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The Stacking Benjamins Show
Should You Drain Your Emergency Fund? (And 4 Other Money Questions Keeping You Up) SB1750
01:10:43
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- [00:00]
Joe Salce
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- [01:40]
OG
Thankfully.
- [01:41]
Joe Salce
It's about time.
- [01:42]
Anna Allum
Ready to go.
- [01:43]
Joe Salce
You're here just in time for our salute to the troops. We gotta do this one without Doug, so he'll be back in a moment. But raise your mugs everybody. On behalf of the men and women at Navy Federal Credit Union, serve our troops and the men and women making podcasts in mom's basement. Here's to the people that kept us safe all weekend long while we were messing around. Thank you for all you do. Let's go Stacks and Benjamins together.
- [02:05]
OG
Good evening, I'm Ron Burgundy and this is what's happening in your world tonight.
- [02:14]
Doug
Live from Joe's Mom's basement, it's the the Stacking Benjamin Show. I'm Joe's mom's neighbor, Doug, and today we put you in the driver's seat with answers to your burning questions. From emergency funds to layoffs to whole life insurance to investing, we're covering what's on your mind. Plus I'll also share a TikTok minute you won't soon forget. And a then we'll have some eye popping trivia for you. And now three people who are here to help you make some eye popping moves with your money. It's Joe OG and CFP Anna Alum.
- [03:07]
Joe Salce
Hey there, stackers, and happy Monday to you. I am Joe Salce. Hi, welcome back to the Stacking Benjamin show. We're super happy you're here. Sit back and relax because we're about to.
- [03:18]
OG
Sit back and relax.
- [03:19]
Joe Salce
Okay, Hour of answering your question and oh, geez, done for the day. But let's say hi to the one and only OG. Good morning, my friend. How are you?
- [03:29]
OG
Good morning. Buenos dias. Had a great weekend. Thank you for asking.
- [03:33]
Joe Salce
Well, I didn't ask, but I'm glad that you did. And we are joined by the woman who's back to save the podcast. Anna Alum's back. How are you?
- [03:44]
Anna Allum
I'm doing so good. How are you, Joe?
- [03:47]
Joe Salce
I am great now that you're here. It's about time we got some sanity back in the basement. As you know, Mom's always happy when you show up for the show.
- [03:56]
Anna Allum
Feels more at ease.
- [03:58]
Joe Salce
So much Morty. She knows the basement's going to be taken care of, that we're not gonna mess around with the Nintendo. Things are going to be great. But speaking of great, we got some great questions, guys. We're going to get right to those. Before we do that though, we've got a couple sponsors who make sure that we can keep on keeping on and you don't have to pay a dime for any of this goodness today. So we're going to hear from them. And then Anna OG and I, we're tackling your questions. Introducing your new Dell PC with the Intel Core Ultra processor. It helps you handle a lot, especially when your holiday to do list gets to be. Well, a lot like organizing your holiday shopping and searching for great holiday deals and customer questions and customers requesting custom things. Plus planning the perfect holiday dinner for vegans, vegetarians, pescatarians, and Uncle Mike's carnivore diet. Luckily, you can get a PC with all day battery life to help you get it all done. That's the power of a Dell PC with Intel inside backed by Dell's price match guarantee. Get yours today@dell.com deals, terms, conditions apply. See Dell.com for details. This episode is sponsored by Navy Federal Credit Union. Buying a car could be like a long road trip. There's negotiating prices, lots of fees and a difficult process. But with the auto loan from Navy Federal, you're on the highway to higher savings. We want our members to save more on their next auto purchase. That's why we offer great rates, military discounts and pre approvals that are good for 90 days plus we offer most decisions in seconds. You could even get $200 when you refinance your auto loans from another lender with us. So if you want to save more on your next auto purchase, learn more and apply for an auto loan@navy federal.org auto loans Navy Federal Credit Union Our members are the mission Navy Federal is insured by NCUA Credit and collateral subject to approval. Terms and conditions apply for military Discounts Refinance Loan must be at least $5,000 to be eligible for the $200. Terms and conditions apply. Visit Navy federal.org auto loans for details. Let's begin today's Decker adventure with Matt. Hey Matt, what's on your mind?
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OG
Hey Joe and Og question about purchasing.
- [06:27]
Alexander Hamilton
A whole life policy for your baby or really young children with an additional.
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OG
Purchase benefit with the idea of creating.
- [06:36]
Alexander Hamilton
Insurability for them for life regardless of future medical history. Obviously.
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OG
Yeah, not interested in doing it for.
- [06:43]
Alexander Hamilton
The whole life insurance for someone at that age, but curious if you could talk about the pros and cons of that additional purchase benefit and if you weren't going to use this avenue to ensure insurability, like how would you think about working on this problem as far as saving in other ways or trying.
- [06:58]
OG
To better use the money that could.
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Alexander Hamilton
Be going into a policy of that kind? Thanks for all the help.
- [07:03]
OG
Always enjoy listening.
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Joe Salce
Matt, thanks a ton for the question. You know it's funny guys.
- [07:10]
OG
No, God, please, no, no, no, no.
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Anna Allum
Too many buttons.
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Joe Salce
Josh, tell us how you really feel. Tell us how that I can't say.
- [07:23]
OG
It any more succinctly than that. That is about succinctly as I could get.
- [07:26]
Joe Salce
Well, let's dive into this for a second because we want to know why you think that way. I mean, here's the thing to Matt's point is that you have this child. The child might end up having one of a bajillion different issues along the way. Won't be able to get life insurance in the future. One thing that life insurance salespeople tell you when they're selling children's policies is hey, kid really doesn't need insurance, but you can get them locked in now and they don't have to worry about it later. And the cost of insurance on a child is next to nothing because once they get past SIDS age, Sudden infant death Syndrome age, the cost of the policy is almost nothing. OG Right.
- [08:04]
OG
But think about it from the Perspective of what sort of, I guess maybe is the juice worth the squeeze here, you know. So you're right, there could be some sort of circumstances where from a insurability standpoint, either it's not you can't do it or it's cost prohibitive or whatever. But that's true for many, many, many people. Right. That's not just your kid. Lots of people have health issues in their 40s and 50s and whatever when you kind of need to have sizable amount of life insurance. But the reality is that even if you could do it, or you can, you're not going to be able to get enough insurance to make it actually worthwhile because you still have to have an evidence of insurability for this kid. And unless your kid has some special talent and it's like a child actor or something, you have to have some reason to have a sizable amount of insurance.
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Joe Salce
So you talk about any number beyond like basic burial costs.
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OG
Yeah. I mean, could you argue I need 50 grand? Sure. Could you argue 100? Probably. Can you argue 7 million? No. If you think about how much insurance you have or maybe how much you're supposed to have. The way that we think about it is assume that you get hit by a bus, you want to pay off all your debts, you want to send your kids to college, and you want to maintain the same standard of living for your family for the rest of their life. That's a big chunk of money. That might be $2 million or $3 million or $4 million for a policy, a term policy for somebody who's, you know, making good money and has a family. And so now add inflation to that for the next 40 years to make it a reasonable dollar amount. Right. So let's say that you say, well, I can get, you know, I am going to have a hundred thousand dollars of insurability for my kid, and that's good. And you know, if my kid can't get insurance, that's fine. But $100,000 doesn't do anything in the grand scheme of things in 45 years from now when your kid is a middle aged adult with their own family. I think it's a scare tactic used by the insurance agents to say, let's drum up some business and we've got this new parent here who, you know, is scared about everything, understandably worried.
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Joe Salce
Yeah.
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OG
I mean, we were all parents, young parents once and everything is new and scary and you're like, oh crap, what do I do? It's completely unnecessary. Unless your kid does something. As an actress or an actor or something bringing in a bunch of money. And even then, arguably it shouldn't be your money anyway. That money should just be sitting in a cat for your kid. If you're living on your kid's money, I think that's kind of jacked up too.
