Anxiety Around My Finances

Summary

Podcast Title: Jill on Money with Jill Schlesinger
Episode: Anxiety Around My Finances
Release Date: January 6, 2025
Host: Jill Schlesinger, CFP®
Hosted By: Audacy

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Introduction

In the episode titled "Anxiety Around My Finances," Jill Schlesinger delves into the financial concerns of everyday individuals, offering practical advice and actionable insights to help listeners navigate their monetary challenges. The episode features a thoughtful conversation between Jill and Bill, a 46-year-old caller from Virginia, who shares his financial anxieties and seeks guidance to ensure his family's financial well-being.

Caller Introduction

Bill's Background and Family Dynamics ([02:52] - [03:58])

Bill introduces himself as a 46-year-old business owner with a stable income, earning approximately $320,000 annually. He shares his family structure, including his 45-year-old wife who recently re-entered the workforce as a subcontractor in the recruiting space, and their three children aged 19, 14, and 12. Additionally, Bill mentions their two large Labrador Retrievers, highlighting a busy household dynamic.

Bill: "I've been listening to your podcast both for the last kind of month and have, you know, absorbed a lot of the content. And I'm someone that has some anxiety around my own finances..."

Analysis of Financial Situation

Income and Employment Stability ([04:08] - [05:34])

Bill has been the sole provider for his family for the past 15 years, but with his wife's new venture, there's potential for increased household income ranging between $20,000 to $40,000 in her first year. Bill emphasizes the stability of his position, noting his 20-year tenure at his company and the generous severance package he would receive if ever displaced.

Bill: "I've been very fortunate and you know, I don't plan on going anywhere and it's pretty stable..."

Retirement Planning ([05:34] - [06:26])

Bill participates in a robust 401(k) plan through his employer, which includes a match of 50% up to the first 6% of his contributions, supplemented by an additional company-based matching contingent on performance. His retirement accounts boast a substantial balance, with $930,000 in his current 401(k), a $77,000 IRA rollover, and a $35,000 SEP from his wife's previous fitness business.

Bill: "I have matched out the last few years and I plan to do so and then increase my contributions at age 50..."

Education Savings ([06:30] - [07:24])

Bill has strategically utilized 529 plans to fund his children's education. His eldest son, a freshman in college, benefits from a substantial 529 balance and a merit-based scholarship, ensuring his tuition is covered. The younger children have separate 529 accounts with balances of $30,000 and $26,000, respectively, with ongoing contributions aimed at securing their educational future.

Bill: "We have a 529we started pulling from and we are in really good shape to get her through her four years..."

Assets and Investments ([07:24] - [08:29])

Beyond retirement and education savings, Bill maintains a brokerage account with $15,000, bolstered by restricted shares from his compensation and participation in an employee stock purchase plan at a 15% discount. Their primary residence is valued at approximately $700,000 with a mortgage balance of $360,000 at a favorable 2.875% interest rate.

Bill: "So we own our home. Current value in Today's market's about 700,000..."

Debt Management and Cash Flow ([08:29] - [09:25])

Bill and his wife have diligently managed their debt, clearing a Home Equity Line of Credit (HELOC) and maintaining only two car loans with a combined payment of $600 per month at low-interest rates. However, Bill candidly acknowledges a limited emergency fund, currently holding $20,000, which covers about three months of living expenses.

Bill: "I feel like I'm a little light with our emergency fund. Shame on me..."

Financial Advice and Recommendations

Strengthening Financial Foundations ([10:18] - [11:55])

Jill commends Bill and his wife on their solid financial footing and suggests bolstering their emergency fund to six months' worth of expenses. She encourages increasing contributions to their daughters' 529 plans and advises maintaining disciplined investment in their brokerage accounts, emphasizing the importance of non-retirement savings for flexibility and security.

Jill Schlesinger: "I would rather you do that even than doing the Roth 401K... beef up your non-retirement assets especially because you've got... three kids..."

Roth vs. Traditional 401(k) ([11:55] - [16:15])

A significant part of the discussion revolves around whether Bill should consider shifting from a traditional pre-tax 401(k) to a Roth 401(k). Jill initially advises against it due to Bill's current tax bracket but reconsiders in light of potential future inheritances and increased cash flow from his wife's new business. Mark, the co-host, supports converting to a Roth to mitigate future Required Minimum Distributions (RMDs) that could arise from a potentially massive 401(k) balance exceeding $3 million.

Mark: "If he keeps that contribution and the Company keeps matching him dollar for dollar, that 401k is going to be over $3 million pre tax."

Jill ultimately aligns with Mark's perspective, recognizing the long-term benefits of a Roth conversion despite the immediate increase in taxable income.

