September 9, 2024 • 44 mins
Let’s dive into the week with some fresh listener questions we have lined up for you! And don't just stand on the sidelines- if you have a question you’d like us to answer, toss your voice memo our way. It only takes about 90 seconds to record and you can find a step by step guide over at HowToMoney.com/ask . Regardless of how random or bizarre you might think it is, we want to hear it!
1 - What steps should I take if I’m interested in buying a multi family home to house hack?
2 - Should I drop an indexed universal life insurance policy that my wife and I hold?
3 - How can I make the most of student loan forgiveness with Public Service Loan Forgiveness?
4 - Are credit card benefits worth the additional charges that some businesses are sticking customers with?
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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 and I am Matt,
and today we're going to answer some of your listener questions.
Speaker 2 (00:24):
Welcome back from the weekend, everybody. That's right, We've got
listener questions lined up for everybody. A listener is asking
about some of the stiff credit card surcharges that he
is experiencing whether or not using cards are going to
be worth the hassle. Another listener is looking to minimize
student loan payments, but not only is he going to
be able to do that, but there's sort of like
a dual pronged benefit that he's going to be receiving
(00:46):
by doing that. And then another listener is looking at
some practical steps you can get into house hacking specifically
though with multifamily housing, multi family house hacking, what does
that look like? So we'll get to that plus more
on today's episode beautiful thing, lots of lots to talk about,
Matt reclick on the note of housing. Actually, I wanted
to mention one of our good friends, Rob. He is
(01:08):
a mortgage broker and he's like really good at his
job and he I follow him for mortgage advice just
he's into it. There's like not really many people on
the national level who were talking about like mortgage rates
and refinancing. And Rob's a really honest voice in this space,
and he's actually in our Facebook group. He comments and
chimes in a lot, provides a lot of great advice
(01:28):
for people who are looking to take out of mortgage
or refinance stuff like that. One of the things he said,
which is something that most lenders are not saying right now,
is that refinancing isn't always in your best interest and
rates are starting to kind of come down, And he
posted the other he basically saw contrary advice. Yeah, sure
for a lot of folks as they've seen rates come down, right,
(01:49):
who are kind of pouncing, jumping on the opportunity to
have to refile.
Speaker 1 (01:52):
He used kind of harsh terms, he said, want to
know what's gross local lenders pushing reefis when they know
the rates are going down in the near future and
that people are then going to be in and devised
to refinance again, maybe just a couple of years or
potentially even months down the road. Interesting, and refinances cost money,
and so it's a significant amount of money. So it's
really important to note and you don't know where rates
(02:14):
are going on.
Speaker 2 (02:14):
I don't know. What I was about to ask, is
like the only thing, the only red flag that goes
up for me is saying, hey, rates are going to
continue to go ower? Because are they? I mean most
likely yes, certainly, the FED has announced that rate cuts
are in the future, but I feel like that's also
been on the wall, like that riding has been on
the wall for quite a while now, and those predictions
have largely fallen flat, and these rate cuts have been
(02:36):
non existent when they've been predicted for many, many months.
And so yeah, where are rates going from here? I
don't know, You don't know. Our friend Rob doesn't know.
But it is I think worth noting that you're going
to be at least sold a bill of goods about
refinancing from some lenders. Potentially they might be reaching out
proactively via email because guess what they want business, And
if you bought a house from them a year and
a half ago, they might say, listen, rates of drop
(02:57):
I like three quarters of a point. It might be
time for you to save this and such amount of
money on your monthly payment by refinancing with us. And
one that might mean you avoid shopping around, which is
going to be better for you the longer. And you
might save more than three quarters of a point by
going to the credit union instead of with that lender. Yeah,
and then two, it might mean that you refinance a
little too early before rates go down further. Again, it's
(03:20):
hard to predict, you don't you don't know when or
how much rates are set to fall, but it's it's
at least worth watching out for that. And you know,
when email pops up in your inbox, at least questioning
the validity of that statement. Yeah, And I think it's
worth looking at your own personal situation too, because, like
I think, I think most folks out there are paying
attention to their personal circumstances as to whether they refile
or as to whether or not they buy a house.
Even like Kate and I, we met some new neighbors
(03:42):
that recently moved into our neighborhood, and I was like, hey,
why'd you move in? Why'd you buy the house or whatever?
Why do you know they used to live in town?
And you know, of all the reasons they gave, which
one wasn't in that lineup rates. What they were talking
through were some of the different personal reasons, so that
she's pregnant or they're like, oh, well schools, Oh, we
know folks that are in the area that there are
(04:03):
all these other personal reasons. In granted, I guess this
is more for a home purchase than are refiled, but
there are also personal reasons when it comes to why
why you should or shouldn't refly, and it largely has
to do with how long you're gonna stay there in
the house, whether or not you're gonna be able to
recoup those costs. You need to run the numbers and
see if there is a break even point when it
comes to the savings that you're going to experience versus
the cost of that refinance as opposed to just sort
(04:25):
of a knee jerk reaction, I guess is what we're
trying to advise folks against.
Speaker 1 (04:29):
Lower monthly payments by four hundred bucks. That sounds amazing,
but I'm gonna sell next year. Oh and I paid
thousands of dollars to do the.
Speaker 2 (04:35):
REFI yeah, that was a mistake, and no one knows
I guess if whether or not, like they're actually going
to move, but if it's on the radar, okay, well,
maybe pump the brakes a little bit. Maybe you're just
fine as is. Let it ride and see where things
are next year before and by then, like you said,
Rob might be like, see told you, it's a full
point lower than than where they are actually are at
the moment.
Speaker 1 (04:54):
And I'm not expecting rates to go back down into
the two point twenty five percent range.
Speaker 2 (04:58):
Matter.
Speaker 1 (04:58):
I talked to a friend this week who is Who's like, yeah,
that's that's the rate I've got. I was like, you
cashed in at the exact right time for you. But yeah,
they're not going.
Speaker 2 (05:07):
Back to somehow able to catch a falling knife.
Speaker 1 (05:09):
Yeah, we're not going back to that era. But you know,
they might go down race might continue to go down
a little bit in the near future.
Speaker 2 (05:14):
Matt let's mention.
Speaker 1 (05:15):
The beer we're having on this episode, this one is
called Anything Different from Yesterday. This is an IPA by
Burial Brewing Company. We'll give our thoughts, specifically a West
Coast IPA, which is not typically the kind of IPAs
we drink, but time to switch it up. Yeah, for sure,
we'll talk about this one later on. And by the way,
if you have a money question, we would love to
hear from you. Just go to hot to money dot
com slash ask for simple directions on how to submit
(05:38):
your voice memo to the show, or literally just record
a voice memo on your phone, email it over to
us and hopefully we can take it next week on
the show. This question comes from a listener who wants
to buy a property because he's seen his friends do it.
Speaker 3 (05:50):
Hey, Jolan Matt, this is Adam in Chicago. Some of
my friends recently purchased a condo and now I'm seriously
thinking about buying property myself. There is so much content
out there that I have no clue where to start.
So should I get preapproof for a loan? Do you
recommend using a realtor? Can I avoid some of those
fees by searching for a property myself. I'd prefer to
(06:13):
purchase a smaller building with like two or three units
rather than a condo. That way I can house hack. Also,
I am an architect and would like to do some
of my own initial repairs and upgrades to the property.
Are these caused something that I can factor into a mortgage.
I appreciate any and all advice you'll can provide. Thanks again, all.
Speaker 2 (06:33):
Right, So, Joel, do you feel what you said before
the question was asked. Do you feel like that was
a little harsh? Do you want to take it back?
Speaker 1 (06:39):
But I do think there is a reality and actually
I literally just heard something about it this morning that
when people do see their friends doing things or whatever
your peers are doing, like you tend to kind of
one to gain in on the action.
Speaker 2 (06:49):
This makes you make you think back to when you're
a kid, like this is just because all your friends
are jumping off the cliff. I mean, you're going to
do it too, little jolly? How many your mom did
My mom say that little jolly? She probably never called
you little? When did you get higher taller than your mom?
Speaker 1 (07:02):
Junior and well no, I was taller at her before that,
but junior high schools when I hit my big ross Burt,
I guess that might actually be an.
Speaker 2 (07:08):
I got tolleran my mom too. No, she never called
me jolie. But enough about Joel's childhood growth chart. We
should post a picture.
Speaker 1 (07:15):
I'm sure my mom still has those lines on the
inside of the pantry.
Speaker 4 (07:19):
Well.
Speaker 2 (07:20):
I do think that when your friends start to experience something,
it causes you to re evaluate and say, oh, is
this something that I want to do as well. It's
not solely because his friends are doing it, which it
doesn't mean that it's a bad decision. I'm just saying
that sometimes that can influence it, and sometimes that influence
can be good.
Speaker 1 (07:34):
Sometimes it can be bad. Like there was this study
mad about people who who smoke and if you if
your friends stop smoking, you're gonna stop smoking. That's almost
always how it works, or vice versa too, So the
trend works in both directions.
Speaker 2 (07:46):
I don't know.
Speaker 1 (07:47):
The jumping off her bridge analogy is something that my
mom definitely said to me when I was growing up,
but so I think our first.
Speaker 2 (07:53):
I literally did jump off bridges. That's my problem is
that you find the train trestle over the river. Oh gosh,
that's your mom's like, would you do if your friends
and you're like, yeah.
Speaker 1 (08:00):
Of course, yeah, that's a good Saturday afternoon right there.
Depends if there's water below you or not. I guess,
of course. I think really just questioning the assumption that
you should is important before moving on. And you know,
maybe you're planning on moving soon, Adam, or you want
to start your own business and buying a condo would
leave you strapped for cash. Oh yeah, there's so many
things that are worth considering.
Speaker 2 (08:18):
On those personal life constions.
Speaker 1 (08:20):
Yes, and so renting out a room in one of
your friend's condos. I don't know, maybe that's a more
brilliant suggestion, but it's just making sure to take those
personal things into consideration. It's crucial performing such a big
purchase like this.
Speaker 2 (08:35):
Absolutely yeah. I mean it's a purchase and a potential
mistake with lots of zeros at the end of it.
And certainly, Adam, I doubt that you're entering into this
decision making process without considering all the different options. But
let's get to all of your questions. And you also
asked about getting pre approved before you start looking around
for properties. Well, yes, absolutely, one hundred percent. You want
(08:55):
to do that before you start shopping around. You want
to specifically know what your price ranges. And just because
you get pre approved, let's say for four hundred fifty
thousand dollars, right, Let's say you go to a lender,
you get to a bank and they're like, hey, this
is perfectly a credit union. Definitely true, more likely to
get a better rate there. But just because you're a
pre approved for that doesn't mean you should necessarily spend
(09:17):
or buy a property that is going to cost you
that much. That's just what they're willing to lend you.
Chances are you're going to want to spend a decent
bit less than that so you can achieve some of
these other financial goals that you might have. You don't
want to put all of your eggs into one property
purchasing basket.
Speaker 1 (09:31):
In this case, it makes me think of a credit card, Matt.
You might open a credit card and they might say, well,
you've got a forty thousand dollars credit line.
Speaker 2 (09:37):
You're like these guys.
Speaker 1 (09:38):
And if you're a really high credit lid, if you
run that sucker up. I mean, you know, I know
your credit limits at least three x that, but oh please,
But like, think about getting a massive credit limit and
then saying, I guess this is what I should be
spending or no, no, no, no no. That's certainly how much
they will give you. But that's enough rope to hang yourself. Essentially,
when you get when you're taking out too much credit
(10:00):
than you can actually afford, even if someone will lend
that money to you, it doesn't make it a smart move.
Speaker 2 (10:03):
It's the same thing with student loans.
Speaker 1 (10:04):
Think about what a private student loan lender is going
to give you. They'll offer you a lot of money
to go to school, and then think about how poor
that decision is going to ultimately be in the end.
