Afford Anything - Ask Paula and Joe - Should I Sell My Brand-New Car (and Lose $6,000 in 4 Months)?

Episode Date: April 9, 2018

#124: Former financial planner Joe Saul-Sehy and I answer five questions about investing, retirement, insurance, travel and selling an expensive car. Eliana is 25 and makes $63,000 per year, plus a little extra from freelance work. She holds $95,000 in cash, $67,000 in retirement investments, and no debt. She doesn't necessarily hold early retirement as a goal, but she'd like the option to access her funds before she's 59-and-a-half. She asks two questions: First, she's been spreading her money between a Roth IRA, pre-tax 403b, and taxable brokerage account to spread her risk. Should she not contribute so much to the taxable account? She's also paying $88 per month for a $25,000 life insurance policy for her mother, who is 57 years old. She likes the peace-of-mind that comes with knowing it'll be there to cover funeral expenses, if needed. But she recognizes that there's a huge opportunity cost that comes from paying for such an expensive plan. Should she drop it? Rudy's employer offers two options: a pension or a retirement plan that essentially functions as an annuity. He would need to contribute 3 percent of his income, regardless of which option he chooses. Which one should he pick? Nicole lives in Canada. She has a Registered Retirement Savings Plan (RRSP), to which she contributes monthly. She's been with her employer for almost 10 years, but she's about to switch into a new field. She'll have about $45,000 in a pension plan from the employer that she's leaving. What should she do with this money? Julie is a frugal single mom of two. Four months ago, she purchased a brand-new vehicle for $39,000 and instantly regretted it. She'd like to sell it, but she could only recoup around $33,000 of value. She'd lose $6,000 from a car she's owned for 4 months. Should she take the hit? Or should she hang onto her car, since the damage has already been done? Finally, an anonymous caller wants to know more about long-term travel. How do you acquire visas that will let you stay in a country for many months? How do you find health insurance with overseas coverage? And what should you do with your snail mail? We tackle these questions in today's episode. Enjoy! ________ Resources Mentioned: Julie's question: Articles on selling a car, private party: https://www.edmunds.com/sell-car/10-steps-to-selling-your-car.html https://www.edmunds.com/sell-car/sell-your-car-safely.html https://www.edmunds.com/sell-car/how-to-close-a-used-car-sale.html Articles on buying a car, private party: https://www.edmunds.com/car-buying/buying-a-car-sight-unseen.html https://www.edmunds.com/car-buying/10-steps-to-buying-a-used-car.html Travel question: Overseas health insurance: - https://www.imglobal.com/travel-medical-insurance - https://www.gninsurance.com/international-travel-health-insurance-plans - https://www.geobluetravelinsurance.com/product_overview.cfm How to handle mail while overseas: https://www.earthclassmail.com Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every decision that you make is a trade-off against something else. And that's true, not just for your money, but also your time, focus, energy, attention, anything in your life that's a limited resource. So the questions become twofold. Number one, what's most important to you? And number two, how do you align your day-to-day actions to reflect that? Answering this is a lifetime practice, and that's what this podcast is here to explore. My name is Paula Pan.

and with me is Joe Saul Seahy, the host of the Stacking Benjamin's podcast. Hey, Joe. Paula, how are you? I'm awesome. How are you doing? I'm really excited to talk to your listeners, because you and I, we have a good time doing this every time we do it. Absolutely. And we have some hard-hitting questions this week. I'm not up for that. So the format of the show, if you're new to this, is that every other week we do an interview and on the weeks in between, we answer questions that come from you, the audience. And so this week, Joe, you're a former financial planner. And you're going to help me. answer some of these audience questions. Let's do it. All right. Our first question comes from Elena. Hi, Paula. I'm a new listener. I adore your show. I only recently discovered it and I've been totally binging. Thank you so much for being so humane and insightful in how you approach money. And I'm just surprised by how much joy of intellectual gratification I've gotten from a podcast about

personal finance. So here's my situation. I'm 25 and make about $63,000 a year, plus a little bit more from freelance work. I have 95,000 in cash savings and 67,000 in investments between a taxable account, Roth IRA, and a 403B. My employer contributes 5% of my income to the 403B for me, and I contribute 1.5% on top of that, and I don't have any debt. I also have the option of using a Roth 403B. I have two major questions. One is probably generalizable to a lot of listeners and the second is more specific. I don't necessarily have early retirement as a goal because I'm not sure what I'll want in the future, but I'd like to have the option to access my savings early. I've read about tons of different strategies for what kinds of accounts are best for this. Do you use a

Roth IRA or a pre-tax account, which you then hack or just pay the 10% penalty to access it? So given that there are so many potential tax situations, my strategies as of now has been to use all three of them, Roth, pre-tax, and taxable to kind of spread the risk and uncertainty. Does this make sense to you, or do you think it would be in my interest to do something different? In particular, I wonder, should I not contribute so much to the taxable account and take advantage of my employer's Roth 403B instead? Or do I keep using the taxable account so that I don't have to worry about tapping the savings? And here's my second question. For the last few years, I've been paying $88 a month for a $25,000 life insurance policy for my mom, who's 57.

Because she isn't in impactful health, we decided to get a guaranteed life insurance policy without a health evaluation. So that's why it's so expensive. She doesn't have a terminal disease or anything, but like many Americans, she's not at a healthy weight. And given her age and the fact that there's a lot of stress in her life, we just wanted to be safe and have a policy that could cover any funeral expenses. When we bought the policy, I calculated that it would add up to the value, the payments, the monthly payments would add up to the value of the policy by the time she's 78, but of course, that doesn't include the huge opportunity cost of not investing that money over the next 20 years. And given that I've built up a lot more in savings,

I could probably afford to cover any funeral expenses out of pocket if I suddenly had to, but it would just be stressful for me to do so, and I like the security of having the policy there. So what would you do in my case? Should I drop the policy and invest that money? or keep it since paying it isn't a huge burden to me. What a thoughtful, thoughtful question, Paula. Absolutely. There's a couple of things. I'm just going to restate the question because there's a lot of details going on here.

