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1 - Should I use a 529 account to fund some immediate private education costs that we have?
2 - Why doesn’t Chase allow me to use my credit card to pay off a Buy Now Pay Later purchase?
3 - Do you guys follow the 2 funds for life approach to investing?
4 - How should I discuss a penalty my tenants are incurring for breaking their lease early?
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to Haad of Money. I'm Joel and I am Matt.
Speaker 2 (00:03):
Today we're answering your listener questions.
Speaker 1 (00:24):
Happy Monday, everybody. We hope you had a fantastic weekend.
In Joel, we indeed have listener questions to get to.
We've got a listener who's asking about the two fund
approach to investing, whether or not specifically that that is
something that we're down with, so we're going to get
to that. Another listener is asking about five twenty nine plans,
specifically to pay for current educational expenses, which is something Joel,
(00:47):
that you've You've done something very similar to this, albeit
with a different twist. We'll cover this. One definitely has
a twist, so we'll explain why it's a little bit
different than your situation. And then we've got a like
a landlord versus renter question. There's some fees and this
listener is trying to figure out whether or not they're
warranted or not. We'll give our thoughts. Do we side
(01:07):
with the with the landlord or do we side with
a renter. It's almost like a frugal versus cheap.
Speaker 2 (01:11):
The way you made it sound made me think of
umemous celebrity death match back in the day.
Speaker 1 (01:15):
The claymation.
Speaker 2 (01:16):
Yeah, that's what I was thinking, literally picturing my mind
a landlord and a renter with boxing gloves on going
at it.
Speaker 1 (01:22):
I don't think it's gonna innovated in the Was it
California prunes or grapes or something? You remember that? Yeah?
What was Were they prunes? Now they were raisins? Oh raisins? Wait?
What did I say? Oh? Yeah, dried out grapes are raisins.
What was the whole thing with what was that? Was
that a cartoon or the California Raisins? Was that a
branding effort? Like? Man, good for them? It was a
(01:44):
cultural thing, it really was. I think stands a Raisins
TA shirt when I was a kid. Really yeah, man,
the nineties, that's right. All right.
Speaker 2 (01:53):
Before we get to all those questions, Matt, at the
risk of sounding too broie, we need to talk about
your new home gym setup.
Speaker 1 (01:59):
I guess is it time to share share with folks
the fact that I've fallen off the wagon when it
comes to CrossFit.
Speaker 2 (02:04):
Well, so you get you weren't you were okay spending
the money because you were taking advantage of it, and
it was making a difference in your life.
Speaker 1 (02:10):
I have. Everybody knows across it's really expensive. It's an
expensive thing. And I have not fallen off the wagon,
by the way when it comes to working out. But yes,
especially not only is CrossFit expensive. So it's not like
going to a regular gym like in La Fitness, where
they just have the equipment. It's like fifteen twenty bucks
a month first at some of those class right. Yeah,
it's a lot more expensive because of the fact that
it's based around classes and so there are coaches there.
There's always somebody there. It's almost like a full time
(02:33):
well you know, folks swapping it out, but there's always
somebody there leading the classes. The coaches are what make
it different than just going out and working out on
your own. Yeah, you're getting that kind of individual attention,
but with in a group setting. And yeah, so all
that being said, it is very expensive. And so what
I'm going to start doing is I'm gonna start pocketing
that money and I'm gonna build out my own home gym.
(02:54):
It would be really funny if you brought your own
weights and you were looking in the window of the
CrossFit and you were doing it in there parking lot
or something a discount if I byow. So I did
the math, and truly it would take me about a
It's gonna take me about a year, I think, to
recoup the costs, recoup the cash outlay where I had
to stop paying for membership, which is what I'm doing now.
I hit pause.
Speaker 2 (03:14):
So what do you look into Facebook Marketplace to fill
out your home gym? I have a good space for it.
Speaker 1 (03:19):
So yeah, our garage it's we have surprisingly a high
ceilings in our garage, just the way our home is oriented,
so you can get those big weights up above your head.
You don't have to hear about hitting the ceiling that
kind of stuff. You can do pull ups and stuff
like that. No, I've been looking for the past three
weeks now on in more than three weeks on Facebook Marketplace,
and you might be able to find a random pair
of dumbbells, but some of the stuff I'm looking for
(03:39):
it's a little more specialized. But that being said, I'm
still I think I'm going to be willing to spend
and for acount the money because of the fact. So
not only is it just a year that's just for
me right, like if it just replaces what I were
to pay every single month for going to the gym,
but Kate as well, So if I once I start
factoring in the fact that she is, I mean, we're
saving money for her and she has started working out
(04:00):
at home as well. With the gym that I'm building out,
there are ways to do it affordably without spending out
the nose. But then there are some specialized pieces of
equipment like a rack, which is gonna cost like a
round one thousand bucks in order to get one of those. Yeah,
that's like the most expensive thing.
Speaker 2 (04:15):
I think if you're committed to doing it for a
year and you've kind of started small. And that's another
thing too. I think it's actually a really good tip
probably is to start small and most of it you
don't necessarily need tons of equipment to furnish our home gym.
You're starting with just a few things, some dumbells from
fundles only that you kind of already had on your hand.
And now you're saying, listen, I've been doing it consistently
for a month or so, sticking with it, and so
(04:37):
because of that, I like can look off into the
future and see myself doing this long term, I want
to add these things to the mix, and yeah, you're
you're gonna save a lot of money.
Speaker 1 (04:45):
After that first year. Yeah.
Speaker 2 (04:47):
So if you're gonna start charging your neighbors to come
work out at your gym, and that's gonna make you
big one.
Speaker 1 (04:51):
Now they get to work out for free because of
the accountability. That's actually one of the aspects that I
knew I wasn't gonna be able to replace, is that
when you go in person, you're working alongside like ten
to twenty people who are also really getting after it.
But well, I push myself as hard by myself. Well,
I think that is yet to be determined. But having
a friend, so I've got a neighbor he's like three
I mean literally his buddy three houses down, and he
was also at the gym and he's kind of looking
(05:12):
for a way to switch things up as well. So
we're kind of holding each other accountable. There's dual savings
going on. The gym's going to put a hit out
for you. Now if you steal I love that gem.
I would one hundred percent recommend for folks who are
initially getting into it. See that's the other thing that's
true because you go there and you learn the technique
and you learn the right way to move some of
these weights and stuff because I remember, so this is
a shout out to a new but you could hurt yourself. Yeah,
(05:34):
so shout out so previous a previous episode. We did
a whole CrossFit and finances episode, just like the crossover. Yeah,
that sounds rendant to say, but like, there are certain
things you learn from being physically active and how you
can apply that to your money. We mentioned CrossFit and
listener Amanda, she actually reached out at the time was like, hey,
love the show. Really loved this episode, of course because
(05:56):
I'm also into CrossFit, and she said to check out
this app called street Parking because they offer the programming.
And at the time I didn't. Well, I was like, oh,
that's great. I could totally see myself doing that one day,
and a that day has finally come, which is fun
to see. But b I didn't understand why it was
called street parking back then, because I was like, what
a weird name for a fitness app. But the whole
idea is that you build out your garage and your
(06:19):
car now has to be out on the street. Right, yeah,
which is it's a good thing you've only got one car. Yeah, yeah, exactly,
it's kind of dense. Did not at all get it initially.
Well that's cool, that's cool, But maybe we'll link to
that previous episode. If folks are into fitness and finances
at the same time.
Speaker 2 (06:33):
And these are the kinds of things that people are
I think in their everyday lives. They've got to wrestle
that kind of stuff because you gin memberships. Yeah, if
you're LA Fitness and it's real close by and it's
twenty bucks a month, like that's not overwhelmingly expensive.
Speaker 1 (06:45):
But if you want some of these trainer led fitness experiences,
those can be a lot more expensive and more that
high intensity training as well. That's the other part of
I love about it, is just you're getting after it
for a short amount of time and then you can
just move on with life, as opposed to like standing
there staring at your biceps in the mirror, Like.
Speaker 2 (07:01):
I still like to do that even though there's nothing
to look at. Well, and I think the other thing
you mentioned this is having someone to do it with
that can be that that is the one of the
biggest hurdles and That is why people i think choose
fitness classes is because they're more likely to stick with
it if they know that their friend's going to be
there and they're gonna be like, oh, why'd you over
sleep today, Matt or Sheila or whoever it is. And
(07:22):
you've got that accountability And if you have that and
you can incorporate that in an at home setup, that's.
Speaker 1 (07:28):
Huge, even at a small level, even with just one
other person. Yeah, but I'm curious too because the app
I'm looking so street parking. I think they have like
a community aspect to it, and so like if say,
for instance, if you've got a buddy who's also doing that,
like you're doing the same workhouse regardless of where you live,
like you could this could be a buddy that lives
in like Australia, like on the other side of the world.
And in a similar way that you found the competitive
(07:49):
element with the garment app to be something that fueled you.
It didn't even you didn't have to go run in
with somebody, right, but just the fact that somebody else
was also a lot of the time. Yeah, but like
the challenge sort of aspect of it where you're just like,
all right, I could just mail it in and maybe
I just want to watch a movie today. But let
me just hadn't gotten a run in today, Let me
go for a run. There's there's that element of it
as well, where someone doesn't necessarily have to be there
(08:11):
in person.
Speaker 2 (08:11):
There's more digital accountability now, which like my runs post
to Strava, people see them, and it's not like I'm
showing off for anybody, but it just I know some
of my friends are going to be like, uh wow,
I haven't seen Joel run in a week and a
half far, And not that I care. It's mostly ninety
five percent of it is from me, but that is
at least one piece of there's an.
Speaker 1 (08:29):
Element of that. There's that competitivelopment. By the way, you
said Strava are you? Are you posting on Strava as well?
Or it goes automatically from the garment. I never actually
go on the app itself, but no. Interesting.
Speaker 2 (08:38):
Yeah, so I don't even I don't should. A lot
of my friends runs but and do that as well. Yeah,
all right, let's mention the beer we're having on this episode, Matt.
This one's called hand Warmers. It's by Carton Brewing. Listener
Michael sent this one our way. This is kind of
a funky one. We'll get our thoughts on this. Vanilla
Chai latte hef advisen Yeah at the end of the episode.
And by the way, if you have a money question,
we'd love to hear from you. You can just record
(08:58):
a voice memo on the app on your phone, email
it over to us at how to moneypod at gmail
dot com and hopefully we can take it on the
next ask HTM episode. Or you can go to how
to money dot com slash ask for kind of specific
directions on how to do that. Matt, let's get you
a question about five twenty nine plans. This list is
thinking about using them in a way that most people don't.
Speaker 3 (09:19):
Hey Manngel, this is Mic from California. Been listening to
the show for a few years now and really appreciate
all the information. My question today is about using five
to nine funds for private elementary school. My wife and
I have two kids, aged four and two, and we
have an account for each of them that we contribute
a small amount to each month. Initially, this was going
to be used for their higher education. However, our four
(09:41):
wheel just started at private elementary school. We read that
you can use five to nine funds to pay for this.
Looking a little bit deeper, we found that the state
of California has a cap of ten thousand dollars per
year per student and a two and a half percent
penalty as well as you are charged your normal income
tax rate at the state level if you use the
(10:01):
funds for private elementary education. My thought is we could
put the money that we're going to pay for the
tuition into the five to nine plan, let the funds
earn a little bit of return, and then pay the
tuition twice a year from the five to night plan. However,
I think any returns from the investments probably would be
(10:23):
eaten up by the penalties and the taxes that the
state charges. Am I missing something here? California does not
offer any income tax breaks for money contributed to these plans.
My wife and I both work and are the higher
end of income earners. Do you have any advice? Thanks?
Speaker 1 (10:41):
Have a good one, all right, Mike. It is true
that you can, in fact use five twenty nine funds
to fund private school these days, private elementary school, which
can be helpful for some folks who are planning ahead.
When did that change, like what four or five years ago?