- [10:38]
Joe Salce
So Cheryl, my spouse, works in healthcare and specifically healthcare for children. She can always identify the first time parents because they are worried about every single thing to your point, OG. And then she can also quickly identify where it's like kid number five because the kid is running around the room tearing everything apart and is ready to stick their finger in the light socket. And Cheryl's like, maybe they shouldn't do that. And the mom looks at Cheryl like, oh, let him do it.
- [11:06]
OG
That'll learn.
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Joe Salce
They'll figure it out. But baby number one touches the wall and they worry about the bruise, you know?
- [11:13]
OG
Is this room baby proofed yet? I can't. Yeah, take your baby in there.
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Joe Salce
I don't know. Anna, when you first heard Matt's question, what was your first takeaway, your first thought?
- [11:21]
Anna Allum
Well, I'm in this situation right now because I was pregnant two years ago and I had the letters in the mail from Gerber and all the other places that offer you a whole life policy. And I was like, this is a bunch of hooey. There's no way I'm going to do this. I don't need to get insurance on my baby. And insurability just felt like we're taking insurance a little too far at that point. And then I had a kid and she actually is uninsurable. She has a disease where when she grows up, she probably won't be able to get private insurance for life insurance for disability. And I've thought about this. I was like, oh, should I have done that? And then I had the same thought as OG of like, okay, it's really not that much money. Most of the time when they're offering you something, it's like 50,000. And then if you do the purchase benefits. I don't know what those are, but it's not a lot of money when it adds up. And I've thought about like, what does her future look like? And any kid who has an issue or a young adult who runs into an issue before they put life insurance in place, what does that look like for them? It's just gonna be maybe she's focusing a little bit more on employee benefits and that's way more important to her and her spouse and trying to find that. Or maybe it's having a bigger emergency fund. Maybe it is just having conversations about the reality of their situation. There's a lot of people where they have to navigate life without life insurance. And life insurance is really important. But if you can't have it, it's not the end of the world. Like, there's other avenues to figure this out when you get to that point. Like Og said, we have plenty of people who just can't get insured. That's what happens. And we just have to have real conversations about what life looks like without that person to support them. And so it's kind of what my.
- [13:14]
Joe Salce
Thought was on that insurance companies to both your points, are really good at math. They're super good at math. And they make sure that even if they pay out the death benefit, that generally they're going to come out ahead. And so I think our challenge is how do we make sure we're good at math with our children. And if we do that, then instead of worrying about the life insurance piece, which I think a lot of families worry about, worry about helping them save early, worry about helping them get a good head start, worry about having enough money so that you're financially independent and they will be financially independent and you don't have to worry about the life insurance part. And I know that I can make it sound easy. It's not easy.
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OG
Easier said than done.
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Joe Salce
But I think that by focusing on that piece of the puzzle which people don't think enough about, like how do I get more savings for my child versus using that same amount of energy. And I think a lot of people think about it because of companies and like you said Gerber and all these companies and the flood of stuff, you get all the fear tactics that you get around insurance. If we spent the same amount of energy that insurance companies help us have, mind share on, on the saving part, we're going to do, we're going to do a great job. But overall, oh, gee, you know, you said you're not going to have probably enough insurance for later on. Which begs the question for the adults in the room, let's take the kid piece out of this. How do we figure out what the right amount of life insurance is for us, not for the kid?
- [14:46]
OG
Yeah. Ultimately it's not that complicated to think through. And you can just use experiences of other people. And if you don't have other people's experiences, you can use our experiences to help think through this. So the first thing that happens when anybody, any loved one dies and I'm thinking about like spouse and you've got kids at home and that sort of thing. I'm not thinking about grandma and Grandpa because that would be different. But I'm saying tragic. Something crazy happens, car accident, you know, whatever. The first thing that people say is I want all the debt gone, right? I don't care if it's a mortgage, if it's a student loan at great interest rate. I don't care if my car's at 0.9. I just want to simplify everything. So I want to write a check and make all the debt go away. And largely that's a good idea. So the first thing that I would do is I would write up a list of who's all the people I owe money to. Those are the first checks you're writing. And I'm setting aside obviously final expense checks of hospital or medical bills or funerals or whatever. But when the dust settles, I probably shouldn't say that, but when the dust settles, but I'm going to say it anyway, literally you're going to want to, you know, write those checks. The second thing that people say is no matter where they are in their savings plan, they want to make sure the kids are able to go to college. A lot of times people have different goals for college education. I want to pay for all of it. I want to pay for some of it. I want junior to pay for some. We're going to take student loans, we're going to get scholarships. Universally, in my experience, the surviving spouse says, let's set aside enough money for the kids to go to college. I don't care if that kid is a year old or 17 years old and we've saved a bunch of money or no money. What goes in the bucket right now to go college is paid for. And, and sometimes even say like, what if they want to go to grad school? Or like, I want my kids to be completely okay, you know, so round up basically whatever you think that number is. Roundup. So we got all the debt, then all, all the college funding, and now the rest of it then is how much money do I need to live on to maintain the same standard of living. And I know sometimes people will get a little tongue in cheek on this and say, well, you know, if there's one less person than the, then the bills go down or we don't use as much water or, you know, it's the same argument people say, and we joke about this with long term care insurance, like, oh, I'm not going to need long term care when I get dementia I'll just have Ma kill me in the backyard. It's like, okay, sure she will, right? You've been married for 75 years, and she's going to smack you on the head with a shovel. And now Grandma's going to jail for murder, you know, or whatever. So it's. It's just not realistic. You know, it's what people say to be. To not have to talk about the thing that matters. But I would honestly look at your expenses now. You don't have the debt, and maybe you don't have the savings for the college fund. But I would say use that 4% rule. Maybe conservatively, if you're younger, use the 3% rule and say, if I don't ever work again, my spouse is gone. How much money do I need to have in my bank account every month to live the life that I'm living? And I understand your life is going to change. You're going to do different things or you're going to have different experiences. But the thing that you don't want to do is you don't want to have to, because of obligation, go to work on Monday, and maybe you don't want to go to work the next Monday. And I fully understand that some people do go back to work, and they maybe go back to work sooner than other people. But the reality is, unless you've actually been through this roller coaster, you don't know how you're going to respond.
- [18:08]
Joe Salce
Well, that's a problem that I had when I was a financial planner, was that the job of a financial planner is to create more predictable outcomes. Right. To be able to help people build this Runway and these milestones to get there. And so six months from now, we're going to be here. A year from now, we need to be here and kind of to show the path that we're. And we know the path is going to change, but to light up the path, there's always uncertainty. The time when people became most uncertain was when your spouse died. I had no idea what the hell you were going to do.
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OG
And they think that they have the most certainty in that moment. Oh, I'll go back to work right away. We don't need that extra money. So, like you will, Your wife of 30 years just got hit by a bus. And Monday morning, like, hey, Bill, how's the weekend? Oh, Ma died. That sucks. Anyways, let's make widgets.
- [18:54]
Joe Salce
Yeah, let's go back.
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Anna Allum
And maybe even going back for longer, too. Maybe you weren't saving as much now because you have Additional expenses or you're trying to make up for the lost income and now you're working until you're 70 instead of 60.
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OG
Yeah, I'm just saying have the flexibility.
- [19:09]
Joe Salce
Well, and I have seen some people go back to work right away and bury themselves in it. Like they.
- [19:13]
OG
The work.
- [19:14]
Joe Salce
The work is what?
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OG
You don't have any idea how you're going to respond until you have to respond.
- [19:17]
Joe Salce
I remember one client I had, it was two years. Two years to just begin uncovering the feelings and getting.
- [19:25]
OG
But I will tell you the one thing that everybody says, so you kind of. You have the proverbial meeting of like, here's the money. And it's not in person. There's not a big check. You know, it's not like Ed McMahon with balloons at your door. Like, here's your prize, Congratulations. Here's your prize.
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Joe Salce
Your spouse died.
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OG
Congratulations, ding dong, the witch is dead.
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Joe Salce
It just seems like the worst.
