NerdWallet's Smart Money Podcast - Investing for Your Dream Life

Episode Date: August 15, 2022

Building wealth over your life takes planning — and know-how. This episode, Sean and Liz talk with Angel Grace, a DIY YouTuber who wants to set her family up for success over the long term by investing and saving for her son’s college education. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to the NerdWallet Smart Money Podcast, where we usually answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Sean Piles. And I'm Liz Weston. To send the Nerds your money questions, call or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD or email us at podcast at nerdwallet.com. Also hit that subscribe button to get new episodes delivered to your devices every Monday. If you like what you hear, please leave us a review and tell a friend. This week, we are continuing our series of episodes about financial dreams, where we talk with nerds who have accomplished their financial dreams and interview a few special guests about what they want to do with their money in 2022. And since we're NerdWallet,

we will also discuss the steps you can take to accomplish your own financial dreams, whatever they are. This time around, we're talking with DIY and home decor YouTuber Angel Grace about her experience starting her own business and her investing goals for 2022. Welcome to the podcast, Angel. Hi. It's great to have you on. Angel, I would love to start off by hearing a bit about your background and how you got into DIY projects and home decor. Sure. I started doing DIY projects when my husband and I first married and we bought our first home. And at that time,

we didn't have like huge budgets, you know, for a lot of the stuff we want done. So we ended up doing a lot of DIY. And in that home decor became a part of it because I like to make my space a happy place. And I feel like when you surround yourself with things that bring you joy and excites you, it just literally changes the feel and the mood of your whole environment. Right. It so does. Did you have a background in design or art or anything like that? Actually, no, I have a background in accounting and law. So I was a lawyer. Okay. Yeah. so really crazy background. Yeah, I imagine it was a nice creative outlet after working with numbers and rules all day long. Yes, very much so very much.

Great. Well, let's turn to your financial dreams for 2022. What do you want to do in the next year? I really want to focus more on my long-term financial health as well as more passive income strategies. So that's the goal. What specifically are you thinking of looking into in those two areas? I want to do some investing and put more into just money that grows on its own for the most part. And then also retirement purposes, try to get set up so that my future is more secure. Yeah. You have kids? I do. I have a toddler.

Oh, my goodness. And you have a business. You've got a lot to do. So you don't have a lot of time to mess around with investing. That sounds like. Well, I used to do some DIY investing years ago, but life did hit and things fell off, but I want to get back into it, but I don't want to be like actively having to manage my portfolio. I prefer passively. So ways and strategies that I can put money there and build my own portfolio, but at the same time, not have to worry so much about day to day activities with it. Have you looked at all into opening a robo advisor account? Or do you have one of those already? I do not know. Can you explain more?

Yeah, they might be a nice way to get started investing because you can open one of these accounts and there are a number of them around on the internet at this point. And basically, the way I do it with my robo-advisor account is I have a set amount that I deposit monthly and it manages my investments for me. I told it my risk level and how I want to manage my investments in general. And it basically does all of the heavy lifting for me. Because similar to you, I didn't want to get too bogged down in choosing specific companies to invest in. It sounded like a lot of work to me. And I didn't want to invest all of that time when I could have a computer do it for me, basically. Wow. Yeah, that sounds really interesting and something right down what I'm

looking for. Yeah. And similar, there are also a number of investment apps out there that have gained a lot of mainstream popularity in the past year, like Acorns and Stash and even Cash App is doing some of this right now. And some of these companies will round up your purchases to the nearest dollar and then use that to invest. And those can be a good way to get started, but they're not really a comprehensive enough way, in my opinion, to get a full investment portfolio going, even though they are super popular right now. Nice. Angel, we thought we may have to talk you out of active investing because a lot of people are really into investing in individual stocks or

crypto or whatever. And the reality is that most people who try to beat the market actually fail. So all that trading actually just adds costs to your investing and makes you do worse than you do if you just stuck with index funds or index exchange traded funds that try to match the market and keep expenses really, really low. The two things that we can really control about investing are how much we put in and how much we pay. So that's where robo advisors really shine because their costs are super, super low. So in addition to everything that Sean said about doing all the heavy lifting for you, they're also pretty cheap. Oh, wow. That is so good to know. I'm so glad you guys are telling me this. These are great tips because this is exactly what I wanted.