Jill Schlesinger: "You're going to have many, many, many options... consider the fact that I would feel very strongly in this case..."

Inheritance Planning ([14:38] - [16:15])

Bill brings up the possibility of inheriting $3 to $5 million from his wife's uncle's estate. Jill advises not to hinge current financial plans on this potential inheritance but acknowledges its future impact. She emphasizes maintaining active and strategic financial planning irrespective of anticipated inheritances.

Jill Schlesinger: "You are not planning on it, but it is there... you’re not putting everything else on hold waiting for your relative to die."

Concluding Insights

Jill and Mark commend Bill and his wife for their proactive and comprehensive approach to financial planning. They reassure him that he is on the right track and encourage continued investment in non-retirement assets, strengthening his emergency fund, and considering the Roth 401(k) for future tax advantages. The conversation underscores the importance of diversification, strategic planning, and adaptability in managing personal finances effectively.

Jill Schlesinger: "You really are in good shape. So congratulations. Go forth and multiply your non retirement assets and get excited about your Roth..."

Key Takeaways

• Diversify Savings: Beyond retirement accounts, maintaining robust brokerage accounts and education savings ensures financial flexibility.

• Emergency Funds: Aim for an emergency fund that covers at least six months of living expenses to safeguard against unforeseen circumstances.

• Strategic Debt Management: Eliminating high-interest debt and maintaining manageable car loans can significantly enhance financial stability.

• Roth Conversion Consideration: Assessing the benefits of Roth conversions in the context of potential future inheritances and escalating tax brackets is crucial for long-term tax efficiency.

• Inheritance Planning: While it's wise to consider potential inheritances, financial plans should remain robust and independent of uncertain future events.

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Notable Quotes:

• Bill on Financial Anxiety:
  "I'm someone that has some anxiety around my own finances and that really has stemmed from my parents really not educating me as a child..." ([02:52])

• Jill on Bill’s Financial Health:
  "You sound like you guys are putting a lot of money away... you're on the right track..." ([10:18])

• Mark on Roth 401(k):
  "If he keeps that contribution and the Company keeps matching him dollar for dollar, that 401k is going to be over $3 million pre tax." ([16:05])

• Jill on Final Advice:
  "You are doing great and you've got all the, you know, to me, the... The... Things that we're laying out here as ideas, those are things that are like a little like a small edit..." ([17:08])

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This episode serves as an insightful guide for listeners grappling with financial uncertainties, illustrating how methodical planning and informed decision-making can alleviate financial anxiety and pave the way for a secure future.

Transcript

[Jill Schlesinger]

Hi, this is Jill Schlesinger. Being a business owner means you're always on adapting, innovating and making big moves.

[Mark]

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[Jill Schlesinger]

To blow you away.

[Mark]

It's going to be great. But there's always a Contact Us button in the upper right hand corner. No matter where you navigate on the site, when you click that button, a form pops up. That's the email we receive. So fill out that form and if you're shy and you don't think you'll come on the air with us, give us a lot of detail. If you do want to join us on the air, just check the box and Mark will do everything else while you're on the website don't forget to sign up for the free weekly newsletter and of course check out all the other content that lives there because we've got videos and resources and a blog and my book and our subscription service. It's all there. Okay, let's get started. We are talking to Bill, who's on the line from Virginia.

[Bill]

I've been listening to your podcast both for the last kind of month and have, you know, absorbed a lot of the content. And I'm someone that has some anxiety around my own finances and that really has stemmed from my parents really not educating me as a child and I've had to learn things on my own. And so I just want to make sure my trajectory is in the right direction. Things that I may be pivoting now that I'm in my mid-40s to ensure that I will be and my wife in the best financial shape possible.

[Jill Schlesinger]

That sounds good to me. And I know that you, you mentioned a wife, you said you're in your mid-40s and before we got on the air we talked about dogs. So us more about your family. So you said you have two labs, is that right?

[Bill]

That is correct. So I have a 115 pound chocolate lab and 100 pound yellow lab and, and three children.

[Jill Schlesinger]

Oh gosh. How old are your kids?

[Bill]

So I have a, I currently have a freshman in college, he's getting ready to turn 19. I have an eighth grade 14 year old daughter and a 12 year old son in sixth grade.

[Jill Schlesinger]

Okay, 1412, sixth grade. Okay, you said you're in your mid-40s. So how old are you bill?

[Bill]

So I'm 46. My wife is 45.

[Jill Schlesinger]

Okay, and you guys both work out of the home or are you one of you home more with the kids? What's the story?

