Money Rehab with Nicole Lapin - Encore: "We finally have some extra money. How should we spend it?" (Listener Intervention)

Episode Date: May 28, 2023

Originally aired 10.19.21 Today’s Money Rehabbers (AKA the best couple ever) have had some good news in the money department lately. Their bank account is more full than it’s ever been, and they want to make sure they make smart decisions to make the most of it. Today, Nicole jumps in to help.

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

Hey guys, are you ready for some money rehab? Wall Street has been completely upended by an unlikely player, GameStop. And should I have a 401k? You don't do it? No, I never do it. You think the whole world revolves around you and your money. Well, it doesn't. Charge for wasting our time.

I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Today's listener intervention is with a couple, perhaps the best couple ever, that has the question that every financial expert loves to answer. They want to know, I have more money than

ever. What should I do with it? And I am super excited to jump in. So Max and Ashley, welcome to Money Rehab. I'm so proud of you guys. It sounds like you're totally leveling up your finances. Can you tell me a little bit more about the last couple of years and what that's been like for you financially? The last couple of years have been actually really interesting because, gosh, if you take it back even two years ago, I was just working as an RN. He had just gotten a new job. We had been in our first purchased home in Phoenix, Arizona. The pandemic hit. I wasn't working more than maybe once a month because hospitals were closed and I didn't have a job and I was pregnant and I was finishing grad

school. So a lot has changed since then. So where our income was really financially, we were financially dependent upon him for probably a good year, a year. And once I graduated, got a job, worked for three months, had the baby, took six months off. So really that income is almost negligible. We took the offer to move to Texas in October. We purchased the home and closed in January, moved in. And then we did not actually sell our home in Phoenix until June of 2021. In that time frame, I got a new job here in Texas making really good money, more money than I ever have. And he also has done really, really, really phenomenal with his job.

He's negotiated a higher base and then has also done a really good job at earning good money on his commission. really good job at earning good money on his commission. The only thing, the only kind of big thing that we've done with the proceeds from the home so far and with the nest day we've developed so far is pay off all of our credit cards. So it's at this point that we're really trying to develop the next steps going forward. Well, first of all, I love the fact that it was a move to one of the nine states with no income tax. Yay. Okay, cool. So you guys paid off all your credit card debt and now you have some extra money you don't know what to do with? Yes. Yeah, we have, I mean, more money than we've ever seen in our bank accounts. But we also know that that's just a starting point. Yet. Yet. Yes. Yet. Yes. So we know it's

just a starting point and we just want, we wanna be smart with it. We both come from backgrounds where our family, they don't teach you about money. It was always real secretive. And it's, I don't have money to do this. And then you grow up thinking, man, I'm super poor. So we're learning all those things as we go and teaching ourselves as adults, so.

Well, first of all, I'm so proud of you. Because I think even though we don't learn this stuff in school, kids look to their parents for a lot of cues on how to deal with money. So I think getting your financial lives together is not going to only benefit you, but it's also going to benefit your daughter and your son or daughter who is coming along on the way in March. So you guys should be really proud of yourselves individually as adults, as grown-ass people who are doing this adulting thing. We all don't know how to do it. And as parents. So congratulations, first of all. I just want to say that first. Thank you. Thank you. So you have a mortgage

and you have student debt. That's the only kind of debt you have left? And a car. Is it a lease or is it a car loan? It's a finance. Yes. Yeah. When did you take that out? It was 2020. Yeah, that was 2020. Okay. We wanted to get a bigger vehicle for the addition. So we did. And we splurged because we got a Tesla. But it was one thing. And we're like, you know what?

We worked our asses off. We deserve it. So we did. Okay. As long as you frame it that way, it wasn't the best financial decision. But as long as you guys know that and have self-awareness around it,

I don't love car notes, car loans, because you're borrowing on a depreciating asset, especially when you're buying a new car. But it's all good. As long as you recognize that that's what you did. Cool. It's like, you know, a small indulgence. It's like a latte. It's not necessarily going to, you know, be great for your finances, but we can't take it with us. So it's not my favorite that you have that. But if you're saying,

hey, whatever you say, we're still going to have our car loan on the new Tesla, then fine, let's put that aside. But you don't want to get out of your car note at all. That's off the table. You just want to leave that aside and you want to think about what to do with the mortgage and the student debt. If that is the smarter move, that is our question to you. Yeah. Because the way we look at it, we talked about it and we can pay off. Honestly, we could pay off both of them and just have the mortgage. But that would be eating into 90% of what we have tucked away now. And then we would start over, which I mean.

