Q&A: Should You Buy a House Now or Invest Your Down Payment Instead?

Summary

Afford Anything Podcast – Episode Summary

Podcast: Afford Anything
Host: Paula Pant (with co-host Joe Saul-Sehy)
Episode: Q&A: Should You Buy a House Now or Invest Your Down Payment Instead?
Date: October 7, 2025

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Episode Overview

This episode explores the dilemma many face in today’s challenging housing market: Should you buy a house now, despite soaring prices and high interest rates, or invest your down payment and wait? Paula and Joe field listener questions about this conundrum, dive into the math and psychology of major financial decisions, break down how to calculate investment returns, demystify umbrella insurance, and discuss what’s most important to teach students about personal finance.

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Key Discussion Points & Insights

1. Should You Buy a House Now or Invest the Down Payment? (00:00–26:37)

• Caller (“Lydia”), 27, from Australia: Saved a six-figure house deposit but is daunted by current housing prices and the long commute required for affordable options. She asks: Should she buy now, wait, invest her deposit, or keep grinding to save more?
  • Financial Frustration & FOMO: Lydia describes making sacrifices for 8 years, experiencing FOMO since “house prices in Australia never seem to hit a ceiling.” (06:01–06:20)
  • Potential Options: Buy an affordable house with a punishing commute, invest the deposit for the future, or continue saving (plus a tongue-in-cheek suggestion to "marry someone with a high-paying job").

Paula and Joe’s Insights:

• On Timing the Market:

  • Paula: “You don’t know what the future holds… Imagine how drastically your life can change in 4,000 days.” (08:10–08:40)
  • Joe: “Just because it’s not true today does not mean that it won’t be… It might not be true in the future.” (10:11–11:08)

• On Dual-Purpose Purchases (Personal Home + Rental):

  • Paula: “If something tries to be both, it often ends up doing neither well.” (12:28)
  • Joe: Notes exceptions: sometimes a great rental can become a personal home later, but the numbers have to check out as a rental first. (13:43–14:20)
  • “Don’t buy a house you want to move into later that doesn’t make sense on paper.”

• Decision-Making Framework:

  • Joe: "What do you want more? Owning a house now, even if it delays financial independence, or freedom and flexibility later? If you can't have both, which wins in a cage match?" (16:07–17:33)
  • Paula: “Don’t fomo because things may change, but… don’t start with ‘what’s the great financial decision?’ Start with ‘more life.’” (15:10)

• Down Payment and Mortgage Options:

  • Paula to broader audience: “In the U.S., you don’t need 20% down… You can buy with as little as 3.5%.” (17:33)
  • Encourages Lydia and listeners to research Australian options.

• Investing Instead of Buying:

  • Paula: “If you're not attached to the goal and the timescale is flexible, then you can expose your assets to a greater degree of risk.” (19:05–20:44)
  • Joe: Encourages considering a “middle ground”: maybe buy a strong rental property now, live in it later.

• On the Cost of Commute:

  • Paula: “Two hours each way… a nine-to-five turns into a seven-to-seven.” (22:13–22:54)

• On Roommates:

  • Paula: “Roommates… are the number one way to reduce those costs… you get to reduce costs and also deepen relationships at the same time.” (23:42)

• On Partnerships:

  • Paula: “Don’t marry someone with a high-paying job. Marry someone with an amazing work ethic.” (24:27)

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2. Calculating Your Investment Return (29:11–37:02)

• Caller (“Aristotle”): Wants to know if his ETF return (10% increase + 3% dividend) means a 13% return.

Key Points:

• Simple Addition Caveat:

  • Joe: “10% plus 3%, but… it depends on when you receive those and handles contributions.” (31:09)
  • Advises checking your actual return on your statement.

• Foundational Concept – Total Return:

  • Paula: “Any asset makes money in two ways: appreciation on the asset, and the dividend or income stream. The total return is appreciation plus the dividend.” (33:19)

• Stock and Real Estate Analogy:

  • Joe: “If you find a stock with both high dividend and high growth, ask yourself what you’re missing.” (36:18)
  • Paula: Describes cash-flow vs. appreciation plays in real estate, using friend’s investments in Toledo (cash flow) and Dallas (appreciation). (37:02)

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3. Understanding Umbrella Insurance (38:25–51:16)

• Caller (Joel): Asks how to protect his assets after hearing about a co-worker being sued for damages above insurance coverage.

Key Points:

• Why Umbrella Insurance Is Unique:

  • Joe: “Umbrella is the outlier…even though we know it probably won’t happen to you, the magnitude is so high. The risk-reward is great.” (39:28–40:30)
  • “Most people default to $1 million. But often, lawsuits go higher; consider $2, $3 million.” (41:15)

• How to Buy/Coverage Considerations:

  • Bundling: Most insurers want both your home and auto policies to write umbrella coverage. (43:00)
  • Maximize Value: Higher coverage limits are often much cheaper per added million.
  • Raising Deductibles: Increase homeowner/auto deductibles to offset the cost of umbrella coverage.

• From a Real Estate Investor’s POV:

  • Paula: “If you are a rental property investor, there’s no reason not to have umbrella liability insurance.” (46:44)
  • Warns against defaulting to getting an LLC just because, without understanding why.

• Practical Challenges:

  • Paula: Shares difficulty getting umbrella coverage in NYC as a renter without a car. (49:53–50:18)

Memorable Quote:

• Joe: “Low probability, high magnitude, easy to add to your portfolio of insurances. And I would do it in a heartbeat. And it sounds like Paula would too.” (49:28)

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4. Teaching Personal Finance in High School (55:36–71:42)

• Caller (Julia): High school math teacher crafting her first personal finance course. Asks: Should she teach insurance or credit/loans if she must choose? What topics are most important?

Paula and Joe’s Advice:

• Practical Curriculum Suggestions:

  • Paula: “Anything related to car ownership… as a high schooler, your first major expenditure.” (57:22)
  • “Walk students through sample budgets for life at college, in a dorm, at home, trade school…” (58:05)

• Foundational “How to Think” Skills:

  • Joe: “My top choice would be teaching decision making—goal setting, opportunity cost, the importance of thinking beyond today, and compound interest.” (58:48–60:34)
  • Recommends teaching probability, the rule of 72, and the enormous impact of saving early.

• Media Literacy:

  • Paula: “How to suss out good advice from bad… deconstruct TikTok or Instagram finance videos.” (61:29)
  • Joe: Offers to share a “TikTok minute” compilation of bad finance advice.

