Afford Anything - Ask Paula: How Much Should We Spend on a Wedding?

Episode Date: November 23, 2021

#350: Anonymous and her husband have set themselves on the path of saving for retirement. But an old mistake haunts them: a financial planner convinced them to buy a mix of whole and term life insurance, which costs them $700 per month. Do they need whole life insurance, and where else can they save their money? Mike has $60,000 in cash earning one percent interest. He has plans to buy a home and get married in three to five years. Where else can he put his cash to earn a little more? Is the stock market too risky for such a short time horizon? Anonymous and her future husband are wondering: what’s a realistic amount to spend on a wedding? My friend and former financial planner Joe Saul-Sehy joins me to answer these questions on today’s episode. Enjoy! Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode. To subscribe to the show notes, go to https://affordanything.com/shownotes Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything, but not everything. Every choice that you make is a trade-off against something else, and that doesn't just apply to your money. That applies to your time, your focus, your energy, your attention, anything in your life that's a scarce or limited resource. And that opens up two questions. First, what truly matters? Second, how do you align your decision-making around that which truly matters?

Answering those two questions is, a lifetime practice, and that is what this podcast is here to explore. My name is Paula Pant. I'm the host of the Afford Anything podcast. Every other episode, we answer questions that come from you, the community. And my buddy, Joe Saul-Sehigh, resident of the great state of Texas, is here with me to answer these questions. What's up, Joe? I think it's funny that you call me a resident in the great state of Texas, because now that you've been to Texarkana, you know that I live like 800 yards inside the Texas. Like, I am barely hanging on by my claws to Texas. So if you go to Instagram, my Instagram's at Paula P-A-U-L-A-P-A-N-T,

you will see a photo that Joe took of me doing a backbend over the Texas Arkansas state line. Yes, she's half in Arkansas, half in Texas, in front of our most iconic building, which is we have a courthouse right downtown. It's a beautiful, huge building. and as you walk down, it's one of the few buildings in the nation where it is courthouses for two different states in the same building. So the hallway between them is right on the state line. And if you go to the left, you're in the Texas state courts. And if you go to the right, you're in the Arkansas state courts.

It's a weird building. That's really cool. That's really cool. There's also a street in Texarkana where apparently Texas and Arkansas had very different liquor laws. And so the street runs down the same. state line. And so you see all of the liquor stores on one side. I forget whether it's Texas or Arkansas, but it's on one of the two sides. It's on the Arkansas side. Yeah, it's just liquor store, liquor store, liquor store. And on the Texas side, nothing, nothing, nothing. Yeah, it's funny.

It's a quirky place that I live. But we're here today. We got some great questions. We're talking weddings today. We are. We're talking weddings. We're talking about where to keep your savings that you plan on using in between three to five years, meaning that we're talking about how to handle money that has a short time horizon? A side helping of insurance discussion? Yeah, we're going to have a whole in-term life insurance conversation. Those are always fun. So there's a lot of ground that we're going to cover. Let's get started. Our first question comes from anonymous. Joe, we give every anonymous caller a nickname. What's inspiring you right now? Well, I just saw a film a couple days ago on Netflix called Red Notice. And it's kind of like, have you ever seen National Treasure or even

any of the Indiana Jones stuff where they're after kind of a crazy treasure? Joe, how many years have you known me? You would see any of these. Have you not yet learned that if you begin a question with the words, have you ever seen? The answer is no. Exactly. I wasn't actually asking you. I was asking the audience more. Audience, because Paula hasn't. Have you ever seen any of those Indiana Jones or National Treasure movies where they're after a great treasure. And these are three eggs, these beautiful ornate art eggs. And it stars Dwayne Johnson and Ryan Reynolds and Gail Godot. So the movie, by the way, is absolutely awful. It's horrible. I don't recommend seeing it,

but I think because that's the last thing I saw, we should name her Gail. I thought her name was GAL, GAL. Well, in my head, it's Gail. I always, I see Gail Godot, and I always Just put an eye in there because my cousin's name is Gail. So we're going to call her Gail. What? Her name is Gail. You know what? We'll alternate.

I'll call her gal. You call her Gail. And that's how we'll address her for the duration of the question. Just a mess already. We're four minutes in and it's a mess. All right. Our next question comes from GAL. Gail.

Hi, Paula. I'm getting married soon. I'm in the early stages of wedding planning. The hardest part has been creating a budget, and I wanted to get your thoughts. I searched for wedding questions on Previs Afford Anything episodes and found none, so I hope this question is helpful to others out there too. How much should my future husband and I spend on our wedding? We are paying for the entire wedding ourselves. We do indeed want a wedding, not a courthouse or elopement.

We have no financial assistance from family or friends, and here's the numbers, which I've approximated for simplicity's sake. We are both in our early 30s and are fairly well situated. I make $85,000 annually with an anticipated bonus of $20,000 at the end of this year, and I have about $5,000 in cash savings. I also have $65,000 in various retirement accounts and contribute approximately 20% of my income to his accounts annually. My annual expenses are about $45,000. My fiance makes $83,000 annually, has $45,000 in his retirement accounts, and about $15,000 in savings. His annual expenses are around $50,000 annually.

Neither of us have significant debts other than our house and pay off our credit card balances in full every month. We owe $220,000 on our house with an interest rate of $3.75 and an equity of $110,000. the thousand. We're both interested in getting into rental properties eventually, but are not in a hurry. Neither of us want to retire super early. We're targeting our mid to late 40s. So Paula, how much do you recommend we spend on our wedding? We know this is a very personal question, but strictly from a realistic and responsible financial perspective, what do you think would be a reasonable budget? We'd also love to hear Joe's perspectives. Thank you. Hey, Gail.

