Ask HTM - Birth Now Pay Later, Forcing Home Equity with a Basement Build, & Saving vs Paying Credit Cards #946

Summary

Podcast Summary: How to Money – Episode #946

Release Date: February 17, 2025
Title: Ask HTM - Birth Now Pay Later, Forcing Home Equity with a Basement Build, & Saving vs Paying Credit Cards #946

Hosts: Joel and Matt from How to Money, an iHeartPodcasts show dedicated to providing comprehensive personal finance guidance.

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1. Introduction to Listener Questions ([02:09])

Joel and Matt kick off the episode by outlining the main topics they’ll cover, centered around listener-submitted questions. This episode delves into innovative financial strategies, home renovation funding, and managing debt versus savings.

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2. Phil's Question: "Birth Now Pay Later" vs. Immediate Payment ([07:59])

Scenario:
Phil is facing a $2,700 medical bill from childbirth. He has the option to:

• Option 1: Pay the lump sum upfront.
• Option 2: Utilize the hospital’s 10-month interest-free payment plan.

Discussion Highlights:

• Pros and Cons of Deferred Payment:

  • Joel draws a parallel to buying furniture on interest-free terms, warning about potential pitfalls if payments aren’t managed meticulously.

    “If you don’t pay off your loan while the promotional interest rate is in effect, you're going to owe a lot more.” ([13:11])

  • Matt advises caution, emphasizing the minimal financial gain from keeping the money in savings versus the risk of accruing penalties.

    “I’m probably not going to recommend for folks out there to do this because you've got the cash. Just go ahead, pay the bill, be done with it.” ([14:04])

• Health Savings Accounts (HSA) Utilization:

  • They explore leveraging an HSA to fund medical expenses, allowing the remaining funds to grow tax-free for future use. Proper documentation is crucial for accessing these funds without penalties.

    “The HSA is just one of the best accounts because it is so darn flexible.” – Joel ([19:58])

Key Takeaway:
Given the relatively low interest gain compared to the risk of accruing penalties, paying the medical bill upfront is the recommended approach.

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3. Shane's Question: Funding a Basement Renovation ([25:43])

Scenario:
Shane from Madison, Wisconsin, plans to finish an unfinished basement (700 sq. ft.) to add living space, a bedroom, and a bathroom. He seeks advice on funding options, particularly considering a Home Equity Line of Credit (HELOC).

Discussion Highlights:

• HELOC Considerations:

  • Current HELOC rates are high (~8-9%), making it a costly option.

  • Joel advises minimizing borrowed amounts and ensuring a swift repayment plan to avoid long-term interest accumulation.

    “I'm more than willing to do it... but make sure you have a reasonable payoff timeframe.” ([31:02])

  • Matt underscores the importance of shopping around for the best rates, preferably through local credit unions, which often offer better terms.

    “Just shop around and see if you can find yourself the best deal.” ([31:02])

• Cost Optimization Strategies:

  • Utilize existing materials from thrift stores or discount sources to reduce renovation costs.

  • Focus on functionality over luxury to keep expenses in check.

    “This is the basement. No one sees this. It's just the extra bedroom.” ([33:09])

Key Takeaway:
Opt for a HELOC while being mindful of high interest rates and implement cost-saving measures to minimize the total amount borrowed.

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4. Melissa's Question: Living Paycheck to Paycheck – Save or Pay Off Credit Cards? ([47:34])

Scenario:
Melissa is struggling between building savings and paying off high-interest credit card debt while living paycheck to paycheck.

Discussion Highlights:

• Emergency Fund Priority:

  • Matt recommends first establishing a minimal emergency fund (~$3,500-$5,000) to shield against unexpected expenses.

    “Having a cash cushion on hand is going to allow for that credit card debt payoff to be permanent.” ([50:43])

• Debt Repayment Strategy:

  • After securing the emergency fund, focus on aggressively paying off credit card debt beyond the minimum payments to eliminate high-interest burdens.

    “Avoid paying the minimum amount because that would keep you in debt for decades.” ([52:38])

• Budgeting Tips:

  • Implement a "bare bones budget" temporarily to maximize savings and debt repayment efficiency.
  • Utilize resources like Undebt.it or consult Money Management International for structured repayment plans.

Key Takeaway:
Prioritize building a small emergency fund before tackling high-interest credit card debt to ensure financial stability and prevent cyclical debt accumulation.

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5. Andre's Question: One-Year Guaranteed Investment Above 3-4% ([54:17])

Scenario:
Andre is seeking a one-year investment option that guarantees returns exceeding 3-4%.

Discussion Highlights:

• Reality of Guaranteed Returns:

  • Matt bluntly states no such investment exists without risk.

    “Nope, doesn't exist. That's the tldr.” ([54:54])

• Safe Alternatives:

  • Certificates of Deposit (CDs): Offer fixed returns but generally align with high-yield savings rates.

  • High-Yield Savings Accounts: Provide competitive rates (~4%), though they are subject to change with fluctuating interest rates.

    “You should be able to get like a 4ish percent rate without needing to actually invest or take any real risk.” – Matt ([55:46])

• Caution Against Risky Options:

  • Warns against chasing higher returns through Neobanks or lesser-known financial institutions due to potential instability and compromised customer service.

Key Takeaway:
Opt for a high-yield savings account or a reputable CD to secure competitive, albeit non-guaranteed, returns over a one-year period without unnecessary risk.

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6. Cade's Question: Wife's Pension Payout and IRA Conversion ([36:17])

Scenario:
Cade is evaluating whether to transfer his wife’s pension payout (post-move and partial vesting) into a traditional IRA or a Roth IRA, considering future income projections and tax implications.

Discussion Highlights:

• Roth IRA Conversion:

  • Joel supports converting to a Roth IRA for tax-free growth and simplified future financial planning.

    “I think why not get more money into the Roth?” ([40:26])

  • Emphasizes the advantage of avoiding future tax complications, especially with the anticipated increase in household income.

    “Because you have the ability to pay the taxes at that lower tax rate, I’d be interested in somehow seeing if I could maneuver that.” – Matt ([42:33])

• Traditional IRA Considerations:

  • Deferred tax benefits could optimize tax liabilities based on future income brackets.

• Hosts' Consensus:

  • Given the likelihood of rising income, converting to a Roth IRA is generally more advantageous for long-term tax benefits and flexibility.

    “I'm glad that I made that decision, even though I can’t say that it's the most optimized move to make because I’ll only know that in retrospect.” – Joel ([43:19])

Key Takeaway:
Convert the pension payout to a Roth IRA to capitalize on tax-free growth and maintain flexibility for future financial strategies, especially considering expected income growth.

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7. Conclusion and Final Recommendations ([60:53])

Joel and Matt wrap up the episode by reinforcing the importance of informed financial decision-making and encouraging listeners to engage with their resources for personalized advice. They highlight success stories and emphasize that with the right strategies, financial stability is achievable.

Key Encouragement:

“Melissa, you're not alone in this predicament and you can claw your way out.” – Joel ([54:17])

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Notable Quotes:

• “The HSA is just one of the best accounts because it is so darn flexible.” – Joel ([19:58])
• “I’m probably not going to recommend for folks out there to do this because you've got the cash. Just go ahead, pay the bill, be done with it.” – Matt ([14:04])
• “You should be able to get like a 4ish percent rate without needing to actually invest or take any real risk.” – Matt ([55:46])
• “I think why not get more money into the Roth?” – Joel ([40:26])

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Resources Mentioned:

• How to Money Website: howtomoney.com
• Undebt.it: Tool for creating debt repayment plans.
• Money Management International: Organization for debt counseling.
• Investopedia, Bankrate, Doctor of Credit: Sites for comparing financial products like CDs and savings accounts.

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Final Note:
Joel and Matt continue to provide valuable insights and strategies to help listeners navigate their personal finances effectively. For more detailed advice and resources, visit howtomoney.com.

