The Personal Finance Podcast - 6 Money Myths You Must Avoid at All Cost! (Don't Fall For THESE)

Episode Date: August 7, 2023

In this episode of the Personal Finance Podcast, we’re going to talk about the 6 Money Myths You Must Avoid at All Costs. How Andrew Can Help You:  Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Policygenius: This is where I got my term life insurance. Policygenius is made so easy. To get your term policy go to policygenius.com and make sure your loved ones are safe. Factor 75: Head to factormeals.com/pfp50 and use code pfp50 to get 50% off your first box. These are amazingly easy and nutritious meals.  Links Mentioned in This Episode:  6 Ways to Access Your Retirement Funds Early with Jeremy Schneider (From Personal Finance Club!) How to Pay No Taxes in Early Retirement, Debunking the Mortgage Fee Fiasco, and More! With Katie Gatti (From Money With Katie!) Rich vs Wealthy (The Life Changing Mindset Shift) Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, six money myths you must avoid at all costs. Popping, everybody, and welcome to the Personal Finance Podcast. It's your boy, Andrew Jen Cola. And today on the Personal Finance Podcast, we're going to be talking about six money myths that you need to avoid at all costs. If you guys have any questions, make sure to hit us up on Instagram, Twitter, TikTok, at Master Money Co.

And follow us on Spotify, Apple Podcast, or whatever podcast. podcast player you love listening to this podcast on right now. And if you want to how about the show, leave a five star rating and review on Apple Podcasts, Spotify, or whatever other podcast player you love listening to us on right now. And if you want to watch it, you can watch this on the Androgen Cola YouTube. Just go into YouTube, type in Master Money or Androgen Cola and you will come up and you can watch these videos. And we have some other graphics and other stuff that we throw up in there if you want to watch it. So today, we're going to be talking about six. money myths, you need to avoid at all costs. Now, as we go through these various money myths,

these are things that I have been seeing spreading all over the internet and social media. And these are things that I am here to debunk for you. These are things that I do not believe to be true. I know they're not true for a lot of them. And so for a lot of these things, there's just old wisdom that have been passed around for a long period of time. And we need to put an end to these different things. So really, really excited for this episode. It's going be a lot of things that are going to help you build wealth. So without further ado, let's get into it. Number one, and I have no idea where this came from or who started spreading this myth. I've heard it all over the place. I've heard people telling this timeless wisdom. In fact, I've heard a lot

of folks in the baby boomer generation saying this to me. And then we've gotten into arguments back and forth because I'm telling them, no, this is not true. And it is keeping a balance on your credits card is going to help your credit score. This, my friends, is absolutely not true. Never, ever, ever, did I say ever, keep a balance on your credit card. Why? Because if you keep a balance on your credit card, it is going to hurt one of the most important factors when it comes to actually building up your credit. And this is your credit utilization ratio.

And what that means, it is the amount of money that you have spent based on what your credit limit is across. all your credit cards and all your different things that you have available open to credit. So what does that mean? So the credit utilization is a very, very important factor. It's about 30% of your credit score. And what I mean by this? And let me give you an example, because I think this is the easiest way to think about it. Say, for example, that you have a credit card and you only have one credit card and it has $10,000 of a credit limit on there. So with that $10,000 credit limit, you spend $1,000 per month on this credit card. Then you pay it off. Then you spend another $1,000. Then you pay it off the next month and you spend another $1,000. Well, for easy math,

the reason why I did this is that your credit utilization rate would be $10,000 because you're dividing $1,000 into $10,000. That's 10%. You're using 10% of your credit utilization rate. That's a great credit utilization rate and it's something that you want to keep lower. The lower your credit utilization rate, the better. But if you keep a balance on your credit card, you are going to be hurting that rate because you're always going to have credit on that credit card. The closer you can get to zero every month, the better off it is while still utilizing that credit card. So there's a couple of things here to think about here. First off, there was a survey done of folks who have a credit score of 790 and higher.

And when they did this survey, these folks who had really, really high credit scores, they asked them, hey, what is your credit utilization rate? Everybody went and they pulled their credit utilization rate. All of a sudden they found out the average credit utilization rate for somebody with a 790 or higher credit score is 7. The problem is the average person in the U.S. is using 30 to 40% of their utilization, if not way more, on their credit utilization. So keeping your credit utilization below 10% is a really, really powerful tool. How can you do this? Well, this is why a lot of people say, hey, if you have too many credit cards open, it actually hurts your credit score. It does not hurt your credit score as long as you're not opening them month after month after month after month.

