Afford Anything - Ask Paula: Pay Debt vs Buy a Home? Invest in Index Funds vs Creative Alternative?

Episode Date: June 13, 2016

#29: Paula answers questions you sent in about multi-level marketing, paying off credit card debt vs buying a house, and socially responsible investing. For more information, visit the show notes at https://affordanything.com/episode-29-socially-responsible-investing/ Learn more about your ad choices. Visit podcastchoices.com/adchoices

All right, what food scares you? I suppose very exotic animal meats scare slash repulse me. Is that the direction I was supposed to take that in? Or was I supposed to admit that I'm like secretly terrified of cupcakes? Yeah. Like you dream of like large carrots coming after you. Chasing me down. The carrot or the stick.

Welcome to the Money Show, a podcast about. mastering your money and time so you can live your optimal life. This show features interviews with entrepreneurs, financial experts, and regular people who share amazing insight into investing, business, money management, and productivity. There are many roads to financial freedom. This show explores them all. Grab a beer, kick back, and enjoy the money show. Hey, hey, it's Paula, your host, and I want to share an idea with you. This is something that's a lot of It's been lingering in my mind for a long time, but that I've never explicitly stated out loud. And here's that idea.

My goal for this podcast has always been to create a community participatory experience. I never wanted this to be a host-dominated show. I don't want this to be a show where I'm like, hi, I'm Paula. Let me keep talking. I'm going to talk and I'm going to talk and I'm going to keep talking some more. And aren't I fascinating? Like, oh, dude, I don't want to do that. I think it's much more interesting to have a whole bunch of different voices on the show.

It's more entertaining. It's more enlightening. You get these different perspectives. And there's so much value to that. That's the reason why before I even knew what this show would be called, before I had any kernel of a seed of an idea of what would lay ahead, right from day one, I started looking for a co-host because I thought, you know, that way at least I can make sure. sure there will always be one other voice on every episode with me. And that's why for the past couple of episodes, I've invited our behind the scenes dude, Steve, to come join me during the intros. It's not that I'm afraid of doing an intro alone. I'm doing one alone right now. Pts, don't tell Steve. Hey, I'm right over here. It's that I just think episodes are interesting

when you get a lot of different voices on them. That's also one of the reasons why, so many of the interviews that we've done, Jay and Ryan from way back in the launch back in February, or Jeremy and Winnie, a recent interview that we did of a financially independent couple, or the stacking Benjamin's roundtable. So many of those interviews have been with more than just one person. And that's a little harder to do because you have to organize a lot of people's schedules, so it can't be in every show thing. But I've always been drawn to the idea of having many voices, literal voices on the show because I don't need to beat you over the head with the symbolism, but when you have those literal voices on the show, you also have all of those different perspectives.

And that's really where learning comes from, particularly when you're dealing with such a broad topic as money, work, entrepreneurship, life. So what is the point of me telling you this? Well, I want to emphasize why I love that we're now bringing your voices onto the show. So if you've been listening for a while, you might be familiar with a segment called Ask Us Anything, which I guess now needs a new title. I guess I'm going to call it Ask Paula. Rather appropriate that I said that as a question. In that segment, we or I guess now I answer questions that you all send in. So you call in and you leave a voicemail and we get to hear your voice.

And that is incredible. You know, in the beginning, Jay and I would read the questions that you emailed us, but now the entire Money Show community gets to hear their fellow listener's voice echoing in their earbuds. To me, that's a really powerful thing. I love that. So my point to all of this is, if you have any questions, please go to the Money Show.com slash voicemail and record them. I would love to answer them in an upcoming episode because that's really what makes a good show, at least in my opinion. So today's episode, if you hadn't already picked up the hint, I guess the first Ask Paula episode. Now that all of that is out of the way, let's go ahead and get to it.

Our first question comes from Wendy. Hi, Paula and Jay Money. My name is Wendy, and I am a big fan of The Money Podcast. I'm currently 24 years old right now, and I have a question that I would love for you to help me answer. Currently, I'm trying to find a side hustle just to earn some more money on the side and to venture become financially free. And a friend of a friend recently contacted me about this idea of network marketing or multi-level marketing. So specifically, I have two questions. One, what are your thoughts about network marketing or multi-level marketing as a side hustle?

