Let’s dive into the week with some fresh listener questions we have lined up for you! And don't just stand on the sidelines- if you have a question you’d like us to answer, toss your voice memo our way. It only takes about 90 seconds to record and you can find a step by step guide over at HowToMoney.com/ask . Regardless of how random or bizarre you might think it is, we want to hear it!
1 - How should the Sahm Rule Recession Indicator impact my investing?
2 - Why would my financial advisor recommend against going with a Roth IRA?
3 - Does it make sense to go with the new Halfmore app to set up a retirement account for my kids?
4 - Should I use an inherited retirement account to pay for some big upcoming expenses?
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Best friends out!
Welcome to How to Money. I'm Joel, I'm Matt. Today we're answering your listener questions.
Happy Monday, everybody, and we are glad that you are rejoining us for and ask How to Money episode where we're going to hear directly from all of you wonderful listeners out there. Joel, we're going to talk about something brand new, the PSALM rule. This is not something we've ever talked about on the show, at least it's not something that I remember.
I don't think so.
I love having talked about breaking new ground new. Yeah, it's like the new frontier first finance, and this rule has actually not been around all that long, but it's gained that is true, a.
Lot of credibility, I guess as of late. But we'll see how that should impact how it is that you invest. We're going to talk about this new app out there that is going to help kids to say, for retirement, it's going to be a way that they're going to be able to become easy millionaires, Joel. Easy, that's the promise, at least promise. Another listener is asking what he should be doing about some big out of the ordinary expenses he's got these looming items on the horizon, and he's asking for our advice. We'll get to those plus more during our.
Episode today, Buddy.
Yeah, but before we get to listener questions, maybe we should get to a warning from a listener, Matt, we had an email from listener Sam and he was happy for us to divulge this to the rest of the Had Money audience, which I really appreciate because I think sometimes when you do something that's ill advised, it's easy to feel shame or guilt and you're like, man, you know, I just cover this thing up and not tell anyone. But the thing is when you tell people, then they can avoid stepping in the same hole. And this is this is a potential pitfall I think for people.
Was it like that one time you spent your family inheritance and you blew it all in one day in Vegas? Yeah, you didn't want to talk about that right here on the show.
Very shamed of that.
So this one is particularly when Sam was trying to get his passport renewed, and so instead of going to the State Department's website, he does a Google search instead, like you do, or like you used to do. The millennials do.
Change in the game. But yeah, and.
So he found himself going through all the steps to renew the passport and then realizes after the fact that he spent way too much. And then he went through a third party website. So not a scam, fortunately, but he did pay more than he needed to in order to get his passport renewed because of the sponsored posts that pop up at the very beginning when you do that Google search. So just I think that is a good warning. I think we're all so used to granted, fewer people doing Google searches now googling does it feels like something your grandparents did, I guess, even though I still do it. But yeah, I think that is worth mentioning that what pops up in the sponsored results is not always going to be what's best for you. Sometimes it will lead you astray, in particularly in the case of renewing your passport, making sure you're actually at the government, the dot gov website instead of some other website that will maybe help you. They're gonna help you for a big fee.
Well, and in his case, like he was paying more than double and he sent over a screenshot. And what I think is maybe most nefarious about This was the first line item when they talied up the expenses was the renewal fee, which sounds like, oh, yeah, that's what I'm doing. I am renewing the fee. But then there's another charge for basically the same amount, right, it's like another one hundred and thirty bucks that says or that's listed out for the State Department. And so you don't question that one because you're like, well, yeah, I yes, I am renewing my passport. But then you see the State Department and you're like, well that seems like a lot, but it says State Department. This is going straight to the government, so okay. But what you don't know is that that first fee is the one that they have tacked on the quote unquote renewal fee, and there's like some sort of code, some number and letter out beside. It makes it seem technical and totally official. And I think that that's just a slight oh yeah way that they that they are able to dupe folks into thinking, oh, well, this must be the case, because I'm not going to question the State Department.
It's almost like the letters you get the mail that have the perforated edges and they have like an open immediately sort of.
Thing, and maybe there's going to be a check in there, a.
Check or you feel like it's some sort of bill that you have to pay, like upon receipt and then it's like some sort of official Yeah, it's actually Hello Fresh, like advertisement or something like that.
There.
Dude, it is like the kinds of things that they're the way that they try to get you, trying to make you open the mail, and it just frustrates me even more and I just throw the crap away. Yeah, but yeah, hate that Sam had to go through that, But bufilly, the good news is is that he was able to go back and get a refund, and he was actually worried about from a identity information standpoint as well, so he actually.
He flagged it with his credit card company, went and froze all of his accounts because he was afraid that they might be an even more shady third party operator that might sell.
His information, which who knows.
I mean, when you operate under that kind of pretense, I wouldn't put it past them, honestly that something like that might end up in the dark web. I think Sam was taking all the right steps to ensure that his data and his money is going.
To be safe.
Yeah, smart man. Forward, smart man for doing that. And we'll link to in the show notes in article or two about freezing your credit, it's really important. It's totally free thanks to federal law and super easy, and you don't have to do something like accidental that might have released some of your information to freeze your credit. It's best to do it proactively. And Matt usually at this point in time, we're introducing a beer, but we're recording in the AM and we're not like that, so we're gonna drink some coffee on today's Also, specifically, this is a brew, so I did a little V sixty four over for both of us.
So it's what I always do here in the office. But for you, you're a fan of the espresso pod, which is I do as it comes to the different pods, the better of the options out there. Oh, I will still going to compare though to a nice methodical brew specifically out of out of Greenville.
