June 15, 2025 • 32 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):
Kf 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 Larsgard and Matt altmics.
Speaker 1 (00:40):
KFI AM six forty live everywhere on the iHeartRadio app.
Speaker 3 (00:44):
This is how to Money. I'm Joe Larsgard and I
am Matt Altmix.
Speaker 4 (00:48):
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 (00:57):
Of course, you 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 just
it's just kind of ludicrous to think that the creator
of the universe would not be able to make it
(01:19):
as an active investor. In this article did a really
good job setting up why and then talking about just
how even if you had perfect foreknowledge 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
(01:39):
months that they would fire you. And so the gist
was that even with like practice, perfect foresight, that active
investors are going to get fired before their strategy is
allowed to play out there saying no, no, no, stick with
me this company. It's I know that the draw down
is significant right now, but if you just hang on
(02:00):
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 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
(02:24):
not hanging with you. My portfolio is down to 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 3 (02:40):
And I think as individuals, right, if.
Speaker 1 (02:41):
We had perfect foresight, we would say I'm okay with
greater levels of volatility if I know that at some
point it's.
Speaker 3 (02:49):
Going to pay off in the long run.
Speaker 1 (02:52):
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
(03:14):
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 draw downs would be so significant
that people wouldn't be able to stomach them. And very
few people have the conviction to hold on during the
toughest of times. I think about just a stock recently
(03:36):
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
(03:59):
so hard 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 reaped their rewards, but a
(04:20):
lot of other people got out because the drawdown in
the stock price is really tough to stomach. And this
is just another 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, can you stick with that winner even
(04:42):
when the going is tough?
Speaker 3 (04:44):
A lah, Carvana or or alah? Think about Apple.
Speaker 1 (04:48):
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 Job
Steve Jobs days. And so are you the kind of
person that has the conviction that that stock is worth
holding on to for the long term. I don't know
about you, but I don't know that I have the
(05:10):
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 of returns. Fifty four percent of stocks, by
the way, never recover after experiencing a not ninety percent
draw down. So and by the way, you could get
(05:30):
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 find it's a home. Why not
(05:51):
use debt to increase what you're 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.
(06:13):
There's something about putting ten percent 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 rate, It can make the
investment look a whole lot more attractive. And the problem
(06:36):
here though, is greater potential reward equals 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
(06:57):
some kinds of debt that, in proportion used wisely and
intelligence intelligently and not overdone, can actually help your your
ultimate wealth building goals. Smart use of leverage can benefit
what I would call shrewd investors because we'll see what
happened in two thousand and eight, right, but unwise investors
(07:18):
who took on too much debt who bit off more
than they could chew found themselves in between a rock
and a hard place. But investing in these sorts of
leverage funds, it's a little too risky for my blood
as well. 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 asss because of the
(07:39):
added complexity that they are putting into your portfolio. So
if you see these leverage 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 3 (07:50):
Yeah, that's right.
Speaker 5 (07:52):
You're listening to How to Money with Joel Larsgard on
demand from KFI AM six forty.
Speaker 1 (07:59):
Don't forget sign up for the how to Money newsletter.
You can find that up at how tomoney dot com
slash newsletter.
Speaker 4 (08:05):
It is now signed for the Facebook question of the Week,
which is from Jessica and 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
(08:25):
biggest single expense that we put on the credit card,
so it gets us a good chunk of points every month.
We have the Chase SAFI Preferred which for this payment
is just one point per dollar. So if I pay
right now, we 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,
(08:46):
is it worth it? I'm leaning towards no, but I
guess you could view it as a twenty one dollars
vacation savings plan, and if we use the points to
the most effectiveness, it could be worth more.
Speaker 3 (08:57):
I don't know.
Speaker 4 (08:58):
Help me out, all these smart people. Also, we pay
off our entire card balance every month. We have a
fully funded emergency statings plan we say for retirement blah
blah blah, all that, Joe.
Speaker 3 (09:06):
What you think?