Transcript

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[Joel]

This episode is brought to you by Navy Federal Credit Union. At Navy Federal, it's been their mission to help members of the military, veterans and their families reach their financial goals. There are a lot of great flexible savings and investing options like certificates with sky high rates that allow you to add money anytime throughout your term.

[Matt]

Plus, Navy Federal gives you access to financial advisors and online tools to help you find the investing and savings plan that work for you. Sign up@navy federal.org Navy Federal Credit Union members are the mission. Savings products insured by NCUA Investment products are not insured, not obligations of Navy Federal and may lose value. The New Year's here, which is the perfect time to refresh those household essentials and score cash back rewards with Colgate Palmolive. Here is how it works. Buy up to $30 of Colgate Palmolive products, snap a pic of your receipt, upload it to cprewards.com and get up to a $10 digital Visa prepaid card. Again, that's cprewards.com start your year fresh.

[Joel]

By earning cash back rewards with Colgate Palmolive rewards available while supplies last. Limit Supply US Only January 1, 2025 through March 31, 2025 for full terms, visit cprewards.com welcome to how to Money. I'm Joel. I'm Matt and today we're answering your listene.

[Matt]

That's right buddy. So let's get to it. We're gonna hear from a listener who's asking about bnpl. And we're not talking about Buy now, pay later. We're talking about Baby Now, Pay later.

[Joel]

Oh snap. New acronym.

[Matt]

What could go wrong? Why not? If that's something that they're offering, that's what this listener is asking. We'll get to another listener who's thinking about forcing some equity into his via a basement build out. We'll give our thoughts there. And another listener, she's in a tough spot. She's trying to choose between saving some money versus paying off some high interest rate credit cards. We'll share our thoughts there. Plus we've got plenty more to get to Today as well, buddy.

[Joel]

Yeah. All right, quick. Frugal or cheap for you, though, before we dive in, you know I love frugal or cheats. I know you do. So. And I think I know where you stand on this, actually, because I was trying to convince my wife that she wanted some new tennis shoes, but the tennis shoes are expensive, and occasionally I'll wait for a sale to pop up, but she was like, I need them soon. Can you help me find a good deal? Weren't any good deals to be had on the new version? Yeah.

[Matt]

Is that what she was saying?

[Joel]

Whereas me, typically, I load up when there's a sale. I literally have, like, three boxes in my closet.

[Matt]

Do you really?

[Joel]

For the next pair of shoes to come down the pike when they're on sale, I get them and they're fresh.

[Matt]

And you've never worn?

[Joel]

Never worn.

[Matt]

Oh, my gosh.

[Joel]

Just ready?

[Matt]

You're like borderline tennis shoe hoarder. So are you talking about when I.

[Joel]

Get a pair of running shoes for like, 25 bucks that pretty solid that they're normally 100 bucks?

[Matt]

Or why not?

[Joel]

I'm going to load up and.

[Matt]

$25? Really? That cheap?

[Joel]

Yeah, well, kind of like, I can log into my.

[Matt]

What kind of Keds are you running around in?

[Joel]

I can log into the back end of the Adidas site and show you my recent orders.

[Matt]

That's an affordable shoe. So are you referring to the conversation we had at pizza movie night? Yeah, Last week. Okay, so.

[Joel]

Okay. So I. You actually, I think, helped convince Emily that a used pair of shoes, a gently used pair of shoes on ebay was.

[Matt]

Did I help the cause?

[Joel]

Yeah.

[Matt]

Did she say yes?

[Joel]

Yeah.

[Matt]

Oh, that's great.

[Joel]

So what do you think?

[Matt]

Well, she was. So she was push back against the idea of getting a pair of used shoes. And this is something I've done multiple times. Kate's done it as well. And I wonder if it was more Kate being able to sort of sway her opinion because as opposed, she looks at me and she sees you to a certain extent when it comes to cheapness, but, like, far less attractive version of me, a little bit shorter, half Asian as opposed to half Norwegian. But no, I think it's a fair question worth asking, you know, like, why is it that we feel so comfortable with buying used homes or used cars? Of course we're all about buying used cars, but when it comes to clothing or, you know, let alone shoes, there's a little bit of a negative connotation there. Folks are less willing to go to the thrift Store.

[Joel]

Personally, you love used underwear.

[Matt]

Definitely wouldn't do that, of course.

[Joel]

Well, I think draw the line somewhere.

[Matt]

This might be a helpful framework. And so maybe that's it. I think there. Let's introduce an intimate scale. Like there's this gradient. And the less intimate an item is, I think the more willing we are to buy used for it to have been something that someone else. Cause like, you go into your home, lots of people come through your house. You have guests over, you have friends over. There's no part of your house that's like up against your body.

[Joel]

Right. They're not like coming into my bed.

[Matt]

Right, exactly. But when it comes to clothing, especially something like shoes or, you know, the more extreme case that's literally called intimates is underwear. So I understand the pushback on that. But, man, the ability to snag a deal.

[Joel]

I think the one question that's really important to ask is how much usable life is left in this product? Because if it is incredibly gently used and you're getting a 50% discount essentially because someone wore it a few times and didn't love it or didn't fit quite right and that's why they're selling it, then you're getting a great deal. But if it has been, let's say, through half of its usable life and you're getting a 65% discount, I'm probably not willing to make that trade off. I would rather get the new thing and get most of the usual or all the usable life myself out of it.

[Matt]

Totally agree there. Yeah. Like, I'm not buying shoes that look like they've been used. Like these are quote unquote used shoes. And maybe they were worn for like a week or something like that. Or maybe they were. I don't like a department store that unloads a whole lot of open box shoes and so they've been worn around the store as people have tried them on or something like that, so they can't sell them. I'm totally fine with those kind of shoes. I'm not looking for a pair of shoes that look like they've been through the wringer already. Like the color starting to fade or there's like a lot of tread missing. Nah, that's like. Was it last week? That's. That's more along the lines of like you buying your used tires where it's just like, man, where did you get these tires?

[Joel]

Yeah, that was a bad idea.

[Matt]

As opposed to like a mismatched set of tires that are brand new, perhaps. Okay, that feels a little Bit different. Or a pair that was out on the showroom. Maybe because of that, it's got like kid fingerprints all over it or I don't know. I'd be totally fine with putting those tires on my car. In a similar way, when it comes to shoes, I'm not looking for a pair of shoes that are completely worn out or.

[Joel]

Yeah, this conversation is making me think that I need to go to the thrift store again soon. It's been too long. Thrift store's great. Yeah.

[Matt]

Especially with kids. Kane was just there. And especially when it comes to shoes for kids. Oh, my gosh.

[Joel]

They're not usually getting all the usable life out of it because their foot grows so fast.

[Matt]

There's so much. I mean, like, we buy almost what look like brand new shoes. And in a lot of cases, in a lot of instances, they are pretty much brand new and they're just shoes that the kids never wore. That's how my 5 year old got a pair of Adidas Sambas, like the indoor soccer shoe. That looks super dope. Yeah, I'm not gonna go out and buy those, but I'll certainly pick up a pair for three bucks.

[Joel]

Sure. Yeah, that's a good point.

[Matt]

I think I'm all for it.

[Joel]

In particular, for kids, stuff used is going to save you a lot of money. Those guys, they grow like weeds, you know, when they're. When they're young. All right, Matt, let's mention the beer we're having on this episode. This tequila barrel aged stout from Wicked Weed Brewing. It's a part of their dark art series. We'll give our thoughts on this at the end of the episode. And if you have a money question we'd love to hear from you. Just go to howtomoney.com ask for the instructions for how to submit it. But really it's just recording a voice memo emailing it over to us. All right, Matt, let's get to a question. And this one is specifically about optimizing debt payoff.

