Ask HTM - Underrated Ways to Scrimp and Save, the Best Way to Invest $60k, and Roth Conversion Tax Brackets #892

Let’s dive into the week with some fresh listener questions we have lined up for you! And don't just stand on the sidelines- if you have a question you’d like us to answer, toss your voice memo our way. It only takes about 90 seconds to record and you can find a step by step guide over at HowToMoney.com/ask . Regardless of how random or bizarre you might think it is, we want to hear it!

 

1 - How can I pay less in taxes while making a big Roth IRA conversion?

2 - Should I dollar cost average over 6 to 12 months, or should I simply invest it all at once?

3 - After paying off a ton of student loans, how can I get caught up on my retirement savings?

4 - What are some underrated ways to scrimp and save for a home down payment?

5 - Is there a passive investing bubble and should I hedge my investments?

 

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During this episode we enjoyed a Kanpai Krisp by Brewyard Beer Co – a big thanks to Better Joel, JO, 5am Joel for donating this one to the pod! And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe if you’re not already a regular listener, and give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!

 

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Episode Transcript

Speaker 1 (00:00):
Welcome to Head of Money. I'm Joel and I am Matt.

Speaker 2 (00:03):
Today we're going to answer some of your listener questions.

Speaker 1 (00:25):
Happy Columbus Day, Joel or Indigenous People, depending on which
one you celebrate.

Speaker 2 (00:29):
Ye, I teleb both, Matt.

Speaker 1 (00:31):
Oh do you well? Then why are we releasing an
episode this this morning?

Speaker 2 (00:35):
Because we recorded it not on a holiday?

Speaker 1 (00:37):
That is true? What is the difference? I mean, I
know that we're releasing it on a holiday.

Speaker 3 (00:41):
We are.

Speaker 1 (00:41):
Yeah, let's I'm just not talk about the whole holiday thing.
We are. We are going to get.

Speaker 2 (00:45):
To people get off on this day.

Speaker 1 (00:47):
Yeah, a federal holiday.

Speaker 2 (00:49):
Okay, I'm making are closed. Yeah, I'm gonna make you
come into work.

Speaker 1 (00:52):
I'll see you then, boss.

Speaker 3 (00:54):
Uh.

Speaker 1 (00:55):
But we know we are going to get to listener questions. Uh,
We've got a fun topic. We're going to talk about
some of the underrated ways to scrimp and save. Looking
forward to that's Another listener is asking about some of
the best ways to invest sixty thousand dollars. And I'll
say our answer does not involve beanie babies. And we've
got a roth conversion tax bracket question. Maybe we'll even

(01:15):
get to what we think is in store for future
tax rates. Joel, we might make a little prediction.

Speaker 2 (01:19):
Wait, you don't think we'll see You don't think beanie
baby values are gonna come back come bouncing back with inflation.

Speaker 1 (01:24):
They are worth more than they used to being. How
they kept up with inflation? That's the real question I
want to I think my parents. By the way, the
question does not pertain to beanie babies.

Speaker 2 (01:32):
I think I was gonna I think my parents still
have a giant like plastic bin of beanie babies in
their attic that my little sister accumulated over many many
years back in the day.

Speaker 1 (01:41):
You got to bust that thing out and then burn them. No,
just package it as like a Christmas gift for each
one of like you and your two sisters, as like
a nostalgia blast from the past kind of thing. Wouldn't
that be fun? It goes straight to Goodwill. If they
did that whatever, your kids would love it.

Speaker 2 (01:55):
Yeah, they probably would play with it, but I don't
want them. Real quick to mention a listener email that
came our way. This was from a listener Ryan, And
every once in a while, you and I is it Ryan?

Speaker 1 (02:08):
Kay? Yeah?

Speaker 4 (02:09):
Ryan?

Speaker 1 (02:09):
Okay?

Speaker 2 (02:09):
And he has written in before about donating plasma, and
I have occasionally talked smack about donating plasma. I used
to do it back in college, and so I guess, really,
so much of whether or not it's worth your time
is in the eye the beholder. At this point, my
life is like too busy, and I'm just not interested
in going to do that in order to make extra income.

(02:30):
But then I read listener Ryan Segel justifying I'm just
too busy. So Ryan, if only you're a little bit busier,
it had more. Okay, there are things I would rather do.

Speaker 1 (02:38):
Yeah, I hate the You just don't want to do
that anymore. I don't want to do it. There are
other things that you are most willing to do in
order to save a buck. That's right. Some of those
we'll get to later on perhaps.

Speaker 2 (02:48):
Yeah. Well, okay, So I was impressed reading he kind
of documented some of the numbers because we recently brought
it up on an episode and he was like, all right,
let me give you the update. He has donated plasma
more than thirteen hundred times in his life at this point.

Speaker 1 (03:02):
Which is amazing, Like the fact that the human body
is able to do that's a lot of blood or
a lot of plasma. Well you get your blood back, right,
so you've been up the plasma. They take that part out.

Speaker 2 (03:10):
Yeah, but it replenishes, right, that's why you're able to
do it like on repeat.

Speaker 1 (03:13):
Well, same thing with blood, even if you are donating blood.
But still it's got to have some sort of impact, hopefully,
Ryan's it's got like a good nutrition program going, Well,
that's the thing you do. You have to so you
don't get dizzy and make sure you're eating enough steak, Brian,
is that what's necessary to make sure you're not iron efficient?
I don't know, or maybe is that again blood donation?
I don't know. Yeah, well, okay, very Halloween themed sort
of a little listener email here, that's right.

Speaker 2 (03:36):
Well, so he documented how much money he's making. He
made five hundred and eighty five bucks in September alone.
And again what Ryan has said is money that he
makes from donating plasma goes straight into a travel fund.
And so he's tossing money into an account hoping to
take his family to Japan at some point. And granted
that's going to be.

Speaker 1 (03:53):
Not just oping. I think it's going to happen. Yeah,
because before he said that it's how they funded their
trips to Disney World, but they're visiting the one in Japan,
which is evidently like the best Disney World in the
entire world is the one in Japan. And I'll be honest,
I be after having gone was it two years ago?
I occasionally get fed Disney stuff, and I have seen

(04:14):
some of the special effects. Specifically, I saw the special
effects with the Frozen like the what's her name Elsa
and you know, yeah Elsa nots it's been a minute
since uh, but the Frozen ride evidently is unreal just
how realistic, like she's frozen but then comes spoiler alert,
melts and all that, and like some of the comments

(04:35):
are like, yeah, here in the in the States, we
have like projection faces oh yeah, which I think are
still kind of pretty stink and cool. But the evidently
the animatronics and how they do stuff over there is
just like completely next level. I'll send you a link
so you can see how incredible this this ride is.
So I understand Ryan wanting to get his family over
there there, plus just.

Speaker 2 (04:54):
Want to check it out country to visit in general.
But yeah, so just this is one of those ways
there's always there always wa to make money. Matt on
the side side hustles, and this one might be at
least if you're thinking about donating plasma or driving for Uber,
I think donating plasma on an hour for pay and
how much you have to work basis, this is going
to be a better way to go for a lot

(05:14):
of people. You might not be able to do it
as often. But the other thing too is I think
Ryan mentioned is that he can read books or watch
TV while he's doing it also, so you can kind
of multitask when you're donating plasma's.

Speaker 1 (05:25):
That's when you watches The Last Man on Earth I
think was his favorite favorite TV show. And so what
I love about this though, is the fact that this
is sustainable for him. This is something like sometimes you
want to go total bonkers, you're gonna go hard for
three months and you're gonna make a ton, or you're
looking to really cut back. But the fact that he's
been able to do this for so long tells me
that he has just incorporated this into like the regular

(05:47):
rhythms of his life, and it's like in his mind
he sees that that's his entertainment time. That's when he
was able to pull out his phone watch the show,
and I love that. I really like the idea of
crafting and creating a life that is something that is
repeatable as a is something that you'll completely burn out on.
There's something that's just really appealing. I love the idea too.