Gal. Thanks for the question. And you know what? I have become Paula, first of all, let's just talk about a wedding by itself. I have become, my feelings about this have changed immensely over time. I, when I was young, I thought that having a big Cinderella-type wedding would be fun for me and my future bride. And I thought that that would be just a heck of a, heck of a splash. I remember when I would go to weddings that were big weddings about how fun they were and how great a party that was.

And then I saw the price tag. And as I became a financial planner and I saw so many people struggling to meet their goals, I thought, what a ridiculous use of money this is. This is an absolutely horrible use of money. And then I became less judgy about it. And I realized that frankly, if this big party is one of your big goals and your other. big goals are taken care of, spend money however you want to. So the first question is that I have is where does this fall in terms of priorities against your other goals? So as an example, she talks about retirement. She said not too early, mid to late 40s, which I think, by the way,

is amazing that this community is so badass that they think mid to late 40s isn't that special. That's a monster early retirement. If you look at the real world, people, struggle to retire by the time they're 65. I would call that the default world, not the real world. We live in the real world. That's, well, that's true. Good point. The default world. Yes. So we can agree on that, even though it's Gail. Gal. So I think the fact that she's internalized that so much that that's not anything special, I think it's really cool. But, you know, doing the math between she and her future husband's retirement dollars, you know, let's say that that is more important. And that's super important to her to be able to do that. She said she's in

early 30s now and wants to hit financial independence in mid to late 40s. So if we use this rule called the rule of 72, where you take the interest rate, you think you're going to get, you divide it into 72, that tells you how many years is going to take your money to double. So if we use a fairly conservative number like 8%, eight divided into 72 means every nine years. If we take early 30s and she's 32. That means her money's going to double when she's 41 and it's going to double again when she's 50. So if between she and her husband right now, the nest egg they've already saved is roughly $110,000, that's $220,000. And if they wait till 50, Paula, that's $440,000 she is saved now. So I'm guessing that as aggressively as she's saving, she might end up just a little bit

south of a million bucks by that time. She's going to struggle to reach that goal where she is right now. So if that early retirement goal is more important than the wedding, then I would make the wedding budget really small. And I would then be all hands on deck to get this mid to late 40s goal. If the mid 40s is nice, but she really doesn't care too much about it, but she really cares about that nice wedding, then have a bigger budget for the wedding. One comment that I'll make on the math that you just outlined is to remember that the purchasing power of that money in the future will be non-equivalent to what it is today.

And so the total return is represented by an inflationary increase plus, ideally, an increase that is in excess of inflation. So to take that 8% number, if we assume that inflation progresses at a rate of 3%, then it means that your, real return in terms of purchasing power would be around 5%. So that's just something to bear in mind when you're making future projections. Yeah, we're seeing a million dollars now is not what a million dollars used to be. I just remember when I was a kid, a million dollars was a bundle of money. And don't get me wrong, it still is a nice sum of money. But if we apply a rule like the four or five percent rule, that's a $40,000 or $50,000

year lifestyle. 20 years ago, that was a fantastic lifestyle. Now it's a good lifestyle if you have no debt. I think you can definitely, you can definitely do that for a long period of time, but it's not at all what it was. Price is double about every 20 years. So really, what was a million dollars, what a million dollars bought you 20 years ago back at the turn of the century is now two million to reach that. And that actually jives well with the rule of 72. So, So rule of 72, prices double about every 20 years. So historically, inflation has progressed at about a 3% annual rate. 72 divided by 3 is 24.

Yeah. Gal, I agree with Joe's advice about figuring out what your comprehensive list of goals are. Like fundamentally here are the variables that you would need to write out on a piece of paper. What goals do you have? how much roughly will reaching that goal cost and what duration of time do you want to achieve that goal in? So if your goal is to retire at the age of X, let's say 48 or 50, and there's Y amount of money that you'd like to have in your portfolio at the time of retirement, then based on those numbers,

you can then reverse engineer how much money you would have to set aside every year between now and then, given certain return assumptions. And there are loads of online calculators that can help you figure that out. So that's a way for you to math out that retirement goal. Then think through any other goal that you have. You mentioned potential rental properties. I don't know whether or not you want to have children, but if so, you might want to have a fund set aside for unanticipated expenses related to that. For example, if you end up needing IVF treatments, I don't know if you have any travel goals,

but sit down, and this is an activity that the two of you should do together. Of course, sit down and list out the goals that the two of you share, how much you would like to say for each of those and how much that's going to cost and reverse engineer to see how much you would have to save in each designated bucket for each designated goal. And then typically, when people go through this exercise, they find that their list of goals and the list of savings amounts that they need in order to reach those goals exceeds what they can realistically save. That's typically what happens. And so when that occurs, then you've got three choices. you either eliminate a few of those goals or downgrade the budget on some of those goals

or extend out the timeline on some of those goals or some combination of all of the above. I took a look also in preparation for this question, the popular website, the not.com, and the average cost of a wedding. And here's something interesting that happened. And while we don't know the reason, the average cost. of a wedding in 2019, according to the knot, was $28,000. In 2020, that went all the way down, Paula, to $19,000. Now, there's a couple things, obviously COVID hit, right?

And because of that, the guest list shrunk. Also, I think that wedding halls were probably hurting for business and may have severely discounted the numbers. But I think in terms of the piece that we could, we can control, what I find find is that weddings often become unwieldy when you start just deciding how big a party you want and it gets bigger and bigger and bigger and less constrained. And I think sometimes constraints are fantastic for creativity. So if you put yourself a decent constraint on what type of party or event you want to have, you can still have something that's really beautiful and nice, I'll bet, for maybe not

$19,000 if it's still the average versus 28,000 because of the fact that the, you know, haul prices are going back up to what they were before. Your providers are less likely to discount things like I'm sure they were in 2020, discounting a lot of things just to stay in business. But still, I think that I'm just thinking of some of the weddings that I've gone to where they've either limited the guest list so they could preserve the place that they had the wedding. I remember there was this beautiful country end that a friend of. friends of ours had a wedding at. It was beautiful, but they constrained their guest list to 40 people.

