July 6, 2025 • 33 mins
Even God would get fired as an active investor. So what makes you think you can be highly successful over time investing in single stocks!?
Ask HTM: Jessica wants to know if she should pay for daycare with a credit card - even if it costs extra to do so.
Used cars are starting to go up in value again. And Cyber Truck owners are finding that their value collapses within the first year of ownership.
Ask HTM: Jessica wants to know if she should pay for daycare with a credit card - even if it costs extra to do so.
Used cars are starting to go up in value again. And Cyber Truck owners are finding that their value collapses within the first year of ownership.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Kay If I am six forty you're listening to How
to Money on demand on the iHeartRadio app.
Speaker 2 (00:07):
All Joel and Matt want to do is help you save,
invest and enjoy more of what matters. This is how
to Money with Joel Lar's Guard and Matt Aultmix.
Speaker 1 (01:11):
KFI AM six forty Live everywhere on the iHeartRadio app.
Speaker 3 (01:15):
This is how to Money. I'm Joe Larsgard and I
am Matt Altmix. If you are over on Facebook and
you want to join a group of like minded folks
who have money questions and insight, please go ahead and
join the how to Money Facebook group.
Speaker 1 (01:28):
Of course, got to get to the ludicrous headline of
the week. This one comes from a website called Alpha
Architect and the headline reads, even God would get fired
as an active investor. And this is one of the
best headlines I've seen in a while. And it's just
kind of ludicrous to think that the creator of the
universe would not be able to make it as an
(01:51):
active investor. In this article did a really good job
setting up why and then talking about just how even
if you had perfect fore knowledge you as an investor,
you wouldn't ultimately be able to make it. The people
who you're investing on behalf of would be so mad
at the draw downs that they experienced during the tumultuous
(02:11):
months that they would fire you. And so the gist
was that even with like practic perfect foresight, that active
investors are going to get fired before their strategy is
allowed to play out there saying.
Speaker 4 (02:23):
No, no, no, stick with me this company.
Speaker 1 (02:25):
It's I know that the draw down is significant right now,
but if you just hang on for the ride, I
promise like we're going to have a comeback and we're
all going to make money. Well, the truth is, when
you own the best performing stocks over time, still individual stocks,
those draw downs can be so gut wrenching over months
(02:46):
or even years that even if you had the conviction
to stay the course, your clients as an investor would
be like, sorry, dude, I'm not hanging with you. My
portfolio is down seventy five percent in the last twelve months.
And that so, even if you knew ahead of time,
you would have to be incredibly convincing to get people
to stick with you during those times of greater volatility.
Speaker 4 (03:11):
And I think as individuals, right if we.
Speaker 1 (03:13):
Had perfect foresight, we would say I'm okay with greater
levels of volatility if I know that at some point
it's going.
Speaker 4 (03:21):
To pay off in the long run.
Speaker 1 (03:24):
But as people who are investing our money with somebody
who's making the calls on our behalf, we wouldn't be
right because we don't have that perfect foreknowledge. They're trying
to tell us that they do. And this is honestly
kind of how some parts of the investing world function.
You're believing somebody else's conviction, but those people don't have
(03:46):
perfect foreknowledge, and which means that their outcomes are even worse.
But it was just fascinating to see that even if
you did, even if you knew which stocks were going
to be big, those drawdowns would be so significant that
people wouldn't be able to stomach them. And if very
few people have the conviction to hold on during the
toughest of times. I think about just a stock recently
(04:07):
where there's this company called Carvana and they're trying to
which we've talked about on the show, for selling your
car to them or buying a used car, and their
stock price just got torched last year, and it looked
like Carvana might go away altogether. And even though they'd
created this inventive new business model. Carvana stock got obliterated
(04:30):
so hard and a lot of people thought it wasn't
going to be around, and if it hadn't stuck around,
investors would have been wiped out. And then you think
about what's actually happened with the turnaround of Carvana and
their stock price zooming. But did people have the conviction
to be able to hold on during those most tumultuous times.
Some investors did, and they raped their rewards, but a
(04:52):
lot of other people got out because then drawhound in
the stock price is really tough to stomach. And this
is just a other pro I think in the index
investing camp the drawdowns are less severe. And you might say, well,
I think I can pick the winners. But the truth is, one,
can you? And then two, even if you pick a winner,
(05:12):
can you stick with that winner even when the going
is tough? A la Carvana or a Lah Think about Apple.
There have been times where Apple as a company was
it looked like they were almost dead. They recovered from
the verge of bankruptcy back in those early Steve Steve
Jobs days. And so are you the kind of person
(05:33):
that has the conviction that that stock is worth holding
on to for the long term.
Speaker 4 (05:37):
I don't know about you, but I.
Speaker 1 (05:41):
Don't know that I have the time the intelligence to
study companies enough to have that sort of conviction that
I'm willing to hold on through thick and thin in
order to attempt to experience those greater levels or returns.
Fifty four percent of stocks, by the way, never recover
after experiencing a ninety percent draw down. So and by
(06:01):
the way, you could get even more risky by investing
in leveraged funds, which are becoming more widely available inside
of retirement accounts or are set to become available inside
of retirement accounts soon. The thought I think behind these
leveraged funds is that you can, Hey, you can finance
a vehicle, you can finance your education, you can finance
a home. Why not use debt to increase what you're
(06:25):
able to buy investment wise too? And this has always
been if you're a real estate investor, if you've heard
us talk about real estate investing, it's always been a
big part of what makes real estate investing in particular
attractive because if it weren't for leverage, almost nobody would
want to participate in real estate investing, the returns just
wouldn't be as robust. There's something about putting ten percent
(06:47):
down or twenty percent down on a property and saying
I don't have to actually have the cash to buy
the whole thing up front. That juice is your returns, right,
especially if you have a locked in low interest It
can make the investment look a whole lot more attractive.
And the problem here though, is greater potential reward equals
(07:10):
greater risk. Leverage is something that can either make you
look smarter, it can make you look really stupid. And
if the market goes through an extended tough time, investors
who are putting money into these leverage funds they could
be wiped out. I'm not against all forms of debt.
We talk about smart forms of debt on the show
that there are some kinds of debt that, in proportion,
(07:32):
used wisely, in intelligence, intelligently and not overdone, can actually
help your ultimate wealth building goals. Smart use of leverage
can benefit what I would call shrewd investors because we
see what happened in two thousand and eight, right, but
unwise investors who took on too much debt, who bit
off more than they could chew found themselves between a
(07:54):
rock and a hard place. But investing in these sorts
of leverage funds, it's a little too risky for my
blood as well.
Speaker 4 (08:00):
Well.
Speaker 1 (08:00):
I'd avoid them again, stick to regular old index funds
because the only certain thing about these leveraged funds is
the extra fees they assess because of the added complexity
that they are putting into your portfolio. So if you
see these leveraged funds, yeah, they're a way that you
could potentially increase your earnings, but you're taking on more
risk and I just don't think it makes sense.
Speaker 5 (08:22):
You're listening to how to Money with Joel Larsgard on
demand from KFI AM six forty.
Speaker 1 (08:29):
Don't forget to sign up for the how to Money newsletter.
You can find that up at how tomoney dot com
slash newsletter.
Speaker 3 (08:35):
It is now signed for the Facebook question of the Week,
which is from Jessica. She wrote, my kid's daycare announced
that they will now be offering two options for payment,
automatic withdrawal from a paycheck with no fees or by
credit card with a two point sixty five percent surcharge.
Until now, we paid with the credit card with no
surcharge to help earn reward points, and honestly, it's our
(08:55):
biggest single expense that we put on the credit card,
so it gets us a good chunk of points every month.
Speaker 4 (09:00):
Month.
Speaker 3 (09:00):
We have the Chase SAFI Preferred which for this payment
is just one point per dollar.
Speaker 4 (09:05):
So if I pay it right now, we.
Speaker 3 (09:06):
Pay eight hundred and twelve dollars a month with a
two point six five percent charge. That is twenty one
dollars fifty cents a month more, which sounds crazy, I know,
But if it gets us more points, is it worth it?
I'm leaning towards no, but.
Speaker 4 (09:18):
I guess you could view it as a.
