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- [00:00]
A
Should I rent or buy a home? Spend or splurge on a wedding? And how late is too late to learn about money? This is Smart Girl Jam Questions. I'm Neymar Raza and today I'm joined by the money expert, Nicole Lapin. And you have the Money News Network. You have an amazing podcast called Money Rehab. And you're. I guess, is it self taught?
- [00:18]
B
Self taught. Autodidact.
- [00:20]
A
You were one of the youngest reporters at cnbc, at cnn. And I just have so many questions for you. So I'm so grateful that you're making the time.
- [00:27]
B
Thank you, thank you. Bring it.
- [00:28]
A
All the questions, all the questions.
- [00:30]
B
But do I get to be the smart girl?
- [00:32]
A
This is like a promotion. I did the Eileen Goo and I'm the person whose name we don't know because she's Silver. That's what's happening on this episode. So here's the thing. I have an mba, and yet.
- [00:42]
B
Yeah, you're the smarter girl, the smartest girl.
- [00:45]
A
I'm not saying that to show off. I'm saying that to.
- [00:47]
B
How much is your brain, Naima?
- [00:49]
A
How much is my brain? What does that mean?
- [00:51]
B
How much did you spend on your brain? Oh, have you calculated?
- [00:54]
A
No, because see, this is my problem. I don't like to think about money, but I would like to have more money. It's easier for me to talk about tariffs than it is to talk about my own bank account or taxes or whatever. Is this a common problem?
- [01:08]
B
It is. And there's often a disconnect. And actually people who are in financial services or have their MBA have some of the most shame around money because they think they should know. Right? You spent, I'm guessing.
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A
Yeah, I'm gonna do that.
- [01:20]
B
A hundred thousand on room, board, tuition, 200,000 as an opportunity cost for those two years.
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A
I'm assuming more than, I mean, so
- [01:29]
B
like 440ish thousand is on that.
- [01:33]
A
I have a. I actually have an mba, an mpa. So it was a three year degree then I have four years in my undergrad. So you asked me the how much is my brain Question and I'm trying to now do the math of if the present value of my brain for the dollars spent on it is more than my present net worth.
- [01:50]
B
It's a great question, smart girl.
- [01:54]
A
Dumb questions.
- [01:56]
B
Typically, if you think about the ROI of an mba, I like people to think about the opportunity cost of what that would be doing in the market. So if you took that $440,000 and put it at regular market returns of 7 to 10% year over year. After 30 years, you'd have 7. $7.6 million after 30 years. 30 years.
- [02:15]
A
Okay, so we're not there obviously, yet, but I also went to business school and then made the decision to become a documentary filmmaker after doing three years of grad school. And my Pakistani parents were so excited, not at all excited about this decision.
- [02:29]
C
They're like, oh, you'd like to make
- [02:31]
A
films about a band called Sublime? Great, Great. This is why we invested in higher education. Killing it, I think, because I grew up with an older father and I know we've both lost our dads. Like, I grew up with a sense of urgency and, like, scarcity of time. So as a result, I haven't thought a lot about money. And I think there's a luxury in that, right? Like, I've been fine, and I know I can get a job and all the things, but I've been able to take creative risks, and I've prioritized for that value versus the financial value. And yet I just think, like many millennial women of my age, I'm like, wow, should I have a house by now? I already have those things when it comes to, like, getting married or having a kid. But I definitely have that anxiety around home ownership in general.
- [03:15]
B
Why?
- [03:16]
A
Because every time you go to a wedding, it's like, some aunt will tell you that, like, paying rent is a waste of money. And they're like, how? Pakistani people are nosy. They love talking about money. They're like, how much do you spend on rent? And they're like, oh, that is a waste of money.
- [03:26]
B
Well, I think this idea that home ownership is propaganda is not true. But the idea that it's the only way to build wealth is completely outdated. And there's a lot of emotion wrapped up into home ownership and stability and safety. You know, I saw my house foreclosed on when I was a kid, and I think about that a lot. That's invaluable. But I like to go back to the numbers. Listen, I was a poetry major. I did not get my mba, so I am not a numbers girl in the traditional sense. But when you stick to the numbers in these types of conversations, it actually strips out a lot of the emotion. So there are a few things to think about that quantify this subject of renting versus buying. One of them is the 5% rule. So the 5% rule says, take 5% of what that purchase price is, and what goes into that would be everything you can't earn back. So everything you waste. So 1% to maintenance, 1% to property taxes, 3% to the opportunity cost. Because if you look at apples to apples, you're actually needing to look at the full housing cost, not just rent versus mortgage, because you're not taking into account the stuff that you don't get back, the equity you will get back later. Everything else, like, you're not getting your property taxes back, you're not getting the maintenance back, and you're not getting the opportunity cost of investing. Investing in the market.
- [04:44]
A
The investment opportunity.
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B
Yeah.
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A
So it's like putting that same money into the stock market, into like a whatever ETF would get you S&P 500
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B
index fund will get you 7 to 10% year over year. Housing historically has yielded 3 to 5%.
- [04:58]
A
Isn't it negative in some markets? Like I was reading about how in Las Vegas, the price of a home has, like, fallen over time. In New York, I know so many people who bought homes, you know, when we're graduating, like a decade ago, and now their homes are not worth anymore.
- [05:12]
B
Well, the thing that you want to look at to equalize this is the price to income ratio. So this will tell you over time how much a house costs compared to your income. So in 1970, it was 2.2 times. Now it's about five times. And in coastal cities, like in Los Angeles, it's 12 and a half times. In New York, it's 10 times. In San Jose, it's 10 times. So the issue with home ownership right now is that prices are much higher than wages are growing. And so the opportunity cost is a much bigger factor in this whole equation. So if you look at the 5% rule, so 5% of, let's say, a $500,000 home is 25 grand. You divide that by 12, so you get your monthly cost. That's 2,100 bucks.
