0:00

Hey Joe, it's the start of a new year. Have you set

0:03

any big financial goals for this year? Yes,

0:05

I'm going to buy a dog. Buy

0:08

a dog? I want to get a dog

0:10

that does magic tricks. You

0:12

know what you call a dog that does magic tricks? What's

0:14

that? A labra cadaver door. Joe,

0:19

this is the open. We want people to stay

0:21

with the episode. Stay. Cut right

0:24

to the intro. Welcome to

0:26

the Afford Anything podcast. The

0:28

show that understands you can afford anything but

0:30

not everything. Every

0:33

choice that you make is a trade-off against something

0:35

else. And that doesn't just apply to your money.

0:37

That applies to your time, your focus, your energy,

0:39

your attention to any limited resource that you need

0:41

to manage. What matters most and

0:44

how do you make decisions accordingly? Those are

0:46

the two questions this podcast is here to

0:48

explore. I'm your host. My name is Paula

0:50

Pant. Every other episode we answer questions that

0:53

come from you. And I do so with

0:55

my buddy, the former financial planner, Joe Salcihi.

0:57

What's up, Joe? You want me to buy

0:59

a new joke book, don't you? Yes.

1:03

That is a good financial goal for 2024. Give better

1:05

material. Maybe

1:09

enroll in a course on comedy writing. You've

1:12

done a few of those. We have done some of those. I

1:14

should have actually paid attention, apparently. Well,

1:19

speaking of enrolling in courses, our first question

1:21

today, I know, right? Do you like the

1:23

segue? Ninja. Our

1:25

first question today comes from a woman who

1:27

is wondering if she should

1:30

enroll in her dream course,

1:33

which is learning pottery, or if

1:36

she should use that

1:38

money for a big long-term goal,

1:40

like a down payment on a home. Here's

1:43

Elizabeth. Hi,

1:45

Paula and Joe. I'm a long-time listener

1:47

since 2017 and really love your show.

1:49

We are a recently married

1:52

couple. We've been living together for seven

1:54

years in Ottawa, Canada. We've been renting

1:56

the same one bedroom apartment for those

1:58

years. to be

2:00

our student apartment while my husband finished

2:02

law school, but that was years ago

2:04

now. We like it, but it's small

2:06

and we might want to start a family in

2:09

about five years and would want more space. The

2:11

housing market in Canada is wild and to

2:13

semi-comfortably be able to pay a mortgage, we'd

2:15

want to put down a down payment of

2:17

over $100,000. My job gets

2:21

me a government pension and decent salary,

2:23

but I don't feel fulfilled at work.

2:26

I have the dream of taking four months

2:28

off work unpaid to do an intensive pottery

2:30

course at a college in my province. However,

2:33

it would require me to save and then spend

2:35

about $20,000. At this

2:38

stage, I feel a little hopeless about homeownership,

2:40

so I just want to throw it all

2:42

away. Save for the dream course and

2:44

take it in the fall of 2025. But I also feel

2:46

like the

2:49

housing market is going to keep going

2:51

out, so delaying homeownership will just push

2:53

that goal further and further away. We

2:55

can't live in this apartment forever, but

2:57

renting another bigger place would also cost

2:59

an arm and a leg. We owe

3:01

$103,000 in student loans. In

3:04

terms of savings, I have $30,000 in an

3:07

RRSP that I could access through the first

3:09

time home buyers program to put toward a

3:11

down payment. I also have $18,000 in a

3:13

TFSA. Both those

3:16

accounts are robo-advised on a low to medium

3:18

risk plan. We also have $15,000

3:20

in high interest savings accounts

3:22

to put toward a down payment and

3:25

about $10,000 in emergency funds in high

3:27

interest savings accounts. On

3:29

the one hand, I feel that life is too

3:31

short. I want to take the course even though

3:33

it wouldn't be a good financial decision. On

3:35

the other hand, I feel like I

3:37

might be letting my husband down because he wants

3:39

to buy a house and I would be saving for

3:42

almost two years just to spend it all. Do

3:44

I go on the dream course or continue

3:46

saving for the home? Thank

3:48

you, Paula and Jo. Elizabeth,

3:50

first of all, I love your question.

3:53

It's a beautiful question because it truly

3:55

is about conflicting priorities, which is the

3:57

heart of all money management. money

4:00

management is having limited resources

4:03

and needing to choose between multiple things that

4:05

are important. So your question

4:07

gets to the root

4:09

of what really every money

4:11

management and time management and

4:13

energy management question is. So

4:16

let's talk through some of

4:19

the details. First, you

4:21

mentioned that in order

4:23

to comfortably pay a mortgage, you would

4:26

want to have a downpayment of

4:28

$100,000. While

4:30

I get that, and I think

4:33

it's admirable that you want to keep your

4:35

monthly mortgage costs low by virtue of

4:38

having a higher downpayment,

4:40

it also strikes me that this premise

4:42

of the downpayment has got

4:44

to be so high that everything else, including my

4:47

dreams, need to be on hold could

4:49

be interfering with the way that you're framing

4:51

this question. When I heard

4:54

the $100,000 price tag, that is such

4:56

a high barrier when it comes

4:58

to a downpayment that the first thing I

5:00

did, I went to canada.ca, which

5:03

for all the listeners out there,

5:05

that is the official government of Canada website.

5:08

I went to canada.ca, I looked up how much

5:10

you need for a downpayment. This is

5:13

from the Financial Consumer Agency of Canada.

5:16

And in Canada, Elizabeth, I'm sure you already know this, but

5:18

I'm just stating it for the sake of the entire

5:20

community that's listening. In

5:23

Canada, if the home that you're buying is less than $500,000,

5:25

then you need a minimum downpayment

5:27

of 5% of the purchase price, which is $25,000.

5:31

If your purchase price is between $500,000 to a

5:33

dollar shy of a million, $9999,999, then your

5:39

minimum downpayment is going to be that $25,000 plus

5:42

10% of the portion of the purchase above

5:46

$500,000. And then

5:48

if you're buying a home that's a million or more, you need

5:50

20% of the purchase price. So

5:53

assuming that the property that you're looking to buy

5:55

is Less than a million, assuming the

5:57

property that you're looking to buy is less than a million. Closer

6:00

to the five hundred thousand dollar range.

6:02

You. Wouldn't need. A

6:05

hundred thousand dollars. Down. Payment. Now

6:08

the way that you phrased it.

6:11

In your question he said that you want.

6:14

The hundred thousand dollar down payment because

6:16

it would make the ongoing. Mortgage.

6:18

Payments More reasonable. And again, I I

6:21

totally respect. Wanting this

6:23

ongoing, the. Monthly.

6:25

Payments to be a more reasonable

6:27

amount, but I would invite you

6:29

to question the premise of. Whether.

6:32

Or not. Opting for the say

6:34

your down payment is worth it. Given.

6:37

What you would have to sacrifice in order

6:39

to get there. You

6:42

also said. And I thought

6:44

this is interesting. That.

6:46

You want to pursue your dreams that you would.

6:49

Be. Worried that you're letting your husband

6:51

down? And I'd like to. Gently.

6:54

Challenge that. Because.

6:56

It's be a city admission that is.

6:58

Very clear. Is

7:00

your dream? And if

7:03

you sacrifice your dream, For.

7:06

The sake of. Satisfying.

7:08

Someone else that can

7:10

often lead to ongoing

7:12

resentment. Even

7:15

quiet resentment which then.

7:18

Poisons. A relationship subtly

7:20

slowly. but it does. I'm

7:24

sure that he wouldn't want to let

7:26

you down. And. If

7:28

she doesn't want to let you down,

7:30

then. Your dreams matter.

7:34

And. His role. Is.

7:36

To help support your dreams just as your

7:38

role is to support his. You

7:40

know I think this. Elizabeth is calling

7:43

him with a question which are to

7:45

these two decisions and often Paul of

7:47

the truth it could be in the

7:49

middle, there could be a place to

7:51

meet part way smaller down payment and

7:53

get the course. Maybe the course is

7:55

not the actual same exact course Me:

7:57

Maybe she comes down on that goal.