- [19:51]
OG
Different emotions, Anna. Some people will experience it differently. But anyways, the thing that people say is they look at it, whatever the number is, it's a million bucks, 2 million bucks, 8 million bucks. And they go, is this all there is? Because there's a finality to that. Here's the lump sum that is equated to your loved ones. Everything, right? Like, here it is. This is the number that you put on it. Now the mental math starts going like, $5 million sounds like a lot of money, unless you've got. Until you've got a million dollar mortgage, a $200,000 line of credit, you got three kids you want to send to college, which is another 600,000, and all of a sudden you got 3 million in your brokerage account. 5 million sound really good. Until now it's 3. That's $10,000 a month. But you were making $200,000 a year. You're like, ooh.
- [20:43]
Joe Salce
So for the average person, what I'm hearing is, number one, you need to account for the budget deficit. That happens. Number two is the percentage of the goals that were being funded by the other person. Or in the case of maybe kids, college, just take that off the table so that you don't have to worry about it anymore. That analysis is what in the business they call a capital needs analysis. The issue I always had was that that number always blows in the wind. Because as you described, OG some people could be really conservative with those numbers. Some people are really aggressive. And by aggressive they go, well, no, I'm going back to work on Monday. Well, sure you are. So that number Drives me crazy. On the other side, there's another way people look at this which is called human life value, which is Anna passes away, she has a long career ahead of her and she was going to make X amount of money. How much money would she have brought in and can we present value that that's going to give us a gigantic number. I don't know what you guys do, but what I used to always focus on was just kind of a field goal. Here's our two numbers and then have a discussion about where do you want to be between those? I don't know. How do you work through that, Anna?
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Anna Allum
Yeah, we're pretty much just looking at what OG was walking through, where we're looking through the capital needs.
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Joe Salce
The needs?
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Anna Allum
Yeah, the capital needs. There's obviously different ways to look at it and you can also just kind of like throw a dart and find a number. We don't know exactly what you're going to need. At the end of the day you can use both where you're going to come up with two different numbers. You're just really trying to find something that's going to sustain your family so that you have whatever option you want to go down if that time comes.
- [22:24]
Joe Salce
I like all these ways that we're talking about doing it much better than just the 5x your salary or whatever. The ridiculous rule of thumb. I can't stand the rule of thumb. I mean it isn't that hard to go through and come up with what your capital needs would be for you. Why the hell wouldn't I take 20 minutes to do that versus just I'm going to use 10 times, 10 times the date on the calendar, whatever. I don't know the ridiculous rules.
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Anna Allum
I'm sure there's a calculator out there too somewhere to help you with it and it wouldn't take very long.
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Joe Salce
Yeah, they're actually one. The life insurance industry has one that I like which is. It's lifehappens.org which has good calculus actually for both of those things for capital needs and for that human life value calculation. You know, he mentioned whole life insurance thoughts. OG on permanent coverage in general.
- [23:16]
OG
Well, it's not very high on my list. It's an arrow in the quiver to use. But it's not necessarily the go to. There's a time and a place for permanent coverage mostly in my opinion around estate planning, but for most people because as their financial status continues to grow throughout their life, in theory their need around covering other things will go down. I've Got a kid in college already, so I only have to fund two colleges. Well, I got a kid that's a junior, so that one's pretty well squared away too, versus 10 years ago when the boys were eight and six and Caroline was a newborn. Or maybe she wasn't even born at that time. But you get the idea. It's like as we've saved more money, we need less in the future. We've paid off more of our mortgage, we've done that sort of stuff. So our insurance needs have changed to the better. Permanent insurance makes a lot of sense when you actually have a permanent need and that revolves around something, something more like an estate planning need where your net worth is $30 million or $50 million and you're looking at a $12 million tax bill. It's like, well, I can go get $12 million of life insurance for cheaper than $12 million to the IRS and then when I die, I take the $12 million of money that I paid for. It cost me 3 million to pay for it, but I take that 12 million to pay the IRS off the of the life insurance. So that makes more sense for that. Not a big fan.
- [24:48]
Joe Salce
Yeah, But I mean, 99% of the times that I see permanent life insurance policies, I think they could be destroyed and you'd be just fine.
- [24:59]
OG
Well, the biggest thing with permanent insurance is that it has to be used appropriately. If you're just barely making the minimum payments, you know it's going to blow up and it's not going to do what it needs to do. The idea behind it is that you can put all sorts of money in this thing early because all insurance costs the same down the line. An 85 year old having $5 million of life insurance cost the same whether it's whole life insurance or term. The idea of whole life is that from 40 to 80, you've put so much extra money in it that that money is paying its own premium so that your cash flow is lower. But the actual cost of insurance for an 85 year old for a million dollars of life insurance is the same no matter where you go. Roughly to your point. Insurance companies are pretty smart. They don't watch 85 year olds cost to insure. The way any permanent life works, whether it's whole life or any other kind, is you put extra money in early such that the cash value grows to help offset the premiums that you have to pay in the future. You're just paying it back with your own money. Basically.
- [26:03]
Joe Salce
That's why it's so having the permanent insurance discussion is always, was always so fun. By fun I mean the opposite of fun. Because I would have to convince my client, who doesn't know how it works, that stuffing this thing full of money, whoa, this insurance cost 500amonth or a thousand dollars a month. It doesn't cost five, it doesn't cost a thousand dollars a month. We're shoving all that money in it so that it cost very, very little. That doesn't make sense. Why am I putting in if it doesn't?
- [26:33]
OG
You're just saving money to offset the future cash flow.
- [26:35]
Joe Salce
And someday, stackers, we will go back and do another insurance 101. We'll give you a bunch of resources in the 201 and the show notes because we're not going to dive into why that's the case today. That's a hour long discussion. But putting more money into the insurance policy is 100% the only way to really make it work if you're going to go with permanent life insurance. Let's take a letter. We just got a letter. We just got a letter. We just got a letter. Wonder who it's from. Our letter today is from Joel. Joel writes, I have a hard time letting six months of cash sit on the sidelines. Is it terrible to hope for some better returns with say, invest half of my six months and then put the rest in safer things like CDs or a high yield savings account? I get the fact if the world is ending and I lose my job, the invested half could be down. But I know a guy who will let me live in his mom's basement if that happens. I have to run audio for a podcast. That happens and nobody wants me to do that. Thanks a ton, Joel, for the note. Mom's always happy with you coming over, but spending the night, spending several nights because you don't have any money, I'm not, not sure about that. Anna, the idea of investing half of your emergency fund, what would you say to Joel?
- [27:59]
Anna Allum
I think if you're investing half of your emergency fund, then you're just cutting your emergency fund down by half. Let's be honest, you're, you're taking maybe six months and you're making it three months or four months or something around there, which the six month goal is not a one size fits all situation. Yes, it's probably the most ideal for most people, but if you feel comfortable at three months, four months and you can sleep okay at night and maybe your situation is a little bit different, you have an in law suite A basement to sleep in somewhere. If something happens to you, you feel like you are fireless from your job, you rent an apartment instead of owning something. Yeah. Maybe three to four months makes sense to you, and that's fine. But I wouldn't consider what you have in your brokerage account as emergency fund purposes. I would leave that out there and just acknowledge the fact that you want to reduce your emergency fund a little bit.
- [28:59]
Joe Salce
What we don't want to have happen, Joel, is you get to the point where you need that money and you go, oh, I should have thought of X earlier. And I don't know, oh, gee, let's walk through. What are some of those X's you've seen where people needed that emergency fund and they hadn't thought enough about it.
- [29:15]
OG
Oh, if your spouse dies, that would be one.
- [29:17]
Joe Salce
There's. There's one call back to four minutes ago.
- [29:21]
OG
Yeah, there's all sorts of reasons to need cash. I think the biggest way to think about this is if you've ever done any training for running or any cardio activity of any kind. And Joe, you know this.
- [29:36]
Joe Salce
I'm out.