- [06:00]
A
Okay, I'm following the math kind of girl. Smart math. Keep going.
- [06:04]
B
So 2,100 bucks is your threshold. If rent is below that number, then it's better to rent. If it's above that number, then it's more advantageous to buy. If you're looking at the cost only again, this is stripping out what the Pakistani lady is saying at the wedding. This is stripping out all the voices.
- [06:24]
A
Yeah, the emotional thing, watching a foreclosure.
- [06:27]
B
Exactly.
- [06:27]
A
So even you, growing up with that fear and seeing that foreclosure, you have not made the decision to buy a home. Is that correct?
- [06:35]
B
Yeah. For me, right now, it's more advantageous for my husband and my family and I to be Very disciplined in taking what we would have put on the down payment and the difference between the cost of renting versus the overall cost
- [06:52]
A
of buying, including that 5%.
- [06:53]
B
Yeah. So taking all of that and being really disciplined about investing it. So what I think is the strongest argument to home ownership is the forced state savings vehicle component of it. It forces you to earn equity at the end of it. It also gives you a place to stay. I totally get it. Like people come for me so hard on.
- [07:13]
A
Yeah. It's a very controversial take.
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B
Totally. But I want to be really.
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A
Buyers everywhere are scandalized by your take.
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B
So I'm so scandalous.
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A
Yeah.
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B
And here I am just giving you the math.
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A
It's great. I love it.
- [07:24]
B
But there's a real opportunity cost to that down payment. So again, easy math. $100,000 as a down payment is not $100,000. It's in the stock market. Your money will double after 10 years. So that a hundred thousand dollars after 10 years becomes $200,000. After 20 years that becomes $400,000.
- [07:42]
C
That's not a guarantee.
- [07:43]
A
Right.
- [07:44]
B
Historically, that's if we look at 50 years of the stock market, that's historically what it's going to yield. And so I want to look at that opportunity cost and truly understand that this math only maths. If you actually stay disciplined to investing. It doesn't work if you're just like cool, cool. So I'm just going to use that delta or that extra money and spend it somewhere else. Or I know myself like, you have to have true self awareness to know if your habits are going to stay true to what makes this math math. So what makes that actual down payment earn more money than if it was stuck in housing? If you just look at the historic numbers, it's by putting that extra money to work for you in the stock market. If you're going to do that, it's a better overall investment to rent and then take that extra money of the down payment and the extra that you're spending on the all the things with housing and invested in the stock market.
- [08:38]
A
You've just made it seem more complicated to not own a house than to own a house. For me, I'm like, I feel like I need more Excel sheets to not own a house because the discipline that it would require. But it was validating until that point.
- [08:48]
B
No, it really, it does require discipline. And if you know you're not going to do that, then home ownership is great. Forced savings vehicle over time at the end you're going to make 3 to 5%. You're not going to make 7 to 10%, typically speaking. Do not come for me. There are markets, there are things I know. Yes, but I'm just looking at the data.
- [09:09]
A
Yeah, you're taking aggregate data. This is so interesting. So this is like the third episode in the Smart Girl, Dumb Questions, Smart Money series that I'm doing, which is sponsored by Time. The first episode, I talked to the divorce attorney, and he talked about this idea of you have to have a naked lunch with yourself and really know your own finances and your own approach to money before you kind of pair up with someone.
- [09:27]
D
I would say something you should do individually is have what I would call a naked lunch. Like, where you really look at what's at the end of your fork. Like. Like the most dangerous lies in relationship are the lies.
- [09:39]
A
The image in my head is so fucked up right now. I'm just imagining a naked person looking at a fork.
- [09:44]
D
Looking at the end of their fork.
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A
Okay.
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D
I mean, listen, whatever the metaphor does for you, it's fine. You know, it tells more about you than me. It says more about you. It's a Rorschach test of sorts.
- [09:52]
A
Exactly.
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D
I think what happens economically is the most dangerous lies are the lies we tell ourselves.
- [09:57]
B
Yeah, totally. And I would even say, because I talk about the idea of looking at your finances is like sitting in front of the mirror naked, eating, but also putting fluorescent lights on yourself. To be really, really honest. Nobody wants to do that.
- [10:10]
A
Nobody wants to have this meal with anybody, maybe. Although sounds a little bit like Vegas. Okay. The second episode was with Raj Chetty, who's done a lot of work around the American Dream.
- [10:20]
E
So there's a lot of debate nowadays about people renting versus buying.
- [10:24]
A
Yeah.
- [10:24]
E
One way you can actually get to the American dream is to rent a home in a neighborhood that offers better opportunities for kids, better schools, better pathways to jobs, et cetera. From the perspective of homeownership, I guess that's not achieving the American Dream. From the broader perspective of achieving prosperity, that might actually be a smart thing to do.
- [10:44]
A
Your zip code matters more than your deed.
- [10:47]
E
Literally. Exactly. Whether you own a house or not.
- [10:49]
A
And we talked about what is the best, best path to progress and what is not propaganda, but, like, is a lore or a myth around progress and homeownership being part of the second category of, like. It's been this version, this temple of the American Dream. A home you own, a white picket fence, two and a half kids, whatever it is. And that's just. That's not getting people to the amount of progress that they hope to feel. And I think that's definitely true in our generations.
- [11:15]
B
There are emotional factors to it, and if it makes you sleep better at night, then that's amazing. But just be really, really honest that that's the reason.
- [11:21]
A
Yeah. How did you emot get over it?
- [11:23]
B
Money.
- [11:24]
A
Money. You did the math. The math got you.
- [11:26]
B
Yeah. I think when you have a lot of these hard conversations and emotions swell up, and if you're working with a partner who also has emotions around it, I think if you go back to the numbers, for us, it was most important to optimize for Net Worth after 30 years, not right now.
- [11:42]
A
How do you look at, like, homes that have renovations? Because I feel like a lot of people are buying, like, fixer uppers nowadays, and then they're getting a couple of things. They're getting a roof over their heads, they're getting some project that is either going to make or break their marriage together. They might be getting content, like they create channels where they're just like renovating these homes. But there's so, so much of like a renovation culture.
