How to Build Wealth Right Now and How Couples Can Align on Financial GoalsHow to Build Wealth Right Now Plus Ways for Couple to Align on Financial Goals

Summary

NerdWallet's Smart Money Podcast: Episode Summary

Title: How to Build Wealth Right Now and How Couples Can Align on Financial Goals
Release Date: March 31, 2025
Hosts: Sean Pyles, CFP®, Elizabeth Ayoola

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Introduction

In this insightful episode of NerdWallet's Smart Money Podcast, hosts Sean Pyles and Elizabeth Ayoola delve deep into the art of wealth building and the dynamics of financial alignment within couples. The episode is structured around two main segments: Money Hot Takes and a Money Question from listeners. Both segments offer practical advice, backed by thorough research, aimed at helping listeners make informed financial decisions.

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Money Hot Takes

Timestamp: 00:00 – 07:01

The episode kicks off with the Money Hot Takes segment, where Sean and Elizabeth share their candid and sometimes controversial opinions on prevalent personal finance topics.

1. Elizabeth's Hot Take: Owning a Business Isn't the Only Path to Wealth

   Quote:

   "Owning a business isn't the only way to build wealth. It grates my nerves when I see social media influencers or business owners tout this idea." [00:25]

   Elizabeth challenges the commonly held belief that entrepreneurship is the sole avenue to financial success. She emphasizes that consistent investing in stocks, bonds, mutual funds, and low-cost index funds can also lead to substantial wealth accumulation over time. Citing data from Fidelity Investments, she notes:

   "Most people who become millionaires in The US do so by contributing to a retirement account consistently over time." [02:05]

   Elizabeth further highlights the benefits of balancing a 9-to-5 job with business ownership, allowing for increased cash flow and accelerated savings. She concludes by advocating for personal skill development and strategic investments as viable alternatives to business ownership for building wealth.

2. Sean's Hot Take: Roth IRAs Are Overrated

   Quote:

   "Roth IRAs are way overrated." [04:25]

   Contradicting the usual praise for Roth IRAs, Sean argues that while Roth IRAs offer tax-free retirement savings, they come with significant limitations:

   • Contribution Limits:
     "The maximum that folks under 50 can contribute to an IRA, traditional or Roth, is just $7,000 in 2025." [05:14]

   • Income Restrictions:
     "If you earn over $150,000 as a single filer or $236,000 for married filing jointly, you can't contribute the full amount to a Roth IRA." [05:20]

   Sean posits that Roth 401(k)s present a superior alternative with higher contribution limits and no income restrictions. Although acknowledging that Roth 401(k)s lack the flexible withdrawal options of Roth IRAs, he underscores their advantages, such as:

   "Pulling from retirement accounts can jeopardize your retirement savings anyway." [06:15]

   Elizabeth offers a rebuttal, noting that Roth IRAs provide broader investment options and are accessible to those without employer-sponsored retirement plans, highlighting that:

   "With a Roth IRA, you can shop around and that can save you money long term and take your retirement savings further." [07:48]

   The discussion concludes with a consensus that while Roth IRAs have their merits, Roth 401(k)s may offer more flexibility and higher savings potential, depending on individual circumstances.

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Money Question: Aligning Financial Goals in Marriage

Timestamp: 09:50 – 34:43

In the Money Question segment, couples Naomi and Andrew seek advice on optimizing their newly available budget space and aligning their financial priorities. Their conversation with Sean and Elizabeth offers a comprehensive look into managing family finances, handling debt, and planning for the future.

1. Financial Alignment and Core Values

   Naomi and Andrew commend their strong alignment on financial priorities and values. They share that a pivotal moment in their relationship was dedicating a weekend to identify their five core values, which guide their financial decisions. Naomi mentions:

   "Having those core values identified has helped us prioritize, like bigger things." [13:50]

   These values include generosity, margin, flourish, and wisdom, reflecting their commitment to living thoughtfully and generously.

2. Handling Debt: Good vs. Bad Debt

   A significant area of discussion revolves around their perception of debt. Naomi is more comfortable taking on debt for short-term goals, such as home additions, while Andrew has grown more accepting of using debt responsibly. Sean clarifies the concept:

   "Good debt is debt that often helps you build wealth long term... Bad debt can prevent you from achieving your financial goals." [17:29]

   Naomi and Andrew exemplify good debt through low-interest loans for solar panels and car purchases, viewing them as investments that enhance their home's value and reduce long-term expenses.

3. Emerging Budget Flexibility and Prioritization

   With the upcoming cessation of daycare payments, Naomi and Andrew anticipate an extra $1,430 monthly. They are faced with decisions on how to allocate this windfall effectively. Key considerations include:

   • Building Emergency Savings:
     Naomi emphasizes the need to bolster their emergency fund, currently at $20,000, to achieve a more comfortable cushion.