• Insurance vs. Credit:

  • Joe: “Credit, you might figure out. But insurance—not understanding it can be devastating and you may never learn it anywhere else.” (63:49–64:14)
  • Paula: Suggests at least providing a glossary for credit/insurance terms; demystify the jargon. (67:49–68:21)

• Deeper Insights on Insurance:

  • Paula: “Insurance is the one thing you buy that you hope to never use.” (65:15)
  • Joe: Pet insurance and dental/vision often work differently because people want to use them; relate actuarial math to real life. (65:48–67:27)

• Teaching Students How to Think Critically:

  • Joe: Shares advice: “If an advisor leads with product, run; if they lead with process, consider listening further.” (69:13)
  • Paula: "The real goal of financial education is: how to ask better questions and think critically about the answers." (71:12)

Memorable Moments:

• Paula: “The carrot is sometimes more appealing than the stick.” (61:16)
• Joe: “To summarize: just teach everything!” (71:42)

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Notable Quotes & Timestamps

• “The disconnect between incomes and home prices… can be incredibly difficult.” – Paula Pant (07:37)
• “If something tries to be both [personal home and rental], it often ends up doing neither well.” – Paula Pant (12:28)
• “Don’t start with more money, start with more life.” – Joe Saul-Sehy (15:10)
• “Any asset makes money in two ways: appreciation… and the dividend or income stream.” – Paula Pant (33:19)
• “If you find a stock that is both high dividend and has high growth potential… you’re probably missing something.” – Joe Saul-Sehy (36:18)
• "Low probability, high magnitude, easy to add to your…insurances. I would do it in a heartbeat." – Joe Saul-Sehy (49:28)
• "Insurance is the one thing you buy that you hope to never have to use." – Paula Pant (65:15)
• “The real goal of financial education is: how to ask better questions and think critically about the answers.” – Paula Pant (71:12)
• “Just teach everything.” – Joe Saul-Sehy (71:42)

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Timestamps for Major Segments

• Main Housebuying Q&A (Australian caller): 03:31–26:37
• Investment Returns (ETF, dividends): 29:11–37:02
• Umbrella Insurance: 38:25–51:16
• Teaching High School Personal Finance: 55:36–71:42

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Conclusion

Paula and Joe expertly walk listeners through the tough choices facing today’s would-be homeowners and investors, emphasizing thoughtful decision-making, clear logic, the importance of protecting assets, and the value of teaching both “how to think” and essential basics. Their approach blends solid financial principles with empathy and wit, making financial literacy accessible and relatable.

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For more, subscribe to the Afford Anything newsletter at affordanything.com/newsletter and join the community discussion at affordanything.com/community.

Transcript

[A]

Joe, you know, it's a tough world out there for anyone who is not yet a homeowner.

[B]

Such a struggle. I mean, you look at the 20% down payment that we hear that we should have, and if you don't do the 20% down payment, well, then you've got PMI for what feels like the rest of your life. So what do you do?

[A]

Right. Well. And the situation got worse after the pandemic because home prices skyrocketed. Remember, in 2020, home prices went up 17% in just one year. According to a report from Harvard's Joint center for Housing Studies, home prices nationwide are up 30% as compared to 2019.

[B]

And looking at the data that I just saw last week on home prices, with housing shortages in many places across the United States, it's not going to get better anytime soon.

[A]

Yeah, exactly. Home prices are still going to climb. And then on top of that, you now have high interest rates. And so all of that creates a situation where if you're not yet a homeowner, it's very hard to break onto that scene. You know, if you purchased a home prior to the pandemic, great.

[B]

Good on you.

[A]

Yeah, exactly. If you bought a home pre pandemic, you have equity. And it's funny because you and I remember pre pandemic, so many people were saying, oh, look at how much home prices have risen. Because in 2018, people were comparing prices to what they were in 2012. And so people were saying, look at how much home prices have gone up over the last five, six years. It's too expensive now. Right. People were saying that in 2017, 2018, 2019, and then, boom, we hit that pandemic inflection point and things got a lot worse, a lot faster.

[B]

I think we have a tendency to do that with everything. Stock prices. Right. I don't want to buy stocks because it's too high. Right now I'm going to wait for the price of computers to come down before I buy my next computer. And yet, what always happens, prices march on. But in this case, they're not only marching on when it comes to real estate, it is straight up.

[A]

Right. We're going to hear from a caller who's been saving for eight years for a down payment and is wondering, should she continue or should she change course? We're going to answer that question first. After that, we're going to answer two questions. One from somebody who has a question about how to calculate his total returns when he's looking at dividends plus asset appreciation, and another from someone who's wondering about umbrella insurance. We talk so much about growing your assets, let's shift the conversation onto how do we protect what we've grown? So we're going to answer those two questions in the middle and then at the end we're going to broaden this out to talk about what we should be teaching the youngest generation, today's high schoolers when it comes to personal finance, all that. Yeah, it's a wide array of topics, so I think you'll enjoy today's menu. Welcome to the Afford Anything podcast, the show that knows you can afford anything. Not everything. This show covers five pillars financial psychology, increasing your income, investing, real estate, and entrepreneurship. It's double I fire. I'm your host, Paula Panda. I trained in economic reporting at Columbia. Every other episode ish I answer questions from you and I do so with my buddy, the former financial planner Joe Salsihai. How's it going Joe?

[B]

It's going great. You and I, before we hit record, we got all stretched out and so we're ready for some exercise.

[A]

Oh yes. Well, our first question today comes from Anonymous.

[C]

Hi Paula and Jo, this is Anonymous calling from Australia. Paula, I just wanted to thank you for your first Friday episodes. I find them to be super calm and factual, especially being on the other side of the world because all they see are rage mate. Headlines. I just hit my goal of saving six figures for a house, but I don't know if I should be buying a house or not. Single family homes that need a lot of work are going for $1.2 million in my city and even though I earn 100k per year, I would never qualify. Houses that I can put 20% down minus fees are about 2 hours away in the $450k price range. Even making $100k per year, putting 20% down, adding an extra 30% to the mortgage payment to account for taxes, the ever growing insurances and unexpected repairs. A house two hours away would still eat 60% of my take home pay. I'm kind of worried that this is a terrible financial decision, but at the same time I'm suffering from the worst FOMO since I've sacrificed for eight years to save this house deposit. And house prices in Australia never seem to hit a ceiling. They just keep skyrocketing. So if I don't buy a house now, I might not be able to buy one. I have considered other options like townhomes or apartments, but the bottom corporate fees are insane. It almost weighs out the cheaper prices of these house types. My other option is to rent out the spare rooms, but given that affordable houses are about two hours away from the city, I would seriously struggle to find roommates and I wouldn't be able to rent the rooms out for a lot. I also keep putting my house deposit in a compound interest calculator and I could actually retire at 55 without adding another cent. So now I'm thinking that I've been wasting my time and money trying to build a house deposit because it should have been invested instead. My plan for this house was to live in it for a few years until I move overseas where I would turn it into a rental property. I want to retire in Australia and live in this house since it would be paid off at that point. It would also be a place for my mum to live as she gets older and she let me stay at home all this time to hit my financial goals. Other info that you might need is that I am 27 debt free and 2/3 the way to my $100k invested goal across my taxable and retirement accounts. My taxable Account is a 60:40 split of total stock market index funds and REITs at Vanguard and within each category is a 50:50 split of Australian and international. I kind of feel like I've done everything right but it's still not enough. Should I dump the house fund into my taxable account and forget about buying a house? Keep the cash just in case an opportunity comes up, Grind it out for two more years to get a bigger house deposit, Invest it now and then take the funds out when I hit 40 as I would expect to have a high paying job by then. Or buy a 450k house and grind it out for a few more years with both an insane commute and house payment or another option, quickly find someone to marry with another high paying job. But that was kind of a joke. Thanks so much for your help with my dilemma.

[A]

Anonymous thank you for the question. And before we start with an answer, we've got to give you a name.

[B]

We have to. For people new to the Afford Anything podcast, you can't be anonymous. We're all friends here. And friends are not anonymous.

[A]

Paula Right? So Joe, tell me, have you watched anything interesting?

[B]

Recently I had the pleasure of hanging out with a couple of friends who listen to Both Afford Anything and Stacking Benjamins. At the end of my time in Portland, Nathan and Catherine invited us to have dinner at the the restaurant that has been in his family for years. But they also turned me on, Paula to a fantastic show that I missed back in 2023 on Netflix called the Law according to Lydia Poet and Lydia Poet. I never knew this was the first female lawyer in Italy. We watched episode one. Cheryl and I, my spouse and I watched episode one just yesterday. And Nathan and Catherine, I know that you're probably listening. Fantastic recommendation. Like not just a great time hanging out with you guys. Thank you so much. But also fantastic. So I think we call her Lydia.