[Phil]

Hi, Matt and Joel. I have two somewhat related questions. The first is a medical bill related question. My wife and I recently had our first baby and have about a $2,700 bill that we owe. We have the cash to pay it right away. However, the hospital gives us 10 months of interest free payments. So at the end of those 10 months or 10 payments, the bill would be totally paid for without any interest. Or I could pay it all in a lump sum right now. But my thought is since I have a high yield savings account, I could just Leave the emergency. Or leave my emergency fund there and make the payments and continue to gain interest on that money. Curious to hear your thoughts about that. The second question is somewhat related and has to do with HSA accounts. I have a pretty full HSA account. Money is still going into it. I know you guys have explained the process of keeping track of those records of medical bills and getting the cash out later, but I was wondering if you could maybe explain that again or direct me to an episode that explains that in full details. Thanks. Love what you guys do. Thanks for all your help.

[Matt]

That's. Yeah. This question actually was from Phil. He didn't say his name, but of course he emailed his voice memo over.

[Joel]

That's money faux pas one there, Phil.

[Matt]

And he didn't say where he lives. So let's just pretend this is Phil from Chicago. I don't know if that's actually the case.

[Joel]

I was going to say Maui, but Maui. Yeah.

[Matt]

All right. Why not? I don't think we've ever heard from someone in Maui, but congrats on the new baby, Phil. It's great news for you and your family. And I will say $2,700. This is almost exactly what the average cost of having a baby is today with insurance, which isn't chump change, I'll say. But it definitely. It certainly could be worse because not being insured for that, it makes it a lot more expensive. This is something I've had personal experience with having four kids. We have. We explored all the variety of ways to pay for a baby because you.

[Joel]

Had traditional insurance for zero of the births.

[Matt]

One we did have traditional insurance for. I think it was funny because it was actually our second. We got Kate on healthcare.gov plan, but the first one, we're like, we're going to do this cash pay upfront. We're going to get all the discounts, see how low we can get. This bad boy. And it wasn't that low. It was around $10,000.

[Joel]

Yeah. But he's actually still significantly better than what most people who don't have insurance pay for the birth of a baby. But that's not.

[Matt]

That's still a lot of money, even. Still much more than. Yeah, exactly the scenario that you just mentioned. But there are other ways, I will say, because we tried different paths. Like, so we had health sharing. We thought that would help with the cost. That didn't.

[Joel]

It doesn't.

[Matt]

It does not. They don't cover that. And we knew that as well. But we're hoping that that with the different discounts that they offer that we would have been able to chip it down. I will say our most affordable baby was the last one because we got better and better at it. And it's also because we didn't give birth in a hospital. We were at a birthing center. And so for us, at least where we live, there is a quote unquote, you know, a birthing center that's not technically a hospital, they're associated with a hospital. So if you are looking, if there is an emergency, for instance, and you're looking for that peace of mind, they have the ability to get the birthing mother over there super fast. But by avoiding the facility charge of giving birth in a hospital, our last kiddo, our son, we were able to. I think we were out the door with like the prenatal care and everything. Total man. We were somewhere around like 7 to $8,000, which is pretty good. A lot better than the other three, for sure.

[Joel]

I think it's a good tip for maybe some folks out there, for everyone else out there who don't have insurance. Center. There you go, looking to procreate. Let's talk about Phil's question and let's first talk about the interest free payment question that he presented. You know, it's similar to one that we get about paying off a mortgage when you can make more in a savings account. It's kind of that arbitrage. Can I keep the money in savings? Because I'm going to essentially exceed the return that I would get otherwise paying down that debt more quickly. We're talking about vastly bigger sums of money when we're talking about the mortgage question. But we do indeed prefer folks to keep their savings intact along with their mortgage. Pay it down as agreed, all else being equal. But this question I think adds a little bit of nuance. There might be more similarities maybe with the interest free loans that some furniture chains offer. Matt, you've seen those commercials. It's like no payments, no interest till 2029. And people are like, all right, let me go get that couch.

[Matt]

Why not?

[Joel]

I don't have to pay a dime on it for a long time. But the fine print will screw you over in a massive way if you don't jump through the proper hoops. The penalties are insanely steep. It's essentially all the back interest that needs to be paid, ballooning the cost of the couch you bought. And it's similar with some of these hospital loans. Right. If you don't pay off your loan while the promotional interest rate is in Effect, you're going to also owe a lot of backloaded interest, which just makes this much more of a risky maneuver. Whereas like with the mortgage less risky, you can always say, I'm not going to pay it off now. Oh, but you know what? Six months later, the facts on the ground change. I'm going to choose to pay it off at this point in time. But with this loan, if you from the hospital, there is a chance that you screw it up and you end up paying a lot more than you thought. It doesn't end up being kind of the 0% interest loan that sounded so appetizing at the beginning.

[Matt]

That's true. Yeah. So with that in mind, I'm not sure that all that effort is worth the squeeze. I'm probably not going to recommend for folks out there to do this because you've got the cash. Just go ahead, pay the bill, be done with it. By doing that, you'll be able to declutter your mental space. And it's not like you're giving up much from a financial standpoint. If you so crunching the numbers, I think you'll be giving up around $100 in interest, which would have been taxable, by the way. So keep that in mind. It's not that I wouldn't reach down and pick up 80 bucks off the ground. It's just that I wouldn't attempt to over optimize in this way, in this decision that comes with just the downside risks that Joel just spelled out if you find yourself not paying attention. And that might happen, right? Like right now you're thinking I'm a pretty buttoned up guy. Well, like you might be having more sleepless nights. You might have more brain fog setting in than what you're typically used to.

[Joel]

I'm pretty sure my IQ dropped by about 18 to 22 points, Matt, in those early days of having a baby.

[Matt]

So I mean, and it comes down to the individual comes back.

[Joel]

I will say that, oh sure, yeah.

[Matt]

Yeah, you're not as dumb as you used to be, had your babies. But I guess I'm saying, like, I don't know if I would recommend this to most people if you are like a robot. Because I'm trying to picture myself in this situation and personally I think I would go through with it. But it's because I know that like I set reminders on the calendar, I carve that money out of accounts, I earmark it, I am incred disciplined when it comes to maneuvers like this to ensure that I don't end up Completely forgetting and then having it go into some sort of penalty interest territory. Certainly if we were talking about a large amount of money, right. Like, let's say if we were talking about $800 in interest as opposed to like $80 in interest, I think I would more widely recommend. Hey, yeah, let's jump through some hoops here.

[Joel]

The greater the sound, the more hoops I'm willing to jump through. It makes me think of getting like a bank account bonus with an online bank versus one of kind of the big banks. And I did this, like, probably 10 years ago, signed up for a bank account with Chase, and man, you had to, like, go into the branch and it just took a lot of time and effort. And I probably made, you know, 300 bucks for signing up for the account, for moving money around.

[Matt]

Did you have to make like 5 to 10 minutes of small talk with them? Yeah. To sell you on other products.

[Joel]

Just the hoops I had to jump through. The rigmarole of like, eradicating that account when I was done just wasn't worth it. Like, it was just such a frustrating experience. I was like, I'll never do this again. And my eyes would lie, especially back in the day, Matt, like 300 bucks when you're 26 years old or something like that. I mean, that's a lot of money. And so I was more than willing to do it. And then I realized even at the end of it, it just wasn't worth the effort. So I would, you know, take that into account, maybe count the cost ahead of time. Phil, this sounds like maybe it would be easier to pull off and you're not going to run into a giant bank bureaucracy. But still, there are potential pitfalls that you have to be aware of. Onto his HSA question, Matt, this is.

[Matt]

A twofer question here by Phil.