- [29:37]
OG
Oh, no, you do. I know you know this analogy. In order to finish the race, you have to go slow in your training. You have to go slow to go fast. Right. It's all about the base building. If you look at a training protocol for how to run a marathon, it's not go run as fast as you can for 26 miles. That's not the training protocol for the year leading up to it or the 6 months. It's build the base, go do a 5k and not as fast as you can. A slow, measured pace. You're trying to build the base so that you can train your body to use the right energy sources. And the same thing is true with your money. If you don't have the right base, that doesn't mean your pyramid is going to tip over immediately, but it just limits your choices in the future. I don't have a dog in the hunt. 3 months, 6 months, 12 months, 18 months. There's, like Anna said, there's a bunch of circumstances there. If you work in a job where it's a virtually guaranteed career and there's no chance of being fired and you make a bunch of money and you don't spend a lot, then you probably don't need a lot of money. Of emergency fund. We've had clients that have paid off their house, which is the major expense in their. The number one expense of their month. They go, my house payments Paid off. I don't need to have six months of mortgage payments anymore. I own the house. So you can reduce that. All of that factors into the decision. But the purpose of your emergency fund, yes. Is for emergencies, but it's also so that the rest of your money can be invested aggressively. And really, that's the biggest. That's the benefit of having cash on hand, is so that you don't have to say, well, can I get a little bit more? Can I take. Let's say that your cash reserve is 5,000amonth. That's your spending, and you've got six months worth of that. So you've got $30,000 and you're going, man, 30,000 sitting in my checking account sucks. Maybe I'm going to put that in high yield account and I'm going to get 4% a year. All right, it's $100 a month of interest. Okay. Better than a sharp stick in the eye. We'll take it. Right. It's a good high yield interest rate right now. And you say, well, but half of that money I want to get 5% on. I really want to, you know, I'm a stick it to the man and get five. It's like, okay, what, what, what did we do here? We added complexity. You added another account, you put it in a different place that's not easily transferable or accessible, or you got to have a different screen for whatever the case may be, all to get an extra $150 a year of interest, like 10 bucks. Is it worth it? Right. Versus the volatility that you just introduced. Or you say, well, that 15 grand, I want to invest it. Like Anna said. Now that $15,000 allows me that cash reserve that's nice and safe and secure, allows me to be fully invested with the 18,000 or the other 15,000. And that's really the big difference. The emergency fund allows you to be fully invested with the rest of your money and not take half measures. Whatever your number is, draw a line in the sand and be okay with whatever that number is, but be realistic with it and call it how it is. You're not investing half of your cash reserve. You're just lowering half your cash. You're just going from six to three, which is fine. It's okay.
- [32:57]
Joe Salce
I like the analogy around running. My general philosophy around getting ready for anything is when I go out and train to your point. I start off slow OG and then I ease up from there as we go.
- [33:09]
OG
Start out slow and go slower.
- [33:10]
Joe Salce
Yes, absolutely. A hundred percent yeah, but that's true.
- [33:13]
OG
I mean, I say that, you know, kind of being funny, but that's the way to run, isn't it? Start out slow and go slower. It's, I mean, everybody who trains knows this.
- [33:22]
Joe Salce
But you said run slow to go fast and I get the analogy. But for me it's run slow to go even slower. I used to run slow to go fast, but no longer. And it strikes me, I don't know, I think the number one thing people don't think about is the risk of disability. Like that's the one that's persistent throughout your career.
- [33:38]
Anna Allum
I think with a disability there is obviously going back to the insurance conversation. You can have a long term disability policy in place. Typically there's a waiting period until that starts to pay out. So you need cash to. Even if you have that insurance policy in place, you need cash to get you through that 180 days to get you that point. And then on top of that, you're not getting your full salary in a disability payout. Sometimes, even if it's not set up correctly, it's taxed on top of having only a percentage of, of your previous salary. So you definitely need a nice chunky emergency fund for that time period of, of potentially happening. That can definitely come into play with some sort of disability, whether it's just a short term, you don't even get the policy paid out or, or if you don't have a policy in place, even more important to have something there to support you.
- [34:32]
Joe Salce
Well, it even strikes me as you're talking, this is the thing, it's not that, you know, oh gee, you're talking about four and I'm going to eek out five. It isn't the crappy interest rate that we're after with our emergency fund. I think one of the true rates returned to me and you mentioned one of them is I can be more aggressive with the rest of my money because what's the thing you hear from people all the time, what if I need it? I can't be aggressive because what if I need it? No, you're not going to need it. We put six months over there or three months or whatever the number is. But the second thing is I also then don't need Anna to your point, I don't need the short term disability policy because I just self insured through my emergency fund. So there's some money that I'm not spending. I can raise the deductibles on my homeowners and my car insurance. There's Money I'm not giving to insurance companies anymore because I have that money sitting in the emergency fund. I think the ROI is not what I'm getting through the credit union, the bank. The ROI is all the money I'm not spending because of the fact that I have this money sitting there. Yeah, that's a much, much bigger thing.
- [35:29]
Anna Allum
It's almost like, I know we're really harping on insurance here, but if you look at your emergency fund as if it is insurance, you're self insuring yourself and the premium that you're paying on that is the growth that you're missing out on with not investing it. And that 4% or whatever it is that you're missing out on is basically just what you're paying in order to be able to be more aggressive or in order to raise your deductibles or just have more peace of mind.
- [35:55]
Joe Salce
Coming up in the second half of today's discussion, we're going to have our TikTok minute. I know. Oh gee, can't wait for the TikTok minute. He's a big fan of TikTok and I don't know if you know that. And then we're going to ask again about another question on emergency funds and a question about buying a house, all that. But Doug, where the hell have you been? It's about time, man. Get down to the microphone and let's get some trivia on. What do we got today?
- [36:20]
Alexander Hamilton
Foreign.
- [36:24]
Doug
Hey there, stackers. I'm Joe's mom's neighbor, Doug. And speaking of insurance, the very first automobile insurance coverage was sold on today's date back in 1897. Gilbert L. Loomis of Dayton, Ohio was the first purchaser, buying $1,000 of liability coverage for a whopping $7.50. He bought it from a company with with a logo that's simply a red open umbrella. What umbrella wielding company did Gilbert purchase his policy from?
- [36:57]
Joe Salce
This episode is brought to you by Diet Coke.
- [36:59]
Anna Allum
You know that moment when you just need to hit pause and refresh?
- [37:02]
Joe Salce
An ice cold Diet Coke isn't just a break.
- [37:05]
Anna Allum
It's your chance to catch your breath and savor a moment that's all about you. Always refreshing, still the same great taste. Diet Coke make time for you time. Hit pause on whatever you're listening to and hit play on your next adventure. This fall, get double points on every qualified stay. Life's a trip. Make the most of it. At best Western. Visit bestwestern.com for complete terms and conditions.
- [37:34]
OG
When did making plans get this complicated?
- [37:37]
Joe Salce
It's time to streamline with WhatsApp, the secure messaging app that brings the whole group together. Use polls to settle dinner plans, send.
- [37:45]
OG
Event invites and pin messages so no.
- [37:47]
Joe Salce
One forgets mom 60th and never miss.
- [37:50]
OG
A meme or milestone.
- [37:51]
Joe Salce
All protected with end to end encryption.
- [37:54]
OG
It's time for WhatsApp message privately with everyone.
- [37:57]
Joe Salce
Learn more@WhatsApp.com.
- [38:04]
Doug
Hey there, Stackers. I'm umbrella lover and guy who blames it on the rain. Joe's mom's neighbor, Doug Gilbert L. Loomis from Dayton, Ohio, purchased the first ever auto insurance policy. But because it was so uncommon, the policy had to be written up as a horse and carriage policy. He bought the policy for $1,000 of liability coverage costing $7.50 annually from what umbrella logoed company that would be traveling. And now three people traveling back downstairs to the mics to help more stackers in need. Here's Joe Og and Anna Allum.
- [38:47]
Joe Salce
Hi, I'm David Hirsch, and when I'm.
