The Personal Finance Podcast - How to Never Go In Debt During The Holidays Again - Money Q&A

Episode Date: December 25, 2024

Join our free live masterclass teaching you how to Master Your Money Goals in 2025! Sign-Up Here Today we are going to answer these questions: Question 1: How to never Go Into Debt During the Holidays Again  Question 2: Should I pay off debt with my emergency fund?  Question 3: Why Andrew Hates Annuities  Question 4: Should I Leave my Advisor If I am Scared to Invest?  Question 5: How to handle my 401(K) at my old job  How Andrew Can Help You:  Don't let another year pass by without making significant strides toward your dreams. "Master Your Money Goals" is your pathway to a future where your aspirations are not just wishes but realities. Enroll now and make this year count! 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. Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp 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/ Monarch Money: Get an extended 30 day free trial at monarchmoney.com/pfp Thanks to Fundrise for Sponsoring the show! Invest in real estate going to fundrise.com/pfp Indeed: Start hiring NOW with a SEVENTY-FIVE DOLLAR SPONSORED JOB CREDIT to upgrade your job post at Indeed.com/personalfinance Thanks to Policy Genius for Sponsoring the show! Go to policygenius.com to get your free life insurance quote. Right now, my listeners can get a free 2-week trial at 1password.com/PERSONALFINANCE to help secure their growing business. The Rundown by Public.com—your daily financial news podcast. Listen now: The Rundown Podcast Go to joindeleteme.com/pfp20 for 20% off!  Links Mentioned in This Episode:  The 7 Best Places to Keep Your Cash! What Do I do With an HSA at an Old Employer?! (Plus How to Avoid RMD's) - Money Q&A 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, how to never go in debt during the holidays ever again. What's up, everybody, and welcome to the personal finance podcast. I'm your host, Andrew founder of mastermoney.com. And today on the personal finance podcast, we're going to be diving into your questions on this episode of Money Q&A. If you guys have any questions, make sure you join the Master Money newsletter by going to Mastermoney.com. slash newsletter. And don't forget to follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast on. And if you're getting value out of the show, consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player.

Can I thank you guys enough for leaving those five-star ratings and reviews? And if there's ways that we can bring you more value on this show, our entire goal with this show is to bring you as much value as we possibly can. If there's an episode you want us to create on anything related to finance or business or anything along those lines, please let us know. And we would be happy to help you through that process in your problems. So tell me what your biggest problems are. We're going to help you through that in 2025. We want to bring you as much value as we possibly can because I believe each and every single one of you can build wealth. And that's what we want to do is take those steps every single day. Now today we're going to be answering five different questions from you,

the listeners that you sent in. So the first one we're going to be going over is how to never go into debt during the holidays ever again. I have a very specific system on how to do this, and I think you guys are going to love this. We're going to talk through that one. Two, is should I pay off debt with my emergency fund? We're going to talk through a very specific scenario, and if that person should pay off debt with their emergency fund. Three, why I hate annuity. So one person has an advisor who is recommending an annuity. I am going to talk through why that is something that I absolutely hate. Four is should I leave my advisor if I'm scared to invest?

This is going to be a great topic for us to talk through. And lastly, is how to handle my 401k at my old job. This, my friends, is an action-packed episode. Really pumped for this once. Without further ado, let's get into it. So first, I want to give you my system on how to never go into debt during the holidays ever again. And this year, shopper spent $979 billion during the holidays.

And this is up 8% from last year. And this is that record levels. And the stakes are even higher this year because credit card debts have hit $1.14 trillion in the U.S. alone. My friends, this is not okay. This is not something we want to see from you. Anybody listening to the personal finance podcast knows that credit card debt is something that is going to suck the life away from your finances. It's going to take away your financial freedom.

And for those of you who are sitting here listening to this podcast, who are in credit card debt, I am here with you. My goal is to get you out of that credit card debt as fast as we possibly can. And so what we want to make sure that we are doing is focusing intensely on that credit card debt to get rid of it because it is a soul-sucking leech that will take your cash away from you instead of what you should intend your cash to do, which is to buy your freedom. Every single person in this world wants freedom. They want freedom with their time.

They want freedom with their energy. They want flexibility to do what they want day in and day out. And you will never be able to do that if you have credit card debt. I cannot stand credit card debt. It has really high interest rates and it's something that you want to make sure that you avoid at all costs. And so that's our goal with this first part of the show is to make sure that you understand that you never have to go into credit card debt again.

I'm going to give you the exact systems on how to do that as this starts to rise. In fact, 28% of people who go in debt during the holidays are still paying off that debt from last year. So it's taking them over 12 months and they are still paying off that debt. In fact, this year, at the time I'm recording this, 61% of Americans have spent more on holiday expenses this year over last year. And 65% of individuals say that they are having financial stress when the holidays come around. And so this is something, I want to reduce your stress. I want to reduce your anxiety around money, especially around the holidays. Because the last thing we want to do is get into that new year funk.