[Joel]

Two questions to one. I think that actually the birth bill offers the perfect case study because you now have a medical bill of $2,700 that you mentioned. You could, of course, tap your HSA for those funds now, but because the HSA, the health savings account, is so dang flexible. And we'll link to some of the articles we've written about HSAs on howtomoney.com in the show notes. Phil, you could continue to leave that money invested so it grows for your future. You could use cash that you have in savings to cover this $2,700 in expense that you have. When you think about it logically, I just randomly picked a number. Okay, 16 years. How much would $2,700 grow to in a 16 year time frame, on average, that money would quadruple. So a decade and a half from now, Phil could take the cash out based on his 2025 expense. You could essentially leave the remaining $8,100 for future health care expenses. That would be the growth on the money you invested inside of your HSA. So you pull the 2,700 bucks out then for whatever you need it for, and yet you've still got a big bundle of cash that's working for you, working for your future, and you can do the same with other prior health care expenses that you haven't tapped yet. I love the idea of leaving that money put if you have enough cash on hand to essentially foot the bill now so that you can grow your investments tax free for the future.

[Matt]

That's right. And that remain those remaining dollars you can tap for any reason, because money is fungible, of course, as long as you have the documentation proving you have other qualified medical expenses. So what that means is that you do need to keep up with your documentation. And so when it comes to record keeping, like you don't have to get fancy with it. This isn't some sort of super sophisticated thing. Like I would just take a picture of the bill to have a record, save it to like a Google Drive file for maybe that year and then just keep a running total in a Google sheet. You can make an HSA receipt sort of spreadsheet like that's what I would do. But there is, there are options using different budgeting software out there, like Personal Capital or ynab, where you can label healthcare transactions specifically and then you can go back to it, look it up. But then within those proprietary sort of systems, there's still a risk because are those sites going to be around forever? Is this, are these options or is this, what do you call it, usability that they're no longer going to keep up with?

[Joel]

Perhaps.

[Matt]

So it's just something to keep in mind. If it was me, I would do exactly what I said, keeping up, having that Google Drive folder for your HSA receipts and keeping a running total of those of the date that expense was made. A little description of it, the total dollar amount and the amount of that dollar amount that you have reimbursed to yourself and hopefully for a long period of time it'll be none because you're allowing those dollars to continue to earn.

[Joel]

Yeah, Matt, even though you and I have never had access to an hsa, sadly it is something we talk about frequently on the show because it is the this underrated investment account that people can take part in if they have a high deductible health care plan and they can grow money for their future tax free. Like, it's not tax deferred. It's not a tax break in the here and now. It's no tax on that money ever, if you jump through the documentation hoops. Right. And even. And if you're spending that money on qualified healthcare expenses. But again, what makes it so great is that you can incur the healthcare expense now and not take the disbursement until decades down the road. And this brings up another question, like, do you even need to keep receipts? And some people would say, I don't even bother. And part of this depends on when you want to tap those funds. So if you don't need any HSA money, if you're like, I'm not going to use it until I'm in my mid-60s, well, if you don't need it until after age 65, you might not even need to go through the hassle of keeping receipts. But I think it's a minor hassle and I think you still should if you want to use your.

[Matt]

Yeah, it just gives you options to be able to pull some of that money out before full retirement.

[Joel]

That's why the HSA can be so powerful in particular for early retirees, because you can start to draw down on that fund when maybe other dollars that you have invested for your future are just too hard to get or they're going to cause too much financial headache. You're going to have penalties for accessing that money early. And so, yeah, let's say you wanted to use your HSA to pay for Medicare premiums, though, later on in life. Well, you don't need receipts for that. Still, I guess I just like the idea of tracking for flexibility purposes. The HSA is just one of the best accounts because it is so darn flexible. And also, don't forget that an HSA can effectively turn into a traditional IRA later in life, but then it loses one aspect of that triple tax advantage. And the ideal at least is to get the triple tax advantage on the majority of the dollars that you're sticking in that account.

[Matt]

Yeah, but what you're highlighting is that you don't have to worry about overfunding that because eventually you'll be able to draw down on that and pay taxes on that income just like you would with the traditional ira.

[Joel]

Yep.

[Matt]

But Joe, we got more to get to. We're going to hear from a listener who's expecting to make bank in the near future. We'll hear from him plus others right after this episode is brought to you by Navy Federal Credit Union. At Navy Federal, their mission is to help members of the military, veterans and their families achieve their financial goals. That's why they offer great savings and investing options like certificates. Certificates come with sky high rates, and some even have the flexibility to add money anytime during your term.

[Joel]

Whether you're saving for a home, a new car, or your future, their options could help you get there. And certificates are just the beginning. Navy Federal also provides financial advisors to help you manage your investment portfolio, along with online tools to guide your savings plan. With their support, you'll have everything you need to take charge of your finances. So don't wait. The sooner you start building your financial future with Navy Federal savings and investing options, the better off you could be in the long run.

[Matt]

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[Shane]

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[Joel]

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[Matt]

That's right. And Joel, I will say as I get older, I think attempting to minimize regret, that has been a helpful lens in order for me to view the world. It helps me at least to make good decisions. And if that resonates with you, we'll get this. 40% of people wish that they had gotten life insurance at a younger age. So we're trying to help you out here by getting policygenius on your radar. Let's get rid of that could've, should've, would've regret. And I love that you can compare quotes from America's top insurers side by side for free with no hidden fees. It's the best online insurance marketplace out there.

[Joel]

Yeah. Secure your families tomorrow so you have peace of mind today. Head to policygenius.com to get your free life insurance quotes and see how much you could save. That's policygenius.com all right, Matt, we're back. Now we got a question about making an investment in your home. What's the best way to go about it?

[Kade]

Hey guys, this is Shane from Madison, Wisconsin. Somewhat new listener and a first time caller and I have a question about finishing a basement and doing a home renovation. My wife and I are expecting our first child in a few months, so we're looking at ways to add space to our current home. We did buy our home in 2020 when rates were low and therefore it doesn't really make sense for us to move or do a cash out refinance. Rather, we're going to try to finish the unfinished basements in this, utilize the space that's already there. We have about 700 square feet. Looking to add living space, bedroom and a bathroom. My question then is what are some of the best ways to fund this? From my research, I feel like a HELOC is a good option. However, rates are still somewhat high on that. Do you anticipate rates continue to fall? Any insight into a HELOC might be helpful. We do have some money saved up, but not enough to fund the entire project. It's probably about 60,000, maybe a little bit more. Any advice on this would be appreciated. And my beer recommendation is a spotted cow from New Glarus Brewing Company. Very fitting for Wisconsin. Thank you. Really enjoy the show. Have a good beginning. Start to 2025.

[Matt]

All right, how does Shane, fund that basement. Before we get nerdy with the money, let's talk about beer because he mentioned New Glarus. Why does Spotted Cow have such a cult following?

[Joel]

That's a good question. It is a great beer and Nuglaras makes it really good.

[Matt]

It's fine. It's a solid beer, but it's not like. I feel like it carries. It carries more cultural clout than the beer itself does. You know what I'm saying?

[Joel]

I think my favorite beers that New Glarus makes are actually some of the fruited beers. They're really delicious. But yeah, Spotted Cow, I guess we.

[Matt]

Had like a blue. Like a wild blueberries, something about a lake. That was. That was a New Glaris, wasn't it?

[Joel]

Oh, maybe that one.

[Matt]

Maybe new. I don't. I can't remember specifically. We haven't had Spotted Cow. We have had it on the show, but it was back in 2020, back when Shane was buying his house. We actually enjoyed it on the show. I think you were up there for some reason and you came back with some.

[Joel]

Maybe. Well, I feel like.

[Matt]

Or is it Michelle, your. Oh, it could have been your tenant at the time. She's. She's from Wisconsin.

[Joel]

That's right. That's right. I think her dad brought some down or she brought some back for me. Yeah.

[Matt]

Yeah, that was fun.