And specifically though, if you live in a state where
there's a tax benefit, but so here's the TLDR in
(11:02):
a state like California where five twenty nine planes don't
feel much love, it actually makes zero sense, in our
opinion feet to go this route. So you boom, there's
your answer. So you mentioned I was next question, jol
There's a lot. There's a lot more to get to.
You mentioned that I was doing this for for Emily's
grad school. And the reason that it made sense for
us to stick money into a five twenty nine plan,
even if we were pulling it right back out, was
(11:24):
because we have a state tax break here in the
state of Georgia, and so I would stick it in.
I could pull it.
Speaker 2 (11:29):
Right back out and then just save what five something
percent on in state income tax. But my goal wasn't
to grow the money for the future, because this was
money we were using essentially on education immediately.
Speaker 1 (11:42):
It's not that you weren't counting on it to grow.
You I'm getting I'm assuming you put that money in
there and you did not, in fact buy any funds
with that. I'm assuming you're sitting there as cash.
Speaker 2 (11:51):
I mean literally literally put it in one day, pull
it out the next cast. I actually I put a
little bit more in her fun and I kept it
in there just because I'm a nerd, and I can
always transfer it into.
Speaker 1 (11:59):
The kid name.
Speaker 2 (12:00):
So you likely shouldn't be investing those funds because of
a truncated timeline. So Mike's talking about let's say, putting
money in for his four year old needing it in
a couple of years, Well, in that case, you wouldn't
be very wise to invest those funds in hoping that
they grow substantially. You know, one of the main reasons
that five twenty nine funds are cool is because you
(12:21):
can grow a substantial nest egg over roughly one point
five decades, right if you start early. And that's really
thanks to compounding returns. So if you shrink the timeline,
which is what Mike's thinking of doing, you really lose
that ability, largely because the market doesn't have enough time
and because you don't have enough of a risk timeline
to be able to stick money into let's say mostly stocks.
Speaker 1 (12:44):
Yeah, and I would say if his timeline was different.
Let's say that Mike, even if he's thinking about private
high school, because if you send your kids to private
elementary school, I don't know, maybe you've got a gift
a child and you want to make sure they receive
the like top notch krem Dela Cram, highest octane sort
of higher education, right, well, not higher education high school.
And if that's the case, I would say that, well,
(13:06):
that's actually about what ten years off into the future.
And I would say, hey, if that's the case, then
it totally is worth investing that money because you have
you do have a long enough runway even with the
penalties that California assesses, you have long enough for the
investments to grow substantially that it might be worth paying
that penalty. Yeah. But so that being said, though, I
think it's a shame though that California is one of
(13:26):
the few states that does have an income tax, but
that doesn't offer any incentive to save for a child's education.
They're in a five to twenty nine account and yeah,
there's fees to use it for its intended purposes. Feels
like an added insult, and so you're unlikely to out
earn those fees that California assesses, especially since again investing
it's just ill advised how quickly you're looking to turn
(13:47):
around and put those funds to use there by paying
for that private education. So if I were in your position,
I mean I would just pay for their education directly
out of pocket, skipping the five twenty nine account altogether.
But then again, Joel both this isn't something we've talked about.
We tend to air more on the frugal side of things,
and our youngest dudes are currently in state funded pre
(14:07):
K because it's an option and it's free, and so
what I told Kate was that it needs to be
pretty bad for us to not consider going with it.
I don't know, maybe if we felt that our little
dude was like extra, extra gifted or something like that,
I would feel a little bit differently about it. But
it's like this free option. It's almost as I've meant
both of them, they're not. So it's almost as if
(14:27):
there was like some food I was being provided and
it's just like, all right, you've got like this meal.
If it's not infested with maggots, that's meeting that's pretty good.
That like grows on trees, well, that is food. I
guess there is actually food that does that, or you
can pay a ton more and you get to have
like the absolute best that there is to offer. I
don't know certain folks are going to fall on the
(14:48):
side of like, we're gonna go with the really nice
higher ed well and calling high right, because I'm so
used to thinking college. But that's not what we're talking through.
Speaker 2 (14:56):
I mean, like, and that's where you live often depends
on and what your income is and what your priorities are.
It's gonna that's all. Those things are going to determine
whether or not you pay for your kids education, whether
you opt for the free public school or in many
communities there are great charter schools. Your kids go to
a great charter school map My kids go to a
public school. And but yeah, I think you're right, Like,
(15:17):
if if we felt like the standards were subpar, I
would strongly consider get to the point where you make
a different decision, Yeah, prioritizing more of our hard earned
dollars towards our kids' education. But we're fortunate here. Yeah,
And again, everybody makes different it's all. I'm always surprised
in when when the schools are great and people still
decide to fork over big bucks for private education. But
(15:38):
that's a that's a personal household decision, right, Ye, so.
Speaker 1 (15:40):
I'll have to say, Mike, not trying to yuck all
over your earm here. I think if that's a priority
for y'all, man, go for it. Yeah.
Speaker 2 (15:47):
I love it, And I think I want to say
to this too that it doesn't necessarily mean you shouldn't
be utilizing a five point nine plan at all. Right,
if you're crushing your own retirement saving the schools, Mike,
and you've got leftover money to not only pay for
your kid's current education expenses or there're soon to be
education expenses, but you can also save for their future
education needs at the same time, we'd say go for it.
(16:08):
Obviously your kids they're still quite young, and you can
then invest those dollars so they can grow significantly by
the time, Matt, you're kind of saying, what if you
know you want to pay for private high school then,
or pay for their future college. I think then it's
reasonable to use those five twenty nine plans. You and
I need neither of us consider five twenty nine plans
to be a top tier financial priority, but they can
(16:29):
make a lot of sense. Even in the state of California.
If you're knocking everything else out of the park, but
which you just want to make sure that that's what's
happening first totally.
Speaker 1 (16:36):
Which I'm assuming that, Mike, because he said him and
his wife are both higher earners, so I'm based on
what he's saying, I'm assuming that they have accomplished all
those other money gears.
Speaker 2 (16:44):
If y'all crushing four one k's iras, HSA, stuff like that,
then five twenty nine plans I think coming into the picture.
Speaker 1 (16:51):
And not to mention too, just some of those different experiences.
We can focus on the specialized accounts, and you're thinking
about higher education, but don't forget to invest in just
the quality of life experiences and things that you can
spend money on to enrich their lives.
Speaker 2 (17:03):
Now, like me taking my girls to the nation's capital.
I mean, yeah, we're gonna learn a lot overfall break.
Speaker 1 (17:07):
Heck yeah. That being said, on top of that, we're
talking about the five twenty nine accounts and how great
they are. There's a whole lot of flexibility too, because
you can turn your five twenty nine dollars into roth
dollars for your kids. We've talked less about how parents
can use five twenty nine accounts to pay for K
through twelve education expenses, largely because we don't think it
makes sense for most folks. But just the longer your
(17:28):
time horizon, the more you're going to be able to
invest those five twenty nine dollars, which means it's going
to have even more time to grow. And so yes,
finally we do get to get to the higher ed
portion where the dollars are going to be able to compound.
I think most folks should take that approach, and Mike
I said, you definitely should, considering the headwinds that California
is making you face when it comes to how it
is that you're going to be allowed to use these
(17:49):
dollars without fees. Yeah.
Speaker 2 (17:51):
Last thing I wanted to note here too, Matt, is
that people, no matter what say you live in, there
is a five to twenty nine plan for your specific state.
And if you live in a state that has an
income tax benefit, if you put your money in your
state's five twenty nine plan, you're going to want to
go with your state's five to twenty nine plan. But
if you live in a state that doesn't offer any
sort of state specific tax benefit, the world is your
(18:12):
oyster when in terms of five twenty nine plans and
which ones you choose.
Speaker 1 (18:15):
Or at least the United States is your oyster, right, Yeah, yeah,
I think yeah.
Speaker 2 (18:19):
And so there are a bunch of plans out there,
and I would just take into consideration what sort of
investment options are available and how cheap are those investment options.
So California actually has a great one, the ScholarShare five
to twenty nine. When you look at the the fees
for some of our the things that we would invest
in inside of that plan, Matt, they're minimal, They're extremely low,
(18:40):
and so.
Speaker 1 (18:40):
Point zero seven percent is what I was seeing in
some of the different passive options.
Speaker 2 (18:44):
You can feel really confident sticking your money in the
ScholarShare five twenty nine plan. And just a reminder, Matt,
this is something else that people bump up against. Maybe
an advisor or a bank tries to say, oh, it
will help you with this five to twenty nine plan.
But the truth is it's super simple and easy to
do it yourself, and oftentimes you're going to pay an
extra meaningful fee if you take them up on that
(19:04):
offer for help. So DIY five twenty nine plans for
the win here, do it yourself.
Speaker 1 (19:09):
That's right, So Mike, we hope that gets you pointed
in the right direction. Joel, we've got more financial topics
to get to, more investing topics, specifically, like we've got
a listener who's asking about a more specialized strategy or
approach to investing for her retirement. We'll get to that
more right after this. All right, we're back. We've got
(19:34):
more questions to get to. Matt.
Speaker 2 (19:36):
This next question comes from a listener who really wants
to know about buy now Pay Later. There's something kind
of a new wrench thrown into the system.
Speaker 4 (19:43):
Hey, Matt and Joel, this is Orlow calling from old Town, Maine.
I wanted to get your opinions regarding buy Now Pay Later. Recently,
I received an email from Chase Bank informing me that
they will no longer allow Chase credit cards views for
buy now Pay Later trends action starting October tenth, twenty
twenty four. Chase does, however, offer their own BNPL service
(20:06):
called payover Time as an alternative. It offers your interest
on the purchase, but a fixed monthly fee of up
to one point seventy two percent of the eligible purchase amount.
Do you foresee other big banks following a suit in
crowding companies like Klarna and a firm out of the marketplace.
(20:27):
Just out of curiosity, I looked at a couple of
the most popular BNPL websites and they can charge consumers'
interest rates of up to thirty five percent? How will
this impact the many Americans that do utilize these services?
Thank you for taking my question. I'd also like to
thank you both for the years of thought provoking episodes
(20:48):
and guest interviews keeping me well informed with the Healthier Show.
I have gradually shifted from a state of financial anxiety
to one of financial serenity.
Speaker 1 (20:59):
Cheers, Orley, Thank you so much for that question, and
congratulations on the financial progress that you've been able to make.
I would say that moving from he said you moved
from anxiety to serenity, that does not happen overnight. No,
it's it's a big across too. Yeah. At times it
can just seem like a slog, but it's it's also
cool to kind of pause to reflect and see of
(21:20):
all the different progress you've made. Yeah, and also he
mentioned he's from old town, old Town Main Joe, do
you ever look up some of the different places where
our listeners are from. There's sometimes like La or like
New York. I'm like, okay, I know what that looks like.
I've been there, but you hear something new like old Town,
and so I've got to google that and get a
feel for what it's like there. It looks like it's awesome.
I feel like this is another reason maybe Orlo has
(21:42):
found some serenity because it's such a peaceful, quaint town.
It's only an hour fifteen from Acadia National parky as well.
Can't beat that. Sounds like a place I would love
to live in the summer. In the winter, though I
don't know. I might. I'm too wimpy for I think
you can get too cold the harsh winter months. The
cost of living there is better than the Nationale as well,
I believe it. I'm just trying to entice you.
Speaker 2 (22:02):
Okay, well we go on together. I guess we're moving
the families again. But yeah, no, that seriously mad props
to Orlo. You're right, mat it takes time, like it's
it's small steps in the right direction. Then you look
back a year or two later and you're like, wait
a second, Wow, look how different things are that's kind
of how money works. I think most people want the
light switch thing, but as we've said before, it's more
like a dimmer switch when you're making progress. And let's
(22:23):
talk specifically about your question orlow. Chase did announce last
month that they're not going to allow users to pay
their BNPL payments with credit card plastic right, So this
makes complete sense to me, Matt on multiple levels, soally agree.
One is that the buy now, pay later companies are
a form of competition for Chase, right, Klarna and a firm.