We have all these brand new financial goals. And now we have to dig ourselves out of a hole before we can even go after those financial goals because debt is putting you deeper and deeper into a financial hole that you have to claw your way out of. I'm going to show you how to claw your way out of it once and for all in this episode. My goal for you is in 2025, I want you to be completely debt-free. That is my goal for you and I want that for you and we're going to help you get through that. Now, this year during the holidays, maybe you made it rain presents on family and friends.

You went a little bit overboard. You got that 15 pound prime rib just in case you needed extra. You went a little extra bougie on the charcuttery board or the sharkute board is what I like to call it for short. And you paid for your sister's flight so she could come see you. Maybe you had family members coming and so you paid for some of your family members flight who just didn't have the best year overall. or you overextended yourself on your kids' gifts because you wanted them to have the Christmas that you never have. Or you went all out on the office holiday party or you bought a new outfit for every single Christmas party you went to because you didn't want to have the same outfit on in

the social pictures. Guess what? There is nothing wrong with any of this. In fact, I love this kind of stuff. I love the holidays. I love spending more dollars during the holidays. And guess what? What if you could have all of that and you could be completely stress-free and you don't have to go into debt with it. In fact, you could pay cash for all of this stuff every year during the holidays. Now, some of you may be saying to yourself, I've gone into debt every single year for the holidays or most of your, I'm just toting a fine line when the holidays come around and I got to revamp my bank account and try to save as much cash as I possibly can in the new year. Every single time those holidays come around, I am just spending way too much money. Well, if that is you, I promise

you, if you follow this system, you'll pay for everything in cash next year and you will be way more prepared than you ever have been before. And in fact, your stress is going to melt away, specifically financial stress at least. I don't know about family stress. Your family's a whole different problem, but your financial stress is going to completely melt away. How do we prepare? By treating Christmas as a monthly bill starting in January. Now, this is something most people do not want to do because Christmas is way far out. They'll figure it out as they get closer to that timeframe. But we need to learn how to manage our money, surrounding long-term goals and long-term time horizons.

Guess what? You're going to spend the money anyway. When the holidays come around, you will spend the money. Even if you're saying to yourself, I'm going to spend less next year. No, you can't trust yourself with that because the Christmas spirit comes around. You get nice and jolly and, oh, man, all of a sudden the holiday music starts a playing. And they got a little Michael Bouble going on. I'm a Frank Sinatra guy myself if you're going to play some holiday music.

But this is something where once that music starts to come on, oh, boy, the credit card gets a little lighter and you can pull that thing out and you can swipe it and hey, I'll deal with this later. Maybe you had a little too much eggnog and you open up the old Amazon app and all of a sudden you are hitting buy it now faster than you ever have before. Well, well, well, we need to develop a plan around this. This is what everybody does and everybody knows that this is the process that they go through to the holidays is they spend too much. Even if you plan it out, you may start to spend too much. So we are going to talk through how you need to learn how to manage your money. So number one is I want you to total

up. How much you spent during the holidays last year? I'm talking every single gift. I'm talking every grocery bill beyond your normal consumption. That prime rib, those extra food items that you bought, that shark boot board, all of that stuff needs to be on this list. Every travel accommodation you made. Maybe you go see family every single year. Well, guess what? Travel is really, really expensive during the holidays. They jack that thing up. The same exact flight two months ago is going to cost $300 less than it does around the holidays. And so we got to make sure that we are beefing up our cash for when the holidays come around. So I want you to total up all those numbers and get the most accurate number that you possibly can. So for an example and for argument's sake,

let's say it's around $2,000. That's how much that you spent last year. And some of you may say, whoa, that's way too much. And some of you may say to yourself, that is way less than I spend. I don't care what your number is. I'm giving you an example just so we can kind of go through this process. Now, let's take that number. We're going to add 20% to that number. So for those of you who are mathematically challenged, you're going to take 2,000 and multiply it by 0.20. And that number is going to be $2,400 in this example. Okay. The reason why we're adding 20% to this is a lot of variables can happen. Maybe you have to travel last minute. Maybe an emergency comes up. But this is literally a Christmas emergency fund is what it is. And most likely every year, consumers on average spend around 8 to 10% more

on the holidays than they did the previous year. So we're giving that 8 to 10% cushion. And in addition, we're adding another 10% in case something comes up and something always comes up, does it? Now, if you don't use all the money, you can roll it over into the budget the next year, which we'll talk about that here in a second. Now what we're going to do is we're going to take that $2,400. So you looked at how much you spent last year, you added 20% to it. And now we're going to take that number, which in this example is $2,400, and we're going to divide it by 12. You see what I'm doing here? And now when we have that divided by 12, all the sudden we get how much we're going to save every single month starting in January. No if ands or buts here. Why?

Because you're going to spend that money anyway and you're going to have to come up with that money in some way, shape, or form. But if you treated that money as a bill, if you treated it as a monthly bill and changed your mindset surrounding how you treat Christmas, all the sudden, you're going to this becomes way, way easier. So now we have this $200 per month that we need to save. And so what do we do with this money? Where do we put it? Do we stuff it under our mattress? Do we stick it in the safe in the house? Do we put it all in one so we can make it rain later on down Christmas time? No, we're going to automate this because I want you to set this up one time and never have to think about it again. And so we're going to utilize the bucket method. The bucket savings method is a

method that we talk about a lot on this podcast. If you have not heard about the bucket method, go back and listen to our episode about the bucket savings method. If you want to make savings effortless and automatic, money on autopilot is going to go into detail on the bucket method too. If you are interested in that, that's coming out soon. But we need to make sure that we are saving 200 bucks a month. And so we're going to put it into a high yield savings account. Why do we get a little extra interest on that day? When you get a little extra interest there, you can spend a little more on yourself.