And two, from what I've learned thus far, it seems very focused on leveraging your personal network or using your friends and family to earn some more money to grow your business. To me, focusing specifically on your friends and family makes me a little bit uneasy and it seems a little bit unethical to me to try and use that personal network to earn more money and grow your business as opposed to just using a general audience or a general market. I would love to hear what your thoughts are on the matter. Hi, Wendy. To the first part of your question, what do I think about multi-level marketing? I think it sucks. And that's just my opinion. I know that somebody's going to disagree with me.

I know that's going to be true because I'm going to get an angry email about it. I can assure you. So it's just my opinion. But here's why I think that. First of all, many MLM companies, not all, but many, engage in hard sell tactics. So they're very pushy. They want you to buy, buy, buy, buy. And those tactics feel like they don't really have the best interest of the client in mind. They have quotas and sales goals that they want to achieve. And there's nothing wrong with having goals, but not when your focus is so hyper-focused on those goals that you forget about asking the fundamental question, is this product or service best for the end user. Number two, as you stated, many of those companies really encourage their workers to sell to their closest family and friends. And guess what? That is the best way to get yourself unfriended on Facebook.

Hashtag, ask me how many people I've unfriended. Is that hashtag? It should be. There are other reasons as well, but long story short, I'm not a fan of MLM companies. I think that if you want to earn more money, if you want to go into a side hustle or start some sort of a side business, You're smart, you're creative. You can come up with something that will provide you more upside opportunity and something that you're more enthusiastic about. That's the direction I'd encourage you to go in. Now, to question number two, which I've kind of touched on already, but I want to touch on the way that you phrased to that question because there are volumes that can be said in the choice of words that you

used. So let's listen again to the exact snippet. Sorry, Steve, I'm creating more work for you, but let's listen again to the exact snippet of how you phrased, something that I thought was really interesting. From what I've learned thus far, it seems very focused on leveraging your personal network or using your friends and family to earn some more money to grow your business. Okay, let's think about that word choice. It seems very focused. on using your friends and family. You should never be in a business in which you have to use people. The thing is, selling, in its purest sense, is not a win-lose dynamic.

Selling is something that happens when you are aware of a product or service that you genuinely believe could benefit someone else. And so you introduce that product or service to the person. whose life can be enhanced by having it. So, for example, and I realize this is a ridiculous example, I'm wearing socks right now. Why? Because otherwise, my feet would be cold, and I don't like having cold feet. Sox make my life better.

Now, if I didn't have them, I'd be fine. I would continue living. I wouldn't be, like, bleeding out in the street. But on balance, I prefer my life with socks than without. If nobody had ever sold these socks to me, and by no. I mean, target. You know, my life would not be as sock-ful as it is right now. Ridiculous, ridiculous analogy. I get that. But my point is that selling is not a win-lose situation. There are many transactions in which both parties walk away feeling like they got what they wanted.

The sock company got money and I got socks. Or I go to a grocery store and the grocery store gets money and all of the suppliers downstream get money and I get food. Or, you know, I realize these are necessities, but let's think about something ridiculous and completely unnecessary that I've purchased. Candles. I don't need scented candles. Why the F do I have them? They're certainly a luxury, but they're a luxury that make my house smell a little bit better. So I'm down to have them. And if someone wants to sell me some, I'll sniff it out. But I'm ch. That wasn't a very good joke. But you know what?

I'm going to award myself a bit. Okay. So before I go too far off the rails with terrible analogies, my point is simply that I want you to stop, and I don't know that you necessarily do this, but to any listener who might have this mindset, I want you to stop thinking about selling as something that uses people in order to make money. selling at its pure form, at the form of what it should be. And while I don't want to wallow in this world of should and like rainbows and unicorns and everything as it should be, you know, insofar as you have the power to direct it in the way in which you practice your own business, selling should be in your life an event in which you find someone who could benefit from the item or product or service that you represent

and you explain to them that this might benefit them. And you do it in a way that's not pushy and that's not deceptive. You do it in a way that's just open and honest. And if they're receptive, that's fantastic. And if they're not, that's fine too. You've done your part. Before I move on to the next question, there's one other thing that I want to touch on, something that stood out to me when I listened to your question.