[A]

Lydia. Lydia. That's a beautiful name, Lydia. First of all, I feel for the situation that you're in. Your question echoes a frustration that many people are feeling. The disconnect between incomes and home prices that delta has gotten so large that it can be incredibly difficult to make purchasing a home affordable. So let's talk through, number one, the root question of should you buy a home? Does this make good financial sense? And number two, if the answer is yes, then how. I want to start with the root question of should you buy a home? Number one, you mentioned a key line that I hear from a lot of people that I want to highlight, which is if I don't buy a house now, I might not ever be able to buy one. I hear a lot of people say that. And that line sends up some red flags because it indicates that you might be fomoing into a home purchase. The reality is that you don't know what the future holds. And ten years from now. Yeah, I actually did this math the other day. 365 times 12 is over 4,000. So 4,000 days from now. Right. Imagine how drastically your life can change in 4,000 days. None of us have any concept of how much we might be earning. 4,000 days from now. And you're 27. So in 4,000 days you'll be 39. And at that time your income might be sufficiently high that even though home prices have climbed, the delta between what you make and the price of a home might be significantly reduced. Right. Your income might be high enough at that stage or, and we'll talk about this in a moment, the assets that you've built in your portfolio, the stock investments that you've built might be sufficiently high enough that homes are increasingly within reach. And I know in the United States there was research that was recently published just in the last week or two that shows that the average age of a first time home buyer in the US is right around 40. And, and that's why I highlight 4,000 days from now when you're 39, because that would put you right around the age of the average first time US home buyer.

[B]

I do want to Caution her though, because I think what people may read into what you just said, Paula, is that you can bet on that fact and just never bet on the future. But I think what you're explaining is that the future does not equal the presentation. Things will most certainly change. We don't know how they will change. But I love your point about fomo. Just because it's not true today does not mean that it won't be. It might not be true in the future. It might be that you will never be able to afford a home. However, it also might happen that even if house prices continue to rise, that you find this phenomenal deal. You live next door to someone and rather than put it on the market, they'd rather sell to you. You might have a friend who has a friend who knows about a house other people don't know about. We see these things happen all the time. But I love this idea of cautioning against. It has to be today, it has to be right now.

[A]

Yeah, and the other element of that is that, Lydia, you mentioned that you plan on leaving the country in a couple of years. You said that ultimately you want to retire in Australia. But as far as this particular house is concerned, you want to live in it for a few years until you move overseas. And at that point you're going to turn it into a rental property. The math behind what makes for a good rental property is completely separate from the want behind what makes for good personal living for you. And here's what I mean by that. If you're a rental property investor, you're going to make completely different decisions about what you buy because it is a spread, spreadsheet based decision. So quality of life is not going to be taken into account. Distance to work, distance to family, personal preferences such as weather, climate, all of these things that you think about when you're thinking of your own personal home, you're not going to think about when you're buying an investment property. When you're calculating what's a good investment property, you are purely running a spreadsheet on what's going to give you the best, best risk adjusted return. And I caution people against trying to find a property that would be both a good personal residence and a decent rental. Because if something tries to be both, it often ends up doing neither. Well, because you compromise so much on both ends. You compromise on what you want for a personal residence and then you compromise on the returns, the risk adjusted returns that you're getting on the rental property. And as a result you end up with a personal residence that you don't really like that also is a weak rental producing weak returns. So it's one thing to have a home that you bought because you wanted it and then your life circumstances change and you make the decision that you're going to hang on to this home because you have a low interest rate, it is cash flow positive, you don't want to pay the transaction costs associated with selling. Makes perfect sense to me to have a home that you bought for the sake of personal enjoyment that you later decide to hold on to as a rental because of all of the factors that I just mentioned. That is a very different scenario than going into a purchase with the intention of it being a hybrid personal residence slash rental.

[B]

But again, Paula, I don't think that that precludes the fact that if the math checks out and it's a fantastic rental property, then maybe she purchases the house as a rental property knowing that later on she wants to move into this. So it's not so much a hybrid is a great rental property that might end up being a home for her in the future.

[A]

Possibly. I mean, I don't know the numbers on this property. She said that it would be in about the450,000 price range, but I don't know what that translates to in terms of how much it would rent for and then what that nets out in terms of its cap rate.

[B]

But I think to be clear, the top of your funnel is it needs to check out as a rental property first. Don't buy a house you want to move into later. That doesn't make sense on paper because I was thinking about the possibility of maybe flipping this around about instead of having a property that she may have as a rental property later, buy a property that she may have as a rental property now. But I certainly don't want her to make a bad rental decision because it's just a house that she wants to buy today and then afford to live in tomorrow. This is my favorite type of question and the reason this is my favorite type of question is so often in life we can't do everything we want to do. We have these goals and they are directly competing. And sometimes like now for Lydia, the stakes are really high. I have these two directions I want to go in and they seem to be rather mutually exclusive. If I leave the money in a spot that it's liquid so that I can put the down payment on the property, I don't get my long term financial independence goal as soon as I would want to. If I put it in the financial independence pot, and the market goes down. Now it's not available for home purchase. And if I put it in home purchase, I probably don't even want to count that money anymore at all Toward financial independence, which is, you know, her grind it out or get married statement, which was funny. What I love about this is that this is that ultimate thing when I was a financial planner, which is the cage match, the MMA cage match. It puts your two goals into the cage. Because what I heard over and over, Paula, was, what's the smart financial decision? What's the smart financial. Don't start there. You know why? Because 10 years from now, you're going to look back and you're going to go, I don't know that that was the decision for me. I think what you want to start with is, what do I want to do? Do I really. Is my goal really to own a house? And if I own a house and in the MMA cage match, that is on top of your financial independence at 55, and it's beating the hell out of it. And now financial independence has to wait till 60 or 65. Are you okay with that sacrifice to own the house? And if not, then let's go the other way. If you're 55 years old and you're renting your entire life, how do you feel about that? Now you're financially independent, you can live wherever you want, but now you don't have that, quote home that is yours. Which one wins? I can't answer that. But I'll tell you, in everybody's case, when I was a financial planner, one of those goals wins, and it doesn't mean that one precludes the other, which is why I love Paula, you saying that. You know what? Don't fomo, because things may change, but I clearly don't want to start with what's the great financial decision. Don't start with more money, start with more life. And I don't know what more life looks like to you. So, Lydia, that's my advice would be begin with, what do you want to do? If you're sitting right across from the table from me, I would say, which one of these do you want to do more?

[A]

The other thing, Lydia, I do not know how the mortgage process works in Australia, but I can tell you in the United States, and I'm saying this partially for the benefit of all of our listeners, you don't need 20% down in the U.S. you can, with an FHA loan, put as little as 3.5% down. So your options in the U.S. are 3.5% down or, or 5% or 10%. There are lots and lots of opportunities for first time home buyers to get in with with low down payments. And you will have an additional fee called either PMI or mip depending on the type of mortgage that you get. It's basically an additional fee that you hold until you reach 20% equity. And at the time you reach 20% equity, you call your lender, you tell them that you have 20% equity, they verify that and then they drop the PMI or mip. I'm saying that largely for all of the US listeners who are in a similar situation don't feel like you need 20% down. You don't. You can get into that first home with as little as 3.5%. I don't know how the system works in Australia, but I would certainly look into that. By the way, if there's anybody in our community afford anything.com community who knows the Australian housing market, I would invite you to chime in over there again. Affordanything.com community.

