Money Rehab with Nicole Lapin - "I Just Got a Raise. What's The Best Thing To Do With This New Money?"

Episode Date: August 29, 2024

If you get a raise, or take a distribution on a huge stock, or win the lottery, the first thing you do is celebrate. Obviously. The next thing you do is ask yourself: what do I do now? Or, better yet: what do I do now that will make this money grow into more money? That's what today’s Money Rehabber is asking herself, and Nicole helps her find answers.

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.

I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your

reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. If you get a raise or take a distribution on a huge stock or, I don't know, win the lottery,

the first thing you do, celebrate, obviously. And the next thing you should do is ask yourself, now what? And not just that, you want to ask yourself, now what do I do with this money to turn this money into more money? That's what today's money rehabber is asking herself, and I help her answer that. Molly, welcome to Money Rehab. Thank you. Thanks for having me. I'm a big fan. Oh, I'm a big fan of your question.

Can you tell our listeners what it is? Yeah. So I recently started a new job and I'll be making 40% more income. I also have some great life changes. One of my children is going to primary school. So I'm also losing a daycare check. And I feel like our lifestyle is really great the way it is. So I don't think it's necessary really to upgrade our lifestyle in any drastic ways other than, you know, the cost of groceries. So really looking to see, you know, how I can make my money work for me and what I should be doing. I want to view that money as sort of extra, not something that I'm going to have to depend on. Ah, music to my ears. I love this. I love this problem, by the way. It's a great problem to have.

And it's really fun to talk about because you're doing so well. You're crushing it. You have these exciting life changes, too. You mentioned that you have one kid. One kid is you're now not going to pay a daycare check. So that's awesome. But you have how many altogether? I have two. So I still have one daycare check, but it's cut in half right now. So that's a savings of about $1,500 a month. Okay. And are you a single parent?

Do you have a partner? I have a partner. So two incomes. Okay. And what is your guys' work-life balance? How is that structured now? So it's great because in addition to having a new job, it's 100% remote. It will include some travel for, you know, like PPRs and events.

But for the most part, I should really only be traveling like one to two times per quarter. And my husband probably travels about the same. He manages a sales team here in Los Angeles. So he is pretty flexible with his time. He's usually out visiting accounts from about 11 to 6 daily. So I take on picking up the kids and getting dinner ready. And then we have dinner together as a family pretty much five days a week. Okay. And before we get into the details of your finances, how do you generally feel about your financial picture right now? I feel pretty good about it. But then I also like every time I go to the grocery store, it's more and more.

That's kind of a bummer. There's a lot of uncertainty there. And obviously, I'm going to keep feeding my two children. That's probably the most insecure thing about our finances. Our bills are pretty regular. In the last couple of years, I would say all of our utility bills have increased, but I don't think we're living paycheck to paycheck, and I don't feel like we're struggling. We're still able to do date nights, pay for a sitter when we need to, and take our kids on vacations and fun little excursions. So I feel overall positive about it. And what was your salary before? It was $120 cash, but I was part of an acquisition. And so I had a lot of stock that

vested after two years. But I stayed at the company for five more years after I had already vested my stock. And I had gotten some stock, but I feel like I left at a really good time where I wasn't leaving that much money on the table. Of course, you're always leaving a little bit of money on the table. So were you able to walk away with a lump sum? Yes, I was. I didn't take like any vacation time. So I ended up at the end of everything with all the separation making about after taxes, 60,000. Great. Okay. So, and we're not including the 60,000 in this raise, right? So you got 60,000 as a sweet windfall. this raise, right? So you got $60,000 as a sweet windfall. And then on top of that, now your base is $160,000, it sounds like, with a $40,000 raise?

Yes. And so I also still have this stock. So the cash was more like separation payments. And so that I used about 10,000 for home repairs. And right now the rest is sitting in savings. Okay. So we have 50K in savings and then- Well, more in savings, but that's like from that. Okay. That makes sense. And then the 150, is it a public company? You don't have to tell me which one. It's one of the fangs. Oh, okay.