   • Saving for Their Son’s Future:
     Both express a desire to increase contributions to their son's education fund, weighing options between 529 plans and taxable brokerage accounts for greater flexibility.

   • Home Expansion:
     They deliberate whether to finance a home addition through loans or save up, considering the implications on their financial buffer.

4. Retirement Planning and Anxiety Management

   Despite contributing 17% of their combined income to retirement accounts, Naomi feels anxious about not saving enough. Sean recommends consulting a Certified Financial Planner (CFP) to conduct a Monte Carlo simulation, providing a clearer picture of their retirement readiness. Elizabeth adds perspective by discussing Coast FIRE, encouraging them to envision their desired retirement lifestyle to better align their savings strategies.

5. Strategic Allocation of Extra Funds

   Sean advises Naomi and Andrew to map out their financial goals and allocate their newfound budget flexibility across multiple priorities, emphasizing that it's possible to pursue several financial objectives simultaneously. This includes:

   • Home Improvement:
     Enhancing their living space can increase property value and improve quality of life.

   • Education Savings:
     Investing in their son's future education can reduce his potential debt burden.

   • Emergency and Retirement Funds:
     Strengthening their financial safety nets ensures long-term stability.

   Naomi expresses excitement about being able to set new goals and create a strategic plan, highlighting the importance of balancing present enjoyment with future security.

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Key Takeaways and Conclusions

• Diversified Wealth Building:
  Building wealth doesn’t solely rely on entrepreneurship. Steady investment in diversified portfolios through 9-to-5 jobs can effectively lead to financial security and millionaire status.

• Roth IRA vs. Roth 401(k):
  While Roth IRAs offer tax-free retirement savings, their limitations make Roth 401(k)s a more robust option for those seeking higher contribution limits and greater flexibility, provided their employer offers such plans.

• Financial Alignment in Couples:
  Establishing shared financial values and priorities is crucial for couples. Open communication and planning around core values facilitate harmonious financial decision-making.

• Strategic Debt Management:
  Distinguishing between good and bad debt allows couples to leverage debt as a tool for growth rather than a hindrance to financial goals.

• Proactive Retirement Planning:
  Utilizing professional financial planning tools and services, such as Monte Carlo simulations and CFP consultations, can alleviate retirement anxieties and provide a clearer path toward financial independence.

• Multi-faceted Financial Goals:
  Allocating additional budget space across various priorities—such as emergency funds, education savings, and home improvements—can enhance both present quality of life and future financial stability.

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Notable Quotes

• Elizabeth Ayola:
  "Owning a business isn't the only way to build wealth." [00:25]

• Sean Pyles:
  "Roth IRAs are way overrated." [04:25]

• Naomi:
  "Thinking about the future is it always feels like there's never going to be enough to prepare for the future." [31:03]

• Andrew:
  "I have more and more confidence with those short term goals that we can tackle them, pay them off and move on to the next goal." [14:33]

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Final Thoughts

This episode of NerdWallet's Smart Money Podcast offers a balanced and comprehensive exploration of wealth building and financial harmony within relationships. Through candid discussions and expert advice, listeners gain valuable insights into managing their finances effectively, making informed investment choices, and fostering strong financial partnerships.

For more personalized advice, the hosts encourage listeners to reach out via voicemail or text at the Nerd hotline: [phone].

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Disclaimer: The information provided in this summary is for general educational and informational purposes only and does not constitute financial advice. Consult a professional financial advisor for personalized guidance.

Transcript

[Sean Pyles]

Elizabeth, are you ready to keep it real? Like, really real. So real that people might be shocked by what you're saying?

[Elizabeth Ayola]

I think that's my default, Sean. As a recovering oversharer, I am well versed in realness.

[Sean Pyles]

You know, I think that's why we get along so well. Well, this episode, we're doing another round of Money Hot takes where we lay out the nerdy truths about money that people might not be ready to hear, but it's our job to do it anyway, so buckle up. Welcome to NerdWallet's Smart Money podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Pyles.

[Elizabeth Ayola]

And I'm Elizabeth Ayola. This episode, we talk with a married couple about how they manage their finances together, even when they don't agree on what they want to do with their money.

[Sean Pyles]

But first, you heard us up top. It's time for another round of money hot takes. If you are new here, this is how it works. A. Elizabeth and I have a hundred seconds on the clock to rail against something in the personal finance space that we are annoyed by or simply don't like because there's a lot of misinformation or just misguided stuff that happens around money, and it's our solemn nerdy duty to impose our perspective on listeners every so often. Elizabeth, this is your very first Money Hot take segment, so you have the honor of going first. Are you ready?

[Elizabeth Ayola]

I stay ready, Sean.