[Joel]

Well, I think New Glarus, too, is one of the original independent breweries from that region of the US In Wisconsin. And I've never made it out to the brew pub, but apparently their actual brewing system, I believe, came over from Germany. It's super legit and it's like a beautiful brew pub, so love to visit someday.

[Matt]

Yeah, add that to the list of places to visit while in Wisconsin.

[Joel]

For real. Right. But let's get to Shane's question. Congrats on the baby coming soon, by the way. And Matt, Shane asked about rates are headed. Where are rates going in the near future?

[Matt]

Might make you feel better about taking out that HELOC rates are going to go.

[Joel]

If rates are going to go down, then, hey, the HELOC does look less bad. Like a solid option, really. It's anyone's guess. A lot of folks were pretty certain that we were in for dramatic rate declines in 2024 and in 2025. But all signs, at least the tea leaves I'm reading, Matt, point to rates remaining a lot more sticky for the time being, which is great news for savers. Not so great for folks who want to borrow big chunks of money, though. Still, I Don't think it means that Shane should not borrow any money for this renovation. But I guess just know that kind of predicting rate patterns, where they're going, what's going to happen. Like, I can tell you what I think, and it certainly looks less likely the rates are going to go down in the near term. But it's been really fascinating to watch people be so wrong in their predictions on rates and what it would do to housing prices. And people have been wrong on those economic predictions a lot in recent years.

[Matt]

Yeah, man. The last four years, there's been a whole lot of unprecedented territory that we've entered into. And I feel like if there's anything that we've learned or should have learned is that it's really tough to predict anything after a pandemic, after the world shuts down.

[Joel]

A little humility goes a long way.

[Matt]

Totally. But the basement. I love basements, man. I'm so jelly of Shane. I feel like out in the Midwest, basements are. They're a little more dime a dozen. Like, I think of, like, I've got family in Missouri and Illinois. They've all got basements. They're amazing. They do all sorts of awesome stuff down there. Start businesses, extra space for kids. And by doing that, Shane, you're talking about increasing the value of your home and potentially being able to use that space to increase your cash flow. Although you didn't see that specifically. All without having to add any additional square footage. It doesn't sound like you're planning on renting it out. You're likely going to need it for the baby. But that is often a part of the appeal for a lot of folks because you got the walls, the roof. They already exist. You might have to do a little waterproofing. I'm not exactly sure how it works.

[Joel]

Yeah.

[Matt]

But it's just a much more affordable endeavor than to, let's say, build an ADU from scratch, if that's even something that your city, that your community allows. Basements are where it's at, man. I love them.

[Joel]

I mean, think about Matt. You're actually adding square footage to your house right now. How much cheaper is it if the square footage exists? But you just have to finish it up. Right.

[Matt]

I so wish that there was an unfinished basement that we would have had.

[Joel]

This is why. Yeah.

[Matt]

It's painful.

[Joel]

This is why you're jelly.

[Matt]

Yes.

[Joel]

Yeah. So, I mean, I think it makes sense if you have the unfinished space. It's just so much cheaper than the alternatives that Shane mentioned. In particular, that he's Got the locked in, low rate. Like, why go and find another way to get the space you need? This is going to be easily the most fiscally responsible way of doing that.

[Matt]

Shane's probably got a 30 year locked in at 3%. He's not going anywhere.

[Joel]

Exactly. So what about borrowing to fund this renovation? Well, ideally, you know, always we'd like to see folks save up and pay cash, but that's a tall order when we're talking about a $60,000 renovation. You are likely going to have to borrow, at least for the renovation at rates that are nowhere near what you saw in 2020. You might be a little shocked when you start looking around at local borrowing options. You might be looking at paying in the neighborhood of like, I don't know, 8 to 9%, probably on a HELOC right now. Yeah, part of it depends on your credit score. Hopefully you got a high credit score and that's particularly, I would say, from a local credit union. That is, from all the data Matt and I have seen over the years, the best place, shop at a couple local credit unions because they have better borrowing terms than you're going to get at most banks. That is just a majority of the time sort of thing. I don't think though, 8 to 9% rate should scare you off completely, should cause you to avoid borrowing for this renovation, but I do think it should cause you to keep expenses as low as possible and then also make sure you have a reasonable payoff timeframe so you can eradicate it and not keep it around for like eight, nine, ten years to come.

[Matt]

More like three years or less, I think. I just want you to be super careful about this. I will say that the nice thing about going with a HELOC is that if rates do end up dropping, well, you're going to pay less on that debt moving forward, which is great. HELOCs, they oftentimes, especially from local credit unions, come with no closing costs. So that's nice. So just shop around and see if you can find yourself the best deal. And hopefully you don't even have to take out a full $60,000 HELOC since it sounds like you do have some cash on hand. Like, I wouldn't completely obliterate your emergency fund to pull this off. But also, don't be afraid to use some of that cash to help minimize what it is that you're going to borrow in order to pull this project off. And maybe spend some time playing with a HELOC calculator as well, because I think that might be Able to open your eyes as to what it is that you are signing up. Because, like, let's say you are. Cause I. I played with the numbers a little bit before we hit record, and on a $60,000 loan at, like, let's say eight and a half percent, you're looking at. It's like, okay, $500 minimum payment. That doesn't seem too bad. But that's for the minimum payment. If you were looking to eliminate this thing in, like, three years, you're looking at putting somewhere close to an extra $2,000 towards that thing every single month, which. That's a lot of money.

[Joel]

Hard to scrounge up for most of us.

[Matt]

Yeah, yeah. And so, I mean, I just, I want. I'm not saying this to scare you, but this is a part of your due diligence that you know what it is that you're getting into by going. Like, I don't just want you to think about, well, no, this is important to us and this is what we're gonna do. We'll find a way to make it work. And while that might be true, if you do it, you will find a way to make this work. I want you to be able to know what you're getting into, to be able to boldly make that decision. Your eyes are wide open. And then, man, go for it. Go after it. As long as you have taken those steps and you've crunched the numbers, makes.

[Joel]

Me think, too, that I don't know if this basement Renault should cost 60 grand. I mean, I guess it depends on what's going into it, but I'd say.

[Matt]

Like a living, a bed and a bath as well.

[Joel]

So, I mean, that sounds reasonable to me.

[Matt]

Yeah, it seems reasonable.

[Joel]

But also think about, well, I don't know if I'm going to get some of the materials at, like, the Habitat for Humanity restore. Why not Think about all the ways.

[Matt]

This is the basement. No one sees this.

[Joel]

That's right.

[Matt]

It's just the extra bedroom.

[Joel]

Think about the ways that you can cut a couple grand off the cost here and there. And heck, maybe you get the $60,000 Renault down to $48,000 and you saved up 10 grand. So all you're borrowing is 38, then I don't know, anything you can do to reduce the amount of money that you're paying 9% interest rate for, for years to come, the better. So just maybe leave no stone unturned on that in order to just reduce the cost. And you're right, Matt. The basement, it's like it's not like you're renovating the half bath on the main floor that every guest uses and you're like, I want the finest tile, something like that, or a really nice sink. It probably can be a little more utilitarian down in the basement.

[Matt]

Yeah. And even this is, I don't know, I'm afraid this is going to sound a little ratchet, but like get what it is that you need completed. But then after that maybe you can even start to cash flow more of it, right? So let's say you put 20 into it. You're able to use the space for what it is that you want to use it for. But then maybe over the next couple years you're able to cash flow that thing. You've got the home equity available to you, but you're not tapping that. And then you're going to be able to avoid paying an additional 5 or $10,000 in interest payments because it's something that you've been able to avoid.

[Joel]

And don't sleep. On Facebook Marketplace. I had a buddy who just did a massive renovation and he kept barking at me about all the deals he was getting on Facebook Marketplace.

[Matt]

Do you remember what's the best deal that stood out to you?

[Joel]

I mean, range is one of the things that he highlighted. He got like a really, really nice one.

