How to Put $200K to Work and The Truth About Generational Spending

Summary

NerdWallet’s Smart Money Podcast

Episode: How to Put $200K to Work and The Truth About Generational Spending
Release Date: May 28, 2026
Hosts: Sean Pyles, Elizabeth Ayola, Ana Hilhosky
Special Guests: Kurt Wook (NerdWallet data writer), Ryan Sterling (Wealth Advisor, NerdWallet Wealth Partners)
Listener Guest: Kat from Virginia

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Episode Overview

This episode takes on two central themes:

1. Demystifying Generational Spending Trends: The NerdWallet team breaks down the myths and realities of how different generations actually spend their money, backed by fresh data insights.
2. Personal Money Makeover: The hosts step into a real-life scenario with Kat, a listener who’s built a strong financial foundation (including $200,000 in cash savings) but is paralyzed by anxiety about how to put it to work.

Listeners gain actionable strategies for overcoming investment fears, structuring their cash, and understanding generational financial pressures—delivered in the signature reassuring, research-driven Smart Money tone.

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Key Discussion Points & Insights

1. Debunking Generational Spending Stereotypes

(02:12 – 10:08)

Summary

• Analyzing how Baby Boomers, Gen X, Millennials and others truly spend their money—using data, not stereotypes.
• Discussion led by data writer Kurt Wook, author of a new NerdWallet study mining Bureau of Labor Statistics (BLS) data.

Highlights

• Popular Myths vs. Reality:
  • Millennials aren’t just “blowing money on avocado toast”—spending patterns are more nuanced.
    • “Millennials spent an average of $135 on postage and stationery in 2024, and Gen Xers spent an average of $296 on pork.” – Kurt Wook (03:29)
• Measuring Expenses by Income Share:
  • It’s not about who spends more dollars, but who spends a bigger chunk of their income.
    • “Instead of looking at those raw dollar amounts, I wanted to focus on how much of your income those different expenses eat up.” – Kurt Wook (03:59)
• Housing Trends:
  • Housing eats up a “U-shaped” portion of income across generations. Highest for young adults, dips in middle age, then climbs again in retirement as income drops.
    • “Baby boomers devote a higher percentage of their income to home maintenance and utilities than Gen Xers devote to mortgage and rent payments.” – Kurt Wook (05:18)
• The Heavy Hitters:
  • Transportation is the second biggest cost after housing for most, but non-car-payment costs (insurance, gas, repairs) dominate.
    • “On average, people spend more money per year for the other associated costs… than just the car payment.” – Kurt Wook (05:49)
  • Healthcare is the biggest late-life burden, soaring as income drops post-retirement.
    • “You might spend decades where healthcare takes about 5% of your income, and then maybe in your last couple decades, that percentage triples or more.” – Kurt Wook (06:14)
• Financial “Squeeze” Points:
  • Both the youngest and oldest adults spend the highest share of their income on essentials; retirement and starting out are both tough on wallets.
    • “Unlike turning 23 when you’re just starting out, we can prepare for [retirement expenses]… our future self is marching toward us every day.” – Kurt Wook (07:33)
• Saving vs. Spending, and the Art of Balance:
  • Life requires both—saving for future needs and spending on meaningful experiences.
    • “Yes, there’s value in financial stability… but sometimes it does mean spending more.” – Kurt Wook (08:33)
  • “For you savers out there who are reluctant maybe to do that… maybe it’s not just a number—it’s starting a family, buying a home, or going on a trip of a lifetime.” – Kurt Wook (09:06)

Notable Quotes

• “I didn’t expect that to pull at my heartstrings.” – Elizabeth Ayola (09:52)
• “Meanwhile, I’m thinking I need to go and save a little more money.” – Ana Hilhosky (10:03)

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2. Listener Q&A: Putting $200K to Work (Kat’s Story)

(13:47 – 42:38)

Kat’s Situation (14:46 – 17:41)

• Background: New parent of two, lives in high-cost Northern Virginia, recently increased household income by job change, but struggles with financial anxiety.
• Financial Strengths: No debt from early adulthood, maxes out 401k, opened 529s for children, has $200k in a regular savings account.
• Pain Point: Paralyzed by fear of making irreversible mistakes with cash: “I am afraid to do the wrong thing... I keep forgetting what all these account types are... I’m just afraid when I move something, I’m going to pick wrong and lose it or something.” – Kat (17:49)

Advice and Discussion

1. Validate the Foundation (19:06)

   • “You can only cut your way so much to wealth, you have to think about growing your wealth… That’s one of the fastest ways to increase wealth.” — Ryan Sterling (19:06)
   • Commends Kat for her progress and mindset, encourages giving herself grace.

2. Cash Management: High-Yield Savings Accounts vs. Regular Savings (22:52 – 26:36)

   • “You should demand a return for your money… Don't just let your bank borrow from you for free.” – Ryan Sterling (24:41)
   • Difference between traditional and high-yield accounts, safety (FDIC insurance), and why big banks pay less.

3. Building Buckets & Time Horizons (27:26 – 29:13)

   • Split cash into buckets:
     • Short-term (next 12–18 months: e.g., new car)
     • Ongoing needs (travel, emergency fund: 6–12 months’ expenses)
     • Long-term investing (what’s left)

4. Overcoming Anxiety Around Moving Money (31:31 – 32:56)

   • It’s normal to feel nervous; start with small transfers if unsure.
   • “You can even run a test… move $1,000 over, then… $200 back, just to get comfortable with it.” – Ryan Sterling (36:51)
   • Screen-sharing with advisors is common—ask for help!