[Sean Pyles]

Okay. Okay. I'm setting my timer to a hundred seconds. Three, two, one, go.

[Elizabeth Ayola]

So owning a business isn't the only way to build wealth. It grates my nerves when I see social media influencers or business owners tout this idea. I mean, that isn't the only way to become a millionaire. All right, so first of all, about one in four businesses fail within the first year. And I'm not saying this to be a negative, Nicole, or discourage people from starting a business of the business owners who are making it, shout out to y'all, the average makes under $100,000 a year. Owning a business also doesn't automatically mean that your business is going to be worth millions either. Now, while it may be true that you're unlikely to become wealthy just by earning income from a 9 to 5, the part that people miss is that if you consistently invest that income in, let's say, stocks, bonds, mutual funds and low cost index funds, you can become wealthy in a couple of decades and seconds left Pressure. Most people who become millionaires in The US do so by contributing to a retirement account consistently over time. I also am going to say an analysis by 401k provider Fidelity Investments found that in Q3 of 2024, 544,000 of the 24 million participant accounts in the 401k plans had balances over a million dollars. Case in point, you can become a millionaire working a 9 to 5. As someone who is a small business owner and a nine to fiver, I want to. There are benefits of doing both simultaneously. If you want to increase your cash flow, you can save and invest more money by doing both. And I was able to hit some of my savings goals quicker as a late bloomer to investing because I had extra cash to max out my 401ks and contribute to a SEP IRA.

[Sean Pyles]

Okay, that's 100 seconds. Do you have any more you want to say?

[Elizabeth Ayola]

I do. Thank you so much for being so gracious, Sean. Okay, okay, okay. But before I bow out, I am going to add that owning a business is not for everyone. So sometimes it's better to take that time and those resources and pour them into lobbying for a raise or developing high demand skills and making yourself more valuable in the job market. That extra money you make can be put into smart investments that help you grow your wealth without having to become a boss.

[Sean Pyles]

There you go. A little over a hundred seconds. But I think well worth the extra time because that is a really important point. So many people, especially on social media, are consumed with this hustle culture mentality and think that you have to be working constantly to become a millionaire. And first of all, becoming a millionaire can provide great financial security, but it's not everything in life. You know what's also great to do in your life? Enjoy hobbies. Spend time with friends, not be working constantly. And I worry some time about this mentality that you have to have a business, you have to be constantly working, otherwise you're doing something wrong. So thank you for laying all that out.

[Elizabeth Ayola]

Oh, thank you for letting me, even though it felt like I was talking on fast forward. Thank you.

[Sean Pyles]

I love it.

[Elizabeth Ayola]

All right, Sean, it's your turn. I hope you take a deep breath because you have 100 seconds. All right.

[Sean Pyles]

All right.

[Elizabeth Ayola]

And three, two, one, go.

[Sean Pyles]

My money hot take is that Roth IRAs are way overrated. But Sean, you're thinking, you guys always talk about the Benefits of Roth IRAs. What do you mean they're overrated? Well, let me explain. Sure. Roth IRAs can give you a tax free pot of money in retirement because you fund them with after tax dollars. And you may be able to use the funds for certain reasons before retirement without taxes or penalties. But guess what? Roth iras has some serious limitations and there is likely a better alternative right in front of you. Starting with the funding limitations. The maximum that folks under 50 can contribute to an IRA, traditional or Roth, is just $7,000 in 2025. And if you're over 50, you can contribute a measly $1,000 more. For many people, that is just not going to be enough to save annually to fully fund retirement. Then there are the income limits.

[Elizabeth Ayola]

50 seconds.

[Sean Pyles]

Oh God. Okay, you can't contribute the full amount to a Roth IRA if you earn over $150,000 as a single filer or $236,000 for married filing jointly. And people will counter that if you earn over the income limit, you can just do a backdoor Roth. Sure, that's an option. But guess what? There is a way you can contribute Roth dollars to a retirement account without an income limit, a much higher contribution limit, and and without the hassle of doing a backdoor conversion. I'm of course talking about a Roth 401k which I'm here to say is the superior way to contribute post tax dollars to a retirement account and have a tax free pot of money in retirement. Many employers offer these now and they allow you to contribute much more to a Roth account. It shares the limit with your regular 401k. So you could contribute at least $23,500 this year, depending on your age. And again, earning too much won't limit whether you can contribute. And you might be. I'm kidding. Oh no, I'm not even close to done yet. Elizabeth, please give me a few more seconds.

[Elizabeth Ayola]

I'm going to give you. I want you to finish. So go ahead, tell us.

[Sean Pyles]

Thank you. I have more points to make. Okay.

[Elizabeth Ayola]

Okay.