Say, for example, you have four credits cards that have $10,000 balance, and you're still only spending $1,000 between those four cards. Well, now your credit utilization is going to go way, way down because you have $40,000 of credit available to you and you're only spending $1,000. So when you have more credit lines open, it's going to allow you to reduce that credit utilization rent. Now, do I recommend opening a bunch of cards that have annual fees, things like that? No.

What I'm saying, though, here is make sure you're paying off your card on time. That's number one. Make sure you keep your credit utilization low. That's number two. and look at your credit history. How long have you had credit for that long period of time? That is your 80-20 to increasing your credit score. It does not help your credit score whatsoever.

In fact, it hurts your credit score to have a balance on your credit card. Do not listen to the old wisdom that comes into play where a lot of people are talking about this. I do not know where this came from. If anybody is saying this out there, make sure you tell them this is not true. And if your parents have told you this or somebody else has told you this, send them your boys podcast and we'll talk about it. That is the first one, keeping a balance on your credit card. Let's jump in to number two. So number two is that a lot of people think that if you put money into retirement accounts, it is completely locked up in retirement accounts. So why do they think that?

So a lot of retirement accounts, your 401K, your Roth IRA, your standard IRA, your Roth 401K, for a lot of these retirement accounts, you cannot withdraw money until your age 59.5 without paying a 10% penalty. But there's a bunch of different ways that you can actually withdraw money from retirement accounts early if you wanted to. So the first one is early withdrawal. Obviously, we don't want to do this, but you can withdraw money early from these accounts face that 10% penalty. That is one we want to avoid at all possible costs unless there's some crazy emergency. You really don't want to be touching these retirement accounts for a number of reasons unless you have to. If you need to touch these retirement accounts, you are interrupting compound interest unnecessarily. We want our money to get to

work and we want our money to stay working. If you start interrupted compound interest, in fact, Charlie Munger talks about this. He says, one of the worst things you can do pour your personal finances is interrupt compound interest not necessarily. The reason is that once you start doing that, you can be missing out on the best days in the market and that will absolutely destroy your rate of return over that time frame. The second way, though, is 72T payments. So these are equal periodic payments that you can have. And this is a rule that the IRS basically allows you to take out money early before the age of 59.5 without penalty. The catch is that you have to take it out at least five substantially equal periodic payments. The catch is that you must

take at least five substantially equal periodic payments. So we talk more about this with our episode with Jeremy Schneider from Personal Finance Club. We have an episode. We'll link up down below. And we kind of dive deep into this to figure out ways that you can actually pull money out early. So this is one that honestly gets more complicated than you need it to be. But if you need this and you're getting closer to retirement age or you retired early, maybe you retired in your 50s, for example, this is a great option for you. So this is one where I would definitely consider it if you really, really need it and you're in your 50s. Third, Roth IRA contributions withdrawal. So your contributions to a Roth IRA, not the earnings, but the contributions to a Roth IRA can be

withdrawn, penalty free at any time for any reason. So your Roth IRA contributions, the money that you put into the Roth IRA. If you max it out every year, it's $6,500 if you're below the age of 50, That's $6,500. You can pull back out at any point in time, which gives you an added benefit to the Roth IRA. I do not recommend doing that, but you can absolutely do that. That is another out that you have with the Roth IRA.

Number four is the Roth IRA conversion ladder. So the Roth IRA conversion ladder, we have an entire episode on this, and then we talked about this and how to optimize it with Katie for Money with Katie on the Roth IRA conversion ladder. This involves converting a traditional IRA to a Roth, IRA and paying the income tax on the conversion. Now with Katie, we talk about how you don't have to pay the income tax on that conversion if you optimize this properly. We'll link that episode down below too,

so you can check it out. And then you have to wait five years by utilizing the five year rule before you can withdraw that money. So this takes some planning. This probably takes a little bit of a taxable brokerage magic also so you can bridge those five years if you retire. If you don't retire and you know you're going to retire in five years, you can start this process early. This is an advanced way to allow you to get a hold of those contributions. So check out our episode on it. then if you want to optimize you, you can check out the one with Katie also. There are 401K loans. Now, I don't really recommend 401K loans ever, but it is a way for you to borrow against your 401K

if you need cash really quickly for some sort of emergency. Maybe you didn't have an emergency fund buildup or something along those lines. You can do a 401K loan. There's hardship withdrawals. So some retirement plans actually allow for hardship withdrawals for immediate and heavy financial needs, but these are still subject to taxes and potential penalty. So you've got to watch out for those. There's also the rule of 55.