- [38:48]
Alexander Hamilton
Not hosting the dad to dad podcast for the special Fathers Network, which is a dad to dad mentoring program for fathers raising kids with special needs, I'm stacking vegemites.
- [38:59]
Joe Salce
Travelers. OG Nailed it. We were sitting back down. Nice work, by the way. One thing we were joking about upstairs was. Oh, gee, you thought because you're so used to the Friday trivia, the year we were going to ask the year, which we never do. On Monday, Wednesday we try to make it 87.
- [39:14]
OG
That's my guess.
- [39:16]
Joe Salce
And then I thought, what if it was like the year 800 and some insurance agent was, was just making a big commission?
- [39:24]
OG
It's like a little lizard. And he's like, now listen, if you're wagon and horses get into a collision with another wagon and horses, we've got to assign liability here.
- [39:34]
Joe Salce
It happens to the best of us.
- [39:35]
OG
What's your liability coverage?
- [39:37]
Joe Salce
Well, what if it was automobile insurance? Specifically? Like, the client's going, what the heck's an automobile? Oh, it's, it's coming. Trust me, you are gonna want this.
- [39:44]
OG
It's a faster buggy.
- [39:46]
Joe Salce
Talk about insuring early to prove insurance. Later, when you get your automobile, you're gonna be so happy that you already had this.
- [39:54]
OG
It wouldn't surprise me if that went on the way insurance companies work.
- [39:57]
Joe Salce
Something else that won't surprise you. Og. It's time for our TikTok minute. This is the part of the show.
- [40:01]
OG
There's another one where I'm quite viral talking about something cool.
- [40:04]
Anna Allum
It's just OG own viral TikTok moment.
- [40:08]
Joe Salce
It is so funny. I had to point out to him how many people there were. And then ever since then, he can't quit bringing it up. All of a sudden. TikTok's his favorite thing.
- [40:16]
OG
It's amazing.
- [40:17]
Joe Salce
It's great how many people watch me. 188,000 W. 188,000 people watching.
- [40:21]
OG
Chills down my spine.
- [40:22]
Joe Salce
Yeah. On our TikTok minute, we either share a TikTok that is helpful or air quotes helpful that some creator spent some time on. Anna, do you think we're going to see something today that is helpful or air quotes helpful?
- [40:36]
Anna Allum
Well, last time I got this question wrong and I feel like I was tricked a little bit because typically TikTok is not going to have a lot of a good stuff, but last time there was a little nugget of positivity. So I don't know, maybe we'll see something good.
- [40:51]
Joe Salce
This one is a piece from your favorite athlete who's doing a financial product commercial. Let's listen into this. This athlete.
- [41:03]
Jim Kale
I'm Jim Kale, hall of fame athlete here with a special offer just for you. You know me. I made that big play in that game that makes you feel nostalgic for your youth. And now you'll listen to anything that I tell you, whether it's crypto, life insurance or gold. I can get you to buy anything because for some reason you trust me. Being in the hall of fame from my chosen sport has convinced you that I know something about economics or science or that I can even read, which is totally illogical because I've been a pampered athlete since I was identified as genetically superior to you at the age of nine. I've never read a book, and that's hard to do. I was given passing grades in high school because I dragged a team of losers to the state championship. And even in college, I never saw the inside of a classroom because I was too busy spending the suitcase of cash I was given just for being there. And yet now I tell you that a reverse mortgage might be right for you and you think, yeah, maybe Jim knows what he's talking about. Truth is, I don't even know how a reverse mortgage works. I've declared bankruptcy three times because I invested in my cousin's idea for edible shoes. I have an earpiece in and I'm literally repeating every word someone says to me. You could have hired a financial advisor who would look at your monetary assets and give you a plan designed specifically for you. But that's what rich people do. For you, it's me having a heart to heart during a commercial break of whatever real life murder show you're watching at 2 o' clock in the morning. So whether it's a weight loss product, the latest version of Candy Crush, or a way to keep your tally whacker hard. Listen to me, Jim. Kailee.
- [42:38]
Anna Allum
So confused as to what he's selling.
- [42:42]
OG
That's the point.
- [42:43]
Joe Salce
I think. I think you might have nailed it.
- [42:46]
OG
I was thinking about. Who's the guy that's. I want to say it's Tom Selleck, but I don't think that's true. Who's the matriarch in the cop show that's on Sunday nights or whatever. He's got the big bushy beard.
- [43:00]
Joe Salce
That was Tom Selleck.
- [43:02]
OG
Is it Tom Selleck?
- [43:03]
Joe Salce
Yes.
- [43:03]
OG
He's like the police commissioner or something like that?
- [43:06]
Joe Salce
I believe so, yes. I'm not sure exactly what you're talking about, but there is a show like that.
- [43:10]
OG
I was thinking about that the other day because he was doing the reverse mortgage show and it was like commercial. And it was like, hey, everybody, you know me, I'm your favorite actor. It was like, just like that script. And he's like, I've been on many shows that you've been watching since you were a young child. Now, I think you'll listen to me for this. You should do a reverse mortgage with such and such. It's like I could see all the old people going, you know, he's not wrong. He was Magna PI or whatever he was. He did solve a lot of crimes in that TV program.
- [43:42]
Joe Salce
I immediately thought, Tom Selleck, Henry Winkler, Fran Tarkington. Remember Fran Tarkington? Did a bunch of those. Vikings quarterback.
- [43:52]
OG
I do. William Devane with gold.
- [43:54]
Joe Salce
William Devane.
- [43:55]
OG
Yeah, yeah. Joe Namath. His latest one was hearing aids. I saw that one yesterday.
- [44:01]
Joe Salce
Huh? What?
- [44:03]
OG
Exactly.
- [44:05]
Joe Salce
And then our favorite, only because of how he pronounces it, Wilfred Brimley.
- [44:11]
OG
Oh, Diabetus.
- [44:13]
Joe Salce
Diabetus. The guy that created the word diabetes.
- [44:17]
OG
He's long dead. Right.
- [44:19]
Joe Salce
If only there were a way for.
- [44:20]
OG
There's only a. There's only a device that would tell us everything instantaneously.
- [44:25]
Joe Salce
When did Wilford Brimley pass away? In 20, 25 years ago.
- [44:31]
Anna Allum
RIP.
- [44:31]
OG
No more oatmeal for him.
- [44:33]
Joe Salce
Some stackers have no idea who the hell he is. Anna's looking at. It's like, I have no idea who this guy is.
- [44:37]
OG
You'd recognize him.
- [44:37]
Anna Allum
I'm kind of out on conversation. I am like, just a little bit younger. I Also don't really watch cable. I'm not on TikTok watch cable.
- [44:46]
OG
Wow.
- [44:47]
Joe Salce
It is specifically why you're here Anna is to keep us out of conversations about Wolford Brimley. Yeah, that guy.
- [44:54]
OG
No, that's rough. How about that?
- [44:58]
Joe Salce
Still not better.
- [45:00]
Anna Allum
He's still not ringing a bell.
- [45:02]
OG
No, he sold oatmeal.
- [45:03]
Joe Salce
He was also like always the evil sheriff in every show.
- [45:08]
Anna Allum
That's funny.
- [45:09]
Joe Salce
The guy that kind of ran the town. Our next question comes to us from an anonymous stacker. You know what, Paula over on her show afford anything. Always assigns a name and it's generally some celebrity. But we I didn't think we should do that. I think because this is the show that's about being more like Benjamin Franklin, we should start doing the same. But let's do the stack of Benjamin's take which is it should be a revolutionary figure. So this man is going to ask us about money issues. Who's a good revolutionary figure? OG that we should call this person.
- [45:43]
OG
Let's go with an easy one. Alexander Hamilton.
- [45:46]
Joe Salce
Got to be. Today's question comes to us from Alexander.
