Ask HTM - Sahm Rule Recession Indicator, New App Gives Kids IRAs, & Paying for Big One-Time Expenses #931

Summary

Podcast Summary: How to Money – Episode #931

Release Date: January 13, 2025
Hosts: Joel and Matt
Title: Ask HTM - Sahm Rule Recession Indicator, New App Gives Kids IRAs, & Paying for Big One-Time Expenses

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Introduction

In Episode #931 of How to Money, co-hosts Joel and Matt delve into listener questions revolving around the Sahm Rule as a recession indicator, a new financial app designed to help children save for retirement, and strategies for managing significant one-time expenses. The episode is packed with practical advice, insightful discussions, and actionable tips tailored to help everyday individuals navigate their financial journeys effectively.

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Listener Warning: Avoiding Financial Pitfalls ([02:59] - [06:42])

Joel and Matt begin by addressing a cautionary tale from listener Sam, who encountered unexpected fees while renewing his passport through a third-party website.

Key Points:

• Sam's Experience: Instead of using the official State Department website, Sam opted for a third-party service, resulting in paying more than necessary for his passport renewal.
• Hidden Fees: Sam faced an additional charge labeled under the State Department, which was actually an inflated fee imposed by the third-party site.
• Protective Measures: Upon realizing the discrepancy, Sam promptly sought a refund and took steps to secure his financial information by freezing his credit.

Notable Quote:

“What pops up in the sponsored results is not always going to be what's best for you. Sometimes it will lead you astray.” – Joel ([04:00])

Advice:

• Use Official Channels: Always verify that you're using official government websites to avoid unnecessary fees.
• Monitor Financial Statements: Regularly review your financial statements to spot any unauthorized or unexpected charges.
• Protect Personal Information: If you suspect you've been overcharged or scammed, take immediate action to secure your accounts and personal data.

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Understanding the Sahm Rule as a Recession Indicator ([08:24] - [18:29])

In this segment, Joel and Matt explore the Sahm Rule (referred to as the SAHM Rule in the transcript), a relatively new metric used to predict impending recessions based on unemployment rate changes.

Key Points:

• Definition of the SAHM Rule: Developed by Claudia Sahm, the rule triggers a recession warning when there's a half-percent increase in unemployment over three consecutive months.
• Current Economic Context: Joel and Matt discuss how unprecedented events like the COVID-19 pandemic have affected the applicability of traditional economic indicators.
• Impact on Investment Strategies:
  • Debt vs. Investment: The hosts debate whether to prioritize debt repayment or continue investing in light of potential economic downturns.
  • Long-Term Investing: Emphasizing the importance of staying the course with investments, especially for younger individuals, to capitalize on market dips.

Notable Quotes:

“If the most recent three months have seen half a percent increase in unemployment, it's supposed to be a direct indicator of an upcoming recession.” – Matt ([10:29])

“The truth is nobody can [predict a recession].” – Joel ([17:31])

Advice:

• Stay Informed: Keep abreast of economic indicators but avoid making hasty financial decisions based solely on them.
• Continue Investing: Maintain regular investment contributions, especially during market downturns, to take advantage of lower stock prices.
• Prioritize High-Interest Debt: Focus on paying off consumer debt with high interest rates, regardless of economic predictions.

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New App for Kids’ IRAs: Halfmoor ([32:59] - [44:42])

Listener Amy introduces Halfmoor, an app designed to help parents set up custodial Roth IRAs for their children by turning household chores into earned income.

Key Points:

• How Halfmoor Works: Parents can assign chores to their children, and earnings from these tasks can be directed into a custodial Roth IRA.
• Benefits:
  • Early Investment: Starting investments at a young age allows for significant growth through compound interest.
  • Financial Literacy: Encourages children to understand the value of earning and saving money.
• Concerns:
  • Fees: Halfmoor charges $144 annually, which may be a barrier for minimal contributions.
  • DIY Alternatives: Parents can manually track chores and contributions to a Roth IRA using tools like Google Sheets, potentially saving on fees.
  • App Longevity: Uncertainty about the long-term existence of the app and access to accumulated data.

Notable Quotes:

“It doesn’t have to be something that’s overly complicated though.” – Matt ([39:26])

“She wouldn’t owe tax on that money because it's inside of a Roth IRA.” – Joel ([35:17])

Advice:

• Evaluate Costs vs. Benefits: Consider whether the convenience and additional features of Halfmoor justify the annual fee based on your child’s earning potential.
• DIY Solutions: If comfortable, parents can create their own system to track chores and contributions, thereby reducing costs.
• Ensure Compliance: Whether using an app or a manual system, ensure that all contributions comply with IRS rules for custodial Roth IRAs.

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Managing Big One-Time Expenses ([48:41] - [58:26])

Listener Adam shares his financial scenario involving upcoming large expenses totaling $45,000, including home improvements, furnishings, and replacing a family vehicle. He seeks advice on whether to leverage home equity or utilize investment accounts to cover these costs.

Key Points:

• Current Financial Position:
  • Investments Available: $50,000 in a Vanguard taxable brokerage account and $55,000 in an inherited IRA (to be liquidated by 2028).
  • Mortgage Status: A nearly paid-off mortgage with favorable interest rates.
• Options Discussed:
  • Home Equity Loans/HELOCs: Generally unfavorable due to high-interest rates (~9%) and adding new debt.
  • Tapping Investment Accounts: Utilizing Vanguard accounts to fund expenses while potentially managing tax implications.
• Vehicle Replacement: Advising against purchasing an expensive new car, suggesting more affordable alternatives or extended use of the current vehicle.

Notable Quotes:

“If you are looking to take more of a DIY approach, which is going to allow you to avoid some massive fees and especially some of the worst products out there where they're going to receive the highest commissions.” – Matt ([30:53])

“Let’s say you are expecting sort of like you said, Joel, like, you want to continue to invest, I would even say that.” – Matt ([17:31])

Advice:

• Avoid New High-Interest Debt: Refrain from taking out home equity loans or HELOCs, as the high-interest rates can outweigh the benefits.
• Utilize Investment Funds Wisely: Consider liquidating part of the inherited IRA in a tax-efficient manner to cover expenses, spreading out withdrawals to minimize tax impact.
• Budget Vehicle Expenses: Opt for more affordable vehicle options or maintain the current vehicle longer to reduce financial strain.
• Evaluate Necessity and Timing: Assess the urgency and necessity of each expense to prioritize spending and explore cost-saving measures.

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Conclusion

Throughout Episode #931, Joel and Matt provide valuable insights into navigating financial decisions amidst economic uncertainties. They emphasize the importance of informed decision-making, proactive debt management, and leveraging investment opportunities to secure long-term financial well-being. By addressing listener questions with practical advice and thoughtful discussions, the hosts empower their audience to make sound financial choices tailored to their unique circumstances.

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Notable Quotes Recap

• Joel: “What pops up in the sponsored results is not always going to be what's best for you.” ([04:00])
• Matt: “If the most recent three months have seen half a percent increase in unemployment, it's supposed to be a direct indicator of an upcoming recession.” ([10:29])
• Joel: “The truth is nobody can [predict a recession].” ([17:31])
• Matt: “It doesn’t have to be something that’s overly complicated though.” ([39:26])
• Joel: “She wouldn’t owe tax on that money because it's inside of a Roth IRA.” ([35:17])
• Matt: “If you are looking to take more of a DIY approach, which is going to allow you to avoid some massive fees and especially some of the worst products out there where they're going to receive the highest commissions.” ([30:53])
• Joel: “Let’s say you are expecting sort of like you said, Joel, like, you want to continue to invest, I would even say that.” ([17:31])

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Final Thoughts

How to Money continues to be a valuable resource for individuals seeking clear, jargon-free personal finance guidance. By addressing real-life financial challenges and providing actionable strategies, Joel and Matt reinforce their mission to help listeners thrive financially and live a rich, purposeful life.