Elena, you're 25 years old. You don't necessarily have early retirement as a goal, but you do want the option of being able to access your funds. And you currently have a taxable brokerage account, a Roth IRA, and a 403B. and you have the option of changing your 403B over into a Roth. So where do you proceed from here? Yeah, and I think that's a question, Paula, that not enough people have, right? I have all these options, which one do I use?

I really feel like when I get questions from a lot of people, they're not this thoughtful, that, hey, I have all these tax consequences. How do the tax consequences jive with my goals? And that's a really big part of reaching your plan, isn't it? Absolutely. So what should Elena do? Oh, I like how you push that to me. Well, okay, I can start, actually,

if you would like to, if you'd like me to start. Well, I'll just say only one thing, which is I like what she's doing around diversification. And listen, at 25 years old, you can be very technical with your asset allocation and your tax diversification, but not knowing what tax rates are going to be in the future, being able to play games, and I can get into that a little bit like some of the games that you can play later, much further down the road when you're pulling money out, not knowing what's going to come up between now and a long ways away, which are the dates that she can get at. some of these retirement funds. I love the idea of diversification, but definitely take it from there. Sure. Okay. So, Elena, here's what I would say in your situation. Number one, after you get

the employer match, which I'm assuming that you need to continue to contribute 1.5% in order to get your employer match, after you do that, then I would focus on contributing to your Roth IRA until that is maxed out. And the reason for that is twofold. It's, yes, there's a tax advantage and that's great, but the real reason, the second and bigger reason, because you want the flexibility of being able to access those funds in the future if you so chose. And with a Roth IRA, you can withdraw your principal contributions at any time, penalty-free and tax-free. So the capital gains and the dividends that you earn from your Roth IRA have to stay in the account. If you do tap that prior to reaching the appropriate retirement age, then yes, you will pay penalties on

withdrawals of the gains that you make. But the principal contribution from a Roth IRA, you can access at any time. And so since your goal is to preserve your flexibility, the Roth IRA is a perfect account for that goal. That being said, the maximum contribution that you can make to a Roth IRA is only $5,500 a year, given how much money you are investing, You're 25 years old, and you've already got $67,000 in investments. That's incredible. So given the high rate at which you are investing, you're going to max out your Roth IRA. I have no doubt about it. And so then the next question becomes where do you put the rest of your money? I can absolutely see an argument for not putting as much money into taxable accounts. It's fantastic that you want the option to be able to access your funds. But you have an incredible opportunity with the 403. and you do already have some taxable funds. And I'm not saying that you should not make any contributions to a taxable brokerage account. I can absolutely see the value in that.

But I would want you to not overtilt in that direction, given the fact that you have so much time on your side. And the compounding tax deferral from any money that you would put into a 403B would, it would compound greatly over time. I think that can be a double-edged sword for people, Paula. Why is that? Well, because here's what I see on the other side is that people get, usually people hire financial advisors when they get a little older because they feel like they have money to manage, which, by the way, for a lot of financial advisors, is a frustration because they don't deal with people when they could really help them a lot.

But that's a different show. I had the pleasure of working with a couple hundred families as they got closer to retirement, and people make a lot of dumb decisions. based on the fact that they have their money inside tax shelters, and they refuse to live their life the way they want to live their life because they don't want to take the money out of the tax shelter, because they're looking at the possible taxation of the money. They're looking at, well, what if I leave this money in here later?

Because the government provides these things, and you can only put so much money in it, then they frustrate their goals and push stuff off, push off these dreams that they have for a later date because they're so worried about the tax monster. So I'd say everything that you said on a technical level is right. I would just make sure that anybody listen to this. Don't let taxes wag the dog.

Start with your goal and then work backwards from your goal about the most efficient way to work there. It's so frustrating to watch people push things off because, well, the money's into tax. I'm going to pay the tax. We've got to pay the tax at some point. Live, baby. Live. For the general person, I would agree. In Elena's particular situation, she has $95,000 sitting in cash or, you know,

already. And so if there is something that she wants to do, let's say use the money to make a down payment on a house, she's got the cash. And then on top of that, she already has some portion of her investments in taxable brokerage accounts. So given the fact that she already has such a heavy cash allocation and given the fact that she also has taxable brokerage accounts set up and going, I think that my concern for Elena is that she is not tax sheltering enough. And I agree generally don't let the tail wag the dog, but as she says, she doesn't have any particular aspirations of early retirement or taking a sabbatical or taking a mini retirement. I think it's wise for her to want to have flexibility, but what is the cost of that flexibility? What is the cost of that tradeoff, given that

she's already preserved so much? Yeah, and I wasn't disputing anything you said at all. The only thing I was saying was that I really worry when people think about, because to your point, you're speaking specifically to Elena, I'm talking to the rest of your audience, which I think what they may have heard was tax shelter as much as possible. True, but watch the other side of that monster, because it becomes a place where you try to stay as efficient as possible and then you never live. Yeah, exactly. Absolutely. And in real estate, I've seen that happen as well. People say, well, you know, I want to sell this house. I want to sell this investment property, but I don't have another one that I particularly want to buy. And I can't bear the thought of not 10,

31ing it. Right. You know, and at a certain point, I'm like, just sell the thing, pay the capital gains tax, and move on with your life. Yeah. Yeah. It's frustrating. It happens so often that you just, it makes me grow.

So good stuff, though. I totally agree, by the way. I like the diversification. I like emphasizing the tax shelters whenever possible. And she's done such a great job of saving. Good for her. Absolutely. Now.