(22:45):
Chase is like, well, even if we didn't have our
own buy now pay later, which we do, but even
if we didn't, then we would rather people pay with
the credit card. So maybe we shouldn't make it easy for.
Speaker 1 (22:57):
People to do this.
Speaker 2 (22:59):
But I think the one the thing that we care
about is that it's a terrible idea to pay off
one line of credit with another.
Speaker 1 (23:05):
Right as individuals, there's a whole lot of risk there.
It like it kind of feels like a house of cards.
Speaker 2 (23:09):
So I get why Chase wants to do that, because
they're adding extra risk to their portfolio if they're allowing
people to pay off some nefarious form of debt with
another form of debt, and so other credit card issuers
have already taken this step. It's not just Chase.
Speaker 1 (23:23):
It's smart for Chase's business, and it might help them
prevent some consumers from going overboard. I know that they're
probably not doing this from altruistic motives, but ultimately it's
going to be better for people not being able to
be allowed to do this. But then Orlo asked, all right,
I guess if we think that this is going to
set off a sort of domino effect, I think so Chase.
They are the biggest bank in the country, and what
(23:45):
they do tends to create ripple effects. And even if
some of the other banks weren't even considering it at all,
I could totally see AMEX, I could see Bank of
America falling suit. I think it's especially dangerous too for
folks who also have credit cards, because that's what that's
Another part of buy not pay later that is a
little more nefarious is the fact that it lives outside
of however it is that you think about credit cards.
(24:08):
It doesn't necessarily get included in that whole process, you know,
And so for those who have credit cards. But then
on top of that they're also throwing in the buy now,
pay later. I think that's a recipe for disaster, or
the boxes are laterally ramping up their spending. Do you
know if on something like Monarch money, if you log
in there, can you bring in your buy now, pay
later purchases? Not that I know of, I don't know. Yeah,
(24:29):
I need.
Speaker 2 (24:29):
I would love to look in at that, because that's
the thing with the credit cards, at least, that's kind
of a part of your financial system, and it is
just how we want you to use them. That's the
thing people bring up, Matt. They're like, Okay, you guys
like talk trash about buy now, pay later, But why
are you fans of credit cards?
Speaker 1 (24:44):
And for multiple reasons. One is because it's easier to
monitor your purchases with credit cards. And then another thing
is there are greater protections when you use credit cards
that you don't have those other benefits when you use
buy now, pay later. The key is to use them wisely,
which only fifty perc and of Americans do.
Speaker 2 (25:00):
But that's what we're always preaching over here. We want
people to use credit cards and use them wisely. You
can charge back if you let's say don't get the
product that you ordered or the service that you signed
up for didn't come through.
Speaker 1 (25:13):
Like you have.
Speaker 2 (25:14):
Recourse, you also can earn rewards from credit cards, but
I guess so with by now pay later, the only
reward is that you get more time.
Speaker 1 (25:22):
To pay, you get to consume more stuff. Yep, yeah, yeah,
that's That's sort of another way I was thinking about
it is the fact that it's like credit cards are
an institution, whereas like by not pay later, it feels
like these free radicals that are just floating around that
are causing all sorts of havoc. And the fact too,
with credit cards, you're building up your credit, whereas not
all by not pay laters report to the credit peers.
And then on top of that, let's say, if you
(25:44):
are only exposing yourself to buy not pay later, let's say, okay,
well I'm not in the dangerous category guys, because I
don't have any credit cards. And let's say you're a
younger listener, maybe your gen z like those are seen
as installment loans, and if you're looking to grow your
credit score, you want to have a mix of different
types of credit, and so you want to have those
revolving lines of credit available to you, not just the
(26:04):
different installment loans, which is what by not pay later
gets reported as if they report at all, Yeah, which
is not always the case.
Speaker 2 (26:11):
You're right, there's so many ways that credit card smart
credit card usage can benefit us if we pay attention
and we're smart about it. But there are just no
such benefits really with buy now, pay later. So great
question orlo All right, Matt, let's get to our next question.
This one is about investing. Maybe ramping up the difficulty
level just a notch or two.
Speaker 5 (26:31):
Hey, jol and Matt, this is McKenzie from Massachusetts. I
recently listened to the Paul Merriman episode and then I
picked up his book We're Talking Millions and found his
two Funds for Life strategy very intriguing. So I wanted
to know what you think of it and whether you
follow it. Thanks so much for your insights. Bye.
Speaker 1 (26:52):
All right, mackenzie, thank you for reaching out, and first
of all, for everyone else out there as you're listening.
She is referring back to episode seven thirty four if
you want to go back and listen to that one.
But Paul Merriman, he is an absolute gem. Within the
personal finance community, we massively appreciate his approach, his insight,
and honestly, when it comes down to it, he's for
(27:13):
a very simple investing strategy. Compared to most folks out
there who are saying that they have some sort of
proprietary approach to how does they invest, Paul's is, I
would say, much more in line with how does we
like to approach investing. We're fans of keeping things simple. Yeah,
But that being said, his thesis is that investors can,
at least according to historical returns, get a better return
with a combination of target date funds as well as
(27:36):
small cap value. And that is the uh. That's sort
of where he stands out and where he's kind of
making a name for himself, specifically that small cap allocation.
And he's made a name for himself, Matt. He's been
running the numbers on this and talking about this strategy
for a long long time. Paul is in his eighties,
I believe, and still.
Speaker 2 (27:54):
Still kicking it, still doing it, man, it's still going hard, yeah,
trying to convince people of this reality.
Speaker 1 (27:58):
And he's got a mission. Yeah.
Speaker 2 (28:00):
He's not like don Quixote, right, He's like for real
changing minds, and he's using data to do so, which
I appreciate. And I actually I really love Mackenzie's question too,
because she's kind of holding our feet to the fire
on this when she's saying, so you had Paul on
to talk about this, are you doing what Paul said?
And that's a great question because we have people, by
the way of all sorts of different stripes on the
(28:20):
podcast on Wednesdays on the interview episodes, and typically there's
somebody it's someone who aligns with our values. They're occasionally
not always, though not always. We're not bringing people on
that we like wholeheartedly disagree with, but we don't agree
with everything everybody says on the show when they come on.
Although we think that Paul's advice is worth listening to,
and I have followed suit in my portfolio with Paul's prescription,
(28:45):
I do follow some advice. I've added some small cat
value to my investment mix inside of kind of an
old four one K. I had it at my last job,
so I have some small cat value exposure. I'm not
doing it exactly the way that he outlines, but I
was largely commenced by a side look at history that
this was a reasonable decision to make. Small cat value
returns were like thirteen something percent over time MATT versus
(29:09):
just under ten ten percent returns for the SMP over
the past eighty plus years. That's a pretty large sample size, right,
eighty plus years, and it reveals meaningfully higher returns over
the decade. So a few percentage points it might sound
insignificant or small, but over a bunch of years that
adds up to real money for investors. Am I going
to see better portfolio performance because I've added a roughly
(29:32):
five percent allocation of small cat value? Maybe I haven't yet.
And that's why investing is a long term game too,
because small cat value has been underperforming essentially over the
past decade. And when it's when that changes is anybody's guess.
Some people are even saying, am I not change in
the future? So then or if it changes? Yeah, So
I guess that gives away the fact that.
Speaker 1 (29:53):
I haven't followed Paul Merriman's recommendation, his prescription here, I'll
give my reason for that second. But like if you
are only looking through the lens of like what have
you done for me lately? I think you are going
to be unlikely to want to have any exposure to
small cap value because the last decade, yeah, it's seeing
growth stocks, it' seeing US stocks succeed wildly, So why
(30:13):
shouldn't we continue to put all of our eggs in
that one basket? Why would you even bother with the
merriment approach? Some of you even called the small cap
value strategies dead. But for me, I think the biggest
reason I wasn't completely convinced was the fact that it's
still felt like timing the market, and a large part
of Paul and specifically what he called the tell tale chart,
had to do with the fact that we're due for
(30:35):
small cap value to basically outperform when lately it hasn't been.
And that's the part of it that runs me the
wrong way, because it still kind of feels like timing
the market, even though you are looking at over a
larger period of time, He's still looking at these shorter
periods of time that he expects to see outsized growth.
And so for me, it's like, all right, well, why
not just stick with the S and P five hundred
(30:56):
or just a total stock market fund, because here's the
thing that keeps it more simple, it's just literally a
single fund. So the reason, and here's the other part
of it too, is the reason he calls it the
two fund approach is because he has that automatically rebalancing
target date fund to offset some of the volatility that
you would come to expect with small cap value, and
(31:16):
so over time it automatically readjusts, therefore leading you potentially
to a similar place to where I think as total
stock market fund or an s andp FUF fund or
fund might end up down the road, but who knows. Again,
back to what you were saying, Joel, like, it might
do incredibly well, and we'll all have been wishing that
we would have followed Paul Merriman with every dollar that
(31:36):
we had to invest. It's the thing where past performance
does not guarantee future results.
Speaker 2 (31:40):
But I think if you look into the data, you
will see that Paul is onto something. It's a historical
trend that isn't bound to repeat in the same exact way.
But if small cap value provides higher returns in the
coming years, you'll be glad you had some of that exposure.
But also I don't think necessary for investors, no supertaking.
Speaker 1 (31:59):
It's like what we're talking about here is like the
minutia of like making a good decision. It's insider baseball.
It's like a conversation Kate and I had recently. We're like,
which eggs are better? Is it the organic eggs or
is it the cage free ones? I don't know, and
we kind of were talking about it, and I was like,
you know what, it doesn't It actually doesn't really matter
because the fact that we're buying these eggs a good
for you from a nutritional standpoint, but being we're not
(32:20):
spending that money by going out to eat right, and
so like, either way you come out on the top,
Like either way you are winning. It's just such a
small piece of minor detail that we like to talk about.
If you're really into the stuff. You said baseball, So
it makes me you think I should give a baseball too.
It makes me should you bunt with a runner on
third and try to have them steel home? Make it like, yeah, right?
It depends on who's on third, depends.
Speaker 2 (32:42):
On how fast they are, And I'm not going to
get into those on third, thid, But how fast are
they and who's bunting? And where's the infield position? I mean,
there's so many ways that you could so many factors
that would help you decide whether or not it's a
smart move, and you're gonna come up with a different
outcome every time you ask the question. And I think
that's the reason that Matt, you and I typically suggest
(33:03):
an ultra simplistic total stock market or S and P
five hundred approach. That is a solid winning strategy for
the vast majority of people in the wealth building phase
of their life. And it's so ridiculously simple, and it's
so incredibly low cost, and it doesn't involve any sort
of like getting in there and messing around. So, yeah,
can you complicate things more and potentially see higher returns? Yes,
(33:25):
of course you can't. That's why we have people like
Paul merriman on. That's why we have people like Brian
Ferraldion who talks about investing in single stocks. Those guys
both understand that advanced maneuvers they're not for everyone. Not
everybody wants to pay more attention to their portfolio, wants
to be thinking about it all the time, and so
for a lot of those folks, ultrasimple is still best.
(33:47):
And so I guess I would say don't let perfect
be the enemy of good here, like, don't be too
nearsighted making investing choices based on recent results. And it's
really it's anybody's guest which companies, which sectors, which as
set classes are going to outperform in the coming years
and decades exactly, So whether or not you decide to
pursue Paul Merriman's two Funds for Life strategy, which I
(34:08):
think has a lot of merits. His methodology is sound
and his bent is to help the folks, So I
think his voice is one of those voices that is
worth listening to. It's nice to have that knowledge, especially
just to help you understand if CNBC's on in the
background or whatever. It to help you understand kind of
what's going on with the market. It's going to make
(34:28):
you a smarter investor, even if you choose not to
go down the path of his exact investment approach.
Speaker 1 (34:33):
Totally. Yeah, it's just tough because once you start diving
into the weeds, because then you start asking questions of like, okay,
small cat value versus like you're talking about CNBC and
like what you hear about are the big companies news? Right?