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B
Yeah, that's not in our life.
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A
That scares the hell out of me.
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B
Well, you know, that's been popularized obviously by hgtv. And you think you can flip. And that's not what we're talking about here. We're talking about typically what you're going to be spending on those property taxes is around again 1%. Every area is going to be different. And then, you know, whatever typical maintenance you're going to have, the roof needs fixing, the H vac system goes out. I mean, you just need to remember that at that point when you become a homeowner, nobody is coming to fix that stuff. And that stuff is very, very expensive. And insurance costs. Don't even get me started.
- [12:40]
A
And there's also home warranties. And home insurance is like, home warranty worth it.
- [12:44]
B
It's worth it for the companies that sell it.
- [12:46]
A
Yeah.
- [12:46]
B
I mean, that, that's very telling. If you, if you look at insurance, you want to insure stuff that you cannot afford to lose. Your life, your health, your home, the other stuff, like a warranty on a toaster, you know, the extended cell phone coverage. All that stuff is being sold because it's very lucrative to the companies.
- [13:03]
A
The insane. Like, it's like the idea of like when you buy an Amtrak ticket, they're like, do you want insurance for this ticket? It's like, no. Like, that's insane. Buy a refundable ticket.
- [13:10]
B
It's quite Historically, it doesn't work out well for the consumer.
- [13:14]
A
So you've obviously gone through a big shakeup in your life in 18 months ago or so, the fires in LA and you lost your home. Did that change your philosophy on all of this and on the idea of ownership in general?
- [13:28]
B
Yeah, it reminded me that, you know, systems, huge city systems, state systems, can fail in a way that felt very uncomfortable for me at the time. I was also two weeks postpartum, so I was extremely emotional. You know, we, we built out a nursery, we built out a home that I mostly mourn the future of, not necessarily even the past of. And so I think that when that happened so quickly and so obviously unexpectedly, it made me less attached to a physical home and that idea of stability that I glorified for so many years. And I thought, okay, well when I become this, then I'll be happy. Right? We always play this game and we never get our brains to the other side of it because there's always another there, there. So when I get a home, when I get married, when I have a kid, then I'll be happy. And you know, the truth is, wherever you go, there you are. And there's always going to be, maybe not to that extent. There's always going to be something that happens that's going to get in the way of what you imagined that you're trying to be. It was not the plan, but it also made me less attached to this idea of homeownership.
- [14:44]
A
I can't imagine, and I don't want to make you relive that very difficult experience. I, one of my closest friends, lives in la, had a home in the Palisades. Her son is my godson and they lost their home. And I'd seen her, really spent a lot of time in picking that lot, designing that home. Like it was a special place. It was like, felt like my home in la. And so seeing that, I totally understand what you're saying about losing confidence in the idea of stuff and the physical world, but also in some of the institutions that we're still finding out, like why this happened and where the accountability lies and how to pursue that. I'm certainly seeing that in my friends experience.
- [15:27]
B
But I remember leaving that day and just thinking we would come back. I just left with the clothes on our back. We put the dog in the car and the baby and we're like, it's cool, we'll be back later. We were gonna go to a friend's house and then, you know, how could they let this burn Down. And also my husband was like, yeah. And I just paid so much in taxes.
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A
Like, we're good.
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B
The trucks are on their way. I paid for the fire hydrant stuff. No, none of it was there. And so that's really unnerving on so many levels that the systems that you expect to be there when you need that them the most aren't. But, yes. Rick Caruso was our first guest here.
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A
Yeah.
- [16:00]
B
Which was felt very poetic and fitting to. Yeah. Rebuild the office and the studio and.
- [16:07]
A
Yeah. Well, you've. I mean, I'm sitting here in Nicole's beautiful studio, and it is stunning. Thank you for letting us. Thank you here. And it's just. I mean, you've rebuilt a lot.
- [16:16]
B
Thank you. The idea of renting, like, feels good to me on a financial and an emotional level because of that.
- [16:22]
A
Yeah. I cannot compare with that experience. But I will just say, like, one of the reasons I've always been a renter is because, one, I've grew up in multiple continents. Like, I've always moved a lot. I've lived in a dozen cities in, like, as many years or in 15 years, I've lived in a dozen cities. And I like the idea that when the washing machine breaks, I call somebody and I don't spend hours of my life on it. And there's a huge value of that to me that I cannot put in. And I could probably, like, figure out the marginal utility calculation on it, but for me, it's just. It's liberating to not have to deal with those things.
- [16:56]
B
Yeah. If you're moving around like Gen Z and Millennials are, it is more advantageous to rent. I think the idea that there's so much shame once you tease through some of these issues and you get to a point where this is an intentional decision. I, Naima, move around a lot. I, Naima, am being disciplined that I'm investing in the market, you know, and I'm consciously choosing to rent so that I can free up more of my capital to grow faster for me. And, you know, that's a different mindset than saying, like, oh, I'm such a loser. I'm renting. I'm suck at life. Like, what am I going to tell the Pakistani ladies that the next.
- [17:33]
A
The aunties. What am I going to tell the aunties? Nicole? I'm telling you, it's about you getting
- [17:39]
B
good with that conversation with yourself.
- [17:42]
A
We're going to take a quick break, and we'll be back with more with Nicole Lapin.
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C
Is that home renovation worth it?
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A
Everybody?
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C
On my social media feed seems to be renovating their homes and I find
- [17:54]
A
it all a bit boring.