Speaker 4 (09:07):
Yeah, which you think about? Well, specifically, what do you
think about businesses starting to they're passing the buck? You know,
they're making us feel the pain that the credit card
processors have been sticking them with.
Speaker 1 (09:18):
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. 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
(09:40):
going to eat.
Speaker 3 (09:40):
Well, other companies are saying no, no, no, no.
Speaker 1 (09:43):
Yeah, I mean yes, I'll accept credit cards, but I
need to pass that cost along, and consumers are.
Speaker 3 (09:48):
Getting more and more used to it.
Speaker 1 (09:49):
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 restaurants for instance, in particular, so a lot of
small restaurants like the credit card charges eat them alive.
And if people paid in cash, they would be doing better.
(10:10):
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
worth the trade off. But that's far less likely with
a daycare in particular, Right, So I get that they're
(10:31):
not willing to eat that cost anymore. They're trying to
pass it on. But as the person with kids in
that 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, saying explained they didn't cost
me a dime, and now it's going to cost me money.
Speaker 4 (10:45):
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 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, if
you're trying to hit a spending threshold for a welcome offer,
if you're looking at a certain number of certain thousand
dollars over the course of the first three months, that
(11:07):
sort of thing, then that is one hundred percent. An
instance where I would continue to pay the two point
was sixty five percent because what you're receiving is in
far excess of what it is that the daycare is
then charging.
Speaker 1 (11:20):
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 you can get a two percent cash
back credit card pretty easily, and so I would the
City Double cash or the Fidelity card, and I would, well,
just use that card, 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
(11:43):
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 exacting that credit card, then it just doesn't make sense.
And I think she's sort of calculating the fact that
points that she would earn are going to be worth
more because of the just the weather're worth when it
(12:04):
comes to redeeming those points, which is.
Speaker 3 (12:06):
Typically not true unless you're really, really good.
Speaker 4 (12:08):
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 out ahead is is slim compared to what the
guaranteed rate that you're paying is well. And on top
of that, we've talked 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
(12:28):
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 Cities Custom Cash.
(12:49):
Those are cards I was gonna mention 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 on you're willing to well jump through.
Speaker 1 (13:01):
The ooops 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 because you might be able to put literally every
single single dollar of the.
Speaker 4 (13:20):
Custom assed cash. Is that is that three percent? Because
then you're looking at being capped at five hundred Still,
I think the custom cash actually comes out ahead, Slay,
So run the numbers on book for 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 the squeeze? It depends if you can out
earn with rewards that you don't have to like jump
(13:42):
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 for that purpose especially,
I think it can make sense. But you just want, yeah,
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.
Let's take another quick one from h myelin or mailing.
(14:05):
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 or slackers. But
now I will say it is updated. Updated, It is updated. Yeah,
So thirty forty five, that's the number. Used to be
two four six seven, two four six seven. Now it's
thirty forty five.
Speaker 3 (14:25):
Yeah.
Speaker 1 (14:26):
Well, and that's because we adjusted it for inflation, because
that number first came out in the year twenty nineteen,
and the reason for that was what economists said, if
you have twenty and 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
(14:46):
a prolonged job loss, but it is going to be
enough to handle most emergencies that come your way that
you need money to deal.
Speaker 3 (14:53):
With unforeseen expenses.
Speaker 1 (14:54):
Yeah, but we were like, it's twenty twenty five. How
much do eggs cost versus in twenty twenty five versus
twenty nineteen.
Speaker 4 (15:00):
Experienced some serious inflation in 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. Mack, Yeah,
three zero four to five, And I will say there's
nothing like magical about that number, Like, yes, the economist
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
(15:23):
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
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 3 (15:39):
Shoot for that. This specificity of it matters, that's what
matters exactly.
Speaker 4 (15:43):
And knowing that you've got that set aside, I think
that's that's where most of the power comes from.
Speaker 3 (15:47):
When it comes to that first money gear.
Speaker 4 (15:48):
There used to be this like church event map that
started at like a specific time and I can't even.
Speaker 3 (15:54):
Remember seven twenty two. Yeah, oh yeah, I remember that,
and that like that's so funny.