We are super happy to help you because when I hear people get interested and talk about DIY investing, my ears perk a little bit because I worry that they're going to get super into crypto or really into AMC or something like this. And I just worry about what that could mean for their long term financial health and investment goals. Yeah, I totally agree. And it's so true. You know, and I've been down that road years ago and it's just so much easier when you can go on with life,

but still, you know, have a say-so on your portfolio and the things and how you want to make money. So especially as a young mom, I'm sure you have enough to manage around your household plus your business. So for me, I think of my investment in my robo-advisor account I'm sure you have enough to manage around your household plus your business. So for me, I think of my investment in my robo-advisor account as basically another line item on my budget that I have to manage monthly. And it's automated.

I don't have to think about it, but I can go into my account, see the growth that's happening, and also get a little bit of an understanding of how the investments that I have chosen the algorithm to manage for me are playing out. So you can still learn about different investments, but it's less complicated. You don't have to research a specific company per se that you're investing in. Very nice. You also touched on investing and saving for retirement. How are you currently approaching that? I currently have two retirement accounts, but I haven't been contributing as much as I want to and being stable. And, you know, I actually forget a lot of times. And I really want to find a way that

it's kind of like automatic. And, you know, I don't have to really worry about it. Automation is the key for so many things in my philosophy of managing personal finance, because I don't want to have to think about things either. I want them to be set up and doing their own thing. So we can totally talk about doing that as well with your retirement accounts. And you mentioned that you have a couple. Are they 401ks? Are they Roth IRAs? Do you know what you're working with right now? Yeah. One was a retirement account for a SEPH employed. Goodness, I cannot remember the name of it. It's probably a SEPH. SEPH IRA? Yes, yes, yes. That's it. Yes. Thanks. Yes. And then another one was one I had while I was working. Oh, so it's like a 401k that's left over from a job?

It is from the other one. Yeah. And it's just still there. I haven't like transferred or anything. It's just still there. Well, I'm actually writing a column about that right now that people think they have to do something with their 401k when they leave a job and you don't, you can leave it right where it is. That's fine. Nice. Yeah. And if you ever do work again for a company that has a 401k, often you can just transfer it straight into that new 401k plan. So don't feel bad about leaving it behind. It's protected, it's fiduciary, and fiduciary means that the plan is required to put your interests first. So you don't have to worry about somebody selling you a bad investment or selling you an investment that makes them more than it makes you.

So having that 401k is great. Oh God, I'm so glad you said that. That is so good to hear. I did not know that at all. Yeah, people feel guilty about leaving a retirement account behind and you don't want to lose track of it, obviously. You want to have that money when you get to retirement, but you don't necessarily have to do anything with it right now. You can let it ride for a while. Great. Great. Thanks.

And one thing that Liz and I should totally throw in is that we are not retirement or investment advisors. This is just for educational and entertainment purposes, just to make sure that we don't go foul of our legal department. That's how we understand. I appreciate your tips. Yeah, of course. I do think there could be a way for you to utilize your SEP IRA a little more. Liz, I know that you have some experience with those hands on and you don't automate payments. You have like a big annual chunk that you put in.

Is that correct? Yeah, basically because SEPs can be up to, I think, 25% of your self-employment net income. But you don't find out until the end of the year what that net income is going to be. So what we do is we have our accountant try to keep track of where we are and give me some rough idea of how much money I need to set aside. But you don't actually have to make the deposit until your tax filing deadline, April 15th, basically, of the following year. Is there a way to automate monthly contributions? I'm thinking about how we can make this as easy as possible so that this doesn't have to be another thing on Angel's mind to manage come tax season. Yeah, that's a really good question because you could kind of roughly figure out where you're going to be and start making those contributions. You don't have to wait till the end of the year if you don't want to. If you

put too much in, you'd have to take it back out. So you definitely want to work with an accountant. Do you have like a CPA for your business or are you doing it all yourself? I'm doing it myself. You know, my background is accounting. It might be nice to have your own accountant, though. I mean, I have my own financial planner and it's great to be able to bounce ideas back and forth and just be able to outsource some of those decisions. Not to say you have to do it right now, but. No, no, no. Very true. That's that's another story. I have tried to look for some, but they just did not work out. So, yeah, we had to go through a few before we found the right person.

So it does take a while. But one thing that I think is really great about how you're managing your retirement savings is that you do have multiple accounts. That's something I've become really fond of in the past year where I have my 401k through NerdWallet, but I also have a Roth IRA that I've set up with a company online. And similar to how I do my robo-advisor account, I have monthly contributions that will invest in that as well. So that way I have tax diversification in retirement. I don't have to think about how I am saving for retirement. It's just happening automatically. Oh, sweet. Yeah.