7:59

Maybe there's a different way to take

8:02

it. Maybe there's a way to pursue

8:04

that in a in a manner. That

8:06

job that doesn't cost as much so

8:08

she can do a bit of seats

8:10

are good examples What I'm talking about.

8:12

This is one of the most exciting

8:14

things of my career. When I was

8:16

a financial planner, I had a client

8:18

who wanted to live along the shore

8:20

of Lake Michigan the the to a

8:23

western shore just. Gorgeous.

8:25

Along the the Michigan coasts lot

8:27

of beautiful houses. a lot of

8:29

saw a beautiful beach front. of

8:31

course every night you see the

8:34

sun going to up. For people

8:36

that have never been to the

8:38

Great Lakes looks like you're looking

8:40

out over the ocean so she

8:43

really wanted that. Percy did not

8:45

have enough money paula to get

8:47

that. She was also very much

8:49

an extrovert. said she wanted to

8:51

work with people. Ah see. Ended

8:54

up buying. A house across the

8:56

street from the homes along Lake

8:58

Michigan that were super expensive. This

9:00

old Victorian home the she was

9:03

able to get in sb a

9:05

loan to six. Also, because of

9:07

the zoning in the area, she

9:09

was able to turn it into

9:12

a bed and breakfast. And

9:14

even know in her retirement she was

9:16

going to quote have to work in.

9:18

Some people hate that. Julie.

9:21

Being a complete extrovert love that like

9:23

that was fabulous. Waking up in making

9:25

breakfast for a bunch of people were

9:27

awesome and guess what? See got to

9:30

sit every night while the people that

9:32

were staying at her bed and breakfast

9:34

did whatever they did on her beautiful

9:37

front porch looking out across. A.

9:39

Bunch of other houses but she still

9:41

could see Lake Michigan see this beautiful

9:43

view. So sometimes and I think it's

9:45

also good metaphor. sometimes you gotta look

9:47

across the street right? is there and

9:49

across the street moment here that we

9:51

could embrace Where we do get that,

9:53

what we want, but maybe in a

9:55

different ways. If we'd originally asked, possibly.

9:57

I think there's a you know in this is. This

10:00

is up to Elizabeth, but sometimes

10:03

there is one specific

10:05

program that you

10:07

want. You want that program. I'm

10:09

thinking about when I wanted

10:11

to study journalism, I didn't want

10:13

to go anywhere other

10:15

than Columbia. That

10:18

was the only institution from which I wanted

10:20

to study journalism because it's

10:22

the best J school in the country. I

10:25

wasn't willing to consider anywhere else. I

10:28

happened to get a fellowship that paid for the

10:30

whole thing, but even if

10:32

I hadn't gotten that, I would have only

10:34

gone there regardless. I

10:37

understand, I'm very empathetic to

10:40

sometimes there's one particular program

10:42

taught by one particular institution and that is

10:45

the one and the only one that you

10:47

want. If that's the case,

10:51

don't compromise on that. If

10:53

that's the case, be

10:55

a bit more flexible with how much of a

10:57

down payment you save, which

11:00

would have spillover effects to the purchase price

11:02

of the home that you buy. Also,

11:05

this is a pottery class and

11:08

those are going to be for unpaid months. Could

11:10

you sell some pottery? Could

11:13

you start an

11:15

Etsy store? Could you go to weekend

11:18

fairs or weekend festivals? Can

11:20

you monetize this love of

11:22

pottery? It

11:24

doesn't have to be so big that this becomes

11:26

your full-time job, but if you can make an

11:28

extra $1,000 a month, $1,000 a month is a significant amount.

11:34

We can broaden that out even further, Paula. You

11:37

asked the question, can pottery create an

11:39

income stream? An even broader

11:41

question is, with her income stream she

11:43

has now, is there a way to

11:46

improve those or are there

11:48

other income streams that she's not taking

11:50

advantage of that she could have? Just

11:52

a completely open-ended question to ask the

11:54

universe, is there a raise

11:57

that either of you are maybe eligible

11:59

for? after study shows that your

12:01

boss wants to give you raise and you haven't

12:03

asked. Your boss often has other priorities and certainly

12:05

in a lot of companies is not just going

12:07

to go, hey, you know what, we want to

12:09

throw more money at you. We

12:11

always hope that's the case, but I think

12:14

putting it out there is something that you

12:16

may be able to do. And beyond pottery,

12:18

are there other side hustle opportunities that you're

12:20

not taking advantage of? That's on the income

12:22

side. On the budget side, also

12:24

looking at the rest of your budget, is

12:26

there anything that you don't value that much

12:29

that you're spending money on? Something

12:31

that could easily go away if something

12:33

as important as pottery or the house

12:36

are higher on the value list

12:38

that you would sacrifice for these

12:40

goals. So I think we could

12:42

even go broader. It also strikes me, Elizabeth,

12:44

it sounds as though you are not

12:47

really in love with your full-time work. And

12:50

that in the long term, you

12:52

know, that doesn't necessarily affect what you do in

12:54

the short term with this pottery class, but

12:57

in the long term, over the span of the next 20, 30

13:00

years, that's something that you might

13:02

want to think about, because if

13:05

you're already not really that jazzed about what

13:07

it is you do, and that's the impression

13:09

that I get from the way that you

13:12

phrase your description of your work, is

13:15

that where you want to spend the

13:17

bulk of your

13:20

career for the next several

13:22

decades to come? Sure,

13:24

it has a good pension, but a pension

13:26

is living for the

13:28

future. I feel

13:30

like this is a refrain that you and

13:33

I have often, Paula, that we in

13:35

our community overvalue the money decision

13:37

and undervalue the time decision.

13:40

And when you decide to go with

13:42

a job that's 70% for

13:44

a pension? A job that's 70% joy,

13:47

you mean? Yeah, sorry. Or 70% meaning?

13:50

Yes, you're mortgaging your time. Right.

13:52

One other thing I notice,

13:54

Elizabeth, is you mentioned that your

13:57

investments are in low to medium risk.

14:01

It sounds to me, I don't know how old you are, but

14:03

it sounds like you're relatively young and

14:05

of course everyone's risk tolerance

14:08

is personal, but I would invite you to

14:10

see whether

14:12

or not you're comfortable with bumping

14:15

up the risk profile on those

14:17

investments a little bit, particularly given

14:19

that you've got time on

14:21

your side, you've got decades and decades ahead of

14:23

you. But in summary,

14:25

as soon as I heard your question,

14:27

my immediate thought was take the pottery

14:29

class, take the pottery class

14:31

because life is precious

14:34

and the whole point

14:37

of all of this resource

14:39

management and resource allocation, that's what

14:41

money management is, the point of

14:43

that is to be able to

14:45

direct our resources at the things

14:47

that we most value, the things

14:49

that bring us the greatest levels

14:52

of satisfaction. And

14:54

that's what this pottery class is. This

14:57

is your dream. That's funny,

14:59

that was my first thought too. Yeah. Second,

15:01

I heard that you could hear it in her voice.

15:04

Yeah, exactly. You got to solve

15:06

for the pottery. Right, and she's

15:08

got these scripts that are telling her, no,

15:11

do the quote unquote right thing, do the

15:13

responsible thing, don't let other people down. This

15:16

is your dream, right? If

15:18

you don't pursue your dream, you will regret

15:20

it, you will resent the people around you

15:22

for it. You know, one day,

15:26

your hands may have arthritis and you might not be

15:28

able to throw pots anymore. If

15:30

that day comes, you

15:33

will either look back and say,

15:35

man, I'm glad that I

15:38

was so immersed in the world of pottery when

15:40

I still had the health to be able to

15:42

do so. Or you'll look back

15:44

and say, man, I really regret that

15:47

I didn't pursue that, because I

15:49

was so worried about keeping

15:51

everybody around me satisfied. So take the

15:53

class. Well, Thank you, Elizabeth,

15:55

for that question. On

16:01

average it takes about thirty days for

16:03

a person to break their new this

16:05

resolution. So it's saving money. was on

16:07

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16:09

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That's policygenius.com. Our

20:57

next question comes from a caller

21:00

whose wife's side hustle became

21:03

way, way more

21:05

lucrative than they ever imagined. And I

21:07

just want to, before we play this

21:10

question, point out to everyone that oftentimes

21:12

we have these limiting ideas or limiting beliefs,

21:14

these scripts in our head, invisible scripts. And

21:17

oftentimes when we hear side hustle, many

21:20

of us immediately think gig

21:23

economy, driving for Uber. I

21:25

work an extra 25 hours

21:27

a week and I make pennies. A

21:30

lot of us think about scraping the bottom of the

21:32

barrel, and it sounds like a lot of work for

21:34

not a lot of payoff. That's

21:36

not what we're ever talking about when

21:39

we say side hustle. When we say

21:41

side hustle, we mean you are building

21:43

a business that is all

21:45

your own, and you're starting that

21:47

business on the side, but it'll

21:49

grow and it can become far

21:52

more lucrative than you ever imagined. And so

21:54

that's the situation our next caller has. His

21:56

wife started a side hustle and

21:59

now his question is fundamentally, what do

22:01

we do with all of this extra money?