Speaker 2 (06:04):
It's way it feels way more acceptable to make that
your entertainment time and says I'm not gonna watch TV
to night, I'm just gonna watch my favorite show on
my phone while I'm doing any plasma.

Speaker 1 (06:12):
I love it.

Speaker 2 (06:13):
You're doing two things at the same time, and then
you move on with your day and you get to
go on trips you otherwise wouldn't be able to afford.

Speaker 1 (06:19):
So yeah, okay, So another quick small aside, and he
acknowledged the fact that their travel budget. We're talking about
lifestyle creep, and he was saying, hey, you know, we
have seen our travel increase, but I have kept other
areas of spending in my life in check. So, for instance,
I haven't purchased this corvette. And we actually exchange a
few emails, and I figured this was worth mentioning because
a friend of mine recently purchased a C four corvette.

(06:43):
So that's like the generation of Corvette. This is a
one from like the early nineties. And the reason I
mentioned this is because he thinks that this corvette is
actually going to go up in value. It's not old
enough to be a classic yet, right, so the prices
aren't aren't like sky high, but it's also not precipice. Yeah,
but it's not so that people are paying top dollar
for it either. It's kind of like in this no

(07:03):
man's land in between. And he believes this because he
literally did this recently with an Toyota FJ from the seventies.
He bought it for like twenty something thousand and a
few years later sold it for thirty something thousand dollars. Literally,
the profit that he made from selling his FJ is
what he used to purchase this Corvette, which is his
new daily driver. And so the way we talk about

(07:24):
transportation here on the show, I think sometimes we can
be a bit extreme because we're like, oh, bik or
walk everywhere. Guys, Joel's got his rucksack on, you know,
trying to get some exercise and I'm zooming around on
my bike. But there are other ways of doing it
while being smart with your money. So not necessarily a
path that we've diggnim but hey, that's out there. Yeah, No,
I love that. I think that is.

Speaker 2 (07:44):
It might not fit for everyone, especially if you're not
good repairing cars. But if you get something that's close
to being vintage, yeah, and then it becomes vintage while
you own it, yeah, you might actually see your car
value go up instead of go down, which is the
norm for most.

Speaker 1 (07:57):
I think that's what Ryan was looking at. He was
even looking at even older He's like, I was looking
at like C three corvettes, which are I think those
are the ones from the eighties. Yeah, that look like
they're from the eighties a little more too. Yeah.

Speaker 2 (08:07):
Well, all right, Matt, let's mention the beer we're having
on this episode. This one's called Conpi Crisp. It's a
rice lagger from Brewyard, a beer company. We will give
our thoughts on this one at the end of the episode.

Speaker 1 (08:17):
We will.

Speaker 2 (08:17):
And by the way, if you have a question for us,
we'd love to hear it in.

Speaker 4 (08:21):
Matt.

Speaker 2 (08:21):
Everyone who sends us a question and we feature it
on the podcast, we'll send them a pair of socks
the boo Yeah, highly coveted how to money socks that
are incredibly comfortable, incredibly beautiful. You can have a pair
for free if you send us a question. Just go
to hodamoney dot com, slash ask, or record a question
on the voicemament app of your phone and send it
our way. How to moneypod at gmail dot com. Matt,

(08:42):
let's get to a somewhat nerdy question about retirement accounts
and trying to avoid taxes.

Speaker 4 (08:47):
Essentially, Hi, Matt, Joel the scott and Missoula, Montana. And
my question is in regard to taxes on roth ira conversions.
So I contributed to a traditional four oh one k
for several decades before rolling that money into an IRA
a few years ago, and like many people, I'm now
interested in converting the traditional ira to a roth ira.

(09:10):
But I'd like to do so in one fell swoop.
So for round numbers, let's say the IRA is worth
an even one million dollars and leaving state income tax
aside and only focusing on federal tax this would require
up to three hundred and seventy thousand dollars in taxes
federal taxes to do the conversion. And the problem I

(09:32):
have with this is that while contributing to the traditional
four to one k, over the decades, my pre tax
contribution savings was around twenty to twenty two percent. In
my opinion, this is the tax rate I should pay
Uncle Sam if I were to convert the full amount
and not up to thirty seven percent. Anyway, I'm just

(09:53):
wondering what your guys' take on this was, or if
you've heard of others bring that up. Thanks guys, I
appreciate your pos and keep up the good work.

Speaker 1 (10:02):
All right, Scott. Great to hear from you, and I
will say I totally get your desire to want to
make this conversion just in a single year, the ability
to avoid the headache and the hassle. I get it.
It's probably going to be annoying for you to have
to spread it out. And the reason for this is
the our tax system. It's pretty complicated, and I think
that's one of the biggest pain points for the average American,

(10:24):
ourselves included. And by the way, if you haven't listened Scott,
speaking of Scott's we last Wednesday we talked with Scott
Hodge about how complicated are the US tax system is
and specifically how there can be these unintended consequences of
different drastic changes and how they tend to favor different
industries because of different incentives that are dangled. There's always

(10:47):
sort of a downstream effect, and so I don't know.
On one hand, I sympathize with you completely, But after
reading Scott's book and talking with him, I think we're
able to realize that. I guess there just isn't a
simple solution like we wish there was. Does that make sense?
I don't know.

Speaker 2 (11:01):
A man Estonia sounds like they're simplifying things, and I
appreciated that example, this Scot Cave.

Speaker 1 (11:06):
I also think we have a much more complicated economy
that yeah, that's true.

Speaker 2 (11:12):
Yeah, that's what you're right, because I think about people
will laud Finland's education system and we should be more
like Finland. It's like Finland has four million people and
it's less of a melting about the United States.

Speaker 1 (11:23):
It's we've got to all look the same as what
you're saying.

Speaker 2 (11:25):
We have a lot more complexity to solve here in
this country. So you can't just like slap Finland system
on top of the United States and it's not going
to work the same.

Speaker 1 (11:32):
Agree.

Speaker 2 (11:33):
I think the other point of frustration math that a
lot of people feel is like, it feels like I
have to hire an expert to help me make the
right tax move. And then if you don't have somebody
on your side who costs hundreds and hundreds of dollars,
if not more, to basically points you in the right
direction when it comes to win and how you make
certain moves, you could end up overpaying in taxes by

(11:54):
thousands and thousands of dollars. That's pretty frustrating too, to
feel like you have to hire a pro to make
sure you don't step in it. I totally agree, yeah,
and I think Scott, you might not need the help
of a pro, but still I think even in this
case you might want to poney up for it because
this takes her so high.

Speaker 1 (12:09):
Exactly even early on in the show, Jow, that's something
that we have always been an advocate for where we're saying, hey,
this is an area because of the fact that we're
talking about a larger amounts of money where it does
make sense to go with a professional. But especially the
further along your financial journey that you get, I think
it makes a bit more sense. The goal, of course,
is taking your traditional dollars, turning them into roth dollars.
And to minimize the overall tax burden while also maximizing

(12:32):
the flexibility of those funds. By the way, we don't
want you to trigger an insane tax bill for yourself.
And so I think the ideal strategy is to actually
do this over time via a Wroth conversion ladder, and
to not do this in a single year. And the
reason for that is because every single dollar that you
convert it is going to count as earned income. And

(12:53):
so what that means is if you're converting a massive
pile of money like you have there, Scott, you know,
if you're talking about a million bucks just to make
things nice and tidy and neat and even we could
be talking about a substantially higher tax bill that is
easily avoidable, all in the sake of maybe having fewer headaches.
But man, if it was up to me, like that
is a headache I am willing to endure if it

(13:16):
means I don't have to fork over like hundreds of
thousands of dollars.