[Sean Pyles]

So you might also be eligible for matching contributions from your employer, which makes it even easier to save for retirement with a Roth 401K. So do Roth 401Ks allow you to take out your contributions before retirement penalty free like a Roth IRA? No. Do they let you pull out up to $10,000 for a first time home purchase like a Roth IRA? Also no. But guess what? Pulling from retirement accounts can jeopardize your retirement savings anyway. And also you only have to be 55 to begin withdrawing from your employer's 401k upon retirement without penalties compared to the standard withdrawal age of 59 and a half from an IRA. There you have it. Roth IRAs are clearly way overrated. That was a marathon.

[Elizabeth Ayola]

That was a marathon.

[Sean Pyles]

But it was, it was a sprint and a marathon at one time.

[Elizabeth Ayola]

Yes, but it was all good. So I love this argument, Sean.

[Sean Pyles]

Thank you.

[Elizabeth Ayola]

As a balanced human and one who has both a Roth 401k and a Roth IRA, I have to agree, kind of. So I do agree that the Roth IRA limit isn't alluring enough for the rich auntie lifestyle that I hope to live during retirement and that the higher Roth 401k limit is more incentivizing. But that said, I feel like you're overlooking a huge part of the argument which is that Roth 401ks can be limited when it comes to your investment options. So With a Roth 401K, you're at the mercy of plan plan administrators when it comes to your investment options. And that might comprise mutual funds, typically a target date fund, and they usually have set expense ratios. However, with a Roth IRA you can shop around and that can save you money long term and take your retirement savings further.

[Sean Pyles]

I'm glad you mentioned the potential limits of 401ks because you're right. You are kind of up to your employer's retirement investment options when it comes to what you can invest in in that 401k. Depending on the 401k you have at your company, you, you may be able to pay lower expense ratios than with a Roth IRA. For example, my robo Roth IRA has an expense ratio of 0.25% and the expense ratio of my 401k at work is just 0.08%. And I have over 20 investment options in my 401k which is plenty for me. But I do realize that not everyone is as spoiled as we are here at NerdWallet. So you definitely want to compare your options and shop around. This is not a one size fits all situation.

[Elizabeth Ayola]

I will take that rebuttal. But let's not forget that everyone doesn't have access to a 401k. So for those who don't, a Roth IRA may be as close to tax free withdrawals that they'll get, even if it is overrated.

[Sean Pyles]

Sean, you are completely right, Elizabeth. Relying on access to a 401k or a similar account like a 403b through an employer to have a reasonable chance at saving for retirement is, shall we say, a massive problem in our society. And that might actually just be a topic for another round of hot takes.

[Elizabeth Ayola]

It might be. And because I just have to get the last word in I'm also going to say, as an aspiring FIRE participant, Roth iras can be superior for people who retire early and want to take penalty free money out of their account to live their best lives.

[Sean Pyles]

Now here's me getting the last word on your last word. You're only able to withdraw your contributions. The earnings can be taxed and base penalties if you withdraw those before 59 and a half. So downsides trade offs in every direction.

[Elizabeth Ayola]

Fine. You win.

[Sean Pyles]

Thank you.

[Elizabeth Ayola]

We're about to get into this episode's Money Question segment where we hear from a married couple about how they manage their money together and work through tough money conversations.

[Sean Pyles]

But before we get into that, we are at the part of the show where we ask you to take a second and think about where you need some guidance with your money.

[Elizabeth Ayola]

Maybe you're having a hard time keeping track of your money and are wondering which budgeting method might be right for you. Or you just got hit with a big car repair bill and are wondering if putting it on the credit card is such a bad idea. Whatever your money question, we nerds are here to help. Leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That's 9017-30-Nerd.

[Sean Pyles]

And a reminder that one of our goals on Smart Money this year is to talk with more of you live on the podcast to help you with your money questions. So if you want to hang out with Elizabeth and me for a bit and get some nerdy wisdom, let us know one more time. Leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That's 901-730- nerd.

[Elizabeth Ayola]

Alrighty, let's get to this episode's Money Question segment. That's coming up next, but you gotta stay with us.

[Sean Pyles]

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[Elizabeth Ayola]

We'Re back and we are answering your money questions to help you make smarter financial decisions, hopefully. In this episode, we're joined by Naomi and her husband Andrew, who have some questions for us about how to prioritize the new breathing room they have in their budget.

[Sean Pyles]

Naomi, Andrew, welcome to Smart Money.

[Naomi]

Hey, everyone. Thank you.

[Sean Pyles]

So to start, I'd love to hear a little bit about what your financial life is like right now. Like, where do you two feel confident? Where do you think there's maybe some room for improvement?

