NerdWallet's Smart Money Podcast - Using Your Tax Refund, and Is Pet Insurance Worth the Cost?

Episode Date: April 4, 2022

The windfall of a tax refund can be a boon to your savings, help fund a vacation — and more. To kick off this episode, Sean and Liz talk about different ways to use your tax refund and why you might have to wait awhile for yours.  Then they answer a listener’s money question about whether pet insurance is worth the cost.  To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Timestamps: This Week in Your Money segment: 0:00 - 10:27  Money Question segment: 10:28 - 30:25  Like what you hear? Please leave us a review and tell a friend. Also, we are running a sweepstakes ahead of our new Nerdy Book Club series. You can enter for a chance to win Paco de Leon’s book “Finance for the People: Getting a Grip on Your Finances.” by emailing [e-mail] with the subject "Book Sweepstakes” during the Sweepstakes Period. Include the following information: your first and last name, email address, ZIP code and phone number. Check out our book club page for more info.

Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Liz Weston. And I'm Sean Piles. Let the nerds answer your money questions. You can call or text us at 901-730-6373. That's 901-730-NERD. Or you can email us at podcast at nerdwallet.com. And to get new episodes delivered to your devices every Monday, be sure to subscribe. And if you like what you hear, please leave us a review and tell a friend. In this episode, Sean and I answer a listener's question about whether pet insurance is worth it. But first, in our This Week in Your Money segment, we're talking about your tax refund.

Yes. But first, in our This Week in Your Money segment, we're talking about your tax refund. Yes. First of all, if you have not filed your taxes yet, make sure that you do. The 2021 tax returns are due on April 18th, which is coming up pretty quick. So set aside a couple hours in the next two weeks to get that done. Now, if you've already filed, you may have already gotten your refund or not. Yeah, it's taking a while for folks to get their refunds this year. The IRS says it may take about three weeks for most people who have filed electronically and opt for a direct deposit to receive their tax refund. And that is as long as there are no issues with your return. And I just wrote a column about this, that even the smallest thing

can hang up your tax refund because the IRS is so backlogged. Yeah, I'm actually experiencing this at the moment. I decided this year to not go with one of the major online free services that people tend to go to. I wanted to try a free one that I'd heard about recommended from people on Reddit. So I did it. It required a lot of me manually entering my own information. And I suppose somewhere in that process, I did one small thing wrong. And even though I filed my return in late January, I'm still waiting for my refund. That is awful. And you know, the reason that you use online software is because it catches a lot of the problems that might hang up your tax refund. You do not want to be filing a paper return or asking for a paper check. I hate it

that you use that and still had a problem. I know. Well, this is maybe the lesson and the kick in the butt that I needed to get myself in gear and hire someone to do my taxes for me next year because I'm tired of waiting. Yeah, exactly. For folks who are waiting for their refund and wondering where it is, they can actually go to a Where Is My Refund link on irs.gov. It's pretty handy and it will allow you to follow your tax refund. The link to that will be included in our show notes, so check that out, nerdwallet.com slash podcast. Okay, and now let's have the ongoing debate about whether you should get a refund in the first place. Call me a stick in the mud.

I will be happy to be stuck in this mud, but I'm going to say it. Refunds are not always a good thing. A large refund can mean that your withholdings or the amount of tax that you pay to the government from each paycheck is too high. That means that you're basically giving what some people call an interest-free loan to the government when you could have that money in your account throughout the year instead. Right. But a lot of people rely on their tax refunds to pay for necessities, to get caught up on their health care, to pay back their debts, things like that. So if this is the only way that you can save, I say, fine, go for it. And people do not like writing a check to the IRS. I just don't want that to happen. I mean, a lot of money

management can be psychological tricks. And for one of my really good friends, this is the only way that she knows that she's able to have a pot of money in savings. And she relies on that because she knows that she doesn't want to go through the hassle of setting up direct deposit and all these things I've been hammering her about for the past several years. But it works for her and the money is relied upon. It's useful. And I understand that.