Okay. So this is like, this is liquidatable stock. This is liquid stock. You can go, you can sell it when you need to, but you're not going to. Yeah. It fluctuates, but it's pretty consistent. And I don't see it going down to like no value. Okay, and for anyone who doesn't know the Fangs,

they're now more like the magnificent seven, but the Fangs are like Facebook, Apple, Amazon, Netflix, Google, like the tech companies. Yeah. Cool, awesome. And then what else do you have in savings? I had $25,000 before and then we have probably a couple million with our money manager. He's at Morgan Stanley Financial Planner. I'm not sure what to call him.

A couple million in retirement? Yeah, in retirement. But some of it is more accessible than others, but none of it would be accessible without any sort of taxation. So it's not as liquid, I guess. But if we needed access to that, then we could get access to that funds within like two days. I see. I see. Okay.

So you're kind of pretending like that's not there, but it is there, you know, to break in case of emergency. We're pretending like it's not there. We're pretending like it's for our children and for our retirement. That's a great way to look at it, but very cool that it's there as well. Do you have any debt? I have a car, so I owe probably like $15,000 on it. I had to purchase a new used car last year after my other car that I had for like 20 years died. And so are you hoping to pay that off or what's the plan? I think it makes the most sense to have some debt and to just keep doing the

monthly payments. The monthly payments are about $800. Would you agree with that? I'm not sure. I'm not sure. You just had a great windfall. How much is your interest payment? I got a 6% borrowing rate. Okay. So typically, if you can make more than 6% with the cash that you have, then you can still pay the debt. So if you're making 8% or 10%, then you would net out more than the 6%. But if you're saving in a 1% account and you're spending 6% on interest, then you're losing net 5%. Yeah. Okay. So it depends on where we're putting it first. So let's put a pin in the car for a second. Do you have an emergency fund? I guess the savings I consider an emergency fund because it's money that's not with Morgan Stanley.

50 plus 25 from before? Yeah. It's around 75,000. When you say savings account, you mean like a checking account or a regular savings account or a high yield savings account? I don't know what type of savings account. It's pretty basic level. And then I have a checking account and then I have two checking accounts for my sons. And I just like anytime they get any money for their birthdays, I stick it in there. We also do college savings plan for both of them. My parents contribute $1,200 on each of their birthdays every year and also for holiday. So they get about $2,400 each a year just for my parents, just for their 529.

Is that what they call it? Okay, 529. Is that what it's called? Yeah. Okay. 529. Yeah. And then my husband contributed to that as well. And do they have like a custodial Roth IRA or any other funds that you're contributing to? No, they just have the checking accounts, which don't really have that much money in them. And then those 529 accounts. Okay. And the savings account, I'm assuming is like less than 1% APY. Probably. Okay. So what would you say like your three to six months of bare bone living expenses would be? Let's say you needed to just get by on the basic things. It sounds like you own your home, so your mortgage, groceries, utilities, just to make ends

meet. Six to 7,000 a month. Okay. But that's on two incomes, so not just my income because my income's the lower one. Cool. So for your family, I guess, so for both incomes, six to seven for, you know, six months would be around, you know, 40K, right? Yeah. I would say like 40K might be the goal to have as just, you know, something that's accessible. And so when you think about having an emergency fund, where would that feel good to be for you? I don't know what the emergency would be. So I guess. So this is like, you know, not necessarily something that's just chilling in your checking account. It's something that you can easily liquidate if you do have an emergency.

You know, emergencies, you know, and we, you know, God forbid none of these ever happen. But, you know, you or your husband get sick or, you know, unable to work for some reason or, you know, lose your job or any of that type of stuff. So you want to kind of like earmark that amount of what could get you through this time without tapping into retirement. And it sounds like you have quite a bit in there, which you could tap into if you really, really needed to, but you would want something a little bit more accessible. Yeah. So are you saying I have too much in savings? You might have. Well, let's see where they're all. It's all sitting in the same account right now,

sounds like. We might want to break it up. Yeah, I'd love to know where to put it. Yeah, let's get organized. Let's create a system. Because the extra that you're having every month is amortized 40k would be how much extra take home for just my salary well you're the only one that got the raise right yeah yeah probably like around 2000 yeah okay and you're 38 right well you're, you're crushing it. I mean, it sounds like, do you know much about what the strategy is for your retirement portfolio that you have? Yeah. Right now, we're doing more aggressive on stocks, like I think an 80-20 split. But I think that's just on the money that I've given the financial planner. I don't think that's for our whole portfolio. There are a lot of different accounts within Morgan Stanley, and I should probably understand a little bit more what they all are. But when I met my husband,