Maybe Daddy wants to buy himself a little present. Well, you can go ahead and do that if you put this in a high yield savings. savings account, you know you get that 3, 4, 5% interest rate, whatever yours is at right now. So what we're going to do is we're going to link our checking account to our high yield savings account. We are going to automatically transfer $200 every single month into our savings bucket labeled Christmas. That's all you got to do. Or whatever holiday you celebrate, labeled holiday. Maybe you ball out on Thanksgiving and you buy 50,000 turkeys. You're going to label it Thanksgiving. But whatever that is, you are going to label that bucket.

whatever it is. Okay? Now here is what I love because once you start to automate this, you set this up once, you never think about it again. And then every year at Christmas, you go and look at that Christmas fun and you're like, well, hot doggie dog, we've got ourselves a real nice Christmas fun and we can pay for anything we want in cash. Now, what I'm going to teach you next, and this is not a requirement, but what I am going to teach you is how to actually kind of get your shopping list done before you even hit the December month. Now, this is just a little hack that I do personally. You don't have to do it if you don't want to, but I really enjoy this because I get to the holidays and all of a sudden, I'm done. You know how everybody else is stressing out and they're

freaking out and they're yelling at each other and pulling each other's hair out. They're like, we didn't order a gift for this person. Not me. I'm done. And I love being done when it comes to Christmas time because then you can relax. Well, I never relax, but you can relax if you want to and really have more time to spend on the things that you actually want to do around Christmas. Do we really like shopping? I mean, some of you probably like shopping, But do we really like scrambling at the end and hoping the shipping is going to come in on time and worrying about what's going to happen next? No.

Instead, we're going to make sure that that does not happen and reducing stress and anxiety surrounding money. So pull out your list from last year and go through every single person that you bought for. Maybe you can go through your spouse, your kids, your parents, your in-laws, your coworkers, anybody you bought gifts for. I don't care who it is. Your dog waffles. Anybody who you bought gifts for. Now, list out that list and make a budget for each person.

So you're saving X amount of dollars in this Christmas budget. Make a budget for each person and say to yourself, hey, this person gets $100, this person gets $150, my spouse gets $300, whatever your specific budget is. I don't care what it is. And then for each person, make little notes of what they talk about throughout the year. You can catch on cues of what people would like. If you want to be a really good gift giver, catch on to cues early in the year and throughout the year when people are talking.

The last thing you want to do is start to scramble around and try to figure out what this person wants. People will give you clues throughout the year. And if you take note, you're never going to remember it if you don't take the note. But if you take notes, you will absolutely remember it become the best giver in your family, your friend group, anybody else. Then when you have those little notes and you see this stuff come up on sale, it's time to hit that buy button. Because you're already saving money for Christmas. You already have this budget in place, this savings bucket. And so money is going into that savings bucket and it's funneling into that savings bucket.

And so you already have cash on hand, ready to go locked and loaded to buy gifts throughout the year when it's on sale. I promise you, you will spend way less money on gifts if you do it this way. Because when you see deals, instead of saying, well, I'll just wait until Christmas, you already got a plan in place. You can put it to this side. Now, I'm not saying accumulate an entire years of presents in January where you have to store that for the entire year.

But what I am saying is you're going to notice all of a sudden, slowly you'll be able to start buying gifts for people who you know what they want and you're going to be able to find way better deals. Let's get real. Black Friday is becoming something where they just slash prices and fake that it's actually on sale. I was looking at TVs and four months ago, one of the TVs I was looking at that I was going to put in my office was $399. And I was like, I'm just going to wait until Black Friday to get that thing because it's probably going to be cheaper. Guess what they did. Next month, they increased the price to $4.99 and then on Black Friday, they brought it back down to $399. That's what Black Friday is all about. They just bring the price up a little bit for a couple

months and then they slash it again. And so it's just a game of psychology. So it's not that great of deals. Now some stuff has good deals, but most things do not. And so that is how I would think through A, never going to debt on the holidays again and stress-free shopping around the holidays. What I want for you is the end of the year should never be stress-free. Instead, you should be spending time with your family, spending time relaxing. And somebody send me a note and teach me how to relax. Spending time doing the things that you want to do because we're going to go into the next year and we're going to get after it. And that's what I want every single person here to talk through is to get after it. So you need to be rested. You need to be relaxed instead of having your

cortisol level higher than the sky. And instead, we're going to have a fantastic new year setting our goals and making sure that we accomplish everything we set out to do. So really, really excited for you to never go into debt to the holidays again. If this was helpful, let me know. But this is the exact plan I follow and I never have to think about it. It is the best. I'm telling you, it is so amazing when your stress level just starts to drop. So that's my system in place. Hope that helps you out. Now let's get into the next question. All right, the next question is, I am a regular listener of your show, and I tune in every day on my way to work. And I want to thank you for the valuable insights that you share. I've learned so much from you. Well, thank you so much for

the kind words. I truly appreciate you there. I have a few questions about personal finances that I can really use your guidance on. I'm 26 years old, and currently my wife and I don't have kids. where a dual income household dinks and hope to start a family in the future. However, I'm concerned about how having kids will impact our finances, as I don't want to be in a situation where money feels unbearably tight. Here's where we stand financially. Our combined income is $85,000 a year. Our emergency fund has six months of expenses in it with $20,000.