And given the fact that you want a house hack
to here, Adam, I think that is a crucial part
of the answer to this question because that means that
your home is going to bring in some income, which
is the rare exception most people. Their home just costs
(10:27):
some money and you if you go this route, well,
you can be a little more lenient on the purchase
price and on the payment amount because of that fact
that you're planning on turning this home into a stream
of income, and so it's better to have I would say,
a four thousand dollars monthly payment with two thousand dollars
worth of likely income than a thirty two hundred dollars
(10:47):
mortgage amount with zero income coming from the home, right,
Matt Sure. And this is something that people who house
hack have found consistently to be a boon to their
finances because yeah, they're able to keep that monthly expense
lower and potentially even own a nicer place altogether. So
if you've listened to the show for any length of time,
(11:07):
you know that we're fans of house hacking. It makes
the buying decision so much more beneficial, and you could
potentially reduce your monthly budget for housing while you're building
an equity, you're building a rental portfolio at the same time.
And even because you're reducing those monthly expenses, you might
be investing more in the stock market at the same time,
So you got two investments going at the same time,
just ultimately increasing your net worth.
Speaker 2 (11:28):
The frustraying your holdings.
Speaker 1 (11:30):
Yeah faster and harder over time. So I just say
keep pushing in this direction. It's going to be harder
to find the property you want because traditional condos are
far more popular, but finding the right duplex or triplex
could be the game change, and I think it's worth
taking a little more time, being a little more patient
to find that right spot.
Speaker 2 (11:45):
Totally agree. But for everyone out there who's listening and
they're saying to themselves, well, I am not going to
get a multi family property, realize that you don't necessarily
have to do that too, just even the act of
getting a roommate, Like I was thinking about this the
other day. How I like, when we're off at college,
oftentimes we have roommates, right like within a house or
an apartment. I literally had a roommate in my room,
like in my actual room at college for three years. Yeah,
(12:07):
and then you move out into your own place, and
all of a sudden, you've got to have your own place,
Like where is the disconnect here? Let we go from
one extreme to the other, and all of a sudden,
she's like, well, I'm an adult now, I should be
able to have my own place. I need two orders
scare feet by myself. There is there is so much
room in between for you to save money, and I
think that that could allow folks to come out massively ahead.
But Adam also mentioned getting a realtor whether or not
(12:27):
he should do that, and I would say if it
was me, I definitely would. And that's even I'm talking
about present time me like, even with all the experience
I've had with real estate now, but certainly if this
was my first purchase. And it's not that you're currently
a real estate investor, Adam, but I don't want to
get one who specifically works with investors, at least not yet.
You're not a real estate investor, right, but in the
(12:48):
future you might be the reason for this is because
multi family housing it's far more popular with the investor
community out there than the folks who you know, just
want to buy a single family house that's a primary
for themselves. And so getting a realtor who knows the
multi family market, who knows the different neighborhoods that you're
looking at, that's going to make a big difference. They honestly,
(13:09):
they might even have access to different deals that don't
even land on MLS, just pocket listings or properties that
they've heard about that somebody might be looking to get
rid of.
Speaker 1 (13:17):
Which is more common in the investor space than it
is in Yeah, a lot.
Speaker 2 (13:20):
More wheeling and dealing. You could potentially save some massive money,
certainly by not hiring an agent, but I think you're
more likely to miss out on some of these deals,
and you'd have to be just incredibly confident in your
ability to write an offer to negotiate with the seller's agent.
And so with that in mind, I just want you
to avoid just a self own where this could come
back and bite you. It makes me think of the
(13:41):
shoving the stick and the bicycle spoke meme where you
don't want to end up being cheap and an attempt
to be fruital. Yeah, yeah, exact.
Speaker 1 (13:48):
I think you're right, man, that's potentially the cheap move.
I think it's important to mention though in this light,
because you could discuss payment with your retail, your realtor
and say, listen, I know that typically you're used to
getting paid three percent, but I read about the National
Association of Realtor Settlement and I've seen that more agents
are willing to accept it, let's say, a two percent
fee instead of three percent, or that some agents are
(14:10):
accepting flat fees. And so is that something you're willing
to do? If I just literally pay you eight thousand dollars,
will you help me find this place I'm looking for?
And obviously it depends on what price point you're looking
at home and stuff like that too, But having that conversation,
that might be the sweet spot, right getting a top
notch agent, getting them to represent you, but at a
slight discount, like we're actually creating a guide for the
(14:31):
site right now too, about negotiating that realtor commission, because
in real time, right now, this is this is happening,
and we know that people need resources to do that effective. Yeah,
a lot more room for discussion given the NRA settlement,
right exactly. Yes, So don't leave that stone unturned totally. Yeah,
And I love that Adam is willing to do some repairs.
He's an architect, so he's willing to kind of draw
that out. I assume he's also willing to maybe self
(14:53):
manage that, if not do some of the kind of
work himself. There's a difference between an architect and the
person's willing to actually like rip out the drywall, and.
Speaker 2 (15:00):
So I was curious about that. How much of the
actual work are you doing are you actually willing to do?
But I do think I mean, he sounds young, so
I know I was much more willing at that point
in my life and in my career to do some
of that work. But I think that sweat equity is
just going to go a long way towards making this
purchase and even smarter decision, because if you can see
past some ugly carpeting, right, if you can see passing
(15:20):
an outdated bathroom, because you know how to diy away
some of that nastiness, some of the dated choices that
have been made there I think you're going to be
more likely to score a deal and reap increased equity there.
It's also important to keep in mind to you that
we're typically fans of folks saving up twenty percent down
to put down on a property, and I don't know,
(15:40):
it sounds like you might need more money on hand
for some of those renovations if you're willing to do that,
and so I guess with that in mind, I think
I would be more comfortable with you maybe putting down
less if necessary in order to save some of that
cash for the purpose of renovating our property, because you
mentioned kind of rolling some of those expenses into a loan,
and you could get a renovation loan, but those can
(16:02):
be a pain in the butt and oftentimes offer worse terms,
where I'm thinking of like a construction loan as well,
where it morphs into a traditional loan. But the other
slippery slope with those two is they're based on the
future value of the property, and I hate that you're
kind of counting your chickens before they hatch. You're basing
what it is that you're going to start paying today
on what it is that the property might be worth
(16:22):
in the future, And I don't know if it feels
a lot like borrowing on credit to me or you're
reaching into a future you for something that you want
to have today, which not a huge fan.
Speaker 1 (16:31):
So I think if if Adam Less, say, you can
put five percent down right, but then has the cash
on hand to do some of the work to this place,
and then once he's done fixing it up, it's a
place for him to live, but it's also providing a
lot of cash flow or at least a minimum, reducing
those living expenses significantly for him, and it's getting him
down on that real estate investment path. I think that
(16:52):
sounds like a win win to meet. Yeah, so you
can have more optionality when we're talking about doing a
house hack. And by the way, we'll put a link
to our conversation with Craig Curlot Matt in the show
Out who was on specifically talking about house hacking. He's
like the master at it and just you kind of
noted living with roommates and when you think.
Speaker 2 (17:11):
About all classic the links, the extent.
Speaker 1 (17:13):
That Craig went to house hack and a little painful
in the moment, living in the living room, running out
the bedrooms, but then what it's been able to do
for his net worth and it's comfort level later on.
It's pretty impressive. So if you're interested in house sacking,
it's worth listening to that episode.
Speaker 2 (17:29):
Yes, right, all right, we got more to get to though.
We're going to hear from a listener who's looking to
minimize his student loans. We'll get to that and more
right after this. All right, Matt, we're back.
Speaker 1 (17:44):
Let's get to the next question. This one is about
a really crummy insurance product.
Speaker 4 (17:49):
Hey, philis is real. From Phoenix, Arizona. I have a
question regarding life insurance policies. Hopefully you guys can help me.
Back in twenty eighteen, my wife and I signed up
for a life insurance policy through a friend. We signed
up for what's called an indexed universal life insurance policy,
and I have a hard time understanding how it works
(18:09):
or what it is. I've done a little bit of
digging online to try to inform myself, but I'm still
very unclear of how it works and if it's something
that is good for us. I just don't see it
being a good policy. Ever since, I've looked around for
(18:30):
life insurance and found that rates are a lot cheaper.
As far as I know, there is an investment strategy
attached to this insurance policy. They're trying to keep me
from canceling the policy. Right now, my wife and I
are paying seventy five dollars each a month, which is
the minimum that we can pay to try to keep
the insurance policy active. I believe I did a quick
(18:53):
comparison on policy genius to try to see where the
numbers would land for the same coverage. We could be
paying as low as like eleven dollars a month for
term insurance. I'm not sure what makes more sense for
us here. Thanks and love the show. Keep up the
good work.
Speaker 1 (19:12):
Oh, Matt, sounds like Israel's got those alarm bells going
off the red flags, Poppa.
Speaker 2 (19:15):
He knows that this is something he needs to get
rid of something. You can hear it in his voice, right,
But I mean the fact that this is something that's
a bit more complex that he can't explain this is
Oftentimes we want things to be so straightforward and simple
enough that you can explain it to you know, explain
it to me like I'm five. What is the subreddit?
When folks were whenning things broken down in a very
simple way, and when this nice thing that you can
(19:36):
do with index universal.
Speaker 1 (19:37):
Life makes me think that Jeff Fox for the game show,
are you smarter than the fifth grader?
Speaker 2 (19:40):
Right?
Speaker 1 (19:40):
And like, granted most of us aren't anymore. I know
I have a hard time helping my sixth grader out
with some of our homework these days. Yeah, I'm an idiot, Okay,
I confess, But I do think that it's really important
to see that as a red flag if the person
explaining it to you, if you're like I felt like
there was a bunch of comedy goook coming in and
going out, and I don't really feel like I effectively
(20:01):
understand it or could explain it to somebody else. Now, sure,
then that probably means you should either do more research
or run away one.
Speaker 2 (20:08):
Of the two. Yeah, And I'll point out here too, Israel,
Like it sounds like he's doing the right thing, right,
He's taking care of his family, Like this is something
that a lot of folks off. Like, there's a lot
of folks who are hearing this and are thinking, oh, yeah,
I do need to get some life insurance in play.
But I guess one thing I wanted to highlight too,
is I didn't. I heard Israel talking about himself and
his wife, but not necessarily any kids. And so it
(20:28):
kind of comes down to your risk profile as to
what it is that you might want to sign up
and get life insurance. So I'm starting at a very
like high broad level before we're kind of drilling, I
do you even need it? Is exactly yeah, exactly, because
I know, like when Kate and I first got married,
we didn't have life insurance. We bought a house, I
still didn't have life insurance. It wasn't until a couple
of years in we started having some of these conversations
and Kates said that, like, Hey, I really like this house,
(20:50):
and what happens if you die? I was like, I
don't know, you gotta figure it out. She's like, well,
I want to stay in this house. Like how about
you figure it out? Yeah, But basically what we realize
was that, yeah, we want to I want you to
be able to were I to die, and which means
I no longer am able to provide any income for you. Well,
you still get to keep the house. So we basically
pulled out I'm pretty sure this two hundred fifty thousand
(21:11):
dollars policy, which was more than enough to pay off
that house. And so Israel again with you, I'm not
totally sure some of the different debt obligations and the
risk that you're willing to take on. But it's a
little more optional. Uh, if you have kids, I would
say it is not optional because you have individuals who
are fully dependent on you, Whereas if you have a
significant significant other, if you have a partners, it's a
(21:33):
little more optional, especially especially if.
Speaker 1 (21:35):
That significant other is bringing an income and their income
would be sufficient as bills. Right, Like, then you life
insurance isn't necessarily a necessity. It still might be a
nice to have, though, it's it's worth having that discussion,
and especially and we'll get to this in just a second,
with how cheap term life insurance is specifically, and Israel.
Speaker 2 (21:52):
Mentioned that eleven dollars a month in this question.