But I still kind of shake my head knowing logically in the back of my mind, like, you probably could have a better way of doing this. But anyway, whatever works for you is fine. But I just had to get that out of the way. Now, most people will have earmarked their refund for various purposes. But if you're still trying to figure out what to do with yours, we recommend an article that was written by NerdWallet personal finance pro Kim Palmer. She suggested a bunch of different options in her piece, how to put your tax refund to work

for you, which we'll link to in the show notes. One that she recommends right off the bat is to set aside your refund for emergencies. If you haven't already started that emergency fund yet, aim to save your first $500 or $1,000 to really build up that emergency fund. And one CFP told Kim that a little extra money is a good idea right now because of inflation. Yeah. Well, everything else is getting that much more expensive. So having a bigger cushion than you would maybe expect to have in the past can help weather all of the added costs of groceries, gas, all of those things. Yeah. And after you've got that baby emergency fund started, the next goal should be paying down high interest rate debt, like credit cards.

Right. Well, especially since we are now in an era of the Federal Reserve raising interest rates, it's happening gradually, slowly. You won't see a huge impact right off the bat, but this means that credit card debt is going to be getting more expensive over time. Oh, also we should mention that student loan payments, those are scheduled to restart again on May 1st. So if that's going to take... Yeah, we'll see if that ends up happening. Yeah, that's true. That's true. But if that is getting started, you want to make sure that you've got enough money to cover your first payment at least. Exactly. And for the savings that we've been talking about, whether it's an amount of money

that you are going to dedicate toward your student loans if and when they resume or your emergency fund, Kim recommends setting up savings in a high yield savings account. These are becoming more high yield again, finally, along the way. And it can be a great way to make some interest on money you already have sitting in an account. And let me put in a pitch for putting some money into your retirement funds. You actually can fund an IRA and max it out if you can up until April 18th. Yeah. And that would be for your 2021 maxing amount. Yeah.

And if you have any leftover, you can put it towards your 2022. Yes, exactly. And one thing that I am a big proponent for using your tax refund is treating yourself. If you are comfortable with how much you have saved, feel free to use that money for something fun. I really like to take what I call a 70-30 approach to windfall is where I put 70% toward my more practical purposes like savings, like my retirement goals for this year, and then allocating 30% for something fun. Like I have some vacations coming up and I'm going to put the 30% of my refund whenever I end up getting it into my savings

account that I dedicate for fun money. Okay. And that's for your trip to Dollywood? I think I'm going to use it for my trip to France. Oh, wonderful. One of my best friends from college is getting married in August. And so my partner and I are doing a big Europe trip where we fly into London. We're seeing Lady Gaga in London before going to France. And all of these things are going to be very, very fun, but also very, very expensive. So I need to shore up my savings for sure. Oh, fabulous. That sounds great. Yeah. All right. Well, I think that about covers it for tax refunds. I wanted to include something that we heard from a back in May 2020. It was answered on one of the episodes about how to handle collections. And I just wanted to give you guys an update.

First of all, I want to thank you both for everything that you guys do. This is a great platform. It's always a great podcast. The information you guys provide is always relevant. It's very easy to understand and it's provided with care. By that, I mean I never feel judged in any of the topics and you both share your personal experiences that it just makes me feel like I'm not the only one with these random questions. Long story short, I followed everything that you said and I think it was a great great way of

handling it because I handled my collections in a smart way and the best way now I can say I've been able to move beyond that I'm now I have a an emergency savings I'm contributing to my retirement plan I'm in a much much better financial situation now than I was in the middle of 2020. So thank you. Thank you. Thank you. You have no idea how all this information has impacted my life. So thank you so much. Just hearing Joe's voicemail makes my heart feel so full. And Joe, I'm so proud of you and all you've been able to do ever since you sent us your money question and you made some really smart and strategic decisions about how to improve your finances. And this is why Liz and I put so much care and effort into smart money. We want people like you, like all of our listeners to make the most of their lives. And sometimes making a few smart financial

decisions is just the best way to do that. Yes. Oh, that was so great. Yeah. And one last thing before we get into this episode's money question segment, we are running another sweepstakes ahead of our next Nerdy Book Club episode launching in a few weeks. This time around, personal finance nerd Kim Palmer interviews Paco de Leon, author of the book Finance for the People, Getting a Grip on Your Finances. This book is aimed at creative folks who maybe don't necessarily relate to traditional money advice. I read this recently and it was so fun because Paco has a lot of different illustrations