Transcript

[Joel]

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[Joel]

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[Joel]

Welcome to How To Money. I'm Joel.

[Matt]

I'm Matt.

[Joel]

Today we're answering your listener question.

[Matt]

Happy Monday everybody, and we are glad that you are rejoining us for an Ask how to Money episode where we're going to hear directly from all of you wonderful listeners out there, Joel, we're going to talk about something brand new, the Psalm rule. This is not something we've ever talked about on the show. At least it's not something that I remember.

[Joel]

No, I don't think so.

[Matt]

I love having talked about breaking new ground. Yeah, it's like the new frontier of personal finance.

[Joel]

And this rule has actually not been around all that long, but it's gained, that is true, a lot of credibility.

[Matt]

I guess as of late. But we'll see how that should impact how it is that you invest. We're going to talk about this new app out there that is going to help kids to save for retirement. It's going to be a way that they're going to be able to become easy millionaires, Joel. Easy. That's the promise. At least.

[Joel]

I like that promise.

[Matt]

Another listener is asking what he should be doing about some big out of the ordinary expenses. He's got these looming items on the horizon and he's asking for our advice. We'll get to those plus more during our episode today, buddy.

[Joel]

Yeah. But before we get to listener questions, maybe we should get to a warning from a listener. Matt. We had an email from listener Sam and he was happy for us to divulge this to the rest of the how to money audience, which I really appreciate because I think sometimes when you do something that's ill advised, it's easy to feel shame or guilt and you're like, man, just cover this thing up and not tell anyone. But the thing is, when you tell people, then they can avoid stepping in the same hole. And this is a potential pitfall, I think, for people.

[Matt]

Was it like that one time you spent your family inheritance and you blew it all in one day in Vegas? Yeah. You didn't want to talk about that here on the show, did you?

[Joel]

No, I'm very ashamed of that. So no. This one is particularly when Sam was trying to get his passport renewed and so instead of going to the State Department's website, he does a Google search instead, like you do or like you used to do.

[Matt]

I don't know.

[Joel]

Millennials do. Jay Z. Not so much.

[Matt]

Sort of changing the game, but yeah. Yeah.

[Joel]

And so he found himself going through all the steps to renew the passport and then realizes after the fact that he spent way too much and that he went through a third party website. So not, not a scam, fortunately. But he did pay more than he needed to in order to get his passport renewed because of the sponsored posts that pop up at the very beginning when you do that Google search. So just I think that is a good warning. I think we're all so used to granted fewer people doing Google searches now Googling does. It feels like something your grandparents did, I guess, even though I still do it. But yeah, I think that is worth mentioning that what pops up in the sponsored results is not always going to be what's best for you. Sometimes it will lead you astray and particularly in the case of renewing your passport, making sure you're actually at the government the.gov website instead of some other website that will maybe help you, but they're gonna help you for a Big fee.

[Matt]

Well, and in his case, he was paying more than double. And he sent over a screenshot and what I think is maybe most nefarious about this was the first line item when they tallied up the expenses was the renewal fee. Which sounds like, oh yeah, that's what I'm doing. I am renewing the fee. But then there's another charge for basically the same amount. Right. It's like another 130 bucks that says. Or that's listed out for the State Department. And so you don't question that one because you're like, well, yeah, yes, I am renewing my passport. But then you see the State Department and you're like, well, that seems like a lot, but it says State Department. This is going straight to the government. So. Okay, but what you don't know is that that first fee is the one that they have tacked on the quote unquote renewal fee. And there's like some sort of code, some number and letter out beside it sound all official. It makes it seem technical and totally official. And I think that that's just a slight way that they've. That they are able to dupe folks into thinking, oh well, this must be the case because I'm not going to question the State Department.

[Joel]

It's almost like the letters, you get the mail that have the perforated edges and they have like an open immediately sort of thing.

[Matt]

Maybe there's going to be a check in there.

[Joel]

A check. Or you feel like it's some sort of bill that you have to pay like upon receipt and then it's like some sort of official. Yeah. And it's actually hellofresh, like advertising or something like that they're doing. It is like the kinds of things that they're, the way that they try to get you try to make you open the mail, it just frustrates me even more. And I just throw all that crap away. Yeah, but yeah, hate that Sam had to go through that.

[Matt]

But hopefully the good news is, is that he was able to go back and get a refund. And he was actually worried about from a identity information standpoint as well. So he actually, he flagged it with his credit card company, went and froze all of his accounts because he was afraid that they might be an even more shady third party operator that might sell his information, which, who knows, I mean, when you operate under that kind of pretense, I wouldn't put it past them, honestly, that something like that might end up on the dark web. I think Sam was taking all the Right. Steps to ensure that his data and his money is going to be safe.

[Joel]

Yeah, Smart man. Smart man for doing that. And we'll link to in the show notes an article or two about freezing your credit. It's really important. It's totally free, thanks to federal law.

[Matt]

And super easy to do.

[Joel]

And you don't have to do something like accidental that might have released some of your information to freeze your credit. It's best to do it proactively. And Matt, usually at this point in time we're introducing a beer, but we're recording in the a.m. and we're not like that. So we're going to drink some coffee.

[Matt]

On today's episode, specifically, this is a brew. So I did a little V60 pour over for both of us. So it's what I always do here in the office. But for you're a fan of the Nespresso pod, which is.

[Joel]

I do.

[Matt]

As it comes to the different pods, the better of the options out there. Oh, I will say going to compare, though, to a nice methodical brew. So methodical specifically out of. Out of Greenville, but for people who.

[Joel]

Are in an espresso. And you can come at me if you think I'm wrong, but I have tried some of the alternative, less expensive pods. None of them hold up. Oh, yeah. Some people say Pete's. That's the only other one that's close. But Nespresso pods are the best. You just have to wait for a sale. There you go. Do not get the other brands. They're not very good.

[Matt]

You haven't tried like refilling them or anything like that either. Right. It's like some of the better for.

[Joel]

The environment is the Keurig.

[Matt]

They've got the reusable canisters where you can like pack it in there like you're packing a bowl in an old man's pipe, kind of. That's how I always picture it.

[Joel]

I don't know if Nespresso has the refillables or not, but they're too small.

[Matt]

Like, I don't even know how you would go about doing that.

[Joel]

Yeah. But I'll look into it.

[Matt]

Maybe we'll actually share our thoughts on.

[Joel]

This coffee at the end of the.

[Matt]

End of the episode. But this won't be something that we do here on the podcast.

[Joel]

That's right. We. We love beer. But Matt, let's get to list our questions, specifically one about recessions and the likelihood of one occurring.

[Amy]

Hey, guys, this is Rickel from Wyoming. Let me start off by saying that listening to your December Second episode, you guys mentioned a concern for possible toxoplasmosis and exposure to cats. Probably not something you have to be concerned about, given most of us get exposed to it at some point and have very mild symptoms. Especially if you have a decent IM immune system, not medical advice. In the same way that you guys don't give financial advice. The reason why I'm calling in today is I had heard in a different podcast, not to sound unfaithful or anything, but we had met the criteria for the SAHM rule, meaning that we are entering a recession. Would this be something that you would take into account? So we were discussing paying down some debt that we have versus investing, and if we're possibly entering a recession, wouldn't it make more sense to focus on paying down debt versus investing at this time? Thank you so much. I know timing the market is not as good a time in the market, but just looking for things to help make decisions in the future.