Speaker 2 (13:18):
Right, you know, it gives me more of a headache
paying more money than I need to yes to the government.

Speaker 4 (13:23):
Right.

Speaker 2 (13:23):
So, I've never known a single person Matt in my
whole all these forty years of life, who sends extra
money to the government out of the goodness of their heart.
And so we might have different beliefs about what the
tax structure should look like and what's the most optimized
way to go, and who should be taxed more or less,
But nobody still, even with those beliefs, tends to pay

(13:44):
more than they need to. And I think it's important
to mention that the ideal time to convert from traditional
to ROTH is in years where the market is either
down or your income is down or both. But here's
the other side of that coin. You can't control the market,
So you can't say I'm gonna wait till tony twenty five.
Pretty sure the market's going to be down. You don't
know that.

Speaker 1 (14:03):
We don't have perfect Maybe yeah, and maybe.

Speaker 2 (14:05):
Get lucky in your conversions and you convert extra in
a down year. But most of the time, the only
thing you control can control is how much and how
often you make those conversions. And so Scott, in your
scenario of having a million dollars that you'd like to convert,
how much you ought to do in a given year
is largely going to depend on your income. So let's
say you make, for example, eighty five thousand dollars a year, Right,

(14:26):
and you're married filing jointly, Well, you can convert almost
three hundred thousand dollars a year of traditional assets, turn
them into roth assets, and you can still not pay
tax on any income above the twenty four percent threshold
because of the way the tax brackets work. The next
bracket after the twenty four percent tax bracket, matt Is,
it jumps to thirty two percent.

Speaker 1 (14:45):
It's a pretty big jump. That's a big jump. I don't
like it.

Speaker 2 (14:47):
That's that's what we would want to avoid, I think,
is paying tax in the neighborhood of anywhere that starts with.

Speaker 1 (14:51):
The three Sure. Yeah, So in this example, basically every
additional one hundred thousand dollars that you convert Scott is
roughly going to cost you an additional eight thousand dollars
in tax. That could have just been money that you
could have kept in your pocket had you opted to
take the more patient, long suffering route. And you can
avoid that ad a tax just by spreading those conversions out.
So that being said, though, in this example, you can

(15:14):
still convert all your dollars over, but it would just
maybe take a little bit longer, but you could do
that in just something like four years or so. Again,
this is this is all hypothetical. If you, let's say
you make twice that much, you're going to be able
to convert less each year, the process is going to
take longer. This might be a good point too, to
kind of point out the difference between your marginal tax
rate and your effective tax rate, because in something else

(15:36):
that Scott mentioned, he's because he's talking about a million
dollar nest egg essentially, and if he's talking, he's thinking
through thirty seven percent, which is why he said three
hundred and seventy thousand dollars. But that's the marginal tax rate,
Like that is the upper end of the taxes of
the rate that he's going to be paying. But his
effective tax rate is going to be much lower than that.
So it's the dollars above seven hundred and thirty thousand dollars,

(15:57):
that is, if he's married filing jointly, that's going to
be tax at that higher amount. Every dollar below that
seven point thirty is going to be it's going to
be taxed at a lesser and lesser amount. So when
you hear that, it kind of sounds like robbery, right,
Like you hear, oh my gosh, three hundred and seventy
thousand dollars that this guy is going to owe, Like
no wonder, people like they just thliw their hands up
in the air and just kind of give up, almost

(16:19):
taking the libertarian view towards taxes. It is theft, after all,
the government taking your taxes from you. I'm just pointing
this out to highlight the fact that it's not quite
as bad as Scott laid it out initially.

Speaker 2 (16:31):
Yeah, And the other thing that it's really important for
Scott to consider is having the money on hand to
pay those taxes, right, So, do you have enough cash
set aside in the bank account to pay the bigger
tax bill once you've made that conversion. That's that's something
else you're going to want to make sure of, Scott,
so that you're not caught flat footed. And that's another
case I think against converting more than you need to
so that you're not necessarily coming out of pocket an

(16:54):
insane amount for this massive tax bill. In one fell swoop,
you want to minimize taxes, you also want to make
sure you consist and we have enough money to pay
the tax in the given year that you are making
those conversions. But I think ultimately at the end of
the day, especially given the potential sunset of the tax
cuts and Job Act it probably and potential higher tax
rates in the future, I think it does make sense to,

(17:15):
within reason, move this money from being traditional money to
roth money because it could have positive tax benefits, and
it could add that flexibility met that roth accounts are
so good at that you mentioned at the.

Speaker 1 (17:25):
Beginning of this question too.

Speaker 2 (17:26):
And the other thing Scott again, it's probably we hate
the idea that people have to pay money for tax help,
but in this case the stakes really are high. You
probably want to talk to a tax professional noodle this
out with someone who has experienced doing conversions, because paying
five hundred or one thousand bucks now could save you
thousands down the line. I mean, it's be frugal here,
not you maybe even hundreds of thousands of dollars potentially. Yeah,

(17:49):
we talked about in that one example, you pay an
additional eight thousand dollars in tax for every one hundred
thousand dollars you convert. That's the kind of stakes we're
talking about. So paying a little bit of money for
advice whether you whether it's on a site like Hello Nectarine,
and you set up an hourly a couple hours talking
with a financial advisor who's done many of these roth conversions.
Before whatever route you take, I think you're gonna want

(18:11):
to probably get some expert help and not just completely
go it alone.

Speaker 1 (18:14):
Yeah, and I alluded to this earlier too, But when
it comes to choosing whether or not you're going to
go with a roth ira or a traditional ira, we
think it makes sense to go ahead and bite the
bullet now, to go ahead, rip the band aid off
as you're making the money, go ahead and paying the
taxes on the front end. Because of the fact that
tax rates only seem to be going up in the future.
We are at historic lows when it comes to the

(18:35):
different tax rates, and it feels good to get that
tax break now, but I think future you will appreciate
it even more.

Speaker 2 (18:42):
Right, we don't have a crystal ball, we don't know
for sure, but if you're kind of taking bets, my
bets would be along those same lines of Matt totally
all right. We got more questions to get to, including
one about whether there's a bubble or not. In the
passive investing space, which is typically what you and I suggest.
Should people be worried about that? We'll get to that
and more right after this.

Speaker 1 (19:10):
All right, Jill, we are back from the break taking
listener questions. Let's now hear from a listener who has
a chunk of money to invest, but he's asking how
he should go about investing those dollars.

Speaker 3 (19:21):
Hi, Matt, and Joel, this is Nicholas from Richfield, Ohio.
I had a question about an investment option for sixty
thousand dollars that I currently have sitting in my Vanguard
Federal money market account. A little background and my wife
and I. I am thirty eight years old in a
school teacher. My wife is thirty three years old and
a nurse. We are in money year seven. We fully

(19:41):
fun We have a fully funded six month high yel
savings account for our emergencies. We fully fund both of
our roth I arrays. We put about seven thousand dollars
a year and a five twenty nine plan for my daughter.

Speaker 1 (19:53):
She's two.

Speaker 3 (19:54):
We max out my wife's four oh one K each year.
I put about seven points five thousand dollars in my
four h three B account.

Speaker 1 (20:02):
I also contribute about.