But for people who are in an espresso and you can come at me if you think I'm wrong. But I have tried some of the alternative, less expensive pods. None of them hold up. Yeah, some people say that Pete's that's the only other one that's closed. But Espresso pods are the best. You just have to wait for sale, so you go. Do not get the other brands. They're not very good.
Do you even't tried like refilling them or anything like that. Like some of the better for the environment is the cig They've got the reusable canisters where you can like pack it in there like you're packing a bowl in an old man's pipe. And if that's how I always picture it.
I don't know if Espresso has the refillables or not, but they're too small.
I don't even know how you would go about doing that. Yeah, but I'll look into it.
Maybe we'll actually share our thoughts on this coffee at the end of the end of the OtherSide. But this won't be something that we did do here on the podcast.
That's right. We we love beer. But Matt, let's get to list our questions, specifically one about recessions and the likelihood of one occurring.
Hey, guys, this is right from Wyoming. Let me start off by saying that listening to your December second episode, you guys mentioned a concern for possible tuxoplasmosis and exposure to cats probably not something you have to be concerned about, given most of us get exposed to it at some point and have very mild symptoms, especially if you have a decent immune system. Not medical advice in the same way that you guys don't give financial advice. The reason why I'm calling in today is I had heard in a different podcast, Not to sound unfaithful or anything, but we had met the criteria for the soam rule, meaning that we are entering a recession. Would this be something that you would take into account? So we were discussing paying down some debt that we have versus investing, and if we're possibly entering a recession, wouldn't it make more sense to focus on paying down debt versus investing at this time? Thank you so much. I know time meaning the market is not as good as time in the market, but just looking for things to help make decisions in the future.
Well, I can breathe this sigh of relief. I'm less frightened of my cats now, I'm still frightened of your cats.
I don't like it because they're always just so suspicious, Like you walk in the house and they kind of look at you. Like, who are you? This is my territory. You know, you're like a yeah, you're seen as a threat. You weren't actually worried about.
No, Toxo was one of my friends has also has two cats, and we were joking about how we're not cat people, but we like her cats. And I think there's a difference in the kind of person who is a cat person, like in the person who just has cats and enjoys something.
Word on the street is that once you actually get toxic plasmasis you become a cat person because it messes with your head and all of a sudden, you think there's no limit to how many cats you should have under your rooms.
You literally turn into catwoman or something that did yoe, what did y'all get your cats?
Did you get them from the shelter?
Yeah, there's a shelter close by that we got them from.
I wonder, like.
Revisit the shelter and like, look at some of the other kidies. No, no, yeah, I have no desire. What do you think about Riker? By the way, listening to the other personal finance or investing podcasts.
It does sound like cheating. Well, I guess we'll let them off this time.
Yeah, well right, let's first talk about the Psalm rule, which is so let's go ahead and find her for folks, this is just a nerdy recession predictor that was developed about five years ago that I'm going to guess the vast majority of How to Money listeners likely don't know anything about. And there's good reason to that that we'll get to. But we only learned about it this past summer when there were a few articles out there there. Honestly, there's a whole lot of art. It was being written about all over the place when the rule was triggered. And what it monitors is a fairly rapid increase in the unemployment rate. And so basically, if the most recent three months have seen half a percent increase in unemployment, it's supposed to be a direct indicator of an upcoming recession. So you better you know, hold on to your hat. Basically, it's measuring speed in velocity. So it's not saying, hey, the unemployment rate increased five months straight. It's saying, well, at what speed is the unemployed unemployment rate increasing? And that is kind of the warning shot across the bow that a recession might be close at hand right, And there are other potential recession indicators that people point to as well, right, And.
The truth is they don't always work.
And actually, the inventor of the Psalm rule, Claudia Sam, she actually doesn't think we're in a recession.
Named for herself.
That's right, which any good person does. That's the large guard rule, okay, and you will abide by it. But she has basically said in some recent interviews is that the likelihood has increased, but that doesn't necessarily mean that we are in or headed towards a full blown recession. It's it's a helpful indicator, but it's not like gospel truth, I think. And the truth is too that we kind of went through an unprecedented period in the American economy with kind of COVID supply chain shops and the bounce back, and so it's really hard, I think, to use so called rules that were in place for an unprecedented period of economic history in America. Unemployment was at historical clothes, and yes there has been an uptick in unemployments, but the overall employment situation in this country is still overall I would say, close to excellent.
Totally agree.
I think we forget how massive of a shock the economy took when all the lockdowns happened and literally nothing was happening, and we saw obviously unemployment skyrocket. But then right after that, what do we know what happened? We started flooding the system. The government started flooding the system with cash, and so okay, let's hire a bunch of folks. Everyone's got all the money on hand. And I think what we've seen over the past few years again just so insane. And it's hard to look to a rule like you said, like that was created back in twenty nineteen, which is pre pan and say that, oh, this is going to apply to anything that is closely affected at all, like anything that is in near proximity to something as significant as the pandemic and the impact that it had on the economy.
And let's say, I mean when you look at when the rule was triggered, I guess what at the end of summer. And if you had said, oh, I'm taking this as a recession indicator, and I'm going to change my investing style proactively in order to hopefully avoid on losses that I think are incoming, well you would have missed out on some stellar returns over the rest of twenty twenty five, So I think you're right, Matt. I think unprecedented is typically a difficult word to use when we're talking about stock market and we have a lot of history to go on, but we did live through something that was kind of unprecedented, and so I think we have to take that into accounts totally. And I think we also just because these indicators are flashing some red lights, it doesn't necessarily even mean that we should be making significant changes to how we act.
Totally agree.
I think this is just more of the economy and things like unemployment returning to the new normal. But Riker specifically isn't talking about selling positions. He's just talking about reallocating dollars to debt as opposed to investing, which I will say is less of a knee jerk response. I would say that that's more of a just like a keep calm kind of interpretation of the some rule being triggered.