[Naomi]

I feel really confident that Andrew and I are on the same page about our priorities and our values when it comes to how we spend our money. I think we could use a little bit of improvement maybe with how we're saving for short term investments or how we're thinking, thinking about short term savings and goals that we have. I think that we're really good at accomplishing a goal. It's a little bit trickier for us when it comes to identifying what the next goal should be.

[Andrew]

Yeah. I love our shared prioritization of our budget and our spending. I love the margin that we currently have to live the life that we want, that we both enjoy and agree upon, and the margin it has for generosity as well. So I think being aligned together is just financially, I feel, in a really good place.

[Sean Pyles]

Tell us more about that. How do you align on your values and priorities? Because that can be a challenging thing for couples.

[Naomi]

A few years ago, Andrew and I, before we had a kid, we took a weekend to think about our five core values that we share as a couple. And for me, that was a really helpful exploratory conversation that we had. And although we don't refer to them very often, we do refer to them when it comes to money decisions. So I think that having those core values identified has helped us prioritize, like, bigger things. And as Andrew said, generosity is one of those core values and money is one of the biggest ways we can show what we value.

[Elizabeth Ayola]

I love that you guys are on the same page because as Sean said, that can be difficult for some couples. So are there any areas where you maybe disagree or you don't necessarily align when it comes to how to spend money. I know you mentioned short term goals, so maybe can you expand on that a bit more?

[Naomi]

Yeah, I think it is the short term goals we disagree on. So I think Andrew feels the weight of debt a lot more than I do. So I am okay taking on more debt. I have taken on more debt in the past. I came into our marriage with more debt. But when it comes to short term things, I am more inclined to take on debt for those things. I think that's where we have some disagreement about, you know, like what's a healthy or good decision when it comes to what we should take debt for.

[Andrew]

That's right on. I have gotten more comfortable with debt with Naomi. I don't know if we qualify good or bad debt, but I just seeing how we work as a team and. And tackle debt together, I have more and more confidence with those short term goals that we can tackle them, pay them off and move on to the next goal.

[Sean Pyles]

I love hearing how aligned you are. It's really refreshing. And the idea of you guys having a weekend to talk about your values sounds weirdly romantic in a very nerdy. So you mentioned that you had these five values. Generosity is one of them. What are the other ones?

[Naomi]

Andrew mentioned margin. That is one of them. We also have flourish as one. So we value like caring for creation and caring for other people in our home. So allowing an environment where all can flourish, wisdom, generosity.

[Andrew]

I have a portrait under my desk of all five of them. I'm not going to run and grab it, but I have four of the five.

[Sean Pyles]

Yeah, I love that you guys are manifesting this so much. Where did these words come from?

[Andrew]

Well, we both share the Christian faith together. I serve at a local Lutheran congregation and Naomi has her background in tradition as well. So I have to say our understanding of our Christian faith would very much be an inspiration to those things. And then just having done life together and seeing what one another valued kind of all came together to help form those.

[Elizabeth Ayola]

Yeah, I love that. I want to circle back to this idea of you guys maybe disagreeing a bit around your short term goals. And especially because you mentioned debt being maybe the main driver for that. And you also mentioned a very good point, which is sometimes there is what is called in the financial world, good debt and bad debt. So what are you guys ideas of what good and bad debt are? So if we can see if we can get you to reframe and maybe align in that regard.

[Naomi]

So we have two. I think examples are important, but we have two Loans right now, besides our mortgage. And we identified these as priorities for the family and something that we could take on. So the one loan is for solar panels for our home, and then one loan is for a car that we purchased. Both are very low interest. Both are. We're able to make the monthly commitment for that. What we would say is probably what we are considering now, which is harder for us to explore together because we disagree about this is an addition to our home. So it is a huge purchase. It is something that feels really unattainable if we are just trying to pay cash for it. But financing it also seems like a really enormous task as well, if we were to take out, like, a home equity loan. So I think that. That figuring out if we take out a loan or if we save for cash is one area where I think we're having some disagreement.

[Elizabeth Ayola]

So, Sean, do you want to maybe first go into what good debt and bad debt is, especially within their context?

[Sean Pyles]

Yeah. Well, good debt is debt that often helps you build wealth long term. A lot of people think of student loans as a good debt. Bad debt can prevent you from achieving your financial goals. Often that's high interest credit card debt. So based on these pretty simple parameters, it does seem like you guys have good debt. Although I tend to veer toward thinking that debt is neither good nor bad in moderation. It is a tool to be deployed carefully. And I'd like to hear how you guys have negotiated your feelings around debt. Because, Andrew, it seems like you've kind of come around to thinking that debt is less bad in general than you thought in the past. Is that right?