5. Moving Beyond Cash: Understanding Investing (32:57 – 36:30)

   • Stocks = ownership in real companies, not just “dots on a screen.”
   • Diversification (S&P 500, index funds) helps manage risk.
   • “Without that [ownership], with your money being held in just a low-frequency investment like cash, you’re not going to have the wind at your back… to help propel your wealth-building journey.” – Ryan Sterling (34:30)
   • Play with investment calculators (like NerdWallet’s) for tangible comparisons.

6. Specific Next Steps (36:36 – 39:56)

   • Open a high-yield savings account.
   • Move surplus cash in small amounts to build confidence.
   • Open a brokerage account for long-term investing.
   • Audit all retirement and kids’ accounts to ensure the money is actually invested, not just deposited.

7. The Couple Dynamic (40:24 – 42:10)

   • Primary responsibility falls to Kat, but all big decisions made jointly.
   • Shared conversation and transparent budgeting helps reduce anxiety.
   • “When you have shared goals and shared values, that’s kind of half the battle… you can’t cut anymore, you need to grow your way to wealth.” – Ryan Sterling (41:23)

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Notable Quotes & Memorable Moments

On Generational Spending

• “Life changes, right? Mostly slowly, sometimes quickly, but always inevitably.” – Kurt Wook (08:39)
• “Sometimes it does mean spending more, and that can be okay.” – Kurt Wook (08:36)

On Investment Anxiety

• “It's very easy to feel like everything you're doing is not quite right, so it's kind of good to be told to calm down a little bit—things are generally okay.” – Kat (21:59)
• “Having too much in safety and security is actually, in a way, the riskiest thing that you could do over the long term.” – Ryan Sterling (19:53)
• “It feels nebulous… I think financial professionals by and large have not done a good job… When you’re invested in the stock market, you’re not buying dots on a screen, you’re owning companies.” – Ryan Sterling (32:57)
• “I feel validated.” – Kat (32:56)

Practical Encouragement

• “Start small… just run the test to get comfortable, and then you can start moving larger chunks over.” – Ryan Sterling (36:51)
• “It's an ongoing conversation with yourself and your partner and your family.” – Ana Hilhosky (42:12)

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Timestamps for Key Segments

• Debunking Generational Spending: 02:12 – 10:08
• Kat’s Investing Anxiety & Backstory: 14:46 – 17:41
• Evaluating Savings Strategy: 19:06 – 26:36
• Structuring Cash Buckets: 27:26 – 29:13
• Overcoming the Fear of Investing: 31:31 – 36:30
• Next Action Steps for Kat: 36:36 – 39:56
• Managing Money Together as a Couple: 40:24 – 42:10

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Actionable Takeaways

• Look beyond generational clichés: Real spending varies with life stage, not just generation.
• Measure expenses as a percent of income for the real impact.
• Prioritize both saving and meaningful spending—balance is key for financial health.
• Break large sums into clear buckets: Short-term needs (liquid), emergency fund (secure), and long-term investing (growth oriented).
• Start investing with small steps, and don’t be afraid to ask for hands-on help.
• Regularly audit your accounts: Ensure funds are actually invested, not just deposited.
• Couples: keep talking about money; shared goals and open communication reduce anxiety.

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This episode delivers comfort, structure, and step-by-step encouragement for anyone facing decision paralysis with a solid financial base—and shatters the myths of “how each generation spends.”
It’s both an empathetic conversation and an actionable playbook for putting your money to work.

Transcript

[Sean Pyles]

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[Elizabeth Ayola]

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[Sean Pyles]

We've all heard the different generational stereotypes,

[Ana Hilhosky]

but what if they're all wrong and

[Sean Pyles]

the data tells us a different story? Today, we're sharing insights about how each generation is spending. 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.

[Ana Hilhosky]

I'm Sean Pyles.

[Elizabeth Ayola]

And I'm Elizabeth Ayola. First, our weekly Money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. Our news colleague Ana Hilhosky is back to talk about the financial habits dividing and connecting generations. Hey, Anna.

[Kurt Wook]

Hey, Elizabeth. And Sean. Yeah, every generation gets some kind of spending cliche attached to it. Right. Millennials like me spent their 20s hearing about how we spent all of our money on avocado toast and have nothing left to buy homes, which was very flattering. But the realities are a little more complicated than that. Now, a new report from NerdWallet dug into federal Bureau of Labor Statistics data to see how Americans actually spend money across different stages of life. So joining us today to break it all down is the author of that study, data writer Kurt Wook. Kurt, welcome back to Smart Money.

[Ryan Sterling]

Hi.

[Kurt Wook]

Thank you.

So you combed through a ton of consumer expenditure survey data from the bls. So, first off, can you tell us what the survey is and why you wanted to look at it?

So, the federal government has been collecting data on everyday expenses since 1881. That's when James Garfield was president. So it's changed a lot over the years. But these days, that means about 30,000 people share what they buy and how much they spent on it. And with that many people involved, you can get pretty detailed about what people buy. For example, you can learn from this survey that millennials spent an average of $135 on postage and stationary in 2024, and Gen Xers spend an average of $296 on pork.

[Ryan Sterling]

Whoa.

[Kurt Wook]

Yeah. There's a lot of fun trivia like that in this survey, but I was really focused on understanding how essentials like housing, food, transportation felt different for different generations.

Got it. Your analysis focused on spending as a share of income, not just raw dollars. Why was that important?