Stiff British utter lip, yeah, which I don't think Riker is British, but it takes some of that sensibility. I could see him doing that, and so our answer comes less down to the some rule or the likelihood of upcoming recession, and it has more about what kind of debt Riker is looking to get rid of. And so if this is credit card debt, then one hundred percent yes, it doesn't matter what's going on in the economy. Do you pay that you pay off that consumer debt secially with rates where they are now.
But if he's talking about mortgage debt, well no, I would say if it's something with an in between interest rate, like, that's where it starts to get tricky. And I'm guessing that's where Riker is right. Maybe he's got something He's like, oh, that's at the that seven percent range.
Always that shades of very range.
It makes it difficult, like we would still want you to get the four one k match and then beyond that, I personally feels me, I'd be like, all right, maybe we want to focus on debt in the coming years.
Yeah, I think they're both good options. But here's the other thing. If we are entering a recession, it might be true we're not predicting one. And let's say the stock market does have a rough year or two soon because of a recession and the aftermath of a recession that would actually be a bad time to not be investing, and I think that's important to highlight. The ideal would be to buy more shares as they become cheaper, And the truth is, the younger you are, the more this represents a buying opportunity.
Matt.
When we talk about recessions and stock market declines, oftentimes we're talking about greater turmoil in the economy, potential job loss. But for people listening to How to Money, who let's say they are in the good position financially, they have enough savings on hand and their job is secure, being able to continue to buy, as our friend Nick MagillI puts, to just keep buying the whole way through, that actually represents a better scenario for you. Should almost be like hoping for stock market declines the younger you are, so that you can buy more shares at a reduced price.
Yeah, it's counterintuitive, and I think it's something that folks tend to struggle with, But young folks should actually be praying for stock market pullbacks. Your parents aren't praying for that, as they're starting to rely on those invested dollars. But as folks who have decades of letting our investments. Ride should be hoping for these pullbacks in order to be able to buy at lower prices where you're stretching your investment dollars. Further, I think there are times when other priorities might take place, and you know, you do invest less to accelerate other goals that you might have, But choosing to invest less because of a downturn that might be on the way, I don't think that is a good strategy, certainly not a strategy that we would endorse. And by your logic, I would even say, if you are expecting sort of like you said, Joel, like you want to continue to invest, I would even say that, like if you know, And that's the thing nobody knows, Like we don't know the future. But if you truly believe that the recession was imminent, what would you do? Like what I would do is I would continue to save up that cash and then be able to and then pull the trigger, let's say in a year like after the market has tanked, knowing that I'm going to get all of my dollars in at the lowest possible price. But who knows the future. Nobody does, which is why, like you said, Joel, we always advise for folks to continue investing no matter what.
And that's the thing that you and I have said over and over and over on the show, like we can't predict a recession. But the truth is nobody can. And that's why there's so many goofy sayings about that, Like economists are correctly predicted ten out of the last three recessions. It's just because there's always a looming threat, and there are always people making headlines and the perma bears. The people who are pessimists typically get the most press. The people who say I'm pretty sure the or the even the people who overemphasize what the market might do typically you know, the average return sort of folks, they don't. It's kind of boring, right, Yeah, it's not all that sexy.
It doesn't sell.
Yeah, And so those kinds of folks are not going to they're the most accurate over time, but they're not going to get the most pressed. And so the truth is just continuing to do the right thing over and over despite what's going on in the headlines and despite what's even happening on the ground, like what's happening with the macroeconomy and the stock market specifically, that's going to be the right move over the years and decades.
Totally agree.
Yeah, there's something funny about those who are constantly con for recession that they seem wise, and folks who are calling who take more of an optimistic route, that they are seen as reckless. Yeah, even though it's quite counter to that when you look at history. But Joe, we've got more to get to. We are going to get to that app that is going to easily allow you to turn your kids into millionaires.
We'll get to that more right after this.
All right, we're back, Matt. We've got more listener questions to get to. Let's get some one now about financial advisors and whether or not this listener needs one.
Hey, Matt and Joel, this is Max. I'm twenty one from Sunny San Diego. I've been listening to the podcast for years and I love it. Thank you so much for your content. So I have a kind of unique situation. My father passed away and my brother and I got an inheritance from him. I was sixteen at the time, so we opted to use a financial advisor that a family friend recommended. While he's been great, he has been advising me not to fund my roth IRA that I opened with him when I was nineteen. I am currently in money gear number five, my personal finance journey outside of my inheritance. My question to you is should I open up my own roth I ray at a different bank, and if so, what should I do with my old one?
Thank you so much, guys.
Max.
First off, we are so sorry about the loss of your dad. Based on the age that you said you received that inheritance, it sounds like it's been about five years, but even still, man to lose a parent in your teens sounds pretty horrendous.
I'm sure I can't imagine.
Yeah, no amount of inheritance can make up for it. But the good news she is twenty one years old, sounds like she's been listening to the show for years, which means from a financial standpoint, she is like like light years ahead of so many people when it comes to thinking about their future, their financial situation.
I'm always fascinated by people who are, like, I don't know, teens or early twenties who are listening to this show, or who are curious about personal finance and have kind of gotten into it for an extended period of time and have started making moves because it's rare. It's so rare. It's usually the average American and I think starts thinking about money at forty and so to be doing that twenty years earlier than everyone else or even longer. I mean, we've had listeners who were twelve or thirty weeks reach out and it's so impressive because it does mean that you've got so much more time to accelerate progress. And it just means that you don't have to go quite as hard or even nearly as hard later on in your life.