Speaker 1 (21:54):
Yes, it's like, okay, well, maybe when it's that cheap
it becomes a no brainer. And let's start off by
talking about the complex of this specific product that Israel mentioned,
indexed Universal Life. I think the complexity actually is what
kind of makes it sound awesome. It's like, oh, this
is some Swiss army like product. It's a tool that
I can think about all the things that Swiss Army
knives too, Matt. You can open a can, you can
(22:14):
trim your nails, you can cut the an errants thread
from your clothing.
Speaker 2 (22:20):
Like there's some little toobetig builts in. Right.
Speaker 1 (22:21):
Plus it's a knife, like you can do so many
things with this thing. But the problem is the more
complex the financial product becomes, the more it costs the consumer,
and oftentimes the less effective of it is on every
single thing that's trying to do. In the case the
Swiss Army knife, Matt, that knife, it's not a great knife.
It's fine in the wild right when you absolutely need something.
But there are like millions of knives that are made.
Speaker 2 (22:43):
They're better than that. It's not what you would use
in the kitchen if you're prepping for dinner, exact. You
want something that's all that Like, this is all a
chef chef knife does. It cuts up meat and veggies
and that's all it does. That's right, Like, there are
fewer nooks and crannies and places for the manufacturer to
hide fees. And that's the problem when it comes of
these different complex financial products, is that there are multiple
opportunities for them to basically pad their bottom line.
Speaker 1 (23:07):
Yeah, and so that's how they make money. It's like
every piece of that structure is inferior to each one
of those things, being set aside on its own totally.
And so when you combine insurance and investing, you don't
get the optimized version of either. Right and index universal
life policies. They are complex and expensive products. And so
of course this company is trying to keep you from
canceling Israel. That would cost them money and it would
(23:29):
save you money. And they're like, no, no, no, do you
stick with us because you need this product for your family.
Don't you care about your family? And you mentioned the
price difference between the policy that you currently have and
what a term policy would cost you. That is normal, right,
You would be saving a ton of money every month,
and you could funnel that savings instead into a much better,
low cost retirement account. It makes all the sense in
the world. I think, feed or ditch this thing, but
(23:51):
cut and run.
Speaker 2 (23:52):
Yeah, but the.
Speaker 1 (23:53):
Agent the insurance company is going to try to tell
you otherwise.
Speaker 2 (23:56):
That's right. Yeah, So let's get to the he mentioned
eleven dollars a month is what they could what they
could be paying, which almost sounds a little too good
to be true, but it's actually not too good to
be true because whole life insurance products cost something like
ten times more what a term policy is going to
set you back on average, So keep that in mind.
Term insurance it's truly affordable, especially for young folks. In
(24:18):
the term life insurance Matt, it's frugal, not cheap. No, yes,
you might think it's so cheap, I must beginning an
inferior product, or this might not offer the same coverage
or peace of mind. And there are differences, and we
could talk about all the differences between whole life and
term life products, but the truth is term life is
going to suit most people better most of the time,
and it's gonna save a ton of money exactly like
the combination of that plus let's say a roth iray
(24:41):
like that is the perfect combination for most folks. That's
going to allow you to protect your family, so you're
doing the smart adult thing there, but also investing for
your future while avoiding those ludicrous fees that they've yeah
are able to slip into all the nix and cranies
of that pocket nfe when you say, Nixon grannies. You know,
that makes me think of Englishmunglish muffins.
Speaker 1 (24:58):
And when you butter an English muffin, Matt, what seeps
into a thoseknoks and cranies? All the butter goes straight
in there, as opposed to like lingering on top of
a piece.
Speaker 2 (25:05):
Of toast, Except that in this metaphor, you want the
nooks and crannies because you know, the can consumer right
the butter.
Speaker 1 (25:11):
So in some cases nooks and cranies are good and
others they're bad. English muffins fantastic When it comes to
these fee laden vehicles, though, you want to avoid them.
So what should you do, Israel? When it comes down
to it, We'll just get to brass tacks. We would
ditch this policy despite the protests of the life insurance company.
You've had it for six years. And I think the
hardest part here, Matt is people are like, oh, I've
(25:31):
paid so much into this policy. I've had it around
for a number of years now, and I can't just
kind of scrap it and be done with it, can I?
That feels like falling on.
Speaker 2 (25:41):
Some sort of knife.
Speaker 1 (25:42):
But the truth is, when it comes down to it, Israel,
you don't want to throw good money after bad. Being
properly insured is crucial, but insurance is not a wealth builder.
It's there to protect your family, of course, which term
insurance does incredibly well, and it's much cheaper, as we've
just noted, so option for one of the cheaper term
policies that you were looking at, and the typical rule
is to be covered for ten times your income. That
(26:03):
doesn't tell the whole story. We'll put a link in
the show notes to an article we have about life insurance.
You might eventually need more of it too if you're
early on in the wealth building phase of your life,
but that is a solid starting point, so make sure
I would ditch this insurance policy and get a different,
much cheaper insurance policy. And like you mentioned, Matt, the
roth Ira is probably a great option for all those
extra dollars too.
Speaker 2 (26:22):
That's right, So needless to say Index Universal Life. We're
not fans of those plans, Joel. Let's now hear from
our next listener question, Joel. This is a listener who
is thinking about addition, he's going to kick his roth
Ira to the curb.
Speaker 5 (26:34):
Hi, Matt and Joel, my name is Owen and I'm
calling from Washington State. I have a question about tax
deferred retirement accounts and student loans. I'm a federal employee
working towards public service loan forgiveness, and I have just
under four years to go, so my goal is to
keep my monthly payments as low as possible. I'm on
the pay as you earn plan, which caps payments at
ten percent of adjusted gross income. It recently occurred to
(26:55):
me that if I switched my retirement contributions from ROTH
to traditional, that would lower my taxable income, which would
help to keep those loan payments down. I also recently
got promoted and again maxing out my retirement contributions, which
means this strategy could theoretically reduce my taxbile income by
twenty three thousand dollars. It seems to me that I
can either send more money to my student loans, in
which case it's just gone, or I can send more
(27:16):
money to my retirement accounts, where I'll be able to
grow for the next thirty years. I know I'll pay
taxes on it later, but it seems like a good
trade off. My questions are, first, am I right that
making traditional contributions would lower my adjusted gross income in
a way that matters for student loan payments, And if so,
what else should I be considering? Thanks a lot, look
forward to hearing what you have today, Matt.
Speaker 1 (27:35):
It's super rare that I would help somebody. Don't put
money in your wroth, but this that might be the
case here, So we'll get to that.
Speaker 2 (27:41):
Did you hear how is audio cut out there at
the end? I did? It almost sounded like we were
talking to him on the phone and somebody's calling me.
Do you cell phones still do that?
Speaker 1 (27:49):
I think Owen's mom was trying to get or at
that very moment. Or is that just landlines? I literally
can't remember.
Speaker 2 (27:54):
It's like just no, it's just landlines. I think, Yeah,
So I don't know. I might be on the phone.
Speaker 5 (27:59):
I know.
Speaker 2 (28:00):
That's what's so funny, is like I literally talk so
little on the phone. I can't remember what it does
with somebody. If I'm talking to somebody and someone calls
that person, does it goes silent on the cell phone
like it used to on the because I know it
used to do that on the landline. I remember that
for sure.
Speaker 1 (28:12):
Isn't that funny? I just talked to Yeah, there's a beep.
It's less like a silence and there's more like a beep. Yeah,
there's a beep that alerts you to the fact someone
else is going, but you don't hear the beep if
someone's calling your friend. Oh no, that's what I'm talking.
Speaker 2 (28:25):
Yeah, I don't know. I'm who knows anyway.
Speaker 1 (28:28):
Okay, just first things first, on Owen, I wanted to say,
like Matt, anybody who has been in this process for
public service loan forgiveness, those people have made out like
bandits in recent years. Right, they're in the extended student
loan payment pause. Uh, it's just kind of incredible that
basically years and years and years of not paying count
as on time payments for full forgiveness. So, uh, just
(28:51):
first off, Congratstowe and everyone else out there who's on
this path, because if you're on that PSLF route, if
you're kind of on that train riding towards forgiveness, you're
train's been chugging along, or you've been able to kind
of kick.
Speaker 2 (29:02):
Back and relax, which is pretty cool. Yeah. Yeah, he's
got four years left, which is awesome, and I think
this is a great goal to keep his monthly payments low.
And that's obviously because you don't mind carrying that bigger balance,
becauess it's just going to be forgiven at the end
of those four years.
Speaker 1 (29:15):
Yeah, typically we're not like, oh yeah, balloon that student
loan balance up as high as you want. But if
it's going to be forgiven and the whole amount, no
questions asked, it's.
Speaker 2 (29:21):
Just change the verbidge here, like you are looking to maximize, right,
the forgiveness potential that is ahead for you, Owen. It's
very very good use of the American language. That, by
the way, when debts are forgiven, sometimes the forgiven amount
can be taxable. And that's actually not the case for
public service loan forgiveness folks on the federal level, but
it can be on the state level. So that is
(29:43):
one thing you want to make sure, Owen, that you
look into make sure that if that is the case
for you, that you are prepared for then that you've
got those dollars set aside.
Speaker 1 (29:49):
Right, If you live in a state with state taxes
and they tax that forgiveness amount, it's kind of weird thing,
Matt to be forgiven to debt and then o tax
on the amount that you're forgiven, but at least from
federal level, that is not something you need to be
worried about. One way to keep those payments low, by
the way, is to do exactly what Owen is doing,
which is investing more and specifically to do so in
(30:11):
pre tax accounts, because that's going to lower the agi
the adjusted gross income significantly, which is going to then
results in a lower required student loan payment. So, Matt,
this is one of those case where going the Wroth
route it makes less sense than it traditionally does for people.
Speaker 2 (30:27):
Right, for big of fans, we are of the WROTH. Yeah,
I would not be looking at the ROTH in this case.
That's right.
Speaker 1 (30:32):
And I think for some folks Matt too, with like, oh,
should I to toss my money into a traditional account
in order to lower my student loan payment and you're
not working towards PSLF, the answer might be no, don't
do that. Yeah, it's going to lower your payment, but
that balance is going to grow over time and you
might not actually be able to achieve forgiveness. But with PSLF,
that's baked in the cake that's coming down the pike
(30:53):
for him, So why not let that balance grow and
at the same time, at least in the next four years.
By the way, I think that's important to mention until
we get to this forgiveness amount totally. Once we get there,
then it probably makes sense to go back to those
WROTH accounts.
Speaker 2 (31:06):
So that's what I would do. Yeah, totally.
Speaker 1 (31:07):
Yeah, So keep keep maxing at your contributions, keep prioritizing
traditional over the WROTH for now, because it's going to
lower the AGI, which means lower payments, which means more
forgiveness later on.
Speaker 2 (31:16):
Yeah, maximize that forgiveness again. And we're assuming that he's
talking about a traditional versus WROTH four O one K,
but I'd also consider opening up a traditional IRA, because
if your cash flow situation can handle it, you're going
to be doing two awesome things. You're going to be
reducing that AGI even more for student loan purposes, but
then you're also investing more for your future as well,
(31:37):
and we're talking about investing more than thirty thousand dollars
each year moving forward if you're able to do both
of those things, which is fantastic.
Speaker 1 (31:44):
And then on top of that, one of those massive
monthly budget line items is eradicated, fully gone from your
life and so you're in like peak financial situation totally.
Something else worth mentioning, Matt, if Owen wants to push
the envelope here is if he has access to an HSA,
he can max that out too.
Speaker 2 (32:00):
Yeah, he didn't mention that, but that's yet another way.
Speaker 1 (32:02):
Reducing the AGI even further, you know, lowering that monthly
payment maximizing, as you said, the potential for student loan forgiveness.
Basically trying to look under all those rocks, trying to
hit up all of those pre tax accounts if they're
available to you is the way to go. Of course,
if you're still abilt to pay the bills on top
of all that investing totally, you probably don't want to
(32:22):
be like racking up credit card debt in order to
be investing the lower of the AGI like that would
be a non optimized route. But if you're able to
do all the above, that just means fewer dollars you
have to throw towards that student loan more than ultimately
gets forgiven totally.