- [45:51]
Alexander Hamilton
Hey Jono G. I have a question about emergency funds. 2025 has been a yuff year for us financially. My wife is self employed. In the beginning of the year she had drastically reduced the number of clients she was serving for reasons I can't get into. This lowered our monthly income and we had to dip into our emergency fund to cover expenses. By the time our business was back up and running In June, our six month emergency fund was reduced to about 25% of what it should be. We started replenishing the fund but have had to replace our H Vac when our EC debt in the middle of the heat wave this summer. This will cost us around $17,000 which we were financing but we also had two to $3,000 in carbon repairs that we had to cover as well. Our Fund is about 25% of what it should be still but I should be able to fill it up when I receive my end of year bonus. So my question is concerning the intent behind our emergency fund. I know in the past you guys have talked about how you use an emergency fund to cover expenses which creates the ability to invest on a regular basis. I always thought an emergency fund was something you didn't touch unless there was a true emergency, but have realized that's actually how we're using ours for the past several years. I'm fine with this approach, but how should I prepare for those true emergencies that can really damage Your finances. I'm talking unexpected medical, home fires, home repairs, natural disasters, those kinds of things. Would it make sense that for separate super duper emergency fund that we never touch unless disaster strikes or should we just have a policy that says we use our fund to cover monthly overages in our budget and then pump the brakes when we have reached a certain dollar amount or loss of money in the fund? I know this all comes down to personal preference and there's no answer but thought this was an example of why having emergency fund is important.
- [47:16]
Joe Salce
Thanks for your thoughts Alexander. Thanks so much for the question. We talked about emergency funds before Doug's trivia question. I mean this is exactly what happened.
- [47:26]
OG
The reason like this should have been the first question to answer this. We should have just played this for the question before.
- [47:33]
Joe Salce
Hey Joel, listen to Alexander. This is what could happen. Life has a way of the second you deplete the emergency fund of other things coming up and if you don't have one then you have this one setback, you're in the middle of solving that setback when the next setback happens. And I know over my career when I see people start spinning out of control it's this little vortex of bad things that happen. So I love this question for that reason Alexander, because and thanks for sharing all of that. It sounds like quite, quite a struggle but usage of the emergency fund guys. Anna, what do you think when you heard this question?
- [48:10]
Anna Allum
I think that the emergency fund isn't just used for when the house burns down or you both lose your job and like real, real, real emergencies. This is used when there is a big car repair and there is the H Vac system goes down and all these other things that come up that are deemed qualified for using the emergency fund. You don't have enough cash to cover it and maybe you can't get a loan for it or whatever it is. That's really what it's used for. But I think if cash flow is a little bit tight one solve which we have a couple people who do this is creating like another mini emergency fund for we know car repairs are going to happen every single year. It's what happens. Unless you have brand new cars, you're probably going to have a big bill one or two times a year where you have to fix your car.
- [49:04]
Joe Salce
Almost like the envelope system. So I have an envelope just for car repairs.
- [49:07]
Anna Allum
Yeah. Or your insurance premiums pop up like we know they're going to happen but it all at least for us it hits in December. That's also when we're paying for Christmas. It's a really big month. Do I want to dip into my emergency fund? No. I know it's going to happen, but it's not happening on a monthly basis. So it's nice to. Maybe I don't want to complicate things for you, but if cash flow is tight, it might be good to have another little chunk of money set aside that you dip into first. And that is four things that you know are going to happen throughout the year. Maybe it's not for the H VAC system, maybe it's not for the job loss. Maybe those things are, are under the, the real emergency fund umbrella. But you have this other bucket that's not just a checking account, but it is used for those bigger expenses that come out throughout the year. So you're not dipping into the emergency fund. It's not fluctuating as much.
- [49:57]
Joe Salce
The first thing that strikes me, though, guys, is that I would love to have a bucket of money for everything. I mean, ultimately that would be great. But let's say that you do the financial plan. I'm behind on my financial independence goal, and I've got to fund this emergency fund. I would love to have the other bucket of money. What's my order of operations? Do I fund the financial independence goal first and slow play this additional fund. Like, how do I put these things together so they dovetail?
- [50:25]
Anna Allum
I think if you're pretty far behind on your emergency fund, that's the focus. You pause the financial independence, you pause the 401, maybe you bring it down to your match, and you really focus in on emergency fund. That's, that's really, is if you understand the process of, and the steps of, of going through the financial planning process. Emergency fund is always, always number one.
- [50:47]
Joe Salce
Okay? So number one is make sure I've got the emergency fund in place because that will smooth out the ride, right? I don't let these speed bumps get in my way. So I got that taken care of. Now we have this extra fund that you're talking about versus I'm behind for financial independence. What's step two of my order of operations?
- [51:05]
Anna Allum
Well, I think that the little fund that I'm talking about is really supposed to be baked into your budget, like your annual budget. It's baked into that number. So you should be, you know, looking at that as, you know, this is what our, our yearly expenses are. I know it within our budget. Like we have car repairs. I don't know how much they're going to be, but we have that Number set aside that we know is probably going to happen throughout the year and if it doesn't, then that's really awesome. But I have it baked in there. You have to pay for your expenses and if you can't, and if that is getting in the way of achieving your financial independence age, then maybe the expenses are the issue and maybe it's, we need to look at this again and figure out, okay, what's going on here. We can't. We're not able to save into our 401ks or into our 403bs, whatever it is. We're not able to do that over the long term. Like year after year year. We're struggling with this. Then maybe that is an expense issue. But it sounds like for Alexander it's more of just like this is a one time situation and they're just kind of getting thrown at everything and it's just focus on, you know, getting everything sorted out in terms of cash and then you'll get back into it. And don't, don't lose your motivation and don't lose steam as to being able to get back into that because this might just be a blip in time.
- [52:28]
Joe Salce
I think a lot of people don't think of this as a budget item. I like that clarification that, you know what, I'm going to spend this money by the end of the year. Just this envelope might fill up a little bit, but hey, then the money's there when I need it. It should be a part of your budget.
- [52:41]
OG
That I think is the biggest distinction here is talking about emergency funds for quite literally the emergencies. And I get, I think ultimately you could even say, isn't there technically an amount that I should put away for H Vac repairs? I gotta assume that once every 15 years I'm gonna have a 17,000 dol. Thousand dollars expense. Like, okay, technically you're right, but I.
- [53:03]
Joe Salce
Could string this out forever. At some point I'm gonna want to retire. So shouldn't I have a monthly.
- [53:08]
OG
Someday in the future I'm gonna have to have groceries shipped to me. So I think those things are true emergencies. But the reality is, is that a lot of times people don't account for the annual expenses or semiannual expenses in their normal budgeting. If I ask either of you guys how much your spending is, your go to answer is probably what your charge card bill is, right? Like you got an idea of how much the MX is or how much the Visa bill is, you say, oh, we spend like 5,000amonth.
- [53:36]
Alexander Hamilton
Great.
- [53:38]
OG
But you also have property taxes and they're due in December. And you have car insurance and that's due in May. And you go on vacation twice a year. And those are big lump sums. That's part of your spending also. And so you have to be very realistic with yourself when you're building this out and say, yeah, I can make a little note card of all my monthly expenses. That's totally great. But then be sure to include those annual expenses and if you don't have a way to account for those in your monthly cash flow, or you say, oh, I don't pay my property taxes until I get my bonus at the end of November and that's how I pay my property taxes. I mean, that's a little slippery slope anyways. But you need to put that as part of your cash flow. And if you need to set that money aside so that it's literally there for that normal cash flow expense, okay, fine, you can. That's kind of like the envelope strategy or YNAB or every dollar has a purpose every single month. But I wouldn't have extra cash reserve for the sake of extra cash reserve. That's just opportunity cost loss.
- [54:38]
Joe Salce
Yeah, there can be such a thing as too much here because you're going to need.