Speaker 3 (20:04):
Nine thousand, five hundred dollars into my state teacher retirement
for my pension. We have a taxable brokerage account with
about twenty four thousand dollars in it. Our house and
our cars are all paid off. My question to you
is should I dollar cost average all of this sixty
thousand dollars into VU And then if I should, what

(20:25):
kind of time frame should I be looking at to
do this. I was thinking maybe over the course of
a year. Should I look to spread this out longer?
Should I look into short term CDs to put some
of it in there? Or are there other options I
haven't considered. Thank you for your time.

Speaker 2 (20:40):
Wow, Matt Nicholas just absolutely crushing it, totally crushing it. Yeah,
I'm incredibly impressed, Nicholas, which you two are have been
able to accomplish so far in your careers and your
saving and wealth building journey is just top notch. I mean,
it really is super impressive, unparallel. Not many if you
know at your age, are doing what you guys have
been able to do. And it's not like I think

(21:01):
this is really important highlight Matt. It's not like they've
got super fancy jobs. He's not like yes, working on
Wall Street or and.

Speaker 1 (21:07):
She's he's not a software engineer, right, And she's not
a rocket scientist, right.

Speaker 2 (21:11):
She's not like a hand surgeon or something like that.
Like these are these are a teacher and a nurse
or assault of the earth professions?

Speaker 1 (21:16):
Yeah, and like fantastic careers, but like median earning careers right, well, gosh, teachers,
I would say, even on the lower end, Yeah, I
mean yeah, you might be right. Yeah.

Speaker 2 (21:26):
And then on top of that, Nicholas and his wife
they've amassed an additional sixty thousand dollars that they want
to be smart with. So it's like, hey, we paint
up all our dad, Hey, we're maxing everything out. We're
basically crushing every element of our savings and investing lives.
But we've got even more we want and are able
to do. And obviously this is this is not not
every hat a money listener is doing this or can
do this. But my guess is that this question alone

(21:48):
is probably going to inspire a lot of people out
there who are listing Matt. So I hope, so I
think it should, like you should, let's all take a
queue from this couple, realizing that hey, maybe we all
can do a little more than we previously.

Speaker 1 (21:59):
Thought was possible. Yeah, but what is it that he
should do with that extra sixty thousand dollars when he
has already accomplished so much? Like I mean, it was
just so great hearing him talk through all the different
accounts and how his dollars are being funneled off into
these long term investing buckets essentially. But I guess on
that no, he mentioned some savings and investing goals, and
so which route I think he chooses to go is

(22:20):
going to depend on his specific goals that him and
his wife share. And so if you're looking into goals
and so like more on the savings side of things,
I would go with a CD or a high yield
savings account if this is money that you'd intend to
use in the next two or three years, Let's say,
if you're you know, maybe you're planning on renovating or

(22:41):
upgrading your home, which is likely well within reach since
you don't have any mortgage. I don't know if folks
caught that part the mortgage no car pay or car payments.
The car payments is what I heard the first time,
and when I listened to it, the second time is
when I realized that he said that he does not
even have a mortgage, which is mind blowing. But if
that's the case, and if he's got some of these
more short to medium term goals, different things that he

(23:02):
wants to do with that money, I would certainly want
to keep it liquid for that purpose.

Speaker 2 (23:07):
And this is definitely money gear seven right that they're in, Yeah,
which means that the world is their oyster and they
have a lot of options open to them. And if
they want to accelerate their ability to reach financial independence
or something like that, that would mean, yeah, invest this
money and you're going to get there even more quickly.
Or if one of you wants to, let's say, quit
your job, start your own business. I think what you're saying,

(23:27):
mat is is maybe it's a renovation. Maybe it's another
goal of yours that's going to involve a cash infusion.
I think cash is a potential really helpful buffer totally
if you're going to begin a new endeavor like that
could be costly or could at least reduce income totally.

Speaker 1 (23:41):
But then again, given the fact that he said that
this is money that is in his Vanguard account, like
in the fact that he's already crushing it with everything
he's in money year seven. He knows what's going on.
I don't think he would have stuck money into his
Vanguard account if he didn't know that this was money
that he was planning to not touch for a while,
which is why I think he's kind of thinking down
the path of like, Okay, this is more for long
term investing.

Speaker 2 (24:01):
Now, I think you're probably right. So if that's the case,
and this is long term money, this is like five
plus year money, probably more ten plus year money. I
of course like the idea of putting that money to
work for you in the stock market.

Speaker 1 (24:14):
I'm sure you agree that I do.

Speaker 2 (24:16):
And part of that is because CD rates are falling,
you know, rates on saving these accounts are falling as well.
As long as you have that solid e fund, and
I would say this too, you actually might need a
smaller emergency fund than you think, giving how frugally you live,
given the fact that you have no debts. Emergency funds
are often met to pay for some of those obligations
to pile up if something were to happen, like a

(24:37):
job loss, and given kind of Nicholas's overall financial situation,
he might not need as much stored away because of
how good they've been with money and how few bills
that they actually have. But I think I would investor
rather than save. And the question comes down to should
you do it all at once or should you do
it over time? And I think if you look at
the data, it's always going to point to a lump

(24:58):
some investment being a better to right potential. Human emotions
might suggest that dollar cost averaging is a better way
to go, But if you just strictly look at the numbers,
the stock market goes up about seventy five percent of
the time, at least on an annual basis.

Speaker 1 (25:15):
Most of the.

Speaker 2 (25:15):
Time you're gonna come out ahead from a compounding perspective
by tossing that money in all in one fell swoop exactly.
It's the same as like, oh, should I dollar cost
average into a roth ira or should I put in
seven thousand dollars January first? Well, for most people the
answer is dollar cost average because they don't have seven
thousand dollars to stick in on January first.

Speaker 1 (25:33):
But that's not the situation Nickas finds himself in. If
you've got the money, he's got the money. The answer
is probably sticking in on January first. Yeah, three out
of four years, the stock market goes up, and so
I would not want to dollar cost average into a
market that is only typically historically speaking, going to increase
in price. But Joel, you mentioned the human emotional side
of things. That is a real factor though as well,

(25:53):
because if you feel like you couldn't stomach a meaningful
drop in the market soon after putting that money in,
it's totally okay to do it, let's say, over a
six month or over a twelve month timeline, even if
it's not historically speaking the most optimized thing in the world,
because the risks of going that route is that you're
just going to settle those gains, but you also might
fail to invest at all, were you to essentially keep

(26:16):
punting down the road right as you're like, oh, you
wait a month or two, and you see the market
goes up a little bit, So maybe you wait a
little bit and then all of a sudden it looks
like you're trying to time the market and waiting on
a pullback. That's the risk that you run. Yeah, So
I guess if you were going to take more of
a dollar cost average approach. I would want to make
sure to automate some of those contributions or those purchases

(26:37):
on a recurring two week or on a recurring like
first of the month schedule, so that you don't forget
or that you're to avoid the temptation of let's just
wait a little little bit, let me just see what happens,
because again, historically speaking, the market is only going to
go up.

Speaker 2 (26:53):
Basically, what you're saying is if you're trying to if
dollar cost averaging allows you to avoid the emotional gut
punch that would be immediate drop, then go for it.
But as you've got to make sure you automate it
so that your emotions don't take over because it's so
easy to let that happen. I mean, you and I
were humans too, so we're susceptible to letting our emotions
take control. That's what we want you to avoid, because

(27:14):
that could just mean that sixty thousand dollars that you've
got waiting to invest, then maybe you don't get it
in like you thought you were going to, ur that
you plan to, and you miss out on potential gains
in the coming years just because fear or greed took over.