Our debt is $15,000, which is an auto loan at 7.25% interest. And our rent is 16% of our gross monthly income. Fantastic. recently completed building our emergency fund and are now focusing on the auto loan. We are debating two approaches. One, pay off the loan aggressively, using as much as we can each month, or two, use our emergency fund to pay off the loan in full and then rebuild that fund slowly. Which option do you think is best? Additionally, I'm working to increase my income to better prepare for having children. We stick to a budget and live below our means, but our long-term goal is for my wife to

eventually be a stay-at-home mom. And to be honest, the thought of being the sole provider, stresses me out. It feels like it'd be overwhelming financially. So, awesome, awesome question. These are questions a lot of you, I think, are struggling with right now. And I think for the most part, you are doing absolutely amazing financially. The fact that you got to that six-month emergency fund is amazing. And the fact, the big thing that's standing out to me right now is the fact that you have a 16% of your gross monthly income spent on rent. That is incredible. It is almost half of what I actually recommend the max should be. And so you are killing it in that front, which is why you can get that $20,000 emergency fund saved up on your combined income. So first of all, congratulations. That is fire

level numbers right there of what you're working through. And that six month emergency fund is incredibly valuable. So if you plan on having kids soon, I actually am going to highly recommend keeping it. Here's why this is critical. So for anyone listening, anybody out there listening at all, If you're planning to have kids, you need to have a six-month emergency fund. Now, as any parent knows, your life becomes significantly more complicated once kids enter the picture. It's a beautiful complication. It's a fun complication. It's a wild complication, but it is absolutely complicated.

And kids are going to make your life more joyful. They're going to make it more exciting, but let's get real. It can also be very, very stressful if you are not prepared for something. So if you're actively planning for a family, make sure. you build that six-month emergency fund first. It is imperative that you have that because life happens. Life is going to get messy when you have kids and there are going to be things that you didn't think about. And so you got to make sure you have that emergency fund in place. It is imperative. And God forbid something even worse happens like you lose a job or something along those lines.

You got to have it in place because there's other people you are providing for and it is irresponsible not to have that. To put yourself in front of your children by spending more on frivolous things instead of having financial protection in place is not something I want for any of you. put yourself first. Instead, make sure you have that six-month emergency fund in place. Now, life happens. A lot of you out there are going to have some unplanned pregnancies and you didn't have time to plan to have that six-month emergency fund in place. Hey, I get that and, you know, money gets tight really, really quickly. That's something that I just want you to build up over time. But if you're planning this out and you got a couple of years ahead of you, it's time to get the

emergency fund put together. And if you're fortunate enough to plan ahead, this is a non-negotiable step. And if you're fortunate enough to plan ahead, this is a non-negotiable step in my book. This is where personal finance becomes really personal. Because if you're looking at this specific financial situation and you look at what I talk about all the time, you'd be like, yeah, what I would do is take the emergency fund and pay off that high interest debt and keep at least one month of that emergency fund, but then pay off the high interest debt all the way down. And for a lot of scenarios, that would be the case. But because in this scenario, they are planning on having kids soon and they are financially responsible in terms of how they are handling their dollars, I would actually do a couple of things first. One is I would go to the local credit union and I would say to them, hey, I need to get my auto loan rate lowered. Do you have lower rates? Now, why am I saying the local credit union? Because most of the time, local credit unions are willing to provide lower auto loan rates than would be at a dealership or somewhere else. In fact, you can probably shave it off a couple of points just by going to those local credit unions. So go find your local credit union and look for lower rates. Getting that 7.25% lowered below 6% all of a sudden solves. your problem where then you're not even having to think through, hey, which of these should I do?

Because then all of a sudden becomes low interest debt in our book. And if that debt still bothers you, you could pay it down. But that's one thing to do. So first, that is priority one is to get that interest rate lower because what I want you to do is preserve that emergency fund. Okay. Now, if you can't lower that rate, what I would say is instead, since you already have that emergency fund in place, I would keep it in place and I would aggressively go after that debt. Because if you are planning on having kids, and I guess I don't really know when you're

having kids, but if it's going to be sometime soon, then I would aggressively start to pay down that debt and keep the emergency fund. If you are saying you're seven, eight years off, then that might be a different story. But in this scenario, my assumption is that you are planning on having kids somewhat soon. And so because of that, I would just pay down that debt aggressively, keep the emergency fund intact, and then start to get those extra dollars once that debt is paid down and starting to move those dollars over to investments. Now, one cool thing that you can do here too, though, is once you get that interest rate lowered, then you can move those extra dollars over to investments pretty much immediately because it makes a lot more sense, at least in your situation. Now, if the debt bothers you,

if it's something that you don't like having that debt, it's keeping you up at night, then there's nothing wrong with paying that off whatsoever. I love when money can reduce your stress. I love when money can reduce your anxiety. So there is no issues there whatsoever. You got to do what's best for you, but at the same time, you can optimize this by just reducing that interest rate. Now the reason why I'm saying this, the reason why I'm saying to keep that emergency fund intact, if you're going to have kids pretty soon, is because life happens. And I don't want anything to derail your progress because you've come this far already. And the last thing we want is to go backwards. And because you are keeping your housing expenses so low, I am fully confident that you're going to have the space

based on your numbers to be able to pay that debt off aggressively. For a lot of people, I don't have trust in them to go in out there and go pay off that debt aggressively. But looking at your specific situation, this is why personal finance is personal, I do have full faith that you would be able to do that. So congratulations A on kind of going through that process. Now, for anyone out there who was planning on having kids soon, we do have an episode on child care and kind of what it costs and how to think through that. And I know you stated that you might have your wife stay at home. We actually run through that equation and how to think about that in that episode too. So make sure you check that out if you haven't heard that one yet. We talk through how to run those numbers. And we also

talk about all that stuff. And here's a spoiler alert. It's not always about the money. So that's something for sure that you want to check out if you haven't heard it. So you are doing amazing. Keep up that momentum going. And with a little planning, you're going to be in an even stronger position here as you get ready to start a family. Now, navigating the thought process of being the sole provider of your family.

Increasing your income would be a very good idea right now is to focus like your energy and your time on the skills to increase your income. I think that's a great, great plan for you. Because once you do that, you're going to feel more and more comfortable as time goes on. And then when you are the sole provider, if you can even jump up that emergency fund a little more if you want to, just increase until you're like, hey, yeah, I'm good here. I'm good where the emergency fund is and think it's that process. Child care is very expensive. And so the fact that your wife wants to stay home, I think it can be something that could be beneficial for some people. Ask anybody in the middle class who is struggling to buy a home and struggling with child care and they're paying back student loans. They got the trifectar right there that is really beating them down and it makes it really, really difficult for people to get ahead when you have all three. of those things at the same time. So just making sure you have that in place is going to be really important. And again, congratulations on your progress. Really, really great question. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy. Clothes don't fit anymore and routines are changing. And it just hits you. Life is expanding.

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jobs, more visibility at Indeed.com slash personal finance. Just go to Indeed.com slash personal finance right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash personal finance. Terms and conditions apply. Hiring, Indeed is all you need. All right. The next one is, oh, and this is going to get me fired up because this one is about annuities. And so here's the question. I know you highly recommend not using a financial advisor. Well, we'll put a caveat to that in a second. But in January 2020, I stopped working to be at stay-at-home mom, and I put my IRA retirement account into a Chase Private Client Managed Retirement Account. Currently, it has almost $300,000 in it, and about 75% of my assets are in U.S. large-cap equity

and global equity. And the remainder are in the U.S. fixed income, global fixed income, etc. Since inception, it has an annualized return of 9%. And year-to-date has an annualized return of 17.7%. Our financial advisor charges 0.897%, which is slightly less than the average 1 to 2%. I expressed to him that I would like to be a little more aggressive on my portfolio, so he's recommending I put some, or all, whatever I'm comfortable with, of my money, in a Bright House shield level 6 year annuity, which I believe is like a variable annuity.

He suggested I go with the option that has a shield rate of 25%, meaning I'd be fully covered if the market drops up to 25%, and if the market were to drop more than 25%, I would be covered for 25% of the drop and would only feel the delta in market drop. This also means that I would have a growth cap of 85% for the S&P 500, 75% for the Russell 2000, 110% for the MSCI index, and 75% for the NASDAQ 100 index. He said, this is a way that we could be much more aggressive with my investments, but also don't have to worry about the huge plunge in the market.

What are your thoughts on these types of annuities? All right. Sorry, I'm laughing because I love, I love advisors speak when they do stuff like this. Okay. So, first off, for anyone who is new to this show, one thing that I talk about a lot is the impact of investment fees, especially if an advisor out there is charging what is called assets under management. Now, assets under management are when they're going to charge you a fee for managing your. investments, a fee that a lot of times they're putting you in investments that really you can buy yourself. Now, what I'm not against is using an advisor like a certified financial planner, a CFP,

to put together a financial plan for you at an hourly rate. I actually think that is fantastic for a lot of people because they can put together a financial plan for your personal situation and have that at an hourly rate. That is awesome to have somebody put a plan together for you. Look at your entire financial situation. They spend a couple of hours on your finances. you pay them an hourly rate. Usually financial plans can range from anywhere from $2,000 to $8,000, depending on what happens there, and that is significantly cheaper than giving an advisor a percentage of your portfolio. And we're going to show you why, even in this specific scenario here.

Now, I don't like annuities. I'm not actually going to give you a bunch of reasons why I don't like them here in a second, but one of the biggest reasons is kind of what this advisor is even kind of positioning right here, is they utilize what is called fear-based selling. So they're marketed as risk-free or a solution to, to not running out of money in retirement. And this approach is playing to people's fears, leading them to overlook better opportunities.

And what happens here is they'll say to you, hey, just like this example. If the market drops 25%, that's as far as this annuity is going to go. And so they'll utilize those fear-based selling situations in order to sell these. Now, annuities come with layers in the layers of fees. They have things like management fees.

They have what are called mortality expense. They have administrative charges. They have optional riders on some of these things. And these fees significantly reduce your returns over time compared to low-cost investments like index funds. They also typically have lower returns because they have a conservative design and the drag caused by fees. So those fees are weighing down your returns significantly.

And over the long term, investments like index funds typically offer much higher returns. Now, another thing I don't like about annuities is complexity. You can even see the way that that was. pitched is that annuities are unnecessarily complex and filled with confusing terms like surrender charges. They put little riders in there. They have caps. And all this makes it really hard to understand the product and compare it to alternatives. Because in my opinion, they're confusing intentionally. Also, you have liquidity issues with annuities where annuities are going to lock up your money. And if you need to access your funds early, you'll face surrender fees or penalties

reducing flexibility. Now, your pushback maybe while a 401k does that, I can't pull my money out of a 401k, and sure, that could be something or a Roth IRA. Well, A, with a Roth IRA, your contributions can actually be pulled out tax-free at any point in time. And with the 401K, sure, you're locking up those dollars for the long run. But let's look at some of this other stuff, because annuities are tax-ine-efficient. So you're paying to lock that money up in a 401k, where you're going to pay a 10% penalty if you pull it out, and you'll pay taxes on the money. But annuities grow tax deferred, but withdrawals are taxed as ordinary income, which is often higher than the capital gains tax rate applied to other investments. And then there's the sales commission.

Now, annuities are often sold to people because they offer very large commissions. And this is why the financial advisors and salespeople are typically offering annuity. This is why this product is still on the market instead of just investing in an index funds, because they offer very large commissions. Those fees got to go to somebody who is going to get them into people's hands so that people will put their money into these annuities. And so because of that, a lot of advisors will push those based on that. Also, when you hand your money over to an annuity, you're handing control of that money over to an insurance company, which limits your ability to adapt your strategy and or move funds if you need to change. Just say, for example, you bought an annuity and you're in your 20s, okay? And all of a sudden,

your financial strategy changes because you've got a financial education and you realize all a sudden that, hey, I don't want to do this anymore. Well, now you're stuck in that annuity unless you want to pay a bunch of fees and surrender charges. And so these incentives with these fees and these commissions are just misaligned. So do your own research and kind of look at the pros and cons of annuities. The pros do not outweigh the cons in my opinion, especially those high fees. They are something where there's a lot better alternatives out there, in my opinion. And you want flexibility in your finances. You want to be able to have that flexibility in your finances. If the market goes down 50% and you're invested, for example, in the S&P 500,

unless the entire S&P 500 tanks, we got way bigger problems than would be just that portfolio specifically because it's the 500 largest stocks in the U.S. stock market. And even if it goes down 50%, like the Great Recession, for example, we are long-term investors here. And so if we are buying and holding for the long term, this is something that we will be able to weather out the storm. So I am so glad you sent in this question. This is a fantastic question. I hope this is helping you in some way, shape, or form. I just don't love annuities because the massive amount of fees, the confusion and the fear-based selling. I hate the fear-based selling. I hate fear-mongering. Instead, I want to educate people so that they feel empowered with their money. So they have hope with their

money. And they understand that those dollars can do some amazing things. Even small amounts of money over time can grow to very large amounts of money. And I want everybody to learn how to do this, which is why we try to teach you how to invest to find wolves and sheep's clothing that are going to try to sell you things that you do not need. It's really important to be able to recognize this stuff. And so this is a awesome, awesome question. A lot of people will send in stuff on annuities. It's not something I'm interested in whatsoever. Thank you so much for sending it in.

Let's jump to the next question. All right, the next question is, I know you're super against having an AUM advisor, and I've been contemplating managing my own retirement account, but I'm honestly scared at managing this amount of money. I think what makes me uncomfortable managing my IRA alone is my lack of financial knowledge experience and the amount of money in the account.

Do I just put it all in low-cost, ETS and index funds through Chase, I have some joint and individual Fidelity brokerage accounts where I manage the money, simply purchasing a few low-cost, ETF and index funds like V-O-O-O-O-G, V-T,I, etc. But it only has about $21,000 in there. My husband and I also have a betterment account with Robo advising that we plot money into every paycheck. But that's totally hands-off. Fantastic. Should I break up with my financial advisor and manage my IRA alone? How? I don't even know the steps. All right. So this is a really good question. And this is a really good question. And this is, something I think a lot of people are struggling with. We have an episode, by the way, on how to break

up with your financial advisor coming out soon based on a question that we had another listener send in. And I thought it was a great idea to kind of go through that entire process on how I would do that. But I'm going to give you some of the steps on how to get comfortable with investing. And DIY investing is not something that's just naturally comfortable for people. And so this is something that we definitely need to talk through a little bit. One is you nailed it. The reason why most people are uncomfortable with DIY investing is they don't have that full financial education yet. Now, you are working through this, which is absolutely amazing the

work that you're already putting in. And I think this is something that is really, really cool to see people that really want to learn more and understand this stuff. And so getting comfortable with investing really starts at the financial education. Now, what do I mean by that? So, for example, when I first started investing, the market would fluctuate. And when the market fluctuated, I would have these emotional reactions to the market fluctuating, meaning that when the market would go down, I would panic and be like, oh, I'm losing all of this money right now. What am I supposed to do? I don't know how to handle this. And I was a teenager at the time, but I would feel these emotions when the market would go down. When the market would go up, I'd be like,

oh, I'm winning right now. Look how amazing this is the market went up. Fast forward to now, which is 36-year-old Andrew. I'm sitting there, and if the market has a fluctuation, I could care less. I literally feel zero emotion anymore when the market has even massive swings. We had a massive swing over the course of the summer previously, and everybody was panicking. And at the time, I was getting all these messages. I was in Spain for a wedding, and I was getting all of these different messages from people, and they were saying to me, what do I do? What do I do with my money?

The market dipped 20% in the last couple of days. And I literally could not feel anything. And I was losing, if you looked at my portfolio and you opened up my portfolio app, I was losing tens of thousands of dollars in that one single day. But I felt nothing. Why? because I have a financial education and I understand how markets work now. The market is going to go up and the market is going to go down and there's going to be volatility. There's going to be days,

weeks, months, and years where the market goes down. And that's just part of investing. But if you pull out your stock market app and look at that stock chart and you put it as far of a time horizon as you possibly can on that stock market app, what direction does that chart goes if you pull up something like an S&P 500 index fund? It goes in one direction. It goes up into the right. And when we remind ourselves of this, our emotions start to dwindle more and more. And so one thing I would recommend is really focusing your time and energy on your financial education. One book I would start with right now is the simple path to wealth. I think it is the best book for people who are starting their financial journey is it's just the easiest path to get there. It is really a very

simple path on how to get your money right really quickly. Literally, you could take everything in that for that book and do nothing else and you'd be completely fine. But I would start on that personal finance journey by first starting to read personal finance book. If you just read five personal finance books, just five, you will be way farther ahead than most people. You want five right now here. I'll give you five. The simple path to wealth. I will teach you to be rich by Ramit Seity. The millionaire next door, which is going to teach you how to behave with money. That's three. Get Good With Money by Tiffany Aliche. That is four. She gives you 10 steps on how to become financially whole. And then number five is Nick Majuli's book. Just Keep Buying. All five of those are

really good. And I would suggest you go through some of those first. So your education is really, really huge. Also, listening to podcasts, taking finance courses, if you really want to fast track there, if you're not a reader, then taking courses is a great way to do it. And podcasts are another great way to think through this to build that foundation of knowledge. The foundation of knowledge is what removes the emotions from the equations. Emotions are not good for DIY investors. So if you can remove those emotions from the equations, I'm talking about FOMO, I'm talking about stressed out when the market goes down. I'm talking about getting way too excited when the market goes up. you want to be even keel as much as you possibly can. Now, all of us have different personality

and characteristic traits, so we're going to act differently in various scenarios. But we just want to make sure we have that foundation so that we understand what's going on when the market has shifts. Two, is to start to build some confidence. So for those of you out there who have not open a brokerage account, I know that you have and you have $21,000 in there. But for those of you who have not opened a brokerage account, just get started with small amounts of money and just invest those dollars over time and get comfortable with this situation. In your scenario, you've already started. And so I would continue to get comfortable with that situation and investing your dollars so that you can see, hey, this really isn't that bad. I don't have to fear this. Instead, as my financial education continues to develop, I can start to make decisions based on what my personal finance plan is. And from there, then we can go above and beyond and start to really make some massive impacts on our money. And if you build a callous on how to handle market dips and understand that that's part of the process, you'll be able to go way far. ahead than most people. So in the short term, while you're building your financial education,

here's kind of what I recommend is build that financial education and keep the large amount of money that you have where it is for the short term while you're building your financial education. Then start investing your smaller amounts into some of your other brokerage accounts. Now, you mentioned Chase was the place that you were investing some of your dollars. I would not invest it with Chase. I would go with either, you know, a Vanguard, a fidelity. Chase has higher fees and there's just other things going on there that I really don't love and I love their investment options in a lot of scenarios. And so instead, I would go with a Vanguard, a Fidelity, Charles Schwab.

Any of those are great. Pick one and you can go with it. And continue to invest your dollars over time and grow those dollars over time. Now, you have an advisor fee that you mentioned that was 0.89%. And because of that 0.89% advisor fee, I'm just going to give you the impact of that over time. So if you had a $500,000 portfolio and it was growing at an average annual return of 7%. Without the advisor fee, your portfolio would grow up. to approximately $1.9 million in 30 years. Okay. With the advisor fee, your portfolio would grow to

about $1.5 million, meaning that advisor fee over the course of those 30 years cost you $400,000 with a 7% rate of return. You don't want to know what it is at a 10% rate of return. It's close to a million. And this is why managing your own money can be really powerful to reduce those fees. But I'm not saying to not have an advisor in your life. Instead, you can get a certified financial planner to put a financial plan together for you for a one-time fee and you're going to save a lot more. Again, a financial planner is between $2,000 to $8,000,000 bucks depending on who you go to and where you live and all that kind of stuff. $2,000 to $8,000 is a lot cheaper than $400,000. And so that is one thing that I would kind of compare and think through that. So anybody out there who

have what they think is seemingly small fees, it's really important to take it one step at a time, invest in your financial education, build confidence to manage your money on your own. It is a skill that can save you hundreds of thousands, if not millions of dollars, if you learn this skill. And so it's a really, really important and powerful skill. So thank you so much for sending that question in. I think it's absolutely amazing that you're thinking through this. And work on that financial education. Let me know if you have any questions on other recommendations for books or anything like that. Shoot me an email and I'll help you out anyway. I can. And thank you so much for sending in the question. Over the course of the last year, there have been a significant

amount of data breaches, and I've seen those data breaches increasing more and more and more. And what happens in a lot of these scenarios is if you get some of your data stolen, you are compromised and your information can be taken from other places. And when the wrong information gets into the wrong hands, all that person has to do is some additional research to be able to find the rest of your personal information. And that's the last thing we want for you here at the personal finance podcast. We talk about privacy all the time because we do not want you. you to get your financial information stolen. This can set you back years and years with your finances. So we want you to protect your financial information. So one of the best things that you can do

is remove your financial information online. And the best service I've ever seen to do this is delete me. Delete me, remove my personal information online. They removed it from thousands of different data brokers. And if you don't know, data brokers have your personal information out there on the internet for anybody to go search and find. And people can go buy your information from data brokers as well, and there's really not enough regulation around some of these data brokers. And so, Delete Me will remove your personal information from these data brokers, which is a really time-consuming thing. And for me, they made it so incredibly easy. So I highly, highly recommend DeleteMe for anyone who wants to protect their information online. If you go to JoinDleatMe.com

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Now the last question is about managing your old 401k. And it goes, my wife is about to quit her job and go back to school full time. She has a little under $100,000 in her employee 401k. And we are still deciding what to do with the money. Should we? One, leave the money. and her 401k with a job she's about to quit and transfer it to her future employer 401K. Two, roll over into an IRA.

Three, roll it over into a Roth IRA. So this is a fantastic question. We've talked about in the past. We actually have an entire episode on this. And I'm going to give you kind of the quick synopsis. And I can also link up that episode down below so you can check it out. But what I would do is kind of look through the different scenarios. One is if you go to the future employers 401K, you have to like the investment options

of that future employer for this to be worth it. And this is not something where like if you combine your money together, it is going to grow faster. That's not how compound interest works. So you don't have to worry about making sure all the money stays in one location. But one, if you're going to go to the future employer, you got to make sure that you like those investment options. A lot of times some 401Ks out there are just crappy.

And it's unfortunate and they have really high fees. And it's structured in a way that you may not want to actually transfer all of those dollars over to the future employer. Two is you can roll over the IRA into a, a rollover IRA. You won't pay taxes or anything on that. It's a very simple process. And you can roll it right over like mine, for example, I rolled into Vanguard. And so Vanguard has my rollover IRA, and you can leave those dollars there. And then three, you could roll it over into a Roth IRA, but you're going to pay taxes on that money when you roll it over into a Roth IRA. And if you're

trying to keep your current tax rate low, that may not be the best option either. So me, always my favorite one to go with is the rollover IRA. It depends on your tax situation. And I would ask the CPA there. But I went with the rollover IRA. It is my favorite way to do it because it allows you to have flexibility and you can invest in what you actually want to invest in. So I love Vanguard funds. So I rolled into the Vanguard roll over IRA and then I invest in Vanguard index funds there. And I had more flexibility. I was able to grow my portfolio faster because of that and it's really, really easy. Now, if you want help with this, there's a company called Capitalize. The URL for it is highcapitalize.com. And if you go to highcapitalize.com, they'll actually do this for you for free.

And the way they get paid is on the back end. Once you roll it over, I think the broker just pay them. But they will actually do this for free. And I have people that I have recommended this to that said it was extremely easy to go through this process. So highcapitalized.com is another great place to go if you want to roll it over. So I love the rollover IRA. It is my favorite way to go. But if you have any other questions on that, please let me know.

And thank you everyone for listening to this podcast. I cannot thank you guys enough for listening this week. And thank you for investing in yourself because it's exactly what you do when you listen to this show. Our goal is to bring you as much value as we possibly can. I hope we did that for you today. It is my goal to serve you. If you guys have any questions, please join the MasterMoney Newsletter by just going to

mastermoney.com slash newsletter and you can join there. And leave that five-star rating and review. Share the episode with a friend if you can, if you want to help out the show. And I cannot thank you guys enough for being here today. And this episode is actually releasing on Christmas Day. So to everybody out there who celebrates, Merry Christmas. And thank you so much for being here. I'll see you on the next episode.

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