Speaker 4 (15:58):
Nobody forgot I thought going to show up right years Yeah,
And I think the same is true of this of
this budgeting number, of this emergency fund number.
Speaker 3 (16:06):
It's like, wait, how much do I need it?
Speaker 6 (16:07):
Again?
Speaker 1 (16:07):
Oh, you're not gonna forget because it's not like roughly
five grand or something like that. 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 generic.
Speaker 5 (16:24):
That's right, buddy, you're listening to how to Money with
Joel Larsgard on demand from KFI AM six forty.
Speaker 4 (16:32):
By the way, you can always find more money saving
information over at howtomoney dot com.
Speaker 1 (16:37):
All right, Depreciating assets are once again flipping the script.
They're going up in value. 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 gonna go down to value,
(17:00):
And just for a hot minute there it was like,
wait a second, 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
(17:22):
contracts are written 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, So yeah, I'll take it, even
(17:44):
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. How long this is going to last
(18:07):
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
(18:27):
I think this 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
(18:49):
been sweating 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,
(19:11):
though it's 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 cars 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
(19:31):
to stomach buying a new car is because they tend
to depreciate in value. So dann 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
(19:53):
some the political fray, largely of his own making. He
seems to have annoyed everyone from every sing 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
(20:15):
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.
Speaker 3 (20:27):
That's a lot of money to lose in just a
short period of time.
Speaker 1 (20:31):
But if you bought the one hundred thousand dollars cyber
truck and it's now worth sixty two thousand dollars just
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
(20:54):
customer demand is going to be and whether or not
they're going to retain their value in the same way.
To depreciate 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
(21:14):
other thing that helps is to just buy older cars
that are in good condition and hold on to them longer.
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 depreciating asset, and it's
going to appreciate a heck of a lot less during
the time that you own it. And the thing is,
(21:37):
if you're smart about getting your car checked out, and
you're smart about looking at places like Consumer Reports for
reliability 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
(22:01):
if you need one more reason not to buy 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 you listened or not, but that's
(22:22):
and that's really up to you as an individual. But
if you want to, my advice is to not buy
a car that you can afford to buy in cash,
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
(22:42):
that's not something I buy into. And I think of
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. All right,
We've got more to get to on today's show.
Speaker 5 (23:01):
You're listening to How To Money with Joel Larsgard on
demand from KFI AM six forty.
Speaker 3 (23:07):
If you're on.
Speaker 1 (23:07):
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 4 (23:15):
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
late tip because bartending is his side hustle. So he's like, oh,
I just did a wedding and all of the tips
(23:37):
always say beer.
Speaker 1 (23:39):
Yeah, because it's a Venmo tips, And that's what we
put when we send you money on Venmo.
Speaker 3 (23:43):
Exactly sharing our news So two things.
Speaker 4 (23:45):
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.
Speaker 3 (23:58):
Yeah, you know, nobody has taken a up on the
virtual hang. Nobody shared the news lender that many times.
Is it fifty or forty? Well, I know I want
to say we dropped it.
Speaker 4 (24:07):
Oh yeah, because really, oh man, nobody wants to Nobody
wants to talk about.
Speaker 1 (24:10):
If you share the newsletter enough, you get to spend
quality virtual time with it.
Speaker 4 (24:13):
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 beers, serving
glasses of wine, chatting with guests at the wedding, and
(24:33):
I thought, man, that's what jol needs to do. I
feel like you would be so happy in that scenario,
just serving it up, chatting with folks, having a great time.
Speaker 3 (24:40):
The hours of bartending are not conducive to my lifestyle.
That's the worst.
Speaker 1 (24:43):
Like the actual job itself. I've never done it, but
I've always been I've always wanted to because like just
being Sam malone to 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, oh if
three kids.
Speaker 3 (24:59):
Yeah, I get it. It's also hard to remove that
from the.
Speaker 4 (25:01):
Equation here should be a barista probably right, just hand
crafting the coffee. 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 3 (25:21):
For that espresso martinis NonStop.