- [54:42]
OG
Yeah, you could say, and I know that you have this too, on occasion you'll have the client conversation and they'll say, yeah, but we're thinking about doing the Alaskan cruise in 2028, so we should set that aside. Right? And it's like, are you going to Alaska in 2028 or are you not? Well, I don't know. We're thinking about it. It's like, then, no, like this is. If you start going, well, maybe in 2030 I might do this. Maybe I should probably have a little bit of extra set aside. You start building out these cash buckets and you end up with all your money sitting in cash. Because you go, well, every single month I spend $10,000 a month. Shouldn't I have 2037s, $10,000 setting aside, you know, because I might need it. I mean, technically it's out there, but that's long term money at this point. So think about your expenses in the future. Even if they're one off expenses as where do they fall? Are they 0 to 3 years, 3 to 10 years or 10 years plus away? And if it's 10 years plus away, that stuff is long term money. Just like make it be long term. If it's in the next three years, you know, the Alternative thing that happens too is people say, hey, I want to buy a house, I'm going to keep my money invested. It's like, whoa, whoa, whoa. Yeah, no, don't do that either because how committed are you to buying this house in 24 months? Oh, absolutely, we're 100 going to do it. It's like, well, what happens if you get there and you have 20% less down payment than you thought? Because that could happen. So if you've got that 100k that's going to be your house down payment in two years, that money needs to be in cash.
- [56:06]
Alexander Hamilton
Yeah.
- [56:06]
Joe Salce
And answering that question, how you answer that question is the key. If it's down and I'm okay with that, I'll just wait longer.
- [56:12]
OG
Just like, I'm cool. Three, five years.
- [56:14]
Joe Salce
Okay, then you're great.
- [56:15]
OG
YOLO have it college expenses. Right. We advocate strongly to have. When you're a freshman in high school, you have freshmen and college money sitting in cash. Whatever you're, you know, if you're setting aside 529 money and you say, well, aren't I giving up three years of market growth? Yeah, probably. Unless those three years are 2007, 8 and 9, in which case you're like, thank God I had that money in cash because otherwise I'd have half the money for my kids college when I got there. That's the trade. The trade is I'm taking some risk off the table for a guarantee. And that's the capital markets at work. You know, I can see, I can.
- [56:51]
Joe Salce
See who OG is, dad. Just, just if you'd done that. I got good news and bad news, son. Remember that whole A M thing? You get to wear this sweatshirt I got you an A M sweatshirt. Because the bad news is dad went long on some options that didn't, didn't.
- [57:10]
OG
Quite play out the way that we thought. My bad. That's on me.
- [57:14]
Joe Salce
Coach turned out the parlay in that second race.
- [57:19]
OG
The third horse in the second race didn't post the way that I thought it would.
- [57:23]
Joe Salce
If that stupid thing had done what we needed to do, your college dreams would have been better funded. Last question of the day is from a woman who also wanted to be anonymous. We need a woman who's in a revolutionary figure. Anna would.
- [57:40]
Anna Allum
Betsy Ross.
- [57:41]
Joe Salce
Betsy.
- [57:41]
OG
Close enough.
- [57:42]
Anna Allum
Yeah.
- [57:43]
Joe Salce
I'm sure this question came from Betsy.
- [57:44]
OG
Not really.
- [57:45]
Joe Salce
Yeah, she was a revolutionary figure. 100.
- [57:48]
Anna Allum
Maybe a little earlier, but.
- [57:49]
Joe Salce
Well, that was revolutionary time period. I mean.
- [57:52]
Anna Allum
Right. And I just feel like that makes sense since we're, you know, I'M outside Philadelphia.
- [57:57]
Joe Salce
Well, perfect.
- [57:57]
Anna Allum
She sewed that flag here. She has a house here.
- [58:00]
Joe Salce
This is from your neighbor Betsy. Then Betsy says, thank you so much for your hard work and for being awesome. I can't think of any insults like most people do because y' all are great. That's very nice. I love how she qualifies. I know I'm supposed to insult you here, OG okay, but I can't think of one. I heart each of you equally, especially you, Doug. I'm so glad Doug's not that down here to hear that. I'm considering buying a new home and our realtor suggested not using a mortgage this time around because our current house is paid off and we're financially independent. I didn't know this was a thing.
- [58:37]
OG
I can just write a check for houses. Wait, what?
- [58:40]
Joe Salce
That is incredible. Isn't that cool though, that you're so used to the fact that I have to have debt for this purchase going?
- [58:47]
OG
Wow. Wait, I can just like you guys will just take a barrel full of cash.
- [58:53]
Joe Salce
I've been maximizing retirement contributions and socking savings into a brokerage account for the past decade. This will be my first time taking any funds out. Selling our current home covers half of the new house budget. I have the other half of the new house budget available in a money market. We would like to buy the new house, move, and then sell our current home. So I need to bridge that other half. During the time I ran the math on liquidating the needed funds from the Fidelity Total Stock Market Index, my brokerage account, selecting those parts that have the highest basis that I've held for longer than 12 months. We'll get into stackers why that's a thing and why Betsy's talking about this and paying long term capital gains tax on the gains. I compared this to an adjustable rate securities back line of credit which fidelity offers presently at 7% with no origination fee. As I'd repay the line of credit with the proceeds from the sale of the current house, the plan would be to have this paid off ASAP within 6 to 12 months. The math appears to be in favor of utilizing the line of credit instead of selling my stuff. However, I've heard people make comments about locking in gains and the stock market. As you guys know, this total stock market fund up 16 over the past year. Would it make sense to take some capital gains despite the tax hit while the market's up? Or is that trying to time the market and I should use simple arithmetic to make this decision? Betsy, thank you so Much people hear all the time about maybe dispersing the capital gains. Take a little bit of it at a time. The market's up, I gotta burn the hand. Og, do I use the line of credit or do I sell some of.
- [60:33]
OG
My stuff just to make sure that I've got all the facts correct? So we have a new house purchase. I'm just gonna make the numbers up just so that I can illustrate them. New house purchases, a million. I've got my current house, I'm going to sell for 500k. And I've got 500k in a money market fund. And then I also have other money in a brokerage account that I could sell to. Maybe like another 500k maybe.
- [60:55]
Joe Salce
Yeah, the money in the brokerage to make up the other 500k. Sell that while I'm waiting for the house proceeds.
- [61:00]
OG
Yeah.
- [61:01]
Joe Salce
Because I don't want to sell my house until I move into the new one.
- [61:03]
OG
Yeah. So if you think about this from a timing standpoint and kind of what would happen if you don't do the line of credit and you don't want to get a mortgage? Right. If you just sell something, all you're doing is you're going to sell something from your total market fund and then pay some taxes and then turn around and buy the fund again. That's the plan. The risk, of course, is that you say something silly like the market's at an all time high. Maybe I should wait for the market to come down before I get back in. And then now you have all this money sitting in cash and the market continues to go higher from here and you miss out on future gains for whatever reason. Even when people, and we run into this, Anna, a lot like let's say that you retire from your job and you go from your 401k to your IRA, they go, well, should we invest that all today? It was invested yesterday. Of course we should invest it all today. I'm scared that it's out for one day. Today might be the day it goes up 2% in the transfer. That sucks. Yes. Get it all in. Shouldn't we dollar cost average it in? No, it wasn't dollar cost average before it was there. Just put it back, you know, so there's a big risk that that happens purely from a math standpoint. What she's talking about here is Fidelity and other brokerage companies. Schwab will say, hey, you've got a million bucks. We will give you $700,000 of cash, roughly 70ish percent. We'll give you 700 grand of cash line of credit at reasonable market rates for you to use whatever you want. Just like that. You fill out a little application. We run a little bit of a credit report, but mostly it's based on how much money you have. And we'll just give you this line of credit. It's just based on the value of your brokerage account. You can't do it on values of IRAs or Roths. This is just purely brokerage money, and you can use that money for anything you want. It's different than a margin loan in that you can't use this money to buy additional securities with it. And the interest rate's markedly less generally than margin loan would be. But for the purposes that she's talking about, this is a great idea. This is the usefulness of it. So you can be a cash buyer for the new home and fund it in two weeks and be done, and then you can do the move and repay the loan. People are concerned about the loan, but frankly, it's a heck of a lot easier. And it doesn't cost anything relative to getting a mortgage. Because that's the alternative, right? The alternative is to go get a mortgage for 500k and then pay the mortgage off with the house proceeds to fund this. But you're going to pay a bunch of costs and fees, and it's going to take six weeks to get a mortgage, four weeks if you're lucky, and you have to come up with a bunch of documentation and tax returns and pay stubs and bank statements, and it's just a giant mess. Or you just click a few buttons on your Fidelity app and boom, they give you all this money accessible. I would, 100% of the time take the securities loan to be a cash buyer, knowing that I'm going to pay it off as soon as I sell the house.