Well, do we want to turn to the life insurance? I do, but first, Elena had also asked if she should continue to put her money in a traditional 403B or flip that into a Roth 403B. Yeah. So my take on that, because I'd like to address that as well before we move to the life insurance portion, my take on that is, Elena, because you are 25 years old and because you do not have any aspirations of early retirement, I think the Roth is a better option for you. Because with a Roth account, and I'm saying this for the benefit of everyone who's listening who might not be familiar with the distinction, in a Roth account, you pay the taxes up front, but you don't pay any taxes on capital gains or dividends. You don't pay taxes on the gains that you incur in that investment account. Whereas with a traditional account, you are able to defer taxes on that income in the year that you make the contribution. but then when later you withdraw that money, you have to pay taxes on all of the gains that that made.

And because that money has grown over time, you are then paying taxes on a much larger sum of money ultimately. So Elena, in your case, because you're 25 and this money is going to be growing for presumably the next 40 years at least, that sum of money when you withdraw it is going to be much larger than it is today. So I would pay the taxes now so that you can avoid a tax bill on a much larger sum of money later. And I disagree with that a lot, which is my job on the show. And it's not just to be disagreeable. It's the fact that I don't trust that the rules aren't going to change when you have a rule that allows people to grow lots of pots of money tax free. There are, and it's not just me saying that if you look at a lot of financial planners, really worry about those rules changing. So I worry about giving. up the tax break that I get today at some level just for the promise of tax free forever. I don't know that it's going to stay that way. Take some of the money tax, pre-tax today. So you're concerned about the risk that the government would change the laws and not grandfather

in the Roth contributions that have already been made? I am, and there's precedent for that. Back in the 1980s, the government did that with limited partnerships. And I know that's been, that seems like agent history to people. But if I'm someone who is, looking at the and I don't want this to become a political or an economic debate, but when I look at the level of debt that the country has, I look at the fact that a lot of people aren't even thinking about what do we do with this debt. An obvious place to go is going to be to change the rules on this money that's sitting there that's going to be tax free forever. You look at the state of New Jersey has changed rules around pensions. You've looked at a lot of companies have changed rules around pensions. People already retired, having their pensions reduced. I don't know that I play. this game that says that the government's not going to tax it. Not at 100%. I agree, Paula, with the math of what you're saying. There's no doubt that I'd rather, at 25 years old, have all that money grow tax-free. Totally agree with that. I would just hedge my bet. Yeah, I guess, Joe, that is where you and I disagree, which is the reason that I bring you on the show,

because it's good to hear multiple opinions. My view is that even if they do change the laws later, the existing Roth contributions would be grandfathered in because if they're not, that would be political suicide for whoever suggests that. There are so many people who have made Roth contributions that, you know, I can absolutely see a future in which they might change the law from a given point in time moving forward. I cannot imagine existing contributions not being grandfathered in. Talk to people that have a pension that had the pension rules changed after working at a company for 30 years or working for a state for 30 years. It's tough. Yeah. So I don't know what Elena does with that, but I love that she's got both of those opinions.

Yeah. That's a heavy thought. I know. I know. Do we want to just leave it there on the heaviness? Right. I know. That's a very heavy thought.

Hey, I got a great idea, Paula. Let's light it up and talk about life insurance. All right. Let's do it. Because we don't get to say that very often, do we? So, Joe, what is your take on the life insurance situation? Well, this is why personal finance is so personal because I know plenty of people who know the math the way Elena does. And Elena knows that this policy is no good, right? And the fact that she can cover the burial cost herself, I would much rather see her put money in a fund and call it

mom's burial fund, then I would have this insurance policy. Ouch. I would hate to name a fund that, but yes. I know. I know. A final expense. Whatever. Hiring of,

I don't know. But the thing that I, that I love is that I saw this a lot in my practice or people would look me in the eye and they'd say, listen, I know it's a lot of money. I know that the math doesn't really work, but it makes me feel so much better. And Paula, if you know what you're paying for, then who's to deny somebody that? So I think she knows what the risk is. I think she's clearly gone over weighing what she pays versus what she gets.

So I can't disagree with her decision. Mathematically, it doesn't make a lot of sense, but that's not all there is. Yeah. And that's exactly what I hear when I hear Elena speak. She's done the math. She knows how the numbers play out. And she knows that in the long run, this is not necessarily. a wise financial move, but you know what? We don't always make wise financial moves. My primary

residents, the condo that I live in, I don't personally think that this was a smart financial move, but I like living here, so I bought it. And that's okay. You know, if you've got the money, if you've got the flexibility, and Elena does. She's got $95,000 in cash and no debt and a very strong, healthy investment portfolio, all by the age of 25. So if this is something Elena that helps you sleep more easily at night and you are fully aware that it's not necessarily financially great, but it is valuable for your peace of mind. Peace of mind is genuinely worth something. And I think the thing that's important here for everybody else listening is that Elena has thought about the different options, right? The big problem I have with a lot of people's financial

plans is that they don't consider the downsides, although what if? What if I do it this way? I think we think very optimistically sometimes, Paula. And I'm a guy that spent a long time worrying about, well, what if the bad thing happens? And I think Elena's thought through all of that. So fantastic. What if the government collapses? What if the government? We've even covered that today.

Right. Yeah. So good for Elena. So, yeah. Yeah. I have no problem with what she's doing because she understands what she's doing. All right. Well, thank you so much, Elena, for asking that question.

Our next question comes from Rudy. Hi, Paula. I have some options at work as it relates to retirement. I work for a public university, so I'm entitled to a pension plan, or I can choose an investment plan, which is really nothing more than an annuity, where my employer will contribute 5% of my salary and I will contribute 3% of my salary for a total of 8%. Or I can do the pension. and with the pension, I would have to contribute 3%.