22:03

We have way more money than we know what to

22:05

do with it. That's the root of his

22:07

question. So with- Louis calling

22:09

in with the flex is what we're saying. Yeah,

22:14

exactly. Before you even play his question,

22:16

I want to preamble that because I

22:18

want to impress on everyone who's listening

22:20

that a side hustle can blow your

22:22

expectations out of the water. I think

22:25

a lot of people would be shocked

22:27

at how much money you

22:29

can make as an entrepreneur, how

22:31

much potential is out there. So

22:33

with that said, our next

22:36

question comes from Louis. Hi,

22:40

Paul and Joe. This is Louis from Maryland.

22:42

I'm calling with an update to my question

22:44

from episode 328 and

22:46

a follow-up question. My wife's 1099 side

22:49

work has been more successful than we could have

22:51

imagined. After we paid off some

22:53

consumer debt and 30K in student loans, we

22:56

are looking at what's next as there's no shortage of

22:58

work for her. We have

23:00

529s set up for our young children, but I've

23:02

recently watched a couple of YouTube videos about using

23:04

529s as wealth management

23:06

tools. Specifically, the speakers were

23:09

talking about using 529s for ourselves

23:11

as a way to pay for long-term care. Once

23:14

we reach an age where we are not able to care

23:16

for ourselves, then the penalty

23:18

for using funds for non-educational purposes is

23:20

waived because we would qualify as disabled.

23:22

We would still be taxed on the

23:24

gains in the account. The second

23:27

benefit that I have read about is that

23:29

the money in a 529 does not count as

23:31

part of one's estate and it makes

23:33

for an efficient way to transfer wealth while avoiding

23:35

the estate tax. Are you

23:37

familiar with these two uses for 529s? The video

23:40

authors were financial advisors, one from the largest

23:43

U.S. bank, so I don't think this is

23:45

some type of obscure strategy from the corners

23:47

of the internet. For

23:49

further context, my wife and I are

23:51

maxing our employers' sponsored retirement accounts, putting

23:54

money into the back door Roth, and we have

23:56

a taxable brokerage account. We have

23:58

owned occupation disability insurance, and sufficient life

24:00

and a real insurance. Am

24:03

I overthinking long-term care and would it be

24:05

simpler and more cost efficient to buy disability

24:07

insurance once we reach our 50s

24:09

or 60s? Thank you for all you do for

24:11

the community. Louise, congratulations

24:14

on all of your

24:16

life's success. So

24:19

I went back and I looked at Episode

24:23

328, by the way for anyone who's

24:25

listening, affordanything.com/Episode 328 to take you

24:27

directly there. And that was when

24:30

you called in and said that your

24:32

wife, she wants to start a

24:34

side hustle and she is

24:36

thinking about moonlighting in her field.

24:38

Actually quite similar to Elizabeth, she

24:40

works for the federal government and

24:43

now she wants to moonlight in

24:45

her field as a 1099

24:47

contractor. And it's so incredible

24:49

that aired in July of

24:51

2021. So fast forward

24:55

a couple of years and it's so

24:57

incredible to hear about all of the

24:59

amazing success. So a huge congrats to

25:03

both of you for that. And

25:05

Louise, everything you said is 100% right, right

25:07

on. The issue really, I think the scope

25:13

of your question is more around should

25:16

we wait on saving for long-term care or

25:19

is this a good strategy? Here's the issue.

25:21

And we spoke about this a couple of

25:23

weeks ago. So people want to talk about

25:25

the whole long-term care issue. Paula, I'm not

25:27

going to dive into it as deeply as

25:30

I did. They can go back

25:32

to Episode 484 to hear

25:34

me rant about how

25:37

challenging long-term care can

25:39

be. This is an issue

25:42

that is very

25:44

difficult to solve. It's incredibly expensive.

25:46

It will suck

25:48

so much money out of

25:51

any family's quest to

25:53

have intergenerational wealth. It

25:57

is super frustrating. This idea of

25:59

a... This traffic illness in

26:01

the family now the best way

26:03

to solve any. Insurance

26:05

question is to not answer

26:07

it like an insurance question

26:09

to answer it like a

26:11

risk management question. So the

26:14

best way also to handle

26:16

it if you're able to

26:18

then is to. Manage.

26:20

It yourself without the help of insurance

26:22

company. If I could avoid insurance premium,

26:25

that's exactly what I want to do

26:27

and that's why I like think it

26:29

about risk management versus buying insurance insurance

26:32

companies want you to think about. Hey

26:34

is this insurance good or not? Let's

26:36

widen the lens a little and go

26:38

what risks of my susceptible to And

26:41

then how do I solved those? Clearly

26:43

Luis, you already know that long term

26:45

care the catastrophic illness is a big

26:48

big big risk. The difficulty

26:50

that you're gonna want to solve for

26:52

with this. Is if

26:54

I lock this money away

26:56

and I set it aside

26:58

to manage the risk myself.

27:02

How. Does that compare to what I

27:04

would have done with a long term

27:06

care policy? And I'll tell you what

27:08

you're trying to solve for Medicaid will

27:10

pay for your skills here in a

27:13

portion of your custodial care for may

27:15

be the first quarter. The problem is

27:17

is that you have to continually really

27:19

apply and then have added so. We

27:21

want to assume that Medicare is difficult

27:24

to get longer than that. And

27:26

is also something that we can't

27:28

necessarily plan on. So because of

27:30

that I want to look at

27:33

at at starting after. Let's say.

27:35

One. hundred days when hundred twenty days

27:38

somewhere in in in that region ah

27:40

after that the average long term care

27:42

stay is about two and a half

27:44

years so i want a plan on

27:47

maybe three years and then i would

27:49

just look at rates because much like

27:51

paula you talk about the real estate

27:54

market it's a local market not a

27:56

national market it's the same a long

27:58

term care unfortunately as the cost

28:00

of long-term care stays can be look

28:05

at your region multiply by three years

28:08

take out one quarter then take that

28:10

money that's in the 529 plan use

28:13

use whatever inflation number you want

28:16

on both the cost of long-term

28:18

care and the amount of money

28:20

that you're going to have and just see that

28:22

you're going to to have a good good

28:24

model there that's on the long-term care side

28:27

if you can do that fantastic

28:29

never worry about long term care again

28:32

the issue is a lot of people have though

28:34

you're gonna see Louise that's a ton of money

28:36

this is why insurance companies are having problems with

28:38

this is because it is so much money that

28:40

you've to set aside what I worry

28:42

about is by doing this you

28:44

are going to mortgage some

28:46

of your goals these are word

28:48

mortgage a lot when it's come to goals lately we

28:50

did it with a little bit compromise

28:53

some of your goals you're gonna set this money

28:55

aside and hopefully not use it right now the

28:58

good news is this way it stays in the

29:00

family if you pay a long-term care insurance premium

29:02

it doesn't stay in the family hopefully you don't

29:05

use it you wasted all the money like that's

29:07

what we're all hoping for it's for that to

29:09

happen I don't wish the long-term

29:11

care stay on on anybody if they don't

29:13

need to this way though it

29:16

does stay with your family but you

29:18

don't get to use the money because

29:20

if you ever touch that money you

29:22

just destroyed your whole plan around long-term

29:24

care so I want to make

29:27

sure that the other goals are fully funded

29:29

before I explore some hybrid strategy which is

29:31

what you're talking about about waiting until

29:34

you know you're in your

29:36

50s and then exploring strategies

29:38

long-term care experts by the way will tell

29:41

you that you get a better rate of

29:43

return on your long-term care premium if you

29:45

buy it sooner I will

29:47

agree with them however Paula

29:50

the average family has so many

29:52

other priorities besides long-term care that

29:54

while it might be a little less expensive

29:56

in your 40s or even 30s It

29:59

may cost you a lot. Lot more goal wise to

30:01

look at. are you know what I mean, right?