[Andrew]

Yeah. I did not have a credit card until I started considering buying my first home. When I was single in my late 20s. I had a credit card, actually, but I had never built any credit because there was just this fear of, you know, getting into this trap of debt. And I just stuck with my debit card, which was really good practice at the time. But then learning how to not just use a credit card, but learn how to spend money and learn that it.

[Sean Pyles]

Was okay to spend money and build.

[Andrew]

Credit and build credit was. Was something I learned. One of the strongest, most empowering things we did as a couple was pay off Naomi's grad school debt within two years after we got married. And that was great and awesome. And that was kind of like, okay, we can do this. Let's not get into that situation ever again anytime soon. But if we were to, we can. And like Naomi said, when we were looking into the cars and Deciding whether to pay cash, how much to pay in cash, how much to take out a loan. Interest rates were really key. We wanted to make sure that what we had in the, in our high interest savings was building at a higher rate than what the interest rate on the loan would be. And with the solar panels, we saw it as a replacement of an energy bill that we would no longer have to be paying as much because of the solar. This one's a little trickier with the taking on what would be a. Not a second mortgage, but if we were to finance an addition to the house, that's a little trickier because I like the sense again, this living, simply living with margin right now. If one of us were to not be able to work or not work, we could float our mortgage on one salary. It scares me to think that we would be locked into something where we would both have to work. Now, I fully intend for both of us to work until retirement, but I like the freedom that not having that additional debt brings.

[Sean Pyles]

Yeah, it's essentially a financial buffer. But you wrote to us about how you will soon have some new wiggle room in your budget. Tell us more about that.

[Naomi]

Yeah, I am so excited because in the next couple of months we will be done with daycare payments.

[Sean Pyles]

That's huge.

[Naomi]

An additional $1430 that we will have every month. That's not going to daycare. I was, you know, looking at our budget. It's the second highest line item in our monthly budget. And that is a huge blessing to be able just to say that we don't have a place where we have to put it right now. So we want to be able to, to think strategically and thoughtfully about what to do with this money now and like have it work for us.

[Sean Pyles]

That is more than my mortgage payment. I'll say that you have in your budget to work with. So you're considering maybe the expansion on your house. What are the other priorities that you're weighing?

[Naomi]

Definitely saving for our kiddos future. So we're, we're able to save a, a little bit each month. But I'd like to consider adding more. The addition to the house and then, you know, wondering if we need to buff up either emergency savings or our retirement savings.

[Elizabeth Ayola]

I want to say congratulations for having that extra money in your budget because I am also a mother and my son is seven and when he stopped going to daycare, I could have thrown a party for that. So I'm glad you guys have that extra income. So based on all of your priorities now, which one of the ones that you mentioned would you say best aligns with one, your long term financial goals. And also what feels the most pressing.

[Naomi]

For me, it would be bulking up our emergency savings and then saving for our son's future. Those the two where I think we could be putting more attention to and also feel like they align with like our long term goals.

[Elizabeth Ayola]

And if you don't mind me asking, how much do you guys have in your emergency savings at the moment?

[Naomi]

Right now we're teetering around just $20,000.

[Sean Pyles]

How many months of savings is that for your expenses?

[Naomi]

Maybe three.

[Sean Pyles]

Well, a lot of financial planners will recommend that for households where you have two incomes like you guys, three months can be okay, but it does seem like you're pretty risk averse and you like having a lot of financial security. So in that case, you might feel safer with closer to six. Tell us a little more about your retirement savings too.

[Naomi]

Our retirement savings we also feel good about and probably a lever where I'm hoping we can pull back, but we also have the opportunity to put more into.

[Andrew]

I'm just curious, with our three months of emergency savings, you know, if hits the fan or whatnot, and are we talking all of our expenses as they currently are, we can float for three months, or are we talking we're pulling back on a bunch of things. You mentioned levers like retirement. Would we be six months and also be pulling back on payments that we wouldn't necessarily need to make, but are currently making?

[Sean Pyles]

That's a great question and one that we get often. And think about what you would do in a crisis, say God forbid one of you lost your job, you would make some drastic changes to your budget. You probably wouldn't be eating out as much. You might pull back on retirement savings. You would go into like shelter mode, basically. So you want to think about for your emergency fund, three to six months of your bare bones budget.

[Andrew]

I think we could float a lot longer than three months is what I'm getting at or saying. Okay, but Naomi would have a much better picture of that than me.

[Naomi]

I mean, that's helpful. Yeah, that's like including our continued giving and our continued Roth contributions and stuff. So I think we're in the three to six month range probably. So for retirement, we currently contribute 17% of our combined income toward Roths and 401k.

[Elizabeth Ayola]

I like that you said you feel like you're on track for your retirement savings. So what makes you feel like you're on track? What are your goals and how are you kind of measuring Your progress.