Imagine asking the following question to a hundred random strangers. Is $100 a good price for a dinner at a restaurant? You're probably going to get a lot of answers, and those answers probably hinge on that person's income. So if you make, let's say, $10,000 a month in income, a $100 dinner might sound normal. But if you make $2,000 per month, a $100 dinner might be pretty expensive. It makes a bigger hole in your wallet. So instead of looking at those raw dollar amounts, I wanted to focus on how much of your income those different expenses eat up.

All right, so that's all the table setting now at the top. I mentioned stereotypes, and I think a lot of generational coverage turns into oversimplifications pretty quick. Does anything in this report change the narrative?

I think one oversimplification is that if you pay off your mortgage, you've basically cut out housing expenses, you know, for the rest of your life, and that just isn't the case. So as a percentage of Income. Housing costs look like a U over time. Housing is expensive for people in their 20s, goes down a bit for people who are millennials, and then it bottoms out for Gen Xers, and then it starts to go back up. So baby boomers spend a higher percentage of their income on housing than millennials, and folks in the silent generation pay a higher percentage than anyone.

And that's because their income decreases after that kind of peak period that Gen Xers are in right now.

Yeah, so the primary factor isn't that, like, everyone's housing is costing more, but income drops. So after middle age, income, on average, drops, so you have fewer dollars to work with. And housing expenses never disappear completely, even if you don't have a mortgage. For example, baby boomers devote a higher percentage of their income to home maintenance and utilities than Gen Xers devote to mortgage and rent payments.

Okay, so that's mortgages. What about transportation? The findings suggest the real cost of owning a car isn't necessarily just the car payment.

Right. So for all but the oldest generation here in the study, transportation is the second biggest expense. And yes, car payments can be expensive, but on average, people spend more money per year for the other associated costs of car ownership, like insurance, gas, and maintenance.

Yeah, especially gas right now, was there one category that stood out as especially burdensome for people across the generations?

Yeah, healthcare. That is, in my mind, the one standout category. And all those bills are concentrated in your later years, on average. It's tricky because you might spend your entire life decades where healthcare takes about 5% of your income, and then maybe in your last couple decades, that percentage triples or more.

[Ana Hilhosky]

So naturally.

[Kurt Wook]

Yeah, yeah. Even if you know that this is gonna happen, medical costs rise as you age. I think most people understand that conceptually, but it's really tough to accommodate that change of expenses. Practically speaking, at.

I can definitely think of some other expenses that typically fall into specific periods of life. Why does this one stick out?

Yeah, you're right. Other periods of life have, you know, on average, age specific expenses like student loans or raising children. Those are two biggies that are common, at least, but those typically occur during a time of rising income. So, yes, those costs go up, but your income, on average, typically rises faster. But healthcare is different. Those costs kind of explode while your income is falling. So it's two things working against each other, and that makes it particularly difficult to deal with.

Yeah, that makes sense. Now, the report notes that core expenses take up the largest share of income for both the youngest and the oldest generations. Does that create A kind of squeeze at both ends of adulthood.

The entryway to adulthood is certainly not a time of a lot of money for most people. I'm pretty sure I ate nothing but peanut butter and jelly sandwiches for a year when I was 23. And, and the thing is, life doesn't get cheaper after that. It actually gets more expensive for a while. But on average, again, income tends to rise faster than even those rising expenses, on average, at least for a few decades. And at the other end of that timeline, older folks, we might ignore or overlook this at times, but, right. Our future self is out there kind of marching toward us every day, and we can see it coming at us, right? So we can prepare for that. Unlike turning 23 when you're just starting out.

That sounds like a plug for saving for retirement.

Yep. When I look at all these amounts listed in this, in this survey, right, for utilities, medical care, and even, even the pork and stationary, I see some real concrete reasons and motivation to save money. It's not just this abstract sense of, you know, this is a responsible thing to do, there's actually a reason to do it when you look at what you need to buy.

Yeah, absolutely. Now, if listeners took away one idea from the report, what would you want it to be?

Life changes, right? Mostly slowly, sometimes quickly, but always inevitably. And this is more of an admission than a lesson because I'm a saver by nature. So when I see generational jumps in spending housing or medical or childcare costs, to be honest, my instinct is like, are you sure your retirement contributions are high enough right now? Like, shouldn't you be funneling more money away? And I get the urge to write this story about, you got to save, save, save. And that's, that's true. There's, there's something to that. But the thing is, there's a lot of data in the survey, like 650 rows of spending details, but eventually those rows run out, right? The columns peter out and there's, there's nothing left, right. There's only so much time we have. And yes, there's value in financial stability from year to year. And life is finite and that means saving more sometimes. But sometimes it does mean spending more. That can be okay. So for you savers out there who are reluctant maybe to do that, that may mean spending more, right? Maybe it's not just a number, right. It's starting a family or buying a home or going on a trip of a lifetime. And those opportunities kind of look and feel different as you age and don't expect those things to always stay the same.

Sounds like financial existentialism to me.

Let's go.

Kurt, thank you so much for joining us.

Thank you Kurt.

[Elizabeth Ayola]

I didn't expect that to pull at my heartstrings the way it is. Am I soppy? It's what's happening. But I feel so emotional and I feel like I need to go and spend some money after this recording. Thank you.

[Ana Hilhosky]

Meanwhile, I'm thinking I need to go and save a little more money.

[Kurt Wook]

Yeah, I'm with Sean.

[Elizabeth Ayola]

Thank you so much.