So if you leave your job after the year that you turn 55, you may be able to take out your withdrawals from your 401K with your former employer without penalty. You can also withdraw up to $10,000 from an IRA to buy, build, or rebuild a home that is your first time home purchase. So there's also a first time home purchase caveat on there. I would never do this because your home, on average, gets like a 3.5% appreciation rate. And that is not factoring in all the costs of ownership. and your IRA, typically if you're invested in index funds and ETF, you have a nice portfolio, you're going to get between 7 to 10% rate of return on that. So the math doesn't math.

You see what I'm saying here? So I still would not do that, but that is another option that you have. Then there's education expenses. So you can actually use IRA funds to pay for higher education expenses for you, your spouse, your children, or your grandchildren without penalty. Love this one that nobody talks about. So you have those four options there, especially if maybe you get to a point in time where you're getting close to retirement age, you have a bunch of wealth built up.

And so you have this Roth IRA that's also built up a bunch of wealth. And you have this money there and you're trying to figure out ways to actually distribute this money. You can distribute money for your children, for your grandchildren, out of your Roth IRA for education expenses. Or maybe you want to go back to college. You want to learn some new things. Maybe you've developed a deep love for psychology, for example. And so you want to go back and learn about psychology in college. You can use that for education expenses.

Or, little hack here, maybe you want to go study about. broad. Well, you can go ahead and do that with education expenses. Then there's medical expenses. If you have unreimbursed medical expenses out there and they are more than 7.5% of your AGI or your adjusted gross income, then you can use IRA funds to pay for those without penalty. So if you get into a pickle with medical expenses, you can use IRA funds to pay for those without penalty so you don't get into medical collection debt if they have a high interest rate or anything like that. And then health insurance premiums. If you've lost your job and are collecting unemployment, you can use your IRA to fund health insurance premiums if you need those premiums funded. Obviously,

health is wealth. That is one big one that we want to make sure that we are taking advantage of. So these are all different ways that you can do. There's even more ways than this. But what I'm trying to show you is there's so many different ways to get money out of retirement accounts. Money is not locked in retirement accounts, but you have to understand how this stuff works. And it's really powerful once you learn how this stuff works because it gives you a more flexible retirement, especially for folks who want to retire early. If you're going to retire early or you plan on being financially independent or fire, then I definitely want you to learn about all the flexible ways to pull money out of retirement accounts because there are so many different ways,

but you've got to have your financial plan in place in order to do so. The third myth is that all debt is bad no matter what. So we haven't talked about this much in the podcast yet, but there is a difference between types of debt. There's good debt and there's bad debt. And between those two things, some people say that doesn't exist, but between those two things, there is definitely a difference between good debt and bad debt. Now, I do believe that borrowing money at any point in time does put your financial life at risk. No matter what you do, maybe you're

just borrowing it for your mortgage. That still increases the liability in your life that you have to pay down something if you lost your job. So sure, your financial risk does go up for borrowing money. And the more debt that you take on, the higher your risk level is. I don't think anybody in the world would actually argue that who's actually of sound mind. As you borrow more money, your risk level absolutely goes up. So you have to think that way as you take on more debt. But that is also what comes with the territory when it comes to building wealth. If you want to build a massive amount of wealth, you have to have some sort of debt at some point in time unless you really slowly want to build wealth over time. Now, if you're someone who has an amazing business,

you can build out an amazing business without taking on debt. You can be a solopreneur. There's a lot of other businesses out there where you don't have to take on debt. So you don't need to take on this risk of debt. But if you're someone who wants to build out a real estate portfolio that's really big. It's very hard to build a real estate portfolio quickly when you just pay cash. A lot of people have to save up for 15, 20 years if you're going to pay cash for a house for a real estate portfolio. You could have had 20 houses by that point in time. And so we're deciphering here between good debt and bad debt. And if you want to reduce that risk, then more power to you. If you hate debt, I completely get it. No reason that you have to take on

even good debt. But at the same time, that's your financial plan. It does not mean that there are ways that you can build a ton of wealth with good debt. So what is good debt first? Good debt is something where you take on debt that's going to help you buy an asset that appreciates in value and produces cash flow. I like that combination to have both of them, but it needs to appreciate and value and produce cash flow. So when you take on debt, this could be things like real estate. Now, there's a bunch of different ways to invest in real estate. And really, really good debt to me is optimal ways to invest in real estate. So you know one of my favorite ways to invest in real estate is seller financing. So say for example, you want to go out, you want to buy a single family home.