along with their really great personal finance advice. I found it super engaging and creative. It's one of the best books around personal finance that I've read in quite a while. Ooh, I'll have to check that out. Yeah. Well, you won't be able to enter the sweepstakes, Liz, but for other people who are not NerdWallet employees,

to enter for a chance to win Paco de Leon's book, all you have to do is email podcast at nerdwallet.com with the subject book sweepstakes during the sweepstakes period and include the following information, your first and last name, email address, zip code, and phone number. Okay, and here's a brief disclosure about the sweepstakes courtesy of the great minds on the

NerdWallet legal team. The Smart Money Podcast book sweepstakes is sponsored by NerdWallet. No purchase necessary. Voidware prohibited. Must be a legal US resident, 18 or older. Entries must be received by April 20th. Visit www.nerdwallet.com book club for details. All right. And now we can get on to this episode's money question. Excellent. This episode's money question comes from a listener's text message. Here it is. Hi, NerdWallet friends. Would love to hear your take on whether pet insurance is worth it. Thanks. Oh, okay. To help us answer this listener's question on this episode of the

podcast, we're talking with our occasional co-host, Sarah Rathner. Welcome back, Sarah. Thank you for having me for this extremely important topic because I love animals, so I love it. Yes. When we got this question, I figured that you could probably answer this with a single word, which I'm going to assume is yes. You are correct. Before we get into whether it's worth it and why, let's talk about how pet insurance works. Can you give us a rundown, Sarah? Yeah. So basically you pay a monthly fee. Sometimes you can pay an entire year upfront and even get a small discount for that. Or you can get a small discount if you have multiple pets using the same insurance company. So multi- pet discount, they call it. And then what you do is you'll take your pet to the vet as needed,

you will front the cost of the vet's bill, and then you'll submit a claim to the insurance company and they'll reimburse whatever amount is appropriate to your plan. That can depend on what sort of features you've picked in the plan, what sort of deductible you're susceptible to. So you'll have to meet the deductible first before they'll begin to cover any costs. And then you can also select what percentage of costs the insurer will cover, usually 70% to 90% after you've met that deductible. Okay. And I'm assuming the more you pay monthly, the more they will reimburse you for percentage-wise. Exactly. So if you are anticipating higher costs for the year, it might be worth paying that slightly. Exactly. So if you are anticipating higher costs for the year,

it might be worth paying that slightly higher premium. But if you have a relatively healthy pet, you're not really expecting too many expenses, then you might want to save some money on the premiums and have a lower level of coverage. One important thing we should talk about is pre-existing conditions because typically pet insurance does not cover pre-existing conditions. And there are even conditions that are sort of endemic to certain breeds. For example, if you have a German Shepherd, I think hip dysplasia is often not covered. So that's something else you need to go through and make sure that you understand what the policy does and doesn't cover. Right. And if there's anything on the vet records, if you've recently adopted an animal, for example, you'll receive

their medical records from the shelter and anything on there might be considered a pre-existing condition that wouldn't be covered. So that's just something to keep in mind. Does pet insurance typically cover things like dental cleanings? It kind of depends on the plan you pick. Some plans cover, for example, preventative care, like your annual exam and vaccines. Some don't. And it really just depends on the level of coverage you want to pay for. All right. Asking selfishly because my dog and my cat both have awful teeth. So this is something I'm looking into for myself and we can get into that later on. But let's talk about how to know if pet insurance is worth it for you. So there are a number of different routes you can take when it comes to covering the costs of pet care.