he already had a few accounts already. And so I just kind of first I had a lot of money sitting in savings. So rolled that in with him and then collected all my various like I didn't even know I had all these 401ks at different companies. And I like he helped me locate them like literally from my first job. And I was there for five and a half years. And I had no clue that I had set up a 401k and was putting 10% of my salary into it. Oh, that dang, how much was that? I think it was like, I mean, it was my first job out of college, but I think it was like $25,000, $30,000. Nice. That's awesome. Okay. It was insane, but I just had no clue that I even had that money. And then like I had like little tech jobs here and there that were very minimal, like $2,000, $9,000. But he helped me move those as well.

And then I most recently moved my last, oh yeah, I also had a 401k at my FANG job and that one was, I want to say 75. So I moved that to him as well. Okay. And well, I mean, you're doing awesome. Just like, can we take a moment, a Molly appreciation moment?

Hold on to your wallets. 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. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank NA or Stride Bank NA. 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. I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding

you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. And now for some more money rehab.

You're clearly being really thoughtful about your money. You're putting it to work. You're making smart money moves. Where does this come from? Growing up, did you learn how to manage your money from your parents? What was that experience like? Where were these money lessons from? When I graduated, I was given a bank account with $50,000 in it. And I just kind of blew through it really quickly after college on dumb things that I wish I could go back and tell myself not to buy, like bags that don't even hold any value and nobody even cares about anymore and but my parents are always really good with money they never had any issues so I think I just like I don't know I listen to a lot of other podcasts

and I think I relate to this like I just have an abundance mindset that I'll never have to worry and I'll always be there because I work hard and I plan for the future. And I also married someone who feels the same way. He has amazing work ethic. He's been working since he was like 13, was like a golf pro and, you know, just has always been working and supporting himself. And I think, you know, we're both lucky we had our education paid for, which is very rare. So we left school with no debt as well. That's awesome. So back to your salary, your nice, juicy salary bump. Where are we going to put this? You said to our producer that you essentially want to live like you don't have this extra money, which I love. Shove's kiss so much. It's called lifestyle creep. Have you heard of lifestyle creep? Yeah, because I listen to your podcast.

Yay. I'm so glad. Yes. Lifestyle creep is basically like lifestyle inflation. People earn more than they spend more and net net they come out maybe the same or maybe even worse depending on how much their lifestyle creeps. So I'm so, so glad that you want to keep those financial goals and in mind with no lifestyle creep. What is your short-term goal? Do you have any savings goals that you have pre-retirement? Do you want to get a new house? Do you want to go around the world? I don't know. I think short-term goals, we either want to do some upgrades to our current house or purchase a new one. The rates are really high right now.

So it feels like houses that are within our budget aren't that much more impressive than the house we have now. We'd have to go way outside of our budget to really feel like we're in an upgrade. And if we're not going to feel like we're in an upgrade, there's really no point in moving. We love our school district and our friends. So that's important. So would you say that you still want to be saving toward that goal or do you, you know, have individual goals? I ask because, you know, you can create within your savings account sub-savings. And so those help sort of keep organized like what you're saving

towards. So you could have your emergency fund sub-savings account within your portal. You could have like a new car fund. You could have something else. So I just, you know, as we're trying to figure this out together, visualize what we're saving for tends to help people actually stick to it. So it doesn't feel like it's just going into like a bucket. Does that resonate with you at all? Yeah, it does. I'd probably say we could stick to the house goal, even though the market is going to kind of determine like if we're ready to make that jump or not but why not dream big maybe maybe we'll uh save so much so we'll just buy all cash next time yeah i love that okay cool so we have like a house house fund and an emergency fund. Yeah. Anything else? I would like to put more in their 529s.