It was because they constrained it to 40 people that they were able to hold on to this venue that they really, really, really wanted to have their wedding at. In other cases, people really valued family. And so they wanted to have family involved. And I've been to weddings where they have had 300 people and they didn't spend a lot of money by asking members of the family to bring some food. Now, maybe hear that asking your guest to do a potluck for my wedding. You go, that's crazy. I think it all depends on your values. It depends on exactly what your value.

If you really value your guests not having to pitch in at all to throw the wedding, then the cater for you is probably pretty important. If you don't value that, my sister and my brother. and a law were married in a tent behind their house. And it was a fantastic party. But other people here tent behind my house and go, forget it. I don't want it. So I think it's it again, even when you just look at the wedding, I think it's a microcosm of what we tell people when it comes to your expenses in general, which is spend lavishly on the things that you really like and cut ruthlessly on the things that you really don't care about. Yeah, I would agree with that. I would echo that. So, you know, I've brought food to a potluck wedding before. It was friends of mine, they got married at a campground. All of the guests stayed intense. And we all, like, hung out and had a big camp out together for three days. We all brought food. Yeah, it was great. It was a pretty intense wedding.

Yeah. Yeah, it was like a weekend, all weekend party. But yeah, we all brought food. You know, we all had our various assignments. We brought food. We brought booze from Costco. We had a whole schedule. We had a whole schedule. where we took shifts volunteering as the bartender. We had one particular person who was pretty good at photography. Like she was the unofficial official photographer. Everyone just pitched in and it was a big community wedding. Did you enjoy it? Yeah, it was great. It was great.

It was like just a giant camp out party. But again, as you know, people are going to hear this and they're going to go, yeah, not for me. And that's okay. You know, I once upon a time, I used to be married and I don't talk about it very often. But we eloped. And, you know, that's not for everyone, but we, it cost $300. And we had plenty of money.

We just didn't want to bother. Didn't want that expense. Yeah. Just wasn't important. Yeah. And that's where I think leading with priorities versus budget is the key. But if they have a big party, Paula, I think it would be absolutely right and completely in line with Gail's values to invite her favorite podcasters to come.

GAL's values. Gail, whatever. Gal. Gal Gado. The last thing I'd say is don't let anyone judge you for wanting to spend lavishly on a wedding. Like, if you sit down and make a list of your goals and the amounts and the timelines and you realize, hey, there's plenty of room in the budget to throw a lavish wedding, do it up. The fire community can sometimes get a little judgy about like what's a quote unquote worthwhile expense

and what's not. So there is a bit of a cultural ethos of world travel or RV living is totally worthwhile, but golfing is not. And to that I say, don't let anyone tell you what you value. If you want to spend all your money scuba diving, that's great. But if you want to spend all your money collecting trolls and figurines and board games, then don't let the voices in the fire community be like, Oh, no, stuff doesn't matter. You know what I mean? Like, who cares? Who cares what other people think?

So if you, if what you want is some big, lavish, beautiful wedding, and there is no trade-off that you'll regret, your goal ultimately is to minimize the likelihood of future regret. So thank you, gal, for asking that question. Good luck with whatever you decide. We'll return to the show in just a moment. The holidays are right around the corner, and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens. Maybe you need servware and cookware. And of course, holiday decor, all the stuff to make your home a great place to host during the holidays. You can get up to 70% off during Wayfair's Black Friday sale. Wayfair has Can't Miss Black Friday deals all month long. I use Wayfair to get lots of storage type of items for my home, so I got tons of shelving.

that's in the entryway, in the bathroom, very space-saving. I have a daybed from them that's multi-purpose. You can use it as a couch, but you can sleep on it as a bed. It's got shelving. It's got drawers underneath for storage. But you can get whatever it is you want, no matter your style, no matter your budget. Wayfair has something for everyone. Plus they have a loyalty program, 5% back on every item across Wayfair's family of brands.

Free shipping, members-only sales, and more. Terms apply. Don't miss out on early Black Friday deals. head to Wayfair.com now to shop Wayfair's Black Friday deals for up to 70% off. That's W-A-Y-F-A-I-R.com. Sale ends December 7th. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient. They're also powered by the latest in-payments technology, built to evolve with your business. Fifth Third Bank has the big bank muscle to handle payments for businesses of any size.

But they also have the FinTech Hustle that got them named one of America's most innovative companies by Fortune magazine. That's what being a fifth-third better is all about. It's about not being just one thing, but many things for our customers. Big Bank Muscle, FinTech Hustle. That's your commercial payments of Fifth Third Better. Our next question comes from Mike. Hi, Paula. This is Mike calling from the Midwest.

I discovered your podcast about eight months ago and had been devouring the episodes. Big thanks to you, Joe, and the rest of the team for all your work. I can't tell you how much it means. I'm looking for advice on where to put money for short to medium term savings goals, say over a three to five year time span. A little about me. I'm 36 single. I have no debt. I live in a large Midwestern city and make about $70,000 per year. I've currently got about $75,000 in retirement savings. Most of that is in a 403B account, though I recently opened a Roth IRA. thanks to you and Joe, and I've started making monthly contributions to that as well. I contribute about 9% of my income to my 403B. I get a 10% employer match, which is fantastic. And I contribute about 2% to my Roth IRA. Now, I've also amassed about $60,000 in a high-yield savings account over the years where I earn about 1% interest, and I've just come to the realization that having this much money in a savings account is not ideal. Some of this money I'll be diverting to my Roth. I also opened a brokerage account with