Well, you can seller finance that single family home and you don't have a bank pulling credit. You don't have all these additional things. Instead, the seller becomes the bank. And so if you build up a portfolio of these, that is really, really good debt that I would love to have. I take on as many seller financing contracts as I could get if I could find the folks who wanted to seller finance. If you're out there, you have a house, you want to sell your finance, call your boy up. But at the same time, you don't want to get in over your eyeballs. You have to run the numbers and make sure it cash flows first. If it doesn't cash flow, it is bad debt. It is not good debt.

It is bad debt. It needs to be able to at least cash flow in order for you to have good debt. Unless you have some different strategy like you're going to flip it and or you're just looking for that appreciation, long term play. That's a different story. But for most people, you need to make sure that the numbers work. An FHA on a house hack is another great example of good debt as long as the numbers work where your house hacking, for example, maybe you live in a fourplex and you live in one unit

and then you rent out the other three units. Well, the other three units are now classified as your income and maybe you're living in that house for free and or you're even maybe making a little money from house hacking. And so this is a way that you can really increase your net worth. And at the same time, take on a little bit of debt. You wouldn't have been able to increase your net worth with that over that time frame unless you took on that debt. And another example is just getting a standard bank loan on a single family house or a triplex, duplex, maybe an apartment complex, a bunch of different ways out there where you can do really, really well. You see, I know a lot of real estate

investors who have taken on $50 million with a debt, but they have $300 million dollars with of real estate. And so this is something where your risk level obviously goes up if you have $50 million of debt. But if your cash flow can cover those payments, then that's really, really important now. One risk to good debt that a lot of people don't think about when it comes to real estate is that in real estate, you have to make sure that if the bank calls your loan, you have a plan for that. So in seller financing, that's not going to happen as long as you have it in the contract. But if you have a traditional bank loan and say, for example, you have $50 million worth of debt. What's going to happen if the bank calls your loan on some sort of bank

run and or recession? And this is what you have to really think about. This is what happened to Dave Ramsey and why Dave Ramsey doesn't love debt. He was a real estate investor in his 20s. And when he was a real estate investor, he had a ton of debt for his real estate properties. And they were cash flowing. They were doing fine. But all of a sudden, a recessionary event happened and all the banks called his loans. And so he went completely bankrupt because the banks called his loans. This is why he hates debt. And if you go through a situation like that, I completely understand why you would hate debt if you have to go through a situation like that. So you got to have a plan B or an exit plan if you're going to take something on like this. And this is a caveat. We have to say

when we talk about good debt and bad debt, because again, it increases your risk. So you got have exit plans when you take on this debt. Another good example of good debt is business investments. If you have a business and you're trying to scale that business and there's different things that you can do in order to scale that business. Say, for example, you have a construction company. And if you have a construction company, what do you need equipment? And maybe you need to buy specific types of equipment in order to take on bigger commercial or municipal jobs. Well, if you do that, maybe you need to buy heavier equipment than what you have currently. Maybe you started doing houses and things like that, but now you want to get into these commercial jobs. You got to buy skid steers. You got to buy bigger

pieces of equipment, all these different things. Well, if you do that, then what's going to happen is you got to take on some sort of construction loan. But as long as those pieces of equipment are going to make you more money than what the debt is, then that would be good debt to put into place. Not all companies have the cash to be able to buy that stuff. So it's a great option for you. Make sure you're budgeting out though and trying to get as close as you can on that kind of stuff. And then another example possibly, and I really don't consider this, but a lot of other people do, is student loans. So if you need to get an education in order to go get a job that you want in the real world, taking on as little of student loans as you possibly can in order to get that

education is another thing that's going to increase your earning potential as long as it's in a career or a field that actually earns. That's a way longer conversation that we need to have. But as long as it's in a field or a career that actually earns money, then maybe that would be an example of good debt. Not always though. So that is one word. And all of these have caveats. So just thinking through that as you go through that process. Now bad debt. What is bad debt? What is the debt debt that you absolutely want to avoid? Number one, and you're probably going to guess this already, is credit card debt. Credit card debt is one of the worst pieces of debt that you can have. Why? Because you're buying liabilities on credit card debt. In addition, credit card debt has really,

really, really high interest rates. So it could be anywhere from 14% to 30% is what the interest rates are on credit cards. It is really, really hard to recover from credit card debt, which is why we created our free debt course at mastermoney.com slash debt course. If you want to check out, it's absolutely free, teaches you how to get out of debt. I would highly recommend that you do that. It's only less than an hour long. And so check out that course if you want to get out of debt because credit card debt is one of the worst ones. Another one is payday loans. Payday loans have really high interest rates. A lot of them are predatory. You want to avoid those as much as you possibly can. Listen, if you are in a situation where you need to get paid loans, obviously you are thinking