And one thing you should just know from the get-go, there are going to be costs. It's so tempting to get that cute kitten or that cute puppy. You don't really think about the ongoing expenses beyond food, but animals can get really sick. They can eat things they shouldn't eat. They can get injured. They can get attacked by other animals. And that will cost a lot because just like with people, doctors need to do diagnostic testing to determine what's going on with your animal because your animal can't say it hurts here. So they have to do the surgery and the ultrasounds and the blood work and all of that. You can rack up a bill of thousands of dollars just trying to figure out why your dog is on a hunger strike. And it might be nothing serious or might be something very

serious. So point being, you need to have a plan for how you're going to pay for these things. You can go the route of self-insuring, meaning you will pay for all medical expenses out of pocket with no insurance. This could be a good route if you have a relatively healthy pet, you don't want to spend money on insurance, you would rather take the money you would pay for premiums and just put it into a savings account, just have it at the ready. But the important thing is you need to have these savings set aside. Think of it like an emergency fund for your pets. You probably want about $5,000 set aside because that's what you'll spend on surgery if your pet

has to have it. And I got this idea from a financial planner I used to work with who had a dog savings account, which is not an actual financial product. It was just a savings account. She earmarked for dog expenses. And I thought that that was a really great idea. So if you want to self-insure, have that emergency fund at the ready. The other route is having insurance. What I like about it is I don't hesitate to bring my pets to the vet if I think they are acting a little strange. Because I know that an illness visit is going to be covered 90% by my plan. I'm not going to be out a ton of money in the end. If out of an abundance of caution, I take my pets to the vet.

Because oftentimes, if your pet starts acting a little different than they normally do, maybe they're not as enthusiastic about their food, they are a little bit lethargic, even waiting an extra 24 to 48 hours to take them to the vet, let's stick it out, let's wait and see, that can exacerbate a situation. And if you had gotten them to the vet more quickly because you weren't really worried about the cost, it can make a very big difference in treatment

and in the outcome. I'll be honest, I don't have pet insurance for my dog and my cat. I have something similar. It's a subscription plan with a veterinary office that's a national chain. And I like it for that same reason. I've had instances where I've been traveling with my dog and something has happened. There was one time where she was shaking her head a lot and she was

batting at her ears. She has these big old bat ears, we call them. And we thought something was wrong. Maybe something got in there. And we were able to take her to a vet in the town that we were visiting and get it checked out. And it turns out, yeah, a wood chip fell into her ear because that happens with dogs. And she was fine. But we also wanted to make sure that it wasn't something more serious. So I was happy to have that coverage in a sense, even though it wasn't quite actual insurance. Well, in some historical context to throw in, 20 years ago, there were a lot of things that vets couldn't do that they can do now. And you may very well face a situation where you can save your dog's life, you can save your cat's life, but it will cost

you, as Sarah said, $5,000. And when my husband and I started owning pets together, we were both farm kids. We thought, you know, at a pets together, we were both farm kids. We thought, you know, at a certain point, you just let them go. We turned out to be not nearly as tough as we thought we were going to be. And we had one cat that was constipated. So we had to have it cleaned out professionally several times. And, you know, you're not going to let a cat die from constipation. We just weren't going to let that happen. So anyway, it's a long way of saying, if you have a pet, you very well could face this

situation. So you want to make sure that you either have the insurance or the savings account that Sarah talked about. Right. Yeah. I mean, even if the situation's not dire, you might just have a pet that needs to be on some prescription medication for a short while, like an antibiotic or even chronically. My dog is on Prozac and he is better living through chemistry. Oh man, this dude is living his best life.

You joke in my family, when you die, you want to come back as a Rathner pet. Because you're coddled and drugged. Oh, he's drugged. And he's like sitting on the front porch with my husband right now, just watching the dogs walk by. I mean, best life. Non-reactively. Yeah. Non-reactively. He's still plenty reactive, but much less so than before.

But that's something he's going to be on forever because he is a much happier dude on that medication. It costs us 20 cents a day. Well worth it. But, you know, especially as animals get older, they might have to take medication basically for the rest of their lives that will help them live a longer and happier life as they get older and slow down as we all do. One thing I've been thinking about is that it actually could be worth it for folks to get pet insurance earlier than they may expect because

they won't have the preexisting conditions in their pets that could potentially develop later that would then not be covered by insurance. Yeah. I mean, I'll give you an example of like the preexisting condition. We pay out of pocket for the Prozac. So thankfully it is as cheap as it is because, uh, because my dog has serious vet anxiety, uh, because of some medical treatments he went through when he was at the rescue. He had heartworm, which is a very traumatic thing to treat. Don't let your pets get heartworm. It's the first of the month he got his preventative today. Give your pet a preventative seriously. And I think the experience was so difficult for him. He hates going to the vet.

