Afford Anything - Ask Paula: How Should I Invest $5,000 Per Month?

Episode Date: April 19, 2021

#312: After paying basic living expenses and maxing out their 401k’s and Roth IRAs, Caroline and her partner have $4,000 - $5,000 left each month. Where should they put this money if their goal is to simply have their money work harder for them? Sanjay is torn between selling his townhome or renting it out. The rental numbers don’t work on his 15-year mortgage -- should he refinance to a 30-year mortgage instead? Kyle wants to construct a portfolio with the highest Sharpe ratios and wants to know: would the risk parity model work? What are the downsides? G is curious: does the stimulus check received for their children count as earned income for the kids? If so, can they put it toward the Roth IRAs they opened for their children? Anonymous has two unrelated questions: what are our thoughts on the housing market in relation to the moratoriums on mortgage payments and emergency bans on evictions? What will happen when they go away? Additionally, what tools, questions, or resources do we recommend to have a productive financial conversation with your partner? Finally, another anonymous caller wants to know: do they need to submit receipts for the HSA contributions they make? My friend and former financial planner, Joe Saul-Sehy, joins me as usual to tackle these questions. Enjoy! For more information, visit the show notes at https://affordanything.com/episode312 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 is a scarce or limited resource. And that opens up two questions. First, what matters most to you? Not what does society say should matter most, but what genuinely matters most in your life? That's the first question. The second question is, how do you align your daily, weekly, monthly, annual,

decision-making to reflect that which matters most. Now, answering those two questions is a lifetime practice. And that is what this podcast is here to explore and facilitate. My name is Paula Pan. I am the host of the Afford Anything podcast. Every other episode, we answer questions that come from you, the community. And today, former financial planner Joe Saul Seahy joins me to answer these questions. What's up, Joe? Do you ever watch The Simpsons? I love The Simpsons. You know how at the beginning of every episode Bart writes something different on the board. And you kind of look for the different thing. Now that I've been here a few weeks, I always listen for like the subtle differences in the open. It's different every time.

Oh, thank you. Thank you. I mean, it's not quite as creative as the chalkboard, right? But you know, the other thing that I love is at the very beginning of the Simpsons, right before the Simpsons logo appears on the screen, the other thing that they change up is there's something flying through the sky right before the Simpsons appears. That changes every time. And then, of course, the couch gag. Absolutely. Yeah, at the end. Yeah, the famous couch gag. It's crazy how long that show stayed relevant. It continues to stay relevant present. Yes. Yeah. Bars high, Paula. We got a ways to go. Right. Before we get into today's show, announcement, announcement. Today is your last day. It is the last chance to enroll in our course on rental property investing. It's called Your

first rental property, it is a course for beginner rental property investors to learn what you're doing, to learn how you can invest in rental properties. And so if you are thinking, oh man, the market is so hot, it's a seller's market out there. I don't know how to navigate this. Don't worry, we teach you skills that will be applicable in any market, hot markets, cold markets, buyers markets, sellers markets, bear markets, full markets. We teach you a framework and process and give you step-by-step guidelines. We give you all of these tools and resources, flow charts, word-for-word scripts that you can use, checklists, quizzes that test your knowledge, TAs that support you along every step of the journey.

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Tonight, by midnight, Pacific time. Affordanithing.com slash enroll. I'll see you in the course. All right. With that said, now back to our regularly scheduled program. Hey, we've got awesome questions this week. We sure do. So here's what we're going to tackle in today's episode.

Caroline, after paying for basic living expenses and after maxing out 401Ks and Roth IRAs, Caroline and her partner still have between $4,000 to $5,000 left over every month. So where should they put this money? We're going to answer that question. We're also going to talk to Sanjay, who's torn between selling his townhome or renting it out and wants to know if he should refinance his money. mortgage from a 15 to a 30 year. Kyle wants to construct a portfolio with the highest sharp ratios and wants to talk about

the risk parity model. G is curious about the stimulus checks. Does it count as earned income? One anonymous caller has two questions. One question is about the housing market as it relates to moratoriums on mortgage payments and bans on evictions. And the other question relates to having financial conversations with your partner. and a different anonymous caller has a question about HSA contributions.

Joe and I are going to be tackling these questions right now, starting with Caroline. Hi, Paula and Joe. Longtime listener, second time caller here. My question today is regarding where to put our money after our expenses and basic savings goals are met. We have an emergency fund in place and no debt besides our house, but I should mention that we owe about $480,000 on our mortgage due to the high-cost area that we live in. After covering the cost of our living expenses and maxing out our 401ks and Roth IRAs, we'll still have somewhere between $4,000 and $5,000 each month to save or invest, assuming we don't make any major purchases or do any traveling. We just bought our first home and are expecting our first child, so I'm not necessarily

interested in real estate investing at this time. I've thought about opening other brokerage accounts, but I don't really know where to start. I've also considered paying more. to our mortgage, but I'm not really sure if that's the right choice. I know Joe is always talking about goal setting and creating buckets for each goal, but right now our goals are simply to live below our means and have our money make as much money as it can. So with that, what do you recommend that we do with this extra cash flow? Caroline, thank you for calling in. And first of all, congratulations. You are managing your money very well and after doing everything right with your money and making sure that your retirement accounts are well funded. After all of that, you still have up to $5,000

left over every month. So congratulations on getting yourself into such a great situation. Now, fundamentally, the crux of your question is, if I have an extra $5,000 per month, how do I invest? What do I do with this? To quote a guy by the name of Joe, who occasionally makes appearances on this podcast, I would say, start with the end in mind. Now, as you said, you don't have a ultra-specific goal. Your goal is to have your money working harder for you, but you don't have the specificity of a given amount that needs to be grown by a given timeline. And so there are a few high-level recommendations that I would make. First, I would look at investments that give you some degree of flexibility, which could come in the form of investments in a taxable

brokerage account. It could come in the form of investments into real estate that have a reasonable level of leverage or debt, if any, associated with them such that they are very cash flow oriented. Any form of investment like that, investments that give you flexibility, and flexibility is different from liquidity, flexibility meaning that you could access the money should a more specific goal arise, those are the types of investments that I would prioritize. And so right off the bat, what that eliminates for me, and again, these are just my two cents, but what that eliminates are investments in private companies, for example, where that investment would be tied up in company equity and would be illiquid. Investments in which you

are providing seller financing on a real estate deal, again, in which that, unless you're a hard money lender, that money is typically tied up for a very long time and is generally illiquid and inaccessible during that period of time. Investments in real estate that are highly leveraged and therefore have slim cash flow, I would avoid those as well for precisely the same reason. So any investment that gives you the ability to access the money, should you need it, should that specificity arise, and any investment that is cash flow oriented or dividend or income stream oriented. Those are the qualities that I would look for in an investment that you choose. Now, in terms of what asset class should you choose, stocks, index funds, cryptocurrencies,