Speaker 3 (09:21):
Twenty one dollars vacation savings plan, and if we use
the points to the most effectiveness, it could be worth more.
I don't know. Help me out, all these smart people. Also,
we pay off our entire card balance every month. We
have a fully funded emergency savings plan we say for retirement.
Blah blah blah, all that, Joe. What you think, yeah,
which you think about? Well, specifically, what do you think
about businesses starting to they're passing the buck? You know,
(09:42):
they're they're making us feel the pain that the credit
card processors have been sticking them with. I think it
makes total and complete sense. And Jessica's Daycare is not
alone here, right, because small businesses like that pay a
lot to accept credit cards. And while you know, many
find it worthwhile to accept credit cards despite the additional expense.
(10:03):
They're saying, like, listen, if I don't accept credit cards,
people won't patronize my business, and so it's a cost
of doing business that I'm just going to eat.
Speaker 4 (10:10):
Well, other companies.
Speaker 1 (10:12):
Are saying no, no, no, no, yeah, I mean yes, I'll
accept credit cards, but I need to pass that cost along,
and consumers are getting more and more used to it.
Individuals are like, all right, I guess the small business like,
I'll if I really want to use the credit card,
I'll pay the fee. And so those credit card exchange fees,
I think they could be like the third highest line
item for restaurants, for instance, in particular, so a lot
(10:33):
of small restaurants like the credit card charges eat them alive,
and if people paid in cash, they would be doing better.
And I will say many businesses make more money by
accepting credit cards because people tend to spend more. So
that is part of the reason that they accept credit
cards too. Yeah, it comes with a fee, but it
means that people are actually going to spend more at
my place of business, then hey, it makes sense it's
(10:56):
worth the trade off. But that's far less likely with
a daycare particular, right, Like, so I get that they're
not willing to eat that cost anymore. They're trying to
pass it on. But as the person with you know,
kids in a daycare, it's I get why it's a
little bit annoying at least because you're like, man, this
used to be this was my vacation, say explained, they
didn't cost me a time, and now it's going to
cost me money.
Speaker 3 (11:16):
The rules are a change, and so from like an
ongoing standpoint, I would not be looking to pay for
daycare with that credit card on a on a recurring
regular basis. However, one exception to that would be if
you've got a new card that's got a certain spend threshold. Right, So,
if you're trying to hit a spending threshold for a
welcome offer, if you're looking at a certain number, a
certain thousand dollars over the course of the first three months,
(11:38):
that sort of thing, then that is one hundred percent
an instance where I would continue to pay the two
point was six y five percent because what you're receiving
is in far excess of what it is that that
the daycare is then charging. So let's say the daycare
was charging one point eight percent, Well, I would keep
using your credit card to pay it. No brainer, because
(11:58):
you can get a two percent cash back credit card
pretty easily, and so I would like the City Double
Cash or the Fidelity card, and I would well just.
Speaker 4 (12:05):
Use that card.
Speaker 1 (12:06):
And no matter what, you're always going to be coming
out ahead, even if it's only slightly ahead. And so
maybe just the ease of being able to pay with
a credit card on top of that makes it worth it,
even though if it makes sense, it's a negligible it's
a negligible win. So you're but if the cost of
using the credit card outweighs the rewards using that credit card,
then it just doesn't make sense. And I think she's
(12:27):
sort of calculating the fact that points that she would
earn are going to be worth more because of the
just the what they're worth when it comes to redeeming
those points, which is typically.
Speaker 4 (12:36):
Not true unless you're really, really good.
Speaker 3 (12:38):
You've got to be on the game, like, yeah, you've
got to be completely on top of the points game.
But even still, I think that the likelihood of you
coming on ahead is is slim compared to what the
guaranteed rate that you're paying is well. And on top
of that, we're talking regularly about the deflation of points
and miles, and so you're you're like, you have an
idea of how maybe skilled you're going to be able
(12:58):
to be in using those points. But if those if
those points get deflated over what you know, why you're
hanging on to them before you before you use them,
then you might find that your calculations were off as well.
One last ditch suggestion would be to use a different
credit card that does offer more cash back, the like
Bank of America's Customized Cash card and Citi's Custom Cash.
Speaker 4 (13:19):
Those are cards I was gonna mention.
Speaker 3 (13:21):
You mentioned the double Cash if you have one point
eight percent, but the City Custom Cash you're looking at
five percent, right, which is that could offset? I mean
it does offset. It just depends if you're willing to
well jump through theops.
Speaker 1 (13:32):
Could offset because there are limits right every single month.
So I do think the Custom Cash has a five
hundred dollars a month limit. The Bank of America one
has a twenty five hundred dollars a quarter limit. So
for Jessica, that boa customized cash might be the best
cause you might be able to put literally every single
single dollar of the customized cash.
Speaker 3 (13:51):
Is that there is that three percent three percent, because
then you're looking at being capped at five hundred. Still,
I think the custom cash actually comes out ahead. Sligh, Okay,
so run the numbers on.
Speaker 1 (14:00):
Yeah, really the numbers, I would say, because yeah, one
pays less percentage and has a higher cap and vice versa.
But yeah, is the juice worth of the squeeze? It
depends if you can out earn with rewards that you
don't have to like jump through hoops to spend. And specifically,
it's if it's a cash back for spending any particular
category and this is your highest category using that card
(14:21):
for that purpose especially, I think it can make sense.
But you just want, yeah, we want to look into
the details, look into the fine print, know which credit
card is actually going to allow you to come out ahead,
because yeah, most of them will not.
Speaker 3 (14:32):
Let's take another quick one from myelin or mail in.
She wrote, what is the new emergency funds number. I
can't remember, and the money gear page on the website
hasn't been updated yet. That's on us sockers. But now
I will say it is updated. Updated, It is updated. Yeah,
So thirty forty five, that's the number used to be
(14:52):
two four to six seven, two four six seven.
Speaker 4 (14:54):
Now it's thirty forty five. Yeah. Maybe.
Speaker 1 (14:56):
Well, and that's because we adjusted it for inflation, because
that number for came out in the year twenty nineteen,
and the reason for that was what economists said, if
you have twenty four hundred and sixty seven dollars in
the bank, you're going to be prepared enough for the
vast majority of potential financial emergencies. It's that that amount is,
of course not going to be enough for a prolonged
(15:17):
job loss, but it is going to be enough to
handle most emergencies that come your way that you need
money to deal.
Speaker 4 (15:23):
With unforeseen expenses.
Speaker 1 (15:24):
Yeah, but we were like, it's twenty twenty five, how
much do eggs cost versus in twenty twenty five versus
twenty nineteen. Experienced some serious inflation over the past six years. Yeah,
so we wanted to update that number. We did, and
now it's officially updated on the website as well.
Speaker 3 (15:38):
Yeah, three zero four five, And I will say there's
nothing like magical about that number. Like, yes, the economists
did say that, oh, this is the amount, but like
they're also I mean, there's a range here, so there's
not anything financially or like from an accounting standpoint that's
super magic about that number. But I think the most
of the power comes from it being a specific number. Yeah,
and for you to have a goal, something that you
(16:00):
are shooting for, and like literally, I want folks out
there who are hearing this for the first time to
set aside three thousand, forty five dollars not three grand
I don't want them to.
Speaker 4 (16:09):
Shoot for that. This specificity of it matters, that's what
matters exactly.
Speaker 3 (16:13):
And knowing that you've got that set aside, I think
that's that's where most of the power comes from.
Speaker 4 (16:17):
When it comes to that first money gear.
Speaker 1 (16:19):
There used to be this like church event math that
started at like a specific time and I can't even.
Speaker 3 (16:24):
Remember seven twenty two. Yeah, oh yeah, I remember that,
and that like that's so funny. Nobody forgot I thought,
wait to show up for years. Yeah, And I think
the same is true of this, of this budgeting number,
of this emergency fund number. It's like, wait, how much
do I need it?
Speaker 4 (16:37):
Again?
Speaker 1 (16:38):
Oh, you're not gonna forget because it's not like roughly
five grand or something like that. It's a it's a
highly specific number. And I think that that stickiness, the
way it bolts into our brains is really helpful because
and it just makes it more likely that we're gonna
achieve it because we have something highly specific to focus
on instead of something more generics.