[Joel]

Oh, I can breathe a sigh of relief. I'm less frightened of my cats now.

[Matt]

I'm still frightened of your cats. I don't like any cat because they're always just so suspicious. Like, you walk in the house and they kind of look at you like, who are you? This is my territory. You know, you're like, yeah, you're seen as a threat. You weren't actually worried about Toxo.

[Joel]

I wasn't. One of my friends has also has two cats, and we were joking about how we're not cat people, but we like our cats. And I think there's a difference in the kind of person who is a cat person. Like, in the person who just has cats and enjoys them.

[Matt]

Word on the street is that once you actually get toxoplasmosis, you become a cat person because it messes with your head. And all of a sudden you think there's no limit to how many cats you should have under your roof.

[Joel]

You literally turn into Catwoman or something like that.

[Matt]

Did y. Where did you all get your cats? Did you get them from the shelter? Yeah.

[Joel]

Okay. There's a shelter close by that we got them from.

[Matt]

I want to revisit the shelter and, like, look at some of the other kitties. No. No. Yeah.

[Joel]

I have no desire.

[Matt]

What do you think about Riker, by the way? Listening to the other personal finance or investing podcasts?

[Joel]

It does sound like cheating. I guess we'll let him off this time.

[Matt]

Yeah. Well, Riker, let's first talk about the SOM rule, which is. So let's go ahead and Define it for folks. This is just a nerdy recession predictor that was developed about five years ago that I'm going to guess the vast majority of how to money listeners likely don't know anything about. And there's good reason to that that we'll get to. But we only learned about it this past summer when there were a few articles out there. Honestly, there's a whole lot of articles. It was being written about all over the place when the rule was triggered. And what it monitors is a fairly rapid increase in the unemployment rate. And so basically if the most recent three months have seen half a percent increase in unemployment, it's supposed to be a direct indicator of an upcoming recession. So you better hold onto your hat.

[Joel]

Basically it's measuring speed and velocity. So it's not saying hey, the unemployment rate increased five months straight. It's saying, well, at what speed is the unemployment rate increasing? And that is kind of the warning shot across the bow that a recession might be close at hand. Right. And there are other potential recession indicators that people point to as well.

[Matt]

Right.

[Joel]

And they, the truth is they don't always work. And actually the inventor of the SAHM rule, Claudia Som, she actually doesn't think we're in a recession.

[Matt]

She, she named it after herself.

[Joel]

That's right. Which any good person does. If I want a good rule. Yeah, that's the large guard rule. Okay. And you will abide by it. But she has basically said in some recent interviews is that the likelihood has increased, but that doesn't necessarily mean that we are in or headed towards a full blown recession. It's, it's a helpful indicator, but it's not like gospel truth. I think and the truth is too that we kind of went through an unprecedented period in the American economy with kind of COVID supply chain shocks and the bounce back. And so it's really hard I think to use so called rules that were in place for an unprecedented period of economic history in America. 100% unemployment was at historic lows. And yes, there has been an uptick in unemployment, but the overall employment situation in this country is still overall, I would say close to excellent.

[Matt]

Totally agree. I think we forget how massive of a shock the economy took when all the lockdowns happened and literally nothing was happening. And we saw obviously unemployment skyrocket. But then right after that, what do we, what happened? We started flooding the system. The government started flooding the system with cash. And so okay, let's hire a bunch of folks. Everyone's got all the money on hand and I think what we've seen over the past few years, again, just so insane. And it's hard to look to a rule, like you said, that was created back in 2019, which is pre pan and say that, oh, this is going to apply to anything that is closely affected at all, like anything that is in near proximity to something as significant as the pandemic and the impact that it had on the economy.

[Joel]

And let's say, I mean, when you look at when the rule was triggered, I guess what, at the end of summer. And if you had said, oh, I'm taking this as a recession indicator and I'm going to change my investing style proactively in order to hopefully avoid on losses that I think are incoming, well, you would have missed out on some stellar returns over the rest of 2025. I think you're right, Matt. I think unprecedented is typically a difficult word to use when we're talking about stock market and we have a lot of history to go on. But we did live through something that was kind of unprecedented. And so I think we have to take that into account. And I think we also, just because these indicators are flashing some red lights, it doesn't necessarily even mean that we should be making significant change how we act.

[Matt]

Totally agree. I think this is just more of the economy and things like unemployment returning to the new normal. But Riker specifically isn't talking about selling positions. He's just talking about reallocating dollars to debt as opposed to investing, which I will say is less of a knee jerk response. I would say that that's more of a just like a keep calm kind of interpretation of the SAHM rule being triggered.

[Joel]

Stiff British utter lip.

[Matt]

Yeah.

[Joel]

Which I don't think Riker is British, but he's taking some of that sensibility.

[Matt]

I can see him doing that. And so our an it comes less down to the SAHM rule or the likelihood of upcoming recession. And it has more about what kind of debt Riker is looking to get rid of. And so if this is credit card debt, then 100%. Yes. It doesn't matter what's going on in the economy, you pay off that consumer.

[Joel]

Debt, especially with rates where they are now.

[Matt]

But if he's talking about mortgage debt. Well, no, I would say if it's something with an in between interest rate, that's where it starts to get tricky. And I'm guessing that's where Riker is. Maybe he's got something. He's like, oh, it's at the 7, that 7% range that shades of Gray range. It makes it difficult. Like, we would still want you to get the 401k match. And then beyond that, personally, if it was me, I'd be like, all right, maybe we want to focus on debt in the coming years.

[Joel]

Yeah, I think they're both good options. But here's the other thing. If we are entering a recession, might be true. We're not predicting one. And let's say the stock market does have a rough year or two soon because of a recession and the aftermath of a recession, that would actually be a bad time to not be investing. And I think that's important to highlight. The ideal would be to buy more shares as they become cheaper. And the truth is, the younger you are, the more this represents a buying opportunity. Matt, when we talk about recessions and stock market declines, oftentimes we're talking about greater turmoil in the economy, potential job loss. But for people listening to how to money, who, let's say they are in a good position financially, they have enough savings on hand and their job is secure, being able to continue to buy, as our friend Nick Magiulli puts it, just keep buying the whole way through, that actually represents a better scenario for you. You should almost be, like, hoping for stock market declines the younger you are so that you can buy more shares at a reduced price.

[Matt]

Yeah, it's counterintuitive, and I think it's something that folks tend to struggle with. But young folks should actually be praying for stock market pullbacks. Your parents aren't praying for that as they're starting to rely on those invested dollars. But as folks who have decades of letting our investments ride, you should be hoping for these pullbacks in order to be able to buy at lower prices, where you're stretching your investment dollars further. I think there are times when other priorities might take place and you do invest less to accelerate other goals that you might have. But choosing to invest less because of a downturn that might be on the way, I don't think that is a good strategy. Certainly not a strategy that we would endorse. And by your logic, I would even say, if you are expecting sort of like you said, Joel, like, you want to continue to invest, I would even say that. Like, if you know, and that's the thing, nobody knows, like, we don't know the future. But if you truly believe that the recession was imminent, what would you do? Like, what I would do is I would continue to save up that cash and then be able to. And then pull the trigger, let's say in a year, like after the market has tanked, knowing that I'm going to get all of my dollars in at the lowest possible price. But who knows the future? Nobody does. Which is why, like you said, Joel, we always advise for folks to continue investing no matter what.