real estate, there are a number of assets, different types of assets that are out there, each of which have very specific qualities when it comes to risk and reward. And I want to be conscientious of not letting my biases try to overshadow my answer too much. I mean, if you're a regular listener of this podcast, you know I tend to be very pro index fund. I tend to be very pro buy and hold real estate. I certainly have certain biases where I often tell people to shy away from having too much of their money in higher volatility investments, such as cryptocurrencies and individual stocks. Yeah, but if she thinks that this, money is for longer than 10 years, I think your bias, though, is right on. Because if she wants

it to grow fairly reliably, and we know as the picture, because it always does, right, the picture will become clearer later on for people. And I think it's a cool thing about financial planning that you don't need to have all the answers today. So for some people, timelining to Caroline's point is very difficult. I don't have a regular goal. So all I would do would be Paula to push her on one thing. if that money goes down in the first 10 years, is she unhappy because she wish she had it available or not? But if she wants it to grow and she wants it 10 years or more, I would go with a single index fund, which is not, I can't even believe this is coming out of my mouth because I'm the guy who says that too many people rely on this one index fund and they should do better than this. And it's easy to do better than this. But for a very non-specific goal, 10 years or more, index fund called the Vanguard Total Stock Market Index.

What is this opposite day? Who am I? So usually, for listeners who are new to this show, usually I'm the person who's singing the praises of a Vanguard Total Stock Market Index. And Joe is the person who's saying, yeah, but think outside of just that. Look at some of the other assets that are out there. The funny thing is, is that, I mean, you know, the Ford Anything community are very smart people and they're smart in every single area of their financial life. And then they get to the investing part, Paula, and they stop with this directionally right answer. No offense to J.L. Collins,

because it's directionally correct. But we could be a lot more analytical there. And by the way, it's not as hard as we think it is. So let's find the efficient frontier. Let's talk about modern portfolio theory. And by the way, those names make it sound way worse than it is, right? Efficient Frontier. I don't mind. I'll just put it in VTSAX. I'll just go Vanguard total stock market and that's it. But for this very non-specific goal where I'm not sure what I need it for, there's no way for me to be more efficient toward a goal that is in the clouds, right? But if it's more than 10 years, this is a wonderful use of J.L. Collins' approach to investing. Wow. Okay. So I, I slightly disagree with you, Joe. Given that it is more than 10 years and given that there's,

the purpose of this is rather amorphous, the purpose is broadly building wealth, but for no specific reason, I think this is an opportunity to diversify outside of just index funds and explore some of those lesser pursued asset classes that you wouldn't necessarily want to have in your core retirement portfolio. So I think there's an opportunity here for her, if she's, you interested in doing so, that is an if that I don't want to presume any level of interest, but if she's interested, if she thinks it would be fun to do so, to go into individual stock picking, to go into some very limited portion controlled serving of cryptocurrencies, to go into some real estate investments. I mean, this is essentially the fun investing portion of her

portfolio, the stuff that you wouldn't necessarily want in a 401k, but that you could use as a little bit of play money for the fun side of investing, the slightly riskier side. But that part I think is, that part I actually think is your bias that she considers this fun. She never said she considers this fund. Right, right. And that's where the if is. Yes. If it were me, and this is, by the way, a big part of my portfolio building now, right?

My basic goals are met. I'm okay. I love investing, though. So what am I investing in? I'm investing in things that turn me on that I absolutely love. I'm investing in farmland, investing in, my latest investment was in General Motors because I really like the idea of autonomous cars. And I think that while Tesla is getting a bunch of love, GM's kind of slightly doing it too.

And they have a background of doing that type of stuff. I also like the whole, I don't like the water story, but I think that investment in water is a well-placed investment. So I'm adding to these areas of my portfolio that I'm interested in, that I'm interested in, that I follow that I get excited about. But she, but she didn't say any of that. So if she doesn't have that excitement about it, she just wants it to be where it is and she wants it to grow. And she doesn't want to pay a lot of attention. I've got the fund. Yeah. I mean, I have no objection to that fund. You know, I have absolutely, like I said, I'm typically the person who's on here saying, go index funds.

Keep it simple. I have more of an objection to that fund than you do by far. Yeah, exactly. That's fine. That's why this is opposite day, where each of us are taking the position that is classically held by the other person. Oh, wait till the rest of the answers come. I mean, you're correct in that we don't know if Caroline thinks that investing in those other types of assets is fun or not. And that's the foundational question, because if those other types of investments of real estate and individual stock picking and crypto, if you don't think that's fun, then don't do it. Like, don't even go near it. Those are options. They're nice to, not options literally.

Not like option trading. But that too. That too is options are an option. Why not? That's icing on the cake. I say that because I don't want anyone who's listening to this to think that they need to go those routes in order to build a good portfolio. You can have a wonderful life with a wonderful portfolio without touching any of those things. So for the sake of everyone who's listening, I don't want anyone to feel stressed out about the fact that

they're not going into individual stocks. They're not going into real estate investments. Don't worry about it. You don't have to. But if you think it's fun, then I think for the extra money that you have that's outside of your retirement account, that's a perfect opportunity. If she doesn't think it's fun, let's go the opposite route. Here's what I would do. I would start with that single fund or a single fund like it because other families have funds that also do the same thing. so she's at Fidelity. Fidelity has a similar fund. I would do that for two or three years and build that fund and then ask yourself, are the goals becoming clearer if they're not? The more money she has in the total stock market index, the less I like it.

And the more I think efficiency pays, right? I don't think efficiency is going to pay that much money for the first few years. So why complicate it? But maybe three years from now, four years from now, then I think I do start. thinking more about, well, I want this bucket of money available in 15 years. I don't know what the goal is, but I want to make sure it's ready in 15 years, this next bucket ready in 25 years. Go find the efficient frontier with those and get a little more granular about the index fund she used. So stick with index funds, but now maybe she has more of my favorite approach, which is going

to be four or five different index funds instead of just one. Right. Throw in some small cap. Throw in some international. My favorite area, which you shouldn't have a favorite area, but I love emerging markets. Love it. Has that always been your favorite or is that a new favorite? No, I think it's always been my favorite. Yeah. I get really excited about emerging economies, emerging ideas. Yeah. It's always been an area that I enjoy. The notion of emerging markets definitely peaked my interest in my 20s, but it's it's underperformed so much in the last decade as compared to a lot of the other sectors. Which is the scary thing because if you look at the decade before that, they were. on fire. Yeah. And so, yeah, emerging markets will kick your butt. It's a roller coaster ride. And it depends definitely on your time, which is why, you know, I, you shouldn't put a lot of money in emerging markets if you're going to have it in your portfolio. This last 10 years, though, has clouded so much. I mean, if I look at a 10 year track record, I'm just, I'm just a

large cap investor, you know? Yeah, exactly. Just give me that. Who cares about value, you know? I don't need any value. Well, I mean, if you're a large-cap investor, then you are, by definition, heavily weighted towards tech stocks. Yeah. I mean, hello, Apple, right? Apple, Amazon, Facebook. Yeah, and it's weird because we used to say you needed a 10-year time rise, and now you go

back and you look at the 10-year track record thinking that you're responsible. I had actually a woman who wanted to be on my podcast and said that she had been trading individual stocks for the past eight years, and she had these phenomenal returns. Well, you and I know, she's been around eight years, Paula. She hasn't seen a serious downturned. Right. She saw a few days a year ago, just over a year ago, where you went, oh, crap, the bottom is here. And as we know now, the bottom wasn't there.