So the vet sort of branded him as anxious in his records. And now because he's an anxious dog, anxiety is not covered under our insurance policy. Wah, wah. So point being, you might not have as much control as you might think if the vet picks up on something and it is in their medical records. It might not be something that's covered later on. So yeah. Interesting. And I know that pet insurance can be really beneficial for end of life care, right? Yeah, this is the hard part to talk about. So if this is not something you want to hear, please pause this podcast for the next few minutes. I have had two pets pass away and I have three currently.

So this is something I lived somewhat recently because the last pet of mine to pass away was right before the pandemic started. She must have seen it coming and she was like, oh, hell no. And she's like, oh. I also think she missed her other friend who passed away before her, and she was like, I'm going to join him in the ground, guys. Like, peace out, which was very sad for us, but, you know, what are you going to do? So I've had one pet die before we went down the insurance path,

and one pet die with pet insurance. And I got to tell you, um, end of life care is expensive and you are vulnerable and sad. So you'll sign anything. You'll pay any price. You will say yes to any test because you're wondering what the hell happened to your pet that used to be healthy and is now like not eating and peeing around the house or whatever. I will say that after my second cat passed away, getting a $2,100 check because our insurance covered most of the cost of the diagnostic testing she had and then the cost of putting her down and cremation, it softened the blow a little bit. I mean, I still miss her like crazy, but it helped lessen the financial impact of what was already truly just one of the worst times. So I would say to anybody that's thinking about this,

unfortunately, end-of-life care is going to run you in a couple thousand dollars. It's very rare that your cat just sort of lives until they're 20 and then dies in their sleep. So, I mean, I wish that were true for every pet. I wish they were immortal, honestly, but they're not. So that's just something to think about. It hurts to think about it. You don't want to think about it. You'll be glad to have that insurance when the worst happens. You're not going to be thinking clearly. I will tell you that that's just the nicest way I can

put that. I can, I can paint a deeper picture of, of you just lying in the fetal position, you know, because your, your pet is dying and you know it. Well, yeah. I mean, I look at my little dog sleeping and I'm like, I would do anything for you. And, and she's in perfect health right now, knock on wood. And I can't imagine the kind of irrational things I would do and the amount of money I would throw at her health if something happened. Yeah. I think it's, it's an ultimate act of love to care for these creatures throughout their lives when they're young and healthy and when they're older and slow down and ultimately when things end

because they give you, I'm going to cry at this part, they give you unconditional love for their whole lives. And when it's like you're returning the favor. I think that my cat's love is conditional on occasion. I will say that. My cats might be a little nicer than yours. Cause I think they love me.

I don't know. And I mean, I know they're very food motivated and the like, but yeah. No Argus, my cat is very sweet, but if we give him the wrong food, he will make us pay for it with nips.

Sorry, we've been talking about the cost of all these care, but we haven't talked about the cost of insurance yet. So can you say a little bit about what people should expect to pay? Again, it depends on the level of coverage. It also can depend on your pet's age because it gets more expensive as they get older because the assumption is they will need more medical care as they get old and gray and adorable. Oh my God. Is there anything cuter than a dog with one of those white faces? I've heard it called sugar face,

which I find so adorable. Oh, well that's the cutest. There's this old golden retriever in my neighborhood who sits in his, his owner's like storm door and he has got the white face and I refer to him as the olden retriever. Oh, that's what we have.

Sweet. Um, anyway, so, um, I pay, I estimated this about $500 a year for my dog and then $300 a year for each of my cats.