So it's a pension plan, but I would have to put a, and there would be a contribution of 3%. What would be a better choice? Taking the pension or choosing to invest in the market with an 8% contribution. I hope you answer my question, and thanks again. Bye. Great question, Rudy. And it's amazing, Paula, that Rudy actually has a pension available because we don't hear that as much as we used to. I was actually surprised.

I looked up the data on the percentage of a measurement. American workers today who are still eligible for pensions, and I was actually surprised at how large of a population that is, approximately one in three U.S. workers are still eligible for pensions, which is many, many more people than I had anticipated. So most of them are government employees, but still, it's a huge number. Right. And looking at the fact that that number's down from 60%, not that long ago, is that's where we're seeing the drop off. As companies go from this, where Rudy's at, between this pension plan and being able to invest the money himself. You know, there's a couple things going on here, Paula.

You and I know the statistics, but we should probably share them with people. Pensions are fantastic if the people doing the pension do their job, number one. Number two, that you work for the company for a significant length of time. The way that pensions work, the longer you work for an employer, the more lucrative they become to the employee. But in the earliers, they're not. So if we look at statistically the number of years that people stay with a certain employer, the pension gets more difficult. The second thing is there have been a lot of pensions lately that have struggled as companies try to find ways to put less money into the pension and maximize profits.

And certainly when you're working in a sector like Rudy is, that might not always be the case. But we have seen states fall on hard times. We've seen cities fall on hard times and we've seen schools fall in hard times. So I like leaving the risk with me, which means that I'm going to use that investment plan because the odds are that I have the wherewithal. I'm listening to the afford anything podcast for goodness sake. So if I'm doing that, then I'm definitely going to go explore which one of those investment options or which several those investment options are best for me.

And I keep control with me, which is squarely where I want it, not with somebody. else in the pension. Absolutely. I think with pensions, one of the big risk factors is the solvency of the underlying entity. So if your pension comes from the United States of America, if it comes from the federal government, you can trust that that is going to be solvent, or at least you can trust that if that collapses, we're in way, we have way bigger problems. So to the extent that we can trust that anything will be solvent, we can trust that the nation's will be. But when it comes to a particular company, a private company, especially if it's one that's not very large, or even if it is, I mean, there are plenty of big companies that have gone

out of business over time. Yeah. So that is where question marks tend to pop up a little bit more. That's where you just have greater risk. I totally agree. Rudy, the good news for you is that it sounds as though you would be making the same contribution regardless, 3%, whether you go into a self-directed retirement account or whether you go into a pension. So one way or another, the bite from your paycheck would be about the same. Now, that being said, if you can contribute more, if you have the flexibility within your budget to contribute a higher amount, I would encourage you to do so because setting aside a total of 8% of your salary, 5% that comes from the employer and 3% that comes from you, that's a great start. But I'd like to see you up your

retirement contributions to at a minimum 10% and ideally push past that into the 12% 15% mark? I love that advice and that's that's something I hadn't even consider, but I wholeheartedly agree that yeah, a lot of people putting in sub 10% and even when you're starting out, just studies show that 10% is kind of the game, isn't it, Paula? 10% is the minimum game. Absolutely, yes. If you are starting at the age of 22 and you put in 10% and you plan on working for 40 years, you'll probably be all right. But if you're starting at an older age and or you are shooting for an early retirement, you want to up that. You want to up it to 15 or 20 or as much as you possibly can.

Yeah. All right. Thank you, Rudy, for asking that question. We'll come back to this episode after this word from our sponsors. Attention, Entrepreneurs. Are you hiring? Are you posting your position to job sites and then waiting and waiting for the right people to see it? ZipRecruiter knows there's a smarter way, so they built a platform that finds the right job candidates for you. ZipRecruiter learns what you're looking for, identifies people with the right experience, and invites them to apply to your job.

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Our next question comes from Nicole, representing the Canadian slice of our listenership. Hi, Paula. This is Nicole calling from Canada. So I have a question regarding a retirement account and pension fund. Pension plan is what it's referred to. I currently have a registered retirement savings plan that I contribute by monthly. The investment's doing fairly well. I'm getting between, I think, around 9% return. I remember correctly. I also have a tax-free savings account, which I can invest out of, obviously, tax-free that I'm basically building up and calling it my emergency fund. So I'm leaving that for right now. But my main question is regarding my pension plan with work. So I've been there almost 10 years in a couple weeks. I'm also finishing up another diploma and hoping to make a career change out of health care. But the pension plan that I pay into is basically only really used by

government. There are other pension plans, I guess, I'm not really familiar with them that other companies use. So when I leave after 10 years, I'll have about, say, $45,000 in this pension plan that I have to figure out what I want to do with. The options that I've read include just keep it in the plan, which will be paid out when I turn 65, which is over 30 years from now. So that's quite a while. I don't know if I want my money sitting in something managed by someone else. The other option is to move it to another pension plan, depending on the company that I get hired with after I move on. Or I can transfer it into a lira, which is a locked in retirement account. And I think there's limits to how much you can put into one. I haven't fully researched that.

And then the remaining portion would go into my registered retirement savings plan, that fund. I'm leaning towards Alira just because they'll give me more options to manage the money rather than having some fund manager at a pension plan company decide. I was just wondering what your opinion would be on how to manage a larger lump sum of money that I don't actually get a touch until I reach the age of 55 or 65, one or the other, what is the best way to kind of make a decision regarding what to do with that money so that I can gain the most benefit from the next 35 years. Thanks. Nicole, thank you for asking that question. Now, first of all, I myself am very familiar and comfortable with discussing retirement plans in the

United States, 401K, 403B, IRA, but I personally have no experience with the retirement system, legal system, or tax system in Canada. So this is a little bit outside of my wheelhouse, but that is why we have Joe here, because he's going to define a couple of terms. It's out of my wheelhouse, too, Paula, but I'll tell you, there are some upsides to having the guy on your show who practiced financial planning right across the Canadian border. So I worked with many clients that were Canadian. And let's define some terms. for our American friends. Time out.