Speaker 1 (27:28):
Yeah, and then you wait a whole year, and then
maybe there is a correction and you are able to
basically go back in time to maybe right now, maybe maybe,
But then the whole time you've also expended a whole
lot of stress and energy thinking about it, as opposed
to being able just to pull the trigger now and
not look back.

Speaker 2 (27:42):
Yeah, it takes a brain space, and there is something
really valuable about doing the thing, being done with it,
because you know that if we're making data driven decisions,
that it's the right move to make.

Speaker 1 (27:54):
Yeah, the numbers are on your side, right, So I
would do that.

Speaker 2 (27:57):
That's why I would lean towards I think. The other
thing that's worth mentioning here to Matt is that this
couple's doing so much for their far off future. They've
eliminated basically all of their debts. They're socking away a
big chunk of every paycheck towards retirement goals.

Speaker 1 (28:09):
And you and I are not.

Speaker 2 (28:11):
The kind of dudes to disincentivize investing, to tell people, ah, investing,
don't do that, But we would suggest spending some time
pondering your medium term hopes and dreams, thinking about your
other goals aside from just having this massive nest egg
when you're sixty eight or something like that. Sometimes I
think Matt, we as humans, we might over invest, not

(28:33):
just because it's wise, but because we haven't taken enough
stock of what we want our lives to look like now.
We haven't necessarily brainstormed the simple ways in which we
can make those things happen, maybe in the near term
future instead of in some sort of utopian retirement future
that we're hoping to achieve. The truth is, you guys
might retire with with far more money than you need
given your lifestyle and your habits. I'm almost sure that

(28:55):
you will based on everything that you've described, and most
money shows don't push people to invest less truly, like
most financial advisors you would talk to would just tell
you the next smart thing to do with your money
if you're talking about maximizing your turns. But that's something
we would at least consider, because life isn't all about
maximizing returns with as much with as many dollars as
you can get into those accounts. Sometimes it's about maximizing

(29:17):
your joy and ability to be present and maybe ability
to dial back on work or take fridays off and
enjoy a hobby, whatever it is in the here and now,
So at least take that into consideration.

Speaker 1 (29:27):
I completely agree, not just about maximizing returns, but maximizing
your life satisfaction. Nicholas, and I think given you mentioned
too that you've got a two year old, and man,
you are just getting out of the weeds of having
a baby right like you've been focused on getting enough sleep.
You probably don't even remember the past two years if
your two year old is anything like any of my kids,
where like it's just a blur and no, there's chunks

(29:49):
of time I don't even remember. And so the ability to.

Speaker 2 (29:51):
To here that dude, memento.

Speaker 1 (29:52):
Yeah, the ability to, like you said, you'll pause and
think through to make sure that your spending is aligning
with your values. I think could be time well spent
for y'all. But Nicholas, we hope I get you pointed
in the right direction. Joel, let's hear from a couple
who is looking to supercharge their investing after knocking out
some serious student loans.

Speaker 5 (30:11):
Hi, Matt and Joel, this is Amy calling from Grand Rapids,
Michigan with a question about retirement accounts for those of
us who are self employed. My husband and I are
on money Gear seven and we feel pretty good about
our finances overall, but we feel a little bit behind
in saving for retirement. When we got married seven years ago,

(30:34):
we had one hundred and twenty five thousand dollars of
student loans and we hate being in debt, and so
we just did everything we could to pay that off
as quickly as possible and ended up paying it off
in less than three years, which we're really proud of.
But that choice stopped us from really aggressively saving for

(30:58):
retirement during those year years, so we're playing catch up now.
Both of us are self employed. My husband does not
have any employees in his business, which is separate from mine.
By the way, I have several full time employees in
my business, and we're wondering, in addition to our ROTH

(31:18):
I raise and our HSA, which we max out every
year we max out our roths, we also max out
our HSA in addition to those accounts, what retirement accounts
should we look into opening to continue saving more for retirement.
Thanks in advance for your.

Speaker 2 (31:39):
Help, Matt, are all kind of money listeners in Money
Year seven? Or is it just these days they are, Yes,
so also impressive. They've all been listening to the show
for a few years. Agon I guess so well. I
get its seriously and how how good does it feel
to not have student loan debt in your life anymore?
That is, that's something you should be proud of to.

Speaker 1 (31:59):
Not have yours jerked around by the latest headlines as
to whether or not student loan forgiveness is actually going
to go through, whether or not it's been paused.

Speaker 2 (32:06):
We had a recent Friday flight where we mentioned, oh,
there was a court ruling, and then I think the
next day or later that day, another ruler came out
and batted it back out again. So it is this,
It is this football in the univer what's not happened? Yeah,
so pinning your hopes of that probably not a great idea.
But on top of that, Matt Amy kind of made
it sound like they weren't doing enough for retirement, but
they're maxing out their roth IRA's and their HSA HSA. Yeah,

(32:26):
it's like that's good. Yeah, don't don't beat yourself up
and assume that you have to be doing a ton
more than that. I wouldn't necessarily call this playing catch up,
even though Amy's calling it that. Of course, there's more
you can do, and as a.

Speaker 1 (32:37):
Small business owner, let's talk about that.

Speaker 2 (32:40):
I mean, it's it's easy. He's actually easier to invest
bigger chunks as someone who runs their own business, as
someone who works for the man, you can you can
make up for that lost time pretty easily. Thanks and
this largely thanks to you more generous contribution limits on
small business specific accounts. Matt, I remember when we first
started working for ourselves. I was kind of bummed to

(33:03):
miss out on an employer.

Speaker 1 (33:04):
Match, and I was like, having worked for the man
and having received a match, see, I never experienced I've
never never had a four one K match in my
entire life, so for me, it's always felt overrated.

Speaker 2 (33:14):
I was like, oh, this is one of those things
I'm giving up in addition to like subsidized health care
for my employer, right, that's also a big chunk of change.
This is one of those things I'm giving up to
go start my own business and hopefully my income is
able to increase enough to kind of overcome some of
those perks I'm missing out on. That was something I
had to get accustomed to, but I didn't realize. I
guess that I was actually overvaluing that perk. Maybe I

(33:36):
gave it too much credence. And I think a three
to six percent match is nice if you're able to
get it from your employer. But small business owners also
have serious perks, especially if you're inclined to invest a
lot in tax advantage ways.

Speaker 1 (33:49):
And besides, like we're focusing on the money side of things,
but aside from all that, there's just like the lifestyle.
Oh yeah, and just the autonomy and calling your own shots.

Speaker 2 (33:56):
So even if you have a great boss, it doesn't
like there's something nice about being your own.

Speaker 1 (34:00):
Boss and incredible about being your own boss. But so
question for you, given what you have experienced, what you know. Now,
let's assume, because you're saying that, like, okay, hopefully my
income would go up to be able to make up
for the fact that healthcare is more expensive, to make
up for the fact that I no longer have a match.
Let's say you were making the exact same dollar amount
that you were making while working for the man as

(34:21):
you are now working for yourself. Would you have made
the trade off? For sure? Yeah, for sure, because of
like we said, the autonomy of flexibility. It's hard to
go back to imagining being an employee for somebody else
when you've worked for yourself. I know, we call her.

Speaker 2 (34:34):
We refer to ourselves now as unemployeed on employees.

Speaker 1 (34:37):
Yeah.

Speaker 2 (34:37):
Like when I talked to Emily, She's like, what would
be after the podcasting someday? And I'm like, I don't know,
but it wouldn't be working for I don't think company.

Speaker 1 (34:45):
You have to be something that I was like crazy
passionate about where I felt like, because you're kind of
like signing over man, we're going to get a whole
lot of pushback for folks who have like a traditional
debut two.

Speaker 2 (34:56):
John, I loved my traditional job for so many.