- [63:53]
Joe Salce
The reason that 12 months was important when Betsy wrote this out is because you pay a lower capital gains tax if it's 12 months. That's the difference between short term and long term. The government tries to reward people for being investors, not to be traders. And so the carrot there to have people invest in companies instead of trading companies is we'll give you a lower capital gains tax if you hold on to money for more than 12 months. So that's why she's like, listen, this money sat here longer than 12 months. But my first feeling wasn't about this tax bird in the hand that Betsy's thinking about. It was exactly oh, gee, what you said, which is what the Hell are you going to do when you sell the house? Proceeds. And Betsy, I don't know you, but the average person I worked with often did something dumb with just, just ended up doing not great stuff with that because you end up then with a bunch of cash sitting around. Yeah, what do I do with the cash?
- [64:51]
OG
And it's a different thing than take away the value of the house or the money market fund. So let's say that she's trying to buy this million dollar house. She's got 500k house and a million dollars in brokerage money. No money market, just all investments. If that's the question, hey, I don't have any liquidity, I've just got investment money. Should I sell the investments to buy the house and pay taxes? And I got half of it and should I sell the other half? That's going to come down to personal opinion about debt. And it sounds like she likes the fact that the house is paid off. Yeah, there's going to be a little bit of a tax bill on the money that you sell. Then there's no money going back. You know what I mean? Like this is selling it or not selling it. And so then the question is, is do I want to be debt free or do I want to have a loan payment associated with this house? Because my net worth number's the same, Right. It doesn't change my net worth. I'm just moving money around on the monopoly board.
- [65:48]
Joe Salce
And she's still financially independent after this move.
- [65:51]
OG
Yeah, yeah. Assuming that's all the case. Right?
- [65:53]
Joe Salce
Yeah. So that's a whole different thing.
- [65:56]
OG
In which case then, yeah, I would sell it and I wouldn't look at it from the perspective of like the market's at an all time high. Should I do this? It's like, well the money is there, this is what it's for. It's for me to use and move about as I please. And again, you're not doing anything with your net worth by not having a $500,000 loan. Instead of having 500,000 invested in 500 companies, you have 500,000 invested in one single family house. Okay, not how I would do it, but that works from a net worth standpoint. But she's talking about should I sell this to turn around and rebuy it again because she has the liquidity to pay all of it off in cash, take the loan, like do the securities loan and be a cash buyer. Sell the house as quickly as you can and paid off.
- [66:42]
Joe Salce
Anna, you're nodding as well.
- [66:44]
Anna Allum
Yeah, I agree. Simplicity wise, this makes the most sense. I don't even think it comes down to the math. Like she mentions the math a couple times in her question and it's really about this, although not intentionally trying to market time. It is market timing. I don't think it's the best move because you're going to have a lot of anxiety around it too. Once you get to the point where you sell off your house, you're like trying to make a decision around what to do with the money, put it back in. Like OG was saying, I think simplicity wise, open up the security, back line of credit and move from there.
- [67:20]
Joe Salce
Thanks a ton for the question, Betsy. Thanks to everybody for the questions today. Such great questions from our stacker community. If you've got questions, head to stacking benjamin.com voicemail that gets you on the show. And if you want to write them, you can write me. Joe Stacky Benjamin stock. But we definitely prefer that you call in. And because of that, you know what? If you're brave enough swag. Brave enough to call in, we give you some swag.
- [67:43]
OG
Swag.
- [67:44]
Joe Salce
Some swag. So two people going home with swag today and two or not. But thank you to all of you for, for contributing to make this a great show. And people want to know more about you, more about your practice. Where do they find you?
- [67:57]
Anna Allum
You can find me at the same place that you find OG in the past. Stackingbenjamins.com OG I feel bad for you.
- [68:06]
Joe Salce
Having to share a link with og.
- [68:07]
Anna Allum
I know, I know.
- [68:09]
OG
It's way better than you think.
- [68:11]
Anna Allum
Well, he's got to sort through all of the fan mail for me. So that's, that's the only thing.
- [68:16]
OG
It's like I thumb through all the stuff to try to find the stuff that's for me. And I have to forward all the rest of it to Anna for me.
- [68:21]
Joe Salce
Seven for Anna, one for me. Seven for Anna, one for me.
- [68:24]
OG
Exactly how it is. Yeah, as it should be.
- [68:26]
Joe Salce
Let's mosey out on the back porch and talk about community for a second. Guys, we just. I want to say a big congratulations. Cole and Chris, the creators of our Seattle Benjamin's After Dark meetup group.
- [68:39]
Alexander Hamilton
Oh, boy.
- [68:41]
Joe Salce
They. They had their first meeting last week. I saw the photos. It was a huge success. And so congratulations to those two guys. I know they worked really hard. And congratulations to all our stackers in the Seattle area getting together. Super fun. And if you want to be a part of that, if you're in the Tacoma, Seattle greater area, if you go into Facebook and put in Stacking Benjamin Seattle. You'll come up with the link for the Seattle meetup group. So go join the group online. There's a ton of perks, not the least of which is you could hang out with Chris and Cole, who are two really cool stackers putting this together, and Stacker Rebecca, whose idea it was to have a meetup group in the first place. So congrats to them. We also have a meetup group in the Twin Cities. Same thing. Just put in Stacking Benjamin's Twin Cities and you'll find that meetup group and several more guys getting ready to come online. Benjamin's After Dark.
- [69:32]
OG
I don't think that means what you think it means.
- [69:33]
Joe Salce
It just means Stacky Benjamin's people meeting After Dark. Of course. What else did you think it meant? Anna, thanks so much for hanging out with us today. It was so fun.
- [69:43]
Anna Allum
Such a blast.
- [69:44]
Joe Salce
Great, great time. Thanks for helping all of our stackers. And Doug. Oh my God, look who's coming back down the stairs. Where have you been? What the heck have you been doing? Time, Doug, for you to take it from here. What are the three things that should be on our to do list today?
- [69:57]
Doug
So what should we have learned today? First, take some advice from the team. Permanent life insurance. It can work, but most of the time, sticking with term insurance is your best answer. The bigger win? Getting the insurance you know you need. Get that done, Stacker. Second, emergency funds can also be just cash reserves, which makes no sense until the markets are down and you need money. Then if you don't have a fund, you'll wish you did. But the big lesson? Car insurance. For the old El Camino, I not only bought full auto coverage, I also bought hurricane insurance, flood coverage, and disaster insurance. The auto agent said this thing drives like a hurricane. Totally true floods, great vibes. Wherever I drive it 100% true. And disaster insurance because, as the agent said, it'd be a disaster if I didn't buy it. A thousand percent true. Man, do I have a great agent. Maybe a little weird that he calls himself a free agent and doesn't want to be tied down to those companies you see commercials for. I just meet him at a gas station and pay him cash, which is kind of a pain, but worth it for his expertise. This show is the property of SB Podcasts, LLC, Copyright 2025 and is created by Joe Saul Sehive. Joe gets help from a few of our neighborhood friends. You'll find out about our awesome team@stackingbenjamins.com, along with the show notes and how you can find us on YouTube and all the usual social media spots. Come say hello. Oh, yeah. And before I go, not only should you not take advice from these nerds, don't take advice from people you don't know. This show is for entertainment purposes only. Before making any financial decisions, speak with a real financial advisor. I'm Joe's mom's neighbor, Doug. And we'll see you next time back here at the Stacking Benjamin show.