Speaker 2 (32:35):
And what I love about this too is the fact,
like a lot of you can be critical of student
loans and how much a cost to go to college.
You can be or you can be critical of student
and forgiveness, right, Or maybe you're not even critical of
the student une forgiveness, but maybe you're critical of how
the student une forgiveness came about. Right. But we try
to avoid all that because it's more political than anything else.
I'm just a critical of college mascots. Matt. Okay, the
(32:56):
blue devils come on, like, what is that all about?
But well, I think we can all get is the
fact that this I like how this is structured and
how it's been designed because you are incentivizing individuals to
frontload the sacrifice to invest more early on, which only
is setting you up to be in a stronger position
further down the road while reducing the what you're paying
to student loans. I just love the instead of structure
(33:17):
that has been created with the reduced payments. Yeah, one
other thing too, I don't even know if this is
worth bringing up to but paying taxes on your investment
dollars later down the road, it's not a terrible thing.
Like we are fans of the wroth, but also having
some money in traditional accounts it gives you some flexibility,
especially as more folks are considering taking a sabbatical or
maybe taking a break between in between careers. You've got
(33:39):
these different periods of time when you can significantly reduce
the tax that you are paying on the dollars that
you're setting aside for retirement. I mean, you might be
saving like anywhere like twenty percent wouldn't be a far
wouldn't be a stretch at all to think about the
savings in tax on the dollars that you're putting aside
in some of those retirement accounts as well. So I
just like that there are additional options that you gain
by going with this different well, and he still has
(34:00):
the option down the road to turn those traditional dollars
into roth dollars through conversions. And it's like, that's what
I'm getting out. So I got those low income years
when you're taking us abbatical and you don't have any
earned income, but of course money that you convert during
those years that's counted as taxable income.
Speaker 1 (34:14):
And so I would do exactly what Owen is doing here. Yeah,
And I would as as many dollars as I could
comfortably throw into traditional accounts to lower the agi to
maximize forgiveness.
Speaker 2 (34:23):
That is what I would do.
Speaker 1 (34:24):
And then a few years down the road, I'd be
like I would. I would kiss the wroth on the
lips again, and I would full embrace just like I
hadn't forgotten about you. I would cuddle it hard back
over here. I would go all in on the roth
at that point. So ow in best of luck to you,
all right, mat, We've got more to get to on
this episode, including question about credit cards. Are they maybe
(34:45):
not as good as we've made them out to be.
We'll talk about that more right after this.
Speaker 2 (34:56):
Right, of course, we've got more money saving conversation to
get to today, Jiel, it is now time for the
Facebook question of the Week, which is from Brian and
he wrote, anyone noticed more and more restaurants and bars
and other businesses how they're adding credit card fees upwards
of three percent to the tab? Could this be the
end of turning credit cards and chasing rewards? That makes
(35:17):
me want to pay with cash? But I thought more
businesses want it's to avoid cash. I just don't see
how we can get away from the convenience of credit cards, Joel,
pull out you, crystal ball, What do you think is
ahead when it comes to credit card usage and specifically
with bars and restaurants.
Speaker 1 (35:30):
Well, I think it is interesting to see that Brian's
kind of noting two different trends at once. That businesses
are saying credit cards are really expensive, and man, every
time you pay with your super duper fancy Visa signature
card or your American Express card that comes with a
six hundred dollars annual fee, we're left holding the bag.
We are on the hook to pay these credit card
(35:51):
companies higher and higher transaction fees. And so that is
one trend, right, and it's true that has taking place,
for sure. But then there's the other side of the
coin where companies are saying accepting cash is such a pain,
and we're seeing more and more companies opt towards digital
transactions only because then they don't have to go to
the bank at night and have the less of a liability,
(36:14):
less of a security thread and a liability. You're right,
And so these are the kind of things where it's
interesting to see companies and retailers embracing different strategies as
they see they either say, listen, we're gonna charge you
extra if you don't pay us with cash, or the
other way, which is you can't pay cash at all
because it's too much of a pain in the butt
(36:35):
for us. And different retailers are making different choices right now.
Speaker 2 (36:37):
Yeah, different businesses out there. I mean I understand because
like what they're doing is they're covering the cost of
those swipe fees. Right So three percent, it's fairly typical,
but it's enough to make any person who loves paying
with credit cards and earning rewards. Of course, if you
adhere to the golden rules of credit card usage, it
causes all of us to think twice because the fee
is often loftier than the rewards. And this is something
(36:59):
that I've experienced personally. So when Kate and I were
out west in Colorado, you know, we did a bunch
of hiking, but we sat down to a nicer we
got cleaned up, took showers. First, I thought you were
going to say, the Parks Department charged to you credit
card process at peace dot gov. Now, we went to
a locally owned restaurant and it was fantastic. But I
knew going into it because we I checked out the
website and even it even said on the website that
(37:21):
just heads up, you're gonna be charged three percent more
if you use a credit card we get there. It
was also written on the menu, so they were just
making sure that it was not going to be a
surprise for I appreciate that at least, which I totally
appreciation people. And I will say my knee jerk reaction was, Oh,
I'm going to reach for the debit card, which I
haven't reached for in forever. Actually, I don't even know
if I have the debit card in there, to be honest, Well,
they might charge you three percent on a debit card. No, no,
(37:41):
it's the credit cards only. But then I but specifically
I remembered, wait a minute, it also depends on what
card you use, because I use the City Custom Cash
specifically for eating out at restaurants, because with custom Cash,
this card specifically pays five percent. And so I was
still able to come out a little bit ahead using
the proper card. But not everybody's going to want to
(38:02):
do that. Still live bit of that arbitrage, we exactly.
But I've also got five different credit cards that I'm
rotating through because this is what we do, this is
what we talk about. I don't think most folks arelucking
to do that because most folks the different benefits they're
receiving on you know, with the cards that they're using
don't come with that high of a reward, right, They
typically don't outweigh the fee that you pay, especially if
you're running with the like City Double cash mat another
(38:23):
City card, or the Fidelity Rewards card, which are both
like two percent cash back, You're losing one percent in
the transaction, and so you would likely want to opt
for another form of payment, right. Basically, you don't want
to be losing one percent in perpetuity when someone's charging
you ache to swipe. And so I think the only
exception might be if you're trying to hit a spending
threshold for an initial reward, and you might say it's
(38:45):
worth this one percent arbitrage in order to get that
meet that initial spending threshold. But he also asked, Brian asked,
is this the end of chasing rewards? I think the
clear answer is no, not at all. This phenomenon might
be catching on little by little, but it doesn't mean
that it's ubiquitous. And so if I was him, then
I would either do one of two things. Matt, I
would get a credit card. Just like I think it's.
Speaker 1 (39:08):
Restaurants mostly where you're gonna experience this gas stations. Maybe two.
Get credit cards that have higher rewards levels on those
specific transactions that you're going to be paying the potentially
the most in fees for and find a way to
actually continue to profit on those transactions. The other thing
you can do is to carry a little extra cash,
right to avoid That's true, those search charges when you can.
(39:29):
I'll admit, I think I've got like fifty bucks on me, Matt,
and I try to keep a few bucks for tips
and stuff like that. I had, like, I had some
tips on this past trip that I and I was
glad that I had some spare cash.
Speaker 2 (39:38):
You keep a little Lincoln a little bit of grant,
but I feel like that's so rare.
Speaker 1 (39:44):
And I was like, oh my gosh, I'm so thankful
that I have like a spare five and some ones
because so much of the time I don't, and I
feel like I've got to go figure out, how, hey
do you have venmo those I can that, Yeah, exactly
what sucks. But yeah, there are just still plenty of
places to use credit cards to your advantage.
Speaker 2 (40:01):
I just don't.
Speaker 1 (40:01):
Yes, Well, this is a growing trend in some parts
of the retail space. I don't think this means that
getting benefits from credit cards is anywhere near extinct.
Speaker 2 (40:11):
That's true. Yeah, And a quick note to I guess
all the different business owners out there again, when it
comes to the verbiage, the words that you use, and
how you position and market it, your use of the
English language, I think if you just were to turn
it around a little bit and say, hey, you know
what we're gonna if they just raise prices across the board,
but then offer discounts for those who are paying in cash, honestly,
I think they would alienate fewer customers that way. Just
(40:34):
I don't know. Something to keep in mind.
Speaker 1 (40:35):
And when you think about it, Matt, like, when you
look at the numbers for buy now, Pay Later, what
do people do? They spend more when they use buy now,
pay later because they feel that when you make it
easy right well, and they don't feel the immediate impact
of that purchase, They're like, oh, well, sure, I'll spend
two hundred bucks because I'm it's fifty bucks a month
for four months, right, who cares? Which is why we
hate buy not pay later. But honestly, to be to
(40:56):
be fair, people can do and follow to the trap
of doing the same thing with credit cards is saying
I'm just going to spend more because guess what is
not actually money coming out of my account? Yet, of
course it is real money that's going to come out
of your account. But people make that mistake and they
do end up by and so as a retailer, I
would want to make sure that I was not alienating
my credit card customers who might be be buying higher,
(41:17):
bigger ticket items. Yeah, find a way not to penalize them,
but to reward people who paying cash instead, because I
do think that's just.
Speaker 2 (41:24):
A smarter business move. Yeah, reach out to Jill personally
for more business consultations. Right, My hourly fee is reasonable,
It is reasonable. All right, Let's get back to the
beer that you and I enjoyed today, Joel, this is
anything different from yesterday, which is a West Coast style
India pale Ale, another one by Burial Beer Company. What
were your thoughts?
Speaker 1 (41:44):
All right, Matt, at risk of angering all of our
listeners in California, in the beautiful state of California, which
I just spent many many days and had the best time.
I think this is a better West Coast ipa than
most of the West Coast Ipa pro products, so you're
gonna say yes, And I feel like a terrible human
being for saying that it's so good. It was delicious,
and there's some maybe it's just because the super duper
(42:06):
punched to the mouth high pine resin vibe that just
feels so ridiculously intense, which is traditionally with the West
Coast ipa. Is this is a different old school West
Coast IPAs are going to have that bitterness. This is
like a greatly reduced version of that where I still
get that pine, but it doesn't feel like it's completely
overwhelming my palate.
Speaker 2 (42:26):
So totally agree. I really enjoyed this one. It's still
got the piney flavor, yeah, but it's just a more
crisp and cleaner version of that West Coast ipa without
feeling like you're like chomping down on grapefruit skin, yeah,
pith or literal pine trees, which is what it can
feel like sometimes. Yeah. No, I totally agree. This is
a fantastic version of the West Coast Ipa by an
East Coast brewery Burial beer company situated in Asheville, North Carolina. Yeah,
(42:50):
and if you're upset with me, taking California brewers to task.
California has some of my favorite breweries. It literally just
hit up Costa Agria in Oxnard, California last week. You
feel like you gotta like throw the West the California
breweries alone after you talk trash.
Speaker 1 (43:04):
That's a small one and it is one of the
best breweries I've ever been through in my life. So
it's not I'm not against California beer. I'm just saying
the West Coast thing has been can sometimes be overwhelming,
and this one is not, which I appreciate.
Speaker 2 (43:16):
Well, maybe that just means we need a little more
Casa Agria some of these West coast California breweries in
our life. Drol I wouldn't be against it. Yeah, a
little bit tougher to get our hands, I guess on
some of the better stuff, But buddy, that's gonna be
it for this episode. Listeners can find our show notes
up on the website at how somemoney dot com some
of the different guides and by the way, when it
comes to some of the different credit card rewards, some
(43:37):
of the different benefits that they're offering. Like I said,
I'm still rocking, like I truly do rotate through five
different cards in my wallet because I like to optimize.