- [17:55]
C
Like I once broke up with a boyfriend because he wouldn't stop talking to me about kitchen tiles. There are broader compatibility issues, but did those kitchen tiles make his house worth more? And when do Renovations Come with a reward? This is a sponsored Dumb question brought to you by Chime. The most rewarding way to bank the truth is that most renovations do not recoup 100% of their value. A kitchen remodel might get you 110% back and maybe a nicer spot to enjoy your nachos. And the data shows that actually adding a bathroom and could give you more yield than adding a bedroom to your home adding a deck. It looks really nice and gives you some vitamin D. But data suggests that you only see 90% of that money back. And lastly, a new garage door could actually triple your return with a whopping 300% plus ROI. Excuse me while I go install a garage door in my New York City rental. By the way, I actually did do a bunch of small renovations, painted stuff, swapped out the lighting fixtures and those switchboard thingamajiggies. And don't tell my landlord, but I'm pretty sure it's it up the rental value. It definitely makes me happier every day. All of this stuff, it might be worth it, but it is expensive and sometimes we overlook that cost when we're just budgeting out our rent or our mortgage payments. So when you're saving up, think about doing so with Chime. No monthly fees, no overdraft fees, no minimum balance. And with ChimeCard you can get up to 5% cash back in a category of your choice. Plus high yield savings and credit. Building on everyday purchases, SGDQ is a garage door and everyday purchase. Visit chime.com or download the app today.
- [19:15]
A
I think of you as someone who's like extremely resilient. Not just because we're sitting in this beautiful office that you've rebuilt, but also because of the story that you have told around having been in debt and getting out of debt. And so before we move on totally from this home chapter, it's like one of the daunting things to me about homeownership is the idea of debt. And even if you have a fixed interest mortgage, which I don't think they exist anymore, kind of, or they do, but they're at much higher interest rates than they were years ago, right? No, you can correct me. That's the whole idea. I am allowed to be dumb on my show. Yeah. Nicole's giving me a sad.
- [19:52]
B
Do you mean adjusted adjustable rate mortgage? There are adjustable rate mortgages, but they
- [19:56]
A
used to be much lower percentages.
- [19:59]
B
Yeah, the interest rate.
- [20:00]
A
Yes, exactly. Totally.
- [20:01]
B
When interest rates were lower. Yes, yes. And now we're about to six and a quarter percent. You know, obviously we were at rock bottom interest rates around the pandemic and when we saw financial Armageddon in 2008, but that was an emergency measure. So, yeah, those rock bottom interest rates were what people got used to, but they're not typical. We're. We're at more of a typical interest rate level right now, so.
- [20:26]
A
And given the choice, I know that you're not going to buy a home anytime soon. It sounds like I'm not going to buy a home anytime soon. Although I do have to have like a very naked fluorescent lunch with myself and figure out how much money I should be putting in the market because I'm not buying a home. That's my kind of.
- [20:38]
B
We can do that work.
- [20:39]
A
That's. Yeah, we can do that together. Yeah, it would help me do.
- [20:41]
B
I'll have. I'll have naked lunch with you.
- [20:42]
A
Wow. I love it. Naked lunch.
- [20:44]
B
Yeah.
- [20:45]
A
That's great. That would be amazing. I. It is so scary. And I'm. I even find myself punting meetings with my wealth manager to, like, because I'm just afraid to confront numbers. And they're not bad. I'm pretty good at saving and I'm pretty good at investing and. But I, I just don't want to think about it.
- [21:02]
B
Yeah. We make up a lot of stories in our head that end up taking over. And the best antidote for shame is truth. And looking at it and realizing actually I suffered more in imagination than in reality. That's like a stoicism vibe for you.
- [21:17]
A
Okay. All right. I love that we're now on Ryan Holiday's podcast. We're doing the Daily Stoic. If you were considering, even though we're. Neither of us are buying this home, we're just having naked lunch, would you be like, less likely to take a fixed interest rate loan for a mortgage right now or what would you advise people? Like, is there a hope that interest rates are going to come down? Like, do you have a theory on that? I know you're not giving financial advice, all the disclosures, but is there a way to think about that?
- [21:43]
B
Yeah. Well, we also do have these conversations at our wealth management firm, Private Wealth Collective, and this is truly a holistic approach. So you can't really look at Homeownership in a vacuum. You have to look at your entire financial picture. You know, people often say, like, can I buy a home? It's like, hold on a second, I have a thousand other questions for you. Like, what, what other kinds of debt are you holding? Do you have student loans? Do you have credit card interest rate? You know, what are your goals? And, and all of those questions should be looked at together in a holistic picture. And so not all debt is created equal. So I used to be so scared of any kind of debt. I'm first generation American, you know, grew up in a immigrant household. Like, you buy something if you have the literal cash to pay for it. And that was the end, like period, end of story. And so I used that is keeping people poor. So rich people have debt, but they call it leverage. It's the same concept, but they use it to make more money or lower their cost of capital, which is essentially taking the difference between the percentage that you're borrowing money at and the percentage that you would make money at. So if you're borrowing at 3%, but you can make 10%, then you're, you're pocketing that spread 7%, for instance. And so, you know, good debt and bad debt are two different things. So good debt for your beautiful, beautiful brain, you know, in, in theory, you're, that asset is going to earn more than the interest rate.
- [23:09]
A
Okay, yes.
- [23:10]
B
So that's good debt. Or you're, you're using that debt to buy assets that will appreciate. So a home, it's sort of, you know, we're six and a quarter percent again, that calculation that we did around the 5% is more like 6%, maybe 7% in today's interest rate environments. And credit card debt, bad debt. Right. Credit card debt that I got into was 24%. So right now new credit issues are coming in at 22%, 24%. You miss payments, you're up to 30%.
- [23:49]
A
And did you know that, like, had you read these, like, because I feel like there's always Asterix and the star and then they have these other like, insignia for the footnotes and they come up with every character under the sun.
- [23:58]
B
And if you don't know, you don't have perspective. 24%.
- [24:02]
A
Amazing.
- [24:03]
B
Compared to what you don't know, you don't know.
- [24:05]
A
And it's all these like hidden. Is it hidden fees or it's like, it's just like lightly fine printed fees. I don't know.