Across the Canadian border, Joe, don't you live in Texas? I was in Detroit. Yeah, when I was a financial planner, I'm sorry, I was in Detroit. I was on Detroit TV. Hey, Detroit people. I was on Channel 7, Detroit for nine years, WX, Z. I was the money man. That was a good time.

I kind of missed that, you know? It was a good time. But now I get to go and afford anything, which is way better. Oh, thank you. How about that? So she mentioned a couple things. The terminology for the American people listening. An RRSP is really the Canadian version of an IRA.

So when she says that some of that money can roll over to her registered retirement savings plan, that's like an IRA. The Lira plan is a little bit different. She can take money out of a pension, and that's a locked-in retirement account. The thing I love, Paula, about the Canadian analogies is that they all are for things that they really represent. So RRS is a registered retirement savings plan. What the hell is a Roth IRA, right? Oh, I know this. It was named after William Roth, who is the senator who introduced the bill. Yes, but it doesn't say what it does. The Canadian one says it. So, so Lira is locked in retirement account. So she has three things. So really what she's telling me is this to translate to our American friends. She can leave it at the company where she was. She can roll it over to the new company or she can put into this locked in retirement account. So let's go over those three things. She doesn't like leaving it with her.

current employer. I agree. A lot of the time with current employers, she goes on and works somewhere new. She doesn't get the correspondence. A lot of things can happen between the time that they make changes to that plan and where she is. And so keeping up with your money, I believe, is all about having a dashboard that we follow. And having this trail of money in different places doesn't make a lot of sense to me, which means then she moves it over to the new company or to the lira. of those two, she's going to be accumulating new money with the new company. And I'm not really sure what the options are with the new company. But if it's like most companies, she's going to have some options that are great,

though there will be some options that aren't so great. So for me, I like rolling it over, like moving the money to the Lira account. She's not allowed to ever put more money in that account, but it locks it in. She can invest it in many different ways, much like you can in an IRA. and the cool thing for Nicole, she can look at her new company and the areas of that new company where the investments might not be so hot. And she can de-emphasize those. Like sometimes a company has a small company fund or maybe an international fund that has a huge fee attached to it. She can put less money in that, instead invest in that area at a much more reasonably expensed account inside the lira and gets great diversification between.

the two. So for me, I like Nicole moving it over to the lira. And what that means for people in the United States, when you move from one job to another, I like not moving it to the new job. I like moving it to an IRA versus leaving it where you were or moving it to the new company. The downside in the U.S. And here's where I don't know Canadian laws. I don't know what the, what the restrictions are to take money out of the lira. So she's going to have to research that. In the United States, if you move money from your company plan like a 401k over to an IRA, the rules change slightly on getting that money pre 59 and a half. If you've got money in a 401k, you may be able to get that money without having to go through

a lot of the hoops you have to go through in an IRA if it's still in a 401k. So know those rules about withdrawals from the lira versus the new company before you make that move. One thing that I would say to Americans who are in a similar situation, if you're leaving a company and you have money in the old company's 401k and you do want to move that money into a rollover IRA. You have only 60 days to do it before it becomes a basically once that money leaves your 401k, you have a maximum of 60 days. Otherwise, it's considered a withdrawal. So if you want to avoid the risk of that, the safest way to do it is through what's called a trustee to trustee transfer. And if you take that approach, then you, you're going to,

you yourself never actually touch the money. The trustee that is holding the retirement funds from your old employer in that old employer's 401k will directly transfer it to the holder of your rollover IRA. That is the safest thing to do. Now, if the two entities don't offer that option, then the second safest thing to do is to get a check from your old employer's 401K that is made out to the trustee of the, that is made out not to you, not to your name, but rather to the holder of the rollover IRA. So those are the two safer options. Never have the check made out to you. Exactly. Never, ever, ever have the check made out to you. Because if you do, then by law,

the trustee that is holding your old 401k is required to hold back 20% of that just in case you don't make that deposit within 60 days. Essentially, when you're making this rollover, you want to avoid any risk that it might even accidentally be considered an early withdrawal. You avoid that risk, ideally by making a trustee-to-trusty transfer. And if you don't do that, then, and you have to receive a paper check, make sure that paper check is not made out in your name. Good stuff. Are you proud of my translation skills from Canadian DUS? Yeah, absolutely.

How about that, huh? Didn't expect that for me. I didn't know you were fluent in Canadian, Joe. Yeah, I can say A a lot. I wear really wild hats like a lot of Canadians do. And I'm very nice like a lot of Canadians are. Canadians are extremely nice. What's up with that? I know, right? We'll return to the show in just a moment. I'm excited to welcome this new sponsor to the Afford Anything family.

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They offer free shipping and free returns, and their prices are super competitive. In fact, they even offer price matching to their VIP members. I placed an order with them last week. Number one, I was impressed by how quickly the box arrived. Number two, and I realized this is a strange compliment, but nothing was worth. wasted. Their packing was very efficient, and I appreciate that. And number three, I got their own in-house branded peppermint soap, and it smells ridiculous. So guess what? Because you listen to the Afford Anything podcast, you get a special bonus. Head to grove.co slash Paula and place a minimum $20 order.

You can get normal household staples that you need, like dishwashing liquid or laundry soap. And if you do so, at grove.co slash paula, you will get a free $30, Mrs. Myers kit plus an additional bonus gift. So go to grove.com slash paula. Remember, it's not a dot com. It's a dot co-co, grove, g-r-o-vo-e, dot co-c-o-slash Paula. Our next question is a little bit unusual. Now, 99% of the time I want these questions to come in through voicemail, but we got an email from someone who says that their phone is too old for a voice recording. And what can I say to that? I'm not going to turn somebody away.