Speaker 5 (16:55):
You're listening to how to Money with Joel Larsgard on
demand from KFI AM six forty.
Speaker 3 (17:02):
By the way, you can always find more money saving
information over at howtomoney dot com.
Speaker 1 (17:07):
All right, Depreciating assets are once again flipping the script.
Speaker 4 (17:11):
They're going up in value.
Speaker 1 (17:12):
Supply chain issues during COVID led to a situation where
people were seeing their used car increase in value. It
was a rare phenomenon. It was interesting to document on
the show because it's something we don't see, Like we
always talked about cars as depreciating assets. Hey, that thing
is going to go down in value, And just for
a hot minute there it was like, wait a second,
(17:32):
your used car is actually it's worth more today than
it was yesterday, and an even more rare feet. There
were people who leased cars and then if they bought
it out after the lease was up, they were able
to make money too because there was a spread on
what they had to pay for. And typically this is
almost never the case, right when those contracts are written
(17:53):
that you can buy the car and then it's actually
worth more than what you have to pay to the
dealership to buy the car then, and so people would
instead of just turning the car over, if they would say,
wait a second, I can pay fifteen thousand dollars for
this car, but it's actually worth nineteen or twenty thousand,
(18:13):
So yeah, I'll take it, even if I don't plan
on keeping it. I'll sell it and I'll make the difference.
So that was really interesting. But we're seeing maybe signs
that this is coming about again, that the used car
market it's getting tighter because of tariffs, and demand for
use cars seems to be going up. Supply seems to
be dwindling, and then prices seem to be rising again.
(18:36):
How long this is going to last depends on a
number of factors, including tariff policy, which, as we all
know has been very very whiplashy, very back and forth.
You know, where tariffs land, or if they land, is
anybody's guess, And I don't even know if the person
in charge of tariff policy really knows where things are
going to land right now. And so I think this
(18:58):
is just another another reason to hold onto your used
car longer and to feel comfortable putting money into it
within reason. There are obviously like rules of thumb of
when hey, my car needs seven thousand dollars worth of
work and it's worth five thousand dollars. Yeah, I'm not
putting that money into it, but it makes I've been
thinking about my Fi Vacurra and it's summer right now
and the ac doesn't work, and I've just been sweating
(19:19):
it out like an idiot, and I've finally come to
the conclusion, you know what, this is a good car.
I'm going to put some money into it. I've kind
of been holding out and not putting money into it
in hopes that I would at some point just ditch it.
And I'm like, you know what, Now I think I'm
going to hold onto this thing longer. I'm going to
put in the money that it needs to keep this
thing around, and I do think for you, though it's
(19:41):
a twenty year old car, I do think for a
lot of people that is a wise move. Part of
the reason I love used car so much and I
love holding onto cars so long, is because it's such
a significant part of most people's budgets, and I love
making it a really insignificant part of my budget so
I can spend more on stuff I care about more.
And one of the other main reasons that I just
hate new cars it's really hard for me to stomach
(20:02):
buying a new car is because they tend to depreciate
in value so down quickly. And this is a great
time for me to talk trash about the cyber truck.
And not because I have a vendetta against Elon or
anything like that. It's not just a political thing. But
and obviously, you know, Elon has found himself in some
(20:24):
the political fray, largely of his own making. He seems
to have annoyed everyone from every side at this point.
But the value of the cyber truck has plummeted far
more than the average new car that gets sold. Apparently,
cyber truck prices are down something like forty percent just
a year after being in customer hands, and this was
(20:44):
this is like a far cry from even just the
normal depreciation that a new car typically experiences of twenty percent.
That's still a lot right to buy let's say a
fifty thousand dollars car and for it to be worth
forty thousand dollars a year later. That's a lot of
money to lose in just a short period of time.
But if you bought the one hundred thousand dollars cyber
truck and it's now worth sixty two thousand dollars just
(21:07):
a year later, you just burned a whole pile of cash.
And so that has been fascinating to watch. And I
think this is oh. I think it's particularly true of
the cyber truck, but I think it's also true of
brand new models that it's hard to know what the
customer demand is going to be and whether or not
they're going to retain their value. In the same way,
(21:29):
depreciation is something that we all face as car owners.
The car, at least in normal times, the car is
not going up in value, but the ownership timeline and
holding on to it longer it can help kind of
cover up for some of those depreciation flaws. And the
other thing that helps is to just buy older cars
that are in good condition and hold on to them longer.
(21:50):
Because if you buy a car that's at least five
years old and you hold on to it for five
or ten years, the longer you hold onto that car,
you're paying you're buying someone else's to pre shading asset,
and it's going to appreciate a heck of a lot
less during the time that you own it. And the
thing is, if you're smart about getting your car checked out,
and you're smart about looking at places like Consumer Reports
(22:12):
for a liability ratings, you can hone in on cars
that are going to be more reliable over time, that
are going to be a better bet. Buying a five
year old car doesn't mean buying even a ten or
fifteen year old car doesn't mean you're doomed to be
in the repair shop all the time if you buy smartly,
and if you need one more reason not to buy
(22:32):
a new car, I was just talking to a friend
the other day. Financing terms are getting worse, and my
friend was saying he was being pushed into an eight
year car loan and he was like, but I wanted
to do a six year car loan, but if I
do eight, can I pay it off more quickly? And
I was telling him about my four year rule that
you don't ever want to finance a car more than
four years. I don't know if he listened or not.
And that's really up to you as an individual. But
(22:55):
if you want to, my advice is to not buy
a car that you can't afford to buy in cap
and if you absolutely do, have to finance it thirty
six to forty eight months at absolute most, and get
that loan from a credit union. And I know cars
can be like a status symbol in this country, but
that's not something I buy into, and I think of
(23:15):
it as a point A to point B transportation. And
if you want to think of it as a status symbol,
that's fine, but only by it if you can actually
afford it, and if you have to finance it over
a long period of time you can't afford it.
Speaker 5 (23:27):
You're listening to How to Money with Joel Larsgard on
demand from KFI AM six forty.
Speaker 1 (23:33):
If you're on Facebook, by the way, you want to
join a group of like minded folks who have money questions,
who have Money Insights. Please go join the how to
Money Facebook group.
Speaker 3 (23:42):
I was just emailing a listener who he shared the
newsletter with five buddies, which means that he received a
free beer on us on Joel and Matt, And he said, yeah,
actually I missed it because I assumed it was a
a late tip because bar is his side hustle. So
he's like, oh, I just did a wedding and all
(24:04):
of the tips always say beer. Yeah, because it's a
Venmo tips, and that's what we put when we send
you money on Venmo.
Speaker 4 (24:10):
Exactly sharing our news So two things.
Speaker 3 (24:12):
Check out the how to Money newsletter how toomoney dot
com forward slash newsletter and sign up and you share
it with your friends or family members. You'll get special
perks from from Joel and I. But eventually you can
win the coveted how to Money socks. Yeah, you know,
nobody has taken us up on the virtual hang. Nobody
shared the newsletter that many times?
Speaker 4 (24:31):
Is it fifty or forty? I know I want to
say we dropped it.
Speaker 3 (24:33):
Oh yeah, because really, oh man, nobody wants to Nobody
wants to talk about.
Speaker 1 (24:37):
If you share the newsletter enough, you get to spend
quality virtual.
Speaker 4 (24:39):
Time with us.
Speaker 3 (24:40):
Okay, here's my question for you. If you were not
interested in personal finance. I know it's impossible to imagine,
but try to interested in personal finance, if you didn't
have real estate on the side, what would your side
hustle be. Because the reason I thought of this is
because I pictured him standing there pouring up beer, serving
glasses of wine, chatting with at the wedding, and I thought, man,
(25:01):
that's what.
Speaker 4 (25:02):
Joln needs to do.
Speaker 3 (25:02):
I feel like you would be so happy in that scenario,
just serving it up, chatting with folks, having a great time.
Speaker 4 (25:06):
That the hours of bartending are not conducive to my lifestyle.
That's the worst.
Speaker 1 (25:10):
Like the actual job itself. I've never done it, but
I've always been you would love it. I've always wanted
to because like just being Sam Malona cheers, slinging beers
and talking to the crowd like that, that sounds pretty
great to me. So yeah, I could be up for it,
especially in a world where I didn't have, you know,
a life, three kids.