[Joel]

And that's the thing that you and I have said over and over and over on the show. Like we can't predict a recession. But the truth is nobody can. And that's why there's so many goofy sayings about that. Like economists have correctly predicted 10 out of the last three recessions. It's just because there's always a looming threat and there are always people making headlines. And the perma bears, the people who are pessimists typically get the most press. The people who say, I'm pretty sure. Or even the people who overemphasize what the market might do, typically the average return sort of folks. It's kind of boring, right? It's not all that sexy.

[Matt]

It doesn't sell.

[Joel]

Yeah. And so those kinds of folks are not going to. They're the most accurate over time, but they're not going to get the most press. And so the truth is just continuing to do the right thing over and over despite what's going on in the headlines and despite what's even happening on the ground, like what's happening with the macro economy and the stock market specifically. That's going to be the right move over the years and decades.

[Matt]

Totally agree. Yeah. There's something funny about those who are constantly calling for recession that they seem wise and folks who are calling who take more of an optimistic route that they are seen as reckless, even though it's quite counter to that when you look at history. But Joel, we've got more to get to. We are going to get to that app that is going to easily allow you to turn your kids into millionaires. We'll get to that and more right after this debt payoff is the number one financial goal that Americans have for 2025. I love seeing that because debt, especially consumer debt, it can be such a bummer. It not only puts you in a precarious financial situation, the stress that it creates, it can be overwhelming. It impacts every other aspect of your life. That's why Navy Federal Credit Union is here to help you. They have all the financial tools and resources you need to dominate debt. Right now. They offer a 0% intro APR on credit card balance transfers for 12 months.

[Joel]

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[Matt]

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[Joel]

Matt we were able to get customized Indochino suits, and we love them. Getting to customize everything, it kind of endears you to the final product in a different way, including the best friends out embroidering on the inside of the jacket. Takes a couple of weeks for your custom suit to arrive. The fit in the fabric, though, they're second to none. I feel like a total stud when I hit up a wedding in my Indochino suit. My next one, though, it's going to be tweed.

[Matt]

Matt Ooh, I like it, man. Yeah. You can even set up your measurement profile on Indochino's website, and you can choose customizations without even leaving the house. Or sign up for a premium in person experience just by booking an appointment at a showroom near you and let an Indochino style guide walk you through every step for your 2025 plans. Look your best in Indochino. Visit Indochino.com and use code how to money to get 20% off any purchase of $499 or more. That's 20% off at Indochino.com promo code howtomoney a new year often feels like it offers a chance to spark real change, but resolutions can feel daunting, especially when they're important. Joel like creating a will or a trust may feel overwhelming, but you know it's about time you did it. Well, Trust and will. They make creating your will easy, like lounging on the couch easy. And you can get 10% off [e-mail] howtomoney that's right.

[Joel]

I created my will with Trust and Will. A task that sounds painstaking was actually quite pain free thanks to Trust and Will. The website is intuitive, it's easy to use, plus the peace of mind from getting this done. It's invaluable. The other cool thing is that Trust and Will is designed by attorneys, but it's customized by you. Each will or trust is state specific, legally valid and customized to your needs. Ensure your family and loved ones avoid lengthy, expensive legal proceedings or the state deciding what happens to your assets. Their simple step by step process guides you from start to finish, one question at a time. You can save your loved ones time and stress by having all your documents in one place with bank level encryption.

[Matt]

Check one of your goals off early this year with Trust and Will. Protect what matters most in [e-mail] HowToMoney and get 10% off plus free shipping. That's 10% off and free [e-mail] HowtoMoney.

[Joel]

All right, we're back Matt. We've got more listener questions to get to. Let's get to one now about financial advisors and whether or not this listener needs one.

[Max]

Hey Matt and Joel, this is Max. I'm 21 from Sunny San Diego. I've been listening to the podcast for years and I love it. Thank you so much for your content. So I have a kind of unique situation. My father passed away and my brother and I got an inheritance from him. I was 16 at the time, so we opted to use a financial advisor that a family friend recommended. While he's been great, he has been advising me not to fund my Roth IRA that I opened with him when I was 19. I am currently in money gear number five, my personal finance journey outside of my inheritance. My question to you is should I open up my own Roth IRA at a different bank? And if so, what should I do with my old one? Thank you so much guys.

[Matt]

Max, first off, we are so sorry about the loss of your dad. Based on the age that you said you received that inheritance, it sounds like it's been about five years. But even still, man, to lose a parent in your teens sounds pretty horrendous, I'm sure.

[Joel]

I can't imagine.

[Matt]

Yeah, no amount of inheritance can make up for it. But the good News, she is 21 years old. Sounds like she's been listening to the show for years. Which means from a financial standpoint she is like light years ahead of so many people when it comes to thinking about their future, their financial situation.

[Joel]

I'M always fascinated by people who are like, I don't know, teens or early twenties who are listening to this show or who are curious about personal finance and have kind of gotten into it for an extended period of time and have started making moves because it's rare. It's so rare. It's usually the average American, I think, starts thinking about money at 40. And so to be doing that 20 years earlier than everyone else or even longer, I mean we've had listeners who are 12 or 13 reach out and it's so impressive because it does mean that you've got so much more time to accelerate progress and it just means that you don't have to go quite as hard or even nearly as hard later on in your life.

[Matt]

That's what's so cool, is like you can like lead a pretty normal life at a young age just by and just start the ball rolling and doing some smart things. You don't have to do anything crazy, you don't have to be some how to money adherent, you don't have to be a fire adherent or anything like that. But you can just make some small tweaks that are going to completely set you apart.

[Joel]

And it doesn't mean that it's not possible to achieve financial independence if you start at 40 or 50. It just means it's a lot easier when you start earlier. But yeah, Max, it sounds like this advice from your advisor could really do some harm to your finances. So I don't like the suggestion of not contributing to your Roth ira.

[Matt]

Yeah, a lot of red flags went up listening to Max's voice memoir.

[Joel]

I would be curious to know his rationale behind this. In your email he said it's because that money would likely go to your successors, which is interesting. It's hard to know that when you're, you're only 21 years old. And I just can't think of many great reasons to avoid investing in a Roth IRA at your age. Typically in those years you are less concerned with avoiding tax and you should be more willing to pay tax now in order to avoid it for the rest of your life all the way down the road. And that's exactly what a Roth IRA lets you do, right? Without having all the facts, we think the Roth is likely your best bet because then you get decades of compounding returns that aren't taxed at all, which is clutch. That's why the Roth ira, especially for younger people and people who have not reached peak earning years, it's almost a no brainer.

[Matt]

Absolutely Something else we have to discuss. And I'm sure, Joel, you're just letting me take this one because you knew I'd get to it. But Max mentioned moving the Roth from being with her advisor to being with a bank.

[Joel]

Ooh.

[Matt]

Yeah, I didn't like that either. No. Banks and investment accounts are like oil and water. They do not mix. Instead, what we would recommend is to opt for one of our favorite low cost brokerage firms like Vanguard, Fidelity, Schwab. And they're one of our favorites not because we receive any sort of kickback, but because they are truly the best. They have the lowest costs associated with their investments. Even Robinhood and Betterment. I mean, they're two other great options. But by doing that, you're going to be able to reduce the fees that you pay. And when you invest, it's going to be like it's going to feel like having the wind at your back. I think compared to maybe what you've been experiencing there with your financial advisor. Because I think, Joel, like you were saying, I can't think of any reason why your advisor would tell you not to invest in a Roth ira. I can think of one because there's a good chance that that advisor is pointing her to products that he receives a commission on. Whether it's a, like whether it's front loaded or whether it's just an ongoing expense ratio that's higher as opposed to something that's no cost, let's say with Fidelity. Yeah, I think there could be a conflict of interest here.