Fidelity where I've started to dip my toe in the water with stock index funds, so maybe putting some of this money there as well. But I'm trying to figure out what to do with the rest of it. There's a good chance I'll be buying my first home in the next three to five years. Marriage is also in the cards. My impression is that stock index funds may be too risky for that short of a time horizon. I love the idea of a CD, but returns are so low, it hardly seems worth it. I'm actually gravitating towards the idea of putting a good portion of that savings into bond index funds. Something I really haven't heard you guys talk about. You know, I'm looking for something that's low risk, but that will beat my savings account return. Any thoughts on bond index funds or other

places to stash your cash for the short to medium term savings goals? Really appreciate all the work you do. Looking forward to hearing your response. Thanks. Mike, thank you for that question and congratulations on everything that you're building. You seem to be in a great financial position. You're saving, you're investing, and you're making some very strong moves. To your question, yes, I agree, $60,000, given your income, your savings rate, given the proportion of net worth that that represents, that is quite a lot of money to keep in a savings account. So I think that your instinct to divert some of that into investments is wise. There are a couple of ways that you can handle this. One, as you suggested, is to invest a

portion of it into bond index funds, which are fantastic. Vanguard has a total bond market index fund that is a fantastic catch-all of the bond universe. You could also put a portion of it into a balanced fund, which will provide you with some layer of asset allocation. But notice in both of the things that I just said, because right now the conversation is veering towards product, and there's sort of two conversations we need to have here. There's product and there's strategy. Strategically, you don't want to move the entire $60,000, and I don't get the sense that you're going to do this, but I just want to make this explicit. You don't want to move the entire $60,000 into just one vehicle or one product, you want to take that $60,000 and cut it up

into different buckets and then move each portion of it into a different type of asset. So there's going to be some amount of that $60,000 that you'll want to keep in cash, store it in a high yield savings account, and let it sit there remaining in cash. There will be another portion of it that you might want to put into a bond index fund or that you might want to put into a balanced fund. There might be a portion of it that you want to put into treasury inflation protected securities or into a money market or into Ginny Mays. So you'll want to take the 60,000 and cut it up into a whole bunch of smaller sums and move each of them into assets with different types of characteristics. And so that's strategically what you'd want to do. And then when we move off of strategy and onto product,

all of those types of products, those types of assets that I just named would be good options for the appropriate sliver of it. And then to the natural follow-up question, all right, what is the appropriate chopping up of it? How do I slice the pie? A lot of that's going to depend on what you think this money will be used for and on the flexibility of that goal. So if you think that this money is going to be used for sure in the next three to five years, and that is a fairly rigid goal, then you'll want to be more conservative than you otherwise would be if you would ideally like to use this in the next three to five years, but you're flexible on that. Yeah, I totally agree. If the chance that you're going to use all of that money over the next

five years is very good, then I think going as far as the balance fund might be a little far. So what a balance fund does is balances stocks with bonds. We also have problems, though, Paula, in the bond market in general, because with interest rates, going up. A lot of people think that there's there's this thing called the bond teeter-totter, and people think that the teeter-totter is between stocks and bonds, and it isn't. Sometimes stocks and bonds both go up at the same time. Sometimes they go down at the same time. But one correlation that sticks is bonds and interest rates. And when interest rates go up, the value bonds you hold right now go down in value, which is why, you know, you and I in the past have been fans of,

And I think I'll just speak for myself. I'm still a fan of Ginny Mays. I think you are too. But this is a year where you're still looking at a loss in Ginny Mays of about one and a half percent. So if you invested in Ginny Mays the beginning of this year, doesn't make it a bad category. But like every category, they sometimes have times where it's great to invest in in someone it's not as good. And Ginny Mays this year would have lost a little bit of money. And that's a very conservative place to be.

You know, I bonds right now, though, are an area where I've seen a lot of people talking about it's a nice place because of inflation. And as we've seen inflation all over the place around us, investing in treasury inflation protected securities might be just a good little bump if he thinks he's going to need it sooner rather than later. So I think there's three ways to do this. I looked at a bond index. and one bond index that I like is the Fidelity Bond Index. Fidelity Bond Index down 1.76%. Doesn't surprise me. Doesn't lose money often.

Lost money in 2013. And this year, looking at the last 10 years, but that historically has been a fine place if you decide that, you know, I am going to go with bonds this year. If he did want some money longer, Vanguard has a fantastic balanced index. And by the way, these are not. not recommendations. These are some dude on the internet telling you about a few that he likes. But this Vanguard balanced index has an expense ratio of 0.07. And the allocation is going to be

about half stocks, half bonds. And so this year, so far as we record this, it's up 14%. Now, once again, because it's up 14, doesn't tell you at all what it's going to do in the future. But the fact that you've got stocks that have done very well balancing out bonds, which have not done well because of the threat of rising interest rates, a balance fund was a nicer place to be. But I'm still with Paula. I would not have a balanced fund unless you've got at least five years. Then I might have it. You know, a third option I was thinking about, if you found a target date fund for like 2025, and I'm not a huge fan of most target date funds, Vanguard, I think has good target date funds, but a lot of companies.

the only place I would get a target date fund from. Yeah. Target date funds are just littered with unnecessary fees. Except for From Vanguard. It's the only brokerage that I've been able to find with low fee target date. But I think the cool thing about a target date fund for 2025, Paula, is that it will start off a little more aggressive and it will get less aggressive. Its goal is to lock things in by 2025, right? And so I think that, okay, are we going to have the through versus versus? I mean, technically, yeah, yeah, technically its goal is to invest money for somebody who's going to retire in 2025, but then have a 30-year retirement.