And so like, that's one of the arguments against small
cat value. And I'm not saying that this is the
reason to completely avoid it, but one of the arguments
against it is the fact that companies are only getting
bigger and bigger, and oftentimes these smaller companies that would
(34:55):
normally go public, well they don't go public. They instead
get acquired by these larger companies. And makes me think
of one of our favorite board games, acquired, Like, that's
that's how you play that game, Like literally, it's just
acquiring these smaller corporations and the biggest ones. If you
have ownership in those biggest companies, you end up winning
the game. Hopefully you're the what is it, the primary
stockholder as opposed to second secondary tergiary. And somehow my
(35:18):
wife still continues to dominate us every time we play
that game. I feel like she needs to be the
one that handles. But that's again, if you are into
the details and the minutia of the market and sectors
and industries, then sure, I think that's plenty reason for
you to go in that direction. But either way, you can't.
It's you're not gonna lose, right again, It's like, should
I do this really good thing, or this may be
(35:40):
really really good thing. It's either way. It's like arguing, Joel,
should we go for a hike in order to stay
healthy or should we go for a walk, And it's like, well,
it just depends what one's got more incline and more scenery.
What if you're hiking in San Francisco and then it's
really really steep and the houses are pretty.
Speaker 2 (35:55):
That's oh yeah, just walking around. Yeah, that's true, exactly,
that's good anyway.
Speaker 1 (35:59):
In both cases, you're not spending your money and you're
not completely consuming it and blowing it in the here
and now.
Speaker 2 (36:03):
Yeah, I think the big question is asking the question,
looking into the data and saying is that a path
I want to pursue or not? And as long as
you're investing a decent chunk of your income, you're keeping
the cost low, you're well diversified. That that's the big stuff.
All right, Matt, We've got more to get to, including
we're gonna we're gonna solve a tenant landlord dispute in
just a second.
Speaker 1 (36:23):
We'll get to that right after this.
Speaker 6 (36:33):
Joe, we are back from the break, and enough about investing.
Speaker 1 (36:36):
It is now time for the Facebook question of the week.
This is from an anonymous poster, and we do know
that as a lady, and she says that my tenants
are breaking their lease about six months early because they
purchased a home. They have been great tenants. Our lease
requires thirty days notice and a fee equal to two
months of rent. They asked to discuss this tomorrow. I
know they're going to ask for some portion waved or
(36:58):
a discount of some sort. However, they are moving at
the worst possible time from a market cycle, and the
rental income just barely covers expenses. Any feedback or counterpoints
that they do ask for a discount, I get so
nervous being perceived as the money hungry landlord. But at
the same time, I know the fee is fair and
outlined in our lease and I'm just a girl trying
to provide for my family, which you think, Joel.
Speaker 2 (37:20):
First, I feel the pain. I've had this happen before,
where a tenant breaks the lease early multiple times, and
it throws a wrench in things. You're not expecting it,
and you're right, it can happen at the exact wrong time.
It can be frustrating, and as I get that too,
that desires a landlord not to be seen as this
money grubbing landlord. But as she outlines, like landlords aren't
(37:42):
always rolling in the dough. They're not always like rich
estate owners, right, and they can't always weather the storm
incredibly easily. I think tenants sometimes think that Matt like
landlord's got to cover They're fine, they're probably making money
hand over fist on me. For most mom and pop
small landlords, that's not the case. That's why it's a
good idea to have even more in savings. By the way,
(38:03):
if you're a rental property owner, because you never know
when this kind of stuff can happen, and you might
incur vacancy that you hadn't expected. So I would say
to let your lease be your guide. Right, both of us,
you and I, we've worked with tenants before. We want
to be kind empathetic landlords. But those mutually agreed upon
rules where both of your names are down in ink
(38:24):
at the bottom of the page, those were agreed upon
for a reason. I would let your tenants know that
you're going to try and fill the vacancy as quickly
as possible, but that you can't agree to more generous
financial terms for them until you have a new lease signed.
Speaker 1 (38:37):
Yeah, so I think what you're getting at is that
fee is paid unless that she can find some new tenants.
But the way she is presenting it is that it's
just a straight up feed no matter what, regardless, and
so some of the like and that's where hey, this
is what it states in the lease. It doesn't really
matter whether I get a new tenant in here before
that time is up. But that is also somewhat state dependent,
(38:58):
because some states are going to be more like lord
friendly than others. For instance, in Georgia, you're allowed to
hold the tenant responsible for unpaid rent for the remaining
months of the entire release, but you also have to
search for new tenants and good faith. And if you
were to get a new tenant immediately, which is again
it's probably going to be highly unlikely that that is
the case, well you couldn't even keep those additional two
(39:18):
months of rent, and so so much of it does
kind of come down to where it is that you live.
And there's typically like a landlord tenant handbook that you
can consult, but you need to make sure that you
are familiar with the laws there that govern your local state,
cause just.
Speaker 2 (39:31):
Because it says that in her lease doesn't mean she
can charge it, because exactly the laws of the land
could supersede and say, hey, actually, no, you can't do that.
Even though both of you signed this thing, the law
of the state says you're not allowed to charge that
fee exactly.
Speaker 1 (39:44):
So on one hand, I don't want you to feel
the pressure to like, oh, I got a book it
to try to find someone to let them off the hook.
But at the same time, I don't, like you want
to be respectful of the fact, like you said that
they've been great tenants, and so that would honestly encourage
me as a landlord to try to find someone to
get in there to minimize the down side for sure
for both parties.
Speaker 2 (40:01):
Yeah, yeah, And the goal of most landlords and tenants
is typically to avoid legal recourse, like can we work
out this out, mono a monoly. We don't want this
going to some sort of small claims court. Neither of
you want to end up there, And I'm sure they
know that they're not making life easy on you, and
you might not be able to get the same rent
amount or generate as much interest given kind of what's
(40:21):
going on. In the market right now. I would explain
those realities to them and tell them then that you're
more likely to get a new tenant if you end
up listing the property for less, because Matt in a
lot of parts of the country, rents have actually gone
down in recent months over the past year, but that
they would need to cover the difference if you listed
it for less. It would be better for those tenants
(40:43):
to have to cover two hundred bucks, you know, less
a month for five months. Then essentially they have to
cover three months of full rent payments because you listed
it at the same rent amount and you weren't able
to find a tenant. So I would be honest about
those realities, that communication and doing your best to look
out for them while you're also looking out for your
property and your own interests. I think that's the.
Speaker 1 (41:04):
Wise way to go. I will say too. She mentioned
that it's like the worst possible time to list a property, Like,
I understand that there are more popular times of the
year to rent, but I will say that at least personally,
and maybe this is more anecdotally on Live Behalf, but
like I have listed properties before in what would be
considered like the worst time of year, like in the
middle of the winter, and when that has happened, I've
always found a runner to rent the place. And so
(41:24):
like I guess what I'm pointing out is it always
feels nice to list a place. Is it Memorial Day?
That's just a really like in the spring, it's a
popular time to move. There's tons of folks moving. But
guess what that means. I mean also means that there
are tons of properties available. And yeah, I might have
three days of showings with like ten people every day
back to back, but like half those folks don't show up,
(41:45):
and it's because there are lots of other potential rentals
out there as opposed to in the winter. It's like,
all right, you might only have like two folks show
up to see that place. Yeah, but guess what, it
only takes one of those folks, And they might think
you have ten other folks that are interested in that property,
and maybe you do, who knows, But maybe you're also like, well,
you're the only person that is signed up to check
it out. But that's so beautiful about the open market.
(42:07):
If you reach and agreed upon rents amount and they
check out, then it's their place. I guess I'm just
pushing back slightly on like, I don't want you to
get overly anxious about it not being a great time
of year.
Speaker 2 (42:17):
And the truth is she's protected, right, even if it
is a tough time of year, She's protected in this lease.
But just make sure you also know the laws of
your state so that you can see, well, how covered
am I there as well? But I think you're right, Matt,
don't let that kind of freak you out, because good pictures,
a solid listing go a long way. Even if there
are maybe fewer tenants out there looking, there are fewer
(42:37):
places for those potential tenants to rent, so your place
is going to stand out.
Speaker 1 (42:42):
Yeah, And whether or not, like how much of a
concession I make, I think awesome, might depend too on
how long they've been there in the property. Right So
if this is a tenant that's only been there, let's
say for the three months, and then all of a
sudden they're like, hey, we're out of here, actually I'm
gonna feel a lot differently about them versus some tenants
who I literally have in a property right now that
have been there for over three years. Like we're coming
(43:03):
up on four years and they reached out recently and said, Hey,
we were finally moving for work. But what this means, though,
is that we're having to move in the middle of
the year, in the middle of the lease. And I
didn't say this to them, I don't think, but in
my mind, I'm thinking, you can move whenever you want.
Like you' all have been awesome tenants. I've never had
any issues with you. And it's because of the fact
that they've been there for that long, they've always paid
(43:25):
on time. It makes you much more willing to be
lenient when it comes to certain things like that or
to cut them some slack especially, and to realize and
there's a silver lining too, because of the fact that
they've been such great tenants. This particular couple, I know
I'm under charging it from rent for rents and when
the last time I logged on to the rent oald manager,
it suggested a rent amount that I was like three
(43:45):
three point fifty more than what they're currently paying. And
so silver lining, Hey, maybe you happen to be in
a market where rents are actually not going down, maybe
they're holding steady or even going up, or maybe it's
just been a situation where you could have raised rent
in the past, but you haven't because you've had great tenants.
Speaker 2 (44:01):
Yeah, yes, I guess ultimately protect yourself, but be lean
it where you can, especially if they've been good tenants.
All right, man, let's get back to the beer that
we had on this episode. Listener, Michael sent us a
few beers, which we really appreciate, Thank you, Michael. And
this is I think the most fascinating or unique beer
that he sent. This was called hand Warmers by Carton Brewing.
It was a vanilla chai latte. Hef avisen. That's a
(44:25):
lot of that's a lot of words thrown in there
were your thoughts on this beer.
Speaker 1 (44:27):
I would say it tastes just like a pumpkin spice latte,
except for the fact that it didn't have pumpkins. A
pumpkin list pumpkin spice latte, but it's got all the flavors,
Like I mean, literally, you could read down this can
Cardiman yep, all spice yep, send theimon Absolutely like it's
got all of the flavors that you might expect in
some pumpkin pie, but without the actual pumpkin.
Speaker 2 (44:46):
Now that we're basically closing in on fall time, it's
this feels kind of like a lightfall beer.
Speaker 1 (44:52):
This his fall in a glass on exactly.
Speaker 2 (44:55):
Yeah, and so this is not the kind of beer
I'm typically going to pick up at at the store.
But it tastes exactly like they intended it to taste,
and so lots of spice, super fun. I enjoyed this one,
even though I wouldn't say, like, give me a six
pack of it.
Speaker 1 (45:10):
It's a beer that signifies the changing of the seasons. Joel. Yeah,
We'll think had a little bit of ginger in there
as well. Do you like chilat taste?
Speaker 5 (45:17):
Is that?
Speaker 4 (45:18):
Ever?
Speaker 1 (45:18):
It's not really what I go for typically. I was
into them in college, and specifically I only recently learned
about Is it a dirty chi where like you get
a chilatte and they put a shot of espresso as well.
I don't know how I never heard of that before.
Is it good? Kate got one the other day and
I thought it was pretty taste. Okay, yeah, well that's
totally a tangent. But I'm glad that you and I
got to enjoy this. Thank you Michael for sending this
(45:40):
one away so that Joel and I could share.
Speaker 2 (45:42):
Appreciate you Michael. All right, that's going to do it
for this one, Matt. We'll put links to some of
the resources we mentioned up in the show notes on
our website at how toomoney dot com, and we've got
tons of money saving information for you. Their articles, the
newsletter that comes out every week, and all of our
prior episodes if you want to dig in further. That's
going to do it though for this one. Until next time,
(46:02):
best Friends Out.