And if you are looking to filter buy some of
the different airline carriers, some of the different cash back
or by business versus personal cards, you can go to
how to money dot com for slash credit card tool,
and that's where you can find all the best ones.
Speaker 1 (43:56):
No doubt, dude. All Right, that's going to do it
for this one, Matt. Until next time, best friends out
and best friends Out.
Welcome to Out of Money. I'm Joel and I am Matt,
and today we're going to answer some of your listener questions.
Speaker 2 (00:24):
Welcome back from the weekend, everybody. That's right, We've got
listener questions lined up for everybody. A listener is asking
about some of the stiff credit card surcharges that he
is experiencing whether or not using cards are going to
be worth the hassle. Another listener is looking to minimize
student loan payments, but not only is he going to
be able to do that, but there's sort of like
a dual pronged benefit that he's going to be receiving
(00:46):
by doing that. And then another listener is looking at
some practical steps you can get into house hacking specifically
though with multifamily housing, multi family house hacking, what does
that look like? So we'll get to that plus more
on today's episode beautiful thing, lots of lots to talk about,
Matt reclick on the note of housing. Actually, I wanted
to mention one of our good friends, Rob. He is
(01:08):
a mortgage broker and he's like really good at his
job and he I follow him for mortgage advice just
he's into it. There's like not really many people on
the national level who were talking about like mortgage rates
and refinancing. And Rob's a really honest voice in this space,
and he's actually in our Facebook group. He comments and
chimes in a lot, provides a lot of great advice
(01:28):
for people who are looking to take out of mortgage
or refinance stuff like that. One of the things he said,
which is something that most lenders are not saying right now,
is that refinancing isn't always in your best interest and
rates are starting to kind of come down, And he
posted the other he basically saw contrary advice. Yeah, sure
for a lot of folks as they've seen rates come down, right,
(01:49):
who are kind of pouncing, jumping on the opportunity to
have to refile.
Speaker 1 (01:52):
He used kind of harsh terms, he said, want to
know what's gross local lenders pushing reefis when they know
the rates are going down in the near future and
that people are then going to be in and devised
to refinance again, maybe just a couple of years or
potentially even months down the road. Interesting, and refinances cost money,
and so it's a significant amount of money. So it's
really important to note and you don't know where rates
(02:14):
are going on.
Speaker 2 (02:14):
I don't know. What I was about to ask, is
like the only thing, the only red flag that goes
up for me is saying, hey, rates are going to
continue to go ower? Because are they? I mean most
likely yes, certainly, the FED has announced that rate cuts
are in the future, but I feel like that's also
been on the wall, like that riding has been on
the wall for quite a while now, and those predictions
have largely fallen flat, and these rate cuts have been
(02:36):
non existent when they've been predicted for many, many months.
And so yeah, where are rates going from here? I
don't know, You don't know. Our friend Rob doesn't know.
But it is I think worth noting that you're going
to be at least sold a bill of goods about
refinancing from some lenders. Potentially they might be reaching out
proactively via email because guess what they want business, And
if you bought a house from them a year and
a half ago, they might say, listen, rates of drop
(02:57):
I like three quarters of a point. It might be
time for you to save this and such amount of
money on your monthly payment by refinancing with us. And
one that might mean you avoid shopping around, which is
going to be better for you the longer. And you
might save more than three quarters of a point by
going to the credit union instead of with that lender. Yeah,
and then two, it might mean that you refinance a
little too early before rates go down further. Again, it's
(03:20):
hard to predict, you don't you don't know when or
how much rates are set to fall, but it's it's
at least worth watching out for that. And you know,
when email pops up in your inbox, at least questioning
the validity of that statement. Yeah, And I think it's
worth looking at your own personal situation too, because, like
I think, I think most folks out there are paying
attention to their personal circumstances as to whether they refile
or as to whether or not they buy a house.
Even like Kate and I, we met some new neighbors
(03:42):
that recently moved into our neighborhood, and I was like, hey,
why'd you move in? Why'd you buy the house or whatever?
Why do you know they used to live in town?
And you know, of all the reasons they gave, which
one wasn't in that lineup rates. What they were talking
through were some of the different personal reasons, so that
she's pregnant or they're like, oh, well schools, Oh, we
know folks that are in the area that there are
(04:03):
all these other personal reasons. In granted, I guess this
is more for a home purchase than are refiled, but
there are also personal reasons when it comes to why
why you should or shouldn't refly, and it largely has
to do with how long you're gonna stay there in
the house, whether or not you're gonna be able to
recoup those costs. You need to run the numbers and
see if there is a break even point when it
comes to the savings that you're going to experience versus
the cost of that refinance as opposed to just sort
(04:25):
of a knee jerk reaction, I guess is what we're
trying to advise folks against.
Speaker 1 (04:29):
Lower monthly payments by four hundred bucks. That sounds amazing,
but I'm gonna sell next year. Oh and I paid
thousands of dollars to do the.
Speaker 2 (04:35):
REFI yeah, that was a mistake, and no one knows
I guess if whether or not, like they're actually going
to move, but if it's on the radar, okay, well,
maybe pump the brakes a little bit. Maybe you're just
fine as is. Let it ride and see where things
are next year before and by then, like you said,
Rob might be like, see told you, it's a full
point lower than than where they are actually are at
the moment.
Speaker 1 (04:54):
And I'm not expecting rates to go back down into
the two point twenty five percent range.
Speaker 2 (04:58):
Matter.
Speaker 1 (04:58):
I talked to a friend this week who is Who's like, yeah,
that's that's the rate I've got. I was like, you
cashed in at the exact right time for you. But yeah,
they're not going.
Speaker 2 (05:07):
Back to somehow able to catch a falling knife.
Speaker 1 (05:09):
Yeah, we're not going back to that era. But you know,
they might go down race might continue to go down
a little bit in the near future.
Speaker 2 (05:14):
Matt let's mention.
Speaker 1 (05:15):
The beer we're having on this episode, this one is
called Anything Different from Yesterday. This is an IPA by
Burial Brewing Company. We'll give our thoughts, specifically a West
Coast IPA, which is not typically the kind of IPAs
we drink, but time to switch it up. Yeah, for sure,
we'll talk about this one later on. And by the way,
if you have a money question, we would love to
hear from you. Just go to hot to money dot
com slash ask for simple directions on how to submit
(05:38):
your voice memo to the show, or literally just record
a voice memo on your phone, email it over to
us and hopefully we can take it next week on
the show. This question comes from a listener who wants
to buy a property because he's seen his friends do it.
Speaker 3 (05:50):
Hey, Jolan Matt, this is Adam in Chicago. Some of
my friends recently purchased a condo and now I'm seriously
thinking about buying property myself. There is so much content
out there that I have no clue where to start.
So should I get preapproof for a loan? Do you
recommend using a realtor? Can I avoid some of those
fees by searching for a property myself. I'd prefer to
(06:13):
purchase a smaller building with like two or three units
rather than a condo. That way I can house hack. Also,
I am an architect and would like to do some
of my own initial repairs and upgrades to the property.
Are these caused something that I can factor into a mortgage.
I appreciate any and all advice you'll can provide. Thanks again, all.
Speaker 2 (06:33):
Right, So, Joel, do you feel what you said before
the question was asked. Do you feel like that was
a little harsh? Do you want to take it back?
Speaker 1 (06:39):
But I do think there is a reality and actually
I literally just heard something about it this morning that
when people do see their friends doing things or whatever
your peers are doing, like you tend to kind of
one to gain in on the action.
Speaker 2 (06:49):
This makes you make you think back to when you're
a kid, like this is just because all your friends
are jumping off the cliff. I mean, you're going to
do it too, little jolly? How many your mom did
My mom say that little jolly? She probably never called
you little? When did you get higher taller than your mom?
Speaker 1 (07:02):
Junior and well no, I was taller at her before that,
but junior high schools when I hit my big ross Burt,
I guess that might actually be an.
Speaker 2 (07:08):
I got tolleran my mom too. No, she never called
me jolie. But enough about Joel's childhood growth chart. We
should post a picture.
Speaker 1 (07:15):
I'm sure my mom still has those lines on the
inside of the pantry.
Speaker 4 (07:19):
Well.
Speaker 2 (07:20):
I do think that when your friends start to experience something,
it causes you to re evaluate and say, oh, is
this something that I want to do as well. It's
not solely because his friends are doing it, which it
doesn't mean that it's a bad decision. I'm just saying
that sometimes that can influence it, and sometimes that influence
can be good.
Speaker 1 (07:34):
Sometimes it can be bad. Like there was this study
mad about people who who smoke and if you if
your friends stop smoking, you're gonna stop smoking. That's almost
always how it works, or vice versa too, So the
trend works in both directions.
Speaker 2 (07:46):
I don't know.
Speaker 1 (07:47):
The jumping off her bridge analogy is something that my
mom definitely said to me when I was growing up,
but so I think our first.
Speaker 2 (07:53):
I literally did jump off bridges. That's my problem is
that you find the train trestle over the river. Oh gosh,
that's your mom's like, would you do if your friends
and you're like, yeah.
Speaker 1 (08:00):
Of course, yeah, that's a good Saturday afternoon right there.
Depends if there's water below you or not. I guess,
of course. I think really just questioning the assumption that
you should is important before moving on. And you know,
maybe you're planning on moving soon, Adam, or you want
to start your own business and buying a condo would
leave you strapped for cash. Oh yeah, there's so many
things that are worth considering.
Speaker 2 (08:18):
On those personal life constions.
Speaker 1 (08:20):
Yes, and so renting out a room in one of
your friend's condos. I don't know, maybe that's a more
brilliant suggestion, but it's just making sure to take those
personal things into consideration. It's crucial performing such a big
purchase like this.
Speaker 2 (08:35):
Absolutely yeah. I mean it's a purchase and a potential
mistake with lots of zeros at the end of it.
And certainly, Adam, I doubt that you're entering into this
decision making process without considering all the different options. But
let's get to all of your questions. And you also
asked about getting pre approved before you start looking around
for properties. Well, yes, absolutely, one hundred percent. You want
(08:55):
to do that before you start shopping around. You want
to specifically know what your price ranges. And just because
you get pre approved, let's say for four hundred fifty
thousand dollars, right, Let's say you go to a lender,
you get to a bank and they're like, hey, this
is perfectly a credit union. Definitely true, more likely to
get a better rate there. But just because you're a
pre approved for that doesn't mean you should necessarily spend
(09:17):
or buy a property that is going to cost you
that much. That's just what they're willing to lend you.
Chances are you're going to want to spend a decent
bit less than that so you can achieve some of
these other financial goals that you might have. You don't
want to put all of your eggs into one property
purchasing basket.
Speaker 1 (09:31):
In this case, it makes me think of a credit card, Matt.
You might open a credit card and they might say, well,
you've got a forty thousand dollars credit line.
Speaker 2 (09:37):
You're like these guys.
Speaker 1 (09:38):
And if you're a really high credit lid, if you
run that sucker up. I mean, you know, I know
your credit limits at least three x that, but oh please,
But like, think about getting a massive credit limit and
then saying, I guess this is what I should be
spending or no, no, no, no no. That's certainly how much
they will give you. But that's enough rope to hang yourself. Essentially,
when you get when you're taking out too much credit
(10:00):
than you can actually afford, even if someone will lend
that money to you, it doesn't make it a smart move.
Speaker 2 (10:03):
It's the same thing with student loans.
Speaker 1 (10:04):
Think about what a private student loan lender is going
to give you. They'll offer you a lot of money
to go to school, and then think about how poor
that decision is going to ultimately be in the end.