[Joel]

Sure. And that is one of the things you have to watch out for when you have a financial advisor is what are the incentives? How much are they getting paid? How are they getting paid? Those are really crucial questions. And Matt, you mentioned banks real quick. I think it's important just to highlight that banks and insurance companies often have investment arms that you can go with. Oh, it's possible, but you never should. I guess there's a rare exception, maybe for an online bank that has a solid investing portion of what they do. But for the most part, avoid investments with banks. Going back to the advisor thing, I think this means it might be time to break up with your advisor and to move your current investment accounts that you have with him to take them elsewhere.

[Matt]

I would not knowing all the details here, I would seriously consider that this.

[Joel]

Advice, if it's the tip of the iceberg, it makes me worried about other advice to Max might be getting so much depends on how much money you inherited, how complicated it's going to be for you moving forward. But I would at least want to get a second opinion. Matt, when we go to the hospital for a medical procedure, we'll get an opinion and then we're like, wait a second. I just want to make sure that this doctor knows what they're talking about. I'm going to go down the street and get a second opinion. I just want someone else to look this over too before I go forward with some radical surgery or something like that. Right?

[Matt]

Yeah. For something small, you're kind of like, okay, I need to take some medicine to get over this cold or flu that everyone had a couple weeks ago.

[Joel]

Sure.

[Matt]

But yeah, if they're like, oh, you need to amputate your foot, it's like, whoa, wait a minute, let's get to someone first. It's gonna have a serious impact on my future. That's how I think about your retirement dollars.

[Joel]

That's right. Yes. We're literally talking about amputation level, like at least in terms of finances consequences here. And so what I would do, Max, if I were you, I would hire a fee only fiduciary advisor by the hour at a site like hello Nectarine. You might need a couple, two, three, four hours with somebody or domain money. You could do a comprehensive financial plan, but I would want someone else's input to counteract it or at least to poke holes in what your current advisor is telling you. And I would want to let them lay out everything before them and say, what do you think I should do? Because I'm just not sure I'm getting the best advice right now.

[Matt]

Yeah, man. Financial advisors should totally get paid for the work that they do. But the way that they get paid should be optimized to be able to provide the best incentives for both of you, not just for the one earning the commissions. Yeah, it's because of that we like pay by the hour advice or paying a lump sum amount for a full financial plan for that reason. But sticking with a high price advisor, especially if they're steering you away from our favorite no brainer accounts, I think that could cost you a whole lot of money in the decades to come. And I know right now it probably feels like maybe you are just getting to the point to where you feel confident to make a decision like that. And I think that's warranted as well. You don't want to have like done some sort of knee jerk reaction just because you heard maybe one person talk about how you shouldn't be doing this. Which is why getting that second opinion is so helpful. But I think you are getting to that point and ripping the band aid off. Now, despite, you know, the fact that they've helped you through a whole lot during this, this painful time, I still think it's probably going to be the best bet for you moving forward. And I'm going to say too that she specifically didn't mention the firm that her advisor is with. And I think that's because she didn't want to throw any shade. But you leave that to us, Joel and I will throw the shade. But it was with Edward Jones. And I know there are folks out there who are able to provide some great advice who are with Edward Jones. But it is also a different kind of advisor. If you want to show up in.

[Joel]

Person, it's the old school model.

[Matt]

If you want to sit down with them, if you want to build this sort of relationship with a person years to come, but also pay more for that, okay, I could see there being a decent argument for going with Edward Jones. But if you are looking to take more of a DIY approach, which is going to allow you to avoid some massive fees and especially some of the worst products out there where they're going to receive the highest commissions, well, if that's the case, then I definitely think that. And this is coming from someone who's been into an Edward Jones office. Like this was me years ago. I literally. Have we ever talked about this? I think we have.

[Joel]

Yeah.

[Matt]

Like I cold walks, you know, like a cold clock. Like I just walked in, I was.

[Joel]

Just like, hey, just like a turkey.

[Matt]

What do I need to do about my personal finances and this?

[Joel]

And they were like, oh, this is exactly what we want.

[Matt]

But I was able to realize that I don't think I need these services that you're providing me. And granted there's a lot of dumb stuff I did, but that, like when I look back 20 years ago, that was one thing I was. I'm able to put my finger on and be like, that was a smart move.

[Joel]

Yeah, avoiding that.

[Matt]

Lots of other dumb stuff that we won't get into that I have done in my life, but that was one that I know has saved me countless of thousands of dollars.

[Joel]

Oh, more. And that's the thing is when we talk about the trade offs of certain things, the cost might be worth what you're getting, but make sure it is. Because when you talk about, when you run the numbers, especially for someone who's 21 years old, the 1% fee or more that an advisor of that caliber might charge or of that style, I Guess. I mean, it could literally be hundreds and hundreds and hundreds of thousands of dollars missing from your retirement because of the antiquated 1% of assets under management model. And so if you want a comprehensive financial plan, some people might say $2,500 or whatever. That's so expensive. Not by comparison. Right. To what you're going to get charged from the old school model advisors or 150 bucks an hour. That seems like a lot. It's so much less than what you pay going with the old school model advisor. So if you feel like you need a second opinion, even a comprehensive second opinion, it's way, way cheaper. And it's such a better, more straightforward way to go when hiring an advisor. The way you currently have it constructed, Max, we want everyone to avoid that and we want you to get out of it soon.

[Matt]

You know it. Joel is here from another listener. This is a listener who is considering a new tool for her personal finance tool belt. Whether or not we are on board, let's hear it.

[Adam]

Hi, all. This is Amy from the Bay Area. I recently discovered an app called Halfmoor. This app helps parents turn everyday chores into real work. The parents essentially become employers and their children become domestic workers. By doing this, the kids qualify for custodial Roth IRAs. So potentially, these children can start saving for retirement as early as 5 years old. And these investments could grow to be millions of dollars by the time they retire. I love this idea. I'd like to get a custodial Roth IRA started for my nine year old. What I have a problem with is the fee that Halfmore wants to charge. So I guess this is a frugal versus cheap question. How hard is it for me to do this on my own versus paying the fee and have the app do it for me? Is it worthwhile? I don't know. I'm hoping you all can help me answer this question. Thank you so much for providing such great money tips. I love it when I hear something that I'm already doing, but I appreciate it when I learn something new.

[Matt]

Amy likes that confirmation bias. Joel. Which. Don't we all?

[Joel]

Oh, yeah. It is so nice to get the.

[Matt]

Pat on the back when I hear somebody saying that, hey, something that you're already doing, that's good. I'm like, all right, I don't need to hear from anybody else.

[Joel]

Don't give me a second opinion in this case. Just tell me how great I am. Well, I love this. Frugal or cheap. And Amy, she's not embellishing here, like helping your Child fund, a Roth IRA starting at age 9, let's say. And let's assume they max it out for a decade and they never invest another dime. So talking about 9 to 19, you.

[Matt]

Crunch some numbers here. You'd like to give us one of those, paint one of those rosy pictures.

[Joel]

Normally this is your job on the podcast, but I took liberties on this one. But it's cool to think that, hey, you're stopping after being a teenager, you're never investing another dime. Well, Amy, your daughter would end up with almost two and a half million dollars in that one account. And on top of that, she wouldn't owe tax on that money because it's inside of a Roth ira.

[Matt]

Amazing.

[Joel]

It's truly incredible when you think about how much $70,000 can turn into over time because time with money in the right place, that is the great magnifier.