It was a short-term blip, and it all came back. But she hasn't seen 2007, 2008. He hasn't seen 2000 through 2002, just some nightmare. So somebody teaching me to trade individual stocks with an eight-year track record that looks phenomenal, I'm not interested. I'm still not interested. Exactly. You know, I think about that a lot. Like, I'm 37.

I think about how important that is with regard to I was in my mid to late 20s during the Great Recession, which meant that during what have been my highest earning. years to date, those years of late 20s to late 30s have coincided with this amazing bull run. And I think about how important that has been in my life so far and the type of lifestyle that I've been able to build in the last decade and how as much as I would love to sit around and pat myself on the back for being so smart that I've come so far, the reality is I've had a 10 year, 11 year bull run that has truly been responsible for most of what I've achieved. I wouldn't go that far. I would say you're not fighting a headwind. I'll give you that. You're not fighting a headwind. I mean, because there's two things. We've all had,

and not all of us, but people get advantages. And I see some people to use a phrase that our friend Jordan Harbinger uses, there's people that throw stank on it. Right. Well, Paula, you know, Paula's friends with all those people, those bloggers. And so she just has them share her stuff, which is why that's so popular. Right. So to some degree, we've all had some advantages. And I think it's, I think we need to recognize though when it's time to move. You see people that are successful, know that, hey, this is when I need to, this is when I need to get moving. Like it's a collaboration between yourself and opportunity. Yeah. Yeah. Opportunity is there and it exists outside of you and independent of you. Like it shows up for reasons that are outside of your

control, but then you collaborate with it. There's this great phrase that organizational expert David Allen uses that I love. And he said, the reason you want to be organized is so you can be like water. And, you know, water flows, right? And often we're so in the weeds with our disorganization that we can't feel the flow around us. And I think that's the upside of having yourself organized and quiet is so you can listen for the flow.

To get back to Caroline's question, in terms of specifics, you know, Caroline mentioned that she's not interested in real estate investing. We know she may or may not be interested in some of these more volatile and specific types of investments like stocks, like options trading, like crypto. Those are available to her if that's interesting. Index funds are available to her, if it's not. Those are all types of investments. But anytime we talk about investing, there's the vessel. and then there's what you fill inside of the vessel. So you've got like a coffee mug and then you've got coffee, right? So when we talk about stocks, crypto, index funds, those are the liquids that you pour inside of a mug, right? But then the mug itself, the vessel, are types of accounts. And I think by and large, Joe, I'm not going to put words in your mouth, but I think you and I are both in agreement that the type of account that she should probably prioritize are taxable brokerage. accounts where she has the highest degree of flexibility. The one and only modification that I would make to that is that since she mentioned that they're expecting their first child, setting up a 529 plan for that child would be the other place that I would put some money. That'd be a great kickstart, wouldn't it? I mean, Wright gives you the biggest opportunity for growth because a lot of people put money in a 529 plan, but they don't even start saving until their sophomore year of high school. And when that happens, the amount of tax sheltering you're actually going to do is minimal in a three year.

But over 18 years, you could get some serious tax breaks by doing that. I agree. Besides a 529, you will have a little friction because of the fact that you need it to be flexible because the goals are not completely clear. Right. So yeah, types of accounts, 529 plan and keep the rest in taxable brokerage. and then fill those accounts with everything that we've, an assortment of everything we've discussed. Thank you, Caroline, for asking that question.

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Sale ends December 7th. Our next question comes from Anonymous, and Joe, you and I name every anonymous caller. What should we name this one? I just saw an Academy Award nominated movie called The Father that was fantastic, and it stars Anthony Hopkins. At 82 years old, by the way, he brings it. and Olivia Coleman.

So this is Olivia, right? Yes. Our next question comes from Olivia. Hey, Paula and Joe. I just want to say thank you so much for all that you both do. I really love the show and I've learned so much from both of you. I have two questions. First, I'm curious what your take is on the current housing market in relation to the moratorium on mortgage payments and emergency bans on evictions that some states have.

when those safety nets are taken away, how do you see that affecting the housing market or even investing in like reits and stuff like that? I'm curious what you think. Second, and completely switching gears, I'm curious if you have any tools, resources, or even specific questions that partners could ask each other about their financial goals and priorities. My husband and I are like-minded in our frugality, but anytime I try to engage them in a conversation about our finances, it always seems to fizzle out quite quickly. So I love Joe's, I'm not sure what to call it, stick figure timeline of your life that I've heard him recommend a few times in the past.

But if there's any other ideas to get a finance conversation flowing, I'd really love to hear him. Thanks again. Olivia, thank you so much for your questions. I'll tackle the first one first. So with regard to what may happen in the housing market once the moratorium on evictions is over, and wants any moratoriums on foreclosures and evictions end. I do not anticipate the ending of those moratoriums affecting the overall housing market. And when I say overall, I mean, that includes the

housing market in any given state or major metropolitan city. And here's why. A few things are going on here that make this different from 2008. First, the data shows that throughout this recession, the majority of both homeowners and renters have been able to make mortgage and rent payments. Now, many renters have been late on payments. So there are many renters who will be seven days late to 15 days late. But what the data shows is that many renters, the majority of renters, are able to pay their rent at least 15 days past the due date. So we're not seeing a lot of people who are behind on rent, at least who are not significantly behind, who are not in 30-day, 60-day, 90-day arrears. We are also similarly not seeing that with homeowners.

And I think that the reason for that partially is because of enhanced unemployment benefits, partially stimulus checks. And typically when people get enhanced unemployment or when they receive a stimulus, the first bill that they tend to pay is their rent or their mortgage. And so the level of defaults that we are likely to see as reflected by the number of people who are currently in arrears is unlikely to be significant. Secondly, the housing market more or less nationwide. And there is no, you know, if you've been listening to this show for a while, you know that I believe there is no such thing as a national housing market. There are only many, many, many local markets. But if it is possible to make any broad statement about the quote-unquote national market, it is that across the U.S., a great deal of markets are quite hot right now.