And given the fact that you want a house hack
to here, Adam, I think that is a crucial part
of the answer to this question because that means that
your home is going to bring in some income, which
is the rare exception most people. Their home just costs
(10:27):
some money and you if you go this route, well,
you can be a little more lenient on the purchase
price and on the payment amount because of that fact
that you're planning on turning this home into a stream
of income, and so it's better to have I would say,
a four thousand dollars monthly payment with two thousand dollars
worth of likely income than a thirty two hundred dollars
(10:47):
mortgage amount with zero income coming from the home, right,
Matt Sure. And this is something that people who house
hack have found consistently to be a boon to their
finances because yeah, they're able to keep that monthly expense
lower and potentially even own a nicer place altogether. So
if you've listened to the show for any length of time,
(11:07):
you know that we're fans of house hacking. It makes
the buying decision so much more beneficial, and you could
potentially reduce your monthly budget for housing while you're building
an equity, you're building a rental portfolio at the same time.
And even because you're reducing those monthly expenses, you might
be investing more in the stock market at the same time,
So you got two investments going at the same time,
just ultimately increasing your net worth.
Speaker 2 (11:28):
The frustraying your holdings.
Speaker 1 (11:30):
Yeah faster and harder over time. So I just say
keep pushing in this direction. It's going to be harder
to find the property you want because traditional condos are
far more popular, but finding the right duplex or triplex
could be the game change, and I think it's worth
taking a little more time, being a little more patient
to find that right spot.
Speaker 2 (11:45):
Totally agree. But for everyone out there who's listening and
they're saying to themselves, well, I am not going to
get a multi family property, realize that you don't necessarily
have to do that too, just even the act of
getting a roommate, Like I was thinking about this the
other day. How I like, when we're off at college,
oftentimes we have roommates, right like within a house or
an apartment. I literally had a roommate in my room,
like in my actual room at college for three years. Yeah,
(12:07):
and then you move out into your own place, and
all of a sudden, you've got to have your own place,
Like where is the disconnect here? Let we go from
one extreme to the other, and all of a sudden,
she's like, well, I'm an adult now, I should be
able to have my own place. I need two orders
scare feet by myself. There is there is so much
room in between for you to save money, and I
think that that could allow folks to come out massively ahead.
But Adam also mentioned getting a realtor whether or not
(12:27):
he should do that, and I would say if it
was me, I definitely would. And that's even I'm talking
about present time me like, even with all the experience
I've had with real estate now, but certainly if this
was my first purchase. And it's not that you're currently
a real estate investor, Adam, but I don't want to
get one who specifically works with investors, at least not yet.
You're not a real estate investor, right, but in the
(12:48):
future you might be the reason for this is because
multi family housing it's far more popular with the investor
community out there than the folks who you know, just
want to buy a single family house that's a primary
for themselves. And so getting a realtor who knows the
multi family market, who knows the different neighborhoods that you're
looking at, that's going to make a big difference. They honestly,
(13:09):
they might even have access to different deals that don't
even land on MLS, just pocket listings or properties that
they've heard about that somebody might be looking to get
rid of.
Speaker 1 (13:17):
Which is more common in the investor space than it
is in Yeah, a lot.
Speaker 2 (13:20):
More wheeling and dealing. You could potentially save some massive money,
certainly by not hiring an agent, but I think you're
more likely to miss out on some of these deals,
and you'd have to be just incredibly confident in your
ability to write an offer to negotiate with the seller's agent.
And so with that in mind, I just want you
to avoid just a self own where this could come
back and bite you. It makes me think of the
(13:41):
shoving the stick and the bicycle spoke meme where you
don't want to end up being cheap and an attempt
to be fruital. Yeah, yeah, exact.
Speaker 1 (13:48):
I think you're right, man, that's potentially the cheap move.
I think it's important to mention though in this light,
because you could discuss payment with your retail, your realtor
and say, listen, I know that typically you're used to
getting paid three percent, but I read about the National
Association of Realtor Settlement and I've seen that more agents
are willing to accept it, let's say, a two percent
fee instead of three percent, or that some agents are
(14:10):
accepting flat fees. And so is that something you're willing
to do? If I just literally pay you eight thousand dollars,
will you help me find this place I'm looking for?
And obviously it depends on what price point you're looking
at home and stuff like that too, But having that conversation,
that might be the sweet spot, right getting a top
notch agent, getting them to represent you, but at a
slight discount, like we're actually creating a guide for the
(14:31):
site right now too, about negotiating that realtor commission, because
in real time, right now, this is this is happening,
and we know that people need resources to do that effective. Yeah,
a lot more room for discussion given the NRA settlement,
right exactly. Yes, So don't leave that stone unturned totally. Yeah,
And I love that Adam is willing to do some repairs.
He's an architect, so he's willing to kind of draw
that out. I assume he's also willing to maybe self
(14:53):
manage that, if not do some of the kind of
work himself. There's a difference between an architect and the
person's willing to actually like rip out the drywall, and.
Speaker 2 (15:00):
So I was curious about that. How much of the
actual work are you doing are you actually willing to do?
But I do think I mean, he sounds young, so
I know I was much more willing at that point
in my life and in my career to do some
of that work. But I think that sweat equity is
just going to go a long way towards making this
purchase and even smarter decision, because if you can see
past some ugly carpeting, right, if you can see passing
(15:20):
an outdated bathroom, because you know how to diy away
some of that nastiness, some of the dated choices that
have been made there I think you're going to be
more likely to score a deal and reap increased equity there.
It's also important to keep in mind to you that
we're typically fans of folks saving up twenty percent down
to put down on a property, and I don't know,
(15:40):
it sounds like you might need more money on hand
for some of those renovations if you're willing to do that,
and so I guess with that in mind, I think
I would be more comfortable with you maybe putting down
less if necessary in order to save some of that
cash for the purpose of renovating our property, because you
mentioned kind of rolling some of those expenses into a loan,
and you could get a renovation loan, but those can
(16:02):
be a pain in the butt and oftentimes offer worse terms,
where I'm thinking of like a construction loan as well,
where it morphs into a traditional loan. But the other
slippery slope with those two is they're based on the
future value of the property, and I hate that you're
kind of counting your chickens before they hatch. You're basing
what it is that you're going to start paying today
on what it is that the property might be worth
(16:22):
in the future, And I don't know if it feels
a lot like borrowing on credit to me or you're
reaching into a future you for something that you want
to have today, which not a huge fan.
Speaker 1 (16:31):
So I think if if Adam Less, say, you can
put five percent down right, but then has the cash
on hand to do some of the work to this place,
and then once he's done fixing it up, it's a
place for him to live, but it's also providing a
lot of cash flow or at least a minimum, reducing
those living expenses significantly for him, and it's getting him
down on that real estate investment path. I think that
(16:52):
sounds like a win win to meet. Yeah, so you
can have more optionality when we're talking about doing a
house hack. And by the way, we'll put a link
to our conversation with Craig Curlot Matt in the show
Out who was on specifically talking about house hacking. He's
like the master at it and just you kind of
noted living with roommates and when you think.
Speaker 2 (17:11):
About all classic the links, the extent.
Speaker 1 (17:13):
That Craig went to house hack and a little painful
in the moment, living in the living room, running out
the bedrooms, but then what it's been able to do
for his net worth and it's comfort level later on.
It's pretty impressive. So if you're interested in house sacking,
it's worth listening to that episode.
Speaker 2 (17:29):
Yes, right, all right, we got more to get to though.
We're going to hear from a listener who's looking to
minimize his student loans. We'll get to that and more
right after this. All right, Matt, we're back.
Speaker 1 (17:44):
Let's get to the next question. This one is about
a really crummy insurance product.
Speaker 4 (17:49):
Hey, philis is real. From Phoenix, Arizona. I have a
question regarding life insurance policies. Hopefully you guys can help me.
Back in twenty eighteen, my wife and I signed up
for a life insurance policy through a friend. We signed
up for what's called an indexed universal life insurance policy,
and I have a hard time understanding how it works
(18:09):
or what it is. I've done a little bit of
digging online to try to inform myself, but I'm still
very unclear of how it works and if it's something
that is good for us. I just don't see it
being a good policy. Ever since, I've looked around for
(18:30):
life insurance and found that rates are a lot cheaper.
As far as I know, there is an investment strategy
attached to this insurance policy. They're trying to keep me
from canceling the policy. Right now, my wife and I
are paying seventy five dollars each a month, which is
the minimum that we can pay to try to keep
the insurance policy active. I believe I did a quick
(18:53):
comparison on policy genius to try to see where the
numbers would land for the same coverage. We could be
paying as low as like eleven dollars a month for
term insurance. I'm not sure what makes more sense for
us here. Thanks and love the show. Keep up the
good work.
Speaker 1 (19:12):
Oh, Matt, sounds like Israel's got those alarm bells going
off the red flags, Poppa.
Speaker 2 (19:15):
He knows that this is something he needs to get
rid of something. You can hear it in his voice, right,
But I mean the fact that this is something that's
a bit more complex that he can't explain this is
Oftentimes we want things to be so straightforward and simple
enough that you can explain it to you know, explain
it to me like I'm five. What is the subreddit?
When folks were whenning things broken down in a very
simple way, and when this nice thing that you can
(19:36):
do with index universal.
Speaker 1 (19:37):
Life makes me think that Jeff Fox for the game show,
are you smarter than the fifth grader?
Speaker 2 (19:40):
Right?
Speaker 1 (19:40):
And like, granted most of us aren't anymore. I know
I have a hard time helping my sixth grader out
with some of our homework these days. Yeah, I'm an idiot, Okay,
I confess, But I do think that it's really important
to see that as a red flag if the person
explaining it to you, if you're like I felt like
there was a bunch of comedy goook coming in and
going out, and I don't really feel like I effectively
(20:01):
understand it or could explain it to somebody else. Now, sure,
then that probably means you should either do more research
or run away one.
Speaker 2 (20:08):
Of the two. Yeah, And I'll point out here too, Israel,
Like it sounds like he's doing the right thing, right,
He's taking care of his family, Like this is something
that a lot of folks off. Like, there's a lot
of folks who are hearing this and are thinking, oh, yeah,
I do need to get some life insurance in play.
But I guess one thing I wanted to highlight too,
is I didn't. I heard Israel talking about himself and
his wife, but not necessarily any kids. And so it
(20:28):
kind of comes down to your risk profile as to
what it is that you might want to sign up
and get life insurance. So I'm starting at a very
like high broad level before we're kind of drilling, I
do you even need it? Is exactly yeah, exactly, because
I know, like when Kate and I first got married,
we didn't have life insurance. We bought a house, I
still didn't have life insurance. It wasn't until a couple
of years in we started having some of these conversations
and Kates said that, like, Hey, I really like this house,
(20:50):
and what happens if you die? I was like, I
don't know, you gotta figure it out. She's like, well,
I want to stay in this house. Like how about
you figure it out? Yeah, But basically what we realize
was that, yeah, we want to I want you to
be able to were I to die, and which means
I no longer am able to provide any income for you. Well,
you still get to keep the house. So we basically
pulled out I'm pretty sure this two hundred fifty thousand
(21:11):
dollars policy, which was more than enough to pay off
that house. And so Israel again with you, I'm not
totally sure some of the different debt obligations and the
risk that you're willing to take on. But it's a
little more optional. Uh, if you have kids, I would
say it is not optional because you have individuals who
are fully dependent on you, Whereas if you have a
significant significant other, if you have a partners, it's a
(21:33):
little more optional, especially especially if.
Speaker 1 (21:35):
That significant other is bringing an income and their income
would be sufficient as bills. Right, Like, then you life
insurance isn't necessarily a necessity. It still might be a
nice to have, though, it's it's worth having that discussion,
and especially and we'll get to this in just a second,
with how cheap term life insurance is specifically, and Israel.
Speaker 2 (21:52):
Mentioned that eleven dollars a month in this question.
Speaker 1 (21:54):
Yes, it's like, okay, well, maybe when it's that cheap
it becomes a no brainer. And let's start off by
talking about the complex of this specific product that Israel mentioned,
indexed Universal Life. I think the complexity actually is what
kind of makes it sound awesome. It's like, oh, this
is some Swiss army like product. It's a tool that
I can think about all the things that Swiss Army
knives too, Matt. You can open a can, you can
(22:14):
trim your nails, you can cut the an errants thread
from your clothing.