Speaker 1 (46:03):
And best Friends Out. Surprisingly heart too, like the hef
advising the weak part of it, Yeah, had some lift
Welcome to Haad of Money. I'm Joel and I am Matt.
Speaker 2 (00:03):
Today we're answering your listener questions.
Speaker 1 (00:24):
Happy Monday, everybody. We hope you had a fantastic weekend.
In Joel, we indeed have listener questions to get to.
We've got a listener who's asking about the two fund
approach to investing, whether or not specifically that that is
something that we're down with, so we're going to get
to that. Another listener is asking about five twenty nine plans,
specifically to pay for current educational expenses, which is something Joel,
(00:47):
that you've You've done something very similar to this, albeit
with a different twist. We'll cover this. One definitely has
a twist, so we'll explain why it's a little bit
different than your situation. And then we've got a like
a landlord versus renter question. There's some fees and this
listener is trying to figure out whether or not they're
warranted or not. We'll give our thoughts. Do we side
(01:07):
with the with the landlord or do we side with
a renter. It's almost like a frugal versus cheap.
Speaker 2 (01:11):
The way you made it sound made me think of
umemous celebrity death match back in the day.
Speaker 1 (01:15):
The claymation.
Speaker 2 (01:16):
Yeah, that's what I was thinking, literally picturing my mind
a landlord and a renter with boxing gloves on going
at it.
Speaker 1 (01:22):
I don't think it's gonna innovated in the Was it
California prunes or grapes or something? You remember that? Yeah?
What was Were they prunes? Now they were raisins? Oh raisins? Wait?
What did I say? Oh? Yeah, dried out grapes are raisins.
What was the whole thing with what was that? Was
that a cartoon or the California Raisins? Was that a
branding effort? Like? Man, good for them? It was a
(01:44):
cultural thing, it really was. I think stands a Raisins
TA shirt when I was a kid. Really yeah, man,
the nineties, that's right. All right.
Speaker 2 (01:53):
Before we get to all those questions, Matt, at the
risk of sounding too broie, we need to talk about
your new home gym setup.
Speaker 1 (01:59):
I guess is it time to share share with folks
the fact that I've fallen off the wagon when it
comes to CrossFit.
Speaker 2 (02:04):
Well, so you get you weren't you were okay spending
the money because you were taking advantage of it, and
it was making a difference in your life.
Speaker 1 (02:10):
I have. Everybody knows across it's really expensive. It's an
expensive thing. And I have not fallen off the wagon,
by the way when it comes to working out. But yes,
especially not only is CrossFit expensive. So it's not like
going to a regular gym like in La Fitness, where
they just have the equipment. It's like fifteen twenty bucks
a month first at some of those class right. Yeah,
it's a lot more expensive because of the fact that
it's based around classes and so there are coaches there.
There's always somebody there. It's almost like a full time
(02:33):
well you know, folks swapping it out, but there's always
somebody there leading the classes. The coaches are what make
it different than just going out and working out on
your own. Yeah, you're getting that kind of individual attention,
but with in a group setting. And yeah, so all
that being said, it is very expensive. And so what
I'm going to start doing is I'm gonna start pocketing
that money and I'm gonna build out my own home gym.
(02:54):
It would be really funny if you brought your own
weights and you were looking in the window of the
CrossFit and you were doing it in there parking lot
or something a discount if I byow. So I did
the math, and truly it would take me about a
It's gonna take me about a year, I think, to
recoup the costs, recoup the cash outlay where I had
to stop paying for membership, which is what I'm doing now.
I hit pause.
Speaker 2 (03:14):
So what do you look into Facebook Marketplace to fill
out your home gym? I have a good space for it.
Speaker 1 (03:19):
So yeah, our garage it's we have surprisingly a high
ceilings in our garage, just the way our home is oriented,
so you can get those big weights up above your head.
You don't have to hear about hitting the ceiling that
kind of stuff. You can do pull ups and stuff
like that. No, I've been looking for the past three
weeks now on in more than three weeks on Facebook Marketplace,
and you might be able to find a random pair
of dumbbells, but some of the stuff I'm looking for
(03:39):
it's a little more specialized. But that being said, I'm
still I think I'm going to be willing to spend
and for acount the money because of the fact. So
not only is it just a year that's just for
me right, like if it just replaces what I were
to pay every single month for going to the gym,
but Kate as well, So if I once I start
factoring in the fact that she is, I mean, we're
saving money for her and she has started working out
(04:00):
at home as well. With the gym that I'm building out,
there are ways to do it affordably without spending out
the nose. But then there are some specialized pieces of
equipment like a rack, which is gonna cost like a
round one thousand bucks in order to get one of those. Yeah,
that's like the most expensive thing.
Speaker 2 (04:15):
I think if you're committed to doing it for a
year and you've kind of started small. And that's another
thing too. I think it's actually a really good tip
probably is to start small and most of it you
don't necessarily need tons of equipment to furnish our home gym.
You're starting with just a few things, some dumbells from
fundles only that you kind of already had on your hand.
And now you're saying, listen, I've been doing it consistently
for a month or so, sticking with it, and so
(04:37):
because of that, I like can look off into the
future and see myself doing this long term, I want
to add these things to the mix, and yeah, you're
you're gonna save a lot of money.
Speaker 1 (04:45):
After that first year. Yeah.
Speaker 2 (04:47):
So if you're gonna start charging your neighbors to come
work out at your gym, and that's gonna make you
big one.
Speaker 1 (04:51):
Now they get to work out for free because of
the accountability. That's actually one of the aspects that I
knew I wasn't gonna be able to replace, is that
when you go in person, you're working alongside like ten
to twenty people who are also really getting after it.
But well, I push myself as hard by myself. Well,
I think that is yet to be determined. But having
a friend, so I've got a neighbor he's like three
I mean literally his buddy three houses down, and he
was also at the gym and he's kind of looking
(05:12):
for a way to switch things up as well. So
we're kind of holding each other accountable. There's dual savings
going on. The gym's going to put a hit out
for you. Now if you steal I love that gem.
I would one hundred percent recommend for folks who are
initially getting into it. See that's the other thing that's
true because you go there and you learn the technique
and you learn the right way to move some of
these weights and stuff because I remember, so this is
a shout out to a new but you could hurt yourself. Yeah,
(05:34):
so shout out so previous a previous episode. We did
a whole CrossFit and finances episode, just like the crossover. Yeah,
that sounds rendant to say, but like, there are certain
things you learn from being physically active and how you
can apply that to your money. We mentioned CrossFit and
listener Amanda, she actually reached out at the time was like, hey,
love the show. Really loved this episode, of course because
(05:56):
I'm also into CrossFit, and she said to check out
this app called street Parking because they offer the programming.
And at the time I didn't. Well, I was like, oh,
that's great. I could totally see myself doing that one day,
and a that day has finally come, which is fun
to see. But b I didn't understand why it was
called street parking back then, because I was like, what
a weird name for a fitness app. But the whole
idea is that you build out your garage and your
(06:19):
car now has to be out on the street. Right, yeah,
which is it's a good thing you've only got one car. Yeah, yeah, exactly,
it's kind of dense. Did not at all get it initially.
Well that's cool, that's cool, But maybe we'll link to
that previous episode. If folks are into fitness and finances
at the same time.
Speaker 2 (06:33):
And these are the kinds of things that people are
I think in their everyday lives. They've got to wrestle
that kind of stuff because you gin memberships. Yeah, if
you're LA Fitness and it's real close by and it's
twenty bucks a month, like that's not overwhelmingly expensive.
Speaker 1 (06:45):
But if you want some of these trainer led fitness experiences,
those can be a lot more expensive and more that
high intensity training as well. That's the other part of
I love about it, is just you're getting after it
for a short amount of time and then you can
just move on with life, as opposed to like standing
there staring at your biceps in the mirror, Like.
Speaker 2 (07:01):
I still like to do that even though there's nothing
to look at. Well, and I think the other thing
you mentioned this is having someone to do it with
that can be that that is the one of the
biggest hurdles and That is why people i think choose
fitness classes is because they're more likely to stick with
it if they know that their friend's going to be
there and they're gonna be like, oh, why'd you over
sleep today, Matt or Sheila or whoever it is. And
(07:22):
you've got that accountability And if you have that and
you can incorporate that in an at home setup, that's.
Speaker 1 (07:28):
Huge, even at a small level, even with just one
other person. Yeah, but I'm curious too because the app
I'm looking so street parking. I think they have like
a community aspect to it, and so like if say,
for instance, if you've got a buddy who's also doing that,
like you're doing the same workhouse regardless of where you live,
like you could this could be a buddy that lives
in like Australia, like on the other side of the world.
And in a similar way that you found the competitive
(07:49):
element with the garment app to be something that fueled you.
It didn't even you didn't have to go run in
with somebody, right, but just the fact that somebody else
was also a lot of the time. Yeah, but like
the challenge sort of aspect of it where you're just like,
all right, I could just mail it in and maybe
I just want to watch a movie today. But let
me just hadn't gotten a run in today, Let me
go for a run. There's there's that element of it
as well, where someone doesn't necessarily have to be there
(08:11):
in person.
Speaker 2 (08:11):
There's more digital accountability now, which like my runs post
to Strava, people see them, and it's not like I'm
showing off for anybody, but it just I know some
of my friends are going to be like, uh wow,
I haven't seen Joel run in a week and a
half far, And not that I care. It's mostly ninety
five percent of it is from me, but that is
at least one piece of there's an.
Speaker 1 (08:29):
Element of that. There's that competitivelopment. By the way, you
said Strava are you? Are you posting on Strava as well?
Or it goes automatically from the garment. I never actually
go on the app itself, but no. Interesting.
Speaker 2 (08:38):
Yeah, so I don't even I don't should. A lot
of my friends runs but and do that as well. Yeah,
all right, let's mention the beer we're having on this episode, Matt.
This one's called hand Warmers. It's by Carton Brewing. Listener
Michael sent this one our way. This is kind of
a funky one. We'll get our thoughts on this. Vanilla
Chai latte hef advisen Yeah at the end of the episode.
And by the way, if you have a money question,
we'd love to hear from you. You can just record
(08:58):
a voice memo on the app on your phone, email
it over to us at how to moneypod at gmail
dot com and hopefully we can take it on the
next ask HTM episode. Or you can go to how
to money dot com slash ask for kind of specific
directions on how to do that. Matt, let's get you
a question about five twenty nine plans. This list is
thinking about using them in a way that most people don't.
Speaker 3 (09:19):
Hey Manngel, this is Mic from California. Been listening to
the show for a few years now and really appreciate
all the information. My question today is about using five
to nine funds for private elementary school. My wife and
I have two kids, aged four and two, and we
have an account for each of them that we contribute
a small amount to each month. Initially, this was going
to be used for their higher education. However, our four
(09:41):
wheel just started at private elementary school. We read that
you can use five to nine funds to pay for this.
Looking a little bit deeper, we found that the state
of California has a cap of ten thousand dollars per
year per student and a two and a half percent
penalty as well as you are charged your normal income
tax rate at the state level if you use the
(10:01):
funds for private elementary education. My thought is we could
put the money that we're going to pay for the
tuition into the five to nine plan, let the funds
earn a little bit of return, and then pay the
tuition twice a year from the five to night plan. However,
I think any returns from the investments probably would be
(10:23):
eaten up by the penalties and the taxes that the
state charges. Am I missing something here? California does not
offer any income tax breaks for money contributed to these plans.
My wife and I both work and are the higher
end of income earners. Do you have any advice? Thanks?
Speaker 1 (10:41):
Have a good one, all right, Mike. It is true
that you can, in fact use five twenty nine funds
to fund private school these days, private elementary school, which
can be helpful for some folks who are planning ahead.
When did that change, like what four or five years ago?
And specifically though, if you live in a state where
there's a tax benefit, but so here's the TLDR in
(11:02):
a state like California where five twenty nine planes don't
feel much love, it actually makes zero sense, in our
opinion feet to go this route. So you boom, there's
your answer. So you mentioned I was next question, jol
There's a lot. There's a lot more to get to.