A great deal of markets are sellers markets in which homes are selling quickly, often at or above asking price, with a very low number of average days on market. There are a few reasons for that. Number one, COVID has caused a lot of people to move. And whenever people are moving, whether it's a flight from major expensive cities like New York and San Francisco out to outlying areas, whether it's a move like that or whether it is simply a shift where you're moving from Kansas to Oklahoma, anytime you have a lot of people who are in transition who are moving, there's going to be a higher volume of transactions, broadly speaking. Money will change hands, deeds will change hands more often than they otherwise do anytime you have that many people who are moving. Secondly, there are significant shortages of supplies. COVID disrupted the supply chain. And so lumber is incredibly expensive right now, which means renovations are very expensive right now. And new housing starts are very expensive right now. So you have fewer builders building and more disruptions to the supply chain. leading to simultaneously higher construction costs and also longer lead times as a result of those supply chain disruptions. And due to all of that, the existing supply of inventory gets gobbled up more quickly.

That makes a lot of people nervous because people think, well, the last time we had such a hot market was 2006, 2007, and we all know what happened after that. But how this is different is that 2006-2007's housing surge was fueled by easy access to credit. And easy access to credit is different than cheap credit. Cheap credit is what we're getting right now with interest rates being rock bottom low. But easy access to credit takes place when people who are not qualified for loans receive those loans. And that's not the situation that we're currently in. the standards that an applicant must meet in order to qualify for a mortgage are still incredibly high. Those standards were tightened after the Great Recession, and they remain tight today.

Buyers typically have much higher down payment requirements. We're seeing, especially in the luxury home market, higher priced homes, even primary resident owner occupants are putting down as much as 30, 40, 50 percent for some of the luxury homes that are out there. So we're seeing buyers who are flush with cash slash buyers who are making much higher down payments. So people overall have lower levels of debt on their homes. And in addition to the fact that borrowers have lower levels of debt, those same borrowers are also more highly qualified. So it's unlikely that we are going to see a large level of defaults, which was what triggered the housing collapse last time. looking at a lot of data just from a bunch of different places in preparation for today. I'm seeing many people talking about Paula, the retail home prices, once again, nationally,

going up by 8%. But I love your point that, you know, if I'm talking about San Francisco or the Bay Area where a lot of tech people now no longer have to live there if they don't want to, that probably won't be the case in that area. Or it may be because that's actually a slow rate of growth for that area, right? Maybe it'll cool down to be there. But in other areas of the country, like where I live in Texarkana, maybe we see something different.

So I think to your point, it's going to depend a lot on what happens regionally much more than looking at a national number. And I think it's important to remember that bubbles don't form and bubbles don't pop because prices increase. You know, bubbles don't pop because things get too heated. Bubbles pop when things get too leveraged. And bubbles also pop when long-term holders start taking their cues from short-term traders. When those two things happen, that's when bubbles form.

But outside of high leverage and outside of people who should be thinking long-term, taking their cues from people who are thinking short-term and behaving inappropriately as a result of said cues, in the absence of those two factors, it's not a bubble. It's simply a rapidly accelerating market. I think an area that I'm interested in your take on, though, is office complexes. And, you know, she mentioned REITs. And many REITs invest in offices. And I think a lot of us, I think a lot of us aren't going back to that well like we have in the past. That is correct. So my caveat, everything that I have just said applies strictly to the residential

market. The commercial market is in total trouble. I would not touch the commercial market with the 10 football right now. Do you think that retail comes back in a way just because, we all are craving getting together. I just don't know that the retail space collapses like we were predicting 10 months ago. You know, 10 months ago, I'm like, oh, man, retail is in trouble. Like, if you made it through this, I think at least in the short run, there should be a little surge as people just desire to go out and see things and do things that we, because we haven't for so long. Maybe that's not long term because, you know, I can speak through both sides of my mouth here. On the other side, we've all become very accustomed to DoorDash.

Much of what supported retail, specifically the restaurant side of retail, a lot of that was also supported not just by locals going out on Friday night, but by conferences, meetings, people in transit, office workers who are grabbing lunch while they were at the office. And so if there is a decline in office work slash an increase in remote work, and if there is also a decline in conferences slash an increase in Zoom conferences, those will have strong effects on the restaurant market. essentially the restaurant market will lose a lot. It may retain or even grow its recreational users, but they may lose their business users. I buy that. When the market crashed, I invested fairly heavily in Washington Prime Group, which owned and invested in retail storefronts in shopping malls. I bought quite a number of shares of Washington Prime Group around a year ago at this time,

right when the market fell out and picked up a bunch of shares really cheaply. I think I had over a thousand shares or so. And held it for a year. They did a reverse stock split. So they had a nine to one reverse stock split. Did you wake up one day and go, damn, we're making money? I did. I saw the share price.

after the 9 to 1 reverse stock split, and I was like, oh, you're kidding. And then I checked my number, the number of shares that I held. And I was like, wait a second, I don't have that few. And it took me some time to figure out what had happened. So they did the reverse stock split. And at that point, their stock value briefly bounced. But the reality is they couldn't hold out long enough. And so they missed a payment.

Of course, like many companies, they have. debts and they missed a payment on one of their debts. So that was fortunately the time that I got out. I was able to get out basically, I was able to get out at just slightly above break-even. So I made a teeny, teeny, tiny little gain on that, which I'm grateful for because had I waited even another week, it would have all crashed down to nothing. And I tell that story, recognizing that it is only one single anecdotal case study of one person buying one stock during one limited time period. But I tell it to illustrate the idea that even if, like me, you are bullish on the future of economic growth in this nation over the next decade, two decades,

three decades, there will still be many companies that get flushed out along the way. And right now, we are early enough in the recovery that it is hard to know who the winners will be, who will emerge as the winners. And for that reason, I would not touch commercial investing yet. Residential investing, by contrast, that's a totally different ballgame. I would go, I have gone big into residential investing. I just closed on a duplex in Indianapolis. As of the time that we're recording this, I just closed on that duplex six days ago. So I am a brand new owner of a brand new to me property.

Nice. So yeah, I'm very bullish on residential, but I would not go near commercial. And once again, bullish depending on the area. Correct. Yeah, every, there's no such thing as a national market. Everything is local. When I talk about the second half of Olivia's question. Oh, that's right.

There was a second half. Yeah, let's tackle that. So I love this part about spurring financial conversations. And I think a lot of us money nerds have this issue with people in our life. that, you know, the conversation turns to money and all of a sudden we get really excited and it just goes downhill from there, right? So I think for me, there's two ways to handle this. The first way is keep it fun and light and make it much more about goals than about money. So nobody wants to talk about, well, we, we want to talk about the expense ratio of our favorite mutual fund, but those around us

might not be as excited about that. But what they do want to talk about is the trip to X place or the home edition or the baby on the way or whatever the goal might be, whatever the thing is. And if you make it about goals and then you just start talking about, well, so how are we going to go get that? I think maybe what we should do would be to set up an automatic payment ahead of time. Wouldn't that be great? Or even start off with feelings.