[Matt]

Viking or a blue star.

[Joel]

It was something, I don't know what it was called. Wolf maybe is when it was out. Wolf, I want to say with a V. I forget how much it was supposed to cost, but I want to say it was like a $20,000 range. Some crazy something like that. And he got it for like less than half the price. So even still, I know it's still expensive. Oh my gosh. But I mean, rich friends, he's got high end taste.

[Matt]

It's so expensive.

[Joel]

He's restoring like this beautiful old house. And so it's, it fits in nicely. But yeah, you've had Kate's cooking. Too rich for my blood.

[Matt]

You know what kind of stove we're cooking on over.

[Joel]

It's one of them like $600 ones.

[Matt]

So like they got the electric. Although I will say with you don't.

[Joel]

Need the fancy stuff to make good tasting food.

[Matt]

And that's what you need to keep in mind. Like this doesn't need to be a fancy space in order to be able to grow your family. There's ways you can do it, do it on the cheap. I'll quickly share that. Adding a gas range to our project, we just realized that that Might be something that we're in that we're doing because our current electric range, we need the space on the electrical panel because it takes a whole lot of amps to power the electric stove. And we're talking it through and she's like all. We're like right on the edge as to the amount of space we need from an electrical standpoint. And our GC pointed out that, hey, actually if you don't have an electric range, if instead it was gas, we could, it wouldn't need to be on that dedicated whatever breaker when the H VAC guy shows up to run natural gas to the new furnace. Maybe you run a line up there and all of a sudden Kate's like, her eyes got big and she's like, oh, yes, yes, please. This is going to save us money, babe. Don't you understand? You got to spend some money to save some money.

[Joel]

I guess sometimes. Sometimes. All right, Matt, let's get to another question. This one comes from a listener who's got a retirement trade off question as he and his family are set to move.

[Melissa]

Hi, Matt and Joel. I'm Kade from North Carolina and I have a question regarding my wife's pension payout and an IRA conversion for some background. I'm in a PhD program in chemistry and my wife is a school teacher. By default, 6% of her salary goes toward our state's pension plan. But in order to become fully vested in that plan, she needs five years of service. I'm currently on track to graduate later this year, which comes with a decent probability of moving out of state, which means that once we move, she will only have four years of service contributed to the pension. She will be paid out all of her contributions and growth that has happened since she was hired, which will total around 10 to $15,000. I'm currently trying to look at two options of where to put this money. One, to put this money into a traditional IRA through Fidelity, where we both currently have our Roths, or 2, to put this money into her Roth IRA and eat the tax bill during the first year of my new higher paying job. I'm leaning towards option two as it is pretty likely that because of the field I'm going into, our household income may one day be over the limit to qualify for Roth contributions. And I would like to have the backdoor Roth as an option for her down the road. I'm not sure though if it makes sense to do the conversion and pay the taxes or to go with option one and wait to see if she's able to roll those funds over into a new employer's 401k or 457b plan after we move. I am 28 and she is 26, so we still have a lot of years before we plan to retire. And I appreciate whatever advice you may have on this topic. Thank you. And I love this podcast.

[Matt]

All right, sounds like Cade sitting in the catbird seat. Joel sounds like he's got a few options here laid out before him. He's got a wife with a solid job who's got a pension, which is totally awesome.

[Joel]

That's actually, that was a prerequisite for me marrying my wife.

[Matt]

You've got to like, you got to come to the table. That's right. Dowry, slash pension.

[Joel]

It was all part of that pre marriage negotiation, Matt.

[Matt]

I will say so. His, his wife's pension story is not uncommon. The days of staying in one place for like decades, for like 30 years and getting the max eligible pension, that's incredibly rare these days. It's just not how folks are living their life.

[Joel]

And for folks, or how businesses are living their lives or.

[Matt]

Exactly. I mean, they're like getting yanked left and right. But even for folks who do have access to a pension for a while, like, they just may not be there long enough to receive any benefit. That's going to kind of move the needle for them off in the future. We've actually had some questions from some New Yorkers working in public service who have a choice between a pension and a 401k like product. And we almost always will recommend the latter, not the pension.

[Joel]

All right, so in this case, in Cade's particular situation, your wife is still going to be due some money for her years of service, which is great. I mean, that's the way it should be. But what should you guys do with those funds? Should you go Roth traditional? Should you hold off? And this is in some ways, Matt, kind of a classic personal finance question. And it's interesting, we've had different guests on the show who have said different things, and I do think there's some nuance to this argument. It depends on some of the details. Some previous guests would say Roth no matter what, always and forever. If you have access to contribute money.

[Matt]

To a Roth, that'd be the Ed Slots of the world.

[Joel]

That's right. But then on the other side of the coin, some of our former guest would say always traditional. You can plan better because you can essentially dial in your tax bracket in future years by going traditional. And you can always convert to a Roth down the Road.

[Matt]

That's the Sean Mulaney argument.

[Joel]

That's right. So I think there's wisdom potentially on both sides of the aisle. And so, yes, there's nuance, there's debate in this, and rightly so. I tend to agree with Cade's analysis here of putting this money into her Roth IRA and just paying the fairly known tax bill. Since you've got the ability to do so, I think why not get more money into the Roth? I also just don't think this decision needs to be a complex one. And I typically just err towards the side of the Roth a la Ed Slot myself.

[Matt]

Kind of take the simplicity route. Yeah. And the reason for that too is because you might not be able to contribute in the future. And this is something you mentioned, which this is actually a great problem to have because it means you're going to be crushing it on the income side. But if that is where things are headed, it means funding the Roth to the max while you can. Like right now, it's even more important because if you foresee significant income escalation, taking that burden the hand from a tax perspective, that seems super wise. Why not load up on the Roth in the years where you can, where it's even available to you, where you are eligible for it, and then you can take the traditional route to save on taxes when your income is sky high at that point.

[Joel]

Makes me think, Matt, if I had the offer of eating as much brisket as I wanted to, I wouldn't be able to eat it for a whole year or something like that. I'm going to load up on as much and I'm going to remember that day probably with fondness and a little bit of regret because I probably would have overdone it. And don't forget, you do have to be prepared to pay tax come April of next year. You mentioned that. And you mentioned that you had that cash on hand, which is great. So just make sure to keep that cash on hand. It's probably going to be, I'm guessing, a few thousand dollars, which isn't insane, but you don't want to not have it when the time comes. And the other reason I think, Matt, to go straight to Roth despite having to pay taxes now is the backdoor Roth option that Cade mentioned. Because if you have money sitting in a traditional ira, it just makes that move more complicated. And I like the idea of not having money in a traditional ira, having it all in the Roth for simplicity sake from that sort of money maneuver.

[Matt]

Too, I think it's worth Highlighting here like he's, did he say he's a chemist? Like and he's finishing like he's getting his PhD or something like that. He is going to be making bank. And if you think that at some point you're not going to be able to contribute to a Roth ira, married, filing, filing jointly, that means, I mean this year at least like your, that means your income is going to be getting close to $250,000, which again great problem to have, but what I'm pointing out here is that we're talking about 10 to $15,000. That's not a large amount of money right now. It seems like it's a large amount of money because you're still in school and you're maybe you've only been living off of one income and that income has been a teacher salary.

[Joel]

But like 10 years from now, K, that's going to be your caviar budget.

[Matt]

You know, future Cade is gonna be looking back at 27, 28 year old Cade thinking, man, I'm glad he made the right decision. But also future Cade is gonna say to himself, I'm so glad he didn't, he didn't sweat the details when it came to this because yeah, I got that PhD in chemistry and I'm working for the big chemistry company. I don't know what chemistry.

[Joel]

I don't know anything about chemistry or something like that. I don't know.

[Matt]

Oh yeah, yeah.

[Joel]

And then it's just a drop in the bucket for the down payment on.