[B]

You could be a great resource for Lydia.

[A]

And that's free by the way, available for everybody. I want to return back to the possibility of investing this money in a stock portfolio, allowing it to grow and then if you're not attached to the goal of homeownership, maybe buying a home with that money. If the stock portfolio grows, let's say it doubles in the next 10 years, maybe at that point you've got a much bigger stash of cash and you use that to make a bigger dent into a housing purchase. If you're not attached to the goal of buying a home, then you can expose this money to stock risk because there isn't a fixed timeline. So the reason we tell people, hey, if you've got a goal within the next five years, you don't want to expose it to the risk of stocks because that five year timeline is so short. That applies when that five year timeline is fixed, right? If there's something that you want to do in exactly five years, or maybe the wiggle room is between four to six years, then yeah, that's a fixed timeline. You're attached to the goal, you really want it to happen in five years. So you reduce your stock exposure because you don't have the ability to withstand that volatility because of that timescale. But if you're not attached to the goal and that time scale is flexible, then you can expose your assets to a greater degree of risk. Because if it doesn't work out. You're cool with that?

[B]

Yeah. The idea of owning a house doesn't have to be house right now. It can be a house 10 years in the future. And you know, when you look into the future, the average person, at least in the United States, changes jobs every 4.2 years, I believe is still the number. And things change that we don't expect to change. What if she ends up, for career reasons, moving unexpectedly? Paula. And now she, if she has this money invested. I mean, I think often we think in binary results and binary choices. And what if there's a middle ground? Which is why I played with that idea of instead of renting the house later, what if she found a great rental house? Now that could pay the mortgage, could pay enough cash flow. It has to make sense as a rental unit. But it also might be one that in the future she decides to move into. That may also work.

[A]

Honestly, I'm less in love with that idea. Largely because she has the ambition of going overseas soon.

[B]

I'm more in love with that idea. Not from a this idea only perspective. I'm more in love with the fact that there may be other choices. I think it's the beginning of the exploration of what are all the different things I can do. I bring that up the same way, Paul, that you bring up investing the money. If you're not attached to today's date, what are some other things that we could do?

[A]

Right. So in other words, both of those are examples of the third option.

[B]

Right.

[A]

You know, Lydia, the other thing that I don't like about this $450,000 house that's two hours away. That's an insane commute.

[B]

It is an insane commute.

[A]

It's an absolutely insane commute. And there's the petrol costs, which in Australia is not cheap. A liter of petrol is so much money. I don't love the sheer amount of money that she's going to spend on petrol. Plus on top of that, the commute time. Yeah, two hours each way, four hours round trip. So then a, a nine to five workday turns into a seven to seven. If you put a two hour commute on either end.

[B]

I'm with you on that one. I immediately felt grind and I think maybe it was Lydia that I wanted to hear it, but I did hear some even in your voice as you were explaining how tough that would be. All in the name of owning a property.

[A]

Yeah, and I just don't see the benefit of property ownership if it requires a 9 to 5 to turn into a 7 to 7, because fundamentally what is a home, it's an asset. And if you want to buy assets, you have stocks, publicly traded assets that are available to you. And so from a financial perspective, the goal is to accumulate assets from a financial perspective.

[B]

But again, we don't know what her motivation is to own this house. And I would want to explore that more.

[A]

Well, Lydia, I hope this discussion has helped. Oh, final thing that I'll say I love that you brought up offsetting part of the out of pocket costs with roommates. I know that with this house that's far away that would be a challenge. But I love, broadly speaking, for any home that you buy or heck, even for any home that you rent, I love the openness to roommates because in a world in which home prices are expensive, roommates are the number one way to reduce those costs to, to make housing more affordable, to make your life easier. Plus, if you get the right roommate, it's fun to have someone around. It's kind of like having another member of the family. It's like having a cousin that lives with you, except that you're not actually related, you're friends or maybe strangers who became friends. The right roommate kind of turns into an unofficial family member. You get to reduce costs and also deepen relationships at the same time. I think roommates are such a win win in that regard. Oh, and final point, don't marry someone with a high paying job. Marry someone with an amazing work ethic because a high paying job can be lost. But an amazing work ethic, that's character, that's values. Jobs come and go, but work ethic lasts forever. So thank you, Lydia for the question and best of luck with whatever you decide. Call us back and let us know what decision you make. We're going to take a break to hear from our sponsors and when we return, we're going to answer two questions. One that's about how to protect your assets and another that's about how to understand your investment returns. Saturday, my friends were celebrating their New yorkaversary, their anniversary of living in the city. And it was a warm night. I wore a butter yellow silk skirt from Quints and a very slightly cropped halter top, which I intentionally bought two sizes too big because I didn't want it to be too cropped, also from Quince. And then I knew that I was going to a place that had air conditioning, so I brought a cardigan with me, a 100% Mongolian cashmere cardigan. Lightweight. I could throw it in my bag Easy to carry around and it did get cold, so it kept me warm. Sunday, I lounged around the apartment head to toe in Mongolian cashmere sweatshirt. If you have never had the luxury of cashmere sweatpants, I cannot speak more highly of it. And it's super affordable. And you know why it's affordable? It's because it comes from Quint's. Every single thing that I wore both days this weekend comes from Quince. They make really high quality luxury clothes at a totally affordable price. They can do this because they cut out the middleman. They partner directly with top tier ethical factories to deliver really high quality. This is not fast fashion. This is luxury quality clothing at half the price of similar brands. We're talking Mongolian Cashmere starting at $50. Part of the reason that I love them so much is because I have never allowed myself to own silk and cashmere. And it's buttery soft, it feels great on your skin. But it's the type of thing that I never used to allow myself to buy because it was too expensive. And Quince has solved that problem. So they've hit the trifecta of quality plus affordable plus ethical. That's why I love them. That's why I wear them all the time. So find your fall staples at Quince. Go to Quince.com Paula for free shipping on your order and 365 day returns. Now available in Canada too. That's Q-U-I-N-C-E.com Paula to get free shipping and 365 day returns. Quince.com Paula Paula, you know, these days the cost of everything is going up. Groceries, rent, insurance. And with so many prices rising, it's easy to overestimate how much things will cost. Perhaps that's why 72% of Americans overestimate the actual cost of life insurance. PolicyGenius makes finding and buying life insurance fast, easy and surprisingly affordable. See if PolicyGenius can help you find 20 year life insurance policies starting at just $276 a year for $1 million in coverage. Life insurance is a form of financial planning and policygenius is the country's leading online insurance marketplace. They've got thousands of five star reviews on Google and trustpilot. They have a team of licensed agents who will walk you through the process step by step. They handle paperwork, they advocate for you, they lay out all your options clearly. So secure your family's future with Policygenius. Head to Policygenius.com to compare life insurance quotes from top companies and see how much you could save. That's PolicyGenius.com.

[D]

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[A]

Welcome back. Our next question comes from Anonymous.

[E]

Hey Paul and Joe, this is. Let's go with Anonymous just to see what kind of fun name you guys come up with. For me, my question is about trying to figure out my overall return from an investment. I'm an ETF investor. The chart says that I have increased 10% this year, but I've also got a 3% dividend. So does that make my net return 13%? Not really sure. I know I'm probably overthinking this, but I be curious to see how you guys look at this. All right, thank you.

[B]

Yes. Next question. Let's keep it going. Paula.