Although your question was specifically about multi-level marketing companies, there's a part of me that wonders if maybe the core issue, because I hear a lot of hesitation in your voice, maybe the core issue isn't the structure of the company. Maybe the core issue is that you don't believe in the product that you're selling. That's a fatal flaw. If you don't believe in what you're selling, you're never going to do a good job selling. And it doesn't matter if you're selling on behalf of a multi-level marketing company or a mom-and-pop brick-and-mortar store or an online e-commerce website. It doesn't matter that, that, none of that.

Those are just details. Those are corporate structurally details. If your job is to sell, you need to believe in what you're selling. Because if you don't, nobody else will. And also, if you don't, then you're going to go home feeling bad about yourself every single day. And that is a terrible way to live. So focus on representing something that you genuinely believe in, whether that's a manufactured physical product or whether that is a service that you can offer, no matter what incarnation that takes, first believe in your product and let the rest flow from there. Okay.

So I hope I didn't get way too hippie-dippy on you with that answer. We're now going to move on to a question about credit card debt. Hey Paul and Jay Money. I've been a fan of your guys for as long as I can remember. I wanted to run my situation by you guys to see what you guys thought. I'm 35 married and I have two kids. We are trying to buy a house and we have money saved up for a down payment. My thing is I have a craptown of credit card debt that I racked up in my 20s and I wanted to get your guys's thoughts on what I should do. Should I take that down payment and wipe out my credit card debt? Or, should we go on trying to buy a house and do what I can to hack away at my credit card debt.

The market in the Bay Area is pretty crazy, so I'm thinking of either wiping it out or doing half and half, wiping out half and then saving up again and hoping the market will settle down. I just wanted to get your guys' thoughts on what you think about my situation and what you think I should do. Jay, that's a great question. You mentioned at the end of that question that if you were to do half and half, you would be hoping that the market will settle down in the future. Now, I don't want to get off track, but I do want to talk about that concept because I think that's an important unstated assumption that we need to address. The number one rule of home buying. You cannot predict the future. You use the phrase

hoping the market will settle down in the future. Hope is not an investment strategy. Sorry to be but it's not. We have no idea what the market's going to do in the future. We don't know anything about the future. One year from now, maybe there will have been a huge boom and everything will be worth double what it is today. Or conversely, maybe there will be a huge crash and everything will be worth half. Maybe our country will be at war. Or maybe we will be in an unprecedented year of world peace. Maybe everything will stay exactly the same as it. as today. We don't know, and that's the point. It's fun to make crystal ball projections about the future. However, it's dangerous to start making five-figure or six-figure decisions, or really

even four-figure decisions, based on those crystal ball projections. When even the Harvard fortune tellers, for lack of a better term, the Harvard Ivy League prognosticators, who's job is to look at economic data and predict the future. Even they cannot consistently get it right. I'm not insulting them for that. I'm using that to illustrate how hard it is to predict the future. It's just not a thing that we can do. And so my point of this big long crystal ball diatribe is that you need to make decisions based on what is best for you at present based on your situation, your goals, your dreams, what would be the best thing for you and your family? And from what I've heard in your voicemail, I really believe that that is paying off your credit card debt.

Because a, quote, crap ton of debt does not sound very pleasant. It seems to me that you would be able to sleep much more easily at night if you had less than a crap ton, perhaps even a zero ton, a zero-th, a crap-zero. However, you would phrase that, that seems like it would be liberating, probably more liberating than being like, oh, great, yeah, now I have this really, I have this mortgage in a very expensive city and now I have even more debt. So, yeah, pay off the credit card. Don't worry about what might or might not happen in the future because there's no way to know that information anyway. Definitely don't split half and half because then you'll only be half as far towards buying a home, but you'll also still be paying interest on half. of your credit card debt, just bite the bullets, wipe out all the credit cards, and then once you're done with that, then reassess and figure out what you want your next major financial goal to be.

All right, I hope that was helpful. If you do pay off your credit cards, Jay, please call back in and tell us about it. And if you decide to buy a house, call back in, leave us a voicemail. Tell us about it because I would love to hear the follow-up of this story. Our next question is a pretty interesting one. This one involves the ethics around investing. And I've never gotten a question like this before. So, well, I'll let you listen because I really enjoyed this and I really enjoyed thinking about it.