Speaker 1 (34:58):
Great they're great, and I think the vast Jordan.

Speaker 2 (35:00):
Let's be honest too, The average self employed individual works
more because it's their own business, and sometimes they find
themselves working sixty seventy hours and you care about it
forty or forty five because of that deeper level of attachment.

Speaker 1 (35:12):
So I get that too. Yeah, Okay, let's not keep
going down the path of how great entrepreneurship. This is
why I was throwing in a m way that it's
not actually, I appreciate that. Amy. Based on the way
your separate businesses are structured, you're gonna want to take
two different paths here when it comes to being able
to invest more for your retirement. And as a self
employed fella with no employees, your husband is the perfect
candidate for a solo four one K also known as

(35:34):
an S four one K self employed four one K.
This account comes with two contribution limits. So first, you've
got the typical four one K contribution limit that all
employees are kept at, which is twenty three thousand dollars
for this year. But then in addition to that, he
can contribute to his solo as the employer. Right, so
he's switching hats. He just took off his employee hat.

(35:54):
Now he's putting on the boss employ your hat. And
that is limited to twenty five percent of his gross
wages or his W two income. But together, what that
means is that it's possible for him to hurl sixty
nine thousand dollars into that account if he decides to
max out both. They're not all that hard to set up.
And you know, when you're talking about wanting to make

(36:16):
up for lost ground, you're talking about wanting to catch
up quickly. I see this as the easy slam dunk
way for y'all to get a whole lot more money
into retirement if you've got the ability to pull this
off well.

Speaker 2 (36:27):
The SO four one kmap that is the account that
you and I that we have used because we're the
only full time employees have had of money, and if
we were to hire one person as an employee, though,
we would no longer have this account at our disposal.
We opened ours up with Fidelity, But Fidelity, Vanguard, and
twub have pretty great low cost solo for one K accounts,
so I would look into those for your husband and
amy for you, since you do have employees, you're a

(36:49):
baller hiring other people on a full time basis, you
have to decide whether or not, essentially you want to
offer them a retirement account or not as well. Is
this something you want to establish just for yourself or
is this something that you want to make available to others.
It could be something that used to retain talent, So
I want you to think about that as a small
business owner. If you want to keep these people around

(37:09):
and you can afford to do it, this is a
perk that might help keep people your employees loyal to
the job that they've got, And so if that's the case,
the set IRA could be a great vehicle for that.
But read the fine print on the set IRA, because
you have to contribute the same percentage for each employee.
That could get expensive really quickly, kind of depending on
how you set that up. So you can't do the

(37:30):
solo four one K because you have full time employees.
The set IRA is at least something one of the
vehicles worth considering. It's it's pretty much the one that
people who do hire others often tend to gravitate towards.

Speaker 1 (37:42):
Yeah, and the set by the way, stands for Simplified
employee pension. But if you're looking down that path, you
could also just offer a traditional four one K plan
if you wanted to. Which so the thing is, those
used to be really hard to set up, which is
why I think over the past several decades the set
got to be a lot more popular. But now it's
relatively easy. Things to newer companies out there, like Guideline
Betterment as well as Human Interest, and you might be

(38:05):
able to set the plan up for your company there
in the like two thousand dollars a year neighborhood, which
isn't actually all that awful depending on Again, it kind
of depends on the scale and the size of your business.

Speaker 2 (38:16):
This is one of those things where like fintech companies
came to the rescue in it was really hard to
work with some of the bigger players, and they said, listen,
we're gonna use some of these cheap, low cost funds
with companies like Vanguarden Finelity, but we're going to reduce
the price per person that it costs to run these plans.
So small businesses are now more competitive in the marketplace
when it comes to finding great employees because they can

(38:38):
offer these perks they used to be just prohibitively expensive
to offer.

Speaker 1 (38:42):
Yeah, it only used to be larger companies, like just
typical corporate giant like Microsoft, so that we're offering for
one k's but it's like, oh no, you can actually
offer that now if we wanted to hire people, Matt like,
this is totally there, how we would do it exactly,
And then you can offer a match if you want to.
You can allow each individual employee to decide what it
is that they would like to contribute, but based on
the way you're asking your question, it sounds like this

(39:04):
is more of a personal question, not a business question,
and it's something that you and your husband are trying
to find ways to salk more away for your retirement.
And if that's the case, I would say focus on
your husband's self employed or solo for one K first,
in large part because of the fact that there are
no additional expenses associated with that where you're extending benefits
to other employees. They're at the company in your case.

(39:26):
And one other thing I would mention too is don't
forget about brokerage accounts because as a small business owner,
a lot of times your revenue or your personal income
might it's highly variable oftentimes, and so you might there
might be years where you're not able to maybe put
much away towards retirement at all. But then there might
be a couple of years where at the end of
the year you're looking at one hundred thousand dollars and
you're thinking, what in the world am I supposed to

(39:49):
do with?

Speaker 4 (39:49):
Is?

Speaker 1 (39:49):
Yeah, And in that case, like the answer is a
brokerage account. And a lot of people we know who
own small businesses, whether it's because they sold a company
or because they had a few great years that is
what they're without money. It's a lot of it is
in a brokerage account, and granted you don't have the
tax benefit there, but the positive side of the equation
is you don't have to wait until full retirement age

(40:10):
to be able to access those funds as well. So
I think even though they're not called qute unquote retirement accounts,
there's a lot of quote unquote retirement money that are
in brokerage accounts. Yes, that we're invested by small business owners. Yeah, Matt.

Speaker 2 (40:21):
Every small business owner knows that it's your income can
be it's less linear and up into the right slowly
but surely, like that's often what it looks like in
the traditional employment world, but for small business owners it
might be two great years and then one semi rough
year and then or five bad years. Right, Yeah, so
you can be all over the place. You might have

(40:42):
to take a little more of a Joseph in the
Book of Genesis sort of route, like stocking up for
the fami in the years and investing more in the
years that are awesome, and then investing little to nothing
potentially even in some of the years that aren't as good.
But Amy, we hope that that helps and that maybe
even you're able to make your business more competitive with
the retirement account you choose. Now, we've got more questions

(41:02):
we've got to take, including one about underrated ways to
save Fellow how to money listeners, of course, had some
really good thoughts on that one. We'll get to that
question and more right after this.

Speaker 1 (41:19):
Go back from the break, and of course it's time
now for our Facebook question of the week, which is
from Christian and he writes, Hey, guys, what has been
some of your favorite quote unquote underrated ways to save money?
My wife and I have a fairly dialed in budget,
but are looking for some unique ways that we might
not have considered to save some extra money as we
prepare to save for a home. Oh that's exciting. Save

(41:42):
enough for that down payment.

Speaker 2 (41:43):
Yeah, I want to hear from you first.

Speaker 4 (41:44):
Dude.

Speaker 2 (41:44):
Oh, you've talked a lot about cutting your own hair.
That's gotta be one of them.

Speaker 1 (41:47):
That's a classic. Yeah, it's a classic mat way of saving. Well,
we've recently talked about this, but I would say one
of the most effective ways on an ongoing basis that
we've been able to save money. Is the fact that
we still only have one car. I think about just
all the things, Like I guess when I read this question,
I think through, what are how are people going to
judge you because you're trying to save money? Like what

(42:07):
are the things that you do that are kind of
weird where you're able to save a buck you don't
really care what other people are thinking. Like when we
moved up here into the burbs, like we could have
moved like out to the real suburbs, but that also
would have meant that we would have been living a
more isolated existence, car centric lifestyle, which exactly would have
meant that we would need to have gotten that second vehicle.