Wouldn't it be cool if we didn't have to put any of that on the credit card? That'd be fantastic. I think I got an idea about how we do that. So make it about the goal. Keep it light. And don't preach. I'll tell you in my office during the 16 years I was a planner, spouses would get in trouble and people would shut down when one spouse would start preaching to the other spouse

or would be kind of the adult in the room, you know? And it would get awkward even for me, Paula, as the third party in the room. I'm like, whoa, whoa, stop talking to your spouse. like they're not invested in this at all. Because then ultimately the person ends up feeling stupid and trapped in a thing they don't want to be in. And then they're like, nope, don't want to talk about that because I don't want to feel that way.

So that's number one. Number two is, and this is my favorite one, is to institutionalize it. I mean, if you can get them to the table every week, Cheryl and I have a weekly money meeting. And we both really like it. I'm a money nerd. She's not a money nerd.

But here's our rules. It is no longer than 12. 20 minutes. And just so you know, now that we've been doing it for many years, we will often go way over 20 minutes. But the rule is at 20 minutes, we can stop. The other thing is, depending on the time of day, it's always, always over wine or pancakes. We choose one of the two depending on the time of day. Wine in the morning, pancakes at night. Got it. Exit cha. And that makes it fun. So we will go out to breakfast and we'll have this discussion in a restaurant at breakfast. What we do is just a few things. We look at what bills we paid that

month together. So we open up the app that we use. We walk through all the bills that we paid and just look at them. We don't do anything, Paula, but look at them. And every once in a while, what's funny is when we didn't look at them, we would never figure out mistakes that were made. We look at them. We go, wow, that phone bills high. You start pointing stuff out to each other. And that becomes fun. The second piece of that is then twice a year, you'll look at your investments together. You'll just bring those, but only you don't go to look at those all the time. And then the last thing is, you just talk about what expenses are coming up the next week. What expenses do we have coming up the next week? Because what invariably happened in our family

and in many of the families of the people that I coached was this. One person knew exactly where every dime was. The other person was in a place that I call Fantasyland thinking everything's going great. And then Fantasyland person comes home. just spent a bunch of money on one thing, walks in the door, and there's all these shopping bags. Like, what the hell? You spent a bunch of money? I just spent a bunch of money.

I didn't know we were going to do that. How was I supposed to know? And then the fights begin because of the fact that the finger pointing starts. Well, I thought you were taking care of it. Well, if you would be more involved, right? I mean, then the finger pointing begins. So instead of that, I found if we keep it short, we keep it light, we have this this fun little conversation.

I'll tell you the offshoot of that, we then invariably have money chats the entire week. If we skip it, which we do from time to time, we're just busy and we totally miss it, then we don't talk about money that week and then trouble happens. But if we just have this little itsy-bitsy meeting,

it makes everything much better. So I don't know if that's helpful, but those two things really work well for us. The only thing that, I'd add to that is that we recently had an episode in which we interviewed Aaron Lowry. She is the author of a book called Broke Millennial Talks Money. And that entire book is about how to have financial conversations with people in your life, family, friends. And it is a fantastic, fantastic book. I actually just lent it out to one of my friends because they were asking about money. And I was like, here, read this. So I would strongly recommend that book. And of course, you can listen to that interview. I will drop a link to that interview in the recent. mentioned for in the show notes of today's episode. So if you go to afford anything.com slash episode 312, that's where you can find the show notes for today's episode. And any resource that we talk about, those will be listed in those show notes. Thank you, Olivia,

for asking that question. Our next question also comes from an anonymous caller. Joe, again, we name every anonymous caller. Do you have any recommendations, suggestions, favorite names? Don't pun this one off on me. I did the last one. It's your turn. Oh, okay. Let's see. You know, I'm a huge fan of Priyanka Chopra. So let's call this next person Priyanka. There we go. Hi, Paula. This is anonymous. My question is about HSA's. I understand I'm supposed to save receipts for health care expenses for when I plan to withdraw the money from my HSA. As of now, I'm planning on using my HSA as an additional retirement vehicle. thus I have the funds invested. My question is, do I need to submit receipts for the amount that I contributed or for the amount that I contributed plus the growth while invested? I hope my question makes sense. Thank you. Have a great day.

Hey, Priyanka. I'm so glad you asked that question because often when it comes to these little nerdy tax things, we wonder, well, how does this stuff all work? And by the way, HSA's fantastic places, Dave. Absolutely great place to save money. Maybe we'll save the rest of why that is Paula for a different episode because that could become a very long conversation. However, I've got a blog post on it. I'll drop it in the resources mentioned.

Yeah. There it is. See? We got you covered right there. At least Paula does. This is actually an interesting question because of the fact that this money goes in pre-tax to an HSA. you are allowed then to deduct it off your tax form.

So the way, the place where you will show the government that you put money in the HSA is right on your 1040. That is where you will know. Now, if somebody else puts it in for you, if an employer puts it in for you or some other interested individual puts money in for you, they will take care of it differently. But for you, it's on your 1040 that you'll do that. Now, do you have to keep receipts for that, that you put that money in? Well, you're going to have evidence of the money going in in whatever the investment statement is, the HSA itself. So there is no reason to keep receipts on where you got that money. And I think I got that right.

And by the way, I have the actual IRS publication on this that I'll give to Paula to also put in the show notes. Excellent. And Priyanka, if it helps, I'll tell you exactly how I manage receipts for my HSA. Whenever I go to the doctor or I get some type of medical bill or I have some sort of HSA qualified expense, I take a picture of it with my phone. I upload that photo to Dropbox. And inside of Dropbox, I have a folder called HSA receipts. And inside of that folder, I have subfolders that say HSA receipts, 2021, 2020, 2019, 2018, and so on.

I will, so I take a picture of it. I title the file with, you know, a couple of words about like CVS pharmacy. and then I'll put the amount for my, you don't have to do this, but for myself just for ease, I actually write the amount into the file name so that that way, once a year, when I'm looking at this file of receipts, I don't actually even have to open any of the images. I can just glance at the file names and then quickly add up the total amount. And then once I've added up that total amount, I then retitle the folder, like HSA 2019, total X amount of money. And so boom, right there in the file name, I've got the total amount

of all of the receipts. And so it's there at a glance. Now, the reason that I do it that way is because I pay out of pocket for all of my HSA qualified expenses. So I don't actually use an HSA debit card to pay for HSA qualified expenses. I let that money sit inside of my HSA, I let it accumulate tax-deferred growth. I pay out of pocket and just save the receipt so that that way, if I ever did in the future want to withdraw that money, I would have these receipts to back me up. But I never actually plan on withdrawing that money. I never plan on reimbursing myself for those HSA qualified expenses because my thinking is, why would I want to use tax-deferred money for an expense that I could pay for with not tax deferred money. I would rather let the tax

deferred money continue to grow. Yeah, for some people, if cash flow is tight, you may have to use that money. But if you're somebody like Caroline called in earlier and talked about, hey, we have this extra cash flow. Just sometimes changing around the way you pay for things can create some tax savings. Exactly. Exactly. So that's the reason that I have all of the records there. The records are findable at a glance. I know exactly what I've spent when. It's all there in Dropbox if anyone needs a record of it. And I've never done anything with it.