Speaker 3 (25:25):
Yeah, I get it. It's also hard to remove that
from the equation.
Speaker 4 (25:29):
You should be a barista probably right, just came crafting
the coffee.
Speaker 3 (25:32):
So I really do want to learn how to pull
some really excellent shots as honestly as like training, because
at some point I'm going to get my own espresso
machine at home. I want to build out a little
coffee bar, like a like a cocktail and coffee corner
of our kitchen that's purely dedicated.
Speaker 4 (25:48):
For that espresso martinis NonStop.
Speaker 3 (25:50):
Well, I know that that seems like the logical outflow
of combining caffeine and cocktails, but I absolutely do not
like espresso martinis, saying they're terrible. Yeah, I mean, I
don't know what it is about it that people are
drawn to you. I think it's just about an in drink. Yeah,
that we've folks have been experiencing over the past few
years without doubts. All right, that's all I got, Okay, Joe,
Let's get to our next question from a listener who
(26:11):
has a mortgage. He's not here to brag, but he
has an enviable mortgage rate.
Speaker 6 (26:17):
Hi, Matt and Joel, this is Steve from Plainfield, Illinois.
I was calling because I recently received a letter from
my mortgage company telling me that I have the option
to cancel my escrow because my loan to value ratio
has dropped below sixty five percent, and I've been making
payments on time.
Speaker 4 (26:36):
I just didn't know if that was the right thing
to do or not. I didn't even know that this
was an option.
Speaker 6 (26:41):
Just give you some big basics about my mortgage. I
still owe about one hundred and fifteen thousand with that
sweet sweet two point seventy five percent, So that means
that my escro payments are actually slightly more than my
principle and interest in each month. In terms of what
is sent to escrow, I pay about fifty five four
hundred and property taxes and about fifteen hundred insurance. It
(27:04):
adds up to just under seven thousand in scrow on
a yearly basis. So I just didn't know if there
were some any upsides or downsides to canceling the scrow
and just paying the insurance and property taxes. Myself, I
figured I'm the type of person that would be able
to plant that money into a high yield savings account
and you know, just benefit from the interest. But I
(27:26):
didn't know if there's anything I was overlooking. So I'd
appreciate any insights you have. Thank you very much, best
listener out.
Speaker 1 (27:33):
I think two point seventy. Yeah, a lot of people
heard that, especially in today's environment. They're like, you lucky
son of a gun. Yeah, that's a so good. It
really is sweet. Like, give me that mortgage rate straight
into the veins math here, and congrats to Steve on
being able to make substantially more in savings than you're
paying towards your mortgage debt. That is just like a
(27:53):
rarity upon rarities, right, and we just I think mostly
at the time, we didn't realize just how good we
had it those sub three percent mortgage rates. Now we do,
and to be able to make more in just a
straight up piled sam us, it's crazy. It's incredible to
make a spread on money.
Speaker 4 (28:08):
Yeah, that's nuts.
Speaker 3 (28:09):
But let's talk about ditching escrow, because the argument for
sticking with the escrow model is that it's easier from
a budgeting perspective. Right, you know your monthly payment amount,
you pay it like clockwork. There's actual real benefits of that, right,
like the fact that this is not something that takes
up space in your brain. It's not on your mind,
and that's because it's incumbent on your mortgage provider to
pay the taxes and the insurance because those bills tend
(28:31):
to be pretty hefty, some folks might find themselves in
the position of not having the cash on hand when
when it's needed, and so having your mortgage to escrow
it essentially forces you to do the right thing without
you having to think about it. It prevents you from
getting too used to a smaller monthly payment that doesn't
then reflect.
Speaker 4 (28:49):
The real underlying costs.
Speaker 3 (28:50):
So first of all, you need to make sure that
you're the kind of person who doesn't just see a
smaller payment.
Speaker 4 (28:55):
Is just like sweet, now I got more money to
spend towards this. None. Of course, you need to be
organized about it. You need to be on top of it.
Speaker 3 (29:01):
You're super sized socking that money on my vacation budget
thanks to you know, ditching escrow, and then the tax
bill comes around and you're like, oh, crap, like that,
that's position you don't want to want to find yourself in.
And with property tax and insurance bills going up, having
an escro account means you won't have to come up
with the one thousand dollars plus more than you thought
you'd need in one fell swoop, because those two bills
(29:23):
came in much higher than you assumed, which is happening
to a lot of people right now. Right, So if
your if your tax bill from last year was six
thousand bucks, and you're like, it's probably gonna go up,
maybe I'll just like save seven thousand dollars conservatively, I'd
save eight right, like I would be I would be
a little more conservative, just because I wouldn't want to
screw that up and not have the cash on hand
(29:43):
to pay that tax bill. That would be a tough
situation to find myself in. And I would also.
Speaker 1 (29:48):
Note that while it might be a really good idea
to Ditchesscrow, it's not going to be a massive money win.
So this is kind of a yeah, could it be
better for you? Might be it might be the best
way to go. You'll be able to keep money which
would have otherwise been held by your mortgage company in
your savings, and yes, you're going to earn interest on that.
But I think at the end of the day or
at the end of a year, you might be talking
(30:09):
about one hundred bucks or so in savings. So you know,
while we'll dig in further, just know that this is
more of a minor optimization question, and we're fans of optimizing,
but yeah, the stakes aren't gargangu in here.
Speaker 3 (30:20):
Yeah, I guess it does depend on what you're paying,
So I mean, I guess Steve said he's got like
maybe around seven thousand dollars in total. Again, not that
you have seven thousand dollars that's earning that annualized three
and a half to four percent a year, but like
you're building that up, so it's not as simple as
running with the rates what the return would be on
eight seven eight thousand dollars at the end of the year,
because it's something that you're building up towards. It's not
(30:42):
quite that much. But it also does depend on how
much your your property taxes are and what you're paying
on insurance. Because if you are in some communities where
it's like, dude, you have no idea how much I
pay in property taxes, I could see that being more
of an argument to drop escrow and instead banking that money.
Is if you were to do that right, if you're
thinking ahead, you are sticking that money in your savings account.
Speaker 4 (31:04):
You will earn interest on that money. And it might
sound like where we're not.
Speaker 3 (31:08):
Fans of ditching escrow, we're actually I'm actually for it,
And one of my favorite reasons is because if you
are a diligent saver, if you're a type A person,
you've checked all the boxes and you are going to
do this properly. But on top of that, it's going
to make you more aware of how much you're paying
for insurance and taxes, making it more likely that you're
gonna appeal your tax bill. It's going to make it
more likely that you'll shop around with different insurance companies.
(31:30):
It's going to make you more civically engaged in your
city or your town, or your state, whatever, if you
are paying attention to these things as opposed to being like, oh, whatever,
it just gets paid. I don't have to worry about it. No, No,
you do have to worry about it. And when you're
more directly connected, I think it makes you more responsive
to some of the different fluctuations and prices. There really
is a most likely not fluctuations but just increasing prices. Yeah,
(31:51):
and there really is a price sensitivity when it comes
to how you feel the pain that you feel because
you're paying it out of your own checking coount instead
of paying it over twelve months through your escroal account.
Speaker 1 (32:02):
Through your mortgage payment. That just feels like it's baked in.
It makes me think of like budget billing.
Speaker 3 (32:06):
Right, that's the vibes I get when when we talk
about paying your mortgage through ESCO. You're a S correlated man,
you are, and so you're just you're less likely, like
you said, to kind of challenge the property tax rate
the bill that you got if if it is abnormally
high or something like that. And there are easy ways
to do that, by the way, like at a site
like own. Well, but yeah, I think similarly to that
(32:27):
budget billing on you. On your electric bill, you're less
likely to change your thermostat because it's a straight up
one hundred and eighty five dollars payment every single month.
But if in the summer you get a three hundred and.
Speaker 1 (32:39):
Twenty dollars bill from your electricity company, you're like, well, well,
I need to think about what I'm doing with the thermostat.
Speaker 4 (32:46):
Same is true.
Speaker 1 (32:46):
I think for property tax and for insurance, you're much
more likely to shop around and say totally agree, buddy, And.
Speaker 3 (32:53):
That is going to do it for today. Thank you
for listening. We appreciate your time and attention. We'll see
you back here next week.