You mentioned that I was doing this for for Emily's
grad school. And the reason that it made sense for
us to stick money into a five twenty nine plan,
even if we were pulling it right back out, was
(11:24):
because we have a state tax break here in the
state of Georgia, and so I would stick it in.
I could pull it.
Speaker 2 (11:29):
Right back out and then just save what five something
percent on in state income tax. But my goal wasn't
to grow the money for the future, because this was
money we were using essentially on education immediately.
Speaker 1 (11:42):
It's not that you weren't counting on it to grow.
You I'm getting I'm assuming you put that money in
there and you did not, in fact buy any funds
with that. I'm assuming you're sitting there as cash.
Speaker 2 (11:51):
I mean literally literally put it in one day, pull
it out the next cast. I actually I put a
little bit more in her fun and I kept it
in there just because I'm a nerd, and I can
always transfer it into.
Speaker 1 (11:59):
The kid name.
Speaker 2 (12:00):
So you likely shouldn't be investing those funds because of
a truncated timeline. So Mike's talking about let's say, putting
money in for his four year old needing it in
a couple of years, Well, in that case, you wouldn't
be very wise to invest those funds in hoping that
they grow substantially. You know, one of the main reasons
that five twenty nine funds are cool is because you
(12:21):
can grow a substantial nest egg over roughly one point
five decades, right if you start early. And that's really
thanks to compounding returns. So if you shrink the timeline,
which is what Mike's thinking of doing, you really lose
that ability, largely because the market doesn't have enough time
and because you don't have enough of a risk timeline
to be able to stick money into let's say mostly stocks.
Speaker 1 (12:44):
Yeah, and I would say if his timeline was different.
Let's say that Mike, even if he's thinking about private
high school, because if you send your kids to private
elementary school, I don't know, maybe you've got a gift
a child and you want to make sure they receive
the like top notch krem Dela Cram, highest octane sort
of higher education, right, well, not higher education high school.
And if that's the case, I would say that, well,
(13:06):
that's actually about what ten years off into the future.
And I would say, hey, if that's the case, then
it totally is worth investing that money because you have
you do have a long enough runway even with the
penalties that California assesses, you have long enough for the
investments to grow substantially that it might be worth paying
that penalty. Yeah. But so that being said, though, I
think it's a shame though that California is one of
(13:26):
the few states that does have an income tax, but
that doesn't offer any incentive to save for a child's education.
They're in a five to twenty nine account and yeah,
there's fees to use it for its intended purposes. Feels
like an added insult, and so you're unlikely to out
earn those fees that California assesses, especially since again investing
it's just ill advised how quickly you're looking to turn
(13:47):
around and put those funds to use there by paying
for that private education. So if I were in your position,
I mean I would just pay for their education directly
out of pocket, skipping the five twenty nine account altogether.
But then again, Joel both this isn't something we've talked about.
We tend to air more on the frugal side of things,
and our youngest dudes are currently in state funded pre
(14:07):
K because it's an option and it's free, and so
what I told Kate was that it needs to be
pretty bad for us to not consider going with it.
I don't know, maybe if we felt that our little
dude was like extra, extra gifted or something like that,
I would feel a little bit differently about it. But
it's like this free option. It's almost as I've meant
both of them, they're not. So it's almost as if
(14:27):
there was like some food I was being provided and
it's just like, all right, you've got like this meal.
If it's not infested with maggots, that's meeting that's pretty good.
That like grows on trees, well, that is food. I
guess there is actually food that does that, or you
can pay a ton more and you get to have
like the absolute best that there is to offer. I
don't know certain folks are going to fall on the
(14:48):
side of like, we're gonna go with the really nice
higher ed well and calling high right, because I'm so
used to thinking college. But that's not what we're talking through.
Speaker 2 (14:56):
I mean, like, and that's where you live often depends
on and what your income is and what your priorities are.
It's gonna that's all. Those things are going to determine
whether or not you pay for your kids education, whether
you opt for the free public school or in many
communities there are great charter schools. Your kids go to
a great charter school map My kids go to a
public school. And but yeah, I think you're right, Like,
(15:17):
if if we felt like the standards were subpar, I
would strongly consider get to the point where you make
a different decision, Yeah, prioritizing more of our hard earned
dollars towards our kids' education. But we're fortunate here. Yeah,
And again, everybody makes different it's all. I'm always surprised
in when when the schools are great and people still
decide to fork over big bucks for private education. But
(15:38):
that's a that's a personal household decision, right, Ye, so.
Speaker 1 (15:40):
I'll have to say, Mike, not trying to yuck all
over your earm here. I think if that's a priority
for y'all, man, go for it. Yeah.
Speaker 2 (15:47):
I love it, And I think I want to say
to this too that it doesn't necessarily mean you shouldn't
be utilizing a five point nine plan at all. Right,
if you're crushing your own retirement saving the schools, Mike,
and you've got leftover money to not only pay for
your kid's current education expenses or there're soon to be
education expenses, but you can also save for their future
education needs at the same time, we'd say go for it.
(16:08):
Obviously your kids they're still quite young, and you can
then invest those dollars so they can grow significantly by
the time, Matt, you're kind of saying, what if you
know you want to pay for private high school then,
or pay for their future college. I think then it's
reasonable to use those five twenty nine plans. You and
I need neither of us consider five twenty nine plans
to be a top tier financial priority, but they can
(16:29):
make a lot of sense. Even in the state of California.
If you're knocking everything else out of the park, but
which you just want to make sure that that's what's
happening first totally.
Speaker 1 (16:36):
Which I'm assuming that, Mike, because he said him and
his wife are both higher earners, so I'm based on
what he's saying, I'm assuming that they have accomplished all
those other money gears.
Speaker 2 (16:44):
If y'all crushing four one k's iras, HSA, stuff like that,
then five twenty nine plans I think coming into the picture.
Speaker 1 (16:51):
And not to mention too, just some of those different experiences.
We can focus on the specialized accounts, and you're thinking
about higher education, but don't forget to invest in just
the quality of life experiences and things that you can
spend money on to enrich their lives.
Speaker 2 (17:03):
Now, like me taking my girls to the nation's capital.
I mean, yeah, we're gonna learn a lot overfall break.
Speaker 1 (17:07):
Heck yeah. That being said, on top of that, we're
talking about the five twenty nine accounts and how great
they are. There's a whole lot of flexibility too, because
you can turn your five twenty nine dollars into roth
dollars for your kids. We've talked less about how parents
can use five twenty nine accounts to pay for K
through twelve education expenses, largely because we don't think it
makes sense for most folks. But just the longer your
(17:28):
time horizon, the more you're going to be able to
invest those five twenty nine dollars, which means it's going
to have even more time to grow. And so yes,
finally we do get to get to the higher ed
portion where the dollars are going to be able to compound.
I think most folks should take that approach, and Mike
I said, you definitely should, considering the headwinds that California
is making you face when it comes to how it
is that you're going to be allowed to use these
(17:49):
dollars without fees. Yeah.
Speaker 2 (17:51):
Last thing I wanted to note here too, Matt, is
that people, no matter what say you live in, there
is a five to twenty nine plan for your specific state.
And if you live in a state that has an
income tax benefit, if you put your money in your
state's five twenty nine plan, you're going to want to
go with your state's five to twenty nine plan. But
if you live in a state that doesn't offer any
sort of state specific tax benefit, the world is your
(18:12):
oyster when in terms of five twenty nine plans and
which ones you choose.
Speaker 1 (18:15):
Or at least the United States is your oyster, right, Yeah, yeah,
I think yeah.
Speaker 2 (18:19):
And so there are a bunch of plans out there,
and I would just take into consideration what sort of
investment options are available and how cheap are those investment options.
So California actually has a great one, the ScholarShare five
to twenty nine. When you look at the the fees
for some of our the things that we would invest
in inside of that plan, Matt, they're minimal, They're extremely low,
(18:40):
and so.
Speaker 1 (18:40):
Point zero seven percent is what I was seeing in
some of the different passive options.
Speaker 2 (18:44):
You can feel really confident sticking your money in the
ScholarShare five twenty nine plan. And just a reminder, Matt,
this is something else that people bump up against. Maybe
an advisor or a bank tries to say, oh, it
will help you with this five to twenty nine plan.
But the truth is it's super simple and easy to
do it yourself, and oftentimes you're going to pay an
extra meaningful fee if you take them up on that
(19:04):
offer for help. So DIY five twenty nine plans for
the win here, do it yourself.
Speaker 1 (19:09):
That's right, So Mike, we hope that gets you pointed
in the right direction. Joel, we've got more financial topics
to get to, more investing topics, specifically, like we've got
a listener who's asking about a more specialized strategy or
approach to investing for her retirement. We'll get to that
more right after this. All right, we're back. We've got
(19:34):
more questions to get to. Matt.
Speaker 2 (19:36):
This next question comes from a listener who really wants
to know about buy now Pay Later. There's something kind
of a new wrench thrown into the system.
Speaker 4 (19:43):
Hey, Matt and Joel, this is Orlow calling from old Town, Maine.
I wanted to get your opinions regarding buy Now Pay Later. Recently,
I received an email from Chase Bank informing me that
they will no longer allow Chase credit cards views for
buy now Pay Later trends action starting October tenth, twenty
twenty four. Chase does, however, offer their own BNPL service
(20:06):
called payover Time as an alternative. It offers your interest
on the purchase, but a fixed monthly fee of up
to one point seventy two percent of the eligible purchase amount.
Do you foresee other big banks following a suit in
crowding companies like Klarna and a firm out of the marketplace.
(20:27):
Just out of curiosity, I looked at a couple of
the most popular BNPL websites and they can charge consumers'
interest rates of up to thirty five percent? How will
this impact the many Americans that do utilize these services?
Thank you for taking my question. I'd also like to
thank you both for the years of thought provoking episodes
(20:48):
and guest interviews keeping me well informed with the Healthier Show.
I have gradually shifted from a state of financial anxiety
to one of financial serenity.
Speaker 1 (20:59):
Cheers, Orley, Thank you so much for that question, and
congratulations on the financial progress that you've been able to make.
I would say that moving from he said you moved
from anxiety to serenity, that does not happen overnight. No,
it's it's a big across too. Yeah. At times it
can just seem like a slog, but it's it's also
cool to kind of pause to reflect and see of
(21:20):
all the different progress you've made. Yeah, and also he
mentioned he's from old town, old Town Main Joe, do
you ever look up some of the different places where
our listeners are from. There's sometimes like La or like
New York. I'm like, okay, I know what that looks like.
I've been there, but you hear something new like old Town,
and so I've got to google that and get a
feel for what it's like there. It looks like it's awesome.
I feel like this is another reason maybe Orlo has
(21:42):
found some serenity because it's such a peaceful, quaint town.
It's only an hour fifteen from Acadia National parky as well.
Can't beat that. Sounds like a place I would love
to live in the summer. In the winter, though I
don't know. I might. I'm too wimpy for I think
you can get too cold the harsh winter months. The
cost of living there is better than the Nationale as well,
I believe it. I'm just trying to entice you.
Speaker 2 (22:02):
Okay, well we go on together. I guess we're moving
the families again. But yeah, no, that seriously mad props
to Orlo. You're right, mat it takes time, like it's
it's small steps in the right direction. Then you look
back a year or two later and you're like, wait
a second, Wow, look how different things are that's kind
of how money works. I think most people want the
light switch thing, but as we've said before, it's more
like a dimmer switch when you're making progress. And let's
(22:23):
talk specifically about your question orlow. Chase did announce last
month that they're not going to allow users to pay
their BNPL payments with credit card plastic right, So this
makes complete sense to me, Matt on multiple levels, soally agree.
One is that the buy now, pay later companies are
a form of competition for Chase, right, Klarna and a firm.
(22:45):
Chase is like, well, even if we didn't have our
own buy now pay later, which we do, but even
if we didn't, then we would rather people pay with
the credit card. So maybe we shouldn't make it easy for.