Yeah, exactly. Exactly. So our next question came in by email from someone who has a very frugal phone, which is something I completely support. She says, hello, Paula. I made a mistake and bought a new car. I'm frugal. I save. I plan for the future. But I became obsessed about buying a good, safe family car after driving my old one that was falling apart. I'm 48 years old, a single mother with two children. I cringe when I think of this car, and I don't enjoy driving it. I knew it was an error since day one. The total price paid, including taxes and everything, is $39,000.

It was crazy how it got up to that. I want to sell and buy a used car that would be smaller, with better gas mileage, for about $19,000. How do I determine if it's worth taking that hit? I'll lose between $7,000 to $10,000 by selling this car. I only bought it four months ago. Kelly Blue Book puts the value of the car at $33,000, but dealers are giving even less. I took out a personal loan, but mostly paid for this car with savings. Please, Paula, if you can give me any helpful insight, I would appreciate it.

I might have to keep this car and realize the mistake has been made already and I should just live with it. But I'm hoping you can help me with figuring this out. Thank you, your friend in frugality, Julie. So to summarize, Julie, you've spent $39,000 on this car, including taxes, and you can sell it for $33,000, which means that you would lose $6,000. I'm presuming most of that loss because of the fact that you bought it so recently, most of that loss. most of that loss would come from the fact that you paid taxes on this purchase. And while you can sell it for the $33,000 value, you can't recuperate the taxes that you've paid on it. You mentioned going to a dealer.

Don't sell it at a steeler ship. Put it on Craigslist. Sell it. Did you say Steelership? I sure did. Man. That's good. I caught that.

That was good. Well, thank you. There's no reason to have a dealer sell it. You can sell it yourself. It'll take a couple of extra. hours. I mean, I shouldn't be dismissive of the time that takes, right? You'll want to get it detailed. You'll want to take good photos. You'll want to post it on Craigslist. You'll be doing several showings. Sure, it will take time, absolutely. But you'll make an additional many, many thousand dollars in exchange for that time. So if you break down, let's say it takes you 20 hours to sell this car, but you make an extra $4,000 as a result, you break that down. That's 200 bucks an hour. That's a, probably unless you are an anesthesiologist or you have some other very high paying role, that's probably better. Or a podcaster. Or a podcaster. That's probably better money than you otherwise could make. If I were you, I would sell this car, except the fact that you do have some sunk cost. You will lose some money. But you'll lose even more money if you hold on to this car because of the depreciation.

on it. So in order to stop yourself from bleeding depreciation every month, sell your car, take the losses and move on. There are some great resources online when it comes to knowing how to sell a car, because for some people that will send you into a panic, I don't know how to sell a car. If I sell it to the dealer, it gets rid of all of that problem. But to Paula's point, the dealer has to make a profit when they buy your car. And so you will lose also, to Paulus point, a lot of money. But I really like when I bought a car, I was in a position where I was buying a car. And at the time, the way that there are these narrow periods where buying from a dealer actually makes sense. And I was buying from a dealer, but I'd never done it before. And I went to Edmonds.com.

I don't know anybody at Edmonds, except for we had them on my podcast one time talking about buying a car. But like Edmonds, there are some great resources. And I would go dig through those resources about how to effectively sell a car on your own. And I'll tell you that all that research I've done in the car buying and car selling process has paid out well, well worth the time. It's fantastic. I feel way differently now, Paula, about buying cars from people, from dealers, from whoever than I used to. And I always find that I score a really, really good deal compared to my friends. And I did nothing except spend a few hours on the internet learning how to do it. So in the show notes, which are available at afford anything.com slash episode 124, that's episode 124, we will put links to multiple resources about how to sell a car private party, as well as resources around how to buy a car.

And we'll curate through all of the noise on the internet to make sure that the links that we put in those show notes are some of the best articles that we found. So again, those links are at affordanything.com slash episode 124. And just a general rule, because Paula, you and I kind of think in terms of general rules. And one thing that we can't think about too often, if I'm just listening to this situation as I'm driving down the road or on my morning walk or whatever it might be, you can't worry about a mistake you made four months ago. You have to take the situation the way that it is now. forget that mistake and then learn from it and just don't do it again. The fact that you're losing $6,000 to me isn't as relevant as where we are today. Exactly. There's a concept called sunk cost fallacy. And this concept states that if you continue to make a unwise decision because

you have already started down that road, you are throwing good money after bad. And the analogy that people use, so humans are the only species who make decisions based on existing sunk costs. You don't know that cats don't make decisions. Actually, that's exactly the analogy I was going to use. If you think about, let's say a cat is like watching a hole that she thinks that a mouse is going to come out of, right? If the cat concludes that that mouse is not going to come from that spot, the cat's not going to say, like, well, I've been waiting here for five minutes already. I may as well keep waiting. No, like the minute that the predator believes that the prey is not going to emerge, the predator moves on, right?

And that that's true, not just of cat and mouse, but any animal, a fox that's hunting, a dog that is barking at something. Yeah, the dog doesn't say like, well, I've been barking at this thing for so long. I may as well continue. No, the dog barks as long. Paula. The dog across the lake from my house does that. Just thinks, oh, I've been barking half the night. I might as well keep you up all night. At least I think that's what he's saying. Sorry. I think what's actually happening is that the dog barks for as long as he feels it is efficient to do so. And then when he feels it's no longer efficient to do so or effective to do so, then he stops. I wish he was less efficient then. But you're right. Good. Yes. Great, great analogy.