Speaker 2 (22:20):
Like there's some little toobetig builts in. Right.
Speaker 1 (22:21):
Plus it's a knife, like you can do so many
things with this thing. But the problem is the more
complex the financial product becomes, the more it costs the consumer,
and oftentimes the less effective of it is on every
single thing that's trying to do. In the case the
Swiss Army knife, Matt, that knife, it's not a great knife.
It's fine in the wild right when you absolutely need something.
But there are like millions of knives that are made.
Speaker 2 (22:43):
They're better than that. It's not what you would use
in the kitchen if you're prepping for dinner, exact. You
want something that's all that Like, this is all a
chef chef knife does. It cuts up meat and veggies
and that's all it does. That's right, Like, there are
fewer nooks and crannies and places for the manufacturer to
hide fees. And that's the problem when it comes of
these different complex financial products, is that there are multiple
opportunities for them to basically pad their bottom line.
Speaker 1 (23:07):
Yeah, and so that's how they make money. It's like
every piece of that structure is inferior to each one
of those things, being set aside on its own totally.
And so when you combine insurance and investing, you don't
get the optimized version of either. Right and index universal
life policies. They are complex and expensive products. And so
of course this company is trying to keep you from
canceling Israel. That would cost them money and it would
(23:29):
save you money. And they're like, no, no, no, do you
stick with us because you need this product for your family.
Don't you care about your family? And you mentioned the
price difference between the policy that you currently have and
what a term policy would cost you. That is normal, right,
You would be saving a ton of money every month,
and you could funnel that savings instead into a much better,
low cost retirement account. It makes all the sense in
the world. I think, feed or ditch this thing, but
(23:51):
cut and run.
Speaker 2 (23:52):
Yeah, but the.
Speaker 1 (23:53):
Agent the insurance company is going to try to tell
you otherwise.
Speaker 2 (23:56):
That's right. Yeah, So let's get to the he mentioned
eleven dollars a month is what they could what they
could be paying, which almost sounds a little too good
to be true, but it's actually not too good to
be true because whole life insurance products cost something like
ten times more what a term policy is going to
set you back on average, So keep that in mind.
Term insurance it's truly affordable, especially for young folks. In
(24:18):
the term life insurance Matt, it's frugal, not cheap. No, yes,
you might think it's so cheap, I must beginning an
inferior product, or this might not offer the same coverage
or peace of mind. And there are differences, and we
could talk about all the differences between whole life and
term life products, but the truth is term life is
going to suit most people better most of the time,
and it's gonna save a ton of money exactly like
the combination of that plus let's say a roth iray
(24:41):
like that is the perfect combination for most folks. That's
going to allow you to protect your family, so you're
doing the smart adult thing there, but also investing for
your future while avoiding those ludicrous fees that they've yeah
are able to slip into all the nix and cranies
of that pocket nfe when you say, Nixon grannies. You know,
that makes me think of Englishmunglish muffins.
Speaker 1 (24:58):
And when you butter an English muffin, Matt, what seeps
into a thoseknoks and cranies? All the butter goes straight
in there, as opposed to like lingering on top of
a piece.
Speaker 2 (25:05):
Of toast, Except that in this metaphor, you want the
nooks and crannies because you know, the can consumer right
the butter.
Speaker 1 (25:11):
So in some cases nooks and cranies are good and
others they're bad. English muffins fantastic When it comes to
these fee laden vehicles, though, you want to avoid them.
So what should you do, Israel? When it comes down
to it, We'll just get to brass tacks. We would
ditch this policy despite the protests of the life insurance company.
You've had it for six years. And I think the
hardest part here, Matt is people are like, oh, I've
(25:31):
paid so much into this policy. I've had it around
for a number of years now, and I can't just
kind of scrap it and be done with it, can I?
That feels like falling on.
Speaker 2 (25:41):
Some sort of knife.
Speaker 1 (25:42):
But the truth is, when it comes down to it, Israel,
you don't want to throw good money after bad. Being
properly insured is crucial, but insurance is not a wealth builder.
It's there to protect your family, of course, which term
insurance does incredibly well, and it's much cheaper, as we've
just noted, so option for one of the cheaper term
policies that you were looking at, and the typical rule
is to be covered for ten times your income. That
(26:03):
doesn't tell the whole story. We'll put a link in
the show notes to an article we have about life insurance.
You might eventually need more of it too if you're
early on in the wealth building phase of your life,
but that is a solid starting point, so make sure
I would ditch this insurance policy and get a different,
much cheaper insurance policy. And like you mentioned, Matt, the
roth Ira is probably a great option for all those
extra dollars too.
Speaker 2 (26:22):
That's right, So needless to say Index Universal Life. We're
not fans of those plans, Joel. Let's now hear from
our next listener question, Joel. This is a listener who
is thinking about addition, he's going to kick his roth
Ira to the curb.
Speaker 5 (26:34):
Hi, Matt and Joel, my name is Owen and I'm
calling from Washington State. I have a question about tax
deferred retirement accounts and student loans. I'm a federal employee
working towards public service loan forgiveness, and I have just
under four years to go, so my goal is to
keep my monthly payments as low as possible. I'm on
the pay as you earn plan, which caps payments at
ten percent of adjusted gross income. It recently occurred to
(26:55):
me that if I switched my retirement contributions from ROTH
to traditional, that would lower my taxable income, which would
help to keep those loan payments down. I also recently
got promoted and again maxing out my retirement contributions, which
means this strategy could theoretically reduce my taxbile income by
twenty three thousand dollars. It seems to me that I
can either send more money to my student loans, in
which case it's just gone, or I can send more
(27:16):
money to my retirement accounts, where I'll be able to
grow for the next thirty years. I know I'll pay
taxes on it later, but it seems like a good
trade off. My questions are, first, am I right that
making traditional contributions would lower my adjusted gross income in
a way that matters for student loan payments, And if so,
what else should I be considering? Thanks a lot, look
forward to hearing what you have today, Matt.
Speaker 1 (27:35):
It's super rare that I would help somebody. Don't put
money in your wroth, but this that might be the
case here, So we'll get to that.
Speaker 2 (27:41):
Did you hear how is audio cut out there at
the end? I did? It almost sounded like we were
talking to him on the phone and somebody's calling me.
Do you cell phones still do that?
Speaker 1 (27:49):
I think Owen's mom was trying to get or at
that very moment. Or is that just landlines? I literally
can't remember.
Speaker 2 (27:54):
It's like just no, it's just landlines. I think, Yeah,
So I don't know. I might be on the phone.
Speaker 5 (27:59):
I know.
Speaker 2 (28:00):
That's what's so funny, is like I literally talk so
little on the phone. I can't remember what it does
with somebody. If I'm talking to somebody and someone calls
that person, does it goes silent on the cell phone
like it used to on the because I know it
used to do that on the landline. I remember that
for sure.
Speaker 1 (28:12):
Isn't that funny? I just talked to Yeah, there's a beep.
It's less like a silence and there's more like a beep. Yeah,
there's a beep that alerts you to the fact someone
else is going, but you don't hear the beep if
someone's calling your friend. Oh no, that's what I'm talking.
Speaker 2 (28:25):
Yeah, I don't know. I'm who knows anyway.
Speaker 1 (28:28):
Okay, just first things first, on Owen, I wanted to say,
like Matt, anybody who has been in this process for
public service loan forgiveness, those people have made out like
bandits in recent years. Right, they're in the extended student
loan payment pause. Uh, it's just kind of incredible that
basically years and years and years of not paying count
as on time payments for full forgiveness. So, uh, just
(28:51):
first off, Congratstowe and everyone else out there who's on
this path, because if you're on that PSLF route, if
you're kind of on that train riding towards forgiveness, you're
train's been chugging along, or you've been able to kind
of kick.
Speaker 2 (29:02):
Back and relax, which is pretty cool. Yeah. Yeah, he's
got four years left, which is awesome, and I think
this is a great goal to keep his monthly payments low.
And that's obviously because you don't mind carrying that bigger balance,
becauess it's just going to be forgiven at the end
of those four years.
Speaker 1 (29:15):
Yeah, typically we're not like, oh yeah, balloon that student
loan balance up as high as you want. But if
it's going to be forgiven and the whole amount, no
questions asked, it's.
Speaker 2 (29:21):
Just change the verbidge here, like you are looking to maximize, right,
the forgiveness potential that is ahead for you, Owen. It's
very very good use of the American language. That, by
the way, when debts are forgiven, sometimes the forgiven amount
can be taxable. And that's actually not the case for
public service loan forgiveness folks on the federal level, but
it can be on the state level. So that is
(29:43):
one thing you want to make sure, Owen, that you
look into make sure that if that is the case
for you, that you are prepared for then that you've
got those dollars set aside.
Speaker 1 (29:49):
Right, If you live in a state with state taxes
and they tax that forgiveness amount, it's kind of weird thing,
Matt to be forgiven to debt and then o tax
on the amount that you're forgiven, but at least from
federal level, that is not something you need to be
worried about. One way to keep those payments low, by
the way, is to do exactly what Owen is doing,
which is investing more and specifically to do so in
(30:11):
pre tax accounts, because that's going to lower the agi
the adjusted gross income significantly, which is going to then
results in a lower required student loan payment. So, Matt,
this is one of those case where going the Wroth
route it makes less sense than it traditionally does for people.
Speaker 2 (30:27):
Right, for big of fans, we are of the WROTH. Yeah,
I would not be looking at the ROTH in this case.
That's right.
Speaker 1 (30:32):
And I think for some folks Matt too, with like, oh,
should I to toss my money into a traditional account
in order to lower my student loan payment and you're
not working towards PSLF, the answer might be no, don't
do that. Yeah, it's going to lower your payment, but
that balance is going to grow over time and you
might not actually be able to achieve forgiveness. But with PSLF,
that's baked in the cake that's coming down the pike
(30:53):
for him, So why not let that balance grow and
at the same time, at least in the next four years.
By the way, I think that's important to mention until
we get to this forgiveness amount totally. Once we get there,
then it probably makes sense to go back to those
WROTH accounts.
Speaker 2 (31:06):
So that's what I would do. Yeah, totally.
Speaker 1 (31:07):
Yeah, So keep keep maxing at your contributions, keep prioritizing
traditional over the WROTH for now, because it's going to
lower the AGI, which means lower payments, which means more
forgiveness later on.
Speaker 2 (31:16):
Yeah, maximize that forgiveness again. And we're assuming that he's
talking about a traditional versus WROTH four O one K,
but I'd also consider opening up a traditional IRA, because
if your cash flow situation can handle it, you're going
to be doing two awesome things. You're going to be
reducing that AGI even more for student loan purposes, but
then you're also investing more for your future as well,
(31:37):
and we're talking about investing more than thirty thousand dollars
each year moving forward if you're able to do both
of those things, which is fantastic.
Speaker 1 (31:44):
And then on top of that, one of those massive
monthly budget line items is eradicated, fully gone from your
life and so you're in like peak financial situation totally.
Something else worth mentioning, Matt, if Owen wants to push
the envelope here is if he has access to an HSA,
he can max that out too.
Speaker 2 (32:00):
Yeah, he didn't mention that, but that's yet another way.
Speaker 1 (32:02):
Reducing the AGI even further, you know, lowering that monthly
payment maximizing, as you said, the potential for student loan forgiveness.
Basically trying to look under all those rocks, trying to
hit up all of those pre tax accounts if they're
available to you is the way to go. Of course,
if you're still abilt to pay the bills on top
of all that investing totally, you probably don't want to
(32:22):
be like racking up credit card debt in order to
be investing the lower of the AGI like that would
be a non optimized route. But if you're able to
do all the above, that just means fewer dollars you
have to throw towards that student loan more than ultimately
gets forgiven totally.
Speaker 2 (32:35):
And what I love about this too is the fact,
like a lot of you can be critical of student
loans and how much a cost to go to college.