[Ana Hilhosky]

Anna, A reminder to send us your money questions. Maybe you are wondering how you can

[Sean Pyles]

break the generational curse of spending too much on avocado toast or how to budget for an upcoming summer vacation.

[Ana Hilhosky]

Whatever your money question, send it our way.

[Elizabeth Ayola]

We want you to leave those questions via voicemail. We listen to the voicemails. We love them. Or you can text us on the Nerd hotline at 901-730-6373. That's 901-730. Nerd can also email us at podcast nerdwallet.com we do love your Spotify comments. Please keep leaving them. And we're also on YouTube if you care to see our beautiful faces. Go watch the YouTube videos and leave

[Sean Pyles]

a comment in a moment.

[Ana Hilhosky]

This episode's money question.

[Sean Pyles]

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[Sean Pyles]

Quint.com smartmoney the following is a paid sponsorship, not an endorsement by Nerdwall's editorial team. Today's episode is sponsored by bilt.

[Elizabeth Ayola]

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[Sean Pyles]

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[Elizabeth Ayola]

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[Sean Pyles]

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[Elizabeth Ayola]

BILT cards are issued by column NA member FDIC pursuant to license from MasterCard International, Inc. We're back and answering your money questions to help you make smarter financial decisions. Today's question comes from Kat in Virginia, who has done almost everything right, maxed out her 401k open 529s for her kids and also has two $200,000 saved, but she's absolutely terrified to touch it. Now Kat is actually here with us today and we're going to answer her question about investing anxiety. Hey Kat. Welcome to Smart money.

[Kat]

Thanks for having me.

[Sean Pyles]

Thanks for coming on.

[Ana Hilhosky]

So to help answer your question on this episode of Smart Money, we're joined by Ryan Sterling, wealth advisor with NerdWallet Wealth Partners and NerdWallet's lawyers want us to say that NerdWallet Wealth Partners LLC is an affiliate of NerdWallet. So, Ryan, hey, welcome to the conversation.

[Ryan Sterling]

Hey, thanks for having me back.

[Elizabeth Ayola]

All right, Kat, we're gonna start by asking pretty broadly for you to tell us about your financial situation. But first, a little icebreaker to make it a little fun. Describe your finances using a season.

[Kat]

I just kind of default to fall always. I mean, they're kind of, I guess, in a period of transition, if that makes sense, because we did just have our second child.

[Ana Hilhosky]

Congratulations.

[Kat]

As they just had her. She's like 7 months old, so still a baby.

[Ana Hilhosky]

Still pretty recent.

[Kat]

Things have just changed quite a bit. All the leaves fell off the money tree into childcare. Yeah. Period of change. Trying to kind of sort through what comes next, because at this point, I think we've done as much cost cutting as we can, and at some point, we just have to increase the income, which I did do. I got a new job. What feels like the impossible. I got a new job a few months ago.

[Ryan Sterling]

Congratulations.

[Kat]

Big raise doing that. Thank you. But, you know, childcare is what it is, especially in this area. It's quite expensive in this area. People in this area like to say it's the most expensive in the country. I don't think that's actually true.

[Ana Hilhosky]

And you're in Virginia, around D.C. right?

[Kat]

Yes. Yep. Northern Virginia.

[Ana Hilhosky]

Very expensive.

[Kat]

There it is. And I even looked it up where we picked a Montessori place because we wanted Montessori. It's right by the house. There's a lot of reasons to have picked this place, but it's just a scooch above the median for the area, of course, so we did it to ourselves. But it's. We like it, and we'd like to keep our kids there if we can. So at this point, not many costs are left to be cut, I don't think. So we need to increase the income somehow, and I think that's where investing comes in. But how?

[Elizabeth Ayola]

All right, Kat. Well, based on what you wrote us, I think the bulk of your question was around you having challenges with financial anxiety, which is essentially a fear about things related to money. Now, some symptoms of financial anxiety can include overspending, hoarding, fear of spending, depression, or even obsessive behavior. Can you think about a specific memory, maybe during your childhood or later, where you might have felt anxiousness or stress around money?

[Kat]

I have quite a bit of privilege in terms of, like, a history of financial security. Was able to come into adulthood with zero debt, which is great. So it's not so much that there's like an instance of, oh, no money. It's just kind of. My parents both have business degrees and we're always talking about it and trying to make sure we knew this and we're educated on the subject. So it's just kind of always top of mind. And maybe being a middle child, I just kind of am generally anxious and have to do the best. Always. Yeah, that. That's kind of why I have this sort of personality about it.

[Sean Pyles]

Yeah. And also just the world is really

[Ana Hilhosky]

expensive and we don't have much of a social safety net in this country. So I think that keeps all of us a little on our toes about our finances.

[Elizabeth Ayola]

Well, Kat, tell us what you're feeling anxious about in terms of your finances. So explain to us your financial situation and then where the anxiousness is coming from.

[Kat]

We're in that period of budget tracking right now before we, you know, I don't know, make any big changes. But I guess we've kind of got a good handle on cash flow is the fact that we have a really good amount saved. We just need it to be working more in accounts that are not just a regular run of the mill saving account that's kind of doing nothing. I am afraid to do the wrong thing. I'm afraid I'm going to move it to this type of investment account or that type because I, I keep doing the research and I keep forgetting what all of these account types are. Mutual funds, money market funds. I can't keep them straight. There's so much to keep straight. And I'm just afraid that when I move something, I'm going to, like, pick wrong and lose it or something.

[Ana Hilhosky]

Yeah.