Speaker 4 (25:23):
Well, I know that that seems like the logical outflow
of combining caffeine and cocktails, but I absolutely do not
like espresso martini saying they're terrible.
Speaker 3 (25:33):
Yeah, I mean, I don't know what it is about
them that people are drawn to.
Speaker 4 (25:35):
I think it's just sort of an in drink, yeah,
that we've folks have been experiencing over the past few years,
no doubt.
Speaker 3 (25:41):
All Right, that's all I got.
Speaker 4 (25:42):
Okay, Joe, Let's get to our next question from a
listener who has a mortgage. He's not here to brag,
but he has an enviable mortgage rate.
Speaker 6 (25:50):
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. I just didn't know if that was
(26:10):
the right thing to do or not. I didn't even
know that this was an option. 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 escrow payments
are actually slightly more than my principle and interest in
each month. In terms of what is sent to escrow,
(26:31):
I pay about fifty four hundred property taxes and about
fifteen hundred insurance. It adds up to just under seven
thousand in escrow on a yearly basis. So I just
didn't know if there was some any upsides or downsides
to canceling the escrow and just paying the insurance and
property taxes. Myself, I figured I'm the type of person
(26:51):
that would be able to plant that money into a
high yield savings account and you know, just benefit from
the interest. But I didn't know if there is anything
I was overlooking, So I'd appreciate any insights you have
Thank you very much, best listener.
Speaker 1 (27:05):
Out 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 rates
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
(27:26):
a rarity upon rarities, right, and we just I think
most 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 hiled saying us, it's crazy. It's
incredible to make a spread on money.
Speaker 3 (27:41):
Yeah, that's nuts.
Speaker 4 (27:42):
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, on your it's not on
your mind, and that's because it's coming on your mortgage.
Speaker 3 (28:00):
Provider to pay the taxes and the insurance.
Speaker 4 (28:04):
Because those bills tend 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.
Speaker 3 (28:17):
It prevents you from getting too used to a.
Speaker 4 (28:19):
Smaller monthly payment that doesn't then reflect the real underlying costs.
So first of all, you need to make sure that
you're the kind of person who doesn't just see a
smaller payment it is just.
Speaker 3 (28:28):
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 4 (28:34):
You're supersized socking that money my vacation budget thanks to
you know, ditching escrow, and then the tax bill comes
around and you're like, oh, crap.
Speaker 1 (28:42):
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 came in much higher than you assumed,
which is happening to a lot of people right now. Right, So,
if your tax bill from last year was six thousand bucks,
(29:04):
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 to pay that tax bill.
That would be a tough situation to find myself in.
And I would also note that while it might be
a really good idea to dit chess Crow, it's not
(29:25):
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 about one hundred
bucks or so in savings. So you know, while we'll
(29:46):
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 gargang you in here.
Speaker 4 (29:53):
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, 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
(30:15):
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 because if you were to do that right, if
you're thinking ahead, you are sticking that money in your
(30:37):
savings account. You will earn interest on that money. And
it might sound like we're not fans of ditching Escrow,
we're actually I'm actually for it. And one of my
favorite reasons is because if like 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,
(30:57):
making it more likely that you're going to appeal your
tax bill. It's going to make it more likely that
you'll shop around with different insurance companies. 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
(31:19):
to some of the different fluctuations and prices. There really
is a most likely not fluctuations but just increasing prices. Yeah,
and there really is a price sensitivity when it comes
to like how you feel the pain that you feel
because you're paying it out of your own checking account
instead of paying it over twelve months through your escuiral account,
through your mortgage payment. That just feels like it's baked in.
It makes me think of like budget billing. Right, That's
(31:40):
the vibes I get when when we talk about paying
your mortgage through ESCO. You're as 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 some will lead to that budget
(32:00):
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 (32:12):
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 3 (32:19):
Same is true.
Speaker 1 (32:20):
I think for property tax and for insurance, you're much
more likely to shop around and say totally agree, buddy, And.