Like it just all exists in Dropbox, but the IRS has never seen it. My accountant has never even seen it. And that's because I've never actually taken a withdrawal from an HSA. I've never reimbursed myself for any of these expenses from that HSA. The only times that I've ever spent money out of my HSA was many, many years ago before I realized that thing that I just said about the tax deferred money. Before I had that aha, I was paying for health expenses from HSA dollars because I thought that's what you were supposed to do. Then when I had the tax deferred aha, I changed my strategy, started documenting the receipts,

and have done zero with that documentation. But it's there if I need it. So thank you, Priyanka, for asking that question. We'll return to the show in just a moment. Our next question comes from Sanjay. Dear Paula, before I ask me a question, I want to say thank you to you and Joe for sharing your knowledge and helping out many people like me. I have learned a lot of good personal habits and investing in general from Afford Anything and Stacking Benjamin's show. So thank you. Currently, I own a town home and I am in my fifth year of my 15-year mortgage. I owe $137,000 and the Zillow estimate for the town home shows $290,000.

My monthly mortgage is $2,100. I have $80,000 saved apart from my town home for buying a single family home which I intended to make my primary home and make the town home a rental property if the numbers work. Now my question. When I check the rental potential in my area through. rentometer, it says the average rent is only 1,200 in my area. So if I rent my town home with my 15-year mortgage, I will be in negative cash flow situation because right now I'm paying 2100 and I can only get 1,200 rent. So I'm not sure if I should refinance my 15-year mortgage to 30-year to get positive cash flow or just sell the town home when I'm ready to.

by the next single family and use the money as down payment. I'm not sure if there are any other options for me. I'm looking forward to listening to your thoughts. Thanks again for sharing your knowledge. Sanjay, thank you for the question. I have so many thoughts on this, so let's go. All right, first of all. I couldn't tell.

I know. Joe's watching my face just light up. And right before we started recording, I was like, oh, my, I'm bursting with thoughts on this. And I told you my thoughts, and you were like, yeah, those are okay, but I think I got better stuff. I did not say that. I'm sorry, you said, I totally got better stuff. I did not. Not true.

Fake news. What is it, Paula? What is it? All right, Sanjay, here are some thoughts. First of all, rentometer, that tool that you're using that determined the average rent in your area is $1,200 a month. Rentometer is crap. don't even bother looking at it. I tell the students in my course this all the time. The tools like Rentometer are aggregator tools where what they do is they take broad data

from a zip code, from a given geographic area, they aggregate it together and they spit out a number. And because that number is so aggregated, it does not recognize the nuances of any given local area. It doesn't recognize, for example, are we talking about a three-bed, two bath that has stainless steel appliances and was recently renovated, or are we talking about the same three-bed, two bath, with maybe the same year of construction and same square footage, that is non-renovated and looks like it was, you know, in 1970s peeling laminate yellow countertops, right? A tool like rentometer, it can look at aggregate data like square footage, number of bedrooms,

number of bathrooms, year of home construction, but it cannot look at those more subjective features like the level of finishes. A level of finishes isn't even that it's subjective, but you know what I mean? It can't look at non-quantified data such as the level of finishes in a place, and it cannot and does not include that in its calculations. And so what it gives you is the number that it gives you is intended to be a starter, but the reason that I tell my students to avoid it is because that starter ends up being a misleading anchor more times than not. And so, So the long and short of it is throw away the rentometer number. That's a terrible way to evaluate what rent in a given area is going to be.

And instead, approach the search as though you were a renter. So imagine that you yourself wanted to rent a home that matched the description of your home. You want to rent a home in your neighborhood with your same number of bedrooms and bathrooms. And from that starting point, put yourself in the shoes of a renter. and go to any public-facing website, Zillow, Trulia, Redfin, Apartments.com, go to any of those, or all of those. Go to Craigslist, go to Facebook Marketplace, and from the perspective of a renter, see what's out there. And if you continue to do that, if you search for properties in your area that are comparable to yours, from the point of view of a renter, and then you repeat that search.

You know, don't just do it once. Do it this Friday night, and then wait a week. Do it next Friday. See how many of those properties are still. on the market and how many are taken and how many new ones have come on. And then repeat that same search the following Friday. And you continue to do that for three or four or five consecutive Fridays. You'll start to have a very good idea of what types of comparable properties are on the market, how long they stay on the market, and how much deal flow there is, how many new properties

start appearing on the market after a given period of time. And that will give you a much more clear sense of what you could rent that property for than anything that some broad data aggregation tool could ever communicate. So the first thing that I would say is throw away the rentometer number. Second, with regard to the should you refinance in order to not be cash flow negative, my question back to you is, if you are cash flow negative, which it sounds like you very well might be, do you have the funds to be able to float that? If so, if being cash flow negative, would not adversely affect your budget, then there is a strong argument to be made. And I'm not saying do this, but I am saying there is a strong argument to be made for not restarting the amortization

clock on your mortgage. You are five years into a 15-year mortgage, which means you got most of the sucky part of the mortgage out of the way. That first one-third of the mortgage in which the bulk of your payment is going towards interest rather than principal, you've already done that. You've done the sucky part. From this point forward, the bulk of those mortgage payments, the bulk of the P&I portion, is going towards the principal payoff. And so I wouldn't just be looking at whether your cash flow negative or positive. I would be looking at of that mortgage payment, what amount is going towards interest? Because the interest part is the actual spending part.

And what amount is going to principle? What amount is money that is still your net worth? It's simply your net worth converted from cash to equity. And if, and again, this is where the, how much of a bite is this going to take out of your budget? What's the opportunity cost? You know, what does it mean for your cash flow? That's where those questions come in. But if your budget, your personal cash flow can accommodate being out of pocket, I think there's a very strong argument to accepting cash flow negativity.

in order to enjoy the benefits of knowing that the bulk of that mortgage payment is going towards principle, which means you are not, quote, unquote, losing that money. You're simply converting cash to equity. Yeah, I don't know that I have much to add if it really is hurting you. I think if your goal is to keep the property, then you want to get that 30-year mortgage done ASAP because I don't know where mortgage rates are going to be three months from now. A lot of indicators say mortgage rates are on the rise. And so I would lock it in soon. This is a decision, Paul, I would make fairly quickly when it comes to rates.