[Matt]

Right?

[Joel]

That's the great. That's the game changer. She wouldn't even be 60 at that point either. Matt, when you think about it, that's really crazy to be tapping into those numbers at 59.

[Matt]

59 and a half.

[Joel]

Yeah.

[Matt]

Okay, so we'll talk about the app half more, but briefly, let's mention that generational wealth, I think it can be a great goal. It's easy to hear these numbers. It's easy to think, oh man, if I just do this one thing and kind of get obsessed about setting your daughter up for long term financial success, but the route that you take, it often comes down to your family's particular values. And so I would say just make sure that helping her fund her ira, that it doesn't come at the expense of funding your own retirement. Well, or even doing it for her. I think there's something else to be said too. Just about the lessons that you are able to teach her through her contributing the money. And not just you saying that, okay, I'm gonna pay for these different jobs that you're gonna do, all in an effort to basically do this for you.

[Joel]

Yeah.

[Matt]

Just don't do this out of obligation as well. Right. And thinking that this is. Because now that you know that this is something that you can do, that you now have to do it. Because I mean, Joel, like we're saving for our kids future a little bit, but I think, you know, overdoing it, it can come with downsides as well where you've sort of removed that stimulus from them to go out there and do something awesome in the world when.

[Joel]

You do it on their behalf, kind of without their participation or knowledge. I do think you're removing something from their life that's healthy and good. But enough about that, Matt. If optimizing your child's financial success is a top priority, which I think can be good if done in the right way, let's talk about helping them get that Roth started. The key to being able to fund a Roth ira, as you pointed out, is having earned income. And most nine year olds have a hard time pulling that off. There aren't many nine year olds out there with day jobs, understandably. So. Those pesky child labor laws, Matt, they get in the way, Right? But some personal finance nerds, they have found ways to have their kids do chores and to get paid for them. And this app seems to kind of streamline that and make it more easier to document for tax purposes. And it allows them to use those earnings to fund a Roth. So I think it's cool that people have found a way to use the system as constructed and kind of figure out the specific details so they can get their kids into this fantastic retirement account. But it does take a little finagling.

[Matt]

Yeah. And so this doesn't have to be something that's overly complicated though, as well. Like, so, for instance, Joel, like you, we both have 11 year olds who are, who started babysitting. They are starting to earn actual real money.

[Joel]

My daughter earned 50 bucks the other night, dude. And I was like, I gotta start talking to her about this.

[Matt]

Yes, no, exactly. And so using money that our kids are earning to fund a Roth is totally fine. But what I want to point out here is that you can't pay your kids for just normal household chores and then count that as earned income.

[Joel]

Oh, did you make your bed, honey?

[Matt]

Exactly.

[Joel]

Here's 20 bucks.

[Matt]

Like that doesn't count towards Roth eligibility in half. More. They even admit that. And on the, on their site they say this is a quote. For chores to be recognized as legitimate sources of income, your kids should be paid for tax that you would typically hire another neighborhood kid or even a nanny to do, rather than for just regular family chores. Like, I'm even thinking of something like emptying the dishwasher. Right?

[Joel]

Yeah.

[Matt]

Like, they should also be appropriate for your child's age and abilities. So, for example, cleaning the garage, mowing the lawn, babysitting. The work must be real and the wages should be fair. But as long as you can make a decent argument that that is the case, well, you can totally start contributing to a Roth IRA through half more or even completely on your own. But what one of the things that makes Halfmoor. So great is the fact that, like, what they do well is they document. Like, they create that paper trail. And that's the part that I think a lot of folks fail to do. But I think that could be as easy as just setting up a log just on Google Sheets or whatever in order to do that. If you wanted to take a more DIY approach.

[Joel]

When I first heard the question, Matt, my first instinct was to be like, oh, I think it's silly to use an app like this to help you out. This is something you could totally diy. Like, why does this app need to exist? But the further I delved into it, if you want to keep your I's dotted and your T's crossed, I think it can make some sense. So on the Halfmoor front, you know, they're helping with the compliance and the investing side of things. And they take $144 a year for their service, which actually seems reasonable, in my opinion. It's going to help save you time while also helping you ensure that you're jumping through the proper hoops. You're documenting everything properly for the irs. They're even giving, like, suggestions of what your child should be paid for certain tasks that they might do around the house. And you can just DIY it. Open up a Roth at Fidelity for your daughter. But then there's other paperwork, like the log mat, Like a DIY log that you mentioned, which I think is also a good solution to this. And you'd also have to, you know, file taxes for her as well, which half more handles. That's part of the fee, which is kind of cool.

[Matt]

There's some additional value there. But you're also looking at. So, because I was curious, I'm just like, all right, like, our girls are earning a lot more money, but you don't technically have to file taxes unless they're earning above the standard deduction for a dependent. And so that's a lot of money.

[Joel]

Which is what, almost $13,000?

[Matt]

Oh, 15,000. Yeah. So, I mean, for me, at least, the more I thought about it, knowing my proclivity to get dive into the weeds, create Excel spreadsheets or Google Sheets. I think this is the year that we literally are going to open up a Roth IRA for our oldest daughter, the one who is earning all the money. And specifically, some of the information I'm going to keep up with is the date of the job, like a description of the job, and then the dollar amount. And so that's going to tell us how much we are able to Invest. But then beyond that, I think a lot of it comes down to you as a parent and deciding like, hey, this is something that we're talking through. How much of this, you know, this is the money that you've earned this year with your quote unquote, official gigs. How much of it do you want to invest? And then as a parent, I think we can then choose if we want to, say, match that. Because let's say, well, obviously you can't go more. You can't invest more in a Roth IRA than they actually earned, right? But like, so I'm assuming that, like, they choose to invest half of what it is that they earn. Well, then you have the ability to match that and be totally cool according to the. According to what it is that the IRS wants to see from you. And that's again, what the IRS wants to see from you in the worst case scenario, which is if you get audited, it's not like you have to prove to Fidelity or Vanguard, but it's the IRS who, if they come a knocking, that you need to be able to provide this information for. So that's. I don't know. That's more of my D as I think through it and the steps that I would take. It's sort of like an HSA lock, right? Where you're keeping up with the date, what it was, how much, how much it was, and that allows you to play very similar. Yeah, yeah. So. And so maybe. Oh, yeah, maybe this scratches that itch. The fact that I've never had an hsa. This is a way for me to keep up with some sort of lock when it comes to what it is. My daughter has earned.

[Joel]

Well, and like 144 bucks for what Halfmoor is offering, it's. It seems like it's not that much, but when you think about how much your kid might be contributing, especially when they're younger, on the earlier spectrum of earning years, maybe they. They earn 300 bucks that year and let's say they invest it all or invest half and you invest the other half. So they're investing 300 bucks into a Roth IRA. Well, the $144 fee is actually pretty expensive.

[Matt]

It would be right in that case.

[Joel]

So it seems minimal, but maybe it's not actually, when you think of it as a percentage of the overall amount that's going into that account, if it's.

[Matt]

A lot more than that, and you're looking for something that's a little more automated, more turnkey, something that if you know that this isn't something that you would otherwise do, well, then shoot that 144. It doesn't matter at all because otherwise it would not have happened. So it just depends, I think, on the individual and the likelihood of you actually following through and doing this.

[Joel]

But I think you make a great point that it's actually pretty easy to kind of do that yourself for the time being. Unless they're earning like a kid who's earning big, big bucks beyond that standard deduction. And then you might be saving you money on the tax services front, too.