We're really inconsistent with it. We're just kind of like when we think about it or when we just have money sitting there and we're just like, oh, if we have money sitting here, we can just throw it in their account. But maybe get on a consistent schedule with paying them monthly. Okay. I love that. What would we want to set aside for the 529?

Maybe 500 each, so 1,000 a month. Yeah. That's so generous. Absolutely. Okay. Great. Great goal. Okay. So it sounds like you don't have a high yield savings account. You're just stashing your cash in something that's giving you less than 1%? Do you know offhand? That sounds right. I don't know. Can I look at it? Let's see what it says. Annual percentage yield earned 0.02%. Yikes. How does that make you feel? Sad. 0.02%?

Sad. That makes me feel sad for you. I don't love it. I mean, inflation typically grows at 3%, right? I mean, in the last few years, it's been way more than that. You've seen it at the grocery store. So you want to earn at least 3% to just keep your money in line with inflation. Ideally, you want to earn more than inflation, but now you're actually losing money by keeping all of your money in this account. Well, that's not great. I don't like to hear that. Okay. No, it's not great. We have to change this. This is our number one priority. A high-yield savings account will give you so much more love. It's the easiest

thing you could possibly do to grow your money. It's just going from like less than 1% or in this case, like way less than 1%, basically zero to, you know, I like Publix high yield savings account. For example, it's 5.1% APY right now. I mean, it's a no brainer. It's like, what would you rather get less than a percent or 5% on the money that you just got and the money that you're going to be bringing in? Yeah. It's the same thing. You just get more interest. Right. So sure. How do I start one or move my money? So we would just open a high-yield savings account. The one I like is with public. I

personally just use them because it's easy to buy treasuries, for instance. And maybe some of this money can go into short-term treasuries. Short-term U.S. treasuries, for instance. And maybe some of this money can go into short-term treasuries. Short-term U.S. treasuries are bonds issued by the government, and they're giving a lot of interest right now. They're having a moment. So it's really easy to buy bonds that way. Because I don't think you need all of this money just sitting in a high-yield savings account. I lost the tally. So we have $75K from the separation and before. And now we have about $2K more a month. And we have $20K-ish that we want for an emergency fund. So $20K I would put in a high yield savings account, open a brand new one. Consider that your emergency fund,

like your liquid emergency fund, even though you have other options. So I don't even know if you need that much more or even that much in a emergency fund because you have $150,000 in stock that's easily liquidatable. You have a huge retirement account. I would probably consider paying off your car. You're paying 6% in interest when you're making 0% right now. So I would just pay that off if you like the car or we can talk about changing your car potentially, but it's not doing you any favors and you have the money. And then I would think about what that, so the $500 that you want to put aside for the 529, you could probably do that as an auto deposit

from your new paycheck. And then the rest I would have growing for you. So it could either go to your home fund, but it could be living in either a high yield savings account or in short term treasuries. So short term treasuries, you could get, I don't know, what is it? 26 week treasury is around 5% right now. And that's a half a year. So you keep your money tied up. It's kind of like, do you know what a CD is? Sort of, but not really.

So a CD is also giving a lot. It depends on your bank, but you don't need to have a CD at the same bank that you normally have your checking account. Some of the CDs right now are also giving about 5%. So because interest rates are so high, you mentioned this when we were talking about looking at houses, right? Interest rates are high, you said, and like, it's not worth necessarily getting a different house because it feels meh compared to what we have. And the interest rates are high. And it sounds like you might have locked in a lower interest rate. My interest rate's like 0.6. I love that for you. So I'm never moving.

The thing with the stock is like, it's really like high taxes to cash out stock. Totally. You can also always borrow against your stock, which is what all the billionaires do. So you take out a loan against it, the loan is less, you never have a taxable moment. So there are ways to tap into that stock without, you're so right to note that there, it sounds like there would be long term capital gains taxes, because you've held on to it that there it sounds like there would be long-term capital gains taxes because you've held on to it for a while which would be at your ordinary uh which would be at a tax advantaged rate compared to ordinary income so it would it would be less than you're normally paying on taxes for your salary but still totally get it so there are ways to tap

into it for sure if you need it. There are securities loans that you can take against it. This is what Bill Gates does or Jeff Bezos. They're never paying tax. They have their stock increase and increase, and they borrow against the proceeds of the stock in a loan, and loans are never taxed. And so then they take and then how do they pay the interest of that loan? They pay they take out another loan. They do this until they die. I'm not suggesting this is a great strategy for you necessarily, but there are ways to tap into it without seeing a taxable event. And also when you need the money, like I wouldn't worry about, you know, long term capital gains taxes if you need it.

