Podcast Summary: How to Money

Episode: Ask HTM - Cashback vs Travel Points, Letting a Brokerage Cook, and the Right Way to Buy a First Home #952
Release Date: March 3, 2025
Host: Joel and Matt
Produced by: iHeartPodcasts

1. Choosing Between Cashback and Travel Points Credit Cards

Discussion Overview: In this segment, Joel and Matt address a listener question from Austin in Alabama, who is deliberating whether to stick with his 2% cashback credit card or switch to a travel rewards card that offers 2x miles per dollar spent. Austin is considering the long-term benefits, especially as his family’s travel frequency might increase.

Key Points:

• Foundation of a 2% Cashback Card: Both hosts emphasize the importance of maintaining a basic cashback card. Joel states, “[...] everyone should basically have one of those in their wallet” ([10:00]).

• Value Comparison: Matt explains that 2x travel points and 2% cashback are roughly equivalent in value, typically around 1 cent per point. However, he notes that when travel points are used strategically—like transferring to hotel partners—their value can exceed cashback ([12:22]).

• Complexity vs Simplicity: Travel rewards often come with complex redemption processes and higher annual fees. In contrast, cashback rewards are straightforward and easy to manage, aligning well with listeners who prefer a "set it and forget it" approach ([15:46]).

• Sign-Up Bonuses and Flexibility: Travel cards usually offer substantial sign-up bonuses, appealing to frequent travelers. Joel adds, “The cashback cards, the sign up bonus, typically non-existent” ([13:27]).

Notable Quotes:

• Joel: “2% I think of as like the floor.” ([10:24])
• Matt: “Miles can be more rewarding, especially for folks who like to travel who have the ability to be super flexible as well in how it is that they travel when they book.” ([13:27])
• Joel: “Cashback is easy to redeem, and typically you can set up automatic redemptions so the benefits aren’t sitting there not being used.” ([15:46])

Conclusion: For Austin and similar listeners, Joel and Matt recommend maintaining a robust cashback card while considering a travel card if the additional complexity and potential rewards align with their travel habits and financial goals.

2. Letting a Brokerage Account Cook

Discussion Overview: David from California poses a question about whether to continue letting his invested lump sum grow in a joint brokerage account or to prioritize contributions to their Roth IRA accounts. David is weighing the implications of capital gains taxes and long-term growth.

Key Points:

• Initial Investment Strategy: Joel commends David for investing the lump sum, highlighting that “a 3% mortgage [...] should be a very low priority for all listeners who want to build wealth” ([28:03]).

• Capital Gains Tax Considerations: Matt breaks down the capital gains tax rates, emphasizing that under certain income thresholds, David could potentially withdraw funds tax-free: “...if you are married filing jointly, then others who can keep their total taxable income below $94,000 again married filing jointly. Well, you can pay a long term capital gains tax rate of 0%.” ([29:32])

• Roth IRA vs Brokerage Account: While prioritizing Roth IRA contributions is generally advisable due to their tax-advantaged nature, David’s strategic positioning to stay within the 0% capital gains tax bracket makes maintaining the brokerage account a viable option. Joel notes, “we prioritize the Roth IRA. We, we love Roth IRAs” ([30:00]).

Notable Quotes:

• Matt: “Going from 15 to 20% [...] going above that threshold.” ([29:32])
• Joel: “At least for you and I, right now, with a bunch of young kids, we're not traveling quite as much [...]” ([20:38])
• Matt: “This is a vote in the favor of frugality, because if you can get your low income.” ([30:24])

Conclusion: Joel and Matt advise David to continue prioritizing his Roth IRA contributions while strategically utilizing his brokerage account to maximize tax benefits. They highlight the importance of understanding income thresholds to minimize capital gains taxes, thereby enhancing long-term investment growth.

3. The Right Way to Buy a First Home

Discussion Overview: Sarah from Brooklyn seeks advice on investing her savings into real estate. She and her husband are contemplating whether to purchase a smaller condo now as a stepping stone towards a larger property in the future or to wait until they can afford their dream home directly.

Key Points:

• Analytical vs Emotional Decision-Making: Joel stresses the importance of an analytical approach over an emotional one: “The person who gets emotionally attached [...] is often going to lose financial perspective” ([36:08]).

• Stepping Stone Strategy: Matt suggests purchasing a smaller, more affordable property that can serve as a rental or a foundation for purchasing a larger condo later. This approach allows building equity and financial flexibility: “It's sort of like a stepping stone approach to getting the home that you ultimately want” ([38:06]).

• Neighborhood Selection and Long-Term Planning: The hosts advise Sarah to consider neighborhoods with growth potential and to ensure that any first home purchase aligns with long-term real estate goals. Joel adds, “I've got this amazing place, but then also it's. You're getting a less than market rent [...]” ([38:06]).

• Tax Implications and Primary Residence Requirements: They mention the importance of fulfilling primary residence requirements to benefit from capital gains tax exclusions when selling the property in the future: “...make sure that you have lived in that thing for at least two of the past five years” ([41:25]).

Notable Quotes:

• Joel: “Settling for less can be the best financial move that we could possibly make.” ([36:08])
• Matt: “Our long-term benefit of taking the, you know, it's sort of like a stepping stone approach to getting the home that you ultimately want.” ([37:07])
• Joel: “I think if you're not interested in becoming a landlord [...]” ([42:02])

Conclusion: Joel and Matt encourage Sarah to consider purchasing a smaller, more affordable condo initially. This strategy not only provides immediate housing benefits but also sets the stage for future real estate investments. They emphasize the importance of staying financially flexible and avoiding overextension, ensuring that the first property serves as a solid foundation for her and her husband’s long-term real estate ambitions.

Additional Insights

While the main focus of this episode revolves around credit cards, brokerage accounts, and first-time home buying, Joel and Matt also touch upon broader financial strategies and listener interactions. They offer practical advice tailored to various life stages and financial goals, reinforcing their commitment to providing unbiased, jargon-free personal finance guidance.

Notable Areas Skipped:

• Advertisements and sponsored segments.
• Credit score navigation and Instacart hack discussions, as they do not align directly with the main episode topics.

Final Thoughts

Joel and Matt effectively address diverse financial queries, offering actionable insights and emphasizing tailored strategies based on individual circumstances. Their conversational style makes complex financial topics accessible, providing listeners with the tools and knowledge necessary to make informed decisions on their financial journeys.

For more detailed insights and tools mentioned in this episode, visit howtomoney.com.