Speaker 1 (32:59):
You've been listening to How To Money with Joel Larsgard.
You can always hear us live on KFI AM six
forty twelve pm to two pm on Sunday, and anytime
on demand on the iHeartRadio app
Kay If I am six forty you're listening to How
to Money on demand on the iHeartRadio app.
Speaker 2 (00:07):
All Joel and Matt want to do is help you save,
invest and enjoy more of what matters. This is how
to Money with Joel Lar's Guard and Matt Aultmix.
Speaker 1 (01:11):
KFI AM six forty Live everywhere on the iHeartRadio app.
Speaker 3 (01:15):
This is how to Money. I'm Joe Larsgard and I
am Matt Altmix. If you are over on Facebook and
you want to join a group of like minded folks
who have money questions and insight, please go ahead and
join the how to Money Facebook group.
Speaker 1 (01:28):
Of course, got to get to the ludicrous headline of
the week. This one comes from a website called Alpha
Architect and the headline reads, even God would get fired
as an active investor. And this is one of the
best headlines I've seen in a while. And it's just
kind of ludicrous to think that the creator of the
universe would not be able to make it as an
(01:51):
active investor. In this article did a really good job
setting up why and then talking about just how even
if you had perfect fore knowledge you as an investor,
you wouldn't ultimately be able to make it. The people
who you're investing on behalf of would be so mad
at the draw downs that they experienced during the tumultuous
(02:11):
months that they would fire you. And so the gist
was that even with like practic perfect foresight, that active
investors are going to get fired before their strategy is
allowed to play out there saying.
Speaker 4 (02:23):
No, no, no, stick with me this company.
Speaker 1 (02:25):
It's I know that the draw down is significant right now,
but if you just hang on for the ride, I
promise like we're going to have a comeback and we're
all going to make money. Well, the truth is, when
you own the best performing stocks over time, still individual stocks,
those draw downs can be so gut wrenching over months
(02:46):
or even years that even if you had the conviction
to stay the course, your clients as an investor would
be like, sorry, dude, I'm not hanging with you. My
portfolio is down seventy five percent in the last twelve months.
And that so, even if you knew ahead of time,
you would have to be incredibly convincing to get people
to stick with you during those times of greater volatility.
Speaker 4 (03:11):
And I think as individuals, right if we.
Speaker 1 (03:13):
Had perfect foresight, we would say I'm okay with greater
levels of volatility if I know that at some point
it's going.
Speaker 4 (03:21):
To pay off in the long run.
Speaker 1 (03:24):
But as people who are investing our money with somebody
who's making the calls on our behalf, we wouldn't be
right because we don't have that perfect foreknowledge. They're trying
to tell us that they do. And this is honestly
kind of how some parts of the investing world function.
You're believing somebody else's conviction, but those people don't have
(03:46):
perfect foreknowledge, and which means that their outcomes are even worse.
But it was just fascinating to see that even if
you did, even if you knew which stocks were going
to be big, those drawdowns would be so significant that
people wouldn't be able to stomach them. And if very
few people have the conviction to hold on during the
toughest of times. I think about just a stock recently
(04:07):
where there's this company called Carvana and they're trying to
which we've talked about on the show, for selling your
car to them or buying a used car, and their
stock price just got torched last year, and it looked
like Carvana might go away altogether. And even though they'd
created this inventive new business model. Carvana stock got obliterated
(04:30):
so hard and a lot of people thought it wasn't
going to be around, and if it hadn't stuck around,
investors would have been wiped out. And then you think
about what's actually happened with the turnaround of Carvana and
their stock price zooming. But did people have the conviction
to be able to hold on during those most tumultuous times.
Some investors did, and they raped their rewards, but a
(04:52):
lot of other people got out because then drawhound in
the stock price is really tough to stomach. And this
is just a other pro I think in the index
investing camp the drawdowns are less severe. And you might say, well,
I think I can pick the winners. But the truth is, one,
can you? And then two, even if you pick a winner,
(05:12):
can you stick with that winner even when the going
is tough? A la Carvana or a Lah Think about Apple.
There have been times where Apple as a company was
it looked like they were almost dead. They recovered from
the verge of bankruptcy back in those early Steve Steve
Jobs days. And so are you the kind of person
(05:33):
that has the conviction that that stock is worth holding
on to for the long term.
Speaker 4 (05:37):
I don't know about you, but I.
Speaker 1 (05:41):
Don't know that I have the time the intelligence to
study companies enough to have that sort of conviction that
I'm willing to hold on through thick and thin in
order to attempt to experience those greater levels or returns.
Fifty four percent of stocks, by the way, never recover
after experiencing a ninety percent draw down. So and by
(06:01):
the way, you could get even more risky by investing
in leveraged funds, which are becoming more widely available inside
of retirement accounts or are set to become available inside
of retirement accounts soon. The thought I think behind these
leveraged funds is that you can, Hey, you can finance
a vehicle, you can finance your education, you can finance
a home. Why not use debt to increase what you're
(06:25):
able to buy investment wise too? And this has always
been if you're a real estate investor, if you've heard
us talk about real estate investing, it's always been a
big part of what makes real estate investing in particular
attractive because if it weren't for leverage, almost nobody would
want to participate in real estate investing, the returns just
wouldn't be as robust. There's something about putting ten percent
(06:47):
down or twenty percent down on a property and saying
I don't have to actually have the cash to buy
the whole thing up front. That juice is your returns, right,
especially if you have a locked in low interest It
can make the investment look a whole lot more attractive.
And the problem here though, is greater potential reward equals
(07:10):
greater risk. Leverage is something that can either make you
look smarter, it can make you look really stupid. And
if the market goes through an extended tough time, investors
who are putting money into these leverage funds they could
be wiped out. I'm not against all forms of debt.
We talk about smart forms of debt on the show
that there are some kinds of debt that, in proportion,
(07:32):
used wisely, in intelligence, intelligently and not overdone, can actually
help your ultimate wealth building goals. Smart use of leverage
can benefit what I would call shrewd investors because we
see what happened in two thousand and eight, right, but
unwise investors who took on too much debt, who bit
off more than they could chew found themselves between a
(07:54):
rock and a hard place. But investing in these sorts
of leverage funds, it's a little too risky for my
blood as well.
Speaker 4 (08:00):
Well.
Speaker 1 (08:00):
I'd avoid them again, stick to regular old index funds
because the only certain thing about these leveraged funds is
the extra fees they assess because of the added complexity
that they are putting into your portfolio. So if you
see these leveraged funds, yeah, they're a way that you
could potentially increase your earnings, but you're taking on more
risk and I just don't think it makes sense.
Speaker 5 (08:22):
You're listening to how to Money with Joel Larsgard on
demand from KFI AM six forty.
Speaker 1 (08:29):
Don't forget to sign up for the how to Money newsletter.
You can find that up at how tomoney dot com
slash newsletter.
Speaker 3 (08:35):
It is now signed for the Facebook question of the Week,
which is from Jessica. She wrote, my kid's daycare announced
that they will now be offering two options for payment,
automatic withdrawal from a paycheck with no fees or by
credit card with a two point sixty five percent surcharge.
Until now, we paid with the credit card with no
surcharge to help earn reward points, and honestly, it's our
(08:55):
biggest single expense that we put on the credit card,
so it gets us a good chunk of points every month.
Speaker 4 (09:00):
Month.
Speaker 3 (09:00):
We have the Chase SAFI Preferred which for this payment
is just one point per dollar.
Speaker 4 (09:05):
So if I pay it right now, we.
Speaker 3 (09:06):
Pay eight hundred and twelve dollars a month with a
two point six five percent charge. That is twenty one
dollars fifty cents a month more, which sounds crazy, I know,
But if it gets us more points, is it worth it?
I'm leaning towards no, but.
Speaker 4 (09:18):
I guess you could view it as a.
Speaker 3 (09:21):
Twenty one dollars vacation savings plan, and if we use
the points to the most effectiveness, it could be worth more.
I don't know. Help me out, all these smart people. Also,
we pay off our entire card balance every month. We
have a fully funded emergency savings plan we say for retirement.