And this covers, uh, non wellness costs. So illness and injury. And I think our deductibles like $250 and then it covers 90% of expenses after that. And also we happen to go to a vet and this is the only vet I've seen do this, but he actually lists pricing for all the different procedures on his website. So when we're scheduling an appointment and we know that our pet might need an antibiotic shot or a teeth cleaning or something that, you know, we know what the bill is going to be,

which is awesome because most of the time you go and you have no idea what you're going to walk out paying. So I like the applicability of that. We started paying about the same for our dog and our cat. Now that they're 12, the dog's insurance I think is up to $1,600. And the cat's, I know, is probably close to $800. That's with a $500 deductible. And it's hard to send that payment in, but I think it's worth it. For my dog and my cat, I pay about $100 a month total. So around $1,200 a year. And this

again is not for insurance, but it's for this vet subscription service. And I have a somewhat higher tier among what they offer because I need teeth cleanings regularly for my pets. Pepper used to on rocks as a puppy. So her animal is all messed up and Argus only eats on one side of his mouth. And so the teeth on that side are like all messed up. Itgus only eats on one side of his mouth. And so the teeth on that side are like all messed up. It's just weird. So they have dental problems and I really appreciate being able to get a free dental cleaning every 12 to 18 months, quote unquote free, because I paid for it in advance. Um, but that said, it doesn't cover things like if there is a big medical issue that pops up, I'm not going to get reimbursed. I may get some discount. So I think for now it works out, but I'm beginning to reevaluate my needs longer term.

And I think eventually, probably in the next year or so, I'm going to make the jump over to actual pet insurance. Yeah, I wouldn't wait too long because as Sarah said, there could be something that pops up that makes it impossible for you to get coverage. Right. Argus is seven and he only has one eye. So those may be two things against him. But, you know, price is only one thing to think about when shopping around for pet insurance. What other things should folks consider when they're looking at one company or another? There are lots of companies out there. So really pricing and coverage is what I look for. But I also look for user experience because a lot of insurance companies now are app based or you will interact with their website. I want an insurance

company that makes it really easy to file claims, whether I can just snap a photo of the receipt and then upload it to the app. Super easy because you have to do a lot of the administrative stuff yourself. If it's really complicated, I am less likely to get around to submitting those claims. And that's just money out of my pocket, essentially. To fix the point, basically. Yeah. It's kind of like a bank that has lots of functions on its app. So you can deposit checks and pay your credit card bill on the go.

I want the same kind of frictionless experience with my pet insurance company. Yeah, that's fair. Sarah, are there options if you don't have insurance? There are essentially financing options. So one that a lot of vets tend to use is called care credit. And that can also be used for financing human medical expenses, by the way. But it's kind of like a store credit card where you get deferred interest for a set period of time while you pay back your loan. The thing with deferred interest you just want to keep in mind is when the no interest promotion ends, if you haven't paid off the balance entirely, you're going to owe interest not just on the remaining balance, but on the entire amount you originally borrowed. So that can get really expensive.

Yeah, retroactive interest. Yes. So if you go this route, just kind of look at your budget first and make sure you can time your payments so that you get down to zero before that promotion ends. If it's an anticipated expense, like you know you're going to bring your pet in for some sort of medical treatment and you know around how much it's going to cost, you might consider maybe a credit card that has a 0% interest deal for new purchases. The thing is, it could just be hard to time when those, you know, how often do you really plan out a massive vet bill, right? Normally those massive vet bills come unexpectedly. So if

you happen to be sitting on a new card that has 0% interest for a while, that could be helpful. You might want to put the cost on that card and then pay it off over time. And then obviously buy now, pay later is big. There are ways coming out where you can use these buy now, pay later services at any vendor, including at Vets. So that could be helpful for budgeting purposes. If it's easier for you and the way that your paychecks come in to pay a large bill off in several installments, then that could be a good way to get around it. Yeah. I think I'm about to open up yet another savings account among my half a dozen that's dedicated just to pet expenses.

There you go. I support that. Well, Sarah, thank you so much for sharing your insights with us today. Anytime. May you all have wonderful pet experiences and may they live long and healthy and cheap lives. Yes. With that, let's get on to our

takeaway tips. I'll start us off. First up, understand and anticipate your needs. Even if your pet is young and healthy, you might still want to get insurance before any health issues pop up. Next, make a plan. Whether you go for pet insurance, a subscription vet plan, or build up pet savings, have a plan to pay for pet care. Lastly, shop around for pet insurance. Get quotes from a few different insurers before choosing one to go with. And that's all we have for this episode. Do you have a money question of your own? 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.