[Matt]

Yeah, well, I don't want to sound like a total pessimist or thinking the worst of this app. It seems like it's great. And Amy, I don't want to shoot you down, but one other thought that I had is what access do you have to that information? Because that log, that is what's valuable to me. That is the most valuable piece of what it is that they're providing. And do you have the ability to export that data, say if you wanted to leave? Because if not, well, shoot, we've got like six years worth of gigs that they got paid for. And what am I going to have to do? I have to go back and manually. No, people aren't going to do that. People aren't going to go back and copy that information down. And so then it almost feels like you're held hostage a little bit if they're saying, yeah, it's 144 now, but next year it's going to be 200. The year after that is going to be 250. Yeah. And you'll see a very, I'm thinking less generously of what it is that half more might, you know, might do. I'm not. And we don't have any indication that that's what they're looking to do. But I would want to know what access do I have to my information to be able to retain those records for the future were the IRS to come? Knock it.

[Joel]

Well, it's also an important question just because you don't know how long a fintech app is going to exist.

[Matt]

That's true.

[Joel]

You can hope that they'll be around for decades, but the truth is some of them don't last quite that long. And this is kind of a niche product. So we'll see if this one, like, fails or flounders or if. If it does end up being successful. So.

[Matt]

Yeah, I love the heart behind it, though.

[Joel]

Yeah, exactly. I think it's cool. And I'm glad that Amy brought this to our attention because I didn't know about half more, even though we have thoughts on kids and Ross and stuff like that that we've offered here. Yeah, but it's cool that there are apps being made to try and help people in that way to help their kids invest, but it also doesn't mean it's the best option. But Matt, we've got more questions to get to, including a listener question about abnormal expenses on the horizon. We'll talk about that right after this.

[Matt]

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[Joel]

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[Matt]

So here on the podcast I know listeners have heard me talk about how I like to always have a big annual finance meeting with K right as we've wrapped up a great year as we are kicking off a new one. We are nerdy like that and each year is an opportunity to reflect and plan for the future. Like setting career goals or making financial moves. And most importantly, ensuring your family is always taken care of no matter what happens. Make this the year that you check life insurance off your list and protect your family's future. With policygenius you can find life insurance policies that start at just $292 per year for $1 million of coverage. Some options are 100% online and let you avoid unnecessary medical exams.

[Joel]

Matt I just double checked our life insurance policies to make sure we're adequately covered. We are thankful for that.

[Matt]

Nice.

[Joel]

It's a good idea for everyone out there to do that, particularly if your family needs have changed recently. Right? You want to ensure that you have life insurance to cover loved ones expenses if something happens to you and policygenius makes a potentially onerous task easy as pie.

[Matt]

Secure your families tomorrow so you can have peace of mind today. Head to policygenius.com to get your free life insurance quotes. See how much you could save. That's policygenius.com do you want to understand an invisible force that's shaping your life? I'm Osvaloshin, one of the new hosts of the long running podcast Tech Stuff. I'm slightly skeptical but obsessively intrigued.

[Joel]

And I'm Cara Price, the other new host and I'm ready to adopt early.

[Matt]

And often on tech stuff. We travel all the way from the mines of Congo to the surface of Mars to the dark corners of TikTok to ask and attempt to answer burning questions about technology.

[Joel]

One of the kind of tricks for surviving Mars is to live there long.

[Matt]

Enough so that people evolve into Martians. Like data is a very rough proxy.

[Adam]

For a complex reality.

[Matt]

How is it possible that the world's.

[Amy]

New energy revolution can be based in this place where there's no electricity at night?

[Joel]

Oz and I will cut through the noise to bring you the best conversations and deep dives that will help you understand how tech is changing our world and what you need to know to survive the singularity.

[Matt]

So join us, listen to tech stuff on the iHeartRadio app, Apple Podcasts or wherever you get your podcasts. All right Joel, we are back from the break and of course it is now time for the Facebook question of the week.

[Joel]

Always taken from the how to Money Facebook group which if you're not a member of, you should join.

[Matt]

And this one is from how to Money Facebook group member Adam. He asks. This is a long one by the way, so get comfortable. We have coming up over the next two years or so a series of non normal expenses. I budget and track religiously and we save a ton and I typically like to plan out when larger expenses are planned and where they are due to come from. We have about 6 to $7,000 of upcoming house improvements needed, 3,000 in furnishings and also we have to replace our 17 year old family vehicle that is failing and due to be replaced, which I'm planning to be around a $35,000 expense to replace. So altogether $45,000 coming up. I do have money available to cover These things, around $50,000 in a Vanguard taxable brokerage, $55,000 in a Vanguard inherited IRA that will need to be liquidated by 2028 due to IRS rules. Both of these accounts are growing nicely in today's equity environment. And this is all separate from my tax advantage retirement accounts. I also have a mortgage on our home at 3.625% that is close to being paid off.

[Joel]

That's pretty.

[Matt]

That's nice.

[Joel]

Sweet.

[Matt]

In this environment, a $20,000 balance on a roughly $420,000 home valuation. And at this rate, it's due to be paid off in a little over three years. Joel, I'm going to tag you in. You want to relieve me?

[Joel]

As he gets to his so his main question he says in all of this is hey, I've been thinking lately if it would be possible and better to try to somehow use my home equity and current mortgage rate to produce some cash that can be used for these upcoming short term expenses without taking money from those investments. Those funds above are growing a lot more than the 3.6% rate and the OCD saver and me would love to keep those accounts intact and maximize earning power. Aside from setting up a traditional 30 year fixed mortgage, I'm not familiar with the mechanisms of those loans and whether it's possible to pull equity back out of the house while avoiding any refinance costs so that I can stick with my nice low rate. I've heard of reverse mortgages, home equity loans, but I'm not intimately familiar with them. And so basically, hey, for this short period of time, Adam's wondering what do I do? Like I'm going to have some relief on the home payment front in a few years, but for the time being, how do I get past all these purchases I need to make?

[Matt]

What to do? Yeah, so let's start with what Adam mentioned there towards the end of his question. And first of all, a reverse mortgage is really only a financial tool of last resort for folks who are typically in retirement who have no other way to get by if you have no other assets. So definitely not that. Oh, and they tend to be pretty dang expensive as well.

[Joel]

Sure.

[Matt]

And I would hate to see anyone take out a HELOC right now if at all possible because I mean, interest rates are in the 9% range. I would say it's even better to tap investment accounts than to take on debts with that kind of interest rate. So first thing to address here are some of the home equity products that he mentioned. And I get his desire there to want to tap into those because he's got a whole lot of. He's got a lot of. His net worth is tied up in his home. Yeah. And I think there's probably an emotional part of him as well. He sees that 3, 6 to 5% mortgage rate, he knows it's going away. And I wonder if it almost feels like as a way to hang on to that, that low rate mortgage. But fact is, man, like no matter what, that thing's going away. But I think he.

[Joel]

Which is not a bad thing to be getting rid of that mortgage. I mean, especially if you're just paying it off as agreed. That's the dream is to hold on to that low mortgage rate until it's over and you own your home free and clear.

[Matt]

But it doesn't mean taking on some of these home equity products that are not nearly as good as how you view your house. Maybe because of that super low rate of less than 4% because that era is over.

[Joel]

So like we should kind of end that way of thinking at least if you're talking about taking on new debt for homes. Adam is doing so well in so many aspects of his personal finances. The mortgage is almost gone. When it is, that's going to massively increase his monthly cash flow. But right now he's got to get through this pinch. I think of this as a two year window where he's just got to be dedicated to not making potentially a screw up here that could impact his financial future negatively. I think the best way to do that is to avoid new debt vehicles. And partially because of what you highlighted, Matt, that rates on.