[Kat]

The baby step that I took last year was setting up a CD because it's with the institution I already have. I'm already at. It's FDIC insured, and it was, you know, it's really low risk. So that's why I was comfortable doing that.

[Ana Hilhosky]

Right. But also that's probably meaning it's a little lower return. Ryan, I want to bring you in here. When you hear about Kat's situation, what's maybe your first question you would ask a prospective client with the understanding that Kat is not your client in this

[Ryan Sterling]

conversation, I would say, like, you should feel really good about the base that you established. I mean, up to this point, it seems like you guys have done a lot of the right things. I will also say just your mindset. I Think is something I really want to applaud you on in the sense of you can only cut your way so much to wealth, you have to think about growing your wealth. So the fact that you came to this conversation saying that and saying that you really had a focus on increasing your income, we always encourage people to do that. That's one of the things fastest way to increase wealth is to increase your income. So when, when we think about building wealth, we think about growing our way to wealth as opposed to cutting our way to wealth. So your mindset is spot on. The, the big part about growing your way to wealth though, is that you are just one person and you have the exact same constraints that all of us have. And that is you have 24 hours in a day. So you, you need to have your money working for you. And Sean alluded to this that you know, in the c. Yes, like it's very safe. It's a really good baby step that you took. So again, like, I applaud you for doing that. However, because it's safer, it's going to yield you a much lower return. So you're not going to get as much help, you're not going to get as much wind at your back over time as it relates to, you know, having a resource to help you fast track wealth. Now I'm assuming that you're investing through your 401ks and you know, those are invested in the market as well as your ira. So you know, learning a bit more about your balance sheet before this, you know, to me does suggest that you do have money in the market. So you do have money working for you, but that amount of cash that you've accumulated, which is like, again, it's so hard to do. And I really applaud you for being able to do that. I will say that there's certainly a component of that that needs to be in an emergency savings fund, that needs to be safe, that needs to be secured, that you don't want to risk at all. But having too much in kind of safety and security is actually in a way the riskiest thing that you could do over the long term because you're not going to have the wind at your back that you need in order to help build wealth. You are in a period of your life that is especially hard. And we see it all the time with our clients, a young family, a mortgage. I'm sure the last five years or so it's been a pretty dramatic change in terms of the level of responsibility that you have. And with that the amount of financial resources that that has invol, you are not alone. So I think you also need to give yourself a good amount of grace because it is a very challenging period that you're in. It's very similar to a lot of our clients as well as the advisors here at Nerdwalt Wealth Partners. So we know what you're going through right now. And I will say that I think you're doing it in a really graceful way. And again, the base you have established is something you should feel really good about.

[Kat]

Yeah, that is very encouraging to hear. It's very easy to feel like everything you're doing is not quite right. So it's kind of good to be told to calm down a little bit. Things are generally okay.

[Elizabeth Ayola]

They are more than okay. I noticed you have $200,000 saved in a savings account and I think that's what stood out the most. About your question I'm very curious about because it sounds like you're scared, like you said, to touch that money cuz you don't want to make a mistake. I'm curious about what you think the worst case scenario is and also how having $200,000 in cash makes you feel. Does it make you feel secure, stressed, anxious?

[Kat]

Having it in cash makes me feel kind of dumb because like again, I mean, if I had it in cash in a high yield account, I would feel better about it. The term high yield savings account I always find confusing because why aren't they all that?

[Ryan Sterling]

The way to think about cash is when, when you go to a bank and you deposit money into a bank, it is basically an IOU in that it's not going into a vault where someone's writing a note and says, this is Kat's money. Do not touch. Right? The bank is immediately loaning it out. They're putting that money to work. And that what you see when you log in to view your account balances, that's effectively an iou and that the bank is saying that when you go to the bank and ask for your money, they will make this money available for you. Okay, so how does the bank make money? They take your money and they pay you a certain interest rate and then they loan it out and they earn a higher interest rate. So with banks, the way they make money is on that spread. Okay, but banks need to attract capital. They need to attract money in order to loan it out. So what you see is the bigger banks, and I don't want to pick on any bank, but think about big national bank that you Know, offers kind of massive checking accounts. That's really cheap capital for banks. And they want you to keep it in that checking account. They want you to have the biggest balance for the longest amount of time because they can basically pay you 0% and they can charge a loan at a higher rate. And they make so much money on that. So the bigger banks have a tremendous advantage in that they have locations everywhere and that look like, in a way, not that we're forced to, but we're sort of kind of forced to work with them in some capacity, right? So then when you think about certain services that offer a higher yield, what those banks or what those financial institutions are doing is they're saying, hey, like we know we're not necessarily a depository institution like a J.P. morgan Chase, bank of America, Wells Fargo, kind of, you name it. So what we need to do in order to attract capital is we need to offer a more attractive yield. So instead of 0%, we're going to offer 3.5%. And what you typically see is these high yield savings accounts start to get competitive with each other. Now it goes even a step further where banks that are really desperate to attract capital, they might offer five, five and a half percent, so on and so forth. So what's a good way to think about it? A good way to think about it is you should demand a return for your money, right? You shouldn't have it where your money sits in a bank account at one of the bigger banks because you're basically giving them a free loan. So what you should say is that, hey, I need to get some return for this money that I'm parking somewhere. But at the same time I want it to be with a firm that is on solid financial footing. So, you know, and the way that you can really decipher that is are they paying like a market rate for a high yield savings account that tells you that they're not desperate for cash, but they want to pay you for, for your cash. Whereas again, what I would stay away from is some of these really juicy deals that you hear sound really good, but it's usually with a financial institution that might be on shakier ground. So that's the way that I personally look at it. So my high yield savings account is in like the 3.5% range and it's with a very reputable, well known financial institution. I feel really good about it. I'll say Quick Plug Nerdwall also has a high yield savings accounts that also is paying like in the 3 1/2% range. So again, when you, when you put these firms and you have them compete with each other, that's then where again you start to see like that 3 1/2% is usually where you have a reputable firm that you can feel good having your money there. And the last thing I'll say is that these all come with FDIC insurance, so you should look at that as well. And that if it's FDIC insured up to $250,000, if something happens with that bank where they go out of business, your money is insured.