[A]

Well, that was a simple answer.

[B]

Who we got next? Yeah, look at what we did with that. We were amazing with that.

[A]

Record time. Record time. Anonymous. First let's give you a name and then we can explain why the answer is yes.

[B]

I just put into copilot who are some historic figures who are interested in compounding returns. Aristotle debated the morality of charging interest on loans, contributing to the understanding of interest rates. No, Cicero, a Roman statesman who wrote about the implications of interest rates on loans, indicating a formal understanding. A compound interest. Of course, Fibonacci. Can't forget Fibonacci. Yeah, mathematician who studied the principles of compound interest. Maybe it's Fibonacci. And then our own stacking, Benjamin's Ben Franklin. Duh. Known for his wisdom and personal finance and saving strategies.

[A]

I like the first one. I say Aristotle. Aristotle. Yeah. It's a great name.

[B]

Right? My two choices for names were Joe or Aristotle.

[A]

All right, Anonymous, your name will be Aristotle in honor of the man who debated the morality of interest rates.

[B]

I do have two things here. I mean, obviously it's pretty simple, right? 10% plus 3%. But it does depend on when during the year you receive those. And it's also muddled by contributions so your. Your actual return could be less if you got 10% on the full amount at the beginning of the year, and then you added 3% later on in the year. So you might not have actually had a full 13%. It all depends on when the money was invested. Which is why I like that most online statements now will calculate your return for you. They will show you that discluding your contributions that came in. Here's what your rate of return was, your personal rate of return. So I might go to if, whether it's Fidelity or Vanguard or whoever, and try to look up what your personal return was.

[A]

And that would be found typically not on the dashboard, but rather in the statement itself. So if you look at the PDF statement, which is kind of tucked away and hidden in a corner of the dropdown menu, now I use Schwab, and.

[B]

It does show you right on the front, this is your personal return, which I enjoy. But, yeah, I can't think of any of the major providers that don't have it on that PDF statement.

[A]

Right. Oh, the great thing with Schwab, by the way, for anybody who uses it, I just discovered this. The columns where they show you, you know, because Schwab shows you a ton of data and it can be a little bit overwhelming, you can actually reorganize those columns.

[B]

That is interesting. I'm wondering if I put in return, you know what I mean, If I rearranged at some point of mine to better make sense of what I was looking for.

[A]

Maybe I just know that I was getting overwhelmed by all the data that I was seeing. And then I realized I could reorganize it. So I reorganized my Schwab profile so that the first couple of columns are the things that I care about. And then everything else, my brain just filters out and I don't even see it.

[B]

But I do think, Paula, I do think we answered Aristotle's question.

[A]

Beautiful. Perfect. Oh, I do want to make one other broad point, and this is really for the sake of everyone listening, because the crux of the question, the underlying premise that I want people to understand is that any asset makes money in two ways. There is the appreciation on the asset and. And then there is the dividend or the income stream that it pays out. And so the total return of that asset is the appreciation plus the dividend. And I think that is a foundational piece of understanding what an asset is and how an asset makes money that often is not articulated. And so sometimes when we have these conversations around returns, people will look at the price appreciation on a share of stock or they'll look at the price appreciation on a home. Going back to our earlier conversation about housing and dividends will be factored out of the equation or conversely they will take a dividend strategy and become a dividend enthusiast. Right? And then you, you hear this massive emphasis on dividends. But sometimes that emphasis comes to the exclusion of other factors. So I think just, just starting with that base understanding of this is how assets make money. Assets make money through a combination of appreciation and dividend payout. Even if something doesn't formally have a quote unquote dividend like a house, that house, if it's used as a rental, still has an income stream. And an income stream is functionally the.

[B]

Dividend and is often when it comes to the stock market anyway, very much. You can think of it as a teeter totter. I mean on one end if it receives very high dividends, that's probably because the management team knows that there is very little opportunity for capital appreciation and to lure investors then they will pay a very high dividend or they don't just don't need the money. So why not pay it out to the owners of the company? Right? So this will be a lot of utility stocks where utilities don't have a lot of room for growth. They might be able to be more efficient, but they're not going to grow because they're regulated on what the area is that they serve. They can't grow their market substantially. You'll find this with railroads, you'll find it with shipping companies where it's very difficult for them to add new ships. So pipelines, you will see high dividends from those types of, of companies. On the other side, if you look at Nvidia, which has huge capital appreciation, well, clearly the money has been in better hands with their management team than it would have been if they paid a dividend. So Nvidia's board of directors said, yeah, we're no, you're along for a capital appreciation ride in this stock. So a company like Coca Cola will be in the mid range. Right? Coca Cola is often getting into new markets, may be taking on new businesses. There is some room for capital appreciation, but also it's going to be slow if they do. So Coca Cola pays in mid size dividend and you get mid size growth on the capital appreciation front. So there is this, there's this fulcrum with them on either side. If you find a stock that you think is both high dividend and has high growth potential, you have have to ask yourself, what am I missing? Because you probably are missing something in your analysis of that stock.

[A]

And to take that same framework and apply it to rental properties. Often in the world of real estate investors, you'll see people who will either make a cash flow play or they'll make an appreciation play. So for example, I have a friend who invests in two cities. He invests in Toledo, Ohio and Dallas, Texas. His properties in Dallas, Texas, from a cash flow perspective, more or less break even. But those properties are his appreciation play. Those are his growth plays. By contrast, his properties in Toledo, Ohio, cash flow like crazy. They are incredible income plays. Those are his dividend buys. But they're unlikely to see high appreciation. So it's that same strategy that Joe just described in the stock market also applied to rental properties, depending on geographic location. So Aristotle, thank you for the question and thanks for being a new member of the Afford Anything community. Remember, as a new member to subscribe to our newsletter affordanything.com newsletter and hang out with other people in the community affordanything.com community our next question comes from Joel from Omaha.

[F]

Hi Paula and Joe, new to the podcast and really enjoy what I'm hearing so far. In a few recent episodes you've talked about different types of insurance, whether that's long term care insurance, disability insurance, health insurance, some others. I was hoping you guys would be able to cover some things about umbrella insurance. My wife recently had a co worker who was in a pretty bad car accident where she was at fault and the other driver is now suing her for a large amount of money. Her insurance is not covering the full amount if the person were to win. And so that got us looking at some ways to better protect our assets. If umbrella insurance is a good idea, how do we shop for it? What are some things to avoid? What is the appropriate dollar amount for our net worth and any other tips or tricks that you can provide for us so that we get the right coverage for us. Thank you.