You just that's what's so cool, is like you can like lead a pretty normal life at a young age and just start the ball rolling and doing some smart things. You don't have to do anything crazy. You don't have to be some how to money adherent, you don't have to be a fire adherent or anything like that. But you can just make some small tweaks that are going to completely set you apart.
And it doesn't mean that it's not possible to achieve financial independence if you start at forty or fifty. It just means it's a lot easier when you start earlier. But yeah, Max, it sounds like this advice from your advisor could really do some harm to your finances, So I don't like the suggestion of not contributing to your rough Ira. Lot of red flags went up listening to yes Max's voice memorick, I would be curious to know his rationale behind this, and in your email he said it's because that money would likely go to your successors, which is interesting. It's hard to know that when you're only twenty one years old, and I just can't think of many great reasons to avoid investing in a roth ira at your age. Typically in those years, you are less concerned with avoiding tax, and you should be more willing to pay tax now in order to avoid it for the rest of your life all the way down the road. And that's exactly when a roth ira lets you do right without having all the facts, we think the wroth is likely your best bet. Yeah, because then you get decades of compounding returns that aren't taxed at all, which is clutch. That's why the roth Ira, especially for younger people and people who have not reached peak earning years, it's almost a no brainer.
Absolutely, and something else we have to discuss, and I'm sure Jill you're just letting me take this one because you knew i'd get to it. But Max mentioned moving the wrath from being with her advisor to being with a bank.
Oh yeah, I don't like that either. No, banks and investment accounts are like oil and water. They do not mix.
Instead, what we would recommend is to opt for one of our favorite low cost brokerage firms like Vanguard, Fidelity, Schwab.
And they're one of our favorites, not.
Because we receive any sort of kickback, but because they are truly the best. They have the lowest costs associated with their investments, even Robinhood and Betterment. I mean, there are two other great options. But by doing that, you're gonna be able to reduce the fees that you pay, and when you invest, it's gonna be like it's gonna feel like having the wind at your back, I think, compared to maybe what you've been experiencing there with your financial advisor.
Because I think, Joe.
Like you were saying, I can't think of any reason why your advisor would tell you not to invest in a roth Ara. I can think of one, because getting there's a good chance that advisor is pointing her to products that he receives a commission on whether it's a like, whether it's frontloaded, or whether it's just an on going expense ratio that's higher as opposed to something that's no cost, let's say, with fidelity. Yeah, I think there could be a conflict of interest here.
Sure, And that is one of the things you have to watch out for when you have a financial advisor is what are the incentives? How much are they getting paid, How are they getting paid? Those are really crucial questions. And Matt, you mentioned banks real quick. I think it's important just to highlight that banks and insurance companies often have investment arms. Oh you can go with Oh, it's possible, but you never should. I guess there's the rare exception, maybe for an online bank that has a solid investing portion of what they do, but for the most part, avoid investments with banks. Going back to the advisor thing, I think this means it might be time to break up with your advisor and to move your current investment accounts that you have with him to take them elsewhere. I would, not, knowing all the details here, I would seriously consider that this advice. If it's the tip of the Iceberg. It makes me worried about Yes, other advice exactly, Max, My beginning so much depends on how much money you inherited, how complicated it's going to be for you moving forward. But I would at least want to get a second opinion, Matt. When we go to the hospital for a medical procedure, we will get an opinion, and then we're like, wait a second, I just want to make sure that this doctor knows what they're talking about. I'm going to go down the street and get a second opinion. I just want someone else to look this over too, before I go forward to some radical surgery or something like that.
Right, Yeah, for something small, you're kind of like, Okay, I need to take some medicine to get over this cold or flu that everyone had a couple of weeks ago. Sure, but yeah, if they're like, oh, you need to amputate your foot, it's like, whoa wait a minute, let's.
Come someone first.
It's gonna have a serious impact on my future. That's how I think about your retirement dollars.
That's right.
Yes, we're literally talking about amputation level, like at least in terms of finances consequences here and so what I would do maxifar. I would hire a fee only fiduciary advisor by the hour at a site like Hello Nectarine. You might need a couple two, three, four hours with somebody but or domain money. You could do a comprehensive financial plan, but I would want someone else's input to counteract it, or at least to poke poles in what your current advisor is telling you. And I would want to let them lay out everything before them and say, what do you think I should do? Because I'm just not sure I'm getting the best advice right now.
Yeah, man, financial advisors should totally get paid for the work that they do, but the way that they get paid should be optimized to be able to provide the best incentives for both of you, not just for the one earning the commission. It's because of that we like paid by the hour advice or paying a lump some amount for a full financial plan for that reason.
But sticking with a.
High priced advisor, especially if they're steering you away from our favorite no brainer accounts, I think that could cost you a whole lot of money in the decades to come. And I know right now it probably feels like maybe you are just getting to the point to where you feel confident to make a decision like that, And I think that's warranted as well. You don't want to have like done some sort of knee jerk reaction just because you heard maybe one person talk about how you shouldn't be doing this, which is why getting that second opinion is so helpful. But I think you are getting to that point and ripping the band aid off now. Despite the fact that they've helped you through a whole lot during this painful time, I still think it's probably going to be the best bet for you moving forward. And I'm going to say too that she'd specifically didn't mention the firm that her advisor is with, and I think that's because she didn't want to throw any shade.
But you leave that to us, Joe and I will throw the will throw the shade.
But it was with Edward Jones. And I know there are folks out there who are able to provide some great advice who are with Edward Jones. But it is also a different kind of advisor. If you want to show up in person, the old school mind, if you want to sit down with them, if you want to build this sort of relationship with a person over years to come, but also pay more for that. Okay, I could see there being a decent argument for going with Edward Jones. But if you are looking to take more of a DIY approach, which is going to allow you to avoid some massive fees and especially some of the worst products out there where they're going to receive the highest commissions, well if that's the case, then I definitely think that. And this is coming from someone who's been into in Edward Jones office, Like this was me years ago. I literally have you ever talked about this?