Speaker 4 (32:26):
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 (32:32):
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
Kf 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 Larsgard and Matt altmics.
Speaker 1 (00:40):
KFI AM six forty live everywhere on the iHeartRadio app.
Speaker 3 (00:44):
This is how to Money. I'm Joe Larsgard and I
am Matt Altmix.
Speaker 4 (00:48):
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 (00:57):
Of course, you 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 just
it's just kind of ludicrous to think that the creator
of the universe would not be able to make it
(01:19):
as an active investor. In this article did a really
good job setting up why and then talking about just
how even if you had perfect foreknowledge 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
(01:39):
months that they would fire you. And so the gist
was that even with like practice, perfect foresight, that active
investors are going to get fired before their strategy is
allowed to play out there saying no, no, no, stick with
me this company. It's I know that the draw down
is significant right now, but if you just hang on
(02:00):
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 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
(02:24):
not hanging with you. My portfolio is down to 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 3 (02:40):
And I think as individuals, right, if.
Speaker 1 (02:41):
We had perfect foresight, we would say I'm okay with
greater levels of volatility if I know that at some
point it's.
Speaker 3 (02:49):
Going to pay off in the long run.
Speaker 1 (02:52):
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
(03:14):
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 draw downs would be so significant
that people wouldn't be able to stomach them. And very
few people have the conviction to hold on during the
toughest of times. I think about just a stock recently
(03:36):
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
(03:59):
so hard 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 reaped their rewards, but a
(04:20):
lot of other people got out because the drawdown in
the stock price is really tough to stomach. And this
is just another 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, can you stick with that winner even
(04:42):
when the going is tough?
Speaker 3 (04:44):
A lah, Carvana or or alah? Think about Apple.
Speaker 1 (04:48):
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 Job
Steve Jobs days. And so are you the kind of
person that has the conviction that that stock is worth
holding on to for the long term. I don't know
about you, but I don't know that I have the
(05:10):
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 of returns. Fifty four percent of stocks, by
the way, never recover after experiencing a not ninety percent
draw down. So and by the way, you could get
(05:30):
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 find it's a home. Why not
(05:51):
use debt to increase what you're 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.
(06:13):
There's something about putting ten percent 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 rate, It can make the
investment look a whole lot more attractive. And the problem
(06:36):
here though, is greater potential reward equals 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
(06:57):
some kinds of debt that, in proportion used wisely and
intelligence intelligently and not overdone, can actually help your your
ultimate wealth building goals. Smart use of leverage can benefit
what I would call shrewd investors because we'll see what
happened in two thousand and eight, right, but unwise investors
(07:18):
who took on too much debt who bit off more
than they could chew found themselves in between a rock
and a hard place. But investing in these sorts of
leverage funds, it's a little too risky for my blood
as well. 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 asss because of the
(07:39):
added complexity that they are putting into your portfolio. So
if you see these leverage 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 3 (07:50):
Yeah, that's right.
Speaker 5 (07:52):
You're listening to How to Money with Joel Larsgard on
demand from KFI AM six forty.
Speaker 1 (07:59):
Don't forget sign up for the how to Money newsletter.
You can find that up at how tomoney dot com
slash newsletter.
Speaker 4 (08:05):
It is now signed for the Facebook question of the Week,
which is from Jessica and 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
(08:25):
biggest single expense that we put on the credit card,
so it gets us a good chunk of points every month.
We have the Chase SAFI Preferred which for this payment
is just one point per dollar. So if I pay
right now, we 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,
(08:46):
is it worth it? I'm leaning towards no, but I
guess you could view it as a twenty one dollars
vacation savings plan, and if we use the points to
the most effectiveness, it could be worth more.
Speaker 3 (08:57):
I don't know.
Speaker 4 (08:58):
Help me out, all these smart people. Also, we pay
off our entire card balance every month. We have a
fully funded emergency statings plan we say for retirement blah
blah blah, all that, Joe.
Speaker 3 (09:06):
What you think?