[B]

Joel, what a great question because we haven't Paula, talked about umbrella liability insurance in a long time, right? This is an important insurance and it also is a little bit of an outlier because generally the rubric that I like to use when thinking about insurances is this. Actuaries assess the risk of an incident happening and then pass the magnitude of that risk on to you through the amount of money you're going to pay to buy that type of insurance. So let me explain what I mean by that. Most term life insurance policies are never cashed in for the Death benefit. And because of that, term life insurance is very reasonably priced versus a whole life insurance policy where there is a one to one ratio on number of people that own it and number of payouts that the company is going to have to endure. If you continue to pay for this for your whole life or you have a paid up policy where you prepay by a certain time, whole life is going to pay out to everybody. But term life insurance, because most people pass away after the term has expired. Much, much less expensive. So that's why whole life costs more. So when I look at insurance types, I think disability coverage, very expensive. Why is it expensive? Because the insurance company thinks it's going to happen to you. Long term care, they think it may not happen to you, but when it does you, it hurts. It is very, very, very expensive. I think about some other coverages, cancer insurance as an example. Very inexpensive. Because not only do you have to have this tragic thing happen, it has to be as a result of one type of problem that you may have. Cancer, accidental death and dismemberment insurance. I see lots of people that work in cubicle land or work from home and they work on a keyboard all day and it only pays if you have an accident while at work. So it's really inexpensive because very few people are going to use it. Umbrella, though, to me is the outlier. Paula, which is this interim insurance. The two types of insurance that I often, when I was a financial planner recommended people get even though we know it probably won't happen to you. And that's because the magnitude is so high. And to your point, Joel, you talked about your friend where they're going to be sued and they don't have enough assets to cover the lawsuit or may take all their assets. This could be a huge problem for you and your family. So I like the risk reward between buying umbrella liability, which is generally not expensive to get, and adding that to your coverage level. Now there's a couple things that have to happen before you can get umbrella liability. Most insurers, by Most, I mean 99% of insurers. Insurers will generally want to have both your home and your auto insurance. They want those bundled through them before they will even let you buy umbrella liability insurance to them. So if you have them through two different companies, going to be a little bit more of a struggle to get umbrella liability. The second thing is the default most people go with still today is a million dollars. And when you look at these lawsuits that happen now, nobody's stopping at a Million. I would look at 2 million, 3 million. The cool thing about umbrella liability coverage that we have seen is when you have umbrella liability coverage, the law firm knows that that's an easy get. So the person that sues you knows that 2 million, $3 million is an easy get. Once they do discovery, they will know that you have this policy. They will often go after the policy proceeds and leave the rest of your assets alone because that's what the insurance is there for, is to take care of the claim. And, and also the law firm doesn't want to fight over your assets. They don't want an extended legal battle. And usually the person who hired the law firm, the person who's suing you also doesn't want that. But it can't be a million because often just the medical bills this person may have might be more than a million dollars. So I would look at a larger number, 2, 3, 4, 5 million, see what that costs versus a million. Look at the value of your asset base and make a decision then. Usually umbrella liability policies have a cost that's structured in two pieces. The first is just the cost of having a policy, which is going to be the vast majority of the cost. Adding that next million, the next million, the next million is a sliver above. I was so surprised when I started looking at bigger numbers than just a million dollars. How cost effective that could be. The last thing that I'll say there is a way to mitigate the cost of umbrella liability coverage, and that is often people have umbrella liability coverage because they have assets they need to protect. Term insurance is the opposite. You buy term insurance because you don't have assets to cover things. And so you buy term insurance in case you pass away so that your family, your loved ones, whatever you're supporting, that those people, those institutions can continue to be supported without you around. Umbrella liability coverage you buy when you have stuff that you really don't want to part with if there was a lawsuit. In that case, what I often found was you may be able to raise your deductibles on your homeowner's coverage, on your auto coverage, if you haven't done that already. And the cost difference in having a higher deductible for these, which will impact your assets a little bit, but there's a cap on the amount that the insurance company will demand from you before the insurance pays. That price difference often is the same or more money than what the umbrella liability coverage cost. We were often able, Paula, to add umbrella liability coverage to somebody's portfolio of insurances without costing them more premium by creating an insurance plan that made more sense for them. They already have assets. Why wouldn't they raise their deductibles?

[A]

Right.

[B]

If they don't have an experience of homeowners claims or car insurance claims? Certainly if you have a family of bad drivers, you may not want to raise your car insurance deductible, but otherwise raised those. And I was often pleasantly surprised that we could add that insurance coverage without having it affect the bottom line.

[A]

I'll chime in from a real estate investor perspective because my experience with umbrella liability policies is entirely through the lens of real estate investing. If you are a rental property investor, there's no reason not to have an umbrella liability policy. So one of the most common questions that I get, in fact, shockingly like, I feel like I get this question more than it merits, particularly from beginner investors, and that question is, should I have an LLC for my properties? I get that question so much from real estate investors sometimes to, to such an extent that I will go into a room. This happens often when I'm speaking live in front of a, a crowd. I will go into a room to talk about rental property investing. And the first question, somebody raises their hand, the first question out of their mouth is, should I create an llc? And I've often wondered why people start with that, you know, why people aren't starting with how do I know if it's a good deal or not?

[B]

Let's say I got a bad deal. Do I get an llc?

[A]

Yeah. Yes. Whether it's a good deal or a bad deal, no matter what the deal is, for some reason, a lot of people begin with the question, well, they begin with a proposed solution. So when they ask the question, should I create an llc? What they're doing is they're suggesting a solution rather than illuminating the question. The fundamental base question behind that is how do I protect my property? And so rather than starting with product, let's start with problem. The problem is I want to protect my property. What are the best ways to do that? And that's a much better way to phrase that question. Rather than suggest product, which is formation of llc, to the question of should I form an llc? I mean, we can go down the rabbit hole if somebody really wants to. But the short answer is if you have a mortgage on the property, that that could trigger the due on sale clause. So you need to counterbalance the liability protection that you're getting from an LLC with, with the risk of triggering the due on sale clause that's the short answer. But to the broader question of how do I protect my properties? The answer is umbrella liability insurance. So 100%, if you are a rental property investor, get umbrella liability insurance.

[B]

Well, then I think between my answer and your answer, we just said that maybe 90% of our audience should get umbrella liability insurance.

[A]

Wow. We should like get a, a license to sell this stuff, man.

[B]

I know, right? Because the answer is yes and I'm qualified. Yes, Joel, and I'm glad you brought this up because it is an important but often overlooked area of coverage that we don't address. Low probability, high magnitude, easy to add to your portfolio of insurances. And I would do it in a heartbeat. And it sounds like Paula would too.

[A]

It can be hard to find. I've had this problem living in New York City because I own rental properties, but I rent my primary residence. And living in New York City, I don't own a car. So I'm a renter who doesn't own a car. Therefore I have neither homeowners, primary personal residence homeowners, nor auto insurance.

[B]

It was difficult for you to find an umbrella policy then.

[A]

Yeah, yeah, exactly.

[B]

The reason is, is that companies have some limited liability protections on car insurance and on homeowners, and they want to make sure that they are able to negotiate with a law firm using those numbers first before they have to go to the umbrella. And if they feel like they're trusting another company, I mean, imagine that you're an insurance company holding someone's car insurance and you find out there was a lawsuit coming, but the person at umbrella liability coverage through somebody else, you're going to try to wiggle out of your portion of having to pay and let the umbrella liability company handle it if at all possible. And it just creates this friction between insurance companies. Insurance company's goal is to get rid of all that friction, so that's why they want you to have both.

[A]

So, Joel, thank you for the question. Thank you for inspiring the discussion. Best of luck with insurance shopping. We're going to take one final break to hear from the sponsors who make the show possible. And when we return, we're going to hear from a teacher who is teaching a personal finance class and is wondering what to include in the curriculum. That's up next. We recently hired two new people at Afford Anything. We put both of the job postings on Indeed.com after 48 hours. We had 125 applications for one of the positions and 751 applications for the other position. So when it comes to hiring Indeed is all you need. Indeed. Sponsored Jobs helps you hire fast because your post jumps to the top of the page for your relevant candidates and that makes a big difference because sponsor jobs have 45% more applications than non sponsored jobs. And with sponsored jobs there are no monthly subscriptions, no long term contracts, and you only pay for results. You know, when we put up our two job postings, I mean we got, we got such big results that we took those posts down after 48 hours because we had what we needed. That's how quickly it worked. And in the minute I've been Talking to you, 23 hires were made on Indeed. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility@ Indeed.com Paula just go to Indeed.com Paula right now and support our show by saying you heard about Indeed on this podcast. Indeed.com Paula Terms and conditions apply. Hiring Indeed is all you need.