day to day to day. You can't even fathom thinking week to week or month to month like we talk about on this podcast. You are thinking day in and day out. And so it's really, really difficult to get out of that situation. But payday loans are predatory and they have high interest rates. They have high fees up front. They have high fees on the back end. They are something you really want to try to avoid as much as you possibly can't. High interest auto loans. So maybe you need a new whip and you're trying to get that whip to go from point A to point B. Last thing you want to do is get a high interest auto loan. A lot of times this happens if you do not have a good credit score. So working on your credit score first before you buy a new car is going to be really, really important so you don't have to pay high

interest on auto loans because you can be paying $7,000, $10,000 more for the same car that somebody else will be buying with a higher credit score. And then unsecure. personal loans with high interest rates. I've talked to a lot of folks who have these. I didn't even know that that many people actually utilize these, but a lot of people have unsecured loans, personal loans with high interest rates, avoid those bad debt at all costs. So there's good debt and there's bad debt. What I want you to think about is, will this debt that I take on increase my net worth any which way and do I have a backup plan to pay this off if for some reason the loan gets called if it's through a bank or a traditional bank or something like that? So always be thinking through

plan A, plan B, plan C when it comes to taking on debt, because your risk level does go up, but not all debt is bad. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs, help you stand out and hire faster.

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clothes don't fit anymore, and routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in place actually matches the life that we're building. And that's where PolicyGenius comes in. PolicyGenius is an an insurance company. They're an online marketplace that helps you compare life insurance quotes from some of the top insurers in America, all in one place for free. And their licensed team works for you, not the insurance companies. So they help you find the right coverage for your situation, without all the guesswork. And they walk you through everything. Answer your questions,

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your preferences up front, helping guide their choices. Instacard, get groceries just how you like. Amazon presents Jeff versus Taco Truck Salsa, whether it's Verde, Roja, or the orange one. For Jeff, trying any salsa is like playing Russian roulette with a flamethrower. Luckily, Jeff saved with Amazon and stocked up on antacids, ginger tea, and milk. Habaniero, More like Habinier, yes. Save the everyday with Amazon. The next one, number four, is renting is throwing money away.

Now, ooh boy, does this get people hot who are homeowners who think that the only way to really build wealth is to buy a house? Now, if you have the majority of your assets inside of your personal residence, you are not wealthy whatsoever. In fact, a personal residence is not a good investment. I'm going to say this till my lungs turn blue. Why? Because over time, if you look at the appreciation of houses over time. I got the stats right in front of me. Over the course of the last 50 years, the appreciation has been 3.8% per year. And over the last 25 years, it's been 3.9% per year. This does not even factor in TCO or total cost of ownership. Since 1991, the annual home in price has been 4.3%. Now, this is location dependent. I completely understand that. But when you look at the

national average, then you take in specific locations. Sure, maybe. since you bought a house, it has gone up significantly. I'm a homeowner myself. I've owned a home since I was 24 years old. I'm pro owning a home. But at the same time, it is not the best situation for a lot of situations, specifically now when home prices are extremely, extremely high. Instead, renting is not throwing money away. Renting is allowing you to have flexibility and a lot of other things we'll talk about here in a second. But the appreciation rates of home, and if you run the actual numbers. If you learn how to actually run the numbers of total cost of ownership on a home, it is not a good investment whatsoever, which is why sometimes it's hard for me, because I know

these numbers and I've learned the math a lot of times, to remodel my house. So I do it for different reasons. I remodel my house because it brings joy to my family. It makes my wife happy that we have new things inside of our house. And so a lot of different reasons are why I remodel my house, but at the same time, it is not the best financial decision to do something like that. There's a bunch of other reasons why to do it, though. So that's one thing that I want to talk about as we go through this process. So there's a bunch of reasons to rent. And some of them are the questions that you need to ask yourself. So the first question you need to ask is, how long am I going to live here? Because the big thing you need to understand is if you're only going to live at this specific

location for the next couple of years, you need to rent instead of buy. Why? There's a number of different reasons. One of the biggest reasons, though, is that if you buy a house and the markets, for example, takes a dip or it tanks or something happens like 2007, 2008, for example, if you bought a house, say, for example, at $500,000 and it goes down 50% at $250,000, you've got yourself a problem here if you have to leave because now you're going to lose $250,000 because you bought a house for way more than it was anticipated. Whereas if you own a house for 10 years or longer, then what you can do is you can ride out that wave.