We can amass it fairly quickly with what we make and how we currently use our money. Okay. I'm getting out some paper. Hold on to your wallets, boys and girls. Money rehab will be right back. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no

maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime.

Feels like progress. Banking services and debit card provided by the Bank Corp. Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to chime.com slash disclosures for details. Now for some more money rehab. I think what's really important here

is first of all, do you guys have an emergency fund? Is this part of your emergency fund? Part of it. Correct. Yep. Okay. So out of the lump sum that you guys have right now, let's carve out an emergency fund. Sure. Because when you pay off debt, that is not a liquid investment, right? Correct. Yep. Don't forget that loan repayment is never going to be liquid. You know, once you've paid off your mortgage or your student loans, it's very difficult to get your money back if you need it for any other reason. God forbid an emergency. God forbid you lost your job or anything else. So you can't reclaim that cash with student loans. It's really hard after you sell a house, as you guys know, closing costs and all that jazz. You want to make

sure you have some actual cash money in the bank, six months, nine months, ideally. What is your monthly budget? Like the bare bones of what you guys need to keep the lights on, to eat, no mani pedis, max. No, so if we did that, bare bones would be about $4,000 a month. Okay. If we were talking like we can eat out every once in a while and what we currently spend,

it'd probably be about $5,000 a month. So $4,000 a month times, let's say nine months is $36,000. Yep. What are you guys doing right now for work? So I'm in the medical device industry. So sales rep and she is a nurse practitioner. So relatively stable in high demand jobs. Like if you lost a job, God forbid, then you could get another one quickly. And you're in a big area, lots of hospitals, all the things.

OK, so I feel comfortable with six months. What do you guys feel comfortable with? Well, I will tell you right now, we just looked at it. It's like 140,000. So for us to do nine months, I mean, that way we can talk about like what we currently have. Okay. So excuse me, 138,916 is what we currently have as liquid available in a checking account. So this is a conversation for you guys to have because there's a lot of financial advice that does not have to do with numbers. It has to do with how you guys sleep at night. So for me personally, with all of my issues, I prefer to have a year in the bank for absolutely no financial reason, but it makes me feel good.

And so you guys, I mean, you can have a little conversation now, you can have it later, but it's really what makes you feel safe. I like the six to nine months, honestly. I would rather go nine months. Oh, I'm definitely the penny pincher of the family. And it definitely brings me more joy and more security feeling having that cash in the bank. I feel more secure with a nine months. And I will always side with the lady. So I'm a woman's woman. So 36 grand, if you can put that aside out of your checking account, that might be helpful. Put it in a savings account or you can open up a sub savings or

something like that. What are the interest rates for your mortgage and your student loans? And are they private or federal? So the student loans are federal. Um, we have a mix of the subsidized and unsubsidized, uh, the interest rates on subsidized loans are five, either 5. Oh geez. 5.3 to 5.7. And then the unsubsidized loans, gosh, I believe we're 6.7. And then the unsubsidized loans, gosh, I believe we're 6.7. Okay. And that's for both of you guys? Yes. He has a mix. I definitely hold the higher balance, which is like 74,000. He holds the lower balance. That's, I think, 24 at the moment. And then both of ours are federal only, mix of subsidized, unsubsidized with roughly those interest rates.

Are they variable? No, no, federal loans are always fixed. For in these cases, insubsidized, subsidized, there's other types of loans for federal, but these two in particular are fixed. They were based on prime at the time, and then they will not change. And then what is your mortgage? What is the interest rate? 2.85. And why do you want to pay it off early?

Because we don't want to... I mean, it's our dream to just pay off our house. So that way, we don't have to worry about it. What we have is... It's not liquid, but it goes towards our net worth 100% of it. And, you know, we, I don't know, we want to retire. I'd like to spend the money that I make rather than paying someone else with the money that I make. Yeah. And that's all you're doing with interest on anything, including your student loans, your car, your mortgage, holding anything with an interest rate means I'm just paying

somebody to hold my money for me. And so if we pay all that off, every single dime I make, I get to spend or put it away for Kinsley or retirement, whatever the case might be. But aside from the end game. He knows what's up. He knows all the jargon. But you guys didn't mention investments. That is one of our other questions is we wanted to know your opinion on what type of investments to explore and retirement as

one of those investments. Okay. So we have, what is in our retirement? Anything? So yeah, I have a 401k through work that has just over 14,000. She has a... Okay. So I have an indexed universal life policy that earns interest on the money that I invest in my own

retirement, basically. So I'm paying into it. They invest it and I earn interest on my investment that goes into this then policy. I currently have...