Here we go. Hey, Paula. I super appreciate what you're doing and thank you so much for these opportunities to ask questions. I recently inherited some big bucks and need a little help with my moral compass as far as investing is involved. I have a sense of responsibility that comes from trying to figure out where to stash the cash that will be safe-ish, bring a return, and have some sort of ethical base to it. I love the idea of Vanguard Index funds, but then I run into the wall of ownership and ethics. Do I really want to directly benefit from weapons manufacturers, oil and gas industries,

creepy pharmaceutical companies, and all of the shenanigans that they get up to in the world? On the other hand, they tend to perform well, whereas the socially responsible funds don't do amazingly. I guess my question is, have you ever run into these questions for yourself, and how have you navigated them? I know the arguments that involve pointing out the fact that I drive a car, I sometimes take ibuprofen, and I am implicated in many ways in the issues the world is facing today. What I am looking for are ways to minimize my impact. Real estate is definitely on my happy list, but there are too many dollars to allocate only to that. Any personal experiences, thought processes, or ideas would be hugely helpful.

Thank you so much. All right. Here's why you're awesome. You want to align your money with your values. That's basically what this question is all about. You're saying, hey, guess what? I've got money and I've got values and I want the two to mesh. How do I do that?

That's the fundamental foundation that's probably really. redundant, but who cares? That's the foundational foundation of your question. And that is exactly what my blog is about. It's what this podcast is about. It's what my message is. Yes, like, yes, a thousand times. I love the spirit that you're coming from. But, and yeah, by that dramatic pause, you knew that a but was coming. You said something I find fascinating. You said that your goal is to minimize your impact. Your words, not mine. In fact, Steve, can we hear that snippet again?

What I'm looking for are ways to minimize my impact. So here's my question to you. Here's the challenge. And I don't want you to answer it right now. I want you to truly, deeply think about this. Is your goal to minimize your negative impact? or is your goal to maximize your positive impact? Now, I know that that sounds like semantics.

So I'm going to take a moment to explain the quote-unquote difference between the two. Let me back up for a second. The finance world has this little debate that we all like to talk about between Camp Save More and Camp Earn More. And, you know, oh, I'm. I believe in saving more. Well, I believe in earning more. Well, if you earn more but you never save, then you just keep spending. Well, yeah, but if you save more and you never earn, then you run out of money to save.

And, you know, and like, okay, yeah, we have that ridiculous debate. And I'm using debate in giant air quotes because really, when you cut through all of the noise and the clutter, we all want the same thing. We all freaking want to grow the gap. between what we earn and what we spend. That is the shared goal that we all hold. And so all of us exist on the same spectrum, the grow the gap spectrum. But because we're humans, and humans, especially in the Western world, love duality,

on a day-to-day basis, sometimes it's fun, interesting, whatever, to think about our attitude towards money. within this incredibly oversimplified dualistic framework of Save More versus Earnmore, even though all of us know that, duh, you do both. So let's take that same framework and apply it to a new spectrum. And I'm going to call this spectrum people who share the same goal wanting your life to be a net positive, wanting to leave this world better than you found it. But along that spectrum, you have kind of two ends. On one side, you've got people who want to minimize the negative,

and on the other side you've got people who want to maximize the positive. And just for the sake of illustration, or at the very least, the sake of somebody's amusement, I'm going to caricaturize these. Let's take the person who wants to minimize their negative impact. Let's say that person decides that they're going to move completely off grid so that they're not tapping into any of these wasteful polluting city or county resources, and they are going to build a straw bale house built entirely out of sustainable,

reclaimed, recycled material. They'll build it themselves. In fact, let's not even use any power. tools. Here's the deal. Making things out of old-fashioned tools takes a lot of time. And that's okay, because we've got time. We don't work for the man. We're beyond that. But the thing is, we don't have as much time as we thought we would because we have to grow all of our own GMO-free locally harvested food. And that may not sound like a lot, but we're vegan. So we have a totally plant-based diet, which means we need a lot of local food. So we got to put all of our attention

on the harvest schedule so we don't have time to build this house. Oh, but I know the solution. Community. We got to build a community. We just need a stronger community. And now we have this community. And who are these freeloaders who are living in our community? That dude has not left the couch in a week.

And I think he's on drugs. And who is sleeping with who? And what is wrong with our community? And okay, wait, hold on. We did it. We got the community together. The plants are grown. The house is built.