- [24:11]
B
Yeah, so APR is the interest rate that you pay APY is what you get at the bank. You. What you get at the bank typically is much lower than what you're paying on a credit card. And that, that type of debt is what can snowball out of control. The biggest issue with that type of debt is the minimum payment. It's not even necessarily the rate, if you can understand what that rate is or pay it off on time. But the minimum payment thing is what's keeping a lot of people stuck. It kept me stuck. I thought, okay, I'm paying the minimum payment. This is an option on the credit card portal. I got into credit card debt when I finally got a credit card and I was rebelling against, you know, not ever having one or stashing cash under the sink behind the maxi pad pads, just in case. That's just how I grew up. But using that type of. I think predatory lending.
- [25:03]
A
Yeah.
- [25:04]
B
Can get you, get you really, really stuck. So $5,000 at 20%, which is not even the highest, by paying just the minimum, will take you 23 years to pay it off and almost double what you're spending in interest.
- [25:18]
A
Wow.
- [25:19]
B
So when you're thinking about debt, like, you have to think about two different kinds of debt and what the percentage is.
- [25:25]
A
Right.
- [25:26]
B
And what you're doing with that. Are you buying things? Are you buying a depreciating asset with it? And you're using high interest credit card debt versus your brain.
- [25:34]
A
Yeah. Hopefully inflation. Lower interest rate, outperforming inflation. Unless you decide to become a documentary filmmaker, in which case, probably not. But that's fine. It's psychic income. How much debt did you get into?
- [25:45]
B
I got into $5,000 of credit card debt originally. I broke that down by the day to get out of it. I didn't know at the time that I was doing the avalanche method.
- [25:59]
A
Yes. There's two ways you talk about to get out of debt.
- [26:01]
B
Yep. Avalanche method and snowball method. So it doesn't really matter which one you choose, as long as you choose one and stick to it. So Avalanche, you know.
- [26:10]
A
No, no, I want you to tell them. I don't know.
- [26:12]
B
You're like, I don't want to be in snow at all.
- [26:14]
A
I'm like, this sounds terrible.
- [26:15]
B
Let's get.
- [26:16]
A
Yes.
- [26:17]
B
So Avalanche method is ranking your highest interest rate credit card debt first and paying that off the first.
- [26:23]
A
Okay.
- [26:24]
B
So if you have, you know, a bill that comes in for $100 and that's at 5%, let's say, and you have a bill that's for $50 and it's at 24%. You're like, I have a magical $100 bill. I'll just pay the $100 one off. Right. Because I'll rip it up, it'll be cathartic. But that's not the most advantageous way. I would put half of that toward paying off the higher interest rate credit card debt likely first, because that's going to snowball fastest, even though the snowball method is paying for the smallest bill first. So you can have momentum to keep going.
- [27:05]
A
So it's like psychological. And avalanche method is like more efficient.
- [27:10]
B
Yeah. And again, I give these choices because not every financial choice is a true numbers choice. It's often an emotional choice. So whatever you're gonna stick to, you're gonna spend more over time.
- [27:24]
A
Right.
- [27:24]
B
But as long as you stick to that and it works for you, then I like that method for you.
- [27:28]
A
I like that too.
- [27:29]
B
But the one that's cheaper is the avalanche.
- [27:32]
A
Yeah. The efficient one is the avalanche one. And I, and I so agree with you on the emotionality of it. Like Jim Saxton and I were talking about this, the divorce attorney. And I like when you date somebody you're not dating their approach to money. You're dating like their parents and grandparents approach to money. And all of this stuff is so hard coded in us that it's really hard to separate the emotionality and the finance. And I love what you do because it's partly extremely practical and partly psychological.
- [27:57]
B
Thank you so much. But when I was in debt and I continued to, you know, be in debt and feel a lot of shame around that debt, especially when I was also a business reporter and I was covering these macroeconomic things, but personally, in my own micro economy, I couldn't get my own financial shit together. You know, I felt so much shame around that. I felt so much shame about the lineage too, because I was like, well, I clearly deserve this. I suck. I'm not a numbers person. I'm bad with money. Of course this is going to happen to me. And then these stories that continue to proliferate and that shame is not a good money management system because it keeps you avoidant. It keeps you out of these conversations that really could be helping you. And so I think it's a mistake to remove the idea that shame has a huge part in what's keeping people in a cycle of debt.
- [28:50]
A
That's so well put. I am now going to completely lowbrow your conversation about shame and pull out paddles. Something else to. I brought these paddles into Nicole's studio and she's terrified and confused as to why I have brought this. She thought we're going to be up to something sexier than we are going to be.
- [29:07]
B
So am I going to get spanking here? What's happening?
- [29:10]
A
No. No spanking. There's nothing to be ashamed of. But I want to run through kind of big outlays that people have in their finances. And I want your kind of red or green. These petals have two sides. One is red and one is green. And you're going to tell me, is it worth going into debt for green or is it not worth going into debt for red? Number one, you have a very nice one.
- [29:31]
B
An engagement ring to go into debt for it.
- [29:35]
A
Yes. Red.
- [29:36]
B
Hell no.
- [29:36]
A
Hell no. Hell no. Don't go into debt.
- [29:39]
B
Should you get a lab diamond?
- [29:41]
A
Get a lab diamond. Green on lab diamond, red on lab diamond.
- [29:44]
B
Invest the difference.
- [29:45]
A
Yeah. Okay.
- [29:46]
B
A two carat engagement ring, a natural diamond, is 20 grand. A lab grown diamond is 2,500 bucks. Invest the difference.
- [29:55]
C
2,500.
- [29:55]
B
We're all going on after, you know, 30 years or whatever. It'll probably be 300 grand better than really a natural diamond.
- [30:02]
A
Yeah, the lab grown will be.
- [30:04]
B
No, if you invest the difference.
- [30:05]
A
Oh, yeah, sorry.
- [30:06]
B
If you invest like the 17,000.