Right. Which is why you don't want to put all your money there. I still think, though, that this is a time when a target date fund that's very conservative because they're going to diversify the funds in a way that you'll have money in different things inside of that target date fund and you don't have to do that yourself. So I also think that might be a valid part of your strategy. With a combination of these different types of products, if he were to put some money in a target date fund, some in a balanced fund, some in Treasury inflation protected securities, some in straight up cash, I mean, he's layering diversification on top of diversified funds. Joe, you mentioned that the bond index fund went down this year for the first time since 2013. I remember from a previous podcast episode, you also mentioned that 2013 was the same year that Ginny Mays went down. Yeah, and Ginny Mays going down again this year.

I mean, because it's a type of bond, conservative type of bond, bonds doing poorly in tandem, which I think, Paula, I think you may be bringing up a good point, which is that often we look at our portfolio and we go, this fund sucks. And we don't do a good job of comparing that fund to what's going on in the larger, universe of things. So if you have a bond fund and a stock fund right now, you might think, I want to get rid of these horrible bonds because bonds stink and stocks are great, which, as you know, is a false conclusion. They're actually made for completely different types of investors looking to do different things normally over different time frames. So if all bonds are going down right now, it does not mean that your bond fund is horrible. Right. And the contrarian approach,

I mean, sure, bonds are a bit beat up right now, but we're talking about a three to five year time horizon, and possibly with some additional flexibility baked into that. This is what excites me is that, you know, Wall Street does a great job of predicting this stuff. So bonds have been really beaten up and battered as they expect interest rates to rise. At some point, when is that all baked in, right? When is the expectation baked in? And then we start making money, which means, by the way, the certificates of deposit might actually be back in vogue again soon, which makes me giddy because it's been like a decade.

Where have you been, my friend, CD? It's been like a decade and a half since CDs were worth anything. I know. I feel like CDs come knocking at the door and I'm like, who are you? I don't recognize you anymore. It's been so long. Yeah, you know you're in an inflationary environment when there are products that are actually good for savers out there.

Yeah, right, right. Which also, by the way, let's look at all the dominoes, right? what does that mean? If it's a great time for savers, it's a crappy time to be a borrower. And it's not a crappy time yet. But Paula, you can see it coming, which means if you're waiting to get your debt house in order or you're here and you're thinking, well, you know, save versus pay down my debt versus invest versus the way things are going now, it could be a horrible time to be a borrower in the future. Well, in an inflationary environment, if you have a fixed rate loan, then you're sitting pretty. But if you have an adjustable rate, then you're effed. Which is what

happens with credit cards, right? Happens with credit cards, adjustable rate mortgages. But if you have a very flexible interest rate schedule, it might be time to lock those in. Right. And if you're thinking about buying a home, locking in a fixed rate mortgage now, while rates are low, could be a wise move. But yeah, absolutely anything with variable interest rates or adjustable interest rates, as we get into an inflationary environment, those types of products are going to hurt. So thank you, Mike, for asking that question. And I hope that we were able to outline both strategy and varieties of assets that you can use to manage that $60,000. We'll come back to this episode after this word from our sponsors. Joe, our final caller, is also anonymous.

What name should we give her? Well, you know, we've talked a lot about how things change and how opinions change and how what's right changes depending on your time frame. And there is a wonderful journalist and author who passed away last year who talked about this for a long time. I really enjoyed all of her work. Her name is Gail Shee. Oh, my goodness. Oh, no. And Gail's incredible. So I thought, I thought that it should be Gail.

Oh, we can't have two Gales in the same episode. Well, this is a completely different Gail. And like you said, that was Gail, even though I, you know, going to go with Gail with that one. This journalist is named Gail Sheehe. You said? How do you spell her last name? S-H-E-E-H-Y. I'm seeing it right now.

Gail Shee-H-H-H-E-E-A-R-R-E-E-E-A-Rican author. Yes. Ooh, she was the author of 17 books and numerous high-profile articles for magazines such as New York and Vanity Fair. Yeah, wonderful writer talks about aging. She was the first person that I read that talked about how if you were born in the year 2000, you would a one in three chance of living to see 2100, that you would probably live to be over 100 years old or that there was a much higher probability of you living to be 100 years old and probably even up to 130 years old. So she did a lot of work on, on, on,

change over time. And I think that's been kind of with our first two questions, how our feelings about weddings have changed and then how depending on your time frame with Mike's goal, things change. So, yeah, I think it's a two Gale episode. I am frantically searching for her middle name right now and I can't seem to find it. I found her maiden name, but I can't find her middle name. Paul, if you want to know truthfully what I did, I put in celebrities name Gail. Did you really? Just so that we could do this.

Oh, my goodness. And then I found Gail Shihi, who is work I truly do love. I'm like, there we go. And I am putting in, oh, let's give this a go. Wait, it's not on her Wikipedia page, so I doubt this is going to come up. But Gail Shihi, middle name. And now I'm Googling salt in the wound. Darn it.

I can't find her middle name. Well, you can give her an honor everyone. But we know it's Gail. I'm going to call this person she he in honor of Gail's last name. Perfect. Perfect. But you can still call her Gail. Oh, I will.

Hi, Paula. My name is Anonymous. And I've been listening to you guys for about two or three years now. Once we got the idea about doing real estate, your podcast popped up. And I've listened to Everson. So to give you a little background about our family, my husband and I are both 32 years old. Right now we have 10 months of emergency funds saved. We are currently contributing about 12,000 a year towards our brokerage.

We just started doing that this year. We both max out our Roth IRAs at 12K a year combined. We are both contributing 3% to our 401Ks or 403Bs. Both of our, well, my husband's company only matches three, and mine contributes 5% regardless of how much I put in. Aside from that, we're also saving $24,000 a year towards our next investment, which might be another rental home or starting a business. We haven't decided yet. I have an old 403B with about 40K sitting and my husband has nothing from his former jobs. We have two mortgages, one being our rental home and one car loan at just 1.9% interest, and we have no other debt.