Speaker 4 (09:07):
Yeah, which you think about? Well, specifically, what do you
think about businesses starting to they're passing the buck? You know,
they're making us feel the pain that the credit card
processors have been sticking them with.
Speaker 1 (09:18):
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. 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
(09:40):
going to eat.
Speaker 3 (09:40):
Well, other companies are saying no, no, no, no.
Speaker 1 (09:43):
Yeah, I mean yes, I'll accept credit cards, but I
need to pass that cost along, and consumers are.
Speaker 3 (09:48):
Getting more and more used to it.
Speaker 1 (09:49):
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 restaurants for instance, in particular, so a lot of
small restaurants like the credit card charges eat them alive.
And if people paid in cash, they would be doing better.
(10:10):
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
worth the trade off. But that's far less likely with
a daycare in particular, Right, So I get that they're
(10:31):
not willing to eat that cost anymore. They're trying to
pass it on. But as the person with kids in
that 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, saying explained they didn't cost
me a dime, and now it's going to cost me money.
Speaker 4 (10:45):
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 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, if
you're trying to hit a spending threshold for a welcome offer,
if you're looking at a certain number of certain thousand
dollars over the course of the first three months, that
(11:07):
sort of thing, then that is one hundred percent. An
instance where I would continue to pay the two point
was sixty five percent because what you're receiving is in
far excess of what it is that the daycare is
then charging.
Speaker 1 (11:20):
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 you can get a two percent cash
back credit card pretty easily, and so I would the
City Double cash or the Fidelity card, and I would, well,
just use that card, 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
(11:43):
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 exacting that credit card, then it just doesn't make sense.
And I think she's sort of calculating the fact that
points that she would earn are going to be worth
more because of the just the weather're worth when it
(12:04):
comes to redeeming those points, which is.
Speaker 3 (12:06):
Typically not true unless you're really, really good.
Speaker 4 (12:08):
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 out ahead is is slim compared to what the
guaranteed rate that you're paying is well. And on top
of that, we've talked 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
(12:28):
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 Cities Custom Cash.
(12:49):
Those are cards I was gonna mention 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 on you're willing to well jump through.
Speaker 1 (13:01):
The ooops 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 because you might be able to put literally every
single single dollar of the.
Speaker 4 (13:20):
Custom assed cash. Is that is that three percent? Because
then you're looking at being capped at five hundred Still,
I think the custom cash actually comes out ahead, Slay,
So run the numbers on book for 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 the squeeze? It depends if you can out
earn with rewards that you don't have to like jump
(13:42):
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 for that purpose especially,
I think it can make sense. But you just want, yeah,
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.
Let's take another quick one from h myelin or mailing.
(14:05):
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 or slackers. But
now I will say it is updated. Updated, It is updated. Yeah,
So thirty forty five, that's the number. Used to be
two four six seven, two four six seven. Now it's
thirty forty five.
Speaker 3 (14:25):
Yeah.
Speaker 1 (14:26):
Well, and that's because we adjusted it for inflation, because
that number first came out in the year twenty nineteen,
and the reason for that was what economists said, if
you have twenty and 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
(14:46):
a prolonged job loss, but it is going to be
enough to handle most emergencies that come your way that
you need money to deal.
Speaker 3 (14:53):
With unforeseen expenses.
Speaker 1 (14:54):
Yeah, but we were like, it's twenty twenty five. How
much do eggs cost versus in twenty twenty five versus
twenty nineteen.
Speaker 4 (15:00):
Experienced some serious inflation in 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. Mack, Yeah,
three zero four to five, And I will say there's
nothing like magical about that number, Like, yes, the economist
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
(15:23):
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
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 3 (15:39):
Shoot for that. This specificity of it matters, that's what
matters exactly.
Speaker 4 (15:43):
And knowing that you've got that set aside, I think
that's that's where most of the power comes from.
Speaker 3 (15:47):
When it comes to that first money gear.
Speaker 4 (15:48):
There used to be this like church event map that
started at like a specific time and I can't even.
Speaker 3 (15:54):
Remember seven twenty two. Yeah, oh yeah, I remember that,
and that like that's so funny.