[Bill]

So it's been interesting. So my, I have been the kind of sole provider for the last, let's just say 15 years. My wife was a former teacher, stayed home with our children. Just made sense. And works part time now but is actually re entering the workforce as a subcontractor with some potential income increases this year.

[Jill Schlesinger]

Oh cool, that's great. So when you say subcontractor in education. So will she just be like a temp or something or will she have her own little llc? Like what do you think she's going to be doing?

[Bill]

So I totally pivot from. She actually we formed an LLC recently and she is working in the recruiting space as a 1099.

[Mark]

Great.

[Jill Schlesinger]

That's great. That's a huge business obviously. How much do you think we should count on her earning at least? Even if they say a little bit more than the part time, about how much would you guess?

[Bill]

So it's, she's been doing it actually for a short period. Already got her first placement. So that was unexpected. So we're thinking somewhere first year in the 20 to 40 range.

[Jill Schlesinger]

Great, perfect. And how much do you earn, Bill?

[Bill]

So last year my income was around 320.

[Mark]

Hmm.

[Bill]

That will be pretty consistent. It's a little bit of an increase over the past three or so years as I've moved up a few levels.

[Jill Schlesinger]

Great, congratulations. That's a good chunk of moolah. Do you have a retirement plan that you use through work?

[Bill]

I do, I do. My company is very good with their 401k. I have matched out the last few years and I plan to do so and then increase my contributions at age 50. So I max out, they match 50% up to the first 6% and then do an additional core match based on company performance.

[Jill Schlesinger]

Oh, I love that they.

[Bill]

I looked at the last three years on that and it's pretty much been a dollar for dollar match is how it's equaled out.

[Jill Schlesinger]

God, how much money's in the account right now?

[Bill]

So currently about 930,000. I have an existing I rollover into an IRA account from a former employer that has about 77,000. And then years ago my wife owned her own fitness business and so we started a SEP at that time which we haven't contributed to, but that balance is around 35,000.

[Jill Schlesinger]

That's great. Okay, now how are we paying for the freshmen in college?

[Bill]

So we, we contribute pretty heavily to her 529 and she also was fortunate to earn a very nice merit based scholarship at a private university. So we have her 529we started pulling from and we are in really good shape to get her through her four years. And then after that is up to her.

[Jill Schlesinger]

And after that I thought you were going to say and after that the other two, they're on their own. What about the other two?

[Bill]

So the other two we've been ramping up a little bit. My I'll have two in college at for two of the years. So I have two additional 529s. The older child currently has a balance of 30,000 and the the younger son has about 26,000. Last year we contributed 10 grand to our daughters with plans of doing that for the next three or four years to get her back on track.

[Jill Schlesinger]

Okay, I mean, you mean get you back on track?

[Bill]

Yes, he's on.

[Jill Schlesinger]

She's been on her track the whole time. Mr. Right. Okay, any other assets? You've got the retirement accounts. You just detailed the 529 plans. Any non retirement accounts?

[Bill]

So we have a small brokerage account that has about 15,000 in it today. Part of my compensation is restricted shares which mature. I get about 20 to 30,000 a year in stock and then that matures 25% a year. And then I also participated in employee stock purchase at a 15% discount and I put about 4% of my pay in that. And that money is just, is adding up. I've only been doing that recently into this brokerage account.

[Jill Schlesinger]

Okay, but 15 grand right now is the balance, right?

[Bill]

That is correct, yes.

[Jill Schlesinger]

Okay, how about the house, what do you got?

[Bill]

So we own our home. Current value in Today's market's about 700,000. Our balance on that currently is about 360,000. We have a 2.875 rate for 30 years.

[Jill Schlesinger]

So you're not moving.

[Mark]

How's your cash flow?

[Jill Schlesinger]

I mean when you look at all this stuff together, you know, cash flow's been good.

[Bill]

Last year we really concentrated on kind of paying off some debt. We had a heloc, we did some necessary home repairs and so that we were able to pay off. We have a zero balance with a sixty thousand dollar credit limit. Really just kind of got out of debt and used some of our cash flow that last year to kind of to get to neutral. We do have two car payments that total about about $600 each, both with about 3% interest rate. But that's our only debt. No credit card debt?

[Jill Schlesinger]

How about like plain old money in the bank?

[Bill]

You know, I, I feel like I'm a little light with our emergency fund. Shame on me. I've actually, you know, kind of always thought of our HELOC as kind of the backup.

[Jill Schlesinger]

Well, it is, but you know, it's, it's not, it's not ideal, but yes, it could be, you're right.

[Bill]

So we have about 20,000 in cash today. That is, you know, roughly three months of living expenses for us.

[Jill Schlesinger]

And you've been at this company for a while, you've got a good secure job right now.

