More Money, More Priorities: Don’t Let a Bigger Paycheck Go to Waste

Summary

NerdWallet's Smart Money Podcast: "More Money, More Priorities: Don’t Let a Bigger Paycheck Go to Waste"

Release Date: August 4, 2025

In this engaging episode of NerdWallet's Smart Money Podcast, hosts Sean Pyles, CFP®, and Elizabeth Ayoola delve into critical financial topics that resonate with listeners striving to optimize their finances. The episode, titled "More Money, More Priorities: Don’t Let a Bigger Paycheck Go to Waste," offers a blend of hot takes, insightful discussions, and practical advice aimed at empowering individuals to make savvy financial decisions.

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Money Hot Takes: Buy Now, Pay Later as a Budgeting Tool

Duration: 02:00 - 06:54

The episode kicks off with the Money Hot Takes segment, where Sean and Elizabeth share their bold perspectives on current financial trends. The focus of this segment is the increasingly popular Buy Now, Pay Later (BNPL) loans.

Elizabeth’s Standpoint: Elizabeth presents a compelling argument in favor of BNPL loans when used responsibly. Initially skeptical, she acknowledges the potential of BNPL as a useful budgeting tool, especially amidst rising living costs and stagnant incomes. She states:

“Buy Now, Pay Later loans can be an effective budgeting tool when used responsibly.” [03:20]

Citing the FINRA National Financial Capability Study, Elizabeth highlights that 26 million more Americans are struggling to make ends meet compared to three years prior. She emphasizes that BNPL allows individuals to spread payments over time without incurring interest, contrasting it with credit card debt, which has surged to nearly 40% of users struggling with repayments.

Sean’s Perspective: Sean approaches BNPL with caution. While he acknowledges their utility, he expresses concerns about the potential for debt cycles, especially if used for everyday expenses like groceries. He remarks:

“All financial products are tools, and how you wield them really depends on the circumstances.” [06:00]

Sean underscores the importance of financial discipline, suggesting that reliance on BNPL for routine expenses may indicate deeper budgeting issues. He advises listeners to evaluate their spending habits critically and consider increasing income or reducing expenses to avoid dependency on such loan products.

Elizabeth’s Rebuttal: Elizabeth concedes Sean’s concerns but reinforces her position by adding that BNPL defaults are generally lower than those of credit cards. She highlights that:

“Buy Now Pay Later allows people to stay within their monthly budget.” [05:00]

She also mentions the impending inclusion of BNPL transactions in FICO scores, which can positively impact credit scores if managed properly.

Conclusion of Hot Takes: The segment concludes with Sean and Elizabeth agreeing to respectfully disagree, acknowledging that while BNPL can be beneficial, it requires disciplined financial management to prevent misuse.

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Host Bias: Sean Pyles Embraces a Pro-Consumer Stance

Duration: 07:08 - 10:25

In a candid moment, Sean Pyles reveals his pro-consumer bias, grounding his perspective in personal experiences and professional observations. He shares:

“My bias is strongly in favor of what is pro consumer, which more and more often means calling out predatory actions by corporations and political actors who are working to rip us off and strip away our consumer protections.” [07:20]

Sean recounts witnessing the 2008 financial crisis and the Occupy Wall Street movement, which shaped his commitment to advocating for consumer rights. He highlights recent challenges, such as the budget cuts to the Consumer Financial Protection Bureau (CFPB) and the rollback of the FTC's click-to-cancel rule, emphasizing the ongoing threat to consumer protections.

“The CFPB has had its budget and its staff slashed, which means that there are fewer resources to help keep us safe from shady financial and business practices.” [08:37]

Elizabeth concurs, adding her dedication to social justice and financial stability for all.

“I think we have to call out any policies, practices, and systems that aren't pro consumer.” [09:17]

Together, they reinforce NerdWallet’s commitment to keeping listeners informed and protected against unfavorable financial practices, ensuring that the podcast remains a reliable resource for making informed financial decisions.

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Money Question Segment: Listener Jake Seeks Guidance on Savings and Investments

Duration: 13:08 - 34:17

The heart of the episode lies in the Money Question segment, where listener Jake from the San Francisco Bay Area poses his financial dilemmas. Jake, a 33-year-old postdoc, seeks advice on managing his savings, retirement contributions, and navigating multiple financial accounts after landing a new job.

Jake’s Financial Setup: Jake outlines his current financial landscape:

• 401(k): Contributing 6% with employer match.
• Roth IRA: Opened last year with gradual contributions.
• High-Yield Savings Account: Recently explored options.
• Health Savings Account (HSA): Opened due to a high-deductible health plan.
• Debt: Primarily a $100k student loan with employer-assisted payments and a $2,500 medical debt on a minimal payment plan.

Key Discussions and Advice:

1. Choosing a High-Yield Savings Account:

   • Sean’s Advice: Select a reputable high-yield savings account even if it means trying out different banks until you find a suitable one. Emphasizes flexibility and higher interest rates over traditional savings accounts.
   • Elizabeth’s Tips: Identify top priorities when selecting a bank, such as interest rates, accessibility, and customer service, to avoid analysis paralysis. Recommends capping considerations at three key features to streamline decision-making.

2. Using Roth IRA as a Savings Vehicle:

   • Jake’s Inquiry: Considering using his Roth IRA for savings due to higher projected returns and the ability to withdraw contributions without penalties.
   • Sean’s Response: Advises against using Roth IRA as a regular savings account. Highlights the primary purpose of Roth IRAs for retirement savings and the importance of maintaining clear boundaries between different financial goals.
   • Elizabeth’s Input: Agrees, emphasizing the benefits of compound interest in retirement accounts versus the liquidity of high-yield savings accounts.

3. Prioritizing Savings and Contributions:

   • Emergency Fund: Reiterates the importance of establishing a robust emergency fund (typically 3-6 months of expenses) before aggressively investing or saving for other goals.
   • Simultaneous Saving: Both hosts encourage contributing to multiple savings avenues concurrently. Elizabeth expresses her practice of automating multiple savings streams, while Sean underscores the benefits of compound interest by investing early.

4. Managing Debt and Budgeting After a Job Change:

   • Sean’s Framework: Recommends the 50/30/20 budgeting rule—allocating 50% to needs, 30% to wants, and 20% to savings and debt repayment. Advises Jake to reassess his budget after settling into his new job and cost of living in the Bay Area.
   • Debt Management: Acknowledges Jake’s minimized debt situation, particularly the support from his employer in managing student loans, and encourages continued focus on debt reduction strategies.

5. Saving for Future Purchases (Car or Home):

   • Sean’s Suggestion: For mid-term goals (5-7 years), recommends Certificates of Deposit (CDs) or other secure savings instruments to balance growth and safety.
   • Elizabeth’s Advice: Highlights the flexibility of CDs while cautioning against early withdrawals which may incur penalties. Encourages exploring CD ladders to maximize returns without locking all funds into a single term.

Jake’s Takeaway: Jake expresses gratitude for the comprehensive advice, feeling more confident in his financial strategy post-discussion. He plans to implement the suggested budgeting frameworks and explore CD options for his future purchases.

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Conclusion: Empowering Listeners to Take Control of Their Finances

As the episode wraps up, Sean and Elizabeth encourage listeners to actively engage with their financial questions through various channels:

• Voicemail: 901-730-6373
• Email: [e-mail]
• Google Form: Available in the show notes for budget reviews

They also promote the next episode's topic on credit card fees, promising to evaluate whether these fees are justified amidst rising costs. Listeners are advised to subscribe on platforms like Spotify, Apple Podcasts, and iHeartRadio to stay updated with the latest financial insights.

Final Remarks: The hosts reinforce NerdWallet’s mission to provide clear, actionable financial advice backed by thorough research, ensuring that listeners are well-equipped to build wealth and achieve their financial goals.

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Notable Quotes:

• “Buy Now, Pay Later loans can be an effective budgeting tool when used responsibly.” – Elizabeth Ayoola [03:20]
• “All financial products are tools, and how you wield them really depends on the circumstances.” – Sean Pyles [06:00]
• “My bias is strongly in favor of what is pro consumer…” – Sean Pyles [07:20]
• “Emergency fund first, getting the employer match if you get one, and then going back over to other retirement like an IRA and so forth.” – Elizabeth Ayoola [23:48]
• “Multitasking is often the only way you can make real progress on a lot of financial goals simultaneously.” – Sean Pyles [31:58]

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This episode of NerdWallet's Smart Money Podcast serves as a comprehensive guide for listeners navigating the complexities of personal finance, offering both strategic insights and practical solutions to everyday money challenges.

Transcript

[Sean Pyles]

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[Elizabeth]

Extremely hot. Like 90 to 100 degrees hot. Like I have to turn on my AC 30 times a day hot?

[Sean Pyles]

Yuck. Here in Portland it is like 75 and not a cloud in the sky, so it's just the perfect, perfect temperature for me.

[Elizabeth]

I never thought I would say that I'm looking forward to fall, but I absolutely am. And my light bill is also looking forward to fall, so.

[Sean Pyles]

Well, this episode we're about to turn up the temperature even more with another round of hot takes. Welcome to Nerd Wallet'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]

This episode we answer listeners question about whether they should use an IRA as a savings account and how to manage their money after landing a new job. Congrats.

[Sean Pyles]

But first, it's August and I'm betting it's hot where you are, so we're gonna make it even hotter. And no, I'm not talking about posting even more post workout thirst traps on my Instagram because I will be doing that. But we're doing another round of Money Hot Takes where Elizabeth and I have 100 seconds each to give you our frank assessments about something in the world of finance.

[Elizabeth]

And, you know, I live for a good hot take, and I have something I need to get off my chest.

[Sean Pyles]

Okay, well, I'm getting my timer ready.

[Elizabeth]

Elizabeth, make sure your timer's not hacked.

[Sean Pyles]

Sean, I don't think so. Okay, but if you go over a hundred seconds, I will be interrupting you, so just prepare for that. Ready?

[Elizabeth]

Yes.

[Sean Pyles]

Three, two, one.

[Elizabeth]

All right. Buy Now, Pay later loans can be an effective budgeting tool when used responsibly. That's my hot take. I was leaning towards them being a debt trap initially, to be honest, especially with the increasing number of delinquencies around these loans. But I have switched sides now for quick context. Buy Now, Pay later loans such as Klarna, Affirm, PayPal, Pay, and 4, let people spread out payments over time. And they don't require credit checks and they usually do not charge interest. So they can be super helpful for people who have limited or less than optimal credit histories. Now, some people argue that if you can't afford to pay it in one go, it's an expense that you can't afford. And that might be true. But let's be honest, many people can't afford to afford their lives right now. And it's not just because they're living above their means. Some people's income has not kept pace with inflation with the increased cost of living, and they just don't have enough to pay for everyday expenses. According to FINRA's recent National Financial Capability Study, a rising number of Americans are struggling to pay basic expenses. The survey found that there was a 10 percentage point decrease in the proportion of adults saying that they find it easy to cover their expenses compared to data from three years ago. Now, for people who prefer raw numbers, the Data found that 26 million more people are struggling to make ends meet than three years ago across all income bands, said people may have emergency expenses or essentials they have to pay for. And Buy Now, Pay later allows them to do that by spreading out payments usually over six weeks, and not having to worry about the interest charges that they may get if they used a credit card. Now, considering the FINRA survey also found the number of people who always pay their credit cards in full each month has slipped by 6 percentage points compared to 2021, and credit card debt has jumped to nearly 4 in 10 users. Buy now, Pay later can be a way to avoid that interest they might incur on those balances.

[Sean Pyles]

Okay, that's a hundred seconds. I know you're not done yet, and we'll get to the rest of it. But I am not fully convinced yet. So try to make this case for me. Okay?

[Elizabeth]

All right, I'm driving it home. I'm driving it home. Ready, set, go. I will add that default rates on Buy Now, Pay later loans are also lower than with credit cards. I hope that's driving it home for you, Sean. People who are not struggling financially also use Buy Now Pay later, although at a lower percentage. And now these loans can help them stay within their monthly budget. Right. So I will say that this is only an effective budgeting tool if you actually budget and make those payments on time. Now, to do that, you need to know what you have going in and coming out every month. And you need to set boundaries around your spending. Just because your payments are spread out and deferred until later, that does not mean you'll have the money to pay the loan later if you haven't budgeted for it.

[Sean Pyles]

Okay, that's a fair point.

[Elizabeth]

All right, so I'm not encouraging people who struggle with impulse spending, have a hard time budgeting, or cannot afford repayments to use it. And one more note that I'll sprinkle in is that since FICO will be including Buy Now, Pay later loans and credit scores come fall, it can also be a way to help positively impact your credit score, assuming you aren't taking out too many loans and are paying them back on time.

[Sean Pyles]

All right, so I am still not 100% convinced that buy Now Pay later loans are a good idea, but I think that they have a place. Right. Like all debt products are tools, all financial products are tools of some sort. And how you wield it really depends on the circumstances that you're going to get the results you're going to get here. So with Buy Now Pay Later, I think it's on on people to know when their payments are due, how many loans they have and what it's for. But if people are using these for day to day expenses like groceries, that speaks to bigger budgeting concerns. And folks might want to try to either reduce their expenses or increase their income so they aren't relying on debt products to cover things like their groceries, that just makes me really concerned for them.

[Elizabeth]

Yeah, but what happens, Sean, if people are actually budgeting, but as we know, people's incomes are just not increasing or they don't have a side hustle and they just can't afford their life, then what happens? Because sometimes people are budgeting, but the math just ain't mathing.

[Sean Pyles]

You have to make tough calls. I'm not saying any of this is easy, but I just don't like relying on debt products like this. I understand that we don't live in an ideal world and things are expensive and these debt products are so easy to acquire, but I just worry about people slipping into a cycle of debt that they have a hard time getting out of.

[Elizabeth]

Fair. And I do think people who are prone to slipping into debt maybe should steer clear of the buy now, pay later loans. But I still stand on my point.

[Sean Pyles]

It can be a budgeting tool, but I'm still worried. So we can just agree to disagree on this one.

[Elizabeth]

I love it.

[Sean Pyles]

Love it.

[Elizabeth]

Okay, well, you're up next, so let's see if we agree, disagree, or agree to disagree. All right, I'm hold on. Gotta set my timer. Okay, on your mark. Get set. Hit me.

[Sean Pyles]

Okay. My hot take is more of a coming out, something that I have plenty of experience with over the years. But my real hot take is that I'm coming out as biased. And I really think that's one of the best things that I can be right now. You know, my coverage of financial issues, the way I answer our listeners questions, even just how I talk with people in everyday life about money. My bias is strongly in favor of what is pro consumer, which more and more often means calling out predatory actions by corporations and political actors who are working to rip us off and strip away our consumer protections. The thing is, this bias of mine isn't new necessarily. Growing up during the financial crisis of 2008, where I saw families lose their homes due to shady lending practices, and seeing the Occupy Wall street protests play out in college, I've witnessed how political actors and corporations have materially harmed regular people time and time again, and how consumers are often left worse off with little recourse to make things right. But why is it important right now, this bias of mine? Anti consumer actions happen all the time. Like companies making predatory financial products, scammers tricking people out of their life savings. And it happens in presidential administrations from both parties. But the actions the current administration has taken over the past six months have upended the landscape of consumer protections and how we should engage with financial products and institutions going forward. Now, I don't have time to list every single change, but here are a couple really important ones. Our main pro consumer watchdog has been totally gutted. The budget for the Consumer Financial Protection Bureau, an organization that has returned over $21 billion to consumers since its inception.

[Elizabeth]

You're at time, Sean. Sorry to come to its census, but you're at times. So drive the point home.

[Sean Pyles]

All right, I'm going to try to wrap this up quickly. Basically, the CFPB has had its budget and its staff slashed, which means that there are fewer resources to help keep us safe from shady financial and business practices. And also another thing that we talked about recently on Money News segment is the rollback of the Federal Trade Commission's click to cancel rule around subscriptions. That means that companies can make you jump through all sorts of onerous hoops just to cancel a subscription. So that might seem like a small move, but it's indicative of a trend toward giving companies even more leeway at our expense.

[Elizabeth]

Well, on that note, Sean, what does this bias mean for smart money and our listeners?

[Sean Pyles]

Well, I think more than even before, folks can expect us to call out actions that are going to make our listeners lives more difficult or expensive or more likely that they will face shady business pract and sketchy financial products. Because ultimately my driving force is that I want our listeners, I want the people that I talk with in my life to build the life that they want with the money that they have. And it frankly pisses me off that those with political or financial power are taking steps to make that harder for you. So I have no idea how many seconds that is. I'm sure it's like, well, well over 100, but that's what I've got today.

[Elizabeth]

Well, you're closer to the 200 mark, but I'm gonna let you slide because this is a hot take that I agree with. Sean, I do not have a rebuttal because as a girl who cares deeply about social justice and wishes to see a world where everyone has access to resources they need to create financial stability, I think we have to call out any policies, practices and systems that aren't pro consumer.

[Sean Pyles]

And we know this is going to be an ongoing story and a bit of a moving target. So I think that's why it's on us, Elizabeth, to really keep an ear to the ground for our listeners, to make sure that people know what's going on and that we can put it into context for them. Because there's so much happening every single day it can be really hard to follow.

[Elizabeth]

Exactly. So another reason for you listener to subscribe, follow and comment.

[Sean Pyles]

Nice plug, Elizabeth.

[Elizabeth]

All right, we're about to get to this episode's Money question where we talk about whether it's a good idea to use an IRA as a savings account. Have a hot take about that, Sean. I know you do.

[Sean Pyles]

I absolutely do. But folks are going to have to listen to that Money Question segment to hear it. Okay, so before we get into this episode, Money Question a reminder listener to send us your money questions. Maybe you're wondering about when and how it is actually okay, at least in my opinion, to use a buy now, pay later loan or what you should be looking out for in terms of sketchy business practices so you can stay safe in this new landscape.

[Elizabeth]

That's right, you can leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. You can also email [e-mail] and just in case you were wondering where your paycheck is going every month and you need help ironing out your budget, send us a breakdown of your income and expenses using the Google form in the show description for our budget Rehab series.

[Sean Pyles]

All right, well, let's get to this episode's Money Question segment that's coming up next. Stay with us. Today's episode is sponsored by Rula.

[Elizabeth]

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[Sean Pyles]

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[Elizabeth]

Yeah, I started therapy about wow almost six years ago now and I know how much impact that it's made in my life. I feel so much more emotionally regulated and I have the tools I need to get through life's challenges. I've seen how therapy can change lives, mine, friends and family. And the hardest part of therapy is often just finding someone you click with. Rula takes the stress out of that.

[Sean Pyles]

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[Elizabeth]

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[Sean Pyles]

Thousands have already trusted Rula to support them on their journey toward improved mental health and overall well being. Head to rula.com smartmoney to get started today. After you sign up, they'll ask you where you heard about them. Please support Smart Money and tell them our show sent you.

[Elizabeth]

Go to r u l a.com smartmoney and take the first step towards better mental health today because you deserve quality care from someone who cares.

[Sean Pyles]

We're back and answering your money questions to help you make smarter financial decisions. This episode, we're talking with a listener, Jake, who lives in the San Francisco Bay area and has some questions about managing his savings and retirement contributions. Jake, welcome to Smart Money.

[C]

Thanks for having me on.

[Sean Pyles]

Quick reminder, courtesy of our legal team, that this is not going to be individualized advice for you. It's just general information for you to make your own smart decisions. And today we're going to be covering a lot of great budgeting and saving strategies in a general sense. But if you're listening, or Jake, if you want to, as well, if you'd like a specific financial strategy tailored to your needs, and you might want to consider working with a financial planner. And you can actually do that directly through NerdWallet. We'll have a link in today's show Notes where you can learn more about NerdWallet Advisors and NerdWallet Wealth Partners. So just a little FYI there.

[Elizabeth]

All right, so, Jake, I'm gonna start with a little random question that just came to my mind. So I am a genie. We are halfway through the year and you get one money wish, any money wish for the second half of the year. What is it?

[C]

Any money wish for the second half of the year? I just wish for several million dollars to fall in my lap, and that'd be okay.

[Elizabeth]

If you're going to wish for that, then you have to tell me what you're going to do with it.

[C]

I think I would just really want more financial freedom and peace in all of my accounts and generally being able to sleep at night knowing that my money is doing good things and working for me the way that it's supposed to.

[Sean Pyles]

I like the idea of financial peace. Can you think about an area of your financial life where you don't have financial peace right now?

[C]

Yeah, I mean, that's partially why I'm jumping on today, is just because there's so many accounts that I've heard about as far as, like, saving and investing, even, like where to keep an emergency fund or how to start building savings for the future for either buying a house or purchasing a car or something like that down the road. And I think it's one of those things that I rack my brain about on a daily, weekly basis. And it's constantly a stress that I think about and keep researching.

[Sean Pyles]

Well, hopefully we can provide some clarity and Reassurance there. How are you currently managing your savings and investments? What kinds of accounts are you using? What kinds of accounts are maybe stressing you out a bit?

[C]

Currently I have quite a few different savings accounts, so I have a 401k that's managed through my current employer, so I'm taking the 6% match there. Do you just have a standard savings and checking account? I have opened up a Roth IRA also sometime last year, and so I've been slowly contributing a little bit to that. And then I've been looking for a High Yield savings account to also use. And then actually because of my new job out here in the Bay Area, I also have a high deductible health plan now. So I just opened up an HSA because I figured that was a good thing to start contributing to.

[Elizabeth]

Look at you, Jake.

[Sean Pyles]

So you have pretty much the full suite of accounts here.

[Elizabeth]

Yeah.

[C]

How old are you? I'm 33.

[Elizabeth]

You're doing a good job.

[Sean Pyles]

Yeah. I think you have about the accounts that you would typically want to have and where do you think you could be doing better or what's leading you to feel a little bit stressed with these accounts?

[C]

Yeah. So I mean, I just moved to the Bay Area and kind of got like my first big boy, I guess almost, I'd say like job that has like a solid pay after a three year postdoc term appointment that I had back in Colorado. So now kind of trying to figure out how to best put my money to work in this situation. So I feel like I'm doing well as far as kind of getting some of these accounts set up. But I definitely could use help in how to best allocate funds to each one of the accounts as well as what I mentioned to you before was the High Yield Savings account. That's one thing that I had never had, but I knew that I should have most likely. And I feel like I've researched and looked into so many different High Yield Savings accounts and it's just very stressful and not easy to figure out which account to go for or if I should move all of my banking to one bank and that then use a High Yield Savings account there. Or if I can totally just have one separate High Yield Savings account and a completely different like credit union or something. I don't know.

[Sean Pyles]

Yeah, I mean, it can be really confusing because there are so many online banks and they all seem almost the same and they all have names you've never heard of before. You saw them in a roundup or something. And I Felt similarly when I opened my first Hyloid savings account many years ago at this point. And I chose one that was well rated and that my colleagues suggested to me. You know, I figured that at that time, if there was something wrong with the bank or if I really didn't like working with them, I could just go to a different bank. And I haven't done that. It's been nine years at this point and it's been okay. So in some ways the best bank for you may just be the one that you go with and you start getting a higher yield in versus just waiting to find the quote unquote perfect bank. Because no bank is perfect. It's just a place to put your money and get a good yield on it, hopefully. So you can experiment with a little bit of trying out a bank for maybe a year, see if you like it. And if you do, you can keep working with it, see how they treat you. If they treat you well, you could keep banking with them if you find that maybe their interface is annoying or they're lowering their yield on their hail savings account when other banks are not. At that time you could just switch over to a new bank. It's a little bit tedious to do that upfront administrative work, but it's not a huge deal. And at least that way you know you have your money earning some interest for you versus just sitting in a traditional savings account where you get basically nothing.

[Elizabeth]

The good news is that nobody's going to call the police on you if you change your bank. So you get to change it. Just like Sean said. If you don't like it, I will say I am such an analysis paralysis girl myself. And I think when choosing a bank it might help if you think of the three top qualities that you want. Just like when you're dating, like what are your three top qualities in your three deal breakers? And I know for me I care about interest because I want my money to grow. So that's probably number one for me. I went with an online high Yield savings account, so for some people that's a, a big deal because I can't just go to any ATM and withdraw money from that High Yield savings account. Right. So you need to think about access, how easily accessible your cash is. And also a huge one is customer service. How easy is it to get through to somebody if you need help with anything, really? So I think those are three things maybe to consider. But obviously you have your own list. But I probably wouldn't go past three things since you're Already having analysis paralysis. So that might help you narrow it down to.

[C]

Thanks for that advice. And I was going to say two things, probably based on what both of you said was one, are there any red flags maybe to look for or avoid in looking at these online only banks? Or sometimes you see a flashy high yield offer. So it was like, are there red flags to that? And then also to the second part, how is the best way to avoid the analysis paralysis or to overcome that?

[Elizabeth]

As Sean said, I think a combination, find one and then just go for it. And again, if you don't like it, you can always switch. And then as for your question with red flags, I would say the first thing that comes to mind for me is some of these account have maybe high account minimum balances. So you want to look out for that. You also want to pay attention to fees because some banks come with lots of fees and they'll lure you in with maybe a bonus or something and then you end up paying a lot in fees over time.

[Sean Pyles]

Jake, when you wrote to us, you mentioned that you were considering maybe using your Roth IRA as a savings vehicle. Talk with us more about your thinking there.

[C]

Yeah, so there was a couple different trains of thought. Maybe it was because I was trying to avoid opening up a high yield savings account because I couldn't figure out where to go or how to do this and didn't want to go through the whole process of opening up a whole other bank account and managing that. But also my thought was like, well, my Roth IRA is projected to make such percentage of maybe 6 to 10% or something like that in interest over period of time. And meanwhile these high yield savings accounts only do maybe 4%. But I know that for Roth IRAs you can typically take out anything that you contribute without penalty. You can't take out the interest, but you can at least take out what you put in. So my thought was like, why not use that? Especially if I can't max out my Roth IRA and be contributing to a high yield savings account in maybe like a given calendar year or something because.

[Elizabeth]

Of compound interest, Jake, Compound interest, obviously if you need to take it out, fine, but you're investing. So the longer that you leave your money in there, the more time it has to grow. Whereas if you put it in something like a high yield savings account, that is liquid and it's not an investment account, which sometimes people think it is. You know, you can just take your money in and out and you're not losing any long term growth, if that makes sense.

[Sean Pyles]

And this gets to what is the purpose of each account. A Roth IRA for me and for many people is a retirement account. So you want to put the money in there that you will intend to have when you retire. Sometimes people can mix up the purpose of it and have it be like a savings account, because sure, you can take out your contributions at any time without a penalty, but that can become a bit of a slippery slope where you're pulling out your contributions kind of more laxly than maybe you should. So I personally like having firm boundaries between what I'm doing with my Roth IRA versus my high savings account. And even with my Hylde savings account, I have many of them for different purposes. So I have firm boundaries between what I'm saving for. So that helps me set guardrails for myself because a lot of money management is just having the proper self created guardrails around where your money is going and how you're using it. I'm not a big fan of using a Roth IRA as a typical savings account.

[Elizabeth]

Same here. All right, Jake, it sounds like earlier you had a question around maybe how to prioritize your savings. So, you know, you have all these different buckets and I think that you mentioned something about how much should I be saving in each, how much should go? So I want to ask you about your emergency fund, first of all, because at NerdWallet, we love to say that that is the first place that people should start. So do you have an emergency fund? And if so, where are you saving that money and how much you got?

[C]

Right now my emergency fund is about two months of expenses, so it's closer to maybe like 10k. And that's between basically like a checking account, kind of just the savings account within that same location. And then since kind of like submitting questions and looking around, I went ahead and pulled the trigger and just got like a random high yield savings account. So congrats. Love doing that. Thanks. And so I think I have about like $2,000 over there as well. So about two months of expenses, maybe $10,000 about, and then that's spread between, you know, maybe a couple accounts.

[Elizabeth]

The order of financial priorities that we usually recommend would be that emergency fund first getting the employer match if you get one, and then going back over to other retirement like an IRA and so forth. So that's just a high level way that you can think about how to kind of allocate your money.

[Sean Pyles]

You mentioned as well, Jake, that you just got your first like big kid job and you have some good money. Coming in, talk with us about how that changed your finances and how you've reallocated your budget after that.

[C]

I was thinking about this, really ever since I graduated and got my PhD, basically, as soon as I got this position and got moving, allocation bonuses and stuff like that, it was kind of like, cool. Pay off any sort of random personal loans that I might have been holding onto, making sure that everything is more or less paid for and then immediately contributing to kind of like an emergency fund. Most of my debts are kind of all gone. And so now it's like, how do I start putting money together to actually plan for retirement and safeguard myself in the short term? I would like to have a house someday as well. So. So how do I start budgeting and putting money aside for that at the same time?

[Sean Pyles]

How do you budget currently? Do you have a system that you use?

[C]

I think it's just called the reverse budget. So I just have money that's kind of automatically pulled out and allocated towards multiple of these buckets. And then afterward, I kind of just plan to more or less spend the rest throughout the month or the next several weeks.

[Elizabeth]

Pay yourself first?

[C]

Yeah, so I pay myself first and then use the rest for my budget for the month.

[Sean Pyles]

Well, since you just had this big change in your finances with your new job and your relocation, I would encourage you to go back to basics and really look at that 50, 30, 20 framework that we talk about oftentimes. And we emphasize this because having your money in this category, where half your money roughly is going towards needs, 30% is going to wants, 20 is going to additional debt payments and savings. Given that you've moved to an expensive area, how are you covering your rent or utilities? I assume you have a car out there too, because you have to drive in the Bay Area, most likely. And then what are you putting towards your savings, including retirement savings, too? So just get a clearer understanding about that. That can help you understand whether you do have more money that you could put toward your savings or whether you should up your retirement contributions. And then you can figure out, do you have 30% towards wants, or do you actually need to make that maybe closer to 20, given how expensive the Bay Area is?

[C]

I've definitely tried to, but I think so far every month has kind of been so variable and fluctuating because it's been so new. So I'm kind of waiting for things to somewhat stabilize before I can say for sure what the percentages of each category kind of are.

[Sean Pyles]

I think that's smart. Once you have a clearer Picture of where things land maybe three months out, look back at the averages of how much you're spending on things like gas and rent and all of that, just to see where your money is falling. And then again, that'll help you figure out where you can put more into savings. Jake, you mentioned that you have some debt. I want to hear a little bit more about that.

[C]

Really, the only debt that I have now, thanks to working on this for several years and my new relocation and stuff, is kind of just like my larger student loan from undergrad and a little bit from grad school. That's closer to 100k, which is pretty high. So it's definitely in the back of my mind. I'd like to probably start paying that off.

[Sean Pyles]

Are you currently paying it off at all?

[C]

A little bit, yeah. And that's actually just because my employer actually has a student loan kind of like forgiveness program. So they're actually paying up to. I think it's like $400 every.

[Elizabeth]

Oh, that's great.

[C]

Every other paycheck.

[Sean Pyles]

Wow. Okay, so you get a 6% match from this employer and they're helping you pay off your student loans?

[C]

That is correct, yeah.

[Elizabeth]

Sounds like a key job.

[C]

Yeah, it's definitely great. Other than that, the only other debt I have is a medical debt from a surgery that I had back in last November.

[Sean Pyles]

Are you on a payment plan for that?

[C]

Yes, I think it was like $2,500 or $3,000 left on that. And, yeah, it's pretty much just like a minimum payment plan that I can put on it because there's no interest on it.

[Sean Pyles]

That's good to hear. I want to turn to something else that you asked us about, which was closing accounts with banks that you used to work with and also managing accounts at. At different institutions. So talk with us about what your.

[C]

Questions are there regarding the High Yield Savings Account and whether I should put everything under one umbrella or one house, so to speak. So if I found a good High Yield Savings account, should I move my checking account and savings account kind of over to that maybe just for ease or simplicity, or maybe some banks like that, Because I've seen some High Yield Savings accounts. It seems like you can only have one if you opened up a checking account, too, or something along those lines. But for instance, Wells Fargo is my current bank and I've had that since I was a kid. For that reason. It's like my credit card with them is the longest history that I have and probably plays into my credit number and all of that stuff. So If I was to close all of those accounts and move somewhere else, I suppose I'm worried that would would hurt my credit and then I wouldn't be able to bounce back in any reasonable time or something. Or maybe it's just too much of a hassle.

[Elizabeth]

Well, Jake, I'd like to share and tell Sean's business that he has like 10 million different accounts and they're not all with the same person. So I do think it is about personal preference. I personally only have a High Yield Savings account and a checking account and they're with two different banks. So it really is about your management style. Can you, you know, is it stress going to be stressful for you to manage, I don't know, five different accounts at five different places? But you absolutely do not have to close down all of your accounts with Wells Fargo to open a High Yield Savings account somewhere else. So it really just is about what you can manage.

[Sean Pyles]

And it can be helpful to have your checking at one institution and your savings at another again, so you're less likely to easily pull from your savings. You'll have to wait a few days before you can transfer anything into your checking account. That's how I like to have things set up. Personally, when it comes to your banking accounts and your credit cards, you would most likely be able to close that bank account without any impact on your credit. I would be really surprised if Wells Fargo closed your credit card as a result of you closing your bank account. But I would encourage you to consider leaving that credit card open because credit history is the third most significant factor in your credit score after payment history and credit utilization. So closing that credit card account could shorten your history and then reduce your overall available credit, and those two things could harm your score. So unless you have a really, really compelling reason to do so, you can probably just leave that credit card account open.

[C]

Okay. Yeah, that makes sense.

[Sean Pyles]

Okay. Well, Jake, we've run through a lot of different categories of your finances. Do you have any other topics you wanted to talk with us about or questions for us?

[C]

You did mention prioritization as far as going straight for maybe the emergency fund first and then maybe going back to the Roth IRA or something. But is there a way, or have you heard of people or could I potentially do multiple at the same time?

[Elizabeth]

Yes, yes, yes, please do if you can.

[C]

Okay. Because I think it'll take several months to get my emergency fund up to a more acceptable three to six month range. But I want to still be contributing to my Roth IRA as well as trying to max out my HSA at the same time. So yeah, I wasn't sure if that's something you'd recommend for people.

[Elizabeth]

Sorry, I was screaming yes, because I love to tell people because that's a common question. And you can absolutely do all three. I do all three at the same time. So I use automation to make my life easier year. But budgeting is important if you're going to automate so you're not at negative at the end of the month, but you can absolutely do what works within your budget and contribute to all three at the same time.

[Sean Pyles]

Multitasking is often the only way you can make real progress on a lot of financial goals simultaneously. If you wait until you have your emergency fund at three to six months and then you start investing for retirement, I mean you've lost that time that you could be investing and getting the benefit of compound interest. And I just turned 34, Jake, so we're getting up there. We got to use every year, every month, every paycheck that we can to save for retirement. We sure do.

[C]

Thanks. That's another follow up question with all of that. So if I was to save up for a car or a down payment for a house maybe say in five years from now, maybe six, seven years, what is the best or the safest maybe vehicle for that, would it be the high yield savings account? Should I go for maybe a money market account or personal brokerage account, something like that?

[Sean Pyles]

General rule of thumb is that if you need the money within five years, you don't want to invest it. You want to have it in something like a high yield savings account. So you are getting some interest on it. If you're looking to closer to six to seven years, it gets a little bit fuzzier. I get the impression that you're a pretty risk averse guy and you want to keep things as safe as you can. In that case you might want to split the difference and look into something like a certificate of deposit where you could get get a higher yield than with a high yield savings account most likely. But it wouldn't be as at the whims of the market as like if you're investing it in a taxable brokerage account. So look at different rates that you could get for different terms of CDs and see how you might be able to do something called a CD ladder where you have different CDs with different terms in order to continue to earn interest on the money you're putting into these accounts.

[C]

I've heard of these a couple times I haven't wanted to look into CDs for some reason, so that'll be something I have to check out.

[Sean Pyles]

Yeah, why not? I mean, it might make you feel super savvy using this new financial product.

[Elizabeth]

Yeah, people do find them confusing. The main thing with CDs, though, is you can take it out early, but you might get penalized. You should try to be sure that you can keep it in for the term, whether that's three months, six months, five years, so you can get all the interest that you need to get.

[Sean Pyles]

And also consider how much money you could put into a CD at a time. Obviously, the more you have to put into it, the better your return is going to be.

[C]

Cool. Yeah, thanks a lot. I feel like I could ask you guys, like, a million questions. Just keep going down the rabbit hole here. But maybe it's probably best to leave it here with these questions.

[Sean Pyles]

Yeah. Well, I hope you feel a little bit better about your savings and investing strategy, given where you are in life right now, this transitional moment.

[Elizabeth]

And congratulations.

[C]

Thanks a lot. Yeah, I appreciate all the info, and I think it'll definitely help set me up for the future.

[Sean Pyles]

Keep us posted on where you land with these various accounts and how your budget shakes out once you're more settled in your new life.

[C]

Yeah, I appreciate it. I sure will.

[Sean Pyles]

All right, well, thanks, Jake.

[C]

Thank you.

[Sean Pyles]

That's 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-N E R D. You can also email [e-mail] and a reminder that you can submit your budget for us to possibly review on an upcoming episode. Just use the link in the episode description. Join us next time to hear about whether credit card fees are still worth their ever increasing cost. Follow Smart Money on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio, to automatically download new episodes.

[Elizabeth]

And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy information is provided for general educational and entertainment purposes only. And it just might not apply to your specific circumstances. This episode is produced by Tess Figland. Hilary Georgie helped with editing. Nick Karistini mixed our audio. And a huge shout out to NerdWallet's editors for all the ways they help us.

[Sean Pyles]

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