It'll appreciate back to normal because typically housing cycles are 10 to 5%. 15 years. So you look at those and you say, hey, I've got a longer time horizon for this to get back to normal so I can recoup all of my losses. And you'll still lose money on it because your total cost of ownership is going to take that out from your maintenance to all the other things that you have to do. Your maintenance, your HOA, your taxes, your fees, all those different things. So you got to make sure that if your future plans are there and you are going to leave at any point in time, there's no reason to buy a house. Number two is there's a high cost of homeownership. And most people who have never owned a home definitely don't know this. And if you own a home,

You definitely know this. There is a very high cost of ownership. So first of all, like we just said, you have your taxes. Now, when you're renting, to be honest, you're still paying the taxes. You're just paying the taxes to your landlord instead of to the tax folks. But when you own the house, those taxes are still your obligation. Then you have homeowners insurance. That's another big piece that you have that you've got to make sure that you're paying every single year.

It can be anywhere from $1,000, all the way up to $6,000, $7,000, depending on if you have flood insurance, all those other things. Then you have maintenance. Maintenance is literally throwing money into the wind. Maybe you pay money for someone to come maintain your lawn. I have a lawn service who is really, really cheap. It's $55 a month. And so they take care of my lawn. It is one of the best money I spend.

That brings me a ton of value because I'm not out there mowing my lawn every single week. And I can focus on things that actually matter, like my family, businesses, those types of things. But at the same time, it's still a cost. I have a pool. My pool person is $140 per month. I'm just throwing that money into the wind. We have a cleaning lady. My cleaning lady is $150 per week.

That's just throwing money into the wind to maintain something. And so all of these things are maintenance. Now, you may be saying, hey, I'm going to do that stuff myself. Sure, you can do that stuff yourself, but you still have things like, what if the faucet leaks? You got to play a plumber, unless you do the plumbing yourself, which is still going to cost your time and energy. What about landscaping or changing up your landscaping in your house? What about if your roof has issues? You got to repair that.

What if your AC has issues? What if your foundation has issues? What if your electrical has issues? There's so many costs inside of a house that if you've never added all this stuff up, it's major. What about your washer and dryer if those break? That's your responsibility because you don't have a landlord. What if your toilet breaks? Well, now you've got to fix the toilet or get a new toilet.

And so over this time frame, Home Depot has taken a lot of my money as a homeowner. And so what you want to do is you got to factor in all these costs to your total cost of ownership. Because if you go back and you factor in all those costs, including remodels. Maybe you buy a house. You've got to remodel the kitchen. You've got to remodel the bathroom. you're going to have to do updates. You're going to have to paint every five to seven years.

And the interior, if you have kids, you've got to paint all the time, it feels like. So these are things where there's just cost galore when you have a house and you are the owner of a house instead of renting. Now, if you're renting, you do one thing. You pull up the old iPhone or the Android and you just call up old Larry, the landlord. You say, hey, Larry, my dishwasher's not working. Can you come and fix it? And then Larry has to send some guy out there.

He's got to make the call in order to get the guy or the gal out there in order to come fix your dishwasher. That's a beautiful thing to have. And sometimes I'm jealous of you renters because you get to have that and I don't. Honestly, I just want to rent a house to feel that rush to call my landlord again. Number three, you have less financial risk. So you're taking on a mortgage. You're taking on all this financial debt when you buy a house. When you're renting, you have less financial risk. Number four, you have flexibility to downsize or to upsize if you want to. Say, for example, you have a growing family and all of a sudden you need more space. Well, you have the flexibility to get more space if you want to. Or if you want to downsize, maybe you lose your job, you're a single person,

you're your family, and you lose your job, you can downsize to another rental with less rent. You avoid the market fluctuations, although this does impact your rent a little bit. But if there's market fluctuations in the market and the housing market takes a dip, in fact, if the housing market take a dip, a lot of times it's better for you and your rent, then you avoid those market fluctuations that happen. You're free from debt because you don't have that mortgage to take on and hanging over your head if you're worried about that. You have less stress because it can be much less stressful to own.

a house, then to have to worry about every single little thing inside of that house. If your job situation is unstable, definitely don't own a house. You need to keep renting until you have a stable job situation so that you can get that income on level playing par. And lifestyle preferences. Maybe if you rent, you could live downtown near all the hippity hop that's happening. But if you buy a house, you've got to live way farther out. Maybe you're closer to other areas that you really don't want to be in. And so the lifestyle preferences can make a big difference there as well. And I've got a bunch of other things here. You may need a down payment. Utilities may be included in some situations, which is a very huge savings. You don't have to save up for a down payment. You could put that money towards other things.