30:03

I will be prepared to pay us. Yeah, I'd

30:05

be prepared to pay a higher premium later knowing

30:07

that I'm losing a few bucks by waiting on

30:10

this until I'm in my fifties. So to reiterate,

30:12

I. Would first look at. By.

30:15

Creating your own long term care insurance?

30:17

Hear? what does that? actually looks like

30:19

how to set model out when I

30:21

look at it. Let's say spending it

30:23

when I'm eighty years old. Don't.

30:26

Know what is going to happen but that's

30:28

probably a a good a slick at then.

30:30

If that is enough money I would

30:33

look at all my other goals and

30:35

makes your okay. I'm very comfortable setting

30:37

this money aside and not using it

30:39

for something else. If I'm not they

30:41

be then. I take part

30:44

of the money than out of the five

30:46

twenty nine to use or allocated towards other

30:48

goals. And then I do subtype a hybrid

30:50

stretchy later like we talked about an episode

30:52

Four Eighty Four you know we had a

30:54

collar. the talks about a life insurance policy,

30:56

the at long term care inside of it.

30:59

They. Get you something like that? I don't

31:01

know, but what I do know is.

31:04

If you can, Do. This

31:06

and hopefully don't use it and

31:08

this becomes intergenerational well for your

31:11

family which is a fabulous place

31:13

to be. And show

31:15

I want to go back to something the

31:17

he said earlier about. Any time

31:19

that you are looking at an insurance question.

31:22

Ask. Yourself.

31:24

About risk management, not about insurance. I

31:26

just want to elaborate on that flight

31:29

for the sake of everyone has listening.

31:31

The reason for that is because you

31:33

want to start not with product. But.

31:35

With Strategy Insurance is a

31:37

product. But the goal.

31:40

Is. To manage risk. And

31:43

so is The goal is to manage

31:45

risk. Then you start with our at

31:47

what is the strategy that I'm going

31:49

to use to achieve that goal. Insurance

31:51

can be a tool, gets a product

31:54

that can be a tool that you

31:56

use to execute your strategy that helps

31:58

you reach that goal. But. You want

32:00

to start with first

32:02

goal, risk management, and then

32:04

strategy, and then only look

32:06

at what tools are available. And

32:09

the reason for that is insurance

32:11

salespeople are never going to say that, right? Insurance

32:14

salespeople will have you lead with product. Never

32:17

lead with product, lead with strategy. So

32:20

much, so much better, especially in that

32:22

insurance realm. You

32:24

know, Paula, I also want to reiterate

32:26

something before we get a bunch of emails from

32:29

people to be very official.

32:31

Even when I said this, I went, you

32:33

know, I probably need to explain this more.

32:36

Medicare does not officially cover

32:38

any long-term care. Let

32:40

me tell you the reason why

32:43

I say that you might get a quarter.

32:46

My dad, as an example, had to

32:48

have some rehab after recent

32:50

surgery, Paula. So he went to

32:52

a nursing home for that. He

32:54

had coverage not because of

32:57

the long-term care issue, but

32:59

as a rehab as

33:01

part of his necessary skilled

33:03

care. So he did

33:05

get coverage. But that's the way,

33:08

every time I've seen a long-term care

33:11

situation, it starts off as a

33:13

rehab. It starts off as,

33:15

I mean, nobody just, I don't

33:17

see people busting down the door going, hey, you know,

33:19

I want to get into a long-term care facility. Maybe,

33:22

maybe it is an Alzheimer's

33:24

issue, as an example, that

33:26

could be a reason to go to

33:28

a nursing home. Maybe you don't have anybody

33:30

close to you, no relatives close that can

33:32

help you, so you end up at a

33:34

nursing home. So there are reasons

33:37

why Medicare won't cover any

33:39

of it. Medicaid

33:41

will cover long-term care stays

33:44

in a long-term care facility

33:46

that they approve. So you'll

33:48

have to ask about Medicaid. Payment

33:51

insurance will probably cover anywhere. You'll want to look

33:53

at the stipulations of your policy, but Every

33:55

policy I've seen will cover the place where you want to

33:58

go. They'll just limit the amount that they pay. They

34:00

are they want limited the facility

34:02

as long as they check some

34:05

boxes for being a truly a

34:07

skilled. Accredited. Place

34:10

for you to stay. So I just

34:12

wanted work through the definitions there because

34:14

we may have paula Some people in

34:16

the industry go and nope, Medicare won't

34:18

pay for that. Totally agree

34:20

that. Going back to the rule

34:22

of leases clustered in the fact that

34:24

this is now. The. Question on

34:27

his mind. Long term financial planning

34:29

is all based on the fact

34:31

that. His. Vice Five

34:33

or for our sins So

34:36

wildly successful. That they've

34:38

been able to pay off all their

34:40

student loans, pay off their consumer debt,

34:43

Get. Themselves to a place where they're like,

34:45

wow, What do we do

34:47

now? How do we use more

34:50

sophisticated strategies to manage your money?

34:52

To. A That's a question fundamentally that

34:54

comes from a place of abundance.

34:56

And that abundance comes from having

34:59

a very, very successful side. Hustle

35:01

fell. Again, release Big

35:03

big congratulations to you and

35:05

your wife for. Going.

35:07

For it. Will. Thank you

35:10

release for that question. About

35:12

away I've been here at

35:14

afford anything. We are

35:16

planning on rolling out. Potentially.

35:20

It's if there is interest in it's worth

35:22

it to be rolling out a kickstarter. To.

35:24

See whether or not. People.

35:27

Are interested in. A

35:29

course on. How to start a

35:32

side hustle? How to start a business? We've

35:34

got their draft page already set up and

35:36

kickstarter. We're putting some

35:38

of the finishing touches on it, but

35:40

we're gonna be looking for the first

35:42

round of of beta testers are going

35:44

to be looking for the first rounders.

35:47

People. Who will help shape and

35:49

guide. ah what they're offering

35:51

will be so is that something you're

35:53

interested in please sign up for our

35:56

show notes because we're going to be

35:58

emailing it's ah our email subscribers,

36:00

see people who are subscribed to the show

36:02

notes, you're going to be

36:04

the ones who hear about it first.

36:06

So affordanything.com/show notes to be the

36:08

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our attention away from side hustles and

39:01

towards home ownership. Our

39:04

next question comes from a voice

39:07

that may sound familiar. Here's

39:10

Steve. Hey,

39:12

Paula and Joe. It's Steve. Long,

39:14

long-time listener. First-time caller, though. My

39:17

wife and I have plans to move out

39:19

of state. We know the town have been

39:21

patiently looking for the house, quote-unquote, the house,

39:24

since 2019. But

39:26

we feel like we're getting really close. To

39:28

make the math easy for this question, I'm going to

39:30

use round numbers to create the scenario. The

39:32

purchase price of the house will be $500,000. Our

39:35

down payment will be $100,000, which we already

39:37

have put in cash on the side. Our

39:39

current home is worth about $350,000 and there's no

39:41

mortgage on it. It's paid off. The

39:45

challenge. My wife doesn't want to sell our current

39:47

house until we've closed on a new one. By

39:50

my finger in the error calculations, a mortgage of $400,000, the

39:52

$500,000 purchase price minus the down payment of $100,000, plus

39:57

the insurance and property taxes we'll be paying, it's going to cost

39:59

us $500,000. about $3,000 to $3,500 a month. I'm going

40:34

to be doing an 80-20 type loan, which many people have done to avoid PMI. The

40:37

80% would

41:01

be paid off with the sale of our house and the 20% mortgage

41:03

would then become our one and

41:06

only mortgage that I can work on paying off as

41:08

fast as I can. I'd love

41:10

to know if you have a better solution. Signed

41:13

with love, Steve and Vicki Stewart. P.S.