[Matt]

I mean when you're making bank smaller amounts like that, they don't quite matter as much. But taking the proper steps, digging into it, doing some research. Now I don't want to at all discount the effort that you're putting into this right now because you are doing the smart thing right now.

[Joel]

So much of what you're trying to do in this too is you're trying to potentially project future tax rates in the United States and you're also trying to project your own future earnings, which neither of which you can do perfectly of course. So we're all at least partially shooting in the dark with a question like this. But I think with that shot in the dark there are like shadows that we can see of future income of what's going to happen with tax rates even though we can't see anywhere close to perfectly. All you can do is make the best decision with the information you currently have. And I would take the Roth position. I actually did take the Roth position. Matt, we talked about this on the show a cash out of a pension that I had instead of it just seemed after running the numbers that was the best decision for me. Instead of waiting to take the monthly payment of 65, boom, take the Roth contribution lump sum, invest that stuff and then watch it grow over decades to come and never have to pay tax on it again in the future. I'm going to have to pay tax in just a couple months at tax time. But I went into that eyes wide open knowing that was going to be the case. And I'm glad that I made that decision, even though I can't say that it's the most optimized move to make because I'll only know that in retrospect I can only go based on kind of history and the data I have on hand.

[Matt]

Although I will say I just thought of something else, which is that he mentioned paying the tax bill within during his first year of employment after he gets his degree because that's what's going to force them to move. And I have no idea about the pension that your wife has, but if there's any way for her to cash out sooner while you are only making a single salary, a teacher salary, and you have the ability to pay the taxes at that lower tax rate, I'd be interested in somehow seeing if I could maneuver that. I don't know if that makes may not even be an option, but again, I just thought of the fact that you've talked about paying taxes with that new bigger salary after you've moved. But if there's any way to avoid that, I would certainly be looking into that. Yeah, but Joel, we've got more to get to. We are going to hear from a listener who's looking to invest in a way that's going to get him some guaranteed returns. Is it even possible? We'll get to that more right after this. This episode is brought to you by Navy Federal Credit Union. At Navy Federal, their mission is to help members of the military, veterans and their families achieve their financial goals. That's why they offer great savings and investing options like certificates. Certificates come with sky high rates and some even have the flexibility to add money anytime during your term.

[Joel]

Whether you're saving for a home, a new car, or your future, their options can help you get there. And certificates are just the beginning. Navy Federal also provides financial advisors to help you manage your investment portfolio, along with online tools to guide your savings plan. With their support, you'll have everything you need to take charge of your finances. So don't wait. The sooner you start Building your financial future with Navy Federal savings and investing options, the better off you could be in the long run.

[Matt]

Sign up@navy federal.org Navy Federal Credit Union members are the mission savings products insured by NCUA Investment products are not insured, not obligations of Navy Federal and may.

[Joel]

Lose value and now a word from our sponsors at Betterment. When investing your money starts to feel like a second job, Betterment steps in with little work life balance. They're an automated investing and savings app, which means they do the work.

[Matt]

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[Joel]

Money hustle with Betterment. Get [e-mail] that's B E T T E R m e n t.com investing involves risk performance not guaranteed.

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[Joel]

All right, we're back from the break. Still taking your money questions. Man, we got to get to the Facebook question of the the week. This comes from the how to Money Facebook group which if you're on Facebook and you want like minded folks to offer money advice and to help other help your fellow listener out, you can just type in how to Money in Facebook and you'll find the how to Money Facebook group. It's chock full of awesome folks. All right, Matt, this question comes from Melissa. She says I'm living paycheck to paycheck and I'm not sure if I should try to save or pay off high interest credit card debt. This is a classic personal finance question too, right? And first off, I gotta say I'm sorry to hear this Melissa, that you're living paycheck to paycheck and I don't know Matt, how reliable the stats are. About like 50 to 60% of Americans living paycheck to paycheck. That's the stat we see every single year. I've seen some debunking of that claim that more Americans actually have more cash on hand than they let on in some of those surveys or the surveys that are done just aren't thorough enough.

[Matt]

It's the hard hearted researchers who are like, oh, they're fine.

[Joel]

I don't think that's what they're attempting to do. Yeah. I just think it's the ones who they stand to benefit from the headlines of making it sound like more Americans are living on the financial precipice. They just don't have a detailed enough methodology in the way of doing the survey. But still, that doesn't mean there's not too much of the country who is living paycheck to paycheck.

[Matt]

That's a real thing.

[Joel]

They'd be utterly devastated if they were to miss a single paycheck, which is something we want people to avoid. You and I can't fix the tragic reality, but we are trying to do our part when it comes to financial literacy because it does make us sick realizing that there are a lot of people who are in that situation. And the truth is there are actually a lot more individuals in this situation who can do more than they think about it. The state of financial literacy in this country is dismal. But a little bit of financial literacy in your life I think can go a long way, especially for people kind of living on the margins right now.

[Matt]

Totally. And this question is one of the first ones we typically hear from anyone out there who we encounter who is in a similar situation to yours, Melissa, and the money gears that we created. I think they should help to inform the answer to this perfectly and basically to just go ahead and answer your question. Should you save or pay off that high interest credit card debt? Save first, we want you to amass a $2,467 emergency fund. And this is based on old research. Maybe today that's more like 3467, something like that. Yeah.

[Joel]

I would be curious to run the.

[Matt]

Numbers, maybe to even round that up to, I don't know, 5,000. But having a base in your savings will be able to just alleviate some mental stress. It's going to ensure that you can cover an emergency that might come along because we want you to get rid of that credit card debt for sure. But not until you've saved up that bare minimum amount were you to skip that step instead of and instead start chipping away at your credit card debt like, yeah, you might make a little bit of Forward progress. But then boom, you got that big unexpected expense that comes up. You don't have any cash on hand. Where does that charge go? It goes right back on your credit card. It feels like you made progress, then you end up sliding back down into the same spot. It feels like you expended a whole lot of energy. And that's not the sort of headspace that we want you in.

[Joel]

Like, it's like Chutes and Ladders.

[Matt]

Matt. Yeah, I guess so. It's been a while since I've played.

[Joel]

I played with my son. He cheats every time. It's adorable, but because I just don't think he realizes that he's che cheater.

[Matt]

But when you start tackling your credit card debt, we want, like having that cash cushion on hand is going to allow for that credit card debt payoff to be permanent as opposed to something that you slide back into.

[Joel]

But it really is like you hit the ladder, you go up and then you hit a slide and you go back down. And that's what it feels like. I think if your efforts are to pay off the credit card debt without amassing any sort of savings. So I do think, yeah, you're right, Matt. That initial emergency fund, not the three to six months of expenses yet, just that basic bare bones e fund, that.

[Matt]

Cash in the bank, that's the first step.

[Joel]

And then the next step is to pay off the credit card debt. And depending on how much credit card debt you have, this could be a multi year process. For most people it takes many, many years to get into a significant amount of credit card debt. And then they're like, cool, can I get rid of it in two months? And the answer is typically no. It's going to take a little bit more of a sustained effort. But we want you to get beyond paying the minimum amount because that would keep you in debt for decades. We talked about this on a recent Friday flight. How the average credit card debt, let's say it's in the neighborhood of 10 grand. If you pay the minimum amount every single month. You're talking about multiple decades of being in credit card debt and a lot of interest that you're going to fork over. In the meantime, you're likely going to need to change some habits and reassess your spending too. A bare bones budget is something we talk about on the show. We have an article we'll link to in the show notes about it. It's not for everyone and it's not for all time, but it could be a big help as like a Short term maneuver essentially to help you grow the gap between what's coming in and what's going out each month. That'll help you make progress on both the savings and the debt payoff fronts more quickly. So maybe a bare bones budget for two to three months. Right. Saying, listen, I'm cutting back to the bare minimum so that I can make more rapid progress in this goal. I think that's a good way to handle things for a lot of folks.