- [30:08]
A
I thought lab grown diamonds were like a wild appreciating asset. My God. I gotta rename the podcast dumb girl. Smart questions. Okay, what about your wedding?
- [30:18]
B
Going into debt?
- [30:19]
A
Yeah, no, same.
- [30:20]
B
Same situation. Like, the average wedding cost is 35 grand.
- [30:24]
A
Yeah.
- [30:24]
B
Spend half of that, invest the difference again, you'll have 300 grand. 30 years. We had a micro wedding.
- [30:30]
A
What's a micro wedding?
- [30:31]
B
A baby wedding.
- [30:32]
A
A baby. I like the idea.
- [30:34]
B
I was also pregnant, so there was.
- [30:36]
A
Oh, a shotgun wedding. Nicole. Shotgun wedding.
- [30:39]
B
Oh, my. Trash wedding.
- [30:40]
A
That is what the aunties would say at the wedding. Oh, it is a shotgun wedding.
- [30:43]
B
Anyway, it was, yes, the best wedding. Small, you know, we invested the rest that we didn't blow out.
- [30:49]
A
Yeah. I think one of the greatest things that the pandemic has done is, like, made more weddings micro. And, like, people are doing the city hall wedding or like a smaller wedding. And I'm like, I'm so down for that. Okay.
- [30:59]
B
Home ownership, going into debt just through a regular mortgage. Yeah, I think it depends. It depends. I'm going to say sure, if it works for you.
- [31:09]
A
Yeah, if it works for you.
- [31:11]
B
I'm into it. But you have to answer all the questions and, like check the boxes that we talked about.
- [31:16]
A
Okay.
- [31:16]
B
Homeowner just not going in blindly. Yeah. And Thinking that that's the way to grow wealth. It's one way to grow wealth.
- [31:22]
A
Home renovation.
- [31:25]
B
Are you on hgtv? Like, I have questions.
- [31:27]
A
If you're on hgtv, it's great. If you're just a regular person and,
- [31:31]
B
and you have a plan, if you're going to stay there forever and ever and you know you can afford it in your overall financial picture, great.
- [31:39]
A
Or you think you're going to recoup it somehow, you're going to drive up, you're doubling the value of the home by doing this new kitchen splash.
- [31:45]
B
Totally. Some of that is speculative, but okay.
- [31:48]
A
It sounds like you're just giving, agreeing to be generous. What about fertility care? Ivf, the journey.
- [31:55]
B
Oh, going into debt for it. It's tricky.
- [32:03]
A
Yeah. Probably right.
- [32:04]
B
Yeah. I did ivf. It's no fun, but I know how deeply personal that is. So if it's something that you
- [32:16]
C
feel
- [32:16]
B
like you need to do, then there are a lot of ways to get out of debt and it's a problem you can deal with later.
- [32:26]
A
And I count not egg freezing or fertility or adoption or surrogacy, all the things that people might be considering to be able to have a family. It seems like the kind of thing that. Okay. Feels like there's only so many choices and it's a priority in a certain window of your life.
- [32:43]
B
Yeah. Because I think when you. When you think about there's two ways that you spend money. Right. On impressing other people. Consumption and experiences. And there's no greater experience, obviously, than having a family. And if that's deeply, deeply personal to you, like, who the hell am I to put a bad paddle up?
- [33:03]
A
See, I was going to show you. Like, we're going to get to some paddles where you actually want to do the green, not your resistant green for homeownership, your education. I would say. I would say it really.
- [33:17]
B
It depends if you do the math, if you know the opportunity cost, if you really think that it's going to yield a higher return over time, but likely not.
- [33:28]
A
I think that 10 years ago my answer on this might have been different, but I just feel like where we are with the precipice of AI and like, I see so many people who have dropped out of college. Like George Lucas built, you know, everything that he's built from having gone to community college. And I think there's a lot of routes and we kind of over emphasize prestige education in this country. Yeah. So I'm probably going to be a red on that.
- [33:51]
B
I don't Know where people that I've hired went to college? I don't think anyone knows where I went to college or cares.
- [33:56]
A
Yeah, like, yeah, I mean, obviously where I went didn't help me know anything about money, so it was bad. But your kids education.
- [34:04]
B
No. Going into debt yourself.
- [34:06]
A
Yeah.
- [34:07]
B
Always put your oxygen mask on first. They can get student loans. You can't, you can't get a loan for your retirement. So when, when parents will say, well, I'm, you know, saving for my kids retirement education and that's so lovely. And I get that as a parent, but only after you've taken care of yourself first. So if you're prioritizing their college and not your retirement and you are desolate when you're older and you're like, I have no place to live. I'm coming over to your house and I'm sleeping on the couch. I have no food. Like that's not helping your kid.
- [34:37]
A
No.
- [34:37]
B
So you, you have to take care of your retirement first. Do not go into debt for their education.
- [34:44]
A
I'm curious, like what's the best thing you invested in in your 20s? And, and the worst thing you quote invested in in your 20s?
- [34:50]
B
Oh man, I was not investing in my 20s. That's the problem, I think, you know, no one has ever in the history of the world said, I'm so glad I didn't invest earlier. Like, oh my God. The reason that I do what I do every single day is because I'm like, please do not make the same mistakes I did. Like I wish. And I was covering, by the way, on the floor of the stock exchange. Like I have me saying like, Google just announced Gmail, you'll never have to delete a single email again. Like, was I not buying Google stock? That was crazy. Or like I have a video that shows me reporting on the launch of the ipod. What was I doing? Like, what was I doing? Why was I buying clothes and shoes and whatever. And why was I not buying stocks? I was buying too much stuff and not enough stocks.
- [35:38]
A
Totally agree. And I feel like I've constantly been in that situation where I remember my college boyfriend was like buying oodles of Google and like all these stocks and, and he was telling me about them and I'm like, I don't know, it seems risky now I look at the fact that like Google has like gone up, I don't know, hundreds of X. If Amazon has gone up thousands of X, like 3000X, it would have been smart to be buying that earlier in life. What about the Worst thing you, quote, invested in even in your 30s. Like something you thought was going to be an investment that paid off and didn't.