All that to say, don't throw good money after bad. Don't throw good time after bad. You just cut your losses and move on. All right. Our final question comes from Anonymous, and it's about traveling. Hi, Paula. Great show. Keep up the good work. I was wondering if you could comment on some of the challenges that we all face while traveling or living abroad as part of our financial independent life. So a couple of the things that I was curious about are dealing with visas, like how to get extended stays in countries if you're going to be there for more than a year or so. health insurance while you're abroad. And also if you need to come back to the U.S. for short periods of time, like if you're going to be back for just a month or so. And lastly, the issue of dealing with mail while you're overseas, you may need to maintain like a U.S. address while you're abroad. And if you're not comfortable forwarding mail to like friends or family, what are

some strategies for dealing with that? I'm just interested to hear how you've dealt with these issues. and if you have any recommendations. Thanks, and keep up the good work. All right, I have a bunch to say about this topic. So, Joe, I'm going to let you begin before I take it away. I have a little bit to say, but Paula, I know that you have a lot of experience in this area. So this is much like I was the Canadian translator today, you're going to play the part of the travel tour guide. What I will say is there's a couple neat resources, people that you and I both know,

who I think are also great people to get in touch with on this issue. A guy named Doug Goldstein has a great podcast in Israel called Goldstein on Gelt. Doug is a guy who works with Americans overseas. That's a lot of his practice. Like what he does is a financial planner. Doug has a lot of resources. And then second, my friend Jeremy and your friend Jeremy, go curry cracker, is a guy who spent a lot of time living overseas and also answers a lot of that stuff.

So I would point at Paula. But then I'd also point at those two people as people that I know that can also answer this question far better than I can. Absolutely. And I will link to both of them in the show notes. I'll also in the show notes link to the interview that Go Curry Cracker did here on the Afford Anything podcast. So again, those will both be in the show notes at Afford Anything.com slash episode 124. Those are great questions. So let me take them one at a time. Now, your first question was about how to apply for visas. First of all, I'm going to assume that you're a U.S. citizen. If you have, and I'm saying this for the sake of everyone listening, if you are

a citizen of the United States or Canada or any other developed nation, you will have, relatively speaking, a pretty easy time traveling. If, on the other hand, you are a citizen of a country, as I was, I was a Nepali citizen for nine years before I became naturalized as a U.S. citizen, if the only passport that you have is one from Nepal or I had a roommate who is a Pakistani citizen, you will have a much harder time getting visas because a lot of people. of consulate offices view you as somebody who is highly likely to overstay a tourist visa. And as a result, there's a much more protracted application process. My Pakistani roommate had a brother who lived in England. And so he wanted to go to England just to visit his brother on a tourist visa. He applied

probably three or four times and the tourist visa got denied every time. So he was never able to see his brother. And in my family, that's common as well. If you're a Nepali citizen and you're trying to apply for a tourist visa to the U.S. so that you can come see your grandkids, there's a pretty good chance that visa is going to get denied. So having a citizenship to a country like the United States is a game changer. It makes everything so much easier. So I'm going to take this answer, assuming that you are a U.S. citizen. What that means at a functional level is that there are many countries that will grant you visa on arrival, a tourist visa on arrival, so you won't even have to apply in advance. Now, there are some countries where you're

for which this is not the case. If you go to Brazil, for example, or if you go to India, you will have to apply for a tourist visa in advance, but you are pretty likely to get that visa approved. And also, there are many, many countries in which you don't even have to bother applying in advance. Costa Rica, you just roll in and show up and they'll stamp you at the airport with a visa on arrival. So getting in is really easy if you're starting from a U.S. passport. Now, the tourist visa that you'll be granted will, depending on the country, most likely be good for anywhere between 30 to 90 days. In order to get that renewed, you have a couple of options. And again, it depends very much on the country.

But one popular method is what's called a visa run. So with a visa run, you go cross the border of that country and then cross back. I know a lot of people who once every three months, let's say that you get a 90-day visa, a 90-day tourist visa on arrival. You just go to the border, make a border crossing, and then come back, and you do that once every 90 days. There's a limit to how often you can do that. After you do it for a certain number of times, they will start to raise eyebrows. But that's a very popular way of being able to stay in a country for a longer period of time without having to go through a more rigorous application process.

Now, it's important that you never, ever, ever, ever overstay your tourist visa because if you do that, they may not ever let you back in. Now, another option, if you are looking for something beyond just a tourist visa, if you're under the age of 30 and you're a U.S. citizen, both Australia and New Zealand have programs in which they give work visas to U.S. citizens under 30, and those work visas are good for one year. And once you're there, if you apply for that visa to be renewed for a second year, it's pretty likely that you'll get it. So that's a fantastic option for U.S. citizens who are under the age of 30. In general, though, for most countries, getting a work visa is a lot more challenging. So my recommendation, and again, this is, I'm saying this, not knowing what specific country you are interested in, and obviously the rules are going to be different country by country, but as a generalized blanket statement.

But for most countries, the easiest route is number one, to go in there on a tourist visa. And number two, to see how many times you can continue to come back on a tourist visa. So a country, for example, might have a rule that they'll allow a 90-day tourist visa and they will allow two of those 90-day tourist visa. So in other words, 180 days per 365-day period. And if that's the case, then cool. You're able to stay in that country for six months out of the year. Again, the rules are going to vary country by country, but that's just an example. Question number two, health insurance while abroad.