[Andrew]

I'm pretty sure I've googled this specifically and have come across a nerd wallet blog or something about where you need to be at what decade I just turned 40 and whatever the metrics are, you know, three times your income at 35 or whatnot. From those very basic blogs that I have read, I believe we're on track with our current income where we're at.

[Elizabeth Ayola]

I guess to answer your question about what you should prioritize, obviously only you guys know that, but I will say that some general options in terms of financial priorities that we usually share @nerdwallet is first of all, like Sean said, ensuring that you have a sufficient emergency fund. Then it would be paying down high interest debt, which it doesn't sound like you guys have much of. Um, the next thing would be saving for retirement and you're already doing that and you seem to be on track. And then you could consider putting money into college funds for your kids, which you guys said was one of your priorities too. You can try to achieve multiple financial goals at the same time. I think sometimes people get hung up on having to do one thing at a time, which is fine if that's what you want to do. But it is possible to allocate some of that extra income that you now have to saving for retirement and also allocate some to a college fund for your kids and also save some towards your house house renovation. So it doesn't have to be one or the other.

[Naomi]

Can we go into some more specifics?

[Sean Pyles]

Sure.

[Naomi]

We've done some basic financial planning in the past, but because we started early, combined we have $515,000 in retirement. I am 36 and Andrew is 40. So we are on track, I believe, to retire at or around 65, very comfortably with actually a higher income, I think, than we have now. But sometimes when I run analysis or when I'm trying to predict how much we'll have, it still seems like we're going to come up short. And that's really hard for me. Like, it just feels like it's never going to be enough. How however much we're contributing, it never seems like we are going to have enough at retirement.

[Sean Pyles]

I think that's how everyone feels unless you're a multi. Multimillionaire. And even then, I bet lots of people who have lots of money feel like they still won't have enough. So that's totally normal. You've played around with NerdWallet's retirement calculator.

[Naomi]

Yes.

[Sean Pyles]

Love to hear that. And for Folks curious about it. We'll have a link to it in the show notes here. But as you play around with that calculator, you can see, okay, I'm planning on living on maybe 70 or 80% of my pre retirement income in retirement. And it can give you an idea of how much you might need to save, but that is an estimate. We don't really know what the future holds, how the stock market might perform, but this is why it's really helpful. Like you were talking about earlier with doing some financial planning, I would recommend just for retirement planning, specifically partnering with a certified financial planner professional who can run what's called a Monte Carlo simulation. And they can basically run all these different variations of your current financial plan and factor in, okay, the stock market crashes or it does really well or one of you stops working any number of changes and it can give you a percentage of how likely you are to hit that financial goal and have enough in retirement. It seems like you want a clear percentage of how on track you are and what your chances are of having the retirement that you're envisioning. Is that right?

[Naomi]

I think so, because we also, it feels like we contribute so much post tax and now we have this extra money. So if we need to do more, we can do more, but if we can do less, it'd be nice to do less.

[Andrew]

Do people ever stop giving to retirement at a certain point in time, just like, all right, based on projections, we'll be good. We gave a lot. I just remember in personal finance and college, they're like, if you start giving your retirement from 24 and stop at 30, you'll have more by retirement than someone who starts at 30 and goes all the way until retirement giving. Does it ever make sense to stop or really, like, cool it?

[Elizabeth Ayola]

Well, I'm going to jump in here because I love talking about fire, but I know that's not the exact topic, but it makes me think of coast fire. For anyone who's not familiar with fire, it's, you know, financial independence, retire early. But essentially with coast fire, you save aggressively and then you do get to a point where your investments can grow enough to cover your retirement retirement needs. And it allows you to, like the word says, coast to retirement without having to save so aggressively. So to answer your question, it doesn't mean that you necessarily stop saving, but maybe you don't have to front load as much as you are. And for a little personal anecdote, I can relate with you guys because I started saving for retirement late and I was obsessing over not having enough as well. So I was working, taking on all these side hustles in order to, to put as much as I could into retirement savings. But at a point I started forgetting that because my number, I don't know, was around like, oh, I need $2 million or something to retire how I would like to. And I, you know, started to think, oh my God, I need to save $2 million. But I forgot that compound interest is working for me. Um, so after some time that's going to kick in and it's going to help my money to grow. So all that to say, I think as Sean said, maybe sitting down with the CFP and having maybe a more clear number of where you're trying to go within the different scenarios can help. And just also letting the stock market do what it does and hopefully let your money grow over time can be really helpful. So. And then also maybe exploring some of the anxiety that you're having around the uncertainty, because I realized that was a big issue for me as well. 4 in some ways was maybe not so much about the amount of money I had, but more about the fears I had about not having enough money that was driving me to over worry about it.

[Andrew]

Yeah, I guess we haven't done a whole lot of dreaming, like what do we want retirement to look like? And I don't know if that's something that that planner would help with or that we would have to come to those meetings with those thoughts.