My questions are, number one, should we be contributing more towards our 401ks from our employers? They're not Roth accounts. I've also considered opening an HSA or contributing more to our brokerage. Are there benefits of one versus the other? When I explore my company's investment options, it's very limited, so I'm just keeping my funds in their aggressive target date. My number two question is, two years ago when our child was born, I sort of panic because we didn't have IRAs and neither of we're getting retirement plans at our jobs that we held at the time. With the financial planners help, we started our IRAs, yay, and soon after we both got jobs that now offer retirement, so that's awesome. But the planner also convinced us to buy a mix of whole and term life insurance. Now that I've been doing more of my own research and the home is a bit more stable,

with the pandemic having gone on so long and the baby being bigger, I feel sort of embarrassed and like maybe I made a mistake. We're spending about $700 a month between term and whole insurance. My husband and I are both first generation to college and first generation Americans. So we're figuring out a lot of this on our own. And I feel like I was just convinced that generational wealth was built through insurance. Now I feel like, damn, should I be putting the money towards our brokerage, HSA, starting a 529? Help! Should we have whole life at all?

Most of what I'm seeing says term is good enough and building wealth is more about investments. Any guidance you can provide would be so appreciated. Thank you. Sheehe. Thank you so much for calling in. Great question. First of all, congratulations on everything that you've built. You've got a 10-month emergency fund. You and your husband are both maxing out your Roth IRAs. You're both getting your full company match inside of your 401k and 403B. You're saving $24,000 every year towards your next investment, whether that's a rental property or starting your own business,

and you're starting to build out your brokerage account as well. So that's absolutely fantastic. You're on a great track. I love that you are debt-free other than mortgages and a very reasonable car loan. So you're on an absolutely fantastic track. Congratulations on everything that you've built so far and everything that you're continuing to build. Now, you asked two questions. Your first question was whether or not you should contribute more towards your 401Ks. The first thing that comes to mind, and I'm saying this not just for you, but for the benefit of everyone who's listening,

the first answer that always comes to mind immediately is, are you getting your full company match? And in your case, you are. You and your husband are both getting your full company match. So then to the question of whether or not you should invest money in a 401k, in excess of what is required in order to get that match, the questions that you want to ask yourself are, am I willing to accept the limitations on the investment options in exchange for? access to additional tax-advantaged funds. So in other words, the benefit to investing in a 401k or 403B is that you get a tax advantage by doing so. In this case, their traditional 401K is 403Bs.

They're not Roths, which means that the money that you'll invest there will be tax-deferred. That is certainly an advantage. But that advantage comes with the trade-off of being limited. in the investment options that you can select from. And as you mentioned, your company has very limited investment options. So my question back to you is, among those limited investment options, how much do they suck? Like, are your options so sucky, so high fee, so bleh, that you would rather look to some other type of account, like a taxable brokerage account where you lose the tax advantage, you have more flexibility, or you mentioned in HSA, we'll talk about that in a second. Are the

options inside of your company 401k so sucky that you'd rather go elsewhere? If so, that's a strong argument for going elsewhere. If not, then I think there could be a lot of value in capturing the tax advantage that comes with putting money into a 401k, even if it means that you have to be in a type of investment fund that you wouldn't otherwise choose. you did mention opening an HSA. My question back to you, are you currently in a health plan that is HSA compatible? If so, open an HSA, absolutely, because an HSA is going to give you the same tax-deferred advantage as putting money into a 401K, but with much, much greater flexibility, because if you have a qualified health expense that you need to spend money on, you can, always have the option of spending money inside of your HSA on that qualified medical expense. And if you don't, then when you reach retirement age, you can draw down that money in the same way that you could money from a 401k. So certainly, if you're in a health plan that's HSA compatible,

you get a lot more flexibility with the money that's in an HSA. So go with that first. So that's my answer to the first aspect of your question. The second aspect of your question, which relates to the fact that you have a mix of whole life insurance and term life insurance, I agree that for most cases, term life insurance is good enough. You want enough insurance such that you will be covered for the duration of time that anyone who depends on you, such as your child, and any other family members that might depend on you as well. You want to make sure that for as long as they depend on you, they'll be protected. You said your child was born two years ago, so a term life plan that lasts for perhaps 20 years until your child is 22 should be sufficient. If you want to extend that out even to 30 years, even that would be fine, and it would certainly be a lot cheaper than the $700 that you're spending right now. because if you were to take the cost difference between the 700 that you're currently spending

and the reduced amount that you would be spending if you had term only, if you were to calculate that difference and then move the gap between those two numbers into a taxable brokerage account, you could do a lot better and create a greater amount of wealth over the long term if you were to invest that money. I would say 90% directionally what I was going to say, there's a short answer here on the insurance side and there's a long answer. The short answer is what Paula said, you probably should get rid of it. And part of the reason I think you should get rid of it actually has more to do with the fact that you don't really know why you have it. And also that you think you're spending $700 a month because you're not.

Now, I know there's $700 coming out of your pocket. But the way that permanent insurance works is that part of that cover. the premium and the rest is going into an investment inside of that product. So there is some piece of this, which is expense, and I want to know what that is. And by the way, the whole life portion of your insurance will always cost more than term life. And it's because there are different statistics on this, but a statistic I saw recently was that roughly 2% of all of the term policies actually ever get cashed in for the death benefit, meaning 98% of the time the insurance company keeps all that money and you didn't use it, which by the way, is fantastic for everybody,

right? It's great for you that you didn't die and it's great for them because they were able to offer you a less expensive product with a whole life insurance product. That expectation that they're going to pay at some point is far, far, far higher. It's meant to last your whole life is meant to be there when you die. So for that reason, the cost of insurance is going to be exponentially higher than it will be for a term life policy. So it sounds like what your insurance person, your planner did, was a hybrid of these, probably enough term life insurance to last through that time that you would need it, whatever your kids' ages are or would be or maybe even until 60. And then for wealth building, they have you socking some money away into a permanent