(42:28):
And the fact is we chose a house that's smaller,
that's not nearly as fancy, in order to be closer
to like a city center, like a city square, because
I knew that that meant that I was still going
to be able to maintain the similar lifestyle, or at
least the lifestyle that I was looking for, which meant
me sweating and right pedaling around on my stupid little bike.
But I love it. The ability to stay active. You're

(42:48):
moving around like fresh air, sunlight.

Speaker 2 (42:50):
I thought your your suggestion was going to be don't
go to the doctor.

Speaker 1 (42:55):
Seems this is a two birds of one stone sort
of deal. I don't to go to the doctor because
more eventually that I'm biking around. That's true, So I
think mine is a Lots of times when people talk
about buying a used car to save money, they're often saying.

Speaker 2 (43:08):
Buy a three or four year old used car. It'll
be depreciated and you'll you know, you're gonna you're gonna
save a lot of money, versus buying new. My my
thing is, and I know a lot of people disagree
with me because they'll be like, no, but it needs
to be reliable, is to buy a really, really old car,
because if you buy something that's mostly fully depreciated out
I'm talking about a four to six thousand dollars car,

(43:30):
which are harder to come by decent ones these days.
I'm not not gonna lie, but I think that I
have found that to be a sweet spot for me.
And you know, we have two cars, not one these days,
but having one that's like super duper old and the
other one's like pretty like I'm not gonna lose much
money and appreciation on those rides. They're also cheaper to ensure.
So I like having older cars. I like knowing that

(43:51):
my car budget is like minimal, incredibly small. Feel like
it just gives me a lot of wiggle room to
spend more on things that matter more to me. In
cars just don't fit that bill, should we.

Speaker 1 (44:01):
One of us said something else that they're both kind
of car centric. Yeah, something, that's why I refer to
your hair. You cut your own hair, right, Okay. A
smaller one that I thought of here is the fact
that so this is not a way to save money.
But Kate and I took Heavy to the Atlanta Symphony Orchestra,
which is like a fancy outing, and so you snuck in, Yeah,
we went in.

Speaker 2 (44:18):
Through the exit in the fire door.

Speaker 1 (44:20):
Now you get dressed up for an occasion like that,
and we took a few pictures because it was kind
of like a special date. And I realized that the
clothes I was wearing, like the shirt I was putting
on is at least ten years old. It's a dress
shirt that I used to wear, so like fancy dinners
or weddings back in the day. And what I realized
is that I don't care. And it made me think
through how much money I have not spent on clothing.

(44:41):
And I think for a lot of people it's hard
to wrap their minds around that because it's just a
regular part of their budget where they're just kind of
constantly getting new threads. And I've got like a handful
of long sleeve shirts, a handful of short sleeve shirts,
and they're just on rotation, and once they get holes
in them, I'll replace them. But typically I replaced them
with like the exact same shirt because I just I
have a certain kind of shirt that I like.

Speaker 2 (45:00):
That's funny, we're too similar because I was wearing I
wore the other day the shirt that I wore, and
my daughter noticed this in Emily and I's engagement pictures. Yes,
it's like one of those pearl snapshirts I was talking about.
She was like, wait a second, is this the shirt
you're wearing in those pictures of mommy from fifteen years ago.
I was like, yeah, I still wear it. I still

(45:20):
love that shirt.

Speaker 1 (45:21):
And the thing is, Kate, I think she feels the
same way too, because the vast majority of her clothes,
of clothes that she gets for the kids, even shoes.
She gets them all at goodwill, and that's one of
the benefits of living in such a wealthy country is
that folks are cycling through their clothing and their desire
for I don't know, something new or the latest and
greatest man. That means that's we're financially winning because of

(45:42):
this exactly no shame at all and going to a
threst store.

Speaker 2 (45:47):
Living that hand me down life. Let's quickly get to
a couple of other great answers and suggestions that people
in the how to Money Facebook group gave. Angie mentioned
window shopping, which I thought was brilliant, like, if you
like shopping but you don't want to spend any money,
leave your wallet at home, just go browsing and said,
but actually leave your wallet so that you don't get smart,
you're not attempted to spend. Carrie mentioned that that she

(46:07):
cancels subscriptions as soon as she gets them, which is
also incredibly intelligent. Right, so you get the service, you
sign up, but you don't have to fret about forgetting
to cancel down the line. You can always sign up again.
So if you start on let's say November first, cancel
it on November first, you still have it through the
rest of the month and you don't have to worry
about the auto renew.

Speaker 1 (46:24):
You got to make sure that they say you will
still be able to enjoy the services. Otherwise you're like,
then you really shut yourself in the foot. I saw
that tongue says to shot for car insurance every time
your policy is up for renewal, which takes some dedication.
I feel like we're more like, hey, check your car
insurance every two to three years type of folks. But honestly,

(46:45):
especially in today's like insurance and environment, this is a
really smart move. And what I really like about this
as well is the fact that this is like a
bigger line item because one of the downsides of save
four figures, yes, yeah, one of the downsides of finding
some of these unique sort of fun ways to save though,
is that oftentimes you're trading your time for the ability
to save in the here now a little bit. So

(47:06):
that's just I don't know, it's a slippery slope when
it comes to finding ways to save a few bucks
in the here now, But how much time are you
giving up for that? Another one here from Tory and
this is the show that the getting coffee out problem
that it's not just this personal finance myth. But she
said that she started to make coffee at home. She's
saving forty dollars a week. It's a lot. Well, it's

(47:26):
not just because of the coffee. It's because she often
ends up getting a pastry with her coffee, which, hey,
I can relate. Like our local coffee shop. We live
a luxurious life show. There's actually two coffee shops that
we like to alternate between. One of them has amazing
coffee and the pastries are fine. The other one has
fine coffee, but the pastries are completely off the chain,

(47:47):
like literally some of the best I've had in my
entire life. And it is hard for me to not
want to walk in there occasionally and get myself an
almond bear claw because they're so good. They're so good.

Speaker 2 (47:55):
But I think that's true. And I you and I
both kind of hate how the coffee has bet or
the avocado toast thing became such a stupid meme.

Speaker 1 (48:03):
But it's it's also true. There's some truth to it
that you could.

Speaker 2 (48:06):
Spend too much money at the coffee shop and that
that money does add up. Richard said, a clothes drying
rack is saving him from running his dryer and he's
energy constantly. I think that's wise. It's also better for
if you want to make your clothes lost long.

Speaker 1 (48:18):
Yeah, and especially in the winter too, when the air
is dry. It's a nice way of introducing moisture into
the air, which is easier on your sinuses. There you go,
it's a little health money crossover. The Matt's spinoff Hack
podcast is going to be so good. And then Amy
mentioned keeping non perishable snacks on hand in the car
to avoid getting fast food in a pinch, which I
love because Matt, isn't that like a thing Your kids

(48:39):
are hungry or you're hungry and you're out there on
the road literally did it last weekend due, Yeah, and
having those snacks in the car can save you from
forking over forty fifty bucks that you weren't expecting. Me.
We should do that and not just like I think
a lot of tons folks will hear non perishable snacks
and they think like certain bars or whatever, but like
I'm thinking of like almonds, just something that is healthy,
not processed, that's going to give you an bang for

(49:00):
your buck to get you to that next meal. Perhaps
all right, we got signed for another quick question here
from Dan. He writes, if there's a bubble in passive investing,
in that bubble pops, how does a wise investor hedge jil,
have you given much thought to the passive investing landscape
that they find ourselves?

Speaker 2 (49:16):
There's been more written about it in recent years, and
it is something that passive index fund investors have expressed
a little more concern about. And so I think Dan's
question is worth talking about. But you know, he basically says, Okay,
how does somebody hedge? And I think the first question
is is therey bubble and passive investing?