You could definitely do that. If you know that you're going to be able to put in, say, $6,000 to a Roth IRA, that you can set up on automatic and make sure that just goes in every month and then worry about the second you get to the end of the year because you can have both i think a lot of people think you can have one or the other but you know with iras i didn't realize that nice how old is your baby you said you have a toddler i do he's turning two in february oh my gosh our hands are full over here no kidding oh my gosh yeah mine just turned uh 19 so oh wow and congrats thank you whatever yeah she's alive. Yay. Whatever. Whatever they tell you. I mean, people always say it goes so fast. And when they're toddlers, you're thinking that's insane.

These are the longest days of my life. But honestly, they do. I mean, the days are long. The years are short. So it's I, you know, I really believe that because I feel like he was just born. I feel like I was just burping him. Now I'm like, give me a kiss and he runs. I definitely believe you when you say that because I feel like he grew overnight already. Is there anything else that you're thinking about in terms of how to set your son up

for their financial future? Have you looked into starting a 529 account for college savings? Like, have you looked into starting a 529 account for college savings? I actually have not. That's a good thing to start, you know, to think about because I do want him to be set up as well for the future. Can you talk about that more and explain that more? I'll punt that to Liz because she has hands on a chair.

Well, and I'll start this out saying by saving anything for your child, you actually increase the chances that they go to college. It's really amazing. Even small amounts. Well, we have started him a savings. We just have not done the account. It's crazy because the way we structure everything for him, his goal was not for gifts, baby showers, everything. When he started, our mission was to have a savings for him. His goal was not for gifts, baby showers, everything. When he started, our mission was to have a savings for him. So everybody in our family, grandmom, everybody just gives him money

and it goes into his savings because toys don't go so far. He gets toys, yes, but everybody contributes money financial-wise because we do want his future set up. So he definitely he has a lot of money right now. Angel positive net worth. Yes. Yeah. That is huge. What your family's doing is so great because you're going to have enough plastic crap around the house, which you really need for the future. So what state do you live in? I'm in Georgia. Georgia. Okay. I don't know

much about Georgia's plan, but every state has a 529 college savings plan and they're all a little bit different, but they all basically allow you to start contributing. Like it could be $25 a month, $15 a month. It's fairly small. And then the money can build up and you can invest it. And I think all of the 529s have an age-weighted option. So again, you don't have to think about it. You put the money in and it gets more conservative as college gets closer. And the great part is that you can also ask your family to contribute and they can put

money directly in for your child. Another thing that's important to know is it doesn't really hurt your child's chances of getting financial aid. If that's a concern down the road, it's treated as your asset. So it basically gets really good treatment in financial aid formulas. So it's a win-win. And a lot of states give you a tax break too, for putting the money in. Oh, nice. Yeah. Definitely something to check out there. And the plans are really happy to have you on board. Oh, the other thing I should say is that you can use the money anywhere. You're not required to use it in the state of Georgia. You can use it wherever you want to go. So that's another. Oh, interesting. Yeah. Even some international schools will, you know, really? Yeah. So sometimes you get a tax break going in. It's always tax deferred as the money is growing. And then when you pull it out, it's tax free if you use it for qualified education expenses. Oh, wow. Yeah, definitely something we need to look into.

Especially because your kid is still so young. You have a great time horizon, plenty of years to start saving and get a good lump sum built up for college. So true. So true. All right. Well, Angel, I am so glad we got a chance to talk with you. Thank you so much for sharing your story and your financial dreams for 2022. Same here. Thank you guys so much for all the helpful tips and advice. And I definitely appreciate you guys having me. Yeah, we're happy to help. And with that, let's get on to our takeaway tips and I can kick us off. First up, make your money easy. Automate contributions to investment accounts and consider a robo-advisor account.

Next, know your retirement account options. Even if you have a 401k or a SEP IRA, think about opening a Roth IRA to diversify your tax situation. And lastly, check out 529 plans for college savings. Your money grows tax deferred and withdrawals are tax-free when used for qualified education expenses. And that's all we have for this episode. If you want your money questions answered on a future episode, turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Visit nerdwallet.com slash podcast for more information on this episode. And remember to subscribe, rate and review us wherever you're getting this podcast. And here is our brief disclaimer thoughtfully crafted by NerdWallet's legal team.

Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.