[Matt]

Totally. And you said that the next step after the emergency fund was to pay off that credit card debt. Technically speaking, if when you look at the money gears, and this isn't something that you asked about, Melissa, but make sure that you aren't skipping a match at your employee, at your employer, if that's something that's available to you. Because even though you might have some high rate credit card debt, a match is either a 100% return on your money or a 50% return on your money. And even with the worst credit cards out there, like a, like a retail, like a Macy's credit card or something like that, 34%. Yeah. Or a credit card that has like a penalty interest rate that you're getting slammed with, that's still at least 20% less than what it is that you'd be making on your money were you to get your match. So keep that in mind. But we understand your focus on savings and eliminating that credit card debt because it feels like the thing that is most urgent. But don't forget about the 401 match. But assuming though that you are now moving on to that debt payoff phase, like Joel said, this could take a really long time. And as you're trying to find ways to maybe optimize the best way to pay that down, we would recommend for you to check out a website called Undebt it. So it's undebted. In order to create a plan as to whether you should be taking more of the snowball method, whether it's more of an avalanche method, maybe a mixture of the two, if you are in completely overwhelming amounts of credit card debt, we would recommend to reach out to an organization like Money Management International. But all that to say, keep listening to the show, keep asking questions over in the Facebook group, and we would totally recommend for you to reach out to us directly if you think we can be of any help in any way.

[Joel]

We wish you the best of luck, Melissa. You're not alone in this predicament and you can claw your way out. Many how to money listeners have and hearing Those success stories, Matt, of how people have been able to completely change their financial future, even with like a difficult past, it never ceases to amaze and inspire me. All right, let's get to another question from listener Andre. He says, does anyone know of a one year investment I can make that would guarantee more than a 3 to 4% return? I know of CDs that offer 3% to 4%, but I thought I'd ask if there are better options. Key word here being guarantee is what Andre said.

[Matt]

Nope, doesn't exist. That's the tldr. At least not like a quote unquote investment. Because if you have let's, you know, if you've got a high to medium interest rate debt, well, paying that off, I would say that would generate a quote unquote guaranteed return. But short term guaranteed investments, like they just are not a thing. And so the choices that you have here, they're really just finding the best rates for storing cash. High Yield Savings Accounts, they're great, but they're also not guaranteed. We've seen rates going down for savers as the Fed has lowered interest rates slowly. CD rates, they are guaranteed for a period of time, but then the starting rate of those can be a little bit less than what the High Yield Savings Accounts are currently paying. Bottom line, you should be able to get like a 4ish percent rate without needing to actually invest or take any real risk.

[Joel]

Yeah. And we're talking about a timeline that's that short a single year. Sorry, there just isn't any investment that is worth partaking in because the risk is just too high. When we're talking about investing money, could the returns be significantly higher than that? Sure, of course they could be. Think about the stock market in 2024. If you had stuck the money in the stock market on January 1st and then taken it out on December 31st.

[Matt]

You would have forget 4%, 25%, baby.

[Joel]

You would have done much better than sticking in a savings account. But that's not guaranteed. You could have experienced a year like 2022. I think the choice too between a high yield savings account or a CD is actually kind of a tough one right now. Now, because if you want to guarantee, you go with a cd. But here's the thing. You and I, we don't expect yields to fall meaningfully for savers, but they could. And so much of that depends on the Fed. It depends on the current administration. And the best CD rates, they're in that 9 to 13 month range right.

[Matt]

Now, right out of year Time frame, which is perfect for Andre.

[Joel]

Right. I would check out a site like Investopedia Bankrate, Doctor of Credit. They typically list the best offers. And the best that I saw, Matt, is I was preparing for this question was Marcus and Synchrony. They seem to be paying top rates. But then CIT's high yield savings account rate, it's just as good if not better than what those guys are offering on a cd. But that's a savings account and that rate is subject to change if the Fed lowers rates by half a point or something like that. Guess what? The rate you're earning on savings is going down. So it's not guaranteed.

[Matt]

You could see a drop.

[Joel]

Yeah, I don't know if you feel comfortable with no guarantee. The high yield savings account I think can make a lot of sense. If you want want the set in stone, the contractually obligated guarantee that you get with a certificate of deposit, then I think that can make a lot of sense too. Just make sure you're not going down to your local financial institution brick and mortar and opening it up because the trade off that you're going to make, yeah, you might get like, oh hey, we got 2% rates on CDs right now and that's just not competitive with what you're able to find if you just do, you know, a little bit of sticking.

[Matt]

Yeah, a solid one online. And on that note, I will say don't go chasing return returns. Don't go with some sort of Neo bank. That's promising. Hey, we are offering a four and three quarter money market account because there's no free lunch. And if there's anything that we've learned about the Neobanks, nobody suspected that there might be a small regional bank that could collapse. But ever since Silicon Valley bank, it's like, oh, I mean that was always a risk but now it feels a little more tangible, like a little bit more real of a risk. But then like yes, you might get a slightly higher rate with some of these online banks, but there's other things that you're giving up as well, like actual customer service if you need to get a hold of them or transfers that are happening in any sort of timely manner. I mean, so all that to say if it was me, I would not be looking to completely juice my returns by going with some of these new Neo banks that you've never heard us talk about as opposed to the banks you hear us talking about all the time like Discover, Ally, CIT and even Marcus and Synchrony. Those are both Mentioned.

[Joel]

Those are both legit online banks too. All right, Matt, let's get back to the beer we had on this episode. This one is a tequila barrel aged stout by Wicked Weed Brewing. What were your thoughts on this? Beastly stout, my friend.

[Matt]

Yeah, it was big, wasn't it? So this is very similar to the one that we had a couple weeks ago. That was the rum barrel aged. This is just the tequila barrel aged.

[Joel]

Yeah. I'm guessing it's the same based out.

[Matt]

I'm assuming so. Yeah.

[Joel]

Tastes like it.

[Matt]

I will say I'm not sure if I tasted the tequila like in the rum barrel. There are clear rum notes. I think I remember saying it tastes like there are raisins in here that have been soaked in actual rum that were like macerated and put back into the bottle. Whereas this, there's no part of this that tastes like a margarita to me.

[Joel]

What about you? No, I will say I got like maybe some of the earthy vibes a little bit.

[Matt]

Okay. Yeah, yeah, that's a good way to describe tequila. It's kind of tastes like soil. Like wet earth.

[Joel]

Yeah. So I thought it had a little bit of that. But yeah, not nearly as much as the rum. But this was like big, burly, semi sweet, little earthy and just incredibly complex. There were just a lot of different flavor notes going on. Which just goes to show that Wicked Weed, they make great beer. And then the way they blend the beer, I feel like there's. The blending is kind of like an underrated part of the process. And I don't know much about it, but from what I can tell, this is a well blended stout because you're using multiple barrels and you're trying to create a finished product that's kind of seamless throughout all the bottles that you're making. Yeah. And I don't know, man, I like this beer a lot.

[Matt]

Yeah. I feel like you can taste some of those brown sugar notes, maybe even a little bit of honey. It's almost as if it's a dark art to be able to pull something like this off. We are not paid by Wicked Weed. Just a little disclaimer out there for.

[Joel]

Folks, but we're willing to be.

[Matt]

But that's gonna be it for this episode. Listeners can find our show notes to some of the different resources, some of the different articles that we mentioned during this episode up on the [e-mail] hey, leave us a solid review if you've been enjoying the show. And that's not something that you've done truly. Other than like telling a friend about the show and like making them subscribe to the show. Like that is the second best way to help the show out. Helps us to spread the word, helps others to get their money game together. Joel that's what we like to see most.

[Joel]

Def.

[Matt]

That's gonna be it for this one. Until next time, Best friends out. Best friends out.

[Joel]

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[Matt]

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