You can be or you can be critical of student
and forgiveness, right, Or maybe you're not even critical of
the student une forgiveness, but maybe you're critical of how
the student une forgiveness came about. Right. But we try
to avoid all that because it's more political than anything else.
I'm just a critical of college mascots. Matt. Okay, the
(32:56):
blue devils come on, like, what is that all about?
But well, I think we can all get is the
fact that this I like how this is structured and
how it's been designed because you are incentivizing individuals to
frontload the sacrifice to invest more early on, which only
is setting you up to be in a stronger position
further down the road while reducing the what you're paying
to student loans. I just love the instead of structure
(33:17):
that has been created with the reduced payments. Yeah, one
other thing too, I don't even know if this is
worth bringing up to but paying taxes on your investment
dollars later down the road, it's not a terrible thing.
Like we are fans of the wroth, but also having
some money in traditional accounts it gives you some flexibility,
especially as more folks are considering taking a sabbatical or
maybe taking a break between in between careers. You've got
(33:39):
these different periods of time when you can significantly reduce
the tax that you are paying on the dollars that
you're setting aside for retirement. I mean, you might be
saving like anywhere like twenty percent wouldn't be a far
wouldn't be a stretch at all to think about the
savings in tax on the dollars that you're putting aside
in some of those retirement accounts as well. So I
just like that there are additional options that you gain
by going with this different well, and he still has
(34:00):
the option down the road to turn those traditional dollars
into roth dollars through conversions. And it's like, that's what
I'm getting out. So I got those low income years
when you're taking us abbatical and you don't have any
earned income, but of course money that you convert during
those years that's counted as taxable income.
Speaker 1 (34:14):
And so I would do exactly what Owen is doing here. Yeah,
And I would as as many dollars as I could
comfortably throw into traditional accounts to lower the agi to
maximize forgiveness.
Speaker 2 (34:23):
That is what I would do.
Speaker 1 (34:24):
And then a few years down the road, I'd be
like I would. I would kiss the wroth on the
lips again, and I would full embrace just like I
hadn't forgotten about you. I would cuddle it hard back
over here. I would go all in on the roth
at that point. So ow in best of luck to you,
all right, mat, We've got more to get to on
this episode, including question about credit cards. Are they maybe
(34:45):
not as good as we've made them out to be.
We'll talk about that more right after this.
Speaker 2 (34:56):
Right, of course, we've got more money saving conversation to
get to today, Jiel, it is now time for the
Facebook question of the Week, which is from Brian and
he wrote, anyone noticed more and more restaurants and bars
and other businesses how they're adding credit card fees upwards
of three percent to the tab? Could this be the
end of turning credit cards and chasing rewards? That makes
(35:17):
me want to pay with cash? But I thought more
businesses want it's to avoid cash. I just don't see
how we can get away from the convenience of credit cards, Joel,
pull out you, crystal ball, What do you think is
ahead when it comes to credit card usage and specifically
with bars and restaurants.
Speaker 1 (35:30):
Well, I think it is interesting to see that Brian's
kind of noting two different trends at once. That businesses
are saying credit cards are really expensive, and man, every
time you pay with your super duper fancy Visa signature
card or your American Express card that comes with a
six hundred dollars annual fee, we're left holding the bag.
We are on the hook to pay these credit card
(35:51):
companies higher and higher transaction fees. And so that is
one trend, right, and it's true that has taking place,
for sure. But then there's the other side of the
coin where companies are saying accepting cash is such a pain,
and we're seeing more and more companies opt towards digital
transactions only because then they don't have to go to
the bank at night and have the less of a liability,
(36:14):
less of a security thread and a liability. You're right,
And so these are the kind of things where it's
interesting to see companies and retailers embracing different strategies as
they see they either say, listen, we're gonna charge you
extra if you don't pay us with cash, or the
other way, which is you can't pay cash at all
because it's too much of a pain in the butt
(36:35):
for us. And different retailers are making different choices right now.
Speaker 2 (36:37):
Yeah, different businesses out there. I mean I understand because
like what they're doing is they're covering the cost of
those swipe fees. Right So three percent, it's fairly typical,
but it's enough to make any person who loves paying
with credit cards and earning rewards. Of course, if you
adhere to the golden rules of credit card usage, it
causes all of us to think twice because the fee
is often loftier than the rewards. And this is something
(36:59):
that I've experienced personally. So when Kate and I were
out west in Colorado, you know, we did a bunch
of hiking, but we sat down to a nicer we
got cleaned up, took showers. First, I thought you were
going to say, the Parks Department charged to you credit
card process at peace dot gov. Now, we went to
a locally owned restaurant and it was fantastic. But I
knew going into it because we I checked out the
website and even it even said on the website that
(37:21):
just heads up, you're gonna be charged three percent more
if you use a credit card we get there. It
was also written on the menu, so they were just
making sure that it was not going to be a
surprise for I appreciate that at least, which I totally
appreciation people. And I will say my knee jerk reaction was, Oh,
I'm going to reach for the debit card, which I
haven't reached for in forever. Actually, I don't even know
if I have the debit card in there, to be honest, Well,
they might charge you three percent on a debit card. No, no,
(37:41):
it's the credit cards only. But then I but specifically
I remembered, wait a minute, it also depends on what
card you use, because I use the City Custom Cash
specifically for eating out at restaurants, because with custom Cash,
this card specifically pays five percent. And so I was
still able to come out a little bit ahead using
the proper card. But not everybody's going to want to
(38:02):
do that. Still live bit of that arbitrage, we exactly.
But I've also got five different credit cards that I'm
rotating through because this is what we do, this is
what we talk about. I don't think most folks arelucking
to do that because most folks the different benefits they're
receiving on you know, with the cards that they're using
don't come with that high of a reward, right, They
typically don't outweigh the fee that you pay, especially if
you're running with the like City Double cash mat another
(38:23):
City card, or the Fidelity Rewards card, which are both
like two percent cash back, You're losing one percent in
the transaction, and so you would likely want to opt
for another form of payment, right. Basically, you don't want
to be losing one percent in perpetuity when someone's charging
you ache to swipe. And so I think the only
exception might be if you're trying to hit a spending
threshold for an initial reward, and you might say it's
(38:45):
worth this one percent arbitrage in order to get that
meet that initial spending threshold. But he also asked, Brian asked,
is this the end of chasing rewards? I think the
clear answer is no, not at all. This phenomenon might
be catching on little by little, but it doesn't mean
that it's ubiquitous. And so if I was him, then
I would either do one of two things. Matt, I
would get a credit card. Just like I think it's.
Speaker 1 (39:08):
Restaurants mostly where you're gonna experience this gas stations. Maybe two.
Get credit cards that have higher rewards levels on those
specific transactions that you're going to be paying the potentially
the most in fees for and find a way to
actually continue to profit on those transactions. The other thing
you can do is to carry a little extra cash,
right to avoid That's true, those search charges when you can.
(39:29):
I'll admit, I think I've got like fifty bucks on me, Matt,
and I try to keep a few bucks for tips
and stuff like that. I had, like, I had some
tips on this past trip that I and I was
glad that I had some spare cash.
Speaker 2 (39:38):
You keep a little Lincoln a little bit of grant,
but I feel like that's so rare.
Speaker 1 (39:44):
And I was like, oh my gosh, I'm so thankful
that I have like a spare five and some ones
because so much of the time I don't, and I
feel like I've got to go figure out, how, hey
do you have venmo those I can that, Yeah, exactly
what sucks. But yeah, there are just still plenty of
places to use credit cards to your advantage.
Speaker 2 (40:01):
I just don't.
Speaker 1 (40:01):
Yes, Well, this is a growing trend in some parts
of the retail space. I don't think this means that
getting benefits from credit cards is anywhere near extinct.
Speaker 2 (40:11):
That's true. Yeah, And a quick note to I guess
all the different business owners out there again, when it
comes to the verbiage, the words that you use, and
how you position and market it, your use of the
English language, I think if you just were to turn
it around a little bit and say, hey, you know
what we're gonna if they just raise prices across the board,
but then offer discounts for those who are paying in cash, honestly,
I think they would alienate fewer customers that way. Just
(40:34):
I don't know. Something to keep in mind.
Speaker 1 (40:35):
And when you think about it, Matt, like, when you
look at the numbers for buy now, Pay Later, what
do people do? They spend more when they use buy now,
pay later because they feel that when you make it
easy right well, and they don't feel the immediate impact
of that purchase, They're like, oh, well, sure, I'll spend
two hundred bucks because I'm it's fifty bucks a month
for four months, right, who cares? Which is why we
hate buy not pay later. But honestly, to be to
(40:56):
be fair, people can do and follow to the trap
of doing the same thing with credit cards is saying
I'm just going to spend more because guess what is
not actually money coming out of my account? Yet, of
course it is real money that's going to come out
of your account. But people make that mistake and they
do end up by and so as a retailer, I
would want to make sure that I was not alienating
my credit card customers who might be be buying higher,
(41:17):
bigger ticket items. Yeah, find a way not to penalize them,
but to reward people who paying cash instead, because I
do think that's just.
Speaker 2 (41:24):
A smarter business move. Yeah, reach out to Jill personally
for more business consultations. Right, My hourly fee is reasonable,
It is reasonable. All right, Let's get back to the
beer that you and I enjoyed today, Joel, this is
anything different from yesterday, which is a West Coast style
India pale Ale, another one by Burial Beer Company. What
were your thoughts?
Speaker 1 (41:44):
All right, Matt, at risk of angering all of our
listeners in California, in the beautiful state of California, which
I just spent many many days and had the best time.
I think this is a better West Coast ipa than
most of the West Coast Ipa pro products, so you're
gonna say yes, And I feel like a terrible human
being for saying that it's so good. It was delicious,
and there's some maybe it's just because the super duper
(42:06):
punched to the mouth high pine resin vibe that just
feels so ridiculously intense, which is traditionally with the West
Coast ipa. Is this is a different old school West
Coast IPAs are going to have that bitterness. This is
like a greatly reduced version of that where I still
get that pine, but it doesn't feel like it's completely
overwhelming my palate.
Speaker 2 (42:26):
So totally agree. I really enjoyed this one. It's still
got the piney flavor, yeah, but it's just a more
crisp and cleaner version of that West Coast ipa without
feeling like you're like chomping down on grapefruit skin, yeah,
pith or literal pine trees, which is what it can
feel like sometimes. Yeah. No, I totally agree. This is
a fantastic version of the West Coast Ipa by an
East Coast brewery Burial beer company situated in Asheville, North Carolina. Yeah,
(42:50):
and if you're upset with me, taking California brewers to task.
California has some of my favorite breweries. It literally just
hit up Costa Agria in Oxnard, California last week. You
feel like you gotta like throw the West the California
breweries alone after you talk trash.
Speaker 1 (43:04):
That's a small one and it is one of the
best breweries I've ever been through in my life. So
it's not I'm not against California beer. I'm just saying
the West Coast thing has been can sometimes be overwhelming,
and this one is not, which I appreciate.
Speaker 2 (43:16):
Well, maybe that just means we need a little more
Casa Agria some of these West coast California breweries in
our life. Drol I wouldn't be against it. Yeah, a
little bit tougher to get our hands, I guess on
some of the better stuff, But buddy, that's gonna be
it for this episode. Listeners can find our show notes
up on the website at how somemoney dot com some
of the different guides and by the way, when it
comes to some of the different credit card rewards, some
(43:37):
of the different benefits that they're offering. Like I said,
I'm still rocking, like I truly do rotate through five
different cards in my wallet because I like to optimize.
And if you are looking to filter buy some of
the different airline carriers, some of the different cash back
or by business versus personal cards, you can go to
how to money dot com for slash credit card tool,
and that's where you can find all the best ones.
Speaker 1 (43:56):
No doubt, dude. All Right, that's going to do it
for this one, Matt. Until next time, best friends out
and best friends Out.
Hosts And Creators
Joel Larsgaard
Matthew Altmix
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