That's probably the only piece I wanted to add. And I'll just be blunt and say, if I were in your shoes, assuming that your budget can accommodate it. And that is the big if. I do not know your budget. I don't know what you earn. I don't know what you spend. I don't know your cash flow.

If you can manage that cash flow negativity without feeling any type of personal budgetary stress, I'm not going to tell you what to do. But if I were in your shoes, I would hold on to the current mortgage that you have. Why is that? A mortgage payment consists of four parts, principal interest taxes and insurance. The interest taxes and insurance, that's money that's being spent. it's not growing your net worth, it's not adding to your balance sheet. The principal portion is still your money. And with him being five years into a 15 year mortgage, with him being a third of the way through, his effective interest rate on that mortgage is very low because he's already, you know, mortgages are designed such that you pay the interest up front and you pay the principal in the latter half of the mortgage. He's done the upfront part. He's done the paying the interest part. He's, that's behind him. Now, the payments in his future are predominantly principal payments.

And as the clock ticks towards six years or seven years, that will continue to be even more so. And so I would not get rid of the advantage that he has of being so deep into the amortization schedule. So thank you, Sanjay, for asking that question. And best of luck with whatever you decide. Our next question comes from Kyle. Hello, Paula and Joe. This is Kyle calling in with a question. I'm very excited to have Joe on for all these episodes as I've enjoyed listening to the different viewpoints of both Paula and Joe. Recently, I listened to episode 292 in which the call there are three kids and five had a question on how to add in volatility to his portfolio. Going through the most

recent bear market, I actually have the opposite question. How can I construct a a portfolio that will give me strong returns with the minimal variance. Specifically, how can I construct a portfolio with the highest sharps ratio? Through my research, the risk parity model for construction portfolio seems to be something that keeps coming up. This model specifically tries to construct a portfolio with volatile asset classes that have different correlations in order to make the total portfolio less risky. The major asset classes, many of these portfolios, include stocks, long-term, or no-coupon government bonds and commodities. Paula recently introduced me to the tools through portfolio charts and portfolio visualizers.

And through this, I have realized that even though I have many asset classes in my portfolio, my portfolio still correlates remarkably closely with the general S&P 500. I would like a portfolio that does well in all weathers. So my question to both you, Paula and Joe, is what do you guys think of the risk parity model? I can foresee a couple of risks, including the globe moving away from the dollar as the global currency and the U.S. defaulting on debt obligations, both that I foresee as unlikely. But what do you think I'm missing? Thanks so much. Hey, Kyle, before Paula and I nerd out with you in a question that I just love, I want to make sure that we don't walk past. this, Paula. So he goes and looks at portfolio visualizer to look at his diversified portfolio.

And what does he find out? He finds out something that I used to find out all the time. You think you're diversified because you have a few different funds. And Kyle found out that he's not as diversified as he thought he was. And his portfolio is still a role. He owns lots of stuff, Paula, but he's largely on one roller coaster instead of if he were on a few roller coasters next to each other. Some are going uphill. Some are going downhill. Much better approach, which also, you know, brings up another idea, which is this, everybody wants to optimize everything. And when you're looking at a great portfolio, you don't want it all to be optimized. I mean, don't get me wrong. You want the fees low. You want to have good stuff in each asset class. But you do

need some stuff that sucks right now to go along with the stuff that's rocking. So I didn't want to walk past this point before we got nerdy. Right. Exactly. And for people who are listening who are wondering what we're talking about, so if you go to Morningstar.com, which we will link to that also in the show notes. Show notes are at Afford Anything.com slash episode 312. But if you go to Morningstar, you will be able to access these portfolio visualizers, portfolio charts where you can see the guts of all of the funds that you're in. And you can see how your assets are allocated.

And oftentimes you discover that reality does not match expectations. And a little bit about Morning Star, they will make it seem like, or at least you may think that you have to pay because obviously they're a business trying to make money. But they have a free version, Paul. And a lot of people don't know that you can just, you have to sign up to get a portfolio visualizer, but you can sign up for a free account. So make sure you look for the little small stuff that says sign up for a free account, not the big glaring stuff that says premium, premium, premium. even when I was a financial planner. I used the premium stuff sometimes, but I would usually just use the free stuff.

Frankly, for the average person, our audience, the free stuff is good enough. Now, for everyone listening that's wondering, Paula, what the heck the risk parity model is, why don't we walk through that for a moment? So what he's talking about really is modern portfolio theory. And modern portfolio theory means we're looking for the most efficient use of assets. Now, the way that we find that,

is called the efficient frontier. What that means is this guy, Professor Harry Markowitz, looked at if you put different investments together, what gives you the most efficient rate of return, meaning the highest rate of return with the least amount of risk? Because what Kyle's asking, Paula,

is the same exact thing that everybody wants. Most people want to know when I was a financial planner, which is, hey, Joe, how do I get the biggest return possible and take almost no risk. Well, as you and I both know, that's not practical, but the efficient frontier gets you as close to that historically as you would have. So this guy, Dr. Harry Markowitz, what he did was he looked at putting different asset classes together.

Think of two axes, the one going north to south to north. That axes will be returns. And then east to west will be risk levels. So low risk on the left, high risk on the right, low return down low, high return up high. So as an example, if we have a checking account, that one will be, if everybody's visualizing this, that'll be low and left. Small company individual stocks, value individual stocks will be up and right. Well, what he did was look at all these different asset classes and put them together in different ways and put a dot on this chart. And as he filled the chart with dots, he noticed there was this imaginary line where there were no dots north of it and there were no dots left of it.

Meaning for any return you were trying to get, there was a certain risk that was the least risk you could probably take getting there. And so what we would often do when I was a financial planner is we would look at somebody's portfolio like Kyle did with his. We plot where it was and then we move it up to that line and see what assets together do we need to have. have. That act, by the way, is very closely related to what he's talking about, which is risk parity, right? We're trying to lower the risk in our portfolio. What's cool that he mentioned was a lot of times people will take less risk by just going to savings accounts or going into these investments where you can never get any upside. Well, what modern portfolio theory shows you is that you can put these riskier asset classes together in a configuration where you actually can.

can take some risk and you can get some upside, but still control your downside. There is no such thing, by the way, as a free lunch, which is why a lot of the risk parity funds make me roll my eyes. I have yet to see a risk parity fund in practice that actually gives me anything that's exciting. In theory, sounds awesome. What I would do if I were Kyle more than look for a risk parity fund is find the efficient frontier. Look at one of the tools online that will show them the efficient frontier. And I think that's as close to risk parity as I like because he noted that he wants to earn earn more.

So I get more excited about that, Kyle, than I do about risk parity funds myself. Back to our original discussion, Paula, when we kicked off this with Caroline's question is, I don't like the names, though, efficient frontier. You know, he's talking about sharp ratios. I don't like some of the terminology we use. I don't even like the term Roth IRA. Like if I can be just salty old guy for a minute, Canadians do this so well. TFSA, tax-free savings account.