41:15

If you answer this question on the show

41:17

before we sign the contract, I'll buy you

41:19

both a spin drift. He

41:24

outed himself. I

41:29

was about to say, hypothetically, if your

41:31

spouse's name was Vicki, but he beat

41:34

me to it, Steve beat us to it. P.S.

41:38

Man, Steve really is a long-time listener.

41:41

I believe since episode, since

41:43

prior to episode one. P.S.

41:45

That is for people who...

41:47

P.S. Do you feel the person who's heard episode zero...

41:49

P.S. For people who don't know, that's the amazing Steve

41:52

Stewart who edits both the Ford

41:54

Anything show and the Steckenbenderman show. P.S.

41:56

He knows our voices very, very well. P.S.

41:59

I have one thought for you. Paula about

42:01

just steve's math. Which

42:04

is always great to say to steve because

42:06

steve always has great math by the way

42:08

so to be able to catch steve in

42:11

a math assumption makes me a little giddy i'm

42:13

pretty excited. I got something i let's hear it.

42:18

Well he says it's three thousand to thirty

42:21

five hundred dollars a month and that's the

42:23

cash flow but paula that's

42:25

not the true cost the

42:27

true cost. If he

42:29

does this strategy is just

42:31

gonna be the interest on the loan during

42:34

the time that he holds the two houses

42:36

right so he's gonna have this one loan.

42:38

And i'll have just the

42:41

interest payment because the principal

42:43

payments going toward the value

42:45

of the property plus the

42:47

cost of the insurance and

42:49

property taxes on the first

42:51

house so. Based

42:54

on the size properties he's talking about

42:56

i think that well the cash flow

42:59

is going to be thirty five hundred dollars.

43:02

Really the cost of the

43:05

keys desire to have more certainty

43:07

in her life is

43:09

going to be well shy of thirty five

43:12

hundred dollars. Interesting it's interesting you

43:14

you picked up on the monthly payment piece cuz

43:16

that was not the piece that was in my

43:18

head at all. The piece that

43:20

was in my head so thinking about the

43:22

big numbers right they want to hold the

43:24

five hundred thousand dollars they have

43:26

a hundred thousand dollars in cash. Sitting

43:29

just sitting there waiting to be deployed on

43:31

a home right so that

43:33

gap that they need to plug is

43:35

four hundred thousand dollars now the value

43:37

of their current property is three hundred

43:40

fifty thousand dollars. After let's

43:42

say an eight percent haircut so they're gonna

43:44

pay six percent for a realtor

43:46

fees and then maybe another two percent for

43:48

a bunch of other miscellaneous so.

43:52

Times point oh eight will say twenty eight

43:54

thousand dollars is going to be the haircut

43:57

which means that after paying. realtor

44:00

fees and other expenses associated with selling

44:03

their home, they will probably be left

44:05

with ballpark around $322,000. Let's

44:08

just say $320,000 for the sake of round numbers,

44:11

right? $320,000 after they sell their home. So

44:14

here's what I'm imagining. They make

44:16

an offer on this $500,000 home with a home sale contingency. Okay.

44:24

So in the contract, they

44:26

put in a home sale

44:28

contingency that's, you know, for,

44:31

we'll say 60 days, right? They

44:34

then, once they're under contract for this home,

44:36

they now have 60 days to

44:38

sell their

44:40

current home, get that $320,000, that plus the $100,000 that

44:42

they've got. Now

44:46

they've got $420,000. The

44:48

amount that they need to borrow is only 80

44:51

grand. Yeah, they'll pay a 7%

44:53

interest rate on an $80,000 mortgage, but like at that point, you

44:57

know, with an $80,000 mortgage, that monthly payment

45:00

on that mortgage is going to be so

45:02

small that they wouldn't even ever have to

45:04

refi that. They can just shovel money towards

45:06

that and have that paid off pretty quickly.

45:10

The very first note that I took

45:12

when I first heard Steve's question was

45:15

contingency loan. That

45:17

was my very first note, Paula. So I'm

45:20

definitely on board with that. Obviously, the only

45:22

issue with a contingency loan is that if

45:25

there's two competing offers, one's

45:27

contingency, one's not, you

45:29

know, that makes it a little more difficult if

45:32

it's a super competitive market. But

45:34

with markets maybe cooling down a little

45:36

bit, a contingency won't be looked at

45:38

so as harshly as maybe two

45:40

years ago. I mean, I think

45:43

home sale contingencies are so common, right?

45:45

So many people are only able to

45:47

buy a home if they sell their

45:49

current home. So I

45:51

think it's incredibly common for

45:54

a buyer to receive a contract that

45:56

has both a financing. He would want

45:58

to have it two contingencies. in there, he

46:00

would want to have both a financing contingency as

46:03

well as a home sale contingency. But

46:05

the financing contingency would be the financing that

46:07

he gets from the bank for that $80,000

46:09

gap. And then the home sale contingency would

46:11

be of course for the sale of his

46:13

own. Sure. He

46:15

just wanted to know the downside. And

46:17

I think that's potentially

46:20

a Achilles seal to your point. I think

46:22

it is very common. I don't think it's

46:25

something I'd stay up at night worrying about,

46:27

but I do know that contingency

46:30

offers get beat by cash offers. Yeah,

46:32

that's true. If this were the year 2020 or

46:34

2021, remember at that time, the

46:39

housing market was incredibly competitive. And

46:42

homes that were listed would often get

46:44

multiple offers on the day that they

46:46

were listed. People forgoing inspections.

46:49

Right, exactly. People forgoing

46:51

inspections. People were forgoing all

46:53

contingencies. If you want quantitative

46:55

data around this, there's a metric

46:57

called average days on market. And

47:00

in some markets like Boise, Idaho,

47:02

the average days on market was eight. Eight.

47:06

It is historically never

47:09

in the single digits. Right. But eight

47:11

days on market from the time of

47:13

properties listed to the time that it

47:15

is under contract, 2020 and

47:17

2021, when interest rates were rock bottom low, those

47:24

were eras in which

47:26

home buyers flooded into the market and

47:28

you had a hyper, hyper competitive home

47:31

buying atmosphere. Today

47:33

with interest rates high, we

47:35

have the opposite issue today. Home

47:39

buying is at its lowest point since 1996, which

47:43

means if you are a

47:45

buyer, you are in an

47:47

incredibly strong position today because you're

47:49

not facing much competition. So if

47:52

there was ever a time to

47:54

be buying a home with multiple

47:57

contingencies, a financing contingency and a

47:59

home contingency, this

48:01

is the time to do it because this is

48:03

the time in which you are not

48:05

squaring off against a whole bunch of other buyers.

48:08

Just wait until interest

48:10

rates drop, right? Just

48:12

wait until we are back to, we'll

48:15

say 5% mortgage

48:17

interest rates. What do you

48:20

think is going to happen to the home buying market?

48:22

It's likely going to get a heck of a lot

48:24

more competitive, which means that

48:27

you'll be squaring off against very aggressive

48:29

buyers who are making very aggressive offers.

48:32

Definitely a better time to make a contingency

48:34

offer now than two years ago. Yeah,

48:37

exactly. That's why time

48:40

and time again, and I cannot say this enough, when

48:43

people say, oh, interest rates are high, therefore

48:45

I don't want to buy a home. Are

48:50

you freaking kidding me? What do you think

48:52

is going to happen when interest rates drop

48:54

if you are waiting to buy a home

48:56

while rates are high? Guess what? You're

48:59

waiting along with everybody else. That means

49:01

that when interest rates decline, you

49:04

are competing against all of those

49:06

other people who have also waited.

49:09

If you can afford the house at 7.5% or

49:11

whatever the prevailing

49:13

interest rate is on the day that

49:15

you buy it and interest rates drop,

49:18

you already own the home that you

49:20

bought less competitively, which meant you were

49:22

probably able to negotiate a better price

49:25

tag on the house. You've got

49:28

this cool little tool you can

49:30

use called a refinance.

