for kids. Silly rabbit. That's that's that's what
you're comment about five twenty nine. Before the break, maybe
(37:41):
think of do you remember that this commercial? Of course? Okay, yeah, classic.
We will get to that question about five twenty nine's
here in a second, but first let's hear a question
about the main bank that I actually used me personally.
Speaker 3 (37:54):
Hey, Juelan Matt, this is Massa from Boston. Again. Recently,
I read that the financial ratings agency Moody gave Alli
Financial a negative outlook. In past episodes, you'll have sung
the praises of Ally Bank. I have a couple of questions.
Is the Ally Financial that Moodies gave a negative outlook
to the same Ally Bank that you really like for
(38:15):
personal banking? And if so, should I be concerned that
even if my deposits are wholly insured by the FDIIC
because I have less than a quarter million dollars with them,
if Alli Bank goes under, I may have difficulty getting
my money back out. Thanks again for all you do
to educate and inform us. Oh in confession time, I
(38:36):
first learned about credit ratings for companies by selling bonds
in the video game Railroad Tycoon three.
Speaker 2 (38:42):
Okay, man, that's kind of cool and it made me
I think. Actually was talking to somebody I know recently
and he was saying that he plays the Nintendo game
Animal Crossing.
Speaker 1 (38:50):
Have you heard of it? Maybe?
Speaker 2 (38:51):
Okay, I have not. I've never played it. I probably
haven't played video games in like ten years ago ago.
It sounds like a video game to me, Yeah, it does.
But he was saying, like, man, there's so many personal
finance tidbits. As he's been listening to the show. He's like,
I've been learning, but I'm also kind of putting it
into action in the video game that I'm playing. And
I think that's kind of cool. The video games can
connect like real life truths to the stuff we're playing.
(39:13):
It's obviously playing stupid stuff like Halo and NBA Jam,
but it's like, it's cool to see that that some
games are actually kind of helping teach us secually. Nintendo
in particular doesn't well.
Speaker 1 (39:23):
It doesn't, Halo, there's some sort of market capacity, right,
like don't you have a limited A lot of death.
I don't remember the other stuff, but if that's the case, yeah,
video games in some cases don't do as good of it.
Like that's why we love nerdy board games because oftentimes
the mirror real life when you're presented with a limited
resource and you have to find a way to make
(39:43):
the best of those limited resources. That is life, at
least ancient real life. You know, like wheat tobacco. Well
that's Puerto Rico right there. We haven't played that on
in a while. But even like some video games do
that like makes me think of the classics, like Zelda.
You are gathering resources and you have to you know,
you go into the shop. You got the three things
that you can buy, and you got to decide which
(40:05):
one am I gonna buy the bomb? Am I gonna
buy the red candle? Or upgrade to the blue candle?
You know, you've got all these things that you got
to make decisions on. So it's not just nerdy board games. Yeah,
you can actually learn from video games. Yeah, which I appreciate.
Speaker 2 (40:19):
I agreed, especially since you know, we're not learning about
this stuff in school really, so at least if the
video games have an educational element to it, I'm all
for it. But that's thanks for sharing that, Massa. And
let's get to the heart of Massa's question about bank downgrades.
I'm sure, Matt, some listeners have seen these headlines and
maybe they're either worried or they feel like they've got
to change bank stats something like that. And we talked
(40:41):
about the recent downgrade to credit down grade to our
country and what we think that means.
Speaker 1 (40:47):
Right, well, you know, not just a bank. The US
event yes, got downgraded.
Speaker 2 (40:51):
Literally the country we live in got downgraded from a
credit standpoint, and Moody's they actually recently downgraded ten banks
and they gave negative outlooks to others, ally being one
of them. And then Fitch, the agency who did give
our country credit rating down grade, they said that they're
likely to down grade dozens of banks too, And so
part of that's because of multiple bank collapses that have
(41:12):
happened throughout twenty twenty three. It has folks on edge
when it comes to where they're putting their savings. So
a little nervous, yeah, and a lot of individuals have
moved their deposits not to better banks, but to the
biggest banks, believing that that's a safer place for them
to be. We want to reiterate, as always, that is
not necessarily the case. The truth is the big banks
offer much worse service alongside higher fees and non existent
(41:35):
interest rates on your savings. So no, the big banks
are not safer, and they're worse on basics, actually worse, not.