Shouldn't we call it a tax-free savings account? But I know there's a certain amount of panic new people get when they come into the investing world when they hear Roth IRA or they hear a fish in frontier. That's why I think we stop with one total market index fund is because of the fact that it sounds complicated to go. beyond that. You mean the jargon is intimidating and that results in people not wanting to learn and so they tend to either avoid it entirely or do the most simplistic thing. Yeah, and you hear how excited Kyle was to talk about risk parity and how excited I got to talk about the Invention Frontier. Once you get past these silly names, it's all pretty damn cool. And actually, a lot more inviting than I think we think it is at first because of the name. Right, exactly.

I've often thought that about people talk about alpha or Vega. Same thing. Do you think that sometimes we use those terms to prove to other people that we know a lot about this stuff? Possibly. Well, either that or there is a certain amount of group cohesion that comes from having a shared vocabulary. And so if you look at certain subredits or you look at certain groups, subcultures, even gamer communities, I mean, there are a lot of closely knit communities. that have a shared vocabulary, and being able to speak that shared vocabulary is a way of signifying that you're part of the in-group. And it gives you that sense of cohesion. So there are times when I wonder

if some of the jargon around finance is a way that financial people can feel some sense of community in that we quite literally speak each other's language. I think there's definitely some of that, and it excites people. I just always try to remember that the more we do that, the more others outside of that community, whether it is gamer community. I do that too. Last night we were having this discussion about this new game coming out that's a looter shooter. And I was thinking, if I'm sitting with somebody that has no idea about video games, just what the hell is looter shooter?

But we're using this as just jargon that everybody I was on this call with knew exactly what that was. Not so much. You know, and I used to think this even when I was a financial planner, you'd have these people from these big investment houses come talk from Fidelity or T-Roe Price or wherever. And they would stand, they talk about, you know, large cap, mid-cap, small cap. And even then, Paula, I thought, why don't we just call it large company? Right. Yeah, exactly. It's just so damn easy. You know how many times people have asked me over the past 20-something years what the word cap means on large-cap? Like,

what's large-cap? I go, just get rid of the word cap and put the word company. And everybody collectively goes, oh, right. Super simple, super, super simple. And we make it complicated. Right. Rental property investing cap rate, capitalization rate. I mean, whenever I introduced that concept to somebody new, I immediately follow it up by saying, oh, it's basically like the dividend of the house.

And if they have any experience with stock investing or index fund investing, they immediately understand that. Yeah. But we're not going to change the vocabulary just you and I. So we have to deal with it, people. Exactly. Sorry. Sorry. Exactly. Let the jargon continue. Well, thank you, Kyle, for asking that question. And best of luck with the construction of your ideal portfolio. Our final question today comes from G. Hello, Paula and Joe. This is G from Colorado. I'm a longtime listener and really enjoy this show.

I'm calling today to ask about the stimulus check and the $600 that we received for each of our children. I'm wondering if this can be considered earned income for our children. If so, we would like to put it into their Roth IRA that we started last year after they started earning money, mowing lawns, and doing other odd jobs for neighbors. I'd love to hear your thoughts. Thank you for all you do. Love the show. Gee, thank you for asking that question. And short answer, no. It is not earned income and you cannot use it for a Roth IRA for your children. The government classifies this as a tax credit. Normally, you can't claim a tax credit, Paul, until tax filing time. But the way they did this, the government gave you the money early on a tax credit. So as you or your tax preparers filling out your taxes, you'll fill a tax.

in that you got this credit and bam, done. So it's in advance of money that you would have owed the government is really what it was. We will link in the show notes to an article that explains essentially what we've just said, the structure of the stimulus checks and the reason why these stimulus checks technically do not count as income. Roth IRAs for children are fantastic. I know people find it hard to find custodians that do that sometimes, but they They are out there. But you really have to remember that kids have to do actual work for that money. So earned income, it has to be earned.

And you see people, Paula, get in trouble because they start stuffing the kids IRA with money. Sounds great, but make sure that there actually is earned income that you can count against that. Right. I knew a girl in high school who opened a Roth IRA. I think we were sophomores or juniors when she opened one. And she used her part-time job money and her high school money from a part-time job. And I remember at the time thinking like, what's this? Like, I didn't know anything about that world.

I did save up money during high school. And I did ultimately open a taxable brokerage account and I put it in there. But I did not know anything about Roth IRAs. So I think back to that now. And whew. Current Paula would fangirl all over her. I know, right? Seriously.

All right, well, Joe, we did it. I can't believe we made it. So, Joe, if people want to hear more about your wacky ideas, where can they find you? You will find me at StackyBed. I almost didn't know where the heck you'd find me. You find me at StackyBedgements.com every Monday, Wednesday, or Friday. You also find my good friend Paula there on most Fridays where we are looking. On Friday days, it's really interesting, Paula, because as you know,

we take some of our favorite blog posts from the financial blog community, and we discuss them, and we kind of round them out. So not only will you hear about some of our favorite blog post out there, and sometimes not our favorite, ones we completely disagree with or thinker eye roll, but usually ones that we really, really like. And Paula and Len Penzo and our co-host, OG, we discuss those in a roundtable format every Friday. And if you hear what sounds like an entire room collapsing around Joe in the background, it's because he is broadcasting from a construction zone. Progress being made in the basement.

Exactly. Exactly. So Joe just moved to a new home in Texarkana, Texas. And despite the fact that lumber costs at an all-time high, he decided to go buy up the nation's supply of lumber anyway. There is no correlation between those two. Actually, there are. Actually, there are. There is because of the fact that we wanted to renovate, they decided lumber costs need to be higher. There you go, driving up the prices. You're welcome, America. Well, thank you so much for tuning in.

This is the Afford Anything podcast. My name is Paula Pant. 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, leave us a review in whatever app you, using to listen to this show. And number three, make sure that you hit subscribe or follow in that app. You can also subscribe to our show notes for free at Afford Anything.com slash show notes.

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Have a great day. Anthony Hopkins, at 82 years old, by the way, he brings it. And Olivia Coleman. Anthony and Olivia would be a great name. As soon as you said Anthony Hopkins and Olivia Coleman, I immediately imagined a really stylistically written, Anthony, ampersand, Olivia. Like restaurant or a kitchen supply store? Yeah, just as the brand name to something. Like someone start a company with that name.

It's just such a great brand name, Anthony and Olivia. Olivia. I love it. What's the, there's a really high-end restaurant at Disney, Victoria and Alberts. Ooh, oh, I'm listening to an audiobook right now on the Life and Times of Prince Albert, who's, of course, married to Queen Victoria. Of course. I say of course.

Of to duh. Everybody knows that.