Blah blah blah, all that, Joe. What you think, yeah,
which you think about? Well, specifically, what do you think
about businesses starting to they're passing the buck? You know,
(09:42):
they're they're making us feel the pain that the credit
card processors have been sticking them with. I think it
makes total and complete sense. And Jessica's Daycare is not
alone here, right, because small businesses like that pay a
lot to accept credit cards. And while you know, many
find it worthwhile to accept credit cards despite the additional expense.
(10:03):
They're saying, like, listen, if I don't accept credit cards,
people won't patronize my business, and so it's a cost
of doing business that I'm just going to eat.
Speaker 4 (10:10):
Well, other companies.
Speaker 1 (10:12):
Are saying no, no, no, no, yeah, I mean yes, I'll
accept credit cards, but I need to pass that cost along,
and consumers are getting more and more used to it.
Individuals are like, all right, I guess the small business like,
I'll if I really want to use the credit card,
I'll pay the fee. And so those credit card exchange fees,
I think they could be like the third highest line
item for restaurants, for instance, in particular, so a lot
(10:33):
of small restaurants like the credit card charges eat them alive,
and if people paid in cash, they would be doing better.
And I will say many businesses make more money by
accepting credit cards because people tend to spend more. So
that is part of the reason that they accept credit
cards too. Yeah, it comes with a fee, but it
means that people are actually going to spend more at
my place of business, then hey, it makes sense it's
(10:56):
worth the trade off. But that's far less likely with
a daycare particular, right, Like, so I get that they're
not willing to eat that cost anymore. They're trying to
pass it on. But as the person with you know,
kids in a daycare, it's I get why it's a
little bit annoying at least because you're like, man, this
used to be this was my vacation, say explained, they
didn't cost me a time, and now it's going to
cost me money.
Speaker 3 (11:16):
The rules are a change, and so from like an
ongoing standpoint, I would not be looking to pay for
daycare with that credit card on a on a recurring
regular basis. However, one exception to that would be if
you've got a new card that's got a certain spend threshold. Right, So,
if you're trying to hit a spending threshold for a
welcome offer, if you're looking at a certain number, a
certain thousand dollars over the course of the first three months,
(11:38):
that sort of thing, then that is one hundred percent
an instance where I would continue to pay the two
point was six y five percent because what you're receiving
is in far excess of what it is that that
the daycare is then charging. So let's say the daycare
was charging one point eight percent, Well, I would keep
using your credit card to pay it. No brainer, because
(11:58):
you can get a two percent cash back credit card
pretty easily, and so I would like the City Double
Cash or the Fidelity card, and I would well just.
Speaker 4 (12:05):
Use that card.
Speaker 1 (12:06):
And no matter what, you're always going to be coming
out ahead, even if it's only slightly ahead. And so
maybe just the ease of being able to pay with
a credit card on top of that makes it worth it,
even though if it makes sense, it's a negligible it's
a negligible win. So you're but if the cost of
using the credit card outweighs the rewards using that credit card,
then it just doesn't make sense. And I think she's
(12:27):
sort of calculating the fact that points that she would
earn are going to be worth more because of the
just the what they're worth when it comes to redeeming
those points, which is typically.
Speaker 4 (12:36):
Not true unless you're really, really good.
Speaker 3 (12:38):
You've got to be on the game, like, yeah, you've
got to be completely on top of the points game.
But even still, I think that the likelihood of you
coming on ahead is is slim compared to what the
guaranteed rate that you're paying is well. And on top
of that, we're talking regularly about the deflation of points
and miles, and so you're you're like, you have an
idea of how maybe skilled you're going to be able
(12:58):
to be in using those points. But if those if
those points get deflated over what you know, why you're
hanging on to them before you before you use them,
then you might find that your calculations were off as well.
One last ditch suggestion would be to use a different
credit card that does offer more cash back, the like
Bank of America's Customized Cash card and Citi's Custom Cash.
Speaker 4 (13:19):
Those are cards I was gonna mention.
Speaker 3 (13:21):
You mentioned the double Cash if you have one point
eight percent, but the City Custom Cash you're looking at
five percent, right, which is that could offset? I mean
it does offset. It just depends if you're willing to
well jump through theops.
Speaker 1 (13:32):
Could offset because there are limits right every single month.
So I do think the Custom Cash has a five
hundred dollars a month limit. The Bank of America one
has a twenty five hundred dollars a quarter limit. So
for Jessica, that boa customized cash might be the best
cause you might be able to put literally every single
single dollar of the customized cash.
Speaker 3 (13:51):
Is that there is that three percent three percent, because
then you're looking at being capped at five hundred. Still,
I think the custom cash actually comes out ahead. Sligh, Okay,
so run the numbers on.
Speaker 1 (14:00):
Yeah, really the numbers, I would say, because yeah, one
pays less percentage and has a higher cap and vice versa.
But yeah, is the juice worth of the squeeze? It
depends if you can out earn with rewards that you
don't have to like jump through hoops to spend. And specifically,
it's if it's a cash back for spending any particular
category and this is your highest category using that card
(14:21):
for that purpose especially, I think it can make sense.
But you just want, yeah, we want to look into
the details, look into the fine print, know which credit
card is actually going to allow you to come out ahead,
because yeah, most of them will not.
Speaker 3 (14:32):
Let's take another quick one from myelin or mail in.
She wrote, what is the new emergency funds number. I
can't remember, and the money gear page on the website
hasn't been updated yet. That's on us sockers. But now
I will say it is updated. Updated, It is updated. Yeah,
So thirty forty five, that's the number used to be
(14:52):
two four to six seven, two four six seven.
Speaker 4 (14:54):
Now it's thirty forty five. Yeah. Maybe.
Speaker 1 (14:56):
Well, and that's because we adjusted it for inflation, because
that number for came out in the year twenty nineteen,
and the reason for that was what economists said, if
you have twenty four hundred and sixty seven dollars in
the bank, you're going to be prepared enough for the
vast majority of potential financial emergencies. It's that that amount is,
of course not going to be enough for a prolonged
(15:17):
job loss, but it is going to be enough to
handle most emergencies that come your way that you need
money to deal.
Speaker 4 (15:23):
With unforeseen expenses.
Speaker 1 (15:24):
Yeah, but we were like, it's twenty twenty five, how
much do eggs cost versus in twenty twenty five versus
twenty nineteen. Experienced some serious inflation over the past six years. Yeah,
so we wanted to update that number. We did, and
now it's officially updated on the website as well.
Speaker 3 (15:38):
Yeah, three zero four five, And I will say there's
nothing like magical about that number. Like, yes, the economists
did say that, oh, this is the amount, but like
they're also I mean, there's a range here, so there's
not anything financially or like from an accounting standpoint that's
super magic about that number. But I think the most
of the power comes from it being a specific number. Yeah,
and for you to have a goal, something that you
(16:00):
are shooting for, and like literally, I want folks out
there who are hearing this for the first time to
set aside three thousand, forty five dollars not three grand
I don't want them to.
Speaker 4 (16:09):
Shoot for that. This specificity of it matters, that's what
matters exactly.
Speaker 3 (16:13):
And knowing that you've got that set aside, I think
that's that's where most of the power comes from.
Speaker 4 (16:17):
When it comes to that first money gear.
Speaker 1 (16:19):
There used to be this like church event math that
started at like a specific time and I can't even.
Speaker 3 (16:24):
Remember seven twenty two. Yeah, oh yeah, I remember that,
and that like that's so funny. Nobody forgot I thought,
wait to show up for years. Yeah, And I think
the same is true of this, of this budgeting number,
of this emergency fund number. It's like, wait, how much
do I need it?
Speaker 4 (16:37):
Again?
Speaker 1 (16:38):
Oh, you're not gonna forget because it's not like roughly
five grand or something like that. It's a it's a
highly specific number. And I think that that stickiness, the
way it bolts into our brains is really helpful because
and it just makes it more likely that we're gonna
achieve it because we have something highly specific to focus
on instead of something more generics.
Speaker 5 (16:55):
You're listening to how to Money with Joel Larsgard on
demand from KFI AM six forty.
Speaker 3 (17:02):
By the way, you can always find more money saving
information over at howtomoney dot com.
Speaker 1 (17:07):
All right, Depreciating assets are once again flipping the script.