I think we have. Yeah, Like I cold.
Walked, you know, like a cold car, Like I just walked in. I was just like, hey, just like a turkey, what do I need to do about my personal finances and this?
And they were like, oh, this is exactly what we want.
But I was able to realize that I don't think I need these services that you're providing me. And granted there's a lot of dumb stuff I did, but that, like, when I look back twenty years ago, that was one thing I was I'm able to put my finger on and be like that was a smart move.
Yeah, avoiding that.
Lots of other dumb stuff that we won't get into that I've done in my life, but that was one that I know.
Has saved me. I mean countless of thousands of dollars or yeah, oh more.
Yeah.
And that's the thing is when we talk about the trade offs to certain things, like the cost might be worth what you're getting, but make sure it is, because when you talk about when you run the numbers, especially for someone who's twenty one years old, the one percent fee or more that indes of that caliber might charge or of that style, I guess, I mean it could it could literally be hundreds and hundreds and hundreds of thousands of dollars missing from your retirement because of the antiquated one percent of assets under management model. And so if you want a comprehensive financial plan, some people might say twenty five hundred dollars or whatever. That's so expensive, not by comparison right to what you're going to get charged from the old school model advisors, or one hundred and fifty bucks an hour. That seems like a lot. It's so much less than what you pay going with the old school model advisor. So if you feel like you need a second opinion, even a comprehensive second opinion. It's way way cheaper, and it's such a better, more straightforward way to go when hiring an advisor the way you currently have it constructed. Max, we want everyone to avoid that, and we want you to get out of it soon.
You know it.
Joel's here from another listener. This is a listener who is considering a new tool for her personal finance tool belt. Whether or not we are on board, let's hear it.
Hi Aw.
This is Amy from the Bay Area. I recently discovered an app called half More. This app helps parents turn everyday chores into real work. The parents essentially become employers and their children become domestic workers. By doing this, the kids qualify for custodio roth iras, so potentially these children can start saving for retirement as early as five years old, and these investments could grow to be millions of dollars by the time they retire. I love this idea. I'd like to get a custodio roth iras started for my nine year old. What I have a problem with is the fee that half more wants to charge. So I guess this is a frugal versus cheap question. How hard is it for me to do this on my own versus paying the fee and have the app do it for me?
Is it worthwhile?
I don't know. I'm hoping you all can help me answer this question. Thank you so much pre providing such great money tips. I love it when I hear something that I'm already doing, but I appreciate it when I learned something new.
Amy likes that confirmation biased Joel, which don't we all? Oh yeah, and it's so nice to get that. I hear them back.
When I hear somebody saying that, hey, something that you're already doing, that's good, I'm like, all right, I don't need to hear from anybody else.
Don't give me a second opinion in this case, just tell me how great I am. Well, I love I love this frugal er cheap and Amy, she's not embellishing here, like helping your child fund a roth Ira starting at age nine, let's say, and let's assume they max it out for a decade and they never invest another dime.
So nine to nineteen, you crunh some numbers here, you one of those paint one of those Rosie pictures.
Normally, this is your job on the podcast. But I took liberties on this one. But it's cool to think that, hey, you're stopping after being a teenager, you're never investing another dime. Well, Amy, your daughter would end up with almost two and a half million dollars in that one account, and on top of that, she wouldn't know tax on that money because it's inside of a roth Ira.
Amazing.
It's truly incredible when you think about how much seventy thousand dollars can turn into over time, because time with money in the right place, that is the great magnifier, right, that's the great that's the game changer. She wouldn't even be sixty at that point either, Matt. When you think about it, that's really crazy to be tapping into those fifty nine and a half.
Yeah.
Okay, so we'll talk about the app half more, but briefly, let's mention that generational wealth.
I think it can be a great goal. It's easy to hear these numbers.
It's easy to think, oh, man, if I just do this one thing and kind of get obsessed about, you know, setting your daughter up for long term financial success. But the route that you take it often comes down to your family's particular values, and so I would say, just make sure that helping her fund her roth Ira that it doesn't come at the expense of funding your own retirement well or even doing it for her. I think there's something else to be said to just about the lessons that you are able to teach her through her contributing the money, and not just you saying that, Okay, I'm going to pay for these different jobs that you're going to do all in an effort to basically do this for you. Yeah, just don't do this out of obligation as well, right and thinking that this is because now that you know that this is something that you can do, that you now have to do it because Joe, I mean Joel, like we're saving for our kids future a little bit. But I think you know, overdoing it, it can come with downsides as well, where you've sort of removed that stimulus from them to go out there and do something awesome in.
The world when you do it on their behalf, kind of without their participation or knowledge. I do think you're removing something from their lives that's healthy and good. But enough about that, Matt. If optimizing your child's financial success is a top priority, which I think can be good if done in the right way. Let's talk about helping them get that ROTH started. And the key to being able to fund a roth IRA, as you pointed out, is having earned income, and most nine year olds have a hard time pulling that off. There aren't many nine year olds out there with day jobs, understandably, so those pesky child labor laws matty, they get in the way, right. But some personal finance nerds they have found ways to have their kids do chores and to get paid for them, and this app seems to kind of streamline that and make it more easier to document for tax purposes, and it allows them to use those earnings to fund a WROTH. So I think it's cool that people have found a way to use the system as constructed and kind of figure out the specific details so they can get their kids into this fantastic retirement account. But it does take a little finaggiling.
Yeah, And so this doesn't have to be something that's overly complicated though as well. Like so for instance, Joel, like we both have eleven year olds who are who start a babysitting they are starting to earn actual real money, like.