[Ana Hilhosky]

And one thing I'll also add on, Kat, because I understand how it could be kind of overwhelming to sift through which of these banks is maybe a reputable one. Vers A sketchier upstart NerdWallet has loads of roundups and reviews. We'll link to them in the show notes here. For this episode, I would recommend checking those out because our editorial team does a great job of really helping you understand where's a smart place to place your money and which kind of bank might be right for your lifestyle and the way you manage your finances. But looking more forward with what you might want to do with this money, once you have a certain amount allocated for your emergency fund or maybe another savings goal that you might have around your kids or your house or what have you, what sort of time horizon might you imagine for this money? When do you think you might actually need to tap what you would put into an investment account? Would that be five years, 10 years, 20 years down the line? Or are you not even at that point yet?

[Kat]

Yeah, I guess there's a couple of buckets that I have that I'm thinking about for what I want that money to be doing. And like, one example, I guess would be the CD that was started with a car in mind because we have two kids and two sedans, so it's kind of hard to fit everybody in those. So we're thinking new car in the next 12 to 18 months. The CD was supposed to kind of start us off on that. And the fact that it's not, you know, a liquid fund is why I only put in, like so much and was afraid to put more, even though it would have made a lot of sense to put in maybe just $5,000 more than what I did. Again, you know, it's, it's when it's not something liquid, it's hard to commit to putting more in. Even though we have still 200 available, that is liquid. So that is some of the fear so the other buckets would be, we travel to Texas very frequently. It would be nice to have some kind of account that we could borrow on for travel, kind of, you know, that's in the couple of months range and ongoing. And then our emergency fund, which is again, needs to be liquid. We need to be able to access it. So that's kind of a mystery when we would need to access that. And hopefully we won't need to in any significant capacity. But those are really the buckets I'm thinking about. And I feel like we should have something that's more long term, especially when I think about house buying, because we're here for a good amount of time, looking forward, hopefully. But you know, we bought in 2021, so the rates and the prices are going to be vastly different, what we're buying in the future.

[Sean Pyles]

Ryan, I'd love to hear how when

[Ana Hilhosky]

you talk with clients who are a little afraid to go from having all this liquid cash to actually investing in something that's less liquid, how do you help people get over that hurdle? Because that's kind of the crux of cat situation here.

[Ryan Sterling]

Yeah, no, of course. And it's a, it's a very common question, a very common, common concern. I think it comes down to, Sean, the question you asked, I think is hitting the nail right on the head, is that what are the known liabilities that you have? So, you know, if it's buying a car in the next couple of months, if there's a tuition payment, if there's some sort of down payment that you have to make, you don't want to get too cute with that. You want to have that in a high yield savings account or something that you can access very quickly. So let's think about the building blocks here. So known liabilities, Keep that in cash. Do not feel guilty about it. I would say just put it to the highest yielding cash product that you have that you can tap into at a moment's notice. Okay, so that's number one. Number two then is it's not a known liability, but it's a potential liability, and that's emergencies. Right. Life has a way of revealing itself. We have no idea when those moments are going to happen where you need quick access to capital. We all need an emergency account. Now, for some people, it's three months. For some people it's six months of living expenses. For some people, it's 12 months of living expenses. I would say, from what I'm hearing from you, I think 12 months of living expenses is something that Is completely fine and something that I would hold no shame with at all. You have a young family, you live in a high cost of living area. Things do tend to happen. And I feel like, especially when you're a homeowner living in a high cost of living area with young kids, it just increases the odds of something happening. Right. So I would say 12 months of living expenses. You know, put that then in. In the high yield savings account. Okay. So then it's everything on top of that. So let's just make up the numbers here. Let's say there's 200,000 in cash. Let's say it's $8,000 a month in living expenses, including the cost of mortgage, etc. Okay, so right off the bat, you have $100,000 in emergency savings account. Boom. Let's say there's the $30,000 in known liabilities that could be buying a new car, as well as the known travel that you have coming up, making this up. Let's say that's 30,000. That means $130,000 should be in something like a high yield savings account where you're earning, you know, three and a half percent and. But you have access to it when you need it. So that would mean then 70,000 would be a good candidate for a diversified investment portfolio.

[Elizabeth Ayola]

How does that sound, Kat?

[Kat]

Something about the size of that number scares me, and I think it's maybe just how nebulous and kind of weird, like, money is in the digital realm. This feels like a very silly thing to be worried about in the grand scheme of things because it's, you know, putting money to work. But just. Even just making the down payment on our house and putting in the account information to send all of that money over where it was supposed to go. Like, totally expected, totally planned to spend that much on the house. Nothing was a surprise. But the active.

[Elizabeth Ayola]

Heartbreaking.

[Kat]

So anxiety inducing.

[Elizabeth Ayola]

Yes.