Speaker 1 (41:41):
To mention all the shenanigans. That's like Wells Fargo a
bank of America, which is a kind way of putting it,
just more like fraud, right, yeah, yeah, she need their
customers out of actual dollars.
Speaker 2 (41:52):
It's like someone murder someone and you're like, he's just
not nice. Yeah, and you're like, wait a second, No,
that was a mean thing to do, so much worse
than that. But that doesn't mean, of course, that you've
got to go bank with Ally like I do, because.
Speaker 1 (42:03):
There are other great online banks. So should you switch
to one of those? Should you completely ditch Ally? Well,
if that's not necessarily the case either here, I still
think Ally is a great choice. When all this news hit,
like I literally didn't think twice about what this meant
for all the saving. I mean literally, my emergency fund
is sitting there in ALLY, and I am not concerned
(42:23):
about it at all. Is that just because you're a
homer though, maybe? But so I will say, if I
was choosing a new bank, would I go with Ally?
I might go with one that is offering a slightly
higher rate, but Ally offers a really competitive rate, and
they're always up there in the top tier, even if
they're not there the very best. And they've got the
no penalty CDs, which I'm a huge fan of, and
so you just plug that away and that gets you
(42:44):
really dang close. So that keeps me from rate chasing,
which can always change on a dime. It depends on
what it is that if the different banks are offering,
you don't want to constantly be yeah, floating, bouncing from
one to the next.
Speaker 2 (42:56):
But I think it's interesting that you said that you
would maybe not go with Ally because other banks offer
better rates, but not because of this credit downgrade threat.
Speaker 1 (43:04):
That is not the reason that that would keep me
from going with ALI, for sure. Yeah, I mean I
like a lot that they offer. I like their interface,
I like their app on the phone, and masa if
it's not obvious, Ally Bank, it is the banking arm
of Ally Financial, who is who actually received that negative outlook,
And so the risk of Allied defaulting it's still relatively low,
(43:25):
and just given the tough times within the banking sector
in general here, not just here in the US, honestly,
just globally, and that has largely been caused by rising
interest rates, stiffer competition for your savings dollars. With all
that in mind, I don't see this as a reflection
of an ally specific problem. It just seems like it's
more of just the It's like it's the rising tide
as opposed to like a singular beach. So that's got
(43:47):
a rising tide right right. It's something that's impacting not
only the US, but I'll I mean, it's a global
issue that we're all going to be facing here. A
lot of experts are saying maybe early twenty twenty four
that we're going to see that small rep session yet
to be seen.
Speaker 2 (44:01):
Yeah, banks for having a tough time right now, they're
having a tougher time than they were in years past.
And on top of that, I think the heart of
the reason we would feel totally comfortable having our savings
at Ally, you do feel comfortable having your savings at Ally, Matt,
I do more business with Discovered. That's kind of my
main bank. But basically, if you have less than two
hundred and fifty thousand dollars in that account, there's no
reason to worry.
Speaker 1 (44:22):
Right, that would be me. Yeah, not that loaded.
Speaker 2 (44:24):
So we would tell you to make decision about which
bank that you use or don't use based on other factors, right,
Like you were talking about like the interest rate, like
the interface, like the customer service, and so if you
like all those features about the bank you're currently with
about Ally, don't let this credit downgrade reality or potential
future credit downgrade, you know, threats make you nervous, right.
Speaker 1 (44:48):
Yeah, Yeah, that's the thing. It wasn't even an actual downgrade.