It's not... Does your employer match? Max, I know... I guess if you're... Yes, we do. Yeah, and I'm taking full advantage of that. Okay, it's not. Does your employer match? Max, I know, I guess if you're. Yes, you do. Yeah. And I'm taking full advantage of that. So yeah, yeah. I think I maxed it out.

I've been a 1099 for a year and a half. I have never held a 401k. I think it's. No, I never invested in a 401k. And I should have, cause it's free money that you earn. Well, you know, whatever. But, um, I have always wanted to do, my grandpa always stressed a Roth IRA. And I always, I don't know. I've always looked at my, but for somebody as like financially conscious as myself for me not to have created a retirement plan makes me very nervous. Cause I know the later

you wait, the more you have to put aside. Like I said, our financial situation didn't really change until I would say 2021 till this year. She started working full time because, um, you know, we were living off of my salary. Um, she wasn't really working a lot. So this is, this is the time. And this is why we reached out is okay. We have stuff that we can now use to make our future a lot better. So what's the first step? Okay. And what is the car note interest rate? The interest rate on that one is like 3.2. What I'm hearing from you is that there is a need for a bigger car for a bigger family.

There's not necessarily a need for a bigger car for a bigger family. There's not necessarily a need for a Tesla as that bigger car. There's a want for the Tesla, and that's totally fine by me. In general, if I was looking at this, I would suggest that you get rid of this car note and get even a Tesla four years old or older. and get even a Tesla four years old or older and buy it outright and run the jalopy into the ground. Because based on your idea that you don't want to be paying somebody, you're ultimately paying a lot for this car because you're paying a huge premium. So cars depreciate most in the first four years, as you know, and then new cars are the are the worst. It could be a pain in the ass to get out of whatever deal it is.

I could take a closer look. But generally, that would be my advice if I just saw this on paper. But hearing from you guys, it sounds like you've worked really, really hard to get to a place of financial stability. And this was, you know, this was a meaningful purchase beyond just a financial, you know, investment, which is not an investment. So but we know that and that's OK with your mortgage and your student loans. You know, oftentimes people will say that student loans are good debt because like you invested in your brain. Yes. And avocados are good fat, but you don't want to eat them slowly all day, right? So I would say because these are federal, though, I'm not seeing a massive urgency to pay this hundred grand of student debt off. We don't know what is going to happen

with repayment plans. If you told me that these are private and that they're variable and they could spike and all sorts of other stuff, I might give you different advice. But it's really, when you're looking at this stuff, it really has to do with your interest rate. So when you're determining which debt to pay off, there are pros and cons for all different types of debt. Of course, they're not all created equal. But you really want to match up the interest rate of your debts and compare that to the interest rate that you could gain when interest works in your favor. So typically, if you look at the market, getting you about 7% to 10% over time, investment accounts for retirement, which would be 401ks, Roth IRAs, traditional IRAs,

SEPs, SIMPLs, all sorts of stuff, 4%, 4% to 7% usually. So you want to match those up and say, hey, where's my opportunity cost here? And am I paying down a lower interest rate for what reason? You know, am I paying down a lower interest rate just so I could be done with it? Or is that the smartest way for me to go? Your mortgage is a pretty low percentage. And I would rather you take the $100,000 left. I wouldn't put all of it into an investment account, but I'd buy low-cost S&P 500 index funds, which over time will get you 7% to 10%. And then you're paying off this mortgage, which is eating out 3% from it. But it's not complicated once you line up the interest rates and start the other column.