life insurance policy. But if you're going to use this type of approach, and this isn't just me, by the way, and I know that there's going to be people tuning out going, no, no, no, it's just all term and invest the difference. Well, the sad fact is a lot of people never do invest the difference. They'll cut out the whole life insurance, Paula, but they forget the second half. Now, I don't believe that's this community. You don't go listen to financial podcast and not invest the difference, but just in, what did you call it, default society? Yeah, the default world. In the default world, people here buy term and invest the difference, buy term insurance, they never invest the difference. So you have to do what Paula said, which is

invest the rest. However, there are tax advantages and there are policies that work really well with this type of approach that people, you know, people is well known as Ed Slot or David McKnight, who has a great, a few great books about zero tech brackets and is very well respected in the in the overall investment community. It really doesn't have that stereotypical. I'm trying to hawk a bunch of life insurance so I can get a big commission approach. But because of the nature of life insurance,

if you use it well and you do it when you're young, this is so hard to go into. But the cost of insurance is incredibly low, which means a huge chunk of that $700 is going into your pocket. And that's money that if it's the right type of policy, you can take out tax-free later. And if you're already maxing out your Roth IRA, this can be a nice secondary vehicle.

So I'm not as, I'm negative about this because you don't understand it because of the fact that you don't know really where it fits in your plan. I'm less sure that it's actually the wrong thing as much as I think it may be the wrong thing for you. I think this can actually be a fine thing if you use it.

But the problem, Paula, it's this freaking Ph.D. level stuff, right? I mean, when it comes to personal finance, there's the keep it simple stuff, and there's just this, this is kind of high-level, heady stuff where you have to be looking for a certain life insurance product.

You have to know what's called the modified endowment contract amount is, which is the maximum amount you could put in it and still have it act as a tax shelter versus violate a bunch of tax law. And you have to be riding that line. You also want a policy where you can change the death benefit amount over time. So there's so many moving parts.

It's so complicated for that reason. I don't like it. But that doesn't mean it's not good. This could be a really, really, really good plan, especially with her cash flow. Because she has monster cash flow, the big problem I have with life insurance policies in general is that they require you to ongoing, you know, she's got to. $700 number to make this work, she probably has to commit to that number for a long time, right, to sock this money away for a long time. And the variable I always had when I was a financial planner is, do I think that my client's cash flow is going to be good enough for a long

enough period and other stuff isn't going to come up that we can commit to this approach? Because the problem with these life insurance approach is they work really well until they don't. And when they don't, that cost of insurance can be so high on that whole life portion of the insurance policy that it can not only make the strategy bad, it can make the strategy just horrible. So we can go from fantastic to horrible with one or two years of not being able to commit to the same thing that you began at it. So also for that reason, it's it's tough for me to recommend. Given that she and her husband are not maxing out their 401K is 403Bs, do you think that would be a better alternative? 401K is clearly a better alternative. The time that I use this are when,

where my client, and by the way, this would end up, Paula, being maybe once every 18 months, I would use this type of a strategy. So on the very rare client. Yes,

somebody with monster cash flow, they're maxing out every other place available that they have. Their socket money into their HSA, if they're eligible for one, Roth, generally these people, by the way,

aren't eligible for the Roth, So we got to do the backdoor strategy for the Roth. And we're maxing out the 401K. We're maxed out every other thing they have. And they still have monster cash flow. And they have goals that are long-term goals, not short-term goals, right? Because life insurance works way better with long-term goals than with short-term goals. With those people, this unicorn person, I then bring it up.

And then it was my job as a financial planner to make sure they understand it. Because if I get hit by a truck, it's so convoluted. that if I get hit by a truck and they don't understand it, I did them a huge disservice because they don't know why they have it. So in Gail Shehey's case. Yeah, I don't like it for a couple reasons. I don't like it for the 401K reason.

I also don't like the fact that she's calling you and I asking about it because then that clearly means that she doesn't trust the person that sold it to her and she should probably exit the plan. And she also thinks she's spending $700 to be clear. I am 90% sure she's not spending $700. She's probably spending $150, which still is a lot of money. She's cash flow outing. She is cash flow outing $700.

But if she thinks that's all life insurance expense, then she doesn't understand what she has. I'd say for the 401K-403B element alone, there are so many alternative options that she can be putting money into. HSA 401K. Can I bring up one thing in regards to, and you partially answered this saying, are the fees so bad that there are no options there and she should need to go elsewhere? When you actually look at that between the math and the ease of putting money in, there were so many times, Paula, when people would tell me how the fees are high, so I didn't do it. And clearly the better answer was to put money into the plan than to avoid the plan. Because the tax advantage that you get is so significant that even a higher fee, you're still net positive. And especially if you're not eligible for a traditional IRA, if you're over the income limit to deduct a traditional IRA and you're doing the pre-tax plan, then by all means, that fees can have to be monster high, just monster high for you to forego the 401K.

Yeah. That being said, there are other benefits to putting money into a taxable broker. account. I mean, certainly you lose the tax deduction, but you gain flexibility. And as you and I have talked about on previous episodes, Joe, there's often a tradeoff between optimization and flexibility. So if she wants to hold money in a taxable brokerage account so that she can continue to invest that money, but she can also have the flexibility of being able to tap those funds at any time without having to go through some complicated SEPP 72T rigmarole, that is another advantage that she would have by prioritizing a taxable brokerage account, which is to say the decision as to whether to put money into a 401k versus a taxable brokerage account in part depends on what that money

is going to be used for. Is it money that she doesn't plan to tap until she reaches traditional retirement age, or is it money that she wants to be able to access? If you think about it, an account like a 401k, a 403B, an IRA, that the tax advantage that you get there is fundamentally a deal between you and the government in which the government promises to give you a tax advantage in exchange for you promising not to touch those funds until you reach a certain age. So if you stop thinking of it as a retirement bucket and think of it instead as an age-restricted bucket, then the question is, are you willing to accept that trade-off? Or would you rather have the flexibility of easier access to those funds and wider selection of how to invest those funds,

even though that comes with a trade-off of losing the tax advantage? And I think all this, Paula, reaffirms that there are two pieces of the equivalent. And we kind of end this episode the same place that we started, which is that it's as much about your goals and you understanding where you're going, your strategy first as it is the actual tools you use to get there. Once you have the strategy and you know the timeframe on when you're going to spend the money and what you're spending it for, then choosing the strategy to get there will be much easier. Well, Joe, we did it. That's our show for today. Wow. Already.