It was just a negative outlook, which means it has
the potential for there to be a downgrade. I guess, yeah,
off in the future. So it's just it's kind of
like they're just putting it on radar, just being like, hey,
we see your books, we see what's going on here,
and we're just gonna go ahead and preemptively say something. Yeah,
and if we saw material weakness. Yeah, if there were.
Speaker 2 (45:10):
More like hard evidence that Ally in particular was doing
a poor job then and it was impacting their customers,
like and they were having to cut rates and stuff
like that, that would be one thing. But we haven't
seen any evidence of that, and so so.
Speaker 1 (45:25):
We do we will say something, right, and I probably
will move my money.
Speaker 2 (45:27):
Sure with that to be the case. And similar to
kind of what we talked about with the US credit
down grade, like, hey, this is one of those slow
moving events that you should be aware of. It's not negligible,
it's not nothing, but it's also not some sort of
massive event that should cause you to take big changes
with how you invest or what you're doing with your money.
But I would say too for for other folks who
have more than a quarter million dollars inn Ally or
(45:48):
any other bank for that matter, they should fix that
problem quickly.
Speaker 1 (45:51):
Right, you are loaded?
Speaker 2 (45:52):
Yeah, yeah, if you've got crazy amounts of cash on hand,
One you might have too much cash on hand, and
then two you got to make sure that it's between
multiple banks. I talked to some but he recently Matt
who inherited a ton of money. He never had a
lot of money and it was hundreds and hundreds of
thousands of dollars, so he was smart enough to split
it up between multiple banks, and that is something that Yeah,
if you have that cash on hand, why you're trying.
Speaker 1 (46:11):
To figure it out? It should be it should be
under the umbrella of different banks so that you're getting
full FDIC coverage for every dollar that you have. That's right.
Let's get to our last question. This is from a
listener who is looking to take advantage of a pretty
sweet employer benefit.
Speaker 7 (46:27):
Hi, how to money? This is Hannah Tisher from Greenville,
South Carolina. I'm going back to school to get my
MBA part time with an employer sponsored program. However, if
I want to complete the program in three years, I
will have to pay between five and ten thousand dollars myself.
Should I put this money in a five to twenty
nine plan or continue saving it in my high yield
(46:49):
savings account?
Speaker 4 (46:50):
Thanks?
Speaker 7 (46:51):
And I hope you guys have a.
Speaker 1 (46:52):
Great day, all right, Matt.
Speaker 2 (46:54):
Lots of cool stuff going on here with Hannah. Like, first,
she's going back to school to gain more skills. Yeah,
something we applaud, but it sounds like her employer is
paying the bulk of this, which is also great. I
love that if you can get someone else to put
the bill for your education, you're doing something.
Speaker 1 (47:07):
Right at least most of the bill. Yeah, Which, so
she said that in order to graduate early or to
do the three year program, So that's one consideration. Is
there a way that she could go more slowly? I
guess to just take your time and not have to
pay the five to ten thousand dollars, right, I'm sure
there are other things that you are considering, Hannah.
Speaker 2 (47:22):
Sure, just the thought and sometimes graduating more quickly makes sense,
and you don't mind funneling some of your own dollars
into that. Yeah, And my guess is that this NBA
should lead to increased opportunities and bigger pay bumps in
the future. Yeah, with not too much out of pocket
from Hannah, which is awesome. And so yeah, way to
take advantage of this additional perk that so many other people,
so many other employees just kind of leave on the table.
Speaker 1 (47:43):
But let's talk about how it is that Hannah is
going to fund the amount that she's gonna need to contribute,
or that she's choosing to contribute. At least she's wondering
if she should have that money there in a high
old savings account, or if she if she should consider
using the five twenty nine education account, the account that's
offered by her state of South Carolina. There, So which
(48:04):
one do you use? The answer to this is going
to be both of them. So, yeah, this sounds crazy,
kind of weird, but stick with me here, Hannah, South Carolina.
They've got a state income tax and the top rate
is six and a half percent. Some folks pay zero.
It all depends on your current income, but most.