What you guys don't have is the column of interest rates working in your favor. Compound interest is fucking amazing when it works in your favor. It totally sucks, as you guys know, when it works against you. You saw that paying off your credit card debt. You know, for example, if you invest $100 per month from 20 to 40, you earn 8% compounded annually and you'd invest $24,000. If you did, you know, $100 a month for 20 years, you'd have almost a million dollars when you turn 65. If you waited, though, 10 years and invested from 30 to 50, then with the same amount of cash, you'd have only 200 grand by the time you turn 65, which is $750,000 less. So we're

talking about big numbers here. I'm not trying to give you a whole economics lesson around compound interest, but it's a lot of money when you are looking at it over time. Do you guys have time? How old are you? 34. 33. Great. Great. You know what? You don't need a lot of money when it comes to investing. You need a lot of time. So I would say you guys have so much time on your side. Really take advantage of the much greater interest you could receive in the market or through retirement accounts that really trumps. I even hate using that word, but I'll have another one. It makes these other interest rates look small, right? It makes your 3.2% car note or your 2.85% mortgage or even your 5.3% student loans look smaller because you're making more than you're spending. And so my

suggestion to you would be for now and make sure you really, really, really want to live in that house. I know you have moved and you have settled here, but you guys are young. And who knows if there is a killer opportunity in another state, you're probably going to leave. I don't know. I'm guessing. And so, you know, I don't know if that's the house you're going to retire in unless you tell me otherwise. So I would I wouldn't stress as much about paying it down necessarily when you have such a low interest rate. You know, our parents didn't have 2% mortgages, right? They were ridiculous. And so that was a whole different conversation. Their houses only cost like, you know, $150,000 too.

Totally. True story. True story. But in our times, if you account for inflation, might be relatively simple, which we always forget about when we talk about this housing discussion. That like our parents bought $150,000 house and now it's worth 500 grand. Yippee, real estate is the best investment in the history of the world. No, like when our parents also went to the movies for $5 and used pay phones for 25 cents, like it was a different world. We're not comparing apples and apples. And so if you're looking at your house as a place to live, as a place you know for sure that you're going to live in forever, then that's great. It's a place to nest your face off, to have a family, to grow a family. It's not necessarily investment, but you know what? It's a pretty low interest rate. And

that's what you call free money. You know, interest rates have never been lower. So locking in a lower interest rate, that's why the market right now for real estate is bananas, because everybody wants a low interest rate. And that's why homes are selling like crazy for ridiculous prices. So, you know, what do you think? I'll pause for a moment and see what you have to think about that interest rate comparison. So my first thought is in comparing these interest rates, they are all actually fairly similar. Car note being the highest one.

Well, your student loans being the highest. Oh, I'm sorry. Yes, yes. Those are the highest. However, a car note is stretched over. I mean, we would like to pay it off in three to four. I think our note is over, I think, six. Whereas student loans are a payoff over 10 years.

The house, actually, I completely agree with. I initially thought, hey, the more we get paid off, the more equity we have in it, which means if we ever did sell, that means more cash in pocket. But it's more just like an exchange of apples to apples. Now that I see, we don't own five homes. This is not an investment. This is a home. It's one at a time for us. So actually, I do see that. Which by the way, like I talk a lot about the fact that renting doesn't suck. Renting gets a bad name too, but you have to pay to live. I mean, that's what sometimes is lost in this discussion around housing. Like there is a cost of living that you don't get back. Like you pay for food.

Are we upset because we go number two and the food goes away and we never get it back? There's this expectation that we're supposed to recoup this idea. No. If you get back the money you put in, amazing. Right. But you're not going into home ownership to make the kind of money that you would make in the stock market. Yeah. Yeah. Well, okay. And then you just brought up the last thought is that if these three and we'll definitely look at the card, I still don't even have a problem with that. But you're right. That's a lot of debt to hold over our head with a fairly high interest rate.

So I think that'll be the one that I really think about. But what it's sounding to me like is... But also don't forget that you're not comparing car ownership versus leasing to home ownership versus renting. Cars depreciate, right? Cars go this way when you want to recoup it or sell it because you're not going to want to drive the 2020 Tesla in 2050, right? Right. And the home ownership is actually an appreciating, depends on where you are. Of course, there's a thousand variables, but that's a different animal. Yes. It sounds like then really, truly, I thought we were going to come into this conversation, be talking about what debt to pay off within those three realms actually what i'm hearing is if those interest rates are all fairly similar minus i'm still thinking about the car note um it sounds like

with this extra money that we have that we want to make money with our money it sounds like taking that extra hundred grand and putting it into investments in retirement is actually, that's our, that's our, yeah, our brain exploding moment. For today's tip, you can take straight to the bank. While paying off a house may feel like the ultimate adulting victory, it's not the right move for everyone's financial situation. If you have other loans with a higher interest rate than your mortgage, pay off the loan with a higher interest rate first. Now that is something to do an adulting victory lap for. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin.

Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.