49:33

Yep. Ding, ding, ding, ding, ding, ding, ding. Then

49:35

the house just becomes more affordable. Right.

49:38

Exactly. Then you

49:40

can put that money toward the mortgage, toward other goals, whatever

49:44

you want. If you can afford it at 7.5%,

49:46

then you'll be sitting

49:48

pretty when you refi into

49:50

5%. Steve, in your case,

49:53

I wouldn't bother refiing. I would take out

49:55

the smallest mortgage possible. Get her done. Yeah,

49:57

exactly. Get

50:00

your dream house under contract with

50:02

a financing contingency and

50:04

a home sale contingency Once

50:07

it's under contract sell your home use

50:09

the proceeds from the sale of that home plus the hundred

50:12

K that you've saved to make

50:14

a gigantic payment will say you're making a

50:19

$420,000 payment on this five hundred thousand

50:21

dollar property And then the only mortgage that you

50:23

need to take out is going to be eighty

50:25

grand maybe a hundred grand It's going to be

50:27

such a small mortgage that you'll never have to

50:29

think about refiling it because why would you? It's

50:32

such a tiny mortgage that you can just shovel

50:35

money towards it and pay it off Super

50:38

fast, but yeah for everyone else

50:40

who's listening if you are Thinking

50:43

about waiting until interest rates decline

50:45

don't but obviously don't spread yourself

50:47

too thin Don't be house poor

50:49

like all the basic personal finance

50:52

classic principles Don't

50:54

go away. Those are always there no

50:56

matter what but if you have The

51:00

means to buy a home and

51:02

you're thinking to yourself. I'm just gonna sit on

51:04

the sidelines until rates come down Man

51:07

when that happens likely you are

51:10

going to be competing With a heck

51:12

of a lot of other people who also

51:14

share that same pent-up demand Let's

51:16

widen that a little bit Paula. Yeah 16

51:19

years as a financial planner 15

51:22

years doing this financial media stuff

51:25

The phrase I hear more often

51:28

every year that has persisted never

51:30

goes away is timing timing

51:34

and The thing that

51:36

kicks people's ass over and over and over

51:39

is timing Like I hear

51:41

so many negative stories later about people trying

51:43

to time. Well, it's not a good time

51:45

to buy a house It's not a

51:47

good time to buy the stock. It's not a good time

51:49

to buy it It's whenever

51:51

we try to time We

51:54

get in trouble and it doesn't go away.

51:56

I'll see it on three different different pieces

52:00

on popular websites today. Either the

52:02

realist timing isn't good, the crypto

52:04

timing isn't good. Like some reason,

52:07

some author is telling you that

52:09

you need to wait. And

52:12

this is one area where I think

52:15

people get in trouble trying to time it out.

52:17

And Steve's like, what does that do with me?

52:19

It doesn't, Steve. I'm just going, OK? Well,

52:24

you know, timing only applies in one context,

52:26

which is the timing in your

52:29

personal life. Yes. Yes.

52:32

But the authors are never talking about that

52:34

when they're talking about timing. They're always talking

52:37

about, oh, well, you know what the Fed

52:39

might do. You know what's going to happen

52:41

with the election. Prices are at

52:43

all time highs, or whatever the goofy

52:45

thing is that they're talking about. This

52:48

idea of timing that you read, you just

52:50

got to put on the blinders and block

52:52

that off. Right. Exactly.

52:54

Timing matters when it comes to your life,

52:57

your budget, your income, your debts,

52:59

your competing priorities. That's where

53:02

it matters. What matters is, does

53:04

this fit into your

53:07

personal budget? But

53:10

if it does, man, never

53:12

hesitate based on macro

53:15

factors. Because you

53:17

know what two asset classes reliably

53:19

go up over the

53:21

long term? Stocks and real estate. But

53:24

Steve, one other suggestion. So

53:28

let me float an alternative plan. Because

53:31

the drawback with this

53:33

home sale contingency idea is

53:36

that it then forces you to

53:38

have to sell your home rapidly.

53:41

And if you're in a position where

53:43

you have to sell your home rapidly,

53:45

then there's the risk that you

53:48

might be forced to accept a lower offer

53:50

than you otherwise would have been able to get if you

53:52

had held out for another couple of months. So let

53:54

me propose an alternative idea. And that

53:57

alternative idea is you

53:59

make an offer on the home. the $500,000 home, you

54:03

put the $100,000 that you've saved towards that

54:05

home, you take out a

54:07

mortgage for $400,000, so you

54:10

make an offer with only one contingency, which

54:12

is a financing contingency, right? You

54:14

finance that $400,000 gap, close on the home. Once you have

54:17

closed on the home,

54:21

then you sell your current

54:24

home. And then when you sell that current home and

54:26

you've got the $320,000,

54:28

which theoretically is going to take

54:30

only a few months, maybe three months, four

54:32

months, like let's say that rather than having

54:35

the, you know, if you have a home

54:37

sale contingency, you've got the time pressure to do this in 60 days

54:40

ish, maybe even less, right?

54:42

If you don't have a home sale contingency,

54:44

maybe you take longer and you hold out

54:46

for the right buyer. So maybe

54:48

selling your home takes three months or

54:50

four months or heck five, six months,

54:52

let's go crazy. Let's say it

54:55

takes six months. Even

54:58

if it takes six months, once

55:00

that home is sold, you'll have ballparked

55:02

$320,000 that you would then use to make a gigantic lump

55:04

sum payment against

55:10

this mortgage. And then

55:12

with that huge lump sum payment made, the

55:14

remaining balance on that mortgage is still going

55:16

to be so small that again, I don't

55:19

think there's any point in refiying it. You're,

55:21

you're on the amortization

55:24

table, you are way out there,

55:26

right? On the amortization table of

55:28

that for originally $400,000 mortgage,

55:31

you have now paid off so much

55:33

principle that most of your remaining payments

55:35

are going to go primarily

55:37

to principle. So again, the

55:39

monthly payment is going

55:41

to be high, but it's almost all going

55:43

to be principal payment because you've made the

55:45

big lump sum that's like carried you into

55:48

the far, far latter half of

55:50

the amortization chart. What

55:53

I love about it is that the

55:55

monthly payment is based on a higher

55:57

number, which

55:59

just, forces you to get it done.

56:01

Yeah. Yeah. And most of that's

56:03

going to go to principle. Yeah. And

56:06

if you make it, if you make

56:08

it a that that lump sum principle

56:10

payment, your monthly payment obligation stays high,

56:13

it gives you this force savings,

56:16

which I dig. So yeah. Yeah.

56:18

Now the drawback to this second

56:21

plan, the one that I've just outlined, is

56:24

that your loan

56:26

origination fees are going to be higher

56:28

because you're borrowing a higher amount. So you're going to

56:30

have to pay another, an extra few

56:33

thousand there. But the

56:36

trade off for paying an extra few thousand in those

56:38

loan origination fees is

56:40

that you get the benefit of time to

56:44

sell your current home in

56:47

the optimal way, rather than being time

56:49

pressured to sell your current home in

56:52

between going under contract and waiting for

56:54

the closing. So

56:57

actually, now that I'm saying this out loud, I

56:59

like the second plan

57:02

better. No, I do not. Now

57:04

that I've heard myself say both of those out loud,

57:06

because when I originally heard his question, both of those

57:08

plans popped into my head at once. And

57:11

now that I hear myself speaking the words out

57:13

loud, I do like the second plan better. Certainly

57:16

there will be higher loan origination fees to pay, but

57:18

I think that that is a worthwhile

57:21

fee for having the

57:24

leeway to

57:26

hold out for the right buyer. What's

57:29

interesting is I like it better too for

57:31

me. I've known Steve for a long time.

57:33

I think he likes it worse because of

57:35

his aversion to larger amounts of

57:37

debt. Yeah.

57:39

And typically, I mean, again, both

57:41

of those plans popped into my head at once.

57:43

I think they are both perfectly fine viable plans.