Speaker 4 (17:11):
They're going up in value.
Speaker 1 (17:12):
Supply chain issues during COVID led to a situation where
people were seeing their used car increase in value. It
was a rare phenomenon. It was interesting to document on
the show because it's something we don't see, Like we
always talked about cars as depreciating assets. Hey, that thing
is going to go down in value, And just for
a hot minute there it was like, wait a second,
(17:32):
your used car is actually it's worth more today than
it was yesterday, and an even more rare feet. There
were people who leased cars and then if they bought
it out after the lease was up, they were able
to make money too because there was a spread on
what they had to pay for. And typically this is
almost never the case, right when those contracts are written
(17:53):
that you can buy the car and then it's actually
worth more than what you have to pay to the
dealership to buy the car then, and so people would
instead of just turning the car over, if they would say,
wait a second, I can pay fifteen thousand dollars for
this car, but it's actually worth nineteen or twenty thousand,
(18:13):
So yeah, I'll take it, even if I don't plan
on keeping it. I'll sell it and I'll make the difference.
So that was really interesting. But we're seeing maybe signs
that this is coming about again, that the used car
market it's getting tighter because of tariffs, and demand for
use cars seems to be going up. Supply seems to
be dwindling, and then prices seem to be rising again.
(18:36):
How long this is going to last depends on a
number of factors, including tariff policy, which, as we all
know has been very very whiplashy, very back and forth.
You know, where tariffs land, or if they land, is
anybody's guess, And I don't even know if the person
in charge of tariff policy really knows where things are
going to land right now. And so I think this
(18:58):
is just another another reason to hold onto your used
car longer and to feel comfortable putting money into it
within reason. There are obviously like rules of thumb of
when hey, my car needs seven thousand dollars worth of
work and it's worth five thousand dollars. Yeah, I'm not
putting that money into it, but it makes I've been
thinking about my Fi Vacurra and it's summer right now
and the ac doesn't work, and I've just been sweating
(19:19):
it out like an idiot, and I've finally come to
the conclusion, you know what, this is a good car.
I'm going to put some money into it. I've kind
of been holding out and not putting money into it
in hopes that I would at some point just ditch it.
And I'm like, you know what, Now I think I'm
going to hold onto this thing longer. I'm going to
put in the money that it needs to keep this
thing around, and I do think for you, though it's
(19:41):
a twenty year old car, I do think for a
lot of people that is a wise move. Part of
the reason I love used car so much and I
love holding onto cars so long, is because it's such
a significant part of most people's budgets, and I love
making it a really insignificant part of my budget so
I can spend more on stuff I care about more.
And one of the other main reasons that I just
hate new cars it's really hard for me to stomach
(20:02):
buying a new car is because they tend to depreciate
in value so down quickly. And this is a great
time for me to talk trash about the cyber truck.
And not because I have a vendetta against Elon or
anything like that. It's not just a political thing. But
and obviously, you know, Elon has found himself in some
(20:24):
the political fray, largely of his own making. He seems
to have annoyed everyone from every side at this point.
But the value of the cyber truck has plummeted far
more than the average new car that gets sold. Apparently,
cyber truck prices are down something like forty percent just
a year after being in customer hands, and this was
(20:44):
this is like a far cry from even just the
normal depreciation that a new car typically experiences of twenty percent.
That's still a lot right to buy let's say a
fifty thousand dollars car and for it to be worth
forty thousand dollars a year later. That's a lot of
money to lose in just a short period of time.
But if you bought the one hundred thousand dollars cyber
truck and it's now worth sixty two thousand dollars just
(21:07):
a year later, you just burned a whole pile of cash.
And so that has been fascinating to watch. And I
think this is oh. I think it's particularly true of
the cyber truck, but I think it's also true of
brand new models that it's hard to know what the
customer demand is going to be and whether or not
they're going to retain their value. In the same way,
(21:29):
depreciation is something that we all face as car owners.
The car, at least in normal times, the car is
not going up in value, but the ownership timeline and
holding on to it longer it can help kind of
cover up for some of those depreciation flaws. And the
other thing that helps is to just buy older cars
that are in good condition and hold on to them longer.
(21:50):
Because if you buy a car that's at least five
years old and you hold on to it for five
or ten years, the longer you hold onto that car,
you're paying you're buying someone else's to pre shading asset,
and it's going to appreciate a heck of a lot
less during the time that you own it. And the
thing is, if you're smart about getting your car checked out,
and you're smart about looking at places like Consumer Reports
(22:12):
for a liability ratings, you can hone in on cars
that are going to be more reliable over time, that
are going to be a better bet. Buying a five
year old car doesn't mean buying even a ten or
fifteen year old car doesn't mean you're doomed to be
in the repair shop all the time if you buy smartly,
and if you need one more reason not to buy
(22:32):
a new car, I was just talking to a friend
the other day. Financing terms are getting worse, and my
friend was saying he was being pushed into an eight
year car loan and he was like, but I wanted
to do a six year car loan, but if I
do eight, can I pay it off more quickly? And
I was telling him about my four year rule that
you don't ever want to finance a car more than
four years. I don't know if he listened or not.
And that's really up to you as an individual. But
(22:55):
if you want to, my advice is to not buy
a car that you can't afford to buy in cap
and if you absolutely do, have to finance it thirty
six to forty eight months at absolute most, and get
that loan from a credit union. And I know cars
can be like a status symbol in this country, but
that's not something I buy into, and I think of
(23:15):
it as a point A to point B transportation. And
if you want to think of it as a status symbol,
that's fine, but only by it if you can actually
afford it, and if you have to finance it over
a long period of time you can't afford it.
Speaker 5 (23:27):
You're listening to How to Money with Joel Larsgard on
demand from KFI AM six forty.
Speaker 1 (23:33):
If you're on Facebook, by the way, you want to
join a group of like minded folks who have money questions,
who have Money Insights. Please go join the how to
Money Facebook group.
Speaker 3 (23:42):
I was just emailing a listener who he shared the
newsletter with five buddies, which means that he received a
free beer on us on Joel and Matt, And he said, yeah,
actually I missed it because I assumed it was a
a late tip because bar is his side hustle. So
he's like, oh, I just did a wedding and all
(24:04):
of the tips always say beer. Yeah, because it's a
Venmo tips, and that's what we put when we send
you money on Venmo.
Speaker 4 (24:10):
Exactly sharing our news So two things.
Speaker 3 (24:12):
Check out the how to Money newsletter how toomoney dot
com forward slash newsletter and sign up and you share
it with your friends or family members. You'll get special
perks from from Joel and I. But eventually you can
win the coveted how to Money socks. Yeah, you know,
nobody has taken us up on the virtual hang. Nobody
shared the newsletter that many times?
Speaker 4 (24:31):
Is it fifty or forty? I know I want to
say we dropped it.
Speaker 3 (24:33):
Oh yeah, because really, oh man, nobody wants to Nobody
wants to talk about.
Speaker 1 (24:37):
If you share the newsletter enough, you get to spend
quality virtual.
Speaker 4 (24:39):
Time with us.
Speaker 3 (24:40):
Okay, here's my question for you. If you were not
interested in personal finance. I know it's impossible to imagine,
but try to interested in personal finance, if you didn't
have real estate on the side, what would your side
hustle be. Because the reason I thought of this is
because I pictured him standing there pouring up beer, serving
glasses of wine, chatting with at the wedding, and I thought, man,
(25:01):
that's what.
Speaker 4 (25:02):
Joln needs to do.
Speaker 3 (25:02):
I feel like you would be so happy in that scenario,
just serving it up, chatting with folks, having a great time.
Speaker 4 (25:06):
That the hours of bartending are not conducive to my lifestyle.
That's the worst.
Speaker 1 (25:10):
Like the actual job itself. I've never done it, but
I've always been you would love it. I've always wanted
to because like just being Sam Malona cheers, slinging beers
and talking to the crowd like that, that sounds pretty
great to me. So yeah, I could be up for it,
especially in a world where I didn't have, you know,
a life, three kids.
Speaker 3 (25:25):
Yeah, I get it. It's also hard to remove that
from the equation.
Speaker 4 (25:29):
You should be a barista probably right, just came crafting
the coffee.