Speaker 4 (49:33):
Right?

Speaker 2 (49:35):
That's the real question, right. Index funds rise in popularity
is money is flowing in every two weeks with every
paycheck for so many people, like tens of millions of
Americans around the country, into the total stock market index
fund into target date funds. Some people are concerned that
this rise in popularity that basically too many people are
buying the overall market with each paycheck and it's leading
to a less dynamic stock market. And one of the

(49:57):
most you know, prominent folks who's taking this that index
funds are in a bubble is Michael Burry Matt. He
was the movie The Big Short, like he was profiled
in there about five years ago. And part of why
he's famous is because he correctly predicted what was going
to happen in the housing market recession up to the
Great Recession. Yes, and yet index funds don't seem to

(50:18):
have upended the stock market in any visible way since
his prediction five years ago. I do think, yeah, as
we're seeing more content being written about this potential phenomenon,
it seems like there's more bark than bite.

Speaker 1 (50:30):
I guess yeah. So to explain it, the argument is
often that there won't be enough active traders who are
pretty sensitive left to restore efficiency within the markets. But
that being said, active trading is still the vast majority
in index fund's own roughly like roughly twenty percent of
the market, like some say as low as fifteen percent,
but others say as much as thirty five percent. But

(50:51):
that's of the overall global share amounts, and that doesn't
sound absurd to me. And the truth is, if index
fund popularity rises so much that it does actually lead
to market inefficiencies, well human nature is going to take over.
This is where like like greed is good, Gordon Gecko. Right.
This is where this comes into play because individual.

Speaker 2 (51:09):
People will say, oh, too much money flowing into passive
index funds looks like there's opportunity elsewhere.

Speaker 1 (51:14):
For yes, individuals and institutional investors, they're going to write
that wrong by spotting them investing accordingly and then seeking
to reap those outsized gains. Right.

Speaker 2 (51:22):
I think there are examples of this too, Matt. Like
makes me think about Kathy Wood's ARC fund. I mean,
she was became incredibly famous because of her post COVID
run up. How well that fund performed. That's literally one
example of thousands of these sorts of funds that are
in existence where they say, hey, we're we actually have
a stance on what we think is going to happen

(51:42):
in certain sectors of the market. We are picking stocks accordingly,
and we're offering this fund to outside investors because we
think other people are going to agree and benefit monetarily
from our strategy. But there are also, you know, millions
of normal folks, Matt, just beyond these institutional investors and
these bigger firms that are making these plays, tons of
people on the sidelines in their home, you know, in

(52:04):
their Lazy Boy or whatever with the robin Hood app
on their phone, or the in One app or something
like that. They're investing via these apps on their phones,
and they're influencing the markets too, granted with fewer dollars,
but still their combined influence makes a difference. It makes
you think of Wall Street bets.

Speaker 4 (52:19):
Right.

Speaker 2 (52:20):
A small group of people on Reddit can have massive
impacts of a bunch of indo individual investors. Their choices
impact the market too, So, you know, I guess to
the heart of Dan's question, should you avoid index funds
because there's a potential index bubble? I don't think so,
because I don't think an index fund bubble exists. I
guess if you wanted hedging advice, we would say paying

(52:43):
off debt. You know, that's maybe instead of investing more,
you use some of those investing dollars to pay off debt.
That's a guaranteed return on your money. You could also
consider investing in real estate. That's another way to invest
money without having as much risk of you know, stock
market exposure, where I guess index funds could potentially reap
some negative side effects of index fund concentration, but I

(53:06):
think ultimately Matt, Like, our opinion hasn't changed on this,
and nothing that's been written about this has made me
think that index funds aren't still low cost index funds
with some of our favorite low cost brokerage firms aren't
still the best way to invest in the stock market.

Speaker 1 (53:20):
Yeah, and we kind of switched from saying passive investing
in the question to indexed investing, which is like, oftentimes
that's what folks mean when they say passive investing, they're
talking about index investing, And what is index investing? It's
just a it's investing in a predetermined kind of way.
And it's hard to imagine a world where they're where
we see index funds decrease without the overall market going down,
because index funds are the market, especially if you're looking

(53:42):
at something like a total stock market index fund or
even like the S ANDP index fund. Right, Like you
have that tank because of quote unquote a passive investing bubble,
but like that's the five hundred biggest companies in the
overall market. And so what you're essentially asking, the way
I'm reading this is that, hey, I am expecting the
overall stock market to be in a bubble and maybe
that's the case, maybe we will see a correction, But

(54:04):
if you can accurately predict when that's gonna happen and
by how much, well, I've got a whole lot of
money that I'm willing to invest with you. In fact,
is nobody is able to do that? And so that's
I guess all that to say, we're not worried about
there being a passive or an index fund investing bubble,
so something to chew on. That's how we see it,
at least, Joel. Let's quickly get back to the beer

(54:25):
that you and I enjoyed during this episode. How'd you
say it? Can pie can pie can pie with it
spelled with a K K A n p A I
can pie crisp, which is a mochi mokey Rice Lagger?

Speaker 2 (54:42):
I just said Rice Lagger. I didn't want to miss
with that one.

Speaker 4 (54:45):
Joe.

Speaker 1 (54:46):
I know you're thinking that I should probably know how
to pronounce all this if anybody, if either one of
us does, how was it gonna go there? But what
did you think about this beer?

Speaker 2 (54:54):
It made me think, why don't we drink more?

Speaker 1 (54:56):
Rice Laggers? I don't know. I kind of enjoyed it.
I really liked it.

Speaker 2 (55:00):
So clean, so light, so refreshing. It just feels so
pure compared to most of the loggers we drink, and I.

Speaker 1 (55:09):
Like it tastes triple distilled or something like that. It's just, yeah,
super clear.

Speaker 2 (55:12):
There's a big contrast between other laggers and this and
a rice lagger, And especially when you're talking about like
the spectrum of beers, this feels like it's on an
extreme far end of the beer spectrum. It's like the
opposite direction of a barrel aged out. And I'm kind
of ye, it's kind of fun to try something that's
on the complete opposite spectrum of what I typically gravitate
towards variety.

Speaker 1 (55:31):
Man, I like it, Yeah, I'm all for it as well. Yeah.
The reason it's called a rice lagger is like the
so the sugars from brewing with rice get fermented, and
so that allows for some of that really clean Honestly,
I perceive as rice like flavors, which you shouldn't be
surprised to hear that I love.

Speaker 2 (55:47):
Like.

Speaker 1 (55:47):
I love that. I love rice. If you didn't know
Matt's half Korean, it's like literally a part of my heritage. Man,
I truly love rice, like the good rice, not like
you know, cheap rice that you might buy at al
d like we get the high quality bag at Costco,
which I think you'all have been getting that lately too,
because K.

Speaker 2 (56:03):
Factor our price preserving it's a it's a very small
increase in cost and.

Speaker 1 (56:06):
The quality is so much better, so much better. Yeah,
glad you'll come over to the dark side when it
comes to the fancy race. But oh, thanks to our
buddy Joel for donating this one to the to the show.
This is another beer by Brewyard Beer Company. Glad you
and I got to share it. Buddy.

Speaker 2 (56:20):
Well, Steph, all right, that's going to be it for
this one. We'll put links to some of the things
we mentioned up in the show notes on our website
at how to money dot com. And if you have
a listener question, we'd love to hear from you again.
We're giving you free socks if you submit one, send
us one via email and we take it on an
upcoming episode. We hope to hear from you soon.

Speaker 1 (56:38):
Matt.

Speaker 2 (56:38):
That's going to do it for this will know until
next time. Best Friends Out, Best Friends Out.