- [36:05]
B
Yeah, I. Yeah, any, like, designer anything. I know this is cliche, but. Yes, I think we normalize giving gifts of stock, not stuff to ourselves and to others.
- [36:18]
A
Yeah. Okay, so you're gonna give your daughter stock?
- [36:23]
B
Yeah, of course. She already has stock. Yeah, she has more money. We were just looking at her portfolio. My daughter is richer than my husband and I were in our 20s and probably in our early 30s, because what
- [36:33]
A
are, what are three things that people can do if they have a baby that they want to.
- [36:36]
B
She has a 529, which is traditionally thought of as a college savings account, but it is much more flexible. She has a custodial Roth IRA and she has a custodial brokerage.
- [36:46]
A
Got it. Oh, wow.
- [36:47]
B
She has a whole, like, your daughter's rich. My daughter is rich, girl.
- [36:51]
A
Is your daughter gonna buy us lunch after this? Honestly, we can't.
- [36:55]
B
Yeah.
- [36:55]
A
To jailbreak that money, you're gonna pay a lot of penalties. Okay. Naima, don't you. This is the. Nicole is finally impressed by one piece of knowledge in, like our last five minutes of the interview. I love it. Right? There's a lot of penalties. No, there's some penalties like, or some. Yeah, but sometimes you can do it. Okay, what about health savings accounts? Are they. Are those worth it for debt? We're done with the. We're done with the paddles. Put the paddle away.
- [37:23]
B
Yeah, I mean, there are a lot of tax advantaged accounts that I would put my money in first and then go to taxable accounts. So like if you look at HSAs, if you look at 401ks IRAs, or Roth or a backdoor Roth, you know, a year, a person who's making 100, $300,000 can put about 35 grand into those tax advantaged vehicles. And so once you get those. And by the way, any match is like, obviously free money people. Half of people say no to a 401k match, which is like saying no to a raise.
- [37:57]
A
Yeah, it's dumb. Yeah.
- [38:00]
B
But so do that at first and then like a. A taxable brokerage account, which is where you can get low cost S&P 500 index funds and the rest of it. And if you want passive income from that, then I like to think of like $50,000 a year for every million ish that you have. So without touching the principle, what you can get as income to live on, it's a good rule. Of thumb as you're trying to think about passive income, don't fall into the rabbit holes of the Internet. That's like you can do this passive thing. It's so simple and easy. It's not.
- [38:33]
A
No. One piece of data by the I was like looking through this that broke my mind is there's a recent survey of 2,000 people who are either like recently engaged, married or in relationships. And 78% of people surveyed would rather start married life debt free than spend on an engagement ring. And I was like, what's up with the other 22% of people?
- [38:52]
B
But it sounds like most people wouldn't.
- [38:54]
A
Most people wouldn't. The number goes down by generation. 70% of millennials said they wouldn't and 64% of Gen Z said they wouldn't go into debt. But that's. It's still the majority, but that's 40% of Gen Z who might be far away from making that decision thinking that they would go into debt for a ring.
- [39:11]
B
Lab grown.
- [39:12]
A
Lab grown.
- [39:13]
B
Invest the rest.
- [39:14]
A
Invest the rest. I feel like I've put it out on a T shirt.
- [39:17]
B
It's a bumper sticker. Let's go.
- [39:20]
A
The last thing I want to ask you about is when you sit down and you do this naked lunch and you sit with yourself, how do you know if you're rich or poor? Like, what are the milestones that you should have in your mind to really measure that? Because there's the dollar value, but then I think there's like we're living a world of vast comparison. Like you're constantly comparing yourself to other people. You're comparing yourself to where your parents were in the generation. How do you know if you're doing well financially?
- [39:47]
B
If you answer the question really honestly with what do you want financially? What's going to make you happy? And for everyone, that's different. If you are going to be stoked in retirement, living on a small piece of land with your lawn chair from Target. Amazing. Let's stick to that and not change the goal post on ourselves. When we scroll on Instagram and we see our friend's friend with a yacht and be like, oh my God, I suck at life. Because I think you can have it all. But only if you truly define what it all means and stop changing the definition on yourself mid game. Because that's when it doesn't work.
- [40:22]
A
Yeah. Because as you get more, you kind of, you, you expand your possibility set of what's what you need.
- [40:27]
B
And I think that's why it's really important to work with any, you know, trusted wealth advisor that you have. We have these conversations all the time. Like it's, it's nice to have an accountability partner and somebody who's going to keep you honest with what your goals are. You know, people will call and say, well, you know, I want to get this or that or whatever or why am I not getting this? It's like, hold on. Like we went through like your whole goals and all of the, you know, breakdown of timeline here. That's not what's on there. We can change that. You can always change that. But stay really true and honest to what that looks like for you in your most honest, quiet moment. Off social media.
- [41:06]
A
Yes, off social media and in just like kind of in your own room. Like I think my dad when I was growing up had this rule which is like, I'm never going to say no to you, but don't ask me for something I should say no to. Which was a good self regulation for me in asking for things. And you know, it wasn't mostly financial things. It was like sometimes time things help with something or whatever. It's like just kind of being self aware in what I was expecting out of life. And I think sometimes we let go of that. And I had this conversation with Mark Cuban too. It's like, how much money is enough money? And he said, how much money is too much money? Like, it's like you can just get caught in a trap of wanting more and more and more and only make yourself feel poorer as you get richer. Which I've certainly seen in some of the billionaires I've covered too.
- [41:50]
B
Yeah, I think having that framework around the passive income that you can make off a portfolio without touching that is a good benchmark to think about, like the 4% rule or the 5% rule. So that would basically mean for $3 million, that's kicking off 150 grand each year for you to live on. If that's. Is that enough? I don't know. Like only you can answer those questions.