Speaker 4 (15:58):
Nobody forgot I thought going to show up right years Yeah,
And I think the same is true of this of
this budgeting number, of this emergency fund number.
Speaker 3 (16:06):
It's like, wait, how much do I need it?
Speaker 6 (16:07):
Again?
Speaker 1 (16:07):
Oh, you're not gonna forget because it's not like roughly
five grand or something like that. 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 generic.
Speaker 5 (16:24):
That's right, buddy, you're listening to how to Money with
Joel Larsgard on demand from KFI AM six forty.
Speaker 4 (16:32):
By the way, you can always find more money saving
information over at howtomoney dot com.
Speaker 1 (16:37):
All right, Depreciating assets are once again flipping the script.
They're going up in value. 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 gonna go down to value,
(17:00):
And just for a hot minute there it was like,
wait a second, 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
(17:22):
contracts are written 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, So yeah, I'll take it, even
(17:44):
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. How long this is going to last
(18:07):
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
(18:27):
I think this 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
(18:49):
been sweating 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,
(19:11):
though it's 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 cars 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
(19:31):
to stomach buying a new car is because they tend
to depreciate in value. So dann 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
(19:53):
some the political fray, largely of his own making. He
seems to have annoyed everyone from every sing 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
(20:15):
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.
Speaker 3 (20:27):
That's a lot of money to lose in just a
short period of time.
Speaker 1 (20:31):
But if you bought the one hundred thousand dollars cyber
truck and it's now worth sixty two thousand dollars just
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
(20:54):
customer demand is going to be and whether or not
they're going to retain their value in the same way.
To depreciate 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
(21:14):
other thing that helps is to just buy older cars
that are in good condition and hold on to them longer.
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 depreciating asset, and it's
going to appreciate a heck of a lot less during
the time that you own it. And the thing is,
(21:37):
if you're smart about getting your car checked out, and
you're smart about looking at places like Consumer Reports for
reliability 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
(22:01):
if you need one more reason not to buy 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 you listened or not, but that's
(22:22):
and that's really up to you as an individual. But
if you want to, my advice is to not buy
a car that you can afford to buy in cash,
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
(22:42):
that's not something I buy into. And I think of
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. All right,
We've got more to get to on today's show.
Speaker 5 (23:01):
You're listening to How To Money with Joel Larsgard on
demand from KFI AM six forty.
Speaker 3 (23:07):
If you're on.
Speaker 1 (23:07):
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 4 (23:15):
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
late tip because bartending is his side hustle. So he's like, oh,
I just did a wedding and all of the tips
(23:37):
always say beer.
Speaker 1 (23:39):
Yeah, because it's a Venmo tips, And that's what we
put when we send you money on Venmo.
Speaker 3 (23:43):
Exactly sharing our news So two things.
Speaker 4 (23:45):
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.
Speaker 3 (23:58):
Yeah, you know, nobody has taken a up on the
virtual hang. Nobody shared the news lender that many times.
Is it fifty or forty? Well, I know I want
to say we dropped it.
Speaker 4 (24:07):
Oh yeah, because really, oh man, nobody wants to Nobody
wants to talk about.
Speaker 1 (24:10):
If you share the newsletter enough, you get to spend
quality virtual time with it.
Speaker 4 (24:13):
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 beers, serving
glasses of wine, chatting with guests at the wedding, and
(24:33):
I thought, man, that's what jol needs to do. I
feel like you would be so happy in that scenario,
just serving it up, chatting with folks, having a great time.
Speaker 3 (24:40):
The hours of bartending are not conducive to my lifestyle.
That's the worst.
Speaker 1 (24:43):
Like the actual job itself. I've never done it, but
I've always been I've always wanted to because like just
being Sam malone to 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, oh if
three kids.
Speaker 3 (24:59):
Yeah, I get it. It's also hard to remove that
from the.
Speaker 4 (25:01):
Equation here should be a barista probably right, just hand
crafting the coffee. 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 3 (25:21):
For that espresso martinis NonStop.