[Kat]

All money just going right and just making sure, like, oh, God, I hope this goes to the right place. I checked the account numbers like, seven times. I think it's just moving. It is what's kind of makes me anxious.

[Ana Hilhosky]

I think some of that could be a result of not having muscle memory in doing this. You took a baby step in putting some money into a cd and I think opening up a high yield savings account and transferring money over potentially gradually, you could do five or $10,000 increments until you have that emergency fund amount. Just so this feels more normal. You can trust the system that is going to work the way it should again. This is insured money. So if something does totally go awry, you're covered, which is a big relief. But I understand the anxiety, not fully trusting the system that's working in the background because we don't really see it happening. It's just money and numbers moving on their own and that can make people feel anxious.

[Kat]

I feel validated.

[Ryan Sterling]

It's not uncommon that clients bring us in to literally share the screen and help them press the right buttons. Wow, we've done that. Oh yeah, we've done that many times. And I'm talking about like legit, incredibly smart, capable working professionals like yourself will bring us in and say, I just need a sense check, I'm sharing the zoom screen. Am I pressing the right buttons? But look, we also come to this with a great deal of empathy and know that for people who don't like it does feel nebulous. And I love what you said about that. And you know, I think about the stock market for example. I think financial professionals by and large have not done a good job and of helping people understand. When you're invested in the stock market, you're not buying dots on a screen, you're owning companies. So when people talk about the stock market's risky, I'm like, I don't see it as risky at all. So long as you're diversified and you're doing it in a way where you're not chasing the hot dot, so to speak. But if you have a portfolio that's diversified, that's invested in the s and P500, so the largest 500 companies where you own Apple, Microsoft, Google, Amazon, so on and so forth, you know, these are companies that are producing tremendous free cash flow products and services that people are using across the globe on a daily basis. You need to have ownership in order to build wealth over time. Without that ownership with your money being held in just a low frequency investment like cash, you're not going to have the wind at your back, you're not going to have the growth. So does that mean it goes straight up? Of course not. There are days where the market's down, there are weeks where the market's down, there are months, there are years where the market's down. But I look at this and say if I have a 5, 10 year time horizon, I feel very comfortable owning a basket of these stocks, knowing that over time that they are going to help propel my wealth building journey. But it's helpful to take it away from them being dots on the screen that you just see going up and down every day and you get reconnected to the fact of, like, these are companies that are producing real products and services that we all use on a daily basis.

[Elizabeth Ayola]

And, Kat, I also want to point out that beyond this cd, you've taken some really big strides. When you wrote to us, you said that you have money invested in your 401k and in a Roth account that you have open 529s for your kids. Have you invested the money in those accounts or is it just sitting there in cash?

[Kat]

I put a thousand to start in each account, so I don't have a monthly contribution set up. When I said our cash flow's handled, it's fixed for the most part with, like, a little bit of leeway. So I think maybe part of that leftover 70 might go into those accounts. And, you know, every birthday, we don't need more toys. Put it there.

[Elizabeth Ayola]

No, see, you're already taking steps, so that's awesome because you're already investing, right?

[Kat]

Yeah. So we have a start.

[Ana Hilhosky]

I have a suggestion for you, Kat, that might make investing feel a little bit more tangible and would show you the power of what you could be doing with your money. And that would be to play with NerdWallet's investment calculator. You can put in the amount of money that you have to invest, the potential return on investments, and you can really compare what you would be getting having your money sitting in your current checking account, which would be basically nothing, and in fact, actually essentially losing value because of inflation. And then you can say, okay, if I'm getting maybe a 7% return on my investment, what would that look like over 5 or 10 years? You can see how it would grow. And that, I think, could be really eye opening for you just to understand what potential this money you have that's sitting there really has for you and your family's future.

[Kat]

I'm going to do that immediately today, because I did not know about that tool, and it sounds so interesting.

[Elizabeth Ayola]

All right, Ryan, so we've covered a gamut of topics here. What would you say are some good next steps? We know that Kat is not your client, but what would you recommend for a client of yours in cat situation? Maybe something they could do within the next 30 to 60 days.

[Ryan Sterling]

I would definitely open up a high yield savings account, and I would start moving cash. And by the way, start small so you can even run a test. All these high yield savings accounts, you can connect your current bank accounts. So move $1,000 over and then maybe try moving like $200 back and just run the test just to get comfortable with it and then you can start moving larger chunks over to it. So I think first step is opening up that high yield savings account and moving a good portion of that cash over to the high yield savings accounts. Opening up an investment brokerage accounts for that excess cash I also think would be important and investing that in a diversified investment portfolio.

[Elizabeth Ayola]

And then where does retirement savings come into this scenario, Ryan, considering we haven't talked much about that and I know that's a huge part of finances as well.

[Ryan Sterling]

That's a really good question. So it's also looking to see, you know, are your 401ks you're contributing to them? Are, are they being invested and are they being invested in the right way? I know you've been contributing to your Roth, which I applaud you for. That's great. Is it being invested? Because contributing money to a Roth is one thing, but where you get the benefit of the Roth over time is investing it. So it's also then just doing an audit of all of these accounts and making sure that they're being invested in an appropriate way, given your long term growth objectives.

[Ana Hilhosky]

Yeah, and we mentioned that because every so often we will hear stories of people who've been contributing to a roth or a 401k or whatever retirement account for years and years, but they never actually selected their investments. And so in some cases it's worse than just a checking account because it had so much potential and it was never taken advantage of. And that can be very heartbreaking if you thought that you were actually investing for retirement and you weren't.