Now it's time to put some solar panels on the roof. But I don't know which ones to get. because the newer solar panels are much more materially efficient. They're more eco-friendly, but I'm not sure about their labor practices because they were manufactured in China and I don't really know what's going on over there. We could use the older panels, but if we did, then we would need battery backup. But the problem is battery acid is so bad for the environment. And also, batteries are made using a ton of CO2 emissions. And by the way, I can't deal with any of this right now because the moon is in retrograde and I'm about to go into a juice cleanse.

I'm sorry, I really enjoyed that. Thank you for letting me do that. Yeah. The point is, if your goal is to minimize your negative impact on the earth or on society, this is what you're going to be doing all day every day. This is going to be your entire life. And if that's the life that you want, awesome. Live it. This is your life.

If that's the life that you choose for yourself, I fully support that. But understand, and I want to be very clear, and I'm pausing for dramatic effect, just so I can make sure you pay attention to this point. Am I doing a good job? I hope so. Understand that if you are to live this redoubt, caricature of a life, then that's going to occupy all of your time and money and effort and energy. And that means that you are necessarily not going to be working with inner city youth in New York or Chicago or Kansas City.

You're not going to be starting a no-kill animal shelter in a city that doesn't yet have one. you're not going to be launching a campaign to raise a million dollars worth of donations for Huntingdon's disease. Because you can't do those things while also trying to grow all of your own vegan non-GMO food in the four hours a day that your solar panels can power your sustainably harvested drill bits. the point, the absurd point that I'm trying to make is you can both minimize your impact and maximize your good. But you have to decide what side of that spectrum you want to frame your decisions within. Because if you're framing your investing decision, and here's where I'm getting into your specific question. Now, like 10 minutes into the answer, your specific question, Vanguard Index. funds. I have an inheritance. This is your question. Hey, Steve, I've gone so far off the rails. Can we

play that portion of her question? I recently inherited some big bucks and need a little help with my moral compass as far as investing is involved. I have a sense of responsibility that comes from trying to figure out where to stash the cash that will be safeish, bring a return, and have some sort of ethical base to it. I love the idea of Vanguard index funds, but then I run into the wall of ownership and ethics. All right. Maybe you could invest in Vanguard index funds. And maybe those would yield higher returns, but that would come at the cost of you living

with the fact that those returns were generated on the backs of companies that do things that you don't support. And that is a tough pill to swallow. But saying no to those companies does not absolve you into a world of puppies and kittens because the reality is if you do invest in that Vanguard Index Fund, then the money that you generate from that could be used for good. The money that you generate from that Vanguard Index Fund could either, be directly donated to a charitable venture of your choice, or be used to put you on the path

to financial independence so that your time is free to devote to activities that you think will use your talents and skills in a way that maximizes your positive impact. So my point here, and I really hope I haven't gotten too far off the rails, is obviously you can do both. It's just like the earning versus saving pseudo debate, which is all smoke and mirrors. You know, like, yeah, we both earn and we save. Uh-huh. They're both great. We all get it. But when we make decisions in our day-to-day lives, we sometimes have to make those decisions under the framework that we've decided to identify with. I identify more with the earning framework. So if I have a choice between, say, spending an hour clipping coupons versus spending an hour building a business, I'm going to do B rather than A.

But you know what? My mom, by contrast, was really on the Savemore side of the spectrum. So given that choice, she decided to spend that hour clipping coupons. Those are the choices that we make as we all march towards the same shared end goal, but we approach that goal from different angles. And so the choice that I want you to really consider is do you truly want to minimize your negative impact or do you want to maximize your positive impact? And once you decide which end of that false dichotomy, that illusion of mutually exclusive that isn't actually so, once you decide which end of that spectrum you want to think of yourself as being on, Then the next question is, how far deep in that spectrum do I want to be? Do I want to be at the outrageous extreme caricature end?