Speaker 2 (48:23):
Zero percent tax rate, by the way, is for people
who make very little, very very little, so you probably
aren't in there.
Speaker 1 (48:28):
The vast, vast majority of folks pay that top rate
because the sliding scale it only, yeah, truly benefits folks
who make next to nothing. And so given that reality,
any money that you contribute to a five twenty nine account,
it's going to reduce your taxable income at the state level.
So with that in mind, we definitely want you to
sock the specific amount that you know that you're gonna
(48:48):
need to pay for an upcoming qualified educational expense into
that five to twenty nine plan.
Speaker 2 (48:55):
That's right, But here's the thing, you don't actually have
to keep the money in the five twenty nine plan
for all that long. Right. One of the biggest selling
points to these accounts is that you can invest and
grow those dollars for future educational expenses.
Speaker 1 (49:06):
Sounds like a nice thing. Yeah, why wouldn't I want
to invest this money that's going to go towards my
kids college in fifteen years from now?
Speaker 2 (49:14):
Exactly, You've got plenty of time to let that money
grow for their future. But Hannah, given your need, Hannah's
not two years old, No she's not, and so she's
got to use this money really soon in the near
term future. We don't want you investing money that's going
into the five twenty nine account. Stock it in there,
but we don't want you to invest it. We instead
want you to keep it in the cash equivalent. But
in that account, right, the cash account in the Saving
(49:36):
for College plan, it only pays two point seventy five percent.
So once you've got it in there and you have
the qualified expense that year, pull it back out, put
it in your HYSA, your high heeled savings account once
you've got to make the payment, So the money will
be in there for a relatively short period of time
could be days, could be weeks, maybe even a couple months,
but then you pull it back into your life and
(49:58):
really what you've done is you've continued to maximize the
yield of those savings dollars, but you've also gotten a
sweet little tax break. We've done something very similar. Emily
of course, is in grad school studying to become a
licensed therapist, and that we've taken advantage of the five
twenty nine account in order to basically get some state
tax savings. But we're not using it in the same
(50:20):
way as we are for money that we're investing for.
Speaker 1 (50:22):
Our kids future education. You're not using it in the
traditional means. You're really just jumping through a hoop in
order to discord the tax break, which is totally illegal.
This is totally legit, and because there are no requirements
for how long that money needs to live inside of
that five twenty nine account in order to achieve that
tax exempt status, essentially you're just you're filtering that. It's
(50:44):
it's almost like you're laundering your money, but it's like
it's like a legal laundering. That's exactly what the money
goes into it, but then you're immediately taking it out,
But because you've stuck it in there, you get that TAXI.
Speaker 2 (50:53):
That's why I bought the nail salon Matt, so that
I could launder and pay no tax.
Speaker 1 (50:56):
On all my earnings. I think you kind of hinted
at this, but you do have to wait to withdraw
the money until the year that the qualified educational expense
is going to occur. And so what that means like,
if there's this were me, I would go ahead and
earmark the funds that you know you're gonna need to
put towards tuition, right these qualified expenses, set that money
aside within your high yield savings account, and then whenever
it is that because it may not be that may
(51:18):
not be a bill that comes due this year, that
might happen next year, and so you want to keep
that money as long as possible, earning your five four
or five percent in your high yield and then once
you know that, okay, this is the year that I'm
going to incur that expense, that's when you go ahead
and put that within the fight twenty nine account. And
that's also when you're going to take it out, because
when you take it out, it's that year it has
to go towards that qualified extent.
Speaker 2 (51:40):
If you have like a longer timeline hand, if you're saying, oh,
this is money I'm gonna have to pay towards the
NBA in seven eight years from now, then I would
would say like, oh no, maybe it's going to open
it up and invest some of those dollars and grow it.
But because we're on a more truncated timetable, I think
it makes sense to do it this way the.