[Bill]

I do, yeah. So this year is my 20th year.

[Mark]

Wow.

[Bill]

I've been very fortunate and you know, I don't plan on going anywhere and it's pretty stable and if they ever did decide to get rid of me, I have a generous one year compensation package that I would be guaranteed.

[Jill Schlesinger]

Great.

[Mark]

Fantastic.

[Jill Schlesinger]

Okay, this is all good.

[Mark]

News.

[Jill Schlesinger]

This is great. Do you guys have some life insurance?

[Bill]

We do. I carry about $1,600,000 on myself. And then last year we got another half a million dollar policy on my wife.

[Jill Schlesinger]

How about your estate docs? All done.

[Bill]

All done. I actually had taken care of that a few years ago. So we're good there. I help my mom since my dad passed away, get her estate and plans taken care of. Just wanted her to have the same comfort.

[Jill Schlesinger]

That's good. Very smart.

[Mark]

So what's your.

[Jill Schlesinger]

I mean, you. You want to know whether you're on the right track. It seems to me you're absolutely on the right track. You sound like you guys are putting a lot of money away. So maybe the cash flow, you know.

[Mark]

That paid down the debt, you could.

[Jill Schlesinger]

Maybe direct that to beef up your.

[Mark]

Emergency fund a bit.

[Jill Schlesinger]

Just a little bit. Not crazy. And you're going to be beefing up your 529 accounts for the two younger.

[Mark]

So that's good.

[Jill Schlesinger]

I mean, look, I'm not the hugest fan in the employee stock purchase plans. You're only putting 4% in. That's fine.

[Mark]

I wouldn't do much more than that.

[Jill Schlesinger]

I really wouldn't. Because we'd love to see you guys kind of continue to put money away, especially as your wife starts making money. And I would certainly use that SEP.

[Mark]

IRA again for her if you don't.

[Jill Schlesinger]

Need this cash flow from her llc, from her new recruiting business. Right.

[Mark]

In your.

[Jill Schlesinger]

Your current 401k. I presume that's pre tax, right?

[Bill]

It is. We also have a Roth 401k option. That's kind of a question. Is that worth looking at at this point or should I continue?

[Jill Schlesinger]

I think it could be. Except, I mean, look, it kind of depends what happens with your wife. Because if she starts making a lot of money and all of a sudden you're no longer in the 24% tax bracket, you're in the 32. It's a little less compelling to me. Mark's going to say something different, I'm sure, but that's just me. The current 401k, where is that held? What firm is that?

[Bill]

So it's with Fidelity.

[Jill Schlesinger]

So the old retirement account.

[Bill]

I apologize. No, that is actually with Morgan Stanley. So we have an advisor there I pay a 1% advisory fee to.

[Jill Schlesinger]

Wait, wait, wait, wait, wait, wait, wait. The current 401k or the rollover?

[Bill]

The rollover. And the 529s are with Morgan Stanley.

[Jill Schlesinger]

Why?

[Bill]

This is actually a financial advisor I've had for about 20 years childhood friend.

[Jill Schlesinger]

Why do you need an Advisor for the 529 plans?

[Bill]

Well at the time just didn't know we rolled over the IRA account. We actually do have a mutual fund I want to mention which we contribute 100 bucks a month to and that that is got a 40 or $5,000 balance and then the goal was to form a relationship one because my parents never had one. So I felt like I needed to get some guidance because I really had no baseline knowledge and so they just have been held there. They're actually a Virginia state plan. So we get the, you know, the tax deduction on the state side.

[Jill Schlesinger]

But I understand that this person put.

[Mark]

You in the Virginia plan and then.

[Jill Schlesinger]

Charges you a fee on top of that.

[Bill]

Not for the 529 apologies. That is more on our IRA as well as.

[Jill Schlesinger]

All right, well whatever. If you like this person, I'm not going to tell you to get out.

[Bill]

So question is I have some extra cash flow and you had mentioned my wife's employment. Run the numbers for this year after you know, getting my emergency fund up to six months and you know, throwing a lump into my daughter's catch up 529. If we're going to have some extra cash flow, one of the buckets I feel like I'm light on is maybe contributing to a brokerage account and maybe some index funds.

[Jill Schlesinger]

Yep, that's what I would do.

[Bill]

Is that something that you. That I could do myself or.

[Jill Schlesinger]

No, you totally can do it yourself. So I mean you have your 401k currently is at Fidelity. You can open up a plain old brokerage account there.

[Mark]

Where's.

[Jill Schlesinger]

Wait, you know the restricted shares that you have?

[Bill]

Yeah, they're in the Fidelity account in a brokerage stake. So I have one already.