Speaker 1 (22:57):
People to do this.
Speaker 2 (22:59):
But I think the one the thing that we care
about is that it's a terrible idea to pay off
one line of credit with another.
Speaker 1 (23:05):
Right as individuals, there's a whole lot of risk there.
It like it kind of feels like a house of cards.
Speaker 2 (23:09):
So I get why Chase wants to do that, because
they're adding extra risk to their portfolio if they're allowing
people to pay off some nefarious form of debt with
another form of debt, and so other credit card issuers
have already taken this step. It's not just Chase.
Speaker 1 (23:23):
It's smart for Chase's business, and it might help them
prevent some consumers from going overboard. I know that they're
probably not doing this from altruistic motives, but ultimately it's
going to be better for people not being able to
be allowed to do this. But then Orlo asked, all right,
I guess if we think that this is going to
set off a sort of domino effect, I think so Chase.
They are the biggest bank in the country, and what
(23:45):
they do tends to create ripple effects. And even if
some of the other banks weren't even considering it at all,
I could totally see AMEX, I could see Bank of
America falling suit. I think it's especially dangerous too for
folks who also have credit cards, because that's what that's
Another part of buy not pay later that is a
little more nefarious is the fact that it lives outside
of however it is that you think about credit cards.
(24:08):
It doesn't necessarily get included in that whole process, you know,
And so for those who have credit cards. But then
on top of that they're also throwing in the buy now,
pay later. I think that's a recipe for disaster, or
the boxes are laterally ramping up their spending. Do you
know if on something like Monarch money, if you log
in there, can you bring in your buy now, pay
later purchases? Not that I know of, I don't know. Yeah,
(24:29):
I need.
Speaker 2 (24:29):
I would love to look in at that, because that's
the thing with the credit cards, at least, that's kind
of a part of your financial system, and it is
just how we want you to use them. That's the
thing people bring up, Matt. They're like, Okay, you guys
like talk trash about buy now, pay later, But why
are you fans of credit cards?
Speaker 1 (24:44):
And for multiple reasons. One is because it's easier to
monitor your purchases with credit cards. And then another thing
is there are greater protections when you use credit cards
that you don't have those other benefits when you use
buy now, pay later. The key is to use them wisely,
which only fifty perc and of Americans do.
Speaker 2 (25:00):
But that's what we're always preaching over here. We want
people to use credit cards and use them wisely. You
can charge back if you let's say don't get the
product that you ordered or the service that you signed
up for didn't come through.
Speaker 1 (25:13):
Like you have.
Speaker 2 (25:14):
Recourse, you also can earn rewards from credit cards, but
I guess so with by now pay later, the only
reward is that you get more time.
Speaker 1 (25:22):
To pay, you get to consume more stuff. Yep, yeah, yeah,
that's That's sort of another way I was thinking about
it is the fact that it's like credit cards are
an institution, whereas like by not pay later, it feels
like these free radicals that are just floating around that
are causing all sorts of havoc. And the fact too,
with credit cards, you're building up your credit, whereas not
all by not pay laters report to the credit peers.
And then on top of that, let's say, if you
(25:44):
are only exposing yourself to buy not pay later, let's say, okay,
well I'm not in the dangerous category guys, because I
don't have any credit cards. And let's say you're a
younger listener, maybe your gen z like those are seen
as installment loans, and if you're looking to grow your
credit score, you want to have a mix of different
types of credit, and so you want to have those
revolving lines of credit available to you, not just the
(26:04):
different installment loans, which is what by not pay later
gets reported as if they report at all, Yeah, which
is not always the case.
Speaker 2 (26:11):
You're right, there's so many ways that credit card smart
credit card usage can benefit us if we pay attention
and we're smart about it. But there are just no
such benefits really with buy now, pay later. So great
question orlo All right, Matt, let's get to our next question.
This one is about investing. Maybe ramping up the difficulty
level just a notch or two.
Speaker 5 (26:31):
Hey, jol and Matt, this is McKenzie from Massachusetts. I
recently listened to the Paul Merriman episode and then I
picked up his book We're Talking Millions and found his
two Funds for Life strategy very intriguing. So I wanted
to know what you think of it and whether you
follow it. Thanks so much for your insights. Bye.
Speaker 1 (26:52):
All right, mackenzie, thank you for reaching out, and first
of all, for everyone else out there as you're listening.
She is referring back to episode seven thirty four if
you want to go back and listen to that one.
But Paul Merriman, he is an absolute gem. Within the
personal finance community, we massively appreciate his approach, his insight,
and honestly, when it comes down to it, he's for
(27:13):
a very simple investing strategy. Compared to most folks out
there who are saying that they have some sort of
proprietary approach to how does they invest, Paul's is, I
would say, much more in line with how does we
like to approach investing. We're fans of keeping things simple. Yeah,
But that being said, his thesis is that investors can,
at least according to historical returns, get a better return
with a combination of target date funds as well as
(27:36):
small cap value. And that is the uh. That's sort
of where he stands out and where he's kind of
making a name for himself, specifically that small cap allocation.
And he's made a name for himself, Matt. He's been
running the numbers on this and talking about this strategy
for a long long time. Paul is in his eighties,
I believe, and still.
Speaker 2 (27:54):
Still kicking it, still doing it, man, it's still going hard, yeah,
trying to convince people of this reality.
Speaker 1 (27:58):
And he's got a mission. Yeah.
Speaker 2 (28:00):
He's not like don Quixote, right, He's like for real
changing minds, and he's using data to do so, which
I appreciate. And I actually I really love Mackenzie's question too,
because she's kind of holding our feet to the fire
on this when she's saying, so you had Paul on
to talk about this, are you doing what Paul said?
And that's a great question because we have people, by
the way of all sorts of different stripes on the
(28:20):
podcast on Wednesdays on the interview episodes, and typically there's
somebody it's someone who aligns with our values. They're occasionally
not always, though not always. We're not bringing people on
that we like wholeheartedly disagree with, but we don't agree
with everything everybody says on the show when they come on.
Although we think that Paul's advice is worth listening to,
and I have followed suit in my portfolio with Paul's prescription,
(28:45):
I do follow some advice. I've added some small cat
value to my investment mix inside of kind of an
old four one K. I had it at my last job,
so I have some small cat value exposure. I'm not
doing it exactly the way that he outlines, but I
was largely commenced by a side look at history that
this was a reasonable decision to make. Small cat value
returns were like thirteen something percent over time MATT versus
(29:09):
just under ten ten percent returns for the SMP over
the past eighty plus years. That's a pretty large sample size, right,
eighty plus years, and it reveals meaningfully higher returns over
the decade. So a few percentage points it might sound
insignificant or small, but over a bunch of years that
adds up to real money for investors. Am I going
to see better portfolio performance because I've added a roughly
(29:32):
five percent allocation of small cat value? Maybe I haven't yet.
And that's why investing is a long term game too,
because small cat value has been underperforming essentially over the
past decade. And when it's when that changes is anybody's guess.
Some people are even saying, am I not change in
the future? So then or if it changes? Yeah, So
I guess that gives away the fact that.
Speaker 1 (29:53):
I haven't followed Paul Merriman's recommendation, his prescription here, I'll
give my reason for that second. But like if you
are only looking through the lens of like what have
you done for me lately? I think you are going
to be unlikely to want to have any exposure to
small cap value because the last decade, yeah, it's seeing
growth stocks, it' seeing US stocks succeed wildly, So why
(30:13):
shouldn't we continue to put all of our eggs in
that one basket? Why would you even bother with the
merriment approach? Some of you even called the small cap
value strategies dead. But for me, I think the biggest
reason I wasn't completely convinced was the fact that it's
still felt like timing the market, and a large part
of Paul and specifically what he called the tell tale chart,
had to do with the fact that we're due for
(30:35):
small cap value to basically outperform when lately it hasn't been.
And that's the part of it that runs me the
wrong way, because it still kind of feels like timing
the market, even though you are looking at over a
larger period of time, He's still looking at these shorter
periods of time that he expects to see outsized growth.
And so for me, it's like, all right, well, why
not just stick with the S and P five hundred
(30:56):
or just a total stock market fund, because here's the
thing that keeps it more simple, it's just literally a
single fund. So the reason, and here's the other part
of it too, is the reason he calls it the
two fund approach is because he has that automatically rebalancing
target date fund to offset some of the volatility that
you would come to expect with small cap value, and
(31:16):
so over time it automatically readjusts, therefore leading you potentially
to a similar place to where I think as total
stock market fund or an s andp FUF fund or
fund might end up down the road, but who knows. Again,
back to what you were saying, Joel, like, it might
do incredibly well, and we'll all have been wishing that
we would have followed Paul Merriman with every dollar that
(31:36):
we had to invest. It's the thing where past performance
does not guarantee future results.
Speaker 2 (31:40):
But I think if you look into the data, you
will see that Paul is onto something. It's a historical
trend that isn't bound to repeat in the same exact way.
But if small cap value provides higher returns in the
coming years, you'll be glad you had some of that exposure.
But also I don't think necessary for investors, no supertaking.
Speaker 1 (31:59):
It's like what we're talking about here is like the
minutia of like making a good decision. It's insider baseball.
It's like a conversation Kate and I had recently. We're like,
which eggs are better? Is it the organic eggs or
is it the cage free ones? I don't know, and
we kind of were talking about it, and I was like,
you know what, it doesn't It actually doesn't really matter
because the fact that we're buying these eggs a good
for you from a nutritional standpoint, but being we're not
(32:20):
spending that money by going out to eat right, and
so like, either way you come out on the top,
Like either way you are winning. It's just such a
small piece of minor detail that we like to talk about.
If you're really into the stuff. You said baseball, So
it makes me you think I should give a baseball too.
It makes me should you bunt with a runner on
third and try to have them steel home? Make it like, yeah, right?
It depends on who's on third, depends.
Speaker 2 (32:42):
On how fast they are, And I'm not going to
get into those on third, thid, But how fast are
they and who's bunting? And where's the infield position? I mean,
there's so many ways that you could so many factors
that would help you decide whether or not it's a
smart move, and you're gonna come up with a different
outcome every time you ask the question. And I think
that's the reason that Matt, you and I typically suggest
(33:03):
an ultra simplistic total stock market or S and P
five hundred approach. That is a solid winning strategy for
the vast majority of people in the wealth building phase
of their life. And it's so ridiculously simple, and it's
so incredibly low cost, and it doesn't involve any sort
of like getting in there and messing around. So, yeah,
can you complicate things more and potentially see higher returns? Yes,
(33:25):
of course you can't. That's why we have people like
Paul merriman on. That's why we have people like Brian
Ferraldion who talks about investing in single stocks. Those guys
both understand that advanced maneuvers they're not for everyone. Not
everybody wants to pay more attention to their portfolio, wants
to be thinking about it all the time, and so
for a lot of those folks, ultrasimple is still best.
(33:47):
And so I guess I would say don't let perfect
be the enemy of good here, like, don't be too
nearsighted making investing choices based on recent results. And it's
really it's anybody's guest which companies, which sectors, which as
set classes are going to outperform in the coming years
and decades exactly, So whether or not you decide to
pursue Paul Merriman's two Funds for Life strategy, which I
(34:08):
think has a lot of merits. His methodology is sound
and his bent is to help the folks, So I
think his voice is one of those voices that is
worth listening to. It's nice to have that knowledge, especially
just to help you understand if CNBC's on in the
background or whatever. It to help you understand kind of
what's going on with the market. It's going to make
(34:28):
you a smarter investor, even if you choose not to
go down the path of his exact investment approach.
Speaker 1 (34:33):
Totally. Yeah, it's just tough because once you start diving
into the weeds, because then you start asking questions of like, okay,
small cat value versus like you're talking about CNBC and
like what you hear about are the big companies news? Right?