Your insurance could be way cheaper, especially renters insurance is way cheaper than homeowners. And your assets could be liquid. There's so many different things out there on why it is better to rent than to buy. There's a bunch of reasons why it's great to buy. Most of them, though, are not for financial gain, is what I'm trying to say here. So renting is not throwing your money away. And if you actually run the numbers, it's going to be a lot of people that argue this. They're probably throw in their fist at their car radio right now, hearing me say this or their headphones. Trust me, run the numbers. And if you don't know how to run the numbers, maybe I need to create a masterclass to teach

people how to run the numbers so they can go out and do this. Let's jump to the next one. So number five is you should invest your emergency fund or you don't need your emergency fund. Okay. If anybody tells you that, you need to make sure that you are really thinking through what they're saying here because cash is absolute security. Now let me tell you who holds the largest emergency fund in the entire world, the greatest investor of all time, Warren Buffett. Warren Buffett has billions and billions and billions of dollars

in cash right now. He has billions of dollars in cash, A, so he could take advantage of opportunity, but it's also the world's largest emergency fund because he knows that cash is security. And so when it comes to this, you need to understand that, number one, you need an emergency fund. Why? Because I have never been through life or a single month where something unexpected does not happen. It could be a small thing that's unexpected. It could also be a very large thing. It It could be a small thing like my kids get sick and I have $200 worth of medical bills that I have to pay and or it can be a very large thing like your car radiator breaks and you have to spend $5,000 to repair your car. All of these things in life happens.

There's a reason why we have emergency funds in place and the reason for this is to protect us against life. Number one. Number two, it reduces your stress and anxiety. It reduces the worry that you have around life. So keeping this safe in a safe place is going to be really important. Now, why do you not want to invest your emergency fund? The reason why you don't want to invest your emergency fund is that if you invest your emergency fund and the market takes a dip and then all of a sudden you need that money immediately,

all of a sudden your emergency fund is cut in half. So say for example, think about this way. You're in the 2007, 2008 crisis. You invested your emergency fund. All of a sudden your investments get cut in half. They reduce 50% because that's what happened in 2007 and 2008. But at the same time, what else happened in 2007 and 2008? A lot of people lost their jobs and got laid off.

So then you have your emergency fund cut in half and maybe you only had three months of expenses saved up and now it's cut in a half and you have one and a half months expenses saved up because you invested it instead of putting it somewhere safe. And then you lose your job and you get laid off. You're in a really bad situation if that happens. So you need to keep this money safe. So what do you do with your emergency fund? Instead, you put it into something like a high yield savings account.

My emergency fund is in a high yield savings account. I have a couple different ones. I have CIT bank. I have Ally Bank. Marcus, I've heard, is really, really good now because they have savings buckets like like Ally does. But keeping in the high-yield savings account is a powerful, powerful place to put your emergency fund.

You're still getting decent interest rates that we're getting right now. Like right now at the time I'm recording this for like 4.5%, 5%, right in that range. You could do other things like T-bills or CD ladders if you want to. But really, I like the high-yield savings account because of the illiquidity and making sure that you can keep that in place. But there's a bunch of other reasons not to invest it, like the risk of loss, timing. You're not going to be able to time the market to know what's going to going to happen in the market. Stress, you're going to be stressed out of that emergency funds invested

all the time and all of a sudden takes a dip. Penalties and fees, all these different things are why you want to invest in your emergency fund. Now, if you have a six-month emergency fund and that's fully funded in your eyes and you have another six months of emergency funds where you really want to have a year, then you can invest the other six months if you really, really want to. But really, I just like to have cash as security. So yes, you need an emergency fund. No, do not invest it unless you have a really, really large emergency fund and you want to invest a portion of it or tear it up. Ooh, this last one I love. So the last one is having a high income, does that mean that you're wealthy?

It absolutely does not mean you're wealthy. So we did an episode a long time ago. I need to redo it. It's called Rich versus Wealthy. I think it was one of our earliest episodes. And in that episode, I talk about the difference between rich and being wealthy. And one of the biggest things that you need to understand is that the difference between being rich and being wealthy is vastly different.

Whereas rich people have a high income, but that does not mean that they're wealthy. whatsoever. So according to Business Insider, 51% of high-income earners surveyed said they were living paycheck to paycheck. And a CNBC article came out that said that 36% of U.S. employees with salaries over $100,000 or more are living paycheck to paycheck. High income does not mean wealth. 60% of millennials earning $100,000 or more say they live paycheck to paycheck. So 36% of U.S. employees in a CNBC article said they live paycheck to paycheck that make over $100K. And 60% of millennials is making over 100K. So they also live paycheck to paycheck.