I've got to earn fifty bucks the other night, dude, and I was like, I talk to her about this.
Yes, no, exactly, And so using money that our kids are earning to fund a WROTH is totally fine. But what I want to point out here is that you can't pay your kids for just normal household chores and then count.
That has earned income.
Or did you make your bed, honey, Exactly, here's twenty bucks, Like that doesn't count towards ROTH eligibility.
And half more. They even admit that, and on the on their side, they say this is a quote for chores to be recognized as legitimate sources of income, your kids should be paid for tax that you would typically hire another neighborhood kid or even a nanny to do, rather than for just regular family chores, like I'm even thinking of something like emptying the dishwasher, right, yeah. Like they should also be appropriate for your child's age and abilities, so for example, cleaning the garage, mowing the lawn, babysitting. The work must be real and the wages should be fair. But as long as you can make a decent argument that that is the case, well you can totally start contributing to a roth ira through half more or even completely on your own. But one of the things that makes half more so great is the fact that, like what they do well is they document, like they create that paper trail, and that's the part that I think a lot of folks fail to do.
Yeah, but I think that.
Could be as easy as just say up a log just on Google, Google Sheets or whatever in order to do that, like if you wanted to take a more DIY approach. When I first heard the question, Matt, my first instinct was to be like, oh that, I think it's silly to use an app like this to help you out. This is something you can totally DIY, like why does this app need to exist? But the further I delved into it, if you want to keep your i's dotted and your t's crossed, I think it can make some sense. So on the half more front, you know they're helping with the compliance and the investing side of things, and they take one hundred and forty four dollars a year for their service, which actually seems reasonable in my opinion. It's going to help save you time while also helping you ensure that you're jumping through the proper hoops. You're documenting everything properly for the irs, or even giving like suggestions of what your child should be paid for certain tasks that they might do around the house, and you can just diy it open up a rothit fidelity for your daughter. But then there's other paperwork like the law Matt, like a diy log that you mentioned, which I think is also a good solution to this. And you'd also have to file taxes for her as well, which half more handles. That's part of the fee, which is kind of cool.
There's some additional value there.
But you're also looking at so because I was curious, I'm just like, all right, like our girls are earning a lot more money, but you don't technically have to file taxes unless they're earning above the standard deduction for a dependent and so that's a lot of money.
Which is what almost thirteen thousand dollars fifteen thousand.
Yeah, So I mean for me at least, the more I thought about it, knowing my proclivity to get dive into the weeds, create Excel spreadsheets or Google sheets, I think this is the year that we literally are going to open up a roth Ira for our oldest daughter, the one who is earning all the money, and specifically, some of the information I'm going to keep up with is the date of the job, like a description of the job, and then the dollar amount, and so that's going to tell us how much we are able to invest. But then beyond that, I think a lot of it comes down to you as a parent deciding like, hey, this is something that we're talking walking through, how much of this you know, this is the money that you've earned this year with your quote unquote official gigs. How much of it do you.
Want to invest?
And then as a parent, I think we can then choose if we want to say match.
That, because let's say, well, obviously you can't go more.
You can't invest more in a roth iray than they actually earned, right, But like so I'm assuming that, like they choose to invest half of what it is up there, and well, then you have the ability to match that and be totally cool according to the according to what it is that the IRS wants to see from you, And that's again what the IRS wants to see from you. In the worst case scenario, which is if you get audited, It's not like you have to prove to Fidelity or Vanguard, but it's the irs who if they come a knock in that you need to be able to provide this information for. So that's I don't know, that's more of my idea as I think through it and the steps that I would take. It's sort of like an HSA lock right, where you're keeping up with a day, what it was, how much, how much it was, and that allows you to.
Put it very similar.
Yeah, yeah, so and so maybe, oh yeah, maybe the scratches that itch, the fact that I've never had an HSA, this is a way for me to keep up with some sort of lot when it comes to what it.
Is my daughter is earned well.
And like one hundred and forty four bucks for what half more is offering. It's it seems like it's not that much, but when you think about how much your kid might be contributing, especially when they're younger on the earlier spectrum of earning years, maybe they earned three hundred bucks that year, and let's say they invest at all, or invest half and you invest the other half. So they're investing three hundred bucks into a roth Ira, Well, one hundred and forty four dollars fee is actually pretty expensive. It might comparison, right, and I guess so it seems minimal, but maybe it's not actually when you think of it as a percentage of the overall amount that's going into that cause if it's a lot more than that, and you're looking for something that's a little more automated, turnkey, something that if you know that this isn't something that you would otherwise do, well, then shoot that one four. It doesn't matter at all because otherwise it would not have happened. So it just depends, I think, on the individual and the likelihood of you actually following through and doing this. But I think you make a great point that it's actually pretty easy to kind of do that yourself for the time being, unless they're earning like a kid who's earning big, big bucks beyond standard deduction, and then you might it might be saving you money on the tax services front too.
Yeah. Well, I don't want to sound like a total pessimist or thinking the worst of this app it seems like it's great and amy, I don't want to shoot you down. But one other thought that I had is what access do you have to that information? Because that log that is what's valuable to me? That is the most valuable piece of what it is that they're providing, And do you have the ability to export that data, say, if you wanted to, if you wanted to leave, because if not, we'll shoot, We've got like six years worth of gigs that they got paid for. And what am I going to have to do? I do I have to go back and manually No, people aren't going to do that. People aren't going to go back and copy that information down. And so then it almost feels like you're held hostage a little bit. Yeah, if they're saying, yeah, it's one forty four now, but next year it's going to be two hundred and the year after that is gonna be two fifty. Yeah, and you're taking a very I'm thinking less generously of what it is I have more might you know? Might to I'm not, and I don't. We don't have any indication that that's what they're looking to do. But I would want to know what access do I have to my information to be able to retain those records for the future, were the irs to come knock it?