There are health insurance companies that specialize in selling health insurance. specifically to people who are going to be outside of the United States for the majority of the year. Now, in the show notes, which will be available at afford anything.com slash episode one, two, four, I will list several options that you can look at. So I will list health insurance companies that specifically cater to people who are going to be overseas. And what's great about these is that even if you do come back to the U.S. for a short period of time, for a month or two, that's totally fine. This is health insurance that will cover you all year long, regardless of whether you're in the

U.S. or overseas, as long as you are overseas for X amount of time during the sum total of that year. So for example, and it depends on the specific health insurance company and plan that you're in, for example, you might be in a plan that gives you super cheap health insurance as long as you are out of the U.S. for at least six months of the year. And then you can be back in the U.S. for the other six. By the way, these health insurance plans are significantly cheaper than plans that you would have if you were in the U.S. all 12 months of the year. They're significantly cheaper than most individual insurance plans that you can buy from the Affordable Care Act website. So if you're interested in early retirement, I'm saying this for the sake of everyone listening,

if you're interested in early retirement but you have some concerns about the premiums that you would pay for health insurance as a result of having to buy an individual policy, well, first of all, if you're young and healthy, you probably shouldn't be that worried because it's not going to be that much. But if you have looked at the plans and in your particular case, maybe due to your age, your premiums are going to be significantly higher than you anticipated. Retiring overseas could be an excellent option. because A, the cost of living is going to be lower overseas, and B, the cost of health insurance is going to be lower because you live overseas. So again, I'll have those resources in the show notes that's at afford anything.com slash episode 124. Finally, you asked about how to handle mail when you're overseas. There are companies that will handle your mail for you. So you can have your mail sent to these companies, and they will periodically open your mail, scan it, and then send you that scanned digital information.

I'll link to a couple of those companies in the show notes as well. And that's our show for today. Thanks, Joe, for joining us. That was so fun. Thanks for having me. Thanks for the great questions, everybody. It's always so fun answering questions directly that people have. I was listening to Tim Ferriss the other day,

and he was talking about the value of just-in-time knowledge versus just-in-case knowledge. And I love the just in time nature of these questions. It really makes it fulfilling to know that we're helping somebody who has this question right now instead of you and I just pontificating about finance in general. You know what I'm glad that you kind of defined it already in what you said contextually. But what is the difference between just in time knowledge versus just in case knowledge? Just in case knowledge is when I pick up a book thinking, you know, someday I might sell a car or someday I might buy a car. So I'm going to go read up on that today. because this might happen sometime down in the future. And then I probably forget 70 or 80% of that. And really, when you look at the life of the average person, we don't have the time to forget 60 to 70% of that knowledge.

So I prefer to reach out and find the knowledge that I need tomorrow today. So what do I have coming down the pike for Joe in the next week, two weeks, the next month, and then go find out as much about that as possible? When I went looking for cars, that's when I went to the resources that we talked about earlier and started getting that knowledge. I didn't do it five months before. I didn't do it two years before. I did it right then. So that's why I love answering these questions.

Absolutely, because people are calling with questions about what they can take action on immediately. So, Joe, where can people find you if they would like to know more about you? I'll tell you something cool. You can find me three days a week at stacking Benjamins. But the most important one of those is on Friday when we're joined by. this crazy person named Paula Pant. And by crazy, I mean, crazy awesome, right? How did you convince her to come on your show? I have no idea, but man, I'm so glad she did. But we have a great time every Friday there. But what we launched recently was this show that I do

live on Facebook every day. And we've turned it into a podcast and it's called Money in the Morning. And so every morning, it's a 15-minute podcast. We just do two financial headlines and we say, what does this really mean to you? And of course, like, anything, a lot of the headlines that are out there are clickbaity and sometimes they scare people or you think there's an opportunity and there really might not be. So we kind of wade through that at money in the morning. I can't believe you do three podcasts a week and also a daily show, a live daily show. We only do eight. It's no big deal. Ouch. Wow. Better, better you than me, man.

Well, you write these awesome 65,000 word essays from time to time. And I don't do that. So I would say, better you than me on that point. So, tusha. Thank you. And speaking of which, I have restarted publishing articles on afford anything.com on my blog. I have been largely absent from that blog for the past year at least, year plus. I think in the year 2017, I published fewer.

than 10 articles. I would have to go back and count, but not many. Now I'm trying. Theoretically, my goal is to go back to publishing once a week. I don't know if I'll actually be able to do that or not, but I have published for the last three weeks in a row. Some of them are shorter articles. You know, they're not necessarily the 3,000-word essays that I'm known for. So, you know, recently I published an article called Timeline versus Intensity that was, I think a 500-word piece. It was rather short. But the thing that I've learned from this podcast is that there's, there is value in putting something out consistently. In terms of a blog, sometimes that means a in-depth, 3,000 word blog post that lives on for years. And sometimes that means 500 words on one very specific concept or

idea. So I'm now giving myself permission to publish both that combination of short form and long form and I'm really aiming for publishing once a week. So head on over to afford anything.com where you can read some of my writing. Well, as a fan, I'm very excited by that and I'm so happy you're back. Thank you. Thank you. That is our show for today. If you enjoyed today's podcast, please, please do me a favor. Head to your favorite podcast player, whether that's iTunes, Overcast, Stitcher, whatever it is that you use to listen to podcasts and subscribe to this show. Also, please head to afford anything.com slash iTunes, where you can leave a review for this show. I want to give a shout out to some of our recent reviewers. Daria K. Tabaka says that

Afford Anything is a philosophy of life. She says that the question of how to align your day-to-day decisions with what's most important is a great question that never gets old. Thank you. Jemaiah says that this is a podcast for everyone. C-My A-B says, this is a joy to listen to. I've been listening to podcasts for years, and this is the very first review I've ever written. SAV-74 says that the podcast is life-changing, and Katie 3456 says, I can afford anything. So thank you to all of you for those recent reviews, and to everyone else, please, if you enjoy this show, please head to iTunes. You can go visit by going to afford-anything.com slash iTunes. That'll redirect you to this show on iTunes, and there you'll be

able to leave a review. And while you're there, please upvote any other reviews that you find helpful. And finally, tell a friend. Coming up on future episodes, we've got Morgan Housel, a former columnist for the Wall Street Journal and The Motley Fool joining us next week. And then we also have Dr. Brad Klontz, a financial psychologist, joining us to talk about the intersection between money and your mind. Also, don't forget, we are giving away three free copies of The Book your money or your life by Vicky Robin, you can go to Instagram to enter that contest. I'm on Instagram at Paula Pan. Thanks again for tuning in. I'll catch you next week.