And so like, that's one of the arguments against small
cat value. And I'm not saying that this is the
reason to completely avoid it, but one of the arguments
against it is the fact that companies are only getting
bigger and bigger, and oftentimes these smaller companies that would
(34:55):
normally go public, well they don't go public. They instead
get acquired by these larger companies. And makes me think
of one of our favorite board games, acquired, Like, that's
that's how you play that game, Like literally, it's just
acquiring these smaller corporations and the biggest ones. If you
have ownership in those biggest companies, you end up winning
the game. Hopefully you're the what is it, the primary
stockholder as opposed to second secondary tergiary. And somehow my
(35:18):
wife still continues to dominate us every time we play
that game. I feel like she needs to be the
one that handles. But that's again, if you are into
the details and the minutia of the market and sectors
and industries, then sure, I think that's plenty reason for
you to go in that direction. But either way, you can't.
It's you're not gonna lose, right again, It's like, should
I do this really good thing, or this may be
(35:40):
really really good thing. It's either way. It's like arguing, Joel,
should we go for a hike in order to stay
healthy or should we go for a walk, And it's like, well,
it just depends what one's got more incline and more scenery.
What if you're hiking in San Francisco and then it's
really really steep and the houses are pretty.
Speaker 2 (35:55):
That's oh yeah, just walking around. Yeah, that's true, exactly,
that's good anyway.
Speaker 1 (35:59):
In both cases, you're not spending your money and you're
not completely consuming it and blowing it in the here
and now.
Speaker 2 (36:03):
Yeah, I think the big question is asking the question,
looking into the data and saying is that a path
I want to pursue or not? And as long as
you're investing a decent chunk of your income, you're keeping
the cost low, you're well diversified. That that's the big stuff.
All right, Matt, We've got more to get to, including
we're gonna we're gonna solve a tenant landlord dispute in
just a second.
Speaker 1 (36:23):
We'll get to that right after this.
Speaker 6 (36:33):
Joe, we are back from the break, and enough about investing.
Speaker 1 (36:36):
It is now time for the Facebook question of the week.
This is from an anonymous poster, and we do know
that as a lady, and she says that my tenants
are breaking their lease about six months early because they
purchased a home. They have been great tenants. Our lease
requires thirty days notice and a fee equal to two
months of rent. They asked to discuss this tomorrow. I
know they're going to ask for some portion waved or
(36:58):
a discount of some sort. However, they are moving at
the worst possible time from a market cycle, and the
rental income just barely covers expenses. Any feedback or counterpoints
that they do ask for a discount, I get so
nervous being perceived as the money hungry landlord. But at
the same time, I know the fee is fair and
outlined in our lease and I'm just a girl trying
to provide for my family, which you think, Joel.
Speaker 2 (37:20):
First, I feel the pain. I've had this happen before,
where a tenant breaks the lease early multiple times, and
it throws a wrench in things. You're not expecting it,
and you're right, it can happen at the exact wrong time.
It can be frustrating, and as I get that too,
that desires a landlord not to be seen as this
money grubbing landlord. But as she outlines, like landlords aren't
(37:42):
always rolling in the dough. They're not always like rich
estate owners, right, and they can't always weather the storm
incredibly easily. I think tenants sometimes think that Matt like
landlord's got to cover They're fine, they're probably making money
hand over fist on me. For most mom and pop
small landlords, that's not the case. That's why it's a
good idea to have even more in savings. By the way,
(38:03):
if you're a rental property owner, because you never know
when this kind of stuff can happen, and you might
incur vacancy that you hadn't expected. So I would say
to let your lease be your guide. Right, both of us,
you and I, we've worked with tenants before. We want
to be kind empathetic landlords. But those mutually agreed upon
rules where both of your names are down in ink
(38:24):
at the bottom of the page, those were agreed upon
for a reason. I would let your tenants know that
you're going to try and fill the vacancy as quickly
as possible, but that you can't agree to more generous
financial terms for them until you have a new lease signed.
Speaker 1 (38:37):
Yeah, so I think what you're getting at is that
fee is paid unless that she can find some new tenants.
But the way she is presenting it is that it's
just a straight up feed no matter what, regardless, and
so some of the like and that's where hey, this
is what it states in the lease. It doesn't really
matter whether I get a new tenant in here before
that time is up. But that is also somewhat state dependent,
(38:58):
because some states are going to be more like lord
friendly than others. For instance, in Georgia, you're allowed to
hold the tenant responsible for unpaid rent for the remaining
months of the entire release, but you also have to
search for new tenants and good faith. And if you
were to get a new tenant immediately, which is again
it's probably going to be highly unlikely that that is
the case, well you couldn't even keep those additional two
(39:18):
months of rent, and so so much of it does
kind of come down to where it is that you live.
And there's typically like a landlord tenant handbook that you
can consult, but you need to make sure that you
are familiar with the laws there that govern your local state,
cause just.
Speaker 2 (39:31):
Because it says that in her lease doesn't mean she
can charge it, because exactly the laws of the land
could supersede and say, hey, actually, no, you can't do that.
Even though both of you signed this thing, the law
of the state says you're not allowed to charge that
fee exactly.
Speaker 1 (39:44):
So on one hand, I don't want you to feel
the pressure to like, oh, I got a book it
to try to find someone to let them off the hook.
But at the same time, I don't, like you want
to be respectful of the fact, like you said that
they've been great tenants, and so that would honestly encourage
me as a landlord to try to find someone to
get in there to minimize the down side for sure
for both parties.
Speaker 2 (40:01):
Yeah, yeah, And the goal of most landlords and tenants
is typically to avoid legal recourse, like can we work
out this out, mono a monoly. We don't want this
going to some sort of small claims court. Neither of
you want to end up there, And I'm sure they
know that they're not making life easy on you, and
you might not be able to get the same rent
amount or generate as much interest given kind of what's
(40:21):
going on. In the market right now. I would explain
those realities to them and tell them then that you're
more likely to get a new tenant if you end
up listing the property for less, because Matt in a
lot of parts of the country, rents have actually gone
down in recent months over the past year, but that
they would need to cover the difference if you listed
it for less. It would be better for those tenants
(40:43):
to have to cover two hundred bucks, you know, less
a month for five months. Then essentially they have to
cover three months of full rent payments because you listed
it at the same rent amount and you weren't able
to find a tenant. So I would be honest about
those realities, that communication and doing your best to look
out for them while you're also looking out for your
property and your own interests. I think that's the.
Speaker 1 (41:04):
Wise way to go. I will say too. She mentioned
that it's like the worst possible time to list a property, Like,
I understand that there are more popular times of the
year to rent, but I will say that at least personally,
and maybe this is more anecdotally on Live Behalf, but
like I have listed properties before in what would be
considered like the worst time of year, like in the
middle of the winter, and when that has happened, I've
always found a runner to rent the place. And so
(41:24):
like I guess what I'm pointing out is it always
feels nice to list a place. Is it Memorial Day?
That's just a really like in the spring, it's a
popular time to move. There's tons of folks moving. But
guess what that means. I mean also means that there
are tons of properties available. And yeah, I might have
three days of showings with like ten people every day
back to back, but like half those folks don't show up,
(41:45):
and it's because there are lots of other potential rentals
out there as opposed to in the winter. It's like,
all right, you might only have like two folks show
up to see that place. Yeah, but guess what, it
only takes one of those folks, And they might think
you have ten other folks that are interested in that property,
and maybe you do, who knows, But maybe you're also like, well,
you're the only person that is signed up to check
it out. But that's so beautiful about the open market.
(42:07):
If you reach and agreed upon rents amount and they
check out, then it's their place. I guess I'm just
pushing back slightly on like, I don't want you to
get overly anxious about it not being a great time
of year.
Speaker 2 (42:17):
And the truth is she's protected, right, even if it
is a tough time of year, She's protected in this lease.
But just make sure you also know the laws of
your state so that you can see, well, how covered
am I there as well? But I think you're right, Matt,
don't let that kind of freak you out, because good pictures,
a solid listing go a long way. Even if there
are maybe fewer tenants out there looking, there are fewer
(42:37):
places for those potential tenants to rent, so your place
is going to stand out.
Speaker 1 (42:42):
Yeah, And whether or not, like how much of a
concession I make, I think awesome, might depend too on
how long they've been there in the property. Right So
if this is a tenant that's only been there, let's
say for the three months, and then all of a
sudden they're like, hey, we're out of here, actually I'm
gonna feel a lot differently about them versus some tenants
who I literally have in a property right now that
have been there for over three years. Like we're coming
(43:03):
up on four years and they reached out recently and said, Hey,
we were finally moving for work. But what this means, though,
is that we're having to move in the middle of
the year, in the middle of the lease. And I
didn't say this to them, I don't think, but in
my mind, I'm thinking, you can move whenever you want.
Like you' all have been awesome tenants. I've never had
any issues with you. And it's because of the fact
that they've been there for that long, they've always paid
(43:25):
on time. It makes you much more willing to be
lenient when it comes to certain things like that or
to cut them some slack especially, and to realize and
there's a silver lining too, because of the fact that
they've been such great tenants. This particular couple, I know
I'm under charging it from rent for rents and when
the last time I logged on to the rent oald manager,
it suggested a rent amount that I was like three
(43:45):
three point fifty more than what they're currently paying. And
so silver lining, Hey, maybe you happen to be in
a market where rents are actually not going down, maybe
they're holding steady or even going up, or maybe it's
just been a situation where you could have raised rent
in the past, but you haven't because you've had great tenants.
Speaker 2 (44:01):
Yeah, yes, I guess ultimately protect yourself, but be lean
it where you can, especially if they've been good tenants.
All right, man, let's get back to the beer that
we had on this episode. Listener, Michael sent us a
few beers, which we really appreciate, Thank you, Michael. And
this is I think the most fascinating or unique beer
that he sent. This was called hand Warmers by Carton Brewing.
It was a vanilla chai latte. Hef avisen. That's a
(44:25):
lot of that's a lot of words thrown in there
were your thoughts on this beer.
Speaker 1 (44:27):
I would say it tastes just like a pumpkin spice latte,
except for the fact that it didn't have pumpkins. A
pumpkin list pumpkin spice latte, but it's got all the flavors,
Like I mean, literally, you could read down this can
Cardiman yep, all spice yep, send theimon Absolutely like it's
got all of the flavors that you might expect in
some pumpkin pie, but without the actual pumpkin.
Speaker 2 (44:46):
Now that we're basically closing in on fall time, it's
this feels kind of like a lightfall beer.
Speaker 1 (44:52):
This his fall in a glass on exactly.
Speaker 2 (44:55):
Yeah, and so this is not the kind of beer
I'm typically going to pick up at at the store.
But it tastes exactly like they intended it to taste,
and so lots of spice, super fun. I enjoyed this one,
even though I wouldn't say, like, give me a six
pack of it.
Speaker 1 (45:10):
It's a beer that signifies the changing of the seasons. Joel. Yeah,
We'll think had a little bit of ginger in there
as well. Do you like chilat taste?
Speaker 5 (45:17):
Is that?
Speaker 4 (45:18):
Ever?
Speaker 1 (45:18):
It's not really what I go for typically. I was
into them in college, and specifically I only recently learned
about Is it a dirty chi where like you get
a chilatte and they put a shot of espresso as well.
I don't know how I never heard of that before.
Is it good? Kate got one the other day and
I thought it was pretty taste. Okay, yeah, well that's
totally a tangent. But I'm glad that you and I
got to enjoy this. Thank you Michael for sending this
(45:40):
one away so that Joel and I could share.
Speaker 2 (45:42):
Appreciate you Michael. All right, that's going to do it
for this one, Matt. We'll put links to some of
the resources we mentioned up in the show notes on
our website at how toomoney dot com, and we've got
tons of money saving information for you. Their articles, the
newsletter that comes out every week, and all of our
prior episodes if you want to dig in further. That's
going to do it though for this one. Until next time,
(46:02):
best Friends Out.
Speaker 1 (46:03):
And best Friends Out. Surprisingly heart too, like the hef
advising the weak part of it, Yeah, had some lift
Hosts And Creators
Joel Larsgaard
Matthew Altmix
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