Or do I want to be somewhere within the middle of that spectrum? I'm now recording at about 2 a.m. from a hotel room in northern Cincinnati. I'm recording this a couple of days after I recorded the original podcast segment that you've been listening to. There's one last thing that I wanted to say about this question. The caller mentioned socially responsible investing, and I want to take a moment to talk about that in order to make sure that all of the listeners understand what that is and what the pros and cons to that are. First of all, a socially responsible investing fund is an actively managed mutual fund or exchange

traded fund. These are funds in which the fund managers decide what assets to invest in. in. It's basically a group of fund managers who are like, okay, what companies are we going to invest in? Instead of just looking at the numbers, they use corporate responsibility and societal concerns as chief parts of the investment decisions that they make. So on the surface, this sounds great, you know, like you can have your cake and eat it too. There are a number of them that you can choose from. They're about 500. I did a little bit of research. There's 500 different funds that identify as socially responsible investing funds. So on the surface,

this sounds like the optimal because, you know, as we talked about between minimizing harm and maximizing good, somewhere in the middle of that, within that spectrum, you have your own optimal. And on the surface, it sounds like a socially responsible investing fund might be that. But here is the drawback. Given how many opinions there are about what is good and what is bad, it is unlikely that there's going to be a fund that perfectly represents your own values. So, for example, what are your feelings about gambling? Are you okay with companies that profit from gambling or not? And are you okay with certain types of gambling but not others? Like such as slot machines versus table games versus websites that gamble online poker, does that make a difference?

But what about alcohol? Are you okay with companies who profit from the sales of alcohol? And if so, does it matter if it's beer versus hard liquor? And does it matter what type of ads they use? if certain companies might run ads that show women in a certain way, is that an issue for you or not in your own value system? What about firearms? Tobacco. And what about a utility company that burns fossil fuels but not nuclear? Or what about a utility company that burns both coal and nuclear, but it has really high safety standards for its workers? And also, it heavily reinvests in renewables.

So you see where I'm going with this. These 500 funds collectively represent thousands of people's nuanced opinions about what's good and what's bad. And a fund manager or a team of fund managers cannot be the judges who unequivocally decide these are ethical or these are not. Well, I mean they can be and they are. But that doesn't mean that that represents what you believe. In short, what I'm saying is you can't outsource your conscience. But here's what you can do. You can choose what's optimal for your life.

You know, what is that space between minimizing harm and maximizing good? And what steps can you take that would bring the optimal impact into that optimal goal? What can you do that will make the biggest splash, in other words, And if that thing is teaching other people about money, as it is for me, then that's where you should focus your time. If that thing is coaching basketball team for underprivileged youth, tutoring math for kids who need that, working with developmentally disabled adults, like whatever that thing is. or if it's even achieving financial independence so that you can spend more time with your own family and make a bigger impact in their lives. I mean, I can't tell you what your optimal is. You're the only person who can decide that. What I can tell you is that more time that you spend kind of

tweaking around the ends, the less time that you're really driving yourself towards optimal. So long story short, I think I've made the point, but I wanted to give this PS because I figured that some people might start emailing me and asking about like, well, what about a socially responsible investing fund? And so that's sort of my stance on it. I love the concept. I love the fact that there are 500 funds that identify socially responsible. That's as a notion, as a practice, as a thing that should come into existence in this world. I think that's great. But I know that there's probably no fund that's going to perfectly represent my values on alcohol and gambling and tobacco and firearms and utilities and labor and environment. There is just no duality, black and white,

good and bad, despite the fact that we want there to be, things are far more nuanced than any simple binary could ever represent. That is my incredibly long, gotten way off the rails. This has now been going on for like 15 minutes answer to your question about whether or not you should put your investment in a Vanguard index fund. Oh my goodness. Steve, I think we need to take me off the air. That's our show. I hope you laughed. I hope you learned. And I hope I didn't piss you off too much. But if I did, send your angry emails to Steve at Pollitton. Givich. I'm just joking. The truth is, I really do give a shit. I truly, truly give... Well, I'm not going to say it, but you were thinking it.

If you're not interested in sending Steve an angry email to an imaginary address, here are two other things you could do. Number one, if you'd like to hear your own voice on the show, head to themoneyshow.cow.c.c.O. voicemail. If that's not your cup of tea, head on over to iTunes and leave us a review. And by us, I guess I mean me. Although, I also do mean all of you who submitted questions and all of the guests who are on. So I guess I do mean us. Hmm. What do you know? This show is a participatory experience. Booy.

I know you never make a mistake ever. Oh, I make tons. Was it forward anything.com something else before? Actually, when I first registered two websites, I registered Globetop... Yes! Oh, believe it. Oh, oh, l'olulu. So when I started blogging, I registered two web domains.

Globetop... F***ing, I can't...