[Elizabeth Ayola]

But so important, so important. I used to be so afraid of retirement, and even I took me so long to start saving because I was scared to do that daydreaming because I thought it was going to make me realize how far behind I was. But it actually was such a motivator because I got to think about what I want my life post retirement to look like. So I would totally say even you guys doing that together on one of your dates where you have like your goal sharing or talking about money to just sit down and allow yourself to daydream. And even doing that maybe before a meeting could help you bring more to the meeting with the financial planner about what exactly you want that retirement to look like so they can help you with the numbers elements of things as well.

[Naomi]

Thinking about the future is it always feels like there's never going to be enough to prepare for the future. But I also am. We're shifting our mentality to make sure that we have enough to give us margins joy for today. It's easier to see and we want to have These short term goals to be able to give us joy now. But checking that anxiety is always really helpful. So thank you for sharing that.

[Elizabeth Ayola]

Of course.

[Sean Pyles]

And I think once you have that shared vision in mind of what you want your retirement to be like, you can almost walk backwards into that and think how can we allocate the $1,400 that we're going to have each month now to get what we want? Having an addition on your house can be great in the short and medium term just for quality of life, especially as your son grows up. But then longer term it could make your house more valuable. Also putting more into your kid's 529 could make it so that they have less debt later on or you don't have to take out as much debt for them when they hit college age. So like Elizabeth mentioned earlier, there are a lot of ways that you can deploy this money simultaneously to achieve the vision that you want. One month, one day at a time.

[Naomi]

Can you talk to us about 529s? We haven't specifically talked about how much we want to save for our, for our kids future or whether or not we want that to be in a college fund, for example. I do anticipate he will probably go to college, but I'd also, it's important for me to be able to fund a gap year for him to explore if that's what he needs. What are other options besides a 529 as we consider savings for his future?

[Sean Pyles]

Well, 529s are great because they are very flexible for higher education. You can also use them for things like trade school or even high school if needed if you're putting them toward the right expenses. But if you want to fund something like a gap year, an account like a taxable brokerage account might be the more flexible way to go because you don't have all these restrictions around what you can use the funds in it for. So that would probably be something to look into as well. Have you considered opening one of those for your son?

[Naomi]

We have, but I have not done anything about it yet.

[Sean Pyles]

Well, we have tons of roundups on the Nerdwall website, so check those out. You can again even think about putting some of that money that you have each month into one of those. I do want to remind you that I'm not telling you exactly what to do with your money. You know, I'm a cfp, but I'm not your cfp. But these are just things to think about. You have a lot of money at your disposal right now. And a 529 is one way you can build savings for him. But again, that taxable brokerage can give you a lot of flexibility, too. Naomi, Andrew, we've run through a lot of different ways to meet different goals, different ways to think about your values and your priorities. How are you two thinking about the money that you'll have at hand on a monthly basis pretty soon and how you might deploy that?

[Andrew]

I mean, it's a significant amount, like we all said. Yeah, it's now just kind of starting to sink in.

[Naomi]

I feel excited that we can start setting some new goals and having these, like, dreaming sessions again about what we could do, even, you know, like having a legacy somewhere for somebody. But I think we can also be strategic and we can do a little bit for all of these things and pull some levers maybe as those goals change. So, yeah, it's exciting to have that money and to have the margin. Like I said, it's like a huge gift to be able to assign it in a new way.

[Sean Pyles]

Yeah. And you guys are thinking about this and talking about this at a great time. You have a few weeks before you're going to see any of this money. So take the time to have these conversations, to dream a little bit. Maybe even map out how your budget might look if you put a certain amount toward this goal and a certain amount toward another goal. And then try mixing up those numbers a bit and see where you might be five, ten years down the road. If you allocate a certain amount toward different goals over time, that might help you see how you can get to where you want to be in really concrete terms, too.

[Naomi]

That's great.

[Sean Pyles]

Well, Naomi, Andrew, thank you so much for coming on and sharing your story and talking with us.

[Naomi]

Hey, thank you, guys.

[Andrew]

Yeah, thanks, Sean. Thanks, Elizabeth.

[Sean Pyles]

And that is all we have for this episode. Remember, listener, that we are here to answer your money questions. So turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcastnerdballet.com Remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

[Elizabeth Ayola]

And here's our brief disclaimer. We are not financial or investment advisors. This nerdy information is provided for general educational and entertainment purposes, and it may not apply to your specific circumstances. This episode was produced by Tess Vigelen. Hilary Georgi helped with editing. Nick Karisimi mixed our audio. And a big thank you to NerdWallet's editors for all the help.

[Sean Pyles]

And with that said, until next time, turn to the nerds.