Yeah. In terms of the high yielding account, I don't see which bank you're talking about because it's not showing up. So I'd love to get that one. And then I'd love to understand more about what short-term treasuries are because I know you've talked a lot about iBonds, which I've never pulled the trigger on. But what are, can you like help me understand short-term treasuries? Yeah, for sure. So Public is the app that I was talking about. It's the one that... Oh, it's an app. Okay. Yeah, it's the one that I personally used. It has a lot of different functionalities. You can buy treasuries. So the treasury bills, so the short-term treasuries are treasury bills, then they're notes, and then

they're bonds. And that just refers to the duration. So you can buy 10-year treasury bonds, 30-year treasury bonds, but you can also buy the short-term ones. And the short-term ones are giving great interest right now. And so you would just download the app. And if you wanted to take advantage of their high-yield savings account, you would use it just like you are your Bank of America account, your regular checking or savings account, you would open that up, you would transfer the money into that account. You could also then from the same app, go to the treasury section. So like I'm in mine right now. And I have like money in stocks, I have money in bonds, I have money in treasuries. And so I'm just opening up my treasury allocation. And it's super easy to do this. The

other way that historically, you could have bought treasury bonds would be through treasury direct.gov, which is just a really wonky, annoying site to deal with. It's super bad. I mean, to a tech person, I would love to get your assessment of the UX UI of that site, but it's out of the 80s. And so this is an easy way to do it. Right now, yeah, short-term treasuries are giving about 5%. So you would just go and you would buy them in any increments you want. It could come from the checking account that you already have. So you could set it up to have it transfer straight from the account that the money is currently in to go to treasuries.

And then depending on the duration, they will expire. And then you can either just keep rolling them over if you don't need the money. And then CDs work in a similar way. CDs are through the bank and treasuries are through the government. So the bank is basically what's cool about debt is that when you are holding the debt, you're basically the bank. So when you get a treasury, you're loaning the bank money. And for the privilege of using that money, they're giving you interest. And this is the same situation with the government. So for the privilege of you loaning the government money, essentially, they're giving you back

this 5% interest. So they're going to build roads and bridges and do whatever. And then you get this money as an exchange. And it sounds like you don't really need the money ASAP. as an exchange. And it sounds like you don't really need the money ASAP. So it's even better to try to get a higher interest rate if you could take advantage of bonds or even CDs. I will listen to this. Thank you. Cool. So how does that sound? It sounds like we have like a little asset allocation for the extra money that you have coming in. How does that feel? It feels really

good to have like a clear plan. So thank you so much for that. Of course. So it's to recap, it sounds like of the extra money that you have coming in from the new job, 500 a month, we're going to do automatic deposit into your kid's 529. That's just something that you set up once, like set it and forget it. And what's great about coming up with this plan is it sounds like you're goal-oriented, dare I say, a little type A, like you want to get shit done. And so you probably just need to spend a couple hours setting up this plan and then you're good. You haven't started the job yet, right? No, I have.

Oh, you have. Okay. Okay. So that would just be a direct deposit that you could set up today. Then you would open up a high yield savings account. Try to get the one with the highest interest rate that's giving right now. Scoot your money that's getting you 0% over to that. And then you could think of like your emergency fund as maybe you want to put that in treasuries or something like that. And then you can go ahead and buy, let's say, $20,000. You can talk to your husband about it. You can marinate it on it. Just giving that number for sake of ease. Buy 20 grand in treasuries. Have that earning more money for you and tap into it if and when you need it. God forbid something happens. Hopefully, you'll never have to touch it.

And then because you won't touch it, it will just be earning you more interest. Great. Thank you. Appreciate it. Yeah? Yeah. It sounds like a really good plan. Thank you so much for the help and all the resources. I really appreciate it. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a

one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make. Thank you.