Well, it's also an important question just because you don't know how long a fintech app is going to exist, that's true. You can hope that they'll be around for decades, but the truth is some of them don't last quite that long, and this is kind of a niche product. So we'll see if this one fails or flounders, or if it does end up being successful.
So yeah, I love the heart behind to them.
Yeah, exactly. I think it's cool, and I'm glad that Amy brought this to our attention because I didn't know about half more, even though we have thoughts on kids and ross and stuff like that that we've offered here. Yeah, but it's cool that their apps being made to try and help people in that way to help their kids invest. But it also doesn't mean it's the best option. But man, we've got more questions to get to, including a listener question about abnormal expenses on the horizon. We'll talk about that right after this.
All right, Joel, we are back from the break, and of course it is now time for the Facebook Question of.
The week, always taken from the how to Money Facebook group, which if you're not a member of you should join in.
This one is from how to Money Facebook group member Adam. He asks this is a long one, by the way, so get comfortable. We have coming up over the next two years or so a series of non normal expenses. I budget and track religiously and we save a ton, and I typically like to plan out when larger expenses are planned and where they are due to come from. We have about six to seven thousand dollars of coming upcoming house improvements needed three thousand and furnishings, and also we have to replace our seventeen year old family vehicle that is failing and due to be replaced, which I'm planning to be around a thirty five thousand dollars expense to replace, So altogether forty five thousand dollars coming up. I do have money available to cover these things, around fifty thousand dollars in a Vanguard taxable brokerage fifty five thousand dollars in Vanguard inherited IRA that will need to be liquidated by twenty twenty.
Eight due to IRS rules. Both of these accounts are growing nicely in today's equity environment, and this is all separate from my types.
Of vantage retirement accounts. I also have a mortgage on our home at three point six two five percent that is close to being paid off.
That's pretty that's nice sweet in this environment.
A twenty thousand dollars balance on a roughly four hundred and twenty thousand dollars home valuation, and at this rate, it's due to be paid off in a little over three years.
Joel, I'm gonna tag you in.
You want to relieve me?
Sure?
As he gets so, his main question, he says in all of this is, Hey, I've been thinking lately if it would be possible and better to try to somehow use my home equity and current mortgage rate to produce some cash that can be used for these upcoming short term expenses without taking money from those investments. Those funds above are growing a lot more than the three point six percent rate, and the OCD saver in me would love to keep those accounts intact maximize earning power. Aside from setting up a traditional thirty year fixed mortgage, I'm not familiar with the mechanisms of those loans and whether it's possible to pull equity back out of the house while avoiding any briefinance costs so that I can stick with my nice low rate. I've heard of reverse mortgages home equity loans, but I'm not intimately familiar with them, and so basically, hey, for this short period of time, Adam's wondering, what do I do? Like, I'm gonna have some relief on the home payment front in a few years, but for the time being, how do I get past all these purchases I need to make?
What to do?
Yeah, so let's start with what Adam mentioned there towards the end of his question. And first of all, a reverse mortgage is really only a financial tool of last resort for folks who are typically in retirement, who have no other way to get by if you have no other assets, So definitely not that. Oh and they tend to be pretty dang expensive as well. Sure, and I would hate to see anyone take out a helock right now, if at all possible, because I mean, interest rates are in the nine percent range. I would say it's even better to tap investment accounts than to take on debts with that kind of interest rate. So first thing to address here are the home equity products that he mentioned, And I get his desire there to once to tap into those, because he's got a whole lot of He's got a lot of his net worth is tied up in his home, yea. And I think there's probably an emotional part of him as well. He sees that three six two five percent mortgage rate, he knows it's going away, and I wonder if it almost feels like as a way to hang on to that low rate mortgage. But fact is, man like, no matter what, that thing is going away.
But yeah, I think, which is not a bad thing to be getting rid of that mortgage, especially if you're just paying it off. As agreed, that's the dream is to hold on to that low mortgage rate until it's over and you own your home free and clear.
But it doesn't mean taking on some of these home equity products that are not nearly as good as how you view that's right your house maybe because of that super low rate of less than four percent.
Because that era is over, So like we should kind of end that way of thinking, at least if you're talking about taking on new debt for homes. Right, and so, Adam is doing so well in so many aspects of his personal finances. The mortgage is almost gone, and when it is, that's going to massively increase his mind cash flow. But right now he's got to get through this pinch. So I think if this is like a two year window where he's just got to be dedicated to not making potentially a screw up here that could impact his financial future negatively. And I think the best way to do that is to avoid new debt vehicles. And partially because of what you highlighted, not that rates on yeah, rates are high and almost the yeah, almost any debt you're going to take on, it's not going to be nearly as benign as it was five six years ago. And I think since the inherited IRA he mentioned has to be liquidated within the next three years anyway, which means less stock exposure, is wise in that account. By the way, why not tap that account for these upcoming expenses and to help reduce your single year tax burden. You might want to spread those disbursements out over tax yiars twenty twenty five and twenty twenty six. You're not just like taking out a massive lump sum creating a much higher tax burden in one single year, but you're spreading that tax burden now but taking on more debt in today's environment, I don't think it makes sense. Hey, this account needs to be drained anyway in the coming years, why not just do that a little bit sooner than you had planned in order to ensure that you avoid debt and you keep your investments mostly intact totally.
Yeah.
Well, and you mentioned the the tax that's going to be owed on that inherited ira. That's assuming that. And he didn't say whether or not it's a traditional or whether it's a raw iray, but if it's a rough iray, he's not going to owe any tax on that. And again, and my guess is it's a traditional because you mentioned tax.