57:46

But we've outlined what the pros and cons are in

57:48

terms of the

57:51

contingencies versus the loan origination, the size

57:53

of mortgage that you take out. That's

57:56

what you wanted, Steve. There it is. Send

57:59

me my spin. drift. Well,

58:04

thank you, Steve, for the question and

58:07

for editing both of our shows for so

58:09

many years. Steve

58:11

Stewart is the engine that makes both

58:13

of our shows possible. The little engine that

58:16

could often. And the

58:18

guy that has heard so

58:20

much Paula talk between the

58:22

pieces that actually make

58:24

it to the show. Yeah,

58:28

he's got so much on the cutting room

58:30

floor. Steve's got some dirt. Yeah.

58:34

That's tip number three. You could just blackmail us

58:36

with all the dirt that's on the

58:38

cutting room floor. That'll plug

58:40

the gap. Oh, make sure you cut

58:42

that part, Steve. Steve cut that part. I

58:45

do not like that. I don't like strategy number

58:47

three. Very bad. You

58:52

want him to actually cut that? No. Well,

58:59

our final question today comes

59:01

from Greta. Hi,

59:04

Paula. My question is whether it

59:07

makes sense to roll money from

59:09

an IRA into

59:11

a 401k. So

59:14

a bit of background, I

59:17

have a Vanguard IRA

59:20

that has both Roth

59:22

and traditional IRAs at

59:25

Vanguard. This IRA money

59:27

is money that I rolled from old

59:30

401ks into an IRA.

59:33

However, I now have

59:36

a 401k with

59:38

fidelity that has good

59:40

low cost options.

59:43

And I'm wondering if it would make

59:46

sense to roll my

59:48

traditional IRA at Vanguard

59:51

into my traditional

59:54

401k at Fidelity

59:57

in order to potentially in the future. be

1:00:00

able to do a backdoor Roth

1:00:03

at Vanguard. Currently

1:00:06

with my current employer I can

1:00:08

do a mega backdoor Roth at

1:00:11

Fidelity so I'm not currently

1:00:14

needing to do a backdoor Roth at

1:00:16

Vanguard but I'm wondering if in

1:00:18

the future if I wanted to do

1:00:21

a backdoor Roth if it

1:00:23

would make sense to get rid

1:00:25

of the traditional IRA money there

1:00:28

in order to avoid

1:00:30

the pro-rata rule. Seems

1:00:32

like mostly people

1:00:34

are rolling 401ks into

1:00:37

IRAs but wondering if in this case

1:00:40

it might ever make sense

1:00:42

to roll an IRA back

1:00:44

into a 401k given that

1:00:46

my 401k right now

1:00:48

has great investment options. Thanks

1:00:51

for your advice and everything you do. Greta,

1:00:54

thank you so much for that

1:00:56

question and by the

1:00:58

way congratulations on it

1:01:01

sounds like the new 401k is a

1:01:03

pretty great place to be and Paula

1:01:05

I think I have a short answer

1:01:07

for Greta and I have a longer

1:01:09

answer for Greta. Which one do you

1:01:12

want first? Oh okay let's start

1:01:14

with the short answer. Yeah the short answer

1:01:16

is never ever ever do this. Don't

1:01:19

swim upstream and

1:01:22

we're done unless you want the

1:01:24

longer answer. Yes let's hear the

1:01:26

longer answer why is that? But

1:01:28

the longer answer is because of

1:01:30

two things number one is management

1:01:33

changes at any company

1:01:35

often come with cost-cutting measures

1:01:37

and things that sometimes

1:01:39

aren't great for employees and

1:01:42

a great place for

1:01:44

a management team that is in

1:01:47

cost-cutting mode to cut is those

1:01:49

favorable conditions on the 401k.

1:01:52

It's expensive to manage a 401k

1:01:54

and while fees have definitely dipped

1:01:56

over the past 30 years have

1:01:58

gotten smaller and smaller That

1:02:00

doesn't mean they'll always be that way. That also doesn't

1:02:02

mean that you'll always have great options. And if you

1:02:05

roll it to a 401k now, you're

1:02:08

going to have to roll it back later. Now the

1:02:10

cool thing is, is that 401ks

1:02:12

even with good options, often

1:02:15

cap those options so

1:02:17

that there's maybe 10 or 20 or

1:02:19

30 so they don't confuse people. And even if they have

1:02:21

30, they don't

1:02:23

have the same number that Schwab has

1:02:26

or Fidelity has or Vanguard has where

1:02:28

you've got everything available. So

1:02:30

no matter how great your 401k is, use

1:02:34

the IRA as an opportunity to

1:02:36

diversify around it. So what I'm

1:02:38

talking about is this. Let's say

1:02:40

you've got a 401k that's very

1:02:42

strong in large companies and small

1:02:44

companies, and you want those funds

1:02:46

in your portfolio, but you

1:02:48

also, let's say, want some international, and

1:02:51

your 401k has horrible

1:02:53

international options, but Vanguard has a

1:02:55

good one. Use

1:02:58

Vanguard to get that

1:03:00

better international exposure that you

1:03:02

want. Use the 401k to

1:03:05

do the small company and large

1:03:07

company funds. And if somebody

1:03:09

from the outside looks at your stuff, they'll

1:03:12

go, well, this isn't diversified. Why are you

1:03:14

all international? But when they look

1:03:16

at the entire picture, all the

1:03:18

things that you're trying to do, Greta, you've got

1:03:21

better diversification because of the fact that

1:03:23

you controlled your fees, gave

1:03:25

yourself better upside by having

1:03:28

the best of whatever was available.

1:03:30

So I always like the two

1:03:32

table option with that IRA and

1:03:34

whatever your 401k is. And

1:03:36

I generally have a mistrust of maybe

1:03:39

not this current management team you work

1:03:41

for, but that your company will always

1:03:43

continue to do the right thing because

1:03:46

you often see that the company doesn't do the right

1:03:48

thing in the future. The

1:03:50

other pieces, even for

1:03:52

people that think that they have a very low cost

1:03:54

401k, often they

1:03:57

don't, but you don't see

1:03:59

it. Companies are very good at

1:04:01

hiding fees and I'll show you how they do this.

1:04:04

If you look at the fund that you

1:04:06

have and you go to morningstar.com, you'll

1:04:09

see on Morningstar that when

1:04:11

you invest through Vanguard or through Fidelity

1:04:13

or through Schwab in a mutual fund,

1:04:15

you'll often use an investment

1:04:18

that is, let's say

1:04:20

it's the Vanguard

1:04:22

S&P 500 investment class. They

1:04:27

may use a different class of

1:04:29

the same fund inside your 401k

1:04:32

that has higher expenses that

1:04:34

allows the management team to pass the cost

1:04:37

of administering the 401k onto you in a

1:04:39

hidden way because

1:04:43

the internal cost of the fund is different

1:04:45

than what you may look up. Often, I

1:04:47

would meet with people and they would go look up their

1:04:50

fund. They're like, oh, this is

1:04:52

decent. And I would say, no, you don't have

1:04:54

that class fund. You have this class. Then we

1:04:56

go look up that one. And surprise, surprise,

1:04:58

management team has hidden fees

1:05:01

behind your back. So

1:05:04

maybe that's the case, maybe not. We're

1:05:07

also seeing that shell game happening in

1:05:10

fewer companies. We see it more in

1:05:12

small companies than in large companies. Small

1:05:16

companies are less likely to get pushback on

1:05:19

the 401k options and, frankly, also are

1:05:22

more strapped for cash. So

1:05:24

on both sides of the equation,

1:05:27

small companies are much more likely to pass on

1:05:29

the fee than a big company is. And

1:05:32

also, large companies have economies of scale

1:05:35

where investment companies that run 401ks are

1:05:37

much more likely to go, oh, you've

1:05:40

got a billion dollars. We'd

1:05:42

love to manage that. We'll cut our fees by a lot

1:05:44

where they won't do that for a small employer. So

1:05:46

I would, for

1:05:48

all those reasons, I

1:05:51

would not ever, ever, ever swim

1:05:53

the opposite way. I would always

1:05:55

leave my IRA money in an

1:05:58

IRA. employer,

1:06:00

I'm much more likely to not

1:06:02

pay attention to what's going on at that

1:06:04

company anymore. And I would

1:06:07

always roll that into

1:06:09

this parent IRA. So I've got this

1:06:11

IRA from all of my different jobs

1:06:13

that I've had, and I'm constantly adding

1:06:15

to it when I change jobs. So

1:06:18

this master IRA, and then I have

1:06:20

the 401k where I'm working now. And

1:06:23

that's the way I like to run it. That

1:06:26

makes sense. And frankly, simplifying

1:06:28

your structure generally, this is a tip

1:06:30

really for everyone who's listening, simplifying your

1:06:33

investment structures makes

1:06:36

you more likely to do well

1:06:39

in the long run. I think one

1:06:41

pitfall that many people in this community often

1:06:43

face is the temptation to over

1:06:46

optimize. And sometimes

1:06:48

over optimization can actually be counterproductive.