[Jill Schlesinger]

Perfect. So then all you need to do is add a couple of index funds to the mix and start going and use your cash flow that way. I would rather you do that even than doing the Roth 401K. Mark, I presume Mark is going to.

[Mark]

Say like no, no no, do the Roth.

[Jill Schlesinger]

But I'd like you to beef up your non retirement assets especially because you've got, you know, three kids. Life happens, things are going on and maybe, you know, things will change and maybe you won't have that same cash flow. We don't know kind of where your 6th grader and 8th grader end up college wise. And you may want access to some money but I would really love you to put a bunch more money into those 529 plans again, presuming that you are doing that straight up without paying a fee on that. And then yeah, I would add to the brokerage account and you build that up. And I mean, are you the kind of folks who are looking at sort of a general, like we're going to retire when, you know, in our 60s, that kind of thing, or is there some other idea here?

[Bill]

You know, we're kind of busy bodies and I think I will continue to run some type of side hustle or small business even after retirement, probably at 65. You know, another question I have is if we're looking at future inheritance a substantial amount, how that could change things?

[Jill Schlesinger]

How substantial?

[Bill]

Really? Two ways. So my wife is fortunate with her two siblings to be the trustees of their uncle's estate. Currently 87, we think there's probably somewhere between 3 and $5 million in assets.

[Jill Schlesinger]

You just caught my attention there. Mr.

[Bill]

So I'm trying to like think about this and like plan for like, hey, when that happens potentially in 10 years, like how does that change things for us? A lot of those dollars today are in brokerage accounts. So that we always saw as like, hey, that would help that bucket for us when that time came. So, you know, that's, that's kind of what we're thinking. We'd like to not draw from my retirement until age 72 and maybe work till 65 and pull from some funds in that.

[Jill Schlesinger]

You know what though? Like, we have a lot of time before we get to that decision making. I feel like as much as I like to know that there is money coming in, you're not planning on it, but it is there, right? So it's not like, oh, I'm putting everything else on hold waiting for my relative to die. That's not where we are. However, I do think it's smart to consider the fact that I would feel very strongly in this case then that.

[Mark]

You will have many, many, many options.

[Jill Schlesinger]

To consider in the next 10 years.

[Mark]

Which we will consider when that money hits.

[Jill Schlesinger]

But for today, I still kind of like our game plan as we've laid out.

[Mark]

I really do.

[Jill Schlesinger]

And it probably means that there's a part of me that now is thinking, mark, are you thinking now Roth because of that piece of information?

[Mark]

I was thinking Roth beforehand because I was just doing the math based on his current contribution level. I mean, if he keeps that up for the next 14 years until he's 60 and I'm not even factoring in the catch up when he hits 50, but if he keeps that contribution and the Company keeps matching him dollar for dollar, that 401k is going to be over $3 million pre tax. That's serious RMD.

[Jill Schlesinger]

Yeah. So maybe I'm going to change my mind here, Bill, and tell you. Mark's convincing us that we have to do the. We're going to have to do this. You're going to have to suck it up. Your tax bill is going to go up a little bit. Not a lot of it, but a little bit. And given that you have all this money coming in, there'll be plenty of cash flow later. I think you guys are in really amazing shape. I really do. So I would not get myself too crazy about anything. I think you're in really like, this is a good story that you're telling us. So you're on the right track for someone who says, you know, it's funny. He comes on Mark, he says, I don't know anything. No one taught me anything.

[Mark]

You guys are kicking ass.

[Jill Schlesinger]

You're doing great. You're doing great and you've got all the, you know, to me, the, the.

[Mark]

Things that we're laying out here as.

[Jill Schlesinger]

Ideas, those are things that are like.

[Mark]

A little like a small edit.

[Jill Schlesinger]

Like, you know, when someone gives you like an edit and says like, oh, just, you know, put that comma in here and there's a semicolon instead of a comma over there.

[Mark]

That's what we're doing for you.

[Jill Schlesinger]

You really are in good shape. So congratulations. Go forth and multiply your non retirement assets and get excited about your Roth. You are now going to be paying more taxes today, but reducing it in the future, which is fabulous, really is.

[Mark]

If you have something going on in your life, whether it's big or small.

[Jill Schlesinger]

Whether you have a lot of money.

[Mark]

Or a little money, whatever it is, get in touch with us. We're so easy to talk to. Don't you hear that? Every single day. Just go to jillonmoney.com, click that contact us button and write us a note. Note. While you're on the website, just bookmark it. We have all of our content that lives there. It's very easy to do. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Please leave us a rating and review wherever you listen and of course, lift someone up. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow.

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