Already. Big thanks to all the gales. Big thanks to all the gales. We appreciate it. Joe, where can people find you if they'd like to hear your additional side of snark? You will find me as the ringmaster at the greatest money show on Earth, the Stacky and Benjamin show, which is a three ring circus every Monday, Wednesday, Friday. And we just did an episode with food writer Corey Mintz. Corey is a guy who has, who dives into how little we know about where our food comes from and also the things that go on behind the scenes at restaurants. And some of these things are disturbing. And you obviously want to make sure that your money goes to things that you value and people that you value. So I thought it was a great interview with Corey and asking a few more questions, making sure that your waiter, the people in the kitchen, that those people are also being taken care of

by the restaurant owner. because I don't know if you know this, Paula, but a lot of those people aren't even paid minimum wage. And the way that restaurant owners get around it and the fact that it's so opaque is a little disturbing. It also made me, this interview also made me like these food delivery apps even less than I already liked them before. Here's a statistic.

People that use food delivery service apps by and large, they were originally made for busy people, thinking that busy people would use them, people that have high income and would use them for convenience. The bad news is people that increasingly studies show are using them are the people that can least afford them. And the restaurant owner has to give a big concession to use them.

So the restaurant owner loses money. The customer pays additional value. The only person who's really winning is the person in the middle. And by the way, that doesn't include the Uber Eats driver. The Uber Eats driver also is largely being taken advantage of as well. So you're saying the person in the middle is the app creator. The app creator is making money hand over fist, which is also funny. And this is a complete side note.

But I just saw a Domino's pizza commercial where Domino's in every city now is going and buying coupons to local restaurants. And their commercial is if you can't eat from Domino's, If you're not going to eat Domino's, who hires their own drivers and doesn't have an additional cost above the normal additional delivery costs that they have for their own drivers, eat at a local restaurant. I was so surprised to see a Domino's commercial where they're telling you, don't use these third-party services, go eat someplace local, support your local restaurant. This sounds like an interesting, this is the longest answer you've ever given to where can people find you, but this sounds like a really interesting interview. It is so nuanced and it's so wild. and I wanted to talk to him for 16 hours.

And we talked for about 25, 25 minutes. Minutes. Everybody's like, I don't have that kind of time, Joe. But yeah, Corey Mintz recently on the Stacking Benjamin Show. Interesting. Maybe we'll see if we can get them on this show. So the Stacking Benjamin Show, you can find that anywhere where you download podcasts. And you also hear Paula every Monday when, not every Monday, but nearly every Friday.

Thank you so much for tuning in. this is the Afford Anything podcast. If you enjoyed today's episode, please do three things. Number one, share it with a friend or a family member. That's a single most important thing that you can do to spread the message of financial independence. Number two, subscribe to the show notes at afford anything.com slash show notes. That's afford anything.com slash show notes. Number three, you know what, actually I'm going to ask you to do four things.

Number three, make sure that you hit follow in whatever app you're using to listen to this show. So open up Spotify, Pandora, Apple Podcasts, and hit the follow button. And number four, while you're there, please leave us a review. As of the time that I'm recording this, we have 2,863 reviews on Apple Podcasts. Please help us get to 3,000 by the end of the year. I want to thank Robin 1042, who says, quote, this is one of many financial podcasts I listen to, and this one puts the most thought into their responses, including walking us through her or their thought processes, guests included.

Baines 112358 says, quote, I've listened to Paula's podcast for many years now. Although I'm not a real estate investor and tend to skip the real estate focused episodes, her interviews and personal finance material are top notch. She does a good job of bringing on a variety of people with many different views and methods for being successful, and asks insightful questions that helps focus the interviewee on giving insights helpful to the listener. I also enjoy the question and answer episodes like this one, Joe. Bam! So thank you to both of those reviewers, and please, please leave us a review in whatever app you're using to listen to this show.

Those reviews are incredibly helpful in allowing us to book amazing guests. Thank you again for tuning in. This is the Afford Anything podcast. My name is Paula P-A-P-A-P-A-N-T. You can find me on Instagram at Paula-P-A-U-L-A-N-T, and I will catch you. you in the next episode. Here is an important disclaimer. There's a distinction between financial media and financial advice.

Financial media includes everything that you read on the internet, hear on a podcast, see on social media that relates to finance. All of this is financial media. That includes the Afford Anything podcast, this podcast, as well as everything Afford Anything produces. And financial media is not a regulated industry. There are no licensure requirements. There are no mandatory credentials.

There's no oversight board or review board. The financial media, including this show, is fundamentally part of the media. And the media is never a substitute for professional advice. That means any time you make a financial decision or a tax decision or a business decision, anytime you make any type of decision, you should be consulting with licensed credential experts, including but not limited to attorneys. tax professionals, certified financial planners or certified financial advisors, always, always, always consult with them before you make any decision.

Never use anything in the financial media, and that includes this show, and that includes everything that I say and do, never use the financial media as a substitute for actual professional advice. All right, there's your disclaimer. Have a great day. 72 divided by 3 is 24. You're a math whiz. I own a phone.

Bragger.