But I think that's.
Definitely what I would be doing where I in Adam's shoes. He mentioned let's see, he mentioned an expensive vehicle coming up, expensive vehicle purchase, and I will say, let's see, I'm looking at this. He's got a seventeen year old family vehicle and now he's thinking about hopping into something that's thirty five thousand dollars.
I get that, that's seventeen year old. That's that's an older car.
It's an older car, but there's a way to get around for less. I guess I just want to challenge the notion that you have to get something that's going to cost thirty five thousand, right, like even getting something that twenty five thousand dollars, that's a big difference, even Joel, I didn't even tell you this. Our car is getting a little bit of work done to it right now, and we have a loaner vehicle from the shop we are currently driving, which is awesome. By the way, What a great perk that these guys offer. I'm driving around in a two thousand and eight Honda Odyssey, and is that what y're you? Even try to buy it from them? He wouldn't sell it, as he knows what he's sitting on. But I got curious and I looked up what would a two thousand and eight Honda Odyssey go for like four or five thousand dollars?
And this is from the cars, this is from a mechanic and so it's like impeccably careful and that's legit seventeen years old right now.
Yeah, And I don't know.
I'm just highlighting the fact that you don't necessarily have to go out and buy something. You can even just maintain a vehicle, find a way. No one likes the nickel and diamond that comes with maintaining an old vehicle. But it's not a foregone conclusion that you have to go and drop thirty five brand on a new car.
And let's be honest, if you can just string it along for another two years while you get through this pinch, then I think you're right, Like, it just opens up a world of alternatives because by then you are pretty darn close to paying off the mortgage altogether, and you have more financial breathing room to be able to afford than upgrading the car in a way that feels less financially irresponsible. So yeah, maybe challenge yourself to spend less on the car fifteen to twenty thousand dollars, and if you do have to take out a loan for that, a car loan, make sure you're able to pay off twenty four to thirty six months. I don't love car loans either, but I also get where it's like, oh, if it helps me prevent some sort of and get it from a credit union, if it helps me prevent worse kinds of debt in my life, and it also allows me to keep those investments intact longer, I get that. But again, the IRA, the inherited IRA, is going to have to be dispersed anyway. So I just see that as probably the best reservoir to tap for some of these funds.
That's right, man.
Yeah, Adam's got a lot of levers here that he can pull. I think I don't know funny ways to cut back, and I just.
Love the idea by the way of questioning assumptions. I think the average. We see what the average car price is for a new car and used car, and we say, oh, I'll probably get something that's average. But the truth to the way to succeed financially is to do things that are better than average. And I think even just thinking about, like you said, Matt, reducing the price you're willing to pay for a car significantly, questioning that again is such a powerful lever for people to pull in Adam's life. Put everyone else out there listening to.
And speaking of credit unions, which you just mentioned. I'm drinking my coffee this morning out of a Navy Federal credit union little insulated mug here that they they love sending us little goodies since we read for them. Yeah, show, because credit unions are the best.
We do love that.
Credit union's absolutely the place you should be going. In particular, if you're looking for loan products. But what do you think of our coffee this morning?
Joel?
So, I am not a coffee connoisseur at your level. You like this states like the brown bean water to you?
No, I being juiced.
I love coffee, I just don't I don't know if I can pick apart it's nuanced as well as you get this one tasted fruity, I'm gonna say, okay, yeah, good, So.
This is yeah, this is like a just a nice solid Honestly, I forget what this one is called by methodical, but it's a nice medium roast. It's got some milk chocolate e kind of eyes, but it does have some berry notes cherry maybe.
Yeah.
Yeah.
I like adding just like a little touch of sugar to these medium roast to kind of pull out some of that berry fruit, some of those notes that you can typically because if you if not, sometimes they fall a little flat and they just say it's like a weak cup of coffee because it's not. It's not going to have like that super dark roasty you know, Starbucks espresso roast.
I'm totally okay with it because that stuff just it tastes over to me. I cannot do the dark roast anymore, and sadly at Costco that's like all you can get is super dark roast coffee.
I know that myself.
Unless you order online. They have different coffees available online. So I buy my Costco coffee online because they have some like medium to medium light roast coffees on there.
Because that was one of my assignments once we joined Costco a couple of years ago, were we'd never been members, and I thought, Okay, I want to find myself a really good medium roast coffee here at Costco. That's going to be crazy affordable, but that is good.
Yeah.
It turns out all even their medium what they call medium roast, they are pretty dang dark and they're oily, which means on the nicer grinders, like you know, we've got a nice flat blade berg grinder and it tends.
To cause trouble.
All right, Well, all those oils, there is one that I saw on their website. I've not ordered yet. It's a light medium roast. I think we'll say it's a lot of mauling, and so I'm going to order that and we're gonna split it and I do it. Well, we'll try that maybe on the show soon. Yeah, absolutely, okay, and we'll report. But next week you can expect another beer. Cool, Yeah, because I over the holidays a few weeks ago picked up some some nicer beer, So I'm excited to drink some of those, buddy, Time to open those up?
All right?
Well, yeah, as always, we appreciate you submitting your questions and if you have a money question, and especially if you're new here and you're like, man, I don't I don't know where to start. I'm just getting started with my finances and I would love Matt and Joel's input on kind of like where I'm at right now.
I love hot takes, shock jock style.
Yeah, we would love for you to submit that, And if you have questions about how to do that, you can go to howdomoney dot com slash.
Ask for instructions.
But it's basically recording a voice memo on the app on your phone, sending it over to us via email and we look forward to hear from you. Hopefully we can take your question next week on the show. But Matt, that's going to do it for this one. Until next time. Best Friends Out, Best Friends Out,