Speaker 4 (25:23):
Well, I know that that seems like the logical outflow
of combining caffeine and cocktails, but I absolutely do not
like espresso martini saying they're terrible.
Speaker 3 (25:33):
Yeah, I mean, I don't know what it is about
them that people are drawn to.
Speaker 4 (25:35):
I think it's just sort of an in drink, yeah,
that we've folks have been experiencing over the past few years,
no doubt.
Speaker 3 (25:41):
All Right, that's all I got.
Speaker 4 (25:42):
Okay, Joe, Let's get to our next question from a
listener who has a mortgage. He's not here to brag,
but he has an enviable mortgage rate.
Speaker 6 (25:50):
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. I just didn't know if that was
(26:10):
the right thing to do or not. I didn't even
know that this was an option. 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 escrow payments
are actually slightly more than my principle and interest in
each month. In terms of what is sent to escrow,
(26:31):
I pay about fifty four hundred property taxes and about
fifteen hundred insurance. It adds up to just under seven
thousand in escrow on a yearly basis. So I just
didn't know if there was some any upsides or downsides
to canceling the escrow and just paying the insurance and
property taxes. Myself, I figured I'm the type of person
(26:51):
that would be able to plant that money into a
high yield savings account and you know, just benefit from
the interest. But I didn't know if there is anything
I was overlooking, So I'd appreciate any insights you have
Thank you very much, best listener.
Speaker 1 (27:05):
Out 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 rates
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
(27:26):
a rarity upon rarities, right, and we just I think
most 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 hiled saying us, it's crazy. It's
incredible to make a spread on money.
Speaker 3 (27:41):
Yeah, that's nuts.
Speaker 4 (27:42):
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, on your it's not on
your mind, and that's because it's coming on your mortgage.
Speaker 3 (28:00):
Provider to pay the taxes and the insurance.
Speaker 4 (28:04):
Because those bills tend 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.
Speaker 3 (28:17):
It prevents you from getting too used to a.
Speaker 4 (28:19):
Smaller monthly payment that doesn't then reflect the real underlying costs.
So first of all, you need to make sure that
you're the kind of person who doesn't just see a
smaller payment it is just.
Speaker 3 (28:28):
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 4 (28:34):
You're supersized socking that money my vacation budget thanks to
you know, ditching escrow, and then the tax bill comes
around and you're like, oh, crap.
Speaker 1 (28:42):
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 came in much higher than you assumed,
which is happening to a lot of people right now. Right, So,
if your tax bill from last year was six thousand bucks,
(29:04):
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 to pay that tax bill.
That would be a tough situation to find myself in.
And I would also note that while it might be
a really good idea to dit chess Crow, it's not
(29:25):
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 about one hundred
bucks or so in savings. So you know, while we'll
(29:46):
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 gargang you in here.
Speaker 4 (29:53):
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, 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
(30:15):
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 because if you were to do that right, if
you're thinking ahead, you are sticking that money in your
(30:37):
savings account. You will earn interest on that money. And
it might sound like we're not fans of ditching Escrow,
we're actually I'm actually for it. And one of my
favorite reasons is because if like 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,
(30:57):
making it more likely that you're going to appeal your
tax bill. It's going to make it more likely that
you'll shop around with different insurance companies. 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
(31:19):
to some of the different fluctuations and prices. There really
is a most likely not fluctuations but just increasing prices. Yeah,
and there really is a price sensitivity when it comes
to like how you feel the pain that you feel
because you're paying it out of your own checking account
instead of paying it over twelve months through your escuiral account,
through your mortgage payment. That just feels like it's baked in.
It makes me think of like budget billing. Right, That's
(31:40):
the vibes I get when when we talk about paying
your mortgage through ESCO. You're as 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 some will lead to that budget
(32:00):
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 (32:12):
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 3 (32:19):
Same is true.
Speaker 1 (32:20):
I think for property tax and for insurance, you're much
more likely to shop around and say totally agree, buddy, And.
Speaker 4 (32:26):
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 (32:32):
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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