Now, there is a number of reasons why having a high income does not mean you are wealthy. In fact, a lot of high-incomeers will drive the Ferraris, the Lamborghinis, the G-wagons, all of those different things. And a lot of times when I see those vehicles, a lot of times I'm like, I don't think that person's actually wealthy.

That's actually where my mind goes now instead of going to, ooh, that person looks cool. I bet you they have a lot of money. You can have the mansion. You can have all these different things. But if you are spending everything that you make, you are not wealthy. Wealthy is the person who maybe is dressed in plain clothes,

but they have all the freedom of their time out there because they have their investment set up already. They have rental properties. They have assets that increase in value over time. They get to spend more time with their family, their friends. And maybe they live in a standard normal house. Maybe they live in a four-bedroom, two-bathroom, two-bedroom, two-bathroom,

or they live in New York City in a one-bedroom, one-bathroom apartment. But these are the wealthiest people out there because they have freedom with their time. they have all the peace in the world because they set up their life that way. And so wealth is so many different things. Wealth is not just money, but money sets you up so that you have the time to have the full encompassing wealth of wealth, health, time with family, time with friends, time to do all the things that you love, doing work that you love, giving back to your community, giving money

away. All of these different things all encompass wealth. And what you need to realize here is that rich people do not have this. What rich people have is a high income and they spend a. all of their high income. So what you want to be is wealthy. So the first thing is the spending habits. If somebody is rich, you need to look at their spending habits and see how much money are they spending. There is a lot of doctors out there. There's a lot of lawyers out there. There's a lot of business owners who make a lot of money out there who spend all of their money. So you got to make sure that

you were looking at the entire picture before you do that. It's all about the gap. The difference between your income expenses are your gap. And the larger you can grow that gap, the more wealthy you can become because you put that towards your financial independence activities. Number two is debt. A lot of high income earners may take on a bunch of debt also because they think they can afford the payments. Looking at monthly payments instead of looking at the entire picture and the total cost of ownership is what broke people do. And so if you think you can afford the payments, broke people look at the payments, wealthy people look at total cost of ownership. A lot of rich people have never learned this or understand this. So if they can afford the payments on a G-wagon,

for example, they're just going to go ahead and take on that G-wagon and take on that debt. savings and investments. So a lot of rich people, maybe they'll start invest in really speculative stuff. Things like crypto, things like random penny stocks, things like companies that their friend just told them about that they should be investing in. Individual stocks. All these different things can be what a lot of rich people do, but they don't ever actually grow their wealth over time. In fact, maybe it's stagnant or their returns are very low and they just don't even know it because they don't track it whatsoever. Lifestyle inflation. So as their income increases, a lot of rich people, their lifestyle will inflate all the time. They'll keep buying more stuff. They'll buy the bigger

house. They'll buy the fancier Lamborghini. They'll buy the Mayback instead of just having the standard G-Wagon. All of this stuff comes into play when it comes to rich versus wealthy. Now, you could be really wealthy and have all that stuff. That's not what I'm saying. What I'm saying here is that you got to see the difference between the two. Then there's lack of financial literacy. So a lot of folks who are rich, who have a high income, that does not mean they have financial literacy, meaning they don't know what to actually do with their money in order to make it grow. A lot of people know that you need to invest in assets, but they don't know what are the right assets are, how do you actually handle your money, what to do when money comes into your hands,

how do you grow your wealth over time? That's the principles we try to teach here on this podcast. And then they have temporary versus sustained income. So a wealthy person is going to invest their dollars and their income into sustainable sources, index funds and ETFs, rental properties, boring businesses. And they want to grow that income over time and make sure that it is sustainable over time and increases in value over time. Whereas a wealthy person, their income is temporary. It's from their W2 job or their business. that they are earning that income from, and it's temporary income that if they do not put it into assets,

they will not get money back from that money ever again. Because liabilities, they'll actually lose money every single year. But if you put it into assets, then you can increase the amount of money you get every single year. So that's the difference between rich and wealthy. High income does not mean that you have a lot of wealth. We can do an entire episode on that again in the future so that we can talk more about that and actually dive deeper into some of this stuff.

But rich versus wealthy is a major, topic that I love to talk about. And if you want to learn more about that, the millionaire next door is a great, great book for that. But a high income does not mean that you're wealthy. Listen, hope you guys learned a ton in this episode. If you guys got a lot of value in this episode, share it with your family members or your friends. I cannot thank you guys enough for listening to this podcast. And I cannot thank you enough for investing in yourself. Because that is what you do each and every time you listen to this podcast is you are investing in yourself, which is the most valuable investment of all. Thank you guys again for listening. And we'll see you on the next episode. Rose in lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play.

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