[G]

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[A]

I saw something really inspiring on YouTube this past weekend. So on October 4, 2015, Mr. Beast recorded a video and he scheduled it to publish on October 4, 2025. Basically, he recorded a video time capsule for 10 years into the future. In October of 2015, a very young MrBeast said to himself and announced to the public, hey, I better have 1 million subscribers by the time you watch this. Well, Fast forward to 2025 and he's got 443 million. And I love that example because for so many of us, the origins of whatever it is that we want to do, whether it's a YouTube channel like Mr. Beast or a podcast or any kind of a business that you might be thinking about running, it starts as a dream and, and a lot of people just let it stay a dream. A lot of people hold themselves back with the what ifs. But like Mr. Beast, you can turn the what ifs into why nots with Shopify by your side. Shopify is the commerce platform behind millions of businesses and 10% of all E commerce in the US including Feastables by Mr. Beast as well as Mattel Gymshark. Lots of household names but they also power brands that are just getting started. So if today is day one you can use Shopify to help you design a website, enhance product images, write product descriptions, generate discount codes. They have award winning 24. 7 customer support. They can help you with easy to run email and social media campaigns. So turn those dreams into and give them the best shot at success with Shopify. Sign up for your one month dollar one per month trial period and start selling today at shopify.com SL Paula go to shopify.com Paula shopify.com Paula welcome back. Our final question today comes from Julia.

[H]

Hey Paula and Joe, I absolutely love your podcast and love all the advice that you give callers. I have kind of a different question for you. I'm a high school math teacher and this year is the first year that my school is offering a personal finance course. It counts as a math credit for students, so there is quite a bit of math involved, but I would say primarily it's to teach personal finance. I have a lot of freedom over what I teach. This first semester I started with budgeting and then we did bank accounts, checking, savings and CDs. Next I'm going to teach them all about investing, focusing on stocks and bonds and then investing for retirement and the different kinds of retirement accounts. Next semester I am going to teach about taxes and career like how to read a paycheck and all that kind of stuff and then how to file their taxes and everything related to that. But I think I will have enough time to either teach about insurance or to teach about credit and credit scores and loans. What do you think is the more important topic if I don't have time to do both or would you quickly cover both and not go as deep into it? Is there any other topic you think is super, super important for a high school student to know? I'm thinking about possibly trying to include stuff about car ownership or how to finance going to college. Really curious to hear any of your thoughts on this. Like I said, I have a lot of freedom and so I'm just planning out the whole year. Thank you so much.

[A]

Julia. First of all, I love that you're teaching this. What? This is amazing.

[B]

She is doing God's work, right?

[A]

Exactly. Thank you for doing God's work and I love that you have seen so much freedom and flexibility to determine what goes into the curriculum. Oh, I'm just going to speak stream of consciousness right now. Anything related to car ownership, car purchasing and ownership and maintenance, that is as a high schooler, your first major expenditure. So absolutely anything related to that, I would 1000% throw in. Similarly, preparing them for the expenses that they're going to face either as college freshmen. You know, if you're living in a dorm, then you, you may not directly be paying for housing or food, but there are still those ancillary expenses going to target just to get face wash and toothpaste. And you know, I was highly unprepared for how much that would add up. So preparing them either for the expenses that they will face as college freshmen living on dorms, or the experience that they will face at trade school, at vocational school as college freshmen who don't live in a dorm, who maybe still live with their parents, walking them through sample budgets for all of those different scenarios. Those are the first two things that come to mind when I think about what I would want to impart onto high school students.

[B]

I like all those. I immediately, Paula, went to something even more foundational. If I had my choice of any topic right at the top, I would go to something very much what I consider to be the foundation, which is none of these topics at all. Decision making when it comes to personal finance, I think just the foundations of making good decisions. So this would be the importance of goal setting. After I wrote my book, I talked to some college professors. They didn't love it. Not that they didn't love the book. They didn't love the fact that I hadn't explained why it was so important to begin with the end of mind. Like I suppose in chapter one, that beginning with the end of mind makes sense to everybody. One professor at a junior college in Chicago really pushed back at me and said, you know, these guys just go out and buy things and they're not thinking long term, they're not thinking long term versus short term. And I would love in chapter one that you had had this idea of opportunity cost and not even call it opportunity cost, just I have the thing that cost $100 in front of me versus I have this long term thing that I want that I might not even think that I want today. Like living beyond today, I thought was really good. So I think this would include things like probabilities, like what's the probability that this would happen? Compound interest, which we talked about earlier today. Right. I know, speaking with a gentleman who works big time with youth in the Pittsburgh area, told me when he talked to students about debt and about staying out of debt. The eye roll you could see from Everett, like, oh, God, who cares?

[A]

Yeah, because it sounds like smug, grown up, moralizing. Yes.

[B]

But when he told them about the Roth IRA and the little bit of money they could put in a Roth IRA, Paula. And then went through the rule of 72 and compounding interest, they're like, I could be a freaking millionaire and not work that hard. Are you kidding me? Like, just the idea of if I save more early on, just, aha. There was this big explosion and all of a sudden everybody's like, okay, how can I get my summer job ASAP to put money in a Roth ira? Right? Flipping. Now this idea of riches. And I don't know if that's social media or just, you know, everybody wants to be, wants to be wealthy.

[A]

Also, sometimes the carrot is more appealing than the stick.

[B]

Oh, sure, right. So goal setting, probabilities, compound interest, opportunity cost. I think that unit to me would be foundational to everything Julia's talking about.

[A]

You know, on that note, that actually makes me think of something else that's going to be critical, which is how to suss out good advice from bad smart media consumption. Because people get so much financial advice from TikTok or Instagram that I might even show a handful of videos and then deconstruct them and say, all right, here's a TikTok video with this person who is saying, XYZ, let's deconstruct this. How do we know if this person is giving good advice or bad advice? Right? So intelligent social media consumption.

[B]

And Julia, we do a TikTok minute weekly on the Stacking Benjamin show. So feel free to write to me and I will send you a bunch of horrible, horrible TikTok advice.

[A]

Joe, stacking benjamin's.com.

[B]

Yes, there's a, there's a guy, Paula, talking about how you can afford all these amazing cars behind him. And he's walking and he's bragging about all the high end luxury vehicles that he owns. And if you actually pause the video, you will see that he is wearing a valet shirt.

[A]

Oh, hey, he does.

[B]

He doesn't own any of these cars. It's horrible advice. Wow. And he's talking about just financing the cars. Another guy in a swimming pool talking about how the best way to save a million dollars is to go to like a Courtyard by Marriott, sneak in the back door and just get free breakfast and then invest the money you would have spent on breakfast.

[A]

How much money does he think people spend on breakfast?

[B]

That was our question. How does this make you a millionaire? If I let go of Pop Tarts, I'll have a million dollars. Was just, oh, my goodness. The advice that we. The quote advice. So, Paula, I think you're. You're right on there. Yeah, yeah, yeah. The one I like, you know, when she was mentioning insurance versus credit scoring. I love credit scoring, but I also feel like left to my own device, if I were 18 years old right now, I'll figure out credit. And don't get me wrong, I think stepping in it with credit is horrible. And maybe you want to cover it a little bit, but the foundations of insurance or something I think people will never get anywhere else. And if you can get that immediately in high school, you'll get something that the vast majority of people will never, ever have on their plate. I think. You know what I mean? Credit will come to you sooner or later.