[Matt]

Rates are high.

[Joel]

Yeah, Rates are high.

[Matt]

Too expensive on debt.

[Joel]

Yeah. Almost any debt you're going to take on, it's not going to be nearly as benign as it was five, six years ago. And I think since the inherited IRA he mentioned has to be liquidated within the next three years anyway, which means less stock exposure is wise in that account. By the way, why not tap that account for these upcoming expenses and to help reduce your single year tax burden, you might want to spread those disbursements out over tax years 2025 and 2026. So you're not just like taking on a massive lump sum, creating a much higher tax burden in one single year. But you're spreading that tax burden out. But taking on more debt in today's environment, I don't think it makes sense. Hey, this account needs to be drained anyway in the coming years. Why not just do that a little bit sooner than you had planned in order to ensure that you avoid debt and you keep your investments mostly intact.

[Matt]

Totally. Yeah. And you mentioned the tax that's going to be owed on that inherited IRA that's assuming that. And he didn't say whether or not it's a traditional or whether it's a Roth ira, but if it's a Roth ira, he's not going to owe any tax on that. And again, and my guess is it's.

[Joel]

A traditional because he mentioned tax.

[Matt]

But I think that's definitely what I would be doing were I in Adam's shoes. He mentioned, let's see, he mentioned an expensive vehicle coming up, expensive vehicle purchase. And I will say, let's see, I'm looking at this. He's got a 17 year old family vehicle and now he's thinking about hopping into something that's $35,000.

[Joel]

I get that, that 17 year old. That's. That's an older car.

[Matt]

It's an older car. But there's a way to get around for less. I guess I just want to challenge the notion that you have to get something that's going to cost 35,000. Right. Like even getting something that's $25,000.

[Joel]

That's a big difference.

[Matt]

Yeah. Joel, I didn't even tell, I didn't tell you this. Our car is getting a little bit of work done to it right now. And we have a loaner vehicle from the shop we are currently driving, which is awesome, by the way. What a great perk that these guys offer. I'm driving around in a 2008 Honda Odyssey. And is that what year you are?

[Joel]

You try to buy it from them?

[Matt]

He wouldn't sell it because he knows what he's sitting on. But I got curious and I looked up what would a 2008 Honda Odyssey go for, like four or five thousand dollars. And granted, this is from cars, this is from a mechanic. And so it's like impeccably careful.

[Joel]

And that's legit. 17 years old right now.

[Matt]

Yeah. And I don't know, I'm just highlighting the fact that you don't necessarily have to go out and buy something. You can even just maintain a vehicle. Find a way to. No one likes the nickel and diamond that comes with maintaining an old vehicle. But it's not a foregone conclusion that you have to go and drop 35 grand on a new car.

[Joel]

And let's be honest, if you can just string it along for another two years while you get through this pinch, then I think you're right. Like, it just opens up a world of alternatives because by then you are pretty darn close to paying off the mortgage altogether and you have more financial breathing room to be able to afford than upgrading the car in a way that feels less financially irresponsible. So, yeah, maybe challenge yourself to spend less on the car. 15 to $20,000. And if you do have to take out a loan for that, a car loan, make sure you're able to pay off in 24 to 36 months. I don't love car loans either, but I also get where it's like, oh, if it helps me prevent some sort of. And get it from a credit union, if it helps me prevent worse kinds of debt in my life, and it also allows me to keep those investments intact longer, I get that. But again, the ira, the inherited ira, is going to have to be dispersed anyway. So I just see that as probably the best reservoir to tap for some of these funds.

[Matt]

That's right, man. Yeah. Adam's got a lot of levers here that he can pull, I think. I don't know, finding ways to cut back.

[Joel]

And I just love the idea, by the way, of questioning assumptions. I think the average. We see what the average car price is for a new car and used car, and we say, oh, I'll probably get something that's average. But the truth to the way to succeed financially is to do things that are better than average. And I think even just thinking about, like you said, Matt, reducing the price you're willing to pay for a car, significantly, questioning that again, is such a powerful lever for people to pull in Adam's life. But everyone else out there listening, too.

[Matt]

And speaking of credit unions, which you just mentioned, I'm drinking my coffee this morning out of a navy Federal credit union little insulated mug here that they sent us. Adorable. They love sending us little goodies since we read for them on the show. Because credit unions are the best.

[Joel]

We do love credit unions.

[Matt]

That is absolutely the place you should be going in particular if you're looking for loan products. But what'd you think of our coffee this morning, Joel?

[Joel]

So I am not a coffee connoisseur at your level. You like this?

[Matt]

Tastes like the brown bean water to you. No, I love coffee.

[Joel]

I just don't. I don't know if I can pick apart its nuance as well as you can. This one tasted fruity, I'm gonna say.

[Amy]

Okay, yeah.

[Joel]

Is that good?

[Matt]

So this is. Yeah, this is like a. Just a nice solid. I honestly, I forget what this one is called by methodical. But it's a nice medium roast. It's got some milk chocolatey kind of eyes, but it does have some berry notes.

[Joel]

I was gonna say a little cherry, maybe.

[Matt]

Yeah. Yeah, I like adding just, like, a little touch of sugar to these medium roasts to kind of pull out some of that berry fruit, some of those notes that you can typically. Because if you. If not, sometimes they. They fall a little flat, and they just taste like a weak cup of coffee, because it's not. It's not gonna have, like, that super dark roasty, you know, Starbucks espresso roast.

[Joel]

I'm totally okay with because that stuff just. It tastes.

[Matt]

Overwhelms you.

[Joel]

I cannot do the dark roast anymore. And sadly, at Costco, that's, like, all you can get is super dark roast coffees.

[Matt]

I know that myself.

[Joel]

Unless you order online, they have different coffees available online. So I buy my Costco coffee online because they have some, like, medium to medium light roast coffees on there, because.

[Matt]

That was one of my assignments once we joined Costco a couple years ago. We'd never been members, and I thought, okay, I'm gonna find myself a really good medium roast coffee here at Costco. That's gonna be crazy affordable, but that is good.

[Joel]

Yeah.

[Matt]

But turns out all. Even their medium, what they call medium roasts, are pretty dang dark, and they're oily, which means on the nicer grinders, like, you know, we've got a nice flat blade burr grinder, and it tends to cause trouble. All right, well, all those oils.

[Joel]

There is one that I saw on their website I've not ordered yet. It's a light medium roast. I think I'll say it's Guatemalan. And so I'm gonna order that, and we're gonna split it, and I do it. We'll try that maybe on the show soon.

[Matt]

Yeah, absolutely.

[Joel]

Okay. And we'll report back, but next week.

[Matt]

You can expect another.

[Joel]

Another beer.

[Matt]

Oh, yeah. Because I, over the holidays a few weeks ago, picked up some. Some nicer beers, so I'm excited to drink some of those, buddy.

[Joel]

Time to open those up. All right, well, yeah, as always, we appreciate you submitting your questions. And if you have a money question, and especially if you're new here and you're like, man, I don't. I don't know where to start. I'm just getting started with my finances, and I would love Matt and Joel's input on kind of like, where I'm at right now. Where's the I love hot takes? Shock jock style. Yeah. We would love for you to submit that. And if you have questions about how to do that, well, you can go to howtomoney.com ask for instructions. But it's basically recording a voice memo on the app on your phone, sending it over to us via email and we look forward to hearing from you. Hopefully we can take your question next week on the show, but Matt, that's going to do it for this one. Until next time, Best friends out.

[Matt]

Best friends out.

[Joel]

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[Joel]

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