Speaker 3 (25:32):
So I really do want to learn how to pull
some really excellent shots as honestly as like training, because
at some point I'm going to get my own espresso
machine at home. I want to build out a little
coffee bar, like a like a cocktail and coffee corner
of our kitchen that's purely dedicated.
Speaker 4 (25:48):
For that espresso martinis NonStop.
Speaker 3 (25:50):
Well, I know that that seems like the logical outflow
of combining caffeine and cocktails, but I absolutely do not
like espresso martinis, saying they're terrible. Yeah, I mean, I
don't know what it is about it that people are
drawn to you. I think it's just about an in drink. Yeah,
that we've folks have been experiencing over the past few
years without doubts. All right, that's all I got, Okay, Joe,
Let's get to our next question from a listener who
(26:11):
has a mortgage. He's not here to brag, but he
has an enviable mortgage rate.
Speaker 6 (26:17):
Hi, Matt and Joel, this is Steve from Plainfield, Illinois.
I was calling because I recently received a letter from
my mortgage company telling me that I have the option
to cancel my escrow because my loan to value ratio
has dropped below sixty five percent, and I've been making
payments on time.
Speaker 4 (26:36):
I just didn't know if that was the right thing
to do or not. I didn't even know that this
was an option.
Speaker 6 (26:41):
Just give you some big basics about my mortgage. I
still owe about one hundred and fifteen thousand with that
sweet sweet two point seventy five percent, So that means
that my escro payments are actually slightly more than my
principle and interest in each month. In terms of what
is sent to escrow, I pay about fifty five four
hundred and property taxes and about fifteen hundred insurance. It
(27:04):
adds up to just under seven thousand in scrow on
a yearly basis. So I just didn't know if there
were some any upsides or downsides to canceling the scrow
and just paying the insurance and property taxes. Myself, I
figured I'm the type of person that would be able
to plant that money into a high yield savings account
and you know, just benefit from the interest. But I
(27:26):
didn't know if there's anything I was overlooking. So I'd
appreciate any insights you have. Thank you very much, best
listener out.
Speaker 1 (27:33):
I think two point seventy. Yeah, a lot of people
heard that, especially in today's environment. They're like, you lucky
son of a gun. Yeah, that's a so good. It
really is sweet. Like, give me that mortgage rate straight
into the veins math here, and congrats to Steve on
being able to make substantially more in savings than you're
paying towards your mortgage debt. That is just like a
(27:53):
rarity upon rarities, right, and we just I think mostly
at the time, we didn't realize just how good we
had it those sub three percent mortgage rates. Now we do,
and to be able to make more in just a
straight up piled sam us, it's crazy. It's incredible to
make a spread on money.
Speaker 4 (28:08):
Yeah, that's nuts.
Speaker 3 (28:09):
But let's talk about ditching escrow, because the argument for
sticking with the escrow model is that it's easier from
a budgeting perspective. Right, you know your monthly payment amount,
you pay it like clockwork. There's actual real benefits of that, right,
like the fact that this is not something that takes
up space in your brain. It's not on your mind,
and that's because it's incumbent on your mortgage provider to
pay the taxes and the insurance because those bills tend
(28:31):
to be pretty hefty, some folks might find themselves in
the position of not having the cash on hand when
when it's needed, and so having your mortgage to escrow
it essentially forces you to do the right thing without
you having to think about it. It prevents you from
getting too used to a smaller monthly payment that doesn't
then reflect.
Speaker 4 (28:49):
The real underlying costs.
Speaker 3 (28:50):
So first of all, you need to make sure that
you're the kind of person who doesn't just see a
smaller payment.
Speaker 4 (28:55):
Is just like sweet, now I got more money to
spend towards this. None. Of course, you need to be
organized about it. You need to be on top of it.
Speaker 3 (29:01):
You're super sized socking that money on my vacation budget
thanks to you know, ditching escrow, and then the tax
bill comes around and you're like, oh, crap, like that,
that's position you don't want to want to find yourself in.
And with property tax and insurance bills going up, having
an escro account means you won't have to come up
with the one thousand dollars plus more than you thought
you'd need in one fell swoop, because those two bills
(29:23):
came in much higher than you assumed, which is happening
to a lot of people right now. Right, So if
your if your tax bill from last year was six
thousand bucks, and you're like, it's probably gonna go up,
maybe I'll just like save seven thousand dollars conservatively, I'd
save eight right, like I would be I would be
a little more conservative, just because I wouldn't want to
screw that up and not have the cash on hand
(29:43):
to pay that tax bill. That would be a tough
situation to find myself in. And I would also.
Speaker 1 (29:48):
Note that while it might be a really good idea
to Ditchesscrow, it's not going to be a massive money win.
So this is kind of a yeah, could it be
better for you? Might be it might be the best
way to go. You'll be able to keep money which
would have otherwise been held by your mortgage company in
your savings, and yes, you're going to earn interest on that.
But I think at the end of the day or
at the end of a year, you might be talking
(30:09):
about one hundred bucks or so in savings. So you know,
while we'll dig in further, just know that this is
more of a minor optimization question, and we're fans of optimizing,
but yeah, the stakes aren't gargangu in here.
Speaker 3 (30:20):
Yeah, I guess it does depend on what you're paying,
So I mean, I guess Steve said he's got like
maybe around seven thousand dollars in total. Again, not that
you have seven thousand dollars that's earning that annualized three
and a half to four percent a year, but like
you're building that up, so it's not as simple as
running with the rates what the return would be on
eight seven eight thousand dollars at the end of the year,
because it's something that you're building up towards. It's not
(30:42):
quite that much. But it also does depend on how
much your your property taxes are and what you're paying
on insurance. Because if you are in some communities where
it's like, dude, you have no idea how much I
pay in property taxes, I could see that being more
of an argument to drop escrow and instead banking that money.
Is if you were to do that right, if you're
thinking ahead, you are sticking that money in your savings account.
Speaker 4 (31:04):
You will earn interest on that money. And it might
sound like where we're not.
Speaker 3 (31:08):
Fans of ditching escrow, we're actually I'm actually for it,
And one of my favorite reasons is because if you
are a diligent saver, if you're a type A person,
you've checked all the boxes and you are going to
do this properly. But on top of that, it's going
to make you more aware of how much you're paying
for insurance and taxes, making it more likely that you're
gonna appeal your tax bill. It's going to make it
more likely that you'll shop around with different insurance companies.
(31:30):
It's going to make you more civically engaged in your
city or your town, or your state, whatever, if you
are paying attention to these things as opposed to being like, oh, whatever,
it just gets paid. I don't have to worry about it. No, No,
you do have to worry about it. And when you're
more directly connected, I think it makes you more responsive
to some of the different fluctuations and prices. There really
is a most likely not fluctuations but just increasing prices. Yeah,
(31:51):
and there really is a price sensitivity when it comes
to how you feel the pain that you feel because
you're paying it out of your own checking coount instead
of paying it over twelve months through your escroal account.
Speaker 1 (32:02):
Through your mortgage payment. That just feels like it's baked in.
It makes me think of like budget billing.
Speaker 3 (32:06):
Right, that's the vibes I get when when we talk
about paying your mortgage through ESCO. You're a S correlated man,
you are, and so you're just you're less likely, like
you said, to kind of challenge the property tax rate
the bill that you got if if it is abnormally
high or something like that. And there are easy ways
to do that, by the way, like at a site
like own. Well, but yeah, I think similarly to that
(32:27):
budget billing on you. On your electric bill, you're less
likely to change your thermostat because it's a straight up
one hundred and eighty five dollars payment every single month.
But if in the summer you get a three hundred and.
Speaker 1 (32:39):
Twenty dollars bill from your electricity company, you're like, well, well,
I need to think about what I'm doing with the thermostat.
Speaker 4 (32:46):
Same is true.
Speaker 1 (32:46):
I think for property tax and for insurance, you're much
more likely to shop around and say totally agree, buddy, And.
Speaker 3 (32:53):
That is going to do it for today. Thank you
for listening. We appreciate your time and attention. We'll see
you back here next week.
Speaker 1 (32:59):
You've been listening to How To Money with Joel Larsgard.
You can always hear us live on KFI AM six
forty twelve pm to two pm on Sunday, and anytime
on demand on the iHeartRadio app
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