1:06:52

We've been talking about that even internally

1:06:54

here at Afford Anything, we

1:06:57

have some processes that we

1:06:59

have over optimized.

1:07:02

And it's actually in the

1:07:04

big picture, I think been to our detriment.

1:07:07

So for example, within our

1:07:09

newsletter, right, we have all

1:07:12

of these various segments, you know, we've got

1:07:14

78,000 people on

1:07:17

our newsletter who subscribe to our newsletter.

1:07:22

But we have a specific segment for

1:07:24

people who are interested in learning about side

1:07:26

hustles in small business. We have

1:07:28

a specific segment for people who are interested in learning about

1:07:31

real estate. We have a specific segment

1:07:33

for people who want the podcast show notes,

1:07:35

with all these various specific segments, then

1:07:38

we've got the overall newsletter, right. And

1:07:41

what this means is that we have to create and

1:07:43

manage separate content

1:07:46

for the people who want specifically

1:07:50

side hustle content, the people who

1:07:52

want specifically real estate content, the

1:07:54

people who want specifically just general

1:07:56

personal finance, right. So we're creating

1:07:58

more and more. War and. What

1:08:01

we're creating a seen by fewer and fewer.

1:08:03

Rights. So rather than investing our

1:08:06

time into creating just one thing

1:08:08

is. For. Everyone. Were

1:08:10

creating a for things for one

1:08:13

fourth. Of the people. And that

1:08:15

has a severe limitations on how

1:08:17

much we can actually create and

1:08:19

it it results in. Sometimes people

1:08:21

end up getting emails from our

1:08:23

archives that are older. They're. Like

1:08:25

hey I got this email but it

1:08:27

was written for years ago you know

1:08:30

and I'm like sorry that from the

1:08:32

of our many many segment you know

1:08:34

like it's soil is. The. Point

1:08:36

of all of that is that

1:08:38

sometimes over optimizing and trying to

1:08:40

over deliver and trying to over

1:08:42

perfect everything actually. Leads. To

1:08:45

a worse and results. and that happens

1:08:47

Business It happens in investing, it happens

1:08:49

in. Almost any Sas,

1:08:51

at at least any facet

1:08:54

of financial and. Professional.

1:08:56

Life. It's funny

1:08:59

because you think about delivery

1:09:01

and systems and as I

1:09:03

hear that. The ah

1:09:05

The business owner says that a

1:09:07

sounds like you're you're having a

1:09:09

right now Paula is that. If

1:09:12

we stop, a lot of that. We

1:09:15

could even offer. Fifty

1:09:18

percent more. Content City

1:09:21

percent better More often, whatever is

1:09:23

of the definition of better is.

1:09:27

And. Because you're decreasing things by

1:09:29

seventy five percent, you cannot be

1:09:31

of this one greater whole. A

1:09:33

Bigger Things It's it's easier for

1:09:35

you to deliver. People get more

1:09:37

value out of it. Everybody wins.

1:09:40

By. The segmenting. Exactly.

1:09:42

And so think of your investments like

1:09:44

that. Think of your investments. In terms

1:09:46

of this the overall portfolio that that

1:09:48

greater whole. right? The.

1:09:51

Whole mess of it. That's what you're aiming

1:09:53

to create. And

1:09:55

the more complexity. That you

1:09:57

add. into that portfolio

1:10:00

The more distraction there is from

1:10:04

nurturing the overall basket,

1:10:07

that big, big picture. Thank

1:10:10

you, Greta, for the question. And I'm

1:10:12

glad we were able to give a, we gave

1:10:14

a clear and unambiguous answer. Don't

1:10:17

do it. All right. Well,

1:10:20

Joe, we have done it. We've done it again. I

1:10:23

can't believe it. The time always goes so fast. It

1:10:26

does. It flies. It

1:10:28

really does. How many people find you if they want to hear more of

1:10:30

you? Oh, three days a

1:10:32

week at the Stacking Benjamin Show, the

1:10:34

greatest money personal financial on earth. We

1:10:38

call it that because of our segments and

1:10:40

it's a little bit of a circus. What's

1:10:43

coming to the circus, by the

1:10:45

way, Paula, is our mutual friend,

1:10:47

Shannon McClay. She's the owner

1:10:50

of the Financial Gym. Shannon

1:10:53

loves to talk about, as a

1:10:55

long time financial advisor, the dirty

1:10:57

underbelly of financial advising. What

1:11:01

truly happens on the other side

1:11:03

of those tables, and Shannon and

1:11:05

I are going to discuss hiring

1:11:07

better financial help. So for people

1:11:09

that want better financial advisors, you

1:11:12

will hear, and Paula, you know Shannon,

1:11:14

she doesn't mince words. She will tell

1:11:16

you exactly the

1:11:19

ugliness. But she

1:11:21

also believes, like a lot of people do, that

1:11:24

man, if you can find the right professional for

1:11:26

people that truly need one, that

1:11:28

could be great. It could be horrible and it can

1:11:30

be great. So Shannon joins us for what's

1:11:33

going to be a pretty wild discussion. Excellent.

1:11:35

Well, that is at the Stacking Benjamin's

1:11:37

podcast, where finer podcasts can be found.

1:11:39

Finer. Only the finest.

1:11:41

And we are going, so you guys are three

1:11:43

days a week, we here at Afford Anything are

1:11:46

going to move to twice a week after. What?

1:11:50

Yes. It's true. It's

1:11:52

true. And Joe, you're going to be joining us on a weekly basis.

1:11:55

It's true. The good news is, everybody,

1:11:58

I get time and a half now. Ah

1:12:00

nice. Actually, what is a one

1:12:02

point five times zero Mississippi? say

1:12:05

I'm it's. Ah,

1:12:08

but yes, that change is going

1:12:10

to go into a Sex Astor.

1:12:12

Episode Five Hundred And Episode five

1:12:14

hundred is good in the air.

1:12:16

On for twenty four, Twenty four.

1:12:19

April Twenty Four. Twenty Twenty Four.

1:12:21

So we're going to have a big

1:12:23

party extravaganza. Four Episode Five hundred. It's

1:12:25

gonna be an amazing show and then

1:12:28

after episode Five hundred, starting with episode

1:12:30

Five and one, we're gonna go to

1:12:32

a two day per week schedule for

1:12:34

that is what is happening here at

1:12:37

Afford Anything. So. Make. Sure

1:12:39

that you are signed up for our

1:12:41

show notes or talked about that. It's

1:12:43

few times on this or episode but

1:12:46

I cannot emphasize that analysis. Sign up

1:12:48

for our show notes. Afford anything.com/show Notes

1:12:50

You will get updates of every episode

1:12:52

that we produce. You will get our

1:12:55

special newsletter which we are going to

1:12:57

be producing more often. Now that we're

1:12:59

we're reducing our sub segments and really

1:13:02

focusing on serving our overall newsletter audience.

1:13:04

Sign up for our show notes. You

1:13:06

can hear all about episode Five hundred.

1:13:09

And I'll be be twice

1:13:11

a week. Episodes that are

1:13:14

to com sat at Afford

1:13:16

anything.com/oh no. With

1:13:19

thank you so much for. Doing it on purpose

1:13:21

or just as the house. And

1:13:23

we'll catch you. In the next episode.