[Elizabeth Ayola]

Real life story. Someone DM'd me once and was like, elizabeth, I can't figure out why my balance isn't growing. Actually, it's going down. And I was like, did you invest the money? And they were like, no. And I was like, oh, no. So that's an important point.

[Ryan Sterling]

Yeah, that's a very good point.

[Kat]

Wanting to check my ira, I'm pretty sure that that is. I get brokerage statements.

[Ana Hilhosky]

Oh, good.

[Kat]

I assume.

[Ryan Sterling]

Well, there's brokerage statements, but there could be cash in a brokerage statement that actually isn't being invested.

[Kat]

Now I need to look at.

[Ana Hilhosky]

We've given you some more homework here, Kat.

[Kat]

Yeah. Okay. Well, it says 89% stocks, then bonds and then like 1% short term.

[Ryan Sterling]

Do you know, do you have like a target date fund?

[Kat]

I think it's a target date. I set this up in college. This was a gift from our parents. Again, we've I was set up very well for success. It's just a matter of figuring out

[Ryan Sterling]

on my own now for what it's worth at a high level. That sounds about right.

[Ana Hilhosky]

Yeah.

[Kat]

Okay. Is it even worth it to have just a regular savings account with my bank? Because that's what I've been wondering. Like I hear about high yield savings accounts. If you have one of those, do you even need to bother with the regular savings account?

[Ryan Sterling]

A high yield savings account, it's a high likelihood that that's going to pay you a much higher rate of interest than a savings account. Oftentimes they're called savings accounts, but the interest over a checking account is marginal at best. So I would just skip the savings account and I would go right to the high yield savings accounts.

[Kat]

Okay, so it really is just a replacement of an existing account.

[Kurt Wook]

That's right.

[Ana Hilhosky]

And you can set up autopay and direct deposits into and out of this high yield savings account, just like your checking account too. So it's pretty, pretty similar to use

[Elizabeth Ayola]

and it's low risk, just like you, like Kat. So your money should not disappear overnight. That's right. Great. And I have one more question for you, Kat, because you also mentioned when you sent us a question, that you are the primary one who manages the finances. So where does your husband come into play here and does he help at all to maybe manage your anxiety around making these financial decisions?

[Kat]

We always talk about decisions together before we do something. I'm just usually the one who's looking at the accounts at least like three times a week, sometimes daily. I'm the one who picked our budgeting app and I keep track of all of that. He didn't grow up talking about, like, money and finances quite as much as we did because, like, I have two business degrees in my family and like, my dad's retirement activity is day trading, if that tells you anything about my environment growing up. So it's kind of more on me. We talk about it together, but I think there's kind of a, like a shared anxiety. And I think talking about it definitely helps. Like when we sit down and look at the budgeting app, it definitely helps us feel a little bit better about it. But when it comes to decisions, I feel like a lot of the research is on me and then we just kind of go touch base and confirm before making the, you know, the big changes or decisions like that.

[Elizabeth Ayola]

Well, Ryan, do you have one last tip on how they can work together as a couple maybe to manage the anxiety around making financial decisions?

[Ryan Sterling]

Look, I mean, you guys are ahead of a lot of people in the fact that you guys are actually talking about it. So I would say keep talking about it. Keep doing that. It's kind of like anything in life where it's like when you have shared goals and shared values, that's kind of half the battle or more than half the battle right then and there. So I would say continue to keep talking about it, you know, make sure there's no finger pointing involved and make sure that, you know, you guys are making decisions as, as a couple. But. But I would say that you were thinking about it the right way as it relates to your income in that you. You can't cut anymore. You need to grow your way to wealth. And I would just take that same approach to the rest of your capital base and basically say, I need this to grow for me. I need it to work for me and my family, because we're not going to get there alone and we're not going to get there with cash in a checking account.

[Elizabeth Ayola]

Thank you, Ryan.

[Ryan Sterling]

Yeah, it's a pleasure.

[Sean Pyles]

Okay, Kat, well, you have a number

[Ana Hilhosky]

of things to do on your to do list. Your homework will take you some time to do, and you don't need to do it all overnight, which is kind of the good part about finances is it's an ongoing conversation with yourself and with your partner and your family. We would really love to hear how this all pans out for you. So please let us know maybe in three or six months where you are with your finances, what changes you've maybe made and just how you're feeling overall and whether your anxiety has been alleviated by doing this.

[Elizabeth Ayola]

And thank you, Kat. Kat, would you like to close us out?

[Kat]

I would be happy to. And that's all we have for this episode. Remember, listener, that we're here to answer your money questions. So turn to the nerds and call or text us your questions at 901-730-6373. That's 901730, nerd. You can also email [e-mail] we like comments too.

[Elizabeth Ayola]

Please leave them on Spotify. I love you guys. Comments about my hair. As you can see by popular demand, it is back. You can also follow us on YouTube and leave comments on there, too. Until then, join us next time to hear a review of the Robin Hood Gold card. In case you've been curious, follow Smart Money on your favorite podcast app. That includes Spotify, Apple Podcasts and iHeartRadio

[Ana Hilhosky]

to automatically download new episodes and here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

[Elizabeth Ayola]

This episode was produced by Nick Karisimi. Hilary Georgi help with editing. Eve Krogman edits our audio and video. And a big thank you to NerdWallet's editors for all of their help.

[Ana Hilhosky]

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

[Sean Pyles]

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[Elizabeth Ayola]

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[Sean Pyles]

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[Elizabeth Ayola]

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[Sean Pyles]

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