Speaker 1 (51:55):
Whole Yeah, exactly. The entire reason that we're talking about
not investing it is because we want you to be
able to avoid the sort of like we're talking about earlier,
was it with Dawn. She's getting closer to retirement, and
so we're looking to avoid that risk. That's what we're
trying to get you to do here, Hannah, is to
avoid the investment risk, the volatility, because you know you're
going to need that money now, and so anytime you
know you're going to need access to funds in a
(52:18):
time period less than two or three years, we don't
want you investing that money. And so this is how
you can earn the most on that money without actually
investing it, and it doesn't have to sit there for again,
all that long. It doesn't need a season for a
year or anything. So we want you to be able
to get the best of both worlds here by taking
this what we'd call a slightly more optimized route. But Hannah,
(52:39):
best of luck to you as you're heading off there
to grad school or specifically to get your MBA. So
did Hannah say she was in South Carolina? Did she
say she was in Greenville? I don't know if she said. Okay, well,
if she is, she would easily be able to go
and visit the brewery that we're enjoying on today's episode.
So again, this was the here you say it, let
me read it. That's a silly name. Oh yeah, yes,
(53:00):
silly saying it.
Speaker 2 (53:00):
Our depictions of yet another revolutionary absence.
Speaker 1 (53:04):
This is an imperial pastry stout, I believe. What were
your thoughts on this thick bad boy that we enjoyed today, Yeah,
I was the first things.
Speaker 2 (53:12):
First, it was thick, it was viscous, right, and then
I tasted sweet vanilla and cinnamon combo, a little bit
that toasted coconut coming through as well. It's just this big, burly, magnificent,
magnanimous stout. I don't even know what other ad change
just to throw in on this one.
Speaker 1 (53:27):
I would say chocolate as well. That's like the first
thing that I noticed was it just was like chocolate.
I felt like I was drinking like a hot chocolate,
which is kind of the opposite or straight out of
the Willy Wonka River. Oh my gosh. Yeah, just like
Augusta snow drinking straight from the sacred fount But could
you really imagine any heavier beer to enjoy it on
quite possibly the hottest day? Seriously, we talked about how
(53:50):
stouts are. Oh, you want to avoid these big, heaviestouts.
It's a bad idea in the summer. It's a bad
idea on ninety plus degree days. Well, okay, so here's
what we're gonna give. If you're listening to the episode
this deep into the episode, we're gonna go ahead and
share something with you because it means that you're you're dedicated. Right. So,
our little studio here, our little clubhouse, our ac unit
is a window unit. And what that means is that
(54:10):
when we record, we actually have to go and turn it.
Speaker 2 (54:12):
Off because it's loud. It's noisy, it's noisy. And so
on these hot days with the ac turned off, it
gets really warm and it starts to feel like we're
like really towards the center of the Earth's court.
Speaker 1 (54:24):
What's the wind Hoff method whatever that is. This is
the opposite. It's like we're basically like in Asana here,
hey for yeah, I was gonna say, free Saunam. We've
got a little thermometer over here and inside our office
right now it is ninety two point eight degrees, so
we're we're sweat movies dedication right there. It's one of
the ways we're able to keep expenses low. Though, Joel.
We've got this old carriage house that is not insulated,
(54:46):
but man, we still love it.
Speaker 3 (54:48):
Though.
Speaker 2 (54:48):
You know what, we always say, what doesn't kill you
makes you stronger, and so I think this makes us
I feel stronger, better humans, better podcasters, let's hope. So
if it doesn't make us hilarious, but that's gonna do
it for you. This episode and listeners. You can find
show notes up on our website as always at how
to money dot com. We've got other resources there too,
including the how to Money newsletter. How to Money dot
Com slash newsletter comes out every Tuesday morning. It's a gem.
(55:11):
It's of course, free provides a lot of encouragement alongside
great money advice.
Speaker 1 (55:16):
That's right, so buddy, that's going to be it for
this one. Until next time, Best friends Out, Best Friends Out,
Hosts And Creators
Joel Larsgaard
Matthew Altmix
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