[A]

Well, you know, I think there's a fundamental thing about insurance that a lot of people don't get, especially when you're young. I remember having a roommate when I was probably 26 or so, I had a roommate who was like, ranting about how his health insurance was a waste of money because he never used it. Right, right.

[B]

But you know, it's funny, Paula, we laugh about that. Yet what did I hear when I was a financial planner all the time? I'm not going to get long term care insurance. And again, I'm not advocating for long term care insurance. I just always advocated, we need a strategy of the magnitude of this problem. And the one thing people would always say is, I'm not going to buy the insurance because what if I never use it? I would just look at my client go, of course we don't want to use it. Like, who said, hey, I'm going into a nursing home. High five. I got, I got to use that insurance. Like, we go down the car, I'm like, oh, my goodness, I got to make sure I get this premium. Let's go hit a tree. What are you talking about?

[A]

I think just articulating that to students, there's this mental switch that has to flip because every other product, you buy it with the intention of using it. Scissors, towels, Gatorade. Right? You buy these things with the intention of using it. Insurance is the one thing that you buy that you hope to never have to use, you know, and so it's a total mental flip. It's like Drano. Drano is the one thing that you buy for for the sole purpose of pouring it down the drain.

[B]

What's fascinating Paula, I spoke with about a year and a half ago, an insurance expert from mit, and when I was interviewing her, it was fascinating too. And Julia, I would put this in your discussion. For the vast majority of things, Paula, we don't want to use it. And yet there are a few examples of where insurance doesn't work very well because of the fact that people do tend to use it. Pet insurance. People that buy pet insurance are people that love their pets. And because of that, if you buy pet insurance, you're probably going to use the pet insurance, which is why pet insurance people talk about how expensive it is to buy pet insurance and how many exclusions some of the policies have for that very reason. So when things are aspirational, insurance doesn't work as well. And I just found that very fascinating that when you look at insurances that work versus insurances that are more of a struggle, do I buy it or do not buy it? Dental insurance, again, is, is another one where a lot of studies show that for most people, paying just your dentist outright makes about the same amount of sense as buying dental insurance. Now the cool thing about dental insurance is it spaces the premiums out so that you're, you don't have one big out of pocket at one point so your emergency fund, it doesn't get hit so super hard with one big dental visit that, that you might have. But besides that, on a dollar for dollar comparison, dental insurance for most people ends up pricing out to be about the same as not having it.

[A]

Vision insurance, same.

[B]

Yeah. But I love that topic for this very look at how excited we got about the topic. And it is something that the vast majority of people don't know. I love the idea of covering credit. Obviously not understanding credit ruined my early financial life. So I love that. But insurance is just something nobody's going to ever come across without you.

[A]

Julia, you know, the one thing about credit I would, at a minimum, I would have a glossary for them because I remember being intimidated and overwhelmed by all of these acronyms that I didn't understand. Apr, apy. What does that mean? And I remember asking somebody that I have a very, very clear memory of. I think it was second semester of freshman year of college asking somebody, okay, what is apr? And they're like annual percentage rate. They knew they could parrot that back. And I was like, yes, but what does that mean? And they couldn't answer, right? Yeah, exactly. The world of credit and debt has all of this jargon. You don't even know how to parse through the jargon. In order to be able to have a conversation about it. Going back to insurance, actually, I was asking an insurance agent once this. I was a little bit older, I was probably about 27 at the time. And I remember she used the word adjudicated. And I was like, I don't know what that means. Right. What is it? Adjudicated? What is that? And so I think for both credit and insurance, just having a glossary so that these big scary words don't intimidate you into avoidance, that can go a long way, particularly for young people.

[B]

I think there is something fundamental about credit. When I talked about going to the fundamentals first, and this is on purchasing decisions, you know, the true danger of klarna or affirm and, and where that lies. And then also looking at, I think the difference in interest rate when we pay interest out to a credit card and we sign on the dotted line for 25% and yet our expected return on a great stock market or real estate investment would be 10. Like just the ridiculousness of those two numbers, like 10%. Well, if I'm lucky, there's a bunch of people when I just said 10 are going, are you crazy? 7. Don't count on 10. Which makes it even more ridiculous that we just go sign on the dotted line for 25 without even thinking about it. But I do like the idea before any of those topics, this idea of understanding, compounding interest, opportunity cost, goal setting probabilities and how to intelligently watch TikTok intelligently parse. Yeah, good advice from bad. Our friend Roger Whitney said something a couple of years ago to me that said that still resonates with me. Roger Whitney's the retirement answer man. Roger said if an advisor leads with product run, if they lead with process, that's your first clue that they might be worth talking to more. Doesn't mean you should hire them, Paula, but it just means they pass level one. But if they tell you, oh Paula, I got this great thing, run away.

[A]

Yeah, that's what I was alluding to in the previous question when I talked about the LLC question, how that question has product embedded in it. The question has the solution, the assumed solution embedded in it. Which is why it's a flawed question.

[B]

Right. Question should be how do I protect my risk of this investment going?

[A]

Right. And that's the real beauty of learning about money is fundamentally when you really have an in depth understanding of this field, what you're truly learning is how to ask better questions. That's the, I think the goal, the real goal of financial education is how do I ask better questions and then how do I think critically about the answers that I'm receiving in that regard? It isn't about what to think. It's about how to think. And it isn't about what you know, even. It's about how to find out.

[B]

So to summarize this, Julia, we just teach everything. Just teach everything. Just tell the students to forget the rest of their curriculum. You teach them eight hours, teach them the whole world of finance. I love it. I love it.

[A]

Yeah, I love that you're teaching this course. That's wonderful. There should be more financial education in schools. So thank you, Julia. Thank you for the work that you're doing. Joe. We've done it again.

[B]

Done it yet again.

[A]

Joe, where can people find you if they'd like to hear more of you?

[B]

Great show for your friends that are just starting out because it has a you can do it attitude and we kind of take a beginner approach is the Stacky Benjamin Show. Every Monday, Wednesday, Friday, we dive into current events and tell you what's evergreen, what you need to know from current events with a headline. We have great mentors that we interview some of the smartest people on earth. And then on Friday, Paula Pant takes part in a roundtable discussion of smart people where we take a piece from the popular press and we mull it over. We've talked recently about using your 401k better. Speaking of financial advisors and financial advice, we talked about one financial advisor wrote a piece for Kiplinger about things he doesn't see in enough financial plans. So we talk about how to make sure your financial plan includes those three things. So that's Stacking Benjamin show every Monday, Wednesday, Friday.

[A]

Amazing. Well, thank you so much for being an afforder. If you enjoyed today's episode, please do four things. First, subscribe to our newsletter affordanything.com Newsletter Second, hang out with the members of our community affordanything.com community Third, share this episode with your friends, your family, your neighbors, your colleagues. With the person at your school who teaches personal finance classes, even though it's technically like a math class with your homeowners rep, right? And your umbrella insurance agent and your auto insurance person.

[B]

They're finance nerds. They'll love it.

[A]

Share this with all of the people in your life because that's the single most important way that you spread the message of F double I R E. Finally, open up your favorite podcast playing app. Hit the follow button so that you don't miss any of our amazing upcoming episodes. And while you're there, please leave us a review. Thank you again for being part of this community. I'm Paula Pant.

[B]

I'm Jos Al Sihai.

[A]

And we'll meet you in the next episode.

[B]

Sam.