- [42:14]
A
Yeah.
- [42:15]
B
You know, if it's not, is it more, is it less?
- [42:17]
A
Do you want.
- [42:17]
B
50 grand? Is. And then that's a million dollar portfolio that kicks off that income.
- [42:22]
A
A million dollars to get 50 grand a year?
- [42:24]
B
Ish. Like 800 to, you know, one and a half depending on like the interest rate that you're getting.
- [42:29]
A
Yeah. Okay, I'm gonna keep working. I'm gonna keep working there.
- [42:32]
C
Yet I end every episode of Smart
- [42:34]
A
Girl Jam questions asking my much smarter guest, what are they dumb about? What is a question that you have that you've been embarrassed to ask out loud or you've, with some shame, asked your phone recently.
- [42:43]
B
Oh, what's in my. What's in my cloud log? Yeah, I have. I have so many. I have one that's more serious and relevant to what we're talking about, which is why is it taboo to ask what a person's salary is when it's not taboo to ask within 30 seconds of meeting them what they actually do? Because we're lying to ourselves that that question is not about what their salary is.
- [43:07]
A
Totally. It's complete. So is where you live. Where do you live? And. Oh, do you. You know, people have all these questions for trying to understand how much money you make. So. Okay, I love that.
- [43:15]
B
So just ask that.
- [43:16]
A
So who made that Emily Post type rule?
- [43:18]
B
Yes.
- [43:18]
A
Yeah.
- [43:19]
B
When did that happen? And I don't like it. And also just asking what you do in the first 30 seconds. I have this one anecdote in one of my books where I was at an event in New York and there was sort of a group at a financial services thing saying, like, where are you from? And I said, los Angeles. And everybody laughed at me. And they were like, where are you from? Again, they asked. And I kind of got that what they were asking for was, what firm am I from? And I was just like, los Angeles, because, you know, let's have another conversation about actually getting to know each other as humans. But anyway, I digress. The biggest question that I have right now is why do I viscerally, like, at my core, want to eat my baby's leg?
- [44:06]
A
No, you do not.
- [44:06]
B
I want to eat her leg fat. Like, I just want to leave her thigh.
- [44:11]
A
This is like carnivorous. You just think it's so cute and chunky.
- [44:14]
B
There's this thing like, why do mothers want to eat their babies? No, I don't want to eat.
- [44:20]
A
I have to get out of this. I would for my own life. Some army hammer shit is going down.
- [44:26]
B
I mean, it's the smell of the baby. Like, I want to just like gnaw on her fat leg.
- [44:33]
A
And it's like that. It's just that it's not her.
- [44:35]
B
It's mostly her fat leg. Her fat arm, too. Like, I just, like, I truly. Why do mothers want to bite on their children?
- [44:43]
A
What's the number for child protective Services? No, I know you love her so much. It is so, like, kids are so cute and they're like, chubby, chubby, chubby, cute. Here's a question I have do chubby kids become skinny adults and skinny kids become chubbier adults? I have this theory, but I don't know if it's true.
- [44:58]
B
Well, I thought our daughter was getting too skinny because the leg fat rolls were disappearing, much to my chagrin. And so I was like, we need to fatten her up.
- [45:10]
A
Okay, Fatten her up. She's already rich. She can buy some food. We can get her some food.
- [45:17]
B
I know she takes her height after her father, so she's so long, she's lengthening out. And the pediatrician was like, her parents are not. Don't have fat rolls on their legs. It's like, fine that she does it. She's like, no, give me back the fat rolls. I must eat a small fat roll.
- [45:32]
A
I love it. I want to. I want to meet your daughter. I am not going to eat her, but thank you so much for doing this.
- [45:38]
B
Thank you so much.
- [45:39]
A
The podcast is called Money Rehab. The network is called the Money News Network. Nicole has written five books, which I have one sitting on my desk right now called Rich.
- [45:49]
B
Hell yeah.
- [45:50]
A
I love that.
- [45:54]
C
Okay, are you renting or buying? And what are you ashamed of when it comes to money? I want you to email me your shame@naimaraza101gmail.com other than the gobbling up of her child, which is apparently a TikTok trend, talking about it, not actually gobbling up children, I liked everything that Nicole Lapin just taught me. And I think she's all the wiser for everything that she's lived and lost in the last couple of years. But the thing I most take away with me is that concept that shame is not a good money management system. And this idea of investing and what's worth going into debt for, whether that's a home, an MBA or IVF or egg freezing. I think a lot of times the math doesn't always account for the emotional return to you.
- [46:31]
A
So I was listening to her kind
- [46:32]
C
of talk about the 5% when it
- [46:35]
A
comes to buying a home. I was thinking also about the emotional
- [46:37]
C
stuff that you can't really put into a number. Like, I spent some money redoing and renovating a bit my rental, just because it gives me tremendous joy. And I'm curious what that is for you.
- [46:46]
A
Like, what brings you joy? What do you spend on or splurge on that is, you know, in that
- [46:50]
C
category of experience versus consumption or showing other people what you have that Nicole talked about. Anyways, clearly I still have a lot to learn about money. And thankfully, this is the third not Last installment of the Smart Girl Dumb Questions Smart Money series brought to you by Chime. We're gonna have a couple other episodes in the feed and then come back to you at last Money episode.
- [47:08]
A
It won't be our last ever Money episode, but last in this series.
- [47:11]
C
It's gonna be all about how you make it, how you get there, and how you progress. Anyways, I'll see you next time on
- [47:17]
A
Smart Girl Dumb Questions.
- [47:18]
C
This episode was produced with Desta Wonderad, Melissa Lee Gibson, Sanjana Nigam, and Aisha Jordan. It was edited by Darlena Chiem and mixed by Kam Shankan. Our theme music is by David Khan and I'm your host, Nae